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Operator: Good afternoon, and welcome to the F5 Fourth Quarter Fiscal 2025 Financial Results Conference Call. [Operator Instructions] Also, today's conference is being recorded. If anyone has any objections, please disconnect at this time. I'll now turn the call over to Ms. Suzanne DuLong. Ma'am, you may begin. Suzanne DuLong: Hello, and welcome. I'm Suzanne DuLong, F5's Vice President of Investor Relations. We're here with you today to discuss our fourth quarter and fiscal year 2025 financial results. François Locoh-Donou, F5's President and CEO; and Cooper Werner, F5's Executive Vice President and CFO, will be making prepared remarks on today's call. Other members of the F5 executive team are also here to answer questions during the Q&A session. Today's press release is available on our website at f5.com where an archived version of today's audio will be available through January 27, 2026. We will post the slide deck accompanying today's webcast to our IR site following this call. To access the replay of today's webcast by phone, dial (877) 660-6853 or (201) 612-7415 and use meeting ID 13756255. The telephonic replay will be available through midnight Pacific Time, October 28, 2025. For additional information or follow-up questions, please reach out to me directly at s.dulong@f5.com. Our discussion today will contain forward-looking statements which include words such as believe, anticipate, expect and target. These forward-looking statements involve uncertainties and risks that may cause our actual results to differ materially from those expressed or implied by these statements. We have summarized factors that may affect our results in the press release announcing our financial results and in detail in our SEC filings. In addition, we will reference non-GAAP metrics during today's discussion. Please see our full GAAP to non-GAAP reconciliation in today's press release and in the appendix of our earnings slide deck. Please note that F5 has no duty to update any information presented in this call. I'll now turn the call over to François. François Locoh-Donou: Thank you, Suzanne, and hello, everyone. We delivered exceptional fiscal year 2025 results exceeding $3 billion in revenue and $1 billion in operating profit for the first time. Revenue grew 10% while earnings per share grew 18%. Our growth was driven by data center reinvestment, hybrid cloud adoption and enterprise AI infrastructure demand. Our product refresh cycle, competitive takeouts and the maturation of our software model and go-to-market motions also contributed to growth. In FY '25, we maintained our strong profitability, delivering gross margins of 83.6%, up 80 basis points over FY '24, an operating margin of 35.2%, up 160 basis points over FY '24. This performance resulted in record free cash flow of $906 million, up 19% compared to FY '24 underscoring the strength of our financial model and execution. Our FY '25 results demonstrate the power of our platform and our strategic role in the marketplace. They also strengthen our confidence in our vision and road map for the future. Our immediate focus, however, has been on our incident response and I will speak to our priorities and offer an update on where we are now. Upon identifying the threat on August 9, our team immediately activated our incident response process. Our priorities were clear. First, contain the threat actor, initiate a thorough investigation and take immediate and urgent action to strengthen F5's security posture. While the investigation will continue and the work of bolstering our security posture will expand, our initial steps have been successful. Second, we prioritized delivering reliable software releases to address all undisclosed high vulnerabilities in BIG-IP code as quickly as possible. Through the exceptional efforts of our engineering and support teams, we achieved this, enabling thousands of customers to promptly deploy critical updates upon disclosure. Our customers are moving quickly to update their BIG-IP environment, and a significant number of our largest customers have completed their updates with minimal disruption. As an example, a North American technology provider completed updates to 814 devices in a 6-hour window in the first weekend. Customers have expressed appreciation for our transparency, the thoroughness of the information we provided and the clarity in the steps they need to take to improve the security of their environment. Our third priority is raising the bar on security across all aspects of our business. We are acutely aware of the increasing sophistication of attackers and the fact that the threat surface is expanding rapidly. Each year, over the last several years, we have aggressively increased our investment in security, and we are making further significant investment this year and beyond. To further this work, Michael Montoya, a recognized cybersecurity expert and former member of our Board, has joined F5 as Chief Technology Operations Officer. Michael brings deep operational expertise and will drive the execution of a robust road map to further enhance security across our internal processes, environments and products. Our goal across all these actions is to better protect our customers and we believe F5 will be a stronger partner to customers because of it. We know customers will judge us by how we respond to this incident. Throughout this process, we have been committed to transparent customer communication at every step, reflecting lessons learned from how others have navigated similar challenges. We acknowledge that we may see some near-term impact to our business. We are fully focused on mitigating that impact while doubling down on the value we deliver to our customers. Stepping back, it is evident that advanced nation-state threat actors are targeting technology companies and most recently perimeter security companies. We are committed to learning from this incident, sharing our insights with customers and peers, and driving collaborative innovation to collectively strengthen the protection of critical infrastructure across the industry. Now I will turn the call over to Cooper, who will walk you through our Q4 results and our outlook. Following his remarks, I will return to discuss the broader business trends and some key customer highlights. Cooper? Cooper Werner: Thank you, François, and hello, everyone. I will review our Q4 results and some selected full fiscal '25 results before I elaborate on our outlook for FY '26 and Q1. We delivered a strong Q4 growing revenue 8% to $810 million with a mix of 49% global services revenue and 51% product revenue. Global services revenue of $396 million grew 2% year-over-year while product revenue totaled $414 million, increasing 16% year-over-year. Systems revenue totaled $186 million, up 42% over Q4 of FY '24, driven by tech refresh and data center modernization, direct and indirect AI use cases as well as competitive takeouts. Our software revenue of $229 million was up slightly against an exceptionally strong Q4 of FY '24. Perpetual license software totaled $30 million, up 25% year-over-year. Subscription-based software declined 3% year-over-year to $198 million, reflecting the transition of our legacy SaaS and managed service revenue offerings and to a lesser extent customers' preference for hardware-based solutions for certain use cases, a trend which emerged over the course of FY '25. Revenue from recurring sources contributed 72% of our Q4 revenue. Our recurring revenue consists of our subscription-based revenue and the maintenance portion of our global services revenue. Shifting to revenue distribution by region. Our teams drove growth across all theaters. Revenue from the Americas grew 7% year-over-year, representing 57% of total revenue. EMEA delivered 7% growth, representing 26% of revenue and APAC grew 19%, representing 17% of revenue. Looking at our major verticals. Enterprise customers represented 73% of Q4's product bookings. Government customers represented 19% of product bookings including 6% from U.S. Federal. Finally, service providers represented 8% of Q4 product bookings. Our continued financial discipline contributed to our strong Q4 operating results. GAAP gross margin was 82.2%. Non-GAAP gross margin was 84.3%, an increase of 138 basis points from Q4 FY '24. Our GAAP operating expenses were $461 million. Our non-GAAP operating expenses were $384 million. Our GAAP operating margin was 25.4%. Our non-GAAP operating margin was 37.0%, an improvement of 255 basis points year-over-year. Our GAAP effective tax rate for the quarter was 11.4%. Our non-GAAP effective tax rate was 16.9%. Our GAAP net income for the quarter was $190 million or $3.26 per share. Our non-GAAP net income was $257 million or $4.39 per share, reflecting 20% EPS growth from the year-ago period. I will now turn to cash flow and balance sheet metrics, all of which were very strong. We generated $208 million in cash flow from operations in Q4. CapEx was $16 million. DSO for the quarter was 46 days. Cash and investments totaled approximately $1.36 billion at quarter end. Deferred revenue was $2.0 billion, up 11% from the year-ago period. We generated $906 million in free cash flow for all of FY '25, up 19% from FY '24, resulting in a free cash flow margin of 29%, highlighting the strength of our business fundamentals. In Q4, we repurchased $125 million worth of F5 shares at an average price of $297 per share. For the year, we repurchased shares equivalent to 55% of our annual free cash flow. We ended the quarter with approximately 6,580 employees. François recapped our high-level FY '25 results at the start of the call. I will elaborate on our annual software and security revenue results. Software grew 9% year-over-year totaling $803 million, with software subscriptions representing 85% of FY '25 software revenue. Our software revenue is comprised of perpetual software licenses, term-based subscriptions and SaaS and managed services. Perpetual software licenses contributed $120 million in software revenue, up 7% year-over-year. Term-based subscriptions contributed $508 million to our software revenue, up 18% year-over-year, driven by continued strong renewals and expansions. SaaS and managed services contributed $176 million in revenue, down 9% year-over-year, reflecting growth from F5 Distributed Cloud Services offset by the transition of our legacy offerings. Total annualized recurring revenue for our SaaS and managed services offerings ended the year at $185 million, up slightly from FY '24, including 21% growth in ARR for our core SaaS and managed services solutions. ARR from legacy offerings declined to $15 million as we wound down legacy SaaS and managed service offerings and transitioned customers to F5 Distributed Cloud Services. We expect to complete any remaining transitions in the first half of FY '26. Several years ago, we began breaking out our security-related revenue annually. This year, our total security revenue, which includes standalone security, attached security and maintenance revenue related to security, grew 6% to approximately $1.2 billion, or 39% of total revenue. Standalone security revenue totaled $463 million, representing 31% of product revenue. Let me now address our outlook beginning with FY '26. Unless otherwise noted, our guidance references non-GAAP metrics. We delivered an exceptional FY '25 exceeding expectations with stronger-than-expected systems demand and continued healthy expansion in our software subscription business. As we enter FY '26, we see several persistent demand drivers, including hybrid multicloud adoption driving expansion across our platform, the continuing strong systems refresh opportunity with more than half of our installed base on legacy systems nearing end of software support, growing systems demand beyond tech refresh for data sovereignty and AI readiness use cases and a return to growth in revenue from our SaaS and managed services with the transition of legacy offerings largely completed in FY '25. These drivers in our current pipeline support mid-single-digit revenue growth in FY '26 against our exceptional 10% growth in FY '25. However, we also anticipate some near-term disruption to sales cycles as customers focus on assessing and remediating their environments. Taking this into account, we are guiding FY '26 revenue growth in the range of 0% to 4% with any demand impacts expected to be more pronounced in the first half, before normalizing in the second half. Moving to our operating model. We recognize the revenue guide may lead to a modest impact to our operating margin near term. We are committed to driving continued operating margin leverage and believe any demand impact is likely to be short term and therefore any effect on our operating model would also be temporary. With that context, we estimate FY '26 gross margin in a range of 83% to 83.5%. We estimate FY '26 non-GAAP operating margin to be in the range of 33.5% to 34.5% with operating margins lowest in our fiscal Q2 due to payroll tax resets in January and costs associated with our large customer event in March. We expect our FY '26 non-GAAP effective tax rate will be in a range of 21% to 22%. And we expect FY '26 EPS in a range of $14.50 to $15.50. Finally, we intend to continue to use at least 50% of our free cash flow towards share repurchases in FY '26. Turning to our Q1 outlook. We expect Q1 revenue in a range of $730 million to $780 million. This is the wider range than we would typically guide, reflecting the potential for some near-term disruption to sales cycles. While we are not guiding revenue mix, we expect Q1 software to be down year-over-year given the strong growth in the year-ago period. We expect non-GAAP gross margin in a range of 82.5% to 83.5%. We estimate Q1 non-GAAP operating expenses of $360 million to $376 million. We expect Q1 share-based compensation expense of approximately $61 million to $63 million. We anticipate Q1 non-GAAP EPS in a range of $3.35 to $3.85 per share. I will now pass the call back to François. François Locoh-Donou: Thank you, Cooper. Our immediate priority remains supporting customers as they evaluate and safeguard their environments. As we help our customers navigate this period, market dynamics are moving in a direction where F5 solutions are more essential than ever. The accelerated adoption of hybrid multicloud architectures and AI-driven infrastructure is driving demand for advanced application delivery and security solutions, areas where F5 is uniquely positioned to address our customers most complex challenges. The industry has platforms for endpoints, network access and for cloud workloads, but the F5 application delivery and security platform is the first to unify high-performance traffic management with advanced application and API security across hybrid and multicloud environments at scale. Unlike fragmented point solutions, the ADSP is purpose-built to simplify hybrid multicloud complexity. It integrates security, scalability and operational efficiency while enabling valuable XOps capabilities like policy management, analytics and automation. By the end of Q4, nearly 900 customers were leveraging F5 XOps capabilities, up from just 20 in 2024. Innovations like our AI Assistant and Application Study Tool have been instrumental in driving this growth, which underscores the power and potential of the ADSP. Over the last several years, we also have been evolving our go-to-market strategy focusing on landing, adoption, expansion and renewals within our solutions portfolio. This approach has delivered results. 26% of our top 1,000 customers are now using F5 Distributed Cloud Services, up from 17% in 2024. By delivering integrated solutions and accelerating customer outcomes, F5 is uniquely positioned to lead in a rapidly growing and dynamic market. I will speak to a few customer highlights from Q4 that demonstrate the power and the benefit of our holistic platform approach. An APAC-based bank is driving secure and scalable digital transformation with F5's comprehensive application delivery and security solutions. Leveraging F5 BIG-IP, NGINX and Distributed Cloud Services, the bank is modernizing its critical infrastructure to enable 24/7 internet banking and mobile application access while meeting strict regulatory requirements for service resilience and disaster recovery. F5 ensures business continuity and robust security, protecting against DDoS attacks and API vulnerabilities. By enabling seamless migration to containerized applications, F5 is positioning the bank for hybrid multicloud success. The leading North American investment manager partnered with F5 to modernize its infrastructure, enhance resilience and ensure uninterrupted operations. By migrating from legacy iSeries platforms to BIG-IP rSeries ahead of end of software support dates, the customer avoided compliance risks and ensured seamless operational continuity. The customer also deployed F5 for secondary DNS services to reduce reliance on a single provider and deliver critical redundancy to prevent outages. F5's lightweight platforms and cloud solutions help the customer optimize performance within existing budgets. Finally, a major energy and gas company partnered with F5 to modernize its critical infrastructure and drive its cloud migration while ensuring seamless security across hybrid and multicloud environments. F5's BIG-IP and Distributed Cloud Services extend application delivery, security and identity management into hybrid multicloud environments, ensuring seamless operations and operational continuity. The customer is also leveraging F5's Advanced WAF to strengthen the protection of revenue-generating B2B applications and business critical platforms. With F5, the customer simplified operations, achieved cost savings and accelerated the modernization efforts. These examples highlight the strong impact F5's ADSP approach is having for our customers. While we continue to work toward realizing the platform's full potential, we are confident that our commitment to innovation will drive even more value and outcomes for our customers. Before closing, I will highlight the traction we are building in AI use cases. We are seeing clear evidence that AI-related demand is contributing to our growth. AI is prompting a wave of data center refreshes as enterprises prepare for increased network capacity and services to support AI workloads, agentic AI and inferencing demands. Beyond benefiting from broader AI-driven trends, F5 is directly powering key AI use cases. In FY '25, we secured AI use case wins with more than 30 customers who are leveraging F5 to enable seamless, scalable and secure AI workflows. These wins represent net new insertion points and growth opportunities built on decades of expertise. Today, we are actively supporting 3 critical AI use cases. Number one, AI data delivery. F5 secures and accelerates high-throughput data ingestion for AI training and inferencing, enforcing policies and protecting sensitive data while eliminating bottlenecks. Number two, AI runtime security. F5 safeguards AI applications, APIs and models from abuse, data leakage and attacks like prompt injection, ensuring visibility and control. And number three, AI factory load balancing. F5 optimizes traffic and GPU utilization in AI factories to increase token throughput, reduce time to first token and lower cost per token. In Q4, we secured several new AI wins across these use cases. In an AI data delivery use case, an asset manager in EMEA partnered with F5 to overcome challenges in managing their AI workloads and ensuring reliable data performance. Their existing server could not handle high levels of demand causing outages that disrupted operations. F5 provided a customized solution with advanced technology to improve systems reliability, efficiently manage data traffic and seamlessly work with their existing infrastructure. The Government Ministry in EMEA chose F5 to secure and scale AI security runtime operations for its AI-driven weather prediction platform. Expanding on a prior AI data delivery project, the Ministry required a comprehensive solution to ensure real-time access to AI-driven data with robust security for sensitive operations. F5 delivered a comprehensive solution suite, including AWAF for application security, SSLO for traffic inspection, APM for access control and LTM for reliable data delivery. With F5, the Ministry transitioned from manual inefficient forecasting to a secure real-time AI-powered platform improving performance, accuracy and operational efficiency. In an AI factory load balancing use case, a North American service provider specializing in providing high-performance computing solutions for AI and machine learning workloads, needed a high-performance solution to manage and scale AI workloads. They required enhanced scalability, reliability and accessibility for GPU-driven workloads as well as a proxy for container functions to optimize AI data pipeline performance. F5 provided an integrated solution featuring container ingress services with BIG-IP virtual editions delivering a critical control layer for performance, scalability and reliability across AI data pipelines. F5's ease of installation and ability to address the customer's specific needs set it apart from competing open-source alternatives. In Q4, we've strengthened our AI runtime security capabilities with the acquisition of CalypsoAI. Their cutting-edge technology enhances our offerings with real-time threat defense and red teaming at scale, addressing critical needs for enterprises deploying generative and agentic AI. We are integrating these capabilities into our ADSP, creating the most comprehensive solution for securing AI inference. In fact, we launched 2 new offerings in Q4 leveraging Calypso's technology. F5 AI Guardrails establishes and monitors how AI models and agents interact with users and data while defending against attackers. And F5 AI Red Team identifies threats and informs exactly where and how urgently guardrails should be implemented. Wasting no time, our team secured wins for these offerings with a top-tier investment bank and a global AI compute platform leader. Collectively, our Q4 successes underscore F5's growing leadership in the hybrid multicloud landscape and the real value our platform approach delivers to customers, empowering them to simplify operations, enhance security and accelerate innovation across their environments. I want to express my deepest gratitude to our customers and partners. Your urgency, collaboration and trust through every step of our incident response have been invaluable. We are truly honored to work alongside you and remain steadfast in our commitment to earn your confidence every single day. I also want to extend my heartfelt thanks to all F5ers who came together with incredible focus and dedication to drive a strong and effective response. Looking ahead, we are resolute in our commitment to emerge stronger from this experience and to working across the security community to build a better and safer digital world. In closing, I am deeply honored by the Board's appointment as Chair effective with Al Higginson's retirement in March 2026. As a Director for nearly 30 years and Chair for 20, Al's leadership has been essential to F5's growth and transformation. He has provided outstanding stewardship and tone at the top that has shaped the F5 we are today. I am humbled by the Board's trust and confidence in me to help lead F5 through its next chapter. I look forward to working alongside this talented management team and the Board to continue F5's trajectory of creating long-term value for shareholders. Operator, please open the call to questions. Operator: [Operator Instructions] Our first question comes from the line of Meta Marshall with Morgan Stanley. Meta Marshall: Can you hear me? Suzanne DuLong: We can. Meta Marshall: Sorry, there was music for a second. Just a question in terms of what form of kind of conservatism have you put into the estimates? I guess I'm just trying to get a sense of are you accommodating customers through discounting? Is this you're pushing off -- maybe people are pushing off purchasing decisions while they're handling kind of servicing or upgrading incidents? Or are you having to give other incentives to kind of upgrade boxes? Just trying to get a sense of kind of what form that kind of customer conservatism is taking? And then maybe just a second question. Just as you think about kind of the underlying growth of the systems business, like any way to contextualize how much of fiscal '25 growth was kind of due to the product upgrade cycle that was happening? François Locoh-Donou: It's François. Let me start with the first part of your question. I think Cooper will take the second question. Let me just start from -- you saw that we delivered a very strong quarter and, in fact, a very strong fiscal 2025. And the momentum in the business has been very, very strong. And that is driven increasingly by the secular trends that we've talked about, specifically hybrid multicloud and AI, and I can come back to that a little bit later. Based on these trends, we felt the trajectory of the business going into 2026 was more in the mid-single-digit growth. But we said we are guiding to 0% to 4% growth for 2026 based on what we see as potential near-term impact related to the security incident. And when I say near-term impact, we think we would see probably the majority of the impact in the first half of the year with trends kind of normalizing in the second half of the year. So let's double click on this near-term impact for your question. What we have in there, Meta, is really 3 categories of things that could create near-term disruption. The first is that we have our own resources, our field resources and sales resources over the last few couple of weeks, and I think that will go on for a few more weeks, have really been focused on attending customers, helping them upgrade their environments, remediate issues, answer any questions, et cetera. And inevitably that takes time away from normal sales cycles. And the same is true for customers who are putting a lot of resources on upgrading their BIG-IPs, ensuring their environment is in the right place and that takes time away from considering the next project. So that is a short-term disruption around allocation of resources both at F5 and with our customers. There's a second potential disruption that we have considered in our guidance which is that given the visibility that this security incident has had, it would be natural that in some of our customers at an executive level, we may see some delays of approvals or delays of deals or additional approval as customers across a complex organization make sure that they want to be reassured that their project should move forward and they have no further interrogation around that. That's the second consideration. And then the third one is that potentially for some of our customers there may be some projects that they were going to move forward with, and they end up deciding not to do that. And we have considered that as a third potential impact. Now, I want to be clear, the -- everything I've just talked about, as you know, Meta, more than 70% of our revenues are recurring. Everything I've just talked about with the impact that would be mostly with new projects or new footprint acquisition. And so far, it is very early days because this was disclosed only 2 weeks ago. We haven't seen any of the impacts that I'm talking about, but we are very prudent about this because we are very, very early after the disclosure and the interaction with customers. Cooper? Cooper Werner: Thanks. Yes. And then in terms of the systems business, we're seeing strength in both the product or tech refresh and capacity expansion. The growth has been pretty balanced actually across both. Roughly 2/3 of our systems business in FY '25 was tech refresh, with about 1/3 coming from what we call data center, increasing capacity, data sovereignty, use cases. A lot of it is really driven by AI that can be both direct and indirect. So it's just been a trend that we continue to see over the course of the year where we're seeing growth for both the refresh motion as well as some of these newer use cases. And then on the refresh motion, I would also note that I think we're still relatively early days on that refresh cycle with more than half of our installed base currently still on the legacy product families that would be going into software support. Operator: Our next question comes from the line of George Notter with Wolfe Research. George Notter: Just continuing on that line of discussion, I guess I'm curious about how you actually size the potential impact from the security breach. I would imagine it's probably a complex exercise, but I'm curious if you could just kind of walk us through like the logic here. And then maybe related to that, can you give us a sense for how many customers were affected where there was configuration information taken or are there specific customer issues that you can point to? Cooper Werner: Yes. Sure, George. This is Cooper. I'll take the first part, and then François can address the second question. So François kind of touched at it a little bit at a high level when he kind of referenced the percentage of our business that is recurring in nature. But as we went through this process, we really took a fairly granular approach at kind of profiling our revenue base across all the different revenue streams and kind of taking a look at which of these revenue streams could be more impacted and which ones would be more resilient in the near term. So if you think about our revenue base, a lot of the revenue that we recognize comes straight off the balance sheet. So our service revenue -- that maintenance revenue is mostly coming off of deferred revenue. We've got our -- this is, for example, our SaaS revenue is coming out of beginning ARR and then we've got a lot of our software businesses coming through in the form of subscription renewals. So those are revenue streams that are highly resilient, and we wouldn't expect to have much of a near-term impact. And then if you look at kind of newer use cases, whether that's competitive takeout or new software projects, that's where there potentially could be more of a near-term impact. And so we kind of looked at these different cohorts of our revenue base and just kind of made a judgment as to what the potential impact could be in the near term as customers are kind of going through some of their operational activities around the incident. And then we also kind of balance that just looking at other peers historically that have gone through similar incidents and what revenue impacts they saw. And then, of course, we've spent a lot of time with our sales teams, just kind of assessing at the outset what their view was as to what impact, if any, they might see and then continuing those conversations as they've engaged with their customers in the field. And I think we're very encouraged by some of the early feedback we've gotten from those conversations. They've been very healthy discussions with customers in helping them kind of address some of these early concerns. And I think we're feeling pretty good about our relationship and how those interactions are going with our customers. François Locoh-Donou: And I'll take the second part of your question, George, on customer impact. First of all, I do want to take this opportunity to say that, of course, we are disappointed that this happened and very aware as a team and as a company of the burden that this has placed in our customers who have had to work long hours to upgrade their BIG-IPs and secure their environment. And we're continuing to work with all of our customers in ensuring that they are in the place they want to be. With that said, the customers who were impacted, so we shared that there was no evidence of access to F5 Distributed Cloud Services environment or NGINX environmental. So it was essentially BIG-IP customers that were impacted. There were really 2 categories of impact. All of our BIG-IP customers, we recommended strongly to all of them that they upgrade their BIG-IP to the latest releases that we worked very hard to make available on the day of disclosure. And we were very impressed frankly, with the speed with which our customers have mobilized resources to be able to make these upgrades and put them in production fairly rapidly. So the impact really on them was having to mobilize resources to do that work shortly after our disclosure. And we are actually pleased that a lot of customers are through that work. It will continue, but we're very pleased to see the speed with which customers have upgraded their BIG-IP. The second category of impact was related to data exfiltration. That impacted a small percentage of our customers for -- and we will continue to go through the sort of e-discovery process around what specific data with the customer -- but from the first body of work that we have done on that, we have already identified the customers that were impacted and we have sent them their information, their data package for the data that might have been exfiltrated. And the most common feedback from customers so far has been that, that data is not sensitive, and they're not concerned about it. There was no impact to our CRM or our support system. Operator: Our next question comes from the line of Michael Ng with Goldman Sachs. Michael Ng: I just have two. First, just on OpEx, it seems like the implied OpEx growth for fiscal '26 is about 4% at the midpoint. Just wondering if you're seeing any additional costs as a result of the data breach, other investments in systems internally or costs related to offering free Falcon EDR subscription to affected customers. And then second, certainly encouraging to hear that it was just BIG-IP that was impacted, not NGINX or DCS. Could you just tell us what percentage of the revenue comes from BIG-IP? Cooper Werner: Yes. So I'll start with the latter. We don't break out our product by revenue line. We're a single-segment company, but it's -- BIG-IP is the highest revenue product, of course, but we don't actually break out what the contribution is. And then in terms of investment security and the OpEx, so yes, we actually have been investing aggressively in secured -- cybersecurity over the last several years. We've more than doubled our investment in cybersecurity just in the last 3 years alone. And we had already accounted for continued investment in our planning for this year even before we learned of this incident. And of course, we've learned a lot in the last several weeks, and so there's some additional investments incorporated into our planning, but that was among the highest priority areas of investment in our plan going into the... Michael Ng: And any costs related to the Falcon EDR subscription? Cooper Werner: Yes. So there are a number of costs related to the incident remediation and in the offering that you're referencing as part of that, those are either going to be accounted for in our -- with our cyber insurance or they would be remediation costs that are accounted for separately as a onetime expense. Operator: Our next question comes from the line of Tal Liani with Bank of America. Tal Liani: By the way, the sound quality is bad on your end, hard to understand you. I have two sets of questions on software revenues and system revenues. On systems, if I look at the dollar revenue for this year and you started the year with $160 million, but then it accelerated to $180 million a quarter, give or take, $181 million, $186 million, but $180 million a quarter, do you think you can further grow from this level? Or is the growth rate going to decline substantially because this level reflects kind of the level of the refresh going forward, kind of steady-state refresh going forward? Or what are maybe different drivers? I'm just trying to understand if the increase from $130 million to $140 million last year to about $180 million this year, if there is further growth from this level or we stabilize at this level? And on software, I have the same question almost that if I look at the quarterly level of revenues this year and I average it out, there was a step-up in this year versus last year, but we stayed at the level of about $210 million. I mean, some quarters are below, some quarters are above, but there is kind of a straight line, and this is on the heels of refresh, of renewals. So the question is what drives software to growth from here if that's the growth we're seeing with renewals and all the -- we spoke about it previous quarters and all the accounting treatment of renewals. So bottom line is what drives software and system growth from here versus the temporary items that are impacting it right now. Cooper Werner: Okay. I will start with hardware. So I think you're right, we saw a significant growth here, of course, this year. I think that that -- you referenced the -- where hardware revenues were at in FY '24 and then that really is the kind of the starting point. That was a low watermark, we had talked about customers were in a period of sweating assets where they had not been investing in the data center and a lot of that was tied to the macro at the time in customer budgets. And what we've been seeing is a bit of a catch-up period over the last year with some of that deferred investment, and that's what's driving -- has driven a lot of the growth just in FY '25. But we are still early in the refresh cycle, so we think there is still ability to grow that business. And then as I said on an earlier question, we're also seeing kind of a new vector of growth, and this is kind of more of an emerging growth category which is in some of the data center capacity expansion that we've been seeing. And we think a lot of that is tied to AI readiness. And so that one, it's still relatively early, but that's kind of a newer growth trend that we don't think is cyclical that it could potentially have growth for years to come. And so from the refresh perspective, we believe that this year should be a strong year of refresh because of how early we are in the cycle. And then on the new -- the performance and data center capacity expansion that could continue to have growth as well. Now having said all of that, this is all kind of looking back at our view that the business was pointing to mid-single-digit growth for this year. So there's still the near-term impact that you could see related to the security incident. So we'll see how that plays out. François Locoh-Donou: And Tal, I'll take the second part of your question. So let me just be clear. We strongly believe that our software is going to continue to grow at a healthy clip and that's driven in the trends. I make that statement on the trends that we're seeing in the business. So if you look at this year, the multiyear software agreements that we have that are active, just this year, grew 20% year-on-year and we expect that to continue to grow. Our motion of the flexible consumption agreement that allow customers to consume over multiple years and consume over multiple parts of our portfolios are growing because customers are embracing these hybrid multicloud architectures more and more and need multiple form factors, including software and Software-as-a-Service. A manifestation of that is, I'll give you kind of 2 manifestations of that. One is in our SaaS adoption. We -- the number of SaaS customers this year grew almost 60%. I think they grew 57%. We have over 1,300 distributed cloud customers today, and we have a little more than 800 a year ago. So that adoption -- and that adoption is growing, including in our largest customers. So our top 1,000 customers, we're seeing that now over 26% of them are consuming F5 distributed cloud. As you know, in the SaaS part of the business we have been going through some transitions, we are largely through these transitions, and we expect the SaaS and managed services line to contribute to growth in software going forward. The second dynamic is that customers are seeing the benefits of our entire portfolio and we're seeing that in the number of customers that are consuming multiple product families on F5. If you go back 4 years ago, we had about 30% of F5 customers that were consuming multiple product families from F5 amongst our top 1000 customers. That's now up to 70%. And we're seeing the ADSP, our application delivery and security platform, the capabilities in that platform, including software capabilities, especially in our XOps capabilities, we're seeing rapidly and growing adoption around that. And so when you combine all of this, you combine what we expect to see with the growth of our flexible consumption agreements that has continued to happen. What we expect to see in SaaS adoption, which we have already seen this year and the approach we've taken with application delivery and security platform and the adoption we're seeing of that, all of these are catalysts for continued growth of the software business going forward. Tal Liani: But François, if that's the case, and I know you reduced the guidance a little bit because of the breach -- because of the cybersecurity issue, but even before that you only guided growth to 5%. So if that's the case, why don't we see a faster growth rate? Cooper Werner: Correct. So Tal, I mean we've talked about this, and François talked about this on several calls. There is a timing nature because of these 3-year cycles on the renewals. And so the subscription business that we sold in FY '23 had a lower growth rate because new projects were under pressure. This was 3 years ago. And so that's what's coming up for renewal in FY '26. And so the base with which we're starting doesn't have as much growth in FY '26 and that's what was behind what we said was a mid-single-digit growth opportunity when we talked in July. That same base has much more growth in FY '27 and we don't have the headwind related to our SaaS and managed service business because we're through the transition. So we tried to lay out that there are going to be some ups and downs in the annual growth rates tied to the timing of those renewal motions. But we've given that look ahead beyond the current year into '27 to give that visibility that we expect a reacceleration in software growth rate. The underlying trends are very healthy. François laid out several metrics to point to the underlying health of the software business and we saw that last year. If you look at our term license business, that was up 18%. We have the headwind related to SaaS where our SaaS and managed service was down 9%. But again, that's going to be behind us and so it points to a very healthy software view beyond FY '26. Operator: Our next question comes from the line of Tim Long with Barclays. Timothy Long: Two quicker ones, if I could. I just wanted to follow up, François, on Distributed Cloud Services. Part of my question was about multiproducts. I think you just answered that there. But could you talk about some of the other economics that you see as you transition to DCS, things like deal sizes, win rates, maybe when we get to it, dollar retention or add-ons on top of that, number one? And then number two, if you could just quickly touch on a few of the verticals at least on a bookings basis, we're a little out of band. Enterprise was really strong year-over-year and service provider was pretty weak, all for pretty weak numbers. So anything that's driving kind of a little bit of out-of-band performance on those 2 verticals, that'd be great. Operator: Please hold. We're experiencing some technical difficulties. François Locoh-Donou: Tim, let me start again. Can you hear me? Operator: Yes, we can hear you now. François Locoh-Donou: Okay, great. I was starting with your question, Tim, on distributed cloud, I would say this is a land-and-expand motion. So typically the deals would start rather small in the multiple kinds of case and expand after that. I'll give you a data point on that. We have 1/3 of our distributed cloud customers that have expanded their ARR with us and they've expanded -- their expansion has been 90% for those of whom who have expanded. So it can be pretty significant growth in a customer after we sign them and that will continue to grow as we add more services onto F5 distributed cloud and we're continuing to add services as part of building this application delivery and security platform. We're adding more and more of the services that customers have enjoyed on BIG-IP onto F5 distributed cloud. To the second part of your question on the verticals, the -- generally, what we're seeing is kind of the most important enterprise verticals are all embracing hybrid multicloud postures for different reasons. But in the end, it all points to F5. So financial services, for example, in a lot of cases are keeping their core banking data on-premise, but are also having to build sort of disaster recovery to comply with operational resilience regulations. And so they're leveraging public cloud for that. And anytime a customer is using both on-prem environment and public cloud environment, it creates a strong case for F5. The same is true in health care. We're seeing the same in manufacturing, in retail and even in public sector environments. So these verticals embracing hybrid multicloud really allow us to grow our share of wallet into these verticals, and that's what's driving this cross-sell of our portfolio. The service provider space, Tim, that you mentioned, it's true that generally that segment has been, I would say, rather tepid in part because 5G has not really taken off in the way that we all expected a couple of years ago. And there hasn't been a real growth driver frankly, for service providers, either in ARPU or 5G services adoption. So we have seen stability there, but not significant growth to date. Operator: Our next question comes from the line of Simon Leopold with Raymond James. Simon Leopold: A couple things I wanted to check on. One, hopefully easy is, what are you seeing in terms of U.S. federal in light of the government shutdown? Is that an aspect that's affecting the outlook for your December quarter? And the other thing I wanted to get a better sense of is you've given us some commentary around the mix of software and hardware for the December quarter, but what's baked in for software versus hardware growth in that full year 0% to 4% guidance? François Locoh-Donou: Let me start with the -- in terms of the U.S. federal government, we have, in our guidance, assumed some level of disruption in that segment of our business, especially in the first quarter with the government shutdown that clearly is having an impact on project being delayed or approval being delayed. We -- it is our hope that this normalizes over the course of the year. But certainly, in Q1, we have assumed that the numbers that we would see from the federal sector would not be what we have seen historically in that part of the business because of the government shutdown. Cooper Werner: Yes. Thanks, Simon. We're not guiding mix at this point, just given that we're 12 days since the announcement of the incident and we've done a lot of work to provide a range on the growth outlook which, as we said, we've discounted some risk of short-term disruption to demand. We expect the demand to normalize in the second half of the year and I think as we see demand start to normalize, we'll look to give an update of what software and hardware growth can look like for the rest of the year. Simon Leopold: Just maybe you could clarify because you've got BIG-IP as the appliance system business, but you have virtual editions of BIG-IP. So when you talked about the breach, you said it affected BIG-IP. Does that mean that the breach affects both software and hardware equally? François Locoh-Donou: Yes, it does. Operator: Our next question comes from the line of Samik Chatterjee with JPMorgan Chase. Samik Chatterjee: François, just curious to hear your thoughts in terms of how the market share dynamics change on account of the potential impact that you're outlining for the first half. Because I'm just wondering if sort of we should expect to see some of the spend from your customers if it does get delayed from first half to see some catch-up in the second half, particularly when it comes to potentially the systems part of your business. And I have a quick follow-up after that, sorry. François Locoh-Donou: Yes. So we cannot know if on a 1- or 2-quarter basis that's hopefully enough of a runway to see substantial change in market share. So if I speak more on an annual basis and what I expect going forward, my expectation is that we continue to gain share in the app delivery and security market. The reason I say that is relative to other players in the space, we are investing more in our road map. We have been very aggressive at investing in security, and I think through the conversations with our customers around what we are doing to secure our environment, build trust centers to allow customers to come and do penetration testing of our code. All of the work that we are doing with partners to continue to look for any vulnerabilities and secure our code, that our customers are going to continue to see that F5 is really the right partner, is 100% committed to maximum security in our products and in their environments. And that will pay in terms of over time, customers, of course, continuing to partner with F5 and where possible, consolidate spend on our application delivery and security platform in their environment. And we have a world-class road map for our customers to continue to deliver functionality in delivery and security. So I think you have to look at it over a period of time. There may be a short-term blip in the first half of our year because of the factors that I described earlier. But in terms of our market share, our market position, our relationship with customers, I think if anything, over time, it will continue to strengthen. Samik Chatterjee: Got it. Got it. And for my follow-up, I was just looking at the disclosure that you had on standalone security revenues. I think you said $463 million for this year. Looks like it's been fairly consistent for the last couple of years without material growth, like I have $458 million for fiscal '24, $475 million for the year before. Any sort of more details you can provide in terms of what you're seeing on the standalone security side and why hasn't there been more significant growth on that front? Cooper Werner: Yes, I'll take that. So our overall security business grew about 6% last year. So I think what you're seeing is this is going back to the trend that we've talked about with customers preferring to consume via the platform and consolidate multiple functions onto a single platform. And so you're seeing less -- maybe less growth coming from standalone solutions and more of a preference to consume through our flexible consumption program where they're adding additional modules and attaching more security onto existing footprint. And so that growth is really coming through more in a platform form factor. And then the other thing to consider also is just there's a little bit of an impact on the standalone security from the SaaS transition that we've done with some of the legacy offerings, which, again, that'll be kind of behind us as we look ahead. Operator: Our next question comes from the line of Amit Daryanani with Evercore ISI. Amit Daryanani: I have two as well. I guess, Cooper, maybe just to start with you, can you just walk through the operating margin for the year? I think you're implying 34% margins for fiscal '26, but it's also the same, I think, for fiscal Q1. So I'd love to just get a sense on why aren't we seeing leverage in the back half of the year versus the front half. And then if you just quantify what the OpEx uptick in the March quarter will be for some of the events you talked about, that would be helpful. Cooper Werner: Yes. And we talked -- I had in my prepared remarks that the low watermark for operating margins would be Q2. That's typically the case, just seasonality with payroll tax resets and our large customer event in March. And so you actually would expect to see some leverage in the back half of the year coming off of the lower operating margins in Q2. And we're not going to guide Q2's operating expense today, but you could look at kind of seasonal trends to get a feel for what that uptick in the operating expense typically is in Q2. Amit Daryanani: Got it. And then François, just on the breach side and the challenges you're having, can you just -- maybe just help us understand if the source code is compromised, how do you give customers the confidence that there's no zero-day threat that's kind of hiding in there over time? Just maybe walk through that. And then does this also dampen your ability to implement price increases when it comes to the hardware side, really to reflect what Citrix has been doing to some extent in that space. So I'd love to just understand kind of the zero-day risk and the potential for price increases maybe being a bit more muted there as you go forward. François Locoh-Donou: Thank you. Well, let me start with the code and then let's come back to price increase as a separate topic. Look, I said earlier that I think customers will continue to choose F5 because we provide best-in-class app delivery and security capabilities for our customer. Now when you look at the code, I shared earlier some of the things that we are doing to ensure that we remain vigilant about potential vulnerabilities in our code. And so we have engaged partners that are scanning our code and will continue to do so to ensure that if there are any vulnerabilities that we remediate them immediately. I shared with you that we are setting up a trust center that will be there to allow our customers to come and do penetration testing with our code. We are going to leverage AI for hunting for penetration as well in our code. We are enhancing our bug bounty program. So there are a number of things that we are putting in place, all designed to ensure we remain hypervigilant about this, and we give customers maximum comfort around the security of our code going forward. And I think in our industry we really intend to be best-in-class in doing this. And I think as we have these conversations and frankly, as we have shared these plans and these road maps around the things we're going to do with our customers, they have been very pleased with our response and I think are getting a lot of comfort that we are doing all the right things to ensure that their -- the product they get from F5 continue to be safe and free of potential vulnerabilities or zero days. I would also say that we have taken this further, and you may have seen in our disclosure that we are working with CrowdStrike to implement EDR capabilities on BIG-IP. And that's an extra layer of protection that we are offering customers to have way more observability, monitoring into their BIG-IPs which is something that hasn't been done in the industry. You haven't seen perimeter devices really enabled with EDR. And so it's just one example of where we are innovating with other industry partners to raise the game on security for our customers. I think the issue of price increases is a separate issue. As you know, you mentioned one of our competitors earlier, we have taken an approach here that is to have durable relationship with our customers and to really show the value of what we're doing for them over time. We don't intend to change our policy and our approach. I think we're going to be very consistent with that. And frankly, we can be consistent with our approach because customers recognize all the investments that we're making, the road map that I just talked about in terms of security, but also the world-class road map we have in terms of building delivery and security and having the best delivery and security platform for hybrid multicloud environment. We're the only company today that can serve them in hardware, software and SaaS and serve their traditional apps, their modern apps and their AI applications. And we're continuing to make these investments, both organically in our portfolio and inorganically. You probably just saw this quarter we made the acquisition of CalypsoAI. We did that to add capabilities to our platform specifically tailored for AI applications, securing AI applications in our application delivery and security platform. So customers will continue to see these investments from F5, and I think based on that we can justify the value that we're getting in the interactions with our customers. Operator: Our next question comes from the line of Ryan Koontz with Needham & Company. Ryan Koontz: Most of my questions have been answered, but just a quick clarification. When you talked about the migration of your end-of-life products out there today, kind of where are you now in that migration? How do you think about that going forward? Are you seeing some pushouts? Are you giving customers any kind of time frame breaks because of the breach to migrate those products going end of life? Cooper Werner: Yes. So we have said that we're still pretty early days in the refresh motion just in terms of the percentage of the installed base being well over 50%. That's on those 2 platforms. There's -- no, we haven't adjusted the end of software support dates. Those have been public for a long time and we're working with customers to ensure they have an orderly path to make those refreshes across our estate. Ryan Koontz: Got it. Helpful. And maybe circling back to your comments on the telecom segment. Obviously, yes, 5G has been disappointing there in terms of kind of the deployment of virtualization, but are you seeing any new activities in the telecom domain around the new 5G core, maybe picking up momentum or anything else to call out on the telecom front here? François Locoh-Donou: Yes, look, I think what we're seeing is the sort of 4G to 5G transition continue with some geographies ahead of others. Those customers who have implemented 5G were seeing growth inside of these environments, capacity, in some cases, growing fairly rapidly. But generally this transition from 4G to 5G and frankly the revenues that telecom operators expected from that transition have not really materialized and that, in turn, has put pressure on their CapEx spend. So we are continuing to find new use cases inside of our service provider customers, but it hasn't been significant enough to drive a substantial uptick in the overall segment for F5. Operator: I would now like to pass the call back over to Ms. Suzanne DuLong for any closing remarks. Suzanne DuLong: Thank you, everybody, for being with us today. We look forward to seeing many of you during the quarter. Operator: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Shane Xie: Welcome to the Confluent Third Quarter 2025 Earnings Conference Call. I'm Shane Xie from Investor Relations, and I'm joined by Jay Kreps, Co-Founder and CEO; and Rohan Sivaram, CFO. During today's call, management will make forward-looking statements regarding our business, operations, market and product positioning, growth strategies, financial performance and future prospects, including statements regarding our financial guidance for the fiscal fourth quarter of 2025 and fiscal year 2025. These forward-looking statements are subject to risks and uncertainties, which could cause actual results to differ materially from those anticipated by these statements. Further information on risk factors that could cause actual results to differ is included in our most recent Form 10-Q filed with the SEC. We assume no obligation to update these statements after today's call, except as required by law. Unless stated otherwise, certain financial measures used on today's call are expressed on a non-GAAP basis and all comparisons are made on a year-over-year basis. We use these non-GAAP financial measures internally to facilitate analysis of our financial and business trends and for internal planning and forecasting purposes. These non-GAAP financial measures have limitations and should not be considered in isolation from or as a substitute for financial information prepared in accordance with GAAP. A reconciliation between these GAAP and non-GAAP financial measures is included in our earnings press release and supplemental financials, which can be found on our IR website at investor.confluent.io. References to profitability on today's call refer to non-GAAP operating margin, unless stated otherwise. And with that, I'll hand the call over to Jay. Edward Kreps: Thanks, Shane. Good afternoon, everyone, and welcome to our third quarter earnings call. We're joining from New Orleans, where in 2 days, we'll host Current, the data streaming event where real-time data and AI come together. Turning to the quarterly results. We delivered a strong Q3, exceeding the high end of all guided metrics. Q3 subscription revenue grew 19% to $286 million. Confluent Cloud revenue grew 24% to $161 million, and non-GAAP operating margin expanded 3 percentage points to approximately 10%. This performance underscores strong consumption growth in our cloud business, the deepening commitment of our customers and our disciplined focus on driving efficient, sustainable growth. Last quarter, we outlined 2 areas of focus in our go-to-market and several areas where we were drilling down on early success, all aimed at accelerating use case expansions and supporting the long-term growth trajectory of our cloud business. I'll give a brief update on each of these. The first area of focus was tightening field alignment to drive more use cases into production. As we shared last quarter, we saw strong momentum in late-stage pipeline progression, a metric that tracks the dollar value of new use cases moving into production. That momentum continued in Q3 with more than 40% sequential growth and progressing late-stage pipeline and an accelerating pace of new use cases. This positions us for durable consumption growth and was a key driver of our cloud performance this quarter. In parallel, we continue to build momentum in expanding our large customer base, delivering the largest sequential net add in $100,000-plus ARR customer count in the past 2 years, along with continued acceleration in million dollar plus ARR customer growth. Together, these results underscore the depth of opportunity within new workloads and the continued strength of expansion among our large customers who are increasingly standardizing on our data streaming platform and relying on Confluent to meet their business needs. Our second focus area is centered on accelerating the build-out of our DSP specialist team to drive multiproduct selling. We previously highlighted Flink momentum in the first half of the year, and we're pleased to report another strong quarter with Q3 Flink ARR for Confluent Cloud growing more than 70% sequentially. Flink usage has continued to expand across our customer base. More than 1,000 customers used Flink during the quarter. Stream processing is key as it enables companies to act on data the moment it's created, turning information into real-time decisions and results. A great example of the power of our Flink offering is Siemens Healthineers, a global leader in medical technology with operations in more than 70 countries. The company develops imaging systems, lab diagnostics and connected medical devices used by hospitals and clinics around the world. Behind these life-saving technologies is a constant stream of data that determines equipment reliability, accuracy and ultimately, patient outcomes. But Siemens Healthineers was hindered by disconnected systems that isolated critical data in silos, lengthy file transfers, manual handling and periodic batch processing often delayed insights by weeks. These delays prevented timely action to improve equipment performance and product quality. So they turn to Confluent Cloud with fully managed Flink. With Confluent, Siemens Healthineers built a unified real-time data backbone that streams and processes millions of events from imaging, lab and devices daily. Flink continuously filters, joins and enriches these streams to deliver timely, trustworthy operational insights that help improve device reliability, manufacturing, quality and consistency of diagnostic data across its installed base. This foundation now gives Siemens Healthineers real-time visibility and the agility to move faster as it advances digital and AI initiatives that enhance care delivery and improve patient outcomes worldwide. Next, our partner ecosystem continues to deliver strong results. As of Q3, partners sourced well over 25% of our new business over the last 12 months. This is a clear sign of the consistency and scale we're building through our established partner relationships, which are instrumental in broadening our footprint and driving customer expansion. Confluent was named a MongoDB Partner of the Year and served as an AWS launch partner for the new AI agents and tools category in the AWS marketplace, further strengthening our position at the center of real-time data and AI. Lastly, we remain as competitive as ever replacing CSP streaming offerings. We have maintained win rates well above 90%, with average deal size, more than doubling over the past 2 quarters, all while continuing to increase our add bats. This is made possible with multi-tenant Freight Clusters, Enterprise Clusters and WarpStream, which together have delivered a 4x increase in consumption over the past 3 quarters. Because of their multi-tenant architecture, we believe adoption of these new clusters is a tailwind to subscription gross margin over time. These differentiated offerings provide superior performance and lower TCO to our customers which also helps us soak up more of the world's Kafka workloads. This includes one of the world's largest fintech companies who signed a 7-figure deal in Q3 to move their large-scale logging and telemetry workloads from open source Kafka to Confluent. Another great example of this is EVO Banco, a digital native bank in Spain serving hundreds of thousands of customers through its mobile-first platform. As transaction volume grew, its open-source Kafka clusters became increasingly difficult to scale and secure with rising operational costs and downtime during peak loads. To address this, EVO Banco migrated to Confluent Cloud as its central data backbone. The platform now streams and processes hundreds of thousands of financial events per day across payments, fraud detection and customer channels and with stream processing and fully managed connectors, EVO Banco integrated core banking systems and analytics tools in real time without managing infrastructure. Since moving to Confluent, the bank has improved reliability, lowered costs and accelerated delivery of new banking features. Q3 also marked the 1-year anniversary of our WarpStream acquisition. Over the past year, WarpStream has seen 8x growth in consumption, and we've closed multiple 6-figure deals with marquee customers across different industries, including a Fortune 5 customer. We're encouraged by WarpStream's strong first year performance and remain incredibly excited about the significant opportunity ahead. Next, I want to spend a few minutes on a key aspect of Confluent's opportunity in the AI space, providing context data for AI agents and applications. We're seeing a clear pattern across the industry. Many companies have shown they can successfully prototype AI, but fewer can get those systems into production. AI models are clearly capable, but a recent MIT study found that though enterprises are investing tens of billions of dollars in generative AI. Most of these initiatives haven't delivered the desired results. The challenge isn't building a prototype. It's being able to build reliable business systems powered by AI that makes trustworthy decisions and takes appropriate actions. There are 2 factors that fundamentally drive the quality in AI systems, the models capabilities and the data it has access to. Both of these are significant challenges, but they fall on different people to solve. Improving the quality of large-scale AI models is a challenge largely driven by a small number of LLM producing research labs. Enterprises can easily harness the results of this work by simply pointing their apps at a new model. But getting data into shape to act as context for AI is a problem every enterprise must solve with their own data. This is where Confluent can help. One of the reasons AI demos are often so successful is because they can be powered by a onetime manually curated data set. But to take an agent to production, it must have an up-to-date comprehensive view of all the inputs needed to do its work. This isn't just a matter of trying to hook the model into every source system directly. The source data is generally too messy and application specific to lead to good results. And AI Ops can't be splunking around in production databases, reading through everything and potentially leaking the wrong data to the wrong user, that would be wildly expensive, create unsustainable production workloads and be fundamentally insecure. Rather, the problem is about curating the right data for a given problem and creating a data set an agent can be tested with and evaluated against. Maintaining that live context is what determines how well an AI system performs. That's where accuracy, relevance and trust are won or lost. What businesses need is a system that can keep data in motion so it can be processed, reprocessed and served continuously as it changes. Our data streaming platform was built for exactly this problem. It works to connect data from every system application and cloud and support just these kinds of complex pipelines. With Kafka, Flink and Tableflow, teams can process in real time, combining history and live events with one unified engine. With logic changes, you can go back and reprocess data to create the new data set. Tableflow and Flink work to combine the best aspects of real-time capabilities with the long-term historical store of data in the lake. As this goes out to production, the stream of feedback data can also be captured to measure the effectiveness of each change. And in 2 days, we will host Current and unveil new capabilities that are designed to make this even easier for customers and strengthen how our platform delivers real-time government context. Confluent data streaming platform is becoming the context layer for enterprise AI as businesses move from AI experimentation to production, from static data to living context, and from analysis to intelligent action. One customer that really illustrates this is a multibillion-dollar health and fitness chain with nearly 200 clubs in a rapidly growing digital platform. As the company expanded into AI-powered wellness, its data from wearables, class bookings and mobile apps was siloed and processed in slow batches. This made it impossible to provide real-time personalized guidance through its Gen AI companion. With Confluent Cloud as a streaming backbone, this customer now continuously ingests and enriches this data in motion. Wearable metrics, work out history, purchase activity and engagement events are streamed and combined with contextual data, like recovery status or performance trends before being routed into AI systems to fuel personalized recommendations. Confluent enables them to deliver AI insights in seconds instead of ours, scaling to millions of real-time interactions while enabling security and compliance. Fully managed infrastructure frees engineers to focus on innovation, helping the company turn decades of wellness expertise into intelligent, context-to-ware experiences that deepen member engagement and fuel digital growth. As AI evolves from innovation to utilization, context will define who wins, and we are committed to making Confluent the company enabling the shift by turning data and to continuously refresh trustworthy context for AI systems everywhere. In closing, we're encouraged by the strong out consumption growth and the traction we're seeing for our complete data streaming platform, particularly with Flink. As AI becomes operational across every industry and geography we believe that the demand for real-time context powered by data streaming will only grow. It's an exciting time for Confluent and we're just getting started. With that, I'll turn it over to Rohan. Rohan Sivaram: Thanks, Jay. Good afternoon, everyone, and thank you for joining our earnings call. Our strong third quarter performance highlights the momentum of our data streaming platform and our diversified growth strategy. We delivered strong top line growth, stabilized our net retention rate, increased the adoption of new products and drove continued margin expansion. These results demonstrate our ability to drive durable, profitable growth at scale over the long term. Turning to the results. Q3 subscription revenue grew 19% to $286.3 million and represented 96% of total revenue. Confluent platform revenue grew 14% to $125.4 million, driven by healthy demand in financial services. Cloud revenue grew 24% to $161 million, representing 56% of subscription revenue compared to 54% in the year ago quarter. We are pleased with our cloud performance this quarter, which was driven by stronger consumption across core streaming and DSP, including acceleration of new use cases moving into production. Turning to the geographical mix of total revenue. Revenue from the U.S. grew 13% to $172.1 million. Revenue from outside the U.S. grew 29% to $126.4 million. Moving on to rest of the income statement. I'll be referring to non-GAAP results unless otherwise stated. While driving top line grow at scale, we continue to show significant operating leverage in our model. In Q3, subscription gross margin was 81.8%, above our long-term target threshold of 80%. Operating margin increased 340 basis points to a record of 9.7%, exceeding our guidance by 270 basis points. This was driven by revenue outperformance and improved sales and marketing leverage from continuing to streamline coverage to drive growth. Adjusted free cash flow margin increased 450 basis points to 8.2%. Net income per share was $0.13, using $370.6 million diluted weighted average shares outstanding. Fully diluted share count under treasury stock method was approximately 382.4 million. We ended the third quarter with $1.99 billion in cash, cash equivalents and marketable securities, reflecting the strength of our balance sheet. Turning now to customer metrics, $20,000 plus ARR customer count increased to 2,533, up 36 customers sequentially. $100,000-plus ARR customer count was 1,487, up 48 customers quarter-over-quarter, representing the largest sequential increase in 2 years. New $100,000-plus ARR customers include many leading AI companies such as Forbes 50 AI analytics provider, an AI-powered SIEM cyber security vendor, a next-gen AI automation platform company. Our $100,000-plus ARR customers continue to account for more than 90% of our ARR, $1 million-plus ARR customer count increased to 234, representing growth acceleration of 27%, driven by new use case expansion across cloud and platform. Additionally, more than 10 of the 15 net new $1 million-plus ARR customers increased their spend on DSP products over the previous quarter. NRR for the quarter stabilized at 114%, while GRR remained close to 90%, driven by stronger consumption growth in our cloud business. Turning to our outlook. For the fiscal fourth quarter of 2025, we expect subscription revenue to be in the range of $295.5 million to $296.5 million, representing growth of approximately 18%. Non-GAAP operating margin to be approximately 7% and non-GAAP net income per diluted share to be in the range of $0.09 to $0.10. For fiscal year 2025, we expect subscription revenue to be in the range of $1.1135 billion to $1.1145 billion, representing growth of approximately 21%. Non-GAAP operating margin to be approximately 7%, non-GAAP net income per diluted share to be in the range of $0.39 to $0.40 and adjusted free cash flow margin to be approximately 6%. For modeling purposes, we expect Q4 cloud revenue to be approximately $165 million, representing growth of approximately 20% and accounting for approximately 56% of subscription revenue based on the midpoint of our guide. Turning to the key drivers of our business. We saw strong demand in our core streaming business and good momentum across DSP, AI and our partner ecosystem. First, our continued focus on field alignment is delivering strong results. In Q3, we accelerated the pace of moving new use cases into production and sustained strong momentum in building our late-stage pipeline, which once again grew more than 40% sequentially. We're also seeing customers commit to larger and longer-term deals, reflected in RPO growth of 43%, another quarter of acceleration. Together, these trends give us greater visibility into near-term consumption revenue and increase longer-term visibility with improved RPO to revenue coverage. Second, we saw good DSP momentum across cloud and on-prem in Q3. Building on the momentum from the first half of the year, we delivered another quarter of strong performance for Flink with particular strength in cloud. Q3 Flink ARR for Confluent Cloud grew more than 70% sequentially, and we now have more than 1,000 link customers, including more than a dozen customers with greater than $100,000 in Flink ARR and 4 customers with greater than $1 million in Flink ARR. This comprehensive breadth and depth represents the foundation for scaling into a very significant Flink market opportunity ahead. Here are 2 customer examples to illustrate how Flink begins to drive ARR expansion in our customer base. These customers are spending currently north of $100,000-plus and $1 million-plus Flink ARR, respectively. Notably, in the last year alone, adoption of Flink has supported both customers to more than 6x total spend. Third, we are strongly positioned to deliver contextualized, well-governed and AI-ready data to companies. We now have more than 100 AI native customers, including 21 with $100,000-plus in ARR demonstrating Confluent's highly strategic role in the age of AI. Fourth, we are pleased with seeing continued traction in our partner ecosystem. On a trailing 12-month basis, Q3 partners sourced deals increased to more than 25% of our new business, up from more than 20% last quarter. As we grow beyond the $1 billion-plus revenue scale, we expect partners to play an even bigger role in driving growth and leverage in our business in the years ahead. Lastly, we've continued to demonstrate the effectiveness of our disciplined ROI-driven capital allocation strategy, especially in M&A. Q3 marked the 1-year anniversary of our WarpStream acquisition. And in just 1 year, WarpStream's consumption has grown nearly eightfold. Following the Immerock acquisition, we shipped our Flink product in spring of last year. And since then, we've scaled Flink into a low 8-figure ARR business. The strong financial performance underscores the successful path both products around and reinforces the strength of our overall capital allocation strategy. In closing, we delivered strong third quarter results demonstrating durable top line growth and margin expansion at scale. We are encouraged by the strong consumption growth in our cloud business and remain focused on continuing to execute on our key growth drivers across core streaming, DSP, AI and the partner ecosystem. Looking forward, we believe we are well positioned to take advantage of the large market opportunity ahead. Now Jay and I will take your questions. Shane Xie: All right. Thanks, Rohan. [Operator Instructions] We ask that you kindly keep it to one question and one follow-up. And today, our first question will come from Brad Zelnick with Deutsche Bank, followed by Morgan Stanley. Brad Zelnick: Great. And good to see the good results, especially the accelerated bookings, really impressive. Jay, I want to follow back on some of the go-to-market changes that you made last quarter. The field alignment, changes in coverage ratios. And it's great to see the momentum in late-stage pipeline continue. What are the learnings now that we're another quarter into these changes? And what conversion trends can you share on all this new pipe? And how should we think about the capacity to effectively work that much incremental pipeline? Edward Kreps: Yes, those are great questions. So yes, we put a number of things in motion heading into this year. And particularly over the last few quarters, I called out some of those, the specialization model for DSP. That's really important just to be able to take these new products to scale, and it's working really well. A number of aspects of just kind of field execution around consumption. I think that's one of the biggest drivers of that kind of progression in consumption pipeline. And on that pipeline, I think we have very high confidence in it. These are ultimately customer workloads that they have people building that are reaching production that then go drive consumption in the quarters ahead. And so it's a little bit more than just an entry in sales force. And that's why we feel that it's a very promising stat and why we track it very religiously quarter-to-quarter. So I think these are really solid improvements. I've been very impressed by the execution in the go-to-market team over the last few quarters to get this in place and do it quickly. And I think that gives us a lot more ability to help drive these consumption workloads ourselves, right, really land in the right use cases, make sure that they're using our complete product, the full DSP in the best way possible and make sure that, that gets out to production without snags and reaches its full potential. So yes, I think very promising in what we're seeing. Brad Zelnick: Great. And maybe just a quick follow-on for Rohan. RPO and CRPO, both accelerating very nicely. Why or why shouldn't we look to that as a reliable leading indicator for Confluent specifically? Rohan Sivaram: Yes. Great question, Brad. Thank you. You're right. RPO, in general, what I've shared before is when you think about our business for Confluent platform, absolutely. RPO is the single most important leading indicator with respect to the forward-looking organic growth of the business. For Confluent Cloud, it's a tad bit nuanced where over the short term, I think what we've internally focused on is the momentum of new use cases moving into production and which was a check in Q3. So overall, we feel with the short-term drivers. But over the long term, I think, coverage of RPO to revenue to cloud revenue, that has continued to increase through the year. I mean this particular quarter was the fourth consecutive quarter of accelerated RPO that we've delivered. So yes, like from the cloud business perspective, short term is new use cases moving into production and our ability to drive growth in the new business, newer products, and long term is around the RPO. So that's going well. And for Confluent platform, absolutely, it's a leading indicator. So that's how I think about it. Shane Xie: All right. Thanks, Brad. We'll take our next question from Sanjit Singh with Morgan Stanley, followed by JPMorgan. Sanjit Singh: I guess it's a very simple one, Jay, and it's with multiple sort of vectors that you guys have in play to drive growth, including with all of the sort of rejuvenation activity within the go-to-market organization. When do you think we can see growth start to bottom is the first question. Edward Kreps: Yes. Yes. I mean, look, first of all, I think we're very pleased with the results that we brought, the strength in cloud, pleased to be in a position where we're raising guidance for Q4. I think ultimately, the cloud business has been quite strong. When you look at the growth rate for Q4, there is some impact from a particular customer. We kind of talked about that dynamic last quarter. if you normalize for that, you are seeing kind of stability in the overall cloud growth rates. So overall, we feel pretty good about that. And then when we talk about kind of some of these tailwinds some of the GSP offerings, including Flink getting to scale and starting to contribute more sizably. The overall execution within the field team around consumption and the ability to drive use cases, I think, those are positive trends. Sanjit Singh: When it comes to the growth that you're seeing in the core streaming business, given the big ramp in like things like WarpStream and enterprise, that sort of kind of the cannibalization question. Are you seeing that kind of net accretive impact from the rise of those offerings? Or do you feel like there's any cannibalistic effect on some of the core streaming business? Edward Kreps: Yes. Yes. It's a very fair question as we added new offerings that were particularly cost effective. Is this going to be a tailwind or a headwind. I think it's proven to be a substantial tailwind. So we called out in the call that we've seen substantial improvement in overall deal size, which is maybe counterintuitive, but in fact, it's not because customers are leaning in with bigger workloads, bigger migrations that might have been harder or taken longer in the past. And because of the architecture of these offerings, the multi-tenant clusters with enterprise and freight, WarpStream with BYOC, they're very cost effective to run. So they are a tailwind to gross margin. So it's really good on both sides. It's good deal for customers, they're leaning in and going bigger. And it's a good deal for us. It's ultimately more profitable. Shane Xie: All right. Thanks, Sanjit. We'll take our next question from Mark Murphy with JPMorgan, followed by Barclays. Mark Murphy: Yes. Great. So Jay, you had mentioned, I think you said more than 40% sequential growth in progressing late-stage pipeline. And it sounds very promising. I'm not sure we have historical context on that metric. Can you speak to what is driving such great traction there. And then what is the normal level of sequential growth you'd see in that late-stage pipeline? Edward Kreps: Yes, yes. So yes, it's a great question. We're obviously not trying to turn that into some kind of external metric, but one of the things we set for ourselves as a benchmark of improvements in the field motion around consumption was, hey, get the new use cases, get into the new use cases, get them to production. And so we measure the dollar amount of those use cases. And we've seen that as these use cases hit production, they ramp up, they take traffic, they drive consumption in the quarters ahead. So it's a reasonable indicator to pay attention to in a forward-looking way. So yes you're asking, hey, what's the normal growth quarter over quarter? Well, over time, if you're bringing more dollars of use cases out to production, those are dollars that you're realizing in future quarters. It takes some quarters for different projects to ramp up. So it's not one is to one, but that's roughly how I would think about it. We haven't given kind of the full history of the metric, and that isn't the intention. It really is, I think, being used by us as a benchmark of execution of the field. And we felt that kind of internal metric was one of the best representations of that. We have made a number of adjustments in how folks are working these consumption projects. And I think it really has worked quite effectively. Mark Murphy: Okay. And then as a quick follow-up, Jay, how is the early response to the launch of streaming agents on Confluent Cloud? Because I think we would all agree, for sure, agents need access to real-time data. Frankly, they're going to look pretty unintelligent, right, and out of date if they don't have it. But then companies are -- they're so risk-averse, and they're struggling to give -- to get comfort giving agents free rein to all their data, right? It sort of scares them. And you laid out a nice -- very nice architectural vision for that, right, in the webinar, but I'm just wondering how is the customer readiness for that product? And just could you speak to -- I mean, if this takes off, can agents become pretty big in the mix a few years down the road? Edward Kreps: Yes, I think that they absolutely can. So there's a few opportunities around AI for Confluent. One is around making the agents real time. One is about the provisioning of real-time data sets. Both of those are actually substantial, and you can do them both together or you can do them separately. And for those who follow us closely, we -- I mentioned in the prepared remarks that we're here in New Orleans for our conference Current, and that's in a few days. So we'll have some announcements in this space that I think we'll fill out the picture a bit more. But already, the streaming agents have caught on, we talked about one of the customer use cases in the call earlier. And it makes a lot of sense. This is a really easy way that you can run the agent on the kind of historical data, kind of benchmark it, be able to play with it almost in a batch model, but then have it translate into production and run in real time against the data that's there. It makes that kind of development much easier. And I think this is going to be a critical part of the stack. One of the things, I think, software teams are realizing is that this kind of agent development is actually a bit different from traditional software. You have to do it with the data. Traditional software, you can kind of write some program, run some unit tests against it with fake data. If that all passes, it works, you're good to go, your program is good. But these AI systems are not that way. You can build some support agent and say, oh, this answers support questions really effectively. But if you haven't tried it with the actual customer data on actual customer questions, if you're not really developing that way, you're not doing anything. And so the need is to be able to work iteratively with data, but then also launch something that will run in real time in production and be able to keep those 2 in sync as the team moves. And so I think we have really foundational capabilities. Like in many ways, that is about what streaming is, which is this ability to take some of the ideas that we had off-line with batch data processing, be able to translate them into continuous processing. And so I think it's a huge opportunity for us. In many ways, it's an acceleration of what we were doing for customers anyway. Even if the intelligence was just smart rules in a production application that was driving personalization or customization or relevance, we're already doing lots of that. And I think the AI opportunity is, in many ways, a huge generalization of that of allowing not just hard rules, but broad capabilities to access the same kind of data to make data-driven decisions, take smart actions. So hopefully, that's helpful. And stay tuned for the next couple of days, we'll have a few more announcements. It's hard to always figure out the timing of these things. But since that's 2 days later, we don't get to talk about all the new products until then. Shane Xie: All right. Thanks, Mark. We'll take our next question from Raimo Lenschow with Barclays, followed by Wells Fargo. Raimo Lenschow: Perfect. Can't wait for conference then. The -- 2 quick questions, one for Jay, one for Rohan. Jay, Flink, you gave us some extra data points. At Flink, we've been waiting for -- while I don't want to call it an inflection point, but like the uptick here. What do you see there, how customers are using it and what you're seeing in the pipeline? Does that kind of increase your optimism like talk a little bit about how that kind of translates into the business going forward? And then, Rohan, one for you. You've raised the subscription by more than the beat in Q3. Obviously, that's a good sign for Q4. What drove that? Was that kind of the one AI customer maybe doing a little bit more with you? Is that overall business doing a little bit better? Can you speak to that, sort of what gave you the confidence there? Edward Kreps: Yes. I'll start with Flink that we're hugely excited. So I do think externally, this was a little bit of an unusual product development cycle because we changed our stream processing strategy and bought a Flink company, but it wasn't a Flink product. It was just the team that had built the open source. So then we were effectively starting product development with an announcement about Flink. So then we had to build the product. And I think the team has done an amazing job of that to really build a modern data -- serverless data processing layer, but do it in a way that supports high availability, real-time processing. It's a big undertaking. I think the growth of that since it's kind of reached GA and kind of got into the critical enterprise features over the last year has been spectacular. And that's absolutely as much as we could ask out of a kind of first year of selling for the product, and that trajectory remains very strong as we look ahead. So yes, we are -- I think as we've communicated as we started this effort, we think that potential for that offering over time is huge. The market for data processing is really big. There's all this stuff in these old batch jobs that needs to move into real time. And now I think we're starting to realize that opportunity. And it's an interesting intersection with the AI question as well because one of the things that actually aids these conversions is AI. So if you're converting these batch quarries to streaming queries, we have a set of capabilities to just help customers do this, just goes through and makes the little minor adjustments. I mean, largely, it's very similar. These streaming queries or SQL or similar language to the batch stuff, but of course, getting all the nuances, right? And so that's been one of the accelerants that's helped customers that are trying to go big with a lot of real-time jobs all at once, help them move faster. So yes, long story short, we're very excited about it. Rohan Sivaram: And Raimo, before you answer the question, I'll just add a quick point to what Jay said. From my lens, when some of these new products are ramping, I think, there are 2 things that I'd like to focus on, the breadth of adoption and the depth of adoption. For Flink, specifically, when you look at the breadth of option, we have over 1,000 paying customers for Flink. And on the depth side, we have about 12 customers spending over $100,000 in ARR and 4 customers spending $1 million in ARR. So that's actually a good position to be in and on the heels of 3 quarters or 9 months of very solid growth that we've seen. So just to add to what Jay said, we're excited about what lies ahead on that side of the business. So coming back to your question on subscription guidance for Q4. Yes, we are pleased to raise our Q4 subscription guide, and that's mostly coming from the Confluent Cloud side of the world. So if I take a step back and then analyze the Q3 performance, I'll call out 3 things. The first one is something that Jay called out in his prepared remarks. That's just the momentum of new use cases moving into production. And we saw 2 consecutive quarters of acceleration over there, so which is good. The second area is around -- we are seeing more normalized levels of optimization. I would actually put it in the category of healthy levels of optimization. So that's number two. And the third is continued strength in Flink and the cloud side of Flink. So these are some of the drivers and the momentum builders in Q3, and that's giving us confidence with respect to our Q4 cloud guidance. And I'll leave you with one more big picture thought that I touched on my first response that is these are short-term visibility drivers for the cloud business. When I take a step back and look at the long term, the RPO to cloud revenue coverage through the year has continued to increase and improve. And that's less of a Q4 visibility, but more of a slight long-term visibility, we feel good with that increasing coverage as well. Shane Xie: All right. Thanks, Raimo. We'll take our next question from Ryan MacWilliams with Wells Fargo, followed by Piper. Ryan MacWilliams: Jay, as enterprises continue to move from testing to production with AI use cases, are there any AI use cases that come to mind that involve Confluent that could be more likely in production in the near term, like a customer service use case or an IoT use case. Edward Kreps: Yes. Yes. We're seeing -- these tend to be quite broad, right? So there's similar patterns around customer support. There's patterns around anomalies and investigations. Many businesses have some operational side kind of looking for the bad thing and then diving into the bad thing that cuts across businesses that might be doing IoT, manufacturing, different production processes, but also things like retail. But even businesses, financial services, insurance, companies you might think of this being more risk averse. I think have very active projects in this area. And so I think for all of these, it's about whether they can really complete that connectivity and make it into production with these systems. We think that a big part of that is about data flow, data quality, the ability to actually iterate and test and get from something that kind of 99% works to something that 99.99% works. So it sounds like a small difference, but we operate already in a business where, operationally, the difference between 99% and 99.99% is actually a really big deal for our customers. And so you can totally see why on the quality side for any of these things. It's hard to get that last bit done. And I think why we think we're well positioned for it. Ryan MacWilliams: I understand it as well. I got 99 things right and 1 thing wrong, you remember which one. And then for Rohan, you mentioned last quarter that a large AI native company was moving to self-hosted after signing a self-managed deal in the third quarter. Any commentary on how much that large customer contributed in the third quarter? And as that large customer spend drops off from the cloud next quarter, could the self-managed portion step-up, contribute further? Just any commentary on the mechanics of that large customer deal could help? Rohan Sivaram: Yes, yes. Ryan, a few data points that I'll share. First, and reiterate what I said in the Q3 call, and what we said in the Q3 call was this large customer basically made this move from Confluent cloud to on-prem. And as a result of this dynamic, their spend towards Confluent would be significantly reduced. So that's the data point. And what that would do is it would have a low single-digit impact to our Q4 cloud revenue. And Jay called out earlier, when you normalize that impact of the low single digit and you compare our Q4 guidance versus Q3 actual cloud performance, you'll see somewhat flattish year-over-year growth rate. So that kind of signs of stabilization. And specifically, that large customer, obviously contributed in Q3 from a revenue perspective and the real impact, the low single-digit impact we are going to see from our cloud business is in Q4 and that's incorporated in our guidance for Q4. Shane Xie: All right. Thanks, Ryan. We'll take our next question from Rob Owens with Piper Sandler, followed by William Blair. Robbie Owens: Jay, maybe you could elaborate a little bit more on the CSP replacement opportunity? Just how big you think it is? And why do you think this is inflecting over the last couple of quarters? Edward Kreps: Yes. Yes, it's quite sizable. We also, of course, are continuing to do very large open source takeouts, and there's quite a lot of the open source. But both for the open source and the CSP offerings I think one of the -- there's really 2 things that I think are making this something customers really want to take action on right away. The first is the TCO of making the change. And that comes out of the fundamentally, the improvements we've made in Kora that enable things like Enterprise Clusters, Freight Clusters. It's just something that's kind of better, faster, cheaper. And I think that's very compelling. Secondly, I think these DSP capabilities have become just a bigger and bigger part of what customers think about when they think about streaming and what they need to do to be set up to use this technology in their organization. And I think that's really quite appealing to customers making the move. So I think those 2 things are the 2 biggest needle movers. The biggest enabler, I would say, on our side, is really working on tools around migration, making it easy. I think once you have a bunch of customers that want to do it, well, this is a big live data system migration, we want to make it as easy as pushing a button, that's ongoing work to really make that easier and easier. And as I think we continue that, I think we'll see an even faster transition of these systems, which is great. Robbie Owens: Great. And then as a follow-up, Rohan, in your contemplating guidance for the fourth quarter, you mentioned healthy levels of optimization. And I know this has been an issue in the first half of the year. When you -- I'd actually just to parse the question a little bit more on the comments a little bit more, is this healthy levels from prior optimizers or these net new optimizers that aren't to the same extent that you saw before. And so I guess within that question, maybe an update on optimization, is it still relevant as a headwind from the first half. And is this more a balancing active net new or kind of the whole thing in aggregate? Rohan Sivaram: Yes, Rob, when I think about the cloud business or rather how we manage and run the cloud business, they are typically like 3 things that are important to focus on, right? The first is, as you're entering a quarter, you're entering a quarter with a book of business and like for the existing customers, what is the growth that they are showing. And that's where optimizations generally come up. And as we've said, optimization is kind of part and parcel of every cloud business. And we want our customers to fine-tune and kind of use Confluent in a more efficient manner. That's part and parcel and that's something -- that's why I called it healthy levels of optimization. Which compares to prior historical optimizations that we've seen and which is not an outlier. So that was my comment. The second data point around how we kind of look at the business momentum is net new use cases moving into production. And the third is around adoption of new products. So when I talk about our guidance or just the momentum in Cloud business, these 3 kind of all go hand in hand. And the optimization levels to specifically answer your question, are in the ranges that we've seen historically, that is kind of more normalized and again, healthy and good optimization. Shane Xie: Thank you. We'll take our next question from Jason Ader with William Blair. Jason Ader: Yes, I know we've seen better cloud consumption trends across the vendor landscape, really over the last quarter or so. How much of the better performance that you guys saw in Q3, do you think is due to better sales execution versus overall macro tailwinds, including AI? Edward Kreps: Yes, it's a great question. It's -- obviously, it's always hard for us to pull ourselves out of the environment in which we operate in because we only get to run each quarter once, there's no counterfactual where it was a different environment. That said, I do think some of these improvements are kind of very mechanically obviously helping things. And so I do think we've made a set of structural improvements that are paying off. The new products are obviously new products, which are kind of bringing in Flink revenue or Connect revenue or governance revenue that we would not otherwise have had in those customers. So yes, I can't ascribe it between the two. I am aware that there was kind of good results in some other providers. But we do feel like we've made some pretty important structural improvements in what we're doing. Jason Ader: Okay. And then Rohan, for you. You didn't talk about U.S. Federal at all, but the shutdown here is going into week 4 or something. Did you bake that in? Did you bake in some conservatism to your Q4 outlook, especially on the Confluent platform side from potential weakness in U.S. Federal? Rohan Sivaram: Yes. For -- Jason, that's a great question. I mean, before I go into Q4, our Q3 federal performance, which is generally a big federal quarter, was in line with our expectations. So pretty much in line, no surprises there. And when you look at federal as a percentage of total revenue. I've shared this before. It is in the low single digits for us, which is good and bad, good as it's a big opportunity for us as we look ahead. And so that's great. And from a Q4 perspective, we have a couple of deals that are appropriately baked into our guidance. Shane Xie: All right. Thanks, Jason. We'll take our next question from Mike Cikos with Needham, followed by Wolfe Research. Hey, Mike, we can't hear you. You may be still on mute. All right. Why don't we go to Alex Zukin first, and we'll go back to Mike after Alex. Aleksandr Zukin: Can you hear me okay? Shane Xie: Loud and clear. Aleksandr Zukin: Perfect. Maybe just first one for Jay. Of the 21 AI native customers that you guys signed over $100,000 or that are using the product for over $100,000, is there a common pattern in how they're using Confluent? Are the AI products built around Kafka or Flink? Or are there use cases similar to what you're seeing with other companies? Because that's a really, really powerful stat. I wanted to see if you could unpack it a little bit. Edward Kreps: Yes. So first of all, AI companies or tech companies, so they have a set of usage patterns, they're exactly like every other tech company, which is they use it for a bunch of different stuff, right? But there is a set of use cases that are common in these companies, which are very specific to AI. And that's about the flow of data about the suggestions, recommendations, actions are being taken. So I kind of touched on this briefly in the script, but the big difference in these AI systems is it is not just upfront testing. You need to do this kind of ongoing evaluation, which is really looking at what are the actions that's taken, are they good? How are we going to evaluate that? You have a bunch of different ways of doing that, including just asking humans to judge it, asking the model to judge it. But the flow of that data is really kind of right at the heart of a lot of these systems, and it's a very natural kind of streaming problem. You're going to collect that in real time, it's going to flow out maybe through table flow or other mechanisms into kind of long-term storage. You're going to be able to iterate on that. It's also a very important kind of real-time analytic in terms of how well you're doing for your customers minute-to-minute, as you're out there, if you release if you take in a new model or you make changes to your system, ultimately, are you doing better or worse with your customers? That's kind of the fundamental question. So in many of these systems, that's one of the use cases. And this is not surprising. This is a similar use case we had with more traditional machine learning use cases. I think it's just now translated into the AI era. Aleksandr Zukin: Perfect. And then maybe just a quick one for you, Rohan. You gave us a lot of stats that are really encouraging. RPO accelerating and the coverage ratio is improving. You talked about I think, being past kind of a peak negative optimization headwind where it's kind of stabilizing and you're talking about more visibility longer term. And you gave guidance for cloud platform revenue -- sorry, for cloud revenue for Q4, but not guidance, sorry. You gave a modeling point of being around 20%. And as I look at a year ago when -- at least for my model versus the out year, there was about a 2-point delta in that. And so I guess I know we're not guiding to or maybe even in modeling points yet for next year. But as we look at our models and that 20% exit rate, do we -- what kind of step down given some of those dynamics that are maybe headwinds for Q4 that reversed? Should we think about as we look at next year cloud revenue? Rohan Sivaram: Yes, Alex. As we speak, we're kind of dotting the I's and crossing the T's on our fiscal year '26 plan. So I'm not going to be providing guidance either for total revenue or cloud revenue in this call. Having said that, I think, it's important to reiterate some of the data points that I shared around like, I think, you said it late-stage pipeline moving into production, the optimization levels being stabilized, normalized and which I like to call healthy, right? And the Flink driver of business, Flink has been really good. So we expect and coupled with the long-term visibility. So when you think about these and then you couple that with the low single-digit impact that we saw in Q4, which will obviously have an impact over the first half of next year, right? So those are some of the puts and takes. If I were you, I would look at as I think about fiscal year '26. But in our Q4 call, I'll be sharing a lot more color and details around our cloud revenue guidance. Shane Xie: Thank you. We will try Mike Cikos with Needham again, followed by Guggenheim. Michael Cikos: Can you guys hear me okay? Edward Kreps: Loud and clear. Michael Cikos: Sorry about that. And thanks for the second shot here, Shane. I just wanted to come back to Rohan first. On the consumption trends, can you just give us maybe a little bit more granularity on how those month-over-month trends played out in Q3? You obviously outperformed the guide here. But I don't know that we necessarily broke it down to the month-over-month trends the way that we were getting that detail in Q1 and Q2 of this year. Rohan Sivaram: Yes. For our month-over-month trends, obviously, we spoke around the performance drivers for Q3, which were 3, I just laid out. And given these drivers, our month-over-month consumption growth rates improved sequentially. And in general, going forward, I will try to avoid providing that level of detail. But specifically, we brought it up last quarter. So our month-on-month growth improved sequentially, and we were pleased with it. Michael Cikos: That's great to hear. And if I could just tack on one more, I know that you guys had the double down initiatives and some of the near-term focuses that we went through last quarter. Jay, maybe for you. But on the DSP specialization team, again, encouraging to hear some of these data points. Has the team been built out at this point? I know last quarter, we were talking about accelerating that buildout. Are the bodies in the seats? And where are we in maturing the playbooks and that team at this point? Edward Kreps: Yes. Yes. Yes, that team is built out and in full execution mode. Shane Xie: All right. Thanks, Mike. We will take our next question from Howard Ma with Guggenheim, followed by KeyBanc. Howard Ma: I appreciate all the commentary on the optimization trends. And I get that the Q3 outperformance sets the bar higher heading into Q4. But for -- I guess, one for Rohan. Does the Q4 cloud guide specifically still assume optimizations or consumption trends well below historical trends? And then when you take into consideration the large AI native customer, does it imply that NRR will be -- will decelerate versus the 114%? Rohan Sivaram: Yes. So I'd say a couple of questions, so I'll break it down, Howard, to start off like we always have optimization. And that's all quarters, there is optimization. And that's why I kind of made sure that I commented around like normalized level of optimization that we saw in Q3. So that is hopefully answering the first part of your question. And when you kind of normalize the impact of the one large customer that we called out last quarter, our Q4 guidance is when you look -- compare the year-over-year growth rates, it's roughly flattish to what we saw in Q3. And from a net retention rate perspective, obviously, we are pleased with stabilization of our net retention rates. And when you think about what are the drivers, it's primarily around our stronger consumption growth that we saw, both in core streaming and DSP, both are drivers of stabilization. And from a net retention, again, I'm not going to guide for Q4 or fiscal year '26 for net retention, but I'll leave you with 2 data points. In the short term, net retention can generally fluctuate. But over the long term, some of the opportunities that we are focused on, be it core streaming, DSP, AI partner ecosystem, these are going to be the drivers of net retention rate. And all of these drivers have had positive results in Q3. Howard Ma: Got it. And Rohan, given how important Flink is as a driver now, you gave the disclosure Flink low 8-figure ARR, Flink on cloud up 70% sequentially. I think if you triangulate it, you can get to maybe low single digit, call it, $2 million to $3 million of sequential increase in the cloud side. So is that fair? And should we expect that sort of sequential -- assuming that number is right, increase on the cloud side going forward, maybe as a baseline. Rohan Sivaram: Yes. Again, I'm going to stay away from providing guidance, but we are very pleased with our Flink performance. And from a Flink performance, again, I'll say because it's important to note both the breadth and the depth of our Flink performance is something that we should note. We have a lot of customers, over 1,000 customers using Flink and then we have 12 customers spending over $100,000, 4 customers spending over $1 million. And in Q3, we just reported greater than 70% quarter-over-quarter growth for that business. So we're very pleased with how the Flink business is progressing, and it will be a material contributor to Confluent Cloud in fiscal year '26. Shane Xie: All right. Thanks, Howard. Our last question today will come from Eric Heath with KeyBanc. Eric? Eric Heath: Great. Maybe a lot of good questions have been asked. Maybe if I could just come back to Flink for a minute here, Jay. I am just curious to hear more maybe about some of the easy wins you're seeing with Flink customers. Some of the learnings you are applying to scale that Flink adoption across the customer base. I know we talked a lot about go-to-market and the DSP team, but any color there? And Jay, maybe just lastly, any thoughts or the feedback on how we should think about competition with Databricks structured streaming product that was announced this quarter? Edward Kreps: Yes. Yes, happy to talk about both. So yes, there's actually a very broad set of use cases for Flink. If you were trying to bucket them, there's a bucket that's kind of these real-time data pipelines, getting data to some AI application or agent getting data into the analytics ecosystem, Databricks, Snowflake, cloud provider things. And then there's a set of use cases, which are acting on the data, right? Trying to predict fraud, personalize things for customers, do something smart in reaction to an event in the business. Those are the 2 kind of buckets that we see customers using. Both are actually doing quite well. And both are represented in kind of the numbers that we would overall describe. I would say some of the larger customers are customers that are kind of taking existing batch processes and converting them over. So I talked about a number of customers just doing these kind of migrations. That's obviously the most challenging to orchestrate for a new product is to really take something that's been built up over many years and kind of move it over. But we're finding that we're now at a point of maturity where we can start to do that and do it successfully with customers. So that's I think that's an exciting thing. Relative to Databricks, we remain actually very close partners working together on applications for hundreds of joint customers. We're providing a set of real-time data that often flows as their environment. There are some overlaps and capabilities in both what we're doing and what they're doing. I think in practice, we tend to serve different constituencies. We tend to have more kind of real-time operational application systems, software engineers, they would tend to have more data engineers, analytics, data scientists, type user base. But for sure, there's some things that you could do in either product. On the whole though, I think we've been pretty complementary in going to market together. And even though that kind of overlapping feature set may increase, I think that will remain the case. Ultimately, customers have chosen us for that real-time hub of integration for data and many customers have chosen Databricks as the kind of lake destination where all the data goes for historical analysis. And so ultimately, customers want those things to work together, we're happy to serve them together. Shane Xie: Great. This concludes our earnings call today. Thanks again for joining us. Have a nice evening, everyone. Take care. Edward Kreps: Thanks all.
Operator: Good day, ladies and gentlemen, and welcome to the Amkor Technology Third Quarter 2025 Earnings Call. My name is Diego, and I will be your conference facilitator today. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the call over to Jennifer Jue, Head of Investor Relations. Ms. Jue, please go ahead. Jennifer Jue: Good afternoon, and welcome to Amkor's Third Quarter 2025 Earnings Conference Call. Joining me today are CEO, Giel Rutten; and CFO, Megan Faust. Our earnings press release was filed with the SEC this afternoon and is available on the Investor Relations page of our website along with the presentation slides that accompany today's call. During this presentation, we will use non-GAAP financial measures, and you can find the reconciliation to the comparable GAAP financial measures in the slides. We will make forward-looking statements today based on our current beliefs, assumptions and expectations. Such statements are subject to risks and uncertainties that may cause actual results to differ materially. Please refer to our press release and SEC filings for a discussion on the risk factors and uncertainties that may affect our future results. We assume no obligation to update any forward-looking statements to reflect events or circumstances occurring after the date of this presentation, except as may be required by applicable law. With that, I will now turn the call over to Giel. Giel Rutten: Thank you, Jennifer. Good afternoon, everyone, and thank you for joining the call today. I'd like to begin today on a personal note and to share that I have decided to retire from Amkor at the end of 2025. It has been an honor and privilege to be President and CEO of Amkor for over 5 years, and I'm excited to see what the future holds. I will remain on the Board of Directors to provide continuity and to support our long-term strategy. I would like to congratulate Kevin Engel as my successor and will support this transition over the next couple of months. Kevin has been with Amkor for over 20 years and brings deep experience that will benefit the company during this next growth phase. You'll hear more from Kevin at upcoming investor events and on the next earnings call. With that, I will now provide updates on the quarter. Amkor delivered a strong third quarter with revenue of $1.99 billion and EPS of $0.51, both exceeding the high end of our guidance. Revenue increased 31% sequentially driven by a robust demand for advanced packaging. We executed steep production ramps and achieved record revenue in both the communications and computing end markets, demonstrating our ability to scale quickly and support our customers' product launch cycles. Communications revenue increased 67% sequentially and 5% year-on-year, driven by the latest iOS product ramp and a 17% year-on-year growth in Android. We expect Q4 to decline sequentially with some slowdown in iOS, partially offset by continued strength in Android. On a year-on-year basis, Communication is expected to be up more than 20% in the fourth quarter. As AI expands into edge devices, we are collaborating closely with customers on next-generation products and we are confident this will drive future demand for advanced packaging. Computing revenue increased 12% sequentially and 23% year-on-year. We anticipate modest sequential decline in Q4 on product mix changes, but expect continued year-on-year growth. Our high-density fan-out technology is ramping as expected with another product moving into production in Q4. Our long-term computing outlook remains robust as innovation in AI and high-performance computing fuels investments across data centers, infrastructure and personal computing, areas where Amkor has a strong customer pipeline. Automotive and Industrial revenue increased 5% sequentially and 9% year-on-year driven by growth in advanced products for ADAS applications together with improvements in our mainstream portfolio. Fourth quarter revenue is expected to be stable sequentially and grow around 20% year-on-year, supported by broad-based customer demands. Consumer revenue increased 5% sequentially, but was down 5% year-on-year reflecting the product life cycle of a wearable product introduced in the second half of last year. We expect a further decrease of this product in Q4 and anticipate a slight decline in traditional consumer applications. Year-on-year, Consumer is expected to be down mid-teens percent. Overall, our fourth quarter guidance reflects positive trends of returning to a more normal seasonal pattern and for continued year-on-year growth in both our advanced and mainstream portfolio. Now let me share an update on our strategic initiatives. The semiconductor industry is rapidly evolving as accelerated AI proliferation drives market expansion, technology transitions and increased requirements for a resilient manufacturing base. Within this dynamic landscape, Amkor remains focused on its 3 strategic pillars: investing in our technology leadership, building supply chain resilience in our manufacturing footprint and deepening partnerships with lead customers. Earlier this month, we marked a major milestone with the groundbreaking of our new advanced packaging and test campus in Arizona. Working closely with our foundry partner, this campus will be a cornerstone of U.S. semiconductor manufacturing, delivering a full turnkey supply chain with advanced packaging and test capabilities to leading customers in the industry. The Arizona investment represents a bold step forward in our strategic journey. We've increased the total projected investment to $7 billion, reflecting additional cleanroom space and a second facility. Once complete, the campus will include 750,000 square feet of clean room, space and create up to 3,000 high-quality jobs. Construction of Phase 1 is expected to be completed in mid-2027 with production beginning in early 2028. The Arizona campus will feature smart factory technologies and scalable production lines to meet evolving market demands for AI, high-performance computing, mobile communication and advanced automotive applications. It will focus on advanced packaging and testing technologies and will complement domestic foundry manufacturing, enable a full end-to-end semiconductor supply chain in the U.S. Our expanding geographic footprint with facilities in Asia, Europe and now the U.S. distinguishes Amkor in the OSAT industry. It allows us to partner more closely with customers and deliver innovative packaging and test solutions aligned with their technology road map needs. In summary, Amkor delivered a strong quarter, advanced our strategic initiatives and remains well positioned for long-term growth. With that, I will now turn the call over to Megan to provide more details on our third quarter performance and near-term outlook. Megan Faust: Thank you, Giel, and good afternoon, everyone. Third quarter results were better than expected with revenue of $1.99 billion. This represents 31% sequential growth and 7% year-on-year growth. All end markets grew sequentially, and we achieved record revenue in the communications and computing end markets, driven by robust demand for advanced packaging. Given the leverage in our financial model, profitability metrics expanded more than revenue sequentially. Gross profit was $284 million and gross margin was 14.3%, up 230 basis points as the flow-through benefit from higher volume was partially offset by an increase in material content due to a higher proportion of advanced SiP. Operating expenses came in as expected, higher sequentially, primarily due to a nonroutine benefit in Q2. Operating income was $159 million, and operating income margin was 8% compared with 6.1% in Q2. As a result of higher operating income and favorable foreign currency, net income more than doubled at $127 million, driving EPS to $0.51 for the quarter. And finally, EBITDA was $340 million and EBITDA margin was 17.1%. Turning now to operational efficiency. We are taking steps to optimize our manufacturing footprint in Japan. We are actively working with our customers to align factory capacity to market demand to assure supply is guaranteed for this broad portfolio of automotive products. Near-term focus is on reducing manufacturing costs, as well as working with customers to adjust terms to cover costs for underutilized production lines. We expect to begin to see results from these actions in Q4 2025 while additional adjustments will take effect in the first half of 2026. With the full effect of these actions, we see a path to improving corporate gross margins by around 100 basis points exiting 2027. Japan continues to be a key region for Amkor, supporting the automotive end market and offering geographic flexibility to a global customer portfolio. Over the same time period, we also expect margin improvement from Vietnam ramp-up efficiencies, mainstream recovery and scaling of leading-edge advanced packaging. We are currently refining our long-term financial targets, and I'm pleased to announce that we plan to host an Investor Day in mid-2026, where we will share these targets and deeper insights into our long-term strategy. Now moving on to the balance sheet. This year, we took proactive steps to position our balance sheet and enhance liquidity for the upcoming investment cycle, particularly for our Arizona campus. We replaced our $600 million Singapore-based revolver with a new $1 billion U.S.-based revolver. We executed a $500 million term loan. We issued $500 million of senior notes due in 2033, and redeemed $525 million of senior notes due in 2027, significantly extending our maturity profile. As of September 30, we held $2.1 billion in cash and short-term investments, and total liquidity was $3.2 billion. Total debt as of Q3 was $1.8 billion, and our debt-to-EBITDA ratio was 1.7x. Now turning to our fourth quarter guidance. Revenue is expected to be between $1.775 billion and $1.875 billion, representing an 8% sequential decline at the midpoint and a 12% year-on-year increase. We are pleased to see forecasts for both advanced and mainstream are up double-digit percent year-on-year. Gross margin is projected to be between 14% and 15%, which includes an anticipated benefit from asset sales of around $30 million. Year-on-year, gross margins are constrained due to product mix concentrated in higher material content products and higher manufacturing costs as we scale and invest in leading-edge advanced packaging. Operating expenses are expected to be around $120 million, and our full year effective tax rate is expected to be around 20%, excluding discrete items. Net income is forecasted to be between $95 million and $120 million, resulting in EPS between $0.38 and $0.48, which includes the anticipated asset sale benefit. Our 2025 CapEx forecast has increased to $950 million, up from $850 million to support expanded investment in our Arizona campus. In addition to investment in our geographic footprint, our focus remains on scaling capacity and capability for leading-edge technologies, including high-density fan-out, advanced SiP and test solutions. We will provide more details on our CapEx spend levels and timing for our new Arizona facility when we give 2026 CapEx guidance at our next earnings call. In closing, our third quarter results reflect the effectiveness of our strategy, strengthening our technology leadership, building supply chain resilience by expanding our broad geographic footprint and deepening partnerships with lead customers in growth markets. With the upcoming CEO transition, we remain committed to investing in our long-term growth and our capital allocation strategy, positioning Amkor to deliver sustainable value for our shareholders. This concludes our prepared remarks, and I'll now turn the call over to the operator for Q&A. Operator: [Operator Instructions] Our first question comes from Ben Reitzes with Melius Research. Benjamin Reitzes: Yes. I appreciate it, and Giel, wish you the best of luck. Look forward to talking to you later, but enjoyed you on these calls. I got two questions. First of all, with regard to the gross margin guidance in the fourth quarter, if you take out the asset sale, I believe it's 160 basis points lower, which puts you below what we were expecting a bit. You mentioned some higher manufacturing costs. Could you just elaborate on that? And what the pressures are that kind of puts you without the sale below 14%? Megan Faust: Ben, this is Megan. I'll take that one. So normalizing for that asset sale, you've got the math right. So that sequential incremental flow-through is actually in line with our financial model. You'll see it's probably about 30% incremental. What's happening there probably compared to last Q4 is we do have a higher material content in Q4. If you look at last year, we actually had over 350 basis points drop in the material content between Q3 and Q4. That was related to a deeper communications drop last year. So that's effectively what's impacting margin in our Q4 guidance. And then you had a follow-up? Benjamin Reitzes: Yes. Just wondering if you could talk a little bit more about the communications segment. I'm sorry if you said this, but we're picking up indications that there's upside into 4Q with one of -- with your biggest customer at least. And I was wondering about the dynamics there on the consumer guide, if you can elaborate, are you seeing it? Or is there an offset in Android? Or is there a conservatism in your guidance for communications in particular? Giel Rutten: Thanks, Ben. Let me try to answer that question. Overall, I think the Communications segment, we're guiding down slightly into Q4, we see continued strength in Android, and that's also reflected in our guide. We see a slight tapering off in the iOS ecosystem. How that exactly reflects into end product outlook is difficult to say. I think we're a little bit deeper into the supply chain where we supply our services. I think for now, this is the exposure that we have, and we take that forecast in our guidance. Operator: [Operator Instructions] Your next question comes from Randy Abrams with UBS. Randy Abrams: Yes. I wanted to also congratulate you, Giel, just on the next chapter. It has been good working with you. I wanted to ask the first question on the Compute opportunities, where you mentioned the start of shipping the high-density fan-out. If you could go how you see the pipeline for AI and networking and also for the first tranche of CoWoS-S capacity, if you see opportunity to utilize that with some of the new products coming out? Giel Rutten: Let me take that, Randy. Well, first of all, thanks, with your congrats. With respect to the high-density fan-out opportunities, I mean we start shipping the first product in the quarter. We have two more products lined up, one with the same customer and the other with an external party. So we believe that, that high-density fan-out technologies, and I reiterate the question, let's say, the outlook that we shared last time, is a solid foundation of future growth for Amkor. And it was good to see the ramp going into this quarter and also into next quarter. So we expect that to continue. I think we see a strong outlook there. With respect to the 2.5D, I mean short term, we see a slight moderation there. Longer term, we see, let's say, a stronger potential pipeline coming up. And I think we had a review last couple of weeks with our customers on that specific technology, and that's signaled positive trends going forward. It may take a few more quarters before these products are going to be released, but it's encouraging to see that, that technology will continue to be a solid foundation also going forward. Randy Abrams: Okay. Good. And then my follow-up question on the system and package pipeline. This year, you gained back a key socket. It looks like two different things going on that improving, but the consumer pulled back. If you could talk broadly about SiP, how you see the pipeline into next year, continuing on the communication gain and then maybe what's happening on the consumer side. Giel Rutten: Yes. I think the sockets on the communication side, that is performing as expected. We're executing the ramp going into Q3 and Q4. And also there, I think the outlook for the full year is in line with what we shared in February, including the socket ramp. So we're pretty positive on the communication side. With respect to the consumer side, I mean the end product goes through a predicted and forecasted sequential decline. It's a cyclicality of that product portfolio. We're encouraged with next products that are being launched going forward in that same portfolio, but we expect that Q4, as guided, will be a correction and a further slowdown of that existing product. Operator: Your next question comes from Steven Fox with Fox Advisors. Steven Fox: I had a couple of questions as well. First, Megan, can you just round out some of the margin talk. You mentioned in the prepared remarks also that manufacturing costs were weighing year-over-year. So I was curious how much that is and where you are relative to sort of peak pressures on that? And the same thing for the material content mix, how do we think about that sort of ongoing pressures into next year? If there's any way to give clues on that? And then I had a follow up. Megan Faust: Sure, Steve. So with respect to the Q4 gross margin, year-over-year, there's really two things constraining flow through. One is the higher manufacturing costs, and that's really attributable to our leading-edge advanced technology, most of which Giel just mentioned, but having higher overhead and CapEx to support that ahead of scale. So as we build scale with those leading-edge advanced technologies, which we see that scaling well into 2026, that will not be a headwind. The other half is related to, what I would say, year-over-year unfavorable product mix. So the decline in our peak material content we had in Q3 to Q4 will probably be around 100 basis points compared to last year, which was over 300 basis points. And that's really attributable to a more stable SiP and a more normal seasonal pattern with regards to that sequential behavior. Steven Fox: Great. That's helpful. And then just bigger picture on the $7 billion investment for Arizona now. I guess if you can comment a little bit further than what has been described so far and like public comments about why the increase in investment, what does it signal about Amkor's opportunities longer term? And then I was curious, does it create any near-term opportunities like stamp of approval for winning near-term business in other parts of the world? Giel Rutten: Steve, let me comment to that. I mean, over the last, let's say, 12 months, we see an increased interest in U.S. manufacturing and that comes from multiple customers that is driving up local investments, not only in scale for silicon to be manufactured in the U.S., but also an increased demand for advanced packaging. So we're working very closely with these lead customers, but also with our foundry partner to scale the capacity that we put in place in line with demand of our lead customers. And that's the basis of the increased investment to $7 billion. You have to keep in mind that this investment is coming in different phases, and we stepped that up through two important phases with the two additional -- or a second additional building. And also, of course, we only put equipment then based on real market demand. But overall, we expect that the $7 billion is justified given the increased interest in the U.S., but also given the alignment that we have with lead customers here on to require capacity for U.S. manufacturing. Operator: Your next question comes from Craig Ellis with B. Riley Securities. Craig Ellis: Yes. and I'll start just by thanking you and wishing you well, Giel, for all the help. And then Kevin, look forward to working with you more intensely next year. On to the question, I think there was an indication that within the automotive and industrial end market, we saw broad strength that sounds like ADAS is starting to improve, as I think you expected three months ago against what's been a pretty tepid automotive market. Could you give us a sense for the potential for ADAS and some of your other programs to continue to benefit that segment as we look beyond 4Q into 2026? Giel Rutten: Thanks, Craig. Yes, let me try to answer that. I mean we expect, going forward, that advanced packaging in the automotive domain will continue to increase and will continue to drive growth. ADAS, it's a broad range of technology going into automotive, and we expect that, that will continue to grow certainly because of the proliferation of that functionality deeper into the car range, but also further electrification of the automotive market. So we expect that to continue over the next, I would say, a couple of years, and that will step-by-step move to a more self-driving functionality into the car and more connectivity into the automotive domain. We are well positioned there. I mean we're working with the leaders in the semiconductor area that deliver products in this functionality, and we're very pleased with our opportunities and pipeline there. The other positive element in the automotive domain is the recovery of our mainstream portfolio. We saw the second quarter of this year reaching a trough. And going into the third quarter, we see improvement, and we expect that to continue into the fourth quarter. And our customers signaling a strong, let's say, improvement of the overall inventory in the supply chain with a more balance there, and that ultimately will drive a more balanced revenue base in the automotive domain for Amkor. Craig Ellis: That's really helpful, Giel. And then I wanted to follow up with a clarification for Megan. Megan, nice to see the significant gross margin improvement coming from the facility rationalization in Japan. The question is, for the 100 basis point gross margin improvement by end next year, what's our baseline? Is it the adjusted fourth quarter level after taking out that $30 million benefit? Or were you pointing back to the third quarter as the baseline? Megan Faust: Thanks, Craig. Yes. So I would use our Q3 as our baseline, given we are going to begin seeing benefits moving into Q4. I did want to clarify the 100 basis point benefit, we had stated the full impact of that would be seen by the end of 2027. And that marks a 2-year activity, which is, for us, very standard as we're managing through rationalizations of this sort in Japan, supporting mainly an automotive customer base. Operator: And your next question comes from Joe Moore with Morgan Stanley. Joseph Moore: I wonder if you could just address the overall cyclical environment for the OSAT business. Are you seeing customers starting to get concerned about potential tightness and any impact that you could see -- have seen on like-for-like pricing and may see in the future on like-for-like pricing? Giel Rutten: Well, good question, Joe. Thanks for that. Across our portfolio of mainstream and advanced packaging, we see on the advanced packaging side in some pockets, tightness of supply where our lines are filling up quite significantly. That holds for, for example, a flip chip portfolio or some wafer level packaging. So I don't see tightness still occurring in the next quarter, but we see that in some pockets, there is tightness of supply, not only with respect to overcapacity, but there is also some limitations in certain areas, for example, substrates where we're working closely with suppliers to make sure that we have a continued supply base there. Joseph Moore: Okay. Great. And then in terms of the strength that you've seen in the smartphone business, any indication that any of that could be pull forward tariff related, anything like that? I mean it seems like there's pretty solid demand, but I just wanted you to address that because you get the question a lot? Giel Rutten: I mean it's difficult to say what next year will bring on the smartphone base. I mean for Amkor, it's important to reconfirm our position in this domain, both on the Android side as well as on the iOS side, where we can confirm that we are convinced that we have a very strong footprint on both sides of certainly the premium tier smartphones. We also see an increased evaluation of next-generation products in that supply chain, enabling future phones for more AI functionality as edge devices. When that will materialize in a change or increased semiconductor content, it's difficult to share with you at this moment, Joe. But overall, we're confident that we have a solid position in the market, difficult to predict how the individual phone segments will develop into next year. Joseph Moore: Congratulations again on your retirement. Operator: And your next question comes from Peter Peng with JPMorgan Chase & Company. Peter Peng: Giel, I want to echo my peers' comments as well and best of luck in your next chapter. Just on your CoWoS-L, there's increasingly more and more of your hyperscaler customers and merchant transitioning to CoWaS-L in their technology road maps. I know you guys have something equivalent to your S-Connect. Maybe you can share some update on the progress there with your S-Connect and how do you believe you're positioned in this area? Giel Rutten: Well, it's difficult to comment on CoWaS-L. We're working very closely with our foundry partner to make sure that we have a complementary supply chain in place. Current focus is very much on what we label high-density fan-out, an equivalent of CoWoS-R, and we see significant opportunities there. With respect to the other CoWoS-L, I think we're currently evaluating the on-substrate part of that technology in Asia as well as to make sure that we have a complementary supply chain put in place in the U.S. So overall, that's our approach there, Peter. But overall, I think the computing market has multiple opportunities for Amkor. I think we're working closely, both with customers as well as with the foundry partner going forward on the different technology domains. Peter Peng: Got it. Okay. And then maybe just you talked about some new ramps in your -- the CoWoS-R equivalent high-density fan-out. How is that going to impact seasonality as we think about the first half of next year? Is that anything significant that would alter seasonal? Or do you think those are like less beneficial until later on. Maybe just talk about seasonality and how you think about those products ramping? Giel Rutten: Well, seasonality for Amkor in the past and also now is, to a large extent, driven by our exposure to the communication market. I think there was a strong and there is a strong seasonality in the communication market. If you look to our other markets, be it automotive, computing and also consumer, there is less pronounced seasonality. So the product launches that we are referring to, we expect them to show significantly less seasonality. And with more growth in the compute domain that would ultimately level out the significant seasonality that we have, although we foresee, of course, that for the time to come, the Communications segment will be our biggest segment. Operator: And your next question comes from Tom Diffely with D.A. Davidson. Thomas Diffely: Congratulations, Giel, on your next chapter. So maybe just one more question on the new facility in Arizona. When you think about the $7 billion, the increase to $7 billion, how much of that is because of the extra capacity you're adding versus the increase in costs that we've seen kind of across the board these days in construction? Giel Rutten: Well, Tom, I think I can be short on that. This is exclusively related to the increased capacity that we are planning for. You may have been informed that we also moved the location of the factory to a different location, a location closer to the TSMC location that gives us twice the land area with an additional option to further expand with 50 acres for potentially a third facility. So that offers opportunity to grow. We're in close cooperation and in close alignment between the different partners and customers to make sure that we scale the facility correctly when it comes to scale, but also make sure that we ramp that facility with the right technology in line with what customers need in the U.S. So it is not related -- the increased investment is not related to the higher cost, it is strictly related to the capacity expansion. Thomas Diffely: Okay. Great. That's very encouraging. And then as a follow-up, when you think about the CapEx of $950 million for next year, how much of that is specifically for Arizona? Megan Faust: So Tom, I can take that. So we had increased our CapEx guide for 2025 to $950 million, and that was really driven by having more visibility in what we would need to spend in 2025. We have not yet given guide for CapEx for 2026. So we will give that at our next earnings call, along with more visibility on the timing and expense for the Arizona facility. Thomas Diffely: Okay. But the increase in '25 was all driven by Arizona being... Megan Faust: Correct. Operator: And your next question comes from Steve Barger with KeyBanc Capital Markets. Steve Barger: I had another compute question. Giel, I think RDL formats are replacing silicon interposer to some degree, which should be good for OSATs. How much of your CapEx has been to support RDL? And does that shift drive higher value add that translates to unit margins? Or would the primary benefit be volume? Giel Rutten: Steve, with respect to the relative CapEx that goes into the expansion of high-density fan-out, the RDL-based technology, it's a significant, I would say, the majority of our CapEx. I want to reiterate there that a large part of our capital investments when it comes to individual equipment is highly fungible, fungible between standard wafer level packaging, even bumping to 2.5D into the high-density fan-out. But if we look to the ramp that we're preparing for, and I have to correct myself, I think we're ramping up with our lead customers, 3 individual products and with the second customer, another product in the early part of the year. So there's a significant ramp expected, and we made a significant commitment to our customers to support that ramp where we are working in close cooperation with our lead customer there. So that's how we see the investment in high-density fan-out. Steve Barger: And I know it's being driven by compute right now, but what are the gating factors to the higher volume applications like PC or mobile? Are there technology challenges for those applications? Or is it just really a function of customers making the decision to go that direction? Giel Rutten: Yes. Good question, Steve. From our perspective, this technology will be applied in multiple domains. One is the data center domain, as we just discussed, but it definitely will go into the more higher volume PCs and ultimately also in the mobile communication domain. The technology is basically the same. I think we use the same production lines for that technology. Of course, the individual specification of the technology is slightly different for each application. But the basic capacity that we put in place is supporting products into -- in the PC domain as well as in the data center and communication domain. Operator: And your next question comes from Denis Pyatchanin with Needham & Company. Denis Pyatchanin: Great. Well, we'd like to mirror everyone's congratulations as well. And for a quick question about Computing. So Computing looks like it was up over 20% year-over-year. Can you discuss the key drivers of this growth? And if you will see these persisting into Q4, even with revenue guided down somewhat quarter-over-quarter? Giel Rutten: Yes, Denis. I mean Computing in the last quarter showed broad-based strength. I think all applications in the computing domain from PCs as well as networking as well as data center products were up in the quarter. And we expect that, that will continue. I mean we see on the more consumer products on the PC product, we still see strength, and that's also what the market predicts. But definitely also on the networking and data center product side, we see a continued strength. So overall, we're optimistic. We had a good quarter and a good year in Computing. We had a record in the third quarter. I have to remind you that the AI and the AI proliferation is just started. So there will be more products being developed going into the edge and edge devices as well as into networking and data centers. So we stay [Technical Difficulty] and we remain very optimistic there, and we're confident that we have a client there. Denis Pyatchanin: Great. And then for my follow-up, for communications, I think you mentioned strength in Android persisting into next quarter. Can you provide some more color on that, maybe perhaps by geography? Giel Rutten: That is difficult to say. I mean we believe that there is a trend in the Android market, and I also mentioned that last quarter, there is a trend to higher-end devices, so the premium tier smartphones, and that's a global trend. And I cannot go to individual customers there, Denis. We saw that there was inventory in that supply chain. But overall, we believe that currently, that inventory is digested. So overall, we are very positive on the Android players. Operator: And ladies and gentlemen, at this time, I'm showing no further questions. I would like to turn the call back over to Giel for closing remarks. Giel Rutten: Thank you. Now let me recap our key messages. Amkor delivered a strong third quarter with record revenue in both the Communications and Computing end markets. Fourth quarter revenue is expected to increase 12% year-on-year at the midpoint. We are focused on enhancing operational efficiency and optimizing our manufacturing footprint in Japan. And we look forward to hosting an Investor Day in mid-2026, where we will share financial targets and deeper insight in our long-term strategy. Thank you for joining the call today. Operator: Ladies and gentlemen, this concludes today's conference call. You may now disconnect.
Operator: Good morning, everyone, and welcome to the Westgold Resources Q1 FY '26 Quarterly Results Investor Update Webcast. Your first speaker for today is Wayne Bramwell, Managing Director and CEO. I'll now hand you over to Wayne. Wayne Bramwell: Thank you, Shane, and welcome, everyone, joining us today. On the call today, I have Aaron Rankine, our Chief Operating Officer; and Tommy Heng, our Chief Financial Officer. Today, I'll provide a quick overview of the Q1 FY '26 results. After that, Aaron and Tommy will each share an overview of their areas, and then we'll open the webinar up for questions. Let's jump straight in. Slide 4. Q1 marks a strong start to the new financial year. We delivered 83,937 ounces of gold at an all-in sustaining cost of $2,861 an ounce. which is in line with our guidance. Importantly, we generated an underlying cash build of $180 million and closed the quarter with $472 million in cash, bullion and liquid investments. This quarter also saw the release of our 3-year outlook, which outlines a clear pathway to 470,000 ounces of annual production by FY '28, while reducing our cost profile. This outlook is supported by a 24% increase in mineral resources to 16.3 million ounces and a 5% increase in ore reserves to 3.5 million ounces, reinforcing the long-term strength of our portfolio. Key to our value proposition is increasing returns to our shareholders. During the quarter, we declared a $0.03 per share final dividend for FY '25, upgraded our dividend policy for FY '26 and launched a 5% on-market share buyback program. All in all, Q1 FY '26 sets a solid foundation for the year ahead. With strong financials, growing reserves and a clear growth strategy, Westgold is well positioned to deliver its organic growth plans. Let's move to the next slide, Slide 5. Our total recordable injury frequency rate, TRIFR, improved to 5.04 this quarter, down from 5.67 in the previous quarter. This is a positive step and reflects the continued focus across our sites on embedding safer work practices and improving hazard awareness. Slide 6. We are building momentum. We've now delivered 3 consecutive quarters of cash builds, culminating in a $108 million increase this quarter for a total of $472 million in cash, bullion and liquid investments. Slide 7, FY '26 guidance maintained. We're off to a solid start in FY '26 with 83,937 ounces produced at an ASIC of $2,861 an ounce, both in line with guidance. As we flagged within our guidance, production is back ended in FY '26, and we're well poised to ramp up in H2 as planned. Slide 8. Resource and reserves continue to grow. During the quarter, we released updated resources and reserve statement. Encouragingly, we've again built upon our mineral resource base, growing it to 16.3 million ounces and lifting ore reserves to 3.5 million ounces. representing a 24% and 5% growth, respectively, over the last 12 months after depletion. Slide 9, the 3-year outlook. This quarter, we released our 3-year outlook, a high confidence, executable plan that sees Westgold grow from 326,000 ounces in FY '25 to 470,000 ounces by FY '28, while reducing our all-in sustaining cost to circa $2,500 an ounce. Importantly, this growth is organic and fully funded, underpinned by our existing portfolio of assets, 3.5 million ounces in ore reserves and circa 6 million tonnes per annum of processing capacity. Key, we're not relying on new discoveries or external deals. This is about maximizing performance from what we already have, higher-grade ore, better infrastructure and smarter capital allocation. We've built the foundation. Now we're focused on consistent execution. Slide 10. The 3-year outlook sets the baseline for what we're aiming to achieve, but it's important to note that there's plenty of upside not included in the plan. I won't go through all those listed on the slide here, but some key opportunities we're actively progressing to bring value forward include Bluebird South Junction Underground. The 3-year outlook assumes we reach 1.2 million tonnes per annum by FY '28, but we are targeting this rate by the start of FY '27. Higginsville mill expansion beyond 2.6 million tonnes per annum. Feasibility study work includes options up to 4 million tonnes per annum of capacity and also operational improvements. We have made substantial gains in this space, which have not been baked into the plan and is becoming more operationally efficient is a key focus during FY '26. These represent material upsides to our base case and reinforce the strength and flexibility of our portfolio. With that, I'll hand over to Aaron to talk in more detail about operations. Aaron Rankine: Thank you, Wayne, and welcome to all on the call today. Slide 13. Q1 was a quarter of planned consolidation, setting the foundations to accelerate production. Key milestones in the quarter include updated mine design and commencement of paste fill at Bluebird South Junction, completion of infrastructure upgrades at Beta Hunt, completion of scheduled processing maintenance shuts at all plants and first ore from the Crown Prince OPA. Whilst our production quarter-on-quarter was marginally down, we delivered to our plan. And it should be noted that whilst this was a consolidating quarter, it was the second highest gold production in the history of Westgold. Looking ahead, we see clear tangible opportunities to drive our production up and cost down with continued improvement in operational performance, the introduction of higher-grade Great Fingall ore, continued ramp-up at Blue Bird South Junction and optimizing Beta Hunt on the back of the improved infrastructure. Slide 14. Slide 14 gives us a closer look at the Murchison, where we produced 53,140 ounces, about 1,700 ounces lower than the last quarter. All 3 Murchison plants had major shuts scheduled in Q1, which was the main driver for the quarter-on-quarter reduction. The mining of slightly lower grade areas compared to Q4 also contributed to Fortnum's lower production in Q1. At the Bluebird South Junction mine, part of the Meekatharra Hub, we implemented paste fill and ramped up development of the finalized mine design on which I'll provide more detail on the next slide. This resulted in reduced mine tonnes compared to the prior quarter. This was, however, offset by higher grades from the mine, which contributed to a modest quarter-on-quarter improvement from the hub. The other contributor to improved production at Meekatharra was the early commencement of ore from Crown Prince via the ore purchase agreement with NMG. We had anticipated first ore from Crown Prince in November. However, we received 33,000 tonnes in September, of which we processed 24,000 tonnes during the quarter at 3.5 grams for 2,601 ounces. This had around a $13 million impact on our all-in sustaining costs. At Great Fingall, [indiscernible] mobilized seamlessly in September, and we're on track to deliver the first ore from virgin stopes in Q2. The total AISC for the Murchison was $163 million, about $25 million higher than the prior quarter. This cost increase was due mainly to the OPA and higher processing maintenance costs as part of the planned shutdown. Slide 15. Now I'd like to cover Bluebird South Junction in some more detail. Some great work has been done by our engineering teams to create the updated mine design you see on the slide for South Junction Zone. The new design mitigates the ground control issues that have delayed development to date, whilst enabling the productivity benefits of transverse mining by creating up to 10 active work areas per level and enabling continuous mining in the levels with segregation from paste fill exclusion zones. Paste filling for the South Junction zone has commenced without a hitch. Introducing paste supports large, highly productive stope shapes and allows full extraction of the South Junction ore body. Whilst the commencement had short-term impacts in Q1, we will start to see the benefits as production ramps up over the financial year. Let's jump to the Southern Gold Fields. Slide 18 summarizes the performance of our Southern Gold Fields operations. Production performance was consistent quarter-on-quarter on a mine-by-mine basis. We produced 30,797 ounces for the quarter. Whilst 2,400 ounces lower than the prior quarter, the main contributor for this was the opportunistic take-up of additional Lakewood tolling in Q4. 61,000 tonnes of stockpile were built in the Southern Gold Fields in the quarter. The stockpile buildup and a onetime noncash adjustment in relation to the Karora transaction resulted in a lower total all-in sustaining cost quarter-on-quarter. Critical for the outlook at Beta Hunt, several key infrastructure projects are now complete. These upgrades will nearly double the ventilation flows when operated at full capacity, circulate freshwater in and out of the mine and provide consistent and reliable power, supporting the mine production ramp-up toward a run rate of more than 2 million tonnes per annum. With that, I'll hand over to Tommy to talk to the financials. Su Heng: Thanks, Aaron, and hello to everyone on the call today. On to Slide 21. This slide quickly summarizes the strength of our financial performance in Q1 FY '26. We delivered a strong net mine cash flow of $133 million in the quarter, which can be characterized as one of consolidation and setup. This was driven by a combination of solid gold production and a realized gold price of $5,296 per ounce, which was $2,435 per ounce above our all-in sustaining cost of $2,861 per ounce. The gold sold figure of 94,913 ounces and therefore, monetizing the bullion buildup we had due to the timing of gold sales in the prior quarter. Westgold remains fully unhedged, giving us full exposure to the rising gold price. We closed the quarter with $472 million in cash. During the quarter, a $200 million credit facility we established back in October last year expired, leaving us with $100 million credit facility remaining, of which $50 million remains drawn. This positions us exceptionally well to fund growth, absorb volatility and continue delivering strong returns to shareholders. On to the cash flow waterfall graph on Slide 22. We built $108 million in cash, bullion and liquid investments this quarter, closing with $472 million on hand. Underlying cash build was $180 million before growth and exploration spend. This was driven by positive operating cash flows and supported by strong margins. On capital allocation, we invested $60 million on nonsustaining capital, comprising $39 million in growth projects, primarily at Blue Bird, South Junction and Great Fingall and a further $21 million in plant and equipment upgrades across the portfolio. These investments are aligned with our strategy to lift mine productivity and reducing our operating cost base. We continued our investment in exploration and resource definition, investing $12 million over the quarter. Overall, we're in a strong position. Our balance sheet is robust. Our investments are targeted, and we're well funded to execute our growth strategy. Slide 23. Before I hand back to Wayne to wrap up, I would like to touch on the shareholder returns. Westgold continues to deliver on its commitment to shareholder returns. We declared a $0.03 per share final dividend for FY '25 and have upgraded our dividend policy for FY '26 to reflect our growing confidence in the business. In addition, we launched a 5% on-market share buyback program, a clear signal of our belief in the value of our shares and our disciplined approach to capital management. These initiatives are underpinned by strong cash generation and robust balance sheet, positioning us to continue rewarding shareholders while investing in growth. With that, I'll hand back to Wayne. Wayne Bramwell: Thank you, Tommy. Let's jump to Slide 25, divesting noncore assets. Westgold's strategy is to focus on our larger operating assets. Consistent with this plan, this quarter, we commenced the divestment process of our noncore Peak Hill, Mt Henry Celine and Chalice assets, all of which do not feature in the 3-year outlook or longer-term production plans. Slide 26. Q1 was a solid start to FY '26. In the Murchison, our Meekatharra Hub continues to produce cash as grades lift from the Bluebird South Junction underground and Crown Prince open pits. In the Southern Gold Fields, the key mine infrastructure upgrades are complete, setting the Beta Hunt mine up for higher outputs from Q2 onwards. Importantly, we built cash again this quarter, closing the quarter with $472 million in cash, bullion and liquid investments. With that, I will close the formal presentation and open the webinar up for questions. Operator: Thank you, Wayne. [Operator Instructions]. Your first question, Wayne, comes from Kyle, and it is what triggers the buybacks to kick in? Wayne Bramwell: Thanks for that, Kyle. This facility, the share buyback facility was set up last quarter. But for the large part of it, we were in blackout periods and couldn't buy the stock. We have a view of value in this business. And once the price gets to under that value, we'll buy. Operator: Next question comes from Larry. Wayne and team, can I understand Lakewood's tolling better? Is it 50 kilotonnes per annum per quarter as you mine 87 kilotonnes per annum more than processed? So will this present as a potential risk being short mill capacity as Beta Hunt ramps up? Aaron Rankine: Aaron here. So yes, with Lakewood, the locked-in tolling capacity is 50,000 tonnes a quarter. In Q4, we opportunistically took up a gap in the Lakewood schedule that Black Cat offered us. So 50,000 tonnes a quarter going forward. In terms of mill capacity, no, we're basically set up in our mine plans and milling capacity to be able to build a stockpile, and that's what we've considered in our guidance. Operator: There's no further questions at this time. So if you'd like to make any concluding remarks. Wayne Bramwell: Just in closing, I would like to make one statement. the cash don't lie. We built cash again this quarter, and this is the third quarter in a row past sort of the integration of the Karora assets that we've done that. The business is gaining momentum. We've started to see an inflection point at Meekatharra. And now with the capital projects completed at Beta Hunt, we expect the outputs from the Southern Gold Fields to lift. Thanks for everyone for patching in today. We're back to work.
Irakli Gilauri: Good morning and welcome to Q3 earnings call. Thanks, everybody, for joining and finding time. Today, we are going to talk about the 5 different topics. First of all, I'll talk about the key developments and in our -- in Q3. We'll talk about the performance of Q3 and 9 months. Then we will have our portfolio companies, CEOs talking about their respective large portfolio -- large company performance. As you saw, the numbers are staggering. It's really top performance our CEOs are showing, and it will be good to discuss with them outlook as well. Giorgi, our CFO, will talk about the portfolio company valuation and liquidity and dividend outlook. And in the end, I'll do the wrap-up and followed by the Q&A session. So let me start with the highlights. So NAV per share in quarter, it grew nearly 8%, excellent performance, both by Lion Finance Group share price performance. But most importantly, our private large portfolio company showed an excellent operating performance, and they continue to deliver staggering results, 30% -- nearly 30% EBITDA growth in Q3. And it's been a 9 months performance been also 30-plus. So that's kind of one of the [indiscernible] large portfolio companies. [indiscernible] our goal is to be a debt-free at GCAP level. $50 million is really a very small debt for us, but we still want to do debt-free holdco. In terms of the NCC ratio, we improved to 5.4%. That's another kind of a good development. We continue to buy back our shares. 1.4 million shares was bought back in Q3. In total, 15.2 million shares we bought for $221 million looking at the average price, what we have bought, the 15.2 million shares is really a big value creation we created by the buyback. So that's kind of another reason to like or love buybacks. We did -- our healthcare group did the acquisition, bolt-on acquisition, a small one, but we like the pricing and we like the momentum that our management is delivering. They have been delivering excellent performance, operating performance. And I think it's a great platform for us to invest more money to make -- to grow our business even further. And I think that was kind of [indiscernible] what our management has executed. We also entered the MSCI index [indiscernible] index, which played a positive role in the [indiscernible] share price -- of our shares in general, sorry. Let me give you an overlook of the progress of the GEL 700 million capital return program, which we announced in August this year. Nearly half of this program is done, $100 million is the paydown of the debt and out of $50 million, nearly $26 million we already executed in buybacks, and we continue to execute on the remaining $24 million. Now the -- so you see on the next slide, the progress. And you see that after delivering of $50 million buyback, only GEL 300 million will be left to return to the shareholders. So it's kind of -- we are moving in a very lightening progress on this [indiscernible] 1.5 years earlier. It seems like we'll be delivering this capital return program earlier than we anticipated in the beginning. I want to just highlight this, Giorgi, our CFO, put this slide together, and I like this slide because it's kind of reflects on the ownership of GCAP shares. So by holding the 100 GCAP shares -- sorry, ownership of the Bank of Georgia shares through GCAP. So if you hold the 100% GCAP shares, you used to hold 20.4 Bank of Georgia shares. in December 2020 for instance. And that has changed over time. And now it's actually you hold more 21.8 shares, which reflects the -- reflects our buybacks basically. And in reality, we did sell down a little bit Bank of Georgia because of the PFIC's reasons. But at the same time, by buying back GCAP shares, we actually didn't really change much the ownership of the Bank of Georgia's shares through GCAP. So that's kind of reflects that we have -- our shareholders have a good exposure on Bank of Georgia performance. I want to update now on the capital market [indiscernible] has been generating in the local market, and we are more and more relying on the exits or capital raising -- the capital raising on the local market, and we like this fact very much. For instance, GEL 350 million of debt in was raised by our health care group at 3.75% margin. That is kind of the 5-year maturity and the funds [indiscernible] our health care [indiscernible] out what the health care business did. On the other hand, our hospitality business issued very small bond on one of our hotels, which we sold most of the other hotels, but we have one hotel remaining in Gudauri ski resort. And we think it's a good asset, and we think we want to sell it at a good price. So we are not in a rush here, and we decided to raise a $10 million bond. It's a small bond, but it actually reflects well that we can -- even small businesses can access the capital markets locally. So this is an acquisition earlier I talked about the health care business, bolt-on acquisition. We bought -- it's less than 4x EBITDA -- forward-looking EBITDA, this business, and we think that integration and synergies, I mean, I think that the 4x is a safe way to assume that we can achieve the 4x for next year. Now the economy continues to perform extremely well in every sense. One thing which needs to be highlighted is the National Bank reserves, which have been accumulating pretty fast. In the past 3 quarters, GEL 1.5 billion unprecedented interventions and the National Bank [indiscernible] bought the $1.5 billion of reserves. And now it's a record high at $5.4 billion international reserves. So in terms of the GDP growth, we see [indiscernible] higher growth than the IMF does. So let me talk about the NAV development, NAV per share development. So 7.9% increase was mainly driven by Bank of Georgia share price increase and the operating performance of our large portfolio companies. The good thing that we haven't changed anything on the multiple side. So we had a 4.6 percentage point gain on Bank of Georgia and 2.8 percentage point gain on operating performance of all our large companies. So then we had buybacks at 1.2 percentage point positive impact. Emerging and other portfolio companies also contributed positively at nearly 0.5%. Operating performance was minus 0.2% and other was 0.9 percentage points. This mainly reflects the litigation case -- legacy litigation case, what we had in the past, which has been now done and over. In terms of -- on Slide 12, you see NAV growth over the [indiscernible] past 3 years, we have achieved 33%; 5 years, 29% COG and 18% CAGR we have achieved since the GCAP inception. So 18% is needs to be improved for sure, but we are very happy with 3% and 5% NAV COG growth for sure. In terms of the free cash flow, [indiscernible] Slide 13, you see that after the paydown of debt, our pro forma free cash flow increased from $48 million in '24 to $63 million. So -- but the growth is even more attractive per share basis because we were buying back the shares meanwhile. So per share, our free cash flow has increased by 45.6%, [indiscernible] important we are not tiring of talking about the buybacks. And we have bought back 15 million shares plus with $221 million. And now we are at 35.4 million shares, all-time low number of shares. We are really fighting the share count. We like the share count [indiscernible] discount and where we are. Now let [indiscernible] revenue is up -- on Slide 16. Revenue is up 13.5% in Q3. 9 months is 16.2% increase. Q3 EBITDA 29.5% increase and 9 months, 34%. So really, this continues the high growth momentum, and we are happy that our management of portfolio companies are delivering, and I will talk about why they are so good later on. Here, you see the cash flow development, same growth, high growth here. In the 9 months, we have 20.7% free cash flow growth. In Q3, we had 3.7%, which will -- in Q4, we will most likely see a way higher growth in cash flow as we will have more cash coming in pre-Christmas. And you have aggregate cash balances also growing of our portfolio companies stands at GEL 250 million. Now on NCC development, we have as I said, we have 5.4% NCC, which has been decreased nearly 3x over the year. One thing which we need to highlight that our contingency liquidity buffer of $50 million will be decreased due to this litigation case is over. Also, the debt levels in GCAP has decreased and our portfolio companies are a very healthy leverage ratio. So we don't need to have such a huge liquidity buffer of $50 million in Q4 [indiscernible] substantially. NCC ratio development here, you see that's coming down and we were at a record 42.5%, and we are at 5.4% of that. It's a nice development. It's along with our announced strategy of delevering the GCAP. Now let me hand over to the Retail Pharmacy CEO, Tornike, who will talk about the performance of our retail pharmacy business. And then we will have the insurance company CEO, Giorgi [indiscernible], talking about insurance and then Irakli Gilauri, CEO of Healthcare business, who will talk about the developments in health care business. Tornike Nikolaishvili: Hello, everyone. I'm pleased to share a brief business overview and update on the performance of our retail pharmacy business for the third quarter and 9 months of 2025. Let me remind that our business consists of 3 main directions: retail, wholesale business and international operations. Retail business is our core, generating around 75% of our revenue. Wholesale business is our biggest focus for growth. And in international, we are, let's say, in a start-up mode, believing to expand further in the region. We have a unique category structure in retail, having around 50% share of non-medication versus med category. So non-med category can be described by higher margins and no price regulation risks. Based on 2023 figures, we continue to be the largest player in the retail pharmacy market in Georgia with around 36% market share in organized trade. We are operating under 2 well-positioned retail brands, GPC, which targets the high-end segment and Pharmadepot serving the mass market. We also operate 2 franchise brands, the Bodyshop and Alain Afflelou (Optics) and are active in Armenia and in Azerbaijan as well. We expanded our network by 8 new pharmacies added in Q3, including 1 additional in Armenia, most of them in cost-efficient formats that require limited capital. So as of September 2025, we operate 438 pharmacies. So in terms of -- in the next slide, please, in terms of operating performance, our retail revenue grew by 6.1% in 9 months and 7.5% in quarter 3, respectively, supported by same-store growth of 5.3% and 6.6% in 9 months and quarter 3. This was despite the exit from our textile retail business, which slightly affected the headline growth. We are encouraged by this trend as it reflects healthy consumer demand and solid in-store execution. As in Q2, we continued strong growth on the wholesale side. Revenue grew by 33% as we continue to deliver on our strategic focus to grow in wholesale. It was achieved across all wholesale channels, mainly driven by increased product availability. So we also increased the average bill size around -- by around 10% year-over-year and gross profit margins improved to record high 33.4% in quarter 3, driven by a better sales mix and improved supplier terms. So on the next slide, let me share how it's translated in financial performance. So EBITDA grew by 30.6% in 9 months. We reached record high GEL 73.7 million. And in quarter 3 alone, EBITDA grew by 18%. And cash conversion from EBITDA is back on 90% plus threshold for 9 months due to strong quarter 3 performance. From a balance sheet standpoint, we remain cautious and disciplined. Our adjusted net debt to LTM EBITDA continued to improve, reaching 1.3x, which is below our target ceiling of 1.5x. We also distributed GEL 10 million in dividends during the quarter. In addition, we plan to distribute GEL 15 million dividends in quarter 4. Thus, in total, the dividend for the year will be GEL 35 million, reflecting confidence in our cash flow and overall financial health. So on the next and last slide, let me summarize. We have maintained solid revenue momentum, especially with same-store sales growth and strong wholesale results. Profitability has improved, supported by gross profit margin improvement and prudent cost discipline. Leverage remains at a healthy level, giving us flexibility for future investments and shareholder returns. Thank you again for your time. I'm happy to take your questions during Q&A session. Now let me hand over to Giorgi [indiscernible]. Unknown Executive: Thank you, Tornike. Hello, ladies and gentlemen. I will overview the insurance business today. Our insurance business comprises of 2 main business lines that we divide its property and casualty that is run under the brand name of Aldagi and we run another line of business, the main line of business, medical insurance under the meds brand of Imedi L and the medium to upper affluent brand under the name of Ardi. I would like to underline that Q3 was a record high, and I would say the record high during the existence of the insurance business in GCAP, and I will dive you in both business lines separately. So to go to the insurance revenues, our insurance revenue grew by 9% and 9 months over 9 months, the growth was almost 30%. Our pretax profit grew even more by 22% and 9 months over 9 months grew by 23%. Just a quick update on the key operating data. We have a growth of 11% in net premium written, while our P&C business grew by 14%, while the medical grew by 8%. Going forward into the separate slides and separate business lines. There are -- at this point, there are 19 insurance companies operating on the territory of Georgia and ALDAGI, our P&C business line -- business provider is the undisputed leader with 35% of market share with the closest captive company with 23%. So there's quite a big difference between the second player and ALDAGI. We had an amazing growth in insurance revenues of 16% Q-over-Q and almost more than 20% 9 months over 9 months. The main expansion was driven by the retail motor portfolio as retail remains a key strategic focus on our agenda together with the credit life insurance. The good point is that our net profits -- our pretax profit grew even more than the revenues that underlines our healthy portfolios and the disciplined underwriting. The pretax profit grew by 23% and that translates into the record high ROEs of more than 40%. That is a historic high that we never envisaged. Key operating data, net premiums written grew by 14%, as I have already mentioned. And the good point is that the combined ratios were improved by almost 1.1 points, driving it down -- they're dragging it down to 83%. Individual insurance grew by 14%, while the insurance written policies grew by 13%. The renewal rate stays still very high and promising at 75%. The good point to just -- again to underline is the good accomplishment that I would like to underline is the combined ratio that is mainly driven by the improved loss ratios in the corporate motor segment that was announced last year that we will be eliminating loss-making clients and dragging down the combined ratio. So the moves that we put into life are effective, and we are really happy with the management and the actions that they took -- they put into life and our combined ratios are in our target of 85% to them in the medium term. Going to the health insurance, we had also another record high health insurance quarter in terms of the profitability, even though the revenue in Q3 was minor because of elimination of a few big loss-making clients and a few state tenders that we didn't participate in. But going forward, we think that Q4 will be -- will return to double-digit growth. 9 months over 9 months was about 40% growth in health insurance. The actions that we put on in Life was mainly reflects the loss ratio improvement by 1.3%, and we had an 18% record high increase also in single quarter of 18% for the single policy issued. Pretax profit grew at 15%. That translates into record high ROEs of about 38%. Key operating metrics, net premiums written grew by 8%. Combined ratios went down, and that is -- I'm happy that it is because of the eliminating loss-making clients in Q3 and not participating in a few big state tenders, putting down our combined ratio by 1 point. Individual insurers are a bit down because of not participating in the state tenders, while the corporate segment grew by 17%, I mean, direct insurance. The renewal rate still remains very strong at 80%, which is considered very high and very strong in the health insurance. Both brands are doing very well. Ardi has launched our higher affluent brand has launched the new application, the new digital solutions and Imedi L also has launched the new updates for the web that was translated into 73% of the digital bookings putting down -- bringing down the costs and affecting our combined ratio. That is in line with our digitalization of all brands, all 3 brands in total. So going forward and a few words, the medical insurance still also remains the leader on the market. We hold about 32% of the market share that is in line in the appetite of 30% to 35% of targeted market. Going forward, and a few words to remember about Q3. We had an outstanding performance in both P&C and medical insurance, resulting in record high profit and all-time high ROEs of 40% -- more than 40% in P&C and almost 40% in health insurance. We had an exceptional result in motor insurance, especially the corporate motor that underlines again the healthy underwriting and the healthy portfolios in the middle of our operating principle. New brand identity was launched for the -- and transformation was done in both brands of health insurance, Imedi and Ardi and the new digital solutions were also launched in both health insurance lines. We paid almost GEL 2 million in Q3, translating into GEL 15.6 million and more cash to come to GCAP in Q4. The expectations are very good and very promising. We are hoping for even better Q4 and in both P&C and health insurance throughout all 3 insurance companies in revenues and in profits. So that was in short about the health and P&C business, insurance business. And let's wait for the Q4. I do hope that it will be much better. Thank you. And I'll pass the floor to Irakli Gilauri, who will underline our Healthcare business. Irakli Gilauri: Hello, everyone. I will walk you through Healthcare Services business latest results. I'm very pleased to report another strong quarter. We continued our focus on the outpatient direction by attracting new doctors and diversifying our services. We also optimized our revenue mix and improved patient retention. As a result, our outpatient revenue grew by 28% year-over-year in third quarter and share of outpatient revenues grew further by 2.4 percentage points from 40.8% to 43.2%. We launched new services in several hospitals and clinics addressing previously underserved medical needs. This includes the introduction of our arthroscopy sports medicine, gynecology and interventional cardiology in several hospitals. Our initiatives helped us to deliver 20% revenue growth with our EBITDA growing by 46% in Q3 and EBITDA margin surpassing 19% as well. Our last 12 months EBITDA reached GEL 89 million, up from GEL 58 million from September 2024 result, which led to net debt-to-EBITDA decrease from 5x to 3.8x. On the next slide, in our hospitals business, in third quarter 2025, we delivered revenue growth of 19% and EBITDA growth of 44%. Operating cash flows grew by 39% during 9 months of 2025. And we think that Q4 cash conversion will be very decent. Occupancy rates increased by 8.5 percentage points during the same period, while the average length of stay decreased by 0.3 days as a result of our efficiency-focused initiatives. On the next slide, in the polyclinics business, number of admissions increased by 8%, while number of tests performed in our Diagnostics business increased by 15%. This resulted in revenue growth of 26% and EBITDA growth of 55%. In Diagnostics business, we still operate at below 50% capacity and intend to increase our utilization significantly going forward. On the next slide, we signed a binding agreement to acquire Gormed, a regional health care network with 3 clinics and -- in the Central Georgia. The transaction is subject to approval by the competition agency. Gormed covers 3 cities with combined population of circa 300,000 people with 80,000 registered patients. Most notably, we entered Gori, Georgia's fifth largest city. Through this acquisition, we are strengthening our regional network in Southern and Central Georgia, enhancing our patient referrals and optimizing staff utilization across 7 interconnected clinics. In 2 cities, the Gormed was our only competitor pressuring our margins, and the acquisition will enable us to merge the 2 hospitals and extract synergies and increase effectiveness. The acquisition offers 2026 EBITDA multiple of under 4x we expect an improvement of 0.6 percentage points in annualized ROIC on the Healthcare Services business level, demonstrating our continued focus on shareholder value creation. That concludes my part of the presentation, and I will hand over to Giorgi Alpaidze. Giorgi Alpaidze: Thank you, Irakli. Hello, everyone. I will briefly take you through what these excellent results mean for GCAP's balance sheet and our NAV statement. So starting with the overview, we updated the valuations based on the internal valuation mechanisms. This is in line with what our independent third-party valuation company Kroll does every 6 months. So this time, we looked at the DCFs, we looked at how the projections that were set forth at the 6 months period, the results were actually delivered over -- in the third quarter. And overwhelmingly, all our large portfolio companies actually delivered higher EBITDA, higher revenues than what we were projecting at the end of June. This has helped us create value across the board. Briefly in the overall overview, we did have a little bit of sales in the Lion Finance Group shares, but still it continues to be the largest investment that we have on our NAV. It was 47% of our portfolio. Within the private portfolio investments, retail pharmacy was the largest business, followed by health care services and the insurance business. On the next slide, you will see that the multiple development in the third quarter was pretty much in line with the multiples at the end of the second quarter with only small minor increase in insurance, but it was broadly in line. On the next slide, you will see that how these multiples affected the portfolio value development. So overall, the portfolio value increased by GEL 100 million. However, it was a result of many movements. In the Lion Finance Group, you see this decrease, but that was because of the dividends that we received in the quarter, which was actually a combination of the full year dividends of 2024 plus the interim dividends where the ex-dividend date actually fell in September. So we had to record those dividends in the third quarter as well. And also the sales where we sold about 600,000 shares of Lion Finance Group that also resulted in the decrease of the stake. But overall, we recorded gains in the Lion Finance Group. In the private portfolio, the excellent growth meant that the retail pharmacy business contributed about GEL 51 million to our P&L. That includes the value creation within the business, but also the dividends that they paid us. That was followed by Healthcare Services business at GEL 40 million and insurance at GEL 36 million. Now on the next slide, you will see how these value creation is translated into the new portfolio values or the latest portfolio valuations for each business. Within Retail Pharmacy, the EBITDA growth that Tornike spoke about was GEL 42 million P&L impact for GCAP that was driven by EBITDA and additional GEL 4 million from the positive net debt change where the net debt improved, notwithstanding the GEL 10 million dividends that they paid us. So that's how we get to overall about GEL 50 million profit within our third quarter NAV statement from retail pharmacy. In insurance, we also had a 5.1% growth because of the growth in the net income, which you saw on the previous slides across the board in P&C insurance and the medical insurance that was also supported by the net debt change. And overall, this value was created by the net income growth and the strong cash flow performance. In the Healthcare Services business, EBITDA growth delivered GEL 60 million. That was partially offset by the cash conversion as the operating cash conversion in the third quarter was relatively low that we expect to recover, as Irakli mentioned earlier, in the fourth quarter. So we would expect this net debt change to be reversed as we go into the fourth quarter. But overall, the Healthcare business did deliver about GEL 40 million value creation for us. Now this concludes the valuations and briefly into the liquidity. Our liquidity continues to be very strong even as the gross debt balance that we have carried, as you can see on the top of this chart, has been reducing over time. Despite that, our liquidity has increased. We finished the quarter with $77 million worth of liquidity, which for the first time since GCAP's demerger from Bank of Georgia Group, we actually had a positive net cash balance given that our gross debt is only $20 million, we were actually negative net debt or net cash of $27 million. And then now on the next slide, we are now projecting the increase in our dividend inflows from previous GEL 180 million. We now expect GEL 200 million, around circa GEL 200 million. We have so far collected, as you see on the slide, GEL 168 million, but as it was mentioned earlier by the private portfolio companies, we expect to get more dividends from the pharmacy business as well as from the insurance business. And on top, our other portfolio companies, renewable energy and the auto services will be also paying us more dividends, which we think in the fourth quarter will bring the full year to GEL 200 million dividends. What's important here, I would highlight that on a per share basis, given the number of shares that we bought back this year, which is more than 10% so far, this means that we will be having about 31% growth on a per share basis in terms of the dividend inflows per share. That concludes my presentation and over to Irakli for the wrap-up of this excellent set of results. Irakli Gilauri: Thank you, Giorgi. So I will not repeat all the points what we have here. But basically, I think the short summary is that we have excellent performance and team is delivering. Q4 outlook is also looks positive. Economies continues to grow. Our companies continue to deliver. So let's move on the Q&A session. Operator: [Operator Instructions] So as I see, we have first question from Dmitry. Dmitry? Dmitry Vlasov: Congratulations on a really good set of results. I have 4 questions, please. The first one is on the ongoing capital allocation. You did great progress for your GEL 700 million. You paid down a good amount of debt. And now my question is about the priority between buybacks and debt maybe for the next 10 months. What should we expect? What would be the priority for you? Would it be buyback or debt? That's the first. Irakli Gilauri: Thanks, Dmitry. I think that even the fact that the leverage is really low level [indiscernible] our priority is buyback, especially at the current NAV discount level. So that's clearly a buyback at this discount level for sure. Dmitry Vlasov: Got it. And the second question is about Lion Finance Group. I understand that's your key holding and pays you very good dividends. But maybe in the near future, do you plan to trim the stake a little more or you are currently happy at the current position? Irakli Gilauri: We are happy with the current position. The only thing I don't know whether you follow this PFIC development that we had, and we had to trim a little bit off. So basically, that's kind of where we are, but we are happy with LFG holding. It continues to perform well. It's a very well-run bank. We have a very good geography and the economy. So... Dmitry Vlasov: That's clear. Then the next one is on the Healthcare segment regarding the deal, which you've done. Obviously, the multiple is very good. My question is on the EBITDA impact for the 2026. I mean it's a small one, but just to double check whether you expect any near-term pressure on the EBITDA margin maybe in the first quarter or the second quarter of 2026 or you don't expect any of that? Irakli Gilauri: On Healthcare, we don't expect EBITDA margin pressure at all. We are actually expanding EBITDA margin, as you see, and we will continue to expand because we are adding more profitable services. We are making more efficient operations. I mean this is kind of a small acquisition, but it gives you a flavor at what prices we have the appetite to invest, allocate the capital. And basically, I think that will a little bit of helps to grow the business and grow the profitability, generate more cash, and that's what we are for here. Dmitry Vlasov: Understood. That's very clear. And the last one is on Armenia in pharmacy business. If you could give me an update about the current market share and how it developed over the last 12 months. It's quite an attractive market. Irakli Gilauri: I think it's better we have Tornike talking about that, our CEO of Pharmacy business. Tornike? Tornike Nikolaishvili: So thank you for the question. So in Armenia, unfortunately, we don't count the market share because as we do in Georgia, it's transparent how the big companies are reporting their data, but it's not the case for Armenian market. So we don't have -- and the market also is very fragmented in Armenia. The key accounts as they are holding in Georgia around 90% of total market. It's very much fragmented in Armenia. Operator: Now I will read out the question that we have in the question-and-answer panel. So the question comes from Eduardo Lopez. Congrats all Georgia Capital team. Here are some questions. On retail, can you give us more color in relation to strong wholesale growth and evolution of international expansion? And the second question is about the insurance. Could you give us an insight in the breakdown of growth volume and price, especially in P&C insurance? Could you also comment the evolution of reinsurance business and potential unit economics? Irakli Gilauri: I think let's have Tornike and Giorgi answering these questions right. Tornike Nikolaishvili: Thank you. So for wholesale, let me mention that the biggest impact for our wholesale business, such a big growth is the portfolio enhancement, in fact, which means that we have -- partially, we have additional new contracts for exclusive brands and products, which we are selling in wholesale in all channels. And the second part is that we opened for our existing portfolio, which we are selling before, let's say, exclusively in our retail. But now we opened that for big pharma key accounts and also pharma traditional trade as well. So that gave us a results there. Unknown Executive: So I will answer the first question about the pricing. So the first question is about the pricing and mainly our actuaries and underwriters are looking at the portfolio analysis. So mainly last year and in Q3, we had a growth in corporate motor. So we adjusted the prices according to the loss ratios that we look at and we usually monitor the portfolios. So we are always pricing our products at market price and even more so a bit more than the market price because of the brand and because of our high NPS. So whenever there is a yellow flag from our actuaries, of course, we reprice the price, mainly it's in P&C, where we use the actuarial opinion in each line. As far as for the health insurance, of course, it's really in collaboration with the health care providers, health service providers. So -- and they are also adjusted annually or maybe even twice per annum because of the growing demand and utilization. So we see -- in health insurance, we see quite a big utilization because of the AI developed quite well. And this year, we had 2 adjustments because our patients usually ask ChatGPT -- ask AI tools and then they come directly to the doctors and ask for the prescription. So we need -- so utilization is growing, meaning that we need to adjust the prices. So we always have our hands on the pulls to keep the combined ratios at a healthy level. So we put the healthy portfolios in the middle of our working principles. So that's the first part. In terms of the international inward reinsurance, the development is really, really good. As you know, in Q2, our P&C business has been upgraded to the investment rating, and we became the first company in Georgia with the investment grading. Our announced strategy was there is that we will keep up to 10% of the total revenues at this point in the medium term for the inward reinsurance. And the good news is that we had a meeting with our reinsurance rate and they increased our inward reinsurance limit from USD 5 million to USD 15 million, and that's the recent development. So because of the prudent underwriting and the good healthy portfolios also in the inward reinsurance. So what we should expect is that we should expect the growth in inward reinsurance, but we'll take it really cautiously. We are learning the market. We are learning the region, but we really love this business to be presented in the region without any equity and using our treaties -- reinsurance treaties. So the first one is, yes, we will be developing. We will be increasing our portfolios, but cautiously, up to 10% of our total revenues. And the good development is that -- recent development is that our main partner, Hannover Re granted us increased -- tripled our inward reinsurance limit from USD 5 million to USD 15 million that's the recent development. So that is the answer. Operator: So the next question comes from Ben. Ben, you can talk now. Benjamin Maher: Can you hear me? Irakli Gilauri: Yes, yes. Benjamin Maher: I've got a few. The first one is on the capital return program. You -- this is obviously meant to run to the end of 2027, but you're tracking well ahead of that at the moment. So would you expect to announce another program next year possibly? That's my first question. The second question is just on acquisitions. So the acquisition of health care business, that seems to be positive and done at a good price. Should we expect bolt-on acquisitions and buybacks rather than larger M&A until the discount to NAV narrows? And then kind of related to that, what discount to NAV would buybacks no longer make sense for you guys? Just on the existing investments you have, do you expect to monetize any of these in the near term? Or is that more of an end 2026, 2027 event? And then my final question is just on the dividend guidance. So I saw that you upgraded it for this year, but I was just wondering to give us -- if you're able to give us any color for the dividend you expect in 2026 and beyond. Irakli Gilauri: So let me start with the capital return program. Yes, we did say end of 2027. It seems like we are moving faster, and we may do in '26 announce a new one once we finish. But I don't want to make a new deadline. So far, we are working with 2027. And last program, you know that we did 1.5 years earlier, we finished 1.5 years earlier than originally anticipated. So let's see how we go about here. As you saw on the slide, we had a GEL 300 million -- only GEL 300 million will be left after we are done with $50 million buyback program. Now in terms of the healthcare acquisition and the expectations about the investments, basically, we always said that we are running very simple capital allocation strategy. If we can find somebody with cheaper than GCAP, we'll buy it. So before, when we were running at 50%, 60% NAV discount, it was impossible to find anything. So now we did -- and we were only doing the buybacks. Now that it decreased the NAV discount is at 32%, we could have -- we found some things, not a lot, but some things we did find. So we don't expect to find many at 32% discount to NAV. So we may find from time to time some acquisition opportunities, which we will pursue. And it will be a very simple, can we buy this company cheaper than we can buy the [indiscernible]? It's a very simple question we need to answer every time we make an investment. So we found in health care and we bought it. And we don't expect to find a lot at the 32% plus discount to the fair price. [indiscernible] at this discount level. Once we will be trading at a premium, then we probably will be investing more. So that's kind of a very simple approach. Regarding the monetizations, monetizations are not planned or et cetera. They are, in a way, it's periodic. And we see -- if we see the opportunity to sell, we do that. And we -- of course, we look at the GCAP discount levels. More discount closes down on GCAP share price, more difficult will be to sell and so it's easier to sell at a higher discount than a lower discount. So it's basically very simple straightforward capital allocation program we run. It is scientific, but there is some art involved in this as well. As it's not -- mathematically, you cannot really measure everything what is the investment in health care in the region versus the investing in GCAP, it's not dissimilar. So it has to be -- the GCAP investment is way better than the investing in the regions in health care. So basically, there is a lot of science, but we also use art there. In terms of the dividend outlook, so far, we did announce the 2026, what we are expecting, and we will announce '27 outlook towards the end of the Giorgi, our CFO correct me if I'm wrong, when we will be announcing the dividend outlook for '27. Giorgi Alpaidze: So for '26, so we announced '25. So we will be announcing for '26 as we publish our fourth quarter numbers. But at the moment, we do expect that number to grow compared to 2025, Ben. Benjamin Maher: Okay. Can I just ask one more quick question if we have time. Just again related to acquisitions. Given all the hard work you've been doing through buybacks to reduce the share count back down to before the merger level, I assume that going forward, you wouldn't expect to issue further shares to fund an acquisition? Or is that something that you still would look at potentially to try and finance another acquisition? Irakli Gilauri: The buyback is not a hard work, to be honest, it's very simple work. We just don't work much. Actually, we just buy back. Buying something is hard work. You need to do due diligence, negotiation, et cetera. So we would rather do little and do the buybacks, to be honest. Sorry, I did not fully catch the question. Benjamin Maher: No, that's fair enough. I'm just wondering if going forward, would you -- should we expect the share count to increase ever again? Or are you quite keen to keep it... Irakli Gilauri: No, no. We don't like share count to increase. We like share count decreasing. No, I mean, our goal is to become a permanent capital vehicle, which is basically don't issue new capital and reinvest. So if we want to invest something somewhere, we need to sell something. And if we need to -- we can do the bridge, we can attract some bridge loans if we want to invest somewhere. But -- and then have a very clear path of repaying this loan. And so we have a very firm commitment of not increasing the number of shares. Contrary, we want to decrease. So we like the share count decreasing. We have our internal targets, how far down we want to go. It's actually 1 share. But so far, we are a long way to go -- we have a long way to go. Operator: So next question comes from [indiscernible]. Unknown Analyst: Can you hear me? Irakli Gilauri: Yes. Unknown Analyst: Yes. I wrote my questions on chat as well, so I will just read them out. With regard to the Imedi litigation, given that it was stated that there was low perceived risk in the annual report of '24, I just wanted to ask, firstly, if you have an updated view on the other [ BGA ] litigation and what was mentioned in the pharma. And if you think more provisions might be needed there, if you have anything relevant to share? Irakli Gilauri: No. At this stage, basically, we don't anticipate anything -- any provisions. We did have on NCC, the liquidity buffer on Imedi L, and we did have some provision to that Imedi L basically. But that unfortunately, it worked out that way. But at this stage, we don't see any need to provision anything else. Unknown Analyst: Okay. And secondly, I mentioned the returns that you're putting up in the insurance segment is truly phenomenal. I just want to see if you think this is sustainable and how you strategize if so, to keep those returns? How is the market -- the Georgian insurance market looking overall? Is that above market level returns you're earning? Is it not? And yes, just some commentary around how the returns on equity can be so exceptional in your insurance business. Irakli Gilauri: Giorgi, maybe you want... Unknown Executive: Yes. I'll take the question. Yes. Thanks for the question. So to start with the first part, we've been producing the exceptional return on equity for the last 10 years. So we are outperforming the market twice for the last 10 years. So -- and it's not for 1 or last 2 years. For last 10 years, Aldagi has -- our P&C business has produced twice high ROEs than the market, meaning that our main principle and the approach is that we put in the middle, the disciplined underwriting. So we don't jump from one side to another. We follow our strategy that is a disciplined underwriting, meaning that we are very sure and the management is sure that the high ROEs and the profitability and the returns we provide is very sustainable because of the healthy loss ratios that we keep. And our strategy is to keep the loss ratios in the range of 85 -- from 85% to 87% in the medium term for the next 5 years. And we've been doing this for the last 10 years, meaning that even there -- the market is very fragmented. There are 3 main players, but the idea is that we don't dampen the prices. We follow our brand and we follow our underwriting. So meaning that we are not going -- the returns will be sustained for the last -- I mean, for coming years that we are really, really sure. The competition is quite high, but the main players, I mean, are 3. The rest are small. And yes, that's it mainly that allows us to keep the high returns with the exceptional. And we are the only company in Georgia, mainly keeping the big division of the actuaries. So we do not make any decision without the actuarial opinion, and they have the right to raise yellow and red flags and every decision made by the company is made by the recommendation of the actuaries. And we will keep and we will stick to the disciplined underwriting in the coming years. Unknown Analyst: Okay. That's great. I mean the combination of growth and underwriting margin in your insurance business is truly spectacular. So congratulations. What's -- a quick follow-up maybe on that. What's the name of the 3 competitors or the 3 main players? Unknown Executive: Yes, the main group, there are 3 main competitors as us. One -- is one us. The second is the Vienna Insurance Group. We only have one international player at this point present with the Vienna Insurance Group by 2 companies. And the third one is a Captive Insurance company which is owned by one of the banks. 100% -- mainly dependent -- mainly which is dependent on the bank portfolios. Unknown Analyst: All right. And if I may, just a last final one. With regards to the whole PFIC situation, has there been any discussion around alternative solutions here? It just seems to me that Bank of Georgia can be very strongly argued to be your cheapest asset and your cheapest investment based on contribution to NAV. And then it seems this will be preventing monetization in other mature businesses, for example, health care, given that a big return of cash would prevent you to do buybacks or return that to shareholders, and you would again cross the PFIC limit by quite a lot. Just keen to hear if you have any comments and thoughts on this dynamic and if you explored other solutions. Irakli Gilauri: So basically, we are -- to be honest, this -- the Bank of Georgia thing we had to fix it quickly because it nearly doubled from year-end. So basically, it has happened in such a short period of time. We didn't have anything else to fix that problem other than they trim the Bank of Georgia. So in 6 months when the share price nearly doubles, it's very difficult to come up with alternatives. I'd love to come up with alternatives. But at that point of time, we didn't have any alternative. Unknown Analyst: Do you have any other alternatives going forward if -- given Bank of Georgia is still relatively lowly rated, if this would continue? Irakli Gilauri: Basically, we are exploring [indiscernible]. I don't know, U.S.A. that overnight or in a couple of months, 3 months, it's not happening like that. You need time to monetize business in Georgia. Giorgi Alpaidze: So [indiscernible], for example, as we grow our private portfolio as the assets on the private portfolio side grow, that is helping to keep the passive share of assets down when it comes to Bank of Georgia. For example, this acquisition, which is not yet complete, but the bolt-on in the health care business, it adds the asset base. It adds the land, it adds the building value, et cetera. That's positive for PFIC, for example. Unknown Analyst: Yes, of course, of course. I'm just saying it seems like you're so far been selling your cheapest assets based on rating. Giorgi Alpaidze: But at the same time, we've been buying back. That's why we had that one slide, which shows you that even when we are selling, when you look at it on a look-through basis, you still own same amount of -- or more amount of Bank of Georgia shares than what you own 3 years ago or 4 years ago, for example. Unknown Analyst: No, of course. Yes, very clear. Operator: Thank you, [indiscernible], for the interesting questions. We also have one question in our Q&A panel. The question comes from Barry Cohen. And the question is, what does the management think team think is the spread between the discount to NAV tightens enough where use of capital shifts to portfolio investments versus share repurchases? Irakli Gilauri: I think we answered that question basically, it is as NAV discount gets lower, smaller, more investment opportunities come and will come to us. So that's kind of -- will be available for us to make an investment. So it's a process. Operator: Perfect. And the last question that we have is from [indiscernible]. It seems like you took the slides out of the presentation regarding focusing on capital-light businesses versus capital intensive. And you also made a capital-intensive acquisition, albeit a cheap one. Is that is a sign of a change in strategy? Irakli Gilauri: No, no, I don't know whether we took a slide off. It's a very good observation, but this slide should be -- should go back in there. I think that this acquisition was mostly opportunistic and it improves the exitability of the health care business. So basically, I mean, we don't -- we cannot say that we cannot invest -- if we invest that we improve the exit opportunity, why not? So no, we did not -- we are not changing our strategy. We are very much committed to the capital-light. And this acquisition was pretty much the, first of all, very small ticket size. Second, it was a bolt-on to our current business. And thirdly, it is improving the exit opportunity for our capital-heavy business basically. Giorgi Alpaidze: And if I were to add just 2 things, and we didn't take out any slides, Bret, maybe it's in a different presentation. But one thing that's great about this bolt-on is it comes with no leverage. They have no debt, and we're buying this at less than 4x. You can imagine we can leverage this at 3x, and we only put down 1x as an equity. So as directly said, it was a very attractive structure in that sense. I don't know, over to you. Any more questions? Operator: Yes. Thank you. Thanks, Giorgi. No, there are no pending questions currently. If some of you want to -- or have any questions, please do not hesitate to write it in a Q&A panel or raise your hands. Irakli Gilauri: It seems like there are no further questions. Thanks for your time, and stay tuned for Q4 as we continue to deliver on the results -- great results. Thank you.
Operator: Good morning, ladies and gentlemen. Welcome to Galp's Third Quarter 2025 Results Presentation. I will now pass the floor to Joao Goncalves Pereira, Head of Investor Relations. Joao Pereira: Good morning, everyone, and welcome to Galp's Third Quarter of 2025 Q&A session. In the room with me, I have both our co-CEOs, Maria Joao Carioca and Joao Marques da Silva as well as the full executive team. But before passing the mic for some quick opening remarks, let me start by our usual disclaimer. During today's session, we'll be making forward-looking statements that are based on our current estimates. Actual results could differ due to factors outlined in our cautionary statements within the published materials. With this, Joao, would you like to say a few words? Joao Diogo da Silva: Thank you, Joao, and good morning, everyone. We have a couple of Joaos around here. Well, the third quarter was a strong one for Galp. Solid operating performance according businesses testifies our strong operating momentum. In Brazil, upstream production continued elevated with 115,000 barrels per day, driven by high availabilities of the fleet during the quarter. This gives us confidence on ending the year close to the upper end of our 150,000 to 110,000 guidance. On top of that, Bacalhau reached first oil just a few weeks ago, a very important milestone, a key project for Galp, which will drive our free cash flow growth in the coming years. Well, but meanwhile, in Iberia, we've captured strong seasonal trends in downstream businesses, particularly in refining and in commercial, where we posted a record high quarter EBITDA. As EVP of Commercial as well, congratulations to the team with results above pre-COVID levels. Although macro environment continues volatile and challenging, Galp operates a highly resilient portfolio with a 2026 dividend breakeven just below $40. Resilience and short-term growth underpins our distinctive investment case. Maria Joao, a few comments. Maria Joao Carioca: Thank you, Joao. Indeed, quite a few rounds around here, but strong operating performance across businesses translating into robust cash delivery. I believe that's the highlight for this quarter. Just looking at the 9 months operating cash flow, we are flattish against 2024, whereas Brent is down more than $10. So this is illustrative of the resilience that we just discussed. And on that same note of execution towards resilience, this quarter, we further reduced net debt and reinforced our financial position. Net debt is now at 0.4x. This is a reassuring level when facing the current volatility in commodity prices, it's also a solid ground on which to develop our value-accretive opportunities in the portfolio. Looking at the full year and even though we're not upgrading guidance today, we're confident that we will exceed our group EBITDA and OCF guidance based on the strong performance across the asset base so far. We acknowledge that Namibia remains the most relevant aspect in Galp's equity story. So looking into the ongoing bilateral discussions, these are showing good progress, and we maintain confidence in our time line and in establishing a strong partnership that will allow us to accelerate and to prioritize Mopane. Operator, we may now take questions. Thank you. Operator: [Operator Instructions] We will now go to our first question today and the question comes from the line of Alejandro Vigil Garcia from Santander. Alejandro Vigil: Congratulations for the strong results. The first question is if you can -- of course, very difficult. If you can give us some color about the -- what are you thinking about the Mopane farm down in terms of the structure, in terms of the -- in general, how you are seeing this -- the momentum of this transaction? And the second question, also probably difficult at this point is in terms of next year. If you can give us some color about how is projections about production next year Bacalhau start-up. You can give us some color initial, even qualitative about the next year guidance. Maria Joao Carioca: So let me start with Mopane. As you know, we've been commenting on the fact that we are very, very focused on achieving a partnership that will help us drive the asset forward. So at this time, we're still not diving into details. I believe it's still critical for us to make sure that our priorities are clear. And I think the conversations we've had so far and the bidders we've engaged with speak to those priorities. We were very keen on making sure that we had an experienced operator with us to make sure that the asset moves forward at the pace and with the priority that we see conducive to good value creation for Galp. We've been reporting and we're very glad to continue to engage in conversations with bidders, and those bidders are all very experienced operators with very relevant track records. So this is where we are. I think with those bidders sitting down to talk to us, what we're doing is making sure that we get very clear alignment on progressing Mopane. And that has been conversations, that has been the tone of the conversation and progressing well. So we're very confident on making this partnership a success by year-end. And I think that is clearly the focus and the color available at this time. On next year, so Bacalhau is very, very early days, but it's a good start. We've been, of course, testing and making sure that the early numbers and the early performance of the assets are consistent with what we were expecting so far, good news. So excluding Bacalhau, we were expecting production to be fundamentally flattish. So this is on top of what are, we believe, best practice declining rates in our assets in Brazil. So we continue to have an expectation of under 5% decline rates, particularly in Tupi and Iracema. We're working towards not only sustaining, but actually making sure that we perform above those thresholds. So there is an infill campaign under execution to continue to drive the performance of those assets. So that leads us in the end to this flattish performance that I mentioned. And on top of that, you will have Bacalhau. Bacalhau will, of course, be ramping up. So we don't expect it to get to full plateau until 2027. Operator: Your next question today comes from the line of Biraj Borkhataria from RBC. Biraj Borkhataria: The first one is just on CapEx for next year. There's obviously one big uncertain piece, which is Namibia and any carry you might get. But are you able to give some color on what you expect to spend in 2026 CapEx if we were to exclude Namibia? And then the second question is just on the financial framework. You have now EUR 1.2 billion of debt and obviously, Bacalhau is ramping up as well. In the past, you showed a chart highlighting that you had roughly EUR 1.2 billion of capital employed in your low carbon segment. I was wondering if that's still the case. And the reason I ask is I'm trying to understand if there's a sort of structural level of net debt for that part of the business because it would be helpful to think -- as we think about sort of excess payouts and uses of free cash flow. Maria Joao Carioca: Thank you, Biraj. Very comprehensive set of questions. So on CapEx and adding a bit more color to what I mentioned before, we're not revising our net CapEx guidance. So still at a little bit under EUR 0.8 billion per annum on the '25 to '26 period. So that is still the overall guidance. Now this year, we had, of course, approximately EUR 800 million from the announced divestments. So this leaves us with gross CapEx of about EUR 2.4 billion accumulated in the period. Now for 2026, we do expect numbers to be slightly lighter than in '25, but it's still a challenging year. So Bacalhau is still going to be ramping up. We are going to be keeping pace towards conclusion of our transition investments in Sines. And we have what is our normal run rate, so to say, of approximately EUR 400 million per year of CapEx. So if you dive a little bit into what that entails other than the upstream run rate CapEx, you also get maintained investments in renewables. We're still foreseeing approximately EUR 150 million to EUR 200 million in our renewables portfolio. And commercial has an ongoing transformation and digitalization program, and that is approximately another, I'd say, EUR 100 million per year. So all in all, we're maintaining, of course, a very disciplined approach. We continue to aim for a capital-light structure, but still guiding up to approximately EUR 0.8 billion per year because we are still in the critical stage of a number of these investments we have in the portfolio. On the financial framework and following up from our CapEx approach, so in terms of capital employed, you mentioned the numbers for our transition and for our low carbon investments. I believe we now hold approximately EUR 1.5 billion to EUR 1.6 billion in our capital employed that pertain to that type of assets and that type of approach. On debt, fundamentally, what we have is debt being managed at the corporate level. So in terms of what we see as our structural level, this reflects to a large extent, the free cash flow generation we have in our businesses and of course, the fact that we continue to drive our CapEx towards -- a significant portion of it being towards transition. Approximately, I'd say it's about 65% of our CapEx is still transformation. So there, of course, the numbers that we were guiding for in terms of CapEx and hence, net debt. Operator: Your next question comes from the line of Matt Smith from Bank of America. Matthew Smith: I wanted to ask -- try a couple of questions on Namibia, if I could. And the first would be, I mean, you're clearly focused on seeing the asset developed as soon as possible. So I just wanted to double check the details on that, whether that meant taking FID on the Northwest region as soon as possible, given that region is fully appraised? Or would you be open to seeing the Southeast region appraised as the next step? Or is there a red line on that topic? Or are you open to discussions with a potential new operator? So that would be the first part. And then the second part, perhaps more high level, you're clearly looking to solve for alignment on the acceleration of these assets. I mean I just wondered whether you're able to share any high-level thoughts as to how you think that can be achieved as part of the deal structure. And perhaps like a bolt-on to that, maybe it's related, maybe it's not, but a question that we're hearing more and more, would you be open to any form of asset swap as part of the transaction, if you're able to comment on that? Maria Joao Carioca: Thank you, Matt. So on Namibia, indeed, the focus is very much making sure that we align with our partners. So we do have our own technical teams looking at the assets and incorporating all the information that we absorbed. So again, it feels like it was a very long time ago, but we went through a very fast stage of drilling and finding new information. It was critical to derisk the asset, and we are now using that information, processing it ourselves and also sharing it with our prospective buyers and developing a perspective on the asset based on that. So we're very open and the teams have indeed been progressing as we acquire more knowledge and as we -- part of the conversations with our partners has also been conducive to that shared understanding, open to perspectives on the asset, not closed on which of the Northwest versus Southeast clusters needs to be the core driver for an initial development, very open to a perspective that is just the one that drives the best space for the asset overall. As for the deal structure, again, very, very early to close on what could be a deal structure. We are, of course, trying to make sure that debt structure sets the right alignment and the right perspective in moving forward with the deal. So here, I guess, fundamentally, what we're trying to make sure is that when we are considering eventual asset swaps, those are open in the discussion as long as they allow us for clear visibility on the type of return we're getting out of the Mopane assets and as long as that those also don't hinder our visibility on how to progress further with Mopane. Operator: Your next question comes from the line of Pedro Alves from CaixaBank. Pedro Alves: The first one on the 2025 outlook. Perhaps if you can share a bit more details on what drives the upside to your latest official guidance. I think we have here different moving parts in upstream production, clearly with very good availability of the fleet. But in Q4, probably you will resume some stoppages. And then in Industrial and Midstream, which probably carries the bulk of the upside to your targets, certainly above the EUR 800 million of EBIT last guided. But it's also true that you will carry heavy maintenance in refining now in this Q4. So at the consolidated level, I think it was widely expected that you would exceed guidance. I guess the question is, are you comfortable with the consensus now at around EUR 3 billion for the full year? And the second question on the recent Orange Basin discoveries in Namibia and some of your neighbors. Have you noticed that this is driving any change in the market appetite or dynamics in the talks as you engage with your potential partners for Mopane. I mean these new finds obviously raise visibility on the basin, but does waiting longer for Galp risks giving prospective buyers other alternatives to elsewhere in the basin? Joao Diogo da Silva: So I'll start with the 2025 guidance. And in fact, we are on the back of a very strong quarter, but we will not be tweaking every quarter the guidance. We are very comfortable with the previous guidance. On that revised guidance, we revised also, well, the trading conditions, we've included the Venture Global volumes. That was the major point. And as you say, we will have a last quarter with a turnaround in Sines. That's what will hit us on the fourth quarter. We still have some support on the margin side, on the refining margin side, well, supported by demand that we could call stronger than expected, but also with the supply underperformance on the new capacity, which is not coming into play as it was expected. We are also -- well, entering into the heating season and some refiners as ours will go into maintenance that will also make some support. And overall, on the downstream, we have a very strong position in Iberia. We delivered very strong results in the third quarter, but we are entering the low season. So we expect to be prudent, maintaining the previous guidance. Midstream will be, for sure, supportive, and that's all for now. Maria Joao Carioca: Thank you. So maybe I'll pick up on the second question from Pedro on our perspective concerning Namibia and recent developments, if I recall correct your question. So Pedro, we normally abstain from commenting on what we see in the market coming out as news from other players. But generally, yes, I acknowledge the perspective you put forth as we hear news from other players and from drilling ongoing, -- and as we see what's coming out of the different players there, I mean, recently, we've heard news from Rhino. We've heard news from BW. What we still see is a basin that is very young in terms of its prospective development, but one where there's a convergence of developments that give it room for growth, and we see the concentration of interest there as very conducive to that growth actually taking place. We also see alignment in its core stakeholders. Relationships with local authorities with the government continue. There's continued interest. There's a good vision of what is the importance of having full support to the development of the asset. So all in all, what we're seeing is still a very young basin, but one where prospects continue to be conducive to investment taking place, and we continue to like the risk of the assets. So we will be farming down a bit, but still holding on to a relevant perspective -- a relevant percentage. So I think that speaks the loudest on the overview we continue to have of the basin and of Mopane in particular. Operator: Your next question comes from the line of Alessandro Pozzi from Mediobanca. Alessandro Pozzi: 2 for me. The first one on commercial, strong results in Q3. And just wondering if you can maybe give us your view on whether the results that we've seen in this quarter is just a function of a much stronger seasonality than usual or whether there is a structural change that would support a further improvement into 2026? And the second question is more on financials. Working capital, I think it was a positive movement during the quarter, but still negative for the 9 months. Maybe if you can give us any guidance on Q4. Joao Diogo da Silva: Thank you, Alessandro. It's indeed a very strong quarter. On commercial, we need to assume, well, we have some tailwinds. It's always the stronger quarter of the year. So when you perform well on the stronger quarter of the year, it's an important one. I would, well, divide in 2 main aspects of the business referring to your transformation claim. So we have, of course, better news from the Spanish side after -- well, a number of volumes were removed from the market related with players that were not playing in a level brownfield. So that's one. So very supportive volumes with around 20% year-on-year growth on the fuel side. But on the second hand, we have a fully revamped nonfuel business. nonfuel as per today is contributing nearly 30% nonfuel and new business, nearly at 30% of the full delivered value on this business. So that's something that we need to sustain. Today, more than half of our tickets are nonfuel, less than half are tobacco, which was clearly a very strong anchor on the path. So if you ask me on the 2026 view, we will be clearly aiming to surpass the $300 million. That's what we will deliver this year. But of course, with the growing electric mobility network that is already on the breakeven, we've crossed the 9,000 charges mark this year, and that's also very important because as of today, we are offering a complete diverse offer to the customer when he enters into our commercial retail network, and that's one, but also supported as an integrated play. So the play with industrial, the play with midstream, it's an integrated play. And we are taking advantage of that also. So strong results and surely for the next year, above the EUR 300 million. Maria Joao Carioca: On working capital, so maybe to put in perspective, the 9 months of this year reflect the fact that actually we ended 2024 with a particularly low level of working capital. There were very few cargoes in transit. So overall, we had a working capital level that we knew was going to be adjusted throughout 2025. And a couple of events up to the beginning of that early 2025 that impacted, the bad weather and the blackout in the Iberian Peninsula had an impact in our accounts. But fundamentally, we're returning to regular levels, not much to highlight there in terms of working capital all within expectations. Operator: Your next question comes from the line of Alastair Syme from Citi. Alastair Syme: In your negotiations on Namibia, are you finding broad agreement on the asset resources? I ask simply because it's quite a long time since you've updated the market on the resources. You've talked about EUR 10 billion plus in place, significant volumes of light oil. I mean are these statements that you think the prospective buyers agree with? I ask because I think this is why the sales process broke down last year. So just to get a sense of where that's at. And then secondly, very quickly, can you talk to upstream tax rates? You were low in 2Q, you're low again this quarter. What's going on? And what do you think the rate is that we should be using in our models going forward? Maria Joao Carioca: Thanks, Alastair. So let me pick up on the Namibia. So no issues in terms of agreement as to what our asset resources in place in Mopane is. It's a topic for technical discussion, of course. But actually, as we share information and as we have the technical teams engaged, I believe there is significant alignment and the vision we have on where the most interesting areas of the assets lie and what those represent in terms of potential overall asset resources have not been an issue of stress or an issue of disagreement at all. Quite on the contrary, very supportive and aligned discussions. So on upstream, the second part of your question, what do you see in tax rates? Actually, I believe you see it on the overall tax rate for the integrated portfolio, it does reflect the fact that in this quarter, in particular, the weight -- the relative weight of upstream in our overall portfolio was lower. So as upstream usually has a higher tax incidence when you have very good performances across other businesses, so industrial delivering, midstream delivering, commercial, as we mentioned already, with record high levels, that brings our overall tax rate down, and I believe that was what you were referring to. Operator: Your next question comes from the line of Joshua Stone from UBS. Joshua Eliot Stone: 2 questions, please. One on Venture Global. Just if you can give any indication of when you expect a decision on the arbitration there and any expectation around what to expect, noting that we've seen different outcomes for different plaintiffs so far? And then second, on Namibia, thank you for the additional insight. I just wonder, are you able to say how many partners you're still in talks with after your short list? I'm just trying to gauge competitive tension and how that's changed during the process, which seems quite important for you. Joao Diogo da Silva: On Venture Global, we are not expecting any outcome before next year, and that's it. Maria Joao Carioca: On Namibia then, we're not commenting on how many partners. It's plural. I think the critical thing to us all very experienced operators, as I mentioned before, competitive tension has been in play, productive conversations. So I think the conditions for a good progress have been met, and we've been engaging with partners, different paces, but still good conversations and good progress so far. Thank you. Operator: Your next question comes from the line of Irene Himona from Bernstein. Irene Himona: My first question is on refining in the fourth quarter. Your maintenance will last about 6 weeks. We can work out the utilization. But can you give us a sense of where your unit margins in refining may move to in relation to the $3.2 in Q3? Are we looking at something around $5, for example? And then my second question on the upstream in Q3, you alluded to the fact that your sales were higher than your production. Can you perhaps quantify that? So what were your sales in the quarter? And what was the EBITDA benefit of that overlift? Joao Diogo da Silva: So on the first one, so we -- well, we are expecting the turnaround to go until mid-November. We will have Plant 1 and the FCC around 50 to 45 days together at the same time. So on the quarter, we are expecting negative contribution from refining. That's what we are taking at this point. Of course, this contribution will be offset by a strong continued contribution on the midstream side. Maria Joao Carioca: On upstream, I believe what you're referring to is the fact that this quarter, we have a lower number of cargoes in transit. So that equates a little bit to having sold more than what we actually produced. The overall impact we estimate from that, so it was approximately one less cargo in transit that we had before. The value we estimate for that is of approximately EUR 40 million, that's EUR 4-0 million. All in all, what we see is still strong production being at the top range of what is our current guidance of 105,000 to 110,000. So this effect we registered in the quarter was fundamentally ongoing normal progress of operations and just transiting the cargoes as they come into our possession. Operator: Your next question comes from the line of Ignacio Domenech from JB Capital. Ignacio Doménech: The first one is on exploration on Sao Tome e Principe. So Shell recently spud a well there, and I would assume that will be looking to do the same in 2026. So just wanted to know your thoughts on the exploration campaign there, if there is any commitment by that to do any drilling in the next year? And my second question is a follow-up on the declining rates in Brazil. I think you mentioned that production, excluding Bacalhau, should be flat next year. So if you can elaborate a bit on the declining rates there? And maybe if there's been any change in the recovery factor at Tupi? Maria Joao Carioca: Thank you, Ignacio. So starting with Sao Tome e Prince, STP. No commitments so far. We do see the development in the recent activity -- the activity by Shell to be something that we will incorporate in our thought. As you know, we're looking at Sao Tome e Prince for its potential, high potential exploratory region. We do have plans to spud there in '26 to '27. But again, the information that is coming up on Block 10, and that's not a block we're in, but that information will be important in adjusting our perspective. Having said this, we are very aware of how important our growth profile is as a differentiating factor. So we're always looking at our assets and making sure that we're addressing them in a way that delivers at pace with our profile. I guess that's the perfect segue into your question about how do we see our declining rates in Brazil. So I mentioned that we're currently having -- experiencing declining rates of approximately 5% in the portfolio as a whole. And this is, as we see it very good performances. We would expect that for the type of depth and the type of assets that we're operating, declining annual rates would be in the neighborhood of 8%. We're actually delivering at below that in 5%. That delivery is in -- that concern with that type of best practice delivery is precisely what's behind the flattish production for next year. So next year, we will have the input or the uptick, if you'd like, from the infill campaigns that are under execution. So those when they come in, they allow us to halt a little bit the natural decline rate. It is already a best-performing decline rate vis-a-vis similar assets. So that's where we're standing there. Operator: [Operator Instructions] And your next question today comes from the line of Matt Lofting from JPMorgan. Matthew Lofting: 2, if I could, please. First, clearly, the second and third quarters have been very strong quarters operationally for Galp, which I'd like to congratulate you all on. You indicated this morning that you now expect to surpass the sort of the full year guidance, which was only updated in the summer. So I wondered if you could just expand on what areas of the business have outperformed the expectations or the baseline that you had in the summer? How much of that is a higher refining margin? How much of it is non-refining? And then secondly, I think you communicated earlier this month that Galp had formally notified Mozambique on the dispute concerning the capital gains situation in the country. Could you update on the latest status there, please, and your thoughts on it? Maria Joao Carioca: Thanks, Matt. Let me start with how we performed so far and what the best tell us for our guidance. So I think overall, it's been good performance across all businesses. But looking into the fourth quarter, what we expect is that coming in on top of what has been very good production in upstream. So we still expect to be at the upper level of the reference we gave on 105,000 to 110,000. So that is, of course, a good driver towards our results. If you add to that the combined performances of the remaining businesses that will add to the overall perspective of delivering above the current consensus. So no particular focus there, just general throughout the portfolio, good performance, if anything, top-tier performance in terms of what we had guided for in upstream. Joao, do you want to comment on Mozambique? Joao Diogo da Silva: I will. Thank you, Matt. So at this point, international arbitration was triggered, but we need to say that we are continuing to pursue a constructive engagement with Mozambique. Well, Galp is in Mozambique for more than 65 years at this point. We've invested more than EUR 1.1 billion in upstream projects. We are very, very, very present on the downstream business with terminals. So that's a country that we fully respect. However, on this case, the government estimates based on accounting books share capital disregards fully all the investments made in upstream. And Galp does not contest its tax obligation. But of course, we need to challenge incorrect and inconsistent interpretation of the law. And that's something that creates uncertainty and that we need to fight and to help Mozambique. So at this point, we don't have any provision recognized in the books. It's fully supported by our external assessment that reiterates our position. So we believe there are no legal grounds to sustain the account claim. But more than that, I finish where I started. We are very, very engaged to pursue a solution with the government and we fully respect. So hopefully, we will find that solution soon. Operator: Your next question today comes from the line of Paul Redman from BNP Paribas. Paul Redman: I wanted to come at Namibia maybe with a slightly different angle, but you talked about in your press release the fact you had a bunch of nonbinding offers through the summer and now you have a short list. I just wanted to ask, is there anything you can say on what drove that shortlist? Was it partner? Was it the valuation, FID dates, start of production date? Any color here would be really useful. And just also on Namibia, just trying to work out, I think I get a sense from who's answering which questions kind of as co-CEOs, who's running the process? Or are you both involved in the process? And then secondly, just on Mozambique, does the arbitration put any risk on the cash expected in 4Q '25? And secondly, have you thought about if Rovuma LNG does get FID-ed, how you would think to allocate that cash in 2026? Maria Joao Carioca: Paul, I do tend to answer many of your questions, but we're all fully engaged, and I'm sure Joao would likely take up. But then again, on your question here, the shortlist notion is fundamentally taking into consideration the prospective offers we got, the pace at which the different bidders were able to address the questions that we engaged and actually the depth and the comprehensiveness of the analysis that was entailed in the initial offers. So fundamentally, we've moved at a faster pace with those players that had the best positioning and had the best ability to engage in the discussions that came in the later stages after the initial offer there. So on Mozambique, maybe just to comment on the cash issue, what Joao just mentioned, we continue a dialogue with the Mozambican government. We've also been continuing our dialogue with our advisers in terms of making sure that our position on what is the due tax is further explained and strengthened. So we don't expect any additional cash issues or cash risks in the fourth quarter concerning this topic. We do expect conversations with the Mozambican government to continue, and we do see conditions for us to continue our presence in Mozambique. I think I would underline what Joao mentioned before, this is a market where we've been for a very long time. We respect our institutional obligations. We are just pursuing the due course of the law. So finally, I believe there was an additional question there on Rovuma FID in 2026. For cautionary reasons, we do not include any additional proceeds in our numbers. So we've seen positive news in recent days. We'll see how those proceed. And hopefully, there will be an FID, but we will we will expect news on that front. We have not yet included that as an upside in our numbers. If those come along, it plays into the discussion we were having before then maybe is a big elephant in the room, a lot of what will be our future discussion in terms of how to go from there. It will be something that we will bring up once the deal is concluded. Operator: Your next question today comes from the line of Nash Cui from Barclays. Naisheng Cui: 2, please. The first one is on distribution. Galp delivered a very strong earnings and cash flow and net debt has coming down. I wonder if you could talk about how we should think about cash distribution in 2026, please? Then the second question is on refining margin outlook. I know your Sines refinery is going to be back online very soon. How do you see refining margin in November, December and into Q1, please? Maria Joao Carioca: Thanks, Nash. So let me start with distribution. We are maintaining for now our 1/3 of OCF guideline. But we see that as something that has been very aligned to the type of consistency and predictability going together with the flexibility that we value considering ongoing processes such as Namibia. So the 1/3 OCF, again, together with what we've been delivering in terms of cash dividend growth, that's about 4% per annum with the flexibility to give an uptick such as the one we had last year, acknowledging favorable conditions. So this gives us sufficient room for -- as growth comes through our balance sheet and our P&L, we are indeed sharing that and distributing that to our shareholders. We like the consistency through the cycle of having a steady guideline based on OCF. And you have seen us use buybacks as kind of the plug-in number to ensure additional performance flows through to investors as we release it. So no expectations all in all to change this overall guideline. We do believe it will serve us well, and it will allow us to flow through any good performance in terms of cash generation straight through to our shareholders. Joao Diogo da Silva: And Nash, on the refining outlook, I've made a couple of mentions to the demand -- supply-demand balance at this point. So we are we are expecting, if we think forward on the first Q, we are expecting some part of the underperformance of the new capacity, [indiscernible], we are assuming that they will come back in full potential. So that's one. On the second hand, we will be in the heating season and some refiners will be into maintenance on the last quarter, but they will come back, hopefully. That will be the case of Sines. So that's another one. And thirdly, at this point, we know that we have lower inventory levels on both sides of the Atlantic and a couple of Russian capacity at this point are affected. So around 20% to 40% of the Russian capacity is affected. So there are a number of factors that will add us to a much more prudent environment on the refining side. So we are expecting a lower margins on the first Q. But all in all, we are very focused at this point on the turnaround and to do it in a safe way, and that's where we are. Operator: [Operator Instructions] And your next question comes from the line of Guilherme Levy from Morgan Stanley. Guilherme Levy: I have 2, please. The first one, we have seen later last week that Petrobras has had a setback on its arbitration proceedings against the ANP on the ring fence discussions on the Tupi/Iracema [indiscernible] fields. Are there any updates that you can share with us? And are there any courts that you can take this process to after arbitration? And then the second one also related to the ANP, but are there any updates on the unitization proceedings of Berbigao? Maria Joao Carioca: Thank you, Guilherme. So on the recent developments on the arbitrations, we see these as a lot of news flow here and a very important asset. So the discussions on the ring fence are, of course, very, very loud. But what we see here is not a setback, an ongoing discussion. We are progressing with our arguments. We see local authorities still engaged and making sure that we take the asset forward. We understand the conditions in Brazil. So we understand that there is the need to discuss the ability to generate value from that asset and to make sure that all the parties and stakeholders involved are driving the right value out of it. But fundamentally, what we continue to try to work on is an active dialogue with ANP, with Petrobras, our partners in Block and with the local government. The developments that we see are steps. We are -- we've acknowledged that we don't share in the vision concerning the way to treat these reservoirs. The geological data tells us those are separate reservoirs. So we continue to activate the appropriate legal actions to protect our interest there. So the recent decision has been focused only on future outflows. That means that currently forgot that we no longer have any cash outflows concerning our position in preserving our interest there. So overall, we'll continue to monitor. We'll continue to be very actively engaged, and we'll see how that progresses, but still defending our interests. On the unitization of Berbigao, so no fundamental decision. It's still an open matter. Thank you. Operator: We will now take our final question for today. And your final question comes from the line of Peter Low from Rothschild & Co. Redburn. Peter Low: The first was just on Bacalhau. Can you comment what you expect the production contribution to be in the fourth quarter? And then what the shape of that ramp-up might look like through 2026 and into 2027? And then the second question was on cash tax payments. They looked like they were quite low in 2Q and 3Q. Is there any kind of seasonality at play there? And should we expect a step-up in the fourth quarter? Maria Joao Carioca: Thanks, Peter. On Bacalhau, so we had a very low volume expectation for this year, so for the fourth quarter of '25. The first oil did come up in line with what were our expectations. But overall, the contribution is still very slow. What we're seeing in terms of take-up from the actual operations is positive. It's good pressures and also what we're seeing is also good delivery so far. But we'll monitor and assess to make sure that the ramp-up takes place. What we have as referenced for the ramp-up continues to be our cost experience in the basin. So in Tupi, for instance, some of our best performers had the fastest ramp-up of approximately 11 months. So it's clearly a different size boat and some differences in the assets. So we do see ramp-up of at least a year. Again, going back to my prior mention of full contribution coming up only in 2027. So when it does come up, just as a reminder, that should be approximately 40,000 barrels per day share. And if the Brent holds at, say, 70,000, this should be approximately EUR 400 million in OCF per annum at plateau, but we'll see throughout 2026, and those are expected numbers only for 2027 as we plateau. Cash tax payments. So again, what we have is there's an element of phasing in our taxes. So typically, we have a pretty high first quarter, and that took place. Our overall guidance is still at the level of approximately EUR 0.9 billion. So no change there. And what you've seen in this quarter was, again, as a recall, just the impact of having a lower weight of our upstream business, which is more heavily taxated than our remaining businesses. So a mix effect in our overall tax rate with our cash overall payments expected to be fully within guidance for the year. Operator: Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Good morning, ladies and gentlemen. Welcome to Galp's Third Quarter 2025 Results Presentation. I will now pass the floor to Joao Goncalves Pereira, Head of Investor Relations. Joao Pereira: Good morning, everyone, and welcome to Galp's Third Quarter of 2025 Q&A session. In the room with me, I have both our co-CEOs, Maria Joao Carioca and Joao Marques da Silva as well as the full executive team. But before passing the mic for some quick opening remarks, let me start by our usual disclaimer. During today's session, we'll be making forward-looking statements that are based on our current estimates. Actual results could differ due to factors outlined in our cautionary statements within the published materials. With this, Joao, would you like to say a few words? Joao Diogo da Silva: Thank you, Joao, and good morning, everyone. We have a couple of Joaos around here. Well, the third quarter was a strong one for Galp. Solid operating performance according businesses testifies our strong operating momentum. In Brazil, upstream production continued elevated with 115,000 barrels per day, driven by high availabilities of the fleet during the quarter. This gives us confidence on ending the year close to the upper end of our 150,000 to 110,000 guidance. On top of that, Bacalhau reached first oil just a few weeks ago, a very important milestone, a key project for Galp, which will drive our free cash flow growth in the coming years. Well, but meanwhile, in Iberia, we've captured strong seasonal trends in downstream businesses, particularly in refining and in commercial, where we posted a record high quarter EBITDA. As EVP of Commercial as well, congratulations to the team with results above pre-COVID levels. Although macro environment continues volatile and challenging, Galp operates a highly resilient portfolio with a 2026 dividend breakeven just below $40. Resilience and short-term growth underpins our distinctive investment case. Maria Joao, a few comments. Maria Joao Carioca: Thank you, Joao. Indeed, quite a few rounds around here, but strong operating performance across businesses translating into robust cash delivery. I believe that's the highlight for this quarter. Just looking at the 9 months operating cash flow, we are flattish against 2024, whereas Brent is down more than $10. So this is illustrative of the resilience that we just discussed. And on that same note of execution towards resilience, this quarter, we further reduced net debt and reinforced our financial position. Net debt is now at 0.4x. This is a reassuring level when facing the current volatility in commodity prices, it's also a solid ground on which to develop our value-accretive opportunities in the portfolio. Looking at the full year and even though we're not upgrading guidance today, we're confident that we will exceed our group EBITDA and OCF guidance based on the strong performance across the asset base so far. We acknowledge that Namibia remains the most relevant aspect in Galp's equity story. So looking into the ongoing bilateral discussions, these are showing good progress, and we maintain confidence in our time line and in establishing a strong partnership that will allow us to accelerate and to prioritize Mopane. Operator, we may now take questions. Thank you. Operator: [Operator Instructions] We will now go to our first question today and the question comes from the line of Alejandro Vigil Garcia from Santander. Alejandro Vigil: Congratulations for the strong results. The first question is if you can -- of course, very difficult. If you can give us some color about the -- what are you thinking about the Mopane farm down in terms of the structure, in terms of the -- in general, how you are seeing this -- the momentum of this transaction? And the second question, also probably difficult at this point is in terms of next year. If you can give us some color about how is projections about production next year Bacalhau start-up. You can give us some color initial, even qualitative about the next year guidance. Maria Joao Carioca: So let me start with Mopane. As you know, we've been commenting on the fact that we are very, very focused on achieving a partnership that will help us drive the asset forward. So at this time, we're still not diving into details. I believe it's still critical for us to make sure that our priorities are clear. And I think the conversations we've had so far and the bidders we've engaged with speak to those priorities. We were very keen on making sure that we had an experienced operator with us to make sure that the asset moves forward at the pace and with the priority that we see conducive to good value creation for Galp. We've been reporting and we're very glad to continue to engage in conversations with bidders, and those bidders are all very experienced operators with very relevant track records. So this is where we are. I think with those bidders sitting down to talk to us, what we're doing is making sure that we get very clear alignment on progressing Mopane. And that has been conversations, that has been the tone of the conversation and progressing well. So we're very confident on making this partnership a success by year-end. And I think that is clearly the focus and the color available at this time. On next year, so Bacalhau is very, very early days, but it's a good start. We've been, of course, testing and making sure that the early numbers and the early performance of the assets are consistent with what we were expecting so far, good news. So excluding Bacalhau, we were expecting production to be fundamentally flattish. So this is on top of what are, we believe, best practice declining rates in our assets in Brazil. So we continue to have an expectation of under 5% decline rates, particularly in Tupi and Iracema. We're working towards not only sustaining, but actually making sure that we perform above those thresholds. So there is an infill campaign under execution to continue to drive the performance of those assets. So that leads us in the end to this flattish performance that I mentioned. And on top of that, you will have Bacalhau. Bacalhau will, of course, be ramping up. So we don't expect it to get to full plateau until 2027. Operator: Your next question today comes from the line of Biraj Borkhataria from RBC. Biraj Borkhataria: The first one is just on CapEx for next year. There's obviously one big uncertain piece, which is Namibia and any carry you might get. But are you able to give some color on what you expect to spend in 2026 CapEx if we were to exclude Namibia? And then the second question is just on the financial framework. You have now EUR 1.2 billion of debt and obviously, Bacalhau is ramping up as well. In the past, you showed a chart highlighting that you had roughly EUR 1.2 billion of capital employed in your low carbon segment. I was wondering if that's still the case. And the reason I ask is I'm trying to understand if there's a sort of structural level of net debt for that part of the business because it would be helpful to think -- as we think about sort of excess payouts and uses of free cash flow. Maria Joao Carioca: Thank you, Biraj. Very comprehensive set of questions. So on CapEx and adding a bit more color to what I mentioned before, we're not revising our net CapEx guidance. So still at a little bit under EUR 0.8 billion per annum on the '25 to '26 period. So that is still the overall guidance. Now this year, we had, of course, approximately EUR 800 million from the announced divestments. So this leaves us with gross CapEx of about EUR 2.4 billion accumulated in the period. Now for 2026, we do expect numbers to be slightly lighter than in '25, but it's still a challenging year. So Bacalhau is still going to be ramping up. We are going to be keeping pace towards conclusion of our transition investments in Sines. And we have what is our normal run rate, so to say, of approximately EUR 400 million per year of CapEx. So if you dive a little bit into what that entails other than the upstream run rate CapEx, you also get maintained investments in renewables. We're still foreseeing approximately EUR 150 million to EUR 200 million in our renewables portfolio. And commercial has an ongoing transformation and digitalization program, and that is approximately another, I'd say, EUR 100 million per year. So all in all, we're maintaining, of course, a very disciplined approach. We continue to aim for a capital-light structure, but still guiding up to approximately EUR 0.8 billion per year because we are still in the critical stage of a number of these investments we have in the portfolio. On the financial framework and following up from our CapEx approach, so in terms of capital employed, you mentioned the numbers for our transition and for our low carbon investments. I believe we now hold approximately EUR 1.5 billion to EUR 1.6 billion in our capital employed that pertain to that type of assets and that type of approach. On debt, fundamentally, what we have is debt being managed at the corporate level. So in terms of what we see as our structural level, this reflects to a large extent, the free cash flow generation we have in our businesses and of course, the fact that we continue to drive our CapEx towards -- a significant portion of it being towards transition. Approximately, I'd say it's about 65% of our CapEx is still transformation. So there, of course, the numbers that we were guiding for in terms of CapEx and hence, net debt. Operator: Your next question comes from the line of Matt Smith from Bank of America. Matthew Smith: I wanted to ask -- try a couple of questions on Namibia, if I could. And the first would be, I mean, you're clearly focused on seeing the asset developed as soon as possible. So I just wanted to double check the details on that, whether that meant taking FID on the Northwest region as soon as possible, given that region is fully appraised? Or would you be open to seeing the Southeast region appraised as the next step? Or is there a red line on that topic? Or are you open to discussions with a potential new operator? So that would be the first part. And then the second part, perhaps more high level, you're clearly looking to solve for alignment on the acceleration of these assets. I mean I just wondered whether you're able to share any high-level thoughts as to how you think that can be achieved as part of the deal structure. And perhaps like a bolt-on to that, maybe it's related, maybe it's not, but a question that we're hearing more and more, would you be open to any form of asset swap as part of the transaction, if you're able to comment on that? Maria Joao Carioca: Thank you, Matt. So on Namibia, indeed, the focus is very much making sure that we align with our partners. So we do have our own technical teams looking at the assets and incorporating all the information that we absorbed. So again, it feels like it was a very long time ago, but we went through a very fast stage of drilling and finding new information. It was critical to derisk the asset, and we are now using that information, processing it ourselves and also sharing it with our prospective buyers and developing a perspective on the asset based on that. So we're very open and the teams have indeed been progressing as we acquire more knowledge and as we -- part of the conversations with our partners has also been conducive to that shared understanding, open to perspectives on the asset, not closed on which of the Northwest versus Southeast clusters needs to be the core driver for an initial development, very open to a perspective that is just the one that drives the best space for the asset overall. As for the deal structure, again, very, very early to close on what could be a deal structure. We are, of course, trying to make sure that debt structure sets the right alignment and the right perspective in moving forward with the deal. So here, I guess, fundamentally, what we're trying to make sure is that when we are considering eventual asset swaps, those are open in the discussion as long as they allow us for clear visibility on the type of return we're getting out of the Mopane assets and as long as that those also don't hinder our visibility on how to progress further with Mopane. Operator: Your next question comes from the line of Pedro Alves from CaixaBank. Pedro Alves: The first one on the 2025 outlook. Perhaps if you can share a bit more details on what drives the upside to your latest official guidance. I think we have here different moving parts in upstream production, clearly with very good availability of the fleet. But in Q4, probably you will resume some stoppages. And then in Industrial and Midstream, which probably carries the bulk of the upside to your targets, certainly above the EUR 800 million of EBIT last guided. But it's also true that you will carry heavy maintenance in refining now in this Q4. So at the consolidated level, I think it was widely expected that you would exceed guidance. I guess the question is, are you comfortable with the consensus now at around EUR 3 billion for the full year? And the second question on the recent Orange Basin discoveries in Namibia and some of your neighbors. Have you noticed that this is driving any change in the market appetite or dynamics in the talks as you engage with your potential partners for Mopane. I mean these new finds obviously raise visibility on the basin, but does waiting longer for Galp risks giving prospective buyers other alternatives to elsewhere in the basin? Joao Diogo da Silva: So I'll start with the 2025 guidance. And in fact, we are on the back of a very strong quarter, but we will not be tweaking every quarter the guidance. We are very comfortable with the previous guidance. On that revised guidance, we revised also, well, the trading conditions, we've included the Venture Global volumes. That was the major point. And as you say, we will have a last quarter with a turnaround in Sines. That's what will hit us on the fourth quarter. We still have some support on the margin side, on the refining margin side, well, supported by demand that we could call stronger than expected, but also with the supply underperformance on the new capacity, which is not coming into play as it was expected. We are also -- well, entering into the heating season and some refiners as ours will go into maintenance that will also make some support. And overall, on the downstream, we have a very strong position in Iberia. We delivered very strong results in the third quarter, but we are entering the low season. So we expect to be prudent, maintaining the previous guidance. Midstream will be, for sure, supportive, and that's all for now. Maria Joao Carioca: Thank you. So maybe I'll pick up on the second question from Pedro on our perspective concerning Namibia and recent developments, if I recall correct your question. So Pedro, we normally abstain from commenting on what we see in the market coming out as news from other players. But generally, yes, I acknowledge the perspective you put forth as we hear news from other players and from drilling ongoing, -- and as we see what's coming out of the different players there, I mean, recently, we've heard news from Rhino. We've heard news from BW. What we still see is a basin that is very young in terms of its prospective development, but one where there's a convergence of developments that give it room for growth, and we see the concentration of interest there as very conducive to that growth actually taking place. We also see alignment in its core stakeholders. Relationships with local authorities with the government continue. There's continued interest. There's a good vision of what is the importance of having full support to the development of the asset. So all in all, what we're seeing is still a very young basin, but one where prospects continue to be conducive to investment taking place, and we continue to like the risk of the assets. So we will be farming down a bit, but still holding on to a relevant perspective -- a relevant percentage. So I think that speaks the loudest on the overview we continue to have of the basin and of Mopane in particular. Operator: Your next question comes from the line of Alessandro Pozzi from Mediobanca. Alessandro Pozzi: 2 for me. The first one on commercial, strong results in Q3. And just wondering if you can maybe give us your view on whether the results that we've seen in this quarter is just a function of a much stronger seasonality than usual or whether there is a structural change that would support a further improvement into 2026? And the second question is more on financials. Working capital, I think it was a positive movement during the quarter, but still negative for the 9 months. Maybe if you can give us any guidance on Q4. Joao Diogo da Silva: Thank you, Alessandro. It's indeed a very strong quarter. On commercial, we need to assume, well, we have some tailwinds. It's always the stronger quarter of the year. So when you perform well on the stronger quarter of the year, it's an important one. I would, well, divide in 2 main aspects of the business referring to your transformation claim. So we have, of course, better news from the Spanish side after -- well, a number of volumes were removed from the market related with players that were not playing in a level brownfield. So that's one. So very supportive volumes with around 20% year-on-year growth on the fuel side. But on the second hand, we have a fully revamped nonfuel business. nonfuel as per today is contributing nearly 30% nonfuel and new business, nearly at 30% of the full delivered value on this business. So that's something that we need to sustain. Today, more than half of our tickets are nonfuel, less than half are tobacco, which was clearly a very strong anchor on the path. So if you ask me on the 2026 view, we will be clearly aiming to surpass the $300 million. That's what we will deliver this year. But of course, with the growing electric mobility network that is already on the breakeven, we've crossed the 9,000 charges mark this year, and that's also very important because as of today, we are offering a complete diverse offer to the customer when he enters into our commercial retail network, and that's one, but also supported as an integrated play. So the play with industrial, the play with midstream, it's an integrated play. And we are taking advantage of that also. So strong results and surely for the next year, above the EUR 300 million. Maria Joao Carioca: On working capital, so maybe to put in perspective, the 9 months of this year reflect the fact that actually we ended 2024 with a particularly low level of working capital. There were very few cargoes in transit. So overall, we had a working capital level that we knew was going to be adjusted throughout 2025. And a couple of events up to the beginning of that early 2025 that impacted, the bad weather and the blackout in the Iberian Peninsula had an impact in our accounts. But fundamentally, we're returning to regular levels, not much to highlight there in terms of working capital all within expectations. Operator: Your next question comes from the line of Alastair Syme from Citi. Alastair Syme: In your negotiations on Namibia, are you finding broad agreement on the asset resources? I ask simply because it's quite a long time since you've updated the market on the resources. You've talked about EUR 10 billion plus in place, significant volumes of light oil. I mean are these statements that you think the prospective buyers agree with? I ask because I think this is why the sales process broke down last year. So just to get a sense of where that's at. And then secondly, very quickly, can you talk to upstream tax rates? You were low in 2Q, you're low again this quarter. What's going on? And what do you think the rate is that we should be using in our models going forward? Maria Joao Carioca: Thanks, Alastair. So let me pick up on the Namibia. So no issues in terms of agreement as to what our asset resources in place in Mopane is. It's a topic for technical discussion, of course. But actually, as we share information and as we have the technical teams engaged, I believe there is significant alignment and the vision we have on where the most interesting areas of the assets lie and what those represent in terms of potential overall asset resources have not been an issue of stress or an issue of disagreement at all. Quite on the contrary, very supportive and aligned discussions. So on upstream, the second part of your question, what do you see in tax rates? Actually, I believe you see it on the overall tax rate for the integrated portfolio, it does reflect the fact that in this quarter, in particular, the weight -- the relative weight of upstream in our overall portfolio was lower. So as upstream usually has a higher tax incidence when you have very good performances across other businesses, so industrial delivering, midstream delivering, commercial, as we mentioned already, with record high levels, that brings our overall tax rate down, and I believe that was what you were referring to. Operator: Your next question comes from the line of Joshua Stone from UBS. Joshua Eliot Stone: 2 questions, please. One on Venture Global. Just if you can give any indication of when you expect a decision on the arbitration there and any expectation around what to expect, noting that we've seen different outcomes for different plaintiffs so far? And then second, on Namibia, thank you for the additional insight. I just wonder, are you able to say how many partners you're still in talks with after your short list? I'm just trying to gauge competitive tension and how that's changed during the process, which seems quite important for you. Joao Diogo da Silva: On Venture Global, we are not expecting any outcome before next year, and that's it. Maria Joao Carioca: On Namibia then, we're not commenting on how many partners. It's plural. I think the critical thing to us all very experienced operators, as I mentioned before, competitive tension has been in play, productive conversations. So I think the conditions for a good progress have been met, and we've been engaging with partners, different paces, but still good conversations and good progress so far. Thank you. Operator: Your next question comes from the line of Irene Himona from Bernstein. Irene Himona: My first question is on refining in the fourth quarter. Your maintenance will last about 6 weeks. We can work out the utilization. But can you give us a sense of where your unit margins in refining may move to in relation to the $3.2 in Q3? Are we looking at something around $5, for example? And then my second question on the upstream in Q3, you alluded to the fact that your sales were higher than your production. Can you perhaps quantify that? So what were your sales in the quarter? And what was the EBITDA benefit of that overlift? Joao Diogo da Silva: So on the first one, so we -- well, we are expecting the turnaround to go until mid-November. We will have Plant 1 and the FCC around 50 to 45 days together at the same time. So on the quarter, we are expecting negative contribution from refining. That's what we are taking at this point. Of course, this contribution will be offset by a strong continued contribution on the midstream side. Maria Joao Carioca: On upstream, I believe what you're referring to is the fact that this quarter, we have a lower number of cargoes in transit. So that equates a little bit to having sold more than what we actually produced. The overall impact we estimate from that, so it was approximately one less cargo in transit that we had before. The value we estimate for that is of approximately EUR 40 million, that's EUR 4-0 million. All in all, what we see is still strong production being at the top range of what is our current guidance of 105,000 to 110,000. So this effect we registered in the quarter was fundamentally ongoing normal progress of operations and just transiting the cargoes as they come into our possession. Operator: Your next question comes from the line of Ignacio Domenech from JB Capital. Ignacio Doménech: The first one is on exploration on Sao Tome e Principe. So Shell recently spud a well there, and I would assume that will be looking to do the same in 2026. So just wanted to know your thoughts on the exploration campaign there, if there is any commitment by that to do any drilling in the next year? And my second question is a follow-up on the declining rates in Brazil. I think you mentioned that production, excluding Bacalhau, should be flat next year. So if you can elaborate a bit on the declining rates there? And maybe if there's been any change in the recovery factor at Tupi? Maria Joao Carioca: Thank you, Ignacio. So starting with Sao Tome e Prince, STP. No commitments so far. We do see the development in the recent activity -- the activity by Shell to be something that we will incorporate in our thought. As you know, we're looking at Sao Tome e Prince for its potential, high potential exploratory region. We do have plans to spud there in '26 to '27. But again, the information that is coming up on Block 10, and that's not a block we're in, but that information will be important in adjusting our perspective. Having said this, we are very aware of how important our growth profile is as a differentiating factor. So we're always looking at our assets and making sure that we're addressing them in a way that delivers at pace with our profile. I guess that's the perfect segue into your question about how do we see our declining rates in Brazil. So I mentioned that we're currently having -- experiencing declining rates of approximately 5% in the portfolio as a whole. And this is, as we see it very good performances. We would expect that for the type of depth and the type of assets that we're operating, declining annual rates would be in the neighborhood of 8%. We're actually delivering at below that in 5%. That delivery is in -- that concern with that type of best practice delivery is precisely what's behind the flattish production for next year. So next year, we will have the input or the uptick, if you'd like, from the infill campaigns that are under execution. So those when they come in, they allow us to halt a little bit the natural decline rate. It is already a best-performing decline rate vis-a-vis similar assets. So that's where we're standing there. Operator: [Operator Instructions] And your next question today comes from the line of Matt Lofting from JPMorgan. Matthew Lofting: 2, if I could, please. First, clearly, the second and third quarters have been very strong quarters operationally for Galp, which I'd like to congratulate you all on. You indicated this morning that you now expect to surpass the sort of the full year guidance, which was only updated in the summer. So I wondered if you could just expand on what areas of the business have outperformed the expectations or the baseline that you had in the summer? How much of that is a higher refining margin? How much of it is non-refining? And then secondly, I think you communicated earlier this month that Galp had formally notified Mozambique on the dispute concerning the capital gains situation in the country. Could you update on the latest status there, please, and your thoughts on it? Maria Joao Carioca: Thanks, Matt. Let me start with how we performed so far and what the best tell us for our guidance. So I think overall, it's been good performance across all businesses. But looking into the fourth quarter, what we expect is that coming in on top of what has been very good production in upstream. So we still expect to be at the upper level of the reference we gave on 105,000 to 110,000. So that is, of course, a good driver towards our results. If you add to that the combined performances of the remaining businesses that will add to the overall perspective of delivering above the current consensus. So no particular focus there, just general throughout the portfolio, good performance, if anything, top-tier performance in terms of what we had guided for in upstream. Joao, do you want to comment on Mozambique? Joao Diogo da Silva: I will. Thank you, Matt. So at this point, international arbitration was triggered, but we need to say that we are continuing to pursue a constructive engagement with Mozambique. Well, Galp is in Mozambique for more than 65 years at this point. We've invested more than EUR 1.1 billion in upstream projects. We are very, very, very present on the downstream business with terminals. So that's a country that we fully respect. However, on this case, the government estimates based on accounting books share capital disregards fully all the investments made in upstream. And Galp does not contest its tax obligation. But of course, we need to challenge incorrect and inconsistent interpretation of the law. And that's something that creates uncertainty and that we need to fight and to help Mozambique. So at this point, we don't have any provision recognized in the books. It's fully supported by our external assessment that reiterates our position. So we believe there are no legal grounds to sustain the account claim. But more than that, I finish where I started. We are very, very engaged to pursue a solution with the government and we fully respect. So hopefully, we will find that solution soon. Operator: Your next question today comes from the line of Paul Redman from BNP Paribas. Paul Redman: I wanted to come at Namibia maybe with a slightly different angle, but you talked about in your press release the fact you had a bunch of nonbinding offers through the summer and now you have a short list. I just wanted to ask, is there anything you can say on what drove that shortlist? Was it partner? Was it the valuation, FID dates, start of production date? Any color here would be really useful. And just also on Namibia, just trying to work out, I think I get a sense from who's answering which questions kind of as co-CEOs, who's running the process? Or are you both involved in the process? And then secondly, just on Mozambique, does the arbitration put any risk on the cash expected in 4Q '25? And secondly, have you thought about if Rovuma LNG does get FID-ed, how you would think to allocate that cash in 2026? Maria Joao Carioca: Paul, I do tend to answer many of your questions, but we're all fully engaged, and I'm sure Joao would likely take up. But then again, on your question here, the shortlist notion is fundamentally taking into consideration the prospective offers we got, the pace at which the different bidders were able to address the questions that we engaged and actually the depth and the comprehensiveness of the analysis that was entailed in the initial offers. So fundamentally, we've moved at a faster pace with those players that had the best positioning and had the best ability to engage in the discussions that came in the later stages after the initial offer there. So on Mozambique, maybe just to comment on the cash issue, what Joao just mentioned, we continue a dialogue with the Mozambican government. We've also been continuing our dialogue with our advisers in terms of making sure that our position on what is the due tax is further explained and strengthened. So we don't expect any additional cash issues or cash risks in the fourth quarter concerning this topic. We do expect conversations with the Mozambican government to continue, and we do see conditions for us to continue our presence in Mozambique. I think I would underline what Joao mentioned before, this is a market where we've been for a very long time. We respect our institutional obligations. We are just pursuing the due course of the law. So finally, I believe there was an additional question there on Rovuma FID in 2026. For cautionary reasons, we do not include any additional proceeds in our numbers. So we've seen positive news in recent days. We'll see how those proceed. And hopefully, there will be an FID, but we will we will expect news on that front. We have not yet included that as an upside in our numbers. If those come along, it plays into the discussion we were having before then maybe is a big elephant in the room, a lot of what will be our future discussion in terms of how to go from there. It will be something that we will bring up once the deal is concluded. Operator: Your next question today comes from the line of Nash Cui from Barclays. Naisheng Cui: 2, please. The first one is on distribution. Galp delivered a very strong earnings and cash flow and net debt has coming down. I wonder if you could talk about how we should think about cash distribution in 2026, please? Then the second question is on refining margin outlook. I know your Sines refinery is going to be back online very soon. How do you see refining margin in November, December and into Q1, please? Maria Joao Carioca: Thanks, Nash. So let me start with distribution. We are maintaining for now our 1/3 of OCF guideline. But we see that as something that has been very aligned to the type of consistency and predictability going together with the flexibility that we value considering ongoing processes such as Namibia. So the 1/3 OCF, again, together with what we've been delivering in terms of cash dividend growth, that's about 4% per annum with the flexibility to give an uptick such as the one we had last year, acknowledging favorable conditions. So this gives us sufficient room for -- as growth comes through our balance sheet and our P&L, we are indeed sharing that and distributing that to our shareholders. We like the consistency through the cycle of having a steady guideline based on OCF. And you have seen us use buybacks as kind of the plug-in number to ensure additional performance flows through to investors as we release it. So no expectations all in all to change this overall guideline. We do believe it will serve us well, and it will allow us to flow through any good performance in terms of cash generation straight through to our shareholders. Joao Diogo da Silva: And Nash, on the refining outlook, I've made a couple of mentions to the demand -- supply-demand balance at this point. So we are we are expecting, if we think forward on the first Q, we are expecting some part of the underperformance of the new capacity, [indiscernible], we are assuming that they will come back in full potential. So that's one. On the second hand, we will be in the heating season and some refiners will be into maintenance on the last quarter, but they will come back, hopefully. That will be the case of Sines. So that's another one. And thirdly, at this point, we know that we have lower inventory levels on both sides of the Atlantic and a couple of Russian capacity at this point are affected. So around 20% to 40% of the Russian capacity is affected. So there are a number of factors that will add us to a much more prudent environment on the refining side. So we are expecting a lower margins on the first Q. But all in all, we are very focused at this point on the turnaround and to do it in a safe way, and that's where we are. Operator: [Operator Instructions] And your next question comes from the line of Guilherme Levy from Morgan Stanley. Guilherme Levy: I have 2, please. The first one, we have seen later last week that Petrobras has had a setback on its arbitration proceedings against the ANP on the ring fence discussions on the Tupi/Iracema [indiscernible] fields. Are there any updates that you can share with us? And are there any courts that you can take this process to after arbitration? And then the second one also related to the ANP, but are there any updates on the unitization proceedings of Berbigao? Maria Joao Carioca: Thank you, Guilherme. So on the recent developments on the arbitrations, we see these as a lot of news flow here and a very important asset. So the discussions on the ring fence are, of course, very, very loud. But what we see here is not a setback, an ongoing discussion. We are progressing with our arguments. We see local authorities still engaged and making sure that we take the asset forward. We understand the conditions in Brazil. So we understand that there is the need to discuss the ability to generate value from that asset and to make sure that all the parties and stakeholders involved are driving the right value out of it. But fundamentally, what we continue to try to work on is an active dialogue with ANP, with Petrobras, our partners in Block and with the local government. The developments that we see are steps. We are -- we've acknowledged that we don't share in the vision concerning the way to treat these reservoirs. The geological data tells us those are separate reservoirs. So we continue to activate the appropriate legal actions to protect our interest there. So the recent decision has been focused only on future outflows. That means that currently forgot that we no longer have any cash outflows concerning our position in preserving our interest there. So overall, we'll continue to monitor. We'll continue to be very actively engaged, and we'll see how that progresses, but still defending our interests. On the unitization of Berbigao, so no fundamental decision. It's still an open matter. Thank you. Operator: We will now take our final question for today. And your final question comes from the line of Peter Low from Rothschild & Co. Redburn. Peter Low: The first was just on Bacalhau. Can you comment what you expect the production contribution to be in the fourth quarter? And then what the shape of that ramp-up might look like through 2026 and into 2027? And then the second question was on cash tax payments. They looked like they were quite low in 2Q and 3Q. Is there any kind of seasonality at play there? And should we expect a step-up in the fourth quarter? Maria Joao Carioca: Thanks, Peter. On Bacalhau, so we had a very low volume expectation for this year, so for the fourth quarter of '25. The first oil did come up in line with what were our expectations. But overall, the contribution is still very slow. What we're seeing in terms of take-up from the actual operations is positive. It's good pressures and also what we're seeing is also good delivery so far. But we'll monitor and assess to make sure that the ramp-up takes place. What we have as referenced for the ramp-up continues to be our cost experience in the basin. So in Tupi, for instance, some of our best performers had the fastest ramp-up of approximately 11 months. So it's clearly a different size boat and some differences in the assets. So we do see ramp-up of at least a year. Again, going back to my prior mention of full contribution coming up only in 2027. So when it does come up, just as a reminder, that should be approximately 40,000 barrels per day share. And if the Brent holds at, say, 70,000, this should be approximately EUR 400 million in OCF per annum at plateau, but we'll see throughout 2026, and those are expected numbers only for 2027 as we plateau. Cash tax payments. So again, what we have is there's an element of phasing in our taxes. So typically, we have a pretty high first quarter, and that took place. Our overall guidance is still at the level of approximately EUR 0.9 billion. So no change there. And what you've seen in this quarter was, again, as a recall, just the impact of having a lower weight of our upstream business, which is more heavily taxated than our remaining businesses. So a mix effect in our overall tax rate with our cash overall payments expected to be fully within guidance for the year. Operator: Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Good morning. My name is Anna, and I will be your conference operator. [Operator Instructions] This is FHipo's Third Quarter 2025 Conference Call. There will be a question-and-answer session after the speaker's opening remarks, and instructions will be given at that time. FHipo released its earnings report [indiscernible] October 24, after the market closed. If you did not receive the report, please contact FHipo's IR department [indiscernible]. Questions from the media will not be taken nor should the call be reported on. Any forward-looking statements made in this conference call are based on information that is currently available. Please refer to the disclaimer in the earnings release for guidance on this matter. We are joined by Daniel Braatz, Chief Executive Officer; Ignacio Gutiérrez, Chief Financial Officer; and Jesús Gómez, Chief Operating Officer. I would now like to turn the call over to Daniel Braatz. Daniel, please go ahead. Daniel Michael Zamudio: Good morning, everyone, and thank you for joining us today. Let me walk you through our third quarter 2025 results. Throughout 2025, we have remained focused on strengthening our platform, prioritizing high-quality yielding assets and maintaining a resilient, efficient and forward-looking investment strategy. The disciplined execution of this strategy supported by a solid capital structure positions us to continue adapting to a changing environment while pursuing sustainable growth. In the third Q, we reaffirmed our commitment to delivering profitability to our investors. Historically, as of the end of this quarter, we have distributed over MXN 7.2 billion to our investors, reinforcing our focus on sustained value creation. Our strong capitalization profile remains a pillar of FHipo's financial strength. In the third Q, we maintained a 59.7% capitalization ratio and a 0.65x debt-to-equity ratio. Our disciplined deleveraging strategy has strengthened the balance sheet and positioned us to capitalize on future growth opportunities. Our financial margin stood at 56.8% of total interest income, once again reflecting our stable profitability and operating discipline. Among the quarter's highlights, we closed at MXN 1 billion of financing between a renewal of our $500 million credit facility with Banco Ve por Más and signed a new facility with Banco Santander for the same amount further strengthening our financial flexibility and confirming the market's confidence in our business model. Furthermore, on September 22, the full early amortization of CDVITOT 15U and CDVITOT 15-2U trust certificates took place, resulting in a nonrecurring effect on quarterly results, in line with our objective of continuing the reduction of exposure to VSM-denominated loan portfolio. If we move on to Slide 5, we highlight our consistent track record of delivering value to our investors through stable distributions. For the third quarter, our annualized yield per CBFI stands at 11.5% based on an estimated quarterly distribution of MXN 0.35 per CBFI, subject to our current distribution policy. As I mentioned before, since FHipo was created, we have distributed approximately over MXN 7.2 billion to our investors, equivalent to MXN 19.32 per CBFI. These results underscore our strategic direction centered on creating long-term value and maintaining a focused approach for our investors. Moving to Slide 6. As of the third Q, our debt-to-equity ratio considering both on-balance and off-balance financings was 1.38x highlighting the fact that during the period of the third Q 2019 to third Q of 2025, we achieved a deleveraging of 0.9x in our total on and off balance debt. Over this period, we remain disciplined in maintaining a solid and resilient balance sheet, which positions us to capture future opportunities aligned with our long-term objectives. At the same time, our financial margin reached 56.8% for the quarter, representing a 5% points improvement year-over-year. This reflects the continued efficiency and reinforces our commitment to operating with discipline, focus and a sound financial structure. On Slide 7, we highlight our continued emphasis on higher yielding assets. As of the third quarter of 2025, originations through digital mortgage platforms accounted for 19.7% of the total portfolio. Up to 8.6% in the third Q 2023, reflecting a 2-year CAGR of 38.4%. Our portfolio has a strong asset quality profile with an average loan-to-value of 77% at origination and an estimated loan-to-value of 29% based on current market value of housing. Moving on to Slide 8, on the third Q, our nonperforming loan ratio calculated for the accumulated balances of the total portfolio at origination stood at 3.04%. Overall, our portfolio continues to reflect prudent levels of nonperforming loans, which remains consistent with the nature of the maturity profile of our assets. Finally, on Slide 9, FHipo affirms it commitment to sustainability and ESG best practices. We aim to generate long-term positive impact beyond financial returns. We have financed over 100,000 loans with 55% going to low-income households. Women represent 31% of our total portfolio and 35% of our digital mortgage platforms, while 39% of our workers are women. On governance, our Nomination, Audit and Best practices committees are fully independent and more than half of our technical committee members are independent as well. On the environmental side, about 70% of Infonavit borrowers have taken the green mortgage program benefit. And internally, we have implemented initiatives to reduce paper, plastic and water use. These actions reflect FHipo's ongoing commitment to incorporating strong ESG principles into our business model and decision-making process. Now I will turn the call over to our CFO, Ignacio Gutiérrez, who will discuss the leverage strategy. Ignacio Gutiérrez Sainz: Thank you, Daniel, and again, good morning, everyone. I'll first walk you through our different funding sources on Slide 11. FHipo has continued to strengthen its balance sheet. As of the third quarter of 2025, our total debt-to-equity ratio, including both on and off balance sheet financing stood at 1.38x, down from 2.3x in the third quarter of 2019 reflecting a deleveraging of 0.9x over that period. On a stand-alone basis, our on-balance sheet leverage ratio was of 0.65x. This financial discipline has improved our flexibility and reinforced our capacity to negative changing market environments. Our funding structure remains diversified and robust, allowing us to efficiently manage liquidity to support future growth opportunities. If we turn to Slide 12, as shown in the breakdown of our consolidated funding as of the third quarter of 2025, more than 70% of our financing has legal maturities exceeding 20 years. This profile provides us with a comfortable long-term debt structure aligned with the nature of our assets. In addition, our financing costs remain at current and competitive levels, supporting the sustainability of our capital structure over time. Now I'll turn the call over to our COO, Jesús Gómez, who will go through the portfolio breakdown before I discuss our financials. José de Jesús Gómez Dorantes: Thank you, Ignacio. Good morning, everyone. Thank you for joining us today. Let's move to Slide 14 to take a close look at the breakdown of our mortgage portfolio as of the end of the third quarter of 2025. FHipo's consolidated portfolio comprised 47,543 loans as of September 30, 2025, with an outstanding balance of MXN 17.8 billion, an average loan-to-value at origination of 77% and a payment-to-income ratio of 24.4%, at the end of the quarter 92.4% of the portfolio remain performing. Our portfolio remains diversified across several origination programs, including Infonavit Total, Infonavit Más Crédito, FOVISSSTE and the digital mortgage platforms, which now represents nearly 20% of the consolidated portfolio. Moving on to Slide 15. FHipo's portfolio remains geographically diversified across all 32 Mexican states. Nuevo León, Estado de México and Jalisco are still the largest contributors together accounting for approximately 29% of the total portfolio balance. In terms of our partnership originations programs, here's the breakdown of the portfolio. First, Infonavit Más Crédito accounts for 49.9% of our total portfolio equivalent to MXN 8.9 billion. The digital mortgage platform portfolio accounted for 19% of the portfolio equivalent to MXN 3.5 billion. The Infonavit Total Pesos program represented 14% of the total portfolio equivalent to MXN 2.5 billion. Fovissste portfolio accounted for 11.8% of the total portfolio equivalent to MXN 2.1 billion. And finally, Infonavit Total (VSM) program reached 4.6% equivalent to MXN 800 million. The distribution reflects our strategy to prioritize origination programs that offer strong risk-adjusted returns while maintaining a diversified portfolio aligned with market demand. I will now turn back the call to our CFO, Ignacio Gutiérrez, to discuss FHipo's financial results for the third quarter of 2025. Ignacio Gutiérrez Sainz: Thank you Jesús. On Slide 17, we will discuss our NPL and provision coverage levels. Our consolidated nonperforming loan ratio stood at 7.6% as of the end of the quarter. As of the end of this quarter, we continue to maintain a solid reserve and loan loss allowance policy with an expected loss coverage of 1.43x against NPL and against expected loss and NPL coverage of 0.58x. If we move to Slide 19, and here, we will go through our financial results for the quarter. Total interest income for the third quarter of 2025 was of MXN 318 million, showing a decrease compared to the $332 million reported in the third quarter of 2024. This decrease is primarily attributed to the natural amortization of the portfolio, which was partially offset by the growth of the mortgage portfolio originated through the general mortgage platforms. The interest expense totaled MXN 137 million, representing a 14.2% decrease compared to the MXN 160 million reported in the third quarter of 2024, mainly though to the declining interest rates over the past 12 months. Our financial margin was of MXN 180 million, representing a 56.8% of the total interest income an increase of 5 percentage points compared to 51.8% in the third quarter of 2024. The allowance for loan losses recorded for the third quarter of 2025 was of MXN 65.2 million and the valuation of receivable benefits from securitization transactions showed a net decrease of MXN 115 million in fair value during this quarter. This result is mainly explained, as Daniel mentioned, to nonrecurring events such as the net effect derived from the total early amortization of the CDVITOT 15U trust certificates carried out in September 2025 and the consideration of observable factors related to the cleanup call of upcoming securitizations with similar portfolios. In addition to the amortization pace of the loan portfolio underlying the trust certificates given that these securitization structures are close-ended by nature and to the performance of the portfolio in collateral of such trust certificates during the quarter. Total expenses for the quarter totaled MXN 96.4 million, a decrease of 20% with respect to the same period of 2024. And considering these FHipo registered a result of minus MXN 98 million during the quarter. The estimated distribution for the third quarter of 2025, subject to the current distribution policy is of $0.356 per CBFI and which considering the price of the CBFI as of the end of the third quarter of 2025 results in an annualized dividend yield of 11.5%. With this, I will now hand the call back to our CEO, Daniel Braatz, for some closing remarks before we move to the Q&A section. Daniel Michael Zamudio: Thank you, Ignacio. As for the third Q of 2025, we have continued to strengthen FHipo's financial profile, maintaining a disciplined management approach, a healthy balance sheet and a solid capitalization. Our capital structure remains prudent, allowing us to preserve financial flexibility and continue distributing attractive yields to our investors. Looking ahead, our focus remains on prudent risk management and identifying new opportunities aligned with our long-term strategic objectives. At the same time, we continue to prioritize long-term profitability and the ongoing enhancement of our portfolio's quality. The initiatives we have implemented throughout the year have further reinforced our foundation to capture future opportunities and create sustainable value over time. We will keep advancing our ESG agenda and contributing to long-term value creation for all stakeholders, including the communities we serve. Thank you for your continued trust. I'll now hand the call back to the operator to open the Q&A session. Thank you for your continued trust. I'll now hand the call. Operator: [Operator Instructions] We would like to take this moment to thank you for joining FHipo's Third Quarter 2025 Results Conference Call. We have not received any questions at this point. So that concludes our question-and-answer session. Thank you. I would now like to hand the call back over to Daniel Braatz for some closing remarks. Daniel Michael Zamudio: Thank you all for joining us today. Please don't hesitate to reach out to us if you have any more questions or concerns. We appreciate your interest in the company and look forward to speaking with you soon. Operator: That concludes today's call. You may now disconnect.
Operator: Greetings, and welcome to the SIFI Technologies Financial Results for Second Quarter Financial Year 2025-2026 Conference Call. [Operator Instructions] And please note, this conference is being recorded. I will now turn the conference over to your host, Mr. Praveen Krishna. Sir, you may begin. Praveen Krishna: Thank you, Ali. I'd like to extend a warm welcome to all our participants on behalf of SIFI Technologies Limited. I'm joined on the call today by Sir. Raju Vegesna, Chairman; and Mr. M.P. Vijay Kumar, Executive Director and Group CFO of SIFI Technologies. Following our comments on the results, there will be an opportunity for questions. If you do not have a copy of our press release, please call Luri Group at 1 (646) 824-2856, and we'll have one 1 sent to you. Alternatively, you may obtain a copy of the release at the Investor Information section on the company's corporate website at www.sifytechnologies.convestors. A replay of today's call may be accessed by dialing in on the numbers provided in the press release or by accessing the webcast in the Investor Information section of the SIFI corporate website. Some of the financial measures referred to during this call and in the earnings release may include non-GAAP measures. Sify's results for the year are according to the International Financial Reporting Standard, or IFRS, and will defer some work from the GAAP announcements made in previous years. The presentation of the most directly comparable financial measures calculated and presented in accordance with GAAP and a reconciliation of such non-GAAP measures and of the differences between such non-GAAP measures and the most comparable financial measures calculated and presented in accordance with GAAP will be made available on Sify's website. Before we continue, I'd like to point out that certain statements contained in the earnings release and on this conference call are forward-looking statements rather than historical facts and are subject to risks and uncertainties that could cause actual results to differ materially from those described. With respect to such forward-looking statements, the company seeks protection afforded by the Private Securities Litigation Reform Act of 1995. These risks include a variety of factors, including competitive developments and risk factors listed from time to time in the company's SEC reports and public releases. Those lists are intended to identify certain principal factors that could cause actual results to differ materially from those described in the forward-looking statements but are not intended to represent a complete list of all risks and uncertainties inherent to the company's business. Let me now introduce Mr. Raju Begesna, Chairman of Sify Technologies Limited. Chairman. Raju Vegesna: Thank you, Praveen. Good morning. Thank you for joining us on the call. As India's digital transformation is entering a decisive phase, redefining its role in the global technology ecosystem. The acceleration in the cloud adoption, AI integration and data center expansion underscores India emerges as the next hub of digital infrastructure. Our focus remains on aligning with this momentum through the sustained investments in the hyperscale data center robust network expansion and I release cell platforms. These initiatives are strengthening our position as a trusted enabler of enterprise transformation across both public and private sectors. We believe the next decade will see India's set global benchmark for digital innovation. Sify will continue to play a pivotal role in empowering the journey, building the infrastructure and platforms that will drive the country's growth in the AI-led economy. Let me now bring our Executive Director and Group CFO, Mr. Vijay Kumar, to explain both on the business and the financial highlights. Vijay Kumar? M. Vijay Kumar: Yes. Thank you, Chairman. We remain steadfast in our commitment to fiscal discipline while continuing to invest strategically for long-term growth. The current phase of expansion across our data center, network and digital platforms. reflects deliberate choices to build future ready capabilities. The network and data center businesses are scaling as per plan, the loss in our IT services business, represents our continued investment to prepare ourselves for the opportunities ahead. Our liquidity position remains robust underpinned by prudent cash flow management and operational efficiency. As we move ahead, our focus will be on sustaining agility in financial planning, embedding accountability and sustainability into every vision and driving enduring value creation for all stakeholders. Let me now expand on the business highlights for the quarter. The revenue split between the 3 businesses for the quarter was Network services, 41%; data center services, 13% and digital services 20%. During the quarter, Sify sold 3-megawatt additional data center capacity, as of 30th September 2025, Sify provides services via 1,196 fiber nodes across the country, a 12% increase over the same quarter last year and has deployed 9,992 contracted SDWAN service points across the country. A detailed list of our key wins is recorded in our press release, now live on our website. Let me briefly sum up the financial performance for Q2 for financial year '25, '26. Revenue was INR 10,533 million, an increase of 3% over the same quarter last year. EBITDA was INR 2,361 million, an increase of 20% over the same quarter last year. Loss before tax was INR 194 million and loss after tax was INR 275 million. Capital expenditure during the quarter was INR 3,064 million. The cash balance at the end of the quarter was INR 4,149 million. I will now hand over to our Chairman for his closing remarks. Chairman? Raju Vegesna: Thank you, Vijay Kumar. In the coming quarters, our focus will sharpen an empowering AI-led transformation and partnering with the new generation of enterprises that ready to innovate and scale with our integrated infrastructure and mature suite of digital services, Sify stands poised to lead in this new era of intelligent computing. I extend my sincere thanks to your continued trust and belief in our future. Thank you for joining on this. I will now hand over to the operator for questions. Operator: [Operator Instructions] Our first question is coming from Jonathan Atkin with RBC Capital. Jonathan Atkin: A couple of questions, if I may, about the data center services segment. First of all, can you give us a flavor for the types of returns, financial returns that you are achieving when you do sort of like the 3-megawatt deal that you referred to and just the range of financial returns that you're thinking about for enterprise as well as hyperscale deals. And if you could also remind us what you consider to be kind of your all-in cost of capital. M. Vijay Kumar: So as far as the 3-megawatt deal is concerned, it's a very small enterprise deal. Our data center business is both hyperscale and enterprise, approximately in the ratio of 2/3, 1/3, and our project IRR historically have yielded IRRs north of 20%, which is a little late 20% kind of IRRs have been the returns which we have generated. Jonathan Atkin: And then as you look at the opportunity set, given where India is in terms of hyperscale AI, but also enterprise AI adoption as we look over the next couple of years, what do you see the sales pipeline looking like that you could accommodate? And then any sort of general comments about other players in the market that are also building in some cases, larger scale projects compared to yourself and how you see the competitive environment? M. Vijay Kumar: The next couple of -- yes, please, sir, please go ahead. Raju Vegesna: John, basically, as you know that we have big campuses in Mumbai and in Noida and Chennai. And we invested what are the basic requirements as India I scales up, we are getting ready. Like similarly, we are looking at multiple places. And basically, we are capable of delivering big projects, and we are looking at this AI momentum tick off in India, and which is we are seeing some positiveness both hyperscalers and enterprises. So what is in a simple sense, is we are ready to expand. And your point is there are other people. Yes, there are other people. But I think one other thing is being 25 years in the market in India, and we are established as a brand. And I think we will get our own share here. Jonathan Atkin: And then lastly, just in terms of the breadth of opportunity, you mentioned 3 markets where there's scale development and demand, but also a lot of activity around edge, like multiple double-digit number of cities where there is also data center opportunities that are recognized and maybe comment about the edge opportunity as well as maybe how that kind of fits in with your network services business? Raju Vegesna: Yes. So yes, we are building edge data centers also. And one of the uniqueness of Sify is having a network business that positions us not only just a colo player and network integrated with that. So we have a plan to expand these Tier 2, Tier 3 cities where it is age is important. And we have our own sites planning, building 10 to 12 sites over the time based on the demand. So there also, we are making ahead into certain cities. Once they're live, we will more than happy to share with. And yes, you're right. It also we are playing -- we are going to play a role. Operator: Our next question is coming from Greg Burns with Sidoti & Company. Gregory Burns: Just wanted to ask about the proposed IPO of Infinite spaces. Why was now the right time to consider that type of transaction? M. Vijay Kumar: Yes. So Greg, the tailwinds for the data center, colocation industry growth is very strong. And it is important to have access to capital. And the listing will help us to continuously access capital to meet the demand forecast, which we see. Gregory Burns: Okay. And what percent of the -- the new entity will Sify retained ownership of? M. Vijay Kumar: We will retain ownership of a substantial percentage grade the exact percentage will be known after the book building process is completed. But what we will be holding is a very substantial percentage going forward and actually [indiscernible] we will dilute. Gregory Burns: Okay. Great. And Kotak, their investment is converting into Infinite spaces equity? Or are they -- does it convert into Sify Technologies equity? And what percent -- or how much stock are there debentures converting into? M. Vijay Kumar: Yes. So their debentures will get converted into Sify Infinite Spaces equity. And this conversion will happen after the draft prospectus is filed by -- is approved by the securities regulator in India. And at that time, we'll publish the exact percentage of how much will be they're holding. And Kotak's interest is to remain invested in the company. A small portion of their holding, they will be offering for sale as part of the public offering, essentially to support the float on that stock. Gregory Burns: Okay. And then you mentioned kind of how your network business integrates or works with the data center operations. So once you split off the data center business. Are they going to be signing long-term like multiyear agreements with the networking operations? Or are they free to kind of go contract elsewhere? M. Vijay Kumar: No. Even at present, the contracting happened separately for the networking with the parent company, which carries the licenses for the networking business. And for co-location, there are separate contracts which are entered with the data center company. The customer relationships and the go-to-market strategy for the company will continue to remain the same. And to our customers, we'll present an integrated offering where they'll consume network services, colocation services and IT services, which they would require. Gregory Burns: Okay. Great. And then just lastly, you mentioned the 3 megawatts of new contracting capacity this quarter. Can you just give us the full complexion of the data center business. I know you have 14 operational like how much design capacity do you have in the market and versus like what is currently operational? M. Vijay Kumar: We have about 188 megawatts of design capacity, which is ready for sale, out of which about 130-megawatt is built. And what is now sold is a small requirement for one of our existing customers. The rest of it is ready for sale and at different stages of customer conversations for contracting. Gregory Burns: Okay. And then what is the -- I guess, the road map for the rest of the -- or maybe the next 12 months in terms of data center builds, how much design capacity are you how much design capacity, I guess, is in the pipeline to be built out? M. Vijay Kumar: Yes. So Greg, I have a little bit of a constraint. Generally, we don't make forward statements and more importantly, having filed the draft prospectus with the securities regulator I'm prohibited from making any forward statements. But I just want to suffice it to say that there is a substantial amount of new greenfield project construction, which is happening in parallel. Operator: Our next question is coming from [ Maher Saker ] with [ Prithvi ]. Unknown Attendee: I have a few detailed questions and we'll take a bit of time for the Q&A. So my first question is regarding the IP of the Sify Infinite Spaces, in which Sify Technologies directly holds equity given that Sify NASDAQ listed entirely where about 84% is held by Promoter Group and 16% by ADR holders. Could you please explain the rationale behind pursuing the IPO of Sify Infinite through a holding company structure under rather than directly distributing ownership or demerger based structure in Sify Infinite between promoters and ADR holders in the same 84-16 proportion and then proceeding with the -- so basically, because of this holding company set up, both the promoter shareholders and ADR holders are currently unable to directly participate in the valuation upside of the data center business. So what was the like strategic regulator, your tax rationale behind adopting this holding company now. M. Vijay Kumar: Prithvi, I think it's a very involved question. I think we have got guided largely by our bankers and advisers in terms of the best structure for raising capital. And as you know, the data center business is completely India-focused business and capital-intensive business. And equally important, there is depth of capital market in India, which we have witnessed over the last few years. And in terms of value realization, and to eventually reflect hopefully, in the parent company. The bankers have advised is the best part. Unknown Attendee: Like actually, I have also the limited knowledge. So if you had gone through the demo structure, so it would have been helpful to the minority holders to unlock the value. So like is there any intent post IPO to simplify the structure? M. Vijay Kumar: It's difficult to respond to that, Prithvi, now. We will see it as time passes by whatever best headways we get in terms of what is best for the shareholders, we will certainly see. Unknown Attendee: It would be just helpful like if you can keep this in the mine like for future perspective. And my next question is regarding -- like I just wanted to get a sense of the road map like what is the expected time line for the infinite IPO from here? M. Vijay Kumar: Yes, the DRHP was filed last week. And usually, CB takes a time of 3 months for approval of the draft prospectus. And thereafter, we get guided by the bankers in terms of what is the appropriate timing to take to the market. Unknown Attendee: Okay. Okay. My next question is regarding the network services business. So if we look at the trend over the last decade, the operating margins have declined materially from 23%, 25% during FY 2016 to '20 to about 10%, 15% levels between -- in last 5 years, even though revenues have grown only at about 5%, 6% CAGR. So while I noticed the recent improvement in margins in Q1 and Q2 at around 14%, 18%, could you please like elaborate on what led to this sharp margin compression earlier like is this margin behavior structural or cyclical? Can we expect this segment to gradually revert to the 20%-plus range as utilization and demand improves? M. Vijay Kumar: Correct. It is structural, and it's by design. And you have started witnessing the improvement in margin. What happens is as the network expansion happens. And more importantly, when you invest in new age networks to support AI kind of demand. You invest in new infrastructure, which will take time to monetize. And these are important investments, which have to be done ahead of time. So these are done by design and as a structure and the trend which you have observed should continue. . Unknown Attendee: Okay. So like should we assume like the current 14%, 16% band as the new steady state? M. Vijay Kumar: No, no, no, no. it should get better. Unknown Attendee: So like over the future period should -- we should be able to see 20% plus kind of range, right? M. Vijay Kumar: Yes. That's our expectation, and we are working towards that. Unknown Attendee: Okay. And my last question is on the digital services segment. So like similarly, over the last decade, the business has shown like in revenue growth periods of high growth like FY 2016 to '18, then FY '23, followed by flat or negative years with an overall CAGR of about 11%. At the same time, operating margins have steadily eroded from around 15%, 20% during FY '16, '18 to negative territory in '24, '25. And the losses have also continued in Q1 and Q2. So can you please help us let me understand the key factors behind this deterioration? M. Vijay Kumar: Yes. So 2 reasons, Prithvi. One is there's a complete change in the way IT is getting consumed by enterprises post-COVID. Earlier, there is to be a substantial amount of IT projects, which were delivered on a system integration model. But post-COVID, most of it is consumed as a service. So project-based revenues by design as a company, we have chosen to scale it down. So unlike in the past, that's 1 reason. Second is also what's happening in the last 3, 4 years, and we have consistently shared in all our communication. This is a business where we are investing significantly in terms of people and in terms of building IP to be very relevant for the way IT is going to be consumed by the large enterprises and the upper end of the medium enterprises. So there's a lot of work happening there. It will take some time. It will take some time. But we are confident that we will be relevant to the market with the investments which we are making now. And we'll continue to do this for a few more quarters before we start hopefully seeing the results. Operator: [Operator Instructions] We have a question from [ Sri Tho ] who is a private investor. Unknown Attendee: I have a couple of questions, pretty much in line with what other participants have asked. Correct me if I'm wrong, from whatever I have reviewed the published results. The network services has grown at 16%. Data Services is around 25%. The digital services has degrown around 30%, 35%. This quarter. Is that a fair statement? M. Vijay Kumar: Yes. Unknown Attendee: So related to this, the digital services, I know we have spoken like in the last few quarters, that whole offering is being redesigned, maybe some non-value added services are being discontinued. That entire division is being revamped, so to speak. I know the network services and data center are kind of related to each other that you could offer both. How much of digital services is stand-alone? And how much is it actually dependent on other 2 businesses? So to reframe the question, data center client might request even the network services. How much of them are actually requesting for digital services? M. Vijay Kumar: Yes. So Srikanth, as far as the IT services are concerned, we broadly offer network managed services, then we offer the cloud and managed services. then we have security-related services broadly at a high level. The network managed services is very closely linked with our network business, the network infrastructure business. So in the network managed services, we manage for enterprises, large and including the bank's PSUs. We manage the networks for them. irrespective of where they are sourcing from the whole network is managed best. So there is a correlation there. And as far as the cloud and managed services are concerned. The cloud services, ultimately for the customers that require a good network to reach the cloud, whether it is cloud, which we build for them in our facility or the public clouds. So we have solutions, including technology platforms, which help enterprises to manage hybrid cloud consumption where they consume partly from public cloud and partly from the private cloud, which is set up on our data center, there's a correlation. And our security solutions are again largely around the infrastructure related security solution, whether it is security at the network layer or at the data center layer or the cloud layer. And of course, we do some bit of security around applications as well. So there is correlation. And beyond this, as far as our enterprise customers are concerned, the customer touch points are similar. So our effort is to ensure that -- in the large enterprises, we are able to maximize our share of engagement with them. So we have witnessed some amount of success in that. will continue to put our efforts to get it better. Unknown Attendee: Okay. Okay. So the other question, again, going on to the digital services. So it's basically the loss in the Digital Services division has dragged the overall results. Otherwise, this quarter result is probably similar to last quarter, maybe it growth? Had it not been for the loss in digital services? M. Vijay Kumar: Correct. Correct. Correct. Unknown Attendee: Okay. Okay. So obviously, I'm sure this division is on focus now on everybody's radar that you would obviously don't want this to drag the results of other divisions within the group. M. Vijay Kumar: Correct. Correct. You're right. And we are focused on that. But we don't want to stop investigated because in the -- unlike the network and data center where your investments are in balance sheet items, in the case of IT services business, your investment is in the P&L item. So this loss sort of reflects our investments for the future. And of course, we are focused on reducing this monetizing it early. And if some of our beds are not working, we will redesign our strategy. And also, we are focused on that. Unknown Attendee: Okay. Okay. And 1 last question, sir, on the upcoming IPO. The fact that the CPI Infinity spaces will be listed in India. Sify Technologies is the holding company, which is a NASDAQ listed. So we are indirectly a shareholder in not indirectly, directly shareholder in Sify Infinity Spaces, which will be listed in India. Given that the existing Sify Technologies shareholders will not be able to directly participate other than any Indian resident who can apply in the IPO, have you considered doing any kind of -- I mean lack of better word, maybe private placement or some kind of opportunity for existing investors and Sify Technologies who have an appetite to probably participate in the proposed IPO other than just applying in the IPO whoever is eligible? M. Vijay Kumar: Yes. We haven't done any specific work on this. But let me socialize with the bankers. We have guided on the entire process by the bankers of regulatory process and what is best for maximizing the value to all the existing shareholders. Unknown Attendee: It just may be a nice way of rewarding the existing shareholders. M. Vijay Kumar: I've understood your ask, but I think I need to be conscious of the regulatory network as well. Operator: As we have no further questions on the line at this time, I would like to turn the call back over to Mr. Raju Vegesna, for any closing remarks. Raju Vegesna: No. Thank you very much for joining this call and having continuous interest in Sify, and have a good day. Thank you. Operator: Thank you, ladies and gentlemen. This does conclude today's call. You may disconnect your lines at this time, and we thank you for your participation.
Operator: Good morning. My name is Anna, and I will be your conference operator. [Operator Instructions] This is FHipo's Third Quarter 2025 Conference Call. There will be a question-and-answer session after the speaker's opening remarks, and instructions will be given at that time. FHipo released its earnings report [indiscernible] October 24, after the market closed. If you did not receive the report, please contact FHipo's IR department [indiscernible]. Questions from the media will not be taken nor should the call be reported on. Any forward-looking statements made in this conference call are based on information that is currently available. Please refer to the disclaimer in the earnings release for guidance on this matter. We are joined by Daniel Braatz, Chief Executive Officer; Ignacio Gutiérrez, Chief Financial Officer; and Jesús Gómez, Chief Operating Officer. I would now like to turn the call over to Daniel Braatz. Daniel, please go ahead. Daniel Michael Zamudio: Good morning, everyone, and thank you for joining us today. Let me walk you through our third quarter 2025 results. Throughout 2025, we have remained focused on strengthening our platform, prioritizing high-quality yielding assets and maintaining a resilient, efficient and forward-looking investment strategy. The disciplined execution of this strategy supported by a solid capital structure positions us to continue adapting to a changing environment while pursuing sustainable growth. In the third Q, we reaffirmed our commitment to delivering profitability to our investors. Historically, as of the end of this quarter, we have distributed over MXN 7.2 billion to our investors, reinforcing our focus on sustained value creation. Our strong capitalization profile remains a pillar of FHipo's financial strength. In the third Q, we maintained a 59.7% capitalization ratio and a 0.65x debt-to-equity ratio. Our disciplined deleveraging strategy has strengthened the balance sheet and positioned us to capitalize on future growth opportunities. Our financial margin stood at 56.8% of total interest income, once again reflecting our stable profitability and operating discipline. Among the quarter's highlights, we closed at MXN 1 billion of financing between a renewal of our $500 million credit facility with Banco Ve por Más and signed a new facility with Banco Santander for the same amount further strengthening our financial flexibility and confirming the market's confidence in our business model. Furthermore, on September 22, the full early amortization of CDVITOT 15U and CDVITOT 15-2U trust certificates took place, resulting in a nonrecurring effect on quarterly results, in line with our objective of continuing the reduction of exposure to VSM-denominated loan portfolio. If we move on to Slide 5, we highlight our consistent track record of delivering value to our investors through stable distributions. For the third quarter, our annualized yield per CBFI stands at 11.5% based on an estimated quarterly distribution of MXN 0.35 per CBFI, subject to our current distribution policy. As I mentioned before, since FHipo was created, we have distributed approximately over MXN 7.2 billion to our investors, equivalent to MXN 19.32 per CBFI. These results underscore our strategic direction centered on creating long-term value and maintaining a focused approach for our investors. Moving to Slide 6. As of the third Q, our debt-to-equity ratio considering both on-balance and off-balance financings was 1.38x highlighting the fact that during the period of the third Q 2019 to third Q of 2025, we achieved a deleveraging of 0.9x in our total on and off balance debt. Over this period, we remain disciplined in maintaining a solid and resilient balance sheet, which positions us to capture future opportunities aligned with our long-term objectives. At the same time, our financial margin reached 56.8% for the quarter, representing a 5% points improvement year-over-year. This reflects the continued efficiency and reinforces our commitment to operating with discipline, focus and a sound financial structure. On Slide 7, we highlight our continued emphasis on higher yielding assets. As of the third quarter of 2025, originations through digital mortgage platforms accounted for 19.7% of the total portfolio. Up to 8.6% in the third Q 2023, reflecting a 2-year CAGR of 38.4%. Our portfolio has a strong asset quality profile with an average loan-to-value of 77% at origination and an estimated loan-to-value of 29% based on current market value of housing. Moving on to Slide 8, on the third Q, our nonperforming loan ratio calculated for the accumulated balances of the total portfolio at origination stood at 3.04%. Overall, our portfolio continues to reflect prudent levels of nonperforming loans, which remains consistent with the nature of the maturity profile of our assets. Finally, on Slide 9, FHipo affirms it commitment to sustainability and ESG best practices. We aim to generate long-term positive impact beyond financial returns. We have financed over 100,000 loans with 55% going to low-income households. Women represent 31% of our total portfolio and 35% of our digital mortgage platforms, while 39% of our workers are women. On governance, our Nomination, Audit and Best practices committees are fully independent and more than half of our technical committee members are independent as well. On the environmental side, about 70% of Infonavit borrowers have taken the green mortgage program benefit. And internally, we have implemented initiatives to reduce paper, plastic and water use. These actions reflect FHipo's ongoing commitment to incorporating strong ESG principles into our business model and decision-making process. Now I will turn the call over to our CFO, Ignacio Gutiérrez, who will discuss the leverage strategy. Ignacio Gutiérrez Sainz: Thank you, Daniel, and again, good morning, everyone. I'll first walk you through our different funding sources on Slide 11. FHipo has continued to strengthen its balance sheet. As of the third quarter of 2025, our total debt-to-equity ratio, including both on and off balance sheet financing stood at 1.38x, down from 2.3x in the third quarter of 2019 reflecting a deleveraging of 0.9x over that period. On a stand-alone basis, our on-balance sheet leverage ratio was of 0.65x. This financial discipline has improved our flexibility and reinforced our capacity to negative changing market environments. Our funding structure remains diversified and robust, allowing us to efficiently manage liquidity to support future growth opportunities. If we turn to Slide 12, as shown in the breakdown of our consolidated funding as of the third quarter of 2025, more than 70% of our financing has legal maturities exceeding 20 years. This profile provides us with a comfortable long-term debt structure aligned with the nature of our assets. In addition, our financing costs remain at current and competitive levels, supporting the sustainability of our capital structure over time. Now I'll turn the call over to our COO, Jesús Gómez, who will go through the portfolio breakdown before I discuss our financials. José de Jesús Gómez Dorantes: Thank you, Ignacio. Good morning, everyone. Thank you for joining us today. Let's move to Slide 14 to take a close look at the breakdown of our mortgage portfolio as of the end of the third quarter of 2025. FHipo's consolidated portfolio comprised 47,543 loans as of September 30, 2025, with an outstanding balance of MXN 17.8 billion, an average loan-to-value at origination of 77% and a payment-to-income ratio of 24.4%, at the end of the quarter 92.4% of the portfolio remain performing. Our portfolio remains diversified across several origination programs, including Infonavit Total, Infonavit Más Crédito, FOVISSSTE and the digital mortgage platforms, which now represents nearly 20% of the consolidated portfolio. Moving on to Slide 15. FHipo's portfolio remains geographically diversified across all 32 Mexican states. Nuevo León, Estado de México and Jalisco are still the largest contributors together accounting for approximately 29% of the total portfolio balance. In terms of our partnership originations programs, here's the breakdown of the portfolio. First, Infonavit Más Crédito accounts for 49.9% of our total portfolio equivalent to MXN 8.9 billion. The digital mortgage platform portfolio accounted for 19% of the portfolio equivalent to MXN 3.5 billion. The Infonavit Total Pesos program represented 14% of the total portfolio equivalent to MXN 2.5 billion. Fovissste portfolio accounted for 11.8% of the total portfolio equivalent to MXN 2.1 billion. And finally, Infonavit Total (VSM) program reached 4.6% equivalent to MXN 800 million. The distribution reflects our strategy to prioritize origination programs that offer strong risk-adjusted returns while maintaining a diversified portfolio aligned with market demand. I will now turn back the call to our CFO, Ignacio Gutiérrez, to discuss FHipo's financial results for the third quarter of 2025. Ignacio Gutiérrez Sainz: Thank you Jesús. On Slide 17, we will discuss our NPL and provision coverage levels. Our consolidated nonperforming loan ratio stood at 7.6% as of the end of the quarter. As of the end of this quarter, we continue to maintain a solid reserve and loan loss allowance policy with an expected loss coverage of 1.43x against NPL and against expected loss and NPL coverage of 0.58x. If we move to Slide 19, and here, we will go through our financial results for the quarter. Total interest income for the third quarter of 2025 was of MXN 318 million, showing a decrease compared to the $332 million reported in the third quarter of 2024. This decrease is primarily attributed to the natural amortization of the portfolio, which was partially offset by the growth of the mortgage portfolio originated through the general mortgage platforms. The interest expense totaled MXN 137 million, representing a 14.2% decrease compared to the MXN 160 million reported in the third quarter of 2024, mainly though to the declining interest rates over the past 12 months. Our financial margin was of MXN 180 million, representing a 56.8% of the total interest income an increase of 5 percentage points compared to 51.8% in the third quarter of 2024. The allowance for loan losses recorded for the third quarter of 2025 was of MXN 65.2 million and the valuation of receivable benefits from securitization transactions showed a net decrease of MXN 115 million in fair value during this quarter. This result is mainly explained, as Daniel mentioned, to nonrecurring events such as the net effect derived from the total early amortization of the CDVITOT 15U trust certificates carried out in September 2025 and the consideration of observable factors related to the cleanup call of upcoming securitizations with similar portfolios. In addition to the amortization pace of the loan portfolio underlying the trust certificates given that these securitization structures are close-ended by nature and to the performance of the portfolio in collateral of such trust certificates during the quarter. Total expenses for the quarter totaled MXN 96.4 million, a decrease of 20% with respect to the same period of 2024. And considering these FHipo registered a result of minus MXN 98 million during the quarter. The estimated distribution for the third quarter of 2025, subject to the current distribution policy is of $0.356 per CBFI and which considering the price of the CBFI as of the end of the third quarter of 2025 results in an annualized dividend yield of 11.5%. With this, I will now hand the call back to our CEO, Daniel Braatz, for some closing remarks before we move to the Q&A section. Daniel Michael Zamudio: Thank you, Ignacio. As for the third Q of 2025, we have continued to strengthen FHipo's financial profile, maintaining a disciplined management approach, a healthy balance sheet and a solid capitalization. Our capital structure remains prudent, allowing us to preserve financial flexibility and continue distributing attractive yields to our investors. Looking ahead, our focus remains on prudent risk management and identifying new opportunities aligned with our long-term strategic objectives. At the same time, we continue to prioritize long-term profitability and the ongoing enhancement of our portfolio's quality. The initiatives we have implemented throughout the year have further reinforced our foundation to capture future opportunities and create sustainable value over time. We will keep advancing our ESG agenda and contributing to long-term value creation for all stakeholders, including the communities we serve. Thank you for your continued trust. I'll now hand the call back to the operator to open the Q&A session. Thank you for your continued trust. I'll now hand the call. Operator: [Operator Instructions] We would like to take this moment to thank you for joining FHipo's Third Quarter 2025 Results Conference Call. We have not received any questions at this point. So that concludes our question-and-answer session. Thank you. I would now like to hand the call back over to Daniel Braatz for some closing remarks. Daniel Michael Zamudio: Thank you all for joining us today. Please don't hesitate to reach out to us if you have any more questions or concerns. We appreciate your interest in the company and look forward to speaking with you soon. Operator: That concludes today's call. You may now disconnect.
Operator: Thank you for standing by, and welcome to the Syrah Resources Q3 Quarterly Report Update. [Operator Instructions] I would now like to hand the conference over to Mr. Shaun Verner, Managing Director and CEO. Please go ahead. Shaun Verner: Thank you. Good morning, and thanks to everyone for joining us on the call today. With me is our CFO, Steve Wells; and our EGM of Strategy and Business Development, Viren Hira. So after a very challenging 12 months, it's great to be able to report on a more productive quarter with a positive Balama natural graphite ramp-up of operations following restart, sales, strengthening market conditions for Balama fines and supportive policy and market tailwinds for the Vidalia business. This morning, we'll work through the presentation provided with the quarterly report to update you on the important developments in the quarter, and then we'll be happy to answer any questions at the end. So turning to Slide 3, and I wanted to first remind everyone of our clear and differentiated investment proposition. Syrah is the leading integrated natural graphite and active anode material producer outside China with the hard one investment and capability in place, providing a lead time [indiscernible]. Vertical integration from mine to end customer offers a secure source of high-quality critical mineral supply outside China. Our unique asset base is OpEx cost competitive with China and leading ex China and well placed to generate strong margins over the longer term. Our leading sustainability position, including external assessment provides full auditability and traceability from raw material through to finished products. And finally, in response to expected continued strong growth in our end markets, we have clear expansion opportunities that we can execute in line with the needs of our customers and government stakeholders. Moving on to Slide 4, and let me spend a moment now talking about our most important values of safety and sustainability. As we continue to develop a position as a leading critical minerals producer, we're guided by 3 core objectives: being positive for the communities in which we operate, being sustainable for the environment and providing secure supply for our customers. I'm pleased to say that in the quarter, our performance on key metrics measuring safety and sustainability were very strong. Our people and our local communities are critical to our success and the resolution of community and national issues impacting Balama in Q2 this year continued to progress positively through Q3. The health, safety and security of employees and contractors will always remain Syrah's highest priority. As we strive for zero harm in our operations, I'm pleased to report that our total recordable injury frequency rate remains very low at 1.1 incidents per million hours worked across the group, a result which any operation globally could be proud of. During the quarter, I also had the opportunity to meet with President Chapo of Mozambique and Minister Pale of Mineral Resources and Energy Portfolio, who both reaffirmed the importance of Balama to Mozambique and their support for the operation. And we also note in recent days that Total has removed its force majeure notice for its $20 billion LNG project in Cabo Delgado, demonstrating increased confidence in the new government's ability to manage security and developments following the election. Our safety focus is underpinned by our work on critical risk hazard management and in-field leadership interactions. Syrah's operations are clearly aligned with leading global sustainability standards. Last year, Balama became the first graphite operation globally and the first mining operation in Mozambique to achieve the Initiative for Responsible Mining Assurance or IRMA 50 level of performance for sustainability. This achievement highlights nearly a decade of strengthening our differentiated performance, including a strong safety record, investment in training and developing a highly skilled workforce, ongoing community development and human rights due diligence. Along with our ISO certification and external auditing required under our U.S. government funding arrangements, we continue to prioritize health and safety and environmental management systems, confirming our commitment to operating sustainably and driving continuous improvement in this area. A final point I wanted to reiterate on sustainability is the global warming potential of our integrated natural graphite anode product relative to other suppliers. The independent life cycle assessment, or LCA, completed on Syrah's integrated operations by Minviro from Balama origin to Vidalia customer gate estimated 7.3 kilograms of CO2 equivalent per kilogram of anode material produced, which is around 50% lower than equivalent natural graphite anode material from a benchmark supply route in Heilongjiang province in China and 70% below synthetic graphite benchmarks from China. We believe that these efforts give Syrah a competitive advantage as the most sustainable source of integrated natural graphite anode material available at scale today. On Slide 5 and turning now to a more detailed look at our performance and highlights in the third quarter. As we previously reported, after restarting operations in mid-June, in July, we recommenced shipments from Balama and removed the force majeure declaration that had been in place since December 2024. We ran a 6-week production campaign throughout the quarter and produced 26,000 tonnes of natural graphite. Difficult to make clear comparisons with prior periods given that we were ramping up operations after an extended outage, but comparisons will be more relevant in future quarters. Recovery of 68% was below our target as we restarted and worked through some initial maintenance requirements and utilization of older ore feed stockpiled through the outage. But the team focused heavily on quality and volume to meet the 2 initial break box sales in line with customer expectations. Given the outage period had depleted finished product inventory completely, we essentially sold everything we produced in the quarter with approximately 24,000 tonnes sold. With the breakbulk shipments [indiscernible] to Indonesia and our first ever bulk shipment to the U.S., we were pleased to be able to meet some of the pent-up demand resulting from the production outage in this first campaign. Our weighted average sales price for the quarter was USD 625 per tonne, CIF delivered. Our C1 operating cost during the operating period was USD 585 FOB per tonne and the freight averaged $92 a tonne. Importantly, this provides strong indications of better than historical pricing and a good basis for lower C1 costs as we can increase volumes, indicating positive future cash flow opportunity. At Vidalia, as we previously announced, the business claimed and received a $12 million cash paid Section 45X tax credit for the 2024 calendar year in connection with the operations of the anode material facility. Ongoing tax credits are expected in line with the relevant legislation annually, subject to the phasedown period from the start of the next decade. We continue to work through highly detailed and extensive qualification requirements at Vidalia and are making positive progress, albeit slower than we would like. Our product quality and performance are excellent, and we continue to deal constructively with a highly complex mix of policy, commercial and technical factors. We're focused on achieving sales as early as possible, but expect that material sales volumes will only occur in 2026. But we emphasize that our work here will pay off with our investment and development experience demonstrating the considerable time required for others to follow. Our cash flow from operations of negative USD 3 million includes receipts from sales of natural graphite shipments of $12 million, along with the $12 million tax credit I just mentioned. Excluding the tax credit, our cash outflow from operations reduced markedly from the prior quarter with production and sales ramp-up and inventory availability to facilitate further improvement in the quarters ahead. We're highly focused on getting Balama to operational cash flow breakeven as quickly as possible. Finally, the company had a strong cash balance of $87 million following the equity raising that was completed in Q3, noting that there are restrictions on use under our funding arrangements. I'll now hand over to Steve to provide some further detail on our financials and cash flow movements in the quarter. Stephen Wells: Thanks, Shaun, and good morning, everybody. I'll turn your attention to the waterfall chart on Slide 6, which shows our cash flow through the quarter. As Shaun mentioned, our cash outflow from operations in the quarter was $3 million and reflects revenue, operating costs and the positive benefit of the $12 million Section 45X tax credit, which is an operating cost tax credit and can be received as a direct cash payment rather than a credit against future tax liabilities. While we won't have this benefit every quarter, as we noted in our ASX release at the time, we received this credit. We estimate Section 45X credits to be roughly $7 million to $9 million per annum prior to phase down of the credit in accordance with current legislation. In terms of timing, it is likely that direct payments for further 45X credits will be ordinarily received in the second half of the following calendar year. Other movements to call out in this quarter were the equity raising that was launched at the end of July and completed in August and delivered net proceeds of $44 million. The company also received a $6.5 million disbursement from its loan with the DFC, which net of USD 2.2 million of refinancing repayments led to a $4 million net proceeds from borrowings. While operating cash flow was marginally negative as articulated, we also had a net cash inflow from borrowings so that excluding the net proceeds from the equity raise, the group was cash flow neutral for the quarter. In all, we closed the quarter with a cash balance of USD 87 million, which is made up of $27 million of unrestricted cash and $60 million of restricted cash for lender reserves and for use in each of our operating assets. We also have further liquidity available under the DFC facility, which is part of the ongoing DFC loan restructuring discussions. With that, I'll hand it back to Shaun. Shaun Verner: Thanks, Steve, and I'll spend some time now providing an update and our perspectives on various market developments and the government policy backdrop. On Slide 7, you can see on the left-hand chart that the global EV demand picture remains strong, though volatile month-to-month. Over the first 9 months of the year, global EV sales were up 28% on a year ago with strongest growth in China, positive developments in Europe and the spike in demand in the U.S. in Q3 prior to the expiry of the Section 30D consumer tax credit rebate. Anode production growth in China continues to increase strongly, reflecting not only the EV market, but also the rise of energy storage system requirements for data centers and other stationary storage applications. But of course, on the supply side of the picture, synthetic graphite anode material production overcapacity in China has resulted in intense competition for market share and destructive pricing behavior in the domestic market. Prices for synthetic graphite anode material, especially lower-grade products remain below estimated production costs in many cases. Anode margins are also impacted by higher coke feedstock costs and low capacity utilization, which industry observers estimate to be around 40% on average across the Chinese industry. In natural graphite anode material production, finished anode material producers have driven precursor margins and upstream feedstock margins lower over successive spherical graphite purchasing cycles in China. Although a few of the larger anode material producers remain profitable, many Chinese feedstock and precursor suppliers are not currently operating due to poor margins and low demand driven by domestic market price substitution. In the ex-China market, natural graphite anode material demand remains positive and a significant structural shift is underway driven by policy. China export controls and U.S. government tariffs and the anti-dumping and countervailing duty implementation are seeing a shift to lower Chinese exports evident in the charts on the right-hand side of the slide. And that's being replaced by supply from Indonesia for anode material into the U.S. This is positive for both Balama supplying Indonesia and Vidalia, where increasing demand for ex-China supply for commercial and policy reasons is becoming evident for coming years supply. There are continuing deep market challenges and financial pressures across the global battery and input materials sector arising from the dominance of incumbent Chinese producers in both cell production and feedstock and precursor supply. Policy actions are key to the evolution of both demand and pricing for ex-China supply, and we're seeing positive developments in this area. On Slide 8, encouragingly, government policy settings are delivering material potential support to Syrah's strategy to become the leading ex-China integrated natural graphite and anode material producer. Over the course of 2025, we've seen key U.S. government policy changes, in particular, the anti-dumping and countervailing duties investigation and combined preliminary tariff imposition of at least 105% and various other additive import tariffs and policy instruments, including the definition of prohibited foreign entities impacting future availability of the 45X tax credit to battery and auto manufacturers in the U.S., a credit which is hugely important to their profitability. On the supply side, increasing concern arising from China's further export license controls announced in the last few weeks on graphite anode and processing equipment similar to those imposed on rare earth exports are also driving ex-China purchasing diversification decisions from our customers. The combination of these factors is leveling the playing field for ex-China supply and Syrah's major investment and capability build will allow us to capitalize on both the competitiveness and value of Balama feedstock and our anode material from Vidalia for OEM and lithium-ion battery manufacturers in the U.S. Turning now to Slide 9 and a summary of our key strategic priorities and milestones for the coming 6 to 12 months. In this current final quarter of 2025, we'll drive further campaign production to support increasing natural graphite shipments to ex-China customers with a particular target on further breakbulk shipments into the anode material supply chain. This will generate important revenue for the company as we continue to progress our technical qualification steps with Vidalia customers and drive towards sales there, in line with evolving commercial and policy conditions. At an industry level, we're awaiting the final determinations for the anti-dumping and countervailing duties investigation in the U.S., which are due before the end of the year. However, we understand that this timing may be impacted by the U.S. government shutdown. The preliminary duties are finalized. They will be in place for a minimum of 5 years, providing important stability and a mass leveling of the competitive position for Syrah relative to Chinese imports into the U.S. Geopolitical developments, vulnerabilities caused by a concentrated structure of graphite supply and anticipated demand growth, particularly outside China, led to higher strategic interest and transactions being announced in the graphite and battery sector globally. Taking advantage of these conditions, Syrah has commenced a process advised by Macquarie to review strategic partnering options to enable strengthened position from which to pursue opportunities. At Vidalia, we're making strong progress in technical qualification with high-quality product, but immediate customer purchasing intent remains uncertain given the complex policy and market interactions, and we do not expect commencement of material commercial sales volumes from Vidalia this quarter, but rather from 2026. Concurrent with moving our Vidalia operations to commercial sales volumes, we're also targeting additional customer and financing commitments ahead of a potential expansion investment decision, hopefully in 2026. We're optimistic that there are both improving market and policy fundamentals now and a number of clear positive catalysts ahead that have the potential to deliver significant value to shareholders. Our asset and corporate teams are working very hard to deliver against these objectives safely, and we look forward to communicating further progress. I'm now happy to move to any questions. Operator: [Operator Instructions] Your first question comes from Mark Fichera with Foster Stockbroking. Mark Fichera: Just a question on the partnering process. Just can you give maybe an indication or flavor for what types of companies in terms of industry participants or people or companies potentially outside the industry that could be considered. Shaun Verner: Thanks, Mark. So we've previously talked about potential interest in downstream partnering for expansion of Vidalia. And given the fairly significant policy and market developments that we're seeing at the moment, we're seeing increased interest across the supply chain that's prompted us to, I think, more broadly view what options might be out there. And that's the genesis of the process with Macquarie. We have an open mind around the types of potential partners. But clearly, within the supply chain and across the broader battery and auto supply chain, there is significant interest. And the government policy developments have, I think, prompted broader interest from a wider range of financial investors. So we are keeping an open mind. We're at the early stages of that process. We're not communicating any sort of time line or milestones at this point. But our objectives are clearly to identify high-quality aligned partners and get to a position that will strengthen the balance sheet and derisk our growth options. Operator: [Operator Instructions] Your next question comes from Ben Lyons with Jarden Securities Limited. Ben Lyons: Apologies, I haven't had a chance to go through all of the detailed disclosure yet. However, previously, we've talked about advanced conversations with potential customers for Vidalia getting near to actually signing formal offtake agreements. Just wondering if you can possibly give us an update on any materially advanced conversations that are close to finalization. Shaun Verner: Yes. Thanks, Ben. We haven't made any specific disclosure around that in this quarter. What I would say is that our Phase 3 project remains very high on the list of potential suppliers to a number of key customers. We are progressing with technical qualification with a number of customers outside our offtakes with Tesla and Lucid. The key issues at the moment really revolves around the uncertain policy environment. And I think customers are no doubt looking to understand the outcomes of the anti-dumping and countervailing duties investigation and also considering the potential issues around the 45X prohibited foreign entity material cost ratio requirements for non-Chinese purchasing over the coming years as well. So there are a number of uncertainties, not least of which also the export controls and whether those are implemented more stringently out of China. And I think final decisions on further offtakes from customers are really pending greater visibility on some of those key items. And as I said in the call, we expect the anti-dumping and countervailing duty outcomes, which were expected in December, probably to move into January, but that will be absolutely key to Phase 3 offtakes. Ben Lyons: Okay. I completely understand, supportive policy backdrop, but it would be good to get greater certainty to really get those customers to sign up. Shaun Verner: Thanks, Ben. Operator: Thank you. There are no further questions at this time, and that does conclude our conference for today. Thank you for participating. You may now disconnect.
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