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Operator: Good morning, and welcome to the Service Properties Trust Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the call over to Kevin Barry, Senior Director of Investor Relations. Please go ahead. Kevin Barry: Thank you for joining us today. With me on the call are Chris Bilotto, President and Chief Executive Officer; Jesse Abair, Vice President; and Brian Donley, Treasurer and Chief Financial Officer. In just a moment, they will provide details about our business and our performance for the third quarter of 2025, followed by a question-and-answer session with sell-side analysts. I would like to note that the recording and retransmission of today's conference call is prohibited without the prior written consent of the company. Also note that today's conference call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other securities laws. These forward-looking statements are based on SEC's beliefs and expectations as of today, November 6, 2025, and actual results may differ materially from those that we project. The company undertakes no obligation to revise or publicly release the results of any revision to the forward-looking statements made in today's conference call. Additional information concerning factors that could cause those differences is contained in our filings with the Securities and Exchange Commission, which can be accessed from our website at svcreit.com or the SEC's website. Investors are cautioned not to place undue reliance upon any forward-looking statements. In addition, this call may contain non-GAAP financial measures, including normalized funds from operations or normalized FFO and adjusted EBITDAre. A reconciliation of these non-GAAP figures to net income is available in SVC's earnings release presentation that we issued last night, which can be found on our website. And finally, we are providing guidance on this call, including adjusted hotel EBITDA. We are not providing a reconciliation of this non-GAAP measure as part of our guidance because certain information required for such reconciliation is not available without unreasonable efforts or at all. With that, I will turn the call over to Chris. Christopher Bilotto: Thank you, Kevin. Good morning, everyone, and thank you for joining the call today. Last night, we announced our third quarter earnings results, which reflect continued momentum on our strategic objectives. I will begin today's call with a brief update on our key initiatives and share operating highlights from both our hotel and net lease businesses. Jesse will provide further details on our net lease platform and recent acquisitions. Brian will then discuss our financial performance, balance sheet and quarterly guidance. Starting with our strategic priorities. We had another productive quarter, completing previously announced hotel sales, advancing our capital recycling initiatives and taking decisive steps to strengthen SVC's balance sheet. Since our last earnings call, we have been active in the capital markets, raising over $850 million in proceeds, including $295 million from asset sales during the quarter, $67 million in asset sales in the months of October and November, and approximately $490 million from the issuance of our new zero-coupon bonds. The proceeds were used to fully repay our revolving credit facility and retire all of our 2026 senior notes. Each of these steps further improved SVC's debt maturity profile, enhanced our financial flexibility and strengthened our covenant position. Turning to current dispositions. Earlier this year, we committed to exiting 121 hotels totaling nearly 16,000 keys for gross proceeds of $959 million. We remain on track to complete the balance of these sales, including 6 hotels that sold in October for $66.5 million and 69 hotel sales expected to close in November and December for $567.5 million. Proceeds from these remaining sales will primarily be used to initiate the repayment of our February 2027 senior unsecured notes. With respect to acquisitions, we continue to advance modest growth supporting our net lease portfolio, which Jesse will expand upon. This is intended to improve our net lease portfolio fundamentals, provide optionality with financing sources and support our business model transitioning toward a net lease company. Turning to our hotel performance. At the macro level, the U.S. travel market continues to face headwinds with demand trends remaining uneven amid persistent economic uncertainty. Domestic leisure travel has declined to its lowest point in several years, reflecting heightened price sensitivity and a shift towards shorter booking windows. These behaviors suggest a more cautious consumer mindset in the current environment. SVC's portfolio continues to deliver steady top line growth with RevPAR increasing 20 basis points year-over-year, outpacing the broader industry by 160 basis points and representing the fourth consecutive quarter of outperformance. This growth was primarily driven by occupancy gains, while ADR declined modestly. Excluding the hotels we are exiting, our remaining 84 hotels delivered stronger third quarter performance with RevPAR increasing 60 basis points year-over-year, driven by occupancy gains of 140 basis points. Across the broader portfolio, contract business, particularly airline-related demand, remained a key growth driver and was partially offset by softer group demand and a decline in government bookings. Transient revenues were flat year-over-year, reflecting stable but subdued discretionary travel activity. Hotel EBITDA declined compared to last year, primarily reflecting elevated labor costs, insurance deductibles and broader expense pressures. The scale and timing of hotel dispositions during the quarter introduced operational disruption that weighed on performance, which we view as largely transitional. As the disposition pipeline normalizes, we expect this shift will support stability and margin improvement as we move into 2026. In recent years, we have also made significant capital investments to elevate the quality and performance of our hotels, having undergone major renovations at close to 45% of our retained hotel portfolio. We see positive indications of increasing performance, and we expect these renovated hotels to deliver incremental growth over the next year as they capture additional market share. Within the retained hotel portfolio, approximately 15 hotels generated a combined EBITDA loss of over $20 million over the trailing 12 months. While several of these assets are in the midst of the performance ramp-ups following the noted renovations or undergoing operational turnarounds, others are identified candidates for disposition. The reduction in cash drags combined with proceeds with these 2026 hotel sales serves as a meaningful catalyst for further deleveraging. These actions enhance our financial flexibility and support our long-term strategic objectives. We expect to provide additional detail on these disposition plans and future updates as execution progresses. Turning to our triple net lease segment. Our portfolio continues to deliver steady performance, highlighted by rent growth over 2%, stable rent coverage and occupancy over 97%. The triple net lease market continues to demonstrate resilience and growth driven by supportive consumer behavior. Operators are capitalizing on consumer preferences for convenience, affordability and accessibility, driving continued demand for QSRs, express car washes and discount stores, industries in which SVC currently maintains or is increasing its exposure. Following the balance sheet initiatives executed during the quarter, we believe SVC is well positioned to advance both its hotel and net lease strategies. These efforts are expected to support sustained cash flow growth and enhance long-term value creation for shareholders. I will now turn it over to Jesse to discuss the net lease portfolio. Jesse Abair: Thanks, Chris. In support of SVC's strategic shift toward the net lease space, during the quarter we continued to focus on portfolio growth and curation, driven largely by our acquisition platform. Although they will remain relatively modest in the near term, our acquisitions are intended to scale our net lease business, optimize portfolio composition and unlock value through accretive financing opportunities. Our investment thesis continues to revolve around necessity-based e-commerce-resistant retail assets that offer strong rent coverage and require minimal capital investment. During the third quarter, we acquired 13 net lease properties for a total of $24.8 million. Accounting for closings subsequent to quarter end, year-to-date investments totaled $70.6 million. These deals have been funded with a combination of cash on hand and proceeds from net lease dispositions. Our 2025 transactions to date have a weighted average lease term of 14.2 years, average rent coverage of 2.6x and an average going-in cash cap rate of 7.4%. Consistent with our investment criteria, the acquisitions include a balanced mix of quick service and casual dining restaurants, automotive services, fitness and value retailers. At quarter end, SVC's net lease portfolio consisted of 752 properties with annual minimum rents of $389 million. The portfolio was more than 97% leased with a weighted average lease term of 7.5 years. We have 178 tenants operating under 139 brands across 21 distinct industries. Aggregate rent coverage was just over 2x for the trailing 12 months, unchanged compared to the prior quarter. From a credit quality perspective, 2/3 of our annual minimum rents come from TA Travel centers backed by investment-grade rated BP. Rent coverage at these assets was also stable compared to the prior quarter. Annualized base rent increased 2.3% and NOI increased 50 basis points year-over-year, largely a function of our recent acquisition activity. Our asset management team executed 10 leases this quarter, totaling 187,000 square feet and averaging over 10 years of term. Looking ahead, we have a robust pipeline of investment opportunities aimed at further enhancing portfolio metrics with respect to tenant and geographic diversity, weighted average lease term and coverage ratios. To that end, we are currently under agreement to acquire 5 additional properties totaling $25 million, which we expect to close in the fourth quarter. Incremental disciplined growth will continue to be the focus for the net lease side of the business, generating reliable cash flows designed to endure throughout economic cycles. And with that, I'll turn it over to Brian to discuss our financial results. Brian Donley: Thank you, Jesse, and good morning. Starting with our consolidated financial results for the third quarter of 2025, normalized FFO was $33.9 million or $0.20 per share versus $0.32 per share in the prior year quarter. Adjusted EBITDAre decreased $10 million year-over-year to $145 million. Overall financial results this quarter as compared to the prior year quarter were primarily impacted by a $13.1 million decline in adjusted hotel EBITDA and an $8.7 million increase in interest expense. For our 160 comparable hotels this quarter, RevPAR increased by 20 basis points, gross operating profit margin percentage declined by 330 basis points to 24.4%. Below the GOP line, costs at our comparable hotels increased 7.6% from the prior year, driven by insurance claims at certain hotels. Our hotel portfolio generated adjusted hotel EBITDA of $44.3 million, a decline of 18.9% from the prior year as a result of softer demand and expense pressures. These results came in below the low end of our hotel EBITDA guidance range by $9.7 million, primarily due to a $6.6 million impact from hotels sold prior to September 30 and a $2.9 million impact from fire-related disruption at 2 full-service hotels. The 76 Sonesta exit hotels not yet sold as of quarter end generated RevPAR of $72, a decline of 1%, and adjusted hotel EBITDA of $8.3 million, a decline of $3.2 million year-over-year. The 84 hotels in our retained portfolio generated RevPAR of $114, an increase of 60 basis points year-over-year, and adjusted hotel EBITDA of $36 million during the quarter, a decrease of $7 million year-over-year. Most of the decline year-over-year in the retained portfolio is related to elevated labor costs, repairs and insurance expenses. Turning to our expectations for Q4. We are currently projecting fourth quarter RevPAR of $86 to $89 and adjusted hotel EBITDA in the $20 million to $25 million range. This guidance considers a sequential decline due to seasonality in the fourth quarter as well as recent headwinds in the travel and lodging industries. This guidance does not include the impact of completing any of the remaining 76 Sonesta hotel dispositions expected to close in Q4. Turning to the balance sheet. We currently have $5.5 billion of debt outstanding with a weighted average interest rate of 5.9%. As discussed last quarter, we fully drew down on our $650 million revolving credit facility in July to protect liquidity as our 1.5x debt service coverage covenant was projected to be below the minimum requirement when we filed our second quarter earnings. Since then, we have taken several actions to strengthen SVC's balance sheet and improve our credit metrics. Using the proceeds from asset sales and our new $580 million of zero-coupon senior secured notes, we have repaid all $700 million of senior notes that were scheduled to mature in 2026. I'm pleased to report we have also repaid all amounts outstanding on our $650 million revolving credit facility and are currently in compliance with all of our debt covenants. We currently project interest expense for the fourth quarter will be approximately $102 million and includes approximately $84 million of cash interest expense and $18 million of noncash amortization of discounts and financing fees. Our next debt maturity is $400 million of 4.95% unsecured senior notes due February of 2027, which we currently expect to redeem from the proceeds of the remaining hotel asset sales we expect to close this quarter. Turning to our capital expenditure activity. During the third quarter, we invested $47 million in capital improvements. Notable activity this quarter includes projects at our Sonesta Atlanta Airport hotel, preliminary project expenses for the Nautilus in South Beach and our Sonesta ES Suites in Anaheim. As it relates to our capital spending, we are updating our full year 2025 guidance to reflect a shift in the pace of deployment and the timing of our planned renovation and brand transition at the Nautilus hotel. We originally planned to begin this project in the fourth quarter of this year, but we have deferred the project to commence during the first quarter of 2026 with completion expected next fall. For the full year 2025, we are lowering our full year CapEx projection from $250 million to approximately $200 million. Last quarter, we provided initial 2026 CapEx guidance at $150 million for the year and expect the deferral of the Nautilus project will result in $20 million to $30 million of CapEx shifting to 2026. In closing, our third quarter results reflect continued progress in transforming SVC and strengthening its financial position, highlighted by successful capital markets activity and strategic asset sales. Looking ahead, our focus remains on driving EBITDA growth and optimizing our portfolio to enhance long-term shareholder value. That concludes our prepared remarks. We're ready to open the line for questions. Operator: [Operator Instructions] Our first question comes from Jack Armstrong of Wells Fargo. Jackson Armstrong: We're coming up on the halfway point in Q4 and there's still 69 hotels left to get done by year-end. How realistic is it that all these are going to close in time? Based on our prior conversations, the operators that are picking them up can only handle so much at a time from an operational perspective there. So curious your thoughts on the actual execution there. Christopher Bilotto: Yes. Thanks for the question. This is Chris. I think as we've talked about historically, with respect to these sales, there was a phased negotiation or a rolling close with an outside date in December, meaning kind of the last close would occur across all the assets in December. And so I think the best way to look at it is right now, based on information we have, we're tracking to close 40% to 50% of the remaining balance in November. And then the rest will be in December, no later than the outside closing date. So everything planned for 2025. Jackson Armstrong: Okay. And if they don't close by the closing date, kind of what's the procedure there? What should we expect? Christopher Bilotto: Well, contractually, they're obligated to close. And so if for some reason, they don't close, then there's deposits and other remedies at risk. So again, I think that's -- at this stage, just given where we are and the work we've done, I think that I would view that as highly unlikely. Jackson Armstrong: Okay. And then you took a $27 million impairment in the quarter. Can you talk about what that was in relation to and the likelihood of further impairments as we get through the rest of these sales? Brian Donley: Jack, this is Brian. That was more shifting of the purchase price allocations amongst the portfolios. I wouldn't read too much into it. Overall, we're still on track to produce a significant book gain on these sales. Most of it -- all of the rest of it will be a gain in the fourth quarter. Again, a lot of these contracts and the way the sales were phased in with the individual purchase prices and how those are allocated amongst the portfolio ended up resulting in that impairment. But it's -- again, I think it's more noise than anything. Jackson Armstrong: Okay. And then last one for me. Rent coverage continues to decline in the travel center portfolio. Do you have an expectation of when or if that might improve? And at what level of coverage would you say it's concerning to you, acknowledging that it's guaranteed by BT? Jesse Abair: Yes. Jack, this is Jesse. I'll take that. I mean, certainly we're seeing a couple of sequential quarters of degradation in the TA coverage. I think some of that is just kind of we're rolling off that kind of post-COVID high with respect to the freight demand driving a lot of their business. It does seem to be moderating that decline and kind of flattening out, particularly within the last couple of quarters. So given the BT credit backing of those leases, I don't think we're particularly concerned at this point. We're in regular contact with TA. We continue to see them invest in the sites and continue to make them more competitive. So I think it's something we're watching, but I don't think anything above one, it doesn't drive us towards any particular degree of concern at this point. Operator: [Operator Instructions] The next question comes from Tyler Batory of Oppenheimer. Tyler Batory: A couple on the hotel portfolio first. And I'm just trying to evaluate the performance during Q3. I know lots of moving pieces with asset sales and whatnot. So just talk about how the EBITDA specifically came in versus your expectations internally. I know it was a little bit below the guidance, but I'm not sure perhaps how much of that was driven by asset sales and some of the other moving pieces you have going on right now. Brian Donley: Tyler, it's Brian. Thank you for the question. I think from the disposition standpoint, the timing of those sales and when they close was the biggest driver. When we provide the guidance and the guidance I provided today for the fourth quarter, doesn't assume asset sales because we can't always predict the exact timing and how much earnings will come off the plate. So about, just call it, $7 million, I think, is the number for sales from what we had guided for Q3. There were some other onetime impacts in the quarter. We had a couple of insuranceable events, fires at a couple of properties in New Orleans. There was an electrical fire that caused significant disruption. We also had a fire on Silicon Valley, same story. It took -- the hotel was closed for days. And then there's just been general disruption from reopening and some other renovation disruption. Some softness in Cambridge, for example, was a big driver this quarter at our Royal Sonesta. So there's different stories within the story. But I think to Chris' point in his remarks, there is definitely a softness in the industry and the travel industry in general. We continue to see cost pressures. So put all of that together is where we landed. Tyler Batory: Okay. And then just to follow up that in terms of the guide for Q4, helpful to hear that that doesn't assume any asset sales. But when I just look at the sequential progression Q4 versus Q3, the seasonality is a little bit worse than normal. If I'm doing my math right, it implies about a high single-digit EBITDA margin there. Just talk a little bit about kind of what's going on in Q4 and just what you're seeing in terms of travel trends, costs, et cetera, moving into the fourth quarter that's informing that guide. Christopher Bilotto: Yes. I mean I think at a very high level, from the travel trends, things have generally moderated quite a bit. Where we are seeing kind of some pockets are with respect to kind of the group pace. I think overall, we expect that to be up 3% for the year, give or take $5 million. And then we're also starting to kind of see some opportunities with contract business, more specifically at a lot of the renovated hotels. And so that's providing additional lift. But I think we -- a lot of our business comes from the OTA market. That market too is getting a little bit more competitive, which is putting pressure on rates just given as travel demand has lessened more broadly, there's just a lot more brands exercising that market. So there's disruption on that front, let alone just kind of with the broader industry. And again, with the bright spots being progress we're seeing from the renovated hotels and then more specifically on group and contract business. And then on the EBITDA side, Brian, I don't know if you want to add any more color there. Brian Donley: No. I mean I think it's really the combination of what we've been seeing in the last few quarters with continued cost pressures lower demands, the seasonality in Q4, we're also taking out our focused service hotels, which had much more of a smoother trend, if you will, across all 4 quarters. It's a little more steeper bell curve for our full-service hotels coming into Q4, and that's a typical pattern for our portfolio as we sell these hotels. And then the impact of the rest of the dispositions, as we talked about, as Chris mentioned, that most of these properties are going to close in November and December. So how much EBITDA we retain versus leaving the system still remains to be determined based on timing. But there will be a similar impact to Q4's EBITDA removing hotels and raising those proceeds for us. Tyler Batory: Okay. Great. And then moving on, could you talk a little bit more about some of the recent movements on the debt side, just the rationale behind doing the zero-coupon bonds. And I know it's a little while until you have upcoming maturities, but it's always something that people are focused on. So just kind of talk about how you're thinking about strategically handling those in the future. Brian Donley: Sure, Tyler. The zero-coupon bond, the primary goal there was to give us some headroom with our covenants, specifically the 1.5x interest coverage, the minimum coverage. So we get the benefit of having zero-coupon interest to that covenant. So we got an immediate lift. And we drew down the revolver in July to protect liquidity because if we're below that 1.5x, we can't use the revolver. It's an incurrence test, incurrence of debt, including borrowing from the line of credit. So we had drawn down the line defensively in July. We started working through the strategies as we saw hotel EBITDA slipping further as the quarter moved on, executed on the zero-coupon transaction. We've repaid our '26 notes and we brought ourselves back in check. So those are the primary drivers. The zero-coupon bond basically gives us 2 years of runway on our debt maturities, our next debt maturity. Once we complete the rest of these asset sales, we're paying off the early '27 notes that are coming due in February '27. So our next debt maturity will be those zero-coupons in September of 2027. Operator: The next question comes from John Massocca of B. Riley Securities. John Massocca: Maybe just a quick clarifying question on the guidance. Does that include the impact of host health sales closed quarter-to-date? Brian Donley: No. We just -- the projection is based on the portfolio as of September 30. So the few hotels shouldn't make a big difference, the ones we've closed so far, but it just assumes all 76 that haven't sold are still in those numbers. John Massocca: Okay. And then as you think of kind of the pro rata impact of sales in 4Q and maybe even the final impact coming into 2026, is the overall amount of hotel EBITDA you expect to kind of lose in these sales still at the $53 million or so mark you laid out in August? Brian Donley: Roughly. I mean, yes, I mean, it's hard to predict what those would have done without the sales process impacting those properties. But generally speaking, around $50 million is the right number for the whole portfolio. John Massocca: And then in terms of hotel sales, it sounds like everything is expected to be wrapped up by the end of this year. What's the outlook for potential further dispositions in 2026, particularly given you're not going to have debt repayment needs until '27? Could we expect another strategic process maybe as you look at the zero-coupon bonds? I know they're secured by net lease assets, but just kind of curious as to the opportunity set for more hotel dispositions. Could it be structural like it was this year? Or is it going to be more opportunistic going forward? Christopher Bilotto: Yes. So the short answer is we are planning to continue with dispositions in 2026. As I mentioned kind of in my prepared remarks, we have a quantum of hotels that are negative EBITDA drags and these are on the full service side. And our initial plan is just to focus on a portion of those for launch of a sale earlier in the year. And we're going to kind of take a more incremental approach to kind of how we think about layering in the sales. I think it's important just to note, I mean, selling negative EBITDA hotels in itself takes time. And given kind of the overall backdrop of where the hotel kind of performance is going more kind of sector related, we just want to strike the right balance of timing to be focused on transactions. So it will be very much incremental in next year, but with the caveat that we will be selling hotels. And our plan is to really provide more definitive information as we round out the year, likely with our NAREIT presentation update on kind of the hotels themselves, how much in proceeds we expect, how much negative EBITDA in the cases for the initial round, we expect to see come off the books when these transact and other details supporting that initiative. John Massocca: Okay. I appreciate that detail. And then one last kind of one on the hotel front, purely the hotel front. The margin decline kind of quarter-over-quarter obviously, but even year-over-year, was that just driven by some of the fire disruption and insurance issues you talked about earlier on the call? Or were there other kind of factors going into that? Brian Donley: Yes, that's part of it. I think labor continues to be a big headline number for us and for every hotel company, frankly, continued growth in wages and benefit costs, market impacts, the availability of labor has a bigger outsized recurring impact to the portfolio and some of these other things. These insurance items were definitely an impact this quarter, but eventually, we'll get some business interruption proceeds, but that process takes a long time to offset. So there are other costs within the portfolio that continue to weigh on margins as revenues have been relatively flat. John Massocca: Okay. And then on the CapEx guidance, I appreciate all the detail. It still feels like the 2025 CapEx guidance is calling for a pretty significant ramp in 4Q versus what you've done in the last 3 quarters. Is there something driving that, particularly now that the Nautilus renovations are going to move to 2026 purely? Brian Donley: Yes. There's a significant amount of stuff that we have in the pipeline at various hotels that will have an outsized impact, including one of our large Royal Sonestas in Cambridge. We're starting a renovation project there that will carry through into next year. Same thing down in New Orleans. The Nautilus, the biggest part and the actual swinging of hammers and doing the rooms and the public space will happen next year, but there's still a significant amount of dollars going out the door in fourth quarter by FF&E releases and that sort of thing as well as other maintenance type capital that we're working through across the portfolio. So yes, it is outsized compared to the trend and -- but that's part of the rationale why we brought the guidance way down. John Massocca: And diversely kind of on a 2-year stack, I think the way guidance kind of changed is calling for overall CapEx to decline. Is that just a product of hotel sales? Or is there something else going on there where you're thinking you need less CapEx spend? Christopher Bilotto: Certainly, having less hotels, there will be less overall capital. But I think generally speaking, we have less kind of renovations planned during the year and just bringing down kind of the overall capital spend. So I think net-net, it's focused on just trying to kind of be more strategic about the deployment of capital going into the year. So this is -- Brian kind of alluded to the numbers going into 2026, and we'll continue to evaluate that with the goal that we can kind of see further reductions in out years as well. John Massocca: Okay. And just to be clear, the CapEx spend guidance does take into account the asset sales, correct? Brian Donley: Correct. We're not projecting anything related to those sale of hotels. John Massocca: No, no, I meant -- so I guess the number for 2026 includes assets that are planned to be sold. Or is that -- are you factoring in the fact you're going to sell these assets before you need to spend CapEx on them? Christopher Bilotto: Yes, correct. Yes. So it's -- I guess we'll answer it in 2 parts. For the '25 dispositions and the capital guidance, that's all factored in. There's no capital with -- specifically tied to what we're selling at this stage, just given where we are in the process. The capital guide for 2026, it's going to have some capital for the hotels we're selling. I mean, by the time we transact on those hotels, we're going to have to continue to make sure we're taking care of any mission-critical work. So there's going to be some numbers in there. But as we dial into the timing of the sales, then we would kind of rightsize that number. But I wouldn't view that as kind of an outsized amount that would fall off given some of those initial sales. John Massocca: Okay. And then maybe as we think about '26, bigger picture, is there a leverage target you kind of have in mind post some of these continued hotel dispositions? Brian Donley: Yes. I think with the completion of the 113 Sonesta sales, we've been quoting one full turn off of leverage when the dust settles, and that's still where we expect things to shake out. On the flip side, as you've seen in these numbers, EBITDA has eroded a little bit and really depends on where we come in next year, short of any other sales. So from a leverage target standpoint, we're going to -- when we get more specific as far as what we might sell in '26 in some of the full-service hotels and what the EBITDA impact is to the portfolio, we'll have more clarity on that. But at this time, the full turn of leverage from what we've done this year is sort of the benchmark in the short term. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Chris Bilotto, President and Chief Executive Officer, for any closing remarks. Christopher Bilotto: Thank you, everybody, for joining the call today. We look forward to seeing many of you at NAREIT in December. Please reach out to our Investor Relations team if you're interested in scheduling a meeting with SVC. That concludes our call. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Hello, and welcome to today's Ingevity Third Quarter 2025 Earnings Call and Webcast. My name is Bailey, and I will be your moderator for today. [Operator Instructions] I'd now like to pass the conference over to John Nypaver. So please go ahead when you're ready. John Nypaver: Thank you, Bailey. Good morning, and welcome to Ingevity's Third Quarter 2025 Earnings Call. Earlier this morning, we posted a presentation on our investor site that you can use to follow today's discussion. It can be found on ir.ingevity.com under Events and Presentations. Also throughout this call, we may refer to non-GAAP financial measures, which are intended to supplement, not substitute for comparable GAAP measures. For example, we are presenting the pending divestiture of our Industrial Specialties business for the first time within discontinued operations. In the appendix to our slides, we provide details that reconcile the total operations. Definitions of these non-GAAP financial measures and reconciliations to comparable GAAP measures are included in our earnings release and are also in our most recent Form 10-K. We may also make forward-looking statements regarding future events and future financial performance of the company during this call, and we caution you that these statements are just projections and actual results or events may differ materially from those projections as further described in our earnings release. Our agenda is on Slide 3. Our speakers today are: David Li, our CEO; and Mary Dean Hall, our CFO. Dave will provide introductory comments. Mary will follow with a review of our consolidated financial performance and the business segment results for the quarter. Dave will then provide closing comments and discuss 2025 guidance. With that, over to you, Dave. David Li: Thanks, John, and good morning, everyone. It was a highly productive quarter of strong execution for Ingevity. First, we achieved an important milestone in our strategic portfolio review with the announcement of the sale of our Industrial Specialties business for $110 million. We expect this transaction to close in early 2026 and will likely use the majority of the proceeds towards further debt reduction. Second, we were pleased with our business segment results. Performance Materials delivered another strong quarter within a dynamic global auto environment. Going forward, we are encouraged by the adoption of hybrids and fuel-efficient ICE platforms, which should drive demand for advanced Ingevity solutions and content. Road Technologies also had a great quarter, highlighted by record sales for our pavement business in North America. Finally, APT delivered strong margins as the team prioritized operational improvements against the backdrop of continued weak end market demand. Overall, these contributions reflect our team's disciplined execution as well as strategic repositioning actions, which drove best-in-class EBITDA margins of 33% reflecting our sixth consecutive quarter of year-over-year margin expansion. Strong cash flow generation and disciplined capital allocation enabled us to reduce debt, achieve our leverage target ahead of plan and return capital to shareholders through share repurchases. And third, I'm very excited to announce we hired Ruth Castillo to lead our Performance Materials business. Ruth is a strategic and experienced leader with a deep understanding of how to navigate complex businesses and unlock new growth opportunities. I look forward to her leadership in guiding Performance Materials into its next phase of profitable growth. Before I turn it over to Mary for more details on the financials, I'm pleased to share that we will host an Investor Update on December 8. This will be a virtual event where we'll share the results of the strategic portfolio review and provide an assessment on what we believe the company will look like over the next 2 years. More details on how to register for the event will be forthcoming. And now I'll turn it over to Mary. Mary Hall: Thanks, Dave, and good morning all. It's nice to have some good news to share in this unsettled economic environment. Our Q3 results reflected continued growth in adjusted EBITDA, margins and free cash flow despite pressure on the top line, affirming the resilience of our businesses and the successful execution of our repositioning actions in Performance Chemicals. As previously noted, with the announced sale of Industrial Specialties, we're now reporting the results of that business as discontinued operations, with the sale expected to close by early 2026. Given our close proximity to year-end and the full year guidance is based on total company performance, I'll focus my comments on total company results so that comparisons to prior periods are apples-to-apples. I'll provide more color on continuing and discontinued operations when we discuss the Performance Chemicals results. Please refer to Slide 5. Total company sales of $362 million in Q3 were down about 4% as increased sales in Performance Materials and Road Technologies were more than offset by decreases in Industrial Specialties and APT. Gross margin improved over 600 basis points, reflecting significantly lower raw material costs, primarily in Industrial Specialties and the successful execution of our repositioning actions. SG&A increased due primarily to higher variable compensation expense on improved business results. Adjusted earnings improved significantly, up almost 500 basis points to $56.3 million, driving adjusted EBITDA margin to 33.5%. Please turn to Slide 6. As a result of strong earnings and disciplined capital management, our free cash flow of $118 million enabled us to repurchase $25 million of shares in the quarter and accelerate deleveraging. We ended the quarter with net leverage of 2.7x, already beating our previous year-end target of 2.8x. We now expect net leverage to be approximately 2.6x by year-end. This does not include the benefit of any proceeds from the sale of Industrial Specialties, which is expected to close by early 2026, as I mentioned earlier. Turning to Slide 7. Performance Materials sales increased 3%, primarily due to volume growth, reflecting improved global auto production. Segment EBITDA and EBITDA margin were down a bit as the benefit from increased volumes and price was more than offset by increased variable compensation expense and a negative impact from foreign exchange. Q4 is looking solid, but we do expect Q4 to be a bit softer coming off of a strong Q2 and Q3. So on a full year basis, we expect PM revenue to be flat to slightly down year-over-year with EBITDA margins over 50%. Our results demonstrate the resilience of this business in the face of unprecedented uncertainty caused by the dynamic tariff environment. Please turn to Slide 8 for APT results. Sales in APT declined year-over-year for many of the same reasons we discussed last quarter. The indirect impact of tariffs continues to weigh on already weak end market demand, especially in footwear and apparel, delaying the upturn we otherwise expected to see. In addition, competitive dynamics in China are continuing to impact sales in the paint protective film markets. The team did a great job holding on to price where possible and managing costs and posted an EBITDA margin of 26% for the quarter, which also reflected a tailwind from foreign exchange. Near term, we see no indications that the current market conditions or competitive dynamics will improve. We now expect full year revenue for APT to be down by mid-teens on a percentage basis with full year EBITDA margin of 15% to 20%, down from their more typical 20% area margins due to the extended plant outage in Q2. On Slide 9, Performance Chemicals. The left side presents a combined view of Performance Chemicals results, including continuing operations and discontinued operations. As I mentioned earlier, with the announced sale of Industrial Specialties, accounting rules require that we separate results of the product lines being divested into discontinued operations. However, because the sale is not yet completed and our guidance is for full company results, we're showing the Q3 results on a combined basis. As you can see, combined sales were down almost 5% due to Industrial Specialties and our repositioning actions in that business. Road Technologies posted sales up 5% as the pavement business delivered a record Q3 in North America, which is our largest and most profitable region. Road Technologies as part of continuing operations includes the lignin-based dispersants business previously included in Industrial Specialties. Combined segment EBITDA and EBITDA margins improved significantly year-over-year due to lower raw material costs in Industrial Specialties and the successful execution of repositioning actions. On a continuing operations basis, Performance Chemicals EBITDA margins were down slightly, primarily as a result of pricing decisions made in the road markings business to maintain volumes. Please refer to Slide 27 in the appendix of the slide deck for a reconciliation of Performance Chemicals segment EBITDA on a continuing operations basis to the combined segment EBITDA, inclusive of discontinued operations. On the right-hand side of Slide 9, we've added some detail regarding the impact of the divestiture on the combined results. There is noise in the Q3 numbers, so we believe it's most useful to look at the estimated impact on a full year basis. As you can see, we expect the divestiture to contribute approximately $130 million in sales for the full year with an EBITDA margin of approximately 6%, inclusive of indirect costs. Please note that these indirect costs related to the divestiture, often referred to as stranded costs are included in continuing operations for reporting purposes. On a full year basis, we estimate these indirect costs will be approximately $15 million, which we expect to eliminate by the end of 2026. In addition, the divestiture is expected to contribute approximately $40 million to free cash flow on a full year basis, primarily due to lower working capital. In summary, we continue to focus on delivering results in a very challenging environment and are proud to report our sixth consecutive quarter of year-over-year adjusted EBITDA margin expansion. In addition, with our strong free cash flow, we have strengthened the balance sheet and resumed share repurchases. I'll now turn the call back over to you, Dave, for update on guidance. David Li: Thanks, Mary. Please turn to Slide 10. We are very pleased with our third quarter results and are on track for a strong finish to the year. Our results reflect sustained execution, the durability of our business model and our leadership in the industries we serve. We are raising full year free cash flow guidance and now expect net leverage to be around 2.6x by year-end. We will continue to be disciplined in how we allocate capital and look forward to closing the sale of our Industrial Specialties business soon. Lastly, given the ongoing tariff uncertainty and slower industrial demand primarily impacting APT, we're adjusting our full year outlook to narrow the top end of our sales and EBITDA range. In closing, we look forward to hosting everyone virtually on December 8 for our investor update when we will provide the results of our strategic portfolio review and our expectations for the future. 0With that, I'll turn it over for questions. Operator: [Operator Instructions] Our first question today comes from the line of Jon Tanwanteng from CJS Securities. Jonathan Tanwanteng: Nice job in the quarter. My first question is just regarding the full year outlook. I noticed that you're taking down the top line for APT, which makes sense. I was wondering if you could actually speak to the Performance Materials segment and to the publicized aluminum plant fires in North America, the chip shortages that are going on in China and just how that's impacting your outlook there and what's implied in the guidance and if you've accounted for that? David Li: Yes. Thanks, Jon. Yes, with respect to those challenges you mentioned, obviously, if you zoom out, it's been a pretty dynamic year for the industry. I think it actually speaks to the resilience of the auto industry in general. I mean, we've been through tariffs, some macro uncertainty. And as you mentioned, some more recent supply chain challenges. And our results and outlook would reflect any impact from those. But I think overall, if you look at the results we've delivered for Performance Materials, it demonstrates the -- also the durability of our business, the continued leadership we have in that space. And I think quarter-over-quarter, we've continued to deliver strong results. But to answer your question, on those 2 supply chain challenges, our results and outlook do reflect any impact to those going forward. Jonathan Tanwanteng: Got it. That's helpful. And then just on the discontinued ops, you mentioned -- or I guess you gave metrics for what you expect from the year in the [ Inspect ] business. Could you kind of tell us what's implied in the Q4 just because we don't have the first half results in there and then you broke out the Q3 in terms of EBITDA contribution? John Nypaver: [Indiscernible] this is John. We do show full year for that discontinued ops. It should be easy for you to get to that, I would think. But we can talk offline if you need help on that. David Li: Yes. And Jon, I kind of just in terms of sizing the business, on an annualized basis, think of it as about a kind of mid-single-digit EBITDA business. And so we've reported 3 quarters of it. So kind of extrapolating that out to the fourth quarter, I think, would make sense. Operator: Our next question today comes from the line of Daniel Rizzo from Jefferies. Daniel Rizzo: You mentioned working capital and free cash flow. I was just thinking -- wondering how we should think about working capital post the divestiture as maybe as a percent of sales or just how you plan to kind of manage that? Mary Hall: So you're really thinking looking forward into 2026, Dan? Daniel Rizzo: Right. Well, just -- I mean, not for just 2026, but just how it changes at all once the business is divested. Phillip Platt: Yes. Dan, this is Phil. I think if you look at our balance sheet, which is included in the press release schedules, we broke out the impact of the discontinued ops on the balance sheet and pulled them out as separate line items. So it will give you a really good clear indication for what we're thinking working capital looks like for the business going forward. Daniel Rizzo: Okay. And then you mentioned that I think net debt-to-EBITDA is going to be about 2.7x at the end of the year. And then you get $110 million roughly from the sale. I mean, that's going to be used towards debt. So I guess my question is, what is the net debt-to-EBITDA target? Because that seems like you would be relatively low. Mary Hall: So Dan, just for clarity, we finished the quarter at 2.7x. And as a result of beating our year-end target already, we're reducing our target for year-end to 2.6. (sic) [ 2.6x ] David Li: Right. And then in terms of use of proceeds, Dan, we mentioned or I mentioned in my comments, we'd likely use the majority of the proceeds when received to further pay down debt. I want to hold off a little bit because we'll also talk more about capital allocation as one of the major topics on December 8. But obviously, if you look at primary use of the proceeds as debt reduction, you can do that trajectory down. But we're really pleased with our achievements so far ahead of plan. We had targeted 2.8x or below by end of year. So we finished the quarter, as Mary mentioned, at 2.7x, and we think we've got a glide path to 2.6x without any proceeds -- use of proceeds to pay down further debt. Operator: [Operator Instructions] We have no additional questions waiting at this time. So I'd like to pass the call back over to John Nypaver for any closing remarks. John Nypaver: Actually, Bailey, I believe someone is in the queue, if you wouldn't mind, double checking. Operator: Perfect. Yes, we will take our next question, apologies, from John McNulty from BMO Capital Markets. John McNulty: Yes. Sorry about the last second question there. So I guess I just wanted to understand Performance Materials a little bit better for the full year sales to be kind of flat to slightly down. I mean when we look at kind of the overall auto forecast out there, they're roughly in line with that. But I assume normally, you're getting some reasonable amount of price. So I guess, is it -- is there some negative mix that we should be thinking about on the auto builds that may be contributing to this type of a result? Or is pricing maybe more modest than it's been where maybe it's taken a little bit of a pause after the last few years? I guess, can you help us to think about that? David Li: Yes, John. So as we mentioned earlier in the year, we've taken pricing as we typically do. I think there's -- when you look at the auto forecast as we do as well, they're calling for sort of flattish to slightly down. That's similar to our PM business. But in terms of the overall mix of those vehicles -- obviously, we've had a lot of volatility, for example, for EVs throughout the year. So when you look at the overall trend for automobiles may not reflect just ICE and hybrids. We think we have a very strong position in that market. Market continues to be healthy. Actually, still inventory levels are pretty low and the fleet remains pretty aged. So we're thinking that we're even not back to a healthy level of production. But given that, I think that's how sort of the math would shake out for us. It's just not taking into account the portion that's EVs. But Mary, what else would you add? Mary Hall: Yes. Maybe just another little point of clarity. focusing on North American production, which, as you know, John, is where we're most profitable, while the forecast has improved again, actually for the full year for North America, in particular, it's still down. So it's the latest forecast information we have is that even North America is still down a couple of percent year-over-year, albeit an improvement over the prior forecast. So I think that, in combination with some of the noise that we're also, as we mentioned, factoring in the fire at Ford, chip issues, et cetera, that are making noise in the supply chain system of automotive, we feel comfortable with our current guide. John McNulty: Got it. Okay. Fair enough. So it sounds like it's really a mix thing more than anything else. And then I guess the other question is just any update on the Nexeon platform and that venture and how things may be going there? David Li: Yes. So as we mentioned, with Nexeon, that's kind of a far out R&D type of initiative. We do expect their plant to be up and running in the next few months. As a reminder, that's not using our activated carbon for this first generation, but continues to be a strong partnership and an exciting space that we look forward to participating in with them. Operator: Thank you. [Operator Instructions] As we have no additional questions waiting at this time, I would now like to pass it back over to John Nypaver for any closing remarks. John Nypaver: Thanks, Bailey. That concludes our call. Registration for the strategic portfolio update is now open on our investor website under Events. We will also issue a press release with more details later today. If there are any questions, please feel free to reach out to me directly. My contact information can be found in the earnings release and slide deck. Thank you for your interest in Ingevity. Operator: This concludes today's call. Thank you all for your participation. You may now disconnect your lines.
Operator: Good morning, ladies and gentlemen, and welcome to the Teleflex Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note that this conference call is being recorded and will be available on the company's website for replay shortly. And now I will turn the call over to Mr. Lawrence Keusch, Vice President of Investor Relations and Strategy Development. Lawrence Keusch: Good morning, everyone, and welcome to the Teleflex Inc. Third Quarter 2025 Earnings Conference Call. The press release and slides to accompany this call are available on our website at teleflex.com. As a reminder, a replay will be available on our website. Those wishing to access the replay can refer to our press release from this morning for details. Participating on today's call are Liam Kelly, Chairman, President and Chief Executive Officer; and John Deren, Executive Vice President and Chief Financial Officer. Liam and John will provide prepared remarks, and then we will open the call to Q&A. Before we begin, I'd like to remind you that some of the matters discussed in the conference call will contain forward-looking statements regarding future events as outlined in the slides posted to the Investor Relations section of the Teleflex website. We wish to caution you that such statements are, in fact, forward-looking in nature and are subject to risks and uncertainties, and actual events or results may differ materially. The factors that could cause actual results or events to differ materially include, but are not limited to, factors referenced in our press release today as well as our filings with the SEC, including our Form 10-K, which can be accessed on our website. Now I'll turn the call over to Liam for his remarks. Liam Kelly: Thank you, Larry, and good morning, everyone. I would like to begin today with comments on our corporate strategy. In order to best position the company for enhanced value creation, we have continued to take decisive action to unlock value within our business. This includes the previously announced separation of Teleflex into 2 independent companies, RemainCo and NewCo. In line with our commitment to maximizing value for our shareholders, our Board and management have been continuing to actively advance the process for a potential sale of NewCo, which is now our priority. There continues to be healthy interest in NewCo, and we are pleased with the momentum and stage in the process. Once the separation process is complete, each business will be best positioned for the future with more focused strategic direction, simplified operating models, streamlined manufacturing footprint and individually tailored capital allocation strategies aligned with their respective growth philosophy and objectives. As a reminder, the creation of RemainCo will create an optimized portfolio focused on highly complementary business units, Vascular Access, Interventional and Surgical. NewCo will be able to identify, invest in and capitalize on opportunities that are unique to urology, acute care, including intra-aortic balloon pumps and catheters and OEM end markets. Importantly, our guiding principles continue to focus on maximizing shareholder value through this process. Should a sale be consummated, we intend to utilize proceeds to balance paydown of debt and return capital to our shareholders. Before I turn to our third quarter results, I would like to provide an update regarding changes in the Italian payback measure. As a reminder, the major states that if Italian public hospitals spend more than the national budget allows on medical devices, manufacturers that generate revenue in the country must pay back part of the excess cost to the government. In June 2025, the Italian government proposed a significant discount under this measure, which became effective in August. The amended law reduced the amount owed by affected companies, including Teleflex, for the years 2015 through 2018. These legislative changes and the resulting adjustment to our reserve calculation beyond 2018 resulted in a $23.7 million decrease in our reserve and a corresponding increase to EMEA revenue for the 3 and 9 months ended September 28, 2025, of which $20.1 million pertained to prior periods. Since the amount related to prior years does not represent normal adjustments to revenue and is nonrecurring in nature, we have excluded a $20.1 million increase in revenue related to the prior years from adjusted third quarter 2025 revenue to facilitate an evaluation of our current operating performance and a comparison to our past operating performance. Now moving to the agenda for the remainder of this morning's call. We will discuss the third quarter results, review commercial highlights and conclude with our updated financial guidance for 2025. Overall, we are pleased with our execution in the quarter, with third quarter revenues of $913 million, an increase of 19.4% year-over-year on a GAAP basis. When excluding the prior year impact of the Italian payback measure, adjusted revenues for the third quarter were $892.9 million, up 16.8% year-over-year on a reported basis and up 15.3% on an adjusted constant currency basis. Constant currency revenue growth improved sequentially in the third quarter, excluding the impact of the acquired Vascular Interventions business as we work to drive operational excellence across our business. Excluding the impact of acquired Vascular Intervention revenues, constant currency growth was 2.3% year-over-year. Third quarter adjusted earnings per share were $3.67, a 5.2% increase year-over-year. Now let's turn to a deeper dive into our third quarter revenue performance. I will begin with a review of our geographic segment revenues for the third quarter. All growth rates that I refer to are on a year-over-year adjusted constant currency basis, unless otherwise noted, and include the impact of the acquired Vascular Intervention business. Americas revenues were $555.9 million, a 7.5% increase year-over-year, with the acquired Vascular Intervention business representing the largest contributor to growth. Excluding the Vascular Intervention business, growth in the quarter was driven by strength in our Surgical, Interventional and Vascular businesses, partially offset by OEM declines and continued challenges in UroLift. EMEA revenues were $214.1 million, a 34.4% increase year-over-year. During the quarter, growth was driven by the Vascular Intervention acquisition business. Excluding those acquisition revenues, we saw strength in our Surgical, Vascular and Interventional businesses, which was partially offset by our anesthesia business, including the decreased volume of military orders in comparison to the prior year. Now turning to Asia. Revenues were $122.9 million, a 25.3% increase year-over-year, driven primarily by the Vascular Intervention acquisition. In the quarter, we recognized an approximately $9 million stocking order as part of our intra-aortic balloon pump and catheter growth strategy in China. And as expected, this was partially offset by volume-based procurement. We anticipate inventory exceeding this $9 million stocking order will be sold through by the end of 2025 as dynamics associated with tariffs stabilize, including timing of orders and tender activity. Now let's move to a discussion of our third quarter revenues by global product category. Commentary on global product category growth for the third quarter will also be on a year-over-year adjusted constant currency basis, unless otherwise noted. Starting with Vascular Access. Revenue increased 4.3% year-over-year to $191 million, driven by our broad Vascular Access portfolio, including peripheral access, EZ-IO and central access products. Moving to Interventional. Revenue was $266.4 million, an increase of 76.4%. Excluding the impact of the Vascular Intervention acquisition, Interventional revenues increased 9% year-over-year. The strong performance for the quarter was led by growth drivers such as intra-aortic balloon pump catheters, OnControl and complex catheters. The acquired Vascular Intervention business revenue was modestly ahead of our $99 million expectation for the third quarter, and increased 6.9% year-over-year on a reported basis. We continue to feel confident in our Vascular Intervention guidance of $204 million in revenue for the second half of 2025. Intra-aortic balloon pump revenue growth declined year-over-year in the third quarter due to lower-than-expected order rates, predominantly in the United States. Specifically, we are seeing a slowing in conversions for pumps in the annual replacement cycle as well as less activity from hospital systems in replacing entire fleets of pumps. Although we had anticipated this dynamic in 2026, it has occurred sooner than expected. As a result, we have lowered our 2025 global balloon pump revenue expectations by $30 million at the midpoint of our constant currency guidance, with the vast majority of the reduction in the United States. Despite the revised outlook for pump demand in the second half of 2025, we have taken considerable market share and advanced our overall market position beginning in the fourth quarter of 2024. Turning to Anesthesia. Revenue decreased 1.4% to $101.4 million. Decreased military orders and softness in tracheostomy tubes were partially offset by growth in ET tubes and LMA single-use masks, along with a double-digit increase in hemostatic products in the United States. In our Surgical business, revenue was $122.9 million, an increase of 8.8%. Underlying trends in our core surgical franchise continued to be solid, with growth led by chest drainage and instrumentation in the quarter, partially offset by the expected impact of volume-based procurement in China. Our North America and EMEA surgical businesses, which are not impacted by volume-based procurement, each grew double digits in the quarter. For Interventional Urology, revenue was $71.8 million, representing a decrease of 14.1%. While we saw strong double-digit growth for Barrigel, we continue to experience meaningful pressure on UroLift. OEM revenue decreased 3.9% to $80.4 million year-over-year, driven by customer inventory management. However, and as expected, we saw a sequential revenue increase compared to the previous quarter. Third quarter other revenue increased 3.1% to $59 million. Growth in the quarter was broad-based across the portfolio. That completes my comments on the third quarter revenue performance. Turning now to clinical and commercial updates. BIOMAG-II, which is our European randomized controlled trial for the Freesolve resorbable magnesium scaffold, has reached the midpoint ahead of schedule with over 1,000 patients now enrolled. BIOMAG-II is a prospective multicenter randomized controlled trial designed to evaluate the safety and clinical performance of Freesolve compared to a contemporary drug-eluting stent. The primary endpoint is target lesion failure rate at 12 months. We continue to expect the data readout for the BIOMAG-II study in 2027. The integration activities for the acquired Vascular Intervention business are well underway and remain on track. A planned restructuring, as disclosed in today's press release, is aimed at reducing costs and increasing operational efficiency, and will include workforce reductions and the relocation of certain manufacturing operations to existing lower-cost locations. We expect the restructuring activities to be substantially completed by the end of 2028. In our Interventional Urology business, we launched Barrigel in Japan during the third quarter following regulatory approval, insurance coverage and appropriate use criteria issuance. The commercialization in Japan marks a significant milestone in the global expansion of Barrigel. In 2022, prostate cancer was the most common cancer among men, with over 104,000 new cases. The launch of Barrigel in Japan aims to provide men with a safe, more precise treatment option, enhancing the quality of life for prostate cancer patients undergoing radiation therapy. Barrigel offers enhanced precision and sculptability, allowing for real-time ultrasound guided placement tailored to individual patients. U.S. clinical data supports its efficacy, showing that 98% of patients achieved a significant reduction in rectal radiation exposure. The Spacer has also been shown to significantly reduce both acute and long-term Grade 1 plus GI toxicity at 3 and 6 months compared to control. First cases in Japan were performed in early August, and we are actively engaging Japanese clinicians through training programs to ensure effective adoption of the technology. That completes my prepared remarks. Now I would like to turn the call over to John for a more detailed review of our third quarter financial results. John? John Deren: Thanks, Liam, and good morning. Given Liam's discussion of the company's revenue performance, I'll begin with margins. For the quarter, adjusted gross margin was 57.3%. The 350 basis point decrease year-over-year was primarily due to the negative impact of tariffs and the negative impact of foreign exchange rates and to a lesser extent, product mix and increased logistics and distribution costs. Adjusted operating margin was 23.3% in the third quarter. The 400 basis point decrease reflects year-over-year gross margin pressure, higher operating expenses associated with the acquisition of the Vascular Intervention business, partially offset by cost controls across the remainder of our business, and negative impact of foreign exchange rates. Adjusted net interest expense totaled $29.7 million in the third quarter as compared to $18.8 million in the prior year period. The year-over-year increase is primarily due to the borrowings used to finance the Vascular Intervention acquisition. Our adjusted tax rate for the third quarter of 2025 was 9.1% compared to 13.6% in the prior year period. The year-over-year decrease is primarily due to the beneficial tax provisions included in the recently passed One Big Beautiful Bill Act, including the ability to deduct U.S.-based R&D expenses and other nonrecurring discrete impacts in the quarter. At the bottom line, third quarter adjusted earnings per share was $3.67. The 5.2% increase year-over-year is primarily due to higher revenue and adjusted operating income, including the impact of the Vascular Intervention acquisition, a lower tax rate and share count, partially offset by the negative impact of interest expense and foreign exchange. Now turning to select balance sheet and cash flow highlights. Cash flow from operations for the 9 months was $189 million compared to $435.6 million in the comparable prior year period. The $246.6 million decrease was primarily due to unfavorable changes in working capital as well as the prior period inflow from proceeds related to the pension plan termination. The unfavorable changes in working capital were primarily related to the Vascular Intervention acquisition, payments for tariffs, payments related to the proposed separation, cash tax payments for the final transition payment from the TJC Act of 2017 and foreign tax payments related to restructurings from prior periods. Moving to the balance sheet. At the end of the third quarter, our cash and cash equivalents and restricted cash equivalents balance was $381.3 million as compared to $327.7 million as of year-end 2024. Net leverage at the quarter end was approximately 2.4x. Turning to our updated financial guidance for 2025. We now expect total adjusted constant currency growth for 2025 to be in the range of 6.9% to 7.4%, which reflects the performance in the first 3 quarters of the year and our updated view for the fourth quarter of 2025. The reduction in the constant currency revenue outlook is primarily driven by a reduction in intra-aortic balloon pump revenue assumptions, primarily in the U.S., in the second half of 2025 due to our expectation for lower-than-anticipated order rates continuing through the fourth quarter. We now expect a positive impact from foreign exchange of $32 million, representing an approximately 100 basis point tailwind to GAAP revenue growth in 2025. This compares to our prior guidance of approximately $26 million or an 85 basis point tailwind for 2025. The updated foreign exchange rate guidance assumes approximately a $1.16 average euro exchange rate for the fourth quarter of 2025. For 2025, we now expect adjusted revenue growth to be in the range of 8% to 8.5% versus our prior guidance of 8.5% to 9.5%. This implies a revenue dollar range of $3.305 billion to $3.320 billion. This adjusted revenue range anchors our 2025 guidance and includes the acquired Vascular Intervention business, the third quarter performance, updated expectations for the fourth quarter and foreign exchange rates, and excludes the positive $20.1 million revenue adjustment related to the Italian payback measure for prior years. On a GAAP basis, revenue growth is expected to be 9.1% to 9.6% when including the $20.1 million revenue benefit of the Italian payback measure for prior years. Additionally, for modeling purposes, you should consider the following: we expect 2025 adjusted gross margin to be approximately 59%. Regarding the impact of tariffs, I'm pleased to report that we've made good progress in our tariff mitigation strategies during the third quarter. Due to rate assumption changes and mitigation activities, we now estimate an impact of $25 million to $26 million in 2025 or approximately $0.50 per share, which is an improvement relative to our previous estimate of $29 million in 2025 or $0.55 per share. We expect adjusted operating margin to be approximately 24.5%. Moving to items below the line. Net interest expense is now expected to be $93 million for 2025. We have refined our tax assumption for 2025 and now expect our tax rate to be approximately 12.5% versus our previous expectation for a 13.25% rate. Turning to adjusted earnings per share. We are narrowing the range for 2025 to $14 to $14.20 from a range of $13.90 to $14.30. For the fourth quarter, adjusted constant currency growth is expected to be in the range of 14% to 15.8%, excluding a foreign exchange benefit of approximately $21 million. That concludes my prepared remarks, and I would now like to turn the call back over to Liam for closing commentary. Liam Kelly: Thanks, John. In closing, I will highlight our 3 key takeaways from the third quarter of 2025. First, we continued to make significant progress in executing our strategy. Third quarter revenue was in the range of guidance, while operating margin and earnings per share exceeded our expectations. For RemainCo, we are pleased with the performance for the first 9 months of 2025, and it is encouraging for our longer-term growth outlook. Second, the Vascular Intervention business performed well in the quarter, achieving year-over-year reported revenue growth of 6.9%, which modestly exceeded our guidance. We are excited to provide a more detailed overview of the Vascular Intervention business in a virtual investor meeting, which is scheduled for November 14 at 8:00 a.m. Eastern Time. Registration details can be found in our press release issued on October 16. Last, we remain heavily focused on controlling what we can across our business as we continue to advance our strategic objectives. Our focus is on enhancing operational execution, accelerating growth and strengthening our diverse product portfolio to better serve our customers. We are pleased with the progress on the separation of Teleflex, including prioritization of a potential sale of NewCo as interest remains healthy. Our guiding principles remain focused on maximizing shareholder value through this process. That concludes my prepared remarks. Now I would like to turn the call back to the operator for Q&A. Operator: [Operator Instructions] And your first question comes from the line of Mike Matson with Needham. Michael Matson: Yes. I guess I'll start with the China -- the comments on the balloon pumps in China. I didn't completely understand that. Can you kind of elaborate on that a little bit more? Liam Kelly: Yes, absolutely, Mike. So what we saw in the quarter, we saw a stocking order of about $9 million that came from some of our distributor customers. There are really 2 reasons for this. The first is, as we're executing on our intra-aortic balloon growth strategy to address more of the geographic market. Today, Mike, we cover about 30% of the market. And this expansion has been partly driven by the government changes, which recommends the use of intra-aortic balloon pumps and catheters for complex PCI procedures. The second reason, Mike, there's been a little bit of noise in the market with tariffs, and this has driven customers' behavior changes that they're purchasing product ahead of tariffs as tenders are delayed later in the year. We expect this situation to normalize in Q4 as we sell through this inventory and even some additional out through the channel as we get these tenders in. So it's a timing thing in Q3, we just wanted to call it out for clarity. Michael Matson: Okay. Got it. And then just we saw some data at TCT on drug-coated balloons. And I know that you've got the BIOMAG trial underway with your resorbable stent, but that data won't be out until '27. I don't know when it would potentially be approved in the U.S. But is there any risk here that you lose some share in the kind of legacy stent and balloon business to these newer drug-coated balloons in the U.S. and Europe, either from Boston Scientific or Cordis? And maybe can you tell us how much of the -- your -- the business you acquired, the Vascular Intervention business is PCI focused as opposed to peripheral? Liam Kelly: Yes. Thanks for the question, Mike. We'll cover that probably more detail next week at our investor meeting. And I will say that in relation to the performance of our drug-coated stents in the quarter, it was in line with expectations. We're not seeing any impact. And I would also ask you to bear in mind that drug-coated balloons have been on the market in Europe for a lot longer than they've been in the U.S. with the technologies you're speaking about. And you see -- still see, in conjunction with those technologies, you still see drug-coated stents being used alongside them. And obviously, with BIOTRONIK growing at the rate of almost 7%, that's very encouraging for the business that we just acquired, Mike. Operator: And your next question comes from the line of Matt Taylor with Jefferies. Matthew Taylor: Sorry about that. I guess I was hoping you could comment a little bit further. The press release seemed to suggest that now the sale is the primary focus for NewCo. Is the spin off the table? And I guess, can you talk about why you're so geared towards a sale? And do you think that you might be able to sell this at an accretive valuation? Liam Kelly: Yes. Thanks, Matt. Well, Matt, I think as I said in my prepared remarks, in line with our commitment to maximize value for our shareholders, our Board and management have been taking decisive action and have been actively advancing the process for a potential sale of NewCo. As I sit here today, Matt, I am pleased with the progress that we have made and the stage that we are at in the separation. We continue to be impressed by the quality and quantity of buyer interest. And to your question on valuation, in our view, it speaks to the quality of the assets within NewCo. As we discussed in our second quarter earnings call, we had preliminary meetings with many potential buyers that had expressed interest in acquiring NewCo. Since then, we have been actively advancing the process for a potential sale of NewCo. Momentum has continued and we have advanced the process into late stages of diligence and are confident in our ability to maximize shareholder value as we prioritize the sale of NewCo. In the second part of your question, is the spin off the table? I think, again, I'll reiterate, we're pleased with the progress we have made and the stage we're at. We still view a spin as a shareholder value creation strategy opportunity, but the level of interest and momentum we have for the sale of NewCo is now our priority and we're executing against that. And just on RemainCo, Matt, if I can just elaborate a little bit on it and its performance for the first 9 months. The constant currency revenue growth year-to-date through the first 9 months was approximately 5% year-over-year, excluding the acquired Vascular Interventions business and the negative impact of volume-based procurement, which we know is transitory. This is encouraging and is squarely in our mid-single-digit growth profile. Operator: And your next question comes from the line of Jayson Bedford with Raymond James. Jayson Bedford: Maybe for John, John, there was a lot of growth rates thrown out there, and I'm not as -- I'm a lot slower than I used to be. What is the dollar amount of the fourth quarter revenue guidance? And I'll ask my second question, while maybe, John, you're looking that up. Just on the spin/sale, the business has changed a bit since you last provided details on RemainCo and NewCo in terms of margins. Is there any way you can kind of update us maybe on the margin range and tariff exposure of the 2 businesses? Liam Kelly: Well, the growth -- so the biggest impact in quarter 3. I mean, first of all, let me say, I was pleased with our performance in Q3. We executed well within the quarter and we delivered on our commitments despite the weakness in intra-aortic balloon pumps, which was offset by strength in Surgical. And obviously, the newly acquired BIOTRONIK VI business performed very, very well within the quarter. With regard to the margins on RemainCo and NewCo, there hasn't been significant change to the margins within RemainCo or NewCo outside of the impact of tariffs. And as we look at the tariff impact, I think data has been disclosed to the potential buyers of NewCo. So they are fully aware of that. The pump impact has also been disclosed to the buyers that are fully aware of that. And we gave a good bit of detail in our prepared remarks on the tariffs with the reduction in what we expect for this year. So it's a somewhat improving environment and more stable for tariffs, at least, I would say. And I will ask John to answer your first question. John Deren: Yes, so for the implied Q4 is [ $930 million to $945.6 million ] in dollars. So that's a 14% to 15.8% constant currency, and we have about a $21 million FX tailwind there. Operator: And your next question comes from the line of Richard Newitter from Truist Securities. Ravi Misra: This is Ravi here for Rich. Liam, just kind of maybe one for me upfront and then a follow-up. Just kind of on the vascular business, your restructuring, you have kind of a pretty significant new product trial underway. I'm just curious, and I don't know if I'm stealing any thunder from the Analyst Day, but just curious, do you need any other kind of maybe flagship products in this division to really kind of accelerate growth behind that $1 billion dollar revenue base that you have? Just any thoughts there would be appreciated. And one follow-up. Liam Kelly: Yes. Thanks, Ravi. Just for clarity, that's our interventional business that you're talking about. I'll start by saying it's only 1 quarter, but it's a very encouraging start for BIOTRONIK growing almost 7% right out of the gate. That was ahead of what we had anticipated. So we feel good about that. We have -- and if you look at the underlying growth in the quarter of the interventional business, again, as we said in our prepared remarks, ex the BIOTRONIK VI acquisition, it grew at around 9%. So again, it's performing very, very well. We have a suite of new products coming into the portfolio in that business to continue to accelerate the growth. And as part of RemainCo, the interventional business will be a strong driver, and we anticipate it being in the upper end of those mid-single digits that we spoke about. So I don't think we need any additional flagship product in order to achieve our goals. We have a number of products that we will be releasing into the portfolio. And we will be driving investment into the business to expand and to grow that, and we'll be investing in R&D. And M&A will be something that will be a future opportunity for this business. I think it's important for Teleflex that we execute as we go through 2026 and prove out our hypothesis through 2026, deliver that mid-single digits and bring confidence back into the stock. Ravi Misra: Great. And then just one on the tightening write-down. Commentary in the last couple of quarters was acknowledging challenges in bariatrics, but that was a product that was doing pretty well. It seemed to us, at least the stapling system. So how do we think about maybe the growth rate in that business on a go-forward basis for the segment? Liam Kelly: Yes, Ravi, I'll give you the growth rate for the quarter. It was in the upper single digits. So the product is still growing, and we anticipate it to grow into the future. I'll let John comment on the restructuring. But at the end of the day, the base is lower even though it is growing, and that has put a little bit of pressure and has caused the write-down. But John, do you want to add anything? John Deren: Yes. I mean I won't get into the GAAP technical because this is around intangible assets, which is a little different than a goodwill impairment. But it's that near-term view obviously affects the longer-term projections. And while GLP-1s still put a lot of pressure on this product, as Liam noted, it continues to grow. It's just not growing at the rate that was in our original plan and when we did the acquisition. So unfortunately, it did require a write-down in these intangibles. Operator: And your next question comes from the line of Matthew O'Brien with Piper Sandler. Samantha Munoz: This is Samantha on for Matt this morning. I guess if you could provide any more details on the potential sale of NewCo. It kind of makes it sound like maybe things are advanced with one potential buyer, maybe a few and also whether this is still being considered sold as NewCo entirely or kind of in parts? Liam Kelly: So I'm not going to get into the details of the number of buyers or anything like that. I will tell you that we are focused on selling the entirety of NewCo. We have made significant progress. We have -- trust me, we have not been sitting on our hands. We've been working tirelessly towards this end goal. We have -- and we are in the later stages of due diligence. I will tell you, with a number of buyers we're in the later stages of due diligence as we start -- as we progress this through. I did outline on the second quarter earnings call that we had done preliminary meetings. Since then, we have done a number of meetings, a lot of due diligence, dug deep into the business and had ongoing conversations with multiple buyers. We feel that -- and we've done an incredible amount of analysis on this, both externally and internally that our guiding principle of maximizing shareholder value will be best realized at this stage through an exit through a sale. We think that would be the best outcome for our shareholders, and that's why we prioritized the sale over the spin at this time. Samantha Munoz: Great. And if I could have one more just on the intra-aortic balloon pumps. I know you talked about how this was expected next year, but was kind of like brought forward. Can you talk a little bit more about the longer-term outlook for these products? And then specifically, how long the catheters that go with them could see that -- could continue to be a growth driver? Liam Kelly: Yes, Samantha, that's an excellent question. I mean I think if we just take a step back and we refresh everyone's memory, this is a $250 million annual market split between pumps and catheters. We began with approximately 1/3 of the market share, less than 1/3 in the United States and more than 1/3 overseas in Asia. We had the -- we were taking significant share before the competitor issue, with the business growing organically strong double digits. Customers began replacing their pumps due to the FDA notice. And we also saw pull forward in conversions, which expanded the market during this time. We executed that strategy well. Even with the bolus that we picked up in Q4 of 2024, we delivered $70 million in Q4, which was significantly up from '23. And then we -- this year, it should be in the United States, these numbers are, it should be around $80 million this year in the United States. And we drove really strong growth in the first half of 2025, and we expected that growth rate to continue into the back half, but conversions have slowed earlier. We thought it would happen in 2026. We were expecting this to be a little bit of an overhang in 2026. And our change in assumption is just as a result of the conversions happening earlier than we had anticipated. Your question on catheter, we would anticipate catheter growth to be with us for the last -- for a number of years. And in Q3, I mean, the catheters grew strong double digits in Q3. And obviously, we've increased our market share in the United States fairly significantly during that time. Operator: And next question comes from the line of Patrick Wood with Morgan Stanley. Patrick Wood: Slightly random one at the start. The BIOTRONIK Vascular business, obviously, nice to see that coming in solidly. How has like employee retention been there? How have they been integrating? Like have you managed to keep them on board? Like basically, the kind of more squishy qualitative stuff of how that's going? Liam Kelly: Yes. Thanks, Patrick. Look, the integration is going very well. I think that the BIOTRONIK VI employees, being part of Teleflex, they see it as a much bigger interventional portfolio now. I mean, we're heading for $1 billion of an interventional business for RemainCo with an excellent growth outlook. So retention has been rock solid. We haven't lost any of the senior leadership as we've gone through this, and I'm very encouraged by that. The team is robust, especially from a technical and R&D capability. I've been with them a number of times. And every time I meet with them, I'm always impressed by their capabilities in R&D and the innovation that this team can drive. Patrick Wood: Super helpful. And then just quickly, obviously, we're still seeing very strong procedure volumes, and we're also seeing a whole bunch of incremental procedures moving into the cath lab that maybe weren't being done there before. You guys have a very broad-based view of the system as a whole. So how are you feeling about volumes, both in and out of the cath lab and the health of the market from a procedural standpoint as well? Liam Kelly: Yes, it's a great question. I mean, if I look at what I saw with BIOTRONIK growing 7%. If I look at our interventional business outside of the BIOTRONIK VI growing at 9%, it's clear that the cath lab is a very healthy place to be right now, driving good solid upper single-digit growth in our current portfolio. Procedures are stable to improving in that area. There's lots of technology coming into that area. And we ourselves like the optionality of the technology we're going to bring with Freesolve into the future and to partake in that leave nothing behind. And we're very excited to explain how the BIOMAG study is going to the investment community in a couple of weeks. So yes, we see this as very stable, Patrick, would be, however -- and good solid growth coming out of the cath lab area. Operator: [Operator Instructions] And your next question comes from the line of Travis Steed with Bank of America Securities. Unknown Analyst: This is [indiscernible] on for Travis. On BIOTRONIK, you've spoken about expanding your reach in EMEA with them contain their exposure. Maybe the first part of the question, are you seeing early wins there with the expanded bag? And then on the realignment and head count reductions in the sales force, is that going to be more geographically focused in the U.S. or kind of broadly across the world? Liam Kelly: Yes. So it's too early, [ Hayden ], to give you a clear view on whether we're seeing synergies yet within the sales force. We've seen some anecdotes, but I don't want to call it a trend yet, where some of our complex catheters and some of their stents and balloons have been brought in and combined with some users. We had a lot of excitement in TCT with regard to the overall portfolio. With regards to the integration and the restructuring, a lot of that is in the, I would call it, in the back office areas where the synergies are coming from. And the integration, obviously, some of it will be in the commercial organization for sure. But I don't want to get into any more details on that on the call. Operator: And I would now like to turn the call back over to Mr. Lawrence Keusch. Lawrence Keusch: Thank you, Kayla, and thank you to everyone that joined us on the call today. This concludes the Teleflex Inc. Third Quarter 2025 Earnings Conference Call. Operator: You may now disconnect your lines.
Operator: Good morning, ladies and gentlemen, and welcome to the Somnigroup Third Quarter 2025 Earnings Call. [Operator Instructions] This call is being recorded on Thursday, November 6, 2025. I would now like to turn the conference over to Aubrey Moore of Investor Relations. Please go ahead. Aubrey Moore: Thank you, operator. Good morning, and thank you for participating in today's call. Joining me today are Scott Thompson, Chairman, President and CEO; and Bhaskar Rao, Executive Vice President and Chief Financial Officer. This call includes forward-looking statements that are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve uncertainties and actual results may differ materially due to a variety of factors that could adversely affect the company's business. These factors are discussed in the company's SEC filings, including its annual report on Form 10-K and quarterly reports on Form 10-Q. Any forward-looking statements speak only as of the date from which it is made. The company undertakes no obligation to update any forward-looking statements. This morning's commentary will also include non-GAAP financial information. Reconciliations of this non-GAAP financial information can be found in the accompanying press release, which is posted on the company's website at www.somnigroup.com and filed with the SEC. Our comments will supplement the detailed information provided in the press release. As a reminder, year-over-year comparisons are impacted by the acquisition of Mattress Firm in the first quarter of 2025 and the related divestiture of Sleep Outfitters in certain Mattress Firm retail locations in the second quarter. At certain times in the call, to better illustrate underlying business trends, we will focus on like-for-like numbers defined as reported numbers adjusted for the acquisition and divestiture impact. We would also like to mark the calendars for March 4, 2026, as we will be having our Investor Day in New York. That will include various members of executive management from Somnigroup, Tempur Sealy and Mattress Firm. Formal invitations will be sent out closer to the event. And now with that introduction, it's my pleasure to turn the call over to Scott. Scott Thompson: Good morning, and thank you for joining us on our third quarter 2025 earnings call. I'm pleased to share with you that Somnigroup International delivered a record quarter across nearly all key operating metrics. These results were driven by the early benefits from the Mattress Firm combination and successful execution of our key operating initiatives. Importantly, we achieved this strong financial performance while the U.S. bedding market remains basically flat from a sales perspective, and it is still at trough levels, while the U.S. housing market is yet to recover and international markets continue to face numerous challenges. Additionally, we have not fully realized all of the benefits from the Mattress Firm combination. This backdrop underscores the potential of our business, the strength of our competitive position and the meaningful opportunity ahead as our markets improve and we continue to deploy capital and optimize our vertical structure. In the third quarter of 2025, we're pleased to achieve record net sales, adjusted EBITDA and adjusted EPS. Net sales were up approximately 63% to $2.1 billion. Adjusted EBITDA was up approximately 52% to $419 million, and adjusted EPS was up approximately 16% and to $0.95 per share. Now turning to some highlights for the third quarter. First highlight. Our aggregate like-for-like sales growth was 5% over the same period last year, led by strong performance in our international operations, which I'll discuss in a minute. Tempur Sealy North America reported 5% like-for-like sales growth which is the strongest quarterly sales trend in 9 quarters. This performance was broad-based across our portfolio and price points as we significantly increased our balance of share at Mattress Firm and experienced growth with our other third-party retailers. Both Tempur-Pedic and Sealy brands reported solid growth in the quarter, driven by our new Sealy Posturepedic products and our strong commitment to advertising, including over $110 million invested in the third quarter to keep our brands top of mind and drive valuable customer traffic to all retailers. Our collaborative marketing approach focused on delivering high-quality, brand-centric advertising to retail partners continues to drive strong results for us and the industry. Retailers who have actively participated in our brand activation program have seen a significant boost in sales of Tempur-Pedic and Sealy products. In short, we continue to win in the market with great product, robust advertising and a dedicated sales force to help our customers improve their business. Second highlight. Mattress Firm continues to outperform the market, reporting strong same-store sales growth of 5% in the quarter. The strong third quarter performance was possible due to our relentless focus on delivering superior in-store execution and equipping our sleep experts with the tools and training they need to meet the customers' sleep needs. Further, we continue to invest in consumer experience for our store refresh program, including installing Tempur brand walls to support increased customer engagement and education. Where placed, Tempur brand walls have shown to drive higher retail tickets resulting in strong return on investment. We began scaling this initiative in the back half of the quarter and expect to finish rolling it out to all 2,200 store locations nationwide by the end of next year. Other retailers have also taken part in this program as we are committed to an omnichannel approach. Additionally, we are ramping up our previously disclosed 3-year program to invest a total of $150 million between 2025 and 2027 to refresh certain Mattress Firm stores, ensuring all locations meet our brand standards. Third highlight, our international business continues to deliver impressive sales growth despite a challenging operating environment. Our Tempur International sales grew 11% in the quarter and continued to outperform the market by a solid clip, driven by the refreshed Tempur product lineup, expanded distribution. Strong local execution, combined with meaningful investments in advertising that significantly boost brand visibility, consumer engagement, resulted in this double-digit performance. We continue to refine our late-stage customization manufacturing process to support this momentum. This approach allows us to efficiently tailor products for specific markets, channels and customer segments. With a solid foundation and significant long-term potential, we are confident in the growth trajectory of our Tempur international operations. Dreams, our U.K.-based bedding retailer also delivered strong quarterly market outperformance, driven by same-store sales growth and new store openings. Dreams continues to drive cost efficiencies, advance strategic growth initiatives and deliver exceptional product quality and industry-leading customer satisfaction. Our final highlight is related to the progress on our sales and cost synergy initiatives following the combination of Mattress Firm. Mattress Firm is focused on retailing high-quality products with differentiated innovation at all price points, while driving industry demand with market-leading advertising investments. On synergies, we are ahead of our expectations in achieving a more market-driven distribution of Tempur Sealy brands and private label products at Mattress Firm. We now expect Tempur Sealy to represent a mid-50% of Mattress Firm's total sales in 2025, up from our previous estimate of below 50%. In total, we now expect sales synergies to result in $60 million of benefit to adjusted EBITDA this year. Looking to 2026, we expect an incremental $40 million of EBITDA benefit from the wraparound impact of these share gains and is on track to comfortably achieve our targeted $100 million of run rate sales synergies. As a reminder, we held Mattress Firm sales flat in estimating the balance of share opportunity. As the U.S. bedding industry recovers and Mattress Firm sales increase, we expect the dollar synergies to grow. Our increased scale and vertical integrated operations are unlocking efficiencies throughout manufacturing, logistics and sourcing. Additionally, improved insights into in-consumer demand patterns is enabling us to optimize production, upcoming product introductions and product end-of-life strategies. We remain on pace to achieve a minimum of $100 million in annual run rate net cost synergies, beginning with $15 million projected for 2025, an incremental $50 million in 2026 and a further $35 million in 2027. Long term, we're excited about the potential to align Tempur Sealy and Mattress Firm's messaging to increase our advertising efficiency, an opportunity which is not yet quantified in our cost synergy targets. Today, as a unified Somnigroup entity, we are positioned to deliver more cohesive, high-impact advertising to support both our brands and the broader U.S. bedding market. Our new Mattress Firm advertising campaign, Sleep Easy, launched mid-third quarter, aligns our messaging with a cohesive voice. The campaign educates consumers on the importance of a well-suited mattress for restorative sleep and activates them to take the next step in their purchase journey. It highlights some of the most common impacted sleep disruptors and shows how certain products and Mattress Firm's sleep experts can effectively address these important sleep issues. We're very encouraged by the strong consumer response to Sleep Easy campaign. Initial research identified it as the highest performing campaign in Mattress Firm's recent history across all metrics. Subsequent studies have reinforced this finding, showing the campaign significantly outperformed both industry benchmarks and Mattress Firm's previous messaging. Although it's still early in the campaign's rollout, we are confident that we are on the right path. We expect the positive impact to grow as the campaign becomes more established in the marketplace. Overall, we are pleased with the rapid progress in both sales and cost synergy efforts and remain excited about the long-term opportunities for retail customers, Somnigroup employees and shareholders. And with that, I'll turn the call over to Bhaskar to review the financial statements. Bhaskar? Bhaskar Rao: Thank you, Scott. In the third quarter of 2025, consolidated sales were $2.1 billion, and adjusted earnings per share was a record $0.95, up 16% over the prior year. There are approximately $40 million of pro forma adjustments in the quarter, all of which are consistent with the terms of our senior credit facility. These adjustments are primarily related to costs incurred in connection with the combination. We expect pro forma adjustments to decline going forward. As a reminder, we have aligned accounting for store occupancy costs across Somnigroup, which resulted in Tempur Sealy reclassifying our store occupancy costs from operating expense to cost of goods sold. We have adjusted prior year Tempur Sealy financial information included in today's earnings release to reflect this change for ease of comparability. I will be highlighting like-for-like comparisons to normalize for these items in our commentary. Now turning to Mattress Firm results. Net sales through Mattress Firm were approximately $1.1 billion in the third quarter. On a like-for-like basis, Mattress Firm sales grew 3% over the prior year, which includes strong same-store sales growth of 5%. Mattress Firm's adjusted gross margin was 35.6% and adjusted operating margin was 9.4%, in line with our expectations. Now turning to Tempur Sealy North American results. Like-for-like net sales through the wholesale channel grew approximately 10% in the third quarter, normalizing for the previously disclosed foreclosed distribution. Without this normalization, the wholesale channel grew approximately 6%. Like-for-like net sales through our direct channel declined 4% in the third quarter. North American adjusted gross margins increased 1,700 basis points to 58.6%, primarily driven by the elimination of the intercompany sales to Mattress Firm from Tempur Sealy. On a like-for-like basis, North American adjusted gross margins declined 40 basis points versus the prior year, primarily driven by merchandising mix, which includes strong Sealy performance. This was partially offset by operational efficiencies and fixed cost absorption. North American adjusted operating margins improved 940 basis points to 29.5%, primarily driven by Mattress Firm intercompany sales elimination. On a like-for-like basis, North American adjusted operating margins increased 60 basis points versus the prior year, primarily driven by fixed cost leverage, partially offset by the decline in gross margin. Now turning to Tempur Sealy International results. International net sales grew a robust 11% on a reported basis and 7% on a constant currency basis. Our international gross margins declined 40 basis points versus the prior year, primarily driven by a competitive U.K. marketplace, partially offset by operational efficiencies. Our international operating margin was consistent with the prior year at 18.1% with fixed cost leverage offsetting the decline in gross margins. In July, Tempur Sealy rolled out a price increase equating to approximately 2% of total North America sales, largely focused on the higher-end products in our portfolio. We believe this price increase was generally lower than the industry peers and succeeded in offsetting implemented tariff headwinds with no discernible impact and consumer demand. As the tariff landscape has continued to evolve, we see another $20 million of incremental cost exposure, primarily on an adjustable basis. To offset this headwind, we announced a small price increase earlier this week that will go into effect in early 2026. We remain confident in our ability to adapt to tariff changes supported by our strong product offering, agile team and support of supply partners. Now moving on to Somnigroup's balance sheet and cash flow items. At the end of the third quarter, consolidated debt less cash was $4.6 billion, down $300 million versus the second quarter, and our leverage ratio under our credit facility was 3.3x, down 30 basis points or 8% versus the second quarter. We expect our leverage to return to our target leverage range of 2 to 3x early in 2026. We achieved record operating cash flow of $408 million and record free cash flow of $360 million in the quarter, demonstrating the power of our business model even in a soft market. Our strong cash generation positions us well to continue to optimize our debt structure. We expect to continue to pay down debt and benefit from lower market interest rates and improved cost of our variable price debt as we return to our target leverage range. We expect this trend to add to future EPS growth. As a reminder, our guidance considers the elimination of intercompany sales between Mattress Firm and Tempur Sealy, which we expect to represent approximately 20% of global Tempur Sealy 2025 sales. Intercompany eliminations in accordance with GAAP will reduce Tempur Sealy sales but be margin accretive and neutral to dollars of operating profit. Consistent with prior quarter, our guidance also reflects the divestiture of Tempur Sealy Sleep Outfitters retail business as well as 73 Mattress Firm stores in May of 2025. Before turning to our annual guidance, let me also share our perspective on the fourth quarter. We expect continued like-for-like sales growth across all of our business units, with an underlying assumption that the demand environment will be stable. Now to our revised 2025 guidance. We have raised our adjusted earnings per share guidance to be between $2.60 and $2.75. This guidance range contemplates a sales midpoint of approximately $7.5 billion after intercompany eliminations. This revision includes our expectation for the bedding industry to be down low to mid-single digits versus prior year, a slight improvement from our prior outlook. Our annual guidance also reflects like-for-like Tempur Sealy sales to be flattish and reported sales to be impacted by the intercompany elimination I referenced a moment ago. Tempur Sealy North America sales declining low-single digits on a like-for-like basis, which includes our continued market outperformance, a mid-single-digit headwind from foreclosed distribution and the industry pressures. International business growing low-double digits on a reported basis and constant currency basis, which includes the continued momentum of our omnichannel expansion strategy. And our like-for-like Mattress Firm sales to be flattish, supported by in-store initiatives to grow AOV and conversion and reflecting the industry pressures. We also expect gross margins to be slightly above 44%. Our outlook also contemplates our updated assumption for Tempur Sealy to be in the mid-50s percentage of Mattress Firm's total sales. This represents about a $60 million EBITDA benefit for 2025 compared to 2024 and $700 million of advertising investments, all of which we expect to result in adjusted EBITDA of approximately $1.3 billion at the midpoint. Regarding capital expenditures, we expect 2025 CapEx to include approximately $150 million of normal recurring CapEx and an investment of approximately $25 million to bring stores acquired by Mattress Firm prior to the acquisition up to our standards. We expect to invest an additional $125 million over the next couple of years to refresh these stores. Over the long term, we expect normalized run rate Somnigroup CapEx to be approximately $200 million. Lastly, I would like to flag a few modeling items. For the full year 2025, we expect D&A of approximately $295 million, interest expense of approximately $260 million on a tax rate of 25% with a diluted share count of 210 million shares. With that, I'll turn the call back over to Scott. Scott Thompson: Thank you, Bhaskar. Well done. Just a couple of thoughts on capital allocation. First, we are pleased to report our investment in Kingsdown, acquiring 25% passive interest in this leading North America luxury mattress manufacturer and valuable buyer to Mattress Firm. This will allow SGI to participate in expected growth in Kingsdown sales and profits as their presence on Mattress Firm's floor expands and they pursue other growth opportunities. This decision reflects our disciplined capital allocation strategy, which is focused on high-return investments to strengthen our competitive position and drive long-term value for shareholders. Second, we're ahead of our financial plan, and we believe that we've mitigated significant risk over the last few quarters, including those related to the Mattress Firm combination. As a result, in the first quarter of 2026, we intend to begin to allocate approximately 50% of free cash flow to capital returns to shareholders in the form of dividends and share repurchase. At the same time, we will continue to deleverage, targeting our historical range of 2 to 3x adjusted EBITDA. After we are comfortably back within our targeted leverage range, we'll reevaluate this allocation. In closing, this quarter's performance reaffirms our strength of our strategic direction and underscores our momentum we've gained through the combination with Mattress Firm. We've demonstrated our focus on long-term growth and our ability to navigate a complex industry backdrop across our Tempur Sealy, Mattress Firm and Dreams operations. We are positioned as a global industry leader committed to delivering products that provide customers innovative solutions that can change their lives through improved sleep. Our operational agility, strong manufacturing capabilities, trusted brands, retail leadership and exceptional workforce drive Somnigroup's performance and we expect will drive future value creation. That ends our prepared remarks, operator, you can open the call up for questions. Operator: [Operator Instructions] Your first question comes from Susan Maklari from Goldman Sachs. Susan Maklari: I want to talk about demand. It's interesting to see how it sounds like the industry is starting to come back a bit and that's really counter to what we've seen in the housing market, but also just what we're hearing in terms of housing and consumer-related categories broadly. Can you talk about what is driving the relative divergence that we're seeing in bedding and how much of it do you think is attributable to the efforts that you've put in over the last several months and years around new products, more recently, some of the ad spend and the initiatives there. And how we should think about the sustainability of it, just given the macro and the environment that we're in? Scott Thompson: Thank you for your question, Susan. All 12 of them that you wound into one. First of all, I think we've talked about this before. Look, the housing market can be a headwind or a tailwind for the bedding industry. But we've always thought of it as it's in the top 5 items that we think about, but it's certainly not the first or second. And I think the point you make in your question is exactly right. The bedding industry can be successful without the housing market necessarily be turning around. And we've always thought about in the bedding industry, what drives the bedding industry, of course, is innovation. And clearly, the new Sealy Posturepedic product that came out this summer is helping us, Mattress Firm and the industry. It's also -- the other thing we think that drives the industry is advertising. And you know that we've completely retooled we'll call it the advertising at Mattress Firm, and Mattress Firm is the leading advertiser in the U.S. by a factor of 2 and we've changed their creative and we've changed the placement and some of the strategies there. And we're seeing benefits again for us and for the industry. For the first time in, I think, probably 15 or 20 years, we had direct advertising coming out of Tempur Sealy on the Sealy brand in support of the new Sealy product. That certainly has been incremental. And then the other things we watch obviously are consumer confidence. And it hasn't been robust, but at least it hasn't been negative. So when we look forward, certainly, we're hoping for lower interest rates. And I think if you put a 5 handle, on the 30 year, you might get quite a bit of activity in housing and probably furniture and bedding. We're getting close. We're a low 6. But we can be successful without the housing market turning around and it does feel like if you look at the numbers in the industry, you can't get perfect industry numbers. But there's no question the industry, I think step -- had a good step forward from the second quarter. So sequentially, certainly improved. I think we're calling it somewhere close to flat from a sales standpoint. And then as expected and as designed, we performed better than the marketplace, and you can see that in our numbers. I think one of the things that I really focused on this quarter was when I take a look back, in the first quarter, we delivered basically flat EPS, adjusted EPS. In the second quarter, we were down 16%, had some launch costs in there. And then we delivered quarter-to-date at plus 16%. And obviously, people can squeeze out what the implied fourth quarter is, and we'll call that 15% to 20%. So you can see the momentum as the industry has gotten slightly better. We have implemented some of our strategies, and we're getting the synergies both in sales and costs from Mattress Firm acquisition. Operator: Your next question comes from Bobby Griffin from Raymond James. Robert Griffin: Congrats on the momentum here in the quarter. I'm going to hit you with a 2-part question, unfortunately. But when you kind of sit and look at the business today starting to flex and you kind of look at the enterprise as it's set up now, where do you see the most opportunities for growth among the different brands that SGI is pushing into? And on the optimization of the enterprise, is there a big unlock to come? Or is it more little parts that get more optimized over the next kind of 3 to 5 years during the recovery? Scott Thompson: Okay. I think I got your question, and Bhaskar, help me out. So when you look at it by brand, okay? Obviously, I think the Sealy posturepedic brand probably has a greater growth potential in the short term, next few quarters. Some of that is new technology, some of that's new advertising. And quite frankly, it's got an easier compare in that the product we're replacing had a little bit of age on it. Then you have Stearns coming out and we've cannibalized a little bit of Stearns with the new Posturepedic product as we moved it upstream from a pricing standpoint. And we'll have new Stearns out, call it, late 2026 with some interesting technology. And that's certainly an opportunity there. And then as you know, I mean, Tempur is just magical, and it continues to take share every quarter a little bit and I would expect it to continue. But I think also when you look at opportunities, if you look at the whole enterprise, you have to say all of the changes we've made in Mattress Firm are really just getting started. I mean we've changed the advertising program. There's certainly a more sophisticated and broad-based looking at the merchandising strategy to really understand what products on the floor are good for customers first and are good for Mattress Firm. And I think that's going to continue to pay benefits. And then you've got the whole bucket of synergy, cost synergies, which, as we've talked about, are going to take -- it's a multiyear project. as you work through logistics, warehousing, delivery, lots of stuff, but there's a good trail there that's going to be -- is going to -- that keeps on giving for a number of years. And I would be remiss if I didn't mention the international operations, which is, I don't know, how many quarters is this double digits, Bhaskar? 10 quarters of double-digit growth. in an international market, that is not robust. It's challenging. And we sometimes underestimate how difficult that lift has been, but both the Dreams operation which has been fighting a U.K. economy, which has not been pleasant or it's been grumpy as they like to say, has done very well over there. And the Tempur International, what we call the legacy Tempur Sealy operation has done a great job opening up new customers and in taking share. So I mean those are all kind of we call it company-specific opportunities robust. But the other thing you just can't miss is if you look at the bedding industry in the U.S. and I'm going to use round numbers and say that it's down 30%, and it has been down 30% for multiple years, okay? And if you just -- whether it's pent-up demand or just going back to trend line, if you layer in going back to trend line, okay, just get me back to 30% that fell. The flow-through on that is very robust as we've positioned the company during this downturn. Operator: Your next question comes from Rafe Jadrosich from Bank of America. Rafe Jadrosich: There are a lot of moving pieces here just on the guidance. In terms of the kind of guide to guide changes, can you just walk us through what assumptions have changed from the prior guidance. It sounds like a lot of that is just better synergies on the revenue side. And then what's embedded in terms of like-for-like and underlying industry growth in the fourth quarter? Bhaskar Rao: Absolutely, absolutely. And if I were to just think about it high level, there's only been a couple of items that we've refreshed on as it relates to our expectations. The first one is around the industry. We expected the industry to be, let's call it, down mid-single digits. That's for the full year. Sitting here today, our expectation is that it's going to be down low to mid-single digits. So an improvement from an industry environment standpoint. Then what I would go to is the balance of share. Previously, where we were at is thinking about it as low 50% from a balance of share of the family brands into Mattress Firm. Now we're at the mid-50s. So as it relates to a high level, those are the 2 moving pieces that impacted how we performed in the third quarter and then our expectations for the full year. As it relates to the fourth quarter specifically, let me just aggregate that a bit. So given our sales guide of in and around $7.5 billion for the full year, think about the fourth quarter somewhere a little north of $1.9 billion. If you ratchet that down, what that would get you is from a Tempur Sealy, let's call it, like-for-like legacy standpoint, that would put the growth rate in Tempur Sealy somewhere between mid- to high-single digits. Going to North America on a like-for-like basis, that would imply a mid-single digits. And then turning to Mattress Firm, we called that out specifically, but think about that as low-single digits from a growth standpoint in the fourth quarter. As you go below the line, just call out for gross profit. Naturally, what happens is, is that you get the seasonality of the business, the third quarter being the highest on a consolidated and on a business unit perspective and the natural step down that you'd expect going from the third into the fourth. Operator: Your next question comes from Peter Keith from Piper Sandler. Peter Keith: Great results, guys. Bhaskar, if I could just follow up on that. There's a little bit of short-term investor anxiety around the fourth quarter just because following last year's election, the industry did improve. So we'll just say kind of high-level compares get a little bit tougher. It seems like the outlook you just gave on the like-for-like is basically a continuation from Q3, I guess, slightly tougher compares. So if you break out your crystal ball, I guess how do you think about the fourth quarter as this, I don't know, coming off the bottom, but still a little bit more challenge compares year-on-year? Scott Thompson: Great question. I'm going to jump in and let Bhaskar clean me up because I also thought that there was, I'm going to call it, a pretty good-sized bump in the fourth quarter last year when we had a peaceful transition of government is what we call it. And so we studied that. And because we now own Mattress Firm, we have more data. Before, when we talked about that, we had to look at our wholesale orders, which can kind of be lumpy and sometimes they don't totally track retail sales from a timing standpoint. So getting that kind of data was difficult. But now that we had -- have Mattress Firm, and if we could go back and look at last year's fourth quarter on a day-by-day basis and week by week and then look at our data, I would tell you that I do not believe that we had a bump in our business in bedding, in Mattress Firm or Tempur Sealy from a peaceful transition of government, which was different than my thinking going into preparing for the quarter. Fair Bhaskar? Look through that data. But they basically had to pull that data to get me off of that same anxiety that you're mentioning. Operator: Your next question comes from Daniel Silvertstein from UBS. Daniel Silverstein: Given the strong progress you're making in gaining the balance of share at Mattress Firm, what penetration level is reasonable at this point in 2026 or 2027, what's the upper bound we should think about from that standpoint? And then maybe just 1 quick follow-up. Where will Kingsdown fit in the assortment at Mattress Firm? Scott Thompson: Sure. Let me answer it this way. The way we think about Mattress Firm is that a reasonable balance of share for the strength of our brands and they're running a multi-branded retailer. When we look across all of our customers and everything is to think about it in the low 60s, 62% of the business would probably land in the family brands, okay? And I think we'll be there. There's still some merchandising changes that will go on in the fourth quarter. So -- but we'll be there probably, give or take, at that run rate by the end of the year. Now after that, that's going to bounce around a bit. And it will bounce around based on the strength of the innovation of each brand, whether it be family brand or outside brand and the strength of their sales force and their advertising that supports that. And so if it 1 day gets 60%, that's not being the world, someday it might be 64%. But there'll be a reasonable bandwidth around that 62%. Again, based on strength of innovation, strength of advertising is the way we think about the business model, consistent with that. And we ran into the Kingsdown brand and the merchandising team at Mattress Firm, which is in charge of their floor to optimize what the customer wants and to drive their business. It became apparent that Kingsdown was underrepresented at Mattress Firm compared to what we think the customers want, what the RSAs want and bring some more differentiated product to the floor. And then when we looked at that, it was clear that they were going to be expanded, some in the store. And when we thought through the financial impact of that, it appeared to us to be the best way to participate in that economics was with a passive equity investment so that we could win in that success, and they could win. And so they'll be at the high end and they concentrate primarily in spring area, high profile and have good brand strength in Canada and the Northeast. So they're good people, and we're glad to be a passive investor. Operator: [Operator Instructions] Your next question comes from Brad Thomas from Capital Markets. Bradley Thomas: Congrats on the great quarter here. My question was going to be around any thoughts -- my question was going to be around 2026. And any early thoughts you might be willing to share particularly in light of a longer-term target that you have for earnings by 2028, which does imply sort of a mid-20s growth rate. How should we think about the shape of earnings in any particular high-level comments on 2026 that you might want to share? Scott Thompson: That I want to share that will, of course, be no comments, what I will share will be some comments Okay. A couple of observations. I mean this quarter, you can see with just what I'll call minimum sales growth, the flow-through is really the first quarter we've printed that you can see. So you can see some of the dynamics of the business model. So you don't need much from the top line to get to the bottom line numbers that you're talking about. And I think you're referencing what we call -- we're calling a prospectus, but now we're just going to go ahead and just call it a target because now we've done enough at Mattress Firm, integrated enough, have enough confidence in the plan that I think we can call that 3-year glide path on EPS more of a target than a perspective. I think the only other call out I would give is probably new to me that I probably haven't talked much about is the impact of interest rates on the consolidated Somnigroup because there's a couple of items there. I mean you can obviously see from a debt standpoint, obviously, interest rates go down. We got some variable debt. That's good, blah, blah, blah. Of course, then as you pay down your debt, you get into a lower spread grid, blah, blah, blah, that's good, too. The one that sometimes I don't think people would fully appreciated because I know I didn't fully appreciate is the cost of the promotion when Mattress Firm or the Tempur stores offer a 60 months, 0% financing or 72 months. That is a retailer's expense. But that is -- that's grid-priced based on short-term rates. So as short-term rates come down, the cost of that financing comes down. And that's kind of -- you don't see that in the balance sheet when you're looking for the impact of 100 basis points. So I'm going to give you the number that for me was a little surprising, which is a 100 basis point change in interest rates on our cost, okay, equates to $0.18 to $0.20 per share or about a 7% lift of EPS based on our midpoint, okay? That's more leverage to falling interest rates probably than people were thinking. And that does not include the benefit that we would get from falling interest rates from a recovery in housing market. So the way I think about it, and maybe the big -- the newest news for '26, although we're certainly not doing any guidance or anything or prospectus is really the benefits of the falling interest rates are, I think, more robust than the market is perceiving. Operator: Your next question comes from Keith Hughes from Truist. Keith Hughes: You've given us kind of cash flow uses next year, shifting back to cash flow to shareholders because you're going to delever this thing pretty fast. I guess at what point would you consider instead of doing these passive investment in brands, would you consider a purchase of another retailer or another manufacturing brand? Is that something on the horizon? Scott Thompson: Yes. The way we think about utilization of capital is it really hasn't changed. I mean, obviously, we've got to keep being disciplined and keep our balance sheet properly leveraged, not overleveraged, okay? And then we are constantly looking at opportunities to do exactly what you just said, other manufacturers, other adjacents, other retailers and we are constantly in discussions around the world and have been for years that nothing changes. And we're constantly considering it. And we basically look at that and said, we'd rather do that or buy stock back. So I do think that it's likely that we will do some more acquisitions over the next few years, but that will be dependent on finding the right acquisition at the right price. If we don't do another acquisition, that would be fine with me. We never do one. We don't budget them. We don't target them. But I think the nature of the market, the competitive advantages we bring to a company when they join us are such that it's probably likely that we will do something in the future. And that may slow down a little bit on the glide path on deleveraging or it might slow down the actual ending ratio. But we continue to be active and looking at various companies. Operator: There are no further questions at this time. I will now turn the call over to Scott Thompson for closing remarks. Please go ahead. Scott Thompson: Thank you, operator. To our 20,000 associates around the world, thank you for what you do every day to make the company successful. To our retail partners, thank you for your outstanding representation of our brands. To our shareholders and lenders, thank you for your confidence in the company's leadership and its Board of Directors. This ends the call today, operator. Thank you. Operator: Thank you, ladies and gentlemen. This concludes today's conference call. Thank you all for your participation. You may now disconnect.
Operator: Good morning, ladies and gentlemen, and welcome to the YETI Holdings Third Quarter 2025 Earnings Conference Call. [Operator Instructions] This call is being recorded on Thursday, November 6, 2025. I would now like to turn the conference over to Arvind Bhatia, Head of Investor Relations at YETI. Please go ahead. Arvind Bhatia: Good morning, and thank you for joining us to discuss YETI Holdings' Third Quarter Fiscal 2025 results. Leading the call today will be Matt Reintjes, President and CEO; and Mike McMullen, CFO. Following our prepared remarks, we will open the call for your questions. Before we begin, we would like to remind you that some of the statements that we make today on this call may be considered forward-looking, and such forward-looking statements are subject to various risks and uncertainties that could cause our actual results to differ materially from these statements. For more information, please refer to the risk factors detailed in our most recently filed Form 10-K and subsequent Form 10-Qs. We undertake no obligation to revise or update any forward-looking statements made today as a result of new information, future events or otherwise, except as required by law. Unless otherwise stated, our financial measures discussed on this call will be on a non-GAAP basis. We use non-GAAP measures as we believe they more accurately represent the true operational performance and underlying results of our business. Reconciliations of these non-GAAP measures to their most directly comparable GAAP measures are included in the press release or in the presentation posted this morning to the Investor Relations section of our website at yeti.com. I would now like to turn the call over to Matt. Matthew Reintjes: Thanks, Arvind, and good morning. YETI's third quarter performance highlights growing momentum from consistent and strong execution against our long-standing strategic priorities, driving product innovation, broadening our brand and addressable market and expanding our global presence. These initiatives are yielding meaningful results and building towards what we believe is a long-term top line growth range of high single to low double digits. Our product innovation pipeline has never been more robust, extending and deepening our portfolio. Our brand is connecting with both legacy and new customers domestically and abroad. Our international growth is accelerating with exceptional performance in the U.K. and Europe, robust consumer demand in Australia and Canada and a great early read in Asia with more opportunity to come. Strong consumer demand for our products across channels and geographies, combined with recent innovation continues to reinforce the durability and growing relevance of the YETI brand. This demand translated into top line growth, fueled by robust double-digit gains in our Coolers & Equipment category in our international markets. These results were achieved despite softer U.S. e-commerce performance and significant caution in wholesale sell-in, which created a notable gap compared to very strong double-digit sell-through across both Drinkware and Coolers as reported in that channel. The quarter underscores the strength of our diversified go-to-market strategy, our ability to meet consumers where they shop and the accelerating impact of our international expansion. Turning to growth and starting with product innovation. Our products continue to set the standard for durability, design and performance. Our 2 core categories, Drinkware and Coolers & Equipment, anchor a dynamic portfolio built on 13 scalable product platforms, fueling innovation and long-term growth. These platforms are featured in our updated quarterly highlights presentation available on our Investor Relations website. Across these platforms, we are on track to launch more than 30 new products in 2025 even as we navigate strategic trade-offs to advance supply chain diversification. Importantly, we have a robust pipeline that is aligned with the continued momentum of our brand and positions us for sustained expansion. As we stoke the brand globally, we create natural opportunity for product innovation, expansion and vitality. Within Drinkware, the strength of our core portfolio and our uptempo focus on innovation is driving accelerated momentum despite ongoing wholesale inventory pressure and promotional intensity in the U.S. market. Even as overall sell-in was down year-over-year in the U.S. wholesale, sell-through strength highlights the underlying momentum of YETI, in particular, the durability of our Drinkware business in that highly contested market. It reinforces our global strategy of building a sound foundation through diversification to set up for growth in Drinkware in Q4 and beyond. Our innovation this year has spanned across several Drinkware platforms, showcasing the diversity and range of our portfolio. Recent launches include our insulated food jars, travel bottles, updated Rambler Jug, ceramic lined Drinkware and a cast iron expansion with our [ 6-quart ] Ranch Pan. Within the last 2 weeks, we launched our Silo Jug built for everything from sports to job sites and outdoor adventures. This is a great product that works not only for athletes, but for anyone looking for large capacity, easy-to-access hydration with YETI cold holding power. We believe this launch continues to position YETI as a go-to brand across a wide range of use environments and very naturally fits with our expanding focus on sports. Looking at the remainder of the year and into 2026, we're energized by feedback we've received from our partners about the innovation ahead in Drinkware, including the upcoming release of our YETI Shaker Bottle, featuring a patented design that improves upon the standard shaker providing an incredible mix experience while removing the traditional wire ball. This speed to launch is enabled by the acquisition of the design, tooling and IP we communicated in our second quarter call. With the shaker bottle, which will be manufactured in the United States, we are targeting a roughly $2.5 billion market, fueled by the rapid growing demand for hydration powders, protein supplements and wellness products, aligning with YETI's expansion into sport, health and wellness. Early feedback from wholesale sports and health partners has been very positive. The acquired design and IP comes from Helimix, which will cease operations as we relaunch an updated design to build upon the market awareness and momentum from Helimix's over 39,000 4.5 star reviews on Amazon. This quick turn launch represents a compelling opportunity to drive organic growth going into 2026 and deliver a margin-accretive product line with a strong ROI. Importantly, this further deepens our connection with consumers in new and existing markets. The breadth of innovation across our Drinkware portfolio is demonstrating clear traction and setting us up for continued success and long-term category leadership. In Coolers & Equipment, our double-digit growth for the quarter underscores the broad demand we're seeing across the portfolio. On the innovation front, our Daytrip soft coolers saw significant demand. Additionally, we have several highly anticipated Daytrip line expansions planned in the coming months to address an even wider market opportunity. In bags and packs, we continue to see strength across new and legacy products with notable performance in backpacks, totes and duffles. Following strong demand for Camino totes, which sold out across channels a number of times, we've worked to replenish inventory through limited re-releases and are partnering with our retailers to capture some of the anticipated holiday demand and sustained momentum of this iconic product. In hard coolers, our Roadie and Tundra families continue to extend reach even as we lapped the significant debut of the Roadie 15 and Roadie 32 in the prior year. The recent additions of customization capabilities on a range of our coolers unlock significant opportunities, particularly among our existing partnerships and sports relationships. Last month, we launched an expansion of our storage and protective case platform with the GoBox 1, which comes at a giftable price point right in time for the holiday shopping season. Expect to see much broader expansion here in 2026. I'm also very excited about the build-out of our global innovation capabilities. Our Thailand innovation center focused on hard goods is now fully operational and already driving impact, giving us the capability to significantly increase our speed and capacity for product development. In addition, I'm pleased to announce a new development and innovation office in Vietnam to open in early 2026, dedicated to the design and development of bags and soft cooler bags. This will complement our existing product talent and capabilities in Austin, Denver, Bozeman and Thailand. Together, these innovation centers will enable a 24/7 global cycle across both current and future products and provide us with the ability to respond with even greater agility to market opportunities, fueling long-term growth and competitive advantage. It's clear that our product expansion and innovation are working. And as we look forward with our pipeline stronger than ever and significant white space ahead, we are well positioned to execute. Our second strategic growth priority focuses on broadening our brand and our global customer base through brand awareness, community engagement and a unique omnichannel strategy that enables us to reach consumers where and how they shop. We are amplifying our brand marketing as we approach YETI's 20th anniversary. Starting later this month, we will release our largest ever U.S. brand campaign around major sporting events in the run-up to peak holiday shopping. Partnering with the incredible talent at Wieden + Kennedy, we are on the front end of shaping the next decade of our brand. This brand campaign will span linear, connected and digital media. Additionally, to amplify our reach, particularly on social platforms like TikTok, we've added a new media partner to drive this effort. These initiatives mark a significant step towards elevating YETI's always-on brand presence and impact, connecting to our powerful foundational audience while broadening our reach. In terms of engagement at a local level, in Q3, YETI activated at over 80 events worldwide, deepening connections with consumers across diverse passions and communities. To that end, our sports presence has never been higher. Following the launch of our strategic partnership with Fanatics, we are now licensed with the NBA, rounding out Major League relationships across NFL, NHL, MLS and MLB. We're also proud to have recently signed on as an exclusive partner, including courtside presence for League One Volleyball, a fast-growing women's professional Volleyball league and parent to roughly 2,000 youth and junior teams and 24,000 players. Internationally, YETI's footprint is expanding through continued partnerships with top clubs and teams, including Tottenham Hotspur, now featuring YETI on the front of the women's team training kit, the New Zealand All Blacks, Oracle Red Bull Racing and more to come. Our limited edition product launches and signature programs continue to power these partnerships into consumers' hands. At the collegiate level, YETI has outfitted over 50 NCAA schools and 80-plus Division 1 teams covering almost 4,000 athletes, including a strong combination of both women's and men's sports. As we continue to grow our sport relationships, we see further exciting potential to expand our channels to market from youth up to professional. These initiatives highlight YETI's accelerating momentum in sports from grassroots to the global stage supporting athletes with high-performance products and driving brand growth across new audiences and markets. As we execute our brand-building strategy, YETI is unlocking significant opportunities for global growth, leveraging strategic partnerships and a refreshed media approach to expand our reach and our influence. Shifting to our channel performance. The continued expansion of our product portfolio, combined with our diversified presence across channels, is a key part of our strategy to broaden our audience. Our wholesale channel demonstrated very strong momentum despite a continuation of more cautious ordering and tighter inventory management from our retail partners, particularly in the U.S. Sell-through trends remained strong, reflecting healthy consumer demand throughout the quarter. As we enter year-end, we are well positioned from a channel inventory perspective and feel great about our setup heading into 2026. Last month, we started a new wholesale partnership with Nordstrom, where YETI is being featured in their holiday gift activation across 91 doors and online and permanent placement in 70 Nordstrom home doors. This new retail partnership underscores our focus on adding complementary distribution channels to support our diverse product portfolio. In our direct-to-consumer channels, we continue to leverage our omnichannel approach to meet evolving shopping behaviors with speed and agility. YETI's Amazon marketplace continues to see strong performance, and our corporate sales business once again exceeded expectations, supported by expanded customization capabilities across hard coolers and select bags as well as our growing partnerships in sports and hospitality. Notably, our collaboration with Fanatics, a leading global digital sports platform is off to an exceptional start. This partnership significantly expands YETI's presence in the sports licensing market and is already driving strong engagement across fan communities. We're incredibly excited about the momentum we're seeing and the opportunities ahead as we build on this performance and further accelerate growth across our consumer and commercial channels. On yeti.com, traffic and average order value grew in Q3 with strong engagement around new product launches. Conversion rates remained pressured in the quarter, impacting our overall performance and reflecting a greater prevalence of deal shopping by consumers. In response, we focused on effective deployment of performance marketing spend, prioritize higher-quality traffic and launched targeted initiatives to improve conversion efficiency. In the near term, we're optimistic about our upcoming gear garage event, which is expected to further elevate customer engagement and drive traffic and purchase intent. These efforts are laying a strong foundation for yeti.com in 2026. In retail, we remain focused on maximizing the performance of our existing stores. During the quarter, we launched localized branded apparel and accessories in 16 stores to add a unique impulse purchase moment. We also introduced immersive walk-throughs on yeti.com to showcase the YETI retail experience. With more initiatives planned for Q4, we're building upon our retail foundation to support the next phase of growth and continued impact on the rest of our channels to market. Our third key growth driver is expanding our global presence. The YETI brand continues to build as we execute our proven go-to-market strategy across our international markets. I recently spent time in the U.K. and Europe with a number of iconic global brand partners. I walked away from those meetings incredibly energized about the mutual brand respect, passion and creativity for working together. Mike will talk further about the performance in the quarter and the setup for Q4, but suffice it to say, we're on the front of the global wave. Europe continues to show outstanding growth led by excellent performance in the U.K. and continued traction across key European markets. In addition to the recent partner meetings in the U.K. and Europe, I also joined partners across Asia earlier this year. The energy and momentum is undeniable. Combined, these markets echo the early surge we saw during YETI's rapid U.S. expansion and again in Canada and Australia. What's unfolding is not just market growth. It's a product-led brand-endorsed movement. We're confident in the trajectory ahead and energized by the opportunity it represents. In Japan, our presence continues to scale quickly with over 270 doors opened to date and 400-plus stores expected by year-end. Looking ahead, with our core leadership team in place, our priority is consistent execution of our go-to-market strategy, leveraging the strong fit between YETI's premium positioning and the Japanese consumers' appreciation for quality. We see the broader Asia region as a key long-term driver of international growth potential. This year, complementing our launch directly in Japan, we added distribution in Thailand. In addition, we have signed distributor partners and are planning launches in 3 Asian markets next year, Malaysia, Singapore and the Philippines. We're also making progress against our plans and potential partnerships in Korea, China, Indonesia, Taiwan and Hong Kong. In Canada, end consumer demand for YETI products continues to be robust even as our wholesale partners remain cautious during the third quarter. Seasonal colorways and innovation across categories are resonating in Canada, highlighting the relevance of our diverse product offering and the impact of our localized brand strategy. In Australia, we delivered growth across all channels and core categories during the quarter, and we anticipate further acceleration in Q4. Brand enthusiasm remains strong, positioning us for sustained momentum through the end of the year and into 2026. Going into 2026 and beyond, we continue to see attractive opportunities for further global expansion across the Middle East and South America. In terms of supply chain transformation, our diversification plan is well on track with key factory partners now live across multiple geographies. These partners are consistently meeting our high standards for quality and cost. We continue to expect that by year-end, on a go-forward basis, less than 5% of our total cost of goods sold will be exposed to U.S. tariffs on goods sourced from China. And importantly, our multi-country sourcing strategy will be fully operational. As we look ahead to 2026, we're extremely well positioned with a more resilient, flexible and diversified supply base that strengthens our ability to scale globally while mitigating geopolitical and operational risks. As we navigate a dynamic macro, our fortress balance sheet and very robust free cash flow generation continue to underpin strategic investments in growth and innovation. At the same time, it enables us to execute our growth-oriented capital allocation priorities in addition to creating value through share buybacks. With $173 million in share repurchases year-to-date, we are upsizing our 2025 plan from $200 million, now targeting $300 million by year-end, bringing our total repurchase to $500 million across 2024 and 2025, representing approximately 14% of our shares outstanding. Alongside our growth and disciplined capital allocation, we're making investments and focusing resources on potentially transformative technologies, including artificial intelligence to unlock new growth opportunities, enhance consumer engagement and drive efficiency. We're early on the journey, but committed to it. Our AI strategy spans high-impact applications from automated custom image moderation, reducing the necessity for manual processes, customer support, site search, advanced marketing analytics and back-office automation tests. We are also leveraging AI to amplify brand visibility in the evolving search landscape. Recent initiatives include AI-enabled product customization, including the launch of a Gen AI photo-to-line-art features to elevate consumer creativity and the launch of Ranger, a conversational shopping assistant designed to boost conversion on yeti.com. Our efforts around AI-driven content optimization helped secure YETI the #1 share of voice across major AI discovery platforms over the past quarter, and we've modernized our marketing measurement with AI-powered ROAS modeling. These initiatives not only differentiate YETI, but also deepen consumer insights, enable data-driven decisions and create the potential to strengthen long-term margins. As it relates to our full year 2025 outlook, we remain confident in our disciplined execution against a well-established strategy, and we believe we are well positioned to continue our momentum into year-end. I'm incredibly encouraged by the global feedback we're receiving, underscoring growing passion for the YETI brand, strong enthusiasm for our products and anticipation for the innovation ahead. As mentioned last quarter, we plan to hold our Investor Day in the first half of next year. Today, we're excited to announce that we'll be hosting the event in Austin, Texas to fully showcase YETI and where we are going. We will be providing additional details on the event in the near future. Looking ahead, we're entering an incredibly exciting chapter for YETI, driven by immense passion for our brand, the amazing quality and innovation in our products and the scalable nature of the business model. We have a strong foundation to build off as we advance the business toward the global growth potential for YETI with a clear focus on execution against our strategic priorities. I'll finish by thanking our team and partners for their commitment to building this brand the right way, setting us up for the incredible potential in front of us. With that, I'll now turn the call over to Mike. Michael McMullen: Thanks, Matt, and good morning, everyone. I appreciate you all joining us today. I'll start by reviewing our third quarter 2025 performance, then share our outlook for the full year. Following that, we look forward to taking your questions. As a reminder, all results presented on today's call will be on a non-GAAP basis to better focus on the operating performance of the business during the quarter. Let's begin with the top line. In the third quarter, we delivered sales growth of 2%, reaching $487.8 million, which was above our expectations. This performance was driven by double-digit growth in both our Coolers & Equipment category and in our international business. In addition, we are incredibly encouraged by the underlying momentum we are seeing across the business. Consumer demand is strong, and our recent innovation is resonating even as caution persists among consumers and wholesale partners. Looking at our product categories, Drinkware sales declined 4% to $263.8 million, which was in line with our expectations. The U.S. Drinkware market remains challenged during Q3 with similar levels of promotional activity as compared to the prior quarter. However, there was real strength within key pieces of our broad and diversified Drinkware portfolio. And outside the U.S., Drinkware continued its growth trend. As we said last quarter, we believe that our global Drinkware business will return to growth in Q4, driven by innovation, international growth and as we lap the more challenging market dynamics that began in the fourth quarter of last year. Coolers & Equipment had a strong quarter globally with sales up 12% to $215.4 million. Bags had a fantastic quarter across the full portfolio of products, and we saw strong growth from soft coolers. Both categories benefited from recent innovation, and we believe that there is tremendous opportunity for growth in each category going forward. Diving into performance by channel. Direct-to-consumer sales grew 3% to $288.7 million. Our Amazon Marketplace continued its strong performance even in the face of a softer Prime Day event as compared to last year, underscoring consistently strong consumer demand for the YETI brand within this channel. Corporate sales continued to deliver solid growth, and we are excited about the growing number of strategic partnerships that we are developing around the world. When combined with an expanding portfolio of customization capabilities, we believe this will enable us to capture demand while at the same time, growing our brand on a global basis. As for e-commerce, while we were pleased with the performance of our international sites in the U.S., yeti.com saw a continuation of trends from Q2. Traffic and average order values grew year-over-year, but conversion continued to be a challenge, which we believe is a sign of a discerning consumer. In the wholesale channel, sales increased 1% to $199 million in the third quarter. Our international wholesale business delivered good growth, both on a sell-in and sell-through basis. In the U.S. wholesale channel, strong C&E performance was offset by a decline in the Drinkware category, stemming from a continuation of trends seen in the second quarter, elevated promotional intensity, coupled with conservative ordering from some of our wholesale partners. But we believe the underlying trends in sell-through are incredibly important. We observed double-digit sell-through growth in the U.S. for both C&E and Drinkware. This accelerated the trend we saw in the prior quarter, where sell-through growth is exceeding sell-in growth and has resulted in a reduction in our channel inventory levels versus the prior year. We believe this positions us well for the future, especially when combined with the exciting new U.S. distribution opportunities that we have announced this year, including Fanatics and Nordstrom. Moving to our international business. Sales outside the U.S. grew 14% to $100.4 million, representing approximately 21% of total sales in the third quarter. This reflects growth in every region, Europe, Australia, New Zealand and Canada as well as very early contribution from our launch of Japan. Europe was the real growth highlight in Q3, continuing the trends that we have seen this year. We have tremendous momentum in the U.K., where we continue to benefit from growing brand awareness, strong consumer engagement and increasing interest from wholesale partners. Also, we are pleased with the progress we are making in Japan. This is a foundational year for us in Japan, hiring the team, establishing relationships and building the infrastructure that we need to capitalize on what we believe is a tremendous opportunity. Now moving down the P&L. Adjusted gross profit decreased 2% to $272.5 million or 55.9% of adjusted sales compared to 58.2% of adjusted sales in the third quarter of last year. This 230 basis point year-over-year decline was driven by a 320 basis point unfavorable impact from higher tariff costs. In addition, a lower mix of Drinkware sales in the quarter had an 80 basis point unfavorable impact on gross margin. These were partially offset by a 60 basis point benefit from continued product cost savings, a 50 basis point benefit from selective price increases executed early this year and a 60 basis point benefit from a number of other smaller factors. Adjusted SG&A expenses in the third quarter increased 3% to $205.9 million or 42.2% of sales compared to 41.7% in the prior year period. We continue to make strategic investments to drive future growth in key areas such as product development and technology, while at the same time, taking a disciplined approach to managing our operating expenses. On an adjusted basis, operating income decreased 16% to $66.6 million or 13.7% of sales, and net income decreased 18% to $49.6 million or 10.2% of sales. Adjusted net income per share decreased 14% to $0.61 versus $0.71 in the prior year period. Our EPS this quarter includes a $0.14 net impact from incremental costs associated with tariffs announced in 2025. Turning to our balance sheet. We ended the quarter with $164.5 million in cash as compared to $280.5 million in the prior year quarter. During the third quarter, we repurchased 4.3 million shares of YETI's common stock on the open market for $150 million, bringing the year-to-date total to 5 million shares for $173 million. Total debt, excluding finance leases and unamortized deferred financing fees was $74.9 million compared to $79.1 million at the end of last year's third quarter. From a total liquidity standpoint, we ended Q3 in a substantial net cash position and with our $300 million revolving credit facility fully available. Inventory decreased 12% year-over-year to $324 million, reflecting strategic management of our inventory purchases and continued supply constraints related to our supply chain transformation. Now turning to our updated fiscal 2025 outlook. We now expect full year sales to increase between 1% and 2% versus fiscal 2024's adjusted net sales and as compared to our prior outlook of flat to up 2%. This updated guidance continues to include an approximately 300 basis point unfavorable impact related to our supply chain diversification efforts and subsequent inventory supply disruptions, which is consistent with our previous outlook. From a product perspective, we expect C&E to be up mid-single digits and Drinkware to be down slightly for the full year fiscal 2025. As I mentioned earlier, for the fourth quarter, we continue to expect positive growth in Drinkware, reflecting the impact of recent innovation, growth outside the United States and the lapping of market dynamics that we began to see in Q4 of 2024. From a channel standpoint, we expect DTC growth to be slightly above wholesale growth in fiscal 2025. Geographically, we are maintaining our outlook for our international business as we continue to expect growth of between 15% and 20% in fiscal 2025. This implies an acceleration in international growth in Q4, reflecting the timing of order patterns that we mentioned last quarter and the continued strong consumer demand that we have seen throughout this year. In the U.S., we anticipate a low single-digit decline for the year, largely due to the dynamics within the Drinkware category that we have discussed. That said, we remain encouraged by the resilience of our U.S. Drinkware business, and we anticipate improving growth trends in the fourth quarter. We continue to expect gross margins for the year to be between 56.5% and 57%. As was the case last quarter, this reflects an approximately $40 million or 220 basis point net impact from tariffs. Trade policy discussions are ongoing and the ultimate outcome regarding tariff rates remains uncertain. In our guidance, we are assuming that the latest tariff rates as announced, remain through the end of the year. But given the late timing in the year and our successful efforts to transition our supply chain, the recent reduction in the tariff rate on goods imported from China will not have a material impact on our gross margins in 2025. We continue to expect operating expense growth of between 2% and 4% versus the prior year. This reflects the impact of ongoing investment in our growth initiatives, partially offset by continued cost optimization. We continue to expect operating income for the full year to be between 14% and 14.5% of adjusted sales, reflecting a net unfavorable impact of approximately 220 basis points from higher tariff costs versus the prior year. Below the operating line, we continue to expect an effective tax rate of approximately 25.5%. We now expect full year 2025 diluted shares outstanding of approximately 81.5 million versus our previous outlook of 82 million. This reflects the impact of our increased share repurchase target through fiscal year-end to $300 million versus $200 million in our prior outlook. Reflecting the narrowing of our sales guidance and the impact of our increased share repurchase target, we now expect adjusted earnings per diluted share of between $2.38 and $2.49, including an approximately $0.40 net unfavorable impact from higher tariff costs versus the prior year. Consistent with our previous outlook, our capital expenditures for the year are projected to be approximately $50 million. Our capital spending remains focused on advancing our technology, launching innovative products and strengthening our supply chain. We now expect free cash flow of approximately $200 million in 2025 compared to the prior outlook of $150 million to $200 million. As it relates to year-end inventory, we continue to expect a decline year-over-year. We are proud of the results we delivered and the growing momentum we created in the third quarter, especially against the backdrop of a persistently dynamic macroeconomic environment and heightened overall consumer caution. This performance reflects our unwavering commitment to executing on our strategic growth priorities. At the same time, we continue to focus on fortifying our supply chain, exercising cost discipline and capital management and driving operational excellence. These efforts are designed to support sustainable long-term global growth and deliver value to our shareholders. Now I will turn the call over to the operator to take your questions. Operator: [Operator Instructions] Our first question comes from Randy Konik, Jefferies. Randal Konik: I guess, Matt, you led off the call this morning and you said something to the effect of you see this business long term having a growth algo potential of high single digits to low double digits, I believe. Maybe kind of think about not the -- I don't necessarily need the timing of that, but maybe kind of think about or give us kind of the building blocks you think about to kind of get back towards that growth algo in time. How do you kind of put all those pieces together, obviously, on the product side and the geo side. Just give us a little more framing up of how you think about that. That would be helpful. Matthew Reintjes: Thanks, Randy. I appreciate the question. And I think as people have followed along with the story since our IPO, everything in this business is built on product and making great product. And I look at where we were a year ago, growing 9%. I look at where we've been since the IPO, low double-digit growth CAGR. I look at the setup that we have across innovation, both the strength of our existing portfolio. I think you started to hear that on the call today, the things that we saw in the third quarter, the buildup for the rest of the year in the U.S. in particular, the expansion opportunity, the drive we've seen in C&E, which is really driven by both legacy products and new expansions and the things that we're seeing that are really exciting in the bags. The second big one is the brand reach. And I think as this brand continues to grow globally, we reach new audiences. We have new interactions with consumers. We create more opportunities to bring YETI product into different ports or parts of their life. And then the third one is, as I said on the call, I think we're -- from a global perspective, we're on the front end of the wave. And so when you step back and think about what the growth algorithm going forward for YETI is, it's going to be built on innovation, both the performance of the products we have today and the expansion. It's going to be built on the continued brand relevance and deep connection and the reach that we have with the brand. And the third one is the global opportunity we have in front of us. And I think that's what we started to see in Q3. I think we've indicated the things that we'll see in Q4, and it's what we're excited about as we go into 2026 and beyond. Randal Konik: That's great. And then I guess my follow-up, on the wholesale side, can you just kind of elaborate a little bit more? It sounds like the sell-through is very strong, sell-in is more subdued, and I'm talking about the United States market in the wholesale. Should we expect that the sell-in start to improve as inventories get worked down, improve into 2026? And then on the direct-to-consumer side, you talked about, I believe, conversion down, but traffic and AOV, I believe, up. As you launch more things like the Silo Jug, my 8-year-old, thanks you because I bought it for him, he loves it. As you kind of keep pushing out more and more newness and the consumer gets more and more attention to it, do you think that these traffic levels and AOV continue to rise and conversion starts to improve as we head into 2026 on the DTC side? Just want to get your perspective there. Matthew Reintjes: Yes. Great question, Randy. Thanks to your 8-year-old. It is an incredible product that we're really excited about. And I think it exemplifies the strategy we have in Drinkware. And I think it's why we've had the results and why we continue to be bullish on what's happening in Drinkware, particularly in the U.S. And we're building on that incredible foundation we have and really think that the forward look and the opportunity in that category is great. I think when you talk about the U.S. wholesale, the sell-in, sell-through dynamic, I think we always start with looking at sell-through, where is the consumer demand. And that importance of wholesale to us, that importance of that moment to sell to and interact with consumers and see their demand for YETI is outstanding, and we're really excited about what we see there. The sell-in dynamic is sensitive to what's happening from an inventory position. I think it's disproportionately a Drinkware story. And we've said this for the last number of quarters. We expected the Drinkware category to settle out. We work very closely with our wholesale partners on what their inventory is. And we've seen, we believe, categorical destocking happening around Drinkware. The great news is we're seeing the strength on the consumer demand. We're seeing the strength from the innovation. We're seeing the strength of the opportunity go forward as we talk about the portfolio that we have coming in Drinkware in particular. As it relates to DTC, we always want to look for strength and that traffic and AOV are both really positive signs, I think, in our dot-com. The conversion rate is really something that we're focused on, how do we drive more efficiency, more productivity, higher conversion of the people that are showing up on our dot-com site. But I think what the results show is it exemplifies the power of our omnichannel strategy. And we talk a lot about we want to be where consumers are shopping. We're thrilled with the performance we've seen on the Amazon marketplace. We love to see our wholesale partners showing really strong sell-through growth and consumer demand. And we continue to invest behind making yeti.com a flagship place for discovery consideration and ultimately purchase, which should continue to improve the conversion. Operator: Our next question today comes from Brooke Roach, Goldman Sachs. Brooke Roach: Mike, I was hoping you could help us understand the scaling opportunity of some of the new sport-focused launches that you are putting into the marketplace in the back half of this year, whether that is the co-branded Drinkware with Fanatics or also the Sport jug and some of the blender bottles that you're putting into the marketplace. What kind of contribution do you expect from that as you scale over the course of the next year? And will that be the driver of the return to growth? What's the forecast for your core business of legacy products? Matthew Reintjes: Thanks, Brooke. I'll take the front end of that and Mike can step down on the forecast topic. What I would say largely is we feel really good as we look at our Drinkware portfolio and the innovation our team has been driving and the diversification. We've had these conversations over a number of quarters as that category had a lot of attention around it. And we said our strategy has been diversify, be relevant, build a strong foundation and base and then grow off of it. And I think that when we look across the portfolio we have today, it isn't about leaving behind the things we've done. We're really excited about what we -- the innovation we have coming in bottles and jugs. We're really excited about the tumblers and cups. We just had a release yesterday of a large-format straw, and you can see what the social response to that was an leakproof large handled tumbler. And so we're really excited about that travel mug. But when we look to sport and where we're going, we believe we can play from the sideline to the home, to the outdoors, to the job site. And I think the -- the jug is an incredible versatile, very YETI product in that way. I think where the sports partnerships come into play is that connection of fandom and connecting brands, the channels to market that Fanatics offers, the licensing partnerships that go through existing wholesale partners that we have and provide a direct-to-consumer opportunity, I think, are really exciting. You'll see us continue to innovate in that category because we believe that sports on top of our outdoor legacy, on top of our historical fishing legacy is an incredible way of expanding our audience through innovation, through connection to consumers. And so we're really excited about where this is going. Michael McMullen: Brooke, it's Mike. So in terms of the forecast, I mean, I'd say it's all part of what we talked about as why we believe Drinkware will return to growth in Q4. I mean we said it was driven by innovation. This is obviously a piece of that. The Sports Jug we talked about, Silo, we talked about, the Shaker bottle launching this quarter. It will be late in the quarter, not a huge amount, but it's all just part of that overall innovation story. And then the second thing we talked about is why we believe that Drinkware can return to growth in Q4 is just the international growth story and the opportunities that we see to continue to grow Drinkware as we expand internationally. So it's all part of the overall story. Operator: Our next question today comes from Peter Benedict, Baird. Peter Benedict: I guess I'll ask about the promotional environment. As you think about the double-digit sell-through U.S. wholesale for Drinkware, how much are promotions driving that? And then how do we square that with kind of the lower conversion that's happening on yeti.com? Is there just a higher promotional cadence in wholesale and not as much on your site? Just trying to understand that and understand how you think about the promotional cadence in the holiday and going forward, how much you do and how much your partners do? Matthew Reintjes: Peter, thanks for the question. I would say a couple of things. We've been talking for a number of quarters that not only did we expect Drinkware in the U.S., in particular, to be promotional in nature, but it's been consistent. And we've seen that. And that's across brands. You go out and do market surveys, you'll see that out there. I think for us, we've had a really nice combination of sell-through driven by the innovation that we've launched. And when we look at -- we talked about our Wetlands Camo, when we look at this new launch of the Silo Jug, we've got this travel straw that just announced yesterday. We go back over the quarters and look at the innovation that we brought to market in color material finish and form factors, we really believe that innovation expansion, brand relevance is the thing that drives YETI, not a -- and really drives it in an environment that is highly promotional and continues to be that way. From our promotional posture, our promotions are consistent with things that we've done in the past as we transition out of colors, transition out of styles, and we'll continue to do that. As we get bigger and the portfolio gets bigger, there may be incremental ones we do just based on the numbers. But I think largely, what we're focused on is how do we drive the premium nature of YETI, the desire for the innovation, the looking to YETI for what's new. And I think that's what our team has done an extraordinary job this year amidst an incredibly complex supply chain transition of which I'm really proud of the work we've done and the setup that we have, both in innovation and the posture of our global supply base for 2026. I think as it gets to yeti.com and the conversion, I really think that there's -- we're continuing to watch where consumers want to shop and some changing and shifting behaviors. I think that ties in a little bit to some of our comments on the call about how we're looking at AI and what that does to search and how we play into it. And so it's an area we're really focused on, but the overall display is the power of having our diverse omnichannel to market from wholesale through our diverse DTC all the way to our dot-com and our retail stores. I think that's -- we want to be where YETI can win. Operator: Our next question today comes from Phillip Blee from William Blair. Phillip Blee: So I just wanted to talk a little bit about the fourth quarter. The implied guide assumes a bit of a sales acceleration. Can you maybe just provide a bit more color around your confidence there? A lot of retailers are calling out consumer demand that's been increasingly choppy. But are you seeing any of that? Or have you already seen some of that improvement in sell-in or sell-through quarter-to-date? And then just a clarification question on Drinkware. The category should inflect positive in the fourth quarter, but do you see the potential for the U.S. market to return to growth? Or is it going to be more of an international story? Michael McMullen: Phillip, thanks for the question. So I'd say both your questions are related. So as we look at Q4 and where we sit today, I mean, we've been -- all year long, we've talked about strength in C&E -- and we saw that in Q3. We had a really good bags quarter, really strong soft coolers quarter and an overall really strong C&E quarter in both the U.S. and international. In Drinkware, really strong outside the U.S. in Q3. And then in the U.S., it played out about like we expected. But as we've consistently said, when we look at the innovation we have coming, when we look at the growth outside the U.S. that we think can continue and we start to comp some of those when the market dynamics really started in Q4 of last year, we expect to see a stabilization of the Drinkware market in the U.S. So those are all the factors that sort of combine to say that, hey, we believe we can get Drinkware back to growth in Q4. We believe we can continue the growth we've seen in C&E, and that should lead to a better outcome in the U.S. market. When you run the math, it kind of says the U.S. based on our guide, will definitely improve as we look to -- from Q3 to Q4. And I think it's all those factors that we've talked about. You mentioned consumer demand being choppy. I mean, really, like Matt mentioned, consumer demand was -- at a sell-through level was strong in Q3, and we feel good about that as we head into Q4. On the DTC side, I think the choppiness comes from across channels. So Amazon and corporate sales have been strong. U.S. e-commerce has been a little more challenged. But overall, we feel good about where we are as we head into Q4. Operator: [Operator Instructions] Our next question comes from Peter Keith, Piper Sandler. Alexia Morgan: This is Alexia Morgan on for Peter. I was wanting to follow up on the previous question. So international in Q4 implies a pretty big step-up just to get to the 15% to 20% guidance for the year. I was wondering what gives you confidence there on that step-up? And then also what level of international growth is sustainable to support your provided long-term algo for high single to low double-digit sales growth? Michael McMullen: Yes. Alexia, thanks for the question. So I'd say you are correct. So the guide would imply a step-up from Q3 to Q4. But I'd say a couple of things. One, the step-up is in and around the levels that -- of growth that we have seen over the last 6 quarters or so last year and in the first quarter of this year. So it's not like we're not getting back to levels where we've been before, number one. Number two, all year long, we talked about some timing differences related to international wholesale that are -- growth is going to move around a bit. You saw the return of us back to double-digit growth in Q3, and we expect that momentum to continue as we go into Q4. But also, just like in the U.S., we have some consumer demand reporting that gives that, that has remained strong outside the U.S. And so when we combine all those factors together, it gave us confidence that we can get back to the levels that we would need in Q4 in order to hold our guide for the year. In terms of long-term international, I mean, obviously not giving any guidance beyond 2025 this year or this quarter. But what I'd say is we believe when we look at the opportunities that we have in Europe, that we have in Asia, both in Japan and beyond that, based on some of the comments that Matt made this morning, we still believe we have a significant opportunity in front of us. And the word we've used is we believe we're on the front of the wave in terms of what we think the opportunity is outside the U.S. Operator: Our next question today comes from Joe Altobello, Raymond James. Joseph Altobello: I want to quickly touch on tariffs. You have a net tariff impact this year of about $0.40 per share. I realize you're not giving any kind of guidance for next year, but just trying to get an idea of what that might look like going forward. Michael McMullen: Yes. Thanks for the question. So I mean, you're right. We're not giving any kind of guidance beyond 2025 on this call. There are also a lot of moving pieces. So on one hand, you've got the rate on imports into the U.S. from China coming down recently, won't have a material impact on 2025 given the timing. Like we've said, for most of this year, China has been at 30%. And by the end of this year, we will largely be out of China for goods imported into the U.S. We will see an annualization of the full year of impact of tariffs in other countries outside of China. I'd say the other thing is, given how we've diversified our supply chain, we now have the opportunity to look at where we produce and optimize our sourcing based on where tariff rate sits. I mean there are some countries that we -- in which we source that do not currently pay a tariff. So I think next, we'll look for ways to optimize our costs, continue to partner with our suppliers. And then lastly, we'll also look at price. And so there are a lot of pieces moving around, and there's work for us to go do that we're going to continue to go do. So not giving guidance specifically beyond this year other than to say it's something that we're watching closely and that we will -- it's a -- remains a significant priority for us, and we'll have -- and we'll continue to work it. Joseph Altobello: That's helpful. And just kind of quickly looking at this quarter, were U.S. sales up if you exclude Drinkware? Michael McMullen: Well, I think -- yes, I mean, we didn't give the specific number, but we talked about C&E strength in the U.S. and international. So I think it's fair to say that U.S. sales were up if you exclude Drinkware, correct. Matthew Reintjes: The only thing I would add to that is if you really think about, and you'll see it in our revised investor deck, a more blown out view of our product portfolio. But really, the drag in our Drinkware business is pretty concentrated around that trend-driven last couple of years style. And the overall strength in our Drinkware business is what gives us confidence in the expansionary strategy, the innovation, the growth we're driving, the relevance to consumers. So it's -- I think that's why we feel good about the forward look. Operator: Our next question today comes from Molly Baum, Morgan Stanley. Molly Baum: I want to follow up on your thoughts around 4Q, specifically the holiday season. I know you mentioned that you had a softer Prime Day versus last year. So can you maybe give a little bit more detail on what drove this? And if that's -- if there's any read-through there on what we might expect for some of these key holiday selling periods? Michael McMullen: Molly, so yes, we mentioned overall strength on Amazon despite a softer July Prime Day versus the prior year. And we -- from what we saw and that we weren't alone in sort of seeing that. So I think the holiday time period is different. It's not one event. It's over a longer period of time, which I think plays to our advantage a little bit because that's what we saw in Q3 was that just sort of sustained demand -- strong consumer demand on Amazon. But it's just one piece of our overall growth story in Q4. Obviously, our dot-com business and what we have planned around gear garage is always an important piece of our Q4 business, and we feel good about where things stand and what we have planned. We will -- obviously, we believe, given the overall strength on Amazon, we're set up for a good holiday season. And then that's -- we're just talking to U.S., obviously. I mean we feel really good about where our international business is the acceleration that we have planned in Q4. So I don't think you can take a direct read-through from Prime Day and apply it to the holiday season because I think there's just too many other factors at play. Operator: Our next call -- sorry, our next question today comes from Noah Zatzkin, KeyBanc Capital Markets. Joseph Altobello: I guess just on kind of the M&A front, I think there was kind of a thought some time ago that maybe tuck-ins would kind of play a role in how you're thinking about the long-term algo. So how do kind of tuck-in acquisitions factor into the high single-digit to low double-digit long-term growth rate? And then just in general, kind of how are you thinking about M&A more near term? Matthew Reintjes: Thanks, Noah. I appreciate the question. A couple of things I would say. We obviously talked a lot on the call, and you have seen over the last couple of years, our capital allocation priorities. And disproportionately, it's been a really strong sign in the buybacks that we've completed. And as we communicated on the call with the upsized target for this year, it would be $500 million over the last 2 years in buybacks. And I think that shows the conviction we have in what we're doing at YETI and what's in front of us. As it relates to acquisitions and that, what I would call, very targeted deployment of capital around technologies, designs, IP is really all innovation focused. And so if you go back and look at the types of things that we've done, it's not tuck-in in the traditional sense of the tuck-in of a business or a brand, it's really about access to capabilities so that we can accelerate the innovation pipeline. We did it with the expansion we've had in bags underneath the YETI brand, and you saw that starting earlier this year, and we're excited about what's to come in '26 and beyond. In the cast iron, we had an opportunity to get a small niche design, make it a YETI design, enhance it, bring it to market and really set a marker out there in the market for what we can do in this expanding cookware and culinary world. And then the Shaker bottle, similarly, we had -- we got a chance to get something that was unique in the market from a design perspective, enhance the product and bring it back to the market, which is what we communicated will happen in Q4. And so those opportunities, I look at them as adjuncts to the investment we make in the people, technologies, processes we have inside the business. And so we'll continue to look for those which sort of jump the curve on getting product to market, jump the curve on technology, expand sort of our open innovation, our acqui-hire thought process. But suffice it to say that our forward look on this business is driving growth underneath the YETI brand that we think complements our channels to market, complements our brand extension strategy and really addresses consumer needs and consumer opportunities we see. Operator: Our next question today comes from John Kernan, TD Cowen. Krista Zuber: This is Krista Zuber on for John. Just on the international sort of bigger picture, with the double-digit growth you've demonstrated through much of this year and the international mix of sales now around roughly 20%, how are you thinking about the margin profile of this business relative to the U.S. or the company average overall? And then just secondly, on the product launches, you've talked about the opening of the Thailand Innovation Center, complementing the Austin center. Now you're adding Vietnam. You're on track to exceed roughly 30 new product launches this year. Is that how we -- how are you or thinking about the run rate of launches going forward? Michael McMullen: Appreciate the question. I'll take the first question, and then we'll pass it to Matt for the innovation question. So international margins, so what we've said is that there's some channel and product mix differences across the different regions. But from a gross margin perspective, when you normalize for that, our gross margins are pretty similar to the U.S. outside the U.S. versus the U.S. And so from an operating margin standpoint, I really think it kind of varies by where the region is in its maturity. So regions where we've been in for a while, Canada, Australia have really strong profitability, places like Europe and Asia where we're building, where we're growing brand awareness, we're investing. Obviously, it's a little different. So I think you'll start to see as Europe continues to grow and become a more mature piece of our business like Australia and Canada, then I think you'll see that start to -- Europe start to sort of progress toward where Australia and Canada are, but then you've got our efforts in Asia where we're going to be investing as well. So that's kind of how I would think about it. There are a lot of moving parts in there, but it's really -- from a gross margin perspective at a channel level, they're very similar. Matthew Reintjes: What I would add is as we think about the cadence and pace of innovation, it's really less about 30 this year versus 35 next year versus 25 or whatever the numbers may be last year. It's really about opportunity we see, product market fit, opportunity to merchandise in our existing channels to market, opportunity to expand our channels to market, intercept the consumer at a new buying occasion. But what I think Thailand, Vietnam, Bozeman, Denver, Austin offer us is immense capabilities to respond to market opportunities we see to bring innovative products to market, to control our innovation, to partner with the best contract manufacturers around the world to bring it to the consumer and our partners in the most efficient and effective manner. And so I think everything from ideation to the innovation, to the development to ultimately the sourcing and execution, we're building capabilities to take advantage of the global opportunity that we see. And that includes the continued penetration growth, deepening of our relationships in the U.S., which is an incredibly important market to us and the expansionary opportunities that the rest of the world offers. Operator: Our next question today comes from Anna Glaessgen from B. Riley Securities. Anna Glaessgen: I have kind of a bigger picture question, thinking through the long-term algo, kind of why reiterate that high single-digit to low double-digit growth now? And to what extent is -- or thinking through balancing the investments required to drive the innovation required to get to that growth versus maybe seeing some more OpEx leverage in the out year or years beyond? Matthew Reintjes: Anna, thanks for the question. I'm going to do my best. I think I got most of that, but let me kind of take a crack at it. And if you have a quick follow-up, we'll address it. The timing is when you really think about we're building this brick by brick. We've always been product focused. We've always been brand expansionary focused. We've always talked about the international opportunity. I think what we have seen build over the last number of quarters and really kind of came together in Q3 is the kind of foundational opportunity we continue to see in the U.S., the global opportunity we're seeing outside of the U.S., the proof points of the reach the brand is getting in this next evolution and connection as we talked a lot about sport and the innovation both the investment we've made, which we think is a very scalable investment that has a high return, but the strength of our existing portfolio to continue to drive us forward and the impact of the expansionary growth. And so it was a great time for us to start that build towards this moment, and then we'll go into our 2026 guide in the Q4 call when we're back together. And then we'll go into an Investor Day. And all along, what I expect from YETI is what we have seen since we went public in 2018, which is we just continue to execute. We continue to build this brand the right way. We continue to innovate and lead the market, and we continue to find new market opportunities around the world. And I think that's as simple as the rationale is, and we think the algorithm builds into that. Operator: Thank you. There are no further questions at this time. I will now turn the call over to CEO, Matt Reintjes. Please go ahead. Matthew Reintjes: Thanks, everyone, for joining us. We look forward to connecting on our fourth quarter call. Have a wonderful rest of the week. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Good day, and welcome to the Under Armour Q2 2026 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Lance Allega, Senior Vice President of Finance and Capital Markets. Please go ahead. Lance Allega: Good morning, and welcome to Under Armour's Fiscal 2026 Second Quarter Earnings Call. Today's call is being recorded, and a replay will be available on our investor website shortly after it ends. Joining us this morning are Kevin Plank, Under Armour's President and CEO; and Dave Bergman, our CFO. Before we begin, please note that certain statements made on today's call are forward-looking as defined under federal securities laws. These statements reflect management's current expectations as of November 6, 2025, and are subject to risks and uncertainties that could cause actual results to differ materially. For a detailed discussion of these factors, please refer to this morning's press release, filings with the SEC, including our most recent Form 10-K and Form 10-Q and other public disclosures. In today's call, we may reference non-GAAP financial measures. We believe these metrics offer additional insights into the underlying trends of our business when considered alongside our GAAP results. Reconciliations of these measures to the most comparable GAAP metrics are included in today's press release and can be found on our investor website at about.underarmour.com. With that, thank you for being here and for your interest in Under Armour, and I'll now turn the call over to Kevin. Kevin Plank: Thanks, Lance, and thank you all for joining us this morning. Before we get started, I want to take a moment to reflect on some important news we shared this morning regarding a leadership transition. To express my deep gratitude to Dave Bergman for more than 2 decades of extraordinary service to Under Armour. For 21 years, Dave has been so much more than our teammate, finance expert and CFO. He's been a true partner, a steady hand and a trusted voice. His discipline, integrity and unwavering commitment to doing what's right for our brand, our teammates and our shareholders have shaped who we are today. His impact can be felt in every corner of the company from the strength of our business to the culture that defines us. His leadership has built a foundation that will support Under Armour for years to come. As Dave transitions from his role and continues with us through the first quarter of fiscal '27 to ensure a seamless handoff, I want to sincerely thank him and not just for what he's accomplished, but for the person he's been to all of us. His legacy here will be lasting and deeply felt. Thank you, Dave. Now at the same time, we're excited to welcome Reza Taleghani as our next Executive Vice President and Chief Financial Officer, who will join in February of 2026. Reza brings more than 25 years of global finance leadership across corporate, operational and investment banking roles. He joins Under Armour from Samsonite Group, where he served as EVP and CFO since 2018, leading financial and operational transformations that significantly improve profitability and efficiency. His prior experience includes senior roles at Brightstar Corp., JPMorgan and Sterling Airlines. I have every confidence that Reza's extensive experience and strategic mindset will help drive our brand and business forward, and we welcome him to the Under Armour team. Now speaking of the team. Over the past few months, I've had the privilege of meeting our closest stakeholders across Shanghai, Hong Kong, Amsterdam, New York and Portland. The energy has been undeniable everywhere I went. The message remained consistent. Under Armour has the strategy, talent and brand power to succeed. Our partners are fully committed. Our teams are focused and our brand continues to inspire athletes worldwide. With nearly 2,000 UA-branded stores showcasing our global reach, the road ahead is vast. Now is the time to harness the momentum, align our priorities, ignite our entrepreneurial spirit and turn potential into tangible results. Like the athletes we serve, we know when to push, when to pivot and when to lock in. This turnaround won't happen through force alone. It's about balance and precision. Staying focused is critical because credibility and trust are lost quickly, but regained slowly. Whereas we say at UA, trust is built in drops and lost in buckets. And we have been busy, depositing one drop, one relationship, one product, one story at a time. Every decision, action and result shapes how our brand is perceived. Our category management model is sharpening our edge, aligning us more closely with athlete needs and boosting precision and speed across the business. We will maintain high standards, staying disciplined, accountable and continue to earn trust through performance. Anchored by our long-term strategy, this model keeps us focused on what matters most, winning with young athletes and making Under Armour the most trusted authentic performance brand everywhere we do business. This strategy is now global, echoed in every region and market around the world with our clear category focus of training, running and sportswear, then authenticated through A or the key team sport in each region from American football, basketball, diamond sports and volleyball here in the U.S. to football in Europe and football, basketball and volleyball in Asia. We deliver performance and build connection wherever athletes play. One of the clear signs our strategy is working is in product, the heartbeat of this brand. When I returned to the CEO role, I made it my priority as product has long 18-month lead times and to reignite the Under Armour edge, that's where we had to start. We streamlined assortments by cutting 25% of our SKUs, refocused our materials library by prioritizing fabrics we can be famous for and constantly raising the bar on design, working to bring innovation and style back to the center of what we do, which are all ingredients that made Under Armour globally famous to begin with. Fall/Winter '25 is when it all starts to show. A bold new design language is evident across training, running, and sportswear, confident, consistent and unmistakably UA. Core apparel collections, including Heat and ColdGear, Unstoppable, Vanish, Meridian and Icon are driving momentum and beginning to drive demand with key specialty and sporting goods partners. In footwear, we've addressed our contraction by refining our strategy and sharpening our aesthetic. We are not accepting the current state of the business. Our plan is straightforward: build on the franchises that are already successful and return to growth in the upcoming seasons. We're leveraging our momentum. The record-breaking Velociti Elite 3 highlighted by Sharon Lokedi's recent New York City Marathon podium this past Sunday demonstrates our performance leadership is resonating. SlipSpeed Echo and Nova extensions, along with our solo sportswear models are creating buzz, increasing sell-through and proving that UA can generate real demand where performance meets style. Accessories, we're gaining renewed energy with breakout hits like the $45 StealthForm hat and $140 No Weigh backpack, driving growth across wholesale and DTC by inventing new products as well as significantly higher price points, validated by UA innovation, which reassures us that where and when we innovate, we will succeed. Spring/Summer '26 only gets stronger and is also filled with innovation. The $160 Velociti distance run shoe, which builds on the Velociti 3 franchise, next-generation Shadow and Magnetico football boots, the Dry Pro clone golf shoe featured on Jordan Spieth and the new No Weigh duffle, all of which build on UA franchises, especially our HeatGear Elite base layer featuring our new UA-built NEOLAST fiber technology, which replaces Lycra stretch with a more durable and groundbreaking sustainable option for athletes and the planet. There will also be another extension of NEOLAST we will launch in the spring that we only tease with the clue of an industry quote that drives us. Whoever invents the next white or black T-shirt wins. Meaning master performance and elegance through something as simple as a T-shirt. It's the best expression of UA and believe we have that coming in the new year. This is what UA does best consumer-relatable innovation where we can drive positive perception and volume. So speaking of volume, we're working to elevate our top 10 largest unit products by enhancing quality and design, aiming to increase price points through innovation and style that help athletes perform better. Every product detail must justify its place by providing confidence, comfort and performance that set us apart. While higher average selling prices over the long term are a fundamental goal, our progress will be about more than just numbers. It's about building trust and instilling pride in athletes when they wear UA as a symbol of performance and purpose. A strong example, the $75 Assert 11 running shoe, which launched just this week, with a complete Velociti run-inspired redesign, it demonstrates how far we've advanced, turning one of our most accessible models into a true performance shoe with a story instead of just price. The Charged+ mid-sole technology and Velociti 3 inspired design lines plus the addition of Los Angeles Dodgers back-to-back World Series champion, Freddie Freeman to support our point-of-sale visuals. Ensure that we can maintain a higher average selling price for this program that pushes millions of units annually, ultimately bringing more profit to the bottom line. We look to do this across our top 10 high-volume styles where each product will reflect our commitment to premium quality at every price point, so every athlete at any level can see and feel the UA difference. These launches embody everything Under Armour represents, athlete-driven innovation, bold design and performance you can truly feel. The difference now is the energy. You can sense it across the teams, fueled by belief and a shared commitment to win. We're not just back in the game. We're now setting our own pace, demonstrating that performance, style and a premium experience can coexist and thrive at every level. The evolution of our products reflects a transformation happening across our business worldwide with focus and disciplined marketplace management in each region driving progress. EMEA is experiencing healthy profitable growth. APAC is rebuilding back to growth over the next 12 months. And North America is a proof point we are decidedly getting behind to redirect our global trajectory and believe we have a positive line of sight. Focusing on North America and recognizing that it's not fully reflected in our financials yet. Our brand heat is increasing, which is an important milestone in our turnaround. As our product strategy accelerates, our storytelling is gaining clarity. By blending creativity with instincts, we're enhancing our cultural edge while staying dedicated to performance. From TikTok to the sidelines, we're showing up where it matters, and it's working. Awareness among 18- to 34-year-olds has increased from the mid-60s just 6 months ago to over 80% today, driven by our, We Are Football campaign and activations, which we have also delivered a significant surge in social engagement for UA. From the Star-powered main film featuring NFL star Justin Jefferson, #1 draft pick Cam Ward, a host of young high school NIL talent, all the way to recording artist Gunna, who also performed at the Video Music Awards. These have all contributed to related base layer sales. We Are Football wasn't just an activation. It's been a revival for us here in the States, redefining how athletes see us not just as a performance brand, but as an inspiring, aspirational one. Returning to the field this year through our NFL partnership as an official supplier of gloves and footwear has been a key part of this reset, reminding the world exactly what UA represents, performance, energy and an authentic cultural connection with the next generation of athletes. And it's delivered big with more than 300 million impressions and 100 million video views, a #2 share of voice among competitors on X, over 90% positive sentiment and awareness among 18- to 34-year-olds at its highest level since 2022, now sitting in the 80s. Besides generating buzz, it also boosted sales. Organic engagement surpassed expectations by promoting our HeatGear Baselayer story and increasing its share of ua.com franchise visits from 6% to 31%. This led to double-digit growth in sales for the category. The VMA's activation with Gunna also caused a fivefold rise in social media mentions and a notable increase in purchase consideration among young athletes. At Under Armour, our currency is product and our voice is amazing story articulated through powerful imagery and film where we bring our brand to life. For a deeper look at the momentum behind our transformation, please visit our Investor Relations page today to explore recent product and storytelling highlights that demonstrate how our brand is growing stronger every day. I think this is incredibly effective and recommended strongly. The combination of sharper products, stronger storytelling and a renewed sense of purpose is revitalizing confidence in Under Armour and redefining how athletes perceive us. We're rebuilding conviction and cultural relevance with the next generation, regaining trust and energy across the marketplace. So what's different? We're connecting more deeply than ever. We're adding attitude and personality to everything we create, applying a brand lens to every product, touch point and story. Our products need to perform and speak, reflecting the mindset of today's athlete relentless, confident and ready to compete. That's what we mean when we say our products personify performance. Every fabric, fit and finish must convey our unique DNA. When athletes put on UA, they're not just wearing gear, they're underscoring belief. That's the connection we're creating between product and emotion, brand and identity. You'll continue to see us get sharper with personifying our product, giving them individual personality and trust with athletes like our ColdGear Mock has done when it gets cold. That builds a relationship with our consumer, become familiar with and recommend as well as repeat purchase from us season after season. This is our industry's version of recurring revenue, and it is top of mind here at UA, consistency and confidence. Within our North American direct-to-consumer business, we continue balancing pricing discipline with a dynamic consumer environment while making further progress in enhancing our shopping experience. Our new content management system for e-commerce improves content flexibility and supports modern tools like TikTok, shoppable reels and product compare. Although sector demand remains tempered due to a very promotional market, our units per transaction are up nicely. And despite traffic headwinds across our sector, in our retail stores, conversion rates are increasing as we improve the shopping experience and boost productivity. Factory House placements of full-price products also continue to exceed expectations. Now our North American wholesale business is undergoing a disciplined rebuild, and we are encouraged. The focus on top-to-top relationship building at our most important retailers has been key and effective. Good news is that we're seeing positive momentum with many of these accounts in some of our core programs as we continue to sharpen our focus on stronger partnerships, more targeted assortments, elevated merchandising and a premium retail brand experience. All of this, of course, is centered on 1 goal: reigniting Under Armour's potential in the marketplace. While this part of our business remains challenged in the near term from an order standpoint, the tone has shifted as we have seen replenishment demand with the brand heat from our -- We Are Football campaign and even more recently with the weather turning cold. Conversations with our major wholesale partners have moved from caution to collaboration and from hesitation to optimism. The message is clear. They see the progress, they feel the energy and they want to be part of our next chapter. In ongoing discussions with these key partners, we're creating multiyear plans to bring U.S. wholesale back to growth, aiming for stabilization during fiscal '27 and paving the way for expansion beyond. That's exactly it. This is a rebuild and reset with purpose, putting UA back on offense in North America as the brand's green shoots are becoming more consistent. So in EMEA, we're driving real momentum and doing so with style. The team continues to deliver strong results quarter after quarter, driven by a clear strategy and effective execution. Our focus on creating culturally relevant brand moments is making a significant impact. Prime example is our collaboration with Mansory, which generated 38 million organic views and strengthened our premium positioning with younger, style-conscious consumers even seeing sellout online. That's brand heat in action. We're carrying that momentum into fall/winter '25 with our new Be The Problem football campaign led by global ambassador and arsenal head coach, Mikel Arteta, along with a roster of top UA athletes. Major activations in London and Paris strengthened our connection with EMEA's most passionate communities, highlighting how our brand and cultural intersect to inspire and create credibility. It's a powerful reminder of the opportunities ahead across run, train and sportswear, validated by regional sport authenticity through football. Behind these results is smart, disciplined growth. We're seeing wholesale strength in key cities and steady gains across direct-to-consumer, all while maintaining full price discipline and tailoring our approach to each local market. Mansory and Team Sports stood out this quarter, boosting both energy and profitability. This consistent performance builds confidence that our focused strategy will keep igniting relevance, fueling continued healthy growth and maintaining the Under Armour brand's momentum through the second half of the year in EMEA. So in APAC, after spending 8 days on the ground with stakeholders just a few weeks ago, the takeaway is clear and today's print of down 14% does not reflect the real progress that's underway. Structural challenges are being addressed. Legacy roadblocks are coming down, and we're rebuilding a premium high-integrity marketplace that aligns with Under Armour's true brand strength. Our priority is to stabilize the business and set a clear path to growth in fiscal '27 and beyond. The plan is in motion with the right leadership in place. We're reducing inventory through tighter buys and faster in-season decisions, strengthening purchasing discipline and managing the marketplace with greater precision to protect price and margin. To support this, we're simplifying assortments, sharpening consumer storytelling and driving full price sell-through with disciplined distribution and premium partners. APAC also holds a structural advantage as our second smallest region with a strong base of mono-branded stores. We can move faster than larger markets. Beginning in the fourth quarter, we'll be testing a new digital retail store concept with a highly immersive experience environment that brings our performance story to life. In short, APAC is on a path to regaining momentum and have every confidence in the team we've built to construct a cleaner, more premium marketplace, positioning the region as a proving ground for what will scale globally. Also, the creative edge we build in APAC won't stay in APAC. It will make Under Armour stronger everywhere we play. In closing, here's my perspective on our progress in this turnaround. We don't have a product issue. Our innovation and design are strong, as you'll see in the coming seasons how we've addressed this and we don't have a brand issue. Consumers aren't mad or rejecting Under Armour. They just haven't heard from us in a while. What we do have is a storytelling opportunity. That's exactly where we're concentrating because consistent, compelling storytelling that personifies our brand turns great products into icons, athletes into advocates and moments into momentum. This month marks 20 years since Under Armour went public, 20 years of grit, lessons, humility and ambition. I want to thank everyone who has contributed to this double-decade journey. Not long ago, our leadership focused solely on stability. That operational discipline was essential for Under Armour to rebuild its foundation. Today, that foundation is solid, and our focus is on finding balance and pursuing growth. We're combining that same operational excellence with a brand-first approach because our next chapter is about unlocking the full potential of what Under Armour can become, making the most of all of our assets and resources with the wisdom gained from 20 years as a public company. We recognize a disconnect between our $5 billion in revenue and our current market cap, and that gap drives our sense of urgency. At the center, we have the right team, the right strategy and a clear focus on strengthening the brand through better storytelling, products, marketplace management and customer experience. True transformation happens when product and story come together. Product fuels story and story elevates product. Together, they build lasting platforms, lead franchises and deepen consumer connection with the brand. And while there's still work to do, the momentum is real. We're seeing progress in North America, early evidence that our balance between performance and purpose, discipline and storytelling is starting to take hold. This is the next chapter of Under Armour, confident, focused and ready to rise. With that, I'll hand it over to Dave to walk through our second quarter results and outlook for fiscal '26. Dave? David Bergman: Thanks, Kevin. Before I get into the financials, I want to take a moment to share some thoughts about my upcoming transition. After 21 incredible years at Under Armour and nearly 9 as CFO, it feels like the right time for something new, new for me and new for Under Armour. Kevin and I have been discussing this for some time now, and we agreed that if we could identify and secure a great next CFO for Under Armour, I'd step down and pass the baton in a well-planned and thoughtful way. With Reza joining the team, we're now ready to do just that. And to be clear, I absolutely believe in this brand and its future. I'm proud to be Under Armour's second largest internal shareholder. But more than that, I'm proud of the people and the purpose that make this company so special. My main focus now is helping UA and my team onboard Reza and get them fully up to speed to ensure UA can continue to thrive for years to come. Now let's get into our second quarter fiscal '26 results, where we again delivered a quarter that met or exceeded our outlook on every item as we continue to execute our turnaround. Revenue declined 5% to $1.3 billion, slightly better than the outlook we shared in August. This result includes a 1 point benefit from timing shifts that moved some shipments from Q3 into Q2, which will normalize in the back half of the year. Regional results were as follows: North America revenue decreased 8%, primarily due to a decline in our full-price wholesale business and lower e-commerce sales. In EMEA, revenue increased 12% or 7% on a currency-neutral basis, continuing the healthy growth trend in the region, driven primarily by our full-price wholesale business, coupled with strong growth in our DTC channel during the quarter. Revenue in APAC declined 14% on both a reported and currency-neutral basis, mainly driven by our wholesale business, while DTC decreased modestly in the second quarter. And Latin America's revenue increased 15% or 14% on a currency-neutral basis with strong growth across wholesale and DTC. From a channel perspective, wholesale revenue declined 6% due to lower full-price sales, partly offset by growth in the off-price channel driven by the timing of sales to third-party partners as well as an increase in distributor sales. Direct-to-consumer revenue declined 2%, primarily due to an 8% decrease in e-commerce sales, driven in part by efforts to more strategically manage discounts in a more promotional North American environment. Sales within our owned and operated stores remained flat in the quarter. And licensing revenues increased 17%, driven by strength in our international business. Finally, by product type, apparel revenue declined 1% with softness in run, outdoor and golf, partially offset by growth in train and sportswear. Footwear revenue declined 16% this quarter, reflecting ongoing pressure from a challenging consumer demand environment and our deliberate efforts to recalibrate key parts of the footwear portfolio. We believe these steps will help us improve efficiency, strengthen brand value and maximize the impact of several high potential launches planned for upcoming seasons. Accessories revenue declined 3% this quarter with decreases across most categories, partially offset by growth in sportswear, especially in headwear. Our second quarter gross margin declined 250 basis points year-over-year to 47.3%. This decline was mainly caused by 275 basis points of supply chain headwinds, primarily due to higher U.S. tariffs and 100 basis points of combined unfavorable channel and regional mix. This was partly offset by 50 basis points of foreign currency headwinds -- or tailwinds, I'm sorry, 50 basis points of pricing benefits and 25 basis points from a favorable product mix. Gross margin for the second quarter came in better than our expectation, thanks to less supply chain pressures, including slightly better product costs and inventory return impacts. Shifting to SG&A, which increased 12% to $582 million in the second quarter. Excluding approximately $4 million of transformation expenses related to our fiscal 2025 restructuring plan, adjusted SG&A expenses were $577 million, a 9% increase compared to the prior year. Last year's Q2 SG&A benefited from a $27 million insurance recovery, which explains about 5 points of the year-over-year increase. The rest reflects higher marketing driven by timing shifts that occurred in the back half of last year. On a normalized basis, adjusted SG&A was down slightly year-over-year. In the second quarter, we recorded $32 million in restructuring charges, along with $4 million in transformation-related SG&A expenses, totaling approximately $36 million in expenses and charges under our fiscal 2025 restructuring plan. Since the plan's inception, we have incurred $147 million in charges and transformation expenses, of which $82 million are cash related and $65 million are noncash. We expect total charges and expenses for the plan to be up to $160 million, which will be recognized by the end of fiscal 2026. The actions executed under our plan have already delivered approximately $35 million in savings in fiscal 2025 and are on track to generate an additional $45 million in fiscal '26. Moving down the P&L. We reported operating income of $17 million in the second quarter. Excluding transformation expenses and restructuring charges, our adjusted operating income was $53 million, outperforming our outlook. Looking at the bottom line, our reported diluted loss per share was $0.04, while our adjusted diluted earnings per share was also $0.04 in the quarter. Regarding our balance sheet, inventory at the end of Q2 was $1 billion, a 6% decrease compared to the same period last year, and our cash balance was $396 million at the end of the period. Additionally, during the second quarter, we used the net proceeds from the issuance of the senior notes due 2030, along with the borrowings from our revolving credit facility and cash on hand to satisfy and discharge our $600 million in Senior Notes due in June of 2026. Funds were placed in a restricted investment account to cover all remaining principal and interest payments on those notes. At the end of the second quarter, we had $200 million in outstanding borrowings under our $1.1 billion revolving credit facility. Next, looking ahead to outlook. We expect full year revenue to decline 4% to 5% in fiscal '26, an improvement compared to fiscal '25's 9% decline. This incorporates our expectation that North America and APAC revenues will decrease by high single-digit percentages, while business in EMEA is projected to grow by a high single-digit percentage. For gross margin, we expect the full year rate to decline by 190 to 210 basis points, mainly due to higher U.S. tariffs. These headwinds should be partly offset by foreign currency gains, a more favorable product mix and slight pricing benefits. Amid these headwinds, we remain focused on improving SG&A efficiency. For fiscal '26, we expect adjusted SG&A to be down at a mid-single-digit rate with a goal of leveraging. As such, we will continue to reduce discretionary spending and sharpen our marketing investments, ensuring that we protect and build on the brand momentum that is beginning to take hold. This translates to an expected adjusted operating income of $90 million to $105 million. And when taken to the bottom line, we expect adjusted diluted earnings per share for fiscal '26 in the range of $0.03 to $0.05. This outlook accounts for higher projected other expenses below operating income, mainly driven by interest expense from increased debt levels as well as a significantly higher tax rate in fiscal '26, primarily due to the interplay of an unfavorable regional mix and decreased profitability. Next, our outlook for the third quarter of fiscal '26. We expect revenue to decline 6% to 7%. As noted earlier, this includes approximately 1 point of revenue that shifted from Q3 into Q2 due to shipment timing. In North America, we anticipate a low double-digit decline driven by continued wholesale softness, especially in footwear. We expect EMEA to grow at a high single-digit rate, while APAC is projected to decline by a high single-digit rate, an improvement from Q2. It's important to note that our Q3 revenue outlook suggests a moderately smaller revenue decline in Q4 as we regain momentum toward a potential inflection point in fiscal '27, as Kevin noted. Moving on to gross margin. We anticipate a decline of 310 to 330 basis points in the third quarter due to a full quarter impact of new U.S. tariff costs. Adjusted SG&A is expected to decline by a mid-single-digit percentage in the third quarter as it compares against last year when our marketing spend was distorted to the second half of the year. Additionally, we continue to focus on cost management in the current environment, supported by the increasing benefits of restructuring actions we have undertaken. This results in a third quarter adjusted operating income expectation that ranges from a $5 million profit to a $5 million loss, which translates to approximately $0.02 to $0.03 of adjusted loss per share. In closing, we're entering this next phase with focus and discipline, executing a strategic transformation that unites sport, performance and style with the financial and operational rigor required to reignite top line growth. Our innovation pipeline is strong, and our opportunity lies in converting that strength into brand and financial momentum through sharper storytelling, better marketplace execution and disciplined capital deployment. We're grounding every decision in data, optimizing costs and prioritizing investments that drive margin expansion, operating leverage and sustainable returns. With a clear road map and the right team in place, we intend to close the gap between our brand strength and financial performance, resetting UA to deliver consistent profitable growth and long-term shareholder value. Now we'll open the call to questions. Operator? Operator: [Operator Instructions] The first question comes from Jay Sole from UBS. Jay Sole: Kevin, a lot of great information and insight in the prepared remarks. I want to ask you about North America. What makes you confident that North America will see stabilization before the end of fiscal '27? And what is your definition of stabilized for North America? Kevin Plank: Yes. Thank you, Jay. We spent a lot of time thinking about this and the outlook that we provided. So stabilization for us, first of all, it means we see getting the business to where it's a plus 1 or 2 or plus or minus 1 or 2. So in that healthy version. So we're pointing toward that. The way we think about what makes that reality is there's 5 basic points, and I'll start with structural, which is having the right team, the right operating model, business plan and go-to-market in place. It's time for us to let those things cook and let it really play out. And I think that's where our 20 years of public company experience really will begin to shine through. From a product standpoint, I think there has been an incredible overall elevation that we've had in design and the deliverable innovation, meaning innovation that we can actually monetize and drive volume with. It means we've used this term driving pricing power for us. And that means first started by leaning on the winners, the heat and cold gears, Unstoppable pant collection, Vanish and the products that you've heard of. It's also the 2-part approach that we said to premiumize in this brand, which is our Trojan horse new innovations and things like the Velociti Elite 3, the credibility that gives us from Sharon Lokedi just hitting another podium in that shoe. It really opens the door there as well as innovation like a $45 hat or $140 backpack. We're demonstrating that the consumer is open for innovation. More importantly, they're open for innovation and higher price points from Under Armour when we deliver that. At the same time, we've got a lot of legacy programs and things like our top 10 volume drivers that were focused on ASP, the Assert 11 example I get with not just a price point at $75, but assigning an athlete in a face like Freddie Freeman to that as well as talking about the technology with the Charged+ inside. From a -- number three would be storytelling. As I said, we don't have a brand problem. We just haven't -- we haven't talked to the consumer in a while. And we don't believe we have a product problem. You'll see that coming through in the evolution of what the brand and how we show up at retail. But we certainly have a story opportunity. We haven't connected those things. We put a shoe out there like the Assert. We just never told anybody why they should buy it. We simply relied on brand heat, and that's something that can be -- it wanes with the market. But the good news, it's fixable. So when we say that our currency is product and our voice is amazing story, this will be a highlight for us and why I encourage people to check out the website that we put together that just shows the content we've put up since our last call, which is pretty incredible. And that We Are Football is a great example of it that actually takes us from the subjective of, Hey, we believe this is going to happen, into we can drive that through data. As I said, our awareness scores at 18- to 34-year-olds prior to the campaign were down in the 60s about 6 months ago. Since running that and getting the activation, not just 1 major film, but all the 400 or 500 pieces of content we built around it, we drove awareness nearly 20 points from 1 campaign. That is not normal. It just shows that the brand is there. It's just ready to be unleashed for us and gives us an opportunity. Four, I would say, our partner belief from our wholesalers. We've had more top-to-tops in the last 18 months than we probably had in the previous 3 or 4 years. And that means we've been rebuilding relationships. And these conversations we're having from them over the last 18 months have moved from cautious, as I said, to collaborative. And they're doing that because we've been consistently beating plan now as we're moving forward. And plan, in some cases, is not in excess of where we were last year, but it's doing more than we said we were going to do. So we're earning this one drop at a time. Fifth and probably most importantly is just culturally. Our teammates have this renewed sense of energy and the metaphor of moving in this new headquarters of a little less than a year ago is great action toward that. It feels like there's a new chapter for the brand to start. And what that new chapter is, is that, yes, we'll make sure that we double down on the discipline we have as a company, but it's driving it with a brand-first lens on every decision that we make. That is how we'll judge how we're doing and how we're growing as a company is our commitment in making sure that we show up with something that makes somebody want to buy more shirts and shoes from Under Armour and believe that when they do, they're wearing a super power. So I've got the benefit of having been around the world and being able to touch a number of our teammates in the last month or so. And I can tell you the team is hungry, motivated and ready to win. Jay Sole: Got it. Well, I mean that's super helpful. I mean it's pretty clear that the North America brand heat is increasing. There's a lot of great things happening, product storytelling. I'll pass it on, but I just want to ask one quick one. You mentioned NEOLAST, and it was just a quick mention. But it sounds like you're excited about what you have and what you have coming. Can you just tell us a little bit what it is, what makes it special? I know it's a little bit obscure, but I want to just ask that question before I pass it on. Kevin Plank: Yes. Thank you. NEOLAST is a fiber we spent more than 5 years in partnership with NC State, Celanese and Under Armour. And the 3-way partnerships are not easy to do. From it, we've built a 3-story machine that from the output of that is a fiber that is completely sustainable that effectively replaces Lycra. So it gives us Lycra stretch, which is a great product, but we've built something that's actually better than it. So it's not just sustainable, but it's actually a better product. And we're showcasing that with some of our upcoming HeatGear Elite and OG, and you'll see us start incorporating NEOLAST as we get the fiber up and running throughout the majority of Under Armour products, and that's going to take a little bit of time. But meanwhile, we'll put it in our compression gear, which, as we all know, to the broader population, probably 5% or 6% or 7% people can walk down the street in a compression T-shirt. But as I mentioned, we also are going to be showing this some products that we think can be incredibly beautiful, including a product a shirt that we have coming out in the spring that will feature NEOLAST and I think really be important for the consumer. So we're excited about what this innovation means. Operator: The next question comes from Sam Poser from Williams Trading. Samuel Poser: I have 2. One, I've been hearing a lot of really good things about what's going on, what you guys are doing in track and field, and some of that seems to be manifesting itself in running in the results in New York Marathon and so on. But you're not -- you talk a lot about football, but I would think the track and field/running is a much bigger addressable market. And I'm just wondering when you're increasing your voice, what you're going to do there because from what I understand, you're one of the few brands out there that sort of covers off every sport in track and field. And I would think that the number of long-term athletes more are doing that abundance of those various sports going up than are playing football, while I understand football is in your DNA. So wondering what you're doing there to sort of have the voice match or exceed the products that appear to be out there? Kevin Plank: Sure, Sam. I think it's a great unlock for us. Run as a category, we talk about the progression that we try to get through in footwear and running is certainly a category that we can win. There's nothing like having the credibility of a Sharon Lokedi, who is a former New York City Marathon winner, the reigning champion of the Boston Marathon and then just pulling another podium in New York this past weekend. The Velociti Elite 3 is something that gives us enormous credibility in running. And again, when we say running, there's a $250 expressions like we have in the Velociti 3. But if you go to the website as well on Investor Relations, you'll see as we've been driving the story is that it's not just the $250, but we've taken that design aesthetic, and we're taking it all the way down to $160, $130, $100 and $75 price points. And so yes, we believe that it drives our credibility. And with the 430 colleges that Under Armour outfits here in the United States, the nearly 3,000 high schools, it's certainly an opportunity for our track-specific product. But all this is about leveraging us into using this as a marketing vehicle to tell the story that when you wear Under Armour, there's a superpower included inside and will allow you to maybe someday if you dream to win the Boston Marathon. But I don't know, it might be a fallen ambition for some of us. Samuel Poser: Well, okay. I have one more, but I want to follow up on this. I'm really talking about the marketing voice. I know you're doing a lot of stuff, but like you're not running that big We Are Football campaign against that. You're doing -- so how do you let this broader base know? You talked about increasing your voice. So that's number one. And number two, you talked about the improvement in the U.S. business or the North American business. Can you talk a little bit about the sell-through rates and the velocity that you're seeing at full price, let's say, compared to a year ago now, I understand so more on a rate basis where -- and how that's -- why that's giving you confidence or some specific data to that confidence? Kevin Plank: Yes. So first of all, as we said, our global strategy is clear. It's training, it's running, it's sportswear, but they're authenticated in each market where it gets local. So a recent deal we did here in the U.S., for instance, with BSN Sports, which has more than 1,400 road reps that are covering high schools and things. That's something that allows us to sell, as you say, our full complement we have for track and field from discuss to spike to weight lifting, we do a good job covering that gamut. And again, we want to be authentic there, but the volume is for us is getting to specialty run, authenticating ourselves there and allow that to be the pull that puts us into sporting goods and specialty mall retail as well. So that's the way we're thinking about it in an organized way. The growth that we see is -- let me move to sell-throughs. I think that the great news we have now and why we're pushing people until we don't have orders in hand, and we're saying we're pointing towards stabilization the way that we see fiscal '27. We'll be a lot smarter in February. But meanwhile, we're having really good success at retail right now. And again, that's not showcased in the numbers. We get what that means. But what I mean is we're beating our plans. And in certain categories, we're seeing replenishment orders coming in and a lot more driving from -- a lot more confidence from our key retail partners. The good news about that is that they're thinking about writing their fall '26 orders. They're seeing some of the success we're having in fall '25. So everything that we're just having, unfortunately, to say to you, they get to see that in a little more of a realistic way. So we're driving better gross margins with our accounts. We're not taking as many returns or at all. And we just -- we like the trajectory of the business. So there's nothing hopeful or wishful, I think, about our tone today. I think it's very pragmatic, very thoughtful and something that just gives us great confidence in how we're thinking about the next chapter. Operator: The next question comes from Bob Drbul from BTIG. Robert Drbul: And Dave, congratulations, and thanks for all the help over the last 20 years. Best of luck to you. David Bergman: Thanks, Bob. Robert Drbul: And 2 questions really. I think the first one is, in terms of the sports marketing portfolio, you got a really good portfolio. You've made some changes to it. Can you just expand a bit just how that can work better in your storytelling approach? And then the second question is just a bit more general. But when you look at the footwear business overall, some of the challenges that you're seeing, can you just expand a bit more how you're approaching the changes that you need to make in that category? Kevin Plank: Yes. Let me jump on there, Bob. First of all, you're right, is that our sports marketing stable is something that should always be dynamic, and we're constantly evaluating and reevaluating. Today's day of NIL and sort of the hyper focus that we have with even high school NIL kids. I think we did a good job in our campaign that's out and is still running, and we're not even a little more than half of the way through this campaign that you'll continue to see and hear from us. But we didn't just put Justin Jefferson or recording artist Gunna in there is that we had 5 NIL athletes. 3 of them are 5 stars, the #1 player in the country, the #1 quarterback in the country. So we're thinking about how we can access talent like that as well as being thoughtful about the way that we approach anybody in our portfolio. And that's the balance between is it about an athlete? Is it about a team? Is it about a league? So I'd say it's constantly moving. I like our portfolio right now. I think there's always work to be done, and we'll always make sure we're being thoughtful. Let me address footwear because I do. I look at this number, and I realize that the Street is staring at minus 16%. And I want everybody -- I want to make sure we put this in perspective and context is that Under Armour is a footwear brand. We are committed to it. We are incredibly disappointed about where it sits right now, but -- and we find the results unacceptable. But we're moving as a business, I guess, is part of our redirect. We're moving of going from selling just foot coverings below $100 to a forward stance in footwear. And this has come with some pain that you see in that minus 16%. But that meant we've relied on brand heat to sell shoes, and that's not how it works. We need to create the aspiration. We need to do that above $100, understanding that a bulk of the business is going to be done below $100, which is why we talk about things like the Assert 11 as a $75 shoe, but we're going to make sure that we can anchor that and hold that full price or that average selling price closer to the $75 we're asking for. It's incredibly important for us. But we see Under Armour is what's our position because there's a number of good A running brands out there, but there's a number of good footwear brands. But Under Armour, I think, is meant to be the equipment for your feet. This -- we enter, we have the right to play here because of the credible performance apparel that we have. It's our reason to be in footwear. And that starts with us as entering the consumer's mindset with cleated. So on field, on court, on pitch. I'm talking about the Magnetico football boots. I talk about some of the things we have with American football. You look at what we're doing again with Velociti and the franchise that's running there. Cleated gets us in the door and it gets us to training footwear, which is pretty small, but something where we have between our Reign 4 product as well as our new Halo Trainer that we just launched is important. And probably one of the big unlocks is running, where I don't think we've taken enough advantage of the podiums at Sharon Lokedi and the success we've seen with the Velociti 3. It gives us a much bigger business. And that's what leads you into picking up some easier dollars like the slide business where we think we have opportunity to exploit. And if you get all these things right, you'll be able to sell sportswear and footwear, which gets them to and from the field. The good news about this is we're not starting from 0. So we're in more of an edit mode of how do we get clear, how do we get more focused on what we're doing. I think about where we have opportunity, I mean, you can take a category like basketball that's roughly $100 million globally for us all-in. And we think to ourselves, it's incredible for a $5 billion company that can't exploit that in a bigger, better way. So being under-scaled relative to the potential we have and the opportunity that we have to grow it. So we're approaching that positioning as to where do we have the right to play, the right to win, and we think we can just do a little better. Operator: The next question comes from Laurent Vasilescu from BNP Paribas. Laurent Vasilescu: Dave, thank you again for all your help over the years, and that leads us to the questions here. I think on the first question here is around pricing elasticity. How do we -- how should we think about pricing for spring/summer 2026 product? Should we assume something like mid-single digits to offset the tariff impact? And what are you seeing in terms of elasticity of demand for your consumers right now? And then the second question, I think, Dave, you were very helpful in parsing out the tariff impact for 2Q. I think you mentioned 275 basis points. Any way we should think about that number for 3Q and for the full year? David Bergman: Yes, Laurent, this is Dave. Relative to pricing, it is one of the different mitigation strategies that we're driving through relative to the tariff implications. So in the short term, this year, we're really focused a lot more on kind of managing the SG&A and protecting the bottom line that way. There's a little bit of vendor cost sharing we can drive through where reasonable, also working on some production shifts where reasonable. Those can't be done overnight, though. And to your point, we are pursuing some selected price increases. They're partially dependent, though, on competitor actions and consumer sentiment as well based on where we stand. And we're definitely going to be strategic in those. We don't expect much of that to be real visible until fiscal '27 and beyond, to your point, but it will definitely help us as we offset more of a full year impact next year on the tariff side. I don't think it's going to come across as dramatic, and I don't know that we're in a position to be able to go dramatic relative to what other brands might be doing. So -- but we're going to be in there, and we think there's a lot of great product that have the right price to value that could warrant some of those increases, but we're going to be very prudent and strategic in how we do that. But then there's also a couple of other things that we're driving through to help offset as well, being a lot smarter and more data-driven in how we look at SKU by SKU profitability and make tougher decisions about what SKUs we're going to get behind versus what ones we might wane back a little bit based on the profitability of that SKU and just some more diligence around that to be careful as we try and navigate some of those cost pressures. But longer term, I think we're going to be in a really good spot there. Relative to Q3 and Q4, yes, Q3, we're seeing down 310, 330 basis points, and that is almost entirely driven by tariffs. That number in the tariff range is probably around 300, 330 basis points. So there's other minor puts and takes that are going on within that, but that's really the lion's share for Q3. Q4, just based on the mix of product and the sourcing countries that it's coming through, the tariff impact will be a little bit less in Q4, but it's still going to be the primary driver of the Q4 headwind as well. Operator: The next question comes from Peter McGoldrick from Stifel. Peter McGoldrick: I was curious on the shape of the guidance. Previously, the commentary pointed to the second quarter as the deepest declines of the year. I recognize there's a 1 percentage point shift. But now with the outlook for the fiscal third quarter, that looks like that could be the deepest decline. And I was curious about the progression. What has changed over the last 90 days? And how should we think of the pathway towards the stabilization in fiscal '27? David Bergman: Yes. I mean, to be honest, there's not a lot of big developments from 90 days back. There is maybe $10 million to $15 million of movement relative to Q2 and Q3. These are mainly wholesale shipments in North America and EMEA that were originally planned to go out in early Q3, and we actually had the product and the customer wanted it, and we were able to get it out in late Q2. So that was a little bit of a change versus our expectation. But outside of that, no real big changes. I think when you think about Q4, we do see that the Q4 decline will be less versus Q3. And if you look at the math in our outlook, it does back into a pretty broad range for Q4. And one of the points within that range is flat and that stabilization that we've been talking about. So if you drill down into that, we continue to see solid growth in EMEA, which is awesome. APAC is likely to actually be up a little bit with Q4, but that's mainly, to be honest, relative to comping a really challenged Q4 of last fiscal year in APAC. So that's something to keep in mind. And then all the points that Kevin went through on North America coming to fruition and, therefore, less pressure on North America in Q4 than previous quarters. So again, it's the focus on stabilizing and resetting APAC, stabilizing and turning around North America and continuing to fuel the growth in EMEA, and that's what we're driving against. Peter McGoldrick: Appreciate that. And perhaps just a follow-up on the pricing. You pointed to embedded assumptions for the higher engineered pricing on your largest products. I was curious if you could talk about the -- your approach to the balance of your product portfolio and how you're planning pricing there. David Bergman: Yes. I mean we are looking at it in a lot of different ways. There are some very specific new launches that we're going to be addressing pricing on a couple of the resets, but then also even on some of our core, we do feel there's an opportunity on the kind of better and best product a little bit more than the good level product. We want to be a little bit more careful with that consumer. But as Kevin can probably touch on, there's also a lot of exciting stuff we're doing relative to some of the new product launches that are in that good and better, best level that could have better prices associated with them. Kevin Plank: Yes. I think just the overall elevation for the brand, this comes back with aesthetic. This comes from -- just because it's an opening price point doesn't mean it can't be designed beautifully and perform for the consumer. So that's when we talk about things like our tech program and how we're looking to enhance that with a $25 opening price point, and we'll be moving some price there. But more importantly, we're introducing a $35 improved version that we think we'll be able to take some of that volume and walk the consumer up a bit. But innovation is the answer and the way that we're going to win with the athlete. So that perception needs to come across in everything Under Armour does. Operator: The next question comes from Brooke Roach from Goldman Sachs. Brooke Roach: Kevin, Dave, I was hoping to dive a little bit deeper into the trends that you're seeing in the APAC business and the drivers and cadence of the path that you see ahead to drive some stabilization there. Kevin Plank: Yes. Thank you. I know this is a head turner when you look at it and say, what does it mean in the minus 14. It's difficult for us to read. Again, we do not accept it, and I feel like I've said that too many times today, but we're in the midst of turnaround, and this is what it looks like. And so we like where we're going. As I said, I've had the ability to spend 8 days in the market visiting stores and meeting with our teams, franchisees, distributors, manufacturers and doing town halls and getting our point of view and then sitting down one by one and doing an hour with each of the key stakeholders we had, sharing our forward strategy and spending time with our team. Simon Pestridge, who's been awesome, who joined about a year ago, and we named him to this job about 3 or 4 months ago. So we're new in that process. Simon also announced a new head to run specifically China for us, who is a veteran pro who used to run Converse in the region as well in running China. So he is building out a rock-solid team. But not unlike the U.S., we don't believe that we have a brand problem. Under Armour is effectively known as a professional brand in China. It's -- once again, it's a story issue. And this is just where we haven't done a great job of just tying together, a, personifying the product and then just storytelling at retail when it's a T-shirt just standing next to a price tag that says $24 or $30 or whatever the local currency is, it's not very compelling. And that's when you're just relying on brand heat. And so as that has slowed, we felt sort of across the region. The good news is that when we look at a market like China is that it can -- it's one of the fastest retail markets in the world, if not the fastest, and it gives us the ability to move, we think, pretty quickly. So the same formula and some of the lessons learned from EMEA that we implemented here in the U.S., pulling back on promotion, beginning with our own sites, which helps the partner sites as well and then allowing us to just look forward. So the good news is that Simon and team is that we're viewing stabilization as we're talking about. We believe we can point towards stabilization, more specifics to come in the February call, but in fiscal '27 as well. So we think this is a reset year for us to get us back to growth and moving pretty quickly. So we think the worst is behind us, and it's now for us to repurpose. This new store that we're unveiling in January, too, or hopefully, at some point there around is going to be incredibly exciting and will help feed the more than 700 doors we have in China specifically and the 1,000 over in APAC. Operator: Our last question will come from Paul Lejuez at Citi. Kelly Crago: This is Kelly on for Paul. I just wanted to follow up on some of the North America wholesale commentary. I guess if you're seeing improving sell-through rates this fall, do you have opportunity to potentially see upside from stronger reorder demand in the holiday quarter? And then just in terms of the order book, you're pointing to more of a stabilization in wholesale in North America in the fourth quarter. Is that reflected in your order books? And then should we think about -- given you've seen improved sell-through this fall that maybe the hope at least is that for fall 2026, you'd see order books up? Any just color there would be great. Kevin Plank: Thank you. We say stronger demand. So we're coming from -- we haven't had the strongest hand, so we're basically stabilizing. I think probably the best way for me to qualify this is that we now -- we have a stable order book. Where in the past, we've seen a lot more returns. We've seen a lot more cancellations. We're not seeing that right now. This isn't just cold weather either. It's some of the brand heat, I believe, that we've been driving here in the U.S. specifically. The brand inconsistency, I think, is one thing is that we hadn't really come with a story, and that's why I believe the most important thing is the key relationships that we have with the key partners is they're seeing a more consistent Under Armour. They're seeing us now tying story to it. They're seeing us personify product and the premiumization that we're taking at UA is something that is resonating with them. The -- call it success, but I'll say the beating plan the beating plan that we have in fall '25. And again, understanding that we're not thrilled about this math, but it definitely sets us up. And one thing we think we want the core message to be is that the key business that we have today, the $5 billion business we have today, we can see line of sight to the ability for us to stabilize and hold this business and begin to move forward. And that's not just building more good level product. We like the amount of good level product, but we want to focus on better and best. And that's what will help us premiumize the brand and help us, frankly, drive some of the more of the sell-through at all 3 levels wherever the consumer sees us. David Bergman: And Kelly, I think just pointing out too, that Q3 is a very high mix of direct-to-consumer. It's a little bit lower mix of wholesale. So even though we are seeing some favorability on replenishment orders, which is great and really points towards the future, it doesn't necessarily create a significant upside potential for Q3 or Q4. But obviously, we're going to keep driving and fueling, and we're excited about where those conversations are heading. Operator: This concludes our question-and-answer session, and the conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Masataka Kaji: Good evening, everyone. Thank you very much for taking precious time to attend Ajinomoto's Fiscal 2025 First Half Earnings Call. We thank you very much for your time this afternoon. I am Kaji of the IR office. I'll be serving as moderator. Let me first introduce the participants from the company. We have Representative Executive Officer, President and CEO, Mr. Nakamura; Representative Executive Officer and Executive Vice President, Mr. Shiragami; Executive Officer and Senior Vice President, General Manager of Corporate Division, Mr. Sasaki; Executive Officer, Senior Vice President, General Manager, Food Products Division, Mr. Masai; Executive Officer, Senior Vice President, General Manager, Bio & Fine Chemicals Division, Mr. Maeda; Executive Officer and Vice President, in charge of Finance and Investor Relations, Mr. Mizutani; Executive Officer, Vice President of Supervision of Frozen Foods, Mr. Kawana ; Executive Officer in charge of Diversity and HR, Ms. Kayahara; Corporate Executive General Manager, Bio-Pharma Services Department, Bio & Fine Chemicals Division, Mr. Otake. 9 members from the company are present today. For today, at the outset, Mr. Nakamura will explain the overview of the first half results for the year ending March 2026 and also the corporate value enhancement initiatives, after which we would like to move on to the Q&A session. We expect to finish the entire meeting in about 1 hour and 30 minutes. The materials to be used for today's presentation is already posted on the IR information site of our corporate home page. Please look at them as adequate. Please be advised that this session will be recorded, including all the way to the Q&A session to be posted on the company's IR site later. Now without further ado, we would like to begin the meeting. Mr. Nakamura, the floor is yours. Shigeo Nakamura: Now I, myself, Nakamura, will make presentation. What I would like to talk about is 2 points. Both sales and business profit in first half of FY 2025 remained at the level of previous year, while progress toward the full year plan is slightly behind schedule, we are quickly addressing the issues faced in Q2 FY 2025 and aim to steadily achieve our forecast for FY 2025. In our efforts for further growth and evolution of ASV initiatives, we have identified issues, set out a direction for actions and worked out concrete strategies. We will evolve our activities to achieve the 2030 Roadmap and we'll tackle the creation of innovation to achieve sustainable growth over the medium to long term. This slide presents a digest of first half financial results of FY 2025. Sales was JPY 738.8 billion, nearly unchanged year-on-year. Revenue increased in Healthcare and others with the impact of the sale of Althea excluded as well as in Seasonings and Foods, but decreased in Frozen Foods. Business profit was JPY 86.7 billion, nearly unchanged from the previous year. Profit attributable to owners of the parent company increased 2% from the previous year. We are thoroughly committed to achieving bottom line profit as well. This slide shows an analysis of the changes in the business profit in the first half of FY 2025 and of FY 2024. The change in GP due to changes in sales decreased by JPY 2 billion due to decreased revenue. The change in GP due to change in GP margin in both the Food and Healthcare and others businesses contributed to improvement of the GP margin and GP increased by JPY 10 billion overall. In line with our 2030 Roadmap strategy, we'll firmly control SG&A expenses while undertaking investments aimed at future sustainable growth. This slide shows a year-on-year analysis of changes in business profit by segment for the first half. For reference, at the bottom of the slide is analysis of changes for the full year forecast from the previous year's results. In the first half, profit decreased in the Seasonings and Food and the Frozen Foods businesses. Profit increased in the Healthcare and others business. While progress appears to be lagging versus the full year forecast, we expect an increase in profit in the second half. Looking closely at the 2 businesses where profit decreased, the Seasonings and Foods was affected primarily by a profit decline in Umami seasonings for processed food manufacturers and oversupply in the market due to increased production and new entry by major Chinese manufacturers. In the Frozen Food business, key reasons for the decrease were the inability of home use frozen foods in Japan to fully meet the diversifying needs of consumers and the loss of mainstay product market share to private brands, et cetera, following price increases with the result of sluggish sales. Later slides will look at the current situation and our comeback strategy. In Healthcare and others, business profit increased significantly in the Functional Materials. Profit also increased in Bio-Pharma Services & Ingredients. This slide shows our forecast for FY 2025. Due to the shift of promotional activities for Frozen Foods in North America to the second half and expectation of a significant profit increase for CDMO business in the second half, sales and profits are projected to rise in the second half. In Umami seasonings for processed food manufacturers and frozen foods in Japan, as areas in which progress is behind schedule will act agilely to recover sales and profit in the second half. At the same time, amid positive market conditions, both sales and business profit in the Functional Materials grew to 120% of the previous year's levels in the first half. We will continue to accelerate growth in the second half. We aim to achieve our forecast for the group overall. This slide shows progress toward ASV indicators of the 2030 Roadmap in the first half of FY 2025. The organic growth rate remained 1.9%, but EBITDA margin steadily grew to 17.5%. These are the ASV indicators for each segment. This slide breaks down sales into volume and unit prices for Sauces & Seasonings and Quick Nourishment both in Japan and overseas with an analysis of change in business profit. Sales in Japan in the first half were 107% year before, and volume was 94% and unit price was 113%. Within this, sales of coffee grew to 120% versus the previous year due to price increases despite a decrease in volume. Consumer frugality increased and second quarter was also affected by extremely hot weather, but sales of Food Products in Japan, excluding coffee, exceeded last year's results, achieving 101% in overall sales with volume at 99% and unit price at 102%, responding to high raw material costs and the weaken with price increases. Overseas sales increased to 103% versus the previous year. Volume remained flat, while unit prices rose to 103%. Volume in Sauce & Seasonings achieved low single-digit percentage growth. In addition to Umami and flavor seasonings, both exceeding last year's levels in terms of growth and volume and unit price. We achieved solid growth for menu-specific seasonings. We realized unit price growth not only through price increases, but also by increased sales of high value-added products. On the other hand, RTD coffee, sensitive to economic trends, saw a decline in volume. In SG&A expenses, we focused investing in advertising to enhance our future brand value. As a result, business profit increased by JPY 2.5 billion, coming close to our full year forecast of JPY 3 billion. Now I will look at results by subsegment, beginning with combined overseas and Japanese results for the Sauce & Seasonings business. This business, a cornerstone of our group, is resistant to changes in the macroeconomic environment and is steadily growing sales. Business profit margin fluctuated significantly during the COVID-19 pandemic and in FY 2022 fell to the level of 10 years earlier. Due to soaring raw materials prices due to initiatives such as repeated price increases and increased sales of high value-added menu-specific seasonings and also introduction of new products, business profit margin in the first half of FY 2025 exceeded that in FY 2019, which was before the pandemic, we'll continue working to increase sales and profit margin to support the stable growth of Food Products business. This slide looks at Umami seasonings of processed food manufacturers. In the first half, revenue and profit decreased in MSG and nucleotides. This was mainly due to both increased production and new market entry by major Chinese manufacturers, leading to oversupply in the market. This business has suffered drops in profit in the past due to increased production by competitors and high prices of raw materials and fuels, we see the decrease in revenue and profit shown here as originating in a cyclical phase, not a change in business structure. We believe we can restore a business foundation that generates stable profits. Umami seasonings for processed food manufacturers is an important business that supplies main ingredients for B2C seasonings. In April this year, we established the MSG business collaboration promotion department as part of our Food Products business orchestration and further strengthen the linkage between B2B and B2C. By centralizing the management of B2B and B2C businesses to optimize company-wide operations, the MSG business aims to achieve sustainable growth and maximize profitability. We also actively engaged in protecting our intellectual property, including filing lawsuits against infringement of our MSG manufacturing patent, an intangible asset of our group to maintain our competitive advantage. We also use our proprietary technologies to enhance productivity and cost competitiveness. With these measures, we will secure our competitiveness and advantageous position to grow continually. Next, Frozen Foods. The issue in Frozen Foods in Japan is sluggish sales of home-use products. Strong performance continues in restaurant and industrial use products for which we have narrowed our product strategy targets and channels as well as in the Aete frozen lunch box within D2C services that meet niche consumer needs. In particular, Aete is expected to achieve growth with annual sales projected to reach billions of yen. However, our home-use products, which enjoy strength in mass production have been slow to fully meet the diversifying needs of consumers. Following price increases, our mainstay Gyoza products lost over 10 percentage points of market share, primarily to private brands. Amid increasing consumer frugality driven by rising living costs since September, we have been revising our pricing strategy under awareness that we have not been providing products at prices that meet the needs for cost effectiveness. Results have quickly become apparent. In September alone, following a strategy revision, we regained the top share with an increase of over 2 percentage points. By recovering market share, we will further increase points of contact with consumers to enhance corporate value for the Ajinomoto brand. In our mainstay Gyoza products next spring, we'll introduce revised products intended to balance product strength with profitability. We'll work to recover share and strengthen our profit structure. In the medium to long term, we'll reinforce the consumer perspective for Gyoza and for home-use products as a whole, expand a new lineup of products with those that meet consumer needs and revitalize the business. Heading toward 2030, this business will contribute to the growth of the Food Products business by increasing sales to a CAGR of about 3% and business profit to about 7%. This slide deals with Frozen Foods in North America. In the first half, both sales and profit declined year-on-year even on a local currency basis. The main factors are transient, the U.S. tariff policy and a timing shift in customer sales promotions to second half. We believe that we will be able to grow sales and profit in the second half. Our North American Frozen Foods is essentially a local production for local consumption business. However, some products are imported from group companies in China and have been affected by higher tariff rates. We have already responded with price revisions to these products and believe that we can improve profitability in the second half. Performance was also affected by the fact that sales promotions in large-scale distribution channels carried out in the second half of the previous fiscal year were not carried out in the first half of the current fiscal year and are planned to be carried out in the second half. The North American business structure has evolved into a stable one with structural reform and initiatives to expand TDC margin. While quarterly fluctuations may occur, we will solidly expand the business throughout the year and in the medium to long term. Previous slides looked at current status of the Food Products business and action taken. We recognize that in the first half, we faced the issues in the Frozen Foods in Japan and Umami seasonings for processed food manufacturers. We'll strictly manage these areas. As CEO, I recognize the importance of properly assessing the true nature of the issues. In addition to a return to growth through actions to address Frozen Food business in Japan and Umami seasonings for processed food manufacturers, we will achieve steady volume growth in the Food Products business overseas and with the recovery of profit margin to the pre-pandemic level in the Food Products business in Japan, we work to achieve the 2030 Roadmap. Next, about the Healthcare and other segment. I'll begin with Functional Materials. In the first half of fiscal '25, there was no change in the environment, i.e., the strong sales for AI servers, the recovery of PCs and general purpose services continued from 2024. Both sales and business profit grew year-on-year in excess of our expectations. Assuming no major changes in the environment, we expect to maintain strong momentum in the second half as well, sustaining a trend from the first half. We will work to grow our Functional Materials business, including in areas peripheral to the Ajinomoto Build-up Film by solidly fulfilling our responsibility to supply and meet demand by undertaking next generation and next-generation development within the ecosystem with the end users included. This shows the current status of Bio-Pharma Services CDMO by geographic area. Europe continues to perform well. India is also receiving many recoveries and contributing to profit. There's no change in the status of orders, and we expect this momentum will continue in the second half. The results for AJIPHASE in Japan are below the previous fiscal year. This is due to the shipments being moved back compared to the fiscal -- previous fiscal year when shipments were concentrated in the second quarter. However, the progress vis-a-vis the full year trend target remains unchanged. In the second half, we expect growth in AJIPHASE shipments and AJICAP to make a profit contribution. In North America, Forge is performing well, and I'll explain the details in the next slide. This slide is about Forge, the North American gene therapy CDMO that we acquired in 2023. Within the advanced medical care field of gene therapy, Forge has won the trust of customers and increasing its sales on the strength of its proprietary technologies. Projects are also progressing smoothly as sales grow dramatically and customers steadily increasing. The number of projects that have obtained IND approval, that is the U.S. FDA approval for the start of new drug clinical trials has also increased significantly following our acquisition. There are also projects aiming for early commercialization. Funds to cover the expenses of preparing for commercialization, which are scheduled for next year or later are being used earlier than planned. While this will weigh down short-term profit, we will pay these expenses ahead of schedule as investments to accelerate future growth and will aim for early commercialization. We will work to achieve the target of a positive EBITDA during the current fiscal year by doing our best to absorb these upfront costs through increased sales. And Mr. Otake, who is a member of the Forge management and well versed in on-site operation is present today, so we welcome your questions. AJICAP is a proprietary antibody conjugate ADC technology based on AminoScience. Our ADC drug discovery support services and manufacturing adopt an asset-light business model centered on AJICAP technology licensing. Last month, we signed 2 new AJICAP technical license agreements. One of these is with an undisclosed overseas companies and the other is with Astellas Pharma Inc. And we will continue to conclude new license agreements with companies in Japan and overseas with both major and venture enterprises and will contribute to develop AJICAP as a growth driver. With the aim of maintaining financial soundness and maximizing capital efficiency from 2025, we are changing our fiscal discipline indicator from previously net D/E ratio to now net interest-bearing debt over EBITDA ratio. We will continue to keep our financial leverage at an appropriate level, one that can contribute to organic growth and capital efficiency. Operating cash flow in the first half fiscal 2025 was JPY 93.2 billion, about JPY 11.5 billion higher than the first half of 2024. We will continually strive to improve our cash generation capability. As reported in our recent release on the construction of a new factory in the Philippines, we will steadily invest to grow organically, and we will also promote -- proactively invest in intangible assets that can create innovation. These are the key management indicators of our midterm ASV management 2030 Roadmap. We will aim to steadily achieve the guidance for fiscal 2025. Based on our foundation of sustainable business growth, we are working to further strengthen our cash generation capabilities or our earnings power. Building upon these achievements, we are promoting resource allocation with a focus on capital efficiency in line with our Roadmap. To further improve capital efficiency, we are actively implementing shareholder returns and striving to enhance our corporate value. In addition, we remain committed to achieving the goal set out in our Roadmap of tripling EPS in 2030 compared to the 2022 level, and we will make -- we will continue to make steady progress towards this target. Based on this approach, in addition to the JPY 100 billion share buyback announced on May 8, we are pleased to announce a new share buyback program of JPY 80 billion with the acquisition period starting from December 1 and until November 2026. Going forward, we will continue to enhance shareholder returns as we strive to further improve capital efficiency. From this slide, I would like to talk about the progress of our initiatives aimed at further growth of the Ajinomoto Group and the evolution of ASV initiatives. After I took office as CEO, we implemented a 60-day program from April to address the issues identified through cross-water analysis and constructed a framework for identifying management issues and clarifying the responsibility and what actions to take. The outcome was that we were able to lay the groundwork for change. Since July, we have discussed concrete strategies and actions based on this framework in what is called the Ajinomoto Group Executive Seminar or AGES, with a focus on executive training for all executive officers, corporate executives and corporate fellows. And the content of this is described on the next place onwards. At the AGES meeting, we discussed 7 topics. We first focused on the creation of the new businesses that will drive our mid- to long-term growth, and we discussed concrete strategies and actions in 4 key areas: health care, food and wellness, ICT and green. In the future, we will deepen discussions from the angle of 3Cs: continuity, change and challenges. I recognize that creating new businesses that comes after ABF is my duty as CEO. And I will establish an R&D budget that we can flexibly utilize, and I will leverage my experience of commercialization APF to nurture the seeds of new businesses. At the AGES, in addition to the 4 topics that I mentioned, we discussed 3 other topics aimed at maximizing management's resources, strengthening corporate brand, strengthening global management structure, strengthening data-driven management. For example, with respect to strengthening corporate brand, we examine the ways to increase brand value and so that it can lead to business expansion, taking into account the different conditions in each market and regions. Furthermore, to strengthen data-driven management, we will further promote the advancement of management through the utilization of data. We will confirm our progress on these topics at the Executive Committee meetings and lead it to actions. Our group will work as one to increase our corporate value. The Ajinomoto Group is working steadily to achieve our 2030 Roadmap by evolving our ASV initiatives while making regular course corrections to our medium- to long-term plans and group-wide strategies aimed at addressing the management issues. Also drawing on the discussions at the AGS meetings, we plan to begin discussions of our long-term vision during the current fiscal year, which is 1 of the 7 important management matters for the Board of Directors, and we'll make those discussions on the starting point for the post-2030 by looking at our strategy for achieving the 2030 Roadmap with the post-2030 plan. And by agilely making course recorrections, we will drive innovation and endeavor to create new businesses that can come after ABF. Here, I intend to demonstrate the leadership as positive energizers promoting this linkage. Next, about our human assets. Human assets are the most important intangible assets for the Ajinomoto Group. We are currently in the phase of strengthening our ability to plan and execute. The evolution of our human assets organization and corporate culture is vital in supporting this. During the time of former CEO of Fujie, we broke down the silos in Japan and achieved growth for the group. During my time, we will advance global integration and aim for further growth. Towards this end, we will appoint diverse human resources regardless of gender or region to overseas assignments or key positions. We will also develop career paths that cut across business departments such as Food Products and bio and fine chemicals and functional departments such as technologies and sales to achieve further diversity, evolution into a truly global company. That is the future that I envision for Ajinomoto Group. The preliminary scores for the 2025 engagement surveys are shown here. For ASV realization process, there were increases in every category, a 2-point increase from the previous fiscal year to 78 points. The score of empathy for our purpose rose to 94 because of the activities to promote empathy with our philosophy, which tie the purpose of individual employees to the Ajinomoto Group's purpose, contributing to the well-being of all human beings, our society, our planet with AminoScience. We see this increase as an indication that activities are steadily taking root throughout the group. The score of enhancement of productivity, which has been an issue, improved by 9 points to 28. Although the score remains low, we added a new question this fiscal year. I believe the unnecessary approvals are kept to a minimum in my daily work when making decisions. This question received a favorable response score of 78. While there are still many approvals required before decisions are made, we have confirmed that a certain number of employees do not necessarily perceive these approvals as unnecessary. We will continue to analyze the engagement survey and work towards further improvement. Innovation for the future is created by our human assets. Through the creation of ASV, we will strengthen our human assets and aim to become a company that can continue to create new innovation. This is the last message for myself. Even in an uncertain environment, we will properly recognize change, respond quickly and aim to achieve our 2025 guidance in a steadfast fashion. We will endeavor to achieve the 2030 Roadmap ahead of schedule through sustained growth in the Food Product business and dramatic growth in the Healthcare and others business, always maintaining a healthy sense of urgency. Aiming for growth beyond the 2030 Roadmap, we will further enhance corporate value by creating concrete strategies for realizing a vision and by sustainably driving new innovations. I believe that creating new innovation is my duty as CEO. The assumption that the present state will continue is the most dangerous thing that we could do. By always maintaining a healthy sense of urgency, we will sustainably grow the group. That's all for myself. Thank you very much for your attention. Operator: [Operator Instructions] The first question, Saji-san from Mizuho Securities. Hiroshi Saji: On Page 38, full year segment numbers, how to look at this? In first half so it was flat mostly. And the full year forecast has remained unchanged. So you have -- you are increasing -- expecting a significant increase in second half? As for CDMO in Healthcare, there's a good response. That's what you have explained. But especially for Seasonings and Sauces and Frozen Foods, I think this is quite deviant from the plan in the first half. So in the second half, to what extent you see the viability of your forecast? What will be the driver for increased numbers in the second half? Shigeo Nakamura: Can you -- do you want me to explain the second question? Well, thank you very much for your question, Saji-san. For the full year forecast, we haven't changed. In the first half, in the food business, the Umami seasoning for processed food manufacturers has seen a decline in profit, and there was an extreme heat in Japan. And because of a shortage of rice, there was some decline in sales and profit, but we have to provide some 9, 10, 11, they are all performing well. So we can increase the months in the second half. So for Bio and Fine, Maeda will explain. Sumio Maeda: First, as for food business, Masai will answer the question. So let me give you more details. First of all, as for Seasoning and Food, there will be 50 more in the second half compared to the first half. That's what you had asked about. As for Seasoning and Foods, there's B2B and B2C, and this is the total sum that we're talking about. As Nakamura said, especially for Umami seasonings for processed food manufacturers was quite challenging in the first half. So how to recover this is what I'm going to explain. And then I will talk about home-use seasonings. In the Solutions and Ingredients division or B2B business, the following 3 are the differences between first half and second half. The first one, is the special factors, extraordinary factors. So this year, Brazil Ajinomoto, the largest site for us in Brazil, in the first half, MSG new technology introduction was prepared and construction work was done, but we got stuck and introduction didn't go well, and we struggled slightly. However, this issue has been already resolved. So in the second half, from the beginning, we can expect increased production because of this new technology introduction. So this will go well, and this will also lead to cost reduction. That's the first one. And second one, the North America, in the retail, there is a loss of a major customer, but this can be made up for. So this will be -- there will be a recovery in the second half. In the fermentation, the raw materials are going to be below budget in the second half. That's what we're expecting. So we are seeing signs of recovery in the second half for B2B because of those 3 factors. And as for home-use, B2C, especially in Japan, there are several points that I'd like to emphasize. First of all, as you know, our seasonings food is strong in winter. And ahead of the peak in the second half, there's a very favorable environment that is being built up. Especially what is important is [ HEF ] coffee and there's a lot of recovery signs and green beans or the raw material prices are going up. But overcoming that, this business has started -- has been set up in first half, and this will be carried over to second half. So AGF will be in even better position in the second half. And usually, the sales promotion expenses are recognized in February and March, but we have intentionally distributed and evened out this sales promotion expenses in the first half. So this will be favorable in second half. And in first half, mayonnaise, which is one of the major businesses for us, the competitors in mayonnaise has run centenary anniversary campaigns in a large scale. So we struggled because of that. But from September and October, we have been successful in recovering our share. So this will be all reflected as it is in the second half. And last but not least, in last year, there was a large-scale sales promotion for Umami seasonings, that went well. But in the first half this year, we were below the last year's level because customers have bought a lot, and there was a home inventory that was built up, but this has been resolved now. So we can see a recovery in Umami seasonings in the second half. There are many others favorable points, but that's why we are expecting recovery in the second half of seasonings. Yoshiteru Masai: Thank you very much, Saji. As for Bio, Fine, just I'll be very brief. On Page 38, it's JPY 17 billion increase. But if you go back to JPY 4.2 billion ahead of the last year's and only JPY 4.2 billion improvement in first half, but JPY 17 billion in second half. So in '24, in Q2, there was a peak. But in fiscal 2025, in Q4, as Nakamura said, we'll see profit peak. So JPY 17 billion improvement from the previous year against the budget, as you can see in the material, Bio, Fine and Healthcare after first half, 48% progress against profit budget for the full year. So there will be stronger profit in the second half. So 48% in the first half and 52% in the second half. So this will be how we can match the full year forecast. Hiroshi Saji: This will be leading to the second question. So the Umami seasonings for processed food manufacturers, I think there was a JPY 1.4 billion profit decline. So there were some troubles or a challenging environment in the past. So Meihua has already announced like 10,000 ton class production capacity increase. So there could be a sustained oversupply next year. So with this seasonings, is there any prospect for recovery for the second half? Is it really realistic to expect recovery? Shigeo Nakamura: So Masai will continue to answer that question. Yoshiteru Masai: First of all, there is a mid- to long-term prospects and also short-term issues. As for MSG, including nucleotide, the Chinese manufacturers increased production capacity was started in 2023, 2 years before. And from that timing on, we have been quite concerned and taking actions, as Nakamura said. This Umami seasonings, we have combined B2B and B2C businesses and centralized management was considered to be important. So MSG collaboration promotion department was established. So we struggled with the production capacity increase by Chinese manufacturers in amino acid in the past. But MSG and amino acid, the biggest difference between these 2 is that in MSG, in Ajinomoto Group, there is internal sales within the group, and that proportion is quite high. More than 70% of MSG is intra-group sales. So home-use Umami seasonings or flavor seasonings are expected to increase steadily. So in the long term, this internal sales proportion of 70% is going to be raised to more than 85% by 2030. And that is our plan. And also going forward, even if prices are increased, fortunately, there are customers that want to buy from Ajinomoto. There are so many customers that say that. So because of those 2 factors, in the mid- to long term, even if there's a continued competition from Chinese manufacturers, we are seeing the environment where we can compete. And in the short term, there are various actions to counter competitors in this MSG collaboration promotion department. And one of them is what we announced on October 14 as a press release. Our Chinese competitors have infringed upon our intellectual property rights, and we have taken action. And this will break -- put the break on export increase. And as for nucleotide, we are planning various initiatives to counter the competitors. We can't say everything here, but organization on a systematic basis, we are taking actions against competitors. So please feel assured. Especially for the short term, as I said, in Brazil, this new technology introduction will contribute in the second half to the profits. And in the short to midterm, there will be new technology introduction that will be done in various factories around the world. So there will be a long-term recovery in MSG business. Operator: Now moving on to the next question. This is from Goldman Sachs. Miyazaki-san, please begin your question. Takashi Miyazaki: This is Miyazaki from Goldman Sachs. I also have 2 questions. The first question, from the first half towards the second half, you just talked about the trends. According to the presentation material, strategic expenses -- strategic investments, you said that there are several initiatives implemented for strategic purposes in the first half already. You also talked about SG&A on Page 5 and also the Frozen Foods structural reform-related initiatives. And for Forge towards commercialization, you talked about investments and expenses for commercialization. So are there some one-off things that are incurred in the first half only, but not in the second half or something that will not incur in the next year? So what is the amount of strategic spending and how much in which area, if you can explain that? Shigeo Nakamura: Thank you very much, Mr. Miyazaki, for your question. As you rightly pointed out, SG&A changes are presented on Page 6. And roughly speaking, personnel expenses, marketing spend, R&D investments, those are recording increases. Besides them, separate from them, DX-related and AI-related system investments have been made. And this relates to licensing fees. So these expenses are likely to continue in the future. Regarding the expenses for bringing forward the commercialization of Forge, this is a one-off expense for commercialization. So this is not going to be recurring. Anything to add, any members? Is there anything to add? Unknown Executive: No, thank you very much for that. Yes. On Page 20, as you can see on Page 20, the IND approval, this is, I think, pleasant cry, but this has happened much earlier than expected. So you have to produce larger quantity than expected. So this, I think, is a one-shot expenses for commercialization related including consulting expenses. I think as Nakamura mentioned, so those one-off expenses have occurred in the first half of this year, and that had an impact on the performance. Takashi Miyazaki: Okay. I just wanted to confirm, so Forge-related expenses, it's difficult for you to quantify. Is it difficult for you to quantify? And also for the personnel expenses on Page 6 and marketing spend and DX related? Those investments incurred in the first half of this year and those are likely to continue and be recurring in the future as well. Is that the right assumption? Shigeo Nakamura: The Forge-related expenses is not disclosed, but that was quite a hefty amount. Takashi Miyazaki: Okay. I understood. Okay. and the remaining expenses are likely to continue in the subsequent years according to my interpretation. And the other one is Functional Materials related. So I have a question relating to Functional Materials. In the second quarter compared to the first quarter, I think the sales was slightly declined, but still be higher than the target and the plan and the profit margin was higher than the first quarter in the second quarter. So I think you are seeing a favorable trend here. So as in the second quarter, can we expect a favorable performance comparable to the first half? Shigeo Nakamura: For semiconductor overall, I think the demand and also your competitiveness in the market? I'm not worried about these factors. But ABF packages, for example, there is a restriction in the supply of some of the components. And because of that, the demand for ABF was dragged by that. And I think the demand has come down -- will likely come down. Takashi Miyazaki: Do we have to anticipate such kind of risk? So can you talk about the second half and towards the next year? What is your recognition? If you can update on your recognition of this business? Shigeo Nakamura: Thank you very much for the question. As I explained earlier, the AI-related demand, high function semiconductor is enjoying great demand, and I think that is the most advanced products. So therefore, the gross margin is high, and that's the reason why we are performing like this. The semiconductor WSTS, World Semiconductor Trade Statistics, WSTS, this is an indicator used in the semiconductor business. On June 3, it was not updated, but the calendar year logic IC growth was plus 23.9%. That was the expectations back then. And I think we are close to 20% growth is already shown here. So we have been able to enjoy growth as planned. In calendar year 2026, this is going to come down to 7.3% according to WSTS projection. We believe that is too conservative. That is rumored to be too conservative, but there might be some factors behind that. It's impossible for us to comment on the supply situation of other components. But according to what we hear from customers, in the second half, we expect a favorable performance in the second half as well. Takashi Miyazaki: Okay. Then let me confirm. So the -- set aside the components of other companies, I cannot -- I don't want to ask that. But as you have been engaged in communication with your customers from before and according to that conversation, you have an outlook that is expecting a favorable growth? Shigeo Nakamura: That is correct. Operator: Next, from English webinar, there is a person who wants to ask a question. Bernstein, Mr. McLeish, please. Euan Mcleish: Just following on from the ABF question there. Can you confirm that you're not seeing any negative impact at all from downstream production bottlenecks at this stage? Is that the right understanding? Shigeo Nakamura: Thank you very much, Mr. McLeish for your question. So in terms of first half growth, well, if there is more needs, then it could be settled down. But with regard to the growth in the first half, we can continue on with that pace of growth in the second half. Euan Mcleish: Okay. And then over in the domestic food business, we've seen that coffee bean prices have been declining for almost 8 months now. When do you expect that to benefit your margins? And how does this change your coffee portfolio strategy in Japan going forward? Shigeo Nakamura: Well, as coffee beans procurement lead time is long, 6 months to 1 year is the contract period. So the most recent coffee beans lower prices will be reflected at the lagging timing. So I'd like to let Masai answer the question. Yoshiteru Masai: Masai speaking. Let me answer the question. Actually, -- so there is some time lag, but in actuality, AGF coffee business from this first half compared to the previous year has been making more contribution to profits. So there's no detailed breakdown. But if I may say, in Japan, in this page on the left, so plus 0 compared to last year as this graph shows. But in the coffee business, actually, in the first half alone, compared to the previous year, more than JPY 1 billion profit increase was recorded. So then you may ask what are the negative businesses that are offsetting that. So let me make some comments. So in this graph, it's not from the apple-to-apple comparison perspective, from this fiscal year, part of the common fee has been allocated to the business units. So about JPY 600 million has been paid for by the business units. So excluding that, then in the previous fiscal year, plus 0 is shown in this graph, but actually plus JPY 600 million or JPY 700 million is actually -- would have been shown. And then part of that is borne by coffee business. And there's JPY 600 million negative numbers in other business. But at least for the coffee business, there is significant signs of recovery that is manifesting in coffee business. So I'd like you to understand that way. Operator: Now moving on to the next question. Morgan Stanley MUFG Securities. Miyake-san, please. Haruka Miyake: This is Miyake from Morgan Stanley. I'm sorry, I have a sore throat, so maybe it will be difficult for you to hear. The overseas seasoning -- food and seasoning for processed food, I just wanted you to give me so much color regarding the changes. If you look at the Page 11, as far as I look at this, the SG&A increase is a major factor behind the changes that is diluting the revenue growth. So if we look at this by region, S&I is also included here. But if you just single out the second quarter only and talk about the Sauce & Seasoning altogether, there was a decline of JPY 1.8 billion in revenue. So the seasoning for processed food accounts for JPY 1.4 billion out of that, I believe. But the raw material prices is also decreasing for fermented food. And also you have increased expenses, you said. But if you look at the general trend of revenue, the July, September quarter, I think the trend was strong. So if you could just talk about the profit performance driven by revenue growth. And also, if you can divide between consumer and also the restaurant channel demand and how have they affected the decline in revenue by those different channels? Shigeo Nakamura: Okay. Thank you very much for the question, Mr. Miyake. For overseas, first, SG&A. In order for us to increase the brand value, we have made intensive investments for the brand investment. And if you look by segment, the volume is not increasing in Thailand, and that is due to the coffee bean raw material price increases, and therefore, the coffee drinks, beverages in Thailand did not increase so much in terms of volume vis-a-vis the competition. And also instant noodles due to geopolitical reasons in Cambodia, those exports that we had made in Cambodia did not grow as much. So those are one of the factors behind the revenue performance. And maybe Masai-san can add some more comments. Yoshiteru Masai: Thank you very much, Miyake-san, for the comment -- for your question. I would like to supplement. As Nakamura-san just mentioned, in addition to what he just said, I would like to add that, as you rightly pointed out, in fact, the situation was difficult in some regions, especially for overseas home-use business. What are the challenges? And in the second half, what are the countermeasures that we are going to implement? I will have to talk about that. Especially in the ASEAN region, the Asian regions, there are 3 points that I would like to share with you. For the Umami seasonings, home-use, because of the competitor in China, there was an indirect impact from this Chinese player because this competitor, they are -- they have been using China. So that's the reason why we are affected by them. And China's players, they are also engaged in a B2C business. So they are a direct threat for us as well. So against this, we have been trying to reinforce our sales. We have taken a meticulous look at it and leveraging our strength, i.e., the strength -- our sales rep strength. We are trying to counter them and fend them off, especially in Nigeria, in Myanmar, we have struggled in some of these markets, but we are seeing the recovery trend already. So I think this will have a positive impact on the second half performance. The second was the flavor seasoning. Flavor seasoning previously, mainly in Europe, there was a global competitor, and that was the main player in the past. But recently, in many ASEAN regions, we are seeing the emergence of local competitors competing directly against us because they are stepping up their activities. The way of combat is different. So therefore, we were confused a little bit in this first half, but we have analyzed already, and we now see how to compete against them. So the competition with the local player is going to be a key factor in the second half of the year. For instant noodles, Mr. Nakamura already mentioned that and talked about Cambodia. But if I add one more comment, another thing that I would like to comment on is Latin America. Latin America, instant noodle is performing quite well. Having said that, however, the production facility is located in Peru, and there is a shortage of production capacity, and that's the reason why we are not able to sell the quantity that we intended to. But we have completed the construction of new line in September. So we are now already pressing the accelerator. So the produced the instant noodles produced in Peru is now expanded sales in other markets, in the peripheral market. So although we struggled a little bit in the first half, but I think these efforts will begin to bear fruits in the second half of the year. For processed food, I've already commented, and I think that will be overlapping. So I won't comment on processed food anymore. Haruka Miyake: And regarding Brazil, you talked about the introduction of new technology, and you struggled in the initial introduction of the new technology. In terms of expenses in the first half, especially in the second quarter, was there any cost associated with that? Shigeo Nakamura: Thank you. That's correct. Yes. Exactly. With the introduction of this new technology, we were not able to produce. So meaning that we only had to incur these fixed expenses. So that had a weight on the cost. But that is not going to be the case from October onwards. So this will have a positive impact on the performance of the second half onwards. Operator: Now let us move to the next question from Daiwa Securities, Igarashi-san, please. Shun Igarashi: I am Igarashi from Daiwa Securities. I have 2 questions. First question, you talked about ABF and to the question of ABF, in the next fiscal year, the numbers look a bit lower, but the major players are coming up with new chips. That's what we heard. So unit price could increase or area could increase. So this could accelerate your growth. Isn't there such expectation that we can have? Can you elaborate on that? Shigeo Nakamura: Thank you very much for your question, Igarashi-san. In terms of statistics, as I said, this is from June and industry is on the conservative side. As you said, each player is coming up with new products. And if you look at our customers, their investments are going well, and there will be more plants that are coming online. So for us, the growth in the statistics is not realistic in our view. So in terms of volume and unit price, you believe that the numbers will be accelerated? Well, for the cutting-edge technologies, the best mix with the cutting-edge products are coming out. And Ajinomoto Fine-Techno Gunma plant, we made investment and that production equipment will have the latest version for AI applications. So what you said is right. Shun Igarashi: And profitability rate in first quarter, you hired people aggressively and profitability lowered. But in the second half, there was a recovery. So is there any changes in the policy? Shigeo Nakamura: Well, we are growing. So we have -- the personnel expenses are increasing and the Gunma new plant has come online. So there will be depreciation costs that will be incurred. So there will be profitability that will suffer a bit. But in terms of cutting-edge semiconductors like AI chips, the products with the better mix are being launched and sold earlier than expected. So that has helped us improve profitability. Shun Igarashi: The second question, the frozen food business in America. So if you look at the profit decline in the second quarter, that seems to be larger. In Slide 16, the tariff has impacted and sales promotion timing, those were the 2 factors you mentioned. Were they all transitory and tentative? And can you see a recovery and also product initiatives like pricing strategy that you talked about in Japan, but in the North America, what are the initiatives that you have in mind specifically? Shigeo Nakamura: So as you said, so the tariff policy in the U.S. and the customer sales promotion timing that have been lagged. Those are the 2 main factors in the U.S. There's nishiki gyoza, that is a premium, and it is performing well and major retailers are having those in the stores in the shelf. And so things are going well. So Kawana will make more comments. Hideaki Kawana: So as Nakamura said -- so with regard to tariff policy, the price increase will be a bit delayed. So there is some impact, but there are some production disruption. So those are all tentative factors, so we can make a recovery in the second half in our view. And as for sales, as was said, nishikino gyoza and the shumai dumpling, they are all delivered to our customers, and we can expect sales increase from there. And also previously, in the food service, we are not selling too much in Asia. But now the shift is for Asia. So there could be more profit margin expected. So we could be more positive in the second half. Shun Igarashi: What about the production disruption? Has it been resolved? Shigeo Nakamura: Yes, this has been completed. Operator: Now moving on to the next question. UBS Securities, Ihara-san. Rei Ihara: Can you hear me? Shigeo Nakamura: Yes, we hear you. Rei Ihara: Ihara from UBS Securities. I also have 2 questions. First, regarding domestic Frozen Food business structural reform, you previously mentioned that you're going to announce your structural reform program, and you did already. But this did not live up to our expectations because, to be honest with you, the second quarter Frozen Food business' profit margin is less than 1%. And then 3% of sales and profit growth of 7% CAGR, that is not going to be a strong impact in any event. And even if the Frozen Food gross profit margin is returned to the pre-COVID era, still that level in the first place is low. So this Frozen Food business in Japan, I think you are at the phase of having to go through a structural reform. With a shorter time horizon, can you take any actions in a shorter time frame? That's my first question. Shigeo Nakamura: Thank you very much for the question, Ihara-san. For the Frozen Food business, drastic reform, well, we have been engaged in structural reform all the time and the integration of our production facilities, manufacturing centers and producing multiple products in a single line. And through these efforts, we try to improve the production efficiency. And also, we have focused on delicious food and launched Gyoza products and so forth. This time around, we have conducted a price hike that does not match with the customers' perception for value. So not only this deliciousness, but we have also decided to focus on affordability and release products -- Gyoza products. So we changed our strategy in that regard. Maybe that will not be conducive to profit margin. So we would like to provide different levels of products. So on one hand, we would like to focus on cost performance, but also time performance and health value and experience of cooking. So we will produce and prepare different menus, different pricing ranges so that we can optimize overall. So the highest productivity -- highest product will be the ready-to-eat with microwave heating only. So those are kind of products that are already available. So wherever possible, we would like to generate profits with all these 3 different patterns of categories. And as I mentioned earlier, Gyoza is a touch point of ours with many different customers. So because Ajinomoto is known for the delicious products, we would like to have customers try many other food products that we offer. So this is a touch point to enhance our brand value. So we are not really complacent with the low profit margin, but I think this offers additional value, not only the prices. Then Kawana-san can add some comments if necessary. Hideaki Kawana: Thank you. I'm so sorry for the concerns that you have. As I mentioned, the growth overseas is larger compared to the Japan growth rate. So that's the reason why we have shifted the focus of resources to overseas. And we have tried to improve efficiency of Japan as a cash co, and that's the reason why we were related in structural reform. There are 2 major challenges that we are facing today. One is that the market is diversified much more than before. So in that environment, the traditional approach of selling only to the mass market will deprive us of some segments like the Gyoza product that we have today is tuned towards the mass market. So the biggest audience -- we are trying to sell the products to the largest audience. But in the current contemporary age, there are more diverse needs, people who want a larger with greater meat portion gyoza, that's taken by other competitors. And there are some other people who want something affordable gyozas, and those are taken by PBs and PB brands. So we have been taking away the market share for different needs of Gyoza products. So in order to address this, previously, we focused on this production efficiency, and we focused on the single products, and that was the reason why we were not able to address these needs, and that has diluted our profit margin. We are now currently going through a reform and so we would like to look into different lineups and have a more broader range of product lineup. So we had this business lineup, but now we look into a different portfolio for different categories of products and thereby improve the utilization of the factories. Fortunately, in October, we have seen a very steadfast growth. So I think you can be reassured about that. The other thing that I wanted to address and the other challenge that we are facing today is that in the market, the frequency of people cooking is now declining in the market. And we have been selling complete meals and staple foods, not only the ready-to-eat meals. And that is the trend that we are seeing in many other industrialized markets. So we were belated in addressing these needs. So we now have the Aete products. So we would like to focus more on the meal products going forward. As we started this initiative, we believe that this is an area where we can leverage our strength, the design of deliciousness, the design of new nourishment, I think we are very good at that. So I think depending on the preferences of the customers and health conditions, we are able to customize. So we realize that we have the strength. So in these areas, we would like to achieve growth in the future. Rei Ihara: Okay. Understood. So my second question, if I may, the share buyback. This year, JPY 100 billion share buyback is already ongoing, and you have additionally announced another JPY 80 billion program this time around. So JPY 100 billion plus, I think, is going to be the size that you are going to address for share buyback per year -- per fiscal year. But if it's JPY 110 billion this year and again next year and then the year after that, if you continue this, the net debt-to-EBITDA ratio will be lower than 2x. I think you can continue that. But the net D/E ratio with more leverage, I think that will have a detrimental impact on your financial leverage according to what I think. So this share buyback program, do you think this can be sustained? If you can comment on that, that will be appreciated. Shigeo Nakamura: Thank you very much for your question. This is on Page 26. We have this cash management policy on Page 26. Of course, the cash that we generate will, of course, be first allocated for investment for organic growth so that we can properly grow the company. Then we'll look into M&A, other inorganic opportunities and the share repurchase is the third priority. So this is the cash management priorities that we have. And on top of this idea, we have decided on the share buyback program this time around. Mizutani will explain in more detail. Eiichi Mizutani: Thank you very much, Ihara-san, for your question. As Nakamura just mentioned, this time around, this share buyback period, if you look into that period, this will end in November 30 next year -- on November 30 next year. So this includes the repurchases planned for next fiscal year as well. And if you can go back to Page 26, this is the cash allocation policy that we have. And at the bottom, you see on the right-hand side, we will shrink to JPY 900 billion as for the cash balance. So the current cash balance plus the JPY 90 billion, if you look at that, the extra things -- because we would like to improve the capital efficiency with this new decision. And the profit that can be spent out for dividends, we'll look into that as well and also manage the debt. We will look at the leverage level. So I don't think you have to worry about that. So that's all for myself. Rei Ihara: But like JPY 100 billion, if you wanted to buy back with a 6-month period, and I think this is -- this period is going to get over shortly. And this JPY 80 billion is going to be done over a 1-year period. If you look at things from that angle, your capability for share repurchase, given that your leverage is now increasing, I think the leeway for additional repurchase is now coming down. Don't I have to be concerned about that? Shigeo Nakamura: Well, again, at the risk of repeating myself, this program will last up to November last year -- next year. And the budget for next year is not formally decided yet, but we have some assumptions for next fiscal year, and we will make sure that the leverage will not be over this level. So we are properly managing that. So I hope that you understand that. Rei Ihara: But the market participants, not JPY 80 billion, but I think they are looking at the level next fiscal year on top of this. I just wanted you to be mindful of that. So that's all from my side. Operator: Now next question from JPMorgan Securities, Fujiwara-san, please. Satoshi Fujiwara: Fujiwara from JPMorgan Securities. I'd like to ask this question to Mr. Nakamura. It's not about specific segments, but in the financial results this time, honestly speaking, it seemed negative and disappointing slightly. That's a fact in various businesses, there are some problems that we are seeing. And as we listen to the presentation, you say that these are all tentative and you can do better in second half. So this could be assuring, but root cause is Japanese -- Chinese players and more intense competitive players' activities. So maybe you have to revisit your management in the core. So the response speed -- I think your company has been quite quick in responding to the changes, but you may have to accelerate that in order to tighten up your management. That may be necessary. So how to run your business? Can you give your thoughts on this as President, Nakamura-san? Shigeo Nakamura: Thank you very much, Mr. Fujiwara-san. Well, this time, there is a healthy sense of urgency that we have. So as much as possible, we have to earn and those business that are growing are growing. But as you said, because of competition from Chinese players, we have been a bit late in responding, as Masai said, but however, in the short term, we have taken actions that we were able to take. And as for mid- to long term, we have instructed business units to accelerate. So it's not exotic materials, but those products that are weakening, including Frozen Food, so successor development has been instructed to Ajinomoto Frozen Food. So we have to increase the speed to even higher level. And we have to be strongly aware of the competition. And that's what we -- I have been saying in my dialogue. So Chinese players more recently have been gaining momentum. So I talked to Korean customers, and I talk about this to our employees and there are 3 impossible or unknowns. You don't rest, you don't go home and you don't sleep. That's what they say about Chinese. But -- and they have 3 shifts, and so they are catching up with Toyota Motor in terms of EV. That's what we are -- I am telling our employees in dialogue. So we have to look at the global environment, and we have to compete with the players around the world. So we have to keep this sense of urgency. Satoshi Fujiwara: There's another question. So I'd like to ask one more question, if I may. In the Frozen Food, I do understand what you have taken as actions. But as for home-use, other than Gyoza, there are other categories. And compared to competitors, your competitiveness is not that high in my view. So for those categories, you may have to narrow them down further like Gyoza or restaurant, industrial use dessert. So you have to focus more on those where you excel strongly and then you throw away other categories. Isn't that the risk that you can take? Shigeo Nakamura: As Kawana said, as for Gyoza, in a single production line, there will be multiple products that are coming out. So shoga, ginger gyoza and miso paste gyoza have been launched on top of the regular gyoza, and they're selling well. So in the current production line, we can create some products in terms of different SKUs that will sell. And as for dessert, as you pointed out, this is something that we can focus more on. And the frozen food without meat through desserts, there is some qualification for exports or a profit for exports. So we are planning to also consider the potential exports from dessert. So if there's any more comments from Masai? Yoshiteru Masai: Yes. Thank you. So as for dessert, on our part in Ajinomoto, as Ajinomoto Group, what produced in Japan has not been exported too much. But we had a sense of urgency now. So Ajinomoto and Frozen Food, AGF, this is a common issue. So as of October 1, export promotion department was established. And what is going to be the main points in this is frozen food dessert. And so these activities will be done and gyoza and dessert were pointed out by you, but I totally agree, and we would like to focus our resources on those. And for the question that was asked previously, so structural reforms may look a bit weak compared to others. And I'd like to just make more comments on that. So subsequently, what we found and thought was that the actions taken against competitors. And from that perspective, especially the competitors in Gyoza and Frozen Food are not just Japanese players. So Japanese structural reform is important, but we have to have more global perspective to compete. And so Japanese structural reform is necessary, but we have to make more investments in Asia, and that's what we're considering. So as we do structural reforms in Japan, at the same time, for Gyoza and Frozen Food, we are taking actions against competitors. So before structural reforms in Japan, we are also aiming for expansion in Asia. That's what we have begun to consider. Satoshi Fujiwara: Okay. Then -- so Karaage or fried chicken or Chahan or fried rice, you have those products. Would there be any change in the positioning of those products? Shigeo Nakamura: Well, as I said, we are revisiting our categories, especially Gyoza and dumping shumai and chicken and sweets. Those are the major segments. But Gyoza and dumping shumai and sweets, there's still room for growth. As for chicken, well, in the structural reform, we are narrowing down the items, and we are seeing increased profits as a result. So -- but we're not trying to grow this. And frozen rice is the biggest challenge. Osaka plant was closed to enhance efficiency, but there's still challenges to address. And so we have to review this more. So we are shifting towards complete meal, and that's what we're trying to do. And as for rice, you shouldn't just look at Japanese business. In overseas, the rice is more of a mainstay in U.S. and others. And all these are exported from Japan. So in total, there's profits that are generated. But what about -- what to do with rice business in Japan is something that we have to address. So we have to go beyond that. So like -- and by transitioning to complete meals and others. Operator: The next question, we would like to address the next question. In the interest of time, I would like to limit to only 2 more questioners for today. So the first will be for Furuta-san of SMBC Nikko. Tsukasa Furuta: This is Furuta from SMBC Nikko Securities. I have a question relating to the outlook for CDMO business in the second half. I'm looking at Page 19. You mentioned that the AJIPHASE shipment delay in Japan was a factor, but I think your performance in the first half was in line with the plan. As for the different initiatives in each region, can you give us some more color for the second half initiatives in this CDMO business? Shigeo Nakamura: Thank you very much, Furuta-san, for your question. So this will be answered by Otake-san because he's here today. Yasuyuki Otake: All right. I would like to address your question. Forge, as we explained during the presentation, Forge is enjoying favorable growth, especially towards 2026 and 2027, we are expecting to start the commercialization. We have decided to bring this forward. So with this year, we have incurred some consultation fee, and therefore, the EBITDA positive is quite challenging, but we are still working on this target. And also the sales has increased by 4x compared to the time of acquisition. So we are achieving a very steadfast growth here. As far as the Japanese business is concerned, AJIPHASE, we have a very big growth projection in the future. But compared to that plan, we are slightly behind the plan. But starting this fiscal year, Forge AJIPHASE salespeople are sent there so that with the Forge members and the Healthcare members in North America, we are working together in the sales activities together with them. With this, we have been able to cultivate new customers. So towards the 2030 Roadmap, we are going to make steadfast progress in our actions. For AJICAP and also last year, COYRNEX as well, we have made a press release regarding the collaborative efforts. And with AJICAP, AJICAP has been driving the growth of CDMO business. But in addition to that, AJIPHASE, AJICAP and COYRNEX and Forge. So these are the unique businesses of Ajinomoto, and they are going to be the pillar of our business in the future. So with these pillars, we believe we shall be able to achieve the growth of the company. So the prospects of future is becoming much brighter than before. Tsukasa Furuta: Okay. Then I have a follow-up question. AJICAP, on Page 21, customer expansion, you're talking about customer expansion, and you are talking about the new client in overseas and also Astellas. So I think -- can you comment on whether the speed of customer expansion is accelerating? Can you talk about that? Shigeo Nakamura: May I? I'll try to answer that. Yes. Okay. As it's written up here, in October, we have signed up new license agreement with Astellas and another company, 2 companies altogether. So the sales is expanding. In order to further accelerate the sales within Ajinomoto Group, we would like to leverage our internal network. OmniChem, for example, we would like to leverage that network. And in addition to that, the former [ Lonza ] business development chief, we have entered into an agent agreement, a consulting agreement with them. So we would like to leverage those external networks as well so that we can accelerate our customer cultivation efforts. CRO, CMO, we will promote collaboration with them so that we can further increase the number of licensing agreements after -- so that we can -- AJICAP can become a next driver for growth after AJIPHASE. And we believe we have been able to achieve a steadfast progress towards that direction. Operator: Last question from Nomura Securities, Morita-san, please. Makoto Morita: Morita from Nomura Securities. I'd like to ask about Seasonings and Food once again. In this presentation meeting, what has become one big theme is action taken against competitors. So from that perspective, why at this timing, the competitive risks have risen. So before the pandemic, getting back to the pre-pandemic level, the Americas, you have increased the profitability margin, and that has driven your profit in your business. But maybe your profitability level has risen too much. That is my concern. Of course, profitability level being higher is good, but this would reduce the entry barrier. So I think your profitability level has risen, especially in overseas. So maybe you're earning too much or it's not unsustainable business or profit level or you have an overhang. What is your thoughts on this possibility? Shigeo Nakamura: Thank you very much for your question. So profit level and pricing, it won't go up if you don't need the customer value. So you have to increase the customer value and profit margin. So [ Saji ] will explain more. Unknown Executive: So with regard to profit margin, well, I'd like to answer the question, including that. So with regard to actions taken to competitors, it is very important initiative. Honestly speaking, previously, in Ajinomoto Group, especially for home-use businesses, so we were quite strong. So we -- honestly speaking, we were a bit short in terms of actions taken against competitors. So as I said, in 2023, we had seen these signs. So we have established a competitor response team, several competitor response teams. And one of them is competitors in China. And also, there are some organizations that are taking actions against other types of competitors. So we are very serious in taking actions against competitors, even though we haven't disclosed this yet. And as for China, especially, honestly, it's not just food, but in all industries, the same is happening. So we're not an exception. So with the economic slowdown in China, maybe regardless of supply-demand balance, if I may so, they are taking actions. So we had expected the supply-demand balance to take effect, but actually, they are disregarding this. So we have to be ready and take action with that in mind. And with regard to profitability level or margin, it's not a straight answer to your question, but to Chinese competitors and Ajinomoto, we're looking at the price differences, especially. So what sort of price differences would be allowed for customers to buy our products. If this is too wide, then they will not buy our products. But if this is not too wide, then they will buy from us. So we have learned that from our experience, and we are taking pricing policies. And if that works well, we are defeating competitors in some countries. But in others, we haven't been able to do so. So we are taking more actions. It's not a straight answer to your question, but we're looking at price differences. And the pricing margin or pricing ratio comparison is what we are taking. Makoto Morita: So in the short term, you are increasing profits in the short term. But in the mid- to long term, that is going to be important. But just for clarification, so the price gap between Chinese players and your company, is it still higher than the optimal level? And maybe you have to make adjustments to match that optimum level. Is that correct understanding? Shigeo Nakamura: Well, different countries have different situations. For example, in Europe, euro is quite strong now. So with the euro being strong, Chinese players, when they export products at CIF, probably in dollars. So in Europe, there is the tendency that price gap will be widened. So you have to reduce our prices in there. But in Asia, regardless of foreign exchanges, I think things are settling down. So in some countries, we don't have to reduce prices. But in some others, we may have to reduce the prices. So with the collaboration promotion department being playing a central role, we are looking at that. Makoto Morita: Well, a different question from a different perspective. The food business is -- the consumption is very weak, not just in Japan, but around the world. I think the weakening is more than you are assuming. So with these changes in the business environment, what sort of actions you have to take in your thoughts? Shigeo Nakamura: Well, the first one, there is difference between Japan and other countries, but it depends on the country that you're talking about. What is -- what we are driving our business in ASEAN compared to the past 5 years and the next 5 years, probably growth rate will slow down. So in ASEAN countries, we have to find a new frontier to compete, and we have already have done that from the 5-star to Cambodia, Laos, Myanmar and Bangladesh, we're shifting our focus to those countries. And same goes for Latin America, like Brazil and Peru to adjacent countries. That transition is what we're taking as an action. And as for Japan, it's not just a Ajinomoto or food manufacturer carbon alone because of population decline, as I said, you have to strengthen exports. So what we produce in Japan is not just delivered to Japanese customers, but to customers around the world. And so that's why we have established export promotion department. So depending on regions and countries for the consumption decline, the actions that we have to take will be different. We have -- I have learned a lot. Operator: So with this, we would like to finish the Q&A session. So finally, Mr. Nakamura will have the final closing remarks. Shigeo Nakamura: Well, thank you, everyone, for staying with us for such a long hours. We always would like to maintain this sense of healthy urgency -- healthy sense of urgency, and we would like to drive the company on a continuous basis. We look forward to your continued support and patrons. Thank you very much indeed for today. Operator: With this, we would like to finish the earnings call for today. We thank you very much for your participation. This is the end of today's session. Thank you. [Statements in English on this transcript were spoken by an interpreter present on the live call.]
Operator: Hello, everyone, and thank you for joining us today for the Xeris Biopharma Q3 2025 Earnings Conference Call. My name is Sami, and I'll be coordinating your call today. [Operator Instructions] I'd now like to hand over to your host, Allison Wey, Senior Vice President of Investor Relations and Corporate Communications, to begin. Please go ahead, Allison. Allison Wey: Thank you, Sami. Good morning, and welcome, everyone, to the Xeris Biopharma Third Quarter 2025 Earnings Call. You can find this morning's earnings release and our detailed financial results on the Investor Relations section of our website. Today, I'm joined by John Shannon, CEO; and Steve Pieper, our CFO. After our prepared remarks, we will open the line for questions. Before we begin, I'd like to remind you that this call will contain certain forward-looking statements concerning the company's future expectations, plans, projects and financial performance. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those forward-looking statements. For more information on our risks, please refer to our earnings release and risk factors included in our SEC filings. Any forward-looking statements in this call represent our views only as of the date of this call and subject to certain applicable laws. We disclaim any obligation to update such statements. Please note that some metrics we will discuss today are presented on a non-GAAP basis. We have reconciled the comparable GAAP and non-GAAP figures in our earnings release. I'll now turn the call over to John for opening remarks. John Shannon: Thanks, Allison, and good morning, everyone. I'm excited to share that Q3 marked another record-setting quarter for Xeris. Total product revenue exceeded $74 million, representing a 40% increase year-over-year. As highlighted in this morning's press release, the strength of our year-to-date results gives us the confidence to raise the lower end of our full year total revenue guidance. We now expect total revenue for the year to be in the range of $285 million and $290 million, a 42% increase at the midpoint. Our performance was fueled by robust patient demand across all 3 of our products, reflecting the tremendous value our therapies are bringing to patients and the consistent and outstanding execution of our team. RECORLEV remained the primary growth engine with revenue more than doubling versus the prior year. This momentum reflects the continuing expansion of new patients and prescribers. Gvoke delivered another quarter of steady, reliable growth, demonstrating the effectiveness of our efforts to expand awareness and reinforce adherence to established medical guidelines. KEVEYIS outperformed our expectations, supported by new patient additions, which drove an increase in the average number of patients on therapy. Let's take a closer look at each product, starting with RECORLEV. RECORLEV generated revenue of $37 million in the quarter, a year-over-year increase of 109%. We continue to expand our prescriber breadth and depth as more clinicians gain experience with RECORLEV and recognize the important clinical benefits. The average number of patients on therapy grew by 108% versus the same period last year, reinforcing our confidence in RECORLEV's position in the growing hypercortisolemia and Cushing's syndrome marketplace. Turning to Gvoke. Gvoke delivered another solid quarter with revenue of more than $25 million, up nearly 10% from the same period last year. As we continue to educate patients and providers, we see considerable potential to reach more individuals who could benefit from having a ready-to-use glucagon on hand. Moving to KEVEYIS. KEVEYIS continues to serve a critical need for patients living with primary periodic paralysis. Quarterly revenue was approximately $12 million, driven by growth in the average number of patients on therapy. These results underscore what we know to be true, that effective treatment of PPP requires more than just delivering a product. It requires a sustained, holistic commitment to supporting patients throughout their journey. Our continued strong commercial performance this year has enabled us to accelerate our strategic priorities. As previewed during our August call, the third quarter marked the initiation of our next commercial expansion, a key milestone in laying the foundation for future scalable growth. This initiative is centered on expanding our commercial footprint to capture the significant opportunity ahead for RECORLEV while simultaneously strengthening the operational backbone required to scale efficiently in 2026 and beyond. This strategic expansion, nearly doubling our sales and patient support teams will enhance our ability to reach more clinicians and serve more patients and allows us to capitalize on the significant market opportunity ahead. Let's turn now to our pipeline in XP-8121, our once-weekly subcutaneous form of levothyroxine for primary hypothyroidism. XP-8121 continues to advance according to plan. Leveraging our proprietary XeriSol technology and drug device development capabilities, we are creating a novel formulation and a high-precision delivery system that will enable the administration across a wide array of doses. Important drug manufacturing and device validation work is in process, and we remain on track to initiate our Phase III clinical trial in the second half of 2026. As we've stated before, we're really excited about this product and the unmet medical need it can address. While at the recent American Thyroid Association's Annual Meeting, we enjoyed a large number of enthusiastic discussions with key opinion leaders who further reinforced our conviction in XP-8121's blockbuster potential. Before I turn the call over to Steve to walk through the details of our exceptional quarter, I want to leave you with this. We are focused. Our ability to deliver remarkable performance quarter after quarter highlights the value of our commercial product portfolio, the effectiveness of our strategy and most importantly, our dedication to serving patients. With that, let me hand the call over to Steve. Steven Pieper: Thanks, John, and good morning, everyone. Before diving into our financial performance, I want to highlight the considerable progress our company has made this year. Over the past 9 months, we've generated outstanding revenue growth, fueled by both robust demand for our therapies and a high-performing commercial organization. At the same time, our gross margin has continued to improve, underscoring the strength of our operations. In the third quarter, we generated significant positive cash flow as well as net income for the first time in the company's history. We also delivered strong adjusted EBITDA growth, further demonstrating the scalability of our business and reinforcing our ability to translate consistent top line performance and bottom line results. These results are a clear testament to the discipline, focus and execution across the organization, and they reinforce the solid foundation we've established for sustainable growth well into the future. Turning to our third quarter results. On a year-over-year basis, net product revenue increased 40% to $74.1 million with total revenue of $74.4 million. RECORLEV delivered another record quarter with net revenue of $37 million. Compared to the prior year, net revenue once again more than doubled, increasing approximately 109%, driven almost entirely by patient growth of 108%. Gvoke net revenue was $25.2 million, an increase of approximately 10% compared to the same period last year. This growth was driven by a 5% increase in total Gvoke prescriptions as well as some favorability in our gross to net. KEVEYIS net revenue was $11.9 million. We saw a modest increase in the average number of patients on therapy in the third quarter, and we continue to see a healthy pace of new patient starts, underscoring the durability of this franchise. Turning to gross margin. We delivered a significant improvement this quarter with gross margin growing to 85%, driven primarily by improved product mix. Research and development expenses were $7.5 million for the quarter, a $1.6 million increase versus last year. This increase primarily reflects our continued investment in our pipeline and technology platforms. Selling, general and administrative expenses were $46.5 million in the quarter, an increase of approximately 3% compared to prior year. The increase in SG&A primarily reflects incremental personnel-related expenses. Adjusted EBITDA for the quarter was $17.4 million, improving more than $20 million compared to the third quarter 2024. This impressive result underscores the strength of our operating model and validates the actions we have taken to drive long-term value creation. As I mentioned earlier, for the first time since the company's inception, we reported quarterly net income. This achievement highlights our growing commercial strength and operational discipline. As we continue to make targeted investments across a range of growth opportunities, we do expect some variability in quarterly EPS results going forward. And to be clear, we remain committed to maintaining positive adjusted EBITDA even as we make these incremental investments. Moving to our near-term outlook and guidance. As John highlighted, our strong performance year-to-date, coupled with the momentum we are seeing in the fourth quarter, gives us the confidence to raise our full year 2025 guidance for total revenue. We are raising the low end of our previous range, which, as a reminder, was $280 million to $290 million, to $285 million to $290 million. The new range represents growth of 42% at the midpoint compared to 2024. Additionally, as we make incremental investments in our RECORLEV commercial organization and as we prepare for our Phase III clinical study start for XP-8121 in 2026, we expect an increase in both SG&A and R&D spend starting in the fourth quarter. These investments are aligned with our strategic priorities of supporting near and long-term growth. Before we move to Q&A, I want to reiterate my earlier comments and emphasize our considerable progress this year. We delivered strong top line growth once again reflecting robust ongoing demand for our therapies. With gross margins around 85%, strong cash generation and significantly positive adjusted EBITDA, we continue to prove the strength of our business model. Overall, this has been a year defined by exceptional execution and transformational progress. With that, I'll turn the call over to the operator for Q&A. Operator: [Operator Instructions] Our first question comes from Dennis Ding from Jefferies. Yuchen Ding: I'd like to ask on RECORLEV. Can you just please talk about the impact of the expanded sales force that you guys have implemented last year and if productivity has ramped up yet? And as you're thinking about further expansion, when do you think those reps will be fully trained and get to productivity? And then as a follow-up on RECORLEV, your competitor continues to have supply issues with its specialty pharmacy. Just curious, were you able to capitalize on that in Q3? Or should we see more of a tailwind from that in Q4? John Shannon: Steve, do you want to? Steven Pieper: Yes. So the expansion last year, we increased the size of the RECORLEV commercial team by 50%. So we were at around 42 reps starting in the third quarter of last year. And as you know, it takes a little bit of time to ramp up productivity. But I would say that starting in the first quarter, second quarter this year, those reps were operating at optimal productivity. Looking ahead, we expect more of the same in terms of productivity from our next expansion. And the timing of that would be, we'll bring those reps on board in January, take some time to train them up, get them out in the field, get a couple of quarters under their belt before they're operating at optimal productivity. John, do you want to take the competition? John Shannon: Yes. I would say we didn't see anything unusual in Q3 as it relates to where our patients were coming from. We continue to see the majority of our patients are new to therapy for RECORLEV and the rest come from competition, all the same mix as we've seen in the past. So I would say nothing unusual and everything is as status quo. Operator: Our next question comes from Chase Knickerbocker from Craig-Hallum. Chase Knickerbocker: Congrats on the quarter. Maybe just to start on some kind of under-the-cover stuff on RECORLEV. Can you maybe just give us an update on kind of what you're seeing from a persistency perspective? Any sort of help you can give us as far as kind of the current discontinuation rates and how that's trended over the last couple of quarters? John Shannon: Yes, Chase, I think everything is, again, same as what we've had in the past. We're again adding so many new patients that that's really keeping all of those metrics in check right now. So we're getting the same amount of people started, the same time to get them started. No real change in dropout rates, average dose, all those things. We're too new in our life cycle here to see any kind of real significant changes in there. And again, they're overwhelmed by the high level of new starts. Chase Knickerbocker: Can you just remind us what kind of 6 or 12 months discontinuation rates are either for the condition or specifically for RECORLEV? John Shannon: I don't know exactly what they are for the condition. I would tell you, RECORLEV is pretty typical to a specialty product like this in a complex disease state. I think what we're seeing is as expected in the space, but we haven't really disclosed any of that directly. Chase Knickerbocker: Got it. And then maybe just as we kind of look into 2026, you've had pretty remarkable progress, particularly on the RECORLEV front this year. Would you be willing to share kind of any thoughts as we go into 2026 and start having some more impressive comps to deal with, obviously, as we look at the impressive RECORLEV performance this year? I mean any thoughts on kind of how to set expectations as far as top line growth, either for RECORLEV specifically or the business as a whole? John Shannon: Yes, I'll try to take that on the context of RECORLEV. As you heard, we're investing on more expansion around RECORLEV. That's driven by a market that is ripe for expansion. There's more and more people being screened for hypercortisolemia. We have, in my opinion, the best product for normalizing cortisol. And we're expanding into a market that's continuing to grow as we're expanding. So I see plenty of growth for RECORLEV. We said back in June, we think this is on pace to be a $1 billion product. And this is all part of our plan to get to that $1 billion. Chase Knickerbocker: Maybe just last one for me. Steve, I hear your comments as far as some variability on the bottom line as far as we think about expenses in the go forward. Any additional thoughts you'd be willing to give us as far as kind of when that cadence of R&D should be fully reflected from enrollment perspective as it comes to the 8121 trial? I mean, should we ramp that up into mid next year and then that's kind of peak enrollment? Or just kind of give us some thoughts on particularly the R&D line next year, but also obviously, SG&A as we think about the RECORLEV expansion? Steven Pieper: Yes. Good to talk to you, Chase. As we think about -- in my comments earlier, we're going to start to see some of those investments for both RECORLEV and 8121 stepping up in the fourth quarter. John highlighted in his prepared remarks that we plan to start the trial in the second half of next year. So I think that's when you'll really start to see the spend start to ramp up and then obviously well into '27. That's probably where it will peak off. And then in terms of the RECORLEV investment, we started to make some of these investments this quarter, late third quarter, but we're bringing on the reps starting in January. So that's where you're going to see another step-up in SG&A spend. But again, all things under the umbrella of supporting growth in our strategic priorities. And as we've said a number of times, even with these investments, we are committed to remaining adjusted EBITDA positive going forward. So that's a really important point here is even with the significant step-up in spend, over the next 15 months, we will remain adjusted EBITDA positive. Operator: Our next question comes from Leland Gershell from Oppenheimer. Leland Gershell: Congrats on the continued progress. Just a question with regard to your longer-term sales guidance for RECORLEV. Just wondering if that anticipates any further build-out of the sales force or if you expect that you'll be able to achieve those targets based on your current force? John Shannon: Thanks, Leland. We said that we're going to continue to invest over the next several years on RECORLEV. And we'll need to do that to manage the patient load, so we'll have to make investments in pharmacy, patient services, all the commercial footprint it takes to be successful in this space. We'll also need to and look to start investing even more in data and other things that can help drive more growth in this space and position us to really capture that growth. So yes, there will be investments all the way through to the end for this product. As you build a $1 billion product, you continue to scale your investments with that growth level. Leland Gershell: Got it. And I also wanted to ask, we have 8121 coming through and we still have a bump in R&D over the next couple of years as it gets through its pivotal program. But then R&D should come back down unless that we'll be looking for maybe other candidates to be coming out of XeriSol or the company's platform to maybe fill in, in the early pipeline. John Shannon: That's a great question. One of the beauties of the business here at Xeris is we continuously find great ways to invest in our technology, using our technology for new opportunities. 8121 is a perfect example of that to be able to create using our XeriSol technology, a once-weekly subcu product that can really meet an unmet medical need. So in those time frames, sure, we're not prepared to say what those would be now, but we see it as an opportunity for us always to make incremental investments with the platforms we have and the capabilities we have to continue to drive even more growth than we've already stated in our plans. Operator: Our next question comes from Brandon Folkes from H.C. Wainwright. Brandon Folkes: Congrats on the progress. Can you just remind me of the gating steps between now and the initiation of 8121 trial? And then maybe just following on from some of the questioning. As you make these multiyear investments in the infrastructure behind these products, does that infrastructure ever get large enough where it makes sense to bring in additional products? Just any comment there would be great. John Shannon: Let me answer the first one on 8121. So we've been really clear that we're planning and building a blockbuster here with 8121. And we're taking all the necessary steps before we start the Phase III trial to basically make sure we've got the ready-to-go commercial product to take into that Phase III trial. So we're right now in the middle of manufacturing scale-up, device verification and design that device verification and making sure that what we go into the clinical trial with can deliver the wide range of doses that are necessary in this space. And we just need to make sure that we get that done before we start the Phase III trial so that we're not going back later on and dealing with delays because we weren't able to do that. So we're going to do this very carefully, planfully, and we'll start that trial when all that work is done, and we can go into it with the commercial presentation. Remind me on the second question. Steven Pieper: The infrastructure and leverage for business development. John Shannon: Yes. Of course, yes, the infrastructure -- I mean, we're in such a growth mode right now, the infrastructure is pretty much dedicated to the brands we're driving the growth with. But as we get a little more mature, yes, sure, it makes sense to use that infrastructure to kind of leverage even more opportunities and capabilities. Operator: Our next question comes from David Amsellem from Piper Sandler. Alexandra von Riesemann: This is Alex on for David. My first question is, how are you thinking about competitive dynamics for RECORLEV to the extent that Corcept's relacorilant gains approval by the end of the year? And what are your base case scenarios for the impact of that potential entrant on RECORLEV? And then maybe also a second question just on the headcount for RECORLEV. Do you have any plans in the future to call on general practitioners? And I'm sorry if I missed that earlier on the call. John Shannon: So yes, we anticipate relacorilant gets approved by the end of the year. We've said this in the past, and I'll say it again, is we think that this is a market where there's so much opportunity and so much potential that another player in this marketplace talking about screening, detection and finding people with hypercortisolemia is a good thing. So we think relacorilant will help the market. We know they're going to make great -- and they're already making great investments to drive that. And we see that as opportunity as well. And then in terms of numbers on the expansion, I'll let Steve maybe. Steven Pieper: Yes, I think the question was around targeting GPs. Are we going to be targeting GPs? John Shannon: Yes. So we're approaching this data-driven kind of approach to expansion and focus. And where the patients are is where we will go with our commercial footprint. And that leads you into some GP area. Most of those GPs are endo-like, high diabetologists, things like that. So yes, as we expand, of course, we'll be moving into those spaces to really go where the opportunity is. Operator: [Operator Instructions] Our next question comes from Roanna Ruiz from Leerink Partners. Roanna Clarissa Ruiz: So a follow-up question on RECORLEV. I wanted to see if you could talk about how much momentum you're seeing across new and repeat prescribers. And just thinking ahead to 2026, any seasonality trends or volume growth drivers we should consider for RECORLEV going forward? John Shannon: So yes, we're seeing repeat prescribers and new prescribers come on. And we have momentum on both of those with 108% increase in patients and prescriptions, you're getting from both. So we're excited to see that momentum. We see that momentum is still very, very strong, and obviously, the reason why we're expanding into that opportunity. Steven Pieper: In terms of seasonality for RECORLEV, maybe a little bit with deductibles that get reset in the first quarter, and you see that across all of our products really. But I wouldn't say that that's overly material for RECORLEV. We're not expecting it to be overly material, but that's something we pay attention to every year at the first of the year. So that would be the only potential seasonality impact, Roanna, that I would expect for RECORLEV. Roanna Clarissa Ruiz: Yes. That makes sense. And one other question I had was just could you talk a bit more about the KEVEYIS franchise durability? It seems to be continuing pretty steadily. Do you expect that to persist into next year? And have you been hearing anything else about competition to KEVEYIS? John Shannon: Well, we're always watching for more competition in this space. But like you, I'm excited every time we talk about KEVEYIS because this is just a great model where what we do for patients is really important. And starting with finding the patients, helping them get diagnosed for the first time, working them through treatment and helping them stay and remain on treatment. All of those things really, really matter in this space, and that's why KEVEYIS continues to hang in there, and it remains to be a very durable asset for us. We continue to bring on new patients to brand every week, which is just really exciting in this space because we're really making an impact on those patients in the marketplace. Operator: We currently have no further questions, so I'd like to hand it back to John for some closing remarks. John Shannon: I want to quickly thank everyone for their questions and continued interest in Xeris. As we look ahead to the end of 2025, I couldn't be more proud with how our team delivered this year. We are finishing the year from a position of real strength, evidenced by our strong commercial and financial performance. At the same time, we're building for the future with the foundation in place to initiate the XP-8121 Phase III clinical study next year and continue advancing our broader strategic priorities. We believe these efforts position Xeris exceptionally well heading into 2026, a year where our operational momentum will continue to translate into outstanding revenue growth, profitability and long-term value creation. Thanks again for joining us today and for your continued support. Operator: This concludes today's call. We thank everyone for joining. You may now disconnect your lines.
Operator: Good morning, and welcome to the Tecnoglass Third Quarter 2025 Conference Call. [Operator Instructions] Please note that this event is being recorded. I would now like to turn the conference over to Brad Cray, Investor Relations. Please go ahead. Brad Cray: Thank you for joining us for Tecnoglass' Third Quarter 2025 Conference Call. A copy of the slide presentation to accompany this call may be obtained on the Investors section of the Tecnoglass website. Our speakers for today's call are Chief Executive Officer, Jose Manuel Daes; Chief Operating Officer, Chris Daes; and Chief Financial Officer, Santiago Giraldo. I'd like to remind everyone that matters discussed in this call, except for historical information, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding future financial performance, future growth and future acquisitions. These statements are based on Tecnoglass' current expectations or beliefs and are subject to uncertainty and changes in circumstances. Actual results may vary in a material nature from those expressed or implied by the statements herein due to changes in economic, business, competitive and/or regulatory factors and other risks and uncertainties affecting the operation of Tecnoglass' business. These risks, uncertainties and contingencies are indicated from time to time in Tecnoglass' filings with the SEC. The information discussed during the call is presented in light of such risks. Further, investors should keep in mind that Tecnoglass' financial results in any particular period may not be indicative of future results. Tecnoglass is under no obligation to and expressly disclaims any obligation to update or alter its forward-looking statements, whether as a result of new information, future events, changes in assumptions or otherwise. I will now turn the call over to Jose Manuel, beginning on Slide #4. Jose Daes: Thank you, Brad, and thank you, everyone, for participating on today's call. We are pleased to report another exceptional quarter that demonstrate the strength and resilience of our business model even under challenging macroeconomic conditions. Our third quarter total revenues reached a record $260.5 million, up 9.3% year-over-year driven by strong organic growth from both our single-family residential and multifamily commercial businesses. Our robust results in the face of market uncertainty and ongoing inflationary pressure showcases our team's dedication to excellence and our ability to consistently outperform market trends. In our single-family residential business, we grew revenue of 3.4% year-over-year to a record $113.5 million. This performance reflects the early benefits from our pricing initiatives implemented earlier this year. Continued market share gains through geographic and leadership expansion and contribution from our growing vinyl portfolio. Our multifamily and commercial business delivered impressive growth of 14.3% year-over-year to a record $147 million. The improvement reflects both market share gains in key markets and solid execution on our expanding project pipeline. The industry outperformance we're seeing in our commercial activity has resulted in a record backlog of $1.3 billion, up over 20% year-over-year. We maintained a strong profitability with a gross margin of 42.7% and an adjusted EBITDA margin of 30.4%. Our vertically integrated platform a previously implemented strategic pricing actions are helping to mitigate various cost pressures positioning us well as we move into 2026. This margin resilience, combined with our disciplined working capital management, drove robust cash flow from operations. This cash generation enabled us to return significant capital to shareholders while maintaining a strategic flexibility. To that end, we were pleased to repurchase $30 million in shares and paid $7 million in dividends during the quarter. Our Board authorization to expand our share repurchase program to $150 million reinforces their confidence in the business and our commitment to balanced capital allocation. Our third quarter results demonstrate the power of our vertically integrated business model and our ability to execute in a dynamic environment. With our strong balance sheet, record backlog providing multiyear visibility and multiple growth initiatives advancing, we remain as confident as ever in our ability to continue delivering exceptional shareholder value for years to come. I will now turn the call over to Christian. Christian Daes: Thank you, Jose Manuel. Moving to Slide #5 and 6. Our third quarter performance reflects the successful execution of our growth strategy across both businesses with stable order activity and continued market share gains across our key regions. Our multifamily and commercial business delivered record revenue driven by robust activity within the key markets. We ended the quarter with another record backlog of $1.3 billion, up substantially over 20% year-over-year. This expanding pipeline provides a strong visibility through 2026 and 2027 with additional market share gain opportunities across our core geographies and project execution on track. Our backlog has seen consistent sequential growth since 2021, reflecting sustainability of our structural competitive advantages even under challenging macroeconomic conditions. Our book-to-bill ratio remained healthy at 1.3x for the third quarter, continuing our track record of maintaining a ratio above 1.1x for the past 19 consecutive quarters. As previously stated, the composition of our backlog has changed during the last year, shifting more towards high-end large-sized projects, which tend to be less sensitive to higher interest rates and overall affordability. Moving to Slide #7. Our single-family residential business achieved record revenues on entirely organic growth. This performance was driven by previously enacted pricing initiatives that are now flowing through the P&L and helping to offset higher input costs. We were encouraged by double-digit year-over-year increase in residential orders during this quarter. This is very notable because we had $5 million to $7 million in orders that pulled forward into the second quarter ahead of our price increase. This positive performance demonstrates successful geographic expansion, a strong reception of our expanded product offering, more than 20% year-over-year growth in our dealer network and growing contributions from our vinyl product line. We are excited about several growth initiatives that we expect will further strengthen our market position. Our dealer network expansion continues to drive market penetration supported by short lead times and initiative products offering. Better than nationwide demographic trends across our key Southeast markets, combined with our geographic diversification efforts are creating multiple avenues for continued market share gains. The California showroom opening in the fourth quarter and the introduction of the light aluminum legacy line designed for new geographies represent an important milestone in our geographical expansion, where we are already seeing encouraging growth in orders. With our expanded product line portfolio spanning aluminum and vinyl solutions, we are well positioned to continue to grow into 2026. Additionally, we continue to advance our feasibility study for a new fully automated facility in Florida, which would diversify our manufacturing footprint and provide logistics and lead time advantages in many of our target markets, further strengthening our vertically integrated platform. I will now turn the call over to Santiago to discuss our financial results and full year outlook. Santiago Giraldo: Thank you, Christian. Turning to the drivers of revenue on Slide #9. Total revenues for the third quarter increased 9.3% year-over-year to a record $260.5 million, with growth in both our single-family residential and multifamily commercial businesses. This performance reflects pricing gains as well as a robust demand for our best-in-class product offerings driving strong organic momentum. Our Continental Glass asset acquisition contributed approximately $4 million to revenue during the quarter. Looking at the profit drivers on Slide #10. Adjusted EBITDA for the third quarter of 2025 was $79.1 million, representing an adjusted EBITDA margin of 30.4% compared to $81.4 million or a 34.2% margin in the prior year quarter. This quarter gross profit was $111.3 million, representing a 42.7% gross margin compared to gross profit of $109.2 million, representing a 45.8% gross margin in the prior year quarter. The year-over-year change in gross margin reflected several factors. First, we had an unfavorable revenue mix with a higher proportion of installation revenue. Second, raw material costs were impacted by U.S. aluminum premiums reaching all-time highs during the quarter. Third, the Colombian peso strengthened significantly during the quarter, affecting our non-hedged portion of local costs. SG&A expenses were $47.3 million or 18.2% of total revenues compared to $41.5 million or 17.4% of total revenues in the prior year quarter. The increase included approximately $3.1 million in aluminum tariffs on stand-alone component sales, which we are mitigating through our pricing actions. Additionally, we had higher transportation and commission expenses associated with our revenue growth as well as increased personnel expenses related to annual salary adjustments implemented at the beginning of the year. Our strategic pricing initiatives and cost control measures are gaining traction. We implemented mid-single-digit pricing adjustments on residential products and shifted to U.S. sourced aluminum, and we're beginning to see the benefit of those actions as higher priced orders are invoiced. We expect our pricing actions and supply chain optimization efforts to offset an estimated $25 million full year impact of tariffs and increased premiums on U.S. aluminum. Now examining our strong cash flow and balance sheet on Slide #11. We generated operating cash flow of $40 million in the third quarter, driven by strong profitability and efficient working capital management, which more than offset incremental inventory purchases of U.S. aluminum and increased receivables on higher installation revenues, which carry longer cash cycles. Capital expenditures of $18.8 million in the quarter included scheduled payments on previous investments and continued progress on our growth initiatives. We continue to expect capital expenditures to moderate through year-end, driving strong free cash flow generation in the fourth quarter. Our balance sheet remains exceptionally strong with total liquidity of approximately $550 million at quarter end, including a cash position of $124 million and $425 million of availability under our recently refinanced and expanded senior secured credit facility and other bilateral bank facilities. In September, we expanded our syndicate facility to $500 million from $150 million, reducing spreads by 25 basis points and extending the maturity to 2030, providing significant financial flexibility for growth and other strategic capital allocation initiatives. With total debt of $111.9 million, we maintained a net debt to LTM adjusted EBITDA ratio of negative 0.04x, providing us with tremendous financial flexibility to execute on growth initiatives while returning capital to shareholders. On Slide #12, our strong track record of generating returns above the broader industry continues to validate our disciplined capital allocation approach. Over the past 3 years, our strategic investments in operational excellence and capacity expansion have consistently delivered superior returns for our shareholders. This outperformance reflects our focus on high-return investments in our vertically integrated platform as well as our industry-leading profitability and significant improvements to working capital, which are driving sustainable cash generation and shareholder value while maintaining our financial flexibility to pursue additional growth opportunities. We're also pleased to continue returning a portion of capital to shareholders through share repurchases and dividends. During the quarter, we repurchased $30 million in shares and paid $7 million in dividends. Given the Board's confidence in our continued cash flow generation capabilities, prudent balance sheet management and commitment to delivering superior returns to shareholders, they have authorized an expansion of Tecnoglass share repurchase authorization to $150 million. Following the expansion, the company had approximately $96.5 million remaining under its existing share repurchase program. Now moving to our outlook on Slide 14. Based on our strong performance through the first 9 months of 2025 and the expectations for the fourth quarter of the year based on current market conditions, we're updating our full year 2025 financial guidance. We now expect revenues to be in the range of $970 million to $990 million, reflecting growth of approximately 10% at the midpoint. This updated range reflects lower project starts in light commercial due to current macroeconomic uncertainty while maintaining our confidence in double-digit top line growth for the full year 2025 as well as for the full year 2026. Additionally, we're updating our adjusted EBITDA outlook to a range of $294 million to $304 million, representing approximately 8% growth at the midpoint. This guidance assumes that pricing initiatives and other mitigation efforts will help compensate for the projected $25 million full year impact from elevated input costs and tariffs on select products, but now accounts for higher-than-expected aluminum cost, U.S. aluminum premiums and a stronger local currency. Key assumptions supporting our outlook include stable volumes on residential orders for the rest of the year, lower volumes in light construction activity, continued downtrend in interest rates driving mortgage rates lower, FX headwinds from a stronger Colombian peso year-over-year and a healthy cash flow generation during the rest of the year. We expect low single-digit growth for legacy single-family residential revenue with a higher mix of commercial jobs with installation. We now anticipate gross margins in the low to mid-40% range. In conclusion, our third quarter 2025 results demonstrate our ability to execute effectively in all environments by leveraging our competitive advantages to gain market share while maintaining industry-leading margins and generating exceptional cash flow. With our record backlog providing multiyear visibility, expanding market presence through geographic and product diversification and strong balance sheet supporting strategic flexibility, we are well positioned to continue our track record of outperformance. We remain confident in our ability to deliver another year of strong growth in revenues and adjusted EBITDA while creating lasting value for our shareholders and also anticipate to be able to once again grow our top line by double digits in 2026. With that, we will be happy to answer your questions. Operator, please open the line for questions. Operator: [Operator Instructions] Our first question comes from Tim Wojs with Baird. Timothy Wojs: Maybe just first on 2026 and kind of calling out double-digit growth. I'm just curious if you could add a little bit of context around the visibility to that, what kind of you're assuming in that number for some of your larger project work, residential and then also just kind of acknowledging some of the kind of weaker kind of smaller commercial projects right now. Santiago Giraldo: Tim, I'll take this first. Obviously, we have a record backlog in place that gives us visibility, especially on the larger projects that are either in execution or already breaking ground that has financial closings in place already. So that gives us a lot of visibility. And I think the single-family residential component, a lot of the growth is coming from what we're seeing as far as the geographical expansion into other places and the vinyl product ramp-up. We'll obviously come back to you guys with more granular detail. This is kind of like what we're seeing based on making some general assumptions and have a lot of confidence in that. But as far as the breakdown goes and where we think specifically each bucket is going to contribute, I think we'll give you more detail in the next call. Timothy Wojs: Okay. Okay. And then as I think about the cost side of things, is there a way just to give us some -- I think aluminum was a $5 million headwind, and you had a couple of million dollars from FX. But I guess how do those -- how does the aluminum piece kind of trend in the fourth quarter and early '26? And then if you could just maybe talk about kind of when you would expect some of the peso headwinds to kind of normalize out? Is that kind of a mid-2026 time line? -- at this point? Santiago Giraldo: Yes. On the aluminum, if you look at what's happened here in the last 3 months, LME has gone up 15% from about $2,500 to $2,900. So that's been a pretty fast ramp-up. And the U.S. aluminum premiums have gone up even faster, about 67% from about $1,000 to $1,800, right? So that's happened fast as of late. I think the thought process here is that as volumes and demand subside, those are going to correct. But as of now, it is anybody's guess as to what's going to happen there. Hopefully, that won't stay at record high levels for a prolonged period of time. And if you look at what's happened with the FX since our last call, we were at $41.70 and now we're at $38.50. That's an 8% revaluation in 90 days. So again, it's a headwind of a very rapid ramp-up over the last 90 days. What's happening there as well is that the government of Colombia did a liability management deal where they have monetized a lot of dollars as of late. The expectation is for the peso probably to come back up about 4,000 by year-end. Luckily, we're covered on about 60% of our cost and expenses, and we'll be looking to be opportunistic and find an attractive entry point to mitigate that risk going forward. But the expectation based on the economist is that we should be closer to the 4,000 level by year-end. Timothy Wojs: Okay. Okay. And then I guess just last one for me. On the vinyl business, could you just give us an update maybe on kind of where that business is tracking in 2025 and maybe your kind of initial expectations for next year there? Jose Daes: Listen, this year, Tim, this is Jose. This year, we duplicated what we did last year, but it's still minimum compared to what is going to be next year. We expect the next year to be from 7 to 10x more than we have done this year because we're going to have a complete line, and we have already like 50 new dealers lined up just waiting for the line to be complete. Operator: Our next question comes from Sam Darkatsh with Raymond James. Sam Darkatsh: So I wanted to piggyback a little bit on Tim's questions around '26. Can you remind us what the price and tariff cost rollovers are from '25 into '26? And I guess what I'm getting at, Santiago, is what do you figure, generally speaking, '26 gross margins might shake out? And can you lever EBITDA margins next year? Santiago Giraldo: Yes. So obviously, there's a few moving pieces here. As far as pricing goes, as you know, we increased single-family residential pricing 5% to 7% in May. So obviously, all of that now has the new pricing. And on the commercial side, you see a lot more of the backlog that was signed earlier in the year coming in with new pricing. Obviously, we're executing still some of the older backlog where we didn't adjust pricing. As far as gross margin goes, I mean, it's early to tell, but I think the idea, depending on what happens with the inputs that we just discussed is that we can be able to maintain the low to mid-40s type profile. But as you see, there's FX, there is aluminum cost, there's mix. We're doing more installation based on the high-end projects that GMMP is executing. And you got operating leverage, right? I mean if we're saying that we can grow top line double digits again next year, we would obviously expect to get operating leverage in there. But again, we'll get you guys more detail as the time approaches and we report Q4 and full 2026 guidance in the next call. Sam Darkatsh: Got you. And then as it relates to pricing, as it stands right now, do you anticipate further pricing actions to mitigate some of your costs? And what are you seeing out in the field in terms of a competitive response to all the aluminum pressures? Santiago Giraldo: Generally, you're seeing tight pricing, as you would expect. Everybody is trying to maintain their market share. So for as much as we would like to take further pricing actions, the market dictates really what you can do. So the expectation for our growth next year is more on the volume side, as Jose was mentioning, not only we're expecting the full ramp-up on vinyl, but all of the other geographies contributing much more meaningful. So when we're talking about double-digit growth, it's more coming from volume rather than the assumption that we're going to be able to raise prices again based on what the competition is doing and the dynamics for the industry. Sam Darkatsh: And then my last question, the prospective U.S. facility that you are contemplating, I know it's still in the semi- early stages. But can you give us a sense of how much capacity you're looking at, what the CapEx cost might be and the timing of those sorts of expenditures? Christian Daes: Well, we're still designing, starting, doing engineering, but we do believe that the building and land will be around $225 million, and the machines will be around $150 million, and it will be the -- we will have the capacity of 40% of most lines. It's still too early to tell. We do have a line already a piece of land that we like, is in a very special place. We're making -- we're going to bid on it. And when we have all the numbers together because it's going to be a fully automatic robotic factory that will employ like 1/8 of the people that we normally employ to make the same window. When we have all that, we'll give you more color on what is it that we have to do. But we are really looking into it because it's a good thing to do, especially that we want to do it in the East Coast and also in the West Coast. Santiago Giraldo: Samuel, just to add to Christian's comments, obviously, that CapEx is multiyear, right? So this is something where if the factory is going to take 2, 3 years to get built out, this is something that gets spent over a multiyear horizon. And also, it can be built gradually, right, depending on demand. So you don't have to make a full investment without having the demand for the excess capacity as well. Sam Darkatsh: So roughly $350 million to $400 million in total costs and maybe $500 million in capacity. Is that the broad brush way of looking at it? Santiago Giraldo: Yes. That roughly sounds good. So if you extrapolate to decent margins, the payback is attractive, obviously. Operator: Our next question comes from the line of Rohit Seth with B. Riley. Rohit Seth: Just on the guidance, you cited slower-than-anticipated invoicing light commercial construction as the driver of the guidance cut. Can you quantify how much revenue maybe slipped from Q4 into 2026? Is this like 1 or 2 projects? Or is this more a broader issue in the commercial side? Santiago Giraldo: Well, we're talking about a $20 million reduction at the midpoint of the guidance more or less. We would estimate that at least half of that is 2026 business, which obviously further supports the idea of double-digit growth next year. And I would say some of that is coming from more stable resi invoicing than previously anticipated. But these are projects that are obviously in the backlog and not expected to obviously drop off. It's more a timing issue. Rohit Seth: Okay. And then on the 2026 double-digit growth guide on revenues, could you maybe narrow that down to a specific range? Is it 10% to 12% or 13% to 15%? Santiago Giraldo: I mean, at this point, I would assume low double-digit growth. But again, more details to come. We're basically working with back-of-the-envelope calculations and assumptions. But when we report Q4 and give you full guidance, we'll provide more granular detail on that. Rohit Seth: Okay. And your gross margins come down to the mid-40s. As you think about 2026, I mean -- and you're driving your margin assumptions. What are the key swing factors? Is there a path back to the mid-40s? Do you think this low 40s is sort of the new run rate? Santiago Giraldo: Low to mid-40s is what we had talked about on the earlier question. And if you kind of back into the math, that's more or less where we can end up this year. Next year, again, there's different variables related to input cost. Hopefully, some of the recent spikes in aluminum cost and premiums will come down to normalized levels. FX is also in question. So it's an important input, and installation mix versus manufacturing mix also comes to play. And finally, how much operating leverage can we get on those incremental sales. So again, there's different variables. We'll provide more color when we report next quarter. Rohit Seth: Okay. And just on the higher mix of revenues with installation, it's been a headwind. Just can you quantify what percentage of your commercial revenue is installation versus product only? Santiago Giraldo: What percentage of the commercial revenues, what, I'm sorry? Rohit Seth: What percentage was the installation mix in the third quarter versus product only. Santiago Giraldo: If you look at the overall revenue for the year, we're doing about $990 million, take about $200 million of that is going to be installation for the year, and that is up 50% versus last year. This quarter, the impact on mix alone for the fourth quarter is roughly about $2 million of EBITDA versus where we were in the prior midpoint. Operator: Our next question comes from the line of Brent Thielman with D.A. Davidson. Brent Thielman: Just coming back to the sort of the short-cycle commercial work that's maybe pushed some revenue out or delayed revenue, however you want to frame it. I mean what is sort of, in your view, kind of changed in the last few months that's influenced that? And I guess as a follow-up question, the backlog continues to grow here. Maybe what you see across the country in terms of high-end base? Is the market getting better? Is the backlog growth clearly an influence of you taking share? If you could comment on those 2 things, that would be great. Santiago Giraldo: Well, I think that the input costs that we're mentioning here is playing a part in many other segments in the construction industry, right? So when you have light commercial construction depending on those input costs, it's probably prudent to kind of push up some of those projects until things normalize. So I think in what you have seen, we talked about LME going up 15% in 90 days and U.S. aluminum premiums up 65% in the same time period. That's translating into other things, right? So for somebody that is putting in place a smaller project where they don't have necessarily financial closings of people that have already bought condos, for instance, that's a different story. It's a different proposition. So it's a matter of timing and having things normalized. At some point, there's going to be some type of correction. So I think that's what's playing a part there. And on your second question, can you repeat? I think Jose is going to address that. Brent Thielman: Maybe just the back -- I mean, look, the backlog is growing at the same time here. So is this, is the market for high-end space getting better in the U.S.? Is this that you're capturing more share in new regions, just discussion there. . Jose Daes: Well, we are expanding geographically. For example, before, we didn't have any work in the Tampa, St. Petersburg area. And now we have a lot of work there. We have work in Jacksonville. We have 3 buildings where we never had any, and we keep quoting. We have a lot of work in the Panhandle area, and that's only in Florida. And now we see a resurgence in the Boston, New York area. And also, we are quoting directly with the GMP brand, which is the installation brand. in Texas, California and even Hawaii. So we're not just relying on Florida anymore. We are expanding Florida, South Florida to all over the state, and we are expanding outside the state with really good results. Brent Thielman: Okay. And then maybe just one more follow-up on the single-family product line, when you look outside of Florida, where do you -- are these different geographies you're targeting? Where are you getting the most traction? Like where are you getting a lot of momentum building the Texas East Coast West Coast? Jose Daes: All over the East Coast is growing with the new line, but we see most of the growth is West Texas, Arizona, Nevada, California, Utah, even Hawaii. I mean we sold last year in Hawaii around -- I don't know exactly, but we're going to end up invoicing this year like $6 million to $10 million, and we hope to do $20 million or $30 million next year. Operator: Our next question comes from the line of Julio Romero with Sidoti. Julio Romero: I appreciate the preliminary revenue expectation for '26 and understand we'll get more color to come on the puts and takes there. Any preliminary thoughts on how we should think about capital allocation? I know you have the automated plant in Florida that you're currently weighing. Just trying to think about how you're thinking about capital expenditures and your recently upped share repurchase? And how would you have us think about that? Santiago Giraldo: On CapEx, as we have mentioned before, it's trending down, and we're talking about core growth CapEx, not talking about the potential to do the U.S. plant, which is still early in the process. So the CapEx is going to trend down. Utilized capacity still allows us to grow well into double digits for the next couple of years. You saw what we did in terms of buybacks last quarter and in terms of the Board action to increase that program. So I think that's definitely a good use of capital going forward as we continue to generate free cash flow. The dividend continues to be there. So that's another way to return capital to shareholders, obviously. And we have very little debt. We continue to expect to be in a net cash position for the foreseeable future. So I think it will be finding opportunities to continue reinvesting in the business. If the backlog continues growing or as Jose mentioned, the opportunities on single-family residential materialize and we grow significantly over the next year, then at some point, we'll have to just reinvest in growth. But immediately, I think doing something on the buyback front makes sense as you saw from the Board's actions and willing to see what happens with the general conditions of the market. Julio Romero: Very helpful there. And then on single-family, I know we talked about vinyl and we talked about showrooms, but I wanted to get a progress update on Multimax, how that's doing at the moment. And a lot of the homebuilders have been rather pessimistic expressing that the near-term rebound isn't likely in the near term. I would be curious to how you're thinking about that product line and the outlook at the moment. Jose Daes: Well, Multimax is doing much better this year, even though the new housing have dropped a little bit for every builder because we gained a couple of very nice accounts -- we now are selling to 3 more homebuilders, and we expect to take 1 or 2 more within the next 6 months. So that line is doing well. But most of the growth next year, particularly are going to come from the new lines that we are launching complete by the end of the year to the other markets to Texas, California, Arizona, Nevada, Utah, I mean those lines, even though they're not complete, we are already selling in those states with -- people are really, really happy and enthusiastic. They can't wait to buy a lot more. So we're really excited about those lines. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Jose Manuel Daes for closing remarks. Jose Daes: Thanks, everyone, for participating on today's call. We hope to keep growing double digits. Please keep time for better news. Operator: Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Hello, and good morning, everyone. And welcome to the VerticalScope Holdings Inc. Q3 2025 Earnings Call. My name is Emily, and I'll be coordinating your call today. [Operator Instructions] I would now like to turn the call over to Diane Yu, Chief Legal Officer, to begin. Diane, please go ahead. Diane Yu: Thank you, operator. Good morning, everyone. And welcome to VerticalScope Holdings Third Quarter 2025 Earnings Call. I'm joined by Chris Goodridge, our Chief Executive Officer; and Vince Bellissimo, our Chief Financial Officer. We'll begin with commentary on the quarter before opening the floor to questions. Before we begin, I'd like to remind everyone that today's presentation contains forward-looking information that involves known and unknown risks and uncertainties and other factors that could cause actual events to differ materially from current expectations. These statements should not be read as assurances of future performance or results. Such statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements to be materially different from those implied by such statements. A more complete discussion of the risks and uncertainties facing the company appears in the company's management discussion and analysis for the 3 and 9 month period ended September 30, 2025, which is available under the company's profile on SEDAR+ as well as on the company's website. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this presentation. The company disclaims any intention or obligation, except to the extent required by law, to update and revise any forward-looking statements as a result of new information, future events or for any other reason. Our discussion today will include references to adjusted financial measures, including adjusted EBITDA, free cash flow, free cash flow conversion and MAU, which are non-IFRS measures. All references to currency in this presentation shall refer to USD unless otherwise specified. Now I will turn the call over to Chris Goodridge, CEO of VerticalScope. Chris? Christopher Goodridge: Thanks, Diane, and good morning, everyone. It's a fast-moving environment. And despite some short-term volatility in our monthly active user base, I'm really encouraged by how our teams are navigating this change and focusing our efforts on growth. The strategy that we articulated on our last call is our blueprint for driving organic growth and continuing to build our platform and cash flow. We're building stronger direct relationships with our users, making their experience richer and more useful with AI and turning that direct engagement into diversified revenue streams. And we'll use our free cash flow and financial capacity to pursue growth opportunities that further our strategy and positioning in a more AI-centric web. We believe that the most enduring and successful online experiences will be protected spaces with micro communities of trusted users. This has been the core of our business model for years and will continue to be the foundation of our long-term success. Turning to our results. I'll start with some observations on our MAUs and the trends we're seeing. We averaged 83 million monthly active users in Q3, which was down from the record levels we experienced last year as a result of a surge in search-based traffic. However, Q4 started on a much stronger note with MAUs surpassing 90 million in October and we saw gains across all major traffic sources and most importantly, with direct users, which were up nearly 60% over last year. With the majority of our MAU now coming from non-Google sources, we think the worst is behind us and expect to see MAU growth going forward from direct and other sources. Beyond direct and search, we're also seeing opportunities to grow our paid sources of traffic and to efficiently acquire new users who will be members of one or more of our communities for years to come. Paid channels have historically been a minor source of users for VerticalScope, but we believe this is an important channel to drive additional user growth in the years ahead as search experiences become more fragmented and people increasingly seek out authentic perspectives from real users to validate information they receive from AI. When you combine our efforts to grow direct users with paid channels, we're well positioned to grow our total user base from here. Vince will go through our financials in detail shortly, but I wanted to offer up a few observations. First, our revenue improved modestly on a sequential basis in Q3 and came in at $14.7 million. When we compare back to last year, revenue was 17% lower, essentially all as a results of programmatic ads tied to search traffic. Second, aside from programmatic, all major sources of revenue were either flat or up in Q3. Direct advertising has been very resilient and was up 3% year-over-year as we saw a nice pick up with some key auto, powersports and insurance customers in the quarter, driven in part by new immersive experiences we're making available to brands. E-commerce grew by 40%, mainly as a result of the Ritual acquisition with the rest of our subscription and transaction revenue sources remaining stable. We're still seeing plenty of opportunity to build up commerce, both in our core community experience but also with Ritual. When you combine our solid direct advertising results with e-commerce gains, ARPU pushed up 21% over last year and reaching its highest level that we've seen in 3 years, and demonstrates our ability to generate more value even with volatility in MAU. I think most impressively in the quarter, though, was adjusted EBITDA improving by 45% over Q2, margins exceeding 40% and our free cash flow conversion growing to 94%. This result clearly demonstrates the strength of our business model and the adaptability of our team. Turning to product initiatives. AI continues to open up completely new experiences for our users and is increasingly providing us with operational gains. Machine translations are introducing our communities to new audiences speaking German, Spanish, Portuguese, Dutch, Polish and French and AI summaries are making it easier for new users to find what they're looking for in threads. We're most excited about the potential of our AI community assistant, Fora Frank. We introduced Fora Frank last quarter, and we've continued to roll it out across our communities. Its main purpose initially was to encourage posting activity from our users and help them ask better questions to elicit higher quality responses. We're taking a lot of inspiration from how other platforms have successfully used conversational AI to drive engagement, including the X platform and how it's deployed Rock. Our early results suggest that thread engagement increases by over 3 times when Fora Frank is mentioned. So we're looking for more ways to grow Fora Frank's visibility and distribution within the communities while continuing to improve its capabilities. Our goal is to have AI enhance the human experience within our communities, not to replace it. There are so many interesting applications we see for the technology. For example, with our SMB subscription product, Fora Frank can help our customers post and drive more engagement with their content, adding value and improving retention. We've also built an AI prospecting tool for our sales team that identifies new potential customers and incorporates relevant community content into our outreach messaging. We see this as a game-changing capability that we believe will boost the efficiency and close rates of our sales team. Beyond the work to improve our community experience and grow direct sales with AI. We're starting to envision completely new AI-driven services powered by our rich data sets and that can leverage our distribution to millions of users. It's very early but we're excited about these opportunities, and we'll have a lot more to say in the quarters ahead. Turning to our data license efforts. I'm keenly aware that we've been discussing this opportunity for several quarters. This space is evolving very quickly and I believe our patient approach will pay off. We're at the very beginning of a major shift with how content on the web is both created and consumed and how consumer decisions will be made. We know that users like the experience of engaging with an AI chatbot and we expect that they will also start to transact more within those experiences. But for that to happen to be a great user experience, the AI must have access to the best data available. Over the past several months, we're starting to see a shift in market conditions as the lack of a real value exchange between LLMs and content owners becomes an increasing source of friction. For example, major lawsuits have been filed against the LM companies, including Reddit's recent lawsuits against Anthropic, Perplexity and a host of other data scrapers for the alleged unauthorized use of Reddit user content. In parallel, industry efforts are underway to establish standards for data licensing and compensation through the RSL Collective, a nonprofit organization that is using the music industry as a model and which is supported by a number of significant platforms, including Reddit, Internet Brands and VerticalScope. And finally, we're seeing key players powering the infrastructure of the web, taking steps to close off access by AI companies. Cloudflare, which is approximately 20% of total Internet traffic flowing through its network, has been particularly active on this front and is now blocking AI scraping by default. Base model training is obviously still relevant for LLMs but we see bigger potential opportunities with AI companies requiring access to the most up-to-date information through retrieval augmented generation. We expect this need to accelerate as more and more AI services are launched and scaled. As this happens, we believe that access to accurate, up-to-date information will be critical. Data quality will be the currency. Our communities contain the authentic, high-intent human context that AI agents need to understand what people actually want to do, and we believe this positions VerticalScope as part of the foundational data layer for this new agentic web. So where are we at with all of this? We've taken steps over the past several quarters to block all known AI scrapers at the CDN level. We have very clear terms of use that prohibit scraping outside of a licensed relationship, and we're regularly updating our robots.txt to disallow AI scraping. Another big step forward on this front is our recent partnership with TollBit. TollBit's technology integrates with our CDN to intercept AI scraper traffic and redirect it to a paywall. From there, the AI company can either pay our set rate to start scraping or contact us to license access to a richer structured data feed through our API that would come at a premium. We've been working through the process of onboarding TollBit across our network of communities over the past few weeks and are close to completion. TollBit's analytics suite gives us a detailed view of AI bot activity we can detect across our communities. And early data highlights just how aggressively AI systems are trying to access our content. To illustrate the point, TollBit data from the past week detected scrape attempts, which we're actively blocking, outnumbering real users in some cases by up to 13 times. While this reflects only the activity we can observe, it underscores the scale of AI demand for our data. We're actively monitoring this changing landscape and continue to evaluate how regulatory, legal and commercial developments may affect our strategy. At the same time, our capabilities are improving, our sense of demand and value is growing. We intend to service that value in a way that best serves our communities and shareholders for the long-term. Finally, before passing it over to Vince, I'll offer a few comments on capital allocation and M&A. We've made 4 small acquisitions so far this year and we expect to complete a couple more small ones before the year-end. We continue to see higher inbound activity, which we think is tied to how smaller companies are navigating the broader industry change. Again, we think our shareholders will be best served by a patient approach and so we expect to continue to accumulate cash and build capacity to pursue larger opportunities that will accelerate our long-term growth strategy. And with that, I'll turn it over to Vince to walk through the numbers. Vincenzo Bellissimo: Great. Thanks, Chris, and good morning, everyone. I'll walk you through our third quarter results and share how we are executing against our financial and strategic priorities. Overall, this was a solid quarter for our business, underpinned by our disciplined and hyper-focused approach to execution. We delivered improved performance sequentially, including expanded adjusted EBITDA margins and stronger free cash flow conversion while continuing to strengthen our balance sheet. Our growing cash position provides flexibility to reinvest in growth, both organically and through strategic M&A when the opportunity is right. Our focus on audience quality, ARPU growth, operational efficiency and liquidity continues to position us well in a rapidly changing environment of AI content discovery. Now turning to our results. Total revenue in the quarter increased 1% sequentially to $14.7 million, reflecting stability of our core audience but declined 17% year-over-year, primarily on a 32% decline in MAU compared to all-time highs in the prior year, led by lower value search traffic. This led to a correlated decline in digital advertising revenue, which finished the quarter at $11.7 million, down 25% year-over-year. The decrease was driven by a $4.1 million decline in programmatic advertising revenue, which contributed just over $7 million in the quarter on lower display impression volumes compared to the prior year. Despite the declines in programmatic, we saw a return to growth in both our higher-value direct and video advertising channels, supported by strong demand for custom content campaigns and ongoing optimizations with our video ad unit. Direct advertising grew 3% to $4.6 million, representing 40% of overall digital advertising revenue compared to a 29% share in the prior year. The growing share of direct revenue highlights the strength of our relationships with advertisers and brands across our core categories and a rising demand for customized high-intent campaigns that reach our enthusiast audiences. In an era of AI-driven content discovery, this audience is becoming increasingly scarce and valuable, a combination that will drive growth opportunities in the periods ahead. Turning to e-commerce. Revenue grew 40% year-over-year to $3 million, primarily from contributions from our April 2025 acquisition of Ritual, a local food pick up and ordering app that connects users with restaurants in Canada, the U.S. and Australia and stable performance across our other e-commerce offerings. Excluding Ritual, approximately 60% of our e-commerce activity continues to come from subscriptions, underscoring the stability and loyalty of our user base. We continue to view e-commerce as an important long-term growth driver, supported by ongoing product innovation and the use of AI to enhance discovery and personalization across our communities. Overall, ARPU increased 21% year-over-year, including a 10% increase in digital advertising ARPU and a 106% increase in e-commerce ARPU. ARPU remains a key metric for us and a reflection of our ability to grow and monetize a high-value direct user base, capitalize on premium advertising and commerce opportunities and unlock new monetization opportunities that are powered by data and AI. Turning to our profitability and free cash flow generation, both key highlights of the quarter. Adjusted EBITDA for the quarter increased 45% sequentially to $6.2 million, driven by cost efficiencies but declined 16% year-over-year due to lower revenue, partially offset by cost savings realized in the period, including the benefits of headcount and operational changes made in the first half of the year. The quarter also included a benefit from -- the quarter also benefited from $600,000 in tax incentives under the Canada Revenue Agency’s SRED (sic) [ SR&ED ] program, which we apply for annually as part of our ongoing investment in technology on the Fora platform, and are recognized as a reduction in wages on the P&L. Historically, these incentives have been approved and recognized in the fourth quarter but timing can vary year-to-year. Together, these factors contributed to adjusted EBITDA margin expanding 12 percentage points sequentially to 42% compared to 30% in Q2 and consistent with 42% margins in the prior year. This improvement highlights the impact of operating with smaller, more focused teams that are leveraging automation and AI tools to deliver on key growth strategies. Our profitability this quarter also demonstrates the resilience of our business model even as MAU levels remain well below last year's record highs. This reflects a more diversified revenue base and the growth of a higher-value direct audience that increasingly insulates our results from search volatility. Net loss for the quarter was $400,000 compared to net income of $1.2 million in the prior year, primarily reflecting lower revenue and partially offset by lower operating and income tax expense recognized in the period. The net loss for the period included noncash depreciation and amortization expense, primarily related to acquired intangibles of $4.8 million compared to $4.4 million in the prior year. Turning to cash flow and liquidity. We once again delivered strong cash generation in the quarter. Operating cash flow was $4.7 million and free cash flow increased 56% sequentially to $5.9 million, representing a 94% conversion from adjusted EBITDA, up from 86% in the prior year. We ended the period with $68.4 million in total liquidity, including $12.4 million in unrestricted cash and $56 million in undrawn revolver capacity. Our balance sheet remains a key strength with net leverage of 1.24x as defined by our credit agreement, providing ample flexibility to invest in growth initiatives and pursue opportunistic M&A, particularly in areas that accelerate our progress in AI and direct traffic initiatives. Maintaining a strong liquidity position remains our priority. From a capital allocation standpoint, we continue to believe that reinvesting in growth, expanding our audience, data capabilities and AI-driven monetization will create greater long-term value for our shareholders. In closing, there is no change to the full year guidance that was published in April of this year. Our third quarter results demonstrate the impact of the actions we've taken in a short period of time to streamline operations and focus on strategic priorities that drive direct audience growth and higher ARPU across our platform. The world of AI content discovery depends on high-quality human-generated content that's exactly what the Fora platform provides. Our users and the authentic content they create are our most valuable assets and we will continue to do everything possible to protect these assets and unlock opportunities that are sustainable. With a strong balance sheet, differentiated data and a disciplined approach to execution, we are well positioned to create long-term value for our shareholders and employees in this new phase of the agentic web. And with that, I'll pass it back to Chris to close things off. Christopher Goodridge: Thanks, Vince. With that, we'll open the floor to questions. Operator: [Operator Instructions] Our first question today comes from Gabriel Leung with Beacon Securities. Gabriel Leung: Just a couple of things. First, just on the cost side of the equation, Chris or Vince, how are you feeling about the current structure right now of your roughly 170 full-time equivalents? Do you feel that's the current -- the right cost structure to drive the growth you're planning on implementing over the next 12 to 24 months? Christopher Goodridge: Yes. Thanks, Gabe. Thanks for the question. So yes, for the most part, we feel pretty good about where the headcount is. There'll be -- we'll be adding selective roles here and there. What's really changed for us and something we're really trying to push within the organization is using AI tools to become more efficient, right? So we're rolling that out really across all of our teams, not as a means of reducing headcount further, but really to drive more productivity out of the team that we've got. But we do think there's opportunities to add certain skilled positions to the business over time. It won't materially change the headcount over the next, call it, year or so. But we expect headcount certainly not to go down from here. Gabriel Leung: And then just secondly, on the data licensing. I know you're, I guess, in the tail end of deploying TollBit and their tech across your community. So I'm curious beyond the initial observations, do you or TollBit, have you thought about how the revenue side of it might play out over the next 12 months or so? Or have you had early discussions with any of the -- some of the AI companies in terms of either licensing or paying a fee on the scraping? Christopher Goodridge: Yes. Thanks, Gabe. There's absolutely discussions that are ongoing with the major players. TollBit's monetization, that part of the platform is relatively nascent to be fair. And the marketplace opportunity that they see, they think is quite big, and it really doesn't apply to just the major players. It's meant to be really anyone who's built an AI service and requires access to kind of fresh data to power it. So they see that as many, many players in the space over the long-term. So I think that is more of a long-term play for us from a monetization side. Like I said, though, what it does is it really empowers us with a lot of great data that helps us articulate the value proposition of our underlying data asset. And so I think the bigger players in the space that are building models that are building kind of chat experiences where they require RAG to offer up fresh information to what the core model offers, that's where I think it's more likely that you'll see direct deals over time. With respect to financial impact, we're not at a stage where we're going to provide a forecast with respect to how that's going to play out over the next period of time. But as that unfolds, you guys will have a lot more information. Operator: At this time, we do not have any further questions registered. [Operator Instructions] We have not received any further questions, and so I will turn the call back over to Chris for closing comments. Christopher Goodridge: Well, thanks, everyone, again, for joining us today. I hope the rest of your year goes quite well, and we look forward to getting back together with everyone again in March to review our year. Thanks again, and take care. Operator: Thank you, everyone, for joining us today. This concludes our call, and you may now disconnect your lines.
Operator: Good day, and thank you for standing by. Welcome to the Q3 2025 KVH Industries, Inc. Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference call over to your first speaker today, Chief Financial Officer, Anthony Pike. Please go ahead. Anthony Pike: Thank you, Dana. Good morning, everyone, and thank you for joining us today for KVH Industries' third quarter results, which are included in the earnings release we published earlier this morning. Joining me on the call is the company's Chief Executive Officer, Brent Bruun. Before I get into the numbers, a few standard statements. Firstly, if you would like a copy of the earnings release or if you would like to listen to a recording of today's call, both will be available on our website. And if you are listening via the web, please feel free to submit questions to ir@kvh.com. Further, this conference call will contain certain forward-looking statements that are subject to numerous assumptions and uncertainties that may cause our actual results to differ materially from those expressed in these statements. We undertake no obligation to update or revise any of these statements. We will also discuss adjusted EBITDA, which is a non-GAAP financial measure. You will find a definition of this measure in our press release as well as a reconciliation to comparable GAAP numbers. We encourage you to review the cautionary statements made in our SEC filings, specifically those under the heading Risk Factors in our most recently filed 10-Q. The company's other SEC filings are available directly from the Investor Information section of our website. Now to walk you through the highlights of our third quarter, I'll turn the call over to Brent. Brent Bruun: Thank you, Anthony, and good morning, everyone. The positive momentum that we reported in the second quarter has continued into the third quarter. On our last call, we talked about an inflection point that -- in this quarter, we have reinforced that inflection point. This is due to our strategic focus on LEO airtime revenue and subscriber growth, which have yielded positive results. Highlights for the quarter include a new record for vessel subscriber growth, record quarterly shipments of satellite communication terminals, sequential and year-over-year service revenue growth, closing the sale of our Middletown, Rhode Island facility and the acquisition of customer and vendor agreements, along with other assets from a satellite service provider operating in the Asia Pacific region. At the same time, we maintained our commitment to strong cost control with flat OpEx and reduced CapEx compared to the second quarter of 2025. Service revenue for Q3 was $25.4 million, a 10% increase from the prior quarter and a 4% increase from Q3 2024. The increase in year-over-year revenue is particularly encouraging as the prior year included a significant amount of U.S. Coast Guard revenue, which has drastically decreased since the third quarter of last year. Equally encouraging, our subscriber growth continued in the third quarter. Our total subscribing vessel count increased by 11% to approximately 9,000 compared to the second quarter. And as a result, our subscribing vessel count is up 26% year-to-date. This growth is being driven by the ongoing demand for the Starlink and OneWeb LEO services we provide. During Q3, we shipped roughly 1,600 terminals, a new record. There continues to be strong demand for both stand-alone LEO services and hybrid installations, which represent a combined service utilizing a LEO service in tandem with our legacy VSAT offering. Our Starlink subscriber growth also helped us to stay on target to consume the bulk data pool we purchased in July of 2024, before the end of this year. We're in the final stages of negotiations with Starlink to purchase an additional data pool. We expect the new purchase commitment will scale to reflect the significant growth trajectory of Starlink airtime as a portion of our business, enable us to retain flexibility to create custom competitive data plans to meet our subscribers' needs and allow us to sustain solid airtime margins. In addition, we continue to pursue strategic growth opportunities. In Q3, we completed the acquisition of the maritime communications customer base of a service provider operating in the Asia Pacific region. This acquisition is expected to bring on board more than 800 vessels that are currently utilizing satellite communication services, approximately 300 of which receive our VSAT service, more than 4,400 land-based subscribers who use Inmarsat and Iridium handheld services and a corresponding increase in annual top line revenue. This strategic move represents an essential milestone in our evolution as it is intended to expand our customer base, broaden our product and service portfolio and significantly increase our land connectivity subscriber base. This step is representative of our commitment to investing in KVH and strengthening our market position. And finally, we successfully closed the sale of our facility in Rhode Island, which generated approximately $8 million in net proceeds. Now I will turn the call back to Anthony to discuss the numbers. Anthony? Anthony Pike: Sorry about that. Thank you, Brent. As a reminder, I would like to note that similar to our call for Q2, I will not restate data that is in the earnings release or clearly described in our 10-Q. I will focus my comments on information that either elaborates on or clarifies the published data. So with respect to our third quarter financial results, airtime gross margin was 31.9%, which is down by 3.9% compared to the prior-quarter gross margin of 35.8%. This decrease was driven by the reduction in GEO airtime margins as a result of declining revenue set against a relatively fixed cost base. That said, GEO revenue decline continues to be in line with expectations and is not significantly accelerating. We expect this trend on GEO airtime margin to continue in the fourth quarter. However, from January 2026, our minimum commitments for GEO bandwidth declined considerably by around 1/3, which we expect will reduce pressure on margins. Our LEO airtime margin was consistent with the prior quarter. Total subscribing vessels at the end of Q3 were just below 9,000, which, as Brent mentioned, is 11% up from the prior quarter and 26% up from the beginning of the year. Reported Q3 product gross profit was negative $6.8 million compared to a product gross profit of positive $0.3 million in the prior quarter. This quarter's negative product gross profit included a $5.5 million write-down of our VSAT inventory based upon reduced demand and pricing. The remaining reduction in profitability of $1.6 million this quarter was driven by price reductions on Starlink and our H-Series VSAT antennas. We expect product margins to improve in the fourth quarter from the third quarter of this year, but product margins will remain relatively modest, and we believe the real value of our mobile connectivity hardware shipments is the recurring airtime revenue they generate in the future. The Q3 operating expenses of $9.5 million were flat compared to the prior quarter. And our adjusted EBITDA for the quarter was $1.4 million, and our earnings release has a numerical reconciliation of that. Capital expenditure for the quarter was $1.6 million. This compares to adjusted EBITDA of $2.7 million and capital expenditure of $2.4 million in the second quarter of 2025. Our ending cash balance of $72.8 million was up approximately $16.9 million from the beginning of the quarter. And as Brent mentioned, net proceeds from the sale of our property at Middletown, Rhode Island was $7.8 million. So overall, we are pleased with the third quarter performance, which shows our strategy to focus on our recurring revenue service business is proving successful with double-digit sequential growth on both service revenue and subscribed vessels in the quarter, although we cannot assure that growth will continue at this rate. Our LEO margins remain strong, and we are managing the global decline in GEO well. The sale of our manufacturing facility and the first acquisition we have completed in several years evidences our strategic intent moving forward, and we are optimistic for the future. This now concludes our prepared remarks. I will turn the call over to the operator to open the line for the Q&A portion of this morning's call. Operator? Operator: [Operator Instructions] Our first question comes from Chris Quilty of Quilty Space. Christopher Quilty: I wanted to dial in a little bit to the growth in the LEO business. I think you said 1,600 terminals shipped in the quarter. And historically, you were adding 600 a year on the GEO side. Where are you seeing the demand come from or the nature of the demand to see the levels climb that quickly? Brent Bruun: Yes. The demand is really pretty evenly spread between all regions and all types of vessels. So there's not anything specific that's driving the demand, Chris. We did scale back a bit on leisure marine in the third quarter just due to the time of year, right? That's a very -- fourth quarter, first quarter, we'll see a lot more activity there as the boats are moving south. But it's just not really any significant concentration. Christopher Quilty: And how about -- I mean, are you seeing these as competitive wins? Or are these new installs? Or is that mix changing? Brent Bruun: It's a bit of both. It's definitely some competitive wins, on the new installs also because we're going further downstream, and that trend has continued with the service plans that we offer and the price per bit delivered, it's opened up the market quite a bit to the lower end. Christopher Quilty: Got you. And I think I received my first Starlink e-mail yesterday, offering me free equipment on the consumer side. But apparently, you're also seeing that on the maritime enterprise side. How are you managing the hardware inventory and pricing with what's been a pretty dynamic pricing environment? Brent Bruun: Yes. Well, and as Anthony alluded to, they've reduced price. We're not necessarily offering -- we're not offering free equipment for maritime unless you know something I don't. But they have reduced price. It's caused a bit -- it's difficult. You have to manage it because when you're buying inventory, you have it at a higher price and then they're selling it lower, and you need to drop your price. It did impact our margins to a degree. On a go-forward basis, we have an understanding of Starlink, of how to handle this a bit better. And if, in fact, they have further price concessions, we would anticipate that any stock that we're holding, we would get a corresponding reduction and/or credit for the difference between previous sale purchase price and the new purchase price. Christopher Quilty: Got you. And can you contrast that with your OneWeb terminal sales where I think you mentioned a lot of those are being sold under AgilePlan where you're capitalizing the cost there. Is the differential -- price differential or CapEx requirements on your part causing a shift in terms of how customers are looking at the One service versus the other? Brent Bruun: Price definitely has an impact. It's -- we've shipped quite a few more Starlinks and OneWebs. There are alternatives to using a OneWeb and not necessarily just on a stand-alone basis. We talk about our hybrid service offering, which is primarily concentrating on a LEO service with VSAT, but it doesn't -- we also have some customers that have provided two different LEO services on board to ensure diversity. Christopher Quilty: Understand. On the GEO side, is it fair to assume the Coast Guard headwind going into the fourth quarter is probably like less than $1 million? Brent Bruun: You mean as far as the amount of revenue we recognized in the fourth quarter of last year? Christopher Quilty: Yes. Brent Bruun: When you say headwinds. We had a significant amount of revenue in the third quarter, but the contract was expired at the end of September of '24. And we've retained a small amount of Coast Guard revenue, so it's not completely gone, but that small amount was representative in 2024, in 4Q '24, and it will be in 4Q '25. So it's really not going to be a factor in a year-over-year comparison in the fourth quarter, if that's your question. Christopher Quilty: Yes, that was it. And aside from the Coast Guard, what are you seeing in the trends on the GEO ARPUs? Brent Bruun: Yes. I'll defer to Anthony on that question. Anthony Pike: Yes. So the GEO ARPUs this year have been fairly static. The first to the second quarter, they dropped a little bit. But since then, they've been very static. So we're very pleased with the third quarter's ARPUs on our GEO side. They seem to be remaining. Christopher Quilty: Great. And you guys didn't talk about CommBox much in the quarter. Was there any significant movement in customer adoption or -- you had the new cybersecurity feature coming... Brent Bruun: Yes. Well, the cybersecurity feature is being well received. There's not necessarily new news on that. It's being well received. We shipped, I don't have the exact number, but hundreds of CommBoxes, and we activated hundreds of services and it's being well received in the market. But we didn't really see a need to call it out specifically this quarter. It was -- and shipments were up sequentially in the third quarter versus the second. Anthony Pike: Yes. I mean if I just jump in there, Brent. I mean, revenue was up about mid-30%, I think 36% quarter-on-quarter, which just shows we're getting some successful growth and the growth from -- that we discussed in prior quarters continued both in terms of shipments and activations. Christopher Quilty: Great. And sorry, I'm all over the map. I should have organized my questions. But Anthony, did you mention how many LEO terminals were activated in the quarter? Anthony Pike: No, I did not know. No. I'm not sure, Brent, do we... Brent Bruun: Yes. So basically, we talked about our growth, which went -- was approximately 1,000, from 8,000 to 9,000. A significant portion, majority of those would be LEO. As far as the vessels that we have out there, 9,000, more than half are receiving Starlink services. But we'd like to just keep it at that level and know that our overall subscribing vessels are significant, and they've had significant growth in the quarter, which we hope -- we anticipate, or we hope will continue. There's no guarantees. And as we move forward, a larger and larger portion of our installed base will be receiving LEO services and for the current time period, in particular, Starlink. Christopher Quilty: Great. Are you starting to hear whispers from the Amazon guys coming to market? Brent Bruun: Yes, there's all kinds of -- there's not whispers. I think they're shouting from the mountaintop. So... Christopher Quilty: Right. And does that look like it will be a competitive service based upon what you're seeing in terms of... Brent Bruun: Yes. I mean on paper, yes, the proof is in the pudding. So let's -- once we are able to test it and see what the cost of the equipment is, the data speeds, the ability to maintain link and the overall quality of the service, we'll -- when that all comes to fruition and we're able to do significant testing, we'll be able to answer that question a bit more concisely. But on paper, it looks like it will be compelling. Christopher Quilty: Great. With the acquisition, I think you mentioned 800 vessels that obviously didn't show up in the numbers for this quarter. Will we see kind of a onetime jump of 800 vessels that happens in Q4? Brent Bruun: Yes. Let's just be clear, yes, but over 500 vessels, right? So we -- 300 of those vessels were already receiving our service. We'll be able to achieve higher margin on those vessels because we were selling it to the service provider and the service provider was charging their end customer a higher price. But those will be reflected in our fourth quarter. That net 500 will be reflected in our fourth quarter numbers. Christopher Quilty: Got you. You had previously talked about primarily Latin American land growth, but it sounds like there's an element of that with this acquisition. And I think you specifically called out the sat phone part of their business. Is that a focus? Or is it more around, again, traditional land terminals in Asia... Brent Bruun: Well, a bit of both. In this particular case, it was opportunistic because that's what they provided. So we're taking it on. We do have -- we think it would make sense to go into an adjacent market outside of maritime and provide land services since we have the infrastructure to support it. And we're looking into that to do more. Christopher Quilty: Got you. And is that expanding products or services? Is this all SATCOM-related services? Or do you move into other adjacent communication services? Brent Bruun: It primarily will be SATCOM. The handhelds are very high volume, low ARPU type business. So it's -- you need to get a lot of them out there to make any type of significant revenue. Christopher Quilty: And final question just because I don't pay as close attention to the maritime market. Any notable trends due to tariffs or global geopolitical situations that you're watching in terms of the demand and uptake on the maritime side? Brent Bruun: Yes. Well, of course, we watch it, and we pay attention to what's going on, but we're not seeing any significant impact from tariffs or the geopolitical environment. Operator: I'm showing no further questions at this time. Thank you for your participation in today's conference call. This does conclude the program. You may now disconnect.
Operator: Good day, and welcome to the Vericel Corporation Third Quarter 2025 Earnings Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Eric Burns, Vericel's Vice President of Finance and Investor Relations. Please go ahead. Eric Burns: Thank you, operator, and good morning, everyone. Joining me on today's call are Vericel's President and Chief Executive Officer, Nick Colangelo; and our Chief Financial Officer, Joe Mara. Before we begin, let me remind you that on today's call, we will be making forward-looking statements covered under the Private Securities Litigation Reform Act of 1995. These statements may involve risks and uncertainties that could cause actual results to differ materially from expectations and are described more fully in our filings with the SEC. In addition, all forward-looking statements represent our views only as of today and should not be relied upon as representing our views as of any subsequent date. Please note that a copy of our third quarter financial results, press release and a short presentation with highlights from today's call are available in the Investor Relations section of our website. I will now turn the call over to Nick. Dominick C. Colangelo: Thank you, Eric, and good morning, everyone. The company delivered outstanding financial and business results in the third quarter with strong top line revenue growth and even higher profit growth, a significant inflection in operating cash flow, and continued progress across a number of key business initiatives. The company generated record third quarter total revenue, which exceeded our guidance for the quarter, record third quarter MACI revenue, which increased 25% over last year and the highest quarterly burn care revenue of the year as Epicel had one of its highest revenue quarters to date and NexoBrid had its highest quarterly revenue since launch. The strong revenue performance translated into significant profit growth and cash generation as the company delivered GAAP net income of more than $5 million and adjusted EBITDA margin of 25% for the quarter as well as record third quarter operating cash flow of more than $22 million. MACI's third quarter performance was driven by strong underlying business fundamentals as we continue to expand the MACI surgeon base and drive growth in biopsies with the launch of MACI Arthro. As anticipated, the strong MACI biopsy growth in the first half of the year, which outpaced implant growth to that point, drove an acceleration of implant and revenue growth in the third quarter. MACI also had another quarter of double-digit biopsy growth with record third quarter highs in both MACI biopsies and the number of surgeons taking biopsies. This momentum continued into the fourth quarter as we had the highest number of MACI biopsies and surgeons taking biopsies in any month since launch in October. In addition to the strength of the core MACI fundamentals, the early launch indicators remain very strong for MACI Arthro, which clearly is contributing to MACI's overall biopsy and implant growth. We now have more than 800 MACI Arthro trained surgeons through the end of October, and the biopsy and implant growth rates continue to increase substantially for trained surgeons and remain significantly higher than the growth rates for surgeons that have not yet been trained. In addition, early data indicates that the cohort of surgeons that have completed a MACI Arthro case to date have a markedly higher implant growth rate than biopsy growth rate, suggesting a higher overall conversion rate for MACI Arthro implanting surgeons. We believe that this dynamic may be driven by the fact that MACI Arthro is a less invasive procedure with the potential for improved patient outcomes. To that end, we remain focused on generating clinical data to demonstrate these potential patient benefits, including a shorter rehab period with MACI Arthro administration. Early data from ongoing investigator case series suggests a significant reduction in postsurgical pain, improved range of motion and a meaningful acceleration in the time line to achieving full weight bearing, following MACI Arthro treatment. These initial results suggest very positive outcomes, which could also lead to a shorter overall recovery time line for patients. We expect to see these cases presented at industry meetings in early 2026 as well as in future publications, and we continue to work with additional surgeons as they complete MACI Arthro cases to collect prospective outcomes data in our MACI clinical registry. Finally, the MACI sales force expansion is on track to be completed in the fourth quarter, with the new reps supporting current territories this year and moving into their new territories at the start of next year, which will support our significant fourth quarter volume growth and position MACI for a continued strong performance for the full year in 2026. In terms of our longer-term MACI growth initiatives, we remain on track to initiate the Phase III MACI Ankle clinical study this quarter, which represents a substantial growth opportunity for MACI and would enable the company to expand into other orthopedic markets. We also remain on track to initiate commercial manufacturing for MACI in our new facility next year, which is designed to meet both U.S. and global manufacturing requirements and will allow the company to potentially commercialize MACI outside the United States. To that end, we're initiating a stage approach to our MACI OUS expansion with the first phase targeting a planned MACI launch in the U.K. This is an ideal first step for OUS expansion in that the U.K. has an international mutual recognition procedure that allows for accelerated approval and market access. There's a high level of awareness and surgeon advocacy for MACI given that the product was previously marketed in the U.K. There's an established reimbursement pathway for this technology given a prior positive NICE opinion for MACI, and there are concentrated points of care with a dozen or so centers of excellence for the treatment of cartilage injuries in the U.K. We'd expect to submit a marketing application in the middle of next year and potentially launch MACI in the U.K. in the first half of 2027 as we seek to expand the long-term growth and value creation opportunities for the company. In summary, MACI remains the clear market leader for knee cartilage repair with a significant competitive moat. Based on the strength of its underlying business fundamentals, we believe that MACI is very well positioned for a strong close to 2025 and continued strong growth in 2026 and beyond. The early launch indicators for MACI Arthro remain very strong and clearly are contributing to the overall biopsy and implant growth for MACI. As we move into 2026, we expect to capitalize on having a full year to engage with the current MACI Arthro trained surgeons and to continue to meaningfully expand the number of trained surgeons next year. In addition to increasing the MACI sales force to drive further growth, we're also supporting the expanded MACI sales team with additional investments across our sales operations, marketing and medical functions to enhance our operational excellence and commercial execution and create additional opportunities for surgeons to engage with Vericel. We believe that all of these initiatives will reinforce MACI's leadership position and drive continued strong revenue and profit growth in 2026 and the years ahead. I'll now turn the call over to Joe. Joseph Mara: Thanks, Nick, and good morning, everyone. The company delivered very strong financial results in the third quarter with record total revenue of $67.5 million. MACI had a strong quarter with revenue growing 25% to $55.7 million, which was above the high end of our guidance range for the quarter. Importantly, year-to-date MACI revenue growth is over 20% with its growth rate having increased each quarter during the year. Burn Care also had a strong third quarter with revenue of $11.8 million, which increased 21% sequentially over the second quarter. Epicel revenue of $10.4 million was the highest quarter of the year and one of its highest quarters to date, while NexoBrid revenue of $1.5 million represented its highest quarterly revenue since launch, growing 38% versus the prior year and 26% versus the prior quarter. The company's substantial revenue growth translated into significant margin expansion with gross profit of nearly $50 million or 73.5% of revenue. Company also delivered GAAP net income of $5.1 million and adjusted EBITDA increased nearly 70% to $17 million or 25% of revenue, an increase of nearly 800 basis points versus the prior year as the company's profit growth continues to outpace our strong revenue growth. Finally, the company generated record third quarter operating cash flow of $22.1 million, nearly matching the fourth quarter of last year. And with just $2.6 million of CapEx during the quarter, the company achieved record free cash flow of nearly $20 million, ending the quarter with $185 million in cash and investments as the expected inflection of our cash generation following the completion of our new manufacturing facility is now being realized. Turning to our financial guidance. We expect full year total revenue of approximately $272 million to $276 million. For MACI, we are maintaining our revenue guidance expectations of low 20% growth for the full year and expect full year MACI revenue of approximately $237.5 million to $239.5 million and fourth quarter revenue of approximately $82 million to $84 million. Given MACI's strong third quarter results and expectations for its continued strong performance in Q4, MACI remains on track for a significant acceleration in revenue growth from 18% in the first half of the year to approximately 23% in the second half of the year. For Burn Care, we expect full year revenue of approximately $34.5 million to $36.5 million, with fourth quarter revenue of approximately $6.5 million to $8.5 million as Epicel trends to date in the fourth quarter are similar to Q4 of last year. I would also note that we are not assuming any additional NexoBrid revenue related to the BARDA RFP process initiated in August, although there is potential for incremental NexoBrid BARDA revenue in the fourth quarter. From a profitability perspective, we have reaffirmed our full year profitability guidance of gross margin of 74% and adjusted EBITDA margin of 26%. For the fourth quarter, we expect gross margin of approximately 77%, approximately $50 million of total operating expenses, which includes the investments related to our recent sales force expansion and adjusted EBITDA margin of approximately 40%. Overall, 2025 is set up to be another positive year for the company with strong top line growth as well as significant margin expansion and profit growth. As we look ahead to next year and beyond, we believe that the durable growth of our portfolio positions the company to sustain strong top line growth in the years ahead and supports our midterm profitability targets that we announced earlier this year of gross margin in the high 70% range and adjusted EBITDA margin in the high 30% range by 2029. This now concludes our prepared remarks. We will now open the call to your questions. Operator: [Operator Instructions] We'll move to our first question. Joshua Jennings: This is Josh Jennings from TD Cowen. Is that -- am I coming through okay? Joseph Mara: We can hear you fine. Joshua Jennings: I'm sorry I got operating notice. I didn't hear my name called. So maybe just -- I appreciate your comments. Congratulations on the strong 3Q results. Your comments just a moment ago, Joe, on 2026 continued momentum. Just sorry for the typical question, a little bit too early prior to 2026 guidance, but maybe just for the MACI franchise, just thinking about MACI Arthro contributions in 2026, additive versus cannibalistic of standard MACI and how we should be thinking about the MACI growth as we move into the coming quarters next year? I have one follow-up. Joseph Mara: Yes. So Josh, again, and thanks for the question. So first off, just a reminder, we haven't given any specific '26 commentary as of yet, but happy to give kind of our initial thoughts. Of course, we'll kind of give more formal guidance as we move into next year. I would say -- I'll kind of hit just briefly on both franchises, but certainly cover MACI. So, I would say across the portfolio, our expectations next year are very high. We have a number of impactful initiatives that we're very excited about across both franchises, particularly MACI. But I do think we'll be pretty prudent to start the year from a guidance perspective. So maybe just briefly starting with Burn Care, I think that one is pretty straightforward. So we talked about last quarter this kind of run rate concept, which we think is appropriate. We said we would adjust it kind of as needed on a quarterly basis. But if you look at our run rate over the last several quarters, we've kind of been in that $9 million to $10 million range on burn care. So I think as a starting point for next year, kind of being in that range, call it in the high 30s on a full year basis next year is a good place to start. We do have expectations that NexoBrid will continue to increase. Certainly, there remains a possibility of some potential BARDA-related revenue that could materialize. But just given Epicel's variability, we're just going to be prudent on that, and I think that one is pretty straightforward. So from a MACI perspective, I would say, as we think about the guidance and kind of what next year looks like, if you kind of look at where analysts are, I mean, most analysts are kind of right around 20% on a full year basis, plus or minus. We think that's a good starting point as we think about '26. If you look at where we were on a full year basis last year, MACI was 20%. It's 20% on a year-to-date basis this year. So we're not going to get ahead of ourselves and plan to start the year guiding above the trends of that 20%. So again, that's a good place to start. You can also look at kind of the incremental revenue on a year-over-year basis. That points to something kind of similar in that $40 million plus range. Again, we don't want to get ahead of ourselves. And I guess kind of the last point I will make on the arthro question. I think as we think about '26 and really moving forward, we're not really thinking about this as kind of arthro versus non-arthro. We're thinking about this from a MACI total level. But if you kind of step back and think about the progression during the year, I think we're seeing exactly what we wanted to see as we kind of march through the year. So first off, great foundation in terms of engagement with surgeons. We're up to 800 trained surgeons. I think the majority of those are either new to MACI or new to smaller defects. So that's exactly what we'd want to see. The second point there that we've talked about for a few quarters now is we are seeing higher biopsy and implant growth after surgeons are trained. So that's obviously exactly what we want to see, and we think that could be impactful over time. And then the last point, early days, but when we look at our arthro implanters, so the surgeons that have done arthro implants, we're actually seeing signals of a higher conversion rate. So, I mean, if you kind of look at that collectively, that is a pretty strong data set and consistent to what we hear externally. So good signals on Arthro for sure. But I would say, certainly, we're mindful of that, but we're just not going to get ahead of ourselves in terms of a planning assumption or guidance next year and would rather start the year a bit more prudently, which we think sets us up for success as we move throughout the year. Joshua Jennings: Appreciate that. And it's great to see the conversion rate thesis playing out for MACI Arthro. We've anecdotally kind of gotten back from some surgeons that patient demand for MACI Arthro is increasing. More patients are seeking out ortho surgeons that perform MACI Arthro or coming in requesting MACI Arthro. Just wondering if that -- if what we're picking up is a trend and whether that's helping kind of drive surgeon adoption rates, surgeons hearing from patients and then they're getting more interested or also driving volumes? But anything you can share on that dynamic would be helpful. Dominick C. Colangelo: Josh, it's Nick. Yes, I mean, as we've talked about repeatedly, we've heard and seen the anecdotal feedback since the early days with MACI Arthro. There's a lot of social media activity from top MACI Arthro implanters. That certainly can be one contributing factor to sort of patients' awareness of a MACI Arthro option. So that makes perfect sense to us. And as Joe mentioned, besides the anecdotal kind of feedback we've been getting, which has been very positive. Everything -- the parameters that Joe mentioned just sort of line up with everything we expected to happen, and it's the progression that we've been talking about for the entire year. So yes, really kind of pleased with the trends. And I think there's -- makes a lot of sense that patients would be interested in a less invasive procedure that has potential benefits in terms of faster recovery and potentially overall rehab time lines. And then, of course, the surgeon interest. We're well ahead of where we expected to be on trained surgeons for the year. So that awareness and engagement has been really positive as well. Operator: We'll move to our next question from Richard Newitter with Truist Securities. Richard Newitter: Congrats on the quarter. I just wanted to get a better understanding of where you're potentially seeing MACI Arthro actually potentially getting used where the traditional MACI was not? . Just the cannibalization versus market expansion, anything anecdotal that you can give us there? And then I have a follow-up. Dominick C. Colangelo: Rich, it's Nick. So I think it's kind of continuing the trends that we've talked about on the past quarters. And again, we don't really -- cannibalization is not sort of how we think about this. We look at increasing MACI utilization and whether a surgeon implants MACI through a mini arthrotomy or small open incision or arthroscopically, that all contributes to the strong MACI growth that we are seeing. So as we talked about before and as Joe alluded to, when you think about it from a surgeon perspective, the trained surgeons and now the biopsying and implanting surgeons come from existing MACI users, but also new users who were former open targets or the new arthro-only targets that we added. And the training kind of breaks down, as we talked about before, roughly 1/3 of sort of the former -- the MACI users who were primarily condyle users and then 1/3 from those that did both condyle and femoral condyles and then 1/3 new users, whether they were open targets or the new targets. So good distribution of surgeons, all of whom are taking biopsies and obviously doing implants. And then from a defect location or a patient perspective, we've talked a lot about that we've seen use not only on the femoral condyles, but also in areas of the knee like the trochlea and tibia, even a few patella cases here and there. And that, I think, will continue, especially as we think about the continued innovation with the MACI Arthro instruments where we will work with surgeons, design the next version 2.0 of MACI instruments that will allow access to different portions of the knee and so on. So I think it's pretty broad-based as we've been talking about all year and supports the growth that we've seen in this third quarter. Richard Newitter: Okay. That's really encouraging to hear. I'm just curious, just given where you are in kind of a new product launch here. As we look to next year, understanding you might not want to provide official guidance, totally understand that for '26. But anything that we should be aware of on the cadence on revenue or on the P&L? Just -- it's been a little bit counterintuitive for the last 2 years and just to preempt any surprises as we all calibrate our models into next year? Joseph Mara: So thanks, Rich, for the question. This is Joe. So I would say, as we go into any year, I mean, I think from a MACI perspective, there's always going to be that seasonality. I mean it can certainly ebb and flow a bit on a quarterly basis. I would say one thing as we're thinking about -- we're talking about the full year, but we have tended to see in the last couple of years that the first quarter has tended to be at kind of a lower growth rate for whatever reason coming off Q4. So I mean that, of course, is a dynamic we've seen that I would point out, that was present in the last couple of years. So that's probably one piece. In general, I would say it typically follows a pattern as we've seen. And again, it can vary a bit by quarters, but halves tend to look pretty similar. So nothing I would call out, obviously, on the burn care side, which I don't think you're necessarily getting to. But clearly, there can be variability there. And again, we're going to kind of stick with that run rate framework, and we'll adjust as needed, as we've done in the fourth quarter here just based on what we're seeing because we certainly want to make sure we're not going to get ahead of ourselves in any quarter on burn care. So that's more of a framework question. I would say on the -- maybe just to hit the profitability for next year and kind of the profitability concept. I mean nothing to call out next year quarterly. But I would say, as you're thinking about the year and just going forward, I'd say, first off, I think it's pretty notable if you look back at Q3 that this is -- of course, the fourth quarter, just based on the MACI trajectory is always our highest revenue quarter, highest margin quarter, et cetera. But to be net income positive at a $5 million level, I think, is pretty notable in the third quarter. We achieved 25% adjusted EBITDA margin in the third quarter, which is also pretty notable. And then just on the cash generation for a moment, I mean, whether you look at free cash flow or operating cash flow, you're kind of around $20 million for the quarter. So we talked a few years ago about that P&L inflection that we're starting to really get on the stronger side of. And I think we're just starting that kind of inflection on the cash generation piece. In terms of the fourth quarter, obviously, we would expect a strong quarter there as well, as I talked about in the remarks. Next year, I would say, as you think about next year, I think we would expect on the margin side things to continue to tick up on both the gross margin and the adjusted EBITDA side. Probably want to just be a little bit prudent there to start the year in the sense that the last 2 or 3 years have been really strong and probably a bit ahead of our expectations in terms of how quickly the margin has gotten up the curve. But I certainly think kind of being up, call it, 1 point in gross margin, maybe 1 point or 2 on adjusted EBITDA is a reasonable starting point. We will have to -- there will be investments on the sales force on a full year basis on the Ankle trial ramping up, cost of goods sold will absorb some of the new buildings. So that has to be contemplated next year. Lastly, I would just say, I think from a broader lens, if you kind of look at where the kind of financial trajectory of the company is and our P&L metrics, they are really kind of starting to ramp up pretty significantly. So last year we had $50 million of adjusted EBITDA. This year our guidance is pointing to $70 million. So we're already starting to get into that $100 million zone on adjusted EBITDA level now. And so, if you assume even similar revenue growth over the next few years and a high 30% adjusted EBITDA, I think it's certainly reasonable to be kind of getting close to that $200 million EBITDA range by 2029, call it. So, I think we're pretty excited about, obviously, everything that's going on in the MACI's side and across the business, but we're also very focused on that kind of financial trajectory in '26, but really over the next several years, which could be pretty significant. And again, we think it makes us pretty unique for a company of our size and scale. Operator: We'll take our next question from Ryan Zimmerman with BTIG. Ryan Zimmerman: Can you hear me okay? Nice quarter. Just given the biopsy trends you saw early in the year, the results this quarter, MACI -- the MACI guidance was tightened. And I'm wondering why fourth quarter wouldn't step up maybe relative to your prior guidance given what you're seeing and your commentary about biopsies in the third and into the fourth quarter? Joseph Mara: Yes. So thanks for the question, Ryan. So I'll take that. I mean I think, clearly, a very strong third quarter, as we referenced, the biopsies at the start of the year led to that higher implanted revenue growth, which is great to see. To your point, the leading indicators have been strong. I'd say particularly the biopsies, which is, of course, a key leading indicator for us. I think in terms of the guidance, I would say another dimension there is, with that strong third quarter, it really derisks where we need to be in the fourth quarter to achieve our full year guidance. So, to your point, we're essentially maintaining the full year guide at the same level. It kind of points to about $82 million to $84 million in the fourth quarter, which is right in line with kind of where estimates and consensus are. But I'd also say this kind of points to a pretty strong acceleration still from an H1 to H2 perspective, depending on where you're in the range, it's 18% to call it 22% to 23%. So a pretty significant step-up in the second half. It also gives us, I'd say, a pretty achievable step-up Q3 to Q4. And I'd just say broadly, we just want to be prudent here on Q4. We recognize there certainly remains a wider range given some of the leading indicators. We've got a great foundation of biopsies in place, but Q4 is our largest quarter. December is our highest month because there always can be some variability at quarter end, particularly with the year-end holidays. So we think this is appropriate. It's an achievable step-up. And I would say just we do not want to get ahead of ourselves as we close out the year. Ryan Zimmerman: Yes. Okay. Fair enough. And the other question, and you kind of talked about this, Nick, which is you're seeing adoption in MACI Arthro. But I guess I'm not clear. I mean, what -- how much MACI Arthro sales were in the third quarter? And what are you expecting relative to legacy MACI, if you will, as we convert and move into the -- both the fourth quarter, but then into 2026? I mean, if you were to kind of think about it with broad strokes, I mean, does it entirely convert over this next quarter? Do you convert over the course of 2026? I guess I'm just curious kind of how you think about the rise of MACI Arthro relative to maybe the decline of legacy MACI? Dominick C. Colangelo: Yes. So we kind of don't, like we said earlier, think about a decline of legacy MACI. I mean, legacy MACI was principally focused on patella defects and large defects anywhere in the knee. And I'd say that patella defects is one of the strongest, if not the strongest growth drivers, for core MACI, and that remains the case. So they're not like a decline in the core MACI. And again, you're never going to have full sort of switch over to MACI Arthro because MACI Arthro instruments are designed for the smaller defects. If it's above 4 square centimeters, you're doing an open procedure. If it's a patella case, you're typically going to do an open procedure. And so the small defects were the smaller part. We had lower penetration there. That's the whole thesis for launching the MACI Arthro instruments. And so, as we've seen an increase in biopsies and implants on smaller condyle defects, those are kind of MACI Arthro attributable cases. So, again, we don't think about it as it's got to be blank on the core and then blank on arthro. You can often start intending to do an arthro case and flip to open if the defect got bigger since you did a biopsy. I mean, it's almost like a halo effect on the whole brand. And so, that's how we approach it. But no [ doubt ], as we've talked about that the trends for trained surgeons and how they're behaving is exactly what you want to see and supports the overall growth for the brand. Ryan Zimmerman: Okay. That's very helpful. And if I could sneak one last one in, and I'll hop back in queue. If you go back, some of the insurance carriers and their policies don't restrict lesion size. Some do. Have you had to work through that? And is there any impact or any gating factor there in terms of lesion size as you launch MACI Arthro? Dominick C. Colangelo: Yes. So the answer -- short answer is not at all. As you mentioned, there are some plans that don't have any sort of size restrictions or parameters there. There are some that require that the defect be 1, 1.5 or 2 square centimeters or above. That's again exactly what the MACI Arthro instruments are designed for. They are 2, 3 or 4 square centimeter defects. So really, that has not been an issue at all. And as we've talked about often, every major medical plan has a policy, a medical policy for MACI and our prior approval rates are up in the mid-90% range. So for the appropriate patients, MACI gets approved. Operator: We'll take our next question from Caitlin Roberts with Canaccord Genuity. Caitlin Roberts: Congrats on the quarter. Just to start with Burn Care, can you just walk us through the puts and takes here? You said Epicel you expect similar Q4 dynamics this quarter and last year. And then the BARDA contract, any more color on that and why there could be some BARDA upside to NexoBrid? And also has the new Category III code for NexoBrid helped uptake there? Dominick C. Colangelo: Caitlin, this is Nick. So just on the Epicel trends coming into the quarter that Joe referenced, I mean, what we said was to start the quarter, and again, we're still relative -- we're only 1/3 of the way through the quarter that the trends to date, which essentially is sort of the biopsies that we had coming into the quarter and in the first weeks of the quarter were more like Q4 last year. So that's what we're going to guide to. As you know, we still have a good amount of the quarter to go. The biopsies for patients we're going to treat in December aren't even sort of in-house yet. So we just don't have the visibility on that. So we -- as Joe mentioned, we want to be very prudent in sort of making sure that we don't get ahead of ourselves on Epicel guidance given its variability. On the BARDA opportunity, as you know, the RFP is public and was intended to sort of begin on October 1st. Obviously, we're all aware there's a government shutdown. So things sort of came to a screeching halt. But we are hopeful and expect that when the government reopens, that there's an opportunity to move forward on that RFP and the procurement, et cetera, and advanced development of NexoBrid. So more to come on that. But obviously, until that happens, we can't really kind of share much more about it. And then on the CPT code, I think we have, as we've talked about, had a pretty good number of P&T committee approvals for NexoBrid, up in the 70 range and more than 60 ordering centers. So kind of in the CPT world, I think we feel comfortable. There's pretty widespread utilization. And we would expect that next year we'll pursue a permanent code, which would then become effective in 2027. So that would be our plan right now. So more to come on that as we get into next year. Caitlin Roberts: That's great. And then just maybe touching on the MACI sales force hiring. Where are you now? And you noted you're on track to be completed in Q4. Any changes to the amount that you noted last quarter that you would hire into the year? Dominick C. Colangelo: Yes. No, we said we were going to be adding 25 new territories and 3 new regions, and that is essentially virtually complete, [ onesie, twosies ] left to go on that. So we are extremely pleased with the quality and caliber of the talent we've brought in. If you're in the sports medicine business, this is a great place to be with MACI. So 0 issues in attracting top talent and couldn't be more excited to kind of have this expanded team as we -- again, to support our Q4 volumes, but also as we move into next year. And so really excited about that. And that, quite frankly, is just one piece, as I mentioned, of sort of the overall sort of investments and enthusiasm around MACI, so expanding the sales force. we're really proud to have kind of built this franchise from a $30 million product 10 years ago to close to $0.25 billion now, and we're really focused on the people, the resources, the processes that we have to have in place to take it from $0.25 billion to $0.5 billion product over the next several years. And that's what we're focused on. The sales force expansion is one piece of it. As I alluded to in my prepared remarks, we're also focused on additional marketing, sales ops and other kinds of investments in medical affairs and engagement with our key customers to make sure that we drive and achieve what's clearly right in front of us as we move forward over the next several years. Operator: We'll take our next question from Mike Kratky with Leerink Partners. Michael Kratky: Congrats on a nice quarter. You've continued to show great progress on some of the leading indicators like biopsies and surgeons taking biopsies. Can you just clarify how much of your 3Q growth for MACI is being driven by implant volume versus pricing? Have you seen some of these really positive leading indicators start to materialize in your MACI volume growth? And how has that tracked relative to your expectations? Joseph Mara: Yes. Mike, thanks for the question. So yes, I mean I'd say kind of the acceleration that we're seeing in Q3 in terms of the performance, I mean, that's really volume driven. As we've talked about early in the year, we obviously had some strong biopsy growth. The implant growth was not tracking at the same level. And so what we really saw in the third quarter, which is what we anticipated, was really the volume from an implant perspective really ticked up. And then again, as you kind of think going forward, obviously, the most important indicator as we look forward, or one of the most important, of course, is that biopsy growth. And that's really something that has continued to be strong, and Nick referenced October was really strong as well, I think our highest month ever. So that's -- it's really kind of been driven by that piece, both in Q3. And then again, you think about those volumes as we start Q4, that's what's going to drive us going forward. Operator: We'll take our next question from Mason Carrico with Stephens. Unknown Analyst: This is Ben on for Mason. In terms of the MACI Arthro trained surgeons, you called out that 1/3 split between surgeon types. Could you compare and contrast arthro biopsy growth and maybe arthro procedures across these different groups? Dominick C. Colangelo: Yes. So just to be clear, we talked about the fact that we had former MACI users, about half of whom were condyle-only surgeons or users. And then we had the other half of those prior users that did both femoral condyle and patella cases and then we have new users. And so it kind of splits between those 2, 1/3, 1/3 or 3 and 1/3. And to be honest, we've seen kind of biopsy growth across the board. And I don't think there's any sort of notable sort of groups that are outperforming the others. Obviously, if they were smaller users and they ramp up even a handful, it's a high biopsy growth rate or if you're a new one, it's a really high biopsy growth rate. So I think the rates across those segments are relatively similar. And it's -- as Joe alluded to, it's pretty exciting for us to say between the new users, 1/3 of the surgeons being trained and then another 1/3 coming from Patella only. I mean, that's 2/3 of these trained surgeons who probably didn't think about using MACI or certainly didn't in smaller condyle defects. And so that's, again, exactly what we would have wanted to see this early in the launch. Unknown Analyst: Great. And then you've historically called out mid to high single-digit pricing for MACI. Could you speak to the durability of that pricing moving forward or just the durability of that in light of the current reimbursement environment? Dominick C. Colangelo: Yes. So again, just so everybody understands, MACI is reimbursed under a medical benefit. So it requires prior approval by each plan before a case can move forward. So obviously, the pricing is known when plans include MACI in their medical benefits. They know the appropriate patients are going to be treated because they have to approve them in advance. And that's what leads to sort of these high sort of mid-90% prior approval rates that we've achieved consistently for the last decade since we launched MACI. So some of the other things, we don't have a big, obviously, Medicare business at all. And so a lot of this sort of macro stuff that's circulating out there doesn't really apply to MACI. In terms of the sort of mid to high single-digit price increases that we've sort of routinely taken, I mean, we do a lot of pricing research with plans and hospital administrators. And again, this is viewed as a very sort of high-tech product where -- more like a biologic in the pharma space where mid to high single-digits are pretty routine. So we're pretty comfortable in our pricing practices and our approach. Operator: We'll move to our next question from Jeffrey Cohen with Ladenburg Thalmann. Jeffrey Cohen: Congrats on the quarter. Two specifically. Firstly, Joe, perhaps you could talk about R&D a bit and anticipation for Q4 full year and general commentary there? Joseph Mara: Yes. I mean so we haven't -- from a spend perspective, broadly, I mean we don't typically kind of get into the pieces. But I would say, I think we called out -- as you're thinking about kind of Q4, we called out about $50 million of total OpEx, which I think kind of gets us back to a similar point on a full year basis that we've been talking about all year. And I think as you think about kind of R&D going forward, and really kind of all the buckets, again, I referenced it earlier, but there's sort of 2 key incremental investments on the operating expense side, which are the sales force expansion, and Nick talked about we have some related investments around that, which I think will be important, and that will be incremental next year. And then the Ankle trial, really next year will become much more operational where you're going to see more sites and potentially patients kind of ramping up. So I would expect that to increase particularly next year, but we'll kind of get to where next year's spend is as we get into next year, probably at a somewhat similar rate in terms of growth this year, perhaps a bit higher just with some of those investments. But again, on Q4, we did specifically call out $50 million, just to be clear of kind of what was expected there. Jeffrey Cohen: Okay. Got it. And then secondly, I know, Nick, you brought up postsurgical pain. Could you talk about that a little more detail as far as anything that has been noted or you've noted as far as the medical treatment as well as the weight bearing and some of the [ times ] and some of the medications that you've understood so far? Dominick C. Colangelo: Yes. So this started way back even in the first quarter when we were talking about the fact that surgeons who had done the initial MACI Arthro cases were posting on social media about sort of these immediate positive benefits in terms of postsurgical pain or range of motion or sort of back to full weight bearing. Those are kind of the key early indicators. And as expected, both by us and surgeons through our market research using the product, when you have a less invasive surgery, you have less arthrofibrosis, so the knee is not swollen, you get better range of motion, et cetera. And so it just promotes a faster -- potentially faster healing process. And we've been really focused. We were fortunate to be able to get MACI Arthro instruments on the market quickly through the human factor study pathway, which didn't involve a clinical study. So obviously, we didn't have the clinical data supporting a faster post-surgical recovery. But that's what we've been focused on, and I alluded to in my comments that through case series and through the MACI clinical outcomes registry, we've been gathering that data and would expect in early 2026 that those -- that data will be presented at industry conferences, ultimately, hopefully make its way into publications. And we think in the progression of MACI when you go -- Arthro when you go from high awareness and training, which obviously we've checked that box, to sort of surgical technique demonstrations, which you see, for instance, at the International Cartilage Repair Society meeting that was recently held in Boston, very effective presentation there and then you move into these clinical benefits for patients. That's sort of the progression you would expect to see for MACI Arthro. And -- so that's kind of exactly what we're seeing and sort of why we made those comments in our prepared remarks. Unknown Analyst: Nick and Joe, can you hear me okay? This is Arthur on for RK. So I just had a quick question on the MACI side. So maybe for the MACI Arthro, could you give us more color regarding the timing from the surgeon finished the training to they are taking their first biopsy? How does that compare to the initial MACI launch? And on the conversion-wise, you mentioned there's a high conversion rate in terms of Arthro. But how about the average time to -- for the conversion, how that compared to the open surgery? Dominick C. Colangelo: Yes. So just starting with the training, it's very much like MACI -- core MACI when we launched where training is never really a barrier. You can train online, you can do cadaver labs. We have MACI Arthro synthetic knees they can practice on. And obviously, in the first cases that were done, biopsies were already taken and then they trained and did the MACI Arthro procedure. So there's really no sort of gating item around training. Often, if there's a surgery that a surgeon intends to do arthroscopically, those get trained ahead of the training. So there's really not a connection between whether you take a biopsy first, you get trained first and then take a biopsy, et cetera. So any of those scenarios, MACI Arthro training, we make a lot of different methodologies available to surgeons, and they just kind of do what they feel most comfortable with. In terms of the conversion rate, I think we mentioned on our last call that we haven't seen any sort of differences in the MACI Arthro conversion time lines versus regular. So kind of early days on that, but kind of similar at this point. Unknown Analyst: And last one, could you discuss the timing and scale of the MACI Ankle phase? How should we think about the data read out there? Dominick C. Colangelo: Well, just in terms of the timing, we said we're set to initiate the study in the fourth quarter of this year. We've kind of built a time line very much like the pivotal study -- the summit pivotal study for the indication in the knee, which was 2 years to enroll, 2-year follow-up and then, call it, 18 months plus on the regulatory pathway. So we've always said this is kind of a [ 2030 ]-plus opportunity. That's a very important part of our sort of long-term strategy for MACI with the core business, obviously, with a ton of momentum, MACI Arthro, then MACI OUS expansion opportunities and then MACI Ankle following that. So just kind of this sort of long runway of growth opportunities for MACI, particularly with no like competition on the horizon. Okay. Well, I believe that concludes all of the questions. So I just want to thank everyone for joining us this morning. Obviously, we had an outstanding third quarter and very well positioned for a strong close to the year and to continue to deliver a unique combination of sustained high revenue growth and profitability in 2026 and the years ahead. So we look forward to providing further updates on our progress on our next call. And thanks again, and have a great day. Operator: This concludes today's call. Thank you again for your participation. You may now disconnect and have a great day.
Operator: Good day, everyone, and welcome to today's AMG Q3 2025 Earnings Conference Call. [Operator Instructions] Please note, this call is being recorded. [Operator Instructions] It is now my pleasure to turn the conference over to Thomas Swoboda. Please go ahead, sir. Thomas Swoboda: Yes. Thank you, Jen, and good afternoon, everyone. Welcome to AMG's Third Quarter 2025 Earnings Call. Joining me on this call are Dr. Heinz Schimmelbusch, the Chairman of the Management Board and Chief Executive Officer; Mr. Jackson Dunckel, the CFO; and Mike Connor, the Chief Corporate Development Officer. We published our third quarter 2025 earnings press release yesterday, along with the presentation for investors, both of which you can find on our website. They include our disclaimers about forward-looking statements. Today's call will begin with a review of the third quarter 2025 business highlights by Dr. Schimmelbusch. Mr. Connor will comment on strategy and Mr. Dunckel will comment on AMG's financial results. At the completion of Mr. Dunckel's remarks, Dr. Schimmelbusch will comment on outlook. We will then open the line to take your questions. I now pass the floor to Dr. Schimmelbusch, AMG's Chairman of the Management Board and Chief Executive Officer. Heinz Schimmelbusch: Thank you, Thomas. Our Q3 adjusted EBITDA of $64 million represents a 58% increase versus Q3 last year, driven by continued momentum in AMG Technologies with AMG Engineering's order backlog as well as profitability in AMG Antimony. On top of that, we benefited from a $5 million compensation settlement at AMG Vanadium for an equipment failure related to our growth investment in Zanesville. We remain focused on the elements within our control, executing operationally, strengthening our balance sheet and streamlining our portfolio. The divestment of our natural graphite business represents a key step in this strategy, and we expect the transaction to close later this year. While our 2 main products, lithium and vanadium continue to face low pricing, constrained for profitability and cash generation in the near term, AMG is actively advancing expansion projects across our portfolio. These initiatives are closely aligned with governmental efforts to onshore strategic materials production and strengthen domestic supply lines in the United States. Construction of our chromium metal plant in Newcastle, Pennsylvania is progressing on schedule with a start-up targeted for Q2 '26. Upon completion, it will be the only chrome metal facility in the country reinforcing AMG's role as a key enabler of national material security. We also expand our U.S. titanium alloys capacity at the same facility to keep up with our customers' increasing demand for aerospace applications. In addition, we are evaluating the establishment of a tantalum and niobium metal plant in the U.S., leveraging our long-standing experience in both metals in Brazil and our unique backward integration into AMG Engineering processing technology. This project if executed, significantly enhances our position in the aerospace sector in North America and globally. Similarly, we are assessing the construction of an antimony trioxide production facility in the United States, the first of its kind in North America with a final investment decision expected in the first half of '26. Leveraging AMG's unique positioning and technical expertise, we are confident in our ability to execute these projects efficiently and with limited capital investment financing from ongoing operating cash flow now -- generated from our ongoing cash flow. Together, this initiative, combined with the expected recovery of the lithium and vanadium markets down the road, position AMG for sustained long-term value creation. We look forward to providing further updates as these projects progress in the coming quarters. Let me now hand over this to Mike Connor. Mike? Michael Connor: Thank you, Heinz. Good day, everyone. I will now provide an update on AMG's strategic positioning, highlighting key developments and progress made over the past quarter. In October, we signed a definitive agreement with Asbury Carbons for the sale of our graphite business. This transaction reflects our commitment to active portfolio management, and we will use the proceeds from this transaction to strengthen our balance sheet and focus on our core growth businesses. AMG is uniquely positioned across its portfolio to strengthen Western critical material supply chains as governments in the Americas, EU and Gulf states intensify efforts to secure access to strategic raw materials, our diversified platform stands out as both uniquely positioned and increasingly attractive to partners and policymakers alike. Importantly, control of critical materials today is often determined less by ownership of raw material resources and more by mastery processing infrastructure, technology know-how and the ability to scale refining capabilities. This processing know-how defines the modern geopolitical landscape of material supply. AMG's integrated approach of combining advanced processing technology with regionally distributed production directly addresses this challenge. Our multiregional, multi-material footprint not only reduces supply vulnerability, but also positions AMG as a unique enabler of critical material independence for Western economies. In October, AMG Lithium signed an MOU with Beijing Easpring for the supply and offtake of battery-grade lithium hydroxide. Both companies' investments in Europe underline the joint commitment to a localized battery supply chain. As a first step, we are collaborating closely with Easpring to ensure a successful qualification of AMG's lithium plant while negotiating a binding offtake agreement. Our partnership with Easpring underscores that the European battery value chain is rapidly materializing. This tangible progress is an encouraging indicator of the region's growing capability to build a competitive and self-sustaining energy ecosystem. And after successful commissioning our Bitterfeld lithium hydroxide refinery in May and having produced material in specification, we are making progress on the ramp-up of the plant and the qualification progress with customers as planned. We are now producing multi-ton batches from raw materials of mixed origin according to specification. This marks a significant step on our way to commercial production. Finally, in Saudi Arabia, we remain on schedule with our joint venture Supercenter project in the detailed engineering phase. The EPC contract has been awarded on a full notice-to-proceed basis, and preconstruction works are expected to begin very soon. This project exemplifies AMG's global execution capabilities and underscores how we combine deep technical expertise with alignment to local industrial policies, advancing long-term economic diversification and resource transformation. I will now pass the floor to Jackson Dunckel, AMG's CFO. Jackson? Jackson Dunckel: Thanks, Mike. I'll be referring to the third quarter 2025 investor presentation posted yesterday on the website. Page 3 shows our strategic announcements, including the sale of our graphite business. I'm pleased to report that the net cash proceeds for the sale will be approximately $55 million. Starting on Page 4 of the presentation, I'd like to emphasize Heinz's comments about the strength of AMG's portfolio. AMG's Q3 '25 adjusted EBITDA increased 58% since the same period last year despite the continued low lithium and vanadium prices. On Page 5, you can see the price and volume movements for our key products represented by arrows, which underscore our segmental results. I will cover these volume and price movements in the individual segment comments. AMG Lithium results are shown on Page 7. On the top left, you can see that Q3 '25 revenues decreased 33% versus the prior year, driven by an 8% reduction in lithium market prices, a 32% decrease in lithium concentrate sales volumes and a 64% decrease in tantalum sales volumes caused by shipping delays that will be reversed in Q4. These impacts were partially offset by higher average tantalum sales prices versus Q3 of last year. In Brazil, we are currently running at an annualized production rate of 110,000 tonnes due to the continued effect of the failure during Q2 '25 of one piece of equipment associated with our expansion project. As noted in yesterday's release, we are addressing this issue. Despite the decrease in lithium market prices and the depressed volumes, we remain profitable and low cost due to our multiproduct mining operation. AMG Vanadium results are shown on Page 8. Revenue for the quarter increased by 2% compared with Q3 '24 due largely to the increased sales prices in ferrovanadium and chrome metal, partially offset by lower volumes of ferrovanadium driven by production issues from our refinery suppliers. Q3 '25 adjusted EBITDA of $19 million for our vanadium segment was 81% higher than Q3 of last year. This increase was primarily due to the higher sales prices as well as the Zanesville compensation payment of $5 million. The results for AMG Technologies is shown on Page 9. The Q3 '25 revenue increased by $92 million or 59% versus Q3 '24. This improvement was driven primarily by higher antimony sales prices and stronger sales volumes of turbine blade coating furnaces in the current period. Adjusted EBITDA of $41 million during Q3 was more than double the same period last year. This increase was due to the higher profitability in AMG Antimony and AMG Engineering. Page 10 of the presentation shows our main income statement items. The key change on this page is regarding our tax expense, which was $7 million in the current quarter compared to $2 million during Q3 '24. The Q3 '25 expense was primarily driven by strong profitability in the quarter as well as tax expense from unabsorbed losses, partially offset by a Brazilian deferred tax benefit related to the appreciation of the Brazilian real. Page 11 of the presentation shows our cash flow metrics. Our Q3 '25 return on capital employed was 14.4% compared to 7.4% in the same period last year. Our free cash flow generation remained negative in the third quarter. The inventory buildup for our production ramp-up in Bitterfeld and adverse shipping schedules in tantalum have held back our free cash flow generation during the current quarter. We are optimistic about delivering positive free cash flow in the fourth quarter of this year. AMG ended the quarter with $544 million of net debt. And as of September 30, 2025, we had $220 million in unrestricted cash and $199 million available on our revolving credit facility. The resulting $419 million of total liquidity at the end of the quarter demonstrates our ability to fully fund all approved capital expenditure projects. Also, in July, we executed a maturity extension on our $200 million revolving credit facility to preserve our liquidity and reduce financing risk. The revolver maturity date was extended from November 26 to August 2028 with terms similar to the original agreement. Our term loan maturity date of November 2028 remains unchanged. We continue to expect capital expenditures to be $75 million to $100 million for 2025. And that concludes my remarks, Dr. Schimmelbusch. Heinz Schimmelbusch: Thank you, Jackson. Our AMG Technologies segment continues to perform particularly well, driven by a very high order backlog in AMG Engineering and high profitability in AMG Antimony. We update our estimate for the temporary tailwind from selling low-priced antimony inventories for -- of more than EUR 50 million to more than EUR 70 million for the full year of '25. We, therefore, increased our adjusted EBITDA outlook from EUR 200 million or more to EUR 220 million or more in '25. Over the last few years, we have provided you with financial guidance for the following year at the time of the Q3 results. Based on your feedback, we have decided to push forward our guidance publication for the full year results in line with our peers. We trust that this change will lead to improved guidance accuracy. Operator, we would now like to open the line for discussions. Operator: [Operator Instructions] And our first question will come from Stijn Demeester with ING. Stijn Demeester: I have 3, I will ask them one by one, if that's okay. First one is on the guidance. The low end of your EUR 220 million EBITDA guidance suggests an earnings slowdown in Q4 to a level of around EUR 28 million, roughly half the level that you achieved in Q4 -- in Q3 on an underlying basis. Is this driven by your usual conservatism? Or do you actually see elements that would justify such a slowdown such as the recent downtrend in antimony prices or other elements? That's the first question I have. Heinz Schimmelbusch: I apologize for being boring answering these questions referring to limited visibility. Now, in this particular case, we just experienced, to give you an example, the announcement of export restriction lifting by the Chinese government following the meeting with the United States on a presidential level. Then this announcement was followed by another announcement by China to point out that there will be procedures, which then will be developed to channel to use dual-use goods in a particular way. We don't know these procedures. There will be a variety of clarifications coming and then the visibility will slowly reappear of what that all means. Given those things, and in particular, the antimony example, we are living in rather volatile times. And therefore, we are sitting together as a Management Board and discussing thoroughly such statements about guidance. And they are not optimistic or conservative. They are just based on data, which has to be analyzed and then we come to that conclusion. This is a very thorough process. Stijn Demeester: Understood. Understood. Second question is on the graphite divestment. My perception was -- or other divestments, my perception was in the past that several units within technologies that are not engineering could be considered as non-core. Is this still valid for AMG Antimony or has the recently changed market dynamics changed your view on that front? Heinz Schimmelbusch: Very clearly, antimony was never a non-core business in AMG, but always a very contributive, steady and part of our portfolio. And based on technology leadership and our market position in the overall trade of antimony. And that market position and that technology leadership has enabled us to materialize opportunities as they were related to the export restrictions. We're very happy about that. It was a highly profitable period, and we continue to experience satisfactory results, which are distinctly better than what the average results were in the long past. We also want to point out that we just announced -- or I just announced in my introductory remarks that we intend to build. We intend, it's in an early stage because we are in feasibility studies, but that will be very materializing that we have a position to build an antimony trioxide plant in the United States. It would be the only material plant of that kind -- the only plant of that kind and it would be joining the other one and only plants which we have in the United States in critical materials as we build our position as partnering United States industries and government. Stijn Demeester: Understood. Then last question for now is on the cash flow. I believe the working capital further increased throughout the quarter. Can you maybe give some color on this increase? Is it structural? Or should we count on unwind in Q4? Jackson Dunckel: It should unwind in Q4. So some of it was due to shipping delays, as we said. Some of it is due to increased working capital in our lithium and vanadium businesses, but you should see unwinding in Q4. So as we often do, the fourth quarter is very strong from an operating cash flow basis. Operator: And we'll take our next question from Michael Kuhn with Deutsche Bank. Michael Kuhn: I'll also ask them one by one. Starting with your portfolio and recent discussions about raw material supplies. Obviously, rare earth is not a part of your portfolio as of now. Would that be something you would consider to add? And what would be, let's say, the time line and, let's say, the implementation steps that would be needed for such an expansion? Heinz Schimmelbusch: That's a very interesting question because it was asked -- we were asked as a broadly based really early in the market, critical materials company running a fairly vast portfolio in critical materials. We consider ourselves to be in the group of industry leaders in this. So we were asked many times, so what about rare earths? And so the question is very relevant. Now you might please take notice that we are in rare earths, not in resource -- presently resources of rare earths, but in processing technology of rare earths. In the rare earth downstream flow sheet, you need several applications, material applications, which involve metals, and, therefore, are being treated as high purity, necessary for magnetics, for example, are treated in vacuum furnaces. Since ALD is the world leader in vacuum furnaces, our AMG engineering star, we are deeply involved in the downstream industry of rare earth since a very long time. Now it is tempting -- was always tempting for us to combine our downstream know-how with a resource acquisition. As regard to resource acquisitions, we are particularly careful. We presently as regard to resources, we operate a highly successful large-scale lithium-tantalum mine in Brazil. So we are in resources. So in this screening process of opportunities to add resource capabilities to our downstream know-how, we are involved in this. And I would say this is a very thorough process. It is not academic. It's real. But I would say stay tuned would be a too aggressive statement. Michael Kuhn: Understood. But I guess, let's say, especially among the U.S. government, there is such a high interest that there could be scenarios imaginable where, let's say, some kind of support schemes could be enacted to, let's say, support such development? Heinz Schimmelbusch: Yes, of course. And we are in contact with that world. You are finding us here, this conference call is happening in Pittsburgh, Pennsylvania, which is indicating just visiting one of our expansion sites in the United States, which is our focus right now in expanding our portfolio and deepening our portfolio in line with what we see is necessary in the United States in onshoring and in improving the domestic value chains. And that includes, of course, rare earth. And you could see a business model which combines magnetics capabilities, production capabilities with a resource, which tailors the resource, adding such a thing, and have a uniquely vertically integrated operation. Michael Kuhn: Very interesting. Then one more question on portfolio consolidation. I think you were very clear in the context of antimony. Is there any other part in the portfolio that might be up for disposal, which you would regard rather as non-core? Heinz Schimmelbusch: Our portfolio is fairly elaborate and it is not really totally visible. So there are many parts which are very difficult to explain and very special. But surprisingly, there are corners here as the company develops and as our focus is increasingly pointed to products where we are clearly in the leadership group, non-core opportunities or opportunities to somehow streamline our portfolio occur. Now the last thing we want to do is to say what it is because that would be sort of in our -- when you think about negotiating strategies, that would be not optimal. I have -- Mike, do you want to add to this? Michael Connor: No, I think that's pretty clear. We constantly evaluate the portfolio. And if we identify opportunities to dispose of assets that we would consider to be integral to the key trends that we're working towards, we will dispose if we can get the right price in the right space, for sure. So we constantly work on that and maintain our portfolio as aggressively as possible. Michael Kuhn: Understood. And then last question on cash flow and, let's say, expansion projects. You mentioned you signed an EPC contract in Saudi Arabia now for this joint venture. I would be interested to know, let's say, what that would imply for the cash flow and for potential cash injections into that entity. And also regarding the potential U.S. expansions, obviously, your chrome plant, you mentioned that repeatedly will have a pretty short payback period for the other projects potentially underway, would those be similarly short? And yes, what kind of CapEx thinking should you apply, let's say, for the next 3 years generally? Jackson Dunckel: So let me start with ACMC, which is our Saudi Arabian plant. As we've said in the past, we are focused on nonrecourse project financing. We own 1/3 of that plant. And so our equity contribution would in turn be 1/3. And you would expect to see 70% of it financed by debt. So if you put all those numbers through CapEx estimates, it comes to quite a small number, which will not strain our balance sheet in any shape or form. And as we have more information, we'll share that with you. But we're in the beginnings of the project financing for that. In terms of other projects, the number that we told everybody for chrome was roughly $15 million. I will say that the incremental projects that we're considering are in that order of magnitude or less and have similar paybacks because of being located in the United States, which is chronically short of such critical materials. And therefore, we expect very strong paybacks as well. And then in terms of '26 and a longer look on capital expenditures, we'll cover that in February. But that -- hopefully, that gives you some guidance that we're not looking at big projects here or big expenditures. Operator: [Operator Instructions] And we'll take our next question from Martijn den Drijver with ABN. Martijn den Drijver: I have a couple, I'll take them one by one as well. My first question is about antimony. Have you now fully utilized the low-priced inventory that you had available? Or will there still be tailwinds in Q4 and possibly even into 2026? Jackson Dunckel: No, we would expect that to have fully been utilized. So no further inventory tailwinds in '25. Martijn den Drijver: And then my second question is on lithium. And you mentioned in the press release that the Bitterfeld plant is producing specification using raw materials of mixed origin. Can you elaborate a little bit on that mix supply? And what percentage of that raw material is off-spec material versus technical grade lithium hydroxide from China? And can this percentage of off-spec material go up? And equally important, what is the price difference of this off-spec material versus the supply from China? Just to get a better understanding of the impact. Heinz Schimmelbusch: The qualification process is not based on off-spec material, the qualification process is based on virgin material in our inventory. So later on, strategies imply that we benefit from off-spec materials as the opportunities occur and our procurement network can identify such prospective materials. Right now, this is not what we are doing. Right now, we are doing standard material, and we turn standard material in specification results. And that process is fairly advanced and as expected. Martijn den Drijver: Clear. Any additional color on when that off-spec material could become part of the supply chain? Heinz Schimmelbusch: It already is right now. We want to qualify the material. That means that the next step will be large-scale samples to be audited after audits to be given to our customers, and then we will start production, and that's then the moment where we can optimize further supply chains. Martijn den Drijver: Understood. Then moving on to vanadium and the supply issues. Could you elaborate a little bit on when you assume a normalization of that supply? And once that supply normalizes, how should we think about profitability given that the mix will also include spent catalysts from the Middle East? Jackson Dunckel: It's a very good question, Martijn. Thank you. Our refinery supply customers continue to struggle. And we don't expect to see any resolution of that through Q1/starting in Q2. The incremental purchasing that we've done in the Middle East will be available also starting in Q2. So you should see significant volume improvements starting in Q2 and improving in Q3 and Q4. Martijn den Drijver: That's clear. And then forgive me for asking, but I looked a little bit into the silicon operations and with regards to that portfolio management question before. If you add the adjustments to gross profit in the last 8 quarters, that has been almost $10 million, which means that the EBITDA losses are slightly higher. What do you intend to do with the silicon operations as it's not likely that energy prices in Europe will come down? Heinz Schimmelbusch: Our silicon metal operation is presently partly shut down. We're operating on a minimum level. And it for the last 3 years has been suffering tremendously under the -- primarily under the energy price situation in Germany. And by the way, our competition in other European countries to a much lesser extent, are also suffering under those things. And as we experience consistent problems with German energy supply, it is not likely that we will shortly reappear as a silicon metal producer. So this is an ongoing, keeping it alive, intense-care operation, and we -- our options are very limited. Jackson Dunckel: Just on the numbers, the gross profit adjustment you see is a negative, right? So we are taking profitability out of our gross profit, i.e., the silicon plant is making money, albeit not very much, but it is making money. Martijn den Drijver: Okay. Good. And then my final question is just a bookkeeping question. The $5 million from the compensation settlement, has that been received? Or is it in receivables? Heinz Schimmelbusch: It has been received. Operator: And our next question will come from Maarten Verbeek with AMG. Unknown Analyst: It's [ Marcus Baker ] of DRD. A couple of questions from my side, maybe some clarification on the previous answer you mentioned or you gave. Concerning those 3 CapEx plans you plan to execute and you mentioned for the chrome metal that was some EUR 15 million. For the other 2, was it also EUR 50 million each or combined EUR 50 million? Michael Connor: We're still in pre-feasibility stage. So we're finalizing numbers at this point. But I think what Jackson was trying to give you is a sense of scale. So we believe that they're of that size of nature, but we don't have exact figures now as we're working through that. I mean, really, what we're trying to get across is that we're looking to capitalize on our existing footprint in the United States, leveraging our processing capabilities globally to use those existing assets as a footprint for a platform for expansion into the United States into other materials using our key technologies. And we can do that very cost effectively because of our experience gained from our operations in other locations. Unknown Analyst: Okay. And concerning the Supercenter in the Middle East, I think you will be starting to construct shortly. How long will this take? Will it take 1.5 years, 2 years before completion? Michael Connor: It will be about 2 years. Unknown Analyst: Okay. And then lastly, you have sold your graphite business, and you will see $55 million in net proceeds. Obviously, you still have a liability towards Alterna because you bought 40% of them and you will pay them back in cash or in shares. When will that happen? Or can you simply hold on to that amount for the next 3 years and then pay them? Jackson Dunckel: Yes. Heinz Schimmelbusch: It will happen, but we will not be able at this moment to comment on whether we pay in cash or in shares. Michael Connor: But we have an additional 2.5 years, as you know. Operator: [Operator Instructions] And it appears there are no further questions at this time. Mr. Swoboda, I will turn the conference back to you. Thomas Swoboda: Thank you, Jen. Thank you, everyone, for this very dynamic conference call. I hope we were able to answer all your questions. We are looking forward to see some of you on our investor marketing activities in Europe in due course, and please stay in touch. Thank you so much. Operator: And this does conclude today's AMG Q3 2025 Earnings Conference Call. Thank you for your participation. You may now disconnect.
Operator: Good morning, ladies and gentlemen. Thank you for joining the Swisscom Q3 2025 results, hosted by Christoph Aeschlimann, Eugen Stermetz, and Louis Schmid. Louis, the floor is yours. Louis Schmid: Good morning, ladies and gentlemen, and welcome to Swisscom's Q3 '25 Results Presentation. My name is Louis Schmid, Head of Investor Relations. And with me are our CEO, Christoph Aeschlimann; and Eugen Stermetz, our Chief Financial Officer. Let's now move to Page #2 with the agenda of today. As you can see, our CEO starts presentation with Chapter 1 and a quick overview on the highlights, the operational and financial performances of the third quarter. Then in Chapter 2, Christoph presents the business update for Switzerland and Italy. In the second part of today's results presentation, Eugen runs you through Chapter 3 with our third quarter financials, including the confirmation of our full year guidance. With that, I would like to hand over to Christoph to start his part. Christoph? Christoph Aeschlimann: Thank you, Louis, and welcome to this Q3 2025 call from my side. And I will move directly to Page #4, showing the highlights of Q3. You can see that this quarter, again, was packed with a number of highlights. We have been able to complete to Connect service tests with the last test that we won this year, we have now won all 4 service tests highlighting our unwavering commitment to the best customer service reinforce the multi-brand play with a new Migros offering, and we are extremely proud of our new deal offering, which we -- for which we launched new additional services, advanced editions, apps and further tiers, which have been launched in the past weeks. South of the Alps in Italy, everything is going according to plan. Integration is proceeding as we have foreseen with integration costs and synergies fully in line. The highlight in Q3 in Italy was the aligned new market portfolio that we launched for the B2C and B2B market, which I will talk a bit more in detail later on in the Italian chapter. And finally, we have confirmed group guidance with revenues roughly at the lower end towards CHF 15 billion, EBITDAaL of CHF 5 billion and CapEx between CHF 3.1 billion and CHF 3.2 billion, also probably rather at the lower end of the range. Now moving to Page #5. You can see the net adds trends in Switzerland and Italy. I will start with Switzerland. Overall, the competitive environment is broadly stable with, I would say, more aggressiveness recently from Sunrise again, and we will -- we probably discuss later on also in the Q&A. On the mobile side, the net adds evolution is stable. You see with roughly a run rate around 45,000 net adds on a quarterly basis. Very pleasing results from our perspective for our mobile business and broadband and TV are slightly improving quarter-on-quarter. We're still negative net adds, but a much better run rate than we had in Q1 earlier this year. If you look at the wholesale side, we have a very pleasing result in Q3 with plus 14,000 net adds. So you can see stable or accelerating growth on the wholesale side. And overall, we have more net adds on the wholesale business than we are losing lines on our B2C. So we can at least partly compensate what we are losing on the consumer side on broadband with new access lines on the wholesale side, which is especially tilted towards fiber connectivity as we will see later on in the details. Now on the Italian side, the market remains competitive, but prices have been pretty stable in the last year. So we can see that the prices are clearly bottoming out and the market is not getting more aggressive. Now in terms of net adds evolution, we have on the mobile side, an accelerating loss, which is actually, if you look at underlying, the B2C losses are improving. So we have less losses this year, clearly better B2C business, but we have less net adds coming in on the B2B side because the TM9 government contract ramp-up is coming to an end. So let's say, net adds on B2B, so a bit less compensating the B2C decline, which leads to an overall minus 39,000 net adds on a company level. On the other side, broadband is improving, and we will see, particularly on the B2C side, things are improving very rapidly, and I will talk a bit more about that later on, but overall, quarter-over-quarter, you can already see that net adds loss has been halved -- more than half between Q1 and Q3 from minus 67,000 to minus 33,000 net adds. So -- and then overall, wholesale, also pretty stable run rate around 50,000, 45,000 net adds per quarter. So we have been able to stabilize both in the wholesale side and also compensating the losses on the broadband side. So I think pretty happy about the wholesale business in Italy. So now moving on to Page #6. You can see that Q3 revenue was slightly softer at CHF 3.7 billion, minus 1.8%, with bringing us to a year-to-date revenue of CHF 1.1 billion, which is minus 2.1%. And the EBITDAaL bridge, you can see on the right-hand side, Switzerland is pretty stable with minus CHF 5 million in quarter 3, bringing us to a total minus CHF 11 million year-to-date. And in Italy, we have the transitional year with the integration and the -- let's say, turnaround of the B2C business, and Eugen will detail the financial numbers a bit more in detail later on in the financial section. But so far, I would say, EBITDAaL is in line with expectations and in line with our full year guidance. Now I will move on to page as a business update for Switzerland and Italy and directly go to Page #8. where you can see our priorities for 2025. So pretty unchanged compared to last quarter. In Switzerland, we want to defend the Telco top line, make sure the service revenue erosion is as slow or low as possible, deliver on the cost savings. And you have seen that we have already achieved the full year cost target by end of Q3, and we want to further grow on the IT side. In Italy, it's similar priorities, but more geared towards the integration. So of course, the priority #1 is to proceed on the integration of the 2 organizations and capture the synergy potential, but at the same time, stabilizing the Telco business and reducing the service revenue erosion that we are seeing this year so that next year, we have a substantially better position, especially on the B2C side. And at the same time, we want to accelerate the energy business, selling more services beyond the core while scaling up the B2B IT and wholesale part to stabilize the overall business in Italy. And you can see now how we are doing in regards to these priorities. I'll move on to Page #9, looking into B2C Switzerland. So as I already highlighted at the beginning of the call, we are extremely proud to be the winner of all connect service tests for best shop, best app and best wireline and mobile hotline. I think this is an important achievement to test and show and demonstrate to the market that the Swisscom customer service is indeed the best customer service in the country. We're also very pleased with the evolution of the We are Family offering that we launched earlier this year. We continue to drive this offering in the market to sustain net adds on the main brand and make the main brand more appealing for family households. In this regard, we have also worked on our third brand positioning, especially with Migros before it was called M-Budget -- now we -- Migros relaunched the mobile brand under the main retailer brand, which is called Migros. So this should help generate more net adds going forward with attractive offers under a new name and a more customer-centric offering. And we have also launched a dedicated AI offering or AI chatbot for private consumers. This offering is called Swisscom -- myAI. It's a chatbot basically in a sovereign mode, where the consumer data is not used for training and respect data privacy. And so there is a free version and then a paid version at CHF 14.90, and we see quite some good traction already, at least on the utilization side of -- in the consumer space. You can see on the right-hand side, RGU and ARPU evolution, churn is at a very stable record low level of 7.7% for fixed and 6.8% for mobile ARPU on the wireline side is pretty stable, which is, I think, a very positive news. And the mobile ARPU erosion of minus CHF 1 is mainly driven by the ongoing brand shift between main brand and second brand, but the ARPUs on a brand level are actually stable as well. So moving on to B2B on Page #10. We are gradually integrating the beem offering in all our existing product portfolios. But we do see quite a lot of competition in the market, and you can see this on the ARPU box in the middle, where you see quite a heavy erosion on postpaid and average underlying product of minus CHF 3, which is basically driven by price competition in the market. And this is why it is so important that we launched the new beem offering to be able to upsell more security services and also create convergence effect on the B2B side and retain more customers with a broader product portfolio instead of competing just on price with Salt and Sunrise. So we will continue to ramp up the beem services. We have launched the new ATL campaign -- marketing campaigns in September. And so far, subscription take-up is very pleasing. We are ahead of plan, which is a good news. And we have now started enabling our partner channels so that we can -- as you know, on the SME front, a lot of sales are not driven in a direct sales mode, but more in an indirect sales mode through partner channels, and this is an important piece of the ramp-up next year. So we have started enabling all our partners to sell the beem offering, especially the higher-end editions, which are more complex to sell, but obviously are more interesting from a revenue perspective. On the IT side, quarter-on-quarter, we have -- or year-on-year between Q3 and Q4, we have -- sorry, between Q3 '24 and Q3 '25. We have a stable revenue evolution. The growth -- we were not able to materialize the growth on the IT side, suffering to some extent a bit from macro conditions in Switzerland. So there is quite a substantial slowdown in the IT market in Switzerland, also still due to the integration of Swiss Credit Suisse and UBS, which took out quite a lot of volume out of the IT market, and we can see this now in the numbers. So I think already a stable service revenue evolution is actually quite a good achievement. But we are obviously aiming to bring that back to growth starting Q4 this year, but especially also next year. I think the highlight is the new cloud platform that we delivered for the Swiss Armed Forces. This project is now nearing completion by end of the year and will be the basis for new IT services that we deliver to the Swiss Armed Forces going forward over the next years and will be a good driver of further IT revenue growth going forward. In parallel, we are also working on the profitability in our operating model, which we continue to transform to improve IT profitability. So you can see that despite having no revenue growth, we were able to increase profitability by 10%, so up CHF 3 million to CHF 35 million quarter-on-quarter, which is, I think, an excellent news, and we will continue to drive IT profitability also next year to make -- or to extract more cash flow from the IT service revenues. And also on the IT side, we have just launched a couple of weeks ago chatbot for SME. So it's basically very similar to the -- myAI for consumers, but this one is geared towards SME companies, so they can upload their own documents and use a highly secured and data private chatbot for their own company, which is quite a high demand, especially in the public sector and some other areas where people have more needs for data privacy and cannot use the, let's say, public cloud or public offering. Now on the Network and Wholesale side on Page 11, we can see that our, let's say, network rollout is continuing. We are now at a 5G plus coverage of 88%, fully on track to achieve our 90% target for the full year in 2025. And also fiber rollout is continuing. It's up plus 5%. We have now a 55% coverage with 10 Gbps connectivity across the country, also in line to achieve our full year target that we have set up for the FTTH rollout. And also on our network, we were able to win the connect fixed network test for the fifth time in a row with a record 991 points out of 1,000. And you can see that on the right-hand side that we are able to monetize also our network in better ways, especially the fiber rollout. So we are accelerating the net adds on the wholesale side. We have more market share on the lines and also plus 4% revenues. So access revenues are up by 4% from EUR 48 million to EUR 50 million on a quarterly basis. And I think what is especially interesting, you can see that the FTTH penetration on our wholesale business is increasing very rapidly [indiscernible]. It's up by 7%, and we have now nearly half of our wholesale lines, which are fiber-based, precisely 49%, and we expect this to be over 50% by the end of the year. Linked to this also, the copper phaseout is going very well. So we don't have numbers on this slide, but we already managed to decommission over 350,000 copper lines. So at the peak, we had 2 million lines in activation, and we are now standing at 1.65 million copper lines, which is already -- so we already achieved our full year phaseout target by end of Q3, which is also a very pleasing development on the network side. So if you look on Page #12, you can see that we have already achieved our full year target of CHF 50 million cost savings by the end of Q3. But I would like to put in a word of caution. We shouldn't get too excited about this because, I mean, it's great that we have achieved the full year target, but we don't expect much more cost savings to come in, in Q4. So please don't extrapolate this -- the growth we had between Q2 and Q3 further into the year, this is definitely way too optimistic. But I would say we come in at 50 plus, but not much more in Q4 to come. But you can -- but what is, I would say, the good news is that the cost initiatives continue to deliver, especially we continue to digitize our customer service. We continue to automate it. We continue to push AI everywhere. We have now launched our unified contact service platform, which is heavily AI-driven, which will continue to deliver new cost savings next year. We are experimenting with new shop formats, AI in the physical stores. We are further expanding nearshore. And of course, we are especially pushing further simplification on the network in IT and this also will continue to deliver cost savings, especially '26 and onwards. Okay. So that was it for Switzerland. I will now move on to Italy. On Page #13, you can see the highlights of the integration, which is progressing as planned and synergies are ramping up. So we have completely finalized our integrated organization, which is fully operational now. We have launched a new aligned product portfolio. So it's not a unified single product portfolio, but we essentially have exactly the same product portfolio under 2 different brands, one on the Fastweb side and one is on the Vodafone side, and we are now able to serve customers of both brands in all stores. And also, most importantly, the SIM migration is progressing in line with plan. So as you know, we have about CHF 200 million of synergies planned next year linked to the SIM migration. So we can confirm that the migration is going according to plan, and we will be -- roughly all customers will be migrated by year-end, and we are very confident to realize the planned CHF 200 million of synergies in 2026. Also, the other projects are ongoing as planned. We have already shut down the first Vodafone Group services that we have terminated and transferred to internal resources, and we are continuously working on carving out more and more services over the coming months and also IT and network consolidations have started. Now moving on to Page #14, we will have a deeper look into the B2C mobile side. So you can see that we have this joint mobile portfolio. There, you can see some screenshots in the middle. So the pricing and the features of the products are completely aligned. And we are continuously working also on improving customer treatment in the shops, but also in call center. And you can see on the right-hand side that this -- all this work is starting to pay off. The churn has significantly decreased from 20% or nearly 23% to roughly 18%, and we will continue to work on better customer service, also leading to higher NPS, and we can already see in our customer surveys that NPS on both brands is improving. So this, I think, is a good news. We can see that the value strategy that we are executing or like moving from volume to value is paying off. We are seeing an improved net adds picture. So you can see on the top right, we typically had over 100,000 negative net adds. We are now at minus 79,000, so still negative. But the outflow, which is typically high ARPU outflow has been substantially slowed down. Sales coming in is also slightly lower, but a much higher quality. So with customers really using our services. So the ARPU delta we are having between churn and net adds has been substantially decreased. And we are further working on this to close the gap and reduce service revenue erosion gradually over the next year. One other important topic on the B2C mobile side is the repositioning of ho. So we have positioned ho. as a clear attacker brand and faster than Vodafone as a clear premium brand, and we will continue to work on this brand positioning to make it clear that we have a clear dual brand strategy with a different service offering on both brands. Now moving on to Page #15. You can see that we have also launched a new fixed portfolio, which is what we call super converged, which is essentially broadband with energy services, which is an important element to drive new service revenue in Italy. So you can see that up to now, we have minus 170,000 RGUs year-to-date, which is impacted by this value strategy and front book price alignment. But transparency and customer centricity are delivering first positive results. You can see we have higher NPS. Churn has also substantially decreased to 15.8%. And you can now see that the RGU development between Q1, Q2 and Q3 is very pleasing. We are now at minus 26,000 RGUs in Q3. But actually, underlying to this, in September, we were at a 0 net adds balance. So the whole loss in Q3 is still coming from July and August, and we have now substantially achieved a stable RGU development. And we are hopeful that in Q4, we will see again a much more improved figure on the broadband net adds side, clearly showing that the strategy and turnaround is working that we are executing on the consumer side, and we will continue to push the new portfolio in the market and continue our value strategy. And I think also one maybe last word on the B2C. We -- the new product portfolio is offered at higher price points. So previously, our lowest price point on mobile was around EUR 8. Now it is at EUR 10 or EUR 9.95. And actually, we can see that the sales inflow or the gross adds are exactly the same. So we are able to sustain the sales performance despite having increased prices from -- or like the entry-level prices from EUR 8 to EUR 10. And the same we see on broadband, our sales numbers have not decreased despite having aligned prices on both sides and now executing at, let's say, increased or above increased prices than previously. So I think that's an excellent news for the Italian market that there are consumers that value quality and are willing to pay for it. Now moving on to Page #16, looking into B2B. So we keep managing also the Telco top line on the B2C side, growing with IT, cloud, security, and AI. So as mentioned at the beginning of the call, RGU net adds have slowed down a bit because we are reaching sort of the end of TM9 contract ramp-up. So we have a bit softer RGU development. But overall, I think a pleasing result on the telecom side. Also on the B2B side, we have integrated both product portfolios from Fastweb and Vodafone, offering the best of 2 worlds now to our customer. And all, let's say, corporate accounts have now been allocated to our internal sales force. Customers have been allocated in the indirect channels. This took a bit more time than on the B2C side because it's more complex to execute. And you can see also this is why we have a bit slowdown in growth on the B2B side as we still were a bit internally focused due to the merger. And you can see that the IT service revenue growth is still there at plus 1.5%, but it is a bit lower than it used to be. But here, we intend to accelerate IT growth again going forward next year as we have now finalized the integration and the sales force is, again, focused not on what is my account, but actually really selling to the market. We also have signed a new contract with Oracle to offer sovereign Oracle cloud offerings in Italy. And as in Switzerland, we have also launched already last quarter, our AI suite for SME companies in Italy, which is a sovereign AI chatbot offering for Italian SMEs. And we are very pleased that we have already been able to sell over 10,000 paying subscriptions, also showing that there is a clear market need or demand for these type of services also in Italy, and we will continue to work on this going forward. Now moving on to my last slide about Italy, Page #19. You can see also that the network rollout is continuing in Italy as well. We have now 87% 5G plus coverage, up 11% and fixed rollout or FTTH rollout is also proceeding rapidly in Italy. We now stands at 54% FTTH coverage with about half of it active and half of it passive in our footprint based on our Fastweb secondary network. We continue to drive wholesale business, both on wireline and Mobile. So on Mobile, we have essentially finished the Coop migration onto our network, and this will help us also to compensate part of the PosteMobile loss next year. And as you might have read in the press, Sky announced the new partnership between Fastweb, Vodafone and Sky. So we will continue to also provide Sky both on wireline and Mobile services, which would also help us to compensate some of the PosteMobile losses, '26 going forward. So overall, I would say, a very pleasing development on the network and wholesale side in Italy. And I will now hand over to Eugen for the detailed financial results. Eugen Stermetz: Thank you, Christoph, and good morning, everybody. I'll start as usual on Page 19 with the group overview on revenue and EBITDAaL. So let's get going with revenue. Revenue is down CHF 242 million in the group, 1/3 of which is currency. So net of currency, the number is minus CHF 153 million. Switzerland down CHF 83 million; Italy, down CHF 55 million. If we look at the quarterly dynamics, Switzerland was almost flat in Q3 after a week Q2, that's due mainly to different timing of hardware revenues this year versus prior year in the IT business. In Italy, it's a bit the other way around. If you look at the quarterly evolution, minus CHF 42 million in Q3 after roughly Q1 and Q2. So year-over-year in Q3, we only had a small contribution from IT and hardware so the Telco service revenue decline shows up in the total number. Move on to EBITDAaL. EBITDAaL is down minus CHF 191 million. We have a lot of adjustments totaling minus CHF 73 million. Net-net, this essentially boils down to integration costs in Italy on the one hand and to currency. Obviously, the gross numbers are a bit more complicated, and I'll comment the gross numbers when I get to Switzerland later on. And obviously, all the numbers as usual, you will find in the appendix to this presentation. So Switzerland, EBITDAaL almost -- if you look at the adjusted numbers, Switzerland almost stable with minus CHF 11 million year-over-year in the first 9 months, which is obviously very positive. Also the quarterly evolution is very stable indeed. On the Italian side, Italy is down minus CHF 95 million EBITDAaL. That's driven by service revenue decline in Q3, we had minus CHF 38 million after minus CHF 15 million in Q2. The minus CHF 38 million in Q3 are actually much more in line with what you would expect given the service revenue decline than what we saw in Q2. You might remember that in Q2, I flagged at the minus CHF 15 million are not necessarily sustainable. So both Switzerland and Italy, EBITDAaL are in line with our full year guidance. I move on to Page 20, CapEx and operating free cash flow in the group. So CapEx is down CHF 174 million, adjusted CHF 171 million. It's driven both by Switzerland and Italy. In both cases, the lower CapEx is due #1 to phasing with some of the capitals to come in Q4. And secondly, also in both cases, Switzerland and Italy, some higher CapEx compared to prior year tied to specific large-scale projects in the prior year. And then obviously, apart from the adjusted numbers in the adjustments, you see the integration CapEx in Italy, which starts showing up this quarter. Operating free cash flow, adjusted deposits plus CHF 53 million. In Switzerland, it's sustainable EBITDAaL, combined with lower CapEx. And in Italy, stable operating free cash flow lower EBITDAaL, but at the same time, lower CapEx, which we're obviously quite happy about. Then move on to Page 21 and dive into the Swiss picture, starting with revenue. Revenues down CHF 83 million, almost stable in Q3. If we look at the individual quarters, B2C is down CHF 29 million that sold lower service revenue and at the same time, somewhat higher handset sales that combined to the minus CHF 29 million. B2B down CHF 60 million, that's lower service revenue, but also lower hardware revenues in line with our strategy not too many low or no-margin hardware deals and somewhat higher IT service revenues in the first 9 months. If you look at the individual quarter, Q3 is a bit of an outlier with plus CHF 8 million. There actually significant hardware deliveries in connection with 1 large customer project all in line with the aforementioned strategy, but that drives actually the dynamics between Q2 and Q3, it's Q2, it was like CHF 27 million lower hardware revenues and in Q3, CHF 27 million higher hardware revenues. Wholesale growing CHF 10 million in revenue. That's essentially the growing excess services over the quarters. There are some minor fluctuations around the general trend due to these clients and roaming, so the bit more volatile elements of the wholesale business. EBITDAaL stable in Switzerland reported slightly up, adjusted slightly down. If we look at the adjustments, we have plus CHF 20 million year-over-year in adjustments positive, in particular in Q3 with plus CHF 33 million. So on the one hand, we released provisions for legal proceedings. But on the other hand, we added restructuring provisions and other provisions with a net effect of plus CHF 33 million. So if we focus on the adjusted numbers, B2C, minus CHF 10 million. B2C was able to compensate part of the service revenue decline with lower direct and indirect costs. In B2B, EBITDAal is down CHF 45 million, which is in line basically with the service revenue decline, there was not much impact of the revenue ups and downs that we saw on the upper part of this page because these revenues are there are pretty low margin IT hardware revenues, as I mentioned. So the service revenue decline shows up in the margin pretty much one-to-one. Wholesale plus CHF 11 million, in line with the revenue growth and also infrastructure and support functions, that's mainly a cost position here in EBITDAaL. So that's CHF 33 million lower costs contributing to the overall cost savings target that Christoph already mentioned. I'll move on to Page 22, deep dive into the Swiss P&L. I'll start at the bottom left with the Telco service revenue evolution decline was minus CHF 35 million in the third quarter, so slightly worse than Q2. If you look at the individual components, B2B at minus CHF 18 million is almost identical to Q2 and Q1. So not much news here. B2C is minus CHF 17 million after minus CHF 13 million in Q2. Actually, wireless in B2C is slightly better than the previous quarter due to increased net debts and also a small effect out of the Wingo price increase and the success of the We are Family! offering. The only element that is worse compared to the previous quarter is wireline ARPU. It's a combination of the phasing of the impact of targeted price increases in the prior year and somewhat stronger promotions in Q3. But all in all, very small numbers and a very stable general trend in the service revenue. Where does that leave us year-to-date? Top left of the page, year-to-date service revenue decline is CHF 92 million for the full year. This means that we will land at about minus CHF 120 million. That's slightly higher than originally guided. You remember, we talked about CHF 100 million, if you look for drivers of that more deviation in B2B, we had somewhat faster migrations of customers that we knew we would lose and the migrations came a bit faster than originally anticipated and on the B2C side, we integrated further roaming into the blue offering, so a somewhat lower roaming revenues was a bit lower demand on streaming on the wireline side. But all in all, no big surprises, no big changes by and large, as anticipated. Move on to Page 23. CapEx is down plus CHF 71 million in the first 9 months, part of which is related to nonrecurring items in the prior year. And part of that deviation will probably remain for the full year and contribute to stable free cash flows from Switzerland, all in line with our full year guidance. And finally, operating free cash flow, up CHF 60 million, adjusted a result of almost stable EBITDAaL and lower CapEx. Now I move on to Italy, Page 24, starting with revenue, down EUR 57 million in the first 9 months. In the third quarter, with a decline of EUR 44 million after a relatively stable Q1 and Q2. So what's going on? Let's look at the segments. B2C is down EUR 73 million, a combination of service revenue decline on the one hand, but higher energy revenues on the other hand. The quarterly evolution is pretty stable. B2B is stable in the first 9 months. So a combination of Telco service revenue compensated by higher IT service revenues and energy revenues. However, in Q3, you see the minus EUR 25 million. So there was a more pronounced Telco service revenue decline compared to prior year than in the first 2 quarters. And at the same time, with growth in IT service revenues and lower hardware revenues in Q3. I'll talk about the reasons for the service revenue decline when I get it on the next page. And finally, wholesale, up EUR 18 million, steady growth, both in wireless and wireline, and there were some decline in non-core revenues. So what you see here is the net of these 2 elements. EBITDAal down minus EUR 148 million reported adjusted minus EUR 99 million. In the adjustment, you have about EUR 40 million of integration cost as the main driver of the adjustments year-over-year in the first 9 months. So if you look at the individual components, contribution margin B2C down EUR 90 million. This is reflecting the impact of the service revenue decline of minus 17 -- sorry, minus EUR 117 million on the one hand and a small positive contribution from the additional margin from the energy business. However, importantly, if you look at the quarterly evolution, Q3 minus EUR 20 million after minus EUR 35 million in the first 2 quarters. This is for the first time that actually the lower mobile COGS show up, and this is obviously very positive and very pleasing because, as Christoph already mentioned, the migration of our mobile customers onto our own network is in full swing and already for the first time shows up as lower COGS in the contribution margin of B2C. B2B contribution margin down EUR 23 million. So that's the margin impact of the Telco service revenue decline and some positive margin from the IT and energy business compensating that. Wholesale, plus EUR 19 million margin -- sorry, the revenue improvement showing up also in the margin. So overall, the minus EUR 99 million adjusted are fully in line with the EBITDAal guidance we gave at the beginning of the year. If we deep dive into the P&L on Page 25, starting with -- also here with the service revenue decline, bottom left. So we had minus EUR 66 million in the third quarter, minus EUR 39 million B2C, minus EUR 27 million B2B, first, B2C. B2C is fairly stable over the quarters, which is very good. Obviously, the operating improvements that Christoph mentioned don't show up yet in the year-over-year numbers, which look backwards, but we are confident they will show up in the next year. Now what's happening in B2B. In B2B, we had EUR 27 million in Q3 after a very small service revenue decline in Q1 and Q2. It's all down to the wireline revenue. So wireline, we had significant onetime revenues in Q3 and Q4 in the prior year related to some large-scale public administration projects. So the effect that we see here in Q3 on B2B wireline is one that we will also see in Q4 again that, that might even accelerate. As I said, it's a tough comparison because we actually had increasing B2B wireline revenues quarter-over-quarter in the prior year, if you look at the pro forma numbers, and this is all due to these large projects with one-off revenues. So full year -- or sorry, year-to-date, that leaves us with minus EUR 166 million year-to-date. So it's clear that the full year service revenue decline will be well above EUR 200 million in 2025. What changed, if you remember, we had an original guidance of EUR 100 million to EUR 200 million already said in the second quarter that we are trending towards the upper end of that guidance. So we will be above that in the full year. What changed is mainly the outlook -- on B2B, we originally expected to be able to replicate these large-scale projects that we had in Q3 and Q4, and this is now not the case. There is no other structural driver we see at this moment. Is there an impact on the EBITDAal guidance? No. The direct and indirect costs we anticipate for the full year are lower than we had originally anticipated in the guidance. So the EBITDAal guidance for Italy is fully confirmed despite this deviation. I move on to Page 26. CapEx in Italy, EUR 83 million below the prior year. That's partly phasing between the quarters, but also partly due to large projects in the prior year. So a part of the deviation is likely to remain for the full year. On the adjustments, you see the integration costs showing up. We had integration CapEx of EUR 53 million so far. There is still a lot to come in Q4, but maybe not the full EUR 150 million of CapEx integration costs that we guided for at the beginning of the year. So CapEx Italy is clearly trending towards the lower end of the guidance. And finally, operating free cash flow in Italy adjusted is stable at minus EUR 2 million with EBITDAal below prior year, but so it's CapEx. Page 27, quick update on synergies and integration costs. We confirm the EUR 60 million synergy target for the full year and the plus EUR 36 million, which we had in the first 9 months is fully in line with this expectation. You remember that the synergies are backloaded due to the importance of the MVNO synergy that kicks in, in Q3 and Q4 and then ramps up to the full run rate next year, as Christoph mentioned before. We also confirm the integration cost target of approximately EUR 200 million. We have in the books EUR 93 million so far, EUR 40 million OpEx, EUR 53 million CapEx. So in the end, there might be some shift from CapEx to OpEx versus the original split of EUR 50 million OpEx and EUR 150 million CapEx, but the overall number of EUR 200 million for the full year, we confirm. Page 28, free cash flow, stable versus prior year. We are comparing to the reported numbers here, not pro forma, so stable versus prior year, plus CHF 23 million, driven by higher operating free cash flow compared to reported last year, plus CHF 116 million on the one hand. And on the other hand, higher interest paid, CHF 127 million, obviously due to the acquisition and all the other deviations on that page are quite minor. So I move on to Page 29, net income. Net income is down CHF 295 million year-over-year with 2 main drivers. One is the higher interest expense, obviously, due to the acquisition. And secondly, there is a lower EBIT, which is almost entirely driven by the amortization of intangibles out of the purchase price allocation of the acquisition, and we also had somewhat lower tax expense this year compared to prior year. So I come to the final page, Page 30 on the guidance. We do confirm the guidance similar to Q2 with 2 comments. Number one, based on the numbers we have seen, it should have become clear that on revenue in Switzerland and Italy and by implication of the group, we trend towards the lower end of the guided range. And we may even undershoot slightly, but if we do so with no impact on EBITDAal guidance and operating free cash flow guidance. And in a similar vein, as mentioned before, CapEx Italy looks like it will land at the lower end of the guidance or even slightly below and also impacting the group number. Last but not least, we confirm the guidance for the dividend of CHF 26. And with that, I hand back to the operator. Operator: [Operator Instructions] Polo Tang: It's Polo Tang at UBS. I just have 3 questions. The first question is just on Swiss price rises. So you recently increased prices on Wingo by CHF 1 a month. But what impact did this have on NPS and churn? And would you consider further price rises on the Wingo brand? My second question is, what is your view on the CHmobile launch by Sunrise? Do you see it as disruptive to the market? And my third question is just about Italian mobile pricing. So you increased your front book price rises. So you increased your front book prices from EUR 8 to more than EUR 10 in September. I appreciate it will take time for these price rises to feed through the subscriber base. But do you think Italian Telco revenues can reach stabilization at some point in 2026? Christoph Aeschlimann: Thank you, Polo. So I'll take the question. So on the Swiss price rises, actually, we were very positively pleased by the execution of the price rise with Wingo. We have seen absolutely no impact on NPS and churn. I think it demonstrates that Wingo is a very strong brand with a very attractive service offering. We executed it as a more-for-more price increase. So we included 5G access with the plus CHF 1, but it was, let's say, good news that it didn't impact NPS and churn on the Wingo brand. And so I will not comment about further price increases, but it is obviously something that we are looking into to see if there is further room to improve revenue and positioning of the brand. But now, let's say, it's also linked to your second question, so CHmobile. Honestly, I don't expect a huge impact from this brand going forward. We already have a lot of low-value brand in the market. It's -- I don't really understand the move from Sunrise because it goes contrary to what they actually talk about moving to a value-based strategy. And at the end, honestly, I think everybody will just end up with the same number of RGUs, but with slightly lower revenues. So it's not really a good news for the market because it kind of creates more downward pressure in the market, especially if you look at the mid -- not really -- I'm not so worried about the premium segment. But if you look at the mid market piece. Obviously, the more routed the brand basis in the lower-end budget segment, the more downward pressure you have also in the mid segment. But we will see a bit how this evolves now over time. But it's clearly, let's say, not a move that goes into, let's say, a price rebound direction in the Swiss market. So we will see also a bit how it's going with the Black Friday promotions in the coming weeks. And then we'll be -- we will see over the next year if there is any impact from this CHmobile brand. Now on the Italian side, the goal is definitely to stabilize service revenue both in B2C and B2B in the midterm. This will take some time, but we are working very hard on it. And actually, price increases, we executed price increases twice. So first, we went to EUR 9 and now to EUR 10. So we have quite a good view on at least the EUR 9 move, which didn't impact sales numbers so far. And I think also now the front book prices, I think, are at a good level. And we are actually executing what we call back book, front book alignment now. So all the back book customers, which are below our front book prices, we are now elevating them onto the front book level to have a completely in-line portfolio. This is currently being executed over the next weeks, and we have started a couple of weeks ago. And so far, numbers look okay as well. And we feel it's an important action so that all customers are actually treated in a transparent and fair way and everybody pays what we are now selling on the front book side. And this will obviously also help us improve service revenue next year going forward as this is a price increase for a couple or like a part of the customer base. Operator: So at the moment, we have one more question. [Operator Instructions] And now I will open the line for the next question. Joshua Mills: It's Josh Mills at BNP Paribas. I had a couple of questions, please. The first was just related to the Swiss service revenue trend. So you said in your comments that part of the reason that you saw a deterioration from 2.4% to 2.6% negative growth this quarter was you had a bit more migration to some of the B2B packages and also some more roaming revenues dropping out as you move to the blue bundles. So it sounds like this is a revenue headwind you've been anticipating, but just one that's coming through a bit earlier than expected. If that's the case, do you think that you'll start to see an improvement in service revenue trends into the end of this year and into 2026? Or are there other factors to consider which mean that we might see a continuation of the service revenue declines? That's the first question. And then the second question, was just around the cost cutting that you lay out on Slide 12. I think you're making it clear not to extrapolate the same level of savings into 2020 -- sorry, into Q4 as you saw in Q3, but where -- why is it that these savings are coming in quicker than expected? And why would there not be more upside to the CHF 50 million target you laid out at the start of the year? Eugen Stermetz: Okay. Thanks, Josh. So I'll take the first question. So maybe I was not super clear in my presentation, so I'll try to repeat. There is -- there is 2 different elements to talk about. So the one I've talked about first is the Q3 service revenue decline compared to Q2 because it looks like a bit of an acceleration. Now actually, on B2B, there is no acceleration whatsoever. So it's minus CHF 18 million after minus CHF 18 million in Q2. The only change is the -- only change is in -- B2C minus CHF 17 million versus the minus CHF 13 million. And there, I commented that wireless is actually slightly better, so the difference that you see between the 2 quarters comes from wireline ARPU because of some targeted price increases we had in the prior year that the impact of which is now trading out and some strong promotions in Q3. So B2B doesn't play a role in this quarter-over-quarter evolution. It's merely B2C. And here, it's wireline ARPU, nothing else. Okay. So that's the one element. Then I talked about the full year outlook, where I said about that CHF 120 million service revenue decline is what we expect and compare that to the roughly CHF 100 million service revenue decline we guided for at the start of the year. And here, actually, there is a B2B element in that deviation, because we lost some customers in B2B wireline on the corporate side, which we were really new at the start of the year. And the -- but the migration of their locations went a bit faster than we anticipated than this led to a slightly higher service revenue decline on the B2B side than anticipated. So that's a B2B. There is no Q-over-Q B2B story. Now having said that, these are all super small numbers, just to be clear. So we guided for about CHF 100 million, which you can't read anywhere you like, but you could always think CHF 120 million, we just wanted to be super transparent while we expect the roughly CHF 120 million now. Is there any impact out of these small changes that I'm commenting here on the midterm outlook? No, I would not read too much into it. Obviously, we are going to talk about the our service revenue decline expectation for '26 in February, but we don't see any fundamental shift. I just tried to explain the change from about CHF 100 million to CHF 120 million on the one hand and try to explain the super small change from minus CHF 13 million to minus CHF 17 million on the B2C side between Q2 and Q3. So I hope I was clear now the second time if not, feel free to follow up. Then on the cost savings side, I always -- I'm repeating myself on that topic. The cost savings do not come in steadily quarter-over-quarter in the same number. That's not realistic. The numbers we are talking about is at the moment, an annual impact of CHF 50 million plus, which is not a huge number, given the overall cost base we have. So small changes in quarters can drive a lot of the change. So it's always important to look at the final year figure, what we achieved for the full year. And I would not read too much into quarterly fluctuation. Joshua Mills: It's very helpful. I mean, just to follow up on the first answer. Should we read that as you don't see any big change in trends to service revenue development and declines in '26 versus the current run rate? Is that what you meant to change? Eugen Stermetz: Yes. I mean you're repeating that. No, I think I was clear. We don't see any structural changes out of the things we commented on -- so you can take -- draw your own conclusions when it comes to 2026 and we didn't guide for '26 in February. Operator: So there's one more question, and I will open the line for the next question. Robert Grindle: Yes. That's Robert Grindle from Deutsche Bank. I saw you bought a B2B video services company in August, the deal is yet to complete, I believe. Is this part of a wider push into security? Could you also provide B2C security products like one of your competitors? And do you see other adjacent opportunities in the market? And my second question is, how would you describe the mood of the typical Swiss enterprise at the moment? You had all that trade talk volatility during the summer. Has that effect sort of evened out now? Or are enterprise customers still holding back on their ICT projects? Christoph Aeschlimann: Thank you, Robert. So I think the B2B video merger you're alluding to is a really small acquisition that I think we did last year, if I'm not mistaken. I think now we have separated it out to an other entity, and we merge with some of our existing capabilities on the Swisscom Broadcast side. But it's really, let's say, a minor business. We're talking about sort of a very low double-digit millions. So it's not substantially impacting really our overall numbers in Switzerland. But Swisscom Broadcast, which is one of our subsidiaries, is actually quite active in sort of the whole surveillance aspect with cameras, but also drone surveillance which is, let's say, a growing area. So we do see some opportunities for growth on that side. But sort of it's growing, but not in a way that it would meaningfully impact our overall Swiss numbers yes, unfortunately. And of course, we -- I mean, there are a number of other adjacencies. I think the most important ones are really sort of AI-related opportunities on the B2B side. So we are pushing very heavily in providing AI consultancy, AI infrastructure services, AI chatbot really trying to monetize the AI implementation in the B2B space. I think that's one important adjacency and the second one is really all around security, which is driven by our traditional security offerings, but also the beem offering, which is completely integrated connectivity and security offering, where we really want to monetize and capitalize on the opportunity of the growing cybersecurity needs of B2B customers. And I think those should provide also meaningful numbers going forward. Now having said that, the general mood of B2B in Switzerland is a bit damp, I would say. So Switzerland is quite heavily impacted by the tariff situation with the U.S. So especially on the machinery and industrial side, it's quite gloomy, I would say. And customers are heavily saving money. Obviously, not all sectors are impacted in the same way, more domestic services companies are not impacted. And also on that side, we are okay. But the more export-oriented industries are quite heavily impacted, so overall, I would say there is a slowdown on the B2B side. It's not like to worry about. I think it's not that bad, but it's not helping us create more growth on the IT side as many companies are now scaling back a bit on their investment envelopes. Operator: So since we have no more questions left, I will hand over back to Louis for the concluding comments. Louis Schmid: Thank you very much. And with that, I would like to conclude today's conference call. In case of any follow-up questions, do not hesitate to contact us from the IR team. Speak to you soon, and have a nice day. Thank you.
Operator: Good morning. My name is Aaron, and I'll be your conference operator for today. At this time, I'd like to welcome everyone to the UWM Holdings Corporation Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Blake Kolo, you may begin your conference. Thank you. Blake Kolo: Good morning. This is Blake Kolo, Chief Business Officer and Head of Investor Relations. Thank you for joining us, and welcome to the Third Quarter 2025 UWM Holdings Corporation's Earnings Call. Before we start, I would like to remind everyone that this conference call includes forward-looking statements. For more information about factors that may cause actual results to differ materially from forward-looking statements, please refer to the earnings release that we issued this morning. Our commentary today will also include non-GAAP financial measures. For information on our non-GAAP metrics and the reconciliation between the GAAP and non-GAAP metrics for the reported results, please refer to the earnings release issued earlier today as well as our filings with the SEC. I will now turn the call over to Mat Ishbia, Chairman, President and CEO of UWM Holdings Corporation and United Wholesale Mortgage. Mathew Ishbia: Thanks, Blake, and thank you, everyone, for joining. Over the past 3-plus years, we've successfully navigated a higher rate environment with a focus on taking market share, showcasing that we are uniquely capable of both dominating purchase business and investing for the future. While most other lenders scaled back, we invested in our people, our technology and the broker channel, which are all operating at all-time high levels. We've been prepared for a rate reality for years. And the third quarter gave us a little bit of a glimpse of what it would look like, and we delivered on everything we said we would. To give you a more tangible example, showcasing our capabilities, one day in September, we had an all-time record lock day. We locked $4.8 billion, yes, $4.8 billion of locks in 1 day. We handled it all in 1 day along with submissions that followed seamlessly. Now that was only a 3-, 4-, 5-day window of opportunity, and we took advantage of it by handling all the volume all the way through our organization from setup to submission to underwriting to closing to client service priorities and all went pretty close to flawless. We maintained turn times, SLAs, world-class Net Promoter Scores and our submission to critical close times actually got even faster from 12 days to 11 days, which are like record-breaking numbers. It was phenomenal to see across the board the execution because we have been preparing for years when you actually have to do it and execute, you never know how it's going to go, and it went amazing. The investments we have made in technology will continue to solidify our competitive advantage and the gap between UWM and our competitors continues to widen. Back in May at UWM LIVE!, we made headlines introducing Mia, our most intelligent agent, a generative AI loan officer assistant. A lot of people were unsure of what this meant and how it would impact business, but we now have actual results. Mia has made over 400,000 calls on behalf of our mortgage brokers, helping them stay in touch with past clients. Remember, as I told you before, 97% of all borrowers love their experience with the broker and want to work with them in the future and have a great experience, but only 10% remember who their brokers when they want to refinance again. Mia is built to solve that issue, and she's doing it. She made over 400,000 calls starting business conversations with borrowers on behalf of the brokers. These were mostly the rate watch calls. And of these, over 14,000 have already closed. What's interesting is we forecasted a 10% to 15% answer rate, and we've actually seen over 40% answer rate. Mia has been phenomenal. We've been saying from the beginning, our business is tied to AI is based on 3 main issues: enhancing knowledge, which ChatUWM does along with a couple of other things we've done, create efficiency, which Bolt has done. And then the hardest one to solve is growth, which Mia is doing by solving the issue for brokers missing business from their past clients. So having over 14,000 closings from this in the last couple of months is even higher than we expected when we rolled it out, by a wide margin. And that's why we are the biggest and best mortgage company in America. We have been for years, and now we are just accelerating and widening the gap. Separately, Mia also answered about 70,000 inbound calls. Once again, this is actual AI working in our business, not just talking in buzzwords like a lot of other people like to do. She's taking messages, making appointments, helping them succeed. I'd love to see how many of our clients are utilizing Mia and having success. Now let's talk about the third quarter performance. We closed $41.7 billion of production, obviously beating our guidance. It was our best quarter since 2021 back when rates were in the 2.5% to 3% range. We did $25.2 billion of purchase, which is on track, as we said, is consistently doing about $100 billion of purchase every year. We have been doing that consistently at UWM. And then $16.5 billion of refi, which is up significantly. Like I said, we were able to take advantage of a very small window, a couple of week window in there where we were able to execute and close loans fast. And we're excited to be able to prove that we can not only -- we are prepared, but we also executed. Our gain margin was 130 basis points, which is slightly above the gain margin that we provided in guidance. And part of that is market moves in our direction. We were able to take advantage of that for that couple of week window. Because of this window, you can see when rates drop, our volume goes up quickly, our margin goes up quickly, and we can really take advantage of it. And it's just a 3- to 4-week window, like I said, not dissimilar to what we saw last September, but we're even more prepared and we were able to take advantage of it in a bigger way this time. Last year, we had a similar 3- to 4-week window, and the 10-year went to about 3.75, maybe 3.80, and we had a great month. We did about $17 billion, but we didn't have the success we had this time because we have Mia. This time, the rates didn't even get that low. The rates got to about 4 in the 10-year, and it's about the same short window. Mia has helped us grow the business exponentially, and we're clearly prepared to handle that volume and more. Now from an income perspective, we did over $12 million of income. That's inclusive of $160 million decline at fair values. But really the number to focus on is over $211 million of adjusted EBITDA. Once again, a dominant performance from UWM. You heard me say this on every call, year after year, our playbook and recipe remain consistent. We will continue to invest in our people, our technology and dominate this industry with our service and by growing the broker channel. Our operating profile and relentless drive to deliver results provides a consistent message for the investment community. UWM is uniquely positioned to win in any market environment, and we are investing every day to further extend our lead for the benefit of independent mortgage brokers and their consumers. I'll now turn the call over to our CFO, Rami Hasani. Rami Hasani: Thank you, Mat. Q3 was a strong quarter for us. We reported net income of $12.1 million and adjusted EBITDA of $211.1 million, up from both Q2 and Q1 of this year. Loan production volume of $41.7 billion, also up from Q2 and Q1 and gain margin of 130 basis points, again, up from Q2 and Q1. Operationally, our business continues to deliver. We also continue to maintain a healthy MSR portfolio with net servicing income of $135.1 million. As we've said before, to support our growth, we continue to invest in our people, processes and innovative technologies to prepare us and our broker partners for long-term growth. We remain on strategy with our investments, including our investments to bring servicing in-house to be prepared for significant market opportunities for us and our broker partners going forward. We previously said that our business is positioned to handle twice the volume without interruptions or adding significant staffing or fixed costs. In Q3, we demonstrated that as there were several periods throughout the quarter where production more than doubled and it was seamless. From a liquidity perspective, we recently completed a successful offering of $1 billion in unsecured notes. With the proceeds received, we plan to pay off $800 million unsecured notes maturing in mid-November, and we'll utilize the remainder to support our growth. We remain well capitalized with total equity of $1.5 billion and continue to be in a strong liquidity position with total available liquidity of $3 billion and $2.2 billion after paying off the bonds maturing in mid-November. While our liquidity and leverage ratios are slightly higher as of the end of Q3, it was the result of the timing of our bond issuance in September and our proactive liability management with the use of proceeds prior to mid-November maturity. Net of available cash, our leverage ratio as of the end of Q3 remained largely consistent with the prior quarter. Going forward, we expect to continue to maintain our capital, liquidity and leverage ratios within what we believe to be acceptable ranges in the current market conditions. In summary, Q3 was a great quarter with strong production and even stronger gain margin performance, levels we haven't seen in a while. We continue to invest in our people and technologies to be the most prepared mortgage company in the country. We're also prepared from a capital and liquidity perspective and believe that we are well positioned for Q4, 2026 and beyond. I will now turn things back over to our Chairman, President and CEO, Mat Ishbia, for closing remarks. Mathew Ishbia: Thanks, Rami. I'll close with a few points before our Q&A. Our work to bring servicing in-house is on track for the first quarter of 2026. This will have a positive financial impact on our business, and we're excited to bring our world-class approach to the servicing world. This will no doubt strengthen the consumer loyalty to their brokers. It was great to share more details on our partnership with Bilt will deliver best service experience in the history of mortgage, plus a tremendous amount of exclusive benefits for our brokers, including 400,000 to 500,000 leads Bilt renters that convert to purchase every single year exclusively to our mortgage brokers. We're also excited about the mortgage matchup center sponsorship out in Phoenix. We've seen a significant spike in both traffic and success through the mortgagematchup.com website since launching this. So very excited about all those things. Now I don't normally do this because I know you guys are going to ask me a bunch of questions. But before I move to guidance, I'll ask you a question. When rates drop, what mortgage company do you believe is most prepared to handle it with AI, with operational capacity, not with buzzwords, but with actual technology, process and preparation that's already been proven. The 10-year dipped to 4%, and you saw what we did. I've been saying this for years, when the 10-year dips to 3.75%, we're going to double our business. No other lender can do that. Even if they could, were they going to go from $4 billion to $8 billion? Like we're going to go from $30 billion to $40 billion a quarter to $60 billion to $80 billion in a quarter, right, with margin expansion. That's how UWM works. I hope you feel good about what lies ahead for UWM because I do. All right. Now turning to guidance. I expect the fourth quarter production to be between $43 billion and $50 billion of production. And we're going to raise our levels on the gain margin to 105% to 130%, moving it up 1 level. And honestly, if we get another dip like we just saw, those numbers could be even higher. But overall, excited about what UWM is doing. We're going to continue to dominate. Thank you for your time today. Let's flip it over to the Q&A. Operator: [Operator Instructions] And our first question for today comes from the line of Terry Ma with Barclays. Terry Ma: I just wanted to follow up on the effort to bring servicing in-house and specifically with the Bilt partnership. Maybe just talk about what you're seeking to accomplish with that partnership, how widespread the adoption could be? And then like ultimately, like who's going to fund the rewards issued from the Bilt card? Mathew Ishbia: Yes. Thanks for the question. So it's got nothing to do with the Bilt card. So it's every mortgage payment that goes through UWM we are letting them be the front-end servicing app, if you think of it that way, the technology on the front end. The real benefit for us at UWM is, one, we're going to be better than every other servicer out there because we're better than everyone at everything we do and servicing is a joke in our industry. And so we're going to make it really great for the client. So when people call, we're going to actually answer the phone, not 43-minute waiting periods like everybody else does. So we'll be great on servicing from a service perspective for the consumers, so consumers will love it, and then they'll get rewards for making their mortgage payment, which is something that's never been done before. And then obviously, the front-end technology to your point about built will be fantastic. On top of that, as I mentioned, built has 5 million people making their rental payments to they're about 10% go and buy houses every year. Right now, they just leave Bilt and go buy house. Now they're going to have a way to make a mortgage payment through Bilt by working with a mortgage broker. So those turn into great leads and opportunities exclusive to our mortgage brokers. And so it's a win-win-win. Bilt is a great company. They do good things, but UWM and our servicing process is going to be the best-in-class. That's how we do things. And so we're excited about that. Terry Ma: Got it. Just to follow up on the rewards piece. Like will that show up on expenses anywhere on your P&L? Mathew Ishbia: P&L? No. That's a silly question, but no, it's not funded by UWM. There's no expense for it at all. This is all upside. Terry Ma: Okay. Great. And then maybe just a follow-up on me. I appreciate the stats. I think you mentioned 14,000 loans off 400,000 outbound calls. Like any room for improvement as we kind of go forward and you continue to kind of use it? Mathew Ishbia: Everything we do has room for improvement. So yes, Mia has been fantastic. It's been better than we expected. The answer rates are higher. The response has been better. But every day that goes by, she gets better. And every day that goes by, our brokers get more and more comfortable, consumers get more and more comfortable with the AI agents reaching out and it's not a human. Like every day, it's getting better and better, and it's only going to be more and more loans. And so 14,000 was a really big number, surprisingly big number for us, but that's also the market we had that little couple of week blip where the market got really good, and we took advantage of that. But no, Mia has been fantastic. And we spend all of our time and investments internally on AI and investments around AI. Once again, it's not a buzzword for us, it's actually producing business. And so Mia has been great. And so I appreciate that question because she's been better than we expected. Operator: Our next question is from the line of Eric Hagen with BTIG. Eric Hagen: Good quarter. On the guidance for the gain on sale margin, is that a function of lower rates? Or is there another variable or condition in the market, which is supporting that? And how do you feel like the margin compares on refis versus purchased loans at this point? Mathew Ishbia: Yes. So the margin on purchase and refis are -- there's no difference. It's not a different thing. The opportunity is if rates drop a little bit as rates get lower, more volume comes in the market. And anyone that's a good mortgage loan officer or knows how to do business knows that rates are not what drives business because if that was the case, then there will be no retail business because everyone in retail charges 400 basis point gain on sale, takes advantage of consumers, does the wrong thing. If rates really matter, then there would be no retail channel. Since there is 70% of the market goes through retail, rates are not the biggest thing. So margin being up 105%, 130% in that range, that just -- for years, we were at the low end. I always told you different levels, 75 to 100 was the lower. And I keep -- I've kept moving it up strategically and timely, and I control that. Nobody else does. And so that's what's happening, and that's what it will be in that range again this month. And like I said, on the volume and margin guidance is accurate as it was last. But if I get a 2-week blip, we are unable to take advantage of it and margins go up and volume goes up and we crush it, just like we did this quarter, although I don't know if you guys recognize it, but it was a dominant quarter. Eric Hagen: Yes, we recognize it was good stuff. Good color from you as always. I mean the origination numbers look really strong, but what was the driver of the conventional purchase loans being down a little bit quarter-over-quarter? And how much upside do you think there is to the purchase numbers if rates fall? I think you mentioned 3.75% on the 10-year. I mean if that's the level, what is the upside to the purchase segment? Mathew Ishbia: The purchase business is -- the best part about our business, and you understand it pretty well, Eric, is that we're consistently dominant on the purchase. We do $25 billion a quarter, maybe $22 billion, maybe $27 billion. But basically, we're $95 billion to $105 billion of purchase every year. Rates go down to 4%, let's just play that out, just use an example, crazy not to 10-year, just the real rates. Yes, purchases will go up maybe 20% to 30%. It's not like a crazy difference. The real difference is the refi. Purchases are steady, consistent always. And that's why nobody else has that. That's why everyone else is sitting here waiting and they've been dying for the last 4 years, and we've been consistent with purchase. So the real upside is in the refi business that will go up like we saw it can double or triple in a week or a day. And so the purchase business, especially in fourth quarter, first quarter, purchase business, as you know, is that's not the purchase season. Purchase season is second and third quarter in really the summer because that's when people are moving and all that stuff. And so it will be steady. It will be consistent. Yes, there's plus 25%, maybe plus 30%, maybe plus 40% volume on purchase with lower rates because maybe some more people sell their houses and you can get all that stuff, affordability gets better, but people got to go out and buy houses still. So I'm not that focused on -- we will dominate the purchase market no matter what happens and then the refi is where the upside comes in. Operator: Our next question is from the line of Bose George with KBW. Bose George: Can you talk about the volume and margin trends that you've seen so far in October, is that kind of at the midpoint of the guidance range? Mathew Ishbia: Yes. I guided for -- to where I did for a reason. October was a great month and the volume and margins are aligned. Now November is a 19 business day month. And if you take out the Wednesday and Friday after Thanksgiving and before it's really a 17 business day month. So it's a really short month. So this quarter is actually a short quarter tied to the end of the year stuff. But I've just guided that no matter what, I'm going to have the best quarter we've had in 4 years. Maybe you guys will recognize that and realize that we're dominating out here. But either way, $43 billion to $50 billion is very good. It's never been done in 4 years at UWM. The margins are guided to those same places that I just did. And so we will not miss guidance just as I never have, I think, as long as I've been doing this. Bose George: Okay. Great. And then actually, on the servicing side, you noted that you'll be bringing it in-house early '26. Does that happen? And is it staggered? Does it come in over time? Or -- how is that going to work? Mathew Ishbia: Yes. All new loans that close in 2026 will be -- will stay here, so we won't subservice those out to your point, to your question. And then the loans that are currently subserviced out at Cenlar over the year, we'll transition them here. So by the end of 2026, there won't be loans anywhere else outside of default loans and different things that we make decisions on. But for the most part, everything will be here internally, whether I move a big chunk of them in March or April, another chunk in September, October, but all new originations are coming in 2026. And by the end of 2026, 100% of the servicing book will be internal, like I said, outside of the loans that I've chosen to not come in town or come in-house. Operator: Our next question is from the line of Doug Harter with UBS. Douglas Harter: Mat, as we think about your ability to ramp up volumes, how -- you've talked about the scale of the business. How should we think about like what are the incremental costs that -- for funding that new volume and just how to think about the operating leverage that's in the business? Mathew Ishbia: Yes. The operating leverage in the business is substantial right now. So there's -- the cost -- you guys look at cost all the time. A lot of them are investments. You look at how do we invest in technology, how do I continue to invest in everything that we do, the broker channel, all the different pieces to it. But where we're at right now, I don't need to add costs to do -- double my business. I've said that before. And so therefore, you can kind of think of the cost. Like obviously, when you do more volume, there's more commissions that get paid out and there's things like that, but that's a variable cost. From a fixed perspective, I feel really good about where we are right now. And I'd expect over the next year that to stay the same or stay in that range, plus or minus 10% and probably be on the lower end of the minus 10% is how I think about it based on just the AI initiatives and things that we've done. But at the same time, if there's an opportunity to make an investment to build the business and dominate, we will do that without question, without thought. And so the investments we make will continue. But the expenses like if you're looking like fixed costs, like how much more, we don't need anything to do the volumes I just told you guys. We don't need anything. Douglas Harter: And then speaking of investment, can you just remind us on the bringing the servicing in-house? I guess, have those investments already started? So like are those costs kind of already in your cost base? And just how to think about kind of the cost side as servicing comes in-house? Mathew Ishbia: Yes. Those costs -- so I'm getting double hit on it, right, because I'm paying subservicers and I'm also building out a servicing portfolio and servicing people, hiring people to build out the way I want to do it. I told you guys really I'd say between $40 million and $100 million. I think I guess said $60 million to $100 million, probably closer to the high end of these ranges I'm giving you, let's call it $40 million to $100 million to bring servicing in-house, and those numbers are accurate. You won't see that all the way through the income until 2027, right? Because this year is the worst because I'm double dipping, I'm hiring people, building it out, and I'm still subservicing. Next year is a combo of it. In 2027, I'll have all the savings baked into our business, along with the leads, along with the growth, along with the success, along with better retention and all the things that come from it. So yes, so you're correct. There's -- those costs are already in there. And same thing with the technology investments right now, building out some of those things from the AI perspective to make servicing, like I said, the best in the country. I'm not trying to be like all these other guys. Operator: Our next question is from the line of Jeff Adelson with Morgan Stanley. Jeffrey Adelson: Mat, just maybe a quick reminder of the hedging. I think this quarter, the hedge gain against the MSR loss was a little bit smaller than we saw last quarter. Just maybe give us a quick update on the hedging strategy. I know you've been a little bit more opportunistic there. Mathew Ishbia: Yes. No, I appreciate it. We don't hedge our MSRs as you're hopefully aware of. I do look at opportunities and look at interest rates and make decisions. Sometimes we do more of it, sometimes we do less of it. This quarter, we focused less on it because we focused on just the dominating the business. Obviously, the 10-year goes up and down, MBS rates go up and down and how it finishes, depending on how it started, it ties to an MSR loss. Anyone, and I know it's you guys because I love all of you guys, but anyone that f****** focuses on MSRs and the fair value just doesn't understand mortgages, doesn't understand this business. It's got 0 to do with what I'm doing, the operating of the business. The 10-year can literally be at 3.75% for this whole quarter. Let's say if it drops to 3.75% today, I'm go to crush it, just crush it across the board. I'll call you next quarter. I'll say, $60 billion, $70 billion, 135 basis points of margin, we'll crush it. But on December 31, the 10-year goes back up to 4.40%, just to use some crazy number, and I'll have an MSR write-up of another $400 million also. That has 0 to do with my business. And the inverse is accurate, too. So the MSR value stuff means nothing. I don't focus on it. I don't care about it. I'm not going to care about it because it's like why would I focus on since I have 0 control over, 0. you can hedge it, Mat, we'll hedge it. That -- once again, MSR value, I'd be putting costs out there to hedge something that I have 0 control over. I don't care about the MSR values. If you guys write about the MSR values, you don't understand my business. It just doesn't matter. It matters 0. So just like, by the way, and you can go back and listen to the record I told you the same stuff when my -- I got an MSR write-up of $500 million. I'm like, don't give me credit for that. I didn't do anything for that. That means 0. Watch my core business. watch what I do with my production, my gain on sale, my expenses and how we dominate in there. And our adjusted EBITDA of $200-plus million, like that's how you run a business. That's all we focus on. I don't focus on other stuff. I know other people like to talk about it because they just don't understand our business. Jeffrey Adelson: And then just in terms of Mia, it was good to hear the color on the success so far there. Just as I sort of think about that 14,000 transactions closed, do you think about that as mostly refi at this point? And some really rough math, if I sort of think about an average loan size here would suggest there was somewhere in the ballpark of maybe like 10% of your originations this quarter. And if most of it was refi, that would be quite a bit of refi as well. So is that right? Or how should we be thinking about those numbers and the path from here? Mathew Ishbia: Yes. And to be clear, and maybe I should have done a better job of stating it, the 14,000 probably includes loans that have closed in the beginning of October because I think I pulled the data like 2 weeks ago. So it's probably a little runoff. So it's not all 14,000 in the first quarter -- in the second quarter -- excuse me, third quarter. And also was probably a little bit in the second quarter. So it's not like pure, but we really saw a massive pickup in that September little blip that we just talked about. So a lot of that stuff closed in September and a little bit rolled in October. With that being said, I would assume that it's all refinanced. 95% is refi. Yes, there are some that Mia called and they're like, "Oh, I'm looking to buy a house or I want a second home." But the focus on the 400,000-plus calls were rate watch calls, which basically means, hey, you might be in the market for a refinance. You should be in the market for refinance. I've got good news, you're LO at this company. And so maybe at some point, we'll play the call. If you call our Investor Relations team, they'll let you hear a call, like the real live calls and people like, yes, I have Johnny call me, and then that turns into an import, which turns into a loan, which turns into a closing. And so I would say 95% refi in the data I just gave you on the 14,000, but I won't try to put it in the third quarter number because it's not all in the third quarter. I would say a good amount of it was in the third quarter, but some of it trickled into the fourth quarter, and we'll have more in the fourth quarter. We already have some since I pulled that data. Jeffrey Adelson: So a pretty good number though, but appreciate the color, Mat... Operator: [Operator Instructions] Our next question is from the line of Mikhail Goberman with Citizens. Mikhail Goberman: Just a quick question about -- a big picture question about technology and how it's affecting the industry, especially with respect to refi, there's been a lot of talk about the sort of traditional 75 basis point incentive for refis really contracting to much lower level going forward, maybe even as low as 25, 30. Could you talk about that and how technology and specifically AI is affecting that? Mathew Ishbia: Yes. Just to clarify your question, so I understand so I can give you the right answer. You're saying that people are more likely to refinance because it's easier these days. They used to think you have to save more money. Now they're willing to do it quicker. Is that what you're asking? Mikhail Goberman: Correct. Yes. Given that sort of the human element has always been the choke point in the refi experience and technology just collapsing that into a faster process. Mathew Ishbia: Yes. I mean I see that. And I guess your point is will there be -- since there's less cost, less friction and it's easier to refinance because of -- will there be more refinances. And I guess I would say, yes, I see the opportunities there. But you're also assuming that all lenders are actually good at it. You're also assuming that other lenders actually have technology. The friction is still a pain in the butt for -- I mean, I think I said 11 days [ sub the CTC ], and I've refis even faster than that. The industry average are still 40 days. There's still a lot of friction. People are still literally -- you get a mortgage with some of these retail lenders or some of these other lenders, you're literally going and printing out your 12 months bank statement, going and get your pay stubs, calling your tax people and getting your tax returns and setting them up, like it's a complete joke still. So don't get confused that just because we're dominating and doing these things and that a couple of other companies are focused on AI. A lot of AI is buzzwords and bulls*** right now. The truth is we're closing like why don't you check their data, see who is actually pulling the friction out. But you are correct. When you make it faster, easier and cheaper, people are willing to do it because like I was not a pain in the butt to refinance. I'll take $92 of savings. I don't need to wait for $200 of savings. In the old days, it was like, let me wait until $200 because it's not worth my time. I don't want to go get my pay stubs and go to Kinko's and fax, make copies and all that nonsense. But there are still lenders and the majority of lenders are still doing it the old way. So I wouldn't say there's a massive change. You'll see ours go faster from the opportunity because we'll be able to help people, but it's still -- it's not going to be a massive change in the markets yet. In the future, it will be, I think you're actually on to something. But you're still -- the technology that I speak of and we talk about in AI is, I say light years, but we'll call it 3 to 5 years ahead of all these other people. And so yes, there'll be more refinances. But with our servicing bringing it in-house, with our faster, easier process with mortgage brokers being cheaper and lower cost, it's going to be more refis. And that's why we're -- we dominated in September, and we dominated in October, and we'll dominate this fourth quarter. We continue with the volume on refis. And then we don't have to own the servicing book. And a lot of people like to say they own servicing book to get the refis, that isn't the game anymore, although people are spending billions and billions of dollars buying servicing books, that helps and they give you a little bit of a leg up, a little inside track, but that is not driving it. As you saw, I think I said last quarter that we own 2% of the servicing book or 3% of the book, and we did 11% or 12% of the refis in the market. So obviously, that's not the game anymore. So taking the friction out is the game. Technology is the game, and that's why you see me making investments every single day to be prepared to dominate just like we did in the third quarter, and I will get in the fourth quarter and then in 2026. Operator: Ladies and gentlemen, that will conclude our Q&A portion for today. I would like to turn the call back over to Mat Ishbia for any closing comments. Mathew Ishbia: Yes. Thanks for the time today, guys. Appreciate you guys. Have a good day. Operator: Thank you. And ladies and gentlemen, that will conclude today's conference. Thanks for attending. We'll see you next time.
Operator: Hello, and thank you for standing by. Welcome to Gogo Third Quarter 2025 Earnings Conference Call. [Operator Instructions] I would now like to hand the conference over to William Davis. You may begin. William Davis: Thank you, and good morning, everyone. Welcome to Gogo's Third Quarter 2025 Earnings Conference Call. Joining me today to discuss our results are Chris Moore, CEO; and Zach Cotner, our CFO. Before we get started, I would like to take this opportunity to remind you that during the course of this call, we may make forward-looking statements regarding future events and the future performance of the company. We caution you to consider the risk factors that could cause actual results to differ materially from those in the forward-looking statements on this call. Those risk factors are described in our earnings release filed this morning and in a more fully detailed note under risk factors filed in our annual report on 10-K and 10-Q and other documents that we have filed with the SEC. In addition, please note that the date of this conference call is November 6, 2025. Any forward-looking statements that we make today are based on assumptions as of this date, and we undertake no obligation to update these statements as a result of more information or future events. During this call, we'll present both GAAP and non-GAAP financial measures. We have included a reconciliation and explanation of adjustments and other considerations of our non-GAAP measures to the most comparable GAAP measures in our third quarter earnings release. This call is being webcasted and available at ir.gogoair.com. The earnings release is also available on the website. After management comments, we'll host a Q&A session with the financial community only. It is now my great pleasure to turn the call over to Chris. Christopher Moore: Thank you, Will, and good morning. I will let Zach handle the numbers, but I am pleased with our financial discipline, integration and synergy execution and free cash flow generation as we prepare for growth as a result of our new product ramps and global contract wins. My remarks will focus on the significant progress made across our key new products in the third quarter, including 5G, HDX and FDX, all of which are expected to provide a step function increase in speed, consistency and performance. I will also discuss our progress in the military/government end market, including several recent contract wins that validate our unique multi-orbit multi-band strategy for this important customer base. We believe Gogo is well positioned to execute on our new product launches, and this bolsters my confidence in achieving long-term sustained revenue and free cash flow growth. Before we jump into our product rollouts, let's review the positive demand trends within our underpenetrated market. Global business jet flights are about 30% above pre-COVID levels, and at an all-time high. Fractional demand is robust. Overall demand for business jets remains healthy with major OEMs reporting strong backlogs and estimating 2025 final book-to-bill ratios 1x or higher. Last month, Honeywell estimated business jet deliveries globally of 8,500 over the next 10 years, representing an annual growth rate of approximately 3%. Given that our global addressable market of 41,000 business aircraft is less than 25% penetrated with broadband connectivity, these factors create a robust end market. In summary, our value creation is to grow our current strong position in the underpenetrated market with long-term high-margin customer relationships by delivering a set of new products and services, which deliver order of magnitude improvements in performance with purpose-built equipment that is easier to install, maintain and upgrade than competitors' products. Let's start our new product update with Galileo, our global LEO-based service that comes in two flavors: HDX for smaller aircraft and FDX for larger aircraft. The recent announcement by VistaJet, a leading global business jet operator of its plans to deploy both HDX and FDX across its fleet of 270 aircraft is a powerful endorsement for Galileo. HDX installations begin this month in Europe and start in the U.S. and Asia in January. Vista expects one aircraft upgrade with the Gogo Galileo terminal every nine days, reaching at least 60 aircraft with the Galileo terminal within the first 18 months. VistaJet was comfortable with both the robust performance of our Galileo service and our commitment to long-term global customer support as well as the ability to manage capacity and route traffic across a global fleet with multiple aircraft types. The VistaJet contract continues our momentum across multiple global fleet operators. In addition to VistaJet, Gogo has announced wins with the following fleets, all with plans to upgrade their fleet to Galileo and/or 5G, NetJets, Luxaviation, Wheels Up and Avcon Jet. All in, we believe that there is a path with Gogo to reach well over 1,000 fleet aircraft with either Galileo or 5G representing a true slingshot to propel our LEO and ATG business on a global scale. Further, our combined Galileo pipeline for both HDX and FDX is now approximately 1,000, up from 500 at the end of Q2, and we continue to see a favorable pipeline mix between U.S. and global market of about 60-40. Note, as we win new contracts like the VistaJet deal, this pipeline rolls off into new business won. So, a pipeline is just one piece of the puzzle in tracking our progress. Next, let's drill down on HDX. HDX is ideal for the 12,000 midsized and smaller aircraft outside North America without broadband and the 11,000 midsize and smaller aircraft in North America that fly outside of CONUS or won faster speed than 5G. Our execution on HDX bought significant fruit during the quarter as we increased our completed STCs from 8 to 19 out of 40 under contract. We are very close to reaching critical mass with our HDX STC count. Additionally, we have now shipped over 200 HDX units year-to-date, nearly 3x the 77 shipments we announced on our Q2 call in August with 93% earmarked for specific customers. Our HDX installations are now 50, including outstanding FTCs, which we expect to ramp significantly as we begin to install on our major fleet accounts and execute on line-fit installations with Textron beginning in early 2026. Accelerating AOL in a new product is truly where the magic happens and will be the key to future service revenue acceleration. HDX is performing ahead of speed expectations and was purpose-built to fit on 41,000 global aircraft, and we expect a very significant ramp in shipments and AOL growth in 2026 and beyond. Now let's shift to FDX, our larger LEO antenna for the large global business market of 10,000 aircraft. A successful flight test with OEMs, dealers and fleet customers is a fantastic endorsement to the status of the new product. At the recent NBAA show, we flew multiple flight demos with speeds reaching 200 megabits at the high end of our predicted speed range. As we see, this is streaming. We operated 27 streaming devices simultaneously and consumed an outstanding 36 gigs of data in 36 minutes. I've been launching and testing aviation WiFi systems for a couple of decades and have never seen such flawless execution on a flight demo within a week of aircraft installation and delivery. It was truly an awesome performance. Hats off to the Gogo team and our partners, Hughes, StandardAero and OneWeb. We were thrilled to announce in our earnings release this morning that FDX will be a LEO line-fit option for all new Bombardier Challenger and global business aircraft types. In our view, this validates our technology, our team and shows great trust from a major global business aircraft OEM. We expect revenue generation from this important win in early 2027. We have now announced strong Galileo relationships with the following major global OEMs, Bombardier, Textron, Dassault and Embraer. Let's now move on to 5G, our multiyear investment to substantially improve the performance of our ATG network. I am thrilled to say that we are at the goal line on 5G. Our 5G flight testing began on October 28, and the results have exceeded our expectations. As a result, we reiterate a Q4 launch timing for 5G, and we plan to begin shipping boxes to our 400 pre-provisioned 5G customers in early Q1. They already have the 5G antenna installed and the wiring is completed. We expect our 5G service revenue to begin in the latter part of the first quarter once installations have begun. Beyond our focus on preprovisioned aircraft, 28 out of the 33 FTCs under contract are now completed, and we expect the remaining 5 will be completed by the end of the year. Further, Gogo has 5G line fit commitments with 5 OEMs with already installing the AVANCE L5 box on the production line today. These boxes will be swapped with the LX5 5G box when service is turned on. We continue to believe the significant pent-up demand exists for 5G among customers who predominantly fly domestically, particularly those with light and medium-sized aircraft. 5G offers a tenfold increase in speeds versus the existing L5 ATG solution and is a cost-effective solution versus the more premium priced HDX or FDX. Keeping the focus on ATG, let's move to our LTE upgrade. The upgrade of our ATG network to LTE, which will be largely subsidized by FCC funding, is expected to bring multiple benefits: one, accelerating the upgrade of Classic aircraft to AVANCE; two, increasing ATG network capacity and increasing speeds; and third, accelerating our U.S. government business on the ATG network given the enhanced security of the network. We shipped a record 437 ATG equipment units in the quarter, up 8% sequentially split between 208 AVANCE units and 229 C1 units. Equipment shipments are typically a leading indicator of future installs. We recorded a record 145 Classic to AVANCE upgrades in Q3 as AVANCE AOL grew 12% year-over-year to 4,890. AVANCE now represents 75% of our ATG fleet, and that figure is quickly heading to 100%. Correspondingly, our Classic count of roughly 1,500 aircraft is only 25% of the ATG fleet and over 400 are part of fractional or managed accounts with a defined upgrade path. This leaves approximately 1,100 Classic aircraft not associated with a fleet account. We expect that our count of 101 C1 aircraft will ramp significantly over the coming quarters. The C1 box is identical in size to the Classic box and allows the system to operate after the LTE system is turned on. This box swap takes only a few hours and benefits from FCC subsidies. Bottom line, we are accelerating our progress towards the anticipated LTE cutover in May of 2026, and our entire dealer network is pushing all out to upgrade our Classic fleet as they have a strong vested interest in a smooth transition of our air-to-ground network. While we are encouraged with our efforts to improve the performance of the ATG network across multiple levels, including the 5G and LTE rollout and the C1 upgrade process, we continue to believe that industry trends will pressure our ATG online count for the next several quarters. Our ability to return to sustained service revenue growth will be dependent on 2 things: First, the pace of the ramp of our new products, including HDX, FDX 5G and second, progress in the military/government end market. Let's jump into the discussion of performance of our GEO business. We ended Q3 with 1,343 GEO AOL, up 161 units or 14% from the prior year, powered by our line fit positioning. We expect that our investment in GEO technology will continue to improve speed and performance over time for business jet, which we believe can be leveraged across our military/government customers as well. Our SD Router called SDR is on about 2,400 GEO aircraft and is synchronized with the advanced routers on other 4,900 aircraft. That is a total of approximately 7,300 systems that should be upgradable to new products without box swaps or expensive interior rewiring. Now moving to our military/government end market. Given that our military/government service revenue is relatively new to most of you, let me provide context about how we view it. First, the global military/government aircraft number has an even lower broadband penetration than the business jet market, and this presents a compelling long-term growth path. The 25 by 25 initiative from the U.S. Air Force is a great example of this. The U.S. Air Force set a goal that 25% of its 1,100-non-fighter aircraft would have broadband speeds of 25 megabits or greater by the end of 2025 and that the goal will come up short. Of note, the architect of the 25 by 25 initiatives, retired General Mike Minahan, joined our Board this year. Second, we believe governments globally will seek diversity amongst their aero bandwidth suppliers and will place premium on multi-orbit, multiband service for redundancy and performance. These capabilities are military prerequisites for PACE standing for Primary, Alternate, Contingent, and Emergency. And Gogo is the only company that can fit that bill. This was a major contributing factor in our recently announced 5-year federal contract to deliver 5G, LEO and GEO services to a U.S. government agency. This is the first service win for 5G in a multi-orbit government contract. Third, we can reuse business aviation terminal offering for military/government use without incremental R&D spend. This advantage was highlighted with our recent 5-year contract with SES Space & Defense for a blanket purchase agreement for U.S. Space Force’s Space Systems Command, we will plan to deliver managed global Ku-band Geo Flex air services utilizing our Plain Simple Ku-band Antenna to provide scalable, secure and high-speed satellite connectivity across government operations worldwide. This contract ceiling value is $33 million, of which aviation is a major component and a total revenue split, 80% service and 20% equipment. Finally, given that military/government contracts are typically multiyear, we believe that increased predictability revenue streams under contract in this segment have the potential to add a new layer of strategic value for Gogo. Given that context, we expect that military/government, which is 13% of our total revenue, is likely to move towards 20% over the longer term. Thank you for your attention, and I trust that you share our enthusiasm for the significant progress we have made over the last few quarters in transitioning this global business. I will now turn the call over to Zach for the numbers. Zachary Cotner: Thanks, Chris, and good morning, everyone. Third quarter revenue was in line with expectations, highlighted by strong equipment shipments. Also, adjusted EBITDA and free cash flow were ahead of plan as our integration synergies and financial discipline continue to materialize. As a result, we are reiterating the high end of our 2025 financial guidance ranges for revenue, adjusted EBITDA and free cash flow. As Chris mentioned, global demand for our new products continues to expand, and we believe this will ultimately lead to service revenue growth. As implied in our 2025 financial guidance, we expect to return to modest year-over-year revenue growth in Q4, while increases in Galileo and 5G investments as well as elevated inventory levels driven by our new product launches should decrease adjusted EBITDA and free cash flow sequentially. We are still completing our 2026 annual plan, and we'll be providing guidance on our Q4 call in February. However, in the meantime, we would like to provide a bit of context around next year. We see the potential for some incremental working capital need in '26 to support our new product ramps as well as continued ATG AOL volatility, particularly amongst our Classic fleet. Despite these considerations, we believe that new product growth, the roll-off of 5G and Galileo investments as well as further OpEx and CapEx rationalization will benefit us next year. I'll now provide an overview of our third quarter results, then I will turn to our capital allocation priorities and outlook for the balance sheet transactions to reduce interest expense and further de-lever. And finally, I will provide some additional color on the guidance. On a combined pro forma basis, Gogo's total revenue in the third quarter was $224 million, down 1% on a pro forma basis year-over-year as well as sequentially. On a stand-alone basis, Satcom Direct's Q3 revenue declined about 4% year-over-year. Total service revenue of $190 million increased 132% over the prior year and declined 2% sequentially. Total ATG aircraft online at the end of Q3 was 6,529, a decline of approximately 7% versus the prior year period and down 3% sequentially. Consistent with our strategic goals, total advanced AOL increased 12% from the prior year period and now comprises 75% of the total ATG fleet, up from 62% a year ago. Since the end of 2022, our total AVANCE AOL has grown by over 1,600. Total ATG ARPU of 3,407 declined about 3% year-over-year and approximately 1% sequentially. Total broadband GEO AOL, excluding networks that are End of Life, reached 1,343, up 14% from the prior year and 2% sequentially. This strength highlights our OEM line positions. In addition, most GEO broadband aircraft under fixed-term contracts, enhancing revenue stability and our GEO ARPU continues to hold up better than expected. This performance was the primary driver in the increase in the fair value of the earn-out liability that affected our net income in the quarter. Now turning to equipment revenue. Total equipment revenue in the third quarter was $33.6 million, up 80% year-over-year and 5% sequentially. Total ATG equipment shipments of 437 were an all-time high and up 8% sequentially from 405 in Q2, which was a prior record. Advanced shipments remained robust at 208, while C1 shipments ramped substantially to 229 and up from 129 in the prior quarter. Given that equipment shipments are generally a leading indicator of future installation activity, we believe our strong Q3 shipments bode well for the future conversion of Classic customers ahead of our expected LTE network cutover in May of 2026. Now moving on to our margins. Gogo delivered combined service margins, inclusive of Satcom Direct of 52%, which was in line with our budget. Service gross profit accounted for 97% of total Q3 gross profit. We continue to focus on driving this recurring high-margin service revenue. Equipment margins were about 8% in Q3 as Galileo equipment pricing remains close to cost. Now turning to operating expenses. Total Q3 operating expense for G&A, sales and marketing as well as engineering design and development were $57 million, up slightly sequentially, largely due to SmartSky litigation spend. Now let's turn to our major strategic initiatives, 5G, Galileo and the FCC reimbursement program. Total 5G spend in Q3 was $6 million with approximately $5.5 million tied to CapEx. We continue to expect total 5G spend to decline in 2026 as we launch our 5G network in Q4. Turning to Galileo, we recorded $1.2 million in Q3 OpEx and about $2.2 million in CapEx. We continue to expect total external development costs for both the HDX and FDX to be less than $50 million, of which $34 million was incurred from 2022 through the first 9 months of 2025, with approximately $11 million expected this year. We anticipate approximately 80% of Galileo's external development costs will be in OpEx. And finally, our FCC reimbursement program. In the third quarter, we received $6.6 million in FCC grant funding, bringing our program to date total to $59.9 million. As of September 30, we recorded a $26 million receivable from the FCC and incurred $22.8 million in reimbursable spend during the quarter. The timing of reimbursement payments has not been affected by the government shutdown, but we are monitoring the situation closely. The receivables is included in prepaid expenses and other current assets on the balance sheet with corresponding reductions to Property and Equipment, Inventory and Contract assets with a pickup in the income statement. Moving to our bottom line. Gogo generated $56.2 million of adjusted EBITDA in the quarter, and our adjusted EBITDA margin of 25% was consistent with the initial long-term view of the mid-20s we described in the Satcom deal was announced. Net income for the quarter was negative $1.9 million and EPS was negative $0.01. Net income includes a $15 million pretax fair value adjustment related to the Satcom acquisition I described a moment ago. As of Q3, we have achieved over $30 million of annualized synergies and expect run rate synergies to modestly exceed our previous range of $30 million to $35 million with approximately 2 years of closing the Satcom deal. This is a significant improvement from our original guidance of $25 million to $30 million. We continue to anticipate total cost to achieve synergies in the range of $15 million to $20 million. While we have achieved the vast majority of our headcount reductions, we feel confident that we can further reduce costs as we head into '26 in multiple areas, including real estate, back-office software solutions and CapEx rationalization. Now moving to free cash flow. Gogo generated $31 million of free cash flow in Q3, above expectations and totaling $94 million year-to-date. Based on our current 2025 guidance, we expect Q4 free cash flow to be the lowest of the year, mostly due to the timing of strategic investments and inventory purchase related to the launch of our new products. Now I'll turn to the discussion of our balance sheet. Gogo ended the third quarter with $133.6 million in cash and short-term investments and $849 million in outstanding principal on our 2 term loans with our $122 million revolver remaining undrawn. This equates to a net leverage ratio of 3.1x for Q3, down from 3.2x in the prior quarter. Our cash interest paid net of hedge cash flow was $16.3 million. Our hedge agreement is now $250 million with a strike of 225 bps, resulting in approximately 30% of the loans being hedged. In 2025, we continue to expect cash interest paid net of hedge cash flow to be approximately $70 million. Consistent with our Q2 call, our immediate focus remains exploring ways to streamline our balance sheet, reduce interest expense and continue our deleveraging process. Between our cash on hand and our revolver, we have more than $250 million in liquidity. This is significantly more than we need to operate the business, and we believe this provides plenty of financial flexibility to find the right balance sheet solution in 2026. Bottom line, we continue to believe our expected free cash flow growth over the next few years will provide ample excess cash to pay down debt, reduce our interest expense and ultimately return capital to shareholders. In our earnings release this morning, we are largely reiterating key elements of our 2025 financial guidance. For the year, we expect total revenue at the high end of the range of $870 million to $910 million, adjusted EBITDA at the high end of the range of $200 million to $220 million, reflecting operating expenses of approximately $15 million for strategic initiatives, including 5G and Galileo versus our prior expectations of $20 million. Given our guidance, we expect Q4 EBITDA will decline sequentially largely due to the timing of planned investments and an expected decrease in ATG service revenue. Free cash flow at the high end of the range of $60 million to $90 million. We now expect approximately $40 million slated for strategic investments in 2025, net of any FCC reimbursement versus prior expectations of $60 million. This reduction is largely due to timing. Our net CapEx is still expected to be $40 million after $30 million of CapEx reimbursement from the FCC reimbursement program. In conclusion, 2025 has largely been a year of blocking and tackling execution that include the integration of Gogo and Satcom, significant product investments and launching HDX, FDX and 5G. Now nearly a year after the close of the Satcom deal, we are seeing the results of our transformation. Shipments and installations of game-changing new products are starting to ramp, significant costs are being removed, and we are winning long-term contracts with global fleets, OEMs and governments. I want to express my gratitude to the Gogo team for their hard work in driving this transformation and their dedication to providing exceptional customer service. Operator, this concludes our prepared remarks. Please open the queue for questions. Operator: [Operator Instructions] Our first question comes from the line Scott Searle with ROTH Capital Partners. Scott Searle: Maybe just to dig in initially on the fourth quarter implied guidance. Chris, Zach, I'm wondering if you could dive in a little bit more in terms of detailing that outlook, it implies adjusted EBITDA in the $40 million range. You've mentioned incremental strategic investments and the ATG kind of roll-off. Could you take us through that a little bit more in detail in terms of the thought process and if you're being conservative on that front or ATG is expected to continue to transition, particularly on the Classic front?  Zachary Cotner: Thanks for the question. I think the way we're looking at it is, as you've seen, the ATG pressure continues, right? And that's the highest margin revenue, right? So, we anticipate a decline, albeit not as aggressive as the prior quarters, largely because the C1 should start they're shipping.  But the other piece is our revenue is actually going to be up, right? And another piece of that is equipment shipments. So, if you have lower margins on equipment shipments, so the mix changes. And as well as that, we have significant testing on 5G. So, there's a little bit of compression on gross margin because of the mix and then the OpEx side is going to be a little bit higher largely because of 5G testing.  Christopher Moore: Yes. I think also if you look at the record AVANCE shipments, C1s as Zach picked up, it's clear that customers are also planning to upgrade. I think the fact that we're rolling out the 5G network, and that's successful, I think that's also a very positive sign at this point in time.  Scott Searle: Got you. And for my follow-up, I'm wondering if we could dig in a little bit more in terms of existing Classic, the transition to C1 and kind of the offset there now that we're starting to see momentum on 5G and Galileo as we go into 2026. So could you help us frame in terms of Classic, how that's expected to roll over the next several quarters. Now with the C1 out there, you had a lot of momentum this quarter. Is the majority of that base expected to convert pretty quickly to C1? Or are some of those expected to upgrade to 5G as well?  Christopher Moore: I think it's a mix. If you look at the record AVANCE shipments, clearly, those customers are looking forward to 5G. It depends also on the customer budget. The C1 is really a placeholder product, but it's really encouraging that people are also taking that when you think it's just moving them on to a more modern network.  And our MRO partners putting in field service team. So, we expect that to pick up and derisk Classic customers not cutting over. Everything we see at the moment is extremely positive. So, we're feeling pretty good about it.  Scott Searle: Chris, if I could just add on to the back of that. From an ARPU standpoint, how do you see things trending as we go into the first half of next year? There's some downward pressure, I would imagine, as we're going to C1, but you're also having some of the higher ARPU services starting to kick in. So how do you see that playing out as we go into '26?  Christopher Moore: Yes. I think what's encouraging is if you look at 5G ARPU is worth twice that of a Classic customer. So that conversion, we actually see upside. And I think that's really where our heads are at the moment. Obviously, you've got more price-sensitive customers, but we've got a lot of price flexibility within the plans. So, people cutting over from over to C1. That's one aspect.  And then you've got people who I mean, we're going to be delivering a 50 to 80 megabit service on 5G. So that's I mean, that's completely and utterly a different service level than these customers have ever experienced. So, we see that as those customers really being a higher ARPU as they're streaming and being able to use video applications within the aircraft that they've never been able to do before.  Operator: [Operator Instructions] Our next question comes from the line of Justin Lang with Morgan Stanley.  Justin Lang: I just want to double back on the implied 4Q EBITDA guide. Maybe you could just put a finer point on how much of the implied headwind is related to Galileo and 5G investments versus some of the ATG pressures you flagged?  Zachary Cotner: Yes. I would say it's kind of split a little bit evenly between ATG pressure as well as like increased OpEx. I would say there's a bigger piece of it related to 5G versus Galileo. There's still Galileo costs, but the STCs are running through and 5G, there's a lot of testing that has to go. We got to own aircraft right now. So that's a big driver.  Justin Lang: Okay. Got it. And then I know you've mentioned in the past sort of regular maintenance has been a big driver of some of the ATG AOL declines. Are you still seeing that trend? Or are you seeing heightened competitive pressure anywhere?  Christopher Moore: Not really seeing competitive pressure. I think one of the natures of the market is customers have scheduled maintenance for upgrades. So going to the C1, what I mentioned on the previous questions, really, it's that our MRO partners, I put field service teams. It's a very simple upgrade for C1, which we've designed.  So, we're doing a lot of those in the field. And there's been a lot of press about that with Omni, West Star, our MRO partners there. So, I think that will continue to have positive momentum for us. And we see that really encouraging. And I think you can see that with the C1 numbers are starting to really pick up now. So, but obviously, customers who are also waiting for scheduled maintenance, they'll wait until that point as well. It's just the nature of the market.  Justin Lang: Got it. Okay. That's helpful. And then just really quick one on the shutdown. I know Zach you mentioned that it's not really impacting FCC reimbursement. But are you seeing any other impacts maybe around military/government or I'm not sure if there's any regulatory oversight outstanding for 5G flight testing, but are you seeing that creep up anywhere else?  Christopher Moore: Yes. I think you can definitely see things have slowed down a little bit with kind of like when you need government approvals in certain areas. But they're not it's not really affecting our business at this point in time. So, we're just keeping a close monitor to it, but we're not seeing major effects in our revenue outlook because of government shutdown.  Operator: [Operator Instructions] I'm showing no further questions in the queue. I would now like to turn the call back over to William for closing remarks.  William Davis: Thank you for joining our third quarter earnings conference call. You may disconnect.  Operator: Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect. Goodbye.
Operator: Good day. Welcome to Teads Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the call over to Teads Investor Relations. Please go ahead. Unknown Executive: Good morning, and thank you for joining us on today's conference call to discuss Teads Third Quarter 2025 Results. Joining me on the call today, we have David Kostman and Jason Kiviat, the CEO and CFO of Teads. During this conference call, management will make forward-looking statements based on current expectations and assumptions, including statements regarding our business outlook and prospects. These statements are subject to risks and uncertainties that may cause actual results to differ materially from our forward-looking statements. These risk factors are discussed in detail in our Form 10-K filed for the year December 31, 2024, as updated in our subsequent reports filed with the Securities and Exchange Commission. Forward-looking statements speak only as of the call's original date, and we do not undertake any duty to update any such statements. Today's presentation also includes references to non-GAAP financial measures. You should refer to the information contained in the company's third quarter earnings release for additional information and reconciliations of non-GAAP measures to the comparable GAAP financial measures. Our earnings release can be found on the IR website, investors.teads.com, under News and Events. With that, let me turn the call over to David. David Kostman: Thank you, Josh. Good morning, and thank you for joining us. Before diving into the details of the quarter, I'd like to start with an update on the merger, our turnaround actions and how we're positioning Teads for renewed growth and sustained profitability. While this quarter presented challenges and our results fell short of expectations, we are taking decisive actions to drive a stronger performance moving forward. The integration of our 2 scaled organizations is complex with a strategic effort, and we are actively addressing the challenges we encountered. In addition to the merger complexities, we continue to navigate a dynamic and fast-evolving ecosystem marked by shifting traffic patterns across the open Internet and increasing competition on the demand side. Macro volatility in certain geographies and verticals and shorter planning cycles continue to affect pacing. At the same time, we remain confident in the strategic thesis behind our merger and are excited about the long-term opportunity. We believe that the combination of our technology, data capabilities and deep relationships with enterprise, brands and agencies places Teads in a uniquely strong position to be a strategic partner at a global scale for brands and their agencies. And our cross-screen, outcome-driven ad platform led by our fast-growing connected TV business is resonating with customers and partners. I've just returned from our strategic product offsite, and I can tell you that the innovation, creativity and energy of our teams are truly inspiring. This reinforces our confidence in Teads' future and our ability to lead the industry forward. With this backdrop, we decided to take decisive actions in effort to turn the business around, restore growth and improve profitability. Over the past 2 quarters, we've made meaningful progress on the integration and realization of synergies. Operationally, during Q3, we restructured the leadership of our regions and improved our sales team's coverage structure and sales processes. These measures are already yielding some improvements in key leading indicators, though the revenue impact is still in its early stages. In parallel, after working as 1 merged team for 2 quarters, we also decided to conduct a comprehensive business review to identify additional opportunities to restore growth, enhance profitability and generate positive cash flow while building a great company. The plan we developed focuses on 3 main dimensions: First, portfolio optimization to product, geography and customer segment evaluation, prioritizing investments in innovation and high-growth opportunities while taking steps to improve the profitability of the other parts of the business. Second, operational efficiency, refining our organizational structure and processes to enhance agility and accountability. And third, cost optimization, identifying further efficiencies to improve our financial profile and long-term cost structure. We are rapidly moving into execution of these plans with implementation beginning in the coming weeks with the objective of driving immediate impact. These plans should allow us to continue investing in strategic growth while delivering meaningful incremental EBITDA. We are focused on operating as a positive cash flow business. So far year-to-date, we have generated positive adjusted free cash flow, and our objective is to focus on improving our cost structure and efficiencies to finish the year positive as well. As you may have seen in our separate press release this morning, I'm very excited to welcome on board Mollie Spilman as our new Chief Commercial Officer. Mollie brings a wealth of experience on the sales and operations side at scale. She served as Chief Revenue Officer and then Chief Operating Officer at Criteo for 5 years when the company grew revenues from $600 million to over $2 billion. Most recently, Mollie was the Chief Revenue Officer at Oracle Advertising, where she helped clients realize value through the activation of third-party audiences and contextual targeting. Prior to that, she held senior leadership roles at Millennial Media and Yahoo!. I'm truly excited to welcome Mollie to our leadership team. She brings exceptional experience, fresh perspective and a proven ability to lead through transformation. Her insight and commitment to excellence will not only strengthen our leadership team, but also inspire our entire organization as we move forward towards a stronger future. Now, I will turn to some highlights from the quarter. Connected TV remains our most important growth area. In Q3, we saw continued growth of approximately 40% year-over-year. On a stand-alone basis, assuming continuation of recent trends, our CTV business is expected to hit the $100 million mark by end of year. As a reminder, our CTV business focuses on 3 key pillars: on screen, the innovative CTV placement where we continue to be a global leader, other proprietary formats such as POS ads and in-play and cross-screen, which facilitates full-funnel activation. Our connected TV home screen product continues to gain traction, establishing Teads as a leader in this market. We've executed over 2,500 home screen campaigns since launch and expanded partnerships with major CTV players, including TCL and Google TV, alongside existing relationships, some of which are exclusive, including LG, Samsung and Hisense, giving us access to over 500 million addressable TVs globally. We believe that new research from the [ Media Mentor Institute ] demonstrate the power of our CTV home screen, which based on early results, achieved a 48% attention rate and delivered a 16% attention premium over YouTube skippable ads. Cross-screen adoption is strong with over 10% of our branding advertisers now active across both CTV and web. During Q3, we launched CTV Performance, which is designed to enable brands to bridge awareness and performance goals across premium streaming and video environments. For example, in a recent campaign with Men's Wearhouse, Teads generated over 41,000 site visits and more than 50,000 incremental store visits, which we believe demonstrate that CTV can now drive measurable outcomes across the funnel. While CTV continues to grow quickly, we continue to experience declining pay views on premium publishers, partly due to increased adoption of AI summaries and volatility in our programmatic supply. However, this has been partially offset by ongoing RPM improvements and by actions taken by publishers to increase engagement of their audiences, particularly on their applications. On the cross-sell front, i.e., selling performance solutions to legacy Teads clients, clients such as Homes.com, Lavazza and Nissan are successfully combining branding and performance campaigns, driving measurable full-funnel results. Encouragingly, we're seeing improvements in new business opportunities and a notable inflection in cross-sell revenue, albeit from a small base, with October revenue and bookings growing by more than 55% month-over-month in cross-sell. It is important to remember the open Internet remains a vital channel for advertisers seeking incremental reach and unique audience engagement. For example, a recent case study with a major U.S. CPG brand demonstrated over 90% incremental reach when extending campaigns beyond social into the open Internet, which we believe is a powerful example of Teads' ability to connect brands with new audiences beyond walled gardens. In addition to our CTV expansion, diversifying beyond traditional publishers into potential high-growth, high-value media environments, our retail media innovation continues to advance with more updates and partnerships being announced soon, providing enterprise brands with simplified access to multiple retail media networks through Teads Ad Manager. Moving to AI and algorithmic breakthroughs. The acceleration of our AI and algorithmic capabilities stands as one of the most exciting and impactful outcomes of the merger, already yielding tangible improvements and establishing a highly promising trajectory for 2026. First, the combination of the 2 companies' data science teams, data sets and know-how is resulting in real benefits for both brand and performance campaigns with improved conversion rates, click-through rates, auction level bids and AI-based campaign pacing. After a testing period, we are in the process of rolling out some of these benefits to the entire network. Second, the adoption of large language foundational models for advertising. Our next-generation approach trains a single unified advertising foundational model that learns from all available data, user actions, publisher signals and advertiser goals to deliver exceptional predictive power across the entire advertising life cycle. This shift represents a transformative step in ad selection and personalization, unlocking performance improvements across every stage of the funnel. We believe the improvements to our platform driven by this foundational model could be one of the most significant drivers of performance going forward. To sum it up, we fully acknowledge that our integration journey has come with challenges and the progress has not been linear. However, we remain confident in the strength of our vision, the resilience of our teams and what we believe is the unique value proposition of our integrated platform. We are enhancing our leadership team, sharpening our execution, focusing resources in the areas of greatest opportunity and taking decisive steps to build a more efficient, innovative and profitable business. Looking ahead to 2026, our growth and profitability strategy will center on 5 key pillars: First, connected TV growth through home screen formats and cross-screen activations; second, deepened strategic relationships with agencies and enterprise brands; third, expansion of performance campaigns with enterprise clients; fourth, algorithmic and AI advancements driving nonlinear improvements in results; and fifth, enhanced profitability in our direct response business. We plan to share a detailed 3-year outlook and road map at an upcoming Investor Day in March, and we look forward to discussing our progress and vision in more depth at that time. With that, let me now turn it over to Jason to walk through the financials. Jason Kiviat: Thanks, David. I want to start by saying I'm disappointed by our results, landing slightly below our Q3 guidance for Ex-TAC gross profit and adjusted EBITDA. We experienced volatility in our top line and expect a continuation of this in the short-term, but are committed to taking steps to protect our cash flow as we focus on realizing our long-term vision. Revenue in Q3 was approximately $319 million, reflecting an increase of 42% year-over-year on an as-reported basis, driven primarily by the impact of the acquisition. On a pro forma basis, we saw a year-over-year decline of 15% in Q3. I'll touch a little more on the headwinds David mentioned and we spoke about last quarter. While the operational changes we made in U.S. and Europe are showing a measurable improvement in terms of building a stronger sales pipeline that gives us confidence in the longer-term improvement, we continue to see a lower rate of sales in key countries, namely U.S., U.K. and France. As noted last quarter, these 3 regions, which represent about 50% of revenue, are effectively driving all of the headwind on the legacy Teads business with many other countries neutral or growing, including the DACH region, which is our second largest. The impact of the operational changes is encouraging, but it's clear that the time line to see the real fruits of these changes is longer than we anticipated. The pipeline is growing, and we're focusing our resources and efforts in the coming quarters on driving long-term and sustainable value propositions for enterprise advertisers. On the legacy Outbrain business, we see a couple of drivers. One, we continue to see lower page views year-over-year. The residual impact from our cleanup of underperforming supply partners remains a headwind of about $10 million year-over-year in the quarter. And generally speaking, we continue to see lower page views on our partner sites, continuing the trend from prior quarters. While we also continue to see growth in RPM that partially offsets this, it has been less of an offset in the last couple of months, causing the page view decline to have a larger negative impact on revenues in the quarter. Following the merger, we made several strategic decisions around components of the legacy Outbrain business that we wanted to deemphasize and potentially decommission. These decisions are centered around quality and focus on our long-term vision. Examples of these actions include the supply cleanup we talked about as well as additional changes we have made around content restrictions for certain segments of demand and the deemphasis of our DSP business and DIY platform. The revenue impact of these factors has been larger than expected, most meaningfully in our DSP business, where a few large clients lowered their scale meaningfully across our platform, driving a decline in Ex-TAC year-over-year of $5 million in Q3. On the positive side, CTV revenue continues to be a growth driver, growing around 40% in the quarter and projected to $100 million for the year. And this is an area where we still see ourselves in the early innings, representing about 6% of our total ad spend with a margin that has expanded year-over-year as we scale it and further differentiate our offering. Ex-TAC gross profit in the quarter was $131 million, an increase of 119% year-over-year on an as-reported basis. Note that Ex-TAC gross profit growth is outpacing revenue growth, which is driven primarily by a net favorable change in our revenue mix resulting from the acquisition, but additionally aided by the continuation of improvements to revenue mix and RPM growth from the legacy Outbrain business. Other cost of sales and operating expenses increased year-over-year, predominantly driven by the impact of the acquisition. Note, in the quarter, we recognized $4 million of acquisition and integration-related costs as well as $1 million of restructuring charges. Also note that we recorded a benefit from deal-related cost synergies in Q3 of approximately $14 million, approaching the $60 million annual run rate for 2026 that we had guided previously. This was always an initial milestone in our view, and we feel there is more opportunity ahead. Adjusted EBITDA for Q3 was $19 million. And adjusted free cash flow, which, as a reminder, we define as cash from operating activities less CapEx and capitalized software costs as well as direct transaction costs was a use of cash of $24 million in the quarter, driven largely by the $32 million semiannual interest payment made in August. Year-to-date, we have generated adjusted free cash flow of $3 million. As a result, we ended the quarter with $138 million of cash, cash equivalents and investments in marketable securities on the balance sheet and continue to have EUR 15 million or about $17.5 million in overdraft borrowings classified on our balance sheet as short-term debt. And we have $628 million in principal amount of long-term debt at a 10% coupon due in 2030. We generated positive adjusted free cash flow year-to-date and are focused on improving our cost structure and operating as a cash flow generating business. As David mentioned, we are working intently on ways to drive better profitability and growth as a combined company, which involves a deep analysis of our operating model and opportunities for efficiencies. As we move into the implementation of these plans in coming weeks, we expect a benefit to adjusted EBITDA of at least $35 million on an annualized basis and to start seeing a small impact of that in Q4. And as we look towards Q4, our visibility, like others in the space, remains challenged by the shorter planning cycles from advertisers. Given this and the seasonality of the business, we exercised an increased level of caution in our guidance. And with that context, we provided the following guidance. For Q4, we expect Ex-TAC gross profit of $142 million to $152 million, and we expect adjusted EBITDA of $26 million to $36 million. Now I'll turn it back to the operator for Q&A. Operator: [Operator Instructions] Our first question is from Matt Condon with Citizens. Matthew Condon: My first one is, just can we just unpack the headwinds in the quarter there were multiple things. Is it just mainly the continuation of the things that you saw last quarter? How much of it was the degradation in search traffic? And then also, I think you called out some macro headwinds as well. Could you just parse through those and just talk about the different components? David Kostman: Let me just maybe at the high level, I think overall, you see a combination of factors. We don't believe there's anything structural. It's -- a lot of it relates to distractions from the merger and the execution challenges that we highlight that are taking longer than we had anticipated, and we needed to take deeper actions that Jason highlighted. There is some weakness in certain geographies and verticals, but we believe that we -- with the actions we're taking, we can turn the business around. Jason, do you want to give more details? Jason Kiviat: Sure. Yes. I mean just breaking it down a little bit as far as what was maybe disappointing to us in Q3 versus what we expected a few months ago. Certainly, just an increased level of demand volatility and kind of drove drivers on both sides of the business. On the Teads side, we talked about the operational changes we made early in the quarter in response to the slowdown that we started to see at the end of Q2. And effectively, what we've seen is just a slower-than-anticipated impact from those changes, and it's really impacting the same key countries that we talked about last quarter in U.S., U.K. and France. Typically, Q3 builds towards September being easily the strongest month of the quarter, and it still was, but not to the level that we would typically see historically, which was a little bit of a negative surprise for us. Visibility does remain challenged with advertisers. They still have shorter planning cycles. We've been talking about since really the beginning of this year with the tariff announcements and other things kind of impacting that. On the positive side, we did see, I said, growth in some regions. We did -- we do see just kind of health and the impact of the changes that we made. The pipeline as we measure it, is growing. We see that starting to pay off a little bit in October here, but it's still early days, and we think it will take longer. We also see stronger cross-sell. We see stronger CTV, which are really 2 of our very main focus areas, as David said. So some optimism there. On the Outbrain side, I think you asked about the impact of the page views. They did tick a little bit lower in Q3 than what we saw in Q2. And we also saw RPM continues to grow and be an offset against that, but there was a little bit less of an offset in Q3 as the quarter went on, and that drove it a little bit of the softness as well as, as I said on the call, the strategic decisions we made around quality, the supply cleanup in H1, demand content restrictions that we've employed having a bigger impact than what we expected. Matthew Condon: And then just as a follow-up, just what is your willingness to -- if things don't materialize, just to take the right steps to protect free cash flow here as you look out into the rest of this year and into 2026? David Kostman: I think we said it on the call, I think we are committed to it. We generated positive free cash flow year-to-date adjusted positive free cash flow, and we're taking all the steps to continue to do that. We talked about the plan that is really a transformational plan around deciding on which areas to focus and invest. So we're still in investment only in certain growth areas, but I think we're looking at business components in a smarter way. We did this exercise in the last 8 weeks to really analyze in-depth the business, decided on the focus areas. And part of that, we will be generating a minimum of $35 million of incremental EBITDA, that's a combination of this transformation and cost efficiencies. So we're definitely committed to that. Operator: Our next question is from Ygal Arounian with Citigroup. Ygal Arounian: So I know you're not going to want to give a 2026 outlook here, but just given how 2025 has trended and the work on the integration, maybe if you could just -- I know investors are going to want to look into 2026 and get a better sense of the confidence level on initially some of the sales execution. Now we're changing some of the product, $35 million of savings you're calling out. Any help for investors to kind of think through the pace of this and the level of confidence that this stuff really finally starts to come through and kind of think about next year? David Kostman: I think we're not giving specific -- Ygal, thanks. We're not giving specific guidance to 2026. What we see is some positive indicators month-over-month in growth in CTV, growth in cross-sell, and we decided on focus areas of innovation, they're going to be focused around the agency side, the CTV side. We believe that, that with a combination of sort of the plans we have around the sort of EBITDA improvement will get us to -- we expect to get to single-digit growth in certain areas of the business and run certain areas of the business for profitability. Once we finalize these plans, we will be communicating in more detail. Jason Kiviat: Maybe what I could add to that, Ygal, this is Jason, just to give a little bit more color. We definitely see an impact of the changes that we've made kind of confirming the operational drivers that we talked about last quarter. And what I mean by that is, for example, we made the changes with the structure in the U.S., which has been our underperforming region. We made the change in July. We immediately saw more meetings, more RFPs a bigger, healthier pipeline being built, equity being built with the brands and agencies that we've worked with historically. And we are starting to see early returns. I mean, in October, early kind of results from that impact, it's still down, but it's down less by close to 10 points on a year-over-year basis, right? And so, it's nominal. It's early, but we do think this is the kind of thing that pays off more over time and that it's not as quick of a turnaround as we had hoped for. We've spent a lot more time with clients ourselves, understand a little bit more about some of the challenges and starting to address them and how we win, and that's prioritization of product, just strategic relationship building, commercial terms. And these are things that are not as we had hoped, a 90-day sales cycle turnaround, but rather things that probably take a few quarters, right? And so, we feel good. We feel obviously a lot smarter. We think we need to make changes, and we've talked about what we're doing there. But we feel good about the areas that we're focused on for sure. Ygal Arounian: Okay. So just -- is it fair to say that you're starting to see some early benefits from the sales reorganization still down, still taking time, but starting to see improvements and then the kind of structural changes you're talking about all that's pretty new and starts to come through more next year, or I guess, in 4Q and into next year? David Kostman: I think that, Ygal, that's very fair. And as Jason said, we already see signs, again, they are leading indicators in terms of RFP sizes of those opportunities, more opportunities are opening, more active meetings that are leading to generating pipeline. Again, October was less of a decline than in September. We see good data points in the U.S., which is the main market we address. I think in the U.K., we're also starting to see some impact of the changes. I'm very excited to have Mollie on board. I mean she brings a tremendous experience. I mean she's sort of led. She was the CRO and COO of Criteo in years where they grew from $0.5 billion to $2 billion. She is a very experienced sales leader, operational leader. I think it's -- we spent a lot of time in the last few weeks looking at this. She believes, obviously, there's a huge opportunity here, and it's sort of in our control to fix. Operator: Our next question is from Laura Martin with Needham & Company. Laura Martin: So let's start. Jason, one of the things you said is you lost several big clients and about $5 million of revenue from them. Can you go into the background of why they turned away from your DSP? Like what -- is it just that we're getting winners and losers and they're pulling money? Is it stuff Trade Desk is doing that's out of your control? I assume there's nothing you did in a single quarter that -- so it's something somebody else is doing like Amazon or Trade Desk or taking share from you. But can you talk about that and why that isn't structural because it sort of sounds structural to me. Let's start with that one. Jason Kiviat: Sure. Yes. So to maybe give a little more color on the -- yes, it's a small number of customers that I was referring to buying on our Outbrain DSP business. It made up the majority. It made up about 2/3 of our DSP business coming from this kind of small group and segment of customers spending on it. And I kind of quoted the impact there of $5 million Ex-TAC impact year-over-year. We've made changes around supply. As I said in the first half of the year, we've also been making changes. And this part is not really anything new for us, but we continuously do this of content rules and content restrictions to make sure that things are up to our quality and what we want to allow out there. And some of these changes made by us and also changes that just impact the customers from their own business models and how they're able to use the platform to run their own business models caused them to reduce their spend dramatically. And we did expect an impact. We didn't expect it to be so binary is maybe how I would put it. But we saw the spend leave, and it's not that it went somewhere else as far as we know. I think it's just impacts their model and their ability to spend in general. And as I said, we don't expect this to come back online certainly in Q4. And this was like 2/3 of the DSP business and the rest of the business is really fundamentally different. I don't see a similar risk with the remaining portion, but I hope that is helpful. David Kostman: Maybe just, Laura, to clarify on that. I mean the whole move to a more premium network is a big move. I mean it's something that takes time. We can't always assess the whole impact. I mean we talked about $10 million in revenue impact from removing supply sources, deemphasizing the DSP. These are legacy Outbrain, I would say, hardcore performance. Other people are taking some of this business. We -- as we move forward with the more premium placements that we need to offer the guarantee of quality to the enterprise clients, I mean these are certain steps that are hurting more than we had anticipated, but I think it's going to be something that, again, we're not -- as Jason said, we don't expect it to come back. I mean it's something that sort of we deliberately are doing. And right now, obviously, feeling the pain of it. But I think when we're looking at the strategic direction of the company, these are some of the right moves and some of this happening faster than we thought. Laura Martin: Okay. Yes, that makes sense. And that's helpful because it limits the downside to the DSP segment. Okay. And then, David, one of the things you said at the top of your comments was that you are seeing -- you're the first actually ad tech company that's reported that says they're seeing a diminution in traffic. Magnite said they're hitting record traffic levels even excluding bots. So I'm curious about that. Do you think that's because your content is primarily news and that also sounds structural. So can you talk about this -- the traffic demise that you're seeing that at least other CEOs are not admitting to. So I'm interested in what you're seeing on the traffic side. David Kostman: So I would just not use the word demise. What we have seen and we analyze this obviously daily basis, when we look at the -- so our business is growing very fast on CTV, we're expanding beyond the traditional publisher world in a very aggressive way, and this is -- I talked about the focus areas. On the traditional publisher side, when we look at the sort of list of premium publishers, we saw around between 10% and 15% decline in paid views. I mean these are the numbers we are seeing. I think it's very consistent with everything you're reading out there. So if everyone is saying that there's no decline in publisher page views, I suggest you do a ChatGPT and you'll see those numbers. What we see, I think it's a little bit softer on in-app traffic. In-app traffic is about 30% of those publishers traffic. And there, we see still some decline in the page views lower than that. So single-digit on the in-app and on the web, around 10% to 15%. That's what we see on a certain segment of publishers that I believe is representative. Operator: Our next question is from Zach Cummins with RBC -- sorry, B. Riley Securities. Ethan Widell: This is Ethan Widell calling in for Zach Cummins. I guess just piggybacking on that conversation about page views. How much of that do you suspect is coming from disruption from GenAI search? And otherwise, what would you attribute the decline to? David Kostman: It's difficult to put a specific number of it. I would say that it is -- the decline is accelerating because of AI summaries and the changes in discovery. So I think it is impacting the traffic to those websites. Ethan Widell: Understood. And then regarding free cash flow going forward, maybe what are your expectations in terms of free cash flow positivity or maybe what the time line to sustainable free cash flow looks like? David Kostman: Just one comment on the page views still. I mean, what we didn't mention, but we're seeing -- we continuously see improvements in RPM. So we're offsetting some of that decline. I mean we had 8 consecutive quarters in growth on revenue per pages, RPM. We're diversifying the business. We're working with those publishers with POCs around how to monetize LLM sort of inputs and platforms that they are using. So there's a lot that's being done. It's not that I think publishers are sitting there and not doing -- taking actions. We are partnering with many of them to increase the engagement of users. We are continuously improving RPM. I mentioned on my prepared remarks, I think one of the exciting things is the algorithmic improvement that we see out of the merger. And we think that is only the beginning, and we into 2026, see a really great trajectory of continued significant improvements on those RPMs. So that's on that front. Sorry, Jason. Jason Kiviat: Yes. So your question, Ethan, about cash flow. So cash flow is something that we take very seriously, of course. Year-to-date, our adjusted free cash flow is positive at a few million dollars. We do expect the year to be around breakeven, depending on just timing of working capital around period end, et cetera. We are seeing, of course, lower Ex-TAC. It's resulting in lower EBITDA, lower cash flow, which has brought down our -- versus our expectations from earlier in the year. But we also do expect lower cash taxes, lower CapEx, lower restructuring costs and things that do partially offset that. So we do think we're in okay shape for this year. And obviously, as I say, we take it very seriously in a lot of our look at the project that we're moving to the implementation phase on now in our analysis, cash flow guides a lot of that as well. And as I said, we do expect to take that $35 million of improvement to EBITDA on a run rate basis, starting here with some impact in Q4. So we do think there will be a sizable impact on 2026. And continue to obviously work also on other cash taxes optimization and those things as well are areas that we still are less than a year from merging and still optimizing at this point. So we do aim to generate cash. It's important for us to do so. I'm not guiding obviously anything for 2026 at this point, but I want to make sure you take away from here how serious we view it and how important it is to us. Operator: [Operator Instructions] Our next question is from James Heaney with Jefferies. James Heaney: Yes. It would be great just to hear a little bit more about some of the puts and takes for the Q4 Ex-TAC gross profit guide and what you're assuming for that. Jason Kiviat: Sure. So maybe I'll start here, David, anything you want to add, please do. Our giving guidance here, obviously, we've got a lot to consider. So the visibility is still a little bit challenged by the volatility we've seen. Advertisers continue to have much shorter planning cycles than we historically are used to. And obviously, based on how Q3 played out, where the end of the quarter spike was much more muted than we historically have seen, it certainly gives us a little bit of pause, and we want to exercise additional caution when we're giving guidance. So all that said, we think it's prudent to be conservative and set ourselves up here. Maybe just some of the facts that we're seeing so far into Q4 that might be helpful beyond that. October is performing on the legacy Teads side, October is performing a little bit better than what we saw in Q3. October is typically about 30% of the quarter. So we're still dealing with the bulk of it ahead of us, and there still is volatility in the pipeline. And our guidance, based on what I'm telling you, our guidance for the balance of the quarter is implying a lower performance than what we saw in October. Again, kind of take from that based on my remarks on the things that we're considering in here. On the Outbrain side, we do assume the headwinds that impacted Q3 will impact Q4 even more so within the DSP business, as we said, certain segments of demand, and that drives a deceleration of the performance relative to Q3. Smaller, but on the positive is, we do see October growth in CTV. We do see October acceleration in cross-selling. And these are off a small base, but meaningful accelerations in our focus areas, right? So it gives us some optimism there. But obviously, weighing the collective here, we think it's prudent to guide the way that we are. And I will say that we do expect our cash flow for the year to be around breakeven. Operator: We have reached the end of our question-and-answer session. I would like to turn the conference back over to David for closing remarks. David Kostman: Thank you. Thank you for joining. As you can see, we are very focused on execution, financial discipline. We are investing in growth areas still. We have a clear plan of how to extract more EBITDA into next year and look forward to keeping you updated on the progress. Thank you. Operator: Thank you. This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.
Operator: Greetings, and welcome to Nutrien's 2025 Third Quarter Earnings Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the conference call over to Jeff Holzman, Senior Vice President of Investor Relations and FP&A. Jeff Holzman: Thank you, operator. Good morning, and welcome to Nutrien's Third Quarter 2025 Earnings Call. As we conduct this call, various statements that we make about future expectations, plans and prospects contain forward-looking information. Certain assumptions were applied in making these conclusions and forecasts. Therefore, actual results could differ materially from those contained in our forward-looking information. Additional information about these factors and assumptions is contained in our quarterly report to shareholders as well as our most recent annual report, MD&A and annual information form. I will now turn the call over to Ken Seitz, Nutrien's President and CEO; and Mark Thompson, our CFO, for opening comments. Kenneth Seitz: Good morning. Thank you for joining us today to review our results, strategic priorities and the outlook for our business. Through the first 9 months of 2025, Nutrien delivered structural earnings growth through record upstream fertilizer sales volumes, improved reliability and higher retail earnings. We raised our 2025 potash sales volumes guidance range for the second time this year and maintained the midpoint of our retail adjusted EBITDA guidance, highlighting the stability of this business throughout 2025. At our June 2024 Investor Day, we communicated a set of strategic objectives and targets that we believe provide a pathway to increase our earnings and free cash flow. Our results through the first 9 months show significant progress towards achieving these goals. Starting with our upstream operating segments. We increased fertilizer sales volumes by approximately 750,000 tonnes compared to the same period last year. These results highlight the capabilities of our world-class operations, extensive distribution network and strong customer relationships that we have built over many decades. In potash, we delivered record sales volumes in the first 9 months. We increased the percentage of ore tonnes cut with automation to over 40%, maintaining our position as one of the lowest cost and most reliable global potash suppliers. Our nitrogen operations achieved a 94% ammonia utilization rate through the first 9 months, up 7 percentage points from the previous year. Our operating performance demonstrates the significant progress we are making on reliability initiatives across our Nitrogen business. Within our Downstream Retail segment, we delivered 5% higher adjusted EBITDA in the first 9 months by driving down expenses and growing our proprietary product gross margin. We remain focused on efficiently supplying our growers with the products and services they need to maximize returns. As previously communicated, we are on track to achieve our $200 million cost reduction target 1 year ahead of schedule. These efforts contributed to a 5% reduction in SG&A expenses through the first 9 months of 2025. We lowered capital expenditures by 10% on a year-to-date basis through optimization efforts focused on sustaining safe and reliable operations, along with a highly targeted set of growth investments. Delivering on these structural growth drivers, reducing expenses and optimizing capital spend has supported our ability to further enhance return of cash to shareholders. We allocated $1.2 billion to dividends and share repurchases in the first 9 months, representing a 42% increase from the prior year. To put this all together, Nutrien is demonstrating significant progress across all our strategic priorities, delivering higher earnings and cash flow while increasing shareholder returns. At our Investor Day, we also communicated a focused approach to simplify our portfolio and review noncore assets. To date, we have announced the completion or have agreements in place for the divestiture of several noncore assets, including our equity interest in Sinofert and Profertil as well as smaller assets in South America and Europe. These divestitures are expected to generate approximately $900 million in gross proceeds. We intend to allocate the proceeds to initiatives consistent with our capital allocation priorities, including targeted growth investments, share repurchases and debt reduction. We continue to assess assets on the merits of strategic fit, return and free cash flow contribution. As a result, we have initiated a review of strategic alternatives for our Phosphate business. This process will include evaluating alternatives ranging from reconfiguring operations, strategic partnerships or a potential sale. We intend to solidify the optimal path forward for our Phosphate business in 2026. In October, we completed a controlled shutdown of our Trinidad Nitrogen operations due to uncertainty with respect to port access and a lack of reliable and economic gas supply. Our Trinidad operations were projected to account for approximately 1% of our consolidated free cash flow in 2025, a contribution that has been under pressure for an extended period of time. We continue to engage with stakeholders and assess options to enhance the long-term financial performance of our Trinidad operations. Each of these portfolio actions are driven by a focus on enhancing the quality and consistency of our earnings, improving cash conversion and supporting growth in free cash flow per share over the long term. Now turning to the market outlook. In North America, harvest is in the late stages of completion with the pace supportive of a normal fall fertilizer application season. In line with the stronger plant health season we experienced in the third quarter, we expect a record crop will support the need to replenish nutrients in the soil. Summer crop planting in Brazil started at a faster-than-average planting pace, which has supported crop input demand and increased potash purchases since the beginning of the fourth quarter. In August, we increased our global potash shipment projection for 2025 to a record 73 million to 75 million tonnes. We expect demand will continue to grow at the historical trend level in 2026 with potash shipments forecast between 74 million and 77 million tonnes. This would mark the fourth consecutive year of demand growth, an indicator of the stability we are seeing in global potash markets. Our positive outlook is formed by strong potash affordability, large soil nutrient removal from a record crop and low-channel inventories in most major markets. This is most evident in China, where reported port inventories are down by more than 1 million tonnes year-over-year. In addition, we anticipate limited new global capacity additions in 2026 with announced project delays and remain constructive on supply and demand fundamentals. Global nitrogen supply challenges are expected to support a tight supply and demand balance going into 2026. Ammonia markets are currently very tight due to plant outages and project delays, and we anticipate the emergence of seasonal demand to further tighten urea market fundamentals. I will now turn it over to Mark to review our results, full year guidance and capital allocation priorities in more detail. Mark Thompson: Thanks, Ken. As Ken described, our third quarter and year-to-date results highlight strong execution on our strategic priorities and supportive market fundamentals. Nutrien delivered adjusted EBITDA of $1.4 billion in the third quarter, a 42% increase compared to the prior year. In potash, we generated adjusted EBITDA of $733 million in the third quarter, which was higher than last year due to higher net selling prices. Potash prices remained affordable on a relative and absolute basis, which supported sales volumes near record levels for the quarter. Our year-to-date controllable cash cost of product manufactured was $57 per tonne, which was slightly higher than the prior year due to lower planned potash production and increased turnaround costs. At these levels, we continue to track favorably against our goal of maintaining a controllable cash cost that is at or below $60 per tonne. We raised our full year potash sales volume guidance to 14 million to 14.5 million tonnes, supported by strong offshore demand. Canpotex is now fully committed through year-end, and we anticipate a similar split between offshore and domestic sales volumes in the fourth quarter compared to the prior year. In nitrogen, we generated adjusted EBITDA of $556 million in the third quarter, an increase compared to last year due to higher net selling prices and higher sales volumes. We advanced planned turnaround activities at our Redwater and Borger nitrogen facilities and achieved ammonia operating rates that were well above the same period last year. Our nitrogen sales volume guidance range of 10.7 million to 11 million tonnes reflects the assumption of no additional sales volumes from our Trinidad operations for the remainder of the year. Reduction in Trinidad volumes is expected to be partially offset by the continued strong performance of our North American nitrogen operations. In phosphate, we generated adjusted EBITDA of $122 million in the third quarter as higher net selling prices and sales volumes more than offset increased sulfur costs. Our phosphate operations achieved an 88% operating rate in the third quarter as reliability and turnaround activities completed in the first half led to a significant improvement in performance. Our Downstream Retail business delivered adjusted EBITDA of $230 million in the third quarter, up 52% from prior year. We saw strong crop input demand across the U.S. corn belt, consistent with our previous expectations for a strong plant health season, providing Nutrien with the opportunity to efficiently serve growers in their efforts to maximize crop yield. Our full year retail adjusted EBITDA guidance was narrowed to $1.68 billion to $1.82 billion, reflecting the continued stability of this business and execution of our strategic growth initiatives in 2025. We expect North American crop nutrient volumes to be slightly higher in the fourth quarter and per tonne margins similar to the prior year. Our expense reduction initiatives and Brazil improvement plan continue to be in line with previous expectations, helping offset the gain on asset sales and other nonrecurring income items realized in the fourth quarter of 2024. Turning to capital allocation. Last year, on the third quarter call, we discussed our plans to optimize sources and uses of cash as we introduced a refreshed capital allocation framework. We've taken decisive actions to execute our plans and our priorities remain consistent. From a uses of cash perspective, we're focused on sustaining our assets on a risk-informed basis and further evaluating opportunities to optimize spend as we complete our portfolio optimization initiatives. We're also investing in a narrow set of growth initiatives that have a strong fit with our strategy, attractive returns and a lower degree of execution risk. And we continue to build on our long track record of stable and growing dividends per share and are deploying capital towards ratable share buybacks that provide for more consistent returns of cash to shareholders. As an illustration, through the first 9 months of 2025, we repurchased shares at a rate of approximately $45 million per month and anticipate a similar run rate on a full year basis. As we enhance our structural cash generation capabilities and deploy proceeds from the announced divestitures, we also expect to meaningfully lower our net debt position by year-end and gain greater flexibility to allocate capital through the cycle. I'll now turn it back to Ken. Kenneth Seitz: Thanks, Mark. We have a constructive outlook for our business, which is supported by expectations for healthy crop input demand and growth in global potash shipments in 2026. We continue to progress our strategic initiatives and take actions to simplify our portfolio, enhancing earnings quality, improving cash conversion and supporting growth in free cash flow per share over the long term. These features underpin Nutrien's competitive advantages and offer a compelling investment case for our shareholders. Finally, I would like to share an update on the advancement of our succession planning process. After an outstanding 30-year career at Nutrien, Jeff Tarsi will be stepping back from the leadership role of our Downstream Retail business at the end of 2025. I'm pleased to announce that Chris Reynolds has accepted the leadership position for our Downstream business beginning in 2026. Chris has been with the company for 22 years and has held senior leadership positions in our sales, potash and commercial functions. He brings deep knowledge of our business and the markets we serve across our downstream network. Jeff will remain with Nutrien in an advisory role to support the transition and execution of our downstream strategic priorities. We would now be happy to take your questions. Operator: [Operator Instructions] The first question comes from Andrew Wong from RBC Capital Markets. Andrew Wong: So just regarding that Phosphate business today. How would you say cash generation for that business compares to the rest of your business? Are there certain parts of the Phosphate business that maybe are better cash generators than others? And then just regarding that strategic review, is there -- is this about the business maybe just being better suited to run a different way? Or is there something specific about the phosphate assets or the phosphate outlook that's prompting the review? Kenneth Seitz: Yes. Thank you, Andrew. At our June 2024 Investor Day, we talked about this focused approach to simplify our portfolio, with the focus really being on quality of earnings and free cash flow over the long term, and that's absolutely relevant to your question. It is true that we produce phosphate out of White Springs and Aurora. But at the same time, it's only contributing about 6% of our EBITDA. So as we looked at it, it compels us to do a strategic review. And of course, this is on the heels of some of the portfolio of the work that we've been doing, disposing our Sinofert shares, the process that we're in to close Profertil by the end of the year and other noncore assets. And that's all adding up to about $900 million to date. For our Phosphate business, and again, to your question, we're looking at a range of alternatives across our strategic review. And that could be everything, yes, from revised and reconfigured operations with the goal of maximizing and optimizing free cash flow and strategic partnerships that we'll be looking at and the sale as well. We'll be looking at all those alternatives, and we expect to have some conclusions about the path forward in 2026. Operator: Our next question is from Ben Isaacson from Scotiabank. Ben Isaacson: Mark, I have a question for you. You've worn the CFO hat for a little over a year now. I was hoping you could reflect on what initiatives you've undertaken or what's changed in your role? And then as part of that, last summer in '24, targets were set for 2026. And now as we're 7 to 8 weeks out from the start of '26, can you just give us a check-in on just some of the big targets that were set and how those are tracking? Mark Thompson: Ben, thanks for the question. So I'll maybe just start by reiterating some of the comments that Ken and I provided in our prepared remarks this morning. So as you noted, Ken and our team, we laid out a set of objectives and targets at the Investor Day in June 2024. And as we've said this morning, those were focused on levers to drive structural growth in earnings and free cash flow over time. If you look at the progress we've made on a year-to-date basis and our full year guidance, I think you can see we've made very significant progress on those initiatives. If you look at upstream fertilizer sales volumes based on the midpoint of our guidance for 2025, we're on pace to deliver 1.4 million tonnes of volume growth compared to the baseline we set at Investor Day from 2023 results. And obviously, this has come from a few different areas. There's been a focus on reliability, debottlenecking projects in nitrogen and then utilizing our existing potash capacity. And all of those are, of course, very low capital intensity initiatives, and they've got strong cash margin contributions. From a downstream perspective, we set targets to grow earnings through a number of levers, including expanding proprietary products, our network optimization, expense management, margin improvement in Brazil and bolt-on acquisitions, primarily in North America. And if you look at our progress to date versus that 2023 baseline, we're projecting that there will be $300 million in retail EBITDA growth at the midpoint of our 2025 guide. And we're pleased with that, and we think that's something that can continue over time. In terms of cost discipline, as Ken mentioned, we set a $200 million cost reduction target for 2026. We're a year ahead of schedule on that. And of course, we're always looking for more. And also, as Ken mentioned, we've completed or have agreements in place to divest noncore assets as part of our portfolio review that will have generated once closed about $900 million over the last year. And these are assets that didn't fit the strategy, weren't consistently generating cash flow for Nutrien. And so we're pleased with that as well. So all of these initiatives feed into that objective that Ken talked about in terms of increasing structural sources of cash flow. And then, of course, beyond this, as Ken has just mentioned, we've announced a strategic review of the Phosphate business, and we continue to assess our options at Trinidad. And all of that's in the spirit of increasing quality and resilience of free cash flow. From a uses of cash perspective, we set a target at that Investor Day that you highlighted to reduce CapEx to $2.2 billion to $2.3 billion. And as you know, we've overachieved on that target through optimization efforts. Our guidance this year is $2 billion to $2.1 billion, and we're focused on maintaining discipline in this area moving forward. And then finally, one of the items you've heard us speak about over the past year quite a bit is to further enhance our cash returns to shareholders, primarily through more ratable share repurchases. Through the first 9 months, we increased return of cash to shareholders through dividends and share repurchases by 42%, and we've ratably bought back shares at that pace I mentioned of around $45 million per month. And Nutrien shareholders should continue to expect that ratable repurchases are going to be a part of a consistent staple in our capital allocation framework going forward. So as Ken said and I've said, we think we've made a lot of progress over the past year on our strategic priorities. We're continuing to take actions to enhance our competitive position, and we believe this will drive structural growth in free cash flow per share over the long term. Operator: Our next question is from Hamir Patel from CIBC Capital Markets. Hamir Patel: Ken, beyond the strategic alternatives review of phosphate, whatever plays out in Trinidad and the divestitures you've already announced, do you see any other meaningful opportunities for noncore asset sales over the coming years? Kenneth Seitz: Yes. Thanks, Hamir. No, that -- I think for the time being, we're really focusing on the things that we've talked about. And so we've talked about phosphate, obviously, working very hard on the Trinidad file and assessing options as we go forward there and making sure that we carry on with our improvement plan in Brazil. Those would be the three big areas of focus, I would say, going into and through 2026. And again, as Mark just described, expecting that as we progress through that work, really an improvement in quality of earnings and free cash flow. Operator: Our next question is from Joel Jackson from BMO Capital Markets. Joel Jackson: Maybe a shorter-term question. Maybe talk about the fall season. You talked about maybe crop nutrient demand being up year-over-year in Q4. Maybe talk about for the fall season. Maybe talk about 85% expectations a few months ago. How is this fall playing out? It's been an early harvest, but there's a lot of uncertainty going on. One of your large competitors is talking about seeing phosphate demand deferral, which may also lead to potash demand deferral. Can you comment on all that, please? Kenneth Seitz: You bet, Joel, thanks for the question. Yes, we haven't changed our -- the midpoint of our guidance in our Retail business, as you know. And we're staring into the fall, which the next 2 weeks will be kind of critical for that. As we've mentioned, we're on track in Brazil for this year. Here in North America, we're coming off a strong Q3, good plant health season for both crop protection and crop nutrition. Heading into the fall here, yes, we expect that nitrogen volumes probably up. Potash volumes may be a bit flattish from last year and perhaps phosphate volumes a bit down. But it's a few days into November here, Jeff, I'll pass it over to you. Jeffrey Tarsi: Yes. Thanks, Ken. Yes, so we -- as you would have seen in our results, our growers stayed very engaged through the third quarter. In our business, Ken mentioned very strong plant health sales in that quarter as growers were working to protect yields. And I mentioned that because we're just at the completion of harvest now and crop yields look very strong, especially across corn and soybeans. Strong crop yields lead to what we need to replenish for going into the '26 crop. We're doing a lot of soil testing right now. Our largest 2 weeks of application are the week we're in right now and this following week. And to date, weather looks favorable. From that standpoint, we're seeing pretty robust action right now out in the field. A lot of anhydrous going down and then of course, our dries P&Ks as well. But I'll remind people that growers footfall applications out in order to get ahead of the next year's crop. And corn looks strong again for '26. And so growers are going to want to get out ahead of that in the best way that they can. And as Ken said, I think in our projections at the midpoint of our guidance, we just got slightly elevated volumes compared to last year. And if you remember last year, we got -- we did get into some weather issues, especially as it related to anhydrous ammonia. Operator: Our next question is from Chris Parkinson from Wolfe Research. Christopher Parkinson: Great. Just real quick, when you take a step back on your nitrogen strategy, could you just kind of go through how you're thinking about the intermediate term in terms of what facilities kind of can make up a little bit of that gap based on what cadence you were seeing out of the T&T assets in 2025? And perhaps a quick comment on just how you're thinking about the longer-term strategy. I mean are you interested in assets? Would you ever consider a greenfield again? Perhaps that's still a question. But just an updated thought process would be very helpful. Kenneth Seitz: No, that's great. Thank you, Chris. I mean as you know, I think we've been working on reliability issues in nitrogen and challenges that we've had there and deploying meaningful sustaining CapEx and focusing on some of the bad actors in our portfolio and our fleet. And those -- that's yielding results with the 94% operating rate that Mark mentioned earlier. We're also working on our ongoing debottlenecking and brownfield initiatives that are adding tonnes. When we talked about 11.5 million to 12 million tonnes at our June 2024 Investor Day, certainly part of those volumes were coming from those debottlenecking and brownfield initiatives. And we have more opportunity there as it relates to expanding our nitrogen volumes. And we would look at those opportunities, which would be low CapEx, high-margin opportunities prior to certainly looking at something like a greenfield opportunity. In the context of the broader portfolio, which, of course, includes Trinidad, I mean, as we speak, high operating rates in our fleet ex Trinidad are helping to make up some of the difference with our Trinidad operations being, of course, shut down, as you know. In Trinidad itself, we are looking at our various alternatives, assessing options because we do need line of sight to stable and economic gas supply and, of course, access to port. So we're working -- talking to the Trinidad government about what those sort of optimal operating conditions might be. And again, as I say, assessing our path forward. Stepping back from it all, our Investor Day targets, 11.5 million to 12 million tonnes next year, that did include us achieving our full complement -- the 12 million tonnes, our full complement of natural gas supply in Trinidad. The 11.5 million tonnes, the math there would say that you sort of get the 80% of our gas complement in Trinidad to get to that 11.5 million tonnes, depending on the outcomes in Trinidad now, we'll see as our operating rates come up in the balance of our fleet, and we chart our path forward on the island there in Trinidad. Operator: Our next question is from Vincent Andrews from Morgan Stanley. Vincent Andrews: Could you speak a little bit about the Latin American, maybe more specifically the Brazilian environment, just both as we exit this year and into next year, I see you're projecting another year of growth there for potash shipments. But maybe you could just sort of talk to the credit conditions and the incremental financing terms in terms of how fast you're able to get paid down there still? And what gives you the confidence that, that market can grow again in '26 off of very high levels despite the challenging farmer economics and limited credit that's available? Kenneth Seitz: Yes, thanks for the question. So yes, I think the most important point for us is that our -- we're on track with our improvement plan in Brazil. And that's included the things that we've talked about, the shattering of our -- idling of our five blenders. We've talked about unproductive locations and having closed 54 of them now, workforce reduction, 700 people. But to the question, also allocating resources with a real focus on credit and credit collection. And that is, again, largely playing out as we had assumed here in 2025 and hence, part of the story of being on track with our improvement plan. As it relates to growth in agriculture in Brazil, we have seen, once again, a 2% increase in Brazil from last year. Last year, 47 million tonnes of fertilizer went in land on to Brazilian farms, and that's up again 2% this year. And it's the case that looking at corn and soybean prices, Brazilian farmers continue to do the things that they need to do to maximize yield and appropriate application rates are part of that story. So we've been here before, but year-over-year, the Brazilian farmer with expanded acreage and a focus on yield continues to import more volumes. And of course, we, as Nutrien and Canpotex have been the biggest part of that story, now the largest supplier of potash into Brazil. The last thing I'll say is we continue to focus on our proprietary products, also experiencing growth on Brazilian farms, and that will continue to be a focus of ours as well. Operator: Our next question is from Steve Hansen from Raymond James. Steven Hansen: If I'm thinking back in time when you've actually divested a phosphate asset, I think you've really tried to retain much of the strategic value through some longer-term offtake, at least in the initial term. In the context of the current review, really what is the optimal outcome for you? It sounds like all options are on the table, but have you thought about trying to maintain access to the supply as it relates to your integration benefits? You're just looking for someone to cut you a check. How do we think about the optimal outcome here for you as you go through this review process? Kenneth Seitz: Yes. No, thanks, Steve. And actually, it's really everything, all of the above. So we will look at a range of alternatives as it relates to, as I mentioned earlier, reconfigured operations, partnership sale and could that include some form of contractual arrangement. I suppose that's possible. But I can tell you what we will be solving for is free cash flow. And yes, we could probably achieve that in a number of ways. It's early days for us and we just announced their strategic review. The time is good for that. Obviously, what's happening in the phosphate market, the focus on mineral that's as important as they come in the U.S. and of course, the focus on -- in the U.S. on domestic security of supply for something as critical as phosphate. So the time is right for us to announce this. And now that we've announced it, we can talk freely about these strategic options and do the full review assessment. Again, we expect to have line of sight to that in 2026. So we'll have more to talk about. Operator: Our next question is from Kristen Owen from Oppenheimer. Kristen Owen: A couple of things on the Retail business. First, anything that maybe shifted from 2Q to 3Q? I know we had some weather issues. So anything that maybe went a little bit better than expected once we account for that timing shift? And then separately, I wanted to ask about your proprietary products, the growth opportunity there, particularly now that one of your large customers is going through a bit of a restructuring themselves, if that offers an opportunity for you or if there's any real change with that large customer in the retail business? Kenneth Seitz: Yes. Thanks for the question, Kristen. I'll hand it over to Jeff to talk about, as you say, any questions, any shifts between quarters, I think the answer there is not really. And then certainly, on proprietary product growth, I think I know the challenge that you're pointing to, but the growth that we're experiencing would certainly be independent of that. But Jeff, over to you. Jeffrey Tarsi: Yes, Kristen, as far as any kind of shift from Q2 to Q3, no, everything is pretty much going as we've expected this year, especially as it relates to when we capture revenue and margin from that standpoint. You've always got some give and takes in there, but there would be nothing material from that standpoint. On the proprietary side of our business, proprietary products continues to be a very strategic growth driver for our business. We just finished a very strong third quarter as it relates to proprietary products. In the third quarter here, we had significant increase in margins on our nutritionals and biologicals, which again is very impressive. And we also had an uplift to margins in our crop protection side of our business as well in the quarter. And if I look at our portfolio of proprietary products today, I think we're sitting in a good place. I think we basically have what we need from that standpoint. We've got a very strong seed play as it relates to proprietary products, Dyna-Gro and Proven varieties. We've got a very strong play on our crop protection side of the business, and we continue to talk about our nutritional and biologicals. And I think as we go into 2026, you're going to see us introduce over 30 new products globally in our business. About half of those are going to be crop protection products. We're going to introduce seven new nutritional products and several seed treatment products. So again, that's going to continue to be a strategic growth driver for our business, very critical to the growth that we talked about, especially as we reach out into '26. Operator: Our next question is from Matt DeYoe from Bank of America. Salvator Tiano: This is Salvator Tiano in for Matt. So I want to go back to the phosphate strategic review. And specifically, there was one of the options, not the sale of -- or partnership, but the reconfiguration of the business. And can you clarify a little bit what does this mean? Would you, for example, try to make products more for the feed or the food market or even try to do something like purified acid for LFP batteries? And also, can you remind us what are your ore reserves in phosphate? Kenneth Seitz: Yes. No, thanks for the question. And so reconfigured operations, I think, means probably everything that you just described. And again, we're looking at that at the moment. We have, as I think you probably know, we have improved reliability rates at our Phosphate business. We have reduced costs, and we have diversified our product mix. We've done all those things. At the same time, phosphate still only contributes, as I mentioned earlier, 6% of our EBITDA. So when we use the words reconfigured operations, it is exactly, as you say, looking at life of mine at both White Springs, Aurora, assessing how we best exploit the remaining reserves. There's also additional reserves in the area. So we're looking at all those things. And again, we'll have more to talk about on the path forward as we conduct the review. Operator: Our next question is from Jeff Zekauskas from JPMorgan. Jeffrey Zekauskas: You've stressed share repurchase as a use of capital for you. I think over a 10-year period, the average price of Nutrien is $57. And if it turned out that 5 years from now, the price of Nutrien was still $57, would it be a mistake to repurchase shares or not? Kenneth Seitz: Yes, thanks for the question, Jeff. And, yes, I would say that our strategy now as it relates to return of cash to shareholders, of course, we use the word stable and growing dividend and ratable share repurchases. As we look at the word ratable, we'll always assess whether in the moment, at the time, based on our outlook, based on our assessment of value, whether that makes sense. So it's not with the blinders on at all times, just charging forward, we do think about value as we deploy our share buyback programs. Operator: Our next question is from Edlain Rodriguez from Mizuho Securities. Edlain Rodriguez: Ken, so when you look at all the puts and takes in the different nutrients right now, like what's your sense of like near-term pricing movement? I mean which one do you think is better positioned to see an uptick in pricing or do prices need to take a breather from where they are now? Kenneth Seitz: Yes. Thanks for the question, Edlain. It's just going back to the fundamentals and understanding in potash, when we say 74 million to 77 million tonnes and looking at how we're going to supply as an industry, how we're going to supply into that range. I mean at the midpoint, that's about 1.5 million tonne increase from 2025. And that would include probably some supply additions from FSU, maybe 0.5 million tonnes from Canada, 0.5 million tonnes -- and then Laos. And of course, we know Laos -- adding 0.5 million tonnes out of Laos would be a real challenge, I think, given some of the existing challenges in that part of the world. So you look at the level of crop nutrients that have been pulled out of the soil in 2025, you look at the affordability of potash today, and importantly, you look at channel inventories in potash and really being at average or at below average levels, I mean, China is a great example of that, where port inventories are down 1 million tonnes from last year. And so we're constructive on potash heading into 2026, and it's for all of those reasons. Similar story in ammonia and urea, I mean, export restrictions in China on urea having been eased. But just through the summer here, we saw strong demand out of India and now heading into the fall here, seasonal demand, which we expect and probably as we speak, are seeing some firming in urea pricing. And then on ammonia, I mean, on the supply side of the equation, there's all kinds of challenges there and even our own Trinidad operations, which are shut down this year. I would say phosphate probably will continue -- and again, looking at the supply and demand balance, it will probably continue to be tight. I know that potash -- sorry, phosphate prices are elevated compared to historical average levels. But at the same time, it's a supply story. And while we might see some reduced phosphate volumes going down here in the fall, given where phosphate prices and therefore, affordability is at, we might see some of that. We expect that, like I say, into 2026, the market will continue to be tight. Operator: Our next question is from Michael Doumet from National Bank. Michael Doumet: So you've completed a few acquisitions, and you expect to have leverage come down in Q4. And then again, I think next year, another potential divestiture if that happens. Any way you can frame out how much debt you'd like to repay before you consider introducing maybe some additional flexibility into how you're thinking about capital allocation/your share repurchase program? Kenneth Seitz: Yes. You bet, Ben, thanks for the question. And so yes, we will end the year having paid down -- reduced some debt. That's true even while we've increased returns -- cash returns to shareholders, as I mentioned earlier, by over 40% compared to last year. And yes, heading into 2026, we'll see how the year plays out and some of the things that we've announced and how we're thinking about proceeds among our capital allocation priorities. But I'll hand it over to Mark maybe just to provide a bit more detail. Mark Thompson: Sure. Thanks, Ken. So look, I think you step back and think about the priorities we've articulated, capital discipline, cost discipline, the overall focus on free cash flow and really being able to do that on a through-the-cycle basis, really regardless of market conditions. So we've built the strategy, built the capital allocation and returns framework to really be consistent across cycles such that Nutrien will generate structural free cash flow at any commodity price that we can foresee and have consistent abilities to deploy that capital. So when you look at the actions we've taken to enable that, I think the track record is strong over the last year. Specifically on your question, part of being able to support that framework across the cycle is having debt in an appropriate position. We haven't changed our perspective that BBB flat from a rating standpoint is the right place for us. But as we look through a cycle, we think that at roughly mid-cycle prices, we should be roughly 1.5x adjusted net debt to EBITDA. And when we get into a trough, although we can go higher than this, we think 2.5x is probably the trough that we'd like to see when we get to the bottom of the commodity cycle such that we have abundant optionality to take advantage of those moments, return capital to the shareholders and do all the things that we need to do. So what you've heard us articulate today is that with the benefit of divestiture proceeds and the strong cash flow from operations that we're going to see in 2025, we're going to take a step closer to that. And we think we'll be getting in the ballpark. Of course, as we move forward and Ken articulated, we're always going to be looking at the best use of deployment for the cash that we have that maximizes value for our shareholder. So we believe we're on the right track with that. Operator: Our next question is from Ben Theurer from Barclays. Benjamin Theurer: On some of the commentary you already made in regards to the Trinidad assets. Now I was wondering if within the asset review, aside from what you've talked about, phosphate and then obviously, we have the Trinidad decision pending. How you think about the rest of your portfolio? Are there any other assets that you would consider for divestiture or any sort of like an adjustment here given where the market conditions are in the different locations? Kenneth Seitz: No. Thanks for the question, Ben. And it's the case and will be the case that we'll be perpetually reviewing our portfolio. And again, we're talking about our objectives of earnings quality and free cash flow per share and being able to structurally improve those metrics over the long term. As I mentioned earlier, at the moment, consuming our attention is phosphate, is Trinidad and is our work in Brazil. We -- among our divestiture program today, we've talked about our -- to date, we've talked about our Sinofert shares, talked about Profertil. There are a few other smaller assets that we've divested of in Europe and in Latin America. And would there be other smaller assets that we would look at sort of cleaning up in the portfolio? There would be. But there would be nothing that I would describe beyond those three areas of focus today that I would call material. And so again, today, the big things that we need to focus on and talk about are phosphate, Trinidad and Brazil. Operator: Our next question is from Lucas Beaumont from UBS. Lucas Beaumont: I just wanted to clarify a couple of things. So I guess just on Trinidad to start with, so to the extent that remains shut down into 2026, what's the sort of fixed cost base there on EBITDA that will be impacting you? And then just secondly, I saw your potash shipment outlook for North America is flat year-on-year into next year. So are you guys assuming that you don't get any kind of demand destruction impact there at all? Kenneth Seitz: Yes. No, on Trinidad, we'll see, Lucas. We're certainly not prognosticating that we're going to be shut down into 2026. We're just -- we're working through that at the moment and looking for those optimal operating conditions where, again, reliable and affordable gas supply and access to ports and in those discussions today. So those discussions will be ongoing. Trinidad contributes less than 1% of our free cash flow. And so it is from that perspective, in terms of the overall contribution, it's de minimis. As it relates to potash volume growth, I think the best way to think about it is the potash market continues to grow. And we had talked about after some of the demand destruction that we saw, the conflict in Eastern Europe, the return to trend level of potash demand. And indeed, that is exactly what we have been experiencing for the last few years. And given everything that we're seeing on crop nutrient removal from the soil on channel inventories and overall affordability for potash, we expect trend level demand to continue into 2026, and that's why we say 74 million and 77 million tonnes. And for our part, you can think about us participating in that demand growth in the way that we always have. And so sort of that 19% to 20% market share. And so as we look at how we're going to guide into 2026, it will be doing exactly that kind of math. And as you know, with our 6-mine network and our capability to continue to grow our volumes at a very competitive capital, we'll continue to pace along with growth in the market. Operator: Our next question is from Jordan Lee from Goldman Sachs. Suk Lee: Just another one on the Trinidad closure. You mentioned that it contributes a small amount of free cash flow. Can you discuss the different possibilities you see for that asset? Do you think there would be interest if you were to try to sell it? And is that something you are considering? Kenneth Seitz: Yes, thanks for the question, Jordan. What I'll say today is just the things that I've reiterated, and that is we're searching for an optimal path forward here as it relates to our operating configuration in Trinidad, which is dependent on arriving at, as I say, reliable and affordable supply of natural gas in the region, and access to ports so that we can export the volumes off the island. That's the focus for today. Operator: Thank you. There are no further questions at this time. I will now turn the call back to Jeff Holzman for closing remarks. Jeff Holzman: Okay. Thank you for joining us today. The Investor Relations team is available if you have any follow-up questions. Have a great day. Operator: Thank you, ladies and gentlemen. This concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Good morning. Welcome to Mineros Financial and Operating Results for the Third Quarter of 2025. My name is Juan Camilo and I am the Investor Relations -- Original language will be Spanish. However, if you wish to listen to English, please follow these steps. First, the box that says English. Then to avoid listening to both languages at the same time, identify the box that says media players and click on mute. [Foreign Language] Please remember that this call may include forward-looking information. Actual results may vary due to inherent risks in mining. Several financial metrics -- are Section 10 our MD&A available David Londono, CEO; David Splett, CFO -- and enter finance CEO; Santiago Cardona is a President Colombia. And so Gavilanes, is [Foreign Language] Unknown Executive: Gold production stands at 163,000 ounces for the first 9 months of the year. This represents a 2.5% increase compared with the 159,000 ounces reported for the same period in 2024. We had a record net income, which reached 50 million for the third quarter and accumulated net income year-to-date of $136 million. We generated positive free cash flow of $62 million in the third quarter and a total of $106 million in net free cash flow for the first 9 of 2025. We concluded to the share buyback program that was approved earlier this year by the shareholders' general assembly and subsequently by the Board of Directors. The company repurchased a total of 3.9 million shares at a price of COP 12,000. This operation finished in -- on September 12. Finally, we acquired 80% of La Pepa project from Pan American Silver Corporation. This transaction of $40 million grants us 100% ownership of this gold exploration asset in Chile, providing us full control over its future development plan. As we will detail next, our excellent operating performance directly translates into strong financial results. These achievements reflect our discipline in operational efficiency, the strength of our assets and our ability to consistently and safely generate value. We maintain a very optimistic outlook for the company and remain committed to sustaining this trajectory of growth and success. I will now hand the call over to David, who will discuss the financial performance for the quarter. David Splett: Thank you, David. Good morning. Let us begin with the income statement for the quarter. As a reminder, all figures are expressed in millions of dollars. In the third quarter of 2025, the company achieved significant revenue growth of 39%, reaching a record figure of $196 million. The main driver of this result was a 40% increase in the average realized gold price. Consistent gold production in Colombia and Nicaragua, coupled with our strict cost discipline were fundamental to these results. Our gross profit saw an increase of 49%, reaching a record figure of $82 million and net income stood at $54 million, representing 90% growth. This implies a significant advance versus the $29 million reported in the third quarter of 2024. In terms of liquidity, net free cash flow was approximately $63 million. This result is calculated after covering the payment of $7.5 million in dividends, $7 million in sustaining capital expenditures and $0.4 million in interest payments. The cost of sales increased by 33%, primarily because the higher gold prices are reflected in the greater cost of purchasing ore from artisanal cooperatives in addition to an increase in depreciation and amortization. On this slide, we present a summary of our financial results through the end of September 30, 2025. The company's revenue grew by 39%, totaling $538 million. This sudden increase was primarily driven by a 40% increase in the average realized gold price, coupled with 2.5% growth in gold ounces sold. We achieved significant profitability expansion. The gross profit and adjusted EBITDA registered increases of 70% and 59%, respectively, reaching $221 million and $244 million. Net income experienced 114% growth during the first 9 months of the year, increasing from $63.4 million in the same period of 2024 to a record figure of $136 million at the close of September 2025. The cost of sales increased by 23% during the first 9 months of the year. This is primarily attributed to the higher cost of purchasing material from artisanal miners cooperatives due to the increased gold price in addition to higher taxes and royalties. Let us now look at the adjusted EBITDA. This key indicator reached a record figure of $90.3 million at the end of the quarter, representing an increase of 44% compared to the $62.9 million registered in the Q3 from 2024. This expansion is directly attributable to a strong revenue growth, primarily driven by the favorable increase in gold prices. Finally, let's review the cash position. Net cash flows from operating activities generated $204 million from the sale of gold, silver and electricity. This was after payments to suppliers totaling $103 million, employee salaries and benefits payments for $15 million and tax payments amounting $11 million. Cash flow utilized in investing activities was allocated to purchases of property, plant and equipment totaling $16 million and strategic investments in intangible assets and exploration projects of $45 million. Regarding the cash used in financing activities, the main components were dividend payments of $7 million and the amortization of financial obligations totaling $9 million. Our current credit and loans balance stood at $17.6 million, while the cash and cash equivalents balance was $102.2 million, a highly significant figure despite the capital expenditures incurred during the quarter, including the La Pepa acquisition. With this review, I will now turn the floor over to David and this finalizes our operational indicators, who will present the operational indicators. David Londono: Thank you so much, David. Let us now discuss our operating indicators. This chart summarizes our operating performance over the last 5 quarters. As you can observe, the total production for the third quarter remained stable and consistent compared to previous periods. This is a direct reflection of our strong discipline and operational execution across all our assets. As clearly visible on the green line, the average realized gold price per ounce in the third quarter of 2025 reached $3,464, which represents a significant 40% increase compared to the same period last year. We emphasize that our margins continue to show a positive trend. And here, we can see graphically how the gap between our average realized selling price and our costs continues to widen, indicating continuous margin improvement. On the cost front, we registered an increase of 38% in cash cost and 34% in AISC, which stood in $1,704 and $1,982 per ounce, respectively. This increase is primarily explained by the rise in the cost of sales, largely associated with the purchase of ore from artisanal mining in Nicaragua, as David mentioned that before. I will now turn the floor over to Santiago Cardona, our Vice President of Colombia, who will present the results and details of our Alluvial operation. Following that, we will continue with in Inivaldo Diaz, who recently assumed the Vice Presidency of Nicaragua and who will offer us a comprehensive overview of Hemco operation. Santiago Cardona Munera: Thank you, David. In Colombia, we achieved a production of 23,000 ounces during the third quarter, which represents a 16% increase compared to the same period in 2024. This growth was primarily driven by lower dilution and the optimization of overburden removal and the hydraulic level control of the pit. The AISC per ounce of gold sold increased by 13%, reaching $1,573 per ounce. This is primarily due to the increase in gold prices, which directly impact the cost of operating contracts in our formalization contracts, more taxes and royalties related to this price. Also the increase associated with the year-over-year change. Additionally, during the quarter, we saw the commissioning of the Aurora plant contributing to our growth strategy and technological renewal aimed at optimizing recovery in our operations. Finally, our occupational health and safety indicators continue to report very low values, highlighting our safety performance. This is the result of our robust and effective prevention culture and demonstrate that safety is a core value and a pillar of our operational excellence. With this, I conclude the presentation of our operations in Colombia, and I will now turn the floor over to Inivaldo Diaz, Vice President of Nicaragua. Inivaldo Diaz: Thank you, Santiago. In Nicaragua, Q3 production remained stable, registering 32,000 ounces. This figure is 5.4% below the production from the third quarter of 2024. This variation is primarily due to a 9.5% decrease in tonnes milled, though it was partially offset by a 4.6% increase in the process grades. Of the 32,000 ounces produced, 83% originated from the artisanal production. Consequently, 58% of the total cost for the third quarter is directly associated with this artisanal output. The AISC recorded a 52% increase. 80% of the increase of the AISC is due to higher purchases from artisanal mining, 26% above compared to the same quarter from last year, which is explained by the prioritization given to artisanal mining over the industrial mining. The feed blend shifted from a 55% artisanal, 45% industrial mix in the Q3 of 2024 to a 20% artisanal, 30% industrial mix in the Q3 of 2025. Adding to the higher purchasing volume is the price effect, which is 40% higher in Q3 2025 versus the same period in 2024, leading to a greater volume of purchases in 26% and 40% higher price. Finally, in July, the decision was made to begin stockpiling high-grade ore purchased from artisanal mining for a special processing at the Vesmisa plant. This required upgrades, including replacement of the corn crusher, major repairs to the agitation tanks and other circuit adjustments. The plant was shut down for nearly 1 month, affecting quarterly operational costs and production. By September, we began achieving the anticipated results. The ore inventory generated at the stockpiling pads amounted to 5,604 ounces, of which 4,527 ounces are from the artisanal mining and 1,077 ounces are from industrial mining. The benefit of this initiative to batch process the high-grade material is the increase of metallurgical recovery by enhancing the residence time and reducing the gold content in the leach tails. With this, I conclude the results for Nicaragua, and I turn the floor back to David. David Londono: Thank you very much, Inivaldo. Let us now discuss our opportunities and outlook. I want to start by highlighting the solid progress in near-mine exploration, which is crucial for the future sustainability of our operations. During the third quarter of 2025, we completed a total of 9,806 meters of diamond drilling. This brings our year-to-date cumulative total to 29,252 meters, maintaining an excellent pace of exploration. Moving to the Porvenir project, we continue working to advance on the following key stages. We are proceeding with the update of the pre-feasibility study with -- that will be finished by the end of the fourth quarter. Operating and capital costs within the project's financial model are currently being updated. In parallel, we are in the process of reaching an agreement with the community and authorities to define an environmental compensation plan. This is a fundamental step for the submission of the environmental management plan for the process plant. The greenfield exploration campaign focused on new discoveries began drilling in July 2025. And currently, we have 3 drill rigs operating on site. We have completed 6,688 drilled meters during the year. Finally, regarding the La Pepa project, as we mentioned earlier, we have completed the acquisition of 100% of the project. We are currently focusing our team's efforts on advancing the exploration plans, which we expect to commence next year. 2025 has represented a key period of strategic consolidation for Mineros, characterized by a substantial transformation and the establishment of unprecedented financial milestones. These achievements reaffirm the robustness of our strategy and our unwavering commitment to generating sustainable value for our stakeholders. From a financial perspective, management has demonstrated operational excellence. Productive discipline has ensured a stable and safe operation, driving the achievement of record revenue at the corporate level. This operational efficiency has directly translated into a significant increase in profitability materialized as a record EBITDA, record net income and an outstanding generation of free cash flow. We have maintained a stable dividend program, and we have observed the market validating our execution, which has resulted in a very positive share performance during the year. On the corporate front, we have worked to secure the foundation for future growth. We have successfully completed the redefinition of the corporate strategy, providing a clear framework for the next phase of growth. We executed the share buyback program, thereby returning additional capital to shareholders and significant operational progress has been achieved, highlighted by the commissioning of our Aurora plant. Our geographic expansion strategy is consolidating with the total acquisition of the La Pepa project, integrating a new high potential jurisdiction into our operations. Finally, we continue to invest in our exploration pipeline with important advancements in greenfield exploration and in the development of the Porvenir project, ensuring long-term sustainability of our operations. This concludes our presentation. We would like now to open the floor for questions. Operator: [Operator Instructions] First one comes from Luca Skarbahal. And he asks, why is it possible to have a debt in the company if the most attractive part of the company is a very healthy balance. David Londono: So the opportunity of financing was open, and we decided to try the market for that. We have to have enough cash flow when an opportunity comes. And that opportunity is now. Unfortunately, when we were going to get the market or go to the market, the conditions were not favorable. We obviously have a plan to grow as a company, and we have this journey to grow at 300,000 ounces per year and even more in the next 3 years related to the investment with Porvenir and Alluvial as well, and Hemco as well. And we are going to invest $200 million or $300 million related to this plan for growth organically -- for growing organically. And also, we want to maintain maximum liquidity if there is a chance to buy an asset or to buy a mine or something that is attractive, but we still need to identify that opportunity. Operator: Next question comes from Mr. Simon Londonio. Unknown Analyst: Congratulations for the results. Would you consider the possibility of starting a new buyback program? David Londono: Thank you so much for your question. That's a decision made by the assembly. We are open for this decision from the assembly. And also, there's another perspective from the previous point. We want to grow this company in the gold production. And it is feasible that this growth has more value for the shareholders even more than the dividend. So our preference is to maintain the dividend in about $30 million per year and maximize the growth plan of production. Operator: We have 2 more questions from Mr. Justin Chan. Justin Chan: Could you please inform us the schedule for the final decision about Porvenir. If the pre-feasibility study is presented in the next year, will you have a definite study before approving the pre-project or the feasibility project is enough so the assembly approves that project. David Londono: Thank you, Justin. I would like to start first by saying that we are finishing the pre-feasibility study. We will finish that in December at the end of the fourth quarter. And this will give us the possibility to perform a feasibility study that is going to be quite fast because this pre-feasibility study is the second time it is performed. It has more details. It is almost a feasibility study. We only have to work on a detailed engineering so we can make that decision. I think that those -- that's going -- we're going to make the decision at the -- in the middle of next year. We are applying all. Operator: The next question from Mr. Justin Chan. They ask about this talk of capital. The working capital and the fiscal capital have a significant impact in the fourth quarter. Do you prevent that there is any temporary factor that will affect the cash flow? Or will it be maintained based on the AISC. David Londono: I'm going to respond. We do not do not experience important changes in our balance sheet or in our cash flow answer. There is something that we need to deep dive in this part. The taxes of the company are paid during the whole year as down payments or advanced payments. And when we have this payment related to taxes after liquidations. Operator: Next question from Mr. Lucas Carbajal. With the commissioning of the Aurora plant, how much are you expecting to increase the production? David Londono: I'm going to start responding to this question, and then Santiago will respond, the Colombian VP. I think the commissioning of the Aurora plant is a total success, and it will improve production and the performance in Colombia. So it depends on our mining plans and the management that we will have, but this plant will cover 5,000 cubic meters -- additional cubic meters per day. A production that we are adjusting as a project and that we expect to have this year between 1,000 and 1,500 additional ounces. And next year, we will explain you the plan for the mining process next year. We will inform that. Operator: Next question from Ben Pirie. Ben Pirie: Congratulations for this great quarter. I am highly excited for Q4 as the gold price has risen even further. Can you guide any sort of budget for the La Pepa in 2026 for the exploration program? David Londono: Thank you so much. First in Spanish, I'm going to speak. So La Pepa, we have planned to start the exploration. In this moment, we are working to get the staff that is going to work in La Pepa and we would start exploration next year when all the consultants and all the people are in the site. I think we're going to spend -- we will have an additional budget of $5 million. Operator: Next question from Mr. Juan Soto. Unknown Analyst: What is the forecast of production that you have for 2026. David Londono: Thank you so much, Juan, for that question. In this moment, we are finalizing the budget, and we are internally reviewing how this is going to be. But I think we will see a slight increase in production in both operations. It could be 2% or 3%. Operator: This is from Alejandro Correa. What's the forecast of the company with the gold prices in 2026. What is the contribution in monetary resources are you expecting from Project La Pepa in Chile? And when would you start the exploration phase. David Londono: So the forecast, we don't work with the forecast of the gold prices. We control the costs, but not the price. We assume that for the next year's production, the price should be -- we have this forecast of -- with 15 different banks and the forecast related to 2026, it's in the range of $4,000 per ounce but we are going to use this last forecast from 2025 that could be ready by December. We are going to use that forecast. And in terms of the second part of the question about the La Pepa project in Chile, what is it that we expect. We expect to start exploration and all the studies next year. I think exploitation that will be planned for between 5 and 7 years, while we do all the exploration, we have to do the pre-feasibility study, the feasibility study and that will take a long time and obviously, acquiring or getting all the permits that we need. So we are just starting to do this work. Operator: Next question from Alfonso Maris. Unknown Analyst: What happened with the silver production. David Londono: In terms of silver, that is due to the adjustments that we had in the Vesmisa plant, that was the adaptation to process the high-grade minerals or ore. We processed less tonnes because we are working under dispatch processing modality because hybrids increased substantially during this quarter. So this led us to process less tonnes and focus in the recovery of gold, and we run the test of recovery and the amount of silver has also decreased. Operator: Next question from Mr. Exon. Unknown Analyst: We know that you are in pursue for inorganic opportunities across different geographies. I would be grateful if you could give us more color on which countries or jurisdiction you favor over others. David Londono: Thank you for this question. We will always see opportunities in different geographies. Obviously, we prefer to be in the same time zone. But if we see opportunities that are smart opportunities for us, we will study them. Operator: Next question from Mr. Maria. Unknown Analyst: Congratulations for the results. The valuation that the shareholders have received is quite high. What's the reason of the reduction of production and how is Guillermina doing? Inivaldo Diaz: The answer is the same that I've replied before. This thing about the Guillermina plant that we are using for processing the high-grade ore and that reduced the production tonnes. And in terms -- in relation to Guillermina, we continue with the exploration plan. We are doing the drilling, and we are expecting to receive the results, but it's promising. We expect that, that brings more resources to the operation. Operator: Next question. This is from Simon Londonio. Unknown Analyst: Could you please update the guidance in relation to the ounces production and CapEx, considering the -- and CapEx, considering the new projects. David Londono: Thank you for that question. The guidance does not change in this moment. And for 2026, we see the guidance in the Q1 in January, and we will have this guidance for production, exploration and CapEx. Operator: We see this from Pablo Castro. Unknown Analyst: We see an increment in the brownfield exploration. Is this a change in the strategy under the new administration? Do you see any potential in the current mines for this increment in the exploitation. David Londono: Yes, indeed. Thank you for that. We have to increase the brownfield exploration. And the reason for this is that we want to replace the year's production in both jurisdictions. For us, this is very important to have this certainty about the budget that we are making. So this is a change in the strategy, increase those expenses in exploration because in the end, this gives a lot of profitability. We have always said that Nicaragua has a very good perspective. It's an area with a good perspective, and we expect to have very good results with increase in the exploration. And in Colombia, this has been very consistent and the fact of increasing the exploration. So we are sure about what we are going to produce in the next 5 years. Operator: We have another question. Why the underground production of gold has really been -- has decreased in 44% and what's -- what are the future plans for the underground sector. David Londono: In Hemco, our bottleneck is the capacity for processing. We currently see an increase in the contribution of the artisanal miners that because of their activity, it had -- their grade doubles what we obtain in the industrial mines in our mines. So seeing the plan and the sequences adapted, and we give preference to the ore from the artisanal mining above or on top of our own mining. So we are increasing the processing capacity in our plants. That's part of our growth plan in our capacities. Operator: We have a question from Christian Marasco. Unknown Analyst: Congratulations. Could you please detail your investment plan for the funds that come from a possible bond emission. How is the return on investment in the new mines. Unknown Executive: So we have this growth to 300,000 ounces in relation to the investments in Porvenir, Hemco that should -- we could create a lot of value for our shareholders with this organic growth and to maintain this liquidity in case there is an available... Operator: This question is from Juan Soto. What's the forecast for CapEx and for which type of investments would you destine these funds. David Londono: The answer has just been given by David. But just to repeat that a little bit, it's $170 million or $200 million that we want to invest in the construction of Porvenir and about $45 million that we have for the expansion of the bottleneck in Hemco and the possibility to have more production or improvements in the performance in -- with the acquisition of this plant. Operator: Next question that comes from Santiago Mason. Unknown Analyst: Could you please give us a guidance of the dividend for 2026? David Londono: This is something that is defined in the assembly in March. So we cannot give you a guideline of how much it would be. Well, thank you so much. With this, we close the Q&A session for this call for the results of the third quarter 2025. Thank you so much for your participation, and I will see you in the next quarter's call. Thank you very much. Operator: With this, we finish the today's conference. Thank you so much for your participation. You may disconnect from the call now.
Antonia Junelind: Good morning, and a warm welcome to the presentation of Skanska's Third Quarter Report for 2025. For those of you that don't know me, I'm Antonia Junelind. I'm the Senior Vice President for Skanska's Investor Relations. And here on stage in our studio today, I've got President and CEO, Anders Danielsson; and CFO, Jonas Rickberg. We're going to follow the typical structure of these press conferences. We will start by walking through the past quarter to provide you with a business, financial and market development update. And after that initial presentation, we will move over to questions. [Operator Instructions] If you are here in the room with us, then you can, of course, just ask questions by raising your hand. We will bring a microphone to you, and we will take it from there. So yes, I will no longer hold you off. We'll take you through the third quarter. Anders, let's do this. Anders Danielsson: Thank you, Antonia. Good to see everyone. Before we jump into the figures, I want you to look at the picture here on the slide. And that's called The Eight, one of our project development office building in Bellevue, part of Greater Seattle area in the United States. And it's actually a Class A building, one of the biggest or the biggest commercial investment we have had. We're also proud to be able to announce in a couple of years back that we have the greatest, the biggest lease here as well. And this -- today, the office building is leased more than 80%. So it's a great, great building. I'm happy to say that we're going to host the Capital Market Day in a few weeks in the same building. So I look forward to see everyone who will show up there. And we will also have a deep dive, of course, of the U.S. operation at the time, together with the commercial direction forward for the group. But now the third quarter. It's a solid quarter, solid third quarter. The construction is performing very well in all geographies, and we have strong market generated by a solid project portfolio. In Residential Development, we have very strong sales and margin in our Central European business, so a very high performance there. The Nordic market remains weak, which impacts both the sales and the profitability level. Commercial Property Development. We have 2 large lease contracts signed in the quarter, and I will come back to the profitability level here. Investment Properties, stable performance, stable cash flow and stable leasing ratio. Operating margin in Construction is 4.2%, very high level, very high compared to last year, 3.6%, and well above our target, as you know. Return on capital employed in Project Development, 1.4%, and that's on the low level below our target but it's driven by a slow market in different parts of our operation. Return on capital employed in Investment Properties is 4.7%, stable performance there on a rolling 12. Return on equity, 10% on a rolling 12-month basis. And we continue to have a solid performance on the financial position, and that's very important for us, of course, and a competitive advantage going forward. And we also managed to continue to reduce the carbon emission. And now we are at 64% reduction compared to our baseline year in 2015. So I will go into each and every stream, starting with Construction. Revenue increase in local currencies, 7%, which is good. Order bookings is around SEK 40 billion. And we do have a book-to-build ratio over 100% on a rolling 12-month basis. So we have a very good position when it comes to order backlog. I will come back to that. But it is on historically high levels. And operating income close to SEK 1.8 billion, increased from last year, SEK 1.5 billion. And again, the operating margin is very strong here, 4.2%. So strong result and high margin across all geographies, and that's very encouraging and also prove that we have kept our discipline and we have been successful in the strategic direction here. And we have a rolling 12 months group operating margin of 3.9%. Solid order intake for the group and a strong backlog. Moving on to the Residential Development. Revenue is pretty much in line with last year. We have sold 383 homes, and we have increased the started homes mainly driven by the Central European operation, 572 started homes. And we have an operating income of SEK 131 million, representing a return on capital employed 5.9% on a rolling 12. Very strong sales and result in Central Europe. We have started 2 new projects, and we have -- with a very good presale level, which drives, of course, the sales in the quarter. The Nordic housing market remains weaker and Nordic businesses recorded a very small loss there. But overall, it's driven by a weak market. We can see some signs of improvement in the Norwegian operation here, but overall, quite slow. Commercial Property Development. Operating income is minus SEK 397 million, which is driven by write-downs in impairments, write-downs in few projects in the U.S. properties. We'll come back to that. But that gives -- we also have a gain on sale of SEK 377 million in the quarter. Return on capital employed is 0, rolling 12. We do have 15 ongoing projects representing SEK 15 billion in investment upon completion of those projects. And we have 22 completed projects representing SEK 18 billion in total investment. The leasing ratio in those completed projects is fairly good. We are at 77% leased. So we have a good position there, giving us a cash flow -- positive cash flow. Three project divestment and one internal land transfer in the quarter. Result includes these impairment charges, of course, in U.S. And we have 2 large lease contracts signed in the same quarter. Investment Properties, operating income stable, SEK 143 million, and we do have a stable occupancy rate of 83%, it was the same as last quarter. The total property values continue to be on the same level, SEK 8.2 billion. If I go back to the Construction stream now and look at the order bookings. And here, you can see over time for last 5 years, the order backlog, the bars, the blue bars here. You can also see the rolling 12 order bookings, the light gray line and the order bookings per quarter, the orange. And also the revenue, the green, rolling 12, which you can see has had a slow increasing trend the last few years. And that's thanks, of course, that we have been successful in increasing the order backlog, which again is on historically high level. And you can see the yellow line, the book-to-build rates over 12 months. So I think it's important here to look at over the rolling 12 months' trend, because when it comes to order bookings, it can fluctuate quite a lot between a single quarter. And that you can see also when you look at the order intake in the quarter, which is down from SEK 50 billion to around SEK 40 billion. We'll come back to each and every geography here. But we are in a very good position. And if I look at the order bookings per geographies, you can see here that overall, we have a book-to-build ratio of 106%, and we have over well above in the Nordic and European operation slightly below in the U.S. operation on a rolling 12-month basis. But look at the months of production, 19 months in overall, and I'm very confident that we have a very good position. So we can continue to be selective going for projects that we see we have competitive advantage and that we have a good track record as well for the future. So with that, I hand over to Jonas to go through the financials. Jonas Rickberg: Thank you, Anders. And we'll continue here with the Construction side. And as you can see, the revenue is fairly flat here in SEK, but it's actually up then with 7% in local currency. The green line, we're actually then having a gross margin that has increased to 8% in the quarter, which really emphasizes the great quality that we have in the order book. We continue to have a strong and good cost control within the stream, and that is then generating that you can see over the line there, but that is also then showing here with a good result in the operating margin of 4.2%. Operating income of SEK 1.8 billion, an increase with 22% versus last year. Worth mentioning again, I would say, is the rolling 12 of 3.9% in operating margin. Looking here on the geographies, we still see that we have a solid delivery for all the areas, Nordic, Europe and U.S. That sticks out a little bit on the positive side here, it's actually Sweden with 4.9. That is building up from a strong portfolio right now, and it's very clear natural trends within the quarter and so on. So if we summarize the Construction line here, the Construction stream, we can see that we have a strong performance in all geographies right now. We have actually a 5-year track record here on margins that are on or above our target of 3.5%, which is strong. And of course, as you said, Anders, we had SEK 264 billion here in our order book that we can harvest from, and that is a real strength going forward. Moving on then to residential development. Here, we can see the income statement. And of course, you can see that half of the revenue actually come from Central Europe, which is really strength from that delivery point of view. We started 2 new projects in Central Europe in Prague and Kraków, and that had a really good presales level as well. We have reduced S&A significantly over the years. And right now, we have an organization that is set for higher volumes going forward to really get the leverage here on the S&A going forward. Also, please note that we have an upward trend on the rolling 12 operating margin at 8% here, which is strong. Looking at the operating income or income statement by geographies, you can see here very clear that Europe of SEK 159 million, that is really lifting or keeping up the strong -- the performance here in the stream on a margin of 17.5%. Secondly, here, you can see that Nordic is a little bit on the weaker side, and that is mainly driven by low revenue, actually low sales, few units sold. And also it confirms the trend here that we have said before that buyers really would like to buy close to completion and that we are selling mostly from projects that were a little bit weak in margin that is reflected here. Moving on to home started. You can see that we have out of the 572 units, we have 430 that is coming then from Central Europe and then 142 in Nordic here, and that is actually that we have started places here in Oslo and Uppsala and [ Östersund ]. And looking at the homes sold of the 383, you can see that 240 is actually then coming from presales started in Central Europe and 141 from the Nordic areas here. Rolling 12 months, you can see that we are very balanced when it comes to the sold and started homes, I would say. If we turn into our stock situation, you can see that we have -- the homes in production is actually then ticking up to a level of almost 2,900 homes in production, and that is up since Q2. Unsold completed homes is also coming down from Q2 level of 486, which is good as well. If you summarize the Residential Development area, we can see that we have a good performance despite we have a challenging situation in the Nordic, but it's really lifted up from the Central European unit here. And also that we are preparing here good projects within pipeline for start when the market condition is in a better place as well. If we move to Commercial Development, you can see here that revenue side, there are 3 divestments, 1 in Poland and 2 in Sweden. And also, we have the internal sales of land from -- in Europe here. Impacting the operating income is actually the gain from sales mostly related then to -- from a situation of SEK 234 million here in the gain of sales. Also, as we were into, we had an asset impairment in U.S. of SEK 658 million. And as we have mentioned earlier, it's low transaction volume in U.S. and it's very slow there. So it's -- the visibility is hard to compare there. So it's a few units only. The impairment has done, of course, to really ensure that we are having the right balance, the asset value in the balance sheet, and we are doing this continuously over quarters. And it's very clear that it has no cash flow impact, and it's then representing a little bit more than 3% of the book value of total U.S. portfolio. Moving on to unrealized and realized gains. Here, we can see that we had SEK 5 billion in the quarter, and it's an upward trend, which is good. And that is then sign actually of the starting -- of the fact that we are starting to see the positive impact of slowly starting new projects here with profitable and solid business cases. We have a situation. We have a good land bank in attractive locations that we really would like to build and harvest from going forward and actually making sure that we have solid business case for this going forward. In the portfolio, we have unrealized gains of 10% here in Q3. And as we have said many times before, it's very, very quite much in the portfolio between the different regions of started and older -- more new project versus older projects and so on. If we move on here to the completion profile of all the Commercial Development properties that we have, we have SEK 18 billion of already completed and 22 projects. And as we can see here, it's on the purple line, it's up -- it's 77% in leasing, and that is up from 74% last year. So it's a good trend there. Also, if you look into the green dots, and if you are very particular comparing them to the last quarter, they all have moved up, and that is a real strength here that we are leasing more with ongoing projects. And in Q3, we also made sure that we are having a better outlook here for Central Europe and Nordics when it comes to the commercial property. And it's very much based on the fact that we can see that we have -- there's better access to debt as well as the pricing on debt and so on, and that is driving a little bit the market here. And that is, of course, very encouraging to see. Focus even more here when it comes to the leasing part of commercial operation. We can see that we have in the bar there to the blue, last right, you can see 77,000 square meters let, and that is actually then coming from 2 big leases, H2Offices in Budapest as well as Solna Link that we have started there. Also, we can see, I'm very glad also that we have a trend shift here. Average leasing ratio of the ongoing projects is 64% versus then the compared to completion of 55%. And that is a strength, of course, that we are increasing the leasing versus then the completion that we have. To sum up, we have a strong leasing activity in the quarter. And of course, we see the importance here to turning the -- all the completed assets that we have and translate them going forward and also be able to make sure that we have solid business case to start with when the market is ready and so on. We have a lot of things to sell, but we are also very cautious about how -- and we have a very patient and good value for the -- we really would like to capture the good value that we have created over the years. So very good patience here to sell the good things that we have, I would say. When it comes to the Investment Properties, it's stable operational and financial performance within the stream. Operation income is positively impacted by a reassessment of the property value of some units here, and it's actually then SEK 53 million up. And that is also a sign that we can see that we have better outlook here for the Nordic markets real estate as well. Moving into the income statement. We can -- here, I would like to take the focus a little bit on the central items that is SEK 58 million, and that is actually then coming from a positive effect from release of provision on the asset management business related to some milestones in projects there. Also, we can see that cost varies between quarters and so on. And as I said last quarter 2, we are on the level that we are representing more or less the first half year of this year for the full year. And we are seeing a little bit higher cost here due to the fact that we have outsourced IT infrastructure that is impacting this year, but of course, it will be better here going forward once we can see these synergies. Also, looking at the elimination line there, you can see that, that is then connected to the internal transfer, that of SEK 234 million recognized in the commercial development area. And no swings really in the financial net, and we actually then recorded a profit of SEK 1.3 billion and an earnings per share increased by 36% versus last quarter. Moving into group cash flow. We can see that we had a 0 cash flow for the quarter, and that was a result of that we are in a net investment for Residential and Construction stream right now. If we lift ourselves a little bit more and look into the bigger trend of rolling 12, we can see that we have a really good underlying cash flow from the business operation, and we can see good -- and continue to have good level of negative working capital as we will come into soon as well. And also, we can see that we continue being a net divestment cycle that we really would like to be and releasing more cash and so on. Focusing on the construction and the free working capital, you can see it's fairly flat there between the Q2 and Q3. And we are quite comfortable with these levels as we have right now and so on. Also worth mentioning here is that the higher bars here last year, quarter 3 and quarter 4, are not representing really because it was very much connected then to mobilization of some milestones in big projects that we have an advantage of. And of course, we have 18.2% here in relation to revenue, which is strong. Moving on to the investment side. As mentioned, the quarter, we had net investment for the group. But rolling 12 period, we remain on the net divestment territory here. This means that we are taking down the capital employed level within Residential and Commercial Development here, as you can see in the bottom from SEK 64 billion then to SEK 62 billion and so on. Looking ahead, of course, as I said, we have a few assets on the balance sheet that we really would like to transfer and making ready for divestments. We are starting and preparing new products with really good solid business case as well. But the timing of these flows are of essential that the market and the demand and supply are meeting, then, of course, we will shoot off these. For sure, once we see that we are succeeding here with the divestments, we're making sure that we will then invest more going forward. If we look into the liquidity point here, we can see that we have a good liquidity situation of SEK 28.1 billion here. And that is then a super strong position, and we have a loan portfolio that have a balanced maturity profile as well. Finishing off here with the financial position, which is very, very strong, as you know, who has followed us. We have an equity of SEK 60 billion, and that is almost a level of 38% and equity ratio. We have an adjusted net cash of SEK 9.3 billion. And as you were into Anders, it's a good situation to be in and also good for all our customers that are really relying on us and making sure -- and trusting us in the fact that we are here to complete the projects no matter what. So we have the financial strength to do that, I would say. And by that, handing over to you, Anders. Anders Danielsson: Sure. I will go through the market outlook before we summarize and start the Q&A. Market outlook for Construction is pretty much unchanged from the last quarter. We have a strong civil market in the U.S., and we can see we are in a more traditional infrastructure operation in U.S. So we can see a strong pipeline, and we don't see any slowdown here. And there's still existing federal funding programs as running over time here. The civil market in Europe is more stable. It's strong in Sweden due to -- we can see that there's a lot of investments in infrastructure. We can see defense and also wastewater and that kind of facility coming out. So that's a good opportunity for us. And the building market is stable in the U.S., continue to be stable and more weaker, especially in the Nordic due to the slower residential and commercial construction market. But in Central Europe, it's more stable, both on civil and building. Residential Development, good activity, as we've been talking about in Central Europe, great market and driven by a lot of people moving into the capital cities and the largest university cities. And the lower-than-normal market in the Nordic housing market, even though we can see some signs, the underlying need for residential is there in the market we are operating in. The lower interest rates helps, of course, but I think we need to see some economic growth, GDP growth in the different market in the Nordics to really see that people are getting back the confidence and buying homes. But we do have an underlying need. Commercial Property Development, we're increasing the outlook in Central Europe and in the Nordics. We can see higher leasing activity in both Central Europe and Nordic, we can also see that the investor market and transaction market, they are more active, especially in Central Europe, but we can see signs of improvement also in the Nordics. So we are increasing it to a stable market in those geographies. Investment Properties. Here, we can see continue to be stable market outlook. There's a strong demand for high-quality buildings, office building in the right location with good train connection and so on. We can offer that. So we can see it's a polarized market, definitely, but we are in the right location there, and we expect rents to be mostly stable here. So if I summarize the third quarter. Construction, strong margin generated by the solid project portfolio. We had a great performance in Residential Development in Central Europe, weaker in Nordic. Commercial Property Development, 2 large lease contracts signed here in the Nordic and Central Europe. And again, the Investment Property is very stable. And very important, we are maintaining a solid financial position, which is a competitive advantage. So with that, I hand over to Antonia to open up the Q&A. Antonia Junelind: Very good. So yes, now we will open up for your questions. [Operator Instructions] But I will actually start by turning to the room to see if we have any questions here. If you have a question, then just please raise your hand. We will bring a microphone and we'll ask you to please start by stating your name and organization. We have a question here in the front. Stefan Erik Andersson: Stefan from Danske Bank. A couple of quick ones. First, the margins in the Construction division. It's a major jump year-on-year. It looks good quarter-on-quarter as well. We're not really used to that kind of jump up. We can see the drop sometimes, but rarely such jumps up. Could you maybe elaborate on -- 2 questions. What's behind that? Are you getting rid of problem projects, and therefore, the good ones are seen? And second question on that, is this a new level that we could be comfortable calculating also for the future? Anders Danielsson: I can take that question, Stefan. Yes, we have a very strong performance in the Construction stream. And I can say that we have been able to, by this good discipline, avoiding loss-making project. And that's a real key to be successful here. And also, we should not look at the single quarter, I said it before. So you should look more on the rolling 12 months. We don't have any positive one-offs in the quarter. It's a very good performance. And the key here is all geographies performing, and that's also quite unusual even though we have been on a good level for some years now. So right now, everyone is performing. And of course, that boosts up the underlying margin. And I also see that in a single quarter, it can fluctuate because we -- sometimes, we are completing large project, profitable project. And then since we have a conservative profit to take in -- during the construction, we can have a boost in the -- when we complete the project. So look more over time. What we expect of the future? I always expect to reach our targets and be above our targets, which we have been for some time now, and I have no other view on the future, definitely. Stefan Erik Andersson: That's good. That's enough. And then on orders, when listening to you, you're talking a lot about the rolling 12 months and don't look at the quarter above and all that. But 2024 was extremely good in -- with large orders. Should I interpret you as the level in 2024 to be a normal year? Or should I continue to believe that it was a very, very good year, unusually good year? Anders Danielsson: It was an unusually good year. If you look at the third quarter now in U.S. because you can see the Nordic and European is actually increasing the order intake. But the U.S., if you look at the current year, we are on a 5-year, 10 years average. And again, we have a rolling book-to-build of rolling 12, but it's very close to 100% in U.S. So I'm -- so that's how we should look at it. Stefan Erik Andersson: And then the final question on IP. You talked about the stable situation with the occupancy there, 83%. It's 80% in Stockholm, Gothenburg. To me, if you're not [ Kista ] with new stuff, it's actually a low level and it's not improving. So just wondering a little bit, is the specific properties that is a problem? Or is it just a general spread out issue? Anders Danielsson: I would say the leasing market is somewhat impacted by a slow economic growth. So there is -- we see some, as I said, increase in some signs of improvement, but it takes time, and it's a very polarized market. So if you have a Class A building and right location, it's much more attractive. So that's -- but it's -- you're right, it's on the same level for over a couple of quarters. Stefan Erik Andersson: Is there specific properties that are really... Anders Danielsson: No, I wouldn't say so. It's quite even spread. Antonia Junelind: So we're going to continue with a question here in the room. Albin Sandberg: Yes. Albin Sandberg, SB1 Markets. I had a question on the financial position, and you made a comment about a level where the customers are happy and they can trust you. At the same time, you have the financial targets that would allow you for substantially more debt, which I guess also is tied back to the commercial property activities and so forth. But what kind of levels do you need to be in order to have the customers to be sort of happy with you? And is there anything to read into where we are in the cycle now that makes you want to operate with a higher net cash maybe than what you theoretically could? Jonas Rickberg: Albin, of course, I mean, we are in a business that is very cyclical. And of course, we really would like to be able to take advantage of things and be opportunistic when things are possible to do that. So we are not really guiding how much we need and so going forward. But we are comfortable with the situation we are right now, definitely. Albin Sandberg: And my second and final question is, when it comes to your investment, the plans and so forth because obviously, your invested capital has come down a bit now year-to-date. Given what's happening on the office side and so on recently, what would take you to get the investments up now, let's say, over the next 12 months? Jonas Rickberg: No. But as we said, we can see that we have a good leasing traction and so on and also that the market is here in Central Europe as well as in Nordic, it starts to meet and so on. And of course, if we are successful here with the SEK 18 billion that we have in the balance sheet of [ 22 ] ready projects, and if we can make them fly here. And of course, then we are a little bit more appetite for the things that we have prepared, of course. So really looking forward to things to move here. Anders Danielsson: I can add to that, that we will start project and our starting project in geographies that we see that there's more -- better activity, we announced starting in Poland the other day as one example. Antonia Junelind: Very good. So we will then move over to the online audience. And I will ask you, please, operator, can you put through the first caller. Operator: [Operator Instructions] Our first question comes from Graham Hunt with Jefferies. Graham Hunt: I've just got 2 questions, please. First one is on the U.S. commercial impairment. So you only have a handful of assets in the U.S. So I just wondered if you could give any more color on where that impairment has been taken or what kind of assets it's been taken on region-wise, type of building wise. Just any more color on the breakdown of that impairment would be helpful. And then second question also on the U.S. construction business. Last year, you had quite a lot of order intake related to data centers, but that seems to have dropped off quite significantly in 2025. Is there anything that we should read into that as to your offering in data centers? Or is that just typical lumpiness in the market? Any comments around that would be helpful. Anders Danielsson: Sure, Graham. Thank you for the question. If I start with the U.S., we have an operation in 4 cities in U.S., as you know, and we haven't announced where. We have said now it's a few projects. And again, to Jonas' point, the value of this write-down represent just about 3% of the total value. So I don't see any drama in that. And if you look at the U.S. portfolio overall, we have mainly -- the main part is office building in those 4 cities. And we also -- but we also have high-end rental residential in the different cities as well. And we also have some small life science. But the main part is office building. And again, we have a good leasing ratio here. So we do get a good cash flow from them. But we have looked into this internally, external help, and we see due to the slow market, very few transactions. So we have to take this write-down in the single quarter. On the construction data centers, I don't think you should look in a single quarter. It can be quite lumpy. We do -- we have a healthy backlog with data centers, a lot of international -- strong international players, who invest in data centers, and we can see they continue. So we haven't seen any cancellation. And we can see that the strong pipeline will -- our expectation, it will materialize going forward. Operator: Our next question comes from Arnaud Lehmann with Bank of America. Arnaud Lehmann: A couple of questions on my side. Firstly, just following up on U.S. construction. Have you seen any implication from the recent government shutdown? We hear in the press about some projects being potentially canceled. So either in terms of order intakes or delays in payments or anything happening there in U.S. construction, please? That would be helpful. And secondly, I appreciate it's a small part of your business, but coming back on Residential in the Nordics, you mentioned the weakness. Can you give us a bit of color on why that is the case when rates have been coming down a little bit? And do you see at one point potential improvement into 2026? Anders Danielsson: Thank you, Arnaud. If I start with the U.S. civil and the -- U.S. construction operation and the government shut, we haven't seen any impact on our project, and we haven't seen any cancellation either or late payment. The most of our client in U.S. operation are states, cities, institution, large -- as I said, large player on the data center side. So we are having a close look at it, of course. But so far, we haven't seen any impact. And on the Nordics, yes, as I said earlier, the underlying need for homes in the Nordics are there, definitely. And we are on a very low level if you look at the whole market and new units coming out. But -- and the rates helps, of course, interest rates cut, it helps. But we need to see consumer confidence coming back. We saw it dropped quite a lot in the first quarter this year, and we also saw the impact on the sales. So I think we need to see some economic growth in the different geographies. There's a lot of now initiative, Sweden as one example from the government to boost the growth, economic growth. And if that materialize, I'm sure we will see a different outlook in the future. But right now, we think it will take sometime. Operator: [Operator Instructions] Our next question comes from Keivan Shirvanpour with SEB. Keivan Shirvanpour: I have 2 questions on CD. The first is that you lifted your outlook for the Nordics and Europe in Q3. What's your expectations on divestments going forward? Are you maybe optimistic for making some transactions before the end of the year? Jonas Rickberg: Okay. And as you all know, we don't guide here going forward. And right now, of course, we can see signs that, as I said earlier, when it comes to the leasing activities that is coming up and also that the transaction market is a little bit better with international players as well like this coming in and interesting to use the capital, so to say. So that was the main things why we are actually then increasing the outlook for the CD business here in Europe as well as in Nordic, I would say. Keivan Shirvanpour: Okay. And then my second question is related to the unrealized gains. First of all, the complete project that you have, you have unrealized gain, which is at 5%. And then for the ongoing projects, you have unrealized gains, which is up 20%. Could you maybe elaborate the difference? Jonas Rickberg: Sorry, once again, if you said that the unrealized in? Keivan Shirvanpour: Yes. Unrealized gains for the completed project is equivalent to 5%, but the unrealized gains for completed projects or ongoing projects is at 20%. Why is there such a difference? Jonas Rickberg: And that's, as I said, I mean, we had here the average of 10%, and that is then correlated to the fact that you are pointing out that we have a little bit older properties with lower, and then more new ones that is stable when it comes to the business cases and so on that is then generated the higher portfolio value there. Keivan Shirvanpour: Okay. So just -- maybe I'll follow up. So I assume that divestments that may occur from completed projects will potentially have quite low margins, potentially single digits, if I interpret that correctly based on that valuation. Jonas Rickberg: No. And as I said, I mean, we have the average here of 10%, and that is where we are communicating at the level right now. Operator: Our last question over the phone comes from Nicolas Mora with Morgan Stanley. Nicolas Mora: Just a couple of questions coming back on the U.S. First one on the order intake. You still seem to be struggling a little bit with the smaller projects, the one you account for below SEK 300 million. Is the market still soft there? There's just no real pickup in these small projects from either on the private side or the public side? That would be the first question. Second, on margins. So another very strong performance. All your peers are also doing better, especially, for example, in the U.S. civil works, but the Nordics peers as well have reported very strong results. Since everybody is being more disciplined, why not think about increasing the medium-term margin trend? You're getting very close to 4% now. Anders Danielsson: Yes. Thank you for that question. If I start with the U.S. order intake, the average size in the U.S. are larger than compared to Europe. So we would more proportionate more -- communicate more orders there compared to Europe. But I would not -- again, I would not look at a single quarter and compare it to -- last year was significantly higher -- unusually higher. And you should look more over time. And also, we are still on a 5 years average. And I think that's -- we have a very strong order backlog in U.S. as well. So I'm confident in that, and I can also see a strong pipeline. So I'm not worried about the situation. We can continue to be selective and go for projects where we can see a competitive advantage and we can go for higher margin. That's what we've been doing for several years now, and that's paying off, obviously. So that -- and if I look at the margin then, yes, we can see that it's increasing not only in U.S., we can see good margins in Europe as well. And we definitely -- we have been on the target level or above for some time now. And -- but the target is, as you know, 3.5% or above. And of course, I have no other view on it that we should maximize the profit from the operation. So -- but the target is still relevant. Nicolas Mora: Okay. And if I may, just following up on the question on data centers. I mean you -- obviously you said, I mean, these orders are lumpy. We should look at it over at least a 12-month basis. But if we -- indeed, if we look on a 12-month basis, it's been -- it's really been a dearth of projects in the U.S. in your sweet spot regionally and in terms of size, do you have an issue with your main customer? Or it's just basically bad luck on timing and things will pick up? I mean you say strong pipeline, but it's been now 5, 6 quarters with not much in terms of strong order intake. Anders Danielsson: Yes. But we have also communicated the last few quarters that some -- it's coming in new -- this data centers that needs to be cool and require more cooling. So sometimes we need to -- or the client needs to design the facilities to water cooling instead of air cooling and of course, that delays some of the projects. So I don't see any -- I haven't seen any cancellation. I have seen that some clients are postponing some projects due to the need for redesign. So I still -- I'm confident in that. Antonia Junelind: Very good. Then as far as I can see, there are no more questions from our online audience. Can you confirm that, George? Operator: That's correct. We have no more questions. Antonia Junelind: Perfect. And no more raised hands in the audience, or Stefan, you have one more question? Yes, sure. Stefan Erik Andersson: Just a follow-up there on the earlier question from SEB about the margin in the completed. When it comes to the projects that you -- over the last 2 years in the U.S. have written down the value on, I would imagine if you sell them to what you think is the market value, you wouldn't have any margin on those or -- so that's part of the explanation of the low margin or do I misinterpret that? Jonas Rickberg: No. But as I said earlier, sorry to repeat myself, I mean it's a full portfolio view we are looking into here and there is differences here between the older project and the new ones that we started and so on, and we don't give any guidance really for specific markets where we have the profitability, so to say. Stefan Erik Andersson: I fully understand that, but put it this way, when you write down the property value, you write it down, so you don't have any margin if you sell it, what you think you could get for it? I mean you don't write down and get the margin... Jonas Rickberg: Yes, correct. Correct. Antonia Junelind: Very good. So that was then the final question. Thank you, Anders, Jonas, for your presentations and answers here today. And thank you, everyone. Big audience in the room today. Thank you for coming here and joining us here today. And for those of you that have been watching, thank you so much for tuning in for this webcast and press conference. We will naturally be back with a new report in the fourth quarter. And even before then, as Anders mentioned here earlier, we are hosting our Capital Markets Day on November 18. So it will take place in Seattle. And if you can't join us there, we will also live stream part of the day on our web page. So turn into our IR pages there, and you will find the link, or reach out to myself or anyone else in the IR team. Thank you so much for watching. Have a lovely day.