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Operator: Good day, and thank you for standing by. Welcome to the Avista Corporation Q3 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Stacey Walters, Investor Relations Manager. Please go ahead. Stacey Walters: Good morning. It's great to have you with us for Avista's Third Quarter 2025 Earnings Conference Call. Our earnings and third quarter Form 10-Q were released premarket this morning. You can find both documents on our website. Joining me today are Avista Corp. President and CEO, Heather Rosentrater; and Senior Vice President, CFO, Treasurer and Regulatory Affairs Officer, Kevin Christie. We will be making forward-looking statements during this call. These involve assumptions, risks and uncertainties, which are subject to change. Various factors could cause actual results to differ materially from the expectations we discuss in today's call. Please refer to our Form 10-K for 2024 and our Form 10-Q for the third quarter of 2025 for a full discussion of these risk factors. Both are available on our website. I'll begin with a recap of the financial results presented in today's press release. Consolidated earnings year-to-date in 2025 were $1.51 per diluted share compared to $1.44 year-to-date in 2024. For the third quarter of 2025, our consolidated earnings were $0.36 per diluted share compared to $0.23 per diluted share for the third quarter of 2024. Now I'll turn the call over to Heather. Heather Rosentrater: Thank you, Stacey. I want to start by highlighting that our third quarter results underscore the strength of our core utility operations and our disciplined approach to cost management. Year-to-date results at Avista Utilities of $1.63 per diluted share reflects a nearly 15% increase over 2024's year-to-date results. This reflects the constructive regulatory outcomes and diligent capital deployment that continue to enhance our financial performance and advance our long-term strategy. As we pursue our strategic initiatives, including the project shortlisted in our 2025 request for proposals or RFP, we remain firmly committed to supporting reliable and affordable customer service, community investment and shareholder value. Today, we are affirming our earnings guidance with Avista Utilities expected to be at the upper end of its guidance range and consolidated results expected at the lower end of the range due to valuation losses in our other businesses during the first half of the year. The 2025 wildfire season has ended, and I'm pleased with the significant progress we've made with our wildfire resiliency program. We concluded the season without needing to initiate a public safety power shutoff, fortunately, but we were well prepared to elevate our system into risk responsive levels as conditions warranted. This success is the direct result of strategic grid and process improvements, continued collaboration with communities and first responders and the dedication of our team. This summer, we completed pilot projects for both strategic undergrounding and installation of covered conductor. We'll be building on this work going forward. With the lessons learned and forming our key decision-making about where and how to deploy these technologies as we advance towards our grid hardening goals. In addition, we began installation of weather stations throughout our service territory. These stations bring critical real-time data to our operations team and inform future system design decisions. Our goal is to have a weather station installed on every circuit by 2029. We also expanded our network of AI-enabled cameras, giving our teams and first responders greater access to wildfire monitoring and early detection tools. By the end of 2026, we expect to have coverage of a majority of our high-risk areas through these technologically advanced cameras. All these tools continue to improve and expand the data that goes into our fireweather dashboard, which enables us to react faster to changing conditions and better understand and mitigate risk. This month, we will submit our wildfire mitigation plan to the Idaho Public Utilities Commission. We've been filing our wildfire mitigation plans with the commission for many years now. However, this will be the first wildfire mitigation plan filed after the Wildfire Standard of Care Act was passed by the Idaho legislature earlier this year. The new legislation establishes a standard of care for wildfire risk mitigation and utilities reasonably implementing their plans will now have protection against liability for wildfire in Idaho. And in Washington, we're working through the rule-making process with other stakeholders following the Washington legislation also passed earlier this year around filing and approval of wildfire mitigation plans. We kicked off our 2025 all-source RFP back in May, looking for up to 425 megawatts of new capacity and at least 5 megawatts of demand response. As I mentioned in last quarter's earnings call, we saw a positive response to the RFP receiving over 80 bids with 69 supply-side bids totaling nearly 14 gigawatts of capacity and 17 demand response projects offering almost 300 megawatts. We've narrowed the responses down to a short list and these bidders sent in more detailed proposals in October. There's 1 final chance for bidders to refresh their prices this month. From there, we'll make our final project selections and start negotiations before the year-end. The shortlist has diverse options with supply-side resources like wind, solar, storage, stand-alone and hybrid and thermal as well as demand response projects. There's a mix of ownership options, too, including self-builds, build transfer agreements and power purchase agreements, which gives us more financial flexibility. Some projects are in Montana and could leverage our existing transmission resources in the state as modeled in our integrated resource plan. A big focus is on taking advantage of federal tax credits before they expire. To fully qualify, selected projects need to begin construction by July 2026 and be online by 2029 to 2030. We are working with shortlist bidders to make sure everyone is on track to meet those deadlines and get the most out of any applicable tax credits. I continue to be optimistic about the opportunities ahead, particularly as we engage with potential large load customers. These conversations are increasingly central to our long-term planning and investment strategy. Our RFP is helping us evaluate new generation resources and system capacity and is playing a key role in informing our discussions with large industrial customers who are exploring expansion opportunities within our service territory. We're working closely with several of these potential customers to assess how incremental load can be integrated into our system in a way that supports reliability, affordability and long-term value. Serving this level of demand will require not only new generation but also regional grid expansion. System impact studies show we have capacity to accommodate a portion of these requests. With these near-term opportunities best suited to serve customers with scalable implementation capability. We are committed to being competitive in attracting these loads and we view them as an important tool to support customer affordability and as a catalyst for innovation, infrastructure investment and long-term value creation. We'll continue to update you on our progress in future calls. Now I'll hand the call to Kevin for more discussion of our earnings. Kevin Christie: Thank you, Heather. I'm pleased to report a beat to market expectations with our third quarter financial results. Our third quarter results reflect significant growth from the same period in 2024. The strength of our consistent operational execution, including constructive regulatory outcomes, customer load growth and our continuing commitment to cost discipline drive our success. Alongside our other initiatives, regulatory outcomes are key to our progress. And in the third quarter, we implemented constructive, approved settlements of both our Oregon and Idaho general rate cases. We expect to file our next Washington general rate case in the first quarter of 2026. In Washington, we were required to file multiyear rate plans of at least 2 and up to 4 years. While many of the details of the case are still in development, we are evaluating whether we file a 2-year, 3-year or 4-year rate plan. With good regulatory alignment, we are confident that a longer rate plan can be beneficial for us and our customers. The law also provides us with the ability to file a new plan during a 3- or a 4-year rate plan, if necessary. We continually invest in our utility infrastructure to support customer growth and maintain our systems so that we can safely and reliably serve our customers. Capital expenditures at Avista Utilities were $363 million in the first 3 quarters of 2025. We expect capital expenditures of $525 million in 2025. From 2025 through 2030, we expect capital expenditures of $3.7 billion, resulting in an annual growth rate of 6%. In addition to this base capital, our current estimate of the potential capital opportunity for both our RFP and the addition of a potential large load customer is up to $500 million from 2026 through 2029. If these opportunities materialize, we expect the potential capital to be weighted approximately 75-25 between a potential new large load customer and self-build opportunities. We also expect that this potential investment would be spread somewhat evenly throughout the 4-year period. These estimates do not include any incremental capital requirements that could result from incremental transmission projects like regional grid expansion. In July, we issued $120 million of long-term debt and we do not expect further debt issuances this year. We expect to issue up to $80 million of common stock in 2025. That includes $45 million, which was issued during the first 3 quarters of the year. In 2026, we expect to issue approximately $120 million of long-term debt and up to $80 million of common stock. We are confirming our consolidated earnings guidance with a range of $2.52 to $2.72 per diluted share for 2025. As a result of the $0.16 of losses associated with our investment portfolio year-to-date, we expect to be at the low end of the consolidated range. We expect Avista Utilities to contribute toward the upper end of the range of $2.43 to $2.61 per diluted share. Our guidance for Avista Utilities includes an expected negative impact from the energy recovery mechanism of $0.14 in the 90% customer, 10% company sharing band. We have incurred $0.12 under the ERM year-to-date. Due to the staggered timing of rate cases throughout our multiple jurisdictions, going forward, our expected return on equity at Avista Utilities is 8.8%. AEL&P continues to perform well, and we expect it to contribute $0.09 to $0.11 per diluted share. Over the long term, we expect that our earnings will grow 4% to 6% from the midpoint of our 2025 guidance. I'd like to finish by saying that at Avista, we have positive momentum, our core business is performing per our expectations, and we have much to be optimistic about as we look to execute upon our business plans. Now we'll be happy to take your questions. Operator: [Operator Instructions] Our first question comes from the line of Shar Pourreza with Wells Fargo. Unknown Analyst: It's actually Alex on for Shar. So just on the $80 million equity needs you have out there for '26, you have a lot of incremental CapEx opportunities you've highlighted. So I just want to get a sense on additional funding sources. Would you look at other avenues? And maybe what about a divestiture of your other business to fund the growth at the utility? Is that something you'd consider? Kevin Christie: Yes. Thanks for the question, Alex. Yes, we're indicating that an expectation of up to $80 million for 2026 as we mentioned. And if we are fortunate enough to have additional spending opportunity or capital investment opportunity for the RFP, large customer or both, then that might change the equity needs, but not significantly so. And I would continue to expect that we would use our periodic offering program as the vehicle. It's not a significant enough increase in equity needs that we would need to do something more dramatic by making a sale of some business or something like that. Unknown Analyst: Okay. Got it. And just sort of just the messaging just around looks like the rate base outlook from 5% to 6%, you're now expecting that 6% at the utility. Can you just remind us if that includes the incremental CapEx opportunities you've highlighted or would that push you past that 6%? And can you just walk us through what that means to your 4% to 6% earnings range over the long term? Kevin Christie: As we continue to have opportunity to add to our capital plan and if it comes in the form of the items we highlighted and/or additional transmission, that would help take us towards the top end of our growth range that we stated at 4% to 6%. I don't believe it would take us above that, but let's see what happens with large loads. And there's -- as Heather indicated, there's a lot of great conversation going on with potential developers. Operator: [Operator Instructions] Our next question comes from the line of Julian Dumoulin-Smith with Jefferies. Brian Russo: It's Brian Russo on for Julian. Just on the upcoming Washington MYRP filing. You mentioned that you're evaluating the 2- or 3- or 4-year plan. Just curious, how do you manage around external risks of inflation and interest rates and even power costs while under more than the 2-year plan that you're currently in. Would you need to seek ERM modifications to kind of insulate yourself from power costs? Kevin Christie: Well, there's a few aspects here that I want to get into with you, Brian. First, after a 2-year period. So let's say, hypothetically speaking, that we file a 4-year. And we move our way through the first couple of years or even just the first year, and we find that we're off track either because of inflation or we've had additional investment opportunities that aren't reflected in the case. Then we have the opportunity to refile, so that case then becomes a 2-year and you, in essence, start over. So we've got a wonderful set of optionality to move forward if we need to by, in essence, cutting that case back from 3 or 4 years to a 2-year case. In addition, as we think about how we would proceed, and again, these pieces are all coming together. So it's all preliminary. We would expect to have power supply resets in each subsequent year, at least that would be our objective as we go into the case. So when you ask about the ERM, that's how we would address that. Now I'll just proactively answer a question about the ERM. We have talked about how the outcome from the last case wasn't quite what we had hoped it would be in Washington. And we've gone through that workshop process that we felt we were obligated to do. We had great conversations with the parties that involve -- get involved in these workshops. And our approach going into this next case is to likely not try to modify the ERM itself. And that's because of the order that we heard from or in our last case in the commission, the words that they used and Puget is still out working on a proceeding that comes well I think, towards the middle of next year, we'll have a better idea of whether or not Puget had success modifying their ERM-like mechanism. So we're going to set the ERM aside for now, and then we're going to look to see if Puget has success and if they do, then we'll try to move forward with something similar. And what we're going to focus on is resetting power supply cost at a more appropriate level. And we think we have a path to setting power supply at that more appropriate level. And if we're able to do that, then the impact of the ERM is somewhat muted. Brian Russo: Okay. Great. I think are we still assuming a power cost drag in 2026 per your most recent disclosures? Kevin Christie: Yes. We're -- I think our disclosures have covered that pretty well. I'll reinforce that without a change to the ERM and given how power supply was set in the last case that we would expect a drag from the ERM. Now hopefully, because of weather and other factors, it won't be as severe as it is in 2025. but it's too soon to be able to predict that. Brian Russo: Okay. Great. And just can you remind us again on the other businesses, how the mark-to-market works. I think there's a quarter lag, right? So this September quarter actually reflected June mark-to-market values. So it's possible, hypothetically, in your year-end update that could capture September clean -- mark-to-market clean energy investment values, which arguably were well off their lows following the old BBB and executive order, et cetera. Kevin Christie: Yes, you're following it pretty well, Brian. And yes, there is a quarter lag for some of our investments, a fairly significant amount of the investments. And so this quarter reflects second quarter for those investments, and we'll see how it turns out for the rest of the year. We're, as we've mentioned before, not able to call the bottom, but we're encouraged that we saw the impacts in the first half of the year. And then this quarter, it flattened out to some extent. And the dust seems to be settling around some of the clean energy narrative that had been out there. So we're optimistic. But again, it's hard for us to be able to call whether or not that will completely turn around by the time we are talking to you next quarter. Brian Russo: Okay. Great. And then just lastly, on the increment -- potential incremental CapEx. How should we think about kind of the mix of debt and equity financing? Is it 50-50 or something different than that? Kevin Christie: Well, our base capital plan that we've described and the amount of debt versus equity for base capital for this year and as now we're describing for next year is $120 million debt, $80 million equity and then if we have incremental spending opportunities after that, there's, of course, a lot of complexities that we would have to work our way through. But generally speaking, I'd expect incremental capital to be in roughly 50-50. Operator: I'm showing no further questions at this time. I would now like to turn it back to Stacey Walters for closing remarks. Stacey Walters: Thank you all for joining us today and for your interest in Avista. Have a great day. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Operator: Good morning. This is the Chorus Call conference operator. Welcome, and thank you for joining the Fineco Third Quarter 2025 Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Alessandro Foti, CEO and General Manager of Fineco. Please go ahead, sir. Alessandro Foti: Good morning, everyone, and thank you for joining our third quarter 2025 results conference call. In the first 9 months of 2025, net profit at EUR 480.5 million and revenues at EUR 969.6 million, supported by our nonfinancial income, investing up by 10% year-on-year, thanks to the volume effect and the higher control of the value chain by Fineco Asset Management, and brokerage is up by 16.5% year-on-year, thanks to the enlargement of our active investors. Importantly, if we zoom on our quarterly dynamics, net profit and revenues were back to the sequential quarter-on-quarter growth. Our net financial income has already bottomed out and fully absorbed the decreasing interest rates and was up around 2% versus the second quarter on the back of positive deposit net sales and positive reinvestment yield. Operating costs well under control at EUR 259.9 million, increasing by around 6% year-on-year by excluding costs related to the growth of the business. Cost income ratio was equal to 26.8%, confirming operating leverage as a key strength of the bank. Moving to our commercial results. The underlying step-up in our growth dynamics gets crystal clear month by month. This is underpinned by the positive tailwinds from structural trends, and we are leveraging on this solid momentum through a more efficient marketing. The result of this acceleration has been clearly visible in the first 9 months of 2025. First of all, we added around 145,000 new clients, up by 33% year-on-year. In October, new clients are around 19,000, the second best month on record, up more than 25% year-on-year. Second, our net sales were EUR 9.4 billion in the 9 months up by strong 36% year-on-year. In October, estimated total net sales saw a further continuation of this trend at around EUR 1.3 billion, up by more than 30% year-on-year. The mix was very positive with assets under management at around EUR 0.5 billion net sales, up by more than 20% year-on-year. Deposits at around minus EUR 0.1 billion, and assets under custody at around EUR 0.9 billion, leading to the best month ever for brokerage revenues at around EUR 31.5 million. Our capital position continued to be strong and safe with a net common equity Tier 1 ratio at 23.9%, and a leverage ratio of 5.11%. On the right-hand side of the slide, you can find the summary of our guidance. Our outlook for 2025 has improved, thanks to the acceleration of the structural growth and under it, our business model. More in detail, our net financial income bottomed earlier than expected in the second quarter, thanks to the positive deposit net sales and reinvestment yields. On investing, we are experiencing the solid year-on-year increase of our assets under management net sales currently with the lower interest rates. Brokerage revenues for 2025, we expect a record year, thanks to the continuously growing floor driven by the higher asset under custody and enlargement of our active investors. October revenues are just the latest evidence of the higher floor of the business. Banking fees are expecting a slight decrease in 2025 versus 2024 due to new regulation on instant payment. On operating costs, we expect a growth around 6% year-on-year, not including a few millions of additional costs for growth initiatives in a range between EUR 5 million and EUR 10 million, mainly for marketing and Fineco Asset Management and AI. Finally, in 2025, we expect a payout ratio in the range between 70% and 80%. On 2026, we expect all the business areas to contribute positively in terms of growth to our revenue growth. Net interest income is expected to grow year-on-year on the back of positive deposits, net sales and reinvestment yields. On investing, we expect a solid growth on our asset under management net sales. Banking fees expected to grow on the back of a higher number of clients. Brokerage revenue expected to grow, thanks to the increase of the asset under custody and active investors. On 2026 guidance, more details will be provided during the next year, Capital Market Day on March 4. Let's now move to Slide 5. Before moving into the details of the presentation, let me stress that month after month, Fineco is recording a continuous acceleration of its growth dynamics supported by a very healthy underlying quality. As you know, our business model relies on diversified and quality revenue stream, allowing the bank to deal with any market environment. On the banking revenues, our net financial income is a capital-light one with lending being only in an ancillary business, and it's driven by how our clients valuable and sticky transactional liquidity. Let me stress that deposits are joining our platform for the quality of our banking services and not due to aggressive commercial campaign on short-term rates. That's why our deposits are so valuable and our cost of funding is practically close to 0. Our investing revenues are recording and healthy and future-proof expansion as they are already aligned with clients' rising demand for transparency, efficiency and convenience. This approach is mirrored in the quality of our revenue mix, which is almost entirely recurring with a very low percentage of upfront fees and no performance fees at all. Finally, our brokerage is clearly experiencing a further step up on the floor of the business, thanks to the capability of our platform to have a structurally higher number of active investors, leading to a structurally higher stock of assets under custody. This is driven by the structural increase in client interest to be more active on the financial market, and this is building a bridge between the brokerage and investing world, which we are the only one able to scoop given our market position. Let's now move to Slide 7 and start commenting on the most recent plan. Net financial income fully absorbed the decreasing market rates, thanks to the organic growth and our valuable deposit base. This net financial income was up by 1.9% quarter-on-quarter, led by the positive deposit, net fees in the higher reinvestment yield of our bonds running off. This despite the still declining average 3-month Euribor. Let me quickly remind you the quality of our net interest income, which is capital light and driven by our clients' valuable and sticky transactional liquidity. That's why our deposits are so valuable and will be the driver going forward for the growth of our net financial income. Let's now move on to Slide 8. Investing revenues reached EUR 295.6 million in the first 9 months of 2025, increasing by a solid 10% year-on-year on the back both of growing volumes, thanks to our best-in-class market positioning and of the higher efficiency of the value chain through Fineco Asset Management. Let me remind you the great quality of our investing revenues mirroring our transparent and fair approach towards clients. Our revenues are mostly driven by recurring management fees with very low upfront and no performance fees at all. Let's move on to Slide 9. In this slide, we are representing the 2 main sources of growth for our investing business going forward. On one hand, the Fineco Asset Management is progressively increasing the control of the investing value chain, its contribution to the group net sales has been consistent over the cycle, thanks to its incredible time to market in delivering new investment solutions aligned with clients' needs. The contribution of Fineco Asset Management, assets under management after the total stock of assets under management has been steadily growing, and it's now equal to 39%. On the other hand, being a platform, Fineco is the best place to catch the latest trends in terms of client investment behaviors. There is a clear change underway in the structure of the market with clients increasingly looking for transparent, efficient and convenient solutions. All of this is channeling a strong demand towards advanced advisory services and with an explicit fee where Fineco is by far the best positioned in Italy, as you can see down in the slide. Let's now move to Slide 10 for a focus on brokerage. Brokerage registered a very strong first 9 months with EUR 187 million revenues driven by our larger active investment base and growing stock of assets under custody. October further built on this, delivering a record month with EUR 31.5 million estimated revenues. Let me stress that the revenues to our assets under custody are expected to grow as we roll out our new initiatives on stock lending, auto forex, ETFs and systematic internalizer. Average revenues in the 9 months are around 7.3% higher versus 2020 with much healthier underlying dynamics. This is driven by the structural increase in client interest to be more active on the financial markets and building a clear bridge between the brokers and investing world. The brokerage business represents the best sign of how fast the structural financial market is evolving as technology is driving a swift change in clients' behaviors, thanks to higher transparency. For this reason, we consider the brokers Italian market very underpenetrated, and we see a strong opportunity to grow despite already being the market leader. And again, October numbers are a clear sign of this opportunity. Let's now move on the Slide 12 for a focus on our capital ratio. Fineco confirmed once again capital position well above requirement on the wave of a safe balance sheet. Common equity Tier 1 ratio at 23.93%, and the leverage ratio at a very sound 5.11%, while risk-weighted assets were equal to EUR 5.81 billion, total capital ratio at 32.53%. As for the liquidity ratios, liquidity coverage ratios is over 900% and net stable funding ratio is over 400%, while the ratio, high-quality liquid assets on deposits is at 80%, well above the average of the industry. Going forward, we confirm that we will continue to generate capital structure and organically, thanks to our capital light business model. Given the strong acceleration of our growth, we are taking more time to have a clear view on deposit net sales going forward and the underlying dynamics are strongly improving. If despite the strong acceleration in our growth, there will remain excess capital, we will decide on the best way to return it back to the market. Now let's move to Slide 18. Let's now focus on our guidance. Our outlook for 2025 has improved thanks to the acceleration of the structural trends behind our business. More in details, our net financial income bottomed earlier than expected, thanks to the positive deposit net sales and reinvestment yields. On investing, we are experiencing the solid year-on-year increase of our assets under management net sales currently with lower interest rates. Brokerage revenues are expected to remain strong with a continuously growing floor, thanks to the higher asset under custody and the enlargement of our active investor base. For 2025, we expect record revenues with October number being just the latest evidence of the higher floor. Banking fees are expected with a slight decrease compared to 2024 due to the new regulation on instant payments. For 2026, we expect all the business hires to contribute positively to our revenue growth. The net interest income is expected to grow year-on-year on the back of deposits, net sales and reinvestment yields. On investing, we expected solid growth of our assets under management net sales. Banking fees are expected to grow on the back of higher clients. Brokerage revenues are expected to grow, thanks to the higher asset under custody and the enlargement of active investors. On 2026 guidance, more details will be provided during the next year Capital Market Day on March 4. On operating cost for 2025, we expect to grow at around 6% year-on-year, not including few millions of additional costs for growth initiatives in a range between EUR 5 million and EUR 10 million mainly for marketing, Fineco asset management and AI initiatives. Cost/income, we expect it comfortably below 30% in 2025, thanks to the scalability of our platform and the strong operating gearing we have. On the payout ratio, we expect that for 2025 in a range between 70% and 80%. On leverage ratio, our goal is to remain above 4.5%. Cost of risk was equal to 7 basis points, thanks to the quality of our lending portfolio. And for 2025, we expect it in the range between 5 and 10 basis points. Finally, we expect a robust and high-quality net sales and the continued strong growth expected for our client acquisition as we are in the sweet spot to keep on adding new market shares. Let now move on to Slide 19 for a deep dive on our growth opportunities. Fineco enjoy a unique market positioning to catch the long-term growth opportunity, resulting by the huge Italian households whilst in the fast-changing clients' behaviors. In the graph, you can see the strong potential of our growth given the stock of financial wealth on the Italian families. Our market share is still small, and the room to grow is huge. We are very positive on our future outlook as we have no competition on our market positioning. As a matter of fact, Fineco is the only big player with a service model truly based on transparency, efficiency and convenience. Moving now to Slide 20. The step-up of our growth trajectory is clearly materializing, as you can easily see in our recent client acquisition. On top of the slide, you can see the impressive acceleration of new clients, which is further building up in the first 9 months of 2025. This acceleration is very healthy because it's based on the quality of our offer and not on an aggressive marketing campaign with short-term rate remuneration. As a result, all our new clients are improving the metrics of the bank by bringing more deposits or more business for brokerage and investing. This value is recognized by our clients, as shown by our customer satisfaction of 94% and our Net Promoter Score way above the industry average. Let's now move to Slide 21. The cumulative growth on high-quality new clients is translating into better net sales dynamics shown by the 36% increase of our total net sales year-on-year. Let me share that the mix of our net sales mirrors our positioning as the reference partner for all clients' financial needs, with asset under management is driven by client interest for transparent, efficient and convenient investment solution. Our banking platform is attracting valuable transaction liquidity. Finally, asset under custody are clearly sign of the increasing clients' engagement on our brokerage platform, thus contributing to our revenue generation. On top of this, we see a sizable mix shift opportunity coming from the huge stock of Govies of our clients, both over the last couple of years. Let me now hand it to Paolo, our Deputy General Manager and Head of Global Business, to comment on Slide 22. Paolo Grazia: Thank you, Alessandro. Good morning, everybody. As you know, the financial industry is quickly heading into an inflection point and it's going to be heavily reshaped by technology. Thanks to our deep internal know-how and data control, Fineco is the only real player able to take massive advantage from it and to further accelerate our growth journey. This will be reached with our usual cost effective approach. We are planning to launch an efficient and pervasive AI implementation in 2 directions. First, focusing on productivity of our network of personal financial adviser; and second, playing attention to the cost efficiency and the bank -- of the bank by reshaping the internal processes. While on the latter, we will update the market in the next month. We have already started to reengineer our financial adviser platform with the integration of an AI assistant. This is a key enabler to boost our network productivity and deliver a better quality service to clients, and ultimately improving our revenues growth via stronger net sales and assets under management. Our very first initiatives are already live and widely used by our network. Our financial planners have in their hands a powerful AI assistant, which is going to be a game changer for wealth management. In the slide, you can see the main features of the AI assistant, among which is worth underlying, one, the portfolio builder, a powerful tool to immediately create quality portfolio fed with Fineco financial logic and optimize on client goals. And the portfolio builder is also a content creator, a communication tool able to create professional and customizable reports, proposals, portfolio reviews and brochures automatically generating narratives, content to support the financial planners. It's also a powerful marketing tool, allowing for comparison of existing portfolio of prospect clients. The AI system is also a search tool, a faster info-search process for internal memo and communication. The next wave of AI implementation will focus on CRM for our financial advisers, fully integrated with client data. It will empower our financial adviser to manage their agenda more efficiently, enabling a structured approach to client engagement and cross-selling by streamlining customer management and unlocking new commercial opportunities. This will represent a further step in enhancing productivity across our network and driving for an even stronger growth. Finally, we are working to bring an AI powered search tool also to our brokerage client, our finance clients, allowing for an even easier experience to our state-of-the-art platform. I will hand it back to Alessandro to move on Slide 23. Alessandro Foti: Thank you, Paolo. Let me now focus on our assets under custody, a component to our business that is sometimes undervalued by the market, but that is the real cornerstone of our fee-driven growth. This is true for investing as assets under custody remains the main source fueling our asset under management sales. As you know, around 90% of our growth is organically driven. As a consequence, new clients tend to show an asset allocation more skewed towards assets under custody, and the job of our financial advisers is to improve their mix into asset under management. For brokerage, the expansion of assets under custody and the growing base of active investors are key factors leading to a structurally higher floor in our revenues, which we expect to grow as we roll out our new initiatives on the stock lending, after-tax, ETFs and systematic internalizers. Finally, in the fast-growing ETF space, we are exploring new revenue opportunities, which we expand moving into Slide 24. Fineco is uniquely positioned to capture the strong client-driven shift towards more efficient investment solutions such as ETFs. The stock is quickly on the rise and now exceed EUR 15 billion. And ETFs now accounting for half of the asset under custody net sales. Thanks to our focus on transparency, efficiency and convenience, we are the only player capable of fully recognizing and monetize the structural trend with no harm on our profitability. First of all, the growing interest on ETFs is generating a positive volume effect for our investing business, thanks to our advanced advisory wrappers made of ETFs, we can move in the investing world of clients that are not interested in traditional mutual funds, thus we have no cannibalization risk on the existing fund business. At the same time, our leadership in ETFs retail flows makes us the main gateway for issues into the Italian retail market, while we currently manage all cost to handle clients without recurring fees from ETFs, talks are underway with our partners to find a fair balance. Finally, Fineco Asset Management is going to be playing a big role in the ETFs world, our Irish firm already launched its first active ETFs, and more are going to be introduced. Thank you for your time. We can now open the call to questions. Operator: [Operator Instructions] The first question is from Marco Nicolai of Jefferies. Marco Nicolai: First question is on the brokerage number for October. So almost EUR 32 million in a month. It's a record number. Just wanted to know if there is some -- so what's the impact from the BTP Valore issuance? And if you can comment on the underlying trend x the BTP Valore revenues? Then another question on the crypto front. I think you didn't mention it in the various projects in the presentation, you mentioned AI and other projects but not crypto. Just wanted to know if you had any updates there on the talks with Bank of Italy? One of your peers got recently the MiCA license from Cyprus in the past days. I don't know, my perception is that there could be other geographies that are quicker than Italy in granting these licenses and if that could slow down your projects here and the growth you could have in brokerage coming from the crypto side? And then another question on the payout. You mentioned 70% to 80% for 2025. I guess your leverage ratio will be well above your minimum targets for '25. And if that's the case, shall we consider 80% for 2025? Or you think there are other moving parts in the leverage ratio that could negatively affect it? So these are my questions. Alessandro Foti: Let me start by commenting on the October brokerage numbers. The impact of the -- from the BTP Valore has been more or less in the region of EUR 5 million. So this means that in any case is remaining so excluding the contribution of the BTP Valore, the numbers are EUR 26 million revenues in the month of October, that is quite significantly above the average of the revenues generated in the previous month. And this clearly is clear, perfectly current with the underlying trends that we are commenting by some time. So there is a continuous quite significant growth of the base of clients whereas continuously adding new active investor to the platform. Second, the continuous building up of assets under custody is clearly contributing in that direction because clients are not trading -- are trading stocks and trading bonds and they are trading ETFs as well. And so we remain extremely positive on the future evolution of brokerage exactly for the reasons we commented during the presentation. So structural changes underway and a continuously growing quite significantly the important growth in terms of number of clients and the Fineco emerging as the clear winning platform here in Italy. On crypto, I leave the floor to Paolo for giving the latest update on what's going on there. Paolo Grazia: So the crypto is still a project. We're still in talks with the regulator. We have no news for now from the last call that we had. We are very aware that we have plenty of competitors that are getting the MiCA license. Unfortunately, in Italy, there is nobody yet, I guess, that has MiCA license, but we keep on talking and explaining our view to the regulators, and we hope we will come with a solution in the next few months. Alessandro Foti: On the payout, we clearly, what we want to make very clear that Fineco is a growth story, it's a unique growth story because the uniqueness is represented by the fact that we are combining together an incredibly pool of growth together with a quite generous payments of dividends. But we are not a dividend stock. So clearly, our goal is not to give the market the highest possible dividend. So our main goal is to keep on accelerating as much as we can in directional growth. At the same time, remaining in a very compelling story from a dividend point of view. So clearly, we will see. So now, we are at year-end, we are going to take the final decision, which is going to be the final dividend payout. But so there's that. Again, my opinion there, the most important takeaway that again, Fineco is a quite unique case in the financial industry, strong growth and at the same time, very generous deal. Operator: The next question is from Luigi De Bellis of Equita. Luigi De Bellis: I have 3 questions. The first one, so in the recent months, Fineco has seen an acceleration in new client growth. What has changed to drive this momentum? And if do you expect this trend to continue at the same speed in terms of client acquisition? And can you comment also on the quality profile of this newly acquired client and also the acceleration that we are seeing in the net bank transfer that you mentioned in the Slide #7, that is above plus 20%. The second question on the asset under custody so a huge amount reaching EUR 52 billion. You mentioned the revenues on assets under custody expected to grow. Can you elaborate on this and the speed of this acceleration expected? And the last question on the Germany project. So could you provide an update on the initiatives? What are the current development and expected time lines for the rollout? Alessandro Foti: Yes. Regarding the acceleration of new clients, what is driving this growth is clearly structural tailwinds because as we explaining continuously that Fineco is the only one large established significant bank in Italy that is really offering efficiency, transparency and convenience. And this kind of demand is rapidly growing, driven by the completely different technological landscape, which I think is much easier to make comparison. It's -- everything is the information is spreading out incredibly rapidly. And then there is quite significantly accelerating process of generational passage. So Fineco is the -- so now that there is the x generation that is mostly entering into the game. And this generation is characterized by significantly different habits and behaviors by the previous generations, where again, sorry if I'm repeating myself, the request for efficiency, transparency and convenience is emerging as a clear need. And Fineco is the only one player that is fully satisfied this -- for this reason, we think that really, the strong growth is going to continue, probably is going to keep on accelerating even more going forward because all these tailwinds are going to keep on gaining strength and momentum. And the acceleration of the net bank transfer has an immediate consequence of this because -- and this also is giving to me the opportunity to answer to the other questions on the quality of new clients. The quality is remaining extremely high and robust. We are not observing any kind of dilution in the quality of clients we are taking on board. And this clearly is mainly driven by the approach by the business model of the bank. Very importantly, Fineco is not attracting clients because it's taking shortcuts. We are not putting in place aggressive short-term initiatives for taking on board new clients. So we are not, for example, overpaying clients with high rates on the projects. By the way, in this moment, we have -- there are plenty of banks that they are making continuously very, very high offer on rates. But we're not -- and so the results that the clients that are opening an account in Fineco, they are opening an account just exclusively because they are interested in using our platforms, our services. And this really is very positive for the -- in terms of quality of clients, and is incredibly positive for the evolution of the revenue generation that is going to every single additional client we are adding to the platform is to some extent, contributing in increasing the revenues of the bank. And on the speed of growth in brokerage revenues, as we are saying. So the more clients we are taking on board, the more assets under custody we are keeping on building up and the more you can expect that the floor of the business is continuously going up. We are driving on the concept of floor because we are interested in seeing -- on seeing how brokerage is performing without considering the theoretically short-term impact caused by volatility. By the way, until so far, the volatility this year has not been particularly relevant, has been a level of volatility that has been, let me say, average. So this is clear. And so yes, brokerage to remain on the fast lane growth. On the time line and what's going on, on the Germany rollout, again, I'm leaving the floor to Paolo to give a little bit more flavor. Paolo Grazia: Yes, we have the plan. We finalized all the information we needed. And we still miss some internal approval, but we have the idea of rolling out by the end of 2026 in the friends and family mode. So this is pretty much the time horizon we have. Operator: The next question is from Enrico Bolzoni of JPMorgan. Enrico Bolzoni: So I have a few million brokerage given the very strong print. So you mentioned about the possibility of monetizing that you see in different ways. One of your European competitors recently announced the decision to offer securities lending on AUC, and they were quite specific so they disclosed that they think they'd be able to generate about 20 basis point margin on the AUC that are eligible for securities lending. So I wanted to ask you, first of all, where do you stand in that process? I think it's something in the past you mentioned you wanted to pursue yourself? Second question, what proportion of your AUC is eligible? And thirdly, if you can confirm that 20 basis point might be reasonable number to expect in terms of revenue that you could generate out of that? So that's my first question. And then my second question, I was looking at your AUM flows. So in the quarter, you had over EUR 900 million. You also disclosed that a good chunk of that, so roughly EUR 600 million came from Advanced Advisory Solutions, which is positive. But could you please disclose what was the margin on average on this EUR 600 million of AUM that actually related to what you see after. That would be helpful for us to understand whether indeed there is no margin dilution from these type of contracts. Alessandro Foti: Okay. Thank you. So regarding on the -- let me start by brokerage. Possibility to monetize assets under custody, yes, as we explained during the presentation. The way we have quite a very interesting additional evolution there in terms of increasing the margins generated by assets under custody. Let me remind, one is, for sure, represented by the stock lending. The bank is in the process of deploying a much an extremely structured platform for taking advantage by the stock lending and some. On the margins, clearly, 20 basis points we think that overall is a conservative number. So it probably can be even more. And on the proportion of assets under custody eligible, this is a moving picture because exactly one of the rationale behind the platform is going to expand as much as we can the eligible amount of assets under custody we have, and so particularly. Another clear direction is the -- as we were mentioning, is represented by the AutoFX and some of them, I will leave to Paolo and some -- if you want to make some technical comments on the AutoFX. Paolo Grazia: Yes. We have a growing number of orders that are going to the American, the United States market, NASDAQ and NYSE. So there is a lot of flows going there. And of course, there is big revenues attached because our clients, they have euros on their accounts and they trade on the USD. So the AutoFX is a new service that allows the client to be much more -- it's a faster mode of executing an order. So the exchange is made automatically by the platform. So this is something that is giving us a simpler order for the clients. So it's easier for the client to place the order. And for us, there is a slightly higher margin compared to the fact that before the client had to change every time the FX, the AutoFX is better for the client, but also better for us. Alessandro Foti: Then we have exactly, what we are continuously now -- is the other announcement in terms of revenues represented by ETFs. So what's going on there? We think -- we confirm that by year-end, we are going to finalize the first arrangement that you get by the ETFs were the recurring fees. Overall, at the European level, the industry is moving exactly in that direction. So the largest issues are progressively moving in the direction to close arrangements with the largest European players in terms of control of retail flows on ETFs, and Fineco is going to be one of them. And so this clearly, again, is confirming the importance to play big, to be really the reference platform there. On the asset under management flows. So on the margin, so we are not making any specific distinction. So for us, the margins, on the -- so for us, it's indifferent if the clients are putting in the advisory platforms, actively managed funds, ETFs, assets under custody because what the clients paying is an advisory fee that is totally different. It's totally not correlated with -- is independent by the -- what is put in the portfolio. So theoretically, the clients can ask of having a portfolio that is made exclusive by asset under custody. And for us, the margins are going to be exactly the same if the client is putting -- is having a portfolio represented 100% by actively managed parts. So this exactly is something that is the great advantage that Fineco has. Fineco is extremely advanced in making clients paying an advisory fee. And so being completely detached by the inducement based model. And so again, this is going to be another big trend that is emerging. Enrico Bolzoni: If I maybe, just a very quick follow-up. It's very helpful when you commented the 20 bps is perhaps low. I think that the idea behind that 20 bps is that a portion of the revenues will be shared with clients. So the underlying return could be actually higher than 20 bps. Is this what you are also thinking of? So 20 bps, could it be a number that you internalize so net what you pay to clients from securities lending? Or you think it could be generally an even bigger number? Alessandro Foti: So it's clear that when we are showing the margins, we are considering that we have to pay the clients because this is clearly by law. And so clearly, there is a gain so we can confirm that we think that also including what we have to pay to clients, probably this 20 basis point margin is on the conservative side. Operator: The next question is from Hugo Cruz of KBW. Hugo Moniz Marques Da Cruz: I just had a question around your comment on brokerage revenues and how that converts into P&L, particularly trading profit because when I look at consensus, it is trading flat, flattish going forward. So that doesn't seem to make sense to me in light of your comments that brokerage revenue should continue to go up. So if you could give a bit more color on how the brokerage revenues and trading profit, how we convert into trading profit? Alessandro Foti: First of all, let me remind you that for us, trading profit is not something that is driven by the bank taking some kind of risk, it's a kind of free of risk market making. So we are -- when we were mentioning among the components that they are -- we expect are going to keep on contributing in making the brokerage revenues growing, also the systematic internalization of orders of clients. And so we expect that the more we are going to keep on building up the volumes and business, and as well, we expect also the opportunity offered by the systematic internalizing -- internalization of orders is going to keep on growing as well. We are not surprised by the fact that the market tends to be a little bit always in a step behind what's going on in brokerage because as we said during the presentation, probably everything that is in the region of assets under custody and brokerage, brokerage has been probably a little bit the most misunderstood component of our business because clearly, as we are seeing assets, typically until the recent past, big growth in asset under custody has been not very well welcomed by the market. But the asset under custody clearly is the fuel for brokerage going forward and for the asset under management as well. So we think that brokerage is by definition on the fast lane of growth in the future exactly for a combination of structural reason, big growth of clients and a significant shift in the client's views and the increasing level of participation of clients, and the growing interest by clients for solutions like represented by ETFs, what is important to remind that when we're talking about brokerage, clients are trading on everything on the platforms. They're trading on stocks, they're trading on ETFs, but their trading on bonds as well. And so this is the reason why the brokerage is going to keep on doing very well. Operator: The next question is from Christiane Holstein of Bank of America. Christiane Holstein: My first one is on the CMD next year. So I know you flagged that you'll be announcing 2026 guidance. But just because there has been a CMD before, I was just wondering what else we can expect? Are you looking to also give a multiyear target, for example? Secondly, you previously highlighted the introduction of private markets in September. I didn't hear any update on this. So I was wondering if you could better say how that's been going and then how the interest has been from clients so far? And then thirdly, on investing management fee margin. So this has seemed to be relatively stable more recently. I know you also flagged the benefits from ETP on investing and obviously, FAM is higher margin. So as the uptake here improves, we should hopefully expect the margin to strengthen. But I was just wondering what your expectations are here. Alessandro Foti: So on the -- what you can expect by the Capital Market Day on the next March 2026. From Capital Markets Day, we are going to give a much further and much more important and relevant details regarding what you can expect in terms of our strategy, evolution, also the rationale behind the entering more in depth, also in the initiatives, what we are going, what we can expect we are going to deliver to the market. And yes, finally we are going to give to the market that something that is going to help you in better modeling on the longer term, the projections of the bank. Yes. We think that this is the right moment because as we are saying, the bank is technically entering in a significantly different -- it's moving throughout in a relevant inflection point because this is exactly what's going on in the market. And so we think that we -- is the right moment to share with the market more details regarding the extremely exciting future that we see ahead for this bank. Private market, this is going to be -- the placement is going to start within the next few days. So probably let me say, by the next week, the product is going to be launched and is going to be up and running, and we will see. We confirm that we remain quite positive because there is an evident demand by clients. And so yes, in the next few days, this is going to be deployed. And commenting on investment management fee markets. As you know, we don't like to drive the market on the fee margins because clearly, for us, what is important is the direct -- is the evolution of revenues because revenues is a combination of volumes and margins. And these are much more important because this tends to clearly to -- tends to better represent the evolution of the market. It's a matter of fact that Fineco is by definition in a much better position than the industry in order also of having more stable margins because we are definitely less under pressure. But for 2 main reasons. The first one that Fineco is historically positioned on the lower side in terms of commissions we are charging to clients. And so by definition, this is making us less exposed to the building up pressure on margins. Second, that the journey in terms of increasing penetration of the asset under -- Fineco Asset Management solution is still underway. And this is different by other participants of the industry that now has been where the percentage represented by the whole internal products has been -- everything has been almost done. And this, in any case, with Fineco remaining and the only one large and truly open platform because this continuously growing percentage of Fineco Asset Management products is not driven by the fact that we are expected to close down the platform. The platform is going to remain an open platform. It's driven by the fact that Fineco is incredibly great in delivering continuously extremely innovative solutions and incredibly fast on bringing this to the market and so being able to remain always a step ahead of the market. Operator: The next question is from Gian Luca Ferrari of Mediobanca. Gian Ferrari: Three for me, please. First, on the AI project that Paolo described, can you share with us some KPIs of the business case here? So how much you invested in this project? And if you calculate any IRR you expect from the project itself. Second question is on the EUR 22 billion bonds. How much is expiring in 2026? And if you can remind us what is the conversion rate you expect to have on those bonds? The final one is on your lending and particularly on the fact that the stock has remained flat at EUR 5.1 billion in the context of declining interest rates. So I was wondering if your clients have any appetite for a bit of re-leverage considering your very strong capital ratios and lower interest rates. Alessandro Foti: So on the AI project. So first of all, let me make few comments there. So Fineco, is in a great position in order to leverage on AI because thanks to the kind of bank we are, that Fineco is a tech company. So with AI, what is the most important element is not exactly how much you spend. But how much you are able to transform what you are investing in something that makes sense. So in the AI project, what is really -- so because everybody theoretically, there is no -- it's a commodity, the AI agents are commodities. And so the real difference is made by your capability of leveraging on high-quality, easily accessible base of data because if you don't have that, artificial intelligence is not going to work. And second, you had to be in the position to train your system, your products and so on. And again, you were back again to the point. So Fineco is -- being a tech company because Fineco is not just using technology, but is in control of the most part of the technology we are using. So this means that, for example, our data warehousing system has been by many years, a key strength of the bank. So for us, it's extremely easy to extract high-quality, easily accessible data. This make what you need in terms of investments much less than is presently requested by someone that sit on a much more complex infrastructure. So for example, if you are mostly leveraging on outsourced platforms or you sit on different layers of software, and so clearly, this is going to be to extract easily accessible and high-quality data is going to be really very difficult and incredibly expensive. The same way for the training the programs. So the more you are in control of your processes, the more you are in control of your platforms, and the easier it's going to be to go throughout the training process. You don't need to have, for example, external system integrator, taking care of you for training the process. And so this means that again, I think this is going to be much better in terms of results and much, much less expensive. And so honestly speaking, so our AI projects are what we expect to invest considering what to expect to get for this project. Honestly speaking, this is a completely meaningless point because we expect quite an important increase in the productivity of network. We expect a significant improvement in the process of the bank. But on top of that, what we expect to spend is going to be really fraction of the positive impact caused by the... Gian Ferrari: And on the increased productivity, any quantitative indication? Alessandro Foti: I think that -- so let me say. So also assuming, let me say, staying on the conservative side, and assuming, I don't know, a 10% increase in the productivity, this is going to be a huge number. So -- but Paolo can give you a little bit more color on this point. Paolo Grazia: Yes. On the KPI, we are really on unchartered waters because it's -- there is no -- there are some studies in the U.S. that they are saying that the productivity of the financial tech can improve up to 20%. And I think it's something that can be reasonable in my opinion. But again, still we are in unchartered waters. So we -- for now, we're just focused on deploying the service, on improving the service, on hiring the people inside the bank that are part of the AI team that is growing. And as usual, we focus and we put effort on having our own resources, our own people that develop the technology. And I think we're doing a great job, and we are very happy with the fact that we are very fast in developing new tools and delivering to the -- for now to the financial planner, to our financial planner platform. Alessandro Foti: On the expiring bonds, next year, EUR 4.2 billion in terms of reinvestment. So what we can expect in terms of transformation, for example, in asset under management solution. This clearly depends on the market conditions. So as much as we stay in an environment with short-term rates, low and the yield curve keeping or remaining positively shaped, if not even steeper. And this clearly is going to be -- is going to bode well for a continuously increasing transformation rate. But again, it's difficult to give you a precise number right now because -- but what we can say that the conversion rate is mostly driven by the combination of short-term rates staying low and the yield curve remaining. And the steeper it is, the yield curve and the better it is for the transformation process. On lending, yes, the stock is flat, but we are observing some interesting transformation because, again, we confirm that we don't have any particular appetite for the residential mortgage business that we consider by far the lowest profitable product that a bank can have on the shelf. For these reasons, we don't have any appetite for residential. We are providing residential mortgages just to our interesting clients. And so we expect that the overall stock on there is going to keep on declining. At the same time, there is a quite significant growing interest by clients for the Lombard loans. And Lombard loans are expected to keep on building up. We have in the pipeline a very interesting future developments there that we think are going to keep on making quite even more interested in using our Lombard loan solutions. Operator: The next question is from Ian White of Autonomous Research. Ian White: Just a few from my side as well, please. Firstly, just going back to the net management fee margin. It is about flat year-over-year by my calculations at 69 bps. Can you just help us understand the moving parts there? I'm looking at the details. The insurance products have declined, equity markets are higher, FAM penetration is higher. So are you able just to complete that bridge for me, why aren't we seeing more margin accretion there year-over-year, please? That's question one. Secondly, on Slide 23, you mentioned that the adviser network is focused on improving client mix from AUC into AUM. Can you just talk us through a little bit of what those efforts actually look like in practice. I'm wondering if it mostly requires convincing your clients to switch from being an execution-only customer to an advised customer? And also if you can share any figures there to help us better understand the flow of client assets from AUC into AUM, please? And that's question two. And just lastly, you mentioned in your prepared remarks the systematic internalizer as a forward-looking driver of growth in brokerage. Can I just clarify, is something likely to change there in the coming months that would increase revenue capture? Are there certain products where you might begin internalizing that you're not currently, for example? And that's my third question. Alessandro Foti: Let me start by the net fee margins. So the net fee margins remained relatively stable. And so exactly for the reasons we were describing. So the bank is definitely in a more comfortable position with respect to the industry because it's been always characterized by not overcharging clients with very high commissions. And so by definition, we are definitely less vulnerable than the industry on the building up pressure on margins. And second, the driver are mostly -- so yes, insurance is lower. So because -- and the equity markets are not growing particularly big. So still, we are not seeing any significant growth in terms of appetite by clients for the equity market. And for sure, Fineco Asset Management is continuously growing and is contributing on the margins because we had a better control of the value chain. And this despite the mix of the products, both by the client is remaining on the cautious side, mostly represented by fixed income solutions, in any cases, the better control on the exchange contributing. But again, we are not particularly -- for us, the main focus is on the evolution of the revenues because it's clear that overall, we are living in an environment so the huge difference between the, for example, the brokerage world and the investing world that, generally speaking, the investing world as an industry is, by definition, is expected to keep on facing pressure on margins. This is not the key, for example, for the brokerage business. So that's where the pressure on margin is going to be much, much lower. On the other hand, the more you are becoming sophisticated in managing the flows, the infrastructures and the more you are going to have room for increasing your margins, and this is exactly the key when we're talking about the systematic internalizer. Yes, Europe is progressively moving more and more in the direction of being more similar to the U.S. market where a growing component, large component of the profitability is represented by the management of flows. And this is exactly what's going on in Europe as well. So Europe has been lagging behind in a big way, but now, the situation is changing. The example is Germany. Germany is a market in which the percentage represented by the management of flows is quite high there. And yes, clearly, this business is a volume business. The more you are keeping on growing in terms of sites, the more you're keeping on hedging assets on the platform, the more you are going to have high-quality clients using the platform. And the more -- let me say, instead of using systematic internalizing, the management of flows is going to become an important driver in increasing the margins on the brokerage business. And as we are saying, we have plenty of initiatives on the pipeline that's exactly moving in that direction and that are going to deploy in the coming months. And internalizing something that's now you don't -- no, internalizing more that we are doing now that -- because really, we are practically internalizing everything. So ranging from stocks, ETFs. ETFs is emerging as a growing and important component of the -- internally in terms of internalization of flows and so on. So the direction is not internalizing, it's something that now we don't know, but internalizing more and more because clearly, this is -- because we are going to become more sophisticated, the growth on the volumes are going to help, yes, this is a big trend. Operator: The next question is from Alberto Villa of Intermonte SIM. Alberto Villa: Two very quick questions from my side. One is back on the new client acquisition, impressive trend there. I was wondering, how much they are contributing to the net sales in the first 9 months of 2025, let's say, the new clients you get -- you got in the last 12 months? And I was wondering what the average assets you get from a new client after 12 months, if that is already comparable to the average customer you have in-house or there is any, let's say, timing from the acquisition of the client to getting this -- moving the asset to Fineco? And the second question is on the advisory -- advanced advisory stock that has grown now to above EUR 37 billion. I understood that you have the same margin, whatever is the underlying assets the client has. I was wondering what has been the contribution in terms of revenues in the first 9 months of the year from the advanced advisory assets. Alessandro Foti: So in terms of what is the contribution of the new client acquisition, more or less, we can say that in terms of new total financial assets, 65% is brought by the new clients. So the 65% is driven by the new client acquisition, and the remaining part is the continuously growing share of wallet on the existing clients. Yes, this is more or less is the split. And after 12 months, so clearly, we have to make a distinction because there is a kind of polarization in the clients we're acquiring because one is that we have the relatively young clients, they're going big. And the other company that is growing big is represented by the rich clients or other banking clients. These are the 2 segments in which we are growing the most because this, by definition, are the 2 segments that are the most sensible to the concept of getting delivered efficiency, transparency and convenience. And typically, so we -- so yes, after 12 months, we can say that a large part of the -- on the assets of the clients have transferred into the bank. But still, we have a significant room for growing on our existing base of clients because we are making estimates on -- in order to understand which is the potential represented by clients that are theoretically perceived as more clients on the platform and then putting together the significant amount of information we have because having all clients using the transaction banking platforms, we know everything of the clients. So where they're living, how much they're making in terms of salary, the amount of taxes they are paying, where they are spending, how much they're spending. And so at the moment, our so-called still small clients that has an upside of the bank and average potential of another EUR 50 billion, more or less. I'm not saying that we're going to get all of that. But clearly, the more the trends, the new trends are building up in terms of strength and the more also we're going to be able to get even more share of wallet by our clients. The advanced advisory stock, no, we are not giving the split of these revenues. Operator: The next question is from Elena Perini of Intesa Sanpaolo. Elena Perini: I've got only one last question. It is to ask you if you have already made some calculations about the potential impact of the Italian Budget Law for next year? Alessandro Foti: Not yet because everything is still so unclear that it's probably, yes, we are making some time, some simulation, taking -- considering the rumors that are on the market. But honestly speaking, it's a little bit -- I think that the risk is to -- is a waste of time because everything is still underway. But honestly speaking, we are completely not concerned by this because this is not -- for us, what is important is the structural trajectory of the bank. So this can be, okay, fine. It's part of the game, but it's not going to change anything. So we are not, honestly speaking, particularly neither concerned nor particularly interested in what's going on there. Operator: [Operator Instructions] Mr. Foti, there are no more questions registered at this time. Alessandro Foti: Thank you to everybody for the extremely interesting questions we got. As usual, we are absolutely at your disposal for entering in additional follow-up. And so thank you again for taking the time to participate to our financial results conference call. Operator: Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones. Thank you.
Operator: Good morning, and welcome to the Bio-Techne Earnings Conference Call for the First Quarter of Fiscal Year 2026. [Operator Instructions] I would now like to turn the call over to David Clair, Bio-Techne's Vice President, Investor Relations. Please go ahead, sir. David Clair: Good morning, and thank you for joining us. On the call with me this morning are Kim Kelderman, President and Chief Executive Officer; and Jim Hippel, Chief Financial Officer of Bio-Techne. Before we begin, let me briefly cover our safe harbor statement. Some of the comments made during this conference call may be considered forward-looking statements, including beliefs and expectations about the company's future results. The company's 10-K for fiscal year 2025 identifies certain factors that could cause the company's actual results to differ materially from those projected in the forward-looking statements made during this call. The company does not undertake to update any forward-looking statements because of any new information or future events or developments. The 10-K as well as the company's other SEC filings are available on the company's website within its Investor Relations section. During the call, non-GAAP financial measures may be used to provide information pertinent to ongoing business performance. Tables reconciling these measures to most comparable GAAP measures are available in the company's press release issued earlier this morning on the Investor Relations section of our Bio-Techne Corporation website at www.bio-techne.com. Separately, in the coming weeks, we will be participating in the UBS, Stifel, Stephens, Jefferies, Citi, Evercore and NASDAQ Healthcare Conferences. We look forward to connecting with many of you at these upcoming events. I will now turn the call over to Kim. Kim Kelderman: Thank you, Dave, and good morning, everyone. Welcome to Bio-Techne's First Quarter Earnings Call on fiscal 2026. We began the fiscal year with continued strong execution, navigating a dynamic environment with discipline and strategic focus. Despite these efforts, organic revenue declined 1% in the quarter, primarily due to clinical stage timing from a couple of large customers in our cell therapy business and the anticipated ongoing softness in biotech funding. The headwind in cell therapy reflects the inherent lumpiness of late-stage clinical programs, which is, in this case, driven by favorable FDA Fast Track designation that support accelerated therapy approval time lines, yet they reduce near-term reagent demand. Importantly, underlying market trends remain constructive as demand from our large pharma customers was once again robust, and we saw encouraging signs of stabilization in our U.S. academic end market, particularly as the quarter progressed. Our ProteinSimple instrument franchise continued to build momentum China delivered its second consecutive quarter of growth and our spatial biology business resumed sequential improvement. Operationally, the team delivered sector-leading profitability with adjusted operating margin expanding 90 basis points year-over-year to 29.9%, exceeding our initial expectations. This performance reflects our deliberate focus on productivity and cost management while continuing to invest in the strategic growth pillars that will shape Bio-Techne's future. Now let's turn to the performance of our end markets, beginning with our biopharma customers, excluding cell therapy. The divergence between large pharma and emerging biotech spending patterns persisted in the first quarter. Revenue from our large pharma customers remained strong, increasing low double digits, reflecting continued demand for our tools and technologies. In contrast, the challenging funding environment in our biotech end market continued to weigh on spending behavior and resulted in high single-digit declines in Q1. Encouragingly, we are seeing early signs of stabilization in biotech activity levels. These include an uptick in M&A activity, favorable pharma in-licensing trends and the potential for lower interest rates, all of which support a more constructive outlook for investment levels in emerging biotech companies. Global academic markets remained stable overall in Q1. A modest decline in U.S. academic business was offset by mid-single-digit growth in Europe, where demand trends remained healthy. Within the U.S., it was encouraging to see improvement in our run rate business as the quarter progressed. From a geographic standpoint, revenue declined mid-single digits in the Americas, while both EMEA and Asia delivered low single-digit growth. In China, we achieved our second consecutive quarter of growth, supported by improving CRO pipelines and increased CDMO activity. Growth in the region was primarily driven by strong performance in our ProteinSimple analytical instruments and our spatial biology portfolio. Importantly, unlike last quarter, the instrument growth does not appear to be driven by tariff-related dynamics. Instead, it reflects underlying demand strength, and we believe that the business is well positioned for a return to stable growth in the region. Let's now turn to our growth pillars, beginning with the Protein Sciences segment, where end market dynamics led to a 3% organic revenue decline. In our cell therapy business, we were pleased to see a couple of our largest customers receive FDA Fast Track designation. This recognition enables an accelerated clinical development time line and eligibility for priority review by the agency and there with potentially expediting both approval and commercialization of these next-generation therapies. As customers progress through the development project, they typically front-load purchases of the reagents needed for a full completion of a specific clinical phase in their program. We have seen this dynamic play out firsthand at Wilson Wolf, where customer ordering patterns moderated as their clients progress through Phase III clinical trials and shifted their focus to the regulatory filing necessary for FDA approval. This is typically followed by an inflection in demand and a revenue ramp as therapies gain commercial traction. It is this clinical stage timing dynamic that introduced greater lumpiness in our cell therapy business in this quarter. Continuing with cell therapy, I'd like to provide a brief update on Wilson Wolf. As a reminder, we currently own 20% of the company and expect to complete the acquisition of the remaining interest by the end of calendar 2027 or potentially sooner, contingent upon the achievement of certain milestones. Wilson Wolf is a developer and manufacturer of the market-leading G-Rex bioreactor line, which enables high-yield, cost-effective workflows for cell therapy manufacturing. The G-Rex also allows the scaling of production and therewith treat a greater number of patients efficiently. The G-Rex grant program has successfully seeded hundreds of early-stage cell therapy customers and over half of those also utilize Bio-Techne's GMP reagents. We are very excited about the upcoming acquisition as the combination of Wilson Wolf's bioreactors with Bio-Techne's GMP reagents, our media and the ProPak cytokine delivery system create a compelling, lower cost and scalable manufacturing solution for cell therapy developers. Let's now turn to a suite of easy-to-use fully automated proteomic analytical solutions collectively known as ProteinSimple. These platforms are the preferred choice for fast, precise and intuitive protein analysis. Utilization of our expanding installed base remains very strong as customers increasingly rely on these systems to automate both critical and routine laboratory workflows, driving higher productivity in both biopharma and academia. This growing reliance was reflected in the cartridge consumable pull-through, which resumed its double-digit growth trajectory in the quarter. We continue to advance innovation across all 3 of our ProteinSimple instrument platforms, enhancing functionality, productivity and broadening their application scope. A key highlight is the upcoming launch of an ultrasensitive cartridge for our fully automated Simple Plex immunoassay platform branded as Ella. These next-generation assays will deliver a two to fivefold improvement in sensitivity over our current Simple Plex cartridge offering, enabling femtogram level biomarker detection in plasma samples. This breakthrough holds significant promise for accelerating neurodegenerative disease research and positions Bio-Techne as a leader in this emerging and impactful field. Adoption of our high-throughput Simple Western platform called Leo continues to build momentum with large pharma customers who valuate speed, simplicity and sensitivity in protein quantification and detection. We are very pleased with Leo's commercialization as the platform has exceeded both revenue and placement expectations in its first 3 quarters in the market. Combine this initial momentum with a growing order funnel and Leo is well positioned to become a standout performer in our instrument portfolio. Lastly, I'd like to highlight the continued success of our Maurice biologics platform, which delivered its sixth consecutive quarter of growth. This QA/QC solution is benefiting from a current wave of increased bioprocessing activity. Looking ahead, we see recent U.S. manufacturing investment announcements by several large pharmaceutical companies as a potential catalyst for accelerating growth in this business. And finally, our core portfolio of research use-only reagents, including our industry-leading catalog of over 6,000 proteins and 400,000 antibody types continues to demonstrate its enduring value to customers even amid challenging end market conditions. In the first quarter, sales of our core reagents remained consistent with the prior year, underscoring the resilience and essential nature of these tools in supporting foundational research across disciplines. Now let's turn to our Diagnostics and Spatial Biology segment, beginning with our Spatial Biology portfolio. In Q1, we delivered low single-digit growth in our RNAscope product suite, which enables biopharma and academic researchers to detect and visualize RNA and short microRNA sequences at a single cell level within intact tissue samples. We will further strengthen our leadership in spatial biology with the launch of ProximityScope, the first product to enable researchers to interrogate functional protein-protein interactions. This novel assay adds a powerful new dimension to multiomic RNA and protein detection. By introducing this additional layer of information to spatial biology, ProximityScope enhances researchers' ability to unravel complex biology and its connections to disease. It also embeds Bio-Techne’s spatial chemistries more deeply into automated translational research workflows. Momentum also continued with our COMET instrument, which saw solid double-digit growth in bookings year-over-year. Its fully automated multi-omic capabilities are increasingly valued by academic and biopharma customers and enable the discovery of novel biological insights. Spatial Biology continues to be our most academically concentrated business with a meaningful presence in biotech as well. Given the funding uncertainties in both end markets, we are encouraged by the positive momentum in this franchise. Lastly, our Diagnostics business grew mid-single digits in Q1, supported by balanced performance across our core diagnostic controls and our diagnostic kits for laboratories. We continue to see rising interest in our ESR1 test, which monitors resistance to standard therapies in breast cancer patients. Recent clinical trial data reinforced the importance of testing for ESR1 mutations, showing that switching patients that show this mutation to an alternative therapy nearly doubled life expectancy compared to the standard treatment. We also launched the AmplideX PML-RARA kit, a multiplex qPCR assay designed to detect all 3 major fusion variants associated with APL, an aggressive form of leukemia. This assay runs on widely installed qPCR platforms and delivers results in approximately 4 hours. This launch broadens our hematology menu alongside the QuantideX BCR-ABL kit and positions us for continued menu expansion. We also announced an expanded agreement with Oxford Nanopore Technologies, building on last year's successful launch of the AmplideX Nanopore Carrier Plus kit. This comprehensive carrier scanning panel targets 11 hard-to-sequence genes in a single workflow, offering laboratories a streamlined and efficient solution for genetic testing. And before I wrap up my prepared remarks, I would like to briefly highlight our progress on sustainability. During fiscal 2025, we achieved an estimated 40% reduction in Scope 1 and 2 emissions driven by our transition to 100% renewable electricity at our largest site located in Minneapolis. I encourage everyone to review the report in the Corporate and Social Responsibility section of our website. I'm proud of the team's continued progress on this front. To summarize, the Bio-Techne team continues to execute at a high level despite ongoing volatility across some of our end markets. Our focus on productivity and disciplined cost management drove a significant year-over-year operating margin expansion, exceeding our expectations for profitability. And while clinical stage timing in cell therapy created a headwind, underlying market trends are constructive. Recent data points suggest improving visibility for academic and our biopharma customers, which we expect will translate in stabilizing and ultimately strengthening demand for life science tools and specifically Bio-Techne's product portfolio. One thing remains clear. Our customers continue to rely on Bio-Techne's innovative life science tools to drive biological discovery, advance next-generation therapies and deliver precise diagnostic solutions that improve the quality of life for the global population. With that, I'll turn the call over to Jim. Jim? James Hippel: Thank you, Kim. I'll begin with additional detail on our Q1 financial performance, followed by thoughts on our forward outlook. Adjusted EPS for the quarter was $0.42, flat year-over-year with foreign exchange having an immaterial impact. GAAP EPS came in at $0.24, up from $0.21 in the prior year period. Total revenue for Q1 was $286.6 million, representing a 1% year-over-year decline on both an organic and reported basis. Foreign exchange contributed a 1% tailwind, while businesses held for sale created a 1% headwind. Excluding the timing impact from our largest cell therapy customers who received FDA Fast Track designation, organic growth was plus 1% for the quarter. From a geographic lens, North America declined mid-single digits as strength from large pharma was offset by order timing in cell therapy and continued funding pressure in biotech. Europe grew low single digits, led by consistent performance in academia, while Asia also posted low single-digit growth, marking its second consecutive quarter of sustained momentum. By end market, biopharma declined mid-single digits overall. However, excluding our largest cell therapy customers, biopharma grew low single digits, driven by strong pharma demand, but partially offset by biotech softness. Academia was flat with solid growth in Europe, balancing modest declines in the U.S. Below the revenue line, adjusted gross margin was 70.2%, up from 69.5% last year. The improvement was driven by the Exosome Diagnostics divestiture and ongoing productivity initiatives. Adjusted SG&A was 32.1% of revenue, nearly flat versus 32.2% last year. R&D expense was 8.2%, also stable compared to 8.3% in the prior year. This consistency reflects the benefits of structural streamlining and disciplined expense management, partially offset by targeted investments in strategic growth initiatives. Adjusted operating margin reached 29.9%, up 90 basis points year-over-year. This improvement was fueled by the Exosome Diagnostics divestiture and productivity gains, partially offset by volume deleverage. Our better-than-expected margin reflects deliberate management of productivity and cost containment measures aimed at maximizing operating leverage in a dynamic environment. Below operating income, net interest expense was $1.8 million, up $0.7 million year-over-year due to the expiration of interest rate hedges. Bank debt at quarter end stood at $300 million, down $46 million sequentially. Other adjusted nonoperating income was $2.7 million, down $1.3 million from the prior year, primarily due to foreign exchange gains last year related to overseas cash pooling arrangements that did not recur. Our adjusted effective tax rate was 22.3%, up 80 basis points year-over-year, driven by geographic mix. Turning to cash flow and capital deployment. We generated $27.6 million in operating cash flow during our Q1 with $5.4 million in net capital expenditures. The year-over-year decline in operating cash flow was due to the timing of cash tax payments. We returned $12.4 million to shareholders via dividends and ended the quarter with 156.4 million average diluted shares outstanding, down 3% year-over-year. Our balance sheet remains strong with $145 million in cash and a total leverage ratio well below 1x EBITDA. M&A continues to be a top priority for capital allocation. Now let's review our segment performance, beginning with Protein Sciences. Q1 reported sales were $202.2 million, down 1% year-over-year. Organic revenue declined 3% with a 2% benefit from foreign exchange. Excluding the cell therapy timing impact, organic growth was plus 1%. Growth was led by our proteomic analytical tools business with notable strength from large pharma customers. Protein Sciences operating margin was 38.4%, down 100 basis points year-over-year, primarily due to volume deleverage and promotional activity, partially offset by operational productivity. In our Diagnostics and Spatial Biology segment, Q1 sales were $79.5 million, down 4% year-over-year. The divestiture of Exosome Diagnostics negatively impacted reported growth by 7%, resulting in 3% organic growth for the segment. Diagnostics Products grew mid-single digits, while spatial biology was flat. It's worth noting that this segment grew mid-teens organically in the prior year, creating a challenging comparison. Segment operating margin improved to 11.2%, up from 5.1% last year, driven by the Exosome Diagnostics divestiture and productivity initiatives. We expect continued margin expansion as our COMET spatial biology platform scales. In summary, the team delivered strong execution in Q1 despite persistent market headwinds, including biotech funding pressures, NIH budget uncertainty and lingering tariff concerns. Encouragingly, recent data points suggest improving end market clarity. While biotech funding remains down approximately 19% year-to-date through October, industry reports show a 6% sequential increase in our Q1 and October making the strongest funding month of calendar 2025. Combined with recent large pharma pricing and onshoring agreements with the U.S. administration, we anticipate improving conditions for biopharma. On the NIH front, September outlays rose 8% year-over-year, closing the government's fiscal year on a strong note. While the current government shutdown clouds visibility into the fiscal year 2026 budget, both Senate and House appropriation bills suggest a flat NIH budget year-over-year. Encouragingly, we saw signs of stabilization in the U.S. academic market as the quarter progressed. As Kim noted, we're excited about the FDA Fast Track designation awarded to our largest cell therapy customers. These designations accelerate clinical time lines but reduce near-term reagent demand. Following strong ordering in early fiscal year 2025, these customers are now progressing through their Phase III trials, resulting in a temporary slowdown in reagent purchases. We expect this headwind to intensify in Q2, impacting growth by approximately 400 basis points year-over-year before moderating in the second half of the fiscal year. Despite these headwinds, we anticipate overall Q2 organic growth to be consistent with Q1. This outlook reflects continued strength in pharma, renewed growth in China, a rebound in spatial biology and gradual stabilization in U.S. academic and biotech end markets. As we lap prior year headwinds that began with the U.S. administration's policy changes in early calendar 2025, we expect to return to positive organic growth in the second half of the fiscal year. From a margin perspective, we remain focused on balancing growth investments with operational efficiency. We're pleased with the margin upside delivered in Q1 and remain on track to achieve at least 100 basis points of margin expansion for the full fiscal year. That concludes my prepared remarks. I'll turn the call now back over to the operator to open the line for questions. Operator: [Operator Instructions] First question will come from Dan Leonard with UBS. Daniel Leonard: My first question, I appreciate all the quantification on the GMP protein timing dynamics. But what I'm curious about is how long might that air pocket persist? And how are you thinking about growth right now for GMP proteins in light of that greater than 30% growth in the prior year? Kim Kelderman: Dan, thank you for the question. Well, first of all, these 2 customers, in particular, we're very excited about the Fast Track designation. It's obviously a very positive sign for these 2 customers and the therapies they're working on. But as you understand, short term, this gives us a headwind. And to be precise, this Q1, we saw a headwind of about 200 basis points based upon this phenomenon. It's on top of a prior year of 60% organic growth. For Q2, that will be worse. So Jim already mentioned, 400 basis points, which would then lap a 90% prior year organic growth in cell therapy. And from there, the second half of the year, the headwinds will fade. In the meantime, what we will continue to do is to build the funnel, right? Right now, we're sitting at 700 customers, 85 in clinical phases, 16 of those in Phase II and 5 in Phase III. And we are also very positive about the underlying recovery in the biotech markets. So yes, that will then result in us having to manage through this valley. I think we've positioned the company really well to continue to protect the bottom line, and we're very positive about all the other underlying strengths. So that's basically how we see the year rolling out. Daniel Leonard: Understood. And my follow-up, Kim, are you still managing the business as a low single-digit grower in fiscal '26? Or have those plans changed given the Q1 result and the upcoming comp you're facing here in Q2? Kim Kelderman: No, not at all. No change there. As I mentioned, of course, the good news of these fast-track approvals was somewhat of a short-term surprise for us. But our commitment and our conviction of cell therapy markets doing great over time remains exactly the same. And with some positive signs from the other end markets that we serve, we feel that the low single digits for the year is still very, very feasible. And as you saw from the Q1 margins, we've managed to protect the bottom line even with a little bit of a headwind. We will always want to be on the safe side of that. But in the meantime, we're ready for higher volumes in all the other product lines and for accelerating results. Operator: Our next question will come from Matt Larew with William Blair. Matthew Larew: Maybe I'll just follow up on that point there. Kim, you referenced the headwind accelerating, I think, to 400 bps in the fiscal second quarter, but still targeting low single digits for the business for the year. So it sounds like you are seeing an improvement in the underlying core, and I think that would suggest sort of mid-single-digit growth in the back half of the fiscal year, which may be consistent with what some of your peers have said 3% to 6%. So can you maybe just speak to ex-CTX, how you see the balance of the year unfolding in light of the macro dynamics you referenced? James Hippel: Yes, Matt, this is Jim. Thanks for the question. I'll jump in on this one. So you are correct. I mean we are -- in the underlying business, we're seeing, I'd say, a gradual improvement/acceleration of our end markets and our relative performance. So as I talked about, if you exclude just these 2 cell therapy customers, our organic growth would have been 1% for the company. Looking ahead to Q2, what really the guide implies is roughly a 3% growth, ex these 2 customers. And that's before we get into the back half of the year where we start to lap the U.S. administration policy changes that's impacted our entire industry, particularly academic as well as you may remember, we talked about this last quarter, our Diagnostics business, in particular, was -- it can be lumpy from quarter-to-quarter, had very -- last year was very, very strong in the first half, a little bit less so ordering in the second half, and that pattern is a bit flipped this year where we're expecting a stronger ordering pattern in the second half versus the first half. So both the markets gradually improving. Our specific product lines, namely our spatial, our ProteinSimple product line and even the region in Asia overall, but especially China, are all seeing some very nice positive momentum. Combine that with lapping easier comps in the second half of the year suggest a continued strength in underlying performance absent these 2 customers. Matthew Larew: Okay. Great. That's really helpful, Jim. And then on the biotech side, you referenced sort of the variety of improving macro indicators and obviously, recently, some of the nice news on biotech funding. Historically, you've thought about kind of a 2- to 3-quarter lag there. I'm curious given how long we've sort of been in the doldrums, if you expect that to be the same time line or perhaps you've already started to see some signs of life from some of your biotech customers who might feel better about the interest rate environment and their ability to raise capital? Kim Kelderman: Yes, Matt, I'll take it. So we feel that biotech funding, as you referred to over the last couple of months has definitely increased, specifically the last month has been very, very positive. The lower interest rate environment also is helpful, increased levels of M&A much higher than prior year. And then we also see a very encouraging number of licensing deals into biopharma, making it a more investable space and there with -- we feel positive about the momentum in there. Yes, in the past, a couple of years ago, when we were looking at funding issues, we felt that the funding at that time came into companies that really had to start with brick-and-mortar, maybe with clean rooms and then work their way into starting their programs. Currently, in some occasions, that might still be the case, but we feel that overall infrastructure is in place and that many companies are fundraising to kick their programs off and/or to add some of the programs. And that will create an environment where the dollars probably will flow much quicker to us than the 2, 3 quarters we've mentioned in the past. Operator: Our next question will come from Puneet Souda with Leerink Partners. . Puneet Souda: Kim, I wanted to understand on the GMP protein side. Could you talk about just knowing the number of trials that you're involved with, the ones that have Fast Track designation and the ones that are program starts, can you maybe -- or clinical trial starts, maybe can you talk about -- are you continuing to see the momentum on new clinical trial adds? And for the same-store customers that have Fast Track designation, I mean, when do you think -- just given the timing, ordering pattern, the size of the trials, can you give us a view into when this business starts to recover again for GMP proteins? Because obviously, it's been a bright spot for you. But just given the challenges, I wanted to understand when can that start to recover? Kim Kelderman: Thank you for the question. Yes, the clinical starts have been relatively flat and steady. So we don't see a significant decline in the activity there. There's certainly some turnover. There are new companies that are starting new clinical trials, and there are companies that are actually adding to their number of clinical trials. We've also seen some exits and cancellations, basically a maturing of the market where 3, 4 years ago, basically any novel technology or any novel treatment was getting funded. And some of those were basically more about how exciting these possibilities in the cell and gene therapy were versus the true viability if it comes to scalability as well as well as the affordability. And we feel that all the new programs are much more in line with what cell and gene therapy is really, really fit for. And we actually, from a Watson Wolf as well as Bio-Techne point of view, have always wanting to enable a scalable as well as an affordable treatment coming out of the cell and gene therapy efforts. So we feel that we're really well positioned to continue to feed this end market. Puneet Souda: Okay. That's helpful. And then if I could ask on the academic side, net-net, academic sentiment is improving. I appreciate that. But there is multiyear funding number of grants that are lower in '26 versus '25, more concentration, fewer grad students, fewer bodies in the lab, fewer post docs. So how does that impact your business into '26 and beyond? And then when we look at the guide overall, Jim, low single digit is lower than a large-diversified peer in the space in life science tools. Just wondering, historically, you've grown ahead of that peer by a few points. Is that still the assumption longer term? And by that, I mean '26 and '27 -- eventually into '27, I mean? Kim Kelderman: Yes, I'll take the first part then, Puneet. So yes, we have seen stabilization in the NIH markets and specifically in academic U.S. Academic Europe has continued to grow mid-single digits. In the U.S., it's been a little lower, but definitely stabilizing. And we can see it from the overall activity level from our run rate, our core products. And then we've always talked about how we feel that the number of NIH grants is important, but that they are aligned with our research areas, the ones that we serve as a company is more important. And we can clearly see a positive mix if it comes to these grants for us. And then at the end of the day, we are encouraged by the fact that there are still bipartisan support for a flat NIH budget for the coming year. So we feel overall that that this market is -- has bottomed down, that is now stabilizing and that it will be a positive driver for us going forward. James Hippel: And then, Puneet, if I understood your question correctly, it's kind of like how do I think about our performance relative to the space overall. And we've always talked about our level of outperformance and do we expect that to continue going forward? And the answer is absolutely, yes. I think what we're seeing right now is a bit of a transition. As you would expect when there's kind of a turn in trajectory of the business, you look at the peer sets, those obviously that have a more portfolio that's diversified outside even life sciences, but applied markets are accelerating, recovering earlier. Those that have a higher bioprocessing presence are recovering earlier, which is actually a good sign downstream for eventually for discovery. We peel back the onion and look at our very specific areas of where we play versus our competition. We feel like we're either holding our own or doing better. So for example, in our core reagents, globally, basically, we're sitting at flat growth in our core reagents, which based off of our intel and our peer set, we're still doing as good, if not taking share there. Our ProteinSimple franchise continues to do better than the market at mid-single-digit growth. Our spatial biology franchise has been hampered by their academic presence, but we've seen a turn of momentum there this most recent quarter, and we're seeing that momentum continue here in the second quarter. So we believe that will get back to the trajectory. that we're used to seeing. And then cell therapy has been one of the reasons for our outperformance in the past, and that's going to be a bit of a headwind for us in the coming quarters. But once we lap those and particularly once we get into fiscal year '27, we'll be completely behind those tough comps with these 2 specific customers, and that will continue to be an accelerator of growth relative, we think, to our peers. So hopefully, that gives you enough detail to noodle on, but that's how we think about it. Operator: Our next question comes from Patrick Donnelly with Citi. Patrick Donnelly: Maybe one on the Wilson Wolf piece. I always try to keep tabs on that. Can you just give an update as to what the quarter looked like there, what the momentum looks like? Is there potential for anything to trigger before the end of that -- the time line, even if they don't hit some of those milestones? I would love just a little more color on how you're thinking about that piece. Kim Kelderman: Patrick, thank you for the question. Yes, Wilson Wolf had a flat quarter, also looking at some of the biotech headwinds from the past, the past couple of quarters from a funding perspective. We -- overall, the 12 months trailing sits at mid-teens -- low to mid-teens. And yes, we feel that overall, that business is also very well positioned to accelerate again to their numbers entitled growth rates. And yes, we feel that will be a great acquisition serving the cell therapy market. The question regarding the triggers, whether we would be able to own it earlier, I bet that John Wilson will still think that we -- he will be able to meet the EBITDA triggers. But we are supportive, of course. But with the current market conditions and some of the headwinds, it will be a little tougher, which for us basically doesn't make a huge difference because the deal is structured in a way and you know how it is structured that at the end of the day, we would pay 4.4x 12 months trailing revenues. And that then we'll calculate the purchase price. And we're rooting for the team, and we see that they have plenty of pipeline to be proud of. Operator: Our next question will come from Dan Arias with Stifel. Daniel Arias: Jim, apologies for going back on the same question that was asked about 2Q, but I just want to make sure I understand the cadence here because it sounds like you feel like demand has troughed and it's on its way back, and now it's really kind of just about rounding the corner on growth itself. So plus 1% organic this quarter, ex the GMP customers and you're expecting the same thing next quarter ex those accounts, 3% without them, so 1% with them presumably despite the comp being 5 points, more difficult. So like the underlying momentum that you guys are talking about basically feels like it can drive 500 basis points or so of sequential improvement in the context of the compares, excluding these 2 accounts, obviously. James Hippel: Yes. So let me just -- I'll repeat some of my comments to make sure I'm clear. So yes, you're correct that in this current quarter, we just passed Q1, adjusted for these 2 customers of cell therapy out of our numbers, we would have grown 1% overall. And looking at Q2, the same 2 customers provide a 400 basis point headwind, but we're projecting the same overall growth that we had in Q1. So that would imply that the underlying business outside of these 2 customers accelerates to 3% organic growth from the 1% we had this quarter. Daniel Arias: I see. Okay. Okay. And then can you just maybe refresh us on what kind of 80-20 type rule exists when it comes to these cell therapy accounts? I mean there's obviously a concentration here. So for instance, what portion of the GMP revenue base is coming from the 2 customers or, say, the 5 Phase III partners that I think you mentioned that you have? Kim Kelderman: Yes, Dan, we have not talked about exact numbers as to what account amounts to what portion of our pipeline. But overall, we do know that the later in the stages, the larger the orders become, right? The volumes become larger. And then at the end of the day, the size of each account is, of course, also predicated on how many clinical study subjects do one need to run and how much raw material do you need per treatment. So there's a big variability, and that's why it's really hard for me to answer it because an account with a big indication and a large amount of proteins in a Phase II could be ordering more than a Phase III for a specific disease, exotic disease. So therefore, it's hard to answer the question. Overall, we always look at the total pipeline. And we've really done some real -- we made some real progress in adding customers to our pipeline, and we're sitting at 700 now. So overall, we are very confident that we're driving the underlying growth and that we're participating in the market in a real significant way. Operator: Our next question will come from Kyle Boucher with TD Cowen. Kyle Boucher: I wanted to ask on the spatial side of the business. It sounds like pretty decent sequential growth there and trends sort of improved. I know you had some headwinds in the fiscal fourth quarter. Was there any catch-up in fiscal Q1 from some of those disruptions you saw at the end of the last fiscal year? Kim Kelderman: No, we don't believe that there is a catch-up there. We truly see overall broad recovery in the ACD reagents, the RNAscope. We made it back into the black, which is really encouraging to see. And as I mentioned, real broad recovery. And then the instruments, yes, they had a little bit of a tougher time like other instruments in relation to the academic side of the market. But we have a real nice momentum that we saw in the order book. So overall, we know that the reagents have been improving sequentially, not based upon lumpiness or quarterly order timing, but more just by broad activity level. And the instrument funnel is growing really, really nicely knowing -- looking at our order book. Kyle Boucher: Got it. And then maybe on the margin side, it came in pretty good in the fiscal first quarter, even considering the minus 1% organic. But I guess next quarter, assuming the same level of growth, minus 1%, what does that sort of imply for the EBIT margin in the fiscal second quarter? James Hippel: Well, we haven't given specific guidance on margin by quarter, but we've seen as the quarter progressed and we realized we were going to have these headwinds with these 2 specific customers, GMP proteins, of course, are a very profitable part of our business. So we've made sure we've taken even additional productivity actions to counter those, which allowed us to get the expansion we got this quarter, but more importantly, prepare us for the headwinds yet to come, especially in Q2. So it gives us even more confidence in our ability to achieve our 100 basis point expansion goal for the year and maybe even do a little bit better. But obviously, how the top line plays out will have a lot of determination as to whether there's upside or downside to that figure in any given quarter. But right now, we're feeling pretty good about margin overall each and every quarter. Operator: Our next question will come from Catherine Schulte with Baird. Catherine Ramsey: Maybe first for the fiscal second quarter outlook, what does that assume for a government shutdown impact? And can you maybe talk through the range of outcomes if we get a reopening tomorrow versus a month from now? James Hippel: Catherine, this is Jim. I'll just start by saying that we're obviously in more record territory already with the government shutdown. And we haven't seen any noticeable major differences in our academic customer buying patterns like this month versus the prior month. So again, we're encouraged that academic has appeared to have stabilized over the past quarter, and we're seeing that continue thus far even with the academic shutdown or even with the government shutdown, sorry. Catherine Ramsey: Okay. Helpful. And then on the GMP headwinds, what are your assumptions for the back half of the year? I know they should ease. Is the easing of those due to them annualizing? Or are you assuming some of that ordering resumes? James Hippel: It's really more about how much they ordered in the first half of last year, these 2 customers versus the second half, and they ordered less in the second half than they did in the first. There still will be a headwind. It should be -- it will definitely be less than what we saw in Q2. And we'll give you more ideas as the quarter approaches in terms of what we're seeing from these 2 customers this time next quarter. But as of right now, we're not assuming much of any buying for these 2 programs, and it's still a headwind in the second half, but not as severe. Kim Kelderman: Yes, the comparables become easier, right? Comparables become easier, Catherine. And in the meantime, these companies also need to start validating processes and their manufacturing. So we feel that the second half will be less impacted by this phenomenon than the first. Operator: Our next question will come from Justin Bowers with Deutsche Bank. Justin Bowers: So in the prepared remarks, you talked about instruments that could benefit from the onshoring and reshoring dynamic. Can you point to which cohort of instruments across the portfolio that might be the beneficiary -- biggest beneficiaries of this and potential timing of when we might see some benefit from that? Kim Kelderman: Yes. Thanks for the question. In particular, we are thinking about our biologics instrument line. It's been growing really nicely compared to market, and we feel it's taking market share in several applications that it serves. And as you can imagine, with onshoring, with more locations, companies typically will utilize similar instrumentation and methods as they did in their primary locations. So we feel that we can copy our successes that we've booked in Europe and in the past in this particular end market in large pharma, and that will translate to some momentum going forward. Operator: Our next question will come from Daniel Markowitz with Evercore ISI. Daniel Markowitz: I have a couple of quick ones. So first, on cell therapy customer order timing, I just want to make sure I understand the driver here correctly. And sorry for asking another question on this. Have these customers who received FDA Fast Track already placed orders for their Phase III clinical trials and you've already recognized revenues for those Phase III projects and now you're just waiting for them to commercial. I just want to make sure I'm understanding that right. Kim Kelderman: Yes. Thanks for your question. Don't apologize. I mean it's obviously a real result driver for this quarter specifically. Now the Fast Track designation, yes, after your initial results in this case -- in these cases, while in Phase II, the Fast Track designation would give you a whole path to accelerate your clinical studies. And we feel that these customers, and of course, there's always a firewall, but we feel that these customers have ordered enough to finalize their clinical trials. And that's not uncommon. Typically, you buy your raw materials in quantities to make sure you don't have to deal with a new lot of raw materials during your clinical trials. So yes, the materials for their Phase III for what they have to do would already, in our assumptions, have ordered last year. And the materials that you would need for commercialization and for validation of your production lines, we feel is still to come. Daniel Markowitz: Understood. That's helpful. And then the second one, you mentioned promotional activity in Protein Sciences when talking about the margins there. Can you talk about these activities? Where were they focused? And would you expect them to continue in the coming quarters? And then I just had one more quick question at the end. James Hippel: Yes, I'll try to take that. This is Jim. So on the promotional activities, as you can imagine, we all know the academic environment is tough right now. Biotech environment has been tough. And so therefore, you want to make sure that you stick with your customers in good times and bad. And so that means perhaps a little bit heavier discounting, promoting certain product lines, helping with their solutions. So it's really more about supporting our academic and biotech customers as they as they go through a tough time right now. And so those additional promotional activities, I think, helps our absolute performance relative to those markets as well. So at the end of the day, it paid off. Kim Kelderman: Yes. And if I add to that, our grant as well as some promotions to get into projects early on even in tough times, especially from the story that we just went through, you could clearly identify that being in a project or -- and driving the funnel of companies and/or projects that are using your materials is very important. So in constrained markets, we want to make sure we build the funnel and actually double down on all the projects that are currently going on. They're obviously very viable and important because they're still getting invested in -- so being part of those is of the utmost importance to make sure that you can continue to accelerate and outperform the rest of the market, and that's exactly what we're doing. Daniel Markowitz: Okay. And then my last one, it's impressive you're able to deliver on margins and EPS despite the customer timing in a very high-margin business. I'm curious if there was anything you wanted to call out that helped flex the business to make that happen. One thought that came to mind is maybe 1Q had less ExoDx reinvestments and you let more of it drop down to the bottom line. And then what's expected for the balance of the year? Anything you wanted to call out on that front? James Hippel: I mean, yes, so as we talked about, we continue to want to balance our cost initiatives and productivity initiatives with reinvestment back into our growth drivers. And it's a lever we have to work with. And so it's a combination, I'd say, of the timing of some of those investments, perhaps pushing them out to later in the year in some cases, but also accelerating on the productivity front. So we initiated some new streamlining activities this quarter, which bolstered our efficiencies and will set us up to be able to continue that -- to deliver that margin performance even with these new headwinds that we're facing here with the cell therapy. Operator: Thank you. That brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.
Operator: Good afternoon, ladies and gentlemen, and welcome to the LENZ Therapeutic Third Quarter 2025 Financial Results Conference Call. [Operator Instructions] As a reminder, this call is being recorded. At this time, I'd like to turn the call over to Dan Chevallard, Chief Financial Officer. Please go ahead. Daniel Chevallard: Thank you. Good morning, and thank you for joining us today. My name is Dan Chevallard, Chief Financial Officer of LENZ Therapeutics. I'm joined today by Evert Schimmelpennink, President and Chief Executive Officer; and Shawn Olsson, Chief Commercial Officer; as well as Dr. Mark Odrich, Chief Medical Officer, who will join us for the question-and-answer session. Before we begin, I would like to remind you that this call will contain forward-looking statements regarding LENZ's future expectations, plans, prospects, corporate strategy, regulatory and commercial plans and expectations, cash runway projections and performance. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors and risks, including those discussed in our filings with the SEC, which can also be found on our website. In addition, any forward-looking statements represent only our views as of the date of this webcast and should not be relied upon as representing our views as of any subsequent date. We specifically disclaim any obligations to update such statement. The company encourages you to consult the risk factors contained in our SEC filings for additional detail, including in our third quarter 2025 Form 10-Q, which is being filed today. With that, I will now turn the call over to Ev. Evert Schimmelpennink: Thank you, Dan. Good morning, everyone, and thank you for joining us. This is an incredibly exciting time at LENZ as today marks our very first earnings call as a commercial company. The third quarter and recent period have been truly transformational for us, defined by the FDA approval of VIZZ in July, which came ahead of our August PDUFA date and by the successful commercial launch of VIZZ in the U.S. in early October. VIZZ is the first and only aceclidine-based eye drop for the treatment of presbyopia in adult. We are proud to have brought this important innovation to the market. We're now just 1 month into the launch, and our main focus is on giving doctors the opportunity to experience VIZZ in the real world, trying it themselves, with the staff and with some other patients. And already, we're seeing tremendous enthusiasm from the eye care professional community as VIZZ makes its way into their practices. As of the end of October, more than 2,500 doctors have already prescribed VIZZ. What's particularly impressive is that 40% of those prescribers have already written multiple prescriptions. All of this has led to over 5,000 paid scripts for VIZZ being filled by [indiscernible] in October, a number that represents a very impressive start of our launch, clearly showing both consumer interest and satisfaction with VIZZ. And these are just some of the early milestones, only about 4 weeks into our launch that we're very encouraged by. This early adoption is aligned with the consistent and very positive feedback we are hearing. Doctors tell us, VIZZ delivers rapid meaningful improvement in vision and a long duration of effect for a broad group of presbyopes. They also point out that it's clearly differentiated from anything that used before. Anecdotally, we hear about noticeable improvements in distance vision and the early feedback that we're getting from the fields also suggest that instances of headache, the side effect that we were most focused on in our clinical trials appear to be minimal. All of this aligns with the fact that aceclidine is the only pupil-selective and [indiscernible], which again really bodes well for the uptake of VIZZ. In line with our label, the most noted AEs appear to be brief initial staying on installation and transient hyperemia. And based upon early results, we're hearing more of it than we initially expected. AEs in our trials, like an all well-run clinical studies are a combination of doctor observations and direct patient feedback doctor asks for. Our initial thoughts on the potential variance is driven by 2 main factors. First, in our trials, doctors would dose the patient and then return to them for the first set of measurements 30 minutes later. By then the redness, if it happens, lessens or resolved. And second, the following 5 days, subjects would dose at home. And by day 7, the next in-office visit, the patient had already progressed past the Tachyphylaxis phase. This appears to be very much in line with what doctors and patients are reporting now. But stinging and redness tend to be short-lived and fade quickly for most people and the rapid and very noticeable improvement in near vision outweighs these highly transient early effects. Importantly, many doctors describe it as Tachyphylactic, meaning it becomes less noticeable after just a few days, in line with what we're hearing from patients as well. We've already tailored our field messaging based on this feedback, helping doctors to set expectations and share their experiences with confidence, so patients know exactly what to expect and why it's worth it. And we're seeing this work in their practices. As I mentioned, this fourth quarter is really focused on providing doctors with confidence and the right processes to prescribe VIZZ. That is essential groundwork as we prepare for our direct-to-consumer campaign early next year. Ensuring that ECPs and their staff are ready to serve what we believe will be a significant inbound wave of patients. We think of our DTC campaign as the second phase of our launch, and we're thrilled to announce that Sarah Jessica Parker will serve as a spokesperson. She needs no introduction. SJP as we prefer to be called, is an iconic figure and like this truly represents a category of 1. We believe this partnership perfectly reflects our brands and the confidence, style and authenticity we wanted this campaign to embody. And we are excited to share more as we roll out the campaign in early 2026. We also strengthened our balance sheet during the quarter. In October, we completed a direct placement to a single large institutional investor through our ATM, raising more than $123 million and bringing our current total cash position as we launch VIZZ to roughly $324 million. All these significant milestones position LENZ as a disruptive new entrant into the ophthalmology space as we look to establish this as a standard of care for adults frustrated with presbyopia. We've talked before about the 3 phases each doctor moves through as they get ready to recommend us, awareness of VIZZ, confidence in the product and willingness to prescribe. Let me touch on where we are in each of these areas at the end of October, roughly 4 weeks after the first samples reached the field. First, we've made tremendous progress on awareness for VIZZ among the eye care professional community. The mid-October survey showed awareness among doctors at 90%. This is an outstanding number for such an early stage of launch and speaks to the strong engagement we're seeing. And we believe it bodes well for product uptake and long-term adoption. Moving to confidence. As we spoke about, VIZZ is built through real-world experience. It's about doctors using VIZZ themselves, observing its effect and hearing positive feedback from start and early patients. Driving that experience for October alone, we've already distributed more than 70,000 samples to roughly 7,000 offices, initial average of about 10 five pack samples per office. The interest level has been very high, not only from our target doctors, but also from many outside vet group. That tells us the word is spreading and the enthusiasm is broad. And finally, willingness to prescribe. This is where awareness and confidence translate into action. As I mentioned earlier, more than 2,500 doctors have already prescribed VIZZ in the first few weeks and over 1,000 of them have prescribed multiple times. VIZZ has resulted in over 5,000 filled scripts in October. That's an incredibly strong start VIZZ early in the launch, something we're pleased with and want to recognize our sales force for. We've been lucky to have been able to pick the best of the best at our specialty reps, and they are out in the field delivering each and every day. Having them building this willingness to prescribe with the ECP community is fundamental to our success and sets us up for the next phase, our direct-to-consumer campaign in the first quarter of 2026. Before I hand it to Shawn, I want to reiterate our confidence in VIZZ and the strength of this launch. We know the efficacy of VIZZ is excellent and what we're hearing from doctors in the field continues to align closely with them, if not better in some cases. VIZZ is the first and only truly practical pharmacologic solution for presbyopia, one that restores near vision without compromising distance vision and that integrates seamlessly into everyday practice. As I said before, this is more than just a product launch. This is the start of a new category, one built on real-world efficacy, genuine doctor and patient confidence and seamless access to both samples and product. With that, I'll hand it over to Shawn Olsson, our Chief Commercial Officer, to share more color on how the launch is progressing. Shawn? Shawn Olsson: Thank you, Ev and good morning, everyone. As a quick reminder, presbyopia is the largest unmet vision condition in the United States. It affects approximately 128 million people, population nearly 4x larger than those of dry eye. In fact, presbyopia affects more Americans than dry eye, demodex, child myopia, macular degeneration, diabetic retinopathy and glaucoma combined. Our commercial organization remains fully focused on one clear objective in Q4 and the first pillar of our commercial strategy, driving doctors to recommend VIZZ. We know that eye care professionals adoption is the critical foundation for our launch, and we're executing a clear 3-step strategy. First, driving eye care professional awareness of VIZZ, then building confidence and ultimately establishing willingness to prescribe. Let's start with driving awareness of VIZZ. Our awareness phase has been highly successful and is largely complete. As Ev mentioned, we successfully achieved 90% eye care professional awareness of VIZZ since approval. This is a phenomenal awareness driven by a robust multichannel campaign. This included a broad media plan with over 5 million digital impressions, a strong presence at major industry events such as Vision [ XO ] West, Academy Optometry and the Academy of Ophthalmology and the exceptional effort of our 88-person field sales team. We're conducting over 13,000 calls every 4 weeks. Our memorable singles global brand name has also contributed to this remarkable awareness. Moving into building confidence in VIZZ. In October, we progressed from the awareness of VIZZ to the confidence in VIZZ. This stage is powered by real-world experience through our sampling strategy and peer-to-peer engagement at speaker drove app. To date, we've distributed over 70,000 samples to 7,000 ECP office, driving exceptional engagement. We're seeing positive organic stories emerge across LinkedIn, TikTok, Facebook and other social media platforms as both ECPs and patients share their experiences. One notable story involved a skeptic doctor converting to a VIZZ believer after a LENZ sales rep challenged them to put VIZZ to the test. This ultimately ended up with the eye doctor and patients sharing their positive experience with VIZZ on FOX News, which ultimately was syndicated across multiple markets. We also launched our KOL-led speakers bureau in October. We have already held over 50 of the 140 events planned for Q4. These sessions highlight VIZZ's unique MOA, robust clinical performance and ease of integration into the practice. To ensure credibility, our speakers were among the first to receive product samples and share their real-world results. Ultimately, we're seeing great progress and the confidence in this phase. The feedback is positive, and it's clear this product is highly effective at restoring near vision with a rapid onset and long duration. As a reminder, the primary issue with the long-term adoption of UE was for most patients, it did not work. And when it did work, it did not work long enough. We continue to see this as a category of 1, and this stands alone in this category as the only drug achieving the necessary sub-2 millimeter people to restore near vision for up to 10 hours in both clinical trials and real-world use. We continue to hear great feedback from eye care professionals and their enthusiasm and person experiences are building strong confidence in both the product and its result. Finally, we move to willingness to prescribe, the culmination of awareness and confidence. Our goal is to bring ECP to this stage by the end of Q4. Already more than 2,500 ECPs have prescribed VIZZ with 40% writing multiple prescriptions, resulting in over 5,000 prescriptions filled through October. We believe this clearly demonstrates a strong belief in the product's performance and alignment with the patient's need is already being established for an effective presbyopia solution in the first few weeks of launch. Looking ahead to the consumer phase, as we prepare for 2026, we are well positioned to transition to the consumer phase of our launch. This category has proven to be highly responsive to promotion, both from prior launches and the organic virality surrounding VIZZ. In Q1 of 2026, we will initiate our direct-to-consumer campaign, driving the second pillar of our commercial strategy, which is consumers to request us finding. Our team has been preparing extensively for this consumer campaign. As a Category 1 product, we must break through the advertising clutter as we compete for the consumers' views, inspire authentic belief in VIZZ and ensure consumers see VIZZ as a worthy investment. To achieve that, we knew we needed a direct-to-consumer campaign spokesperson with stopping power. who resonates with our target consumers, who is an authentic user of VIZZ and aligns to a category of one lifestyle product. We are excited to share that we achieved all of these objectives and partnered with Sarah Jessica Parker to lead the VIZZ DTC campaign. In fact, our marketing team just completed the commercial shoot in New York City with SJP yesterday, and we are thrilled. The marketing team's efforts are now focused on finalizing the creative assets and ad spots to support our Q1 2026 consumer campaign launch. We look forward to providing further details on our exciting DT strategy in the months ahead. With that, I'll hand the call over to Dan Chevallard, our Chief Financial Officer, to highlight our financial results. Dan? Daniel Chevallard: Thank you, Shawn, and good morning. As has been mentioned, the third quarter of 2025 and recent period has been an extremely productive and exciting time at LENZ, headlined by our FDA approval and the commercial launch of VIZZ, but also included great progress with our ex-U.S. strategic partners and more recently, from the standpoint of substantially strengthening our balance sheet, which I will go to in a moment, not to mention the exciting news that Shawn just shared on our DTC campaign. Importantly, and before I proceed, please note our first product sales of VIZZ occurred in October. So, there were no product revenues in the third quarter. The script data that we highlighted today was from the month of October only. As Ev mentioned, in early October, we received a meaningful inbound inquiry from a single large institutional investor on our ATM, which ultimately resulted in an initial block trade of $80 million, but was then followed by a second block trade of approximately $44 million, exhausting the remaining available balance on our ATM program. Pro forma for these placements, we ended Q3 2025 with approximately $324 million in cash, cash equivalents and marketable securities. We view the timing, magnitude and conviction of this single inbound as a tremendous validation of our launch strategy and the promise of this and again, reiterate our cash on hand is anticipated to fund the company's cash runway to post-launch positive operating cash flow. I'd like to now turn to our ex-U.S. strategic partnerships where we had progress and advancements on multiple fronts. In the third quarter, we recorded total license revenue and received cash payments of $12.5 million, which can be broken into 3 parts. First, we recognized revenue -- license revenue and received payments for 2 separate $5 million milestones under our development and commercialization agreement with Corxel Pharmaceuticals in China, totaling $10 million, including a China-based regulatory milestone upon submission of the NDA for LNZ100 to the Center for Drug Evaluation of the NMPA in China and a U.S. FDA-based regulatory milestone upon the approval of VIZZ in the United States. In addition, and as we announced in July, we executed an exclusive license and commercialization agreement granting Laboratoires Thea to register and commercialize VIZZ for the treatment of presbyopia in Canada. Under the terms of the licensing and commercialization agreement, LENZ received and recognized as license revenue a $2.5 million upfront payment and will be eligible to receive over $67.5 million in additional regulatory and commercial milestone payments, as well as tiered double-digit royalties on net sales. Moving on now to our third quarter operating expenses. I previously discussed a planned ramp in our total operating expenses, specifically driven by commercial spend as we move into the second half of 2025. As anticipated, our total Q3 2025 OpEx increased to $31.4 million, a 44% increase over Q2 and well aligned with our operating plan. Total SG&A expenses increased to $27.6 million in Q3 compared to $6.5 million for the same period in 2024, driven primarily by the increase in commercial headcount, including the full financial cost of our sales force for the entirety of the quarter and substantial pre-commercial marketing, advertising and other commercial planning activities to support the commercial launch of VIZZ. Sequentially, SG&A increased quarter-over-quarter by approximately 116% from $12.8 million in the second quarter. I would like to highlight a key point that we have made on previous calls and in what will be a consistent objective and that we will continue to be measured in our spend on the general and administrative side of the organization as we aim to remain lean and efficient G&A team and have the predominant growth in SG&A be driven by spend to support our commercial strategy. Total research and development expenses decreased to $3.8 million in Q3 2025 compared to $6.5 million for the same period in 2024. Sequentially, R&D expenses decreased quarter-over-quarter by 58% from $9.1 million in the second quarter. As a reminder, the majority of our research and development expenses prior to FDA approval of VIZZ enjoy -- prior to the FDA approval of VIZZ in July of 2025 were dedicated to our manufacturing operation efforts to establish pre-approval commercial product and sample inventory to support our launch. Finally, our net loss per share, both basic and diluted, was $0.59 per share in the third quarter of 2025 on a net loss of $16.7 million compared to a net loss per share of $0.38 per share in the third quarter of 2024 on a net loss of $10.2 million. We ended Q3 2025 with approximately 28.6 million shares of common stock outstanding. Pro forma for the October ATM activity I noted previously, we have approximately 31.3 million shares outstanding today. In summary, we feel this quarter and recent period has been on schedule from a spend perspective and are pleased to have recently bolstered our balance sheet from both dilutive and nondilutive sources. It has never been in a stronger financial position than we are today to support the VIZZ launch. With that, I'll turn the call back over to Ev. Evert Schimmelpennink: Thanks, Dan. To conclude, I'm exceptionally proud of the LENZ team for all that we have accomplished, an early FDA approval for VIZZ, preparing the team for launch, maintaining an extremely strong financial foundation and now seamlessly executing in these first weeks of our launch. Driving ECP awareness, confidence and willingness to prescribe ahead of activating our DTC campaign in Q1 2026. We look forward to our early momentum to continue and updating you on our progress as we launch this as a true category 1 product. And with that, I'd like to open up the call for questions. Operator: [Operator Instructions] Your first question comes from the line of Stacy Ku from TD Cowen. Stacy Ku: Thanks so much for providing such a fulsome update. So, first question is on the speaker-led bureaus and maybe some of the other approaches you are all taking to appropriately set expectations. Could you maybe talk further about how the commercial team is working with these KOLs to maximize discussion and expectation setting on the VIZZ profile, just provide a little bit more detail here. I just want to make sure we understand how motivated patient is able to appreciate the efficacy versus the transient redness and stinging. That's the first question. And then second, wondering if you're able to disclose some of the week-over-week cadence of prescriptions for October as we think about those over 5,000 prescriptions that are coming from the clinicians. And then last question, I wanted to just understand -- still early days, but if you're hearing any anecdotal feedback, be curious if any folks are immediately opting for the 3 months versus 1 month. Just trying to understand how the patients are trialing these days. Evert Schimmelpennink: Thanks, Stacy. Good questions in there. We'll pick them up one by one and tag team on it. So, on your first one, I think importantly, just to highlight that what we're not hearing is this product doesn't work. So, the discussion actually usually focuses on that, that people realize and doctors realize that as soon as you put a drop in somebody eyes, but in and totally 10, 15 minutes, your vision improves. That's very important to realize, and that's what we continue to hear back. And like we said, what we're also hearing is that people notice that also the distance vision in many instances approves. That's always the center of the discussion. Now no different than when we launched this product and how we prepare for it. Like with every product, it's important to set expectations and tell patients that these are the positive things that you are going to likely experience and you may be one of the patients that experiences one of the side effects that is on the label. That's setting up expectations was always and continue to be a focus of our sales force and are doing that extremely well. What we've seen is, as I highlighted in the call is that I think like most miotics, we were in our trial and in preparation for launch, most focused on potential headaches in a small subset of the population, and that doesn't appear to be happening a lot. So, one of the few almost minor changes that we've made there is that as the sales force talks about some of those potential side effects, the focus has now shifted away from this potential headache more to the potential redness. Our trend here is I think that's important to highlight as well and that with a few days of use, that's something that for most patients no longer happens. And again, there, it's important to realize that this is nothing new for an eye doctor. If they fit somebody with bifocal lenses, they tell them to use it for a couple of weeks to get used to it. Same for many other products. So, this truly is not a big thing. What we're hearing from doctors and for many of them is if this really is something that allows patients, they immediately offer up some eye whitening agent to use in those first couple of days. So, that's what we're doing on the sales force end in those 13,000 calls that they're doing on a 4-week basis. Maybe Shawn can talk about what we're doing on the KOL side on the speaker bureau. Shawn Olsson: Yes. Absolutely. So, thanks for the question, Stacy. So, when you think of all these speaker bureau events, we're running over 140 this quarter alone, and that will continue on in 2026. So, obviously, in our speaker bureau, we lay out the expectation setting for patients in there as well as how to introduce it to the patient. In that section specifically, we've now updated our speaker bureau deck, and we actually lead with highlighting the discussion around eye redness and how its transient goes away. I think that's very important. We've also incorporated actual real-life photos of the before and after every -- at 5 minutes, 15 minutes and 30 minutes, so people can see the transient nature on it, as well as the pictures of the eyes from day 1 and day 4. And so it can contextualize for the doctors. Again, this is something they're used to. This is a item that really focuses on near vision and it does a great job restoring your vision quickly and long versus the transient nature of the redness. Evert Schimmelpennink: Thanks, Shawn. And real quick, and I'll combine your next 2 questions on trends in script data and [indiscernible]. Important again is that we really look at this fourth quarter as getting that experience of VIZZ out there. We're truly very encouraged by the initial script data that we see. Just to remind everyone, initially and up to, frankly, not even fully now, the product was only available in the pharmacy, which is why we continue to highlight that full availability of the product is not going to be until the middle of November. What that means is that not all retail pharmacies are fully available or patients that go there might not immediately be able to get that product. So, against that backdrop, we are very encouraged to share that we've already had 5,000 filled scripts. I think it's too early to start sharing what the trends are. One thing that we do notice that actually, if you look at Symphony data, it's more accurate than we initially thought. So, I'll leave you with that comment there. And then we are seeing some patients opt in for the treatment. Again, that's only available through e-pharmacy. So, it doesn't make sense at this moment to comment on what that percentage is. That's something that we feel once we have that full quarter behind us, this full quarter behind us, and we truly have both channels fully available, that's a more meaningful step to look at. Operator: Your next question comes from the line of Yigal Nochomovitz from Citigroup. Yigal Nochomovitz: Congrats on the early launch process. I had a few. I guess with regard to the 5,000 or over 5,000 paid scripts, I wonder if you could contextualize that in the context of what we saw with VUITY and how you compare in the early days there. And then obviously, you're essentially flooding the market with samples. And so could you just comment on the conversion from samples to paid scripts and how you expect that to evolve over time? And then lastly, if you could briefly just comment on the choice of the spokesperson in SJP, how did you arrive at her? Has she used the product yet? Evert Schimmelpennink: Thanks, Yigal. Great questions. Like I said, we're very encouraged by what we're seeing in our launch. I think different than VUITY this is very much focused on driving that experience. So, getting to the amount of scripts that we've just shared, again, like I said earlier, not the full channels firing just yet is something that we think bodes really well and compares really well to what we saw there. I see the second part of your question there, the sample conversion? Yigal Nochomovitz: Yes. Evert Schimmelpennink: Yes, sorry. The sample conversion is something that I know is something that people look at for maybe more traditional launch. Remember that this sample is just a 5 pack, and it's all about making sure that whoever wants to try the product has access. So, definitely just early in the launch. We're not as focused on what that conversion is, but much more focused on making sure that really every meaningful doctor's office in the country has availability of samples. Also, what we're seeing is that the very first thing that happens as our reps deliver the samples is the doctor reps open a pack, product in their own nice and the staff. So again, I think early on, it's not really a metric that we're focused on also from a cost of goods perspective. This is not a very meaningful part of our P&L. So, in short, we'll continue to float the market with samples. We think it's a great tool that will drive patient uptake. Shawn Olsson: And then the last question on the choice of spokesperson. So, when we're evaluating the spokesperson for VIZZ, we had a lot of criteria that we analyzed against. One, the person had to be authentic, right? Really had to be someone that was a presbyope. It had to align to our consumers. Again, when we look at the early sales of VUITY, we knew that it was predominantly in major metropolitan areas. It also biased a little bit more towards female than male. We want to make sure we got consumer aligned this. We want to make sure we also had alignment with our brand. When we think of VIZZ, we wanted someone that's elevated, someone that's a category of one or someone that stands out amongst everyone else. And our first choice was Sarah Jessica Parker for this, and we couldn't be more happy. Now this is a person who is authentic. One of our requirements is they must have used the product, tried the product and they liked it. And one of the reasons we waited until now to share who that slurry was is we need to get them samples so they can try the product and get them on to VIZZ. And so this person -- Sarah Jessica Parker has used the product and does like the product. We're really excited to partner with her and to launch in Q1 of 2026 with that campaign. Operator: Your next question comes from the line of Biren Amin from Piper Sandler. Biren Amin: And thanks for sharing a lot of the metrics around the launch. I had a question around that. So, you highlighted how you detailed the 17,000 unique eye care professionals. And of those, I think about 7,000 ECP offices have been sampled and then 2,500 ECPs are now unique prescribing. So maybe just talking through that funnel, is the expectation in the next few months that the remainder of the 10,000 ECP detailed that haven't been sampled will be sampled. And then the conversion rate from sample to prescribing ECP, what characteristics are you seeing on that? And is the expectation that, that number will grow given the samples across the 7,000 ECPs? Evert Schimmelpennink: Thanks, Biren. Shawn, I will again tag team him on this one. So, as we think about providing samples to these offices, again, the call rate at the moment, and we've got no reason to believe that this is going to change is about 13,000 visits every 4 weeks by our sales force, which again is a tremendous achievement and want to highlight the great work that they're doing out there. If we say 7,000 sample or 70,000 samples delivered, that's 7,000 offices. What we know and what you see is that many of these offices have more than one doctor in it. So, the actual amount of doctors that have samples will be slightly higher than the 7,000. But ultimately, as I mentioned earlier, the aim is indeed to have samples available at every office that wants it. So, we'll continue to push for that. The current focus is really to get our sales force to those targeted doctors, doctors that are prescribing doctors that have maybe previously prescribed VUITY. But what we are seeing, and I mentioned that in my prepared remarks as well, is that there's a lot of interest from offices outside of those initial 12,000 to 15,000 that we're focused on. So, we're definitely putting mechanisms in place to ensure that we can provide them with our background and samples for the product as well. And definitely, that number continues to grow. And we see that, frankly, on a daily basis on the numbers that we see coming in. So, maybe Shawn can talk a little bit more on what we see in doctors that are -- those first ones that are converting into being less. Shawn Olsson: Yes. So, we'll continue to roll out these samples over the next few months. Our samples, as a reminder, will be always ongoing. We want the patients to try the product before they actually move into a script. When we look at these writers, what we're seeing is, again, general trends as expected, right? When we look at the VUITY launch, we saw that the early adopters are those in metropolitan areas, those that are predominantly optometrists, and we continue to see that, and we continue to focus on those people in terms of our call cycles and continued rollout of samples. Operator: Your next question comes from the line of Marc Goodman from Leerink Partners. Marc Goodman: Two questions. First, for the patients who've gotten prescriptions, can you give us any sense of like what are they like? Are they men? Are they women? Do they tend to be your typical early presbyopes? Are they a little bit later? Just anything you can tell us about them and what would be unique about them? And then second, on the DTC, just how extensive will this be? Is this going to be like analog where you're watching 6:30 news on television like the old days? Or is it digital only? Evert Schimmelpennink: Yes. Great question, Marc. Thanks for that. So, if we look at the filled prescriptions to date, because this is coming through our e-pharmacy, we do have a lot of information on the demographics of patient. And again, it's in line with what we expected, right? So, we see the prescriptions. It's mostly people in that 45 to 65-year-old age group, right, still gainfully employed. We are seeing a bias towards female over male, again, as expected, and we're seeing it in those metropolitan areas. So right, really those more developed areas along with what we saw with VUITY and being the biggest space in markets. This is great confirmation before I move on to what your second question is your DTC. These are the areas the adopters expected and that we're seeing and our DTC has targeted them as well. And what we find in these early adopters is they're not necessarily on analog TV or linear TV is the other common name for it. What we see is they're spending time on a more digital environment, which is your Instagram, your Facebook, your YouTube and your Pinterest. And so that's where the majority of our DTC will be focused. So, it is predominantly digital and hitting on where they spend the time. The great news is with our already market research that told us the early patients are as well as the confirmation of what we're seeing in early patients, we can further target them through where they live, what they research online, what their annual income is to have a successful DTC campaign. Operator: Your next question comes from the line of Jason Gerberry from Bank of America. Pavan Patel: This is Pavan Patel on for Jason. First is, can you maybe help us break down the use of e-pharmacy versus traditional retail pharmacies within those initial 5,000 scripts? Just trying to get a sense of how closely we're going to be able to track those patients and get a sense of expected refills. And I think Ev may have mentioned that there's some supply that's being available on e-pharmacies that is different versus retail pharmacies. Just if you could clarify those comments. And then my second question is with regards to the SG&A run rate for 4Q. I guess, how should we be thinking about that? And then as we look towards 1Q of 2026, can you just help us quantify the expected step-up in spend associated with the new DTC campaign with the spokesperson? Thank you. Evert Schimmelpennink: I'll take the first one and Dan will talk about the SG&A. So, like I explained earlier, currently in these first weeks of launch, initially, the product was only available through e-pharmacy. And only in the last couple of weeks, slowly, the retail pharmacy has come online. So, whatever that split at the moment is, it will not be representative of how this will go forward. So, I think it's too early to give any call on what that split is. What we are seeing, and I think that's expected is that Symphony and IQVIA as it comes online will have a good sense, we expect of the product that's flowing through retail, less so on the e-pharmacy side, although as I mentioned earlier, we're surprised to see that Symphony is tracking the e-pharmacy side to a degree. And then I think your question was around the difference in availability of product through e-pharmacy. I think as we mentioned a lot, there's a 3 pack that's available for consumers to buy at a discounted rate of $198 per pack. That $66 that could translate into $66 a pack, which obviously compares to the $79 if you do a one pack. Importantly, from a bottom line perspective, it's the same to us, but obviously gives that advantage to the patient. That pack is only available through e-pharmacy. So that's the difference there. And then on the SG&A side, I'll hand it over to Dan. Daniel Chevallard: Thanks, Ev. And Pavan, thanks for the question. So just to break down the OpEx overall, what we talked about this year were 2 trends. One was you should expect SG&A to ramp into the second half, which I'll characterize for you. And then you also should expect R&D to do the opposite, which also has done. So, R&D of $9.1 million in the second quarter down to $3.8 million in the third quarter, you should expect that to continue to taper. And on the SG&A side, having spent $12.8 million in Q2 for SG&A and that bumping to $27.6 million in Q3, that trend is what you could reasonably expect. Now Q3 did include some one-timers you would expect around the moment of launch. There were some onetime costs. But what we've always said for 2026 was assume a commercial spend of $80 million to $100 million per year, inclusive of the DTC. And then layer on top of that, the G&A spend on the order of $20 million to $25 million. That kind of 4:1 ratio we've consistently talked about of sales and marketing versus G&A. I would just reiterate that at this point in time. So, if you take those assumptions and model them into 2026, we would be comfortable with that and are continuing to guide in that way. Operator: Your next question comes from the line of Lachlan Hanbury-Brown from William Blair. Lachlan Hanbury-Brown: Congrats on the progress. I guess, you mentioned that there's been a decent amount of nontarget doctors that have expressed interest and you're putting mechanisms in place to support them. Can you just elaborate on what that is? I mean are you going to need more sales reps to support what looks like thousands more doctors than the current target list? And then maybe a quick second one. Any comments on the sort of average time to fill at the moment that you're seeing in the e-pharmacy so far? Evert Schimmelpennink: Great question as well, thanks. So, on the non-targets, one of the mechanisms that is in place is that we also have an inside sales force of 10 people that are available to connect with those offices. And we do have a mechanism where we can actually ship samples to them. What you also see is that for sales force, and we definitely again want them to continue to focus on our target accounts even in the same literally street as an untargeted one that is prescribing and that's obviously data that's all available. That's an easy stuff for them to make as well. But some of the things we've always spoken about, and you guys know that, that over time, we may increase the sales force. We have no plans to do that any earlier, but it is obviously something that we'll continue to look at. And as soon as that makes sense, we will pull that, that trigger. So that's on those 2 mechanisms. And then time to fill can be very quickly. We see and that's what's in place on the e-pharmacy side that you leave the office with a script in hand, you fill it out on your phone and just normal shipping is in most instances, 2 to 5 days. If you really want the product earlier, that's a priority shipping in place as well. And we see that work well on the retail side, similar timelines at the moment. So, we don't think that there's like a hurdle or a delay in filling the script. Lachlan Hanbury-Brown: Okay. And then maybe another one. You mentioned in the press release, I think there are about 9,000 ECPs have opted into the find a doctor tool on.vizz.com, which seems like a great number so far, but that's obviously not the whole target universe. So, I was just wondering what is sort of the barrier to getting the rest of the targets to opt in? Is it that they want experience or you just haven't got to them yet to talk about it? Evert Schimmelpennink: No. Thanks for actually bringing that question up. I think it's an important distinction that unlike different companies or what we often see is where you just buy a data set, but in our case, eye care professionals, we want this to go very differently. It's an opt-in process. So, doctors have actively one BD their own, 2 have samples and then 3 opt in to find a doc, it's a bottoms-up fill. And again, I think the number that you're seeing there highlights the enthusiasm that doctors have for the products. Anything you want to add, Shawn? Shawn Olsson: I say again, it's early in the launch. We're already continuing to see that grow very rapidly. And the great thing is by making sure it's this bottom-up build, it's people that we know that we've spoken to multiple times, they're understanding the MOA differences, they believe in the product, and then we're bringing them on to this process of our money back. Operator: Your next question comes from the line of Gary Nachman from Raymond James. Gary Nachman: So, back to the initial people using VIZZ, so the 5,000 first Rxs, can you also profile them a bit in terms of the buckets you've talked about? Are they contact lens wearers, LASIK patients, those getting aesthetic treatments? And are you seeing any pushback at all with consumer sentiment generally pretty low with the price of VIZZ? Is that holding back any Rx uptake? Daniel Chevallard: Great question, Gary. Thanks for that. So, when we look at the initial users, we can't see a lot of data. What I can tell you on these initial users is there are people that are already in the practice because we haven't turned on DTC yet, it's really doctors speaking to patients that are already coming through their practice. So, it's mostly those. We can't break it out into which bucket yet of are they post LASIK or not. We'll be able to get better insight in that after we turn on our DTC and we've targeted those groups. But it does appear to be those already in the practice would then lend itself more towards like the contact lens users or people that are just going in for random checks more than the other groups. In terms of pricing, we're not hearing much pushback at all on pricing, which is great. I think the biggest feedback we're hearing is, hey, this product works, it works fast and it works long. And so, we really see that as promising and haven't seen pushback on pricing. Gary Nachman: Okay. And then just one more for Ev. The distance benefit that you're hearing pretty consistently, it sounds like in addition to the near vision benefit. How important is that for VIZZ's overall profile and how patients are viewing that? And will you consider a study looking at distance vision maybe to add to the label in addition to whatever data you have already? Evert Schimmelpennink: Thanks, Gary. So, we are indeed hearing it, and that's great and something, obviously, in our Phase III data, we saw that some 41% of people in the study show if we measure the distance vision improvement there. That's clearly something that in practice translates. So that's great. It's all anecdotal at the moment. It's not key in our mind to make this successful as a near vision improvement drug. But obviously, it's a nice added benefit. We're hearing doctors experiment with it in that way and maybe experiment is not the right word, but they see again highly anecdotally that people that are minus half, minus 1, minus 1.5 are able to go without their distance correction. Highly anecdotal, something that we are obviously following, something that we are thinking of maybe ultimately do a different study on because that could be a group of patients that you can actually serve with our product as well. So again, great to see encouraging, not a make or break for the success of this as a presbyopia drop, but obviously very nice benefit. Operator: Your final question comes from the line of Matthew Caufield from H.C. Wainwright. Matthew Caufield: And obviously very excited for the launch. You had mentioned the focus on optometrists compared to ophthalmologists. And I was just curious how you anticipate that specific split playing out in the near term regarding the sales force targeting for driving the launch and how that might evolve in the coming quarters? Shawn Olsson: Yes. Thanks, Matt. So when you look at our sales force targeting, it's aligned to where we saw the early prescribers of VUITY. So their targets are roughly 80% optometry and then 20% ophthalmology. And so, we'll continue to look at the prescriber base, but don't see any changes to that mix in the near term right now. We're seeing consistently that, again, this does continue to be an optometry play product. And so, we're confident in that 80-20 split. That concludes our question-and-answer session. As I'm showing there are no further questions, thank you for your participation, and we now conclude today's conference call. You may now disconnect.
Operator: " Clive Kinross: " Sheldon Saidakovsky: " Devon Ghelani: " Andrew Scutt: " ROTH Capital Partners, LLC, Research Division Jeff Fenwick: " Cormark Securities Inc., Research Division Matthew Lee: " Canaccord Genuity Corp., Research Division Rob Goff: " Ventum Financial Corp., Research Division Stephen Boland: " Raymond James Ltd., Research Division Operator: Good morning, everyone. Welcome to Propel Holdings Third Quarter 2025 Financial Results Conference Call. As a reminder, this conference call is being recorded on November 5,2025. [Operator Instructions] I will now turn the call over to Devon Ghelani, Propel's Vice President of Capital Markets and Investor Relations. Please go ahead, Devin. Devon Ghelani: Thank you, operator. Good morning, everyone, and thank you for joining us today. Propel's third quarter 2025 financial results were released yesterday after market close. The press release, financial statements and MD&A are available on SEDAR+ as well as on the company's website, propelholdings.com. Before we begin, I would like to remind all participants that our statements and comments today may include forward-looking statements within the meaning of applicable securities laws. The risks and considerations regarding forward-looking statements can be found in our Q3 2025 MD&A and annual information form for the year ended December 31, 2024, both of which are available on SEDAR+. Additionally, during the call, we may refer to non-IFRS measures. Participants are advised to review the section entitled Non-IFRS Financial Measures and Industry Metrics in the company's Q3 2025 MD&A for definitions of our non-IFRS measures and the reconciliation of these measures to the most comparable IFRS measure. Lastly, all dollar amounts referenced during the call are in U.S. dollars unless otherwise noted. I am joined on the call today by Clive Kinross, Founder and Chief Executive Officer; and Sheldon Saidakovsky, Founder and Chief Financial Officer, will provide an overview of our Q3 2025 results and observations on the overall economic environment before covers the financials in more detail. Before we open the call up to questions, Clive will provide an update of our strategy and growth initiatives for the remainder of 2025 and into 2026. With that, I'll pass the call over to Clive. Clive Kinross: Thank you, Devin, and welcome, everyone, to our Q3 conference call. Building on a strong first half, we are proud to deliver another quarter of record results. Amid a dynamic macroeconomic environment, our AI-powered platform and disciplined risk management drove stable credit performance while delivering profitable growth. Before speaking about what we're observing in the broader economy and our consumer segment, I'd like to highlight our record third quarter results. We delivered another quarter of strong growth with record quarterly revenue total originations funded and ending forward momentum from the first half of the year, we experienced healthy consumer demand and stable credit performance through Q3. At the same time, given evolving macroeconomic conditions and a modest uptick in delinquencies during the quarter, we and our bank partners maintained a tight underwriting posture, particularly in the U.S., making targeted adjustments to preserve credit quality in line with seasonal expectations. Even with these prudent measures, we achieved record total originations funded of $205 million, up 37% year-over-year and record revenue of $152.1 million, an increase of 30% from Q3 2024. On the bottom line, net income rose by 43% to $15 million and adjusted net income increased by 16% to $16.2 million compared to the prior year. to what we observed in the macro environment and with our consumer segments. In the U.S., growth remains steady. However, inflation in essential spending categories such as food, shelter and health care remains elevated with each increasing more than 3% year-over-year, weighing more heavily on the consumers we serve spend a greater proportion of their income on these essentials. Furthermore, according to the Federal Reserve Bank of Atlanta, median nominal wage growth for lower income workers was 3.6% in August 2025. As a result, real wage growth for our consumers, while still moderately positive, has moderated in 2025. In addition, the resumption of student loan collections in Q2 has put additional pressure on some of our consumers. these pressures on our U.S. consumers during the quarter, we and our bank partners made proactive underwriting adjustments to ensure our credit performance was in line with seasonal expectations. This is the benefit of our AI-powered platform and the resiliency of our business model. We benefit from the quick feedback loop where slight changes to the macro environment and consumer behavior are detected immediately and we are able to adjust our underwriting instantly. Notwithstanding some of the pressures we are observing in the U.S. employment remains healthy and continued job growth across key sectors where many of our customers are employed. The resiliency of our consumers cannot be understated. The are jobs demand and often interchangeable and consequently are able to replace lost income. Overall, the U.S. consumer remains resilient. However, we are taking a deliberately cautious stance in the U.S. market to prioritize strong credit performance and profitable growth. In Canada, revenue grew by 41% year-over-year to a record level in Q3, though the market still represents approximately 2% of total revenue as we continue to scale forward. Credit performance was particularly strong and is reflective of previous refinements to our risk model, further demonstrating our ability to adjust to macroeconomic conditions quickly and the resiliency of our operating model. This performance is even more encouraging considering the backdrop of the broader Canadian economy, which has softened due to U.S. trade tariffs and with relatively higher unemployment of 7.1% the Bank of Canada cut rates by cumulative 275 bps since mid-2024 to a policy rate of 2.25%. We continue to monitor the impact of recent trade measures and are encouraged by the federal budget stronger focus on driving investments in Canada, including much needed reforms to stray. I had the opportunity to meet recently with Minister Solomon, Canada's Minister of AI. I was encouraged by the government's commitment to be a global AI leader and hope the AI strategy set the table later this year will include specific support for public companies like Propel who choose to build innovative businesses here in Canada. Turning to Lending as a Service. We achieved record revenue, which exceeded $5 million in Q3, representing growth of more than 4x from last year and sequential growth of approximately 13% we launched in additional states, further broadening our geographic footprint. This expansion in addition to strong returns has led to increased commitments from our partners, which will fuel further growth. In the U.K., we delivered record originations and revenue in Q3 while maintaining strong credit performance. Prior to Propel's acquisition of Market, the U.K.'s record monthly loan originations was approximately 7,600 has grown consistently month by 78%, totaling roughly 13,500 originations in September, demonstrating the market opportunity and our ability to successfully scale in new geographies. Our performance in the U.K. was supported by a resilient economy. The U.K. has seen inflation trending towards the Bank of England target. Unemployment remains low at 4.7% and wage growth is outpacing inflation, supporting spending and credit demand. Lastly, reflecting our continued strong results and solid financial position, our Board of Directors has approved another increase to our dividend from $0.78 to $0.84 per share annually in Cans. 8% increase represents our ninth consecutive dividend, underscoring our strong financial performance and ongoing commitment to delivering shareholder returns. I will speak more about our outlook and business development pipeline for the remainder of 2025 and into 2026. But first, I'll turn the call over to Shell. Sheldon Saidakovsky: Thank you, Clive, and good morning, everyone. We're proud to deliver another quarter of record results and of achieving strong profitable growth while maintaining our disciplined approach to credit. Given the uncertain economic environment and the uptick in delinquencies observed during the quarter, we and our bank partners operated with a more measured underwriting posture in Q3, particularly in North America. Notwithstanding this dynamic, consumer demand across our operating brands remained healthy. And together with our bank partners, we achieved record originations from both new and existing customers during the quarter. This resulted in record originations funded of $205 million, an increase of 37% from Q3 of last year. This growth drove ending CLAB to a record $558 million, up 29% year-over-year. Consistent with our disciplined underwriting posture, we and our bank partners prioritized a higher proportion of volume from return and existing customers to strengthen credit quality in North America. In addition, within our U.S. portfolios, we and our bank partners focused originations more on higher credit quality consumer segments that carry a lower cost of credit. In contrast, in the U.K., where credit performance remained very strong, we emphasized new customer originations. Overall for Propel, new customers represented 44% of total originations in Q3, consistent with prior quarters and reflecting our balanced and deliberate approach to growth across all markets. Our record loans and advances receivable balance and ending CLAB drove record revenues of $152.1 million in Q3, representing a 30% increase over Q3 last year. Our annualized revenue yield in Q3 was 113%, a modest decrease from 114% last year. This decline primarily reflects the shift toward returning and existing customers, the emphasis on higher credit quality new customer originations at lower fee tiers the continued aging of the portfolio, including graduation and the ongoing expansion of Fora. These factors were partially offset by the higher-yielding quid market portfolio and our last revenue. Turning to provisioning and charge-offs. Our provision for loan losses and other liabilities as a percentage of revenue was 52% in Q3 2025, consistent with Q3 of last year and within our targeted range. As noted earlier, we experienced a modest uptick in delinquencies within the U.S. portfolios, reflecting normal seasonal trends and the broader macro pressures on our consumer segment discussed earlier. In response, we and our bank partners implemented underwriting adjustments and moderated new customer originations to maintain credit quality and deliver strong results within our established loss rate targets. In the U.K., while delivering record originations, Quid Market continued to deliver strong credit performance. Furthermore, in Canada, where we've been operating with optimized underwriting and a tighter posture for several quarters, we experienced our strongest ever quarterly credit performance in Q3. Taken together, credit performance for Propel as a whole remained well within our targeted range, reflecting the diversification benefits of our multi-market platform and the strength of our disciplined underwriting capabilities. Credit performance also continues to be supported by, firstly, the effectiveness of our AI-powered platform and disciplined underwriting by Propel and our bank partners; and secondly, the continued scale and maturation of the loan portfolio with a higher proportion of originations from return and existing customers who historically demonstrate lower default rates than new customers. Net charge-offs as a percentage of CLAB was 12% in Q3, also within our target range and consistent with seasonal trends. Overall, both the 52% provision and 12% net charge-off ratios remain firmly within expectations and continue to support strong unit economics and sustainable profitable growth. Turning to profitability. Adjusted net income increased to $16.2 million in Q3 2025, up 16% from last year. On an EPS basis, diluted adjusted EPS grew to $0.38 for the quarter. For the 9-month period, adjusted net income increased to $58.7 million and diluted adjusted EPS grew to $1.39, both representing 9-month period records. As a reminder, all figures are expressed in U.S. dollars. The year-over-year increase in earnings reflects the company's strong top line growth, stable credit performance and disciplined expense management. I would note that our IFRS net income increased by 43% year-over-year, which is a larger increase relative to the adjusted measure. This is a result of two main factors. Firstly, a lower quarter-over-quarter CLAB increase in Q3 2025 relative to last year resulted in a relatively lower Stage 1 add-back this quarter. And secondly, transaction costs relating to the QuidMarket acquisition were expensed in Q3 last year, thereby reducing our Q3 2024 IFRS net income. On a return on equity basis, our annualized adjusted ROE for Q3 declined to 25% from 45% last year. For the year-to-date period, annualized adjusted ROE was 33% versus 52% last year. The declines were driven primarily by the CAD 115 million equity offering completed in Q4 2024 to finance the QuidMarket acquisition. We believe these metrics demonstrate strong returns to our investors as well as our ability to efficiently utilize shareholders' capital. Acquisition and data expenses increased by 41% to $18.3 million in Q3 2025, driven primarily by strong total originations funded growth and an increase in the cost per funded origination. Cost per funded origination increased to $0.089 per dollar in Q3 from $0.087 per dollar last year, while cost per new customer funded increased to $0.204 per dollar from $0.193 per dollar funded last year. Overall, these costs remain well within our acceptable range to achieve targeted profitability during a period of significant growth. Other operating expenses represented 15% of revenue in Q3 compared with 16% in Q3 last year. This reduction reflects several factors, investments in AI, driving operating efficiencies and the inherent operating leverage in our model. At the same time, these have been somewhat offset by the increased operating expenses this year due to our investments in our infrastructure to support forthcoming business development initiatives. These initiatives, several of which are nearing launch are expected to meaningfully contribute to growth and profitability as they scale. Lastly, operating expenses were impacted last year by onetime transaction costs relating to the Quip Market acquisition. Our profitability also benefited from a lower overall cost of debt, driven by recent interest rate reductions and improved credit facility terms. Combined, these factors decreased our cost of debt to 11% in Q3 from 13.4% in the prior year. Any further reductions in interest rates as we experienced in the U.S. and Canada last week will further benefit profitability. Overall, our adjusted net income margin was 11% in Q3 compared to 12% last year. The modest year-over-year decline in margin percentage primarily reflects a lower Stage 1 provision add-back and the strategic investments being made to support our growth initiatives. These initiatives are expected to drive growth and margin expansion over the long term. Turning to Propel's capitalization. At the end of Q3, we had approximately $125 million of undrawn capacity across our various credit facilities, and our debt-to-equity ratio was approximately 1.2x, reflecting a well-capitalized balance sheet and continued financial flexibility. We believe that our strong balance sheet, debt capacity and cash flow generation position us well to support the continued expansion of our existing programs, new growth initiatives and the recently increased dividend. Lastly, I want to provide an update on the integration of our U.K. business, which, as Clive mentioned, has achieved significant growth ahead of expectations. We successfully completed the integration of financial, corporate and IT systems ahead of schedule, including the identifying of enhanced acquisition, risk and analytics capabilities. We're now focused on accelerating growth through ongoing product enhancements, opening new customer acquisition channels, product expansion and the continued refinement of our underwriting and analytics strategies, all of which are helping us capture a greater share of the addressable market. Recently, Noah Buckman, our President and Chief Revenue Officer, joined me in the U.K. to meet with senior U.K. leadership and discuss new business development initiatives. These included potential strategic partnerships, marketing channels and innovative opportunities to further expand our U.K. footprint. The market remains full of potential, and we're confident the U.K. will continue to be a meaningful and growing contributor to Propel's success in 2026 and beyond. I'll now turn the call over to Clive. Clive Kinross: Thanks, Sheldon. We're now more than a month into our fourth quarter, and we and our bank partners continue to operate with a deliberate and disciplined underwriting stance. Operating in a dynamic macroeconomic environment and having observed a slight uptick in delinquencies in Q3, we proactively adjusted our underwriting to prioritize credit performance. Macroeconomic backdrop remains uncertain, particularly in the U.S. where persistent inflation in essential spending categories and moderating wage growth continue to pressure lower income consumers. The recent federal government shutdown has also temporarily impacted some consumers further tightening household budgets. When we provided our initial 2025 guidance in March, the economic backdrop look materially different. Since then, new U.S. trade tariffs, sustained inflationary pressure and slower real wage growth created a more cautious operating -- given the evolving dynamics and consistent with our long-standing commitment to profitable growth, we are maintaining a cautious risk posture. As prudent operators, we have always prioritized disciplined risk management over short-term expansion. This deliberate approach ensures we protect credit quality, sustain profitability and position the business for long-term success. Importantly, we're continuing to see the benefits of these actions with continued stability in portfolio performance despite an uncertain macroeconomic backdrop. Reflecting this disciplined stance and the resulting slower pace of NCA growth, we are modestly revising our 2025 guidance. We now expect NCAB growth to come in moderately below the low end of our previously communicated range with the adjusted margin and adjusted return on equity metrics following a similar trend. Important we continue to expect to be in line with our full year targets for revenue, net income margin and return on equity. While growth has moderated this measured approach is deliberate so that we can remain well positioned for continued profitable growth heading into 2026. Looking ahead, our business development pipeline is robust, and we are well positioned heading into 2026 with several strategic initiatives underway. Starting in the U.S., which remains our largest market, we continue to see significant untapped potential. In the weeks and months to come, we expect to announce strategic initiatives designed to expand our addressable market by introducing new products, expanding into new geographies and building new partnerships. In Canada, while the impact of U.S. trade tariffs and a higher unemployment rate are weighing on consumers, the market remains sign government of Canada recently noted there is a clear need for greater competition in financial services. We're actively pursuing partnerships across Canada's fintech ecosystem to deliver modern forward credit solutions and expand access to credit for Canadian consumers. In the U.K., strong originations and credit performance continue to exceed expectations. We now expect top line growth of more than 50% in 2025, our first full year since acquiring Markets. The business is well positioned to accelerate this momentum into 2026 and beyond as we further expand our product set, deep partnerships and further leverage our technology and analytics cap. Just over a year since joining Propel, the U.K. team has exceeded all of our expectations, demonstrating the passion, discipline, expertise and focus on profitable growth that position us to succeed in this market. A key pillar to our growth strategy is geographic expansion and through the recent performance of the U.K. and Canada, we are already seeing the benefits of that diversification strategy. AI is also central to our growth strategy and has been integral to our success. As you know, for the past decade, AI has been a differentiator to underwrite underserved consumers at scale. But with the advancements in generative AI, we go even further to embed AI into every -- over the past several quarters we've made significant investments in partnerships to enhance productivity and decision-making across the organization from improving customer service and satisfaction to streamlining marketing to accelerating software development. While these investments weigh on profitability in 2025, we are already seeing efficiencies materialize. For example, we set records for percentage of customers in Q3 this year at approximately 60%, up from 50% in the prior year. When we look at other gains made year-over-year, loans originated per agent in Q3 2025 were 53% higher in Q3 2024. The gains are in our origins Use of AI generative tools and software engineering has doubled unit test, meaning that one developer is able to produce more accurate and stable code, which in the longer term saves developer resources. We expect to see these initiatives accelerate into 2026 as we improve service levels whilst also driving increasing bottom line margins. Ultimately, while technology and AI at our foundation, it's our people that have made Propel a success. The passion and focus of our teams across North America and the U.K. turn innovation into performance and ambition into results. Our voluntary turnover is around 3%. And looking at our senior leadership team where the average tenure is more than 7 years, the turnover is even lower. People who come to Propel stay at Propel and in doing so, strengthen our company. Powered by investments in AI by our people, Propel continues to be recognized for exceptional growth and performance. In the past quarter alone, we were named to the Global [indiscernible] companies, Deloitte Technology Fast 50 and the TSX 30, where we ranked as the sixth best performing stock over the past 3 years. These achievements reflect what our shareholders already know. We've built a powerhouse that delivers quarter after quarter. It's now been 4 years since our IPO. And over that time, we've delivered consistent compounding growth, including 16 consecutive quarters of year-over-year revenue growth of at least 30% figin6000ans and serving hundreds of thousands of consumers across North America and the U.K. 50% CAGR in LTM revenues and 55% in LTM adjusted net income and dividend increases, resulting in a cumulative increase of more than 120% and we're just getting started. That concludes our prepared remarks. Operator, you may now open the line for questions. Operator: [Operator Instructions] And your first question comes from Matthew Lee with Canaccord Genuity. Matthew Lee: I want to start with the guidance. If I've done the math correctly, it sounds like a pretty big step down in origination activity for Q4, even with credit remaining pretty steady. I understand you try to protect quality, but how quickly do you think you could turn that growth machine back on? And then when we look at 2026, should we be 20% to be the growth rate we're expecting on? Clive Kinross: Thanks so much, Matt. And maybe before I answer the question, let's just take a step back to see what's going on right now in the economy. I think a lot of people describe this economy as a K-shaped economy where kind of the rich are getting richer and those that are struggling, there's more and more of them that are struggling. I was actually on a call recently with TransUnion with the top economists over there, and they were just speaking about the bifurcation in the credit market. There's a real polarization with the super prime segment of the market growing and the other big growth is happening in the subprime segment of the market in terms of applications. Everything between the two is shifting to the two poles. And it's important to think about why that's happening. The unemployment rate in the U.S. has started to trickle up a little bit -- we don't know exactly what it is in this government shutdown, but the ADP data suggested that it's gone up in the last couple of months. I recently actually earlier this morning saw that they actually said there was job growth in October. So that's encouraging. But at the same time, given this backdrop, wages are also starting to have softened a little bit or wage growth particularly for our consumer, all of which translates to lower real wage growth. So that's different to what we've been experiencing in the last few years. On top of it, we're right in the midst of a big U.S. government shutdown, the longest U.S. government shutdown in history. And the easy thing for us to understand in that context is employees being furloughed, many of whom are not customers of ours in and around Washington, D.C., Virginia places like that. So we're not really impacted by that. government shutdown has impacted other areas of the economy. SNAP benefits go out to about 40 million consumers. Some of those consumers overlap with our customer segments. You also have the Affordable Care Act where prices are set to go up currently, even though it hasn't impact consumer spending yet, those two developments are certainly impacting consumer sentiment, which in turn is driving slower spending, particularly by our consumers and slowing growth down a little bit. So that's the broader market. And until the government shutdown is over, and I suspect now that these recent elections are behind us, the government shutdown will come to an end sooner rather than later. But until they are, we need to be prudent in the face of some of these risks. And as a result of that, as you say, we're prioritizing credit quality ahead of anything else we are growing at the pace that we continue to perform in line with our credit quality standards. Notwithstanding these comments, let me provide a little bit of additional color. The steps that we've taken in further tightening our underwriting has led to declining delinquencies. So we're already seeing the improvement in delinquencies in our partly in the U.S. market, which is where the majority of the adjustments were made. But bear in mind, we moved quickly to fine-tune or to tighten our underwriting and we move a lot slower to open it up as we start to see green shoots and positive signs in the economy. So we've already started to gradually open up from where we were and I absolutely suspect that by the end of the year, our approval rate will be where we thought it would be. But that said, it's going to take a little bit of time to grow into that. Just a little bit of additional color every day when I look at our management reporting systems, which are contrasting the volume of applications relative to the initial budget that we set at the beginning of the year, I can tell you I see green on the screen every single day, meaning the number of applications that we're seeing is significant and higher than our initial expectations, which really dovetails and is consistent with my comments about the polarizing economy that we're seeing right now. There's zero issue with the number of applications we're seeing. If anything, that's growing. And I do know in every single crisis that we've seen over the last few years, the global financial crisis of '08, the oil price collapse of 2014, COVID-19, the spike of 2023, our segment of the market has grown. So we absolutely expect that at the end of the day, with the pullback in risk, our segment of the market will grow significantly. And if anything, that we absolutely expect to return to the growth metrics in 2025. Now you meant 2026, sorry. Now part of your question was speaking about CLAB growth. Bear in mind more and more of the growth in our business is also going to be reflected in CLAB. We mentioned at the Canaccord conference earlier this year that we expect as a Service program, which is the CLAB to grow at around 10% in 2026. We don't -- we still have that position. And by the same token, as brilliantly as the U.K. is doing, we expect that to accelerate as well and continue to believe that, that will produce 100% growth in 2026, even though the impact on the CLAB is not that material. The final thing I'd like to say is we have several business development initiatives that we hope to be announcing in the coming days and weeks that if anything, will accelerate the growth beyond what I just spoke to. Sheldon Saidakovsky: Matt, maybe -- I just wanted to add one data point over here just on top of what Clive provided a lot of good context. We've seen this before. the beauty of our operating model is that we can adapt and shift very quickly, tighten and then once we like what's going on, we can, as Clive said, gradually open again. We saw this earlier in 2022. In Q4, just that as a data point, in Q4 2023, we had tightened relatively speaking, where we saw CLAB growth by about 36% in that quarter. And 2 quarters later, we were growing CLAB by 44%. So just to put into context a couple of data points, how we can shift things around. We've seen this in Q4 recently. And 1 quarter later, we were right back kind of with almost 10% absolute higher growth. Matthew Lee: That's helpful. So maybe just as a follow-up on that, if we have the government shutdown stopping today, for example, and credit quality starts looking better, could you be back to kind of steady state or historical growth by December? Like is that the speed at which you guys can move that machine? Or is there other things that need to kind of come into place before we reach that kind of level? Clive Kinross: Yes, certainly. So just to be clear and just to explain in a little bit broader terms the government shutdown and if we're seeing anything, even though SNAP benefits supposedly stopped this month, the states in the U.S. have different coverage for the SNAP benefits. Some of the southern states have a higher percentage of their consumers who are eligible for SNAP benefits. And for sure, you're seeing the impact of that in those states where they have relatively higher delinquencies than we've seen in other parts of the country. All of which is to say once the government shut down once the government opens up again, I absolutely expect to see those turning around relatively quickly, which again is what we've seen in the past. One of the benefits of doing this for 14 years is that there's nothing new under the sum we've seen this before and we know when we know when to put our foot on the gas. So from a new origination standpoint, we can absolutely be at the absolute number of new originations towards the back half of December as would have been the case. But what we cannot make up, we cannot make up a slightly lower at the end of and slightly slower growth in October relative to what we thought we would be, which means we can't make up the full difference heading into the end of the year. So where we thought that the CLAB in was going to be 25%, it's going to be less than that as you can see with our revised guidance, but we expect to end the year give or take the same number of new loan originations that otherwise would have been the case, and that will serve us well heading into 2026 over and above the new initiatives that we'll be announcing soon that will further fuel that growth. Matthew Lee: That's helpful. And then I just want to sneak one last one in here. Philosophically, your shares are trading at a place that's probably too low. Would you consider a buyback to be honest. Clive Kinross: Yes, philosophic, we think that we agree with you. And when I say we, I'm really referring more to our Board and our Board discussion as recently as last night where that became a much more serious consideration given where the share prices are, given where the shares trading, notwithstanding a company that's consistently demonstrated 30% quarter-over-quarter growth since being a public company, including the most recent quarter as well as 50% bottom line growth. So that's certainly a more serious consideration. We're thinking hard about it, Matt. We need to weigh that up against some of the big investments that we've got coming down the pipe to really launch some of these big initiatives which I think [indiscernible]. Operator: Your next question comes from Andrew Scott with ROTH Capital Partners. Andrew Scutt: [Technical Difficulty] So first one for me, something in the prepared remarks as you guys are talking about potentially expanding your footprint with the market. So could you kind of remind us of the competitive environment in the U.K., the market faces and your kind of belief and ability to capture market share there? Sheldon Saidakovsky: Yes. Andrew, thanks for the question. Yes, I mean, the U.K. market is very exciting. Obviously, it was our -- we really liked it to start with, and that was one of the key criteria in our acquisition strategy. We needed to really, really like and be bullish on the jurisdiction. Just to remind you and everyone just around kind of the thesis over there, there were a lot of regulatory changes in the U.K. from the Financial Conduct Authority a number of years ago. And that the regulator kind of acknowledged that they overcorrected. It led to a lot of kind of a huge growth in illicit lending or legal lending in the U.K. and an exit of a significant amount of credit supply. A lot of big players, actually a couple of U.S. big players used to operate in the U.K. and they exited after those significant regulatory changes. Quid market actually sort of survived through that as did a couple of other strong operators. But effectively, on the other side, that led to a vast sort of undersupply of credit relative to the demand in the market. There just weren't any dominant players like, for example, a goeasy that you see in Canada or some of our competitors in the U.S. There was nothing like -- there's nothing like that in the U.K. today, although demand is growing significantly. So that's kind of the competitive aspect over there, which allows QuidMarket to have grown by the percentages that they've grown by 30% to 40% before we acquired them, really by cherry taking good quality volume in the market. Now with us on board, applying our sophisticated underwriting and technology capabilities and having their systems ultimately integrate with ours us being able to open a number of marketing partnerships and channels that they haven't had before and applying our expertise in terms of profitability modeling and product expansion and finally, having the balance sheet to finance them will enable QuidMarket to really hit its stride and start growing in the U.K. So without having integrated all of this optimization that I'm speaking about, we're sort of on a path to do so, we're still pushing the growth in excess of 50% this year. But starting next year, we're expecting to accelerate that growth much faster as we really start to put our foot on the growth side and start integrating a lot of those -- a lot of our expertise and capabilities. Andrew Scutt: Really appreciate the color. And second for me, you guys have talked a lot about preemptively tightening the underwriting. But on the flip side, I was wondering, are there any initiatives you guys can put in place on the servicing side to kind of support your customers as they're going through the stress now? Clive Kinross: Yes. Look, to the extent that customers call us and ask us for concessions, obviously, we like to accommodate those where need be. There's certainly been a slight uptick in those requests, as you would imagine. And if you said to me what's the #1 reason for it, the #1 reason for it and what we keep hearing from consumers, which is one of the benefits of our [indiscernible] and government shutdown. So to the extent that they do that where possible, we try and accommodate those concessions to keep these consumers in good standing so that it doesn't impact their credit profile. From our perspective, it's obviously a little bit detrimental for a tiny portion of our consumers in so far as oftentimes, we'll waive the next payment. But once again, it's a tiny percentage of consumers, albeit has grown a little bit in this government shutdown. Hopefully, and based on experience, that will come to a halt as soon as things open up again. Operator: Your next question comes from Rob Goff with Ventum. Rob Goff: You talked about the new product developments in the last 2 quarters. Can you talk a bit further in terms of how significant you see the geographic expansion? How impactful are the new services? Are they more fine-tuning or new introductions... Clive Kinross: Yes. Yes, it's a great question. Let me think carefully, Rob, about how to frame it up because we're getting closer and closer to be able to provide more detail. I think what I we're always very, very concerned about our credibility and we're very concerned always about doing what we say we're going to do. So everybody on this call and most people have been long-standing investors know that about us. And sorry that I'm a little bit over here. And I also know that we've always said we prioritize credit quality over everything else and profitable growth over everything else. So I know a bit over there. But these are initiatives that are going to provide geographic expansion in our biggest market, that's the U.S. market and also going to facilitate the addition of new products also for underserved consumers but different segments of underserved consumers so they will expand our geographic reach as well as expand our consumer reach by offering products to products themselves and the underwriting and risk and marketing associated with those customers is not that different to what we currently have in place, which is why we feel highly confident that when we do launch these, we'll be able to hit the ground running and they will be incremental in a fairly sizable way early on of the launch. Rob Goff: I appreciate the sit. And perhaps more for Sheldon. It's encouraging to read the discussion with respect to quid market and talks about 100% growth next year. Can you talk about the significance of partnerships there and new services? Sheldon Saidakovsky: Yes. Rob, yes, the market is, as I mentioned, it's wide open over there. And I think that right now, markets acquisition strategy and acquisition, I would say, the channels through which they acquire customers look a lot like what ours looked, call it, probably 4, 5 years ago. Now over the last number of years, as our profile has grown, our capabilities have grown, we've been able to open up new channels and spend money on initiatives and marketing distribution channels that we never had before. We've gotten to scale in a number of them in the U.S. in the U.S. market. And with that, we'll be able to bring those capabilities and open up those channels in the U.K. So notwithstanding that, the company is still growing well in excess of 50% just given their marketing channels available to them right now. The way we're going to get well beyond the 50%, I mean, you mentioned 100% that is an official guidance, but we have spoken about that before. That's certainly possible, and we'll be able to achieve that by expanding some of their origination channels and entering into some key partnerships. So that's certainly part of our immediate strategy. Operator: Your next question comes from Jeff Fenwick with Cormark Securities. Jeff Fenwick: I wanted to focus in on the relationship you have with your bank partners. You referred to that making changes in conjunction with them. I was hoping you could just give us a bit of color in terms of just the balance of decision-making. Is there ever disagreement there? Who's really sort of driving the decisions in terms of adjustments to the credit box or the volume of originations that you're doing? And I think it's probably different between your sort of traditional model that you have with CreditFresh versus the lending as a Service programs that you're structuring now. But could you just maybe offer us a little bit of commentary around that? And are you in agreement or what happens if you disagree? Clive Kinross: Yes. No, it's a great question, and it's certainly a very collaborative approach. As you can imagine, we have an exceptionally close relationship across the board with our bank partners. Several key executives and employees at Propel are in contact with our bank partners on a regular basis. So they understand exactly what's going on with the business. They're tracking daily activities of originations, delinquencies, things like that. And more often than not, they're the ones leaning in and they're the ones suggesting that we tighten up and ask us for additional data to support those decisions. And more often than not, we're on the exact same page -- that's the way it's been since day 1. And the collaborative approach ultimately with them taking the initial initiative has worked exceptionally well and continues to work well in this environment. We're getting -- we're now getting more calls from them suggesting that with the demand -- the strong demand that we're seeing in the market and delinquencies coming back in line with where we expect them to, can we open things up a little bit more. And as recently as earlier this week – was it earlier this week? Yes, earlier this week, we already started to put some of those initiatives in place. Jeff Fenwick: And I guess within the Lending as a Service program, I mean that's one where I would imagine you've got partners both on the front and the back end on the funding side of things, like there's going to be something maybe a bit more of a dynamic the way that you work with those players are in a situation where they can say let's just stop when you want to go or help us understand how that relationship works. Clive Kinross: Yes. So yes, you're right in the sense that it's a 3-way relationship. And in that sense, those loans ultimately don't go on our balance sheet, they go on somebody else's balance sheet and not dissimilar to our bank partners, the purchasers who purchase those receivables are taking the activity each and every day, loan originations, the delinquency performance. And one of the reasons that they're increasing their commitments is because they're seeing the returns that we represent that they would see. But that said, similar to what's happened in our sponsorship business. We've had to maintain a tight underwriting posture for them too, meaning the way they've continued to those returns in Q3 was through a tighter underwriting posture, meaning the 4x-over-year growth that we saw would have been even higher had we maintained the same underwriting posture. We're now in a position, again, with our bank partners and with their support where we could start to open up a little bit. And as we do, we'll continue to drive more growth over there. The good thing is because they've gotten those returns, they all -- the majority of them last their -- so we're very well positioned to continue to expand and grow that program going forward. One of the things that I've been saying on the call leading up to this point is at the early stages of this program, it really has been an exercise of bringing on the capital at the same time as we expand our geographic reach over there and our distribution partnerships. And if anything, where we were playing catch up all the time was bringing the capital to the table. Where we are right now is that's almost balanced in the sense that there's almost enough capital to drive the growth to support the market demand. Jeff Fenwick: And then maybe just last one because we are in a bit of a dynamic environment here, is that maybe what's causing a little bit of delay in terms of the expansion of lending as a service. You did say you were making progress there, which is good to hear, but is it sort of that sort of dynamic that might be slowing down the process... Clive Kinross: Just say it again, if you don't mind, I'm not sure that... Jeff Fenwick: Sure. There was commentary that you're expanding lending as a service. But I'm just wondering, we haven't seen new announcements yet on that. Is there just some concerns maybe or maybe some hesitancy on those partners given the volatility we're seeing in the U.S. market to sign on the bottom line and move forward? Or what's the dynamic there? Clive Kinross: Yes. It's one of the interesting things about running a public company is the emphasis on quarter-to-quarter. And I would say that at a high level, and what's the impact from the slowdown for the long-term growth of the company, and I'll get to your question in a minute. I think that the fundamentals of providing credit to underbanked and underserved consumers have never been stronger. The market opportunity ahead of us is going to grow at the back of this. I was watching the election results coming out of the U.S. last night. And to me, the biggest element on the elections last night was affordability. That speaks to our customers. More and more of them are the underserved market is growing, the need for this type of credit is going to grow on a go-forward basis. Given the long-term trajectory, I would say that the growth is probably going to slow us down by maybe a quarter, maybe we'll get to where we're ultimately going to get to 1 quarter later. That's kind of how I would view it in light of these developments and I the same thing as it relates to as a service. One day, we're going to look at it and think back to the early days of some of the gyrations quarter-to-quarter, which ultimately will smoothen out over time, all of which is to say watch this space, you're going to see a lot of really interesting developments in the lending service arena that will, if anything, speak to accelerated growth there on a go-forward basis. Operator: Your next question comes from Stephen Boland with Raymond James. Stephen Boland: Yes. Just one question. Sheldon, in the past, you talked about diversifying your funding sources. I know with maybe slower growth, that's not a big requirement. You did talk about term debt in the past. I'm just wondering if there's any update in terms of funding sources going forward. Sheldon Saidakovsky: Yes. Steve, yes, we're constantly looking at ways to, number one, lower our cost of debt; and number two, sort of size up our capital requirement on a go-forward basis. Firstly, I mean, our cost of debt has come down quite a lot year-over-year to 11% from close to 13.5%. And that's as a result of our renegotiated credit fresh facility earlier in the year and the reduction in the rates, in the government rates generally. So any further reductions are going to be a tailwind for us. It will reduce our cost of debt further. And also, I would say that from an overall capacity standpoint, we're pretty well situated right now. I mean our debt-to-equity ratio is lower than 1.2:1 going into Q4. So we don't have an immediate need to upsize. And hopefully, we expect further reductions in our cost of debt just given future rate changes. With all of that said, we are looking specifically at increasing our capacity on the Canadian side, in particular. Clive mentioned earlier in the call that our credit performance in Canada, in particular, just this past Q3 was our best ever. So we're feeling better and more bullish on growing the Canadian side. And with that said, we'll look to optimize the capital structure over there, reduce the debt and increase capacity. And then also the term debt or high-yield bonds -- they're always out there for us, and we're always sort of examining them on when is the right time to go in and what the best use of proceeds will be. But that will, I would say, will eventually come. We just don't have any specific guidance right now. Operator: There are no further questions at this time. I'd like to turn the call back over to Clive. Clive Kinross: Yes. Thank you again, everybody, for attending our call this morning. I would also like to thank our investors and partners for their continued support and our vision of building a new world of financial opportunity. And as always, I would like to extend a big thank you to the Propel teams in Canada and the U.K. for delivering these outstanding record results and achievements. On that note, have an excellent day. And operator, you may end the call. Operator: Thank you so much for your participation. You may now disconnect.
Eric Boyer: Good morning, and thank you for joining Bentley Systems Q3 2025 results. I'm Eric Boyer, Bentley's Investor Relations Officer. On the webcast today, we have Bentley Systems' Executive Chair, Greg Bentley; Chief Executive Officer, Nicholas Cumins; and Chief Financial Officer, Werner Andre. This webcast includes forward-looking statements made as of November 5, 2025, regarding the future results of operations and financial position, business strategy and plans and objectives for future operations of Bentley Systems, Incorporated. All such statements made in or contained during this webcast other than statements of historical fact are forward-looking statements. This webcast will be available for replay on Bentley Systems' Investor Relations website at investors.bentley.com on November 5, 2025. After a presentation, we will conclude with Q&A. And with that, let me introduce the Executive Chair of Bentley Systems, Greg Bentley. Gregory Bentley: Good morning, as the case may be, and thanks for your interest and attention. I'm pleased to say that all quantitative metrics for '25 Q3 are quite in accord with our expected progress and outlook range for the year. But this quarter, Nicholas will highlight the significant product announcements and developments presented and observed at our Year in Infrastructure 2025 Conference last month, which I think also merit your firsthand review at the links here. Now I always look forward to discovering, through submissions for the Annual Going Digital awards, the unanticipated ways by which our users are ever creatively applying software and cloud services. This year, I was pleasantly surprised by the plurality of those citing contributions from AI. So upon observing this AI forward propensity at the level of projects and users, I reviewed with interest this year's AEC Advisors' survey of engineering firms participating in their annual CEO conference. You may recall that I previously reviewed 2 earlier such conferences where Bentley Systems helped with gauging progress and appetites in going digital. The surveyed firms together perform most of the contracted infrastructure engineering outside Asia with the distribution of their revenues by sector weighted, like ours, in favor of public works/utilities and resources. And within general building, corresponding to what we classify as the commercial facilities sector, the survey highlights a dramatic and interesting transition. AEC firms are now literally engineering the infrastructure for AI, as spending for construction of data centers, such as the project by digital construction leader, DPR, which served as the example throughout our Year in Infrastructure keynote presentations, ramps to soon overtake spending on office spaces. AEC Advisors shows that digital investment as an internal priority is also succeeding for engineering firms. For the last 5 years, they, in aggregate, have achieved continually increased profit margins at the same time as also higher growth in organic net revenues, the latter perhaps limited by capacity constraints as separately reported backlogs reached record levels. Underscoring market robustness, this organic revenue growth is still increasing, including through 2025 estimates and net of both annual U.S. inflation, in red; and in blue, U.S. GDP growth. AEC Advisors concludes that this growth in aggregate profit margin must be attributable to improvements in direct labor productivity as the total revenue percentage of other costs to support functions has risen continuously by almost 20%. This is despite real estate costs having declined since pre-pandemic by 25%, presumably owing to virtual and hybrid working enabled by our ProjectWise and other cloud services technologies. And most significantly for us, these firms' overall technology spending as a percentage of revenue will have increased by 40% over the 6 years through 2025. Combined with their organic revenue growth, their technology spending in dollar terms increased from 2019 through 2024 at a compounded annual growth rate of 13%, tolerably coinciding with the growth rate of Bentley Systems revenues, as I have reviewed in recent quarters, over our 5 years as a public company. I believe that we have thus effectively enabled AEC firms to keep up with accelerating demand despite now chronic engineering resource constraints by constantly improving their labor productivity through going digital. To understand changes now underway in the makeup and magnitude of AEC technology spending, this year, we again helped AEC Advisors with a supplemental AI survey, yielding sufficiently representative responses. In the interest of validating the prevalence of the commendable self-help AI initiatives that relatively surprised us within this year's Going Digital Awards submissions, we focused survey questions on AI that these AEC firms are already implementing, not just testing, to support their businesses. Excluding for this immediate purpose, more widespread AI implementations for generic business purposes such as finance, HR and legal, about 1/4 of responses report AI already being implemented around the periphery of applications such as ours to support the infrastructure engineering-oriented functions of design automation, construction planning or monitoring and/or asset performance and maintenance. Asked in what respects competitiveness would be advanced through faster AI adoption, these firms expect superior project delivery and quality, operational efficiency and clients' experience and satisfaction, but they have the greatest regard for AI's potential enablement of innovation and new services. To get to these benefits, the median reported level of AI implementation spending today, ranging from $6 million to $53 million is 19 basis points of gross revenue. That's on the order of 5% of the overall technology spending rate we just reviewed. And as a frame of reference, this already somewhat exhibits what such firms on average are spending on all of Bentley Systems offerings. Most significantly for us, these firms anticipate increasing their annual AI implementation spending over the next 3 years to a median ranging from $35 million to $164 million of 71 basis points, a multiple of almost 4 from today. If all other technology spending would just continue to grow at the same rate as over the last 5 years, this projected AI increment would cause total technology spending as a percentage of revenue to grow about 50% faster than at present. But we know the resulting AI impact will be such that rather than so extrapolate, we need to factor in the probable AI accelerated changes in infrastructure engineering business models as innovation and new services are enabled. This was the subject of dialogue with a diversity of thoughtful marketplace participants, including public and private sector infrastructure owners, as we helped lead a separate survey and convened an in-person discussion in September in London that culminated in this white paper: The impacts of Artificial Intelligence on the Built Environment. The majority of the 140 senior opinion leaders surveyed expect the impact of AI on current business models either to augur a major disruption and so are already taking steps to adapt or to impact to a significant extent. Interpreting the qualitative feedback as well, the knowledgeable white paper authors venture that AI will finally catalyze the long-awaited tipping point and engineering business model mix from hours-related revenue towards value price data-enabled services and performance/outcome contracting. To be sure, the emerging opportunities accordingly anticipated around automation, analytics and digital twins bode well for Bentley Systems' forward-looking initiatives. But to the extent that our accounts would become incented, and through AI increasingly able to more so minimize their currently generally billable engineering hours and days because they would instead be variously fixed in value and outcome pricing, what could be anticipated about the consumption of software and cloud services underlying our own business model. I could describe what we currently measure as consumption attended by a user and thus charged within E365 per day for our open applications and per quarter for ProjectWise and most term licenses. As our AI native plus generation of applications progressively roll out, the commercial norm for our attended consumption charging is likely to become a hybrid combination of these factors and of surcharges based on computing intensity. With our AI accelerating the pace of engineering productivity growth, attended consumption should generate commensurately higher value and hybrid monetization per relatively slowing time and/or frequency of attended usage. At Year in Infrastructure, Nicholas previewed the commercialization of an already evident source of incremental consumption with our application engines accessed through APIs to provide essential engineering context for simulations and analytics programmatically invoked by our accounts and users' AI agents. By virtue of our ingrained platform orientation, we are very enthusiastic about working with our enterprise accounts to prioritize development of many further such APIs and to arrive at reasonable monetization for the burgeoning value that API consumption will generate. Among potential AI-enabled business model innovations, the cited AI surveys show me that engineering firms and owners share our asset analytics aspiration for digital twins created and curated through AI to become the foundation for infrastructure inspections, operations and maintenance. Bentley Systems is investing resolutely to lead this charge internally and through our ongoing prioritization of capital allocation for pertinent strategic acquisitions. With critical mass for escape velocity gathering, I believe the resulting asset consumption will become, for us, another mainstay of subscription revenue growth, not only within owner operators, but also as their digital integrators with co-innovating engineering firms. My expectation for the confluence of our maturing incumbent consumption model and these new and incipient consumption streams is influenced by the way that these surveys and our enterprise subscription renewals show that infrastructure engineering executives are assessing against the backdrop of their engineering resource constraints, their current combination of record margins, organic real GDP plus growth and backlogs and their auspicious opportunities in the Infrastructure AI transform future. In the short and medium term, the prevailing sustainment of our E365 renewals, including for multiple out years at negotiated annual floor and ceiling escalations consistently averaging about 10%, reflects shared confidence of enterprise accounts and of Bentley Systems and the continued healthy overall gradient of a changing mix evolving to everyone's benefit of attended API and asset consumption. And now to review, as usual, our robust markets and execution, including also notably strong SMB and new logo growth, and to highlight our Year in Infrastructure announcements and feedback, over to Nicholas. Thank you. Nicholas Cumins: Thank you, Greg. A few weeks ago, infrastructure leaders from around the world gathered in Amsterdam for annual Year in Infrastructure Conference to showcase excellence in infrastructure delivery and performance through digital innovation. Amsterdam, celebrating its 750th anniversary, is a city built on land reclaimed from the sea through generations of engineering ingenuity. It was a fitting stage for YII and the Going Digital Awards. That same spirit of innovation took center stage. YII was also an opportunity to share progress on last year's key announcements such as integrating Cesium and Google geo data across our portfolio. But today, I will focus my remarks on Infrastructure AI, the theme introduced by Greg. The backdrop remains the same, whether to address climate concerns, ensure energy supply, or more broadly, support economic and population growth. Our world [Audio Gap] unprecedented demand for better, more resilient infrastructure, yet lacks the engineering capacity to deliver it. We must make existing engineers more productive by empowering them with better tools, smarter workflows and more connected data. At YII, the Going Digital Awards finalists once again showcased how Bentley software helped them achieve meaningful productivity gains, often in the range of 15% to 25% or more. These gains, while impressive, [Audio Gap] most advanced projects and don't reflect the industry as a whole. Scaling them across all projects will help narrow the gap between global demand and current capacity, but closing it requires a step change in productivity. That step change is just beginning to take shape, and it's AI. The AEC Advisors survey referenced by Greg shows large engineering firms making substantial investments in AI for design automation. For those building their own AI agents, Bentley can support them in several critical ways. First, we help them tap into past project designs. Every infrastructure asset is unique, but new designs shouldn't start from a blank screen. Historically, design data has been trapped in different file formats and proprietary systems. Bentley Infrastructure Cloud powered by iTwin. Data is ingested from a wide range of file formats and mapped to our infrastructure schemas, so that it can be queried, analyzed and reused, including by AI. In this context, we announced Connect, a new foundational layer to Bentley Infrastructure Cloud. Connect delivers a connected data environment for project and asset information, improving collaboration across the entire infrastructure life cycle. From there, ProjectWise for designs and construction workflows, and AssetWise for operations and maintenance. Connect will be generally available in December. Next, we help firms to create their own AI agents by providing engineering context, ensuring their AI recommendations are grounded in sound engineering logic and physical principles. Hyundai Engineering, a Going Digital Award winner in 2023, demonstrated this by using our STAAD simulation application to [Audio Gap] integrity of AI-generated designs. This year, I highlighted 4 similar examples in my keynote, all drawn from an even larger number of Going Digital Awards submissions that illustrated how Bentley applications provide engineering context to AI. Infrastructure engineering is a creative profession, but one where precision is nonnegotiable and consequences are real. The same way that infrastructure organizations have trusted our broad and deep [Audio Gap] applications to empower their individual engineers. They are turning to our applications to provide the same precision to their AI agents. Now as our applications were not designed to interact with AI agents, we also announced the Infrastructure AI co-innovation initiative, inviting our users to partner with us to explore how our applications need to evolve both technically and commercially, as Greg mentioned, to better support these AI use cases. At YII, we also highlighted the AI capabilities we are delivering to the broader engineering community, starting with our next-generation applications powered by AI. OpenSite+ announced that last year's YII for site engineering is now in limited availability. We also introduced 2 additional next-generation applications in early access this quarter. Substation+ for collaborative substation design and SYNCHRO+ for 4D construction modeling with AI-driven insights. [Audio Gap] applications feature Bentley Copilot, our AI assistant purpose-built for infrastructure engineering. We are also enhancing existing application with AI, bringing Bentley Copilot and AI-powered drawings production to OpenRoads and OpenRail. And we unveiled new search capabilities in Bentley Infrastructure Cloud powered by AI as demonstrated on stage with ProjectWise. One last point. We talked about how engineering firms are leveraging our software to ensure that the recommendations from their AI agents are trustworthy. A related topic is trust from the engineering firms in the data that we use to train our AI capabilities. The AEC Advisors survey shows security and data privacy as the top concern of engineering firms with respect to AI, and this is across all firm sizes. At YII, we reaffirmed our [Audio Gap] stewardship first outlined 2 years ago. Respect for intellectual property is foundational to Bentley's approach. Users control their data always. They decide if and how it is used for AI training. To uphold this principle, we implemented strict governance. Only data explicitly licensed or explicitly contributed by accounts for the benefit of the broader Bentley user community [Audio Gap]. Users can also fine-tune Bentley AI models with their own data for their exclusive use. And to ensure transparency, we introduced the Data Agreement Registry, an auditing system that shows exactly how data was used to train Bentley AI models. When others are vague on these critical topics, we lead with clarity. Overall, we were pleased with this year's Year in Infrastructure receiving great feedback about our comprehensive and principal approach to infrastructure [Audio Gap]. And I encourage you to check out our sessions and Going Digital Awards winners at yii.bentley.com. Moving on to our results for the quarter. We delivered a solid quarter in line with our expectations. Our year-to-date results position us well to finish within our outlook ranges for the full year, low double-digit ARR growth, approximately 100 basis points of margin expansion and robust free cash flow consistent with our long-term financial framework. Q3 ARR increased 10.5% year-over-year or 11% when excluding the impact of China. Growth was underpinned by net revenue retention rate of 109%. E365 performance remained solid, and we added 300 basis points of ARR growth from new logos again, primarily within the SMB segment. For the 15th consecutive quarter, we added at least 600 new SMB logos through our online store with retention in this segment remaining high. Turning to our [Audio Gap] sector. Resources was once again our fastest-growing sector in the quarter. We continue to see soft signals of improvement in mining exploration. Public works and utilities delivered another solid quarter, consistent with first half performance and driven by sustained global infrastructure investment. Power Line Systems remained a standout performer, benefiting from global demand for grid resilience and increased power generation. Growth in the industrial sector remained modest [Audio Gap] for facilities was flat. Looking at our geographies at a high level, Asia Pacific had a strong quarter, followed by the Americas and EMEA. Growth in Americas was solid, led by North America. In the U.S., our accounts continue to benefit from a favorable macro backdrop despite ongoing uncertainty, though less so from tariffs and policy shifts and the recent federal shutdown. To date, we have seen minimal disruption from the shutdown. Looking ahead, [Audio Gap] a full-scale permitting reform for energy infrastructure and critical minerals in the U.S. could happen in the coming quarters. Both our Power Line Systems and Seequent businesses are very well positioned to benefit from these developments. In EMEA, the Middle East continued to lead the region with another very strong quarter, followed by Europe and the U.K. Long-term opportunities are supported by robust investment in transport, water and energy, particularly in areas such as dual use infrastructure, data center expansion, and nuclear. There's also movement in Europe on permitting reform. The European Commission published guidance to help member states accelerate permitting and deployment of renewable energy and grid infrastructure as part of its broader effort to lower energy costs and strengthen supply security. In Asia Pacific, overall performance was strong with India and Southeast Asia standing out. Robust investment in India is expected to continue, supporting its 2047 vision for long-term growth and development. Growth in ANZ remained softer due to the slowdown in transportation spending in Australia. However, there is a general expectation that it will rebound driven by infrastructure projects tied to the 2032 Brisbane Olympics. China's performance was consistent with our expectations given the economic and geopolitical headwinds and represents only about 2% of total ARR. And with that, Werner, over to you. Werner Andre: Thank you, Nicholas. We've had a solid third quarter and are well positioned with respect to our financial outlook range for the full year. Total revenues for the third quarter were $376 million, up 12% year-over-year on a reported basis and 11% on a constant currency basis. Year-to-date, total revenues grew 11% and 10% on a reported and constant currency basis, respectively. Our mainstay subscription revenues grew 14% year-over-year for the quarter in reported and 12% in constant currency. And for year-to-date, subscription revenues grew 12% on a reported and constant currency basis. Subscription revenues represent 92% of total revenues, up 2 percentage points from the same quarter last year, reflecting improvements in the overall quality of our revenues visibility, growth consistency and margin contribution. Our E365 and SMB initiatives continue to be solid contributors. Perpetual license revenues for the quarter were $11 million, essentially flat compared to the prior year. Perpetual license sales make up only 3% of total revenues and will remain small relative to our recurring revenues. Our less predictable professional services revenues declined 2% for the quarter in reported and 3% in constant currency and now represent 5% of total revenues. We currently expect that our professional services revenues will remain at current levels for the remainder of the year. Hence, this would be for the full year about $5 million less than we had originally planned. It is still the case that the largest portion of these nonrecurring services relate to IBM Maximo implementation and upgrade work. Our last 12 months recurring revenues, which includes subscriptions and a small amount of recurring services, increased by 13% year-over-year in reported and in constant currency and represent 92% of our last 12 months total revenues, up 1 percentage point year-over-year. Our last 12 months constant currency account retention rate remained at 99%, and our constant currency net retention rate rounded down to 109%, led in magnitude by accretion within our consumption-based E365 commercial model. We ended Q3 with ARR of $1.405 billion at quarter end spot rates. On a constant currency basis, our year-over-year ARR growth rate was 10.5%, consistent with our seasonality expectations for the year, which included the favorable impact from the onboarding of our Cesium acquisition in '24 Q3 dropping off this quarter. Excluding China, our year-over-year constant currency ARR growth rate was 11%, with China being 2% of our total ARR. On a quarterly sequential basis, our constant currency ARR growth rate was 2.2%, below our '24 Q3 sequential growth rate of 3.2%, impacted by the timing of programmatic acquisitions and asset analytics deals. With regards to seasonality, we expect '25 Q4 to have higher year-over-year ARR growth compared to '25 Q3 due to the timing of potential acquisitions and anticipated asset analytics deals. Our GAAP operating income was $84 million for the third quarter and $284 million year-to-date. I've previously explained the impact on our GAAP operating results from deferred compensation plan liability revaluations and acquisition expenses. Moving on to adjusted operating income less stock-based compensation expense, our primary profitability and margin performance measure. Adjusted operating income less SBC expense was $104 million for the quarter, up 16% year-over-year, with a margin of 27.7%, up 100 basis points. Year-to-date adjusted operating income less SBC expense was $335 million, up 13%, with a margin of 30.2%, up 60 basis points. Our margin performance for Q3 and year-to-date has been strong, and we remain confident about delivering our full year adjusted operating income less SBC target margin of approximately 28.5%, representing an annual margin improvement of 100 basis points. As a reminder, our OpEx seasonality is always more heavily weighted towards the second half with our annual raises occurring as of April each year and our larger promotional and event-related costs also concentrated in the second half of the year and particularly Q4. Further, our OpEx seasonality in 2024 was impacted from head cost run rate savings from our '23 Q4 strategic realignment, which benefited the first half of 2024 and shifted some of our run rate and discretionary investments into the second half of 2024 and particularly Q4 2024. We therefore expect more than 100 basis points of margin improvement for the fourth quarter of 2025 when compared to 2024. Our free cash flow was $111 million for the quarter and $384 million year-to-date. This is generally consistent with our expectation based on our seasonality of collections and expenditures as well as the timing of cash tax payments, which are more concentrated in the fourth quarter. We are on target to meet our full year free cash flow outlook of $430 million to $470 million. With regards to capital allocation, along with providing sufficiently for our growth initiatives, year-to-date, we deployed free cash flow as follows: $135 million fully paying down our senior debt. $93 million in effective share repurchases to offset dilution from stock-based compensation, $10 million in convertible senior note repurchases and $64 million on dividends. With our senior debt being fully paid down, our net debt leverage, including all of our 2026 and 2027 convertible notes as debt was 2.2x adjusted EBITDA, down from 2.9x at the end of 2024. Our strong balance sheet and projected free cash flow generation will sufficiently fund our dividend, share repurchases and growth initiatives, including potential programmatic acquisitions. Our 5-year senior secured credit agreement dated from October 2024 provides a current undrawn $1.3 billion revolving credit facility. This provides sufficient flexibility to address the January 2026 maturity of $678 million in outstanding convertible debt while keeping our cash interest thereafter at about the same magnitude as in the recent past. Interest rates on our debt are protected through very low coupons on our convertible notes and very favorable terms of our $200 million interest rate swap expiring in 2030. And finally, with only 1 quarter remaining, our performance for the first 9 months gives us confidence in our ability to achieve our annual financial targets. I already provided incremental color on our fourth quarter expectations for ARR, adjusted operating income by stock-based compensation margin and free cash flow. With regards to total revenues, 2025 to date reflects a continued shift in mix from professional services revenues to subscription revenues, improving our overall quality of revenues and margin contribution. With regards to foreign exchange rates, for the third quarter, the U.S. dollar has weakened relative to the exchange rates assumed in our 2025 annual financial outlook, resulting in approximately $10 million of incremental revenues from currency and a total favorable impact for the first 9 months of approximately $18 million. Based on recent rates where the U.S. dollar has weakened relative to our outlook rates, if end of October exchange rates would prevail throughout the remainder of the year, our fourth quarter GAAP revenues would be positively impacted by approximately $8 million relative to the exchange rates assumed in our 2025 financial outlook. And with that, we are ready for Q&A. Over to Eric to moderate. Thank you. Eric Boyer: Thanks, Werner. [Operator Instructions] First question will come from Joe Vruwink from Robert W. Baird. Joseph Vruwink: Maybe can you go into a bit more detail on the opportunity for better ARR growth in 4Q? That's a big renewal period, but also asset analytics opportunities. And just on the point about renewals. So to the point, Greg, you were making at the start, how Bentley applications are called a few years from now could look a lot different than how they currently are utilized. How does that get encapsulated with an enterprise customer that is willing to engage with you over a multiyear time frame? And are you appropriately monetizing the full potential with kind of the ceiling floor structure you have been using around these consumption arrangements? Gregory Bentley: Well, I'll say, to your last question, Joe, that we only monetize the actual consumption. It just happens to be bounded by a floor and ceiling potentially. And we are not yet monetizing API consumption, for instance, even though some of it is occurring. In the course of a renewal with an enterprise account for E365, they tend to prefer to get visibility into their spending in the out years as well, and it continues to be the case that we wind up, on average, negotiating that each year of that renewal, the floor and ceiling escalate by about 10%. And I think they're aware because you see these enterprise accounts are the ones responding to the survey about spending on AI and expectations about AI. They know that their mix of consumption and modes of consumption will change over that period of time. But they are comfortable with expecting to spend a low double-digit amount more with us and no doubt with others each year, and we're satisfied to -- we likewise know there's going to be volatility in the components of the mix. But when you put it all together in an enterprise agreement, you've heard my take on that, which is to be confident that while the mix will change, the magnitude will reflect the increasing value, especially from AI. Nicholas, as to the fourth quarter, yes, indeed, it is a strong renewal quarter, and our expectations are comport with that. Nicholas Cumins: Right. Well, first of all, Q3 ARR growth was exactly what we were expecting. And what we're expecting for Q4 is ARR growth year-over-year to be stronger than Q3. Part of that is the renewals, as you mentioned. And then how much better it will be than Q3 will depend on potentially M&A or some of the big asset analytics opportunities that we're pursuing. Gregory Bentley: But it would be better than Q3 in any case because of the magnitude of renewals that occur in fourth quarter. So they're all layers that give us confidence in fourth quarter and, of course, therefore, in the outlook for the year. Eric Boyer: The next question comes from Jason Celino from KeyBanc. Jason Celino: Great. I wanted to ask about the government shutdown. I recognize that in your prepared remarks, you said it's had minimal impact. Maybe can you just elaborate on what you're seeing or not seeing and why it's been so limited? Nicholas Cumins: Yes. To date, we have seen indeed a minimal impact. First of all, our direct revenue from the U.S. federal government is less than 1%. And indirectly for the projects that were already awarded IIJA funding, while the funding continued to flow during the shutdown, and that's very much because of the way IIJA was structured. Now depending on how long this shutdown is going to go, it could be very much at the margin when we get to renewals with some accounts. And you may recall that renewals are based not just on past performance, how much they've been consumed in the past year, but also how much you're expecting to consume in the next year. It could be that at the margin, the consumption expectations going forward may be impacted, yes, but this is super early to say. And it will really depend on how the shutdown goes. Jason Celino: Yes, hopefully, it ends soon. So yes, we'll see. Gregory Bentley: Other things kind of indirectly are gummed up also and we -- hopefully, not for much longer. Things like the permitting reform we keep expecting and some other functions of the federal government that don't have to do with using software, but changing policies and so forth that are also on hold. We'd like to see the shutdown end sooner rather than later, and we think that's the general expectation now. Eric Boyer: Thanks, Jason. The next question comes from Matt Hedberg from RBC. Matthew Hedberg: A lot of the bigger frontier model builders are noting that access to power is the biggest bottleneck for compute capacity today. And I guess, Nicholas, you noted both PLS and Seequent is set to benefit from this longer term, which is sort of in line with our view. It's also nice to see -- I think although permitting reform takes time, Greg, you said it's sort of like there's -- it just takes time. It sounds like EMEA permitting reform is accelerating a bit. I guess my question is, realizing these projects take time and permitting reform takes time as well. Are you starting to see any sort of early benefit from early sort of like discussion with customers around this activity? And how should we think about sort of like medium to long term this desire for more power to positively impact ARR growth? Nicholas Cumins: Well, first, despite permitting reform still to come, both PLS and Seequent remain strong growth engines for the company, right? And both businesses are still growing faster than the company. We have seen now in the U.S., for example, some acceleration on some mining projects through -- it's called the FAST-41 process for minerals that are of strategic importance to the U.S. economy like lithium or copper. There is a similar bill that was passed in Canada. So we think this is -- I mean, this is happening basically for mining. There's already a lot of movement in order to accelerate permitting or accelerate certain projects. But for the electric grid, this is still to come, but we've seen some very encouraging signs in the past few months in the U.S. I think there's a clear realization here that we must expand the electric grid, and there's a lot of effort, a lot of activities going into strengthening the existing grid, making it more robust, but we actually need to expand it in order to cope with the higher demand that is for electricity and a lot of that coming from data centers, by the way. So you can see it as a growing tailwind for us. Eric Boyer: The next question comes from Dylan Becker from William Blair. Faith Brunner: It's Faith on for Dylan. I just wanted to double-click on to your AI innovation road map and how you're working with your customer base to build that out, maybe how that played into Cloud Connect and really what you're focusing on and how you're prioritizing the different opportunities? Nicholas Cumins: Well, first of all, what was remarkable when we looked at the submissions for this year's Going Digital Awards was seeing how much our users are investing in AI themselves. And that was a big part also of the update that Greg provided with the AEC Advisor survey, and we can see how much is invested in AI. And as always, we're using the Going Digital Awards submissions as a bit of our own survey of what's going on with the most advanced infrastructure organizations out there in leveraging digital to drive productivity. And it points to our core applications, engineering applications playing a new role going forward, not just here to empower infrastructure engineers, individual engineers, but actually to start to interact with AI agents. And we think this is a fantastic growth opportunity. Now we've seen a net acceleration of use cases where our own applications are being used in conjunction with AI that is being developed by our users if we just look at and reflect on the past couple of years. And we've announced a co-innovation initiative in order to engage with our users, to partner with them, to discuss how can we evolve our engineering applications technically. And also how can we evolve the commercial model around these applications so that we can support those workflows going forward -- better support those workflows going forward. We're hugely excited about that, right? But I think there is a lot of investments on our side for our own AI capabilities that we're delivering to our users. Here, we make sure that, first of all, all of our product organization, all of our user-facing teams have a deep empathy, a deep understanding of the needs of the users, the accounts that we serve. We understand where are potential opportunities to drive more productivity through AI, for example. And then we involve representative users along the way in helping us prioritize which use cases are we going to go after first with AI. We involve them during the development of those capabilities. We involve them with beta software, what we call early access. We involve them, of course, very limited availability to make sure that the product can scale to the broader market and so on and so forth. So we have constant touch points all the way from the very beginning of the exploration, what problems can we solve with AI, to making sure that the software can scale, we have involvement all the way with representative users. Eric Boyer: The next question comes from Kristen Owen from Oppenheimer. Kristen Owen: So I wanted to ask you about labor availability, not just here in the U.S., but globally in the construction and infrastructure trades. Obviously, AI can't actually build infrastructure. So I'm wondering if you're starting to see that meaningfully impact any of your engineering firm customers? What sort of impact these labor challenges are having maybe on project delivery times, budgets, and then add on this piece of willingness to invest in technology to help with some of those productivity challenges? Gregory Bentley: Kristen, I think the biggest picture is that everyone has long expected the engineering services firm. So that's half of our business, and they work for the other half of our business, the owner operators. Everyone has expected the way they work to change from a time and materials billing hours to paying for value and, therefore, having a platform to incent and reward, for instance, these AI investments. The biggest picture, I think, is that the ongoing engineering resource constraints are influencing that now happening in favor of AI investments and expectations and changes in the commercial model. And the opportunity for us is to be shoulder to shoulder alongside those engineering firms. We want to help be their arms merchant, providing them the, for instance, asset analytics cloud services that they will rebrand and bundle with their engineering analytics and their own data and AI models, but where they won't need to get into providing the cloud services, the things we can do together with Google, and then adding our asset analytics layer. So changing the commercial models is accelerating that because everyone has expected it to occur, and it's been slow. I think that finally is being catalyzed now, and that's the biggest impact. Eric Boyer: The next question comes from Alexei Gogolev from JPMorgan. Alexei Gogolev: I wanted to ask you to maybe give us a brief update of how the partnership with Google is going? Have there been any incremental customer conversations on the back of this partnership? And what does that mean for your asset analytics opportunity? Nicholas Cumins: One of the updates we gave at YII was how we are integrating Google geo data across our portfolio. It starts with our engineering applications. MicroStation, the new version of MicroStation, not only includes Cesium for 3D geospatial visitation, but through Cesium is actually integrating 3D photorealistic tasks from Google. And I mentioned the launch of Bentley Infrastructure Cloud Connect. The user experience of Bentley Infrastructure Cloud is also powered by Cesium and also powered by 3D photorealistic tasks of Google. So that integration is going very well, and we're expanding really across our full portfolio. We are quite excited also about the opportunity with Google when it comes to asset analytics. Google is a source of data that can be analyzed in order to better understand the current foundations of infrastructure assets and their full context. And you may recall that we've announced a couple of months ago, a deeper partnership with Google from that standpoint, where we'll be processing Google Street View imagery to understand basically the inventory of assets out there and be able to do a before and after comparison on what's going on with this infrastructure asset when we compare it with dash cam data that we're processing through our own road monitoring solution, right? And that's just one example of so many other use cases that we're discussing with Google, where we can empower deeper analytics about existing assets. Eric Boyer: Next question comes from Clarke Jeffries from Piper Sandler. Clarke Jeffries: I wanted to ask just as a little bit of a follow-up to the discussion around the appetite of AI spend with your customers. It seems like a lot of this is survey work and sort of perspective on where they'll go. But I wanted to ask today, are you seeing proactive RFPs from these customers around AI capabilities? Or is it too early? And sort of do you imagine there being a discrete sales approach around AI functionality? Or do you feel like this will be very organic within your kind of existing sales motion? Nicholas Cumins: So on the former, it is still too early for the market to ask specifically for AI capabilities for specific use cases. It's still too early. However, indirectly, we do see infrastructure organization insisting that it is as easy as possible for them to access data that is being created or managed through software coming from providers, so that they can use it for their own AI purposes. And by the way, so this is much more indirect, but they are aware that software providers are developing AI capabilities, and we see them clear and clear about we want to make sure that when you do this as a software provider, you don't use our data without our explicit permission, right? This is very top of mind right now. And it's a part of the conversation when talking about Bentley Infrastructure to Cloud Connect, for example. We reinforce our commitment to data stewardship. We make it very clear that the data of our users is their data always. We don't use it to train our own AI unless they explicitly authorize us to do so. And that is a clear differentiator versus other providers who are maybe just less clear on that topic. But in general, yes, still very early stage when it comes to requirements for AI-specific capabilities. And because it's still very early stage, we don't see a need right now to have a different go-to-market approach when it comes to positioning these AI capabilities. If you look back at what we basically announced in terms of our own AI capabilities, sometimes it's the next generation of an existing application, like OpenSite+ is the next generation of OpenSite, Substation+ is the next generation of Substation. The same way that we've gone to accounts to position the original OpenSite solution on the original Substation solution, then we're going to continue to do the same even if the new one is powered by AI. Then we're also introducing a lot of new AI capabilities or AI capabilities to existing applications. So same thing, there's no need in order to do a different go-to-market. Asset analytics is different. Here, we've been always very clear that we want to go both direct and indirect, right? So I said, we are going after owner operators and the firms that serve them in order to position those capabilities. But we definitely welcome all the organizations to take our capabilities and offer them as part of their own offering for asset monitoring, asset maintenance, asset management. Eric Boyer: Next question comes from Jay Vleeschhouwer from Griffin Securities. Jay Vleeschhouwer: Nicholas, I'd like to ask about something we talked about at the conference 3 weeks ago in Amsterdam, having to do with your product development. Specifically, how have you evolved or how do you think you might still need to evolve your product development management or operations in light of all that you mean to do across the portfolio? Do you think that you can or should, for example, compress the time between beta and GA, something we talked about a few weeks ago. And in light of what Greg talked about earlier with regard to your new consumption model, how might those new techniques of consumables possibly tie back into your product development process or product release timing? Nicholas Cumins: Right? When it comes to our own product development process, we got an earlier question here on how much are we involving users, how much are we involving accounts. And we're very keen to continue to do that and do that even more, right? When we release our software, we want to do it in a very iterative fashion. We don't have necessarily top-down target on you must go from early access beta to limited ability in that time frame, and you must go from limited to general ability in that time frame. It will really depend on the feedback we're getting from representative users, especially when it comes to very new capabilities, we're sometimes creating new -- potentially, we're creating new markets when it comes to asset analytics, et cetera. We want to make sure that we get it right before we push too hard, right? So it's important for us that we keep it as a very close feedback loop with representative users, and we trade as often as necessary in order to get the software right and then ready to scale. And now we are embracing AI as well to improve our productivity. And I would say the majority of our developers now are working with AI tools every day to be more productive, whether it's for coding assistance or even generation of some parts of the code for mundane functions, right? And we're quite pleased, right, to see the level of embrace by our developers, not necessarily top down, really coming from them to use AI capabilities. And it remains a very good analogy for how we're seeing AI playing out for infrastructure engineers, not AI replacing infrastructure engineers, but AI making infrastructure engineers more productive, AI being more of a copilot, if you will. That's the name, by the way, of our own AI assistant. Gregory Bentley: Jay, I'll say that you and I share a long background going back to when our desktop products were a platform for specialized applications developed, including by our accounts. And we had special teams that worked with the accounts, the developers within the accounts to help support their -- particularizing our existing applications for their own purposes. That's kind of gotten extinct by now. Individual organizations don't develop their own particular software for this. But what we saw in the AI surveys, and we saw in the Going Digital Awards submissions are a lot of investment by the enterprises, the AEC firms, larger ones in their own agent environment. And the APIs that we'll create, because we have to move the engines to the cloud and open them up and so forth, will be another way of working with developers. The developers will turn out to be the developers in the large enterprises, and I can see that being a different kind of go-to-market incremental orthogonal approach for the future, echoing back to what we've done in the past, where we love our role as a platform provider, especially. Eric Boyer: Next question comes from Taylor McGinnis from UBS. Taylor McGinnis: Maybe just on the financials. So if I adjust for the lapping of the acquisition, it still looks like net new ARR was down a bit year-over-year on a constant currency basis. So I know that you guys said that, that was in line with expectations, but maybe you can just unpack the drivers behind that. And as we look into 4Q, I think to get to the upper end of your guys' guidance range, it implies a big step-up in net new ARR. I know you mentioned M&A and some of these asset analytics deals potentially being needle moving there. So when you think about the size of M&A that you guys are contemplating or how big some of these asset analytics deals could be, could you just provide a little bit more color there? Gregory Bentley: Well, okay. I'll just jump in on asset analytics because you've heard me say we have such a big dependable flywheel. The only thing that's volatile in what we do is the asset analytics business, because we're looking at landing 7- and 8-figure deals. And it isn't yet at critical mass. I think you could say that. We believe it will become so soon. But on the margin, it does make these differences in which quarter those deals fall. And of course, speaking of frame of reference, our business used to be like that back when the software business was an upfront license business and so forth. But for us, it makes this difference on the margin, but the margin is significant when we're comparing one quarter to another at the level of when was 10.5%, 10.9% and so forth. It's to do with these asset analytics deals. Werner Andre: Yes. Maybe I'd add, like in -- for asset analytics, like Q2 and Q3 last year was particularly strong and the opportunities for bigger deals are more towards the end of the year in 2025. And on the M&A side, so just to say like we don't need M&A to be within the outlook range for our ARR. There are a number of transactions that we are working on. We expect that we close at least one by the end of the year. Over the last few years, our contribution to constant currency ARR growth through M&A was between 40 and 70 basis points. And we do expect for this year that we are roughly within that range again. And our Q3 year-over-year ARR growth rate that we are showing is purely organic. So there's no benefit from M&A at all. So we have 10.5% purely organic. And without China, it will be 11% purely organic. Eric Boyer: Next question comes from Siti Panigrahi from Mizuho. Sitikantha Panigrahi: I want to ask about macro. If you think about last year, there was so much uncertainty, election going on, interest rate high. How do you view the macro now in this environment right now heading to 2026? And Werner, anything that we -- any puts and takes that we should think about 2026? Nicholas Cumins: Well, I'll start on the macro. It remains robust. The backdrop is the same. The end markets are strong. There's never been more demand for better, more resilient infrastructure around the world. The only exception we've talked about for a long time now is China. And then I mentioned in my prepared remarks briefly Australia. In Australia, it's a bit of a crosswind. You have less investments in the transportation infrastructure that we've seen in the past few years. But on the other hand, you have more investments going into mining. So as we start to look into 2026, we are not expecting a change of the overall demand environment. We expect the demand environment overall to remain robust. Gregory Bentley: I'll say that a difference from a year ago in the world, if we step back, is this notion, unfortunately, that each country needs to be self-sufficient in its resources and requires infrastructure investment, if you like, even some redundant infrastructure investment to do that. And then the other factor, for instance, the COP conference this year, the theme is on adaptation, and adaptation as part of resilience is the work of civil and structural and geotechnical engineers. And it's just understood we need to get on with that ever more. Those are changes that may be resulted from politics, but they end up adding to the demand for the work of infrastructure engineers. And again, there aren't enough of them without going digital. Eric Boyer: Next question comes from Guy Hardwick from Barclays. Guy Drummond Hardwick: Just a quick one for me. So last month, there was speculation in the press of a merger between the #2 E&C firm globally and the #4 player globally. I was just wondering, consolidation amongst your larger E&C customers, what are the kind of positive and negative implications potentially for Bentley? Gregory Bentley: Well, some of that has taken place in the past and has not been to any disadvantage. In other types of, if you like, design software, it might be R&D functions that would be consolidated. The way that our software is used by the engineering and construction firms is in their throughput of production, it is the means of producing their product, it's their factory floor, if you like. And the combination makes them larger, but need no less software. And we sort of tend to be the choice for larger firms. The consolidation, I think, has ultimately benefited us because of the type of technical platform cooperation that we're salivating now to do with expanding our APIs for AI to have our analytics and simulation engines be available for the development to be used to provide the engineering precision and context in AI developments that the larger firms, as Nicholas pointed out, are more investing in. It's going back to, as I was saying with Jay, this notion of being technically shoulder to shoulder as well as commercially shoulder to shoulder. I think that benefits from consolidation. Guy Drummond Hardwick: Given time constraints, this call has gone for an hour, so I'll leave anything else for follow-ups. Eric Boyer: The next question comes from Koji Ikeda from BofA. Koji Ikeda: Listening to the call and the commentary, lots of commentary on external AI opportunities out there for Bentley. But I wanted to ask about an update on how you guys are internally using AI to drive productivity gains in sales, R&D, G&A? And longer term, what could the internal use of AI mean for margin expansion for Bentley? Nicholas Cumins: Yes. Thanks a lot for the question. I didn't touch on it when it comes to our own internal use of AI for product development. But you're right, we're actually expanding the use of AI across business functions. And we've seen some quality improvements in lead nurturing, for example, or user support. So we see AI definitely as a way of making our existing colleagues more productive. And therefore, it will help to increase both the top line and the bottom line. That's our expectation going forward. Eric Boyer: Our last question comes from Joshua Tilton from Wolfe Research. Joshua Tilton: Can you hear me? Gregory Bentley: Yes. Joshua Tilton: I've been jumping around this morning, so I apologize if it's been asked, but I think it's very important. Greg, you always stress how predictable this business is, and I think that's what people really love and enjoy about it, or at least it's one of the things I think they do. Last quarter, you had already told us that you expected this to be the low point of ARR growth for the year. And I guess my question is, was that in line with your expectations? Or did it come in even below what you guys thought? And the reason I'm asking is because should we just view this as right down the fairway with your expectations and continued confidence into Q4? Or did things maybe trend a little bit worse than you were expecting even below that low point you kind of guided us to last quarter? Gregory Bentley: Well, I think it's the former. But Werner, I think it's worth wrapping up with a summary of the factors and how that's different for Q4. Werner Andre: Can just repeat the question, sorry. Joshua Tilton: I was just asking, you told us that this was going to be the low point for the year. And I think we're just trying to understand, was that low point in line with your expectations and we're just confident in Q4 as we were 90 days ago when you told us this was going to be the low point? Or was this low point worse than you were expecting and then we should adjust your expectations for Q4? Werner Andre: Understood, sorry. So I think we are exactly where we expected to be for Q3. It's clear that Q4 is a big quarter for us, like most of the renewals are in Q4 -- or like not most of them, but a very significant amount of our annual contract renewals are in Q4. We see the pipeline is as we expected it in our outlook, and we will focus on strong execution as we did year-to-date. And then as we said, like we have the opportunities within asset analytics and programmatic acquisitions that makes us confident that Q3 will be the lowest point, and we are going up from here, if you will. So we feel the same as we felt like a quarter ago. So we are on target. Gregory Bentley: I don't know whether you caught it, Joshua, but Werner quantified the year-to-date contribution from programmatic acquisitions in our year-over-year ARR growth as 0 this year. And it's generally 40 or 70 basis points. And we actually may wind up there because we continue to strategically prioritize asset acquisition opportunities. And the asset acquisition opportunities, just to go back to that, are the lumpy deals. And back when lumpy deals were part of our business, which has been a long time ago, we remember they usually occur in Q4 and this year doesn't seem different, even though as we got started with asset analytics last year, we had some big deals in Q2 and Q3. So again, it is a big reliable flywheel, but it has on the margin these changes. And I'm grinning because I think those are the right things for us to be doing. Asset analytics is the ground floor of a huge opportunity, AI enabled. And even though it's going to be a bit of a nuisance, it's volatile nature, ultimately, we'll spread it all out as we gain critical mass and escape velocity there, as I say, and I feel that's coming closer strategically. Joshua Tilton: Makes sense. Very helpful. Maybe just one last one before you kick me off. You guys had the Year in Infrastructure conference, lots coming out of it. We also had Autodesk University like a quarter ago. So announcements across the industry. I guess if there is one announcement that you think is going to be the most needle moving for the business that investors should be paying attention to, like what would you call out from the Year in Infrastructure conference? Nicholas Cumins: I would say, short-term, Connect. Yes. Bentley Infrastructure Cloud. Joshua Tilton: Yes. Gregory Bentley: You heard that. Nicholas Cumins: It is new foundation layer for Bentley Infrastructure Cloud, bringing a lot of capabilities that used to be in the different enterprise systems that we brought together under the umbrella of Bentley Infrastructure Cloud, and basically where data is being federated in order to be used for AI purposes. Gregory Bentley: And I would just say, stepping back, a contrast among these announcements. You have other vendors out there whose products have always been separate and there's been no way to get data from one to the other. Of course, AI models enable them to say, okay, if you pay us now, we'll actually help you get data from one application to another, or from our standpoint, it's all been integrated a common schema. We're way ahead on that point. It's not a matter of monetization. It's a matter of improving the form factor to make it even easier to use and even easier to use with AI agents and API consumption. I'd say AI and put the P in the middle. That's how we want to be a platform vendor to fit that in to our existing enterprise accounts. And then, of course, a different go-to-market motion for AI for the SMB firms. But what I think Nicholas says that the Connect is important because it brings this down to the level of every user, so that it's intuitive and immersive and geospatial and new. But the back end of how things are integrated together, we're not inventing now, we're leveraging now. Eric Boyer: Thanks. That concludes our call today. We thank you for your interest and time in Bentley Systems. Please feel free to reach out to Investor Relations with further questions and follow-up, and we look forward to updating you on our performance in coming quarters. Thanks a lot. Gregory Bentley: Thank you, guys. Nicholas Cumins: Thank you.
Operator: Good day, ladies and gentlemen. Thank you for standing by, and welcome to trivago's Q3 Earnings Call 2025. I must advise you the call is being recorded today, Wednesday, the 5th of November 2025. We are pleased to be joined on the call today by Johannes Thomas, trivago's CEO and Managing Director; and Wolf Schmuhl, trivago's CFO and Managing Director. The following discussion, including responses to your questions, reflect management's view as of Tuesday, November 4, 2025 only, unless expressly stated otherwise, in which case it reflects management's view as of today, Wednesday, November 5, 2025 only. Trivago does not undertake any obligation to update or revise this information. As always, some of the statements made on today's call are forward-looking, typically preceded by words such as we expect, we believe, we anticipate or similar statements. Please refer to the Q3 2025 operating and financial review and trivago's all other filings with the SEC for information about factors which could cause trivago's actual results to differ materially from those forward-looking statements. You will find reconciliations of non-GAAP measures to the most comparable GAAP measures discussed today in trivago's operating and financial review, which is posted on trivago's Investor Relations website at ir.trivago.com. You are encouraged to periodically visit trivago's Investor Relations website for important content. Finally, unless otherwise stated, all comparisons on this call will be against results for the comparable period of 2024. With that, let me turn the call over to Johannes. Johannes Thomas: Good morning, and thank you for joining our Q3 2025 earnings call. We delivered 13% year-over-year revenue growth, making it our third consecutive quarter of double-digit growth. Q3 exceeded expectations on both the top and bottom lines, and we are encouraged by the strength and durability of our momentum. We achieved this acceleration despite major foreign exchange headwinds while improving adjusted EBITDA by 18% year-over-year. The quality of this growth gives us confidence. It's led by our strong double-digit branded traffic revenue growth, which continues to outperform and benefit from compounding effects. Our AI-powered campaign featuring brand ambassador, Jürgen Klopp as well as our local productions made a significant impact this summer. Our product has materially improved quarter after quarter, delivering a better user experience and stronger marketing efficiency. We have observed a promising start into Q4 and expect to close the quarter and the year at mid-teens level. We see our strategy unfolding and expect this to continue to fuel our double-digit growth trajectory in the years to come. While we continue to elevate our brand investment next year, we will operate with discipline and expect compounding effects to increase our profitability gradually. In the following, I will provide an update on our strategic priorities. Our first strategic priority is branded growth. Our brand engine is accelerating and continues to compound. Our summer creators were striking. We are steadily improving marketing efficiency and have diversified our new -- into new brand marketing channels. We remain disciplined, investing where we see strong response. The club campaign, together with strong local productions lifted branded traffic and revenue across all segments with standout performance in the Americas. We aim to broaden our reach and strengthen creative testing to drive higher traveler engagement with our brand. A recent U.S. test underscores our approach. We body swapped Jürgen Klopp with another actor in the same TV ad to isolate the impact of the creative concept versus the use of a high-profile brand ambassador. For our winter campaign launching in December, we are producing new TV spots that we expect to build on the strong results. For the rest of this year and throughout 2026, we will focus on the markets we prioritized over the past 2 years, emphasizing optimization over expansion. Our second strategic priority is to enhance our core hotel search experience so travelers can book with confidence saving time and money. We maintained a high product testing velocity, delivering notable enhancements and conversion rate gains that we expect will further improve marketing efficiency and user satisfaction. Our AI Smart search feature was expanded across key languages on desktop and mobile web. It's now faster and even more relevant for complex queries. We have deployed AI review summaries at scale, providing clear insights distilled from thousands of reviews. We introduced new guest sentiment ratings that summarize review sentiment, allowing travelers to compare hotels and understand their relative strengths and weaknesses in the region. Over the past year, we significantly elevated the hotel content across our product, tangibly improving the user experience and closing a long-standing gap in our offering. We achieved this with AI powering the kind of work that once requires 100-plus people team while making the content more relevant and updating it more frequently. Personalization and smart filter recommendation have further improved and the map experience is now more intuitive across devices. Our member proposition keeps enhancing through attracted exclusive deals provided by our partners and features such as the list sharing functionality to foster collaborative trip planning. Revenue from logged-in members continued to rise, which we expect to enhance retention and conversion. Our third strategic priority is to create more value for our partners and a healthier marketplace. Our transaction-based model continues to gain share, simplifying participation for small and midsized partners and helping reduce auction volatility. Book & Go accelerated by our Holisto integration is gaining traction. Pilot partners are seeing meaningful conversion uplifts and market share gains in our platform, evidence that a streamlined trivago-branded booking funnel creates value for our users and partners. In summary, we delivered another quarter of double-digit growth and healthy returns despite foreign exchange headwinds. A stronger brand and a better hotel search experience are resonating with travelers and partners alike. Thank you to our teams for your focus, creativity and discipline. Your work powers our progress every day. I'm especially proud of how broadly our team is adopting AI in novel ways, strengthening our position and delivering more value to our users faster. With that, I'll hand over to our CFO, Wolf, for a more detailed financial review. Wolf Schmuhl: Thank you, Johannes, and good morning, everyone. We are thrilled to report that the third quarter of 2025 was yet another successful quarter with strong performance. This quarter, we achieved a 13% year-over-year increase in total revenue, which was driven by our successful brand strategy. We maintained a stable return on advertising spend even as we levered up our brand investments where elasticities are attractive, but the returns come over time. This not only reaffirms the effectiveness of our marketing strategy, it also builds the foundation to further scale branded traffic in the future. Despite economic uncertainties and foreign exchange-related headwinds, we remain confident about our outlook. We continue to expect mid-teens percentage revenue growth for the full year of 2025 and a positive adjusted EBITDA of at least EUR 10 million. Now let's review our third quarter results and our 2026 outlook. Unless otherwise indicated, all comparisons for 2025 are on a year-over-year basis. In the third quarter, our total revenue reached EUR 165.6 million, representing a 13% increase compared to the same period of 2024. We are pleased to note this marks our fourth consecutive quarter of growth. This growth was driven by yet another strong quarter of year-over-year double-digit referral revenue growth of 14% in Americas, 12% in Rest of World and 9% in Developed Europe. Our Developed Europe segment faced headwinds from strong prior year comps, especially early in the quarter, as we called out in our last earnings call. The trend normalized over the course of the third quarter in 2025. Our growth was primarily driven by increased branded channel traffic in response to our ongoing brand marketing investments as well as product improvements, enhancing our booking conversion. Unfavorable foreign exchange headwinds negatively affected our revenue development by approximately 4% globally. Due to our strong fundamentals and diversified global footprint, we have still been able to demonstrate strong growth. During the third quarter, we reported a net profit of EUR 11 million and achieved a better-than-expected adjusted EBITDA of EUR 16 million. Operational expenses decreased by EUR 12.3 million, totaling EUR 153.4 million for the third quarter. This was mainly due to the nonrecurrence of a EUR 30 million impairment charge recorded in the prior year. Excluding this impairment charge, operational expenses increased by EUR 17.7 million, mainly driven by a EUR 14.5 million increase in selling and marketing expenses resulting from higher brand marketing investments made over the course of the quarter. Advertising spend increased by EUR 7.2 million or 17% in Developed Europe, EUR 2.8 million or 11% in Rest of World and EUR 3.6 million or 9% in the Americas, driven largely by brand marketing investments. Despite the significant scaling of our marketing investments in this quarter, Global Rewards remained stable compared to prior year at 134.1%. We observed a solid ROAS improvement year-on-year during the third quarter in Americas and increasing from 126% in 2024 to 135.4% in 2025 and Rest of World increasing from 117.6% in 2024 to 119.2% in 2025, while we observed a reduction in Developed Europe from 151.2% to 141.2%. As of September 30, 2025, we held EUR 106.3 million in cash and cash equivalents and no long-term debt, continuing to maintain our strong financial position. Looking forward to 2026, we aim to achieve an increased adjusted EBITDA of around EUR 20 million while continuing our growth trajectory and maintaining double-digit percentage revenue growth. We continue to see substantial opportunities to scale our brand marketing activities, enabling us to reach a larger audience and positively impact overall revenues and profitability long term. Additionally, we consolidated Trivago Deals Limited, formerly Holisto Limited, for the first time and are moving forward with our post-merger integration. We view Trivago Deals Limited as an integral part of trivago, and it will be included in our financial guidance going forward. We already see our initiatives gaining traction in terms of conversion improvements and an increased market share on our platform, showcasing the value for our users and partners of a facilitated booking funnel. With that, let's open the line for questions. Operator, we are now ready to take the first question. Operator: [Operator Instructions] Your next question comes from the line of Tom White with D.A. Davidson & Co. Wyatt Swanson: This is Wyatt Swanson on for Tom. First one, it's great to hear that revenue from logged-in users continues to increase. Curious to hear your goals of what percentage of users could be logged in over the next 12 to 18 months and maybe some of the initiatives being put in place to retain these more loyal/logged-in users? Johannes Thomas: Yes. Thank you for the question. I think a very important one. And the number has increased, and it's important on the target. So it's not that we are dogmatically having a target, let's say, we want to bring this to 50% or so. It will rather be an outcome of diligent testing and experimenting in what moment in time do we ask users to log in, in a way that this improves conversion, doesn't cost us short-term revenue at unreasonable levels. So we now have increased it. We last time said it's north of 20%. I would say if we are reaching something like 30%, it is a number where we can say we have a core -- identified a core user segment that when they log in, they will have a different trivago experience. So maybe it is 40%. We don't know exactly, and we will find out. We know the current users that we have behind the log-in more than 20%. They convert 25% better than the others. So it's really a meaningful difference to all others. They have more engagement on our side, and we will continue to offer special deals to them. We have done the enhanced sharing functionality, collaboration functionality. We expect to have price alerts, expanded the functionality. And you can think about it when a user comes to the site and we have a closer relationship. We know there is this 2 to 4 weeks period where they are likely to book. And in this period, we need to maximize the contacts over time. So they are not just coming through trivago one time. And that's really the goal here to increase engagement during this hot period where they're likely to book. And then also if they had a better experience certainly to increase retention, which is much harder to measure and estimate and which is not kind of part of our direct planning, but increasing conversion rate with those users and the engagement, it's already attractive from what we are seeing today and that we will continue to embrace. Whether it will be 30% or 40%, it will be an outcome. It's not a fixed target. Wyatt Swanson: Got it. That's very helpful. And then one more. B2B has been a pretty notable area of growth for the large OTAs recently. Curious whether trivago could potentially play a role in that space in the coming years? And how would you see that looking exactly? Johannes Thomas: Yes, we have been discussing B2B here and then. Also with Holisto now having a white label platform, you could access B2B rates and build a special proposition for the B2B world and offer white labels for those who are seeking that. We work with affiliates and there is some attractive business. But we really are focused around leisure at this point in time. That's where our proposition is strong and the space is huge. And we -- simplicity as beauty, we are not doing flights. We are not doing package and so on because there's so much meat in this space. And that's where we see a lot of opportunity to grow. Long term, there's certainly options that we can look into, but the timing is not right for that. Operator: Your next question comes from the line of Naved Khan with B. Riley Securities. Naved Khan: A few questions from me. Maybe first of all, just a clarification on the outlook for 2026. When you say you expect revenue to grow double digits, EBITDA EUR 20 million. How should we think about growth in the core business, the lead gen business versus Holisto? Should we expect both to be growing double digits or a different pace? Just talk about that. Johannes Thomas: Naved, thanks for your question. So regarding Holisto, for the future, we will only guide on a consolidated level. But to give some clarity there, we expect both segments to grow double digit. And maybe it's helpful to add some color on 2026 and on the budget. As we have now entered around 27 core travel markets. And for the next year, we plan to optimize these existing markets. We are quite optimistic that these markets offer enough room for growth. And as well, we will also gradually optimize profitability. And this is reflected in our 2026 guidance with an adjusted EBITDA of around EUR 20 million. So what are the major reasons for giving us this confidence? So first of all, the market we are tackling is large, and our share is still below 1%, and this gives us a substantial runway. We are one of the strongest brands in the category, and we offer a very differentiated product, and this also creates a clear room to grow. Our brand investments are still below 2019 levels. And also there, we see a strong opportunity to invest at attractive returns. Recent and current brand investments are compounding, and we expect them to support our profitability in 2026. Wolf Schmuhl: Maybe let me build on this point. I think that's very important to explain more exactly what we mean with expansion versus optimization. In the past years and also when we built trivago, we have basically been growth-oriented, and we took profits from markets that have delivered substantial profitability and invested it into markets that we activated or reactivated. And for some markets, it goes fast. For some markets, it takes time to optimize those markets and compounding effects to make them profitable. But now when we stop expanding markets, we basically take some of the compounding effect to our bottom line. And it's a matter of optimizing country mix, marketing mix and improving our creative. And that's where gradually we see more profitability landing in our bottom line as well. Naved Khan: Super helpful on that. So maybe just talk about the compounding. What kind of improvement are you seeing in the marketing efficiency? Just give us a sense of that, it seems to be playing a role in this increased profitability. Johannes Thomas: Yes, it's something -- I mean, what we look at how much of our volume -- how much of our growth is coming from branded growth versus other channels. And by far, the majority of our growth is coming from branded growth. And this is only possible if you see compounding effects year-over-year or summer into off-season periods, and that's what we see clearly. And every year, we are investing the year after will benefit from that. That's something we have seen in the past. We are seeing it today in some markets more, in some markets less. And that's part of our optimization, what elasticity and how much compounding effects we are seeing over time. Naved Khan: Got it. And then last point -- last question is around this logged-in contribution to revenue. What are the incentives or benefits that you're giving to the logged-in so that they come back and again transact directly with you? Johannes Thomas: Yes. The most important one is private deals. If you go to trivago, you will find log-in triggers that show you, you would get an even cheaper deal if you log in. And these logged-in users, we see a higher engagement, and that's a strong signal that conversion is a strong signal for retention, for satisfaction and those users we expect to come back with a higher probability. And this share is increasing. We are increasing the amount of deals we are showing to our users. We are optimizing with our partners what's the right level of deals that we are providing to our users. So the higher the deals, the higher the conversion rate, the higher the satisfaction and we aim to find a good balance between having a margin out of that and still having a steep conversion rate improvement while we are doing that. Naved Khan: Congrats on the progress. Operator: Your next question comes from the line of Doug Anmuth with JPMorgan. Dae Lee: Great. This is Dae Lee on for Doug. First one on just AI overall. So we've seen consumers' search behavior increasingly shift across platforms and notably AI-driven tools such as like Google's AI, ChatGPT. So how is trivago positioned to defend or grow your share of top-of-funnel traffic in this type of environment? And do you see a strategic need for trivago to be present on these new experiences? If not, like what differentiates trivago's value proposition in capturing those consumers' intent versus the broader search and AI ecosystems? Johannes Thomas: Yes. Thank you for the question. I think an important one that we are observing very closely. I think very important, and that's true for us and other players we are talking to. The shift to the AI platforms is really small when it comes closer to the planning and booking process. So it's a tiny share of traffic we are seeing today. If you use it, you probably see there's a benefit of inspirational and so on. But as soon as it goes a bit down the planning and a bit more concrete and considering it's more clunky to use a chat experience to really nail down your selection. I'm not saying nobody is doing it, but we don't see like a flood of people doing this. So the traffic we get from these AI engines today is very small. It is growing. It's converting better than other traffic. So we are looking at how fast is this growing. If we look at the impact we have seen from the AI mode, for instance, in the U.S. when it got rolled out or in Europe recently, we have not seen a huge impact on any major Google metric. Our SEO, for instance, it's a small part of our business. We're not concerned of losing much SEO business in general because it's so small. But last quarter, it has not been a headwind for us. It was rather flattish. And overall, we have not seen what happened so far, which was not small, which had quite some scope, AI summaries and the AI mode didn't really have a substantial impact on what we are doing. One part is that we have built our brand. So we have lots of business coming direct and then the dependency is lower. And I think if you ask about the positioning for us in the future, I think brand is a very important answer to that. So people come to us to play with AI features to leverage AI. And I think we have demonstrated in the last 2 years how much AI is in the center of our strategy. I honestly believe we wouldn't be where we are today with our user experience and with our marketing and with our operations if we wouldn't have AI with a fairly small team of 600 people. I mentioned the example today a small compact team is doing the work of 100 people that we used to have on AI content. We've launched AI highlights, AI review summaries, AI search, which continues to improve a lot. So I hope people come to us, engage with our product. And I think it's a UX game that we have a good chance to be winning and to be ahead of the curve, whereas the big AI players are on -- they basically optimize and have very different priorities than optimizing down a vertical. If I would call out one player that I believe is leading in travel in the AI space, it is Google. Google has built out their travel vertical since more than a decade. Combining these features with their AI functionalities is something that we probably will see, but Google has a strong position as well. So they will probably shift inside their channel size, so move traffic from general search into AI, into vertical. I don't necessarily see that they are gaining market share through that. And we are present there. We are part of Google Hotel Ads. We are part of all kinds of ad formats in Google, and we are where we see attractive volumes and returns. So I think where it matters at this point in time, we are very present, and we know how the game works. If I think about the long term, it's very hard to predict what role will play a pure AI players, chatbots, agents, will they become mainstream in really complex search processes, decision-making processes where it's not obvious for me that one of the general ones will make it such a smooth process anytime soon. And therefore, I believe we are strong in brand. If we are strong in leveraging AI, this can make our business very attractive, our proposition stronger, and that's where we are playing. And I'm not hugely concerned about a flood of people suddenly switching the way and their behavior and how they search travel. It's chaotic. People have chaos when they book their trip, they look for dozens of sites. And whether they now use AI on top, we will be there when it's relevant. Dae Lee: Got it. And as a follow-up, I think in 2024 and this year, you guys try to operate with a breakeven mentality in terms of adjusted EBITDA prioritizing growth. So when you look at your 2026 guidance, EUR 20 million in adjusted EBITDA, does that embed a similar mentality? Or should we expect some like a beginning of margin expansion story given your comments about optimization and brand marketing versus expansionary? Johannes Thomas: Yes. Maybe let me build on what I said. I think this will mostly come out of the effect that we stop taking profits out of profitable markets and push it into new markets. So you basically just move the profits to bottom line and not move it into new markets. This doesn't mean we are not expanding our marketing investment and brand in general. On a relative scale, we likely will invest it less than in previous year on a relative scale to revenue, but we expect growth to be higher than our spend increase. And we are -- our -- what we explained at the beginning of the year, our general way of becoming more profitable is keeping our cost base flat and growing with our revenue on top. Margin expansion is not necessarily -- it's not part of our current projection. It's really about taking the compounding effects into our bottom line, improving efficiency in our markets and not increasing OpEx at unreasonable levels. Operator: Your next question comes from the line of [ Jack Hu Wong ] with Mizuho. Qijia Yuan: This is Jack on for Lloyd Walmsley of Mizuho. I just have 2 quick questions. First, are you seeing any uptick in bidding from Airbnb as they pivot to more full focus on hotel? And second one, how are you seeing customer acquisition costs trending in paid search, especially when we think about one of the write-downs for Kayak that happened last week? Johannes Thomas: Yes. Thank you for the question on Airbnb, they have been on our platform for a while. I think we can -- we hear about the efforts that they want to lean more into hotels. We work on the relevant inventory where there is a likeliness they get visibility on our platform. We are by far making most of our returns with hotels. Still, if you have periods where there is, let's say, a fair in a city or when you have small cities where there are few hotels, the alternative accommodations are a great complementary for our properties. We see Airbnb as an attractive partner to enable that. And then on the question of our -- of performance marketing, we have never been so dependent on SEO. So for us, the paid game was always part of where we are. We are very disciplined in paid. So we are -- whenever we have opportunities, we prefer investing into brand. We aim to keep a disciplined approach in performance. We have not seen any major inflation in the economics on performance marketing that are worth mentioning. Operator: Your next question comes from the line of Ron Josey with Citi. Unknown Analyst: This is Robert on for Ron. You guys have mentioned that AI is driving product improvements that previously required 100-plus person teams in the prepared remarks. Can you maybe double-click on this and expand on where we'll start to see these productivity gains across the P&L next year, either in the form of kind of double-digit revenue growth and reaccelerating revenues or potential cost efficiencies? Johannes Thomas: So maybe let me -- so in the past, an example that I outlined here was we had a content team of 100-plus people where we were basically editing, creating condensed information about a hotel. So it was a lot of people for -- with lots of different languages. They were summarizing what reviews said, what are hotels unique about and try to create a condensed view of a hotel. And I think that's where trivago differentiates to other platforms. We don't give you a whole lot of content. Now our goal is to aggregate and give you a distilled view on what's important to know about this hotel, so you can take a decision fast. We have you save time and money. And we had that before the pandemic. We still had a big content team, and we never rebuilt it. We have a compact small team that leverages AI to improve our images, to improve our content to distill it and in ways that were not possible before and also refreshing this on a constant basis. So accuracy of the information you find on trivago is even better. So that's, I think, a very good, very tangible example, and that's why I pointed it out and where this has created value. And I would rather see this as an opportunity upside because that improves engagement on the platform that improves satisfaction that improves conversion and that ultimately drives marketing efficiency and the ability to deliver profits. And then generally, what we say internally and what I strongly believe, we are a company that's very small and compact, and we need to be the speedboat of the industry, the fastest learning, fastest executing team in the space. And more like we with 600 people need to be as impactful as 6,000 people. So every person having the 10x impact in order to compete in a space that's big and competitive. We don't have this huge workforce that we need to optimize. That's also why your answer on cost efficiency. I don't think that is a big leverage. And if you would look at our cost basis, reducing a little bit of cost efficiencies there will not make a huge difference. It's really an upside game. And if we can deliver a few percentages more in conversion, that can be a dozens of millions that we move to our bottom line. If we do this month by 1 month, quarter-by-quarter, that -- that is what makes the business more attractive. And given its size and the amount of problems users have while they are searching for hotels, I think there's lots of upside opportunity. And that's how I would think about it. So we can rather deliver growth or profitability by leveraging AI and it's less about a cost efficiency game. Operator: Your next question comes from the line of Stephen Ju with UBS. Vanessa Fong: This is Vanessa on for Stephen. So I just have one question. And now that Holisto was officially part of the company, you are in a position to send more of your traffic to your supply partners. So can you talk about the extent of any potential channel conflicts that may or may not have risen with the OTAs? And if that's just something we need to think about? Johannes Thomas: So what Holisto is doing, and we have renamed Holisto into Trivago Deals. And for us, Holisto is now an innovation center in Israel that we are -- that we are focusing on non-core meta search products. They have their own OTA brands that have been competing before in the space. So there's not a huge difference there. What they are doing for us is building a white label booking engine that we actually offer to our partners and every partner is invited to join it from small to big. We believe more value is created for the smaller ones that have less resources to invest into conversion optimization. So we see small and medium-sized OTAs joining this product, potentially hotel chains are interested in joining that product that don't have a good converting booking funnel. So it actually creates value for our partners, end users, and that's a win-win situation that we aim to create. Operator: There are no further questions at this time. I will now turn the call back to Johannes Thomas for closing remarks. Johannes Thomas: Yes. Thank you for joining us. This quarter marks another milestone in our turnaround. Our strategy is working, and we will remain laser-focused on executing on our key initiatives. Thank you for joining today and for your continued trust and support. We look forward to keep you updated in the quarters ahead. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Jose Costa: Good day, everyone, welcome to Prio's Third Quarter Video Conference call. I am Jose Gustavo, IR Manager, and I will be host of this event. [Operator Instructions] The translated presentation is available on our IR website. The comments on the results will be presented by our CEO, Roberto Monteiro; our CFO, Milton; Chairman and COO, Francisco Francilmar. After the presentation, they will be available for the Q&A session. [Operator Instructions] This event is being recorded and will be available on our IR website. This presentation contains information based on future estimates and forecasts based on assumptions adopted by the company, which can change. It should not be considered fact or be used as a basis for financial projections beyond the plans expressed by the company. Now I'll give the floor to Roberto Monteiro, our CEO. Roberto Monteiro: Good afternoon, everyone. Welcome to Prio's Third Quarter 2025 Earnings Call. Well, I wanted to give you an overview of summary of our third quarter results. I believe we had some good things and some bad things. I'll start with the most difficult, the most challenging point, which was the Peregrino shutdown. That would be the bad thing. We had 2 Peregrino shutdowns during the quarter. One of them was a scheduled shutdown in July. So that was okay. That's -- that was normal operation for the field. But then still in this quarter, we had a second shutdown at Peregrino lasting 63 days. This was due to a regulatory issue and so on and that was a major negative point for us during the quarter. On the other hand, we had a lot of very, very positive points in Q3. This quarter, I think this was the company's best quarter in the other assets. So considering Frade, Albacora and TBMT field. Trading also did very well from a funding perspective, the company also did very well. So we had all of these very positive aspects with one negative point, which was the Peregrino shutdown. I'll go into that later, but -- and obviously, among these positives, we also had Wahoo, which also made great strides. I will address these points one by one. And then I'll pass it on to Francilmar and Milton to go into more detail in their specific areas. So speaking briefly, Peregrino, we already talked about it. We had a 63-day shutdown. We recovered, and we recently resumed production. The field is producing well. It is producing more than 100,000 barrels per day. It is producing around 106,000 barrels daily. So it came back well. It continues to do well. We had already reached that number before the shutdown. So it came back well in line with what we had projected. And then we'll talk a little about the next steps for Peregrino field. Moving on to our operations. The first one I would like to draw your attention to was Wahoo Field. We finally obtained an installation license at Wahoo Field. We have already contracted and pulled in the [indiscernible] of the vessel called amazon or pipeline. Everything is going according to plan, 2 wells have already been drilled. The results are in keeping with what we expected. So everything is going well on the Wahoo work front. Another front that I thought was positive this quarter was Albacora's operating efficiency. We had a record 91% for the quarter. We had a month with 97%, if I'm not mistaken, and another month of 94% within the quarter. So it's very positive. However, in the last month of the quarter, in September, we had one compressor failing, which we already knew with our Leste field at Albacora. Compression is the only system for which we still do not have adequate redundancy. So we had downtime and will recover soon. Unfortunately, these are items that we call long lead time items. Items with long delivery times, which we buy abroad. But anyway, it's addressed. They're going to solve it, we've already bought it, it's going to arrive, we're going to solve it. But I thought was positive is that we had one problem. It was totally focused on one point. So all the work we've done at Albacora over the last 12 months is starting to bear fruit. So that's why Frade was worth bringing this up as a major positive highlight. We performed a workover in TBMT 6, another well that had had problems with the pump. So the Polvo TBMT cluster returned to producing 14,000, 14,500 barrels daily and as it had been producing last year before all the problems we had there with workovers, IBAMA and so on. Moving a little more to the corporate side. We issued -- well, actually, there were 2 issuances. We issued a local debenture but close to this quarter, we issued it in the second quarter. It closed in the third quarter. And we issued $700 million in bonds, which we issued in the third quarter and the money will come in during the fourth quarter, along with the repurchase of a large portion of the bonds that would mature in 2026. So with that, the company improved, became even stronger from the point of view of cash position, long-term capital structure and so on and so forth. As for the company's results, when we look at them, our EBITDA totaled $320 million in the third quarter which was more or less in line with what we generated in the previous quarter. What happened here is that Peregrino -- the shutdown at Peregrino, of course, that obviously hurt us, but as we reduced inventory and sold oil that was in stock, we managed to maintain in Q3, a figure that was more or less similar to the previous quarter at $320 million and we had a net income of $92 million. What did worsen significantly from one quarter to the next, obviously, and moving on to the next slide was the lifting cost. The lifting cost for this quarter was 17%, actually, not 17%, $17.4 per barrel. And it did get worse because we decided to include all costs related to Peregrino as and expensed in this quarter. So we are not going to carry anything forward. The impact of the Peregrino shutdown is here in the third quarter. Actually, not all of it because Peregrino came back on, it was more or less in mid-October. So there will be those 15 days in October that will go into the next quarter, but then it is done. We could have accounted for it differently, but we didn't. We didn't do any of that. Our approach was to report everything as an expense and then our lifting cost in the third quarter rose to $17 per barrel. The fourth quarter will be impacted by those 15 days of October. But after that, we will be 100% clear. Another interesting draft to look at on the slide, Slide #4, is the one on the right which is production. We see that total production for the quarter was 88. However, the company's production, which would be those ores excluding the gray part of the bar, which would be the assets operated by Prio. We see that production posted higher numbers than in the last 3, 4, 5 quarters. So I think that here, we can see our work, the fruit of our labor in terms of our operations. As I said, our cash position is very strong. We closed the quarter with $1.7 billion. And today, our cash position is even higher than that. We have a little over $2 billion in cash. So we are fully prepared now for the closing of Peregrino and for the whole of next year. Milton will talk about this, but we will have almost no maturities next year. Another index that also worsened slightly was our debt largely due to the Peregrino problem. And we managed to sell 8 million barrels or so -- 8 million or so just in line with last quarter. So we could have done better if Peregrino had maintained production. So this is a summary of the quarter. I think we had some very positive development, especially with regard to our operations. But we had this Peregrino issue that ended up tarnishing the quarter. Peregrino has already been resolved. We will talk about it later, and we will address the next steps for Peregrino. The company as a whole, I think, is well prepared for the coming quarters, for the coming years and beyond. I'll stop here and hand over to Francilmar, who will go through the assets one by one. Milton will talk about the financials, and I'll come back to wrap things up. Thank you very much, Francilmar? Francilmar Fernandes: Hello, everyone. Thank you, Roberto. I will start on Slide 5 with the overall performance of our assets. It was a pretty busy quarter we had here. We had some positives and some negatives. Overall, we ended up producing less. We had a major impact with the shutdown at Peregrino field and Peregrino is currently the company's largest producer. Had significant developments at Albacora and TBMT. And really relatively stable quarter in terms of efficiency at Frade. But overall, we ended up having a strong negative impact on the lifting cost. It was $17. I can't even remember when we last had a number like that. But it was really impacted by the shutdown of Peregrino where we had a slight increase in costs to solve the problems and with no production. So that really had an impact, but it was a one-off. We hope that in the next quarter, we will be able to capture the improvements. We will work hard so that in the coming quarters, we can return to the number that we think is minimally comfortable for us to be at. Moving on to Slide #6. So we'll go over a few more details about Frade Field. This quarter, we had good field efficiency exceeding 97%, which we consider a good number for Frade but production was impacted by the natural decline of the field. We suffered a little bit coming out of that compression problem we had. But it has been fully resolved. We have no problems at the field. Today, we are operating at 100%. We're working very hard to adapt the unit there, making the final adjustments so that we can receive the oil from Wahoo. So few adjustments, commissioning of some materials that were already installed in the past. So nothing too out of the ordinary. Moving on to Slide 7, updating you on Polvo and TBMT. It was a quarter of deliveries of evolution at the field. We completed the workover of those 2 wells that had been idle since last year when we received the approvals. After that, we had the failure of a third well, TBMT 6. And as we had obtained approval for a good number of workovers for many wells, we quickly mobilized the rig. Within the same quarter, we sorted and repaired this well and is producing normally. And as a result, we already have operating efficiency over 90%, in fact, much better than that today and with full production. We're producing a little over 14,000 barrels, and we should still have relatively stable production, but a natural decline of this field. Just much more controlled for the coming quarters. On Slide 8, at Albacora Leste field, it was a quarter of relatively good performance. In fact, the best performance we have ever had at the field. And this is thanks to the repairs we made, all the effort that was made to repair or improve the power generation system and the water injection system. Our weakness remains the compression system. We have already repaired some things, but there were setbacks and others. We're still waiting for the compressor we purchased a brand new one. These are products and equipment with very long lead times. We are also facing a problem with the power system, the transformer which is connected to the compressor, but we are working hard to resolve this in the next quarter. So with that, we're able to deliver this level of efficiency, but still with some fragility in terms of redundancy. By delivering this in the coming quarters, we will be in a more stable state of production and operating efficiency for the field. Moving on to Slide 9. Let's talk a little bit about Peregrino in general. Peregrino had a quarter marked by downtime. By the field that was closed. So we stopped production for 63 days this quarter, which had a profound impact on production. And we made a huge effort to repair to try to have it back on as soon as possible. But there was a lot of physical work there repairing lines, replacing sections, repairing various systems that we had to handle to meet the requirements of the law. That was overcome. We joined forces with the operator, both people who are working on the transition and people who work some of our units that we redirected there and the suppliers as well. So all the focus was on that. That's what are under the bridge, and we overcame this challenge. Now we are working to finalize the transition. We hope to have news very soon. We have a team on board and the team at the office so all the final details are being finalized so that we can move forward and start operating the asset, maintaining efficiency, safety and smooth operations. Moving on to Slide #10. Updates on Wahoo Field. This period also saw significant progress. We received a license to install the subsea system, the connection or, as we call it, the subsea tieback and we mobilized the vessels both the ship for laying the rigid pipeline and the ship for laying the flexible pipelines as well as installation of the subsea equipment that was ready here. We have already begun installing some equipment and both the rigid and flexible pipeline vessels are being released for operation and undergoing loading preparation and the entire mobilization phase that is part of the schedule. The next phase now for the subsea part is to do the installation at the field itself, laying the rigid and flexible pipelines, all the various equipment that we install on the seabed, make the connections to the wells and then schedule commissioning further down the line. So everything is going according to schedule. We have already advised the market, and we will keep you updated on the next development. The next step, in fact, is the first oil. In addition to that, there is something I haven't mentioned in detail, which was the rig. We finished drilling the second well. We are completing the second well and later on, we will drill the third and fourth wells trying to apply the lessons we have already learned from these 2 wells. Overall, in terms of the reservoir between pros and cons, the result is in line with what we were expecting. We need more data. So we will still continue to study and cover the area to check for additional opportunities and have a better understanding of the reservoir. This happens in every well. So these are ongoing issues that will be present as we continue to develop the field. And with that, I turn the floor over to Milton. Milton Rangel: Thank you. Now on Slide #11, we talk about Prio's financial performance in the quarter. Our total revenue stood at USD 607 million. Brands reference in the quarter was 68.3%, with the equivalent FOB brand for sale at 64.15% and the quantity sold in the quarter was 8.8 million barrels. This helps us understand the total revenue of $607 million with FOB revenue of $566 million. What is important to highlight here for this quarter. Well, as we have already explained, Peregrino suffered a significant impact this quarter. We had 9 days of scheduled downtime in July. And since August 15, until mid-October, we had the intervention or the inspection in Peregrino and the field's production was interrupted. We had a shutdown. Therefore, the 15 days in August plus the entire month of September, in addition to the 9 days in July, brought an important impact to our financial statements. For the purposes of COGS, we recognize the COGS of the Peregrino or COGS for Peregrino for July and August and the cost for September, which would be the OpEx for September of around $20 million is included in the line of other operating expenses. This is purely accounting since we did not have associated production and revenue. Therefore, we do not recognize COGS. So this is recorded as a loss in these other operating expenses. When we show the lifting cost of $17.4, this already includes both with which is the COGS of the field reflecting this loss, just to give a complete view of the company's lifting cost performance which driven by lease losses or this lack of production coming from Peregrino for the consolidated numbers to $17.4. With that, our EBITDA was around USD 309 million with a margin of 55% adjusted EBITDA, excluding these nonrecurring items of [ $320 million ] with a margin of 57%. We also recorded an increase in financial results, which I think is worth going over quickly. We recognized USD 14.5 million in the quarter related to hedge transactions that were carried out mostly in June, July and August. Basically, the premium paid as the oil remained high, these options were not exercised. So it is the value of the premium of these options. And also, we had an impact of around USD 23.5 million related to the marking of unsettled hedges. And these are positions from September, October and November, which due to the fluctuation in the value of these hedges, we posted as a negative this quarter, although this has not been something cash or something fully realized. In addition, the company experienced an increase in gross debt which amounted to approximately USD 4.6 billion, leading to a slightly higher financial expense, something around $68 million in the quarter, which helps to explain much of this increase in financial expenses. Now moving on to the next slide, #12, we talk about funding. I'm already looking at the central charge on the amortization schedule. What is important for us to note here. Well, we have a large amount in 2026 of USD 600 million referring to our bond maturing in the middle of next year -- in the midst of 2026. Therefore, it's important to highlight that in October, we issued a new bond. We made a tender offer on top of the existing bonds, which had an acceptance rate of around 70%, meaning that we bought back this amount of $430 million, $431 million, leaving around USD 170 million still on our balance sheet for this original bond, which will mature in June. And with that, we issued USD 700 million in a new transaction this time, senior unsecured. While the previous bond was senior secured, and now we are migrating to the senior unsecured modality with a 5-year term, a rate of [ 6.75% ] I mean $1.65 per year. And that being in the next quarter is a subsequent event because it occurred in October. But we will already see a change in this amortization profile in the next presentations. Moreover, we also issued USD 539 million in debentures swapped for BRL. There is total exposure of this amount to dollar over the term of the 2 series of the debentures. And we had already done a lot of work to bring the maturities of working capital lines to the years of 2027 and '28 as we can see. Therefore, with this bond issue, our 2026 has virtually no debt. The value is very small. And we have a lot of peace of mind at a very important moment of capital allocation. When we have Peregrino coming along, the closing of 40% followed by the other 20%, we also have the under Wahoo's CapEx. Before, this is a moment of tranquility for the year of 2026 in terms of maturity. Well, duration of [ 2.78 ] in the third quarter and an average cost of debt of [ 6.35 ]. With the bond, we will be able to increase this duration a little bit more, considering this 5-year term with a duration of around 4.4 or 4.5 years. Moving on to the next slide here on net debt variation or proxy for our cash generation. We are coming out of net debt in the second quarter of USD 2.77 billion, our adjusted EBITDA ex IFRS of USD 320 million. As we said earlier, working capital expenses of $75 million, largely explained by payments to suppliers and also because we made several sales but have not yet received the cash, therefore, you still have a large amount of receivables coming along. CapEx largely relates to development of Wahoo, which is now in full swing. Well, we had the workover in TBMT, integrity expenses in Albacora Leste, and there were also issues related to the Peregrino shutdown. USD 20 million of this OpEx from Peregrino that is outside this adjusted EBITDA. So to make up the cash, it enters here in a separate column. Share buyback of USD 7 million and financial result of $80 million, largely here by $14 million of the premium paid in hedge with approximately $66 million approximately in interest or financial expenses from our debt portfolio. And with that, we arrived at a net debt of USD 2.8 billion at the end of the third quarter. We're now Slide #14 is on leverage. We basically measure here the net debt indicator to the company's adjusted EBITDA. In the third quarter, we reached 2x, which was slightly higher than the second quarter of '25, which was 1.8. Well, this slight increase I would say that is largely associated with the Peregrino shutdown generating less EBITDA, less cash generation. So it pulls this indicator up a bit. But still well below the 2.5x limit we have in our covenants. It's important to mention that we have an important event related to the closing of Peregrino that should take place probably in February or maybe even sooner, and we are in a very comfortable cash position, which currently is about USD 2 billion and with the Peregrino closing, bringing in an additional 40% of Peregrino's position. With Wahoo coming in over the next year, we expect strong cash generation and considerable financial robustness for the company in the coming quarters. With that, I'll hand over to Roberto to talk about ESG and the next steps. Thank you. Roberto Monteiro: Thank you, Milton. Well, I'm going to talk a little bit about environment and society, and then we will talk about the company's next steps. We continue to work on the sustainability front through the -- through our Prio Institute, working on programs such as the open sea initiative, which connects local fishermen to the oil and gas sector and so on. On the safety side, we conducted an emergency drill with the Navy, IBAMA and Albacora last year, which went very well. We held a second meeting on safety knowledge bills and also trained competent personnel who work at heights. We conducted SGSO, SGIP and SGSS audits. So safety is always a nonnegotiable thing for us and very important item in our culture. Within the health and well-being pillars, we achieved through our traditional programs some important things. We promoted a race, we had our first Prio owned race, which took place at a Jockey Club. It was super interesting cardiological and preventive evaluations, yoga and so on. In the third quarter, I mean, we had sponsorship events in the third quarter like racing and other events. And we also sponsored other events like Prima Facie and Rio Gastronomia. Well, now moving on to the next steps, Slide 16. Here, we have almost the same steps as shown in the last quarter. The focus on safety and health will always be present as will M&A opportunities. And in the middle, that is important within Albacora Leste's operating efficiency, we have promised in advance in this operating efficiency. I think it has happened. Today, we have a very specific issue related to gas compression. But the Albacora Leste field has been operating in a very stable, very safe, very consistent manner. So I think this is already a gain. We still have to resolve the gas compression issue. But I think we already reached a new level at Albacora Leste. At Wahoo, we have made very good progress in the 2 wells we have already drilled. The results were very much in line with what we expected. As for the pipeline, the boat is already in Brazil, and it will now undergo inspection by IBAMA, so it can go to the field to start the pipe laying. It will load the pipes up to launch line. So everything is on track and moving forward so that the first oil is expected to come in between March and April as we promised in the material fact. Costs are also very much aligned with no major setbacks. And the last point here that was pending is the closing of Peregrino. This closing of Peregrino is contractually scheduled for February of next year. However, now after this introduction and the return into -- the return back into operation, we have worked together with Equinor and ANP right after we resumed production, authorized the closing, meaning that today, there are no impediments from their regulators or any competent agency. And so today, we are ready for the closing as ANP has already approved it. And then there is a transfer of [ Elo ], but this will happen right afterwards with IBAMA. Therefore, today, we are ready for the closing of Peregrino, which is supposed to happen in February of next year. Today, we are working with Equinor to check the possibility of anticipating the closing. Nothing is settled yet but we are prepared since it makes a lot of sense to us. I mean, taking charge of the operation and start working to capture synergies in the field. In the coming months, our focus will be very operational as you can tell. Of course, M&As are always important, but it will take a back seat during the next few months. And as I said, our focus remains on the operational issues. And very soon, we will go from 115,000 barrels a day to slightly over 150,000 barrels a day with the enter of Peregrino and later with Wahoo, we will reach 190,000 barrels a day. And then with the remaining 20% from Peregrino, we will surpass 200,000 barrels a day. Therefore, the next 6 to 8 months will be crucial for us to reach these 200,000 barrels a day with great focus on the operational side. Now I'll stop here by thanking our employees and society and shareholders are always with us. And now, I will open the floor for questions. Thank you. Operator: Hello, everyone. Welcome to the Q&A session of our earnings conference call. So we are opening the floor for questions. First question from Gabriel Barra with Citi. Gabriel Coelho Barra: We'll try to focus on one question, but kind of a long one regarding the company's capital structure. I think that this was mentioned that the company's cash position, as the closing of Peregrino to happen in the short term. And in treasury, you have a high percentage of the company in the buyback that you've done recently. So the first point I would like to understand is why not cancel the shares now? Just trying to get a sense of why not canceling the shares and get to the 10%, given that you're very close to the number. Anything related to the closing because it seems to me that the cash position of the company is very comfortable. So I would like to understand the company's strategy regarding that. The second point, and perhaps it's a philosophical discussion we've had with the company for quite a while now. The company is also a very strong company in M&A deals, creating a lot of value to the shareholders, given a very successful execution of capital allocation. But when we look at the company today, as Roberto has just said, we are getting close to 200,000 barrels daily and with a very strong cash generation starting next year. And with our CapEx plan that accommodates the operating cash generation. So how should we think about dividend payout and share buyback looking forward, Roberto? Because I think that the company has slightly more leveraged now. But looking at cash generation, it seems that you are kind of comfortable as of 2026? So if you could speak about shares in treasury, how we should think about that and how we should think about dividends looking forward. These are the main 2 points of my question. Roberto Monteiro: Thank you, Gabriel. One way I'd like to look at the company is through the forecast for the next 12 to 18 months, at least the end of next year. And the forecast of cash generation and consequently, our cash position until the end of next year. So even with oil slightly stressed at $60 per barrel. Some people say it can go temporarily to $50. But just to do an exercise, considering $60 per barrel, we consider that our minimum cash for the company if we don't do anything and I mean, if we don't have any M&A deal or any other investments other than what is already in the radar investments in Wahoo, Peregrino, Albacora, Frade, everything is in the plan. So we would have a cash position, a minimum cash position which is always greater than $900 million. So clearly, we have a stronger cash position for us to think about the next 12 months. So there are 2 things that we can do. One of 2 things. We can have M&A deals, like I said, I don't think that this is going to be our focus in the coming months or quarters. This is not something we are working actively on. And we can reinvest in our own company because today, we find much superior returns to returns we've had in the past in M&A deals by buying back the shares of the company. So this issuance was very important to us because we kind of equalized all maturities. Now we have a very comfortable cash position for the next 12, 18 months. And looking forward, our cash position is very comfortable. And a lot of leeway there. And with that, as soon as we start seeing this leverage curve declining. I wouldn't like to go back to buying back the shares when the curve is upward and we don't know where it is going to stabilize. But the moment it stabilizes and the moment we understand that it's starting to drop and we'll look at that on a monthly basis, then I think it is the right moment for the company to go back to the market and start the buyback. And if we do repurchase the shares, we have to cancel them. So canceling the shares to me, is kind of a secondary move. The decision is whether the company should go back to share buyback. It should happen eventually. But due to financial discipline, it is important for us to expect that move when we see the leverage starting to invert the leverage curve.
Operator: Good day, and welcome to the One Stop Systems, Inc. Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this call is being recorded. As part of the discussion today, the representatives from OSS will be making certain forward-looking statements regarding the company's future financial and operating results, including those relating to revenue growth as well as business plans, bookings, the company's multiyear strategy, business objectives and expectations. These statements are based on the company's current beliefs and expectations and should not be regarded as a representation by OSS that any of its plans or expectations will be achieved. Please be advised that these forward-looking statements are covered under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and that OSS desires to avail itself of the protections of the safe harbor for these statements. Also, please be advised that the actual results could differ materially from those stated or implied by the forward-looking statements due to certain risks and uncertainties, including those described in the company's most recent annual report on Form 10-K, subsequent quarterly reports on Form 10-Q and recent press releases. Please read these reports and other future filings that OSS will make with the SEC. OSS disclaims any duty to update or revise its forward-looking statements, except as required by applicable law. It is now my pleasure to turn the conference over to OSS' President and CEO, Mr. Mike Knowles. Please go ahead, sir. Michael Knowles: Thank you, Andrew. Good morning, everyone, and thank you for joining today's call. OSS delivered a strong third quarter with significant consolidated revenue growth, higher gross margin and positive EBITDA and net income. Our third quarter and year-to-date performance underscore the solid foundation we have built as we capitalize on increasing demand from both defense and commercial customers for our rugged Enterprise Class compute solutions. Since implementing several strategic actions in 2023 and 2024 to reposition OSS for growth, we have seen continued improvements in our financial and operating results. These actions included strengthening our leadership team with proven defense industry executives, launching a multiyear strategic plan, rebuilding our go-to-market approach, expanding our sales pipeline and driving higher gross margins. As a result, we have experienced positive bookings momentum over the past 12 months, translating into increased sales and positive operating leverage. I'm extremely proud of what our teams have accomplished and believe we're well positioned for continued growth and strong profitability in the remainder of 2025 and into 2026. We continue to pursue strategic growth opportunities that leverage our high-performance edge compute solutions to meet the growing demands of AI, machine learning, autonomy and sensor fusion at the edge. Our pipeline is expanding across leading defense organizations and advanced commercial enterprises that seek trusted, proven partners like OSS. On a trailing 12-month basis, our OSS segment had a book-to-bill ratio of 1.4. After a historic level of bookings in the second quarter, third quarter trends reflected expected quarter-to-quarter variability. Our growing pipeline and customer engagement activities remain strong across both defense and commercial markets. Our second quarter performance also reflects our continued focus on fulfilling recent awards, investing in next-generation product development and advancing new program opportunities that are expected to contribute to positive bookings growth in 2026 and 2027. Overall, we are tracking ahead of our plan in product development milestones, which gives us confidence in our long-term growth trajectory. During the third quarter, we continued to support and increase our exposure on the P-8 Poseidon Reconnaissance aircraft. To date, we have recognized lifetime contracted revenue over $50 million on the P-8 platform. In addition, we had previously announced a 5-year sole-source supplier agreement and a 5-year extension support, which involves equipping the P-8 aircraft and ground base stations with high-capacity flash storage systems, spare flash storage canisters and related support services. We expect continued orders from both the U.S. Navy and our defense prime customer into 2026. Another highlight is our growing relationship with the leading medical imaging OEM, underscoring the growing relevance of our compute and storage solutions in health care. We believe there are opportunities to expand our presence with this customer beyond the current 5-year expected program value of over $25 million. Additional booking highlights include the September announcement of an initial $500,000 contract with Safran Federal System with additional orders expected totaling over $3 million. While smaller in size, this award establishes a new relationship with one of the world's leading high-technology defense contractors, and we see meaningful opportunity to expand this partnership over time. In October, we announced an initial $1.5 million order from a Canadian-based integrator of passenger cabin systems for the commercial aerospace industry. We expect this platform to contribute approximately $6 million in total revenue over the next 3 years. This award highlights the growing demand for high-performance compute in the commercial aerospace sector, an increasingly important component of our commercial market strategy. Across our pipeline, demand remains strong, supported by growing interest for our Enterprise Class compute solutions. While the ongoing government shutdown may impact the timing of near-term bookings, we view this as a timing issue, not a demand issue since OSS remains the sole source provider on affected platforms. As a result, we expect defense-related bookings to improve as conditions normalize, though timing may remain uncertain. We also continue to see signs of stabilization in our European markets that are served by our Bressner operating unit. Recent bookings and revenue within our Bressner segment have been in line with our targets, and Bressner remains on track to achieve higher sales and profitability for 2025 as compared to last year's results. Looking ahead, we believe OSS is uniquely positioned to capitalize on multiyear growth opportunities driven by accelerating adoption of artificial intelligence, machine learning, autonomy and sensor fusion at the edge. As these requirements become increasingly central to defense and commercial innovation, customers are turning to trusted partners like OSS with proven expertise in rugged Enterprise Class compute solutions. In support of this, we increased R&D investments in 2025 to capitalize on emerging opportunities we see developing within our markets. Our high-wattage, high-density expansion products such as Ponto are currently under evaluation with several potential commercial customers as we focus on delivering high-density, high-wattage GPU and AI accelerator solutions that address the growing need for performance-intensive compute in data-rich environments. We're also encouraged by recent traction in commercial aerospace, highlighted by our recent award, which underscores how OSS technology is extending into new regulated markets where reliability and compute performance are critical. Looking ahead, we expect to further broaden our commercial product lineup with the planned launch of 2 new Gen 6 systems in November, designed to bring even greater processing capability and efficiency to our customers. Together, these initiatives demonstrate how we are executing on our strategy to leverage our rugged Enterprise Class engineering heritage into fast-growing commercial segments, driven by AI and data-centric workloads. We continue to execute against a growing pipeline in both commercial and defense markets. We recently attended the Association of the U.S. Army or AUSA conference in Washington, D.C. and introduced a newly developed portfolio of products that leverage the advanced compute and low latency advantages of commercial data centers. In addition, we showcased our wide array of scalable AI/ML, sensor fusion and autonomy compute solutions, delivering leading compute and latency capability and advantage size, weight, power and cost, or SWAPC. These solutions generated strong interest and multiple new engagements across Army and OEM programs. We also recently attended the NVIDIA GTC Conference in Washington, D.C., where we highlighted OSS' expanding capabilities in high-performance GPU and AI accelerator expansion systems. Our participation at GTC reinforced OSS' growing presence within the AI compute ecosystem, where our technology complements leading platforms from NVIDIA, Broadcom and Astera Labs. The conference provided valuable engagement with commercial and government customers exploring next-generation architectures for AI, machine learning and data analytics at the edge and further validated the role OSS can play in enabling high-bandwidth, low-latency compute for commercial applications. The visibility relationships we're developing through these engagements are creating meaningful opportunities to expand our role on next-generation platforms. For example, our delivery of a rugged compute solution for combat vehicles for the U.S. Army remains under test and evaluation, which is expected to continue for the remainder of the year. We are encouraged by the growing number of multiyear platforms we now support, adding to our portfolio that includes the likes of the P-8 for the U.S. Navy, the medical imaging platform and the Autonomous Maritime program for a leading defense prime in Asia. Pursuing these types of recurring programmatic opportunities remain central to our long-term strategy. To accelerate our growth initiatives, we strengthened our balance sheet after quarter end through a registered direct offering, raising approximately $12.5 million in gross proceeds. This enhanced financial position, combined with improving fundamentals provides the flexibility to fund operations, pursue strategic opportunities and capitalize on expanding global demand. Looking ahead, our solid execution and year-to-date performance give us the confidence to raise our full year 2025 consolidated revenue guidance range from $59 million to $61 million to $63 million to $65 million, while reaffirming our expectation to achieve positive annual EBITDA. I'm pleased with how 2025 is shaping up. Our turnaround strategies are progressing faster than expected, reflecting strong demand and operational execution. As we look ahead, we remain focused on accelerating growth, expanding profitability and creating long-term value for our shareholders. Finally, I want to thank our entire team for their dedication, innovation and relentless focus on delivering results for our customers and shareholders. So, with this overview, I'd like to now turn the call over to Dan. Dan? Daniel Gabel: Thank you, Mike, and good morning to everyone on today's call. Our Q3 results reflect a number of important financial milestones. One, we achieved robust top line growth, increasing revenue year-over-year by 36.9% at a consolidated level and by 43.4% for the OSS segment. This growth reflects strong demand for our products as well as our ability to execute on that demand to meet our customers' needs. Two, we achieved positive quarterly EBITDA in both of our operating segments and positive GAAP net income at a consolidated level. These results were supported by strong gross margins, reflecting the value that customers place on our differentiated technology. After the quarter closed, we also strengthened our balance sheet by securing $12.5 million of gross proceeds through a registered direct offering of common stock. This offering strengthens our balance sheet, provides flexibility around working capital to support our growth and positions us to pursue a disciplined M&A strategy in 2026 and beyond. We believe the company is in a strong position. And with a solid backlog of orders, we are on track to achieve our increased full year guidance and to execute on our robust growth and profitability objectives. Now, for a quick overview of Q3 2025 financial performance. For the third quarter, we reported consolidated revenue of $18.8 million compared to $13.7 million last year and $14.1 million for the 2025 second quarter. The 36.9% year-over-year increase in consolidated revenue was a result of approximately $2.8 million of higher OSS segment revenue and $2.3 million of higher Bressner segment revenue. Third quarter sales were above our expectations, and we expect continued strength in both revenue and profitability in the fourth quarter of 2025. Consolidated gross margin in the third quarter was 35.7%. As a reminder, gross margin in the prior year quarter included a $6.1 million inventory charge in our OSS segment. Excluding the inventory charge, gross margin for the 2024 third quarter was 32%. On a segment basis, gross margin for the company's OSS segment improved to 45.6% compared to gross margin adjusted for the inventory charge of 43.2% for the same period a year ago. The 2.4 percentage point increase was primarily due to a more profitable mix of products shipped this year. Year-to-date, OSS segment gross margin has benefited from both operational efficiency and a favorable product mix. We continue to expect some level of variability in gross margins quarter-to-quarter based on absorption, product mix and program life cycle. On a sustaining basis, we continue to target OSS segment margin in the mid-30s to low to mid-40s. In the fourth quarter of 2025, we anticipate OSS segment margins in the upper end of that range. The company's Bressner segment had gross margin percentage of 26% in the third quarter. The 400-basis point increase from the same period last year was primarily due to a more profitable mix of products shipped in the quarter. Total third quarter operating expenses increased 22% to $6.1 million. This increase was predominantly attributable to higher R&D expenditures, reflecting targeted investment in new product development. For the third quarter, the company reported GAAP net income of $0.3 million or $0.01 per diluted share compared to a net loss of $6.8 million or $0.32 per share in the prior quarter -- prior year quarter. The company reported non-GAAP net income of $0.7 million or $0.03 per share compared to a non-GAAP net loss of $6.4 million or $0.30 per share in the prior year quarter. Adjusted EBITDA, a non-GAAP metric, was $1.2 million compared to an adjusted EBITDA loss of $6 million in the prior year third quarter. Turning to the balance sheet. As of September 30, 2025, OSS had total cash and short-term investments of $6.5 million, $1 million of borrowings outstanding on our $2 million revolving line of credit and a consolidated balance outstanding on our term loans of $1.2 million. After the third quarter ended on October 1, 2025, OSS completed a registered direct offering with participation from certain new and existing institutional investors, resulting in gross proceeds of approximately $12.5 million before deducting placement agent commissions and other operating expenses. For the 9 months ended September 30, 2025, OSS used $4.9 million in cash from operating activities compared to operating cash flow of $2.1 million for the 9 months ended September 30, 2024. The change from prior year period was primarily due to the timing of working capital, particularly receivables associated with our revenue ramp, partially offset by higher net income. As Mike mentioned, the company has increased its 2025 full year financial guidance due to stronger-than-expected bookings over the trailing 12 months. We now anticipate consolidated revenue of $63 million to $65 million for the full year 2025 compared to prior guidance of $59 million to $61 million. We expect OSS segment revenue in the range of $30 million to $32 million, representing a 22% to 30% increase in annual OSS segment revenue. and we expect the company to achieve positive EBITDA at a consolidated level. As we move through the final quarter of the year, we remain focused on disciplined execution, including managing our supply chain and achieving our planned production ramp. We also remain focused on continuing to drive growth by investing in our technology and securing new platform opportunities that can provide sustained multiyear revenue stream. I look forward to updating you on our success. This completes our prepared remarks. Operator, please open the call for questions. Operator: [Operator Instructions] Your first question is from Brian Kinstlinger from Alliance Global Partners. Brian Kinstlinger: Solid results. As we think about the uptick of revenue in the second half of the year, how should investors think about the seasonality going forward for Core OSS in light of the strong bookings' execution, but also as we think about the government shutdown? Daniel Gabel: Yes. I'll start with the seasonality and then Mike can talk a little bit more about the government shutdown. So, in general, we've seen this consistent pattern where we tend to see higher revenues in the second half of the year just based on timing of bookings. As the government goes into the holiday period, you tend to see a bit of a slowdown in bookings, and so, just the timing of that tends to drive second quarter revenue or second half revenue higher than first half. We'd expect that to continue as we go into 2026, probably a somewhat moderated ramp compared to what we saw in 2025, but still somewhat of a ramp as we go through the year. Michael Knowles: Yes, Brian, and we're -- with the kind of the strong bookings we've had this year and as we close out the year, we'll expect to be starting next year with a little bit more backlog. So, we think while we had a fairly decent sized ramp this year, as Brian mentioned -- or as Dan mentioned, hopefully that, that backlog and the way we'll prosecute will soften that. A bunch of that will be dependent on the government shutdown here. As we may have noted prior, we have everything in backlog we need to achieve our guidance for 2025. And the bookings that we are making now are -- will further support that and/or build into backlog for next year. And the main bookings that are affected for us by the government shutdown are anticipated sole source awards. So, we won't be losing opportunity. We'll just -- we'll be affected by time. Brian Kinstlinger: Got it. And then, maybe you can update us on the data center market opportunity and the advancements you're making. I mean that market has seen unprecedented demand in the last few months. And then, maybe also at a high level, touch on the situational awareness technology procurement evaluation by the Army. I don't know if that's been able to progress, given the government shutdown, but that was something obviously of importance to the company. Michael Knowles: Yes. Great, Brian. Yes, on the data center side, as we had noted prior and in the remarks here, we launched Ponto, which is a bigger version of our standard 4U GPU expansion solution. And so that product is under evaluation by a couple of customers, specifically in these kind of data center markets where they're looking for this opportunity for big GPU and compute expansion. So we're -- we've got product in that market. We've got outreach. We've got interest. We have people testing. So, we'll look through the end of this year and into the first half of next year to likely and hopefully see that transition into awards and in backlog. And then as we noted in this call, we'll be augmenting that with bringing forward some of the new PCIe Gen 6 and some of the other new technologies that will be launching into those data center architectures. So, we'll be well positioned with multiple products across that to leverage into that market. On the Army situation awareness side, that testing continues on. As you noted, yes, anything that had been going on now has stalled as a result of the government shutdown. So we'll be losing time on their evaluation as they went through. Things are being progressing and tracking well. The Army has also seen how they could use our distributed compute system for that solution in multiple other ways. So it's created other opportunities that we will look to prosecute coming into 2026 and beyond to leverage our position in the technology across those. So we'll look for hopefully more news on that in the coming year and where that could progress to. Operator: Your next question is from Eric Martinuzzi from Lake Street. Eric Martinuzzi: Yes. It was good to see the OSS segment come back so strong there. That was a terrific recovery. Obviously, that was something that you guys have been -- or investors have been patiently waiting for. But actually, I wanted to ask about Bressner. That was outperformance at least versus what I was estimating for the third quarter. Can you tell us what was behind that? And then if -- were there any pull forwards out of Q4 or maybe point us in a direction for where we expect the final quarter of the year for Bressner? Daniel Gabel: Yes. Bressner has been performing strong. We've seen some nice recovery in their industrial end markets and expect continued strength as we go through the year. FX has been a tailwind to Bressner's segment revenue. In the third quarter, they grew by about $2.3 million, about $600,000 of that was due to FX. The other $1.7 million was growth on a constant currency basis, just really based on strength in their end markets and some of the larger products or projects that they've been executing on. And so, we continue to see Bressner performing well and see strength as we close out the year and go into '26. Michael Knowles: Yes, Eric, I'd just add, right, the economy hasn't fully recovered across the EU and Germany to the growth expectations they had at the start of the year. But Bressner has been able to find some strength in its markets to keep them on our targets and on our plans for the year. And they've seen some pockets of people generating some bigger orders, which has helped keep them on plan through the year. Eric Martinuzzi: Okay. Well, just sequentially then, is it your expectation that we're in line to better with the final quarter of the year? Or what... Daniel Gabel: Yes, I would model -- so there's a few shipments in Bressner that are going to be right on the cusp between this year and next year. So where those fall will kind of impact Q4. But I would model Q4 as being basically flat to Q3 for Bressner. Eric Martinuzzi: Got you. Okay. And then you talked about the registered direct offering that closed on October 1 and the $12.5 million of gross cash raised. Just curious to know how are we -- at least here in the near term, how are we deploying the cash? Are you sitting on it? Are you investing in inventory, sales channel investments? What can you tell us? Daniel Gabel: Yes, absolutely. So, the cash raise did a couple of things for us. One, it supported our working capital ramp as we're going through this growth phase. So you can see that in our results this quarter, particularly in AR. So we have, I think, good visibility towards collecting that AR this year. I expect that as we go into Q4, we'll see positive cash flow. We'll have a number of shipments that will be going out between the end of November and the beginning of December. So where those shipments fall within that range will somewhat impact where we -- where our cash flow is for Q4, but I do expect that it will be positive. And then in terms of the cash rate, so as we support the working capital ramp, we're using it for that. But then companies generating positive EBITDA will be generating positive cash flow. So then we look to redeploy that cash rate towards a disciplined M&A strategy as we go into 2026. Operator: The next question is from Scott Searle from ROTH Capital. Scott Searle: Congrats on the quarter, guys. Mike, maybe just to get some clarifications on the government shutdown. I want to understand a little bit better about what's still operating and what isn't. It sounds like some larger sole-source opportunities might just be delayed from a timing standpoint. But I'm just kind of wondering what you're able to do in concert with government entities at the current time. And I think given the backlog you've talked about in the past, you felt pretty good for the next 6 months or so. I'm wondering if that still holds and when the shutdown becomes a little bit more concerning for me as you start to look into '26? Michael Knowles: Yes. Thanks, Scott, for your question. So, what we're seeing today generally is major organizations are shut down and really not responding. So, any contract awards or deliveries we need to make, if the government is using a third-party services independent company, we're still able to operate with them. And so we still have some of that ongoing. We still can make deliveries to the customers, and the government is set up to pay for delivery on stuff that's under contract. So deliveries we have planned for this quarter through defense primes and/or directly to the end services, we will be able to ship and deliver those, and we should be able to get payment for those understanding standard payment timings. As we -- so the biggest effect for us really at the end of this year is just planned awards we were intended to get -- so we'll have some backlog to start in the first half of next year. So that number will be fairly higher if we can get the government bookings in when the government reopens. And -- but as long as -- realistically, as long as those bookings get in here before the end of Q2 next year, we still have plenty of time and runway to convert that to revenue. So we've got some runway to watch and plan where that goes. Scott Searle: Great. That great clarification really helps to see that we got visibility then through the first half. Looking to the fourth quarter and the guidance, it really implies that the core OSS is either flat to up $2 million. So, you're starting to get to new highs in terms of the business, which I guess brings sustained EBITDA profitability with it. So, I guess as we're looking into 2026 now. Is that sustainable? And are you thinking about the core OSS business now being EBITDA positive for the year, which is, I think, well ahead of prior expectations. Just some clarification on the early thoughts there. Michael Knowles: Yes. I'll let Dan follow up on it, too. But yes, in general, as we've kind of highlighted, we believe based on our pipeline and everything we've been looking at that the core OSS segment has this opportunity to grow at 20% to 30% a year. And so the bookings this year, the pipeline for next year, how we've been performing still gives us confidence that we should see growth into 2026 for the OSS segment in that range. Clearly, that opportunity would give us opportunity to get OSS into the positive EBITDA range next year that actually would be accelerating our plans a little bit. But given where we are and how we're performing the opportunity, I think it would be our intent that if bookings can play through and the timing can work out correctly would be to try to accelerate that plan and work into that because we are now kind of at that -- we are kind of at that nexus point where the revenue inside of OSS segment would support that kind of outcome. Dan, anything? Daniel Gabel: Yes. No, the only thing I'd add, just kind of reiterating that high-level parameters for '26 revenue growth, that 20% to 30% that we've been targeting. Gross margins for the OSS segment, we continue to see it in that mid-30s to low to mid-40s range for the segment. OpEx, we would see as being roughly flattish, but we did make some onetime investments to accelerate our R&D in '25. So, I think you'll see some moderation or normalization of R&D expenditures as we go into 2026. And then Bressner segment, we model growth in the range of 5% a year and stable gross margin. Scott Searle: Got you. And lastly, if I could, Mike, just kind of looking at the opportunity pipeline, certainly have been a lot of government and military opportunities. But commercial as well now kind of given the slowdown with the current government infrastructure. Are some more of those commercial opportunities kind of accelerating to the forefront? I think you referenced some in-flight entertainment opportunities in commercial aviation. But are there some bigger things that we should be thinking about in the 2026 timeframe on the commercial side? Michael Knowles: Yes. I think consistent with what we said in the earnings call here was we're seeing that movement. We've got some product placement, right? That was all about trying to continue to advance the commercial side of the strategy. We're probably a little bit slow to where we thought some commercial opportunity would have showed up. And so, we're thinking that hopefully, that we'll start to see that come to fruition in 2026, where we thought we might have seen it closer to the back end of 2025. But we're positioned well, I think, now with the products. We've got contacts, engagements across a number of fronts, as we mentioned, not only around data centers, but around medical imaging and some of the work we were doing with commercial aerospace. So, we're starting to see some of that expansion. And as long as the economy and the investments in those markets continue to go, I think we'll start -- we'll continue to see us being able to operate in those markets. Operator: [Operator Instructions] There are no further questions at this time. Please proceed with closing remarks. Michael Knowles: Andrew, that completes our remarks for today. We appreciate everybody's support of the company and the questions. You can end the conference call. Operator: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.
Operator: Ladies and gentlemen, thank you for standing by. My name is [ Krista ], and I will be your conference operator today. At this time, I would like to welcome you to the Air Canada's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] l would now like to turn the conference over to Valerie Durand, Investor Relations. Valerie, please go ahead. Valerie Durand: Thank you, Krista. Hello, [Foreign Language]. Welcome, and thank you for attending our third quarter 2025 earnings call. Joining us this morning are Michael Rousseau, our President and CEO; Mark Galardo, our Executive Vice President and Chief Commercial Officer and President of Cargo; and John Di Bert, our Executive Vice President and CFO. Other Executive Vice Presidents are with us as well, Arielle Meloul-Wechsler, our Chief Human Resources Officer and Public Affairs; Craig Landry, our Chief Innovation Officer and President of Aeroplan; Marc Barbeau, our Chief Legal Officer and Corporate Secretary; as well as Mark Nasr, our Chief Operations Officer. After our prepared remarks, we will take questions from equity analysts. I remind you that today's comments and discussion may contain forward-looking information about Air Canada's outlook, objectives and strategies that are based on assumptions and subject to risks and uncertainties. Our actual results could differ materially from any stated expectations. Please refer to our forward-looking caution in Air Canada's third quarter 2025 news release available on aircanada.com and on SEDAR+. And now I'd like to turn the call over to Mike. Michael Rousseau: Well, thank you, Valerie. Hello, [Foreign Language]. Thank you for joining us today for our third quarter results call. We delivered a solid third quarter financial and operating performance after adjusting for the impact of the labor disruption, which, of course, occurred at the peak of the summer season. During the bargaining period with CUPE, we developed comprehensive plans to ensure the safe, orderly wind down and restart of the operations in the event of a labor disruption. These are acted on, and the entire company worked extremely hard to assist those whose travel was disruptive and to quickly return our operations to normal. I thank all our employees for their tireless efforts and unwavering commitment to supporting our customers during this challenging time. We also voluntarily introduced our special goodwill policies. We have received more than 150,000 claims to date, which we have been addressing diligently. Processing these claims is complex and requires a coordinated effort. We do expect to finish in the coming weeks. We reported third quarter operating revenues of $5.8 billion, down 5% from a year ago on a 2% capacity decline. Both declines were the result of the strike-related flight cancellations. Adjusted EBITDA of $961 million declined $562 million from the same quarter in 2024. Excluding the labor disruption, third quarter adjusted EBITDA would have aligned with our full year guidance shared last July and come close to pre-strike market expectations. Operational metrics such as our on-time performance and Net Promoter Score exceeded both internal targets and last year's levels for the quarter and year-to-date. I am very pleased with the progress we're making. Booking trends for Q4 are very strong. We expect year-over-year growth in adjusted EBITDA in the last quarter of the year. This morning, we updated our full year guide, which John will further detail for you. But first, let me turn it over to Mark. Mark Galardo: Thanks, Mike, and good morning, everyone. [Foreign Language] I thank our employees for their unwavering commitment to our customers and to operational excellence. I also extend my gratitude to our customers, the travel trade and our airline partners for their patience and support. Third quarter passenger revenues of $5.2 billion declined 6% from the same period last year on 2% less capacity. Starting August, our year-over-year third quarter unit revenues were trending in the right direction but were impacted by the labor disruption. We estimate it was a drag of about 3 points to Q3 unit revenues. Absent this, Q3 would have amounted to one of the best relative PRASM performances amongst major North American carriers. This is driven by our revenue diversity, hub geography and customer loyalty. Our global network gives us flexibility to quickly pivot to areas of strength. This quarter and throughout the year, we mitigated the exposure to reduce demand between Canada and the U.S. In Q3, we quickly responded to Canadian's growing interest to travel domestically. The transborder sector remains stable, albeit at lower levels once adjusting for the strike. International markets continue to drive significant value. In the spring, we added capacity across the European continent, seeing a stronger Atlantic environment. Moving to cargo. Despite a revenue decline of 6%, mostly from reduced belly capacity in August, Air Canada Cargo was adaptable, and the freighter operation continued to demonstrate its value, playing a key role in capturing the opportunity from evolving global trade flows. This was evident this quarter as our flexibility in capacity from freighters allowed us to carry more of the growing and lucrative cargo demand from Asia to Latin America, fully offsetting other declining flows. Additionally, other revenues rose 15% from the third quarter of 2024 with higher Aeroplan non-air revenues, prices for ground packages at Air Canada Vacations and onboard sales. Next, our well-positioned hubs provided strong local demand from Canada's largest cities and facilitate sixth freedom connections. This year, we've doubled down on connectivity, which has been beneficial for our sixth freedom strategy. Demand has been strong despite the disruptions' impact. Year-to-date, at the end of Q3 2025, sixth freedom revenues grew a solid 9%. Our strong brand ecosystem builds customer loyalty and is a unique and strategic attribute for Air Canada. Booking patterns rebounded soon after the disruption ended, underscoring brand strength and consistency in customer behavior. Let's focus on premium. Front cabin revenues outperformed the economy cabin by 6 percentage points. Corporate improved further with roughly 11% year-over-year revenue growth from our corporate customers in September. What our Q3 results demonstrate is that looking beyond August events, Air Canada's commercial foundations are solid, adaptable and core enablers of strong results. Now let's focus on what's ahead. With our proven commercial playbook, we're uniquely positioned to see favorable industry trends and are highly encouraged by what we're seeing this fall. Fundamentally, our solid booking outlook reflects step change progress against the theme we've long discussed, addressing Air Canada's traditional seasonality and improving revenue diversification. This enables more balanced capacity deployment, revenue generation and profitability throughout the year, and the results are tangible. Currently, our relative capacity in the fourth quarter exceeds pre-pandemic levels. And as of today, we are on track for a record fourth quarter load factor and total revenue performance. We are leveraging the strength of our global network and scale of our hubs to increase our reach and access to new traffic flows. We refined our schedule, improving the connecting ways at our hubs to increase our competitiveness for connecting flows. And finally, we've deliberately built a stronger base of bookings going into the winter, filling seats that historically would have been empty. We expect our significant progress on seasonality to drive revenues and support diversification while improving our ability to take advantage of promising industry trends. Now let's dive into network and within that, international. With one of North America's leading global networks at hand, we see promising signs across the next 6 months. We see demand strength carrying all the way through U.S. Thanksgiving, particularly across the Atlantic. Beyond that, sun and Latin American markets remain solidly ahead of last year for winter with a robust advanced booking position from Air Canada Vacations and uplift from our expansion into Latin America, which also taps into rising Canadian travel demand and boost sixth freedom revenues on our transatlantic flights. Our presence in international markets remains a clear advantage. Next, we see a continued shift in consumer preference towards premium products. Once thought of as mainly a corporate segment, we see an opportunity for leisure travelers seeking our signature front cabin experience. Our booking posture in premium cabins is strong going to Q4 and Q1. As Canada's premium airline, we are uniquely positioned to attract, capture and retain this growing segment of high-value customers. Lastly, we continue to see strong corporate momentum. This is a segment that looks closer in, and then the latest data confirms the strength of September carries into October and is progressing throughout Q4. While North America remains the bulk of our corporate revenue, we are noticing signs of increased international corporate strength. Our comprehensive schedules, well-established and long-standing partnerships, premier loyalty program and superior experience reinforce our position as the airline of choice for corporate travelers. In all, we are encouraged by the trends in the fourth quarter and what we're seeing for early 2026. Although we anticipate a slight decline in unit revenue in the fourth quarter, adjusting for the disruption in Q3, this is a sequential improvement throughout the year -- through the year. Looking further into 2026, there's also a lot to be excited as we implement numerous strategic initiatives. Firstly, fleet additions. Recall, we retired over 75 aircraft during the pandemic and have been anxiously awaiting for incoming aircraft to support planned growth. We will take the long-awaited delivery of 2 new aircraft types, the A321XLR and the 787-10. Our XLRs will initially be based in Montreal and fly to exciting destinations like Palma de Mallorca, Edinburgh and Toulouse. Meanwhile, our first premium focused 787-10 will be based in Toronto, reinforcing our leadership position in Canada's largest market. And speaking of possibilities, our international network will continue to expand next summer as Catania and Budapest are added to our network, and we restore nonstop capacity to China from Toronto. We're also thrilled to be making Bangkok year-round from Vancouver, the only nonstop service to the Thai capital from North America. Second, our transition of the 737 MAX aircraft to Rouge will get into full swing. Longer term, this will enable a more cost-competitive platform, harmonized experience in a new Rouge base in Vancouver to expand our offering from Canada's West Coast. And third, we're looking forward to our recently announced expansion out of Billy Bishop Airport, adding transborder flights to New York LaGuardia, Boston, Chicago and Washington Dulles and more frequencies to Montreal and Ottawa. These routes long requested by our customers, strengthen our position in the Toronto market. In closing, we're making and executing the right commercial moves. We are leveraging our revenue diversity, our well-positioned hubs and customer loyalty to cement Air Canada as one of North America's leading carriers and deliver solid results. Thank you. [Foreign Language] John, and over to you. John Di Bert: Thanks, Mark. Good morning, everyone. [Foreign Language]. First, allow me to take a moment to recognize the resilience of our incredible employees. We know that managing the airlines through the shutdown and restart was very challenging. Yet our colleagues rose to the occasion and maintained their commitment of care and class to our customers. [Foreign Language] In the third quarter, we reported operating income of $284 million and adjusted EBITDA of $961 million, with an adjusted EBITDA margin of 16.6%, including the $375 million impact from the labor disruption. The impact consists of the following: a $430 million impact to revenues, including [ some book away ] for travel in August and early September, $145 million in avoided costs due to reduced flying, partially offset by $90 million of cost reimbursements to customers for out-of-pocket expenses and labor-related operating costs driven by the shutdown and restart activities. This is consistent with the estimates we announced in late September. Operating expenses increased 8% year-over-year, mostly due to a $173 million onetime charge. Of this, $149 million was a noncash onetime pension past service costs from plan amendments that are related to the agreements reached with CUPE. The remaining is due to costs associated with streamlining our management structure. Fuel expense was 12% lower year-over-year for Q3. Jet fuel prices fell by 10% compared to last year, which included a $29 million hedging gain for the quarter, totaling $48 million in the first 9 months of the year. Additionally, fuel consumption was 3% lower than in Q3 2024 due to the flight cancellations. Third quarter adjusted CASM was $0.1399, up 15% from last year. About 1/3 of the increase was due to cost escalation mainly in labor, maintenance and depreciation. Roughly another 1/3 was the effect of certain favorable contract-related adjustments we recorded in the third quarter of 2024, which made for a less meaningful year-over-year comparable in Q3 '25. Excluding the impact from the disruption, nonfuel unit costs were aligned with our full year CASM expectation at our Q2 call. In all, we estimated the disruption had a drag on adjusted CASM of about 6 percentage points, reflecting incremental costs and lower capacity. Turning to cash flow. In the quarter, we generated $813 million in cash from operations and free cash flow of $211 million. We have accrued for strike-related customer compensation to be processed and paid in Q4. Additionally, in the third quarter of 2025, we implemented a new enterprise resource planning system and experienced a delay in timing of payables processing in September, equivalent to 15 days of payables. The cumulative free cash flow of $1.2 billion year-to-date reflects approximately $600 million of favorability due to the timing of certain payments in Q3. On to our balance sheet. In July, we fully repaid our convertible bonds for a total amount of $382 million, reducing the number of potentially issuable shares by $18 million. In September, we drew $231 million from our EDC loan commitment for 5 A220s that had been previously delivered. We ended the quarter at $8.3 billion in total liquidity, including $1.4 billion in an undrawn revolver. Leverage ratio ended the quarter at 1.6 turns, reflecting lower EBITDA due to the impact of the disruption. We expect this ratio to increase slightly in Q4 as we process the outstanding payables from Q3. When thinking about leverage and long-term decision-making, we will look through the onetime impact on EBITDA when assessing our leverage objective of 2x or less. Moving along, we updated our full year guide this morning. We now expect capacity to increase around 0.75% versus 2024. We project 2025 adjusted CASM in the $0.146 to $0.147 range. We reached an agreement with CUPE, except for wage terms that will be finalized through binding arbitration. Our guidance reflects the agreement and our best assumptions on the outcome of arbitration. In 2026, we will see the full effects of the new agreement flow through our labor costs, including the enhancements to ground pay and benefits. For adjusted EBITDA, we now expect $2.95 billion to $3.05 billion in 2025 and a strong fourth quarter, which should outperform Q4 2024. To close on guidance, we anticipate free cash flow between breakeven and $200 million for the full year. We expect the free cash flow use in the fourth quarter as delayed payments are brought current, including customer reimbursement amounts accrued for but not yet paid. Q4 CapEx is anticipated to be approximately $900 million, just under $3 billion for full year 2025. With the recent volatility in jet fuel prices, we continue to monitor global trends. Relying on visibility we have into Q4, we have hedged 34% of the expected fuel purchases for November and December at an average price of USD 0.52 per liter, approximately CAD 0.73 per liter before taxes, fees and shipping costs. Finally, we continue to progress on our $150 million cost reduction program announced earlier this year, which includes the preplanned management headcount reductions. We are on target for year-to-date savings and expect to deliver the full $150 million in 2025. Key components include operational efficiencies and -- operational efficiency initiatives, streamlining our management structure, process improvements and third-party spend management. We expect the cost reductions to be reoccurring in 2026. In 2026, we anticipate a step change in unionized labor costs due to recent labor agreements and as we continue to work through our 10-year agreements to shorter-term collective agreements. We also see some cost pressures from airport infrastructure and user fees as airports undergo capital investments to better serve airlines and passengers. Over time, we will aim to partially offset these headwinds with ongoing productivity gains, constant cost discipline and driving cost reduction initiatives across our business. Now let's turn to the fleet. We expect to add 3 additional A220s and 1 737 MAX by the end of 2025. Further, we expect to begin retiring old Airbus A320 family aircraft, including [ 8 319s ] and 2 320s. In 2026, we expect to receive 18 A220s, 11 A321XLRs, 4 737 MAX aircraft and 2 787-10s. While we are particularly excited about receiving our first A321XLRs and 787-10s, the delivery schedule for 2026 is considerably delayed compared to our original expectations as outlined at our last Investor Day. On average, we'll have approximately 6 fewer A220, 737s and 6 fewer A321XLR or 787-10s on any given month of 2026, which will impact our ASM production for next year. In addition to welcoming the new aircraft to our fleet, as Mark noted, we are moving ahead with plans to transfer all 737 MAX aircraft to Rouge next year. We're working toward an all-737 MAX Rouge fleet by the end of 2026. Some A320 family aircraft are expected to move to mainline, and the rest will be retired. More details will be provided when we give 2026 guidance. Looking beyond 2026, our 787-10 order for 18 firm aircraft has been modified to 14 firm aircraft with the first 10 scheduled for delivery by 2028 and the remaining 4 by 2030. While this moderates the growth pace in the near term, we remain firmly confident in the mid- and long-term opportunities ahead. In addition, the changes smooth out CapEx profile, support disciplined financial planning and preserve flexibility to scale capacity in line with demand. These modifications are reflected in our capital commitments table included in our Q3 MD&A. Our fleet strategy remains focused on profitable growth in our right to win end markets. We will continue evolving the fleet for greater efficiency and flexibility to meet customer demand. Our fleet investments support long-term sustainable value to shareholders and customers alike. Reflecting our commitment to returning value to shareholders, today, we announced our renewed NCIB. Since the inception of our November 2024 NCIB, we repurchased about 62 million shares for cancellation. Further, we retired 18 million potentially issuable shares. In aggregate, we have deployed close to $1.7 billion to anti-dilutive actions. In summary, we remain confident in our trajectory toward 2028 and our ability to manage through growth and margin expansion cycle. The strategic network expansion, premium product investment and disciplined cost management are core priorities, and our executive-led road maps drive execution across our portfolio. Despite a challenging Q3 environment, we delivered solid financial results, demonstrated the underlying strength of our franchise and continue to hit important milestones for our new frontiers plan. We'll provide a fulsome update on progress towards our long-term goals at our next Investor Day, which will be planned for some time in 2026. Thank you, and I look forward to your questions. Mike, back to you. Michael Rousseau: Great. Thank you, John. We have a very strong business model that can recover quickly from unexpected setbacks and certainly take advantage of opportunities and execute extremely well. Operationally, we shut down and restart the airline in record time. We are encouraged by the speed at which booking patterns recovered and the strength that has followed. Negotiations supporting our staff at the airports, contact centers and maintenance facilities will begin soon. Over decades, we have consistently reached agreements that value our employees and support the airline's future. And we look forward to productive discussions with our unions. Our commitment to our plan includes making very tough decisions. In July, we announced to our management colleagues that we would be streamlining our organization. After a comprehensive evaluation, we made a difficult decision to reduce certain management positions, representing approximately 1% of our total headcount. Next year, we expect to take delivery of 35 new aircraft, the most we have ever received in a single year, supporting our global growth initiatives. We will receive the first game-changing Airbus 321XLR, which will not only enable us to launch new routes, but it will help us offer some services year-round and even out our network seasonality. As Mark noted, the travel market remains robust, and demand is strong. In particular, business travel continues to recover. Our recent announcement to add routes from Toronto Island next spring underscores our commitment to offer more options to our loyal travelers, including our Aeroplan members. We are pleased that we have more than doubled our Aeroplan membership since the program is relaunched, now proudly counting more than 10 million members. Our focus on customer service resonates throughout the network. I was pleased that our Net Promoter Score rose by 10 points in the quarter and that Air Canada once again won a 5-Star rating from APEX is excellence in customer experience recognized. And finally, today, we announced the renewal of our normal course issuer bid. Our capital allocation priorities remain unchanged: invest in growth, protect our strong balance sheet and deploy excess liquidity strategically. As our track record shows, including in this quarter, we are executing on our plan, seizing the right opportunities. Strong operational growth and disciplined execution are driving effective cost management and reinforcing our diversified commercial foundation, which are the key components of our right to win. With prudent steps to smooth out capital expenditure profile and a renewed NCIB in place, we've established a clear framework to return value to shareholders. And we have exciting times ahead of us with growth plans fueled by our key strategic initiatives like our revitalized Rouge offering and new state-of-the-art efficient aircraft. As you heard today, we will also continue to improve our cost structure through productivity gains, operational efficiencies and constant cost discipline to mitigate near-term pressures. We continue to focus on free cash flow generation in order to return value to shareholders. The hard work ahead in 2026 will position us very well for the second half of our strategic plan. With a solid foundation, an excellent balance sheet and a very talented and dedicated team focused on execution in our customers, we are confident in our ability to deliver significant long-term value to all of our stakeholders. Thank you. [Foreign Language] Valerie? Valerie Durand: Thank you, Mike, and thank you all for joining us this morning. We are now ready for your questions and ask that you limit yourself to one question and one follow-up, please. Over to you, Krista. Operator: [Operator Instructions] Your first question comes from the line of Konark Gupta with Scotiabank. Konark Gupta: Maybe this is for Mark. I think you mentioned that RASM trends are expected to be slightly down in Q4. I'm just kind of wondering what are you seeing in different markets here. I think in corporate, obviously, you're saying it's growing nicely, and I think Atlantic demand continues into -- well into October and some parts of November. Is much of this RASM weakness coming still from the Pacific normalization and maybe transborder? Mark Galardo: Konark, so on this particular item, when we look at Q4, we are expecting somewhere between flat RASM to maybe slightly down RASM. But overall, the way you should look at this is the transatlantic is looking at overperformance. We're looking at a very strong transatlantic network all the way through Q4. We see a lot of resilience in the sun market as well as we've seen a little bit of shift away from transborder into the sun. We're having a very strong November, December into the sun. And then you've got those other supporting pillars like premium demand strength and corporate demand strength that are kind of sustaining some fairly decent yields that we're going to have on the transborder despite the demand drop. So that's kind of the color in terms of what you can expect for Q4. Konark Gupta: And then on the CASM side, John, I think the implied guidance for Q4 suggests a flattish CASM from last year. I mean given the inflationary environment you guys are in and obviously, the labor contracts and all that, what is contributing to the flattish CASM here? I mean what are the offsets? I mean some of the cost savings, I'm sure like are coming through, but is there anything else like in sort of one-timing -- one-timer in nature in Q4? John Di Bert: No, I would say it's largely -- and you've seen we've been active, including keeping headcount in check. And so I would say, generally speaking, it's cost focus. We get some ASM growth, so that helps as well. Fourth quarter actually carries the entire ASM growth for the full year. And -- so that's obviously helpful. Nothing really to highlight in terms of kind of big positives in the fourth quarter. Konark Gupta: Right. And I think the maintenance contract adjustments, you already lapped those in Q3, right? I mean there's nothing in terms of noise from last year and Q4. Okay. Perfect. John Di Bert: Right. Q3 was [ noise and ] I covered that in the commentary, but I think Q4 should be a bit more of a reasonable compare. Operator: Your next question comes from the line of Savi Syth with Raymond James. Savanthi Syth: I was just wondering on the commentary about the fleet kind of delays in 2026 versus kind of expectations last year. I think the visibility here. So I was kind of curious how you're thinking about 2026 capacity? And if you're kind of hiring correctly to that versus kind of in the past where maybe some of the fleet delays were somewhat surprising and therefore, kind of hard to manage on the cost side. John Di Bert: Yes. I'd say, first, I'd separate that into 2 answers. One, I think we've been disciplined with hiring after we kind of stabilized the operations through '24. And I think this year has been a fairly disciplined approach. And we've always said we're going to be driving productivity as the airline continues to grow. So I think in and of itself, we're going to continue to work that way. With respect to the capacity growth, for sure, I mean, we try to be as proactive as we can with respect to balancing everything we need to bring on those aircraft properly. And I think we have a pretty good read of what 2026 looks like. And we're going to obviously operate in accordance. But yes, for us, we're well into the planning cycle and have a pretty good read on what we expect for capacity growth next year. Savanthi Syth: That's too early to share? John Di Bert: Yes, in precision, yes. But I think we're adding 35 aircraft in total. We're going to be retiring a significant amount of aircraft as well. So we'll have a net balance of somewhere in the mid-teens, I think, or maybe just less than that, probably in the low double digits. We'll hold that for the guide in February. Savanthi Syth: Got it. I appreciate it. And then just a follow-up on that. Just CapEx came down. I'm wondering what the drivers were. Was it just that related to the fleet order changes or anything different going on with the CapEx for you? John Di Bert: No, it's totally correlated to the adjustment in the -10 order. Operator: Your next question comes from the line of Daryl Young with Stifel. Daryl Young: Just wanted to get a sense of how you're thinking about the peak Q3 in 2026? And any thoughts on just smoothing of seasonality and I guess, some of the strength you're seeing to start this year. Is that sort of a pull forward of Q3? Or how should we think about that? Mark Galardo: Thanks. It's an excellent question. It's something that we're actually debating here internally. Obviously, what you can see in 2025 is that there is more relative strength in spring and fall than there actually is in the summer peak. I think that's a trend that we see consistently across the North American landscape. So we're working with our operations colleagues to see how we can better allocate aircraft and maintenance activities to maybe take a little bit of the pressure off Q3 and load up a little bit more in Q2, Q4. But with -- as it relates to 2026 specifically, just the timing of aircraft deliveries is such that there's going to be some decent ASM growth in Q3 relative to Q2 in 2026. Daryl Young: Got it. And then a follow-up just around the NCIB and your free cash flow now that the CapEx has been deferred. Is that something that we should think you're going to be active on starting in November here? John Di Bert: I won't give any position to timing, but we've put it in place and we intend to use it. And I'll just give some color around our buyback program. We did announce in aggregate about $2 billion over the next couple of years as we set that out in December of '24, and we said that was going to be part of the midterm plan, 3 to 5 years. So right now, we stand at about $1.3 billion of shares bought back. We also did the convertible debt extinguishment, which is anti-dilutive. So there's still room for us to continue to go. Our plan is continuing to execute as we expected. I think the 2025 positive cash is a good checkpoint here. And obviously, a little bit of an improved profile in CapEx helps as well. We'll pick the right spots, but we do intend to be active on this NCIB, and we'll do that as appropriate. Operator: Your next question comes from the line of Tom Fitzgerald with TD Cowen. Thomas Fitzgerald: I'm just curious like how you're thinking about kind of managing the transition of Canada point of sale and transborder in the March quarter and whether you think just -- how Latin markets are shaping up so far and just how you're thinking of managing that risk? Mark Galardo: Tom, just to be precise on your question, you're speaking about the upcoming spring break in March? Thomas Fitzgerald: Yes, yes. Just the broader -- I know the sun markets are a big demand driver in the March just in the transborder, that's a heavier portion of it. I'm just kind of curious how that's -- I know you kind of have -- you got a lot of growth in the Latin markets coming up. Kind of curious how that's shaping up and what we should be watching for? Mark Galardo: Yes. Okay. Good question. So for Q1, the sun market is developing quite nicely with positive load factor and flat yields all the way through. So as we think about March, one of the items that we're looking at very closely is obviously our transborder spring break capacity. And because we're noticing a better kind of equilibrium between supply and demand, I mean, obviously, you've seen a lot of competitors withdraw capacity into U.S. leader markets, it's actually a much more favorable revenue environment going into Q1 and into March break. And if there are further opportunities for us to move capacity around, we'll make those calls later on. But we are seeing -- we're definitely -- I'd say we called the bottom a little bit on the transborder leisure kind of demand erosion. Thomas Fitzgerald: Okay. That's really helpful. And then just as a follow-up, I was wondering if you have any more color on sixth freedom between Pacific and Atlantic and just some of the deceleration in that growth. I don't know if it's just noise from the industrial action or anything of note that we should be thinking about? Mark Galardo: Yes. Thanks. So the demand growth so far for sixth freedom revenue growth has mostly been on the transatlantic. There's been a little bit of Pacific growth, but it's been relatively muted this year. And as we think about Q4, it's mostly the transatlantic that's driving it. A portion of it being U.S. to obviously the transatlantic, but a big growth on Latin America to Europe via Canada, which is going to sustain our sixth freedom performance throughout the year. Operator: Your next question comes from the line of Chris Murray with ATB Capital. Chris Murray: Just very quickly, thinking about the fleet changes next year. As you said, there's a lot going on. But I guess I want to focus a little bit on Rouge. So can we just think -- maybe go through what the process is going to look like moving all of the 737s into Rouge. And I'm assuming you'll end up rebranding those aircraft, but if you can give us some more color on that, that would be great. And how we should think about the transition over the year would be helpful. Mark Nasr: For sure. It's Mark Nasr. So we're going to begin with our first 737 MAX that's currently operating at mainline. It's going to go in for reconfiguration in about 6 weeks here. The reconfiguration of those aircraft is a very efficient program. It will take about a week to do each one, and we'll move through the entire fleet of the 40 aircraft that we currently have in the standard mainline configuration over the course of the year as well as the 5 additional new deliveries that we're going to take. And so we expect, as we get towards the end of next year, the very beginning of the first quarter, that transition to be complete. Of course, we're going to be bringing over several of the Rouge aircraft into mainline. That's a little bit more of an involved process with regards to reconfiguring those aircraft to match our mainline standard, and that should be completed in the early part of next year. And the 2 activities are going to happen to be able to balance capacity between the 2 operating certificates. Of course, we'll also be bringing Rouge to the West Coast by basing several aircraft out in Vancouver. With regards to the configuration, we haven't announced the details yet. We'll do so in the coming weeks. But we will be densifying from the current LOPAs that we have at mainline for the 737 MAX, and we'll be removing some of the J cabin and adding more into the economy cabin. Those details will be announced shortly, but it will be -- it will ensure that we have the cost -- the unit cost performance at Rouge that we need to be successful in the leisure market. Chris Murray: Okay. That's helpful. My last question, maybe for John on the NCIB. One of the questions I've been getting from a lot of folks is just when you did the last NCIB, I guess it went out pretty fast and burned through the allocation, which left you kind of without the tool to use as the stock came off. Is there a bit more thought to being maybe more formulaic or balanced across the whole time period? Or is it still going to be kind of an opportunistic thing? I know you put in a purchase plan for it. But just thoughts on kind of the bigger picture strategy around how to use it would be helpful. John Di Bert: Sure. Well, I think there's different circumstances. And don't forget, we put out an SIB in the middle of the year last year, right? So we were not without tools, and we did take advantage of that. So I would argue that, that wasn't actually what happened. So the first [ 800 ] did go out more quickly, and we had telegraphed that. We said we were going to be fairly rapid on once we had come out of 2024 with respect to restabilizing the airline and frankly, working down the debt, we would be anti-dilutively focused, and that's what we did. I think we'll -- I won't telegraph exactly here when and how. I think we'll use it appropriately. We have plenty of capacity at 10% of the total float. So we're running the business, and it's not just one dimensionally. We're bringing up the fleet. We're obviously focused on cost containment and cost management. We're geared towards free cash flow generation as we kind of build out the airline on a structural basis. And so we're going to keep a strong balance sheet, at the same time, complete the program that we had started when we announced the $2 billion over the next couple of years. So no precision on the exact use, but we'll do it right through the time of the NCIB. Operator: Your next question comes from the line of James McGarragle with RBC Capital Markets. James McGarragle: So I had a question on the capacity in the Canadian market. You've kind of flagged, obviously, your lower CapEx. So can you just kind of talk about the capacity trends through the remainder of 2025 and into '26? And any notable yield trends that are kind of emerging as a result of some of these capacity shifts? Mark Galardo: James, so on the capacity side, we continue to see that the domestic market is obviously very competitive. Generally speaking, I think demand -- sorry, supply is up about 4%, 5% going into Q4 just on the domestic alone. There's a better balance of supply and demand on the transborder, which we think will help sustain yield and revenue recovery on the transborder sector. The transatlantic is fairly stable with low single-digit capacity growth, which is going to obviously provide some stability on the yield and load factor side on the Atlantic. Of course, as you know, and we discussed on the Pacific, there's been a sizable growth in demand from China -- sorry, in supply from China, Hong Kong, Korea. There is yield pressure on Asia and especially as we've added more capacity to China and we absorbed that capacity, we should anticipate that the yield and RASM will continue to be negative all the way until probably Q1 or Q2 next year. And then the sun market, the capacity growth is up double digits, but our revenue load factor and yield performance are all in the green. So overall, a pretty balanced market, and we've got, of course, the ability to move capacity around as market conditions evolve. James McGarragle: And just for my follow-up on the lower CapEx. So how should we be thinking about the trade-off here longer term? Obviously, positive for free cash flow, but does this kind of pose any risk to your longer-term plans that you highlighted at the Investor Day? And kind of how should we be thinking this in the context of cost and margins as the newer fleet was expected to be a driver of increased efficiency? And I'll turn the line over after that. John Di Bert: Thank you. Thanks for the question. I think all those things stay intact. I mean the -- when you look at the overall addition of aircraft, you're talking about 90 aircraft or so over the period of whatever it is, 3, 4 years. We -- this adjustment affects -- for sure, I mean, if you look at 2025 in terms of ASM growth, it was a bit of a stall. So I think just we pace accordingly here. The 787s did have quite a bit of delays from the original purchase date versus coming in 2026. I think this is just managing that delay scenario. So yes, 2028, you'll have 4 less aircraft in there. We'll work through that, see what it means. But ultimately, we're bringing in 14 787s and 30 321s, and there'll be plenty of good aircraft and plenty of good capacity. And we think that we're in good shape to deliver on our longer-term objectives. Operator: Your next question comes from the line of Alexander Augimeri with CIBC. Alexander Augimeri: So, yes, just looking at your strong results within premium and in corporate, I was just wondering if you can provide any additional color on this as we look forward into the end of the year in 2026. Mark Galardo: A little bit early to talk about 2026 because it's such a low base of bookings. But as we kind of dive into Q4, I think what you should anticipate is continued double-digit increase in overall corporate revenue and basically across all geographies, in particular, a nice growth on the transatlantic. And on the premium side, we continue to see a lot of strength in the business and premium economy cabins with both positive load factor and yields. As we all know, there's a little bit of pressure in the economy cabin in terms of yields. Operator: Your next question comes from the line of Sheila Kahyaoglu with Jefferies. Kyle Wenclawiak: This is Kyle Wenclawiak on for Sheila. I was hoping, I know it's early, but if we could talk a little bit about the puts and takes in terms of the profitability walk for 2026. You have the 17-plus percent margins out in 2028, but it sounds like a lot of the fleet benefit is now kind of moving right again. And you mentioned a bit about the labor contracts and the work rules kind of run rating next year. So can you kind of help us frame what 2026 profitability is? And what are sort of the moving pieces to keep in mind? John Di Bert: I think you covered some of it, right? So in terms of absolute ASM production, I think we'll still have solid year-over-year growth from '25 to '26, but '25 isn't where '25 was originally intended to be. So in absolute, you'll get a little bit of pressure there. Again, we also had -- I mentioned in my comments, what amounts to, call it, 6 long-range aircraft and 6 kind of continental range or shorter-range aircraft less than we anticipated when we had the original long-term plan at Investor Day in '24. So that's a pressure point. I think when it's all said and done, we'll still see very nice growth, but we will not see all of the benefits of the modern aircraft and some of that long-range flying that we would have liked to see in '26. That doesn't go away. It just gets pushed out a little bit. So I think '27 and certainly in '28, we'll have a lot of that fleet in place and a lot of the margin benefits that we're expecting. With respect to puts and takes, I think we've been very focused on cost reduction and driving productivity. And I think those will continue to deliver value. We do have a step change in labor. We've started that cycle in '24 with the pilot agreement, '25 with flight attendants. And we do expect a couple of other labor agreements in 2026 to be completed. I mentioned in the comments as well, we have some pressure from those step changes. We're planned for them, but they will come through and kind of be most acute as we go through 2026. So I think for all intents and purposes, looking out probably past '26, '27, '28, we talked about a 17% plus margin. I think that's still well in play. We'll continue to work through and see where we end up as we complete our planning cycle, both the '26 and the longer term. But we're still very focused on those high-teen margins and just navigating through some movements overall from an airline and business model point of view, still feel very good about generating positive cash structurally and finding accretive growth. Kyle Wenclawiak: If I could just follow up quickly on the 787-10s. I know you mentioned it's just related to delays and maybe it's just kind of normal case negotiations. But is that a signal of what you think the network is going to shape up to be in a few years' time because those are your long-haul, most premium type aircraft. And I assume there's a bit more underpinning why you guys made that decision. John Di Bert: Yes. I mean, it's not. So frankly, those were 18 aircraft to come in, in 2026 and a couple in '27. So that order would have been filled fairly rapidly. There's been delays. We've just managed with Boeing to adjust because of the impact of those delays in how we take those aircraft. Longer term, no changes in our expectations. And when you look at it, right, I mean, all in, you can do the math on an envelope, but you're talking about maybe 2% of total capacity by the time we get to 2028. Michael Rousseau: And just -- it's Mike Rousseau, just to follow on that. We think our timing is very, very positive. As you know, Canada is diversifying trade around the world, and we think we play a big part in that diversification. So strategically, bringing in widebodies will allow us to work with Canada on diversifying trade. Operator: Your next question comes from the line of Andrew Didora with Bank of America. Andrew Didora: A question for John. I guess with the strike and the way it kind of has influenced near-term EBITDA and cash flow, net leverage is probably a little bit different than you were initially planning for 2025. But I guess when you think about executing on the NCIB, I guess, how do you think about executing on the NCIB in the construct of kind of where your leverage has gone? And how do you think about that keeping that leverage in your range going forward with this plan in place? John Di Bert: Yes. I mentioned it in the commentary, right, that we would look through that onetime hit in Q3 when we thought about long-term decision-making and capital deployment. So we -- I mean, that's a nonrecurring onetime. It won't affect how we view the strength of our balance sheet or the capital deployment decisions and strategy we have to make. I think it will fall off the calculation in 3 quarters and 4 quarters. So -- and still feel very good about our balance sheet. We feel good about how we're allocating capital. No changes. Andrew Didora: Okay. Fair enough. And kind of more of a kind of focused question here. Just in terms of free cash flow, right, I think year-to-date, a little bit over $1 billion. You're guiding to flat to up a little bit for the year. I know 4Q is typically seasonally weaker. Just curious what brings that -- it seems like 4Q will be much worse than normal seasonally from a free cash flow perspective. Is that because of the strike -- the cash payouts from the strike? Anything unique there? John Di Bert: Yes. Thanks for asking the question. So we highlighted in the commentary that we have about $600 million, including some of the comp that is accrued and will be paid, but mostly from a delay in vendor payments in the third quarter. We went to an SAP implementation. We had planning for transition. In there, you have about 15 days' worth of payables that would have otherwise been paid in Q3 that will be paid in Q4. So when you take that $600 million out and you adjust for what I mentioned was roughly $900 million of CapEx, you get a pretty normal free cash flow when you consolidate Q3 and Q4 together. So really, at the end of the day, it's working capital restoration of the payables that were not out the door in Q3 that will catch up in Q4 in that $600 million. Operator: Your next question comes from the line of Fadi Chamoun with BMO Capital Markets. Fadi Chamoun: A question maybe for John. I want to dig into the CASM picture a little bit. So you've kind of averaged about 4% adjusted CASM inflation in the last 3 years, including '25. Going into '26, you've got a bunch of narrow-body, which is potentially pressure on CASM, and you've got some inflationary pressure in labor, but you also have growth and productivity. I'm just trying to think, do we start to go kind of sub-4% as we go to '26? Any kind of framework how to think about the adjusted CASM as we go into next year? John Di Bert: Fadi, fairly, I think we'll address that a little bit more when we get to our guide in February. We're working through that now. I think that '26 will have a bit of pressure, right? I mentioned it before. You're not -- you're getting the ASMs, you're not getting the ASMs that come from a longer-range flying in quite the mix that we would have liked. So that typically is a little bit helpful. The impact of modern fleet as well that we had kind of originally anticipated for '26 is going to be a little bit stalled. So I'm not concerned about our ability to generate those cost savings and cost reductions. They will just come a little bit later than we had planned for. So I think in 2026, probably not the year where you have the kind of flattening out of cost on a unit basis, but still very confident that will come probably near the end of the year and into '27, '28. Fadi Chamoun: Okay. And just a follow-up on the CapEx and the plan for 2026. Any idea of what kind of the split is for sale leaseback maybe versus straightforward financing? John Di Bert: Yes. So we mentioned, right, in our long-term planning in our Investor Day kind of 3- and 5-year look that we would be active with sale leasebacks. We had earmarked roughly $3 billion on, call it, I don't know, maybe whatever it is, $8 billion of aircraft acquisitions over the same period. And we talked about bringing our owned-to-leased ratio down from 80% owned, 20% leased to something like 60%, 65% owned and, call it, 35% leased. We will continue to do that. We want to do that in the years where we're peaking in terms of CapEx because kind of this logjam of delays and we haven't had a lot in the last couple of years and now finally coming into the peak of our growth cycle. So we will be deploying sale leasebacks in '26, '27, and we'll work through all of that and probably give you a little bit more color as we set those things up for 2026 when we guide. But yes, there will be components of sale leasebacks there for sure. Fadi Chamoun: Okay. Any fuel hedges actually for '26 or it's just Q4 that you're hedged for? John Di Bert: Yes. No, none for '26. That's something to consider. We typically look at the booking curve and what fares we've already sold. And then I mean it's been -- notwithstanding, there has been some volatility. It's been a relatively range-bound fuel price, specifically, I would say, after the spring of '25 through the rest of the year. And we've participated through the year on a couple of occasions, probably around 20% total year fuel hedged when you aggregate all of it. And we did so mostly within the 90-day booking curve once we had fares sold and we saw some breakdown in pricing. Operator: And that concludes our question-and-answer session. I will now turn the call back over to Valerie Durand for closing comments. Valerie Durand: Once again, thank you very much for joining us on our call this morning. Should you have any additional questions, don't hesitate to contact us at Investor Relations. [Foreign Language] Have a good day. Operator: Ladies and gentlemen, this does conclude today's conference call. Thank you for your participation, and you may now disconnect.
Operator: Good morning, and welcome to The Brink's Third Quarter 2025 Earnings Presentation. [Operator Instructions] Please note, this event is being recorded. This call and the Q&A session will contain forward-looking statements. Actual results could differ materially from projected or estimated results. Information regarding factors that could cause such differences are available in today's press release and presentation and in the company's SEC filings. The information presented and discussed on this call is representative of today only. Brink's assumes no obligation to update any forward-looking statements. The call is copyrighted and may not be used without written permission from Brink's. I will now turn it over to your host, Jesse Jenkins, Vice President of Investor Relations. Mr. Jenkins, you may begin. Jesse Jenkins: Thanks, and good morning. Here with me today are CEO, Mark Eubanks; and CFO, Kurt McMaken. This morning, Brink's reported third quarter 2025 results on a GAAP, non-GAAP, and constant currency basis. Most of our comments today will be focused on our non-GAAP results. These non-GAAP financial measures are intended to provide investors with a supplemental comparison of our operating results and trends for the periods presented. We believe these measures allow investors to better compare performance over time and to evaluate our performance using the same metrics as management. Reconciliations of non-GAAP results to their most comparable GAAP results are provided in the press release, the appendix of the presentation, and our 8-K filings, all of which can be found on our website. I will now turn the call over to Brink's CEO, Mark Eubanks. Richard Eubanks: Thanks, Jesse, and good morning, everyone. Starting on Slide 3. Brink delivered another solid quarter of mid-single-digit organic revenue growth. The 5% total company organic growth included an acceleration from Q2 to 19% for ATM Managed Services and Digital Retail Solutions or AMS/DRS as we continue to make progress expanding into large and growing markets. For the second consecutive quarter, we delivered record Q3 EBITDA and operating profit margins, driven by strong productivity, the benefits of AMS/DRS revenue mix, and continued pricing discipline. Third quarter EBITDA margins were 19%, up 180 basis points from the prior year. The improvement was highlighted by 320 basis points of expansion in North America as we make progress driving a balanced agenda around growth in AMS/DRS and cost productivity with the Brink's Business System. With AMS/DRS now accounting for 28% of total revenue in the quarter and more productivity initiatives underway, we are expecting continued margin progress going forward. Cash generation also continues to improve. In Q3, we delivered $175 million of free cash flow, a year-over-year increase of 30%. We continue to shorten our cash cycle and deliver capital efficiency across our asset base with vehicle counts down again this quarter and DSOs improved by 5 days. Looking at the quarter in total, we delivered on our guidance commitments with performance exceeding the midpoint of our communicated ranges for the quarter. Organic growth remains healthy in the mid-single digits with AMS/DRS accelerating quarter-over-quarter. We continue to make steady progress improving profitability as we drive lasting structural changes to the way we operate on both the front lines and in the back office. Supported by this strong momentum, we are passing through our Q3 midpoint outperformance to the full year and affirming our previously increased full year framework. Kurt will have more details on the guidance at the end of the presentation. Turning to Slide 4. You can see how our year-to-date performance supports our value creation strategy. First, we're focused on delivering organic growth primarily from our higher-margin subscription-based services of AMS and DRS. We are tracking in line with our full year framework with organic growth of 5% for the total company and 18% AMS/DRS year-to-date. The revenue growth and the execution of productivity enhancements have driven EBITDA margin expansion of 40 basis points year-to-date with acceleration in the second half. For the second consecutive quarter, we've achieved record EBITDA margins in both North America and Europe. Free cash flow conversion is also improving. Year-to-date free cash flow has increased to 78% and trailing 12-month conversion has improved to 50% of adjusted EBITDA. Supported by growth in AMS/DRS acceptance in the marketplace, we are making structural changes in the business that we believe will continue to pay dividends for years to come. Our cash cycle continues to shorten with year-to-date DSO improvement of 5 days. We are also improving capital efficiency as we reduce our CapEx needs and leverage our network more efficiently. And finally, we are focused on maximizing value for our shareholders through disciplined capital allocation. This year, capital has primarily been allocated to our share repurchase program, where we've utilized $154 million year-to-date to repurchase approximately 1.7 million shares at roughly $89 per share. Even with the share repurchases, we have moved our net debt-to-EBITDA leverage ratio to 2.9x in the third quarter, within our targeted range of 2x to 3x. We expect to stay within the range through year-end and remain on track to allocate at least 50% of our total free cash flow towards shareholder returns in the full year. So far, we have made meaningful progress against these value creation drivers this year. Turning to Slide 5. You can see the progression of our revenue mix towards AMS and DRS over the last several years. As a reminder, we split our business into 2 main customer offerings, cash and valuables management or CVM and AMS/DRS. Our CVM business includes the traditional parts of the business like point-to-point cash logistics, money processing, and our international shipping business, we call Global Services, while AMS includes revenue from our ATM managed services business as well as digital retail solutions. With full year organic growth in AMS and DRS trending towards the high end of our mid to high teens growth framework, we are increasing our mix expectations to between 27% and 28% of total revenue by year-end. While AMS/DRS is now 27% of our total revenue on a trailing 12-month basis, we are still in the early stages of penetrating this large and growing total addressable market. As we've previously discussed, unvended retail locations and ATM outsourcing opportunities represent a 2x to 3x market expansion opportunity. Looking closer at each of the customer offerings, organic growth in CVM remain consistent with our expectations. Growth was driven by good pricing discipline and Global Services performing similarly to the second quarter. As a reminder, CVM organic growth includes the conversion of existing customers over to AMS/DRS. AMS/DRS accelerated from 16% organic growth in Q2 to 19% this quarter. Acceleration occurred in both AMS and DRS individually and was balanced across geographic segments. In DRS, our pipelines remain robust, and we see consistent strength in verticals like pharmacies, gas stations, C-stores, quick-serve restaurants as well as fashion and jewelry verticals. In AMS, we have completed the onboarding of several key accounts and are at full revenue run rates with QT and RaceTrac here in North America and Sainsbury's in Europe with several additional customers set to be onboarded in the fourth quarter in LATAM and the Middle East. Turning to Slide 6. I thought it would be helpful to show a map of our current AMS footprint. The highlighted 51 countries represent Brink's presence across the globe with those in light blue representing countries with existing AMS agreements. We've also added a select few customer logos to illustrate our presence in these markets. This map had almost no AMS presence less than 4 years ago. Leveraging our existing customer relationships with banks and retailers as well as our acquired and organically built capabilities in AMS, we've been able to expand this market to what it is today. As we've previously said, this is just the beginning. While there are some impressive customers already in our portfolio, we are still in the early stages of this opportunity. As we consistently deliver reliable service with a total lower cost of ownership for customers, we see penetration opportunities both in the countries we already serve as well as the other geographies where we still have a presence. The current penetration rate for ATM outsourcing is still low. As we've previously discussed, there is an opportunity for the current addressable market to expand by 2x to 3x as more financial institutions make the shift to this win-win value proposition. This growing opportunity, coupled with an equally compelling retail backdrop in DRS provides confidence in our strategy for years to come. On Slide 7, I'll provide a quick update on our margin improvement journey in the key North America segment. The margin progression begins on the top line, where we've improved the revenue quality by shifting to higher-margin AMS/DRS. On a trailing 12-month basis, AMS/DRS now represents 31% of revenue in this segment. Since 2022, this business line has grown by 33% with strong conversion rates and steady new customer growth driving continued market penetration. Other areas of margin enhancement include our pricing discipline and the deployment of waste elimination initiatives through the Brink's Business System. These improvements are coming through the P&L with less direct labor expenses and lower fuel consumption. Even with the healthy top line growth, we are seeing consistent vehicle and employee count reductions and our safety performance continues to improve to record levels. In fact, since 2023, our total recordable incident rate or TRIR is down 33%. There are many studies that indicate positive correlation between higher safety records and improved shareholder returns. These returns happen because a safer work environment enables higher employee engagement, resulting in higher labor productivity, better service quality, resulting in higher customer satisfaction, which all ultimately leads to higher growth and profits. As we continue to shift to AMS/DRS and increase productivity, we are targeting to be at least 20% EBITDA margin in this segment over the midterm. Before I hand it over to Kurt to go through the details of the quarter, I want to thank our team for executing against our strategy. We delivered another solid quarter while meeting our commitments and advancing our strategy. Growth in the AMS/DRS business lines accelerated. Our profit margins expanded to record highs and our cash generation continues to improve. Supported by large and growing markets, ample productivity opportunities and consistent execution, I remain confident we have the right team and strategy in place. I'm excited for the future and encouraged about how far we've come. And with that, I'll hand it to Kurt to discuss the financials, and I'll come back for Q&A. Kurt? Kurt McMaken: Thanks, Mark. I'll begin on Slide 9 with a look at the quarter. Revenue of over $1.3 billion, increased 6% with 5% organic growth and a 1% tailwind from foreign currency. Adjusted EBITDA was up 17% to $253 million, and operating profit was up 24%. Record profit margins slightly ahead of our expectations were driven by productivity, AMS/DRS mix benefits, and pricing discipline. Earnings per share of $2.08 was up 28%, driven by strong profit growth and the benefits of our share repurchase program. As Mark mentioned earlier, free cash flow was strong this quarter with improvement in the cash cycle on accounts receivable, accounts payable, and improved capital efficiency as we continue to shift our business to less capital-intensive AMS/DRS offerings. Trailing 12 months free cash flow is up over $200 million with conversion of 50%. We've been more balanced in our pacing of cash generation compared to the prior year and are still expecting to deliver our full year framework target of between 40% and 45% conversion. On Slide 10, organic revenue growth was $59 million, with most of the growth coming from higher-margin subscription-based AMS and DRS. It's important to note that CVM growth was and will continue to reflect AMS and DRS customer conversions. In Q3, we estimate this to be roughly 2 to 3 points of growth in CVM. Moving to the right side of the page, organic revenue growth of $59 million became EBITDA growth of $34 million for an incremental margin of 58%. Currency changes increased revenue by 1% or $13 million, with favorability in the lower-margin euro and British pound, partially offset by currency devaluation from the Argentine peso. The FX flow-through to EBITDA was approximately 7.5% due to the geographic mix of currency. Despite this, we are pleased with our performance in the quarter with our total incremental profit conversion of 47%. Moving to Slide 11, starting on the left. Operating profit was up $37 million to $188 million with a record margin of 14.1% on strong productivity in line of business revenue mix. Interest expense was flat year-over-year at $63 million, which is also roughly in line with our expectation for Q4. Tax expense was $35 million in the quarter, representing an effective tax rate of just under 28%, slightly lower than the Q2 rate. Income from continuing operations was $88 million. Walking back up to adjusted EBITDA, depreciation and amortization was $62 million, primarily reflecting increased depreciation from growth in AMS and DRS equipment. Stock comp and other was $6 million in the quarter, and we still expect a slight decrease to stock-based compensation over the full year to below $30 million. In total, third quarter adjusted EBITDA of $253 million and margin of 19% was above the midpoint of our guidance for the quarter with strong execution on AMS/DRS growth and productivity. Let's move to Slide 12 to discuss our capital allocation framework. We have a healthy menu of organic OpEx investments that we are making to drive AMS and DRS growth. These high-return investments remain our first call for capital. Next, we reduced leverage at quarter end to 2.9x net debt-to-EBITDA within our targeted range of 2x to 3x and slightly ahead of our expectations for the quarter. Our main use of capital this year continues to be shareholder returns, primarily through our share repurchase program. We have repurchased approximately 1.7 million shares year-to-date at an average price of just over $89 per share. We plan to remain active through the end of the year, and we remain on track to return at least 50% of our full year free cash flow to shareholders. We have been pleased with the results of our share repurchase program, which delivered EPS accretion of $0.08 in the quarter and $0.33 year-to-date. And finally, on M&A, our posture on deals is consistent. We have a full pipeline and continue to explore accretive opportunities that have a strong strategic fit, attractive returns, and align with our broader capital allocation framework. Potential deals would most likely help us further penetrate the large and growing addressable AMS and DRS markets. An example of this was the KAL deal we discussed last quarter. By following this framework, we are committed to allocating capital in ways that will compound cash flow in the future and ultimately enhance long-term shareholder value. Moving to the guidance on Slide 13. In the fourth quarter, we expect revenue of $1.355 billion at the midpoint of our range, reflecting organic growth in the mid-single digits. Using current spot rates, FX is expected to be a year-on-year tailwind of 1 to 2 points. The organic revenue guidance assumes AMS/DRS growth at the high end of our framework. Adjusted EBITDA is expected to be between $267 million and $287 million, and EPS is expected to be between $2.28 and $2.68. Next to this Q4 guidance, you can see what this implies for the full year relative to our full year framework. On the right side of the slide, our organic growth framework remains consistent from the beginning of the year. We are still expecting to deliver mid-single-digit total organic growth, supported by mid to high teens organic growth for AMS/DRS. EBITDA margins are expected to expand between 30 and 50 basis points with conversion of EBITDA to free cash flow of between 40% and 45%. We remain on track to return more than half of that free cash flow to our shareholders through our share repurchase plan and dividend. Supported by the growth and margin expansion we have already seen year-to-date, we are confident in our outlook for the balance of the year. And with that, we're happy to now take your questions. Operator, please open the line. Operator: [Operator Instructions] Our first question today comes from George Tong of Goldman Sachs. Keen Fai Tong: You increased your full year growth outlook for AMS/DRS to be in the high teens. Can you elaborate on the client traction you're seeing in both AMS and DRS that drove you to increase your outlook? Richard Eubanks: Sure. George, this is Mark. Yes, we had a good quarter this year -- this quarter, not just on sales, as you can see, the progression continue, but also in the pipeline. And that gives us good visibility into Q4 and really into first half of next year. We're seeing it both in AMS and DRS. Both are growing equally on their own right, and we'll continue to penetrate across all regions. I think you can see in the deck this quarter, we showed just sort of a brief overview of our AMS footprint. And we're certainly not fully penetrated in those markets. But as you can see, we've got green shoots all over the globe across almost all of our footprint today with more opportunities to go. On the DRS side, that pipeline continues to be very healthy. And one of the things that we talked about last quarter was the amount of conversions from CIT and retail to DRS. Last quarter, we were about 1/4 of our signings were and growth were coming from conversions of our CIT customers. That has actually accelerated into Q3. About 1/3 of our global DRS signings are coming from traditional customers. So we like the progress that not only we're seeing with our existing customer base, but also we continue to tap the unvended markets. As we think about sort of going around the globe though, this -- I'd say this growth is becoming more even as we're seeing good progress both in North America as well as the other three regions. And you can see our -- even though our penetration in Europe is relatively high compared to the other regions, we continue to see good growth there. We'll see Latin America and rest of world continue to pick up pace as well, particularly when you look in Latin America, both Brazil and Mexico continue to really perform for us. That's something that, as you can see, it's one of our least penetrated regions, but has some of the biggest opportunities, very cash-intensive economies, large ATM networks, large bank footprints, but also a very, very large small retail distribution as well for the unvended market. This is where we see this 2x to 3x TAM continuing to be an opportunity into the future. Keen Fai Tong: And then turning to your CVM business. The revenue performance relatively flat organically in the quarter, and it slowed a bit from about 1% growth in the prior quarter. Can you talk more about trends you're seeing here and factors that can either drive a reacceleration in CVM growth or perhaps further moderation in organic performance? Richard Eubanks: Certainly, the big thing there as we continue to convert, as I mentioned, to AMS/DRS, accelerating from 25% to basically 33%. That probably accounted for 2 to 3 points of organic headwind on the CVM business. And the only other piece of the CVM business really is our Global Services business, which really continued to perform in line with Q2 globally, which is sort of mid-single digits. Operator: Our next question comes from Tim Mulrooney of William Blair. Timothy Mulrooney: Just first of all, on AMS/DRS, I'm wondering if you could talk about some of the things that you're doing internally to drive continued growth in that business, which is growing faster than what we were expecting this year. And I know you're winning new programs, but any details you could provide, I guess, without getting into competitive issues around maybe like… Richard Eubanks: Sure. Timothy Mulrooney: Are you adding additional channels, Mark? Any like adjustments to incentives, either in the field or the corporate side? Like what's really helping drive this next leg of growth, I guess, is what I'm asking? Richard Eubanks: Yes. That's a good question, Tim. We've talked briefly around this historically about how we changed our incentive comp plan. And we did that really 2 years ago, we changed our incentive comp plan for our maybe top, let's say, 100 people in the company that had a big part of their annual incentive plan were tied to DRS/AMS revenue growth. We've actually expanded that now to more than 1,000 people in the company. Basically, anyone who's got a management incentive bonus is tied to AMS/DRS growth rates. Actually, we have it weighted higher than total revenue growth to make sure that everyone understands the focus. I think that's sort of at the top level. And I think that's what's helping us and our leadership team across the globe really execute the strategy that we want, which is, again, more AMS/DRS, more flexible network, leveraging kind of the full capacity using technology to be able to do that. On the ground, though, it's also important that our sales teams have similar incentives. And so if you think about an incentive comp plan for local salespeople, that has been, let's say, traditionally, for Brink's, a very local decision and something that local management was sort of left to do. We've started to globally align those sales incentive plans across the globe to focus predominantly on AMS/DRS and helping our customers through this journey from traditional CIT, whether it's the banking or retail segments to move to this more managed services environment. So that's been helping us make progress. This year, we're going to take another step there and further align more specificity across all of our incentive comp plans for our sales teams globally to focus on those two things. In fact, we have some leadership -- local leadership that has taken this even to a higher level. We have some regions where our leadership team has made the decision to either discount commission plans or not even provide commission plans for salespeople that aren't selling DRS/AMS that might be selling traditional services. And again, not being punitive, but more leading our teams to help lead our customers to this value-accretive value proposition for both customers and for Brink's. I think the last thing you asked about was channels. This is an area that is a big change for Brink's. Historically, we've sold direct with all of our salespeople by being direct Brink's employees selling directly to financial institutions and retailers and so forth. We've actually begun to evolve that to work with channel partners. And this is evolving in all regions. And whether this is a commission sales force or it's a value-added reseller or another channel partner, we have white label agreements with some banks to sell DRS to their retail customers. So we really are trying to evolve this process to, again, help everyone in the channel make the cash ecosystem more efficient and feel a lot more inclusive in the rest of the payments ecosystem, whether that's at DRS or in the cash distribution and deposit networks. Timothy Mulrooney: That's good detail. Thanks for outlining the incentives and the channels helping drive that good growth. The other thing I wanted to ask you about was the North America margins. I mean, just incredible this quarter. You're up 300-plus bps. I wonder how to think about that, I guess, from a longer-term perspective, like what the margin potential is in that business? Because I see some of your other segments and where they are, but I don't actually know if that's comparable because Latin America has some pretty different dynamics and so does the rest of the world with the BGS business. So how would you have investors -- how would you frame for investors the margin potential of that business in North America? I would ask incremental margins because that's always an easy way for analysts to kind of level set, but you're decapitalizing the business. So I don't even know if that's like the right way to think about it incremental. So I'll just -- I'll leave it there, but curious how to frame the margin either from a medium-term or longer-term perspective in North America, given the momentum that you're seeing right now? Richard Eubanks: Sure. That's a good question, Tim. I would say, if you look at the margin progression, let's just say Q3, first of all, yes, it prints 370 bps. If you remember, we had 330 bps. If you remember, we had a loss last year during this time frame that makes it a little bit of an easier comp, but still great performance from a margin expansion perspective, particularly when you look across the years. So if you look at this chart, you can see sort of steady upward progression in the business. And this is driven by really 3 big things. The first and foremost has been our AMS/DRS mix improvement across the business. That's certainly been helpful. Those are accretive margins and certainly allow us, as you mentioned, to decapitalize the business and make the business more dynamic. The second has been a more disciplined pricing posture that we've taken that maybe historically we had not. And we've been very disciplined since coming out of the pandemic, frankly to, just to make sure that we're not only covering our costs, but also improving our margins and getting the right value with customers on both sides. And then lastly, really has been our operational execution. And I have to applaud our North America team that really has been working hard and showing real improvements operationally, both in service quality, service timeliness and then, of course, I mentioned safety. And any time you see safety improvements, that's an indicative measure of how well we're running the business or how well the business is being run, let's say. And we think that that's a good one for investors to understand that we've got a good foundation to continue to go forward. Our incremental margins are going to be anywhere from 20% to 30%, Tim. That's kind of how we think about it going forward. But there's not really a -- we don't think it's really an artificial ceiling here in front of us. And we think there's still more room to go. I mentioned the 20% EBITDA margins in the midterm. To me, that's just an interim checkpoint of where we want to take the business because if you know this, and it's not without -- it's in the public domain, we actually have a gap in North America with one of our other traditional competitors, which gives me lots of confidence that we still got room to go and still run the business better, much less with this new business model on top that is decapitalized, that's more flexible, more dynamic and more value accretive for customers. Operator: Our next question comes from Tobey Sommer of Truist. Tobey Sommer: I wanted to ask about the cash conversion. What are your current thoughts on midterm goals for free cash conversion from EBITDA? And as part of your answer, could you describe the DSO improvement drivers, maybe mix shift versus other more discrete actions that you've undertaken? Kurt McMaken: Yes. Tobey, it's Kurt. Why don't I take this one, just kind of walk through it a little bit. First of all, we feel good about our framework in terms of conversion, 40% to 45%, not only in the near-term, but going forward, we think that's a good thing to look towards. The reality is we've been working hard on making sure that we're creating cash throughout the year and focusing on all aspects of that generation throughout the year. And so specifically to your DSO question, there's a couple of things to really I think focus in on. One is the mix of the business, where if you look at AMS/DRS, those are both subscription-based business models, and they absolutely have a very favorable DSO profile for us. So as we continue to grow that, that is a real positive for our DSO improvement. We were better by 5 days, as we mentioned. I mean the other is, again, we -- this gets back to a comment Mark made on incentives. We really have a broad-based incentive now across our leadership base focusing on free cash flow delivery. And so therefore, that delivery really, really is spread out around the world and people focused on it. So that's number 2. The third I'd say is just maybe really working collections harder than traditionally has been done, just getting in and grinding through it, I think is also a factor. The other thing I'd mention too you didn't mention on accounts payable DPOs, but that has also been a real focus for us. We were better, improved by 4 days at the end of the third quarter as well. So that's the second piece. And then finally, I'd say on the CapEx and the capital intensity side of things, the AMS and DRS is a less capital-intensive business. We've been decapitalizing, taking trucks out, for example, Mark has mentioned that in the past. So all of these levers are really working towards the free cash flow generation conversion factor supporting it. Tobey Sommer: Geographic growth was pretty well balanced organically in the quarter on a year-over-year basis. What geos may have higher or lower trajectories going forward? And maybe if you could provide a driver for why there could be a more wider dispersion going forward, if you think that's the case? Richard Eubanks: Yes, sure. In fact, I don't think that's the case, Tobey. I think we've got opportunities to continue at this pace in all regions. Of course, there's going to be opportunities up and down. You think about the Rest of the World segment, particularly given the fact that half of it is BGS. Volatility, obviously, in that part of the world makes a big difference. And so that's why you saw 9% in Q1 and sort of mid-single digits moderating here in 2 and 3. So maybe that's one area. But to be honest, we still feel like we've got good runway with all of the regions, particularly when you consider the unvended retail markets in one vein. And the second is the installed base of the banks. And so as our outlook -- as we think about outlook for AMS and we think about bank outsourcing, there's no region that is over penetrated or has already matured in that way. And we think our ability to capture that when those markets are turned over the next few years, we think there's good opportunity, again, in a big TAM over the next -- well, for good organic growth across all 4 regions. I think we think about sort of looking forward in the next year, maybe in the shorter term, there's nothing we've seen from a customer and market perspective that would change our mind on the organic outlook. We think this framework, obviously, we'll put our guidance out in -- after Q4. But there's nothing that says we wouldn't be able to continue this same framework of mid-single-digit organic growth is mid to high teens AMS/DRS, 30 to 50 bps of EBITDA margin. And just thinking about what's happened this year and relative to the FX in H1, we had a big headwind and slight tailwind in H2, probably going to see something similar if you look forward into '21, a little more of a benefit early in the year in H1 and then, obviously, not much benefit if you snap today's -- snap the line on today's FX rates in H2. So we feel like we've got a pretty good setup for next year. And again, healthy pipelines, as I mentioned, both in AMS/DRS that continue to accelerate as we shift our incentives, as we improve our execution, as we build out more product offerings for our customers and then ultimately, how we execute in the field that continues to improve and get better and just expanding with more channel partners and more at bats with more customers is just going to fuel this opportunity. So nothing that I would say would slow down the organic opportunity. Kurt, anything maybe about '26 or anything else you? Kurt McMaken: Yes. Just to be clear on the FX, Tobey, I think Mark's comment there, I mean if you snap the line today using rates today, you would expect to see a slight tailwind in '26 and for the year and then more weighted towards the first half is what Mark was -- just to be clear on that. But the other thing I'd say is that as we look at -- and Mark was talking about opportunities, if we think about how we're really trying to run the business, we definitely continue to see -- we see opportunities in the area of getting a lot more efficient in our SG&A area. So we're continuing to work at this, and we'll continue to make progress. But as Mark has described, how we're running the business differently than how we have in the past, we expect that we're going to continue to really find efficiencies to support our margin expansion. Richard Eubanks: Yes. I think this is part of just globalizing the business, Tobey. And as you think about our strategy, it's multipronged. And certainly, it's around growth and customer loyalty. It's around innovation around technology and customer offerings, operational excellence and people. But part and parcel to all of that is sort of how we run the business day-to-day in the back-office as well, whether that's across the big functions in finance, IT, HR, sourcing, procurement, real estate, those are all things that historically for 165 years, the company has run sort of independently and disparate around the world. We've been evolving that. We certainly have a strategy around doing more things similar. And we think there's still more back-office sort of fixed cost productivity left in the business that we plan to start getting after and more so in '26 and beyond. So there's -- yes, there's good organic growth. Yes, there's good product mix, but we think we've still got some good productivity left in sort of the fixed base of the business that we can wring out. Tobey Sommer: I'd like to sneak one more in and just because I'm not asking about AMS deals, doesn't mean I don't like the growth. The bank consolidation, what's your view on it here on a net basis? I'm sure there are puts and takes on either side and -- but approvals from regulators are the fastest they've been since 1990 at 4 months and some deals have started to be announced. So if this ends up being something that lasts for a few years, how should investors think about that and its implications for your business? Richard Eubanks: Yes. Good question, Tobey. It's something we obviously are watching very closely. And these most recent announcements have certainly been in our customer base. And so trying to see where those things land. We think with our AMS solutions, this likely becomes an opportunity just given the fact that we have the ability to, first and foremost, provide an offering that is unique, we think in the marketplace. It's not commoditized, and we have a unique offering and a unique value proposition to do that. The second is for those consolidators, we provide them an opportunity to create real cost synergy as well as they think about streamlining their network, their branch footprint, their infrastructure to, again, help through that synergy to sort of wring out the cost and productivity that exists. And we talked about this previously about AMS in general, we've seen earlier in early years, the last few years, we've seen more opportunities outside of North America around AMS, just given the fact that the banking footprints were already consolidated and that this an ATM network productivity opportunity really was pretty high on the list of improving profit margins, whereas in the U.S., more bank consolidation and sort of redundant public company costs were -- or infrastructure and compliance costs were more of the productivity lever. We actually are starting to see the AMS discussions more frequently in North America. I don't know if the 2 things are tied to this consolidation or not, but we certainly think there's going to be opportunities for us there. I think in the short-term, there is certainly footprint consolidations that would happen to our traditional business potentially, where if a bank buys another bank, they've got 2 branches on the same corner, maybe we lose a location there. That certainly could happen. But as we think of -- we -- well, back up, we are thinking about this strategically and making sure that we're also partnered with the right consolidators and making sure that we're serving those being consolidated also in a healthy way that allows us to maintain those customer relationships in the event there is a merger. So I'd say net-net, Tobey, we think this probably is good just based on the AMS opportunity for long-term. Sure. Great. Well, listen, thanks for joining us, everyone. We appreciate your continued interest in Brink's, and we look forward to speaking with you all soon, whether on the phone or on the road. Have a great day. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Greetings, and welcome to Inspirato's Third Quarter 2025 Conference Call. [Operator Instructions] I would now like to turn the call over to your host, Inspirato's Chief Marketing Officer, Bita Milanian. Please go ahead. Bita Milanian: Thank you, operator, and good morning. Joining us for today's presentation are Inspirato's Chairman and CEO, Payam Zamani; and CFO, Michael Arthur. Before we begin, please note that today's call is being webcast live and will also be archived on the Investor Relations section of our website at inspirato.com. You can also find our press release and the supplemental materials currently available there for your reference. As a reminder, some of today's comments are forward-looking statements. These statements are based on assumptions, and actual results could differ materially. For a discussion of these risks and uncertainties, please refer to our filings with the SEC, including our most recent annual report on Form 10-K and our subsequent third quarter report on Form 10-Q. In addition, during the call, management will discuss non-GAAP measures which are useful in evaluating the company's operating performance. These measures should not be considered in isolation or as a substitute for our financial results prepared in accordance with GAAP. Reconciliations of these measures to the most directly comparable GAAP measures are included in our press release. With that, I'd like to turn the call over to Inspirato's Chairman and CEO, Payam Zamani. Payam? Payam Zamani: Thank you, and good morning, everyone. Yesterday afternoon, we issued a press release announcing our financial and operational results for the third quarter. I encourage all listeners to review the press release, which has been posted to our Investor Relations website as it contains information relevant to today's call. I'm proud of the accomplishments we've made this quarter and a testament that we're heading in the right direction. This quarter, we delivered a 97% year-over-year improvement in adjusted EBITDA, reflecting meaningful progress in reducing fixed commitments while maintaining the exceptional experience our members expect. Year-to-date, adjusted EBITDA is up $13.2 million, and operating cash flow has improved by $15 million, showing the lasting impact of our disciplined approach. We've reviewed and renegotiated hundreds of vendor contracts, driving $4 million in additional annual savings, another important step in strengthening our foundation. During the quarter, we also began presale of our new Pass membership launching in January. It's redesigned to create a more flexible, innovative way to travel while delivering greater value for our members and advancing our mission to reinvent luxury travel. Since preselling began, we have added more new Pass members in less than 3 months than in the prior 12 months combined. The progress we've made over the past year has positioned Inspirato for efficient growth in 2026 and beyond. Although we are not yet providing formal guidance for 2026, we fully expect continued improvement in our EBITDA margin as our transformation efforts take hold. At the same time, we are transforming the business and investing in a more robust digital marketing and technology platform, one that's designed to build a scalable, durable and efficient growth model for the future. As part of this broader transformation, we announced the proposed business combination with Buyerlink in June 2025. The goal of that transaction was to accelerate our digital strategy and platform evolution, helping us unlock this growth faster. However, we mutually agreed with Buyerlink to terminate the agreement in September. While the Buyerlink transaction is no longer moving forward, our strategy and business transformation initiatives have not changed. The rationale behind the proposed combination was not to alter our direction, but to speed up our progress towards becoming a leading platform for luxury travel. We remain deeply committed to this vision, continuing to modernize and strengthen our technology and digital foundation to elevate the member experience, enabled by the talent and dedication of our existing team. I remain incredibly confident in the path ahead and believe Inspirato's best days are yet to come. We expect to share additional updates on this strategic initiative beginning next year. Now on to updates for the quarter. As you know by now, our strategy has been focused on 4 pillars that are the foundation for our business. As a reminder, these pillars are: one, operational efficiency; two, brand elevation; three, member experience; four, digital platform. First, we are focused on driving operational efficiency. Since I joined the business, we have been making changes to position the business for profitable growth. Through discipline, cost management and organizational rightsizing, we've achieved adjusted EBITDA profitability on a trailing 12-month basis in Q2 and again in Q3. This quarter, we completed a comprehensive review of our vendor agreements, evaluating hundreds of partnerships to ensure alignment with our current strategy and future objectives. As a result, we were able to identify $4 million in annualized savings. To be clear, these changes were made without any impact to quality of service that our members expect. These are the types of improvements we have made over the last year that led to our 97% year-over-year adjusted EBITDA improvement in the quarter. We expect that the changes we made this quarter, along with a combined focus on operational efficiency, will help us manage cost effectively in the quarters ahead. We also know that the changes position us to scale efficiently and to build out our luxury travel technology platform. Turning to brand elevation. We're continuing to push Inspirato forward and elevate our brand status. This quarter, we relaunched Inspirato Magazine, featuring our best properties and content tailored to our key customer demographics. The magazine captured strong media attention, amplifying brand recognition and reinforcing our image as the premier travel brand. We also expanded our social media presence to ensure we are both present and consistent across all platforms. This cohesive storytelling builds our audience and elevates our brand. Our goal is to create a clear, unified experience the first time people encounter our brand across any channel. Inspirato is synonymous with quality, luxury and service. Third, we're continuing to build on and enhance the member experience. This quarter, we launched our redesigned Pass program. While the program was historically a successful draw for new members, as previously constructed, it had several limiting restrictions for our guests and ultimately wasn't a long-term profitable program for us. We've now redesigned the product to deliver exceptional value. Members can maintain 2 active reservations at any time, each up to 7 nights, from our exclusive curated portfolio of properties. Every estate features consistent quality of white glove service, no matter the destination. For a single fee of $40,000, members can enjoy travel with no monthly taxes, rates or additional fees throughout the year. The program is ideal for discerning travelers who value flexibility and want to maximize both luxury and value from their vacation experiences. We're excited to see members take full advantage of the opportunities our Pass program offers. Presales began in August. And since, we've sold more memberships in that time than we did in the prior 12 months combined. The newly revamped program has been extremely well received. We see this as another way to build a best-in-class member experience. Additionally, we continue to develop experiences and partnerships that retain existing members and attract new audiences. For example, we recently expanded our Inspirato Sports Collection to include a Centre Court experience at the 2026 Wimbledon finals, dubbed as 4 of the best courses around Spain, and a family adventure exploring 3 of Utah's iconic national parks. These curated experiences has continue to resonate strongly with members who value shared moments of celebration and discovery. As we've scaled our business, we now offer more than 25 member-only journeys annually. We also recently added a partnership with Aero to provide our guests with additional flying options to our marquee destinations. These semiprivate flight options will help us provide a more cohesive travel experience for our guests. I've always believed that the vacation begins the moment you leave home, and this partnership helps bring that idea to life. Finally, we also made several strategic property enhancements to strengthen member satisfaction, drive higher occupancy and reinforce our brand as the leader in curated luxury travel. We have additional improvements to more of our locations planned in the year ahead, which we will share as we go along. Lastly, we're building a robust technology and digital marketing platform that will unlock massive potential for Inspirato. With the cost improvements and other enhancements we've made, we now have the right business operations in place to invest in growth. We believe that foundational technology investments we are making will help transform Inspirato into the leader in luxury travel. We will create a world-class platform that allows us to reach, target and convert high-value travelers at a scale previously impossible for us. This will expand our total addressable market and fuel our growth for years to come. In closing, we continue to successfully execute our long-term business strategy in the third quarter, which has us well positioned to meet our financial and operational targets for the year. Over the past 15 months, we've made tremendous strides to elevate the business while laying the operational groundwork to scale efficiently as we lean into our technology platform strategy. I want to thank our team for their relentless focus and our members for their trust and loyalty. I believe we are at the start of something extraordinary, and our results prove it. And I can't wait to share more progress with you in the quarters ahead. I'd like to also share that yesterday, we announced the upcoming departure of our CFO, Michael Arthur, who had decided to pursue another opportunity. Michael will remain with Inspirato through the end of 2025 to ensure a smooth transition while we conduct a search for his successor. Michael has been an exceptional partner and leader, helping to strengthen our financial foundation and advance our long-term strategic goals. On behalf of the entire company and our Board of Directors, I want to thank him for his many contributions and wish him continued success in his next chapter. With that, I'll turn it over to Michael to discuss our financial performance and outlook for the remainder of the year. Michael? Michael Arthur: Thank you, Payam, and good morning, everyone. I'd first like to begin by expressing my gratitude to the team at Inspirato for the opportunity to lead this organization as CFO. Together, we've strengthened the company's financial foundation and advanced key strategic priorities that position Inspirato for long-term growth and profitability. I'm confident in the company's future and committed to ensuring a smooth transition. Now turning to our financial performance. As Payam outlined, we continue to make operational improvements to create a more efficient business, and we're excited about the progress we're making. In the third quarter, total revenue was approximately $56 million, down 20% year-over-year. Despite the decline, we delivered a 97% improvement in adjusted EBITDA to negative $0.1 million, a clear reflection of the operational progress we made across the business to become more efficient and drive sustained profitability. Cost of revenue decreased 23% or roughly $11.5 million, driven by our ongoing portfolio optimization efforts and continued focus on operating efficiencies. Cash operating expenses were also down approximately $7 million year-over-year, benefiting from reduced overhead and disciplined cost management as we streamline operations throughout the organization. Breaking down revenue a little further. Subscription revenue was $19.4 million, down 16% year-over-year, primarily due to the expected and planned decline in Pass subscription. At the end of the third quarter, we had nearly 11,000 members, which were comprised of approximately 9,500 active Club members and 1,100 active Pass members. Importantly, on a sequential basis, subscription revenue was flat quarter-over-quarter, a significant improvement versus an average quarter-over-quarter decline of 7% over the prior 10 quarters, the peak of our subscription revenue. This marks an encouraging stabilization in our subscription revenue base. Furthermore, year-to-date, Club and Invited subscription combined is up compared to the prior year. These results demonstrate that our strategy is working. Our focus on high-value, long-term Club is driving healthier and more sustainable subscription base, setting the company up for growth in the future. And looking ahead, we're excited about the relaunch of our Pass program on January 1. The renewed product has been redesigned to complement our Club offering and strengthen the balance of our overall subscription mix. As Payam mentioned, early interest and engagement with the enhanced Pass product have been strong. Combined with Club's subscription revenue stabilizing, we believe we are entering an inflection point in our subscription revenue trajectory, something we noted earlier this year. In the second half of the year, we're starting to see the positive impacts of these strategic shifts, setting the stage for further stabilization of subscription revenue and improved profitability in 2026 and beyond. Next to travel revenue. We delivered $33.9 million in the quarter, down 20% year-over-year. This was driven primarily by fewer members and lower occupancy of 56%, mitigated by higher ADR of 25%. The higher ADR supports the gross margin and profitability goals we set for the year. This reflects our strategy to optimize the portfolio mix, improve revenue quality and drive strong overall profitability within our lease controlled accommodations, evidenced by the year-to-date increase in revenue per available night, or RevPAR. Turning to free cash flow. In Q3, free cash flow was negative $3 million, mainly due to net cash used in operating activities in the quarter, inclusive of transaction-related costs paid during the quarter. Looking at year-to-date performance. EBITDA for the first 9 months of 2025 was $4.8 million, a $13.2 million improvement versus the same period in 2024. This includes approximately $2 million of foreign exchange translation losses in 2025 related to euro-denominated leases. And free cash flow year-to-date is negative $10 million. And as a reminder, year-to-date includes almost $4 million of nonrecurring payments related to the lease termination payments and transaction-related costs in the year. On an adjusted basis for those onetime items, year-to-date free cash flow is roughly negative $6 million. And on a reported and an adjusted basis, free cash flow has improved $17 million compared to the same time last year. I'd also note that the fourth quarter is historically a strong cash flow period for our business, and year-end cash is typically a high point of the year given the timing of member bookings and receipts in December. While we continue to take steps to improve our operating free cash flow, we believe that the actions we have taken over the last 12 months will result in sustained free cash flow for the business. Additionally, after quarter end, we did unlock approximately $1.3 million of restricted cash, improving the company's overall cash and liquidity position. Now moving to our outlook. Given the termination of the proposed merger with Buyerlink, we are reinstating our annual financial guidance for 2025 and tightening the previous ranges. We now expect EBITDA of between $2 million and $4 million, marking a significant improvement from 2024, along with full year revenue of between $235 million and $240 million. We also expect operating expenses of between $80 million and $85 million, reflecting a 15% year-over-year reduction as we continue to streamline the business and focus on efficiencies. Over the past year, the choices we made are beginning to show up in our financial performance. By sharpening our focus and instilling strong discipline throughout the company and constantly refining how we deliver value to our members, we've become more agile and effective. We are now focused on strengthening Inspirato to provide our customers with even more exceptional experience and driving sustained profitable growth for our shareholders. And with that, I will turn it back to the operator for Q&A. Operator: [Operator Instructions] Our first question comes from Mike Grondahl with Northland. Mike Grondahl: The new pass, could you maybe talk about, I don't know, two of the features that are improved or different? And maybe what kind of goals do you have for Pass in 2026? How should we think about this? Payam Zamani: So Michael, this is Payam, I'll take this. As we went into redesigning Pass, we were highly cognizant of the fact that while the old version of it was popular, it was not profitable. So we wanted to create a product that the more we sold, the more members who bought it took advantage of it, the happier we would become. So it will be a mutually joyous occasion, in a sense. And one of the big aspects of the new Pass is that while it provides significantly more travel opportunities, it does not provide access to hotels. So it provides access to properties that we control. As a result, it really plays a role in better monetizing available nights rather than providing access to opportunities that we will have an out-of-pocket expense associated with it. So that definitely benefits the company in a way that the more we sell, the more profitable we become. And our members will also get to travel more readily, more easily within our portfolio as defined. And they're able to have 2 tracks of reservations in place at any given time. So imagine that you may want to book a trip for the holidays on 1 track, so a hard to get reservation for the mountains and so on. And the other track, you can use on an ongoing basis for last-minute travel opportunities. So it really gives a lot of flexibility to a member who joins. We have limited the number of members that we're willing to sign up for this product at 2,500. And that number is basically based on the math that we've done, that what percentage of our total membership, given the current size of the portfolio, can be Pass members. And we have decided that 2,500 is the number. And as Michael mentioned, we have about 1,100 Pass members going into this. So we have about 1,400 opportunities available, maybe a little bit fewer now as we go into 2026. And once we get to 2,500, we'll stop selling it. People can join our waitlist, but we'll stop selling it until and unless our portfolio grows, then we'll continue to basically release so many more membership opportunities. I hope that answers your question. Mike Grondahl: Yes. No, that's helpful. And then maybe on the marketing engine. Any initial plans you can share there? Anything you're doing today to kind of jump-start that? Payam Zamani: Yes. We've been testing that. We have had -- we've had basically test landing pages that we've been working with. And if you go back to the beginning of Q2, we are basically spending no money on search engine marketing. That has grown to probably, a couple of hundred thousand dollars per quarter now. So still very small numbers. But we've been testing, and the early results are very promising. Mike Grondahl: Got it. And then lastly, Michael, sorry to see you moving on. You were a lot of help. Have you guys begun a search for a new CFO? Is that just starting now? Or has it been in the works a little bit? Michael Arthur: Yes. Thanks for the kind words, Mike. And obviously, here through the end of the year, so let's stay connected. The company has just kind of started -- initiated the search. So we're early in the process. Operator: [Operator Instructions] And I'm not showing any further questions at this time. I'd like to turn the call back over to Mr. Zamani. Payam Zamani: Thank you. And thank you, everyone, for joining us today. I'd also like to thank our employees, members, partners and shareholders for their continued support. Looking forward to speaking to you in Q1. Operator: Thank you for joining us today for Inspirato's Third Quarter 2025 Earnings Conference Call. You may now disconnect, and have a wonderful day.
Adrianne Griffin: Thank you, operator. Welcome to our third quarter 2025 earnings call. Joining me today are Vijay Manthripragada, our President and Chief Executive Officer; and Allan Dicks, our Chief Financial Officer. During our prepared remarks today, we will refer to our earnings presentation, which is available on the Investors section of our website. Our earnings release is also available on the website. Moving to Slide 2. I would like to remind everyone that today's call includes forward-looking statements subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially due to known and unknown risks and uncertainties that should be considered when evaluating our operating performance and financial outlook. We refer you to our recent SEC filings included in our annual report on Form 10-K for the fiscal year ended December 31, 2024, as supplemented by our quarterly reports on Form 10-Q, which identify the principal risks and uncertainties that could affect any forward-looking statements and our future performance. We assume no obligation to update any forward-looking statements. On today's call, we will discuss or provide certain non-GAAP financial measures such as consolidated adjusted EBITDA, adjusted net income, adjusted net income per share and free cash flow. We provide these non-GAAP results for informational purposes, and they should not be considered in isolation from the most directly comparable GAAP measures. Please see the appendix to the earnings presentation or our earnings release for a discussion of why we believe these non-GAAP measures are useful to investors, certain limitations of using these measures and a reconciliation to their most directly comparable GAAP measure. With that, I would now like to turn the call over to Vijay, beginning on Slide 4. Vijay Manthripragada: Thank you, Adrianne, and welcome to everyone joining us today. I will provide an update on the strength of our third quarter and year-to-date results, discuss our increased 2025 guidance and the reasons for our more optimistic 2026 outlook and speak generally about the third quarter presentation shared on our website. Allan will provide the financial highlights and following our prepared remarks, we will host a question-and-answer session. As we have noted each quarter, our business is best assessed on an annual basis given the demand for environmental science-based solutions doesn't follow consistent quarterly patterns. This is how we manage our business and how we recommend viewing our performance. I want to take a moment to express my sincere appreciation for our approximately 3,500 colleagues around the world. Their exceptional contributions, commitment to exemplary client service and passion for environmental stewardship and innovation are the cornerstones of Montrose's success. Together, we pursue our mission of for planet and for progress. For planet and for progress. This means Montrose aims to simultaneously address our universally shared desire for clean water, clean air and clean soil while creating jobs and increasing shareholder value. We are partnering primarily with our industrial clients across end markets to help them operate more efficiently and reduce their impact on their environment. This is why our revenue and earnings are hitting record levels despite all the political rhetoric. Whether it is working with our energy-producing clients to reduce air emissions and costs, whether it is working with our waste industry clients to address water contamination concerns and risks or whether it is working with technology and semiconductor companies on permitting or water access concerns. Our financial results speak to how environmental stewardship can work in concert with development and value creation. This is why our record 2025 continues. From a financial perspective, we achieved our third consecutive quarter of record performance, including free cash flow generation that exceeded expectations. Broad-based client demand for our services is reflected in the 26% revenue growth and 19% consolidated adjusted EBITDA growth in Q3 year-over-year. As we look at the more meaningful and longer-term financial result trends of year-to-date 2025 results, revenue has increased 26% with very strong double-digit organic revenue growth and adjusted EBITDA has increased even faster than revenue at 30%, reflecting continued margin accretion of an additional 1% of revenue year-over-year. This margin accretion is due to both strong organic growth and operating leverage in our consulting, testing and water treatment businesses in particular. Operating and free cash flow have increased meaningfully by $65 million and $77 million year-over-year, which has allowed us to delever the balance sheet faster than expected and has increased our flexibility to further invest in our people and our business. In addition, given our strategic acquisition pause at the start of 2025, which we initiated to clearly demonstrate the underlying power of our business and business model, and we believe that power and strength is apparent from these results. For the second consecutive quarter and year-to-date periods, we reported positive net income and positive GAAP EPS, which Allan will expand upon in his prepared remarks. I'm very proud of my team for delivering these exceptional results while maintaining their focus on our mission and our clients. As we look forward to the rest of 2025 and to 2026, our optimism remains, and we are thrilled that our financial results continue to clearly show why we are and remain upbeat about our business' prospects. Regarding updates to our guidance, due to our strong year-to-date performance and based on consistent client feedback about the importance of our services to their operations, we are raising 2025 guidance for the third consecutive quarter. We now expect 2025 revenue to be in the range of $810 million to $830 million and 2025 consolidated adjusted EBITDA to be in the range of $112 million to $118 million. which represents an approximately 18% revenue increase and 20% full year adjusted EBITDA increase at the midpoint over 2024. Given recent questions about the topic, we want to remind you that our exposure to the U.S. federal government remains very modest, well less than approximately 5% of revenue and that we have not been significantly impacted by the recent U.S. government shutdown. Notably, we observed that state and local governments have and continue to step in to address gaps and uncertainties left by the U.S. federal government, creating additional opportunities for growth that we did not anticipate at the start of this year. We continuously monitor these developments to strategically position ourselves to capitalize on these new opportunities. We do acknowledge that external factors such as economic volatility, policy fluctuations and evolving regulatory frameworks are influencing our industry. However, Montrose's unique business model and our competitive positioning has allowed us to capture tailwinds from these external factors. And our positioning has also allowed us to stay largely insulated from the broader volatility. I will now highlight a few of the tailwinds benefiting us this year. As a reminder, we have repeatedly heard from our clients that, one, their long-term outlook has not changed; that two, they see increasing domestic industrial activity as a net positive; and that three, they remain committed to complying with state and international regulations that impact their ability to drive their financial results. All acknowledge challenges from the current volatility in U.S. federal regulations, but by and large, we've only seen a few of our approximately 6,000 clients make any changes to their operating policies or decisions. This is why our business remains resilient. For example, and regarding greenhouse gases, which are among the most politicized air contaminants, changes to U.S. federal policy seem to have been more than offset by the impact of state regulations, including states in which we have many employees and clients and which are across the political spectrum, for example, in Texas, in Colorado and in California. In addition, market forces such as the recent EU methane regulations expand the global market for emissions monitoring and compliance as these requirements affect global exporters, including U.S. LNG and oil producers who are among our key clients. Montrose's historical investments in advanced monitoring technologies enable us to work with our energy clients to provide better, faster and more cost-effective results. Coupled with our clients continuing to take practical long-term views, demand for our services continues at pace. And because these regulations are multiyear in scope, with phased deadlines and increasing stringency through 2030, demand is often longer term and more predictable. These state regulations and market forces are a large part of why our Measurement and Analysis segment's organic revenue growth and margins are at record levels in 2025. As another example, the clarification of the U.S. EPA's perspectives on PFAS regulations in Q2 2025 and the agency's continued focus on water quality has resulted in a steady increase in the number of opportunities for our water treatment business. Not only does our pipeline of water treatment opportunities continue to expand meaningfully, but our year-on-year organic growth for this service is expected to remain elevated and accretive to our 2025, 2026 and long-term organic growth outlook. As a third example, increased mining activity in our Canadian and Australian markets has resulted in attractive and new growth opportunities for Montrose in both of those geographies. The recent rare earth partnership across governments adds more momentum to an already attractive industrial end market for Montrose. The environmental consulting, permitting, testing and water treatment needs for our mining sector clients are likely to create nice tailwinds for our business over the foreseeable future. As a fourth example, increased industrial activity, aging infrastructure and more severe weather-related events continue to drive outsized demand for our environmental emergency response business in the United States. What is critical to convey is that though the response-related earnings are meaningful and unpredictable, they are an increasingly smaller part of the whole, and this is critical, they are very additive to our long-term organic growth and cross-selling algorithm. As a simple analogy that hopefully sheds light into the strategic and financial value of having a response business as part of our service portfolio, because of our focus on being an environmental science pure play, our response business is like the emergency room in our environmental hospital, so to speak. Once a patient comes into the ER of a traditional hospital, they are likely to need testing services and inpatient services. This is similar to our dynamic at Montrose, where our environmental testing and our environmental consulting and treatment services often follow our environmental emergency response. What we are increasingly finding as the team works more closely together is that post response, there are substantial downstream and often recurring long-term opportunities for Montrose. Said otherwise, our environmental emergency response is not just episodic, it has also provided structurally recurring opportunities for us and supported long-term organic growth opportunities. As a specific example, earlier this year, we responded to an accidental environmental release for one of our energy clients, and our involvement in this response helped us secure long-term remediation and testing related to the event, which not only benefited third quarter results, but will also likely result in multiyear opportunities for Montrose. We expect our environmental advisory and air monitoring services will continue with this client for many years to come. We hope these examples help provide more context around why the demand for our services continues to increase and remains visible and predictable for our teams. Before I hand the call over to Allan, I want to reaffirm the framework that underpins our ability to create long-term shareholder value. First, we will continue allocating capital to the highest return opportunities, including investing in organic growth, research and development and technology. We regularly review our service lines and operations to ensure achievement of our internal return hurdles and resource optimization. Through this internal evaluation and given changes to U.S. policy and the resultant impact on the U.S. market for renewable energy, we determined that it is prudent to exit our renewable service line within our Remediation and Reuse segment. We expect to have this materially wound down by the end of this year, and the impact of this decision has already been embedded in our results and outlook for 2025. Second, we will emphasize scalable profitability by expanding our market position through continued investments in sales and marketing. These investments are already embedded in our current outlook. Given most of our organic growth has come from increasing our share of wallet with our existing customers, given we remain a small fraction of our clients' overall spend on environmental solutions and given we have very strong customer retention, in 2025, we continued investing in building a best-in-class commercial team. This team is selling technical services to clients, is also enhancing our brand visibility and has started increasing our focus on sectors that enable us to address broader trends faced by our clients and their peers as a group. We have had the fortune of adding some incredible talent to our technical and commercial teams in 2025, which is why we have so much conviction in our ability to continue driving market-leading organic growth and the resultant margin accretion into the foreseeable future. Third, we will continue to evaluate strategic and accretive acquisitions and retain the flexibility to opportunistically repurchase shares to maximize returns. Our acquisition strategy isn't just about scale. It's about capability and geographic reach. We evaluate each opportunity for strategic fit and for the potential to drive outsized financial returns. Optimizing our capital structure and managing leverage, along with our continued focus on increasing operating and free cash flow generation remain core to our acquisition and to our operating decision models. Due to the highly fragmented nature of our industry and client feedback on the value of scale and capability and reach and given our strong performance with cash generation in 2025, we expect to restart acquisitions sometime in 2026. Long term, we will continue delivering compelling organic growth of 7% to 9% annually with EBITDA growth expected to outpace revenue growth. Coupled with acquisitions, which will be additive to these growth rates, we remain confident in our ability to create outsized returns for our shareholders. These frameworks and industry dynamics contributed to our outstanding year-to-date 2025 results, our increased 2025 guidance and the 2026 outlook we are sharing today. In 2026, we expect to achieve at least $125 million in EBITDA. We also anticipate further improvement in EBITDA margin in 2026 compared to 2025. Our resilient business model, execution in 2025 and exceptional team give us the confidence to provide an early outlook for another excellent year in 2026. We will continue to navigate the complexities of this evolving market landscape. But regardless of the complexities, we are committed to surpassing our goals as we have been doing and to generating significant value for all of our shareholders. With that, I will hand it over to Allan. Thank you. Allan Dicks: Thanks, Vijay. In 2025, we have sharpened our focus on driving best practices and on delivering for our clients, shareholders and employees with our record third quarter and year-to-date financial performance, highlighting the results of some of these efforts. Our third quarter revenue grew by 25.9% compared to the same quarter last year, reaching $224.9 million. Year-to-date revenues increased by 25.6% versus the previous year, totaling $637.3 million. The primary drivers of revenue growth in both periods were organic growth across all 3 segments and modest contributions from acquisitions completed in the previous year, with additional environmental emergency response revenues also adding to year-to-date revenue growth. Robust revenue growth and enhanced operating performance fueled the third quarter consolidated adjusted EBITDA increase of nearly 19% to $33.7 million or 15% of revenue. Similarly, year-to-date consolidated adjusted EBITDA increased 35% to $92.3 million or 14.5% of revenue, a 100 basis point improvement over the same period last year. This year, we are investing in marketing to boost our brand equity, rewarding employees for their contributions, refining our go-to-market strategy and assessing future organizational needs. These efforts are shaping our future success, and we look forward to discussing more with you as we progress. In the third quarter of 2025, we reported positive GAAP net income of $8.4 million or $0.21 of GAAP earnings per diluted share attributable to common stockholders compared to a net loss of $10.6 million or a $0.39 net loss per diluted share attributable to common stockholders in the prior year period. This notable $18.9 million increase in net income and $0.60 increase in GAAP earnings per share was attributable to strong revenue growth, margin expansion and a $10.6 million fair value gain related to the Series A redemption, partially offset by higher interest and tax expenses and an increase in weighted average diluted common shares outstanding. This marks our second consecutive quarter and the first year-to-date period of reporting positive GAAP operating income, net income and GAAP EPS. Continued growth and margin expansion driven by brand and go-to-market investments as well as continued cross-selling success will help make these key performance metrics more sustainable. Year-to-date, net income was $7.4 million or $0.08 in GAAP earnings per share compared to a net loss of $34.1 million or $1.30 net loss per diluted share in the same period last year. The year-over-year $1.38 improvement in earnings per share primarily resulted from higher net income and dividend relief following the Series A2 redemption, partially offset by an increase in weighted average diluted common shares outstanding. I'll remind our audience that on July 1, 2025, we redeemed the final $62.6 million of the Series A preferred stock in cash, funded with cash on hand and borrowings under our credit facility, achieving our balance sheet simplification goal 6 months ahead of schedule. Year-to-date, adjusted EPS were $45 million and $1.03, respectively, reflecting an improvement over the prior year period of $38.6 million and $0.80. Please note that our adjusted net income per diluted share attributable to common stockholders is calculated using adjusted net income attributable to stockholders divided by fully diluted shares. We believe this net income methodology is currently the most helpful net income per share metric for Montrose and common equity investors. I will now discuss our performance by segment, focusing my comments on the third quarter. In our Assessment, Permitting and Response segment, third quarter revenue grew 75% to $91.1 million from $52 million in the same period last year, driven by increases in nonresponse consulting and advisory services, which included the benefit of remediation consulting services cross-sold following the large environmental incident response in the second quarter of this year. The Assessment Permitting and Response segment's adjusted EBITDA was $20.4 million or 22.4% of revenue, a 90 basis point improvement over the previous year due to favorable revenue mix. Turning to our Measurement and Analysis segment. Revenue for the quarter increased 7.5% to $63 million, driven by organic growth across lab and field services and modest contributions from an acquisition in 2024. Segment adjusted EBITDA rose to $17.3 million or 27.5% of revenue, representing a 460 basis point margin improvement over the prior year period. In 2025, Measurement and Analysis segment margins have significantly outperformed the prior year as utilization drove efficiency gains and our team's enhanced operating performance. We expect segment margins to remain elevated in the next few years, likely greater than 20%. In our Remediation and Reuse segment, third quarter revenue increased to $70.8 million from $68.1 million in the same quarter last year. This segment's adjusted EBITDA declined to $9.4 million, and adjusted EBITDA margin fell by 380 basis points to 13.3%, primarily driven by losses incurred in the wind down of our renewables business. Our water treatment business continues to gain momentum, and we are pleased with the organic growth and margin progress in that service line. Moving to our cash flow and capital structure. We achieved $55.5 million of operating cash flow in the first 9 months of 2025, a $65.3 million improvement compared to the prior year period. Year-to-date operating cash flow, which was driven by higher cash earnings and improvements in working capital represented a 60.2% conversion of consolidated adjusted EBITDA, significantly exceeding a greater than 50% target. Free cash flow, defined as cash flow from operations less cash paid for purchases of property and equipment and capitalized software development expenditures and excluding the Series A-2 preferred dividends was $38.8 million, an increase of $77.4 million over the prior year. Of note, $38.8 million of free cash flow generation equates to 42% conversion of consolidated adjusted EBITDA. We are also pleased with the strength of our balance sheet at quarter end, reporting a leverage ratio of 2.7x and substantial available liquidity of $198.5 million. At the beginning of this year, we established expectations to simplify our balance sheet, report year-end leverage below 3x, focus on organic growth and increase operating cash flow generation. With 3 quarters behind us and our increased full year 2025 guidance, we are confidently on track to surpass these goals. Thank you all for joining us today and for your continued interest in Montrose. We look forward to the opportunities ahead, and we'll update you on our progress next quarter. Operator, we are ready to open the lines to questions.[ id="-1" name="Operator" /> [Operator Instructions] And your first question comes from the line of Tim Mulrooney from William Blair. Timothy Mulrooney: So I wanted to ask to start off on that AP&R business. It showed really strong growth this quarter, much higher than we were expecting. Allan, you touched on it in the prepared remarks, but can you go into a little more detail about what drove that growth? How much of that is structural versus perhaps some larger onetime sales maybe related to that disaster business? Is there any pull forward from the fourth quarter as well? Because in order to hit the midpoint of your guide for the full year, it looks like we need to assume that maybe that business decelerates on a sequential basis. So I just want to have a broader conversation about AP&R specifically. Vijay Manthripragada: Tim, why don't I start and Allan can certainly jump in. So a lot of the outperformance is tied to the excellent cross-selling following the emergency response that we alluded to earlier this year. So as you think about the strategic thesis around the benefits of having an incredible arguably best-in-class response business, the cross-selling benefits of that are kind of manifesting in our numbers across our segments as we think about our consulting practice, which is what you're asking about, but even testing and remediation, all of them are benefiting from that -- from those efforts. And so to answer your question specifically, it is both structural and some of it is onetime. And we certainly expect that from those cross-selling benefits, as we alluded to in Allan's comments in mine, there will be some really attractive downstream testing and remediation business that will continue for a while. And then as it relates to the second part of your question around the timing, yes, there is a little bit of a pull forward from what we originally anticipated in Q4 into Q3 and Q2. And so that's where some of that shift is coming from, and you're exactly right. Timothy Mulrooney: Okay. That's really helpful. Thanks for connecting the dots there, Vijay, for -- between what's happening and the guidance. That all makes sense to me now. I want to switch gears really quickly and just ask about your comments on your water treatment business. It sounds -- I mean, the tone sounds pretty positive, maybe even a little more positive this quarter than what I've heard in the past. Maybe I'm making that up in my head or maybe that was by design. But it sounds like you're incrementally positive on that business, at least to me. I wonder what's driving that? I recent -- we saw that the EPA reaffirmed the Biden era designation for PFOA and PFAS as hazardous substances under the Circus Super Fund. We weren't really sure which way that was going to go. I have to think that's good for your business long term. So curious how you're thinking about that and if that is related to the positivity that you're seeing in that water treatment business or if it was other factors? Vijay Manthripragada: Thanks, Tim. So the short answer is yes. But let me just step back and talk a little bit about our water treatment business. It is seeing really healthy organic growth and margin accretion this year compared to '24. So it is a good part and a solid part of the outperformance we've had this year. And so some of the optimism we're expressing is because we're really proud of the success that team has had in 2025. And we certainly expect over the next couple of years for that success to continue. The way -- the reason we talk about water treatment now is that this is kind of a team that has intellectual property and technology that is applicable across multiple contaminants, not just PFAS. And so yes, the PFAS -- clarity around the PFAS regulations are contributing to our growing pipeline. They are contributing to year. They're expected to continue contributing over the next couple of years. But because of our advanced water treatment capabilities, we're seeing kind of opportunities more broadly where PFAS is a contaminant of concern, but not the only one. And I think that's an important distinction there, Tim. We're seeing opportunities across new industries, for example, like pharma and semiconductors that are popping up or the landfill leachate in the waste industry, where our technology is applicable across a broader swath of contaminants, including PFAS. And so it's really a water technology business. And as that technology becomes more visible in the marketplace, we're starting to see some really nice momentum pick up. So yes, our optimism is higher. Yes, our optimism related to the future is much stronger, but those are the reasons why this is not just a PFAS play, but that is certainly a driver of the business. [ id="-1" name="Operator" /> Your next question comes from the line of Jim Ricchiuti from Needham & Company. James Ricchiuti: I wanted to touch on the announcement that you talked about on the renewables, renewable service side of the business. Can you give us -- and this may have been in some of the information you provided. I apologize if it was, but the revenues associated with renewable services. And maybe, Allan, if you can, can you help us with the impact on margins from the wind down of this part of the business? Vijay Manthripragada: Maybe Jim, why don't I explain why we're doing it and then Allan can give you kind of color on the financials. As we look at the current administration's policies around biogas in particular, and some of the uncertainties related to it, we've seen a pullback from some of those clients on kind of the demand cycle and the opportunity for us given our specific capabilities to scale that business. So in this current environment, it does not make sense for us to allocate capital at time to that business and generate the type of IRRs that we would want internally, given some of the other opportunities we're seeing that we talked about. So that's the reason for the wind down. If I exclude the wind-down impact, which is in all the numbers, it's included in all of our guidance, the segment margins would be up year-to-date nicely. And so it is -- despite that, right, the business is obviously performing incredibly well, but it makes sense for us to step away from that business now given what the environment looks like from our perspective into the foreseeable future given the current administration's policies. Allan Dicks: Yes. And on the revenue side, Jim, we've got a couple of projects we're winding down, and so we're not generating any new projects. So it's de minimis revenue this year, a very significant percentage decrease year-over-year. And be just right, if you have to exclude that, margins in that segment would be up. We do expect to fully be out of that business by the end of the year. James Ricchiuti: Okay. On the decision to look at restarting M&A at some point in 2026. Vijay, maybe you could touch a little bit on whether your acquisition priorities might be different than what you pursued in the past. And just given the current dynamics of the market, maybe you could give us a little color. I know it's still perhaps a ways out, but just talk to us about how your M&A strategy might be evolving. Vijay Manthripragada: Sure, Jim. Just from a -- in terms of our capacity, right, the strategic thesis around our desire to continue consolidating this market is unchanged. As we think about the incredible success Allan and team have had with cash flow generation, we expect to have an incredible year, both obviously, as you saw in Q3, but also through the rest of this year, which further delevers the balance sheet and the power of that balance sheet gives us a lot more flexibility to continue investing in the business, both organically and inorganically. And so the short answer is I do expect to certainly restart acquisitions very soon, certainly in 2026. And the nature of those transactions, we're kind of evaluating size and our ability to digest larger assets. We've had a lot of success, as you know, with the recent acquisitions of size like CTEH or Matrix. And so those types of assets continue to be very attractive for us. We've seen some really nice opportunities internationally as we continue to scale in geographies like Canada and Australia, again, staying true to our core business and business capabilities, but just expanding kind of our reach at the request of our clients. And we believe that there's going to be continued margin accretion opportunities tied to our ability to extract efficiencies as we've demonstrated with some of the larger transactions. And so our shift there is a little different, Jim. As we think about the large assets trading in the private sector, those assets are trading in the 17 to 20x multiple, EBITDA multiple. And then the smaller assets continue to trade in kind of that mid- to high single digits. And so that balance obviously weighs pretty heavily as we think about future opportunities for us to expand. It is still a massive addressable market. Even with our current trajectory and rapid growth, we're still a small piece of it. And so it is a core part of the thesis, and I certainly am excited to get that going again in the near future. Does that answer your question, Jim? James Ricchiuti: Yes, it does. It's helpful, Vijay. And congrats, by the way, on the quarter. [ id="-1" name="Operator" /> Your next question comes from the line of Tim Moore from Clear Street. Tim Moore: Nice execution on organic sales growth and free cash flow conversion. It's quite the improved company compared to before 2024. So really great operational execution and strategy. But just switching gears to -- I want to start maybe with remediation reuse. How should we think about the potential for margin expansion cadence there on the step-up to maybe a higher teens adjusted EBITDA margin. That business might be a little subscale now. But I was just kind of curious, I mean, is there a trigger point like $80 million revenue quarterly? Or do you think that would be more of a priority to kind of do bolt-on acquisitions to get the utilization and scale up there for more margin expansion? Vijay Manthripragada: Yes. Let me take that. It's less about M&A adding to that segment to get margins up it's fundamentally the water treatment business that is going to drive most of that margin expansion. That treatment technology business, which included the renewables business has run kind of low teens on a combined basis. When you pull the 2 businesses apart, that water treatment business has been running kind of high teens and biogas or renewables in the single digits. So what we're seeing is as we wind down renewables, you're going to get that margin deteriorative business out of the way. And we're seeing nice accretion on the water treatment side that will be in the 20% margin range on its own. And so as that business continues to expand as a percentage of the segment's revenues, you're going to see a natural lift in the overall margins. There is margin accretion in the rest of that segment, but obviously not to the extent of the water treatment plant. Tim Moore: That's great color. No, thanks for breaking that out. I think that really helps investors and explains the catalyst that will just be self-help. So Vijay's prepared remarks mentioned mining in Canada and Australia. We've seen a lot of the rare earths in EU emission rules come out for LNG exports. Are there any other areas you can talk to about besides the non-PFAS water treatment and semiconductors? I mean you had that really good announcement late August for Western Canada for the restoration and -- water restoration and decommissioning facilities. Are you seeing more of that kind of pop up? And anything else you can talk about maybe that you haven't mentioned that's kind of heating up? Vijay Manthripragada: Yes, Tim, I mean, it's -- we're seeing -- as you think about kind of our strategic focus on industrial clients, as we think about the shifts geopolitically with increased domestic production, take the United States for a second, right? And obviously, all of those industries are now tailwinds for us. But even in Canada, with Prime Minister Karney's Canada first approach and the material investments in infrastructure and industrial production, energy production, as you think about Australia and the administration's focus there on mining and energy production. And as we think, obviously, about the United States, all of those are structural tailwinds for our business. And the reason is those are -- that's our client base. that is picking up activity. And so as we think about the pharmaceutical industry, for example, and the GLP-1 business that is obviously booming for all reasons you guys know, the water implications of that are substantive. So we're seeing some real increase in activity there that we did not anticipate. As we think about increased semiconductor production or energy production tied to all of the macro trends we've seen nationally, we're seeing really nice pickups there. As we think about the mining industry, independent of the recent rare earths announcement, we saw some really nice pickup in activity, some of which we announced earlier. Obviously, our leadership there and the needs of that industry as deals between the U.S. and Australia, for example, pick up, creates incremental tailwinds there. And so as I kind of look across the board, we're seeing just a structural pickup due to that increased industrial activity for our business, which we expect will sustain us into the foreseeable future. There is no one specific spot that is disproportionately driving it. We are seeing some elevated activity in the waste industry, both from an air emissions monitoring, from a testing perspective and also from a water treatment perspective that we did not anticipate. And obviously, the energy industry, given the increased production demand across our geographies is a big contributor to us this year, and we expect it will be one of our biggest, if not the biggest client base in 2025. So I'm pretty excited as I kind of look forward and look at where we strategically placed our bets. Some of that is kind of coming our way and it's creating tailwinds, and I expect that to continue. Tim Moore: That's terrific, Vijay. I just want to sneak in one last small question here. On cross-selling for more share of wallet and to create better awareness of you being the rare fully integrated one-stop shop solutions provider. I know there was a survey not long ago, independent survey, just a lot of customers didn't even know that you could handle multiple services. Have you been investing in a dedicated team to kind of get the word out there about your national reach with local expertise to really fulfill all their needs of services for new customers? Vijay Manthripragada: We have, Tim, we have. And let me just make this abundantly clear. Those investments are in all the numbers we're giving you. So there's nothing incremental. It's in the guidance, and it's already embedded. But yes, we have been investing in our marketing, which we think is a powerful way, and we're excited about some of the brand efforts that are underway to get the word out so that our clients continue to understand all the things we can do. And we have also been investing in bringing in some incredible talent on the commercial side to really help us think about sectors and some of our key logos as we think about making sure that they understand that this is -- the portfolio of solutions we provide are meaningful and broad and not specific necessarily to the 1, 2, 3 services they use us for in specific geographies. That's been a major focus in '25. It will continue to be a major focus in '26. That talent is already in-house, which is partially why we have conviction as to what next year is going to look like. [ id="-1" name="Operator" /> [Operator Instructions] And your next question comes from the line of Andrew Obin from Bank of America. Devin Leonard: This is Devin Leonard on for Andrew Obin. So with the great showing in AP&R and the outperformance somewhat tied to the cross-selling from earlier emergency responses, what level of cross-selling or recurring revenue is typically associated with these emergency response projects? Anything you could call out from historic? Vijay Manthripragada: It really varies, Devin. And look, I would just point out that, yes, that segment had exceptional performance. But as we look kind of year-to-date, our testing segment has also had an incredible year. So the momentum of the business is beyond AP&R really is broad-based. And Allan already alluded to the outperformance on the water treatment side as well. But specific to AP&R and specific to the typical cross-selling rhythm, it really depends on the nature of the incident. And so as a simple example, with the train derailment in Ohio and the results and challenges associated with that, a lot of the work that our team did, the future cross-selling was really tied to air monitoring and toxicology services, for example. As we think about the energy-related release in the mountain states this time, a lot of that is tied to remediation and testing, for example. So there is no simple mechanism or algorithm by which we can say this amount of response translates to this amount of cross-selling. What we are incredibly encouraged by is that, that performance that you see is a function of that. But there's certainly some ongoing testing and remediation work that's going to come out of that, but the teams have done an incredible job capturing and that will benefit us for years to come. So it's not a -- there's no mathematical answer I can give you, Devin. It's just our thesis is playing out in the market in real time. Devin Leonard: Absolutely. And then switching gears a little bit. Just could you -- you talked about the EU methane regulations earlier in the prepared remarks. Can you go into some more details about the potential market opportunity related to that? Vijay Manthripragada: Yes. As we think about the large U.S. manufacturers, producers of energy, the European markets are a big part of what they focus on, right? And as a result, they are subject not only to U.S. state regulations, but also to market factors like what their clients, specifically EU governments want them to report on. And so what we are seeing is that for the large players and the large exporters, as activity picks up for them, demand for our services continues to increase. So the reason I brought that up, Devin, was because we received a lot of questions saying, with the current administration's deemphasis and desire to pull back on regulations related to greenhouse gases, are we seeing headwinds and what we're seeing is, in fact, we're not. We're seeing activity continue at pace, and we're seeing new pockets of activity pop up tied to market forces and state regulations instead of the federal regulation. So we're -- as we look forward, right, that's a very accretive business for us, and we have not seen a pullback there as many anticipated at the start of this year. Does that make sense? [ id="-1" name="Operator" /> There are no further questions at this time. So I'd like to hand back to management for closing comments. Vijay Manthripragada: Thank you all, and thank you to the Montrose team. We look forward to catching up with you as the rest of this year wraps up, and we're excited to continue sharing our narrative and our story as we progress through '25 and into early 2026. Thank you very much for your interest, and have a great day. [ id="-1" name="Operator" /> That does conclude our conference for today. Thank you for participating. You may now all disconnect.
Operator: At this time, I would like to welcome everyone to the IFF Third Quarter 2025 Earnings Call. [Operator Instructions] I would now like to introduce Michael Bender, Head of Investor Relations. You may begin. Michael Bender: Thank you. Good morning, good afternoon, and good evening, everyone. Welcome to IFF's Third Quarter 2025 Conference Call. Yesterday afternoon, we issued a press release announcing our financial results. A copy of the release can be found on our IR website at ir.iff.com. Please note that this call is being recorded live and will be available for replay. During the call, we'll be making forward-looking statements about the company's performance and business outlook. These statements are based on how we see things today and contain elements of uncertainty. For additional information concerning the factors that can cause actual results to differ materially, please refer to our cautionary statement and risk factors contained in our 10-K and press release, both of which can be found on our website. Today's presentation will include non-GAAP financial measures, which exclude those items that we believe affect comparability. A reconciliation of these non-GAAP financial measures to their respective GAAP measures is set forth in the press release. Also, please note that all the sales and adjusted operating EBITDA growth numbers that we will be speaking to on the call are all on a comparable currency-neutral basis unless otherwise noted. With me on the call today is our CEO, Erik Fyrwald; and our CFO, Michael DeVeau. We will begin with prepared remarks and then take questions at the end. With that, I would now like to turn the call over to Erik. Jon Erik Fyrwald: Thank you, Mike, and hello, everyone. Thanks for joining us today. IFF's third quarter results demonstrate continued execution. Our performance this quarter shows that we continue to make progress towards our goals, operate with efficiency and discipline and further strengthen our financial position. In a more challenging environment, we are doing what we said we would do as we expect to deliver financial results in line with our full year guidance that we outlined in February. We will do this as we continue reinvesting in our business and advancing our growth strategy while driving productivity. I'll start today's call by briefly summarizing the third quarter, and then I'll talk about some of the key strategic progress we have made so far this year, and then I'll turn it over to Mike DeVeau, who will provide for a detailed look at our results and segment performance in the third quarter in addition to our outlook for the remainder of 2025. We will then open the call to answer your questions. Turning to Slide 6. We are seeing encouraging results as we build a stronger IFF. Through the actions we've taken to strengthen our customer focus and enhance productivity, IFF is improving its position to compete effectively and deliver value for all our stakeholders. We're operating in a dynamic environment with ongoing macro headwinds, geopolitical challenges and market uncertainty influencing our customers and end consumers, plus we had a strong 9% comparable from last year. We anticipated this and have been clear that the second half would likely be more challenging than the first. And even so, sales remained steady, holding flat for the quarter. Our Scent and Taste businesses both continued to deliver solid growth in the third quarter, which helped offset softness in food ingredients and short-term pressures in Health & Biosciences. As I spoke about last quarter, most of the H&B pressure was related to expected slowdowns in the health business isolated to North America. To address this, we are investing to increase innovation and expand our commercial capabilities to ensure IFF is set up to address the needs of customers now and in the future. We continue to remain focused on what we can control in the current environment. IFF delivered strong adjusted operating EBITDA growth of 7% this quarter with a margin that improved by 130 basis points. Our focus on profitability continues to bear fruit as our results demonstrated strong profitability even in this lower growth environment. I am particularly encouraged as we are also doing this while our teams are reinvesting into our core businesses to position the company for long-term success. On Slide 7, I'd like to share some of the exciting strategic progress we've made in the first 9 months of 2025. Earlier this year, we opened a Scent creative center in Dubai, a Citrus Innovation Center in Florida and expanded our LMR Natural site in Grasse, France. All are significant initiatives that will further advance our innovation offerings and strengthen our go-to-market capabilities. Our customers are at the heart of everything we do, and these strategic investments are increasing our commercial pipeline that will start to bear fruit in mid- to late 2026 and into 2027. We also deepened our commitment to innovation through external collaborations. We recently announced an exciting strategic collaboration with BASF to drive next-generation enzyme and polymer innovation, including our Designed Enzymatic Biomaterial or DEB technology. This partnership enables us to develop more market-driven solutions that create sustainable value for both industry and the environment. Also, earlier this year, we announced a joint venture with Kemira to provide high-performance, sustainable alternatives to fossil fuel-based ingredients, also utilizing our DEB technology. Applying this technology not only provides superior purity and consistency compared to traditional biopolymers, but also enhances performance across various applications. We are already seeing commercial applications of this technology as we also announced that a major multinational CPG company has launched a new laundry detergent formulation enhanced by DEB technology, which delivers improved fabric softness and cleaning performance while replacing nonbiodegradable ingredients with a readily biodegradable alternative. In addition, during the year, we reduced our leverage significantly, reaching approximately 2.5x net debt to EBITDA. After strengthening our balance sheet, we announced on our second quarter call a $500 million share repurchase authorization, making an initial move toward a more balanced and disciplined approach to capital allocation. Over the past few years, we have made significant progress streamlining our portfolio, which has allowed us to reinvest in our core business, achieve our deleveraging targets and strengthen our financial flexibility. During 2025, we made significant progress on this as we completed the divestitures of Pharma Solutions and Nitrocellulose and announced the divestiture of our Soy Crush, Concentrates & Lecithin business to Bunge, which is aligned with our margin enhancement strategy. We continue to evaluate potential strategic alternatives for our Food Ingredients business as we look to drive our portfolio optimization strategy. While we do not have any additional information to share today, we are making very good progress, generating significant interest, and we'll keep you updated as we make further progress. On a year-to-date basis, we've delivered sales growth of 2% and achieved adjusted operating EBITDA growth of 7%. This is primarily due to the immense efforts of IFF-er's all around all globe, continuously striving to innovate, deliver results for their customers and communities and elevate everyday products used by millions of consumers worldwide. With that, I'll pass the call over to Mike to offer a closer look at this quarter's consolidated results. Mike? Michael Deveau: Thank you, Erik, and thanks, everyone, for joining us today. In the third quarter, IFF delivered revenue of nearly $2.7 billion, led by mid-single-digit growth in Scent and low single-digit growth in Taste. Our sales were flat against a strong 9% comparable and were up approximately 4.5% on a 2-year average basis. We continue to focus on driving EBITDA growth through disciplined execution and margin improvement initiatives. In the third quarter, we delivered adjusted operating EBITDA of $519 million a strong 7% increase. Our adjusted EBITDA margin also increased 130 basis points to 19.3%. Also worth noting is that our operational improvement plan continues to yield results in our Food Ingredients business. In the third quarter, Food Ingredients delivered a strong adjusted operating EBITDA margin improvement of 230 basis points compared to last year. The team has done an excellent job on improving the margin profile over the past 2 years, where they increased adjusted operating EBITDA margin by over 400 basis points and are on track to achieve their mid-teen EBITDA margin profile. On Slide 9, I will share additional details about this quarter's performance in each of our business segments. In Taste, sales increased 2% to $635 million with strong growth in Latin America and Europe, Africa and the Middle East. On a 2-year average basis, growth remained strong at approximately 8.5%. The segment also delivered profitability gains of roughly 2%, driven by favorable net pricing and cost discipline. Our Food Ingredients segment achieved sales of $830 million, down 3% versus the year ago period, with strong growth in inclusions that were more than offset by softness primarily in Protein Solutions. As I mentioned, Food Ingredients had an excellent quarter in terms of profitability, where the team delivered adjusted operating EBITDA of $106 million, a 24% increase year-over-year. Our Health & Biosciences segment achieved $577 million in sales, which was flat versus the prior year. On a 2-year average basis, growth remained solid at approximately 6%. Growth in Food, Biosciences, Home & Personal Care and Animal Nutrition was offset primarily by expected softness in Health, specifically in North America. In this market, we've improved our leadership team, placing a strong emphasis on commercial and marketing capabilities. Their objective is to leverage our strong R&D pipeline and win with a broader set of customers to capture strong growth potential in that market. And while the fourth quarter will remain a challenge, we expect trends to improve in 2026. In the third quarter, H&B adjusted operating EBITDA grew 3%, driven primarily by productivity. Scent delivered a strong quarter of sales growth with net sales of $652 million, up 5% year-over-year. On a 2-year average basis, growth remained strong at approximately 7%. Third quarter performance was driven by 20% increase in Fine Fragrance and a low single-digit performance in Consumer Fragrance. As expected, Fragrance Ingredients was under pressure and declined low single digits as growth in specialties were more than offset by declines in commodities. As a reminder, we are strategically shifting our Fragrance Ingredients portfolio towards higher growth and higher value-added specialties. We will do this by leveraging R&D and biotech for new molecule development. Our goal is to accelerate the pace of our captive releases to ensure we can differentiate ourselves and grow disproportionately in this margin-accretive business. Within Scent, volume growth drove the segment's $135 million in adjusted operating EBITDA, a 6% increase year-over-year. Turning to Slide 10. Our cash flow from operations totaled $532 million year-to-date, and CapEx was $406 million or roughly 5% of sales. Our free cash flow position in the third quarter totaled $126 million. This year, we have paid $306 million in dividends through the end of the third quarter, and our cash and cash equivalents was $621 million. As of quarter end, our gross debt was approximately $6 billion, a roughly $200 million decrease from last year and more than $3 billion decrease year-over-year. Our trailing 12-month credit adjusted EBITDA totaled roughly $2.15 billion, in line with last quarter, while our net debt to credit adjusted EBITDA remained constant at 2.5x. We will continue to be disciplined in our capital allocation priorities. Reaching our deleveraging goals was a strong achievement, and we are now focused on preserving this foundation through operational performance, specifically driving improvements in profitability and net working capital. Lastly, on Slide 11, I will walk you through our outlook for the balance of the year. We have talked today and in prior quarters about the environment in which we are currently operating. Our touch points across our global business and with our customers have allowed us to forecast this year well as our teams are delivering results in line with the guidance ranges we communicated in February. Based on our year-to-date actuals and expected fourth quarter performance, we are reiterating our full year 2025 guidance. As a reminder, we are expecting sales to be in the range of $10.6 billion to $10.9 billion and adjusted operating EBITDA to be between $2 billion and $2.15 billion. On a comparable currency-neutral basis, we expect to finish the year at the low end of our 1% to 4% sales growth guidance range as shared last quarter and near the midpoint of our 5% to 10% EBITDA growth range. We believe that this is the right call to maintain our full year guidance even with a wider range implied for the fourth quarter. It is consistent with the message we have shared all year, which is staying focused on what we said we would deliver even in a challenging environment. For the fourth quarter, we expect our typical seasonality, resulting in a step down in absolute sales and margin. And as a reminder, we again face another strong comparable versus the prior year with 12% growth in Taste, 7% growth in Scent and 6% growth in H&B. With that, I would now like to turn the call back to Erik for closing remarks. Jon Erik Fyrwald: Thanks, Mike. Taking a look at the year so far, our global team has delivered in a difficult environment with revenue and profitability increasing year-over-year. I'm proud of what our team has accomplished, yet we continue to strive for more. We are continuing to serve our customers with excellence while investing in an exciting innovation pipeline and positioning IFF to deliver stronger profitable growth on a sustained basis. We are focusing on what we can control. Our strategy is clear. Our team is executing, and we have confidence in our ability to deliver increasing value for our shareholders and all stakeholders. I know we are building a stronger IFF that will be well positioned for 2026 and beyond. Thank you, and I'll now open the call for your questions. Operator: [Operator Instructions] The first question is from the line of Fulvio Cazzol with Berenberg. Fulvio Cazzol: It's in relation to the Health & Biosciences business. I was wondering if you can provide a bit more color on what's exactly going on in the North America region for the Health business unit. I know that the decline in Q3 was well anticipated, and you highlighted this at the Q2 results presentation. But I was also wondering if you still expect to see an improvement starting in 2026 or if there is more uncertainty today on the outlook for this business compared to, say, 3 months ago? Jon Erik Fyrwald: Thanks for the question, Fulvio. This is Erik. In Health & Biosciences, the Health business in North America has been slow for us. And what we've been doing to turn that around is we've put in place new leadership with strong commercial and marketing capability. And you'll recall last year, we step changed our investment in innovation pipeline in Health, that's going well. We're connecting with our existing customers to help them grow faster, and we're finding new customers to serve in North America. So bottom line is I absolutely expect to see improvements, particularly in the second half of '26 going into '27 and then a full recovery fully back on track in 2027. Operator: The next question is from the line of Nicola Tang with BNP Paribas. Ming Tang: I wanted to ask about the top line guidance. The bottom end, so the 1% currency-neutral growth implies a negative low single digit for Q4 versus the flat year-on-year that you did in Q3 despite slightly easier comps. What are the main headwinds to top line in Q4? And how much of your cautious outlook relates to the weak end market macro geopolitical trends that you referred to versus IFF-specific exposures? And to what extent do we need to see end market recovery to see a top line acceleration in 2026? Michael Deveau: Great. Nicola, thanks for the question. Yes, you are correct. While comparable is 6% in the fourth quarter, which is down from 9% in the third quarter, we are being a little bit more prudent on our top line projection this quarter. The largest part of this -- the driver of this is really the macro environment. And so when you look at the end market demand, specifically on volumes, you'll see in the Food Ingredients category in HPC, it has been soft. And so what we did is we kind of continue this trend through the balance of the year just to make sure that we're fully forecasting it correctly. In our core portfolio, Erik touched on it, and I think I touched on it in our prepared remarks as well. We continue to work on Fragrance Ingredients and Health, North America. And so the team is making good progress there. We still got a little bit more work that we have to do to really get back to recover, as Erik suggested. I do want to note, though, as a point of reference, in these areas when we put the two businesses together, it's about 5% of our total company sales. So it's small in nature, but a lot of emphasis and attention on that going forward. So as we move into 2026, we are cautiously optimistic that we will get to a point where we'll see growth acceleration as the market does normalize and some of the self-help work that we're doing over the last 18 months start to yield results. Operator: The next question is from the line of David Begleiter with Deutsche Bank. Emily Fusco: This is Emily Fusco on for David Begleiter. On Food Ingredients, are we still on track for an update on this business with the Q4 earnings call in February? And also just a follow-up, have you begun to engage with private equity and strategics on this business? Jon Erik Fyrwald: Thanks, Emily. Absolutely, you'll get an update, and I'll give you a quick update now. We are seeing strong interest by both private equity and strategics. And fortunately, the business transformation that Andy Mueller is leading with his team is on a strong track, which obviously is very helpful to this process. This is a very good business that keeps getting better and has a bright future, and we'll update where we are in February. Operator: The next question is from the line of Lisa De Neve with Morgan Stanley. Lisa Hortense De Neve: I have one question. Can you please reiterate your free cash flow outlook for this year and the components of how we should expect the different free cash flow components to move into the fourth quarter and if you expect to see an improvement? That's my first question. And I have a small follow-up on Fulvio's question. You talked about investments in H&B. Could you please remind us of where specifically you're making the investments, most notably if you're opening any new plants in certain regions? Michael Deveau: Sure. So maybe I'll start on the cash flow question. Thanks, Lisa. In terms of the free cash flow expectation for 2025, we do expect to be modestly below our target that we gave earlier in the year, which is about $500 million. There are some puts and takes in there that are worth noting. On the positive side, we are expecting CapEx to be a bit lower as we've implemented a little bit more stricter policy just given our cash flow generation. So that's a good gut, a positive aspect. There's two offsetting factors to that. One being inventories are higher in some areas of our business. Part of this is around building some strategic stock in some key areas to take advantage of current costs and availability of materials. And the second piece of it is really around some of the Reg G or onetime costs are elevated really because of the portfolio work that we're doing overall. And so when we put those two together, I think it gets you to kind of be a little bit modestly below that $500 million. But I do want to note that in terms of overall net working capital, you will see an improvement in the fourth quarter, and it is a big focus for us as we go into 2026. And so there is an opportunity for us to improve our free cash flow generation, which is in our control, and the team is committed to making strong improvements as we go forward. So maybe I'll -- that's the flow. Erik, I'll pass over for you. Jon Erik Fyrwald: Sure. On Health & Biosciences investment, as we said last year, we've significantly increased our spend in R&D and commercial capabilities, both for our Health business, next-generation probiotics and other products as well as our enzyme business and our DEB technology. We've announced and we're making great progress that we're building a DEB plant together with Kemira with our joint venture and called AlphaBio. And it's on track, and we expect to start that up in 2027 and look forward to that. But significant investment into Health & Biosciences, and we see that starting to pay off, as we said, significantly in the second half of 2026 and very strong into '27. Operator: The next question is from the line of Kristen Owen with Oppenheimer. Kristen Owen: So I wanted to ask about the new wins that you cited in both Taste and Scent. We continue to hear about how challenging the volume backdrop has been. So I'm hoping you can elaborate on maybe what contributed to those wins in this backdrop? Jon Erik Fyrwald: Thanks for the question, Kristen. Obviously, there's economic challenges across the businesses, especially in North America, we see right now. But in all our four BUs, including Taste and Scent, we've got a heavy focus on strengthening our commercial pipeline, really strong focus on customers, and increasing our win rate as well as our innovation pipeline. And we're seeing really good progress across segments, across businesses and across geographies. And just to give you a couple of examples of wins in Scent and Taste. The first one is our new environment -- excuse me, our new ENVIROCAP, Scent encapsulation technology was recently commercialized in laundry with a major CPG company. The performance is great. They're very excited about it and the sustainability benefits are tremendous. So we'll see that technology add to our growth going forward. And then the second example I really, really like is we've been successful winning a Miu Miu by L'Oreal Fine Fragrance with -- from our master perfumer, Dominique Ropion, and that's going to be a nice business for us going forward, a great product, and I think we'll do well in any economic scenario that we see. So good progress on our commercial pipeline, our innovation pipeline and things that we can control by bringing great technology innovation to customers. And that's how we're going to grow these -- continue to grow these businesses. Operator: The next question is from the line of Salvator Tiano with Bank of America. Salvator Tiano: You spoke a little bit about 2026, hopefully, growth accelerating a bit. But can you also mention any other major or discrete items that you see affecting your income statement or your cash flow next year versus 2025? Michael Deveau: Yes. Thanks, Sal. Great question. We are, to be fair, in the middle of the planning process for 2026. So we can't go into much details. We'll provide the full guidance update as part of our year-end or Q4 call in February for 2026. That said, there -- in terms of moving parts, there's probably just one that I just want to remind everybody. I think it's pretty self-explanatory. But if you remember, we closed the Pharma transaction on May 1. And so when you think about 2026, I think through the first 5 months of the year, 4 months of the year, it was about $369 million in sales and $76 million of EBITDA. So that will go away as we cycle that in the first half of the year. So I just -- I flagged that. In terms of the rest of it, it is pretty normal course in terms of operations. So there's not really any big discretionary items that we flag at this point in time. Operator: The next question is from the line of Ghansham Panjabi with Baird. Ghansham Panjabi: Erik, can you just give us an update on the internal initiatives you have going on and as it relates to both cost optimization and growth? You called out capacity being tight in certain areas in the past. And I know you asked the question on Health & Biosciences, but what about across the rest of the portfolio? And just on the cost savings side, as it relates to productivity, et cetera, can you give us a sense as to the savings that is likely to flow into 2026 in context of just the operating environment not being very helpful? Jon Erik Fyrwald: Yes. Thanks for the question. I'll have Mike go through the details here. Michael Deveau: Yes. Appreciate it, Ghansham. Over the last 18 months, we've done a lot of work to improve our competitiveness as an organization. And so specifically, Erik has highlighted specifically around the H&B, Health business that we put a lot of money in terms of R&D and commercial capabilities starting really in the second half of '24 and over the course of 2025. And that's really to build and bolster some of the innovation pipeline and really strengthen again the commercial capabilities. In addition, we've also increased and will continue to increase our CapEx in the areas to improve capacity, specifically in H&B, where we think we have a good growth potential and really good incremental margins associated with that. And so that's something we've done and we'll continue to do as we go forward from here in that business to really generate the value there. As we go into 2026, we believe we're positioned well, and we are cautiously optimistic that we will lead to improved growth trajectories going forward. At the same time, we're also working on just generating better incremental productivity that comes with improving margins going forward as a focus. And so I don't want to go into too much of the details here. Again, we'll come back in February when we give our overall guidance. But I think the team has made a tremendous amount of progress both in reinvesting, really trying to get the growth aspect of it and targeting incremental productivity opportunities to continue to expand margin and reinvest in the business as needed through a self-funding mechanism. So feel good about the progress being made. Operator: The next question is from the line of Patrick Cunningham with Citigroup. Unknown Analyst: This is Alex on for Patrick. I guess we're hearing more about the economy taking a key shape where lower income households are spending less. I guess I'm wondering if you're seeing -- if this is something you're seeing across your business segments and maybe what that implies for volumes in 2026? Jon Erik Fyrwald: Thanks, Patrick. Yes, we are seeing some of this, and we've talked to the weakness overall in volumes in North America. But the good news is we've got a diverse customer base, both in size of customers, geography base and categories. And we're adapting our focus around the world. And just to give you some examples, on the lower end and private label area, we're seeing growth, and we've put more emphasis on that. On the high end, the Fine Fragrance business continues to do well. So we've put a lot of emphasis on making sure that we're a partner of choice in Fine Fragrances, and we talked about the Miu Miu win with L'Oreal, very important for us. We're seeing geographies even in Fine Fragrance, like the Middle East growing very rapidly. We're putting more emphasis there. We opened a creative center there. And we continue to obviously stay focused on ensuring that we do well with global key accounts but also increasing our emphasis on regional and smaller customers in geographies that are fast growing. So yes, there's a K-shaped economy more today than there was before, but we're adapting our model to make sure that we grow at or ahead of the market going forward. Operator: The next question is from the line of Joshua Spector with UBS. Joshua Spector: I wanted to try again a little bit on '26 and just thinking about really the range of scenarios and your ability to respond and specifically that if we stay in this kind of, call it, 1% growth environment, maybe from a consumer perspective, do you have actions and levers that you think would deliver earnings growth higher than that, be it self-help or other things in flight that we should be considering? Michael Deveau: Yes. Great question, Joshua. I'll take this one, if that's okay. Growth is an important part of the algorithm. And so the more growth we get, the incremental margins associated with that growth in terms of fixed cost leverage, it's nice. So the more you can grow, the better you are. So that's ultimately what we're striving to, which is why some of those reinvestments were so important to make sure we accelerate the growth. At the same time, you do need to prepare that if the event that the market is still in that 1% to 2% range, how do you work on your cost structure to ensure you generate profitability improvement. We are fully focused on that. The team has done a very good job over the last couple of years to drive productivity, but it's something that is paramount now as we go forward to continue to do that. And so areas like streamlining corporate functions, leveraging automation, redesigning processes that will allow us to be more effective and more efficient. And so I do believe we still have some opportunities there. There is contingency planning associated with that. So as we think about the context going forward, we will include that as areas to accelerate to make sure we maximize profitability as we go forward even in a lower growth environment. Operator: The next question is from the line of John Roberts with Mizuho. John Ezekiel Roberts: Have we been seeing any acceleration in the reformulation of food products? And is that maybe part of the reason for the continued strength in the Flavors business? Jon Erik Fyrwald: We haven't seen a big shift yet. What I would call it is a continued move towards cleaner labels and reformulation for that, which we like. And if that accelerates, that's good for us. But what we've been doing is following what our customers and consumers want, which are cleaner labels, and we've got a very strong capability, both in Scent and in Taste and Naturals. And that's played well for us, and that's why you're seeing growth because of our focus on the innovation, but also on our commercial capabilities to help customers delight consumers. Michael Deveau: Yes. Maybe just to add on that. When you look at it, John, the pipeline has actually improved and continue to improve. And so what that's a good barometer is that the customers are looking for more innovation, which is very good for our business overall. So I think that's the buoyancy that you've seen over the last couple of quarters within Scent and Taste overall, which has provided a bit of tailwind there. Jon Erik Fyrwald: Yes. As the customers see lower volume growth in the market, they're pushing for more innovation to be able to profitably grow themselves, and we're there to help. Operator: The next question is from the line of Kevin McCarthy with Vertical Research Partners. Matthew Hettwer: This is Matt Hetwer on for Kevin McCarthy. Would you comment on two items: a, the potential pace of execution against the $500 million share repurchase authorization that you announced last quarter; and then b, the expected cash proceeds from the pending divestiture of the deal with Bunge. Michael Deveau: Sure. Thanks, Matt, for the question. In terms of the share buyback program, we actually started or commenced it on October 1. And so that was per our trading plan. And so that's now have been implemented. As a reminder, the program is geared towards dilution plus model, which means at a minimum of -- our plan is to target offsetting dilution, which for us on a yearly basis is about $80 million. Then we have some flexibility based on intrinsic value, free cash flow generation that we can increase or decrease the purchases within the trading grid. So we do have some of that flexibility. But as you think about modeling for the fourth quarter, just given that we started on October 1, I would assume at this point, we're offsetting dilution, which is the $80 million divided by 4 essentially, which is call it about $20 million. We will give more update as we get to the guidance call in February, but that's kind of part number one. I think part number two, of your question was the expected proceeds of the pending deal with Bunge. In terms of gross proceeds, I think it's about $110 million in gross proceeds, and I would estimate around $90 million in terms of net cash proceeds after tax and some of the deal fees associated with it. Operator: The next question is from the line of Lauren Lieberman with Barclays. Lauren Lieberman: I just had two questions actually. First was on Taste. In the slides, you mentioned you had favorable net pricing. I was just curious if that's comparable to what peers are doing. I just -- I was surprised to see that there was positive pricing in this environment. So that was the first question. And the second one is if you could just offer any observations on growth of multinationals versus local and regionals. And also the pipeline -- sorry, and also like just the pipeline activity from those two subsets. Michael Deveau: So maybe, Erik, I'll start on the Taste piece of it. The team has really done a good job. And so when I think about the net pricing comment, Lauren, when there's areas of inflation and one area, there is some tariff inflation that we get, the team has done a really good job of offsetting that as part of their pricing areas. At the same time, it's a net pricing number. So in terms of the inflationary environment that we've seen throughout 2025, which was about low single-digit inflation, the team did a really good job of productivity to drive some of those costs down. And so when you combine productivity with the raw material cost exposure and the pricing strategy, that's how you got to your net pricing benefits there. And so I think I can't speak to the competition, but I can speak that the team has done a very good job at executing on that piece of it. In terms of the global versus local regional, Erik? Jon Erik Fyrwald: Yes, we're seeing the regional and locals growing faster, and we put more emphasis on growing with them and accelerating our pipelines with them. But the global key accounts are still critically important to us, and they're increasing their focus on innovation. So our pipelines with them are very strong and robust. So we're not decreasing our emphasis on global key accounts, but we're increasing our focus on the regional and locals. Operator: The next question is from the line of Laurence Alexander with Jefferies. Laurence Alexander: Can you give us some color on what your customers are telling you about inventory levels and their patience on reformulations? And what I mean is, are they seeing the evidence that reformulations are driving significant organic growth acceleration? And if not, how long will they keep reformulating before they switch to other ways to protect earnings and cash flow in a slow growth environment? Michael Deveau: So maybe I'll start, and feel free to add on. The inventory question is a good question, Laurence. I think when you get into a slower growth environment, specifically with some of the global accounts, you always have to make sure the inventory management aspect doesn't have the impact on the business. I think based on the feedback that we've heard from the team, there are some markets very candidly, like North America is a little bit higher inventory levels. So I think embedded in our forecast is a little bit of a deceleration in that market specifically because of inventory levels. Broadly speaking, if you take a step back, inventories feel like they are in a good spot globally. But like I said, there are some markets like in North America that there could be some inventory management that could potentially happen there. So I think that's part number one. Part number two, in terms of the patients, I think your question around patience of reformulation, it's an opportunity. And so when you look at the customer set, over the last several years, pricing has a big part of their algorithm. And so really -- and I think Erik just alluded to it, to really differentiate yourself in a market where pricing becomes more challenging in the overall market, innovation becomes a key part of the driver going forward. And so I don't think you're going to see them throw up their hands and say innovation is not important. And I think they're going to continue to make sure that is a central part of their algorithm going forward. And for us at IFF, that's a good thing because we like the portfolio, we like the R&D that we have, and we're focused on that. And so I think those are the two -- I would give, Erik, I'll pass to you if there's anything. Jon Erik Fyrwald: And the only thing I would add then is on the inventory side, there's a lot of uncertainty with our customers, and they're trying to operate with lower inventory levels. So we absolutely can and will do a better job of managing our inventory levels, but we're also trying to make sure that we're not missing order opportunities. So we're really trying to stay close to our customers and understand what their needs are so that we're able to operate with lower inventories, but not miss any delivery reliability goals. Operator: The next question is from the line of Silke Kueck, with JPMorgan. Silke Kueck: When you look at 2026, what do you think are the bigger product launches? So the collaboration with BASF sounds that there are like product opportunities on the detergent side. And is that something that will affect consumer fragrances and in Scent? Or is that something that will be -- that we'll see in the enzyme category under H&B? That's my first question. Secondly, the beverage can companies have spoken about growth in like protein-enriched beverages like protein being added to essentially like everything. Is that an opportunity for IFF? And again, is that something when it's beverages, do you see that as like a taste opportunity or because it's protein will then up in H&B. And my third question is you, talked about regionals and locals growing faster than multinationals. Does that mean private label is also growing faster? And how do you approach going after the private label business? Jon Erik Fyrwald: Well, thanks for those questions, Silke. I'll try to take them one at a time, and Mike, please pitch in any time. So let's talk, first of all, about the BASF collaboration. I think it's really important. BASF has a very strong position in chemistry with many home and personal care companies. And we've got a very strong capability in enzymes and have very good positions with a number of customers, but haven't reached the broader market as well as we would like to. And so the combination of us plus BASF's really strong commercial capability, our enzymes and their chemistry is, we believe, a very strong opportunity to serve customers better for both of us. So we'll see that play out, and it should start to see enzyme growth toward the end of '26, but more in '27, I would say. And with that, we'll improve our relationships and connections with customers for Scent. On the protein movement, I would say it's very strong, and it obviously helps our protein business. We're the leaders in plant-based proteins, which are very much in vogue and desired, less so in the alternate meats that is rebased and growing, but off of a smaller base. But certainly in beverages, bars and other areas, we see growth opportunities for our protein business, but also for our broader food ingredients business to make sure that the protein drinks and other products have the great mouth feel, the right taste, don't settle out -- the protein doesn't settle out and very importantly, the taste, the flavors, which gives us an opportunity to go in with our protein and our other Food Ingredients capabilities and bring more total solutions to customers that -- or at least open the door for not only our Food Ingredients people, but for our taste capabilities. So this protein dynamic, I think, is -- was strong and is further accelerating with the GLP-1s, and we see that continuing, and we see us well positioned. And we're already seeing good growth from them. The last one was on the regional and locals. Yes, private label is increasingly important. That's back to the K-economy. And we're putting more emphasis on working with the private label retailers, but also the co-manufacturers who make the products and making sure that our capabilities are helping them achieve what they want to help. Operator: The next question is from the line of [ Apkio Evers ] with Wells Fargo. Unknown Analyst: I know this was touched on already, but I wanted to push a little bit further on Fine Fragrance. You obviously reported 20% growth this year -- this quarter and double-digit growth last quarter. It's been growing very strongly. And I know you mentioned wins, but I'm wondering if there's something else and underlying trends driving this growth? And then looking forward, is this a level of growth that we should expect going forward? I know you mentioned upside from your Scent center in Dubai and Florida bearing fruit in mid- to late 2026. But how should we think about this next quarter or this coming quarter and then the first half of 2026? Jon Erik Fyrwald: The Fine Fragrance business has shown tremendous growth rates. I don't expect to have that strong growth going forward, but I do expect continued solid growth from Fine Fragrances. And I think that's because of our capabilities. We've got great perfumers. We've got great molecules. We've got significantly enhanced investment in innovation that's going to be coming more in 2026 and '27. And we've invested in places like Dubai, the creative center and creative centers in other parts of the world, Shanghai and others. And so we are absolutely committed to this market, and we are absolutely want to serve our customers with -- to help them have great products. But I think another dynamic here is the whole social media dynamic where you're seeing influencers really trying -- starting to -- have been and I think will continue to expand the marketplace, expand to new generations to not only females, but more to males, younger generation and more diverse groups. And I think that's fueling the growth, and we see that continuing. Operator: The last question is from the line of Christopher Parkinson with Wolfe Research. Harris Fein: This is Harris Fein on for Chris. I mean there's been some solid year-on-year margin comps in Food Ingredients. Just wondering if you could maybe talk about the line of sight to bridge that margin to the mid-teens next year. And we're also all looking forward to the strategic update early next year. But in the interim, maybe if you could talk about any opportunities you have to prune maybe more along the lines of what you did with the Soy Crush business in the interim, that would also be helpful. Michael Deveau: Harris, thanks for the question. Look, I think the Food Ingredients team has done a fantastic job really emphasizing margin improvement. And so just kind of bringing it back, if you remember, at the lows, it was about 9% EBITDA -- so the trajectory now, it was 9%, 12%, moving towards 14% if you adjust for portfolio gets towards that 15%. And so the line of sight is actually pretty strong in terms of overall recovery, and the team has done an excellent job. As they go forward, what's really important because not only do we divest business, we were also very strategic in, I'd say, ongoing pruning of our overall portfolio. So we're very selective. So some of the lower-margin businesses, we kind of walked away, which is embedded in some of our top line performance this year in 2025. I think -- so as you go -- but as you go into 2026, the more growth you can get into that business and return to growth, that's where you get nice leverage with the P&L. So that's kind of priority #1 is how to get the business back towards that growth number. So one. Two, we started basically 2 years ago on a big productivity push. And so looking at plant optimization, raw material optimization, the team has done a good job, and that's a big driver of what you're seeing in the performance in 2025, but that will also continue into 2026. And so between those two levers, I think you still have a line of sight to continue to improve that business, both from a top line perspective, but also from a margin perspective. I think then you'll get back to that mid-teen, and the team is focused and fully focused on that as they drive going forward. Jon Erik Fyrwald: And I'd just add one other thing, is we are investing where we see high profit margin growth opportunities. For example, the TAURA fruit inclusions business segment is we're expanding the capacity significantly there. The current capacity is sold out, high margins, high growth. So Andy and his team are really driving also growth in the higher-margin areas. Operator: There are currently no questions registered at this time. So I'd like to pass the call back over to Erik for any further remarks. Jon Erik Fyrwald: Well, thank you all for joining today's call. Let me close by saying that I'm very proud of the progress the IFF team has made over the last 18 months. We are a much stronger company with a bright future. We have a solid balance sheet, a clear strategy, a strong and strengthening innovation pipeline, a strong focus on serving customers and consumers, and we're executing better and better and doing what we say we are going to do. So I look forward to the road ahead, and thank you very much. Operator: Thank you all. At this time, this will now conclude today's conference call. We appreciate your participation. We hope you all have an amazing rest of your day, and you may now disconnect your lines.
Operator: Good day, and thank you for standing by. Welcome to Carlyle Secured Lending, Inc.'s Third Quarter 2025 Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Nishil Mehta, Head of Shareholder Relations. Please go ahead. Nishil Mehta: Good morning, and welcome to Carlyle Secured Lending's conference call to discuss the earnings results for the third quarter of 2025. I'm joined by Justin Plouffe, our Chief Executive Officer; and Tom Hennigan, our Chief Financial Officer. Last night, we filed our Form 10-Q and issued a press release with a presentation of our results, which are available on the Investor Relations section of our website. Following our remarks today, we will hold a question-and-answer session for the analysts and institutional investors. This call is being webcast, and a replay will be available on our website. Any forward-looking statements made today do not guarantee future performance, and any undue reliance should not be placed on them. Today's conference call may include forward-looking statements reflecting our views with respect to, among other things, the expected synergies associated with the merger, the ability to realize the anticipated benefits of the merger and our future operating results and financial performance. These statements are based on current management expectations and involve inherent risks and uncertainties, including those identified in the Risk Factors section of our 10-K and 10-Qs. These risks and uncertainties could cause the actual results to differ materially from those indicated. CGBD assumes no obligation to update any forward-looking statements at any time. During this conference call, the company may discuss certain non-GAAP measures as defined by SEC Regulation G, such as adjusted net investment income or adjusted NII. The company's management believes adjusted net investment income, adjusted net investment income per share, adjusted net income and adjusted net income per share are useful to investors as an additional tool to evaluate ongoing results and trends and to review our performance without giving effect to the amortization or accretion resulting from the new cost basis of the investments acquired and accounted for under the acquisition method of accounting in accordance with ASC 805 and the onetime purchase or nonrecurring investment income and expense events, including the effects on incentive fees and are used by management to evaluate the economic earnings of the company. A reconciliation of GAAP net investment income, the most directly comparable GAAP financial measure to adjusted NII per share can be found in the accompanying slide presentation for this call. In addition, a reconciliation of these measures may also be found in our earnings release filed last night with the SEC on Form 8-K. With that, I'll turn the call over to Justin, CGBD's Chief Executive Officer. Justin Plouffe: Thanks, Nishil. Good morning, everyone, and thank you all for joining. I'm Justin Plouffe, the CEO of the Carlyle BDCs and Deputy CIO for Carlyle Global Credit. On today's call, I'll give an overview of our third quarter 2025 results, including the quarter's investment activity and portfolio positioning. I will then hand the call over to our CFO, Tom Hennigan. During the third quarter, CGBD benefited from strong originations across the platform, but was also impacted by historically tight market spreads. We generated $0.37 per share of net investment income for the quarter on a GAAP basis and $0.38 after adjusting for asset acquisition accounting. Our Board of Directors declared a fourth quarter dividend of $0.40 per share. Our net asset value as of September 30 was $16.36 per share compared to $16.43 per share as of June 30. CGBD had another strong quarter of deployment, funding $260 million of investments into new and existing borrowers, resulting in net investment activity of $117 million after accounting for repayments and $48 million of investments sold to our joint venture, MNCF. Total investments at CGBD increased from $2.3 billion to $2.4 billion during the quarter. Looking ahead, net new supply has picked up recently, and the Q4 pipeline continues to build. Year-over-year, deal flow at the top of the funnel increased nearly 30% over the last 2 months. We expect activity will continue to increase, supported by declining base rates driving lower funding costs, normalization of tariff and regulatory policy and resilient expectations for economic growth. Although there have been recent bankruptcies in the news, CGBD has no direct or indirect exposure to First Brands or Tricolor, and we continue to have confidence in the credit quality of our portfolio. As a reminder, CGBD consistently exhibits below average nonaccruals and a strong track record of NAV preservation. Based on June 30 reporting, CGBD's nonaccruals were 120 basis points below the public BDC average at cost, and nonaccruals at CGBD decreased by 140 basis points at cost between June 30 and September 30. Overall, we remain selective in our underwriting approach, seeking to provide first lien loans to quality companies. We remain focused on portfolio diversification while managing target leverage. As of September 30, our portfolio was comprised of 221 investments in 158 companies across more than 25 industries. The average exposure to any single portfolio company was less than 1% of total investments and 95% of our investments were in senior secured loans. Immediate EBITDA across our portfolio was $98 million. As always, discipline and consistency drove performance in the third quarter, and we expect these tenants to drive performance in future quarters. With that, I'll now hand the call over to our CFO, Tom Hennigan. Thomas Hennigan: Thank you, Justin. Today, I'll begin with an overview of our third quarter financial results, then I'll discuss portfolio performance before concluding with detail on our balance sheet positioning. Total investment income for the third quarter was $67 million, in line with prior quarter, driven by a stable average portfolio size, a modest change in total portfolio yields and lower accretion of discounts from repayment activity. Total expenses of $40 million increased slightly versus prior quarter, primarily as a result of higher interest expense due in part to the 2030 senior notes transitioning from fixed to the floating rate swap. The result was net investment income for the third quarter of $27 million or $0.37 per share on a GAAP basis and $0.38 per share after adjusting for asset acquisition accounting, which excludes the amortization of the purchase price premium from the CSL II merger and the purchase price discount associated with the consolidation of Credit Fund II. Our Board of Directors declared the dividend for the fourth quarter of 2025 at a level of $0.40 per share, which is payable to stockholders of record as of the close of business on December 31. This dividend level represents an attractive yield of over 12% based on the recent share price. In addition, we currently estimate we have $0.86 per share of spillover income generated over the last 5 years to support the quarterly dividend, which represents more than 2/4 of the existing $0.40 quarterly dividend. On valuations, our total aggregate realized and unrealized net loss for the quarter was about $3 million or $0.04 per share, partially attributable to unrealized markdowns on select underperforming investments. Turning to credit performance. We continue to see overall stability in credit quality across the portfolio. At the beginning of July, we closed the successful restructuring of Maverick, which was the main contributor to nonaccruals decreasing to 1.6% of total investments at cost and 1% at fair value. And while our nonaccrual rates may fluctuate from period to period, we're confident in our ability to leverage the broader Carlyle network to achieve maximum recoveries for underperforming borrowers. Moving to our JV. We continue to focus on maximizing both asset growth and returns at the MMCF JV. We closed an upsize to the credit facility in October. The upsize enables us to increase our investments in the JV, which is achieving a run rate mid-teens ROA for CGBD. Separately, we continue to work on optimizing our 30% nonqualifying asset capacity and are currently in advanced discussions with a potential institutional partner on a new joint venture. And based on our current outlook for earnings, we're comfortable with the current dividend policy of $0.40 per share. I'll finish by touching on our financing facilities and leverage. In October, we raised a new 5-year $300 million institutional unsecured bond at an attractive swap adjusted rate of SOFR+ 231. We used the proceeds in part to repay in full the higher-priced legacy CSL III credit facility. In addition, we announced that we will redeem the $85 million baby bond effective December 1. In the aggregate, these capital structure optimizations will lower our weighted average cost of borrowing by 10 basis points, extend the maturity profile of our capital structure with limited maturities until 2030 and reduce reliance on mark-to-market leverage. Our debt stack is now 100% floating rate, matching up primarily floating rate assets, meaning CGBD is well positioned in advance of future interest rate cuts. At quarter end, statutory leverage was 1.1x towards the midpoint of our target range. And given our current strong liquidity profile and targeted incremental asset sales to our MMCF JV, we're well positioned to benefit from the expected pickup in deal volume in future quarters. With that, I'll turn the call back over to Justin. Justin Plouffe: Thanks, Tom. As we approach the middle of the fourth quarter, our portfolio remains resilient. We continue to focus on sourcing transactions with significant equity cushions, conservative leverage profiles and attractive spreads relative to market levels. Our pipeline of new originations is active and with a stable high-quality portfolio, CGBD stockholders are benefiting from the continued execution of our strategy. As always, we remain committed to delivering a resilient, stable cash flow stream to our investors through consistent income and solid credit performance. At the platform level, we continue to build out the Carlyle Direct Lending team. As a reminder, Alex Chi will be joining Carlyle as Partner, Deputy Chief Investment Officer for Global Credit and Head of Direct Lending in early 2026. We also hired a new head of origination during the quarter and continue to build out the broader origination function with an additional hire in Q3 and one more slated to join the team in Q4. All 3 will expand our existing capabilities, combined with the expected increase in overall capital markets activity, we are constructive on our expectations for activity and deployment going forward. I'd like to now hand the call over to the operator to take your questions. Thank you. Operator: [Operator Instructions] Our first question comes from the line of Finian O'Shea from Wells Fargo Securities. Finian O'Shea: Tom, can you give us some color, maybe a bridge on the top line this quarter? SOFR was pretty stable, I think. There was -- the nonaccrual was small. Just seeing what the mix was, whether it be like average portfolio or onetime fees or anything else in there that's notable? Thomas Hennigan: Yes. Sure, Fin. Thanks for the question. When you look at the top line, it's $67 million last quarter and this quarter, but last quarter, it rounded down. This quarter, it rounded up. When you look at the delta, that's very modest decline, it's primarily OID accretion on repaid investments. That's really the biggest bridge point in terms of the difference between the 2. When you look at fee income, it was up modestly. And in the aggregate, the average daily principal balance of loans outstanding was pretty flat across the quarter. That's what we will see that we should get a benefit in the coming quarter just based on that average daily outstanding investment balance. So that was neutral from second quarter to third quarter. But it was really the OID accretion was the biggest point on the top line. Finian O'Shea: Okay. And the 10 bps you gave on borrowing spreads, was that just from the baby bond? Or was that also -- there's a couple of post-quarter changes as well. Is that a holistic sort of guidance or just that one bond that -- I'm sorry, I didn't catch that. Thomas Hennigan: No, and it was primarily post quarter end items. It was the -- we repaid our legacy CSL III facility that was priced at SOFR+ 2.5%. The baby bond swap adjusted is SOFR 3.14%. So those -- the CSO facility we repaid at the beginning of October. The baby bond will be repaid effective December 1. And then the biggest replacement is the new institutional deal we did, which is swap adjusted 2.31%, so over SOFR. So net-net, that's about 10 basis points across the capital structure. Finian O'Shea: Okay. And one final one for me. I'll get back in the queue. And I'm sure we bugged you about this last quarter. But the $0.40 declared in the fourth you said something like comfortable for now. Can you expand on for now, does that include like how far out into the SOFR curve does that include? And then sort of what are -- I know you mentioned the 30% bucket, a bit of rotating spreads, like how much of -- how much sort of fundamental or octane sort of drivers offset how much Fed decline in your outlook for coverage? Thomas Hennigan: Sure. And interestingly, our outlook and the support and our comfort with that $0.40 is actually in the near term, the next few quarters is where we see the most pain, and that's just based on really primarily the SOFR curve. So we anticipate earnings will trough in the next couple of quarters. When you look at the longer term with our 2 JVs, I should say -- 1 JV in place and then potential second JV, that's where we see -- that will just take time to ramp those vehicles. So for example, our existing JV, I mentioned we increased the credit facility from $600 million to $800 million to just give us more dry powder to continue to invest. We reached agreement with our partner to increase our equity commitments from $175 million to $250 million each. And we've also been working on some creative low-cost financing solutions to continue to operate at a very low debt cost of capital for that JV. So that gives us the runway, and it's going to take some time to grow that vehicle from $800 million of assets to double the size to $1.6 billion. And right now, if we're at a 15% return on assets for CGBD, we see the ability to increase that by 300 to 500 basis points. So we see a lot of positive drivers with that JV, but it's going to take some time to invest over the course of the next number of quarters. And then the second JV, we're -- we've made some really good progress with a potential partner. It's leveraging Carlyle's global credit expertise in investing loans. It's something we hope to have more color for the market and hopefully target closing that deal sometime this quarter. But yes, that will be longer term to ramp that vehicle. Operator: Our next question comes from the line of Erik Zwick from Lucid Capital Markets. Erik Zwick: Just looking at Slide 5 of your deck this morning, over the past year or so, the concentration of first lien debt has increased to about 86% of the total portfolio now with the second lien investment funds coming down. We've been hearing from others that second lien debt potentially is not as attractive today given tighter spreads. So just curious, are we likely to see this trend continue in your view of first lien debt continuing to become a larger concentration in the portfolio? Justin Plouffe: Yes. It's Justin. Thanks for the question. Look, we are operating in a tight spread environment across credit markets. And at this point in time, we don't see a ton of value in second liens. I think the -- I think across all private credit markets, the amount you're getting paid to take significant risk has really -- has come down in the last 24 months. So our strategy has always been defensive, diversified first lien and then opportunistic on things like second liens. And I would tell you, right now, we don't see the opportunity to be that compelling. So I think you will see our portfolio continue to trend first lien. And I don't see any reason for that to change in the near term. Of course, we could have a credit cycle and then there might be opportunities that come up at that point. But for now, we're very, very focused on a defensive first lien portfolio. Erik Zwick: I appreciate the commentary there. And then just given your comments about the pipeline continuing to grow, I guess I'm curious what the kind of average yield looks like in the pipeline today versus the current weighted average yield in the portfolio. Is there potentially pressure there as the portfolio turns? Or what are your thoughts there? Thomas Hennigan: Erik, it's Tom. There definitely continues to be pressure on spreads relative to where the portfolio is. For the first -- for the third quarter, our weighted average spread was a shade over 500 basis points. Prior quarters, it was a bit higher. And part of that is our mix of non-U.S. transactions. In the second quarter, it was closer to 15%. We typically see anywhere from a 75 to 100 basis point premium for those non-U.S. transactions. So we've got a little extra spread premium in the second quarter. In the third quarter, our originations were strong. It was only about 5%, only one deal from our European originations. So we're right about 500. But I think that there continues to be overall pressure when you look at where the overall portfolio yield is relative to, let's say, those new originations, which are more squarely 500 weighted average. And for a brand-new LBO not in the portfolio, probably a 4 handle is what we're seeing in today's market. But for CGBD, those are transactions, and we'll be investing in that particular transaction across our broader direct lending business for CGBD as those assets drift and spread below 500, that's where they're very good candidates for our JV. Erik Zwick: And last question for me, just looking at the chart on Slide 12, the risk rating distribution, a nice quarter-over-quarter improvement in those 2-rated assets. I'm just curious the drivers there. Was it kind of industry related or more company specific, if you're able to provide any commentary? Thomas Hennigan: Increase in the 2 rated, Erik, from above $100 million. Erik Zwick: Yes. Thomas Hennigan: Yes. Primarily a couple of deals transitions from the 3 category to 2 category. The biggest component is just net originations for the quarter. And those continue to be in our main categories of health care, software, technology and financial services. Those continue to be 2 of our larger categories, and that's where most of our originations in the third quarter. Operator: Our next question comes from the line of Sean-Paul Adams from B. Riley Securities. Sean-Paul Adams: Congrats on the great quarter. But when looking over the nonaccruals, it looked like quarter-over-quarter nonaccruals decreased significantly, but the rating within the portfolio increased from 4 -- investment-grade rating 4 to 5. So is -- are the nonaccruals that are remaining on the books, they just shifted to materially changing the expectations on recoveries? Or is this just more of a covenant change or just lapsing in the amount of time since payment? Thomas Hennigan: It's Tom again. I'll answer that in a slightly different way, I think, just to describe the changes in the categories. The biggest decline in the 4 category was the restructuring of Arch Maverick, now it's called Align Precision. So that was the largest component of that 4 category. And we successfully restructured, wrote off some debt, but now that transaction, the multiple tranches lives in the 2 and 3 categories. The migration from 4 to 5 is primarily one credit that remains on nonaccrual that we are in the midst of restructuring right now. And I think that it's -- the shift from 4 to 5 is acknowledgment on our part that, hey, yes, we're restructuring it. Yes, we're going to be writing off debt. And my credit view, unlike Maverick, we see a path with the lead agent, we see a path to -- it's going to take a few years, but to a very strong recovery, perhaps a full recovery on that investment. The loans -- there were 2 loans, one was the majority piece, but 4 to 5 were investments that were restructuring, they're in payment default and/or on nonaccrual. And we think that even longer term, we're likely not going to have a full return of capital. Operator: Our next question comes from the line of Robert Dodd from Raymond James. Robert Dodd: On the potential -- and I realize nothing has been signed yet, but the potential second JV, do you envision that -- your partner envision that as kind of same kind of style as the existing one? I mean in your prepared remarks, you mentioned obviously leveraging the global platform more maybe. Or -- yes, is the potential second one going to be structurally similar, but target assets different than the first one and i.e., diversify overall exposure or just participate in the same kind of deals and just diversify where it's held? Thomas Hennigan: Right. Rob, this contemplated JV, the structure will be very similar to the existing JV in terms of 50-50 governance, will be 50-50 economic ownership. It is in loans, but it will be a different investment strategy, really 0 overlap to the current JV. Robert Dodd: Got it. And then just you sound obviously more optimistic about the outlook and 30% increase in deal flow for a couple of months is pretty good, how is the quality of those deals and kind of like the terms? I mean, are you seeing the initial look at those, to your point, 4 handles on new LBOs. I mean, is that what we're looking at? Are the terms consistent with that in terms of the pipeline build? And is the quality of the assets you're seeing, it's one thing for 475 if leverage is lower. But if leverage is getting fuller and fuller, and I don't know that to be the case, those terms might not be so attractive. I mean any color you can give on like the constituents of the pipeline in terms of how it looks? Thomas Hennigan: Rob, I think that the pipeline consists, I think, high-quality borrowers very much in the same makeup industry-wise as our current portfolio in terms of focus on whether it be software, technology, health care, business and consumer services, financial services. I would say it's very much industry deal specific in terms of leverage. The one key attribute, though, and it was the case back in '23 when leverage was lower. It's been the case now that there's somewhat of reopening in the markets is the LTV investing in the first lien loans, our LTV consistently is 38% to 42% on average, perhaps even lower for some of the technology deals. If we're looking at industrial deals, it may be a bit higher because of the lower growth and lower enterprise value multiples. But overall, that's really the one common attribute is that loan to value. So we've got significant coverage where loan to value is typically 40%. Operator: Our next question comes from the line of Melissa Wedel from JPMorgan. Melissa Wedel: Just want to make sure I'm understanding your comments on the -- and your views on the JV appropriately. It seems like with the upsize in the existing one and the potential second JV, those will take time to scale up. And so as you look at the earnings power of the portfolio, we shouldn't be thinking of those as having a particularly near-term impact on earnings power. Is that fair to say? Thomas Hennigan: Yes. Melissa, that's a very good synopsis of it. When we look at the current quarter, the next quarter, next 2 quarters, we know the rate cut math is easy for us, every 100 basis points is $0.03 per share per quarter. Those JVs are going to take more time, multiple quarters. So we see an earnings trough in the next couple of quarters and then it starts to build back up second half of '26 into '27. Justin Plouffe: And of course, that will all depend on activity in the market as well. If we see elevated activity, perhaps we can ramp faster. But we're thinking about these JVs as long-term drivers of increased income, not necessarily as a quarter-to-quarter fix. Thomas Hennigan: [indiscernible] got a $0.86 of spillover over 2 quarters that for this interim basis, we feel comfortable if we're necessary paying out the spillover, but really have a long-term goal in mind. Melissa Wedel: Okay. Okay. And then following on one of your comments, I think it was during the prepared remarks. You mentioned at one point the potential for spreads to widen, especially to compensate a little bit for lower base rates. I guess I'm wondering if that's built into your -- is that your base case expectation? And how does that -- how do you reconcile that with just the supply and demand imbalance of capital that we're seeing in the market now even with base rates being lower and spreads still being so tight? Justin Plouffe: Yes. No, it's not our -- necessarily our base case scenario. I think if you look historically, when rates have been going down, spreads have actually more than compensated for the reduction in rates. But we're in an unusual environment now where we do have base rates going down while spreads either tighten or remain tight. So in the current environment, that's not the case. But as we know, credit goes through cycles. And I think eventually, we will have a change in the supply-demand imbalance. I think historically, if you look across private credit, spreads are at the tighter levels that they've been. So I think it's reasonable in the intermediate term to think that there probably will be some movement on spread, and we want to be positioned to take advantage of that, right? So that's really all that we're saying, not some prediction of near-term spread widening because I don't really see the impetus for that in the markets today. Operator: Thank you. At this time, I would now like to turn the conference back over to Justin Plouffe for closing remarks. Justin Plouffe: Thanks, everybody, for joining the call. We really appreciate it, and we will speak with you next quarter. Take care. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Welcome to this Ørsted's Q3 2025 Earnings Call. [Operator Instructions] Today's speakers are Group President and CEO, Rasmus Errboe, and CFO, Trond Westlie. Speakers, please begin. Rasmus Errboe: Hello, everyone. During the third quarter of the year, we have continued our focus on the execution of the 4 strategic priorities that we presented in February. These will continue to be the core focus as we execute on our strategy. Let me start by going through our progress across the 4 priorities. Our first priority is to strengthen our capital structure. And with the completion of the rights issue in early October, we have taken a significant step on this priority. The rights issue strengthens our financial foundation, allows us to focus on delivering our 6 offshore wind farms under construction, provides the financial robustness to manage the ongoing challenges and uncertainty as well as the financial strength to pursue upcoming attractive opportunities within offshore wind. I am very pleased and grateful for the strong support that we received from our shareholders in the rights issue, including from our majority shareholder, the Danish state. Also, we announced on November 3 that we have entered into an agreement with Apollo to divest a 50% ownership share in both the project and associated transmission asset for our 2.9 gigawatt Hornsea 3 project in the U.K. The total value of the transaction is approximately DKK 39 billion, and the transaction supports a further strengthening of our capital structure and marks a significant milestone in our partnership and divestment program. Another important element in supporting our capital structure is the continued performance of our operational portfolio. Even though wind speeds have been below the norm thus far in the year, we have delivered DKK 17 billion of EBITDA for the first 9 months of the year, which is mainly driven by the increase in the availability across our offshore portfolio due to strong performance every single day by our generation team. We remain on track to deliver earnings in the range of DKK 24 billion to DKK 27 billion for the full year. Our second priority is to deliver on our 8.1 gigawatt offshore wind construction portfolio. And we continue to make good progress across the projects, which upon completion will contribute with an annual EBITDA run rate of DKK 11 billion to DKK 12 billion. I will shortly go through the construction progress details. But first, I want to mention the stop-work order, which Revolution Wind received in the U.S. during the third quarter, instructing the project to hold offshore activities, pending completion of the Interior Department's review required by the executive order issued on January 20. Revolution Wind continues to seek a complete resolution, both by engaging with the U.S. administration and other stakeholders as well as through legal proceedings. As part of the legal part, the project filed a lawsuit and sought a preliminary injunction, which was granted on February 22 by the court while the lawsuit is ongoing. The offshore activities have resumed and since then progressed well. Our third priority is to ensure a focused and disciplined capital allocation, always prioritizing value over volume, where our focus going forward primarily will be on offshore wind in Europe and select markets in APAC. As part of these efforts, we will move towards a more flexible partnership and financing model in order to improve value creation and ensure risk diversification. On this basis, we recently entered into a memorandum of understanding with KOEN and POSCO for our 1.4 gigawatt Incheon offshore wind project in Korea. The aim is to explore cooperation on joint development, construction and operations, including potential equity participation. Finally, on our fourth priority, we have also taken steps in improving our competitiveness with the announcements of adjustments to our organization. Due to the sharpened strategic focus of our business going forward and the fact that we will be finalizing our large construction portfolio in the coming years, we will adjust our organization accordingly to become more efficient and flexible. Once all efficiency measures have been implemented, the annual cost savings are expected to amount to approximately DKK 2 billion from 2028. The cost savings related to these efficiency measures have been incorporated into our business plan. Let's turn to Slide 5, where I will talk through some of the operational highlights for the first 9 months. First, I am pleased with the operational performance with our EBITDA, excluding new partnerships and cancellation fees amounting to DKK 17 billion for the first 9 months. Despite the fact that wind speeds have been below the norm so far this year, our strong generation performance ensures we remain on track towards delivering our full year guidance of DKK 24 billion to DKK 27 billion of EBITDA. This is mainly driven by high availability within our offshore business, which stood at 93% for the first 9 months. Compared to same period last year, this is an increase of 7 percentage points and thus ensured a material earnings contribution. Market-leading performance of our 10 gigawatt offshore wind fleet is a key priority for us, and we are progressing several measures within our generation organization to improve our output and lower cost base through portfolio and operational efficiencies, technological innovation, standardization and generation excellence. During the quarter, we also made progress on the renewable share of our generation. For several years, we have had a target that renewables should consist of 99% of our generation by 2025. And this has been the case during the first 9 months of the year. The increased share of renewables was driven by the closing of our last coal-fueled CHP plant in the second half of 2024, which marked another important milestone on our decarbonization journey. Lastly, our continued and relentless focus on safety have continued, and the total recordable injury rate for the first 9 months of 2025 is at 2.5, which is in line with our target. This remains highest priority for us, and we are continuing an internal program across the full organization, which is intended to further increase training, safety awareness and management focus, all aimed at lowering the incident rate and bringing our people home safe every day. Let's turn to Slide 6 and an overview of our construction projects. I will cover the more advanced projects individually and, in more details, as usual on the next slides, while putting a few remarks on the remainder of the construction portfolio here. For Borkum Riffgrund 3 in Germany, we have installed all foundations and turbines. Commissioning of the grid connection for Borkum 3 has started according to plan. We expect first power before the end of the year, and the project is expected to be commissioned towards the end of Q1 2026. For Hornsea 3 in the U.K., construction is progressing well. The onshore works at the landfall cable route and converter stations have progressed in line with the schedule since last quarter. For the offshore scope, the project will be using 2 HVDC offshore converter stations. The first platform is undergoing final equipment installation in Norway, which is progressing well. And the second platform completed its scope in Thailand and is currently in transit to Norway to complete the same final works. We have continued with the offshore activities where we completed the removal of unexploded ordinances across the whole site during the third quarter. We continue to closely monitor a number of items related to the delivery of the project. This includes the installation schedule of the project's grid connection where we are working closely with National Grid on our onshore grid connection works to support planning of our commissioning next year. Further, we continue to focus on manufacturing of turbine monopile foundations to ensure it is delivered according to plan, enabling us to commence installation in 2026. The manufacturing has started as planned, and there are multiple suppliers contracted for the scope. And if relevant, we can utilize the flexibility gained from this to mitigate risks if they occur. Next steps in the project will be commencement of the main offshore installation activities in early 2026, which start with the installation of the offshore export cable as well as monopile foundation installation. In Poland, our Baltica 2 project is moving ahead according to schedule, and we are progressing the first phases of the construction work. In the third quarter, we have continued construction work at the onshore substation site, which includes the installation of the first part of the export cable. The manufacturing of turbine foundations is progressing well with 22 completed so far. The manufacturing of the 4 offshore substations is progressing and manufacturing of the offshore export cable started mid-October. With this progress, the degree of completion for the project has increased to approximately 15%, up from 10% in Q2. There are a number of items for the installation schedule that we are closely monitoring. This includes progress on the manufacturing of the 4 offshore substations and fabrication progress of the key components for onshore and offshore substations. We remain on track for earliest possible sail away mid-2026 from Vietnam for the 4 offshore substations. Progress on the turbine installation harbor in Poland is still on track. We are closely engaged with contractors and regulators to ensure that we progress according to the current schedule. Next steps are preparing of -- preparation of the seabed, sorry, ahead of turbine foundation installation, which is planned to commence during mid-2026. Now turning to Slide 7 and a more detailed update on our Greater Changhua 2b and 4 project in Taiwan. Overall, the installation of the remaining scopes of the project has made good progress during the quarter. Greater Changhua 4 has commenced generation, and this will continue to ramp up as more turbines get energized during Q4 of this year. For Greater Changhua 2b, the damage to the export cable means that we will only be producing power again from mid-2026, once the damaged export cable has been replaced. Looking at installation during the quarter, we have made progress across several scopes. This includes the installation of turbines where 58 turbines of the total 66 positions are now installed, and the rest are expected to be completed by end of 2025. We have installed array cables for 50 of the 66 positions, and we have mobilized additional vessels during the quarter to strengthen the installation progress or process of the remaining cables as weather conditions are expected to be more challenging during the winter season. With the progress achieved during the quarter, the project has now reached a degree of completion of approximately 65%, up from 55% in Q2. The focus of the project remains on installation of remaining turbines and array cables as well as replacing the export cable for the Greater Changhua 2b section. Turning to Slide 8 and an update on our Northeast program, starting with Revolution Wind. During the quarter, the project has made good progress as we have completed both the installation of the replacement monopile for the second offshore substation as well as the installation of the offshore substation itself such that both of the projects, 2 offshore substations are now installed. On turbine installation, we continue to make progress as we have now installed 52 of the 65 turbines for the project, and array cable installation has commenced and is progressing well. With progress achieved during the quarter, the project has now reached a degree of completion of approximately 85%, up from 80% in Q2. The project continues to progress on a number of scopes that are critical to the delivery of the current schedule. For the onshore substation, we are continuing to progress construction activity according to the current schedule. We remain on site to manage the continued installation of the project and expect energization of the onshore substation early next year. For turbine installation, we will continue to monitor the installation rate closely as we enter into the winter season where weather conditions impact speed of the installation rate. First power is expected during first half of 2026, and the project remains on track for commissioning in the second half of 2026. Now turning to Slide 9 and our Sunrise Wind project, where we have also continued to see good progress across the different scopes. We have completed the installation of the project's single offshore converter station in September and continued the installation of turbine foundations with 50 -- sorry, 44 of the 84 positions installed now. This work will soon be paused as planned due to time of year restrictions of when turbine foundations can be installed and will be resumed when next installation season starts in the spring. The turbine installation will commence following completion of turbine installation Revolution Wind. For the onshore substation, the commissioning works are progressing according to plan with installation of nearshore section of the export cable expected in the coming months. With progress achieved during the quarter, the project has now reached a degree of completion of approximately 40%, up from 35% in Q2. The focus remains on the items that are critical to delivery on the current schedule. The fabrication of remaining turbine foundations is progressing according to plan, and we expect to have all remaining turbine foundations completed by the end of the year. On the export cable, we have completed the final factory acceptance tests for majority of the sections, with the final ones expected to be completed by end of the year. And we will start the installation of the nearshore section at the end of this year as well. We continue to manage the risks related to the installation of the project, and we remain on track for commissioning in the second half of 2027. With this, let me hand over the word to you, Trond. Trond Westlie: Thank you, Rasmus. And good afternoon, everyone. As always, unless I state otherwise, the numbers I refer to will be in Danish kroner. So before covering the third quarter development, let's go to Slide 11. And I want to start with our announcement from Monday. As we have entered into an agreement with Apollo to divest 50% stake in our 2.9 gigawatt Hornsea 3 offshore wind farm in the U.K. The transaction balances the key objectives for partnerships and divestments with an emphasis on capital management and represents a major milestone in our funding plan. The transaction supports further strengthening of our capital structure and ensures significant progress on our partnership and divestment program. The total value of the transaction is approximately DKK 39 billion and around DKK 20 billion of the total transaction value will be paid upon closing of the transaction. The remaining amount is expected to be paid under the construction agreement upon achievement of certain construction milestones. In terms of our targeted proceeds of more than DKK 35 billion across '25 and '26, it is the DKK 10 billion received under the SPA agreement, which counts towards this target. The total transaction value covers the acquisition of 50% equity stake -- equity share -- ownership share, sorry. And the commitment from the partner to fund 50% of the payment under the EPC contract for the wind farm and the offshore transmission costs, assets. The upfront noncash EBITDA effect of the transaction is in line with the expectation outlined in the prospectus of the recently completed rights issue and including the other aspects of the transaction such as the expected earnings under the construction agreement and service contract between Ørsted and the project. The expected EBITDA impact of the transaction is broadly neutral over the lifetime of the project. With that, let's turn to Slide 12 and the EBITDA for the quarter. In third quarter, we realized an EBITDA of DKK 3.1 billion. Let me walk you through the main developments for the quarter. For our offshore business, the overall earning came in at DKK 2.2 billion. The earnings from sites decreased, driven by lower wind speeds and step-down in subsidy levels from all the wind farms as well as lower power trading earnings. This was partly offset by full contribution at Gode Wind 3 compensation for Borkum Riffgrund 3 and higher availability rates across the portfolio. Earnings on existing partnership decreased as a result of updated costs for array cable installation for Greater Changhua 4. Over the summer, there were challenges -- challenging weather conditions, including a typhoon, which slowed down our planned installation speed. As a result, we have, during third quarter, strengthened our setup for the installation of the remaining array cables by mobilizing additional vessels. This has led us to revise the earnings that we expect under the construction agreement. As communicated earlier, we did not anticipate any material earnings under the construction agreement. So taking into account the strengthening of the installation setup and costs relating to extending the installation period leads to an impact in our accounts. Following this revision, the business case continued to have a comfortable headroom. Other costs, which includes unallocated overhead and fixed costs as well as expensed project development cost increased compared to last year, in line with our expectation. Part of the increase is driven by a change in our cost allocation methodology and does not impact the total EBITDA. This cost reallocation is reflected in our full year guidance for '25. For onshore, the EBITDA decreased by approximately DKK 200 million, primarily driven by lower wind speeds, which were partly offset by ramp-up generation from new assets. Within bioenergy and other, earnings from our combined heat and power plants were higher than last year, driven by higher power prices. Earnings in our gas business increased slightly driven from -- driven by higher offtake volumes. We did not enter into any new partnerships in the third quarter of '25. Let's turn to Slide 13. In the third quarter, total impairments amounted to DKK 1.8 billion. The impairments primarily relate to our U.S. offshore projects and are driven by higher tariffs and increased cost as a result of the stop-work order for Revolution Wind, partly offset by decrease in long-dated U.S. interest rates. The impairment related to higher tariffs amounted to DKK 2.5 billion, in line with the range that was included in the prospectus released in connection with the rights issue. This amount reflects recent changes to the U.S. trade policies, including the increased tariffs on steel and aluminum. The impairment related to the stop-work order amount to DKK 500 million and is also in line with estimates that was included in the prospectus in connection with the rights issue. This reflects the higher cost for both Revolution Wind and Sunrise Wind due to extension contracts needed to complete the installation of the projects. These effects are partly offset by a reversal of DKK 1.3 billion due to the decrease in long-dated U.S. interest rates, leading to lower WACC level across our U.S. offshore and onshore projects. Our net profit for the quarter totaled a negative DKK 1.7 billion and was impacted by both the decreased earnings as well as the impairments. In Q3 '24, net profit amounted to DKK 5.2 billion, of which DKK 5.1 billion were related to a reversal of a provision related to Ocean Wind. Adjusted for impairments and cancellation fees, our return on capital employed came in at 10.2%, which was a decrease compared to last year, driven by the higher capital employed. The reported ROCE came in at 2% and was impacted by the impairment recognized over the last 12 months. Let's turn to Slide 14 and our net interest-bearing debt and credit metrics. At the end of Q3 '25, our net debt amounted to DKK 83 billion, an increase of approximately DKK 16 billion during the quarter. The increase was predominantly driven by gross investments of DKK 15 billion into the construction of our renewable project portfolio. The contribution from -- of our operating earnings in our cash flow from operating activities was more than offset by costs relating to the construction of transmission assets in the U.K. as well as seasonally in other working capital items. This was also the case for the same quarter last year. As the rights issue was completed on 9th of October '25, the proceeds of approximately DKK 60 billion will accordingly be reflected in our accounts by full year. Also, subject to the closing of the transaction before the end of the year, the proceeds from the Hornsea 3 transaction will likewise be included in the net debt numbers. Finally, the project financing package for Greater Changhua 2 were closed in July, yet had no impact on net debt as the proceeds received were matched by a corresponding increased debt. Upon closing of the planned equity divestment of the project, the asset and associated project financing package is planned to be deconsolidated, which will then have an impact on the net debt position. Our credit metric, FFO to adjusted net debt stood approximately at 14% at the end of the third quarter, which is a slight decrease compared to the previous quarter. The higher funds from operation in the 12-month rolling period was offset by the increase in adjusted net debt. The metric will expectedly increase to well above target of 30% in the next quarter as the incoming proceeds from the rights issue and closing on the Hornsea 3 transaction will be reflected in our accounts. And finally, let's turn to Slide 15 and look at our outlook for '25. With our solid operational performance for the first 9 months and heading into a quarter with seasonal higher wind speeds, we reiterate our full year EBITDA guidance, excluding new partnership and cancellation fees of DKK 24 billion to DKK 27 billion. We also maintain our gross investment guidance for '25 of DKK 50 million to DKK 54 billion. The gross investment guidance is sensitive to milestone payments being moved between years and the level of tariffs. We continue to follow the development regarding potential tariffs and other regulatory changes, particularly affecting the U.S. and are continually assessing any possible financial and wider impacts. So with that, we will now open for questions. Operator, please? Operator: This concludes the presentation, and we will now open for questions. This call will have to end no later than 15:30. [Operator Instructions] The first question comes from the line of Kristian Tornøe from SEB. Kristian Tornøe Johansen: Yes. So my question is about the expected lifetime of your offshore wind assets. So with the Hornsea 3 transaction, the other day, I understand you are looking at up to 35-year lifetime of this asset. So previously, you've been talking more to a 25-year lifetime of your offshore wind assets, which at least what I've been using in my model. So my question is essentially what would be the appropriate lifetime we should apply to our valuation of your offshore assets? Trond Westlie: Well, on the lifetime of the capitalized investments that we have from the starting point, we do use just short of a 25% year depreciation. So the economic value of that is, of course, we use the short of 25-yard -- years depreciation. When it comes to the business case as such and the lease period, that is sort of a different aspect. And that's what is included in the agreement that we have been clear, very transparent about with Apollo. And that, of course, the lease is a long period. And as a result of that, the business case is, of course, longer than the economic value that we capitalize as a start, basically, due to maintenance programs, repowering possibilities and so forth relative to the long lease of the area. So that you have to probably distinguish between how we capitalize, how we depreciate and also how we actually see the business case. Operator: The next question comes from the line of Harry Wyburd from BNP Paribas. Harry Wyburd: Can I focus on the Hornsea 3 sell-down? So thank you for the call yesterday where you educated us a bit about the cash flow profiling. My question is, given that Apollo have the rights to the majority of the cash flow in the CfD period and given that you have the majority -- there was the rights to the cash flow after that, have we opened up a new thread of book value risk or volatility here? Because presumably, you might review the NPV of those cash flows in terms of time depending on discount rates. And also your future reversion power price assumptions for the project. So is this something where we should expect some book value updates on a quarterly basis going forward? And if so, can you give us any kind of sense as to how material those changes might be relative to the other sort of impairment pluses and minuses that you typically put through over the quarter? And then an allied question, when we're modeling cash flow, we're all looking to 2028 when you got all these projects up and running. And perhaps now that the rights issue process is over, maybe you could throw in a bit of a guide for 2028 EBITDA guidance might be, given that's really the key year when everything is up and running. But should we apply a haircut to that for cash flow given that, as I understand it, the majority of the cash flows in that year would be going to Apollo? Trond Westlie: Then -- well, let's take the first one first. When it comes to the sort of the uncertainty of the fluctuations on the starting point of the provision that we actually do going forward on the sort of asymmetry, yes, it is correct that we have to evaluate that every quarter. Those evaluation will come as today's rules in IFRS. Those adjustments will come under the financial income line. Second part of this is, of course, that since we have both payable and receivable in this, there is an incorporated hedge as a result of that in addition. So I would not -- so in essence, yes, there will be elements to this being sort of adjusted every quarter. We do not expect that to be significant. And we are presenting that under IFRS rules today. It will come under the financial line. On the outlook of '28, we will not do an update on the '28 expectations so soon after the rights issue and the prospectus that we issued. We will, of course, comment more back to that and be more granular when we come to the yearly update in February. Harry Wyburd: Okay. And the comment on the cash flow haircut. I think actually in the first years of the projects, I think it was -- for 3 years, it was 50-50, and then thereafter, it reverts to 70-30 in Apollo's favor. But should we be making a cash flow adjustment? Is that how we should be thinking about it? We need to reduce a little the EBITDA you report on a proportional basis to reflect the fact that you're getting less of the cash flows in the short term. Is that the right way to think about it? Trond Westlie: Well, that's going to be the difference between the P&L -- the EBITDA P&L and the cash flow statement. So of course, in the P&L statement, that will, of course, and the adjustment that we're making right -- the loss adjustment we're making right now, will, of course, be reversed under the EBITDA. But of course, in our operational cash flow statement, we'll, of course, address that and be very specific of the noncash elements within it. Operator: We now have a question from the line of Dominic Nash from Barclays. Dominic Nash: A couple of questions, please. Second one should be quite quick. The first one is on utilization levels of your offshore wind. You always quote output, but I believe you don't give us an update on the actual potential output pre-curtailment. And I was wondering what sort of level of curtailment are you sort of seeing in your offshore fleet? And what would that do if we were to adjust for sort of likely proper underlying output capability? And the second question is a simple one here, dividend policy. You've got -- you're not giving any sort of firm numbers yet. I think in 2026, you're going to start paying a dividend. Consensus, I think, in Bloomberg is DKK 4 per share. Are you happy with that consensus number? Rasmus Errboe: Thank you, Dominic. On the sort of the utilization levels that you talk about, we don't guide on specific curtailment of our offshore wind farms -- of onshore/offshore containment of any nature. We -- what you can see is that we have delivered a very solid availability performance during the year. 93% park -- or sorry, production-based availability for the first 9 months and 94% for Q3. So therefore, I'm very, very pleased with the underlying performance, but we don't guide on the curtailment levels. And also just reminding you that there are different frameworks in different countries for curtailment. And as an example, in Germany, we are compensated for the vast majority of curtailments from the onshore grid. As for the dividend policy, we have confirmed for a while now that we expect to pay out dividend again by 2027 for accounting year '26. We will stick to that. But we will not comment on the level of the dividend. Operator: The next question comes from the line of Mark Freshney from UBS. Mark Freshney: Rasmus, if I could pick you up on some comments you made about a month ago at a conference. You mentioned that there were 2 tracks to managing the stop order on Revolution. There was the legal track and there was the negotiated settlement, the dialogue track. Clearly, there was -- your big shareholder announced some deals with the U.S. Department of Defense. Clearly, a negotiated settlement that would protect Sunrise and Revolution would always be preferable to winning in court. So can you make any comments on how that -- those negotiations may be proceeding? Rasmus Errboe: Mark, thank you very much. You are right. We are pursuing 2 tracks. One is the legal track where we received the injunction on the 22nd of September that allowed us to go back to work. And then the other track is a dialogue track with the relevant people in the administration. I -- it is not sort of my approach, Mark. So this is the same as it has been all along and that is that I don't go into details about the conversations that we may or may not have in terms of making a deal. Our focus is to get to a, you can say, complete solution for Revolution Wind, where we still have the stop-work order claim outstanding. Our focus is on the projects, and I am pleased with the progress that we have seen in terms of construction on -- across both Revolution Wind and Sunrise where we have seen that we have completion increasing from 80% to 85% on Revolution Wind and from 35% to 40% on Sunrise Wind, including the installation of all the substations. So that is really where we have our focus. Mark Freshney: I respect that. And if I may have a follow-up just on the credit rating. I mean, I think S&P were waiting for the transaction that we saw yesterday. Can we expect some news on the rating? And does your modeling suggest that the Hornsea 3 farm down gets you where you need to be on that S&P tripwire, so to speak? Trond Westlie: Well, Mark, we are aware of the comments or the statements that S&P made in their update on their rating in August. And of course, we expect them to be more comfortable as a result of having managed to actually sign this agreement and basically following our time line as both signing and closing before year-end. So hopefully, it will have some effects. We are a bit uncertain about the interpretation evaluations of S&P because they are sort of the odd man out in the 3 ratings that we do have. So we just have to refer that sort of evaluation to them, Mark. I'm sorry. Operator: We now have a question from the line of Alberto Gandolfi from Goldman Sachs. Alberto Gandolfi: I guess the first part is perhaps more for Trond and perhaps the second for Rasmus, it's on capital structure and capital allocation. So the first part of the question is following the DKK 20 billion you're going to receive from the transaction and you announced this week and the rights issue technically in the 9 months, you're basically debt free. And of course, the company remains cash flow negative. But I guess my question -- the first part of the question is, is your balance sheet now fully derisked? And is there any scenario where you see the risk of having to implement incremental measures to avoid the downgrade to junk? I'm just thinking, for instance, if the U.S. project never start, can we say that even in that scenario, your balance sheet is now okay? And the second part of the question is that if you can elaborate on the first, I guess, then the question would be if the U.S. projects start to contribute, then you could say that in '28, your FFO to net debt is incredibly strong. So can you tell us how you are beginning to work for the repositioning of Ørsted at that point in time? What's your priority? Is organic growth at that point because you need to start winning awards in the next 12, 18, 24 months, I guess? Or is it more wait and see to see what happens in the United States? Trond Westlie: Well, I'll take the first one on the capital structure. I think your numbers is fairly correct relative to where we are and where we're going to be at year-end. So in starting to say that, of course, a lot of the discussion during the rights issue has been, of course, the downside risk relative to what's going to happen in the U.S. And we have been sort of elaborating a lot about that because of the stop-work order and the sort of the risk of getting more stop-work orders. I do think that along with the rights issue, we have explained the reason why we thought the DKK 60 billion was the right number. We have communicated that we expect this Hornsea 3 transaction to be signed and closed during the year. So that has been a part of our base case all the time. The downside risk is, of course, that things may happen of uncertainties in the U.S. that we cannot sort of put a probability or an estimate on. But as we have said all along, we have committed so much money into the projects of Sunrise and Revolution that closing it down is not really a good case for us because our commitment cost is almost as high as the total cost of the project. That is why we have looked at these structures and also the capital raise in this context. It is hard now to see situation that we will come into a -- that we will be downgraded into a noninvestment grade. So the scenarios you need to develop to actually get us there is now, of course, much more difficult when we have the Hornsea 3 in place. So over to you, Rasmus. Rasmus Errboe: Thank you very much. Thank you, Alberto. Yes. So I think probably 2 parts to the answer on repositioning of Ørsted on the other side of '28. First part is, Alberto, that it is for us to deliver on our plan. That is really our main focus. We have a plan with -- centered around 4 priorities to have a robust capital structure, to construct our 8.1 gigawatt of offshore wind projects in the best possible way, to stay focused and disciplined on capital allocation, always prioritizing value over volume and then also improve our competitiveness. And if you sort of look at our progress across the board on -- across these 4 priorities in Q3, you can see that, that is really where we focus. So the best way, in my view, to position us for '28 and onwards is by delivering on our plan. We will be in a very, very different position, and we will be able to meet the market from a position of strength at that point in time when we deliver on our plan. Second part is sort of how do we then think about 2028 and onwards. You talked about different kinds of sort of growth measures and what is out there. We are -- remain very bullish about the prospects for offshore wind in Europe in particular. We see the rebasing happening in the market. And the growth pockets for offshore wind in Europe, in my view, span across 3, if you will. One is, of course, the centralized tenders. There are -- '26 is probably going to be a little bit on the low side in terms of numbers of tenders that are being put out there, but then from '27 and onwards, it would take a bit of a step change. So that is one pocket that we could pursue. The other one is, of course, to mature our proprietary pipeline. And then the third pocket is more -- I would not call it inorganic, but a more, you can say, project-by-project collaborationships or M&A. Those are and basically have always been the pockets that we are looking for when we think about offshore wind growth, but we will be patient, and we would prioritize value over volume. Alberto Gandolfi: Rasmus, you've been so interesting that can I ask a follow-up? I appreciate if you say no. Rasmus Errboe: Go ahead. Alberto Gandolfi: I'm very -- this is all very clear. I'm just very intrigued by the comments you made about refocusing on Europe and potentially openness, project-by-project M&A. Would this also include potentially bigger platforms? I think it's no secret that probably lots of people on this call are thinking about the offshore portfolio of Equinor that would take out a competitor. And at that point, your balance sheet is very strong. Would this be an option worth pursuing, you think? Rasmus Errboe: That is not in our plans. Operator: The next question comes from the line of Lars Heindorff from Nordea. Lars Heindorff: The first one is regarding the correlation between EBITDA and operating cash flow. You had a few questions about this already, so maybe it's sort of a follow-up. But you've been guiding for '25 to '27 operating cash flow of DKK 50 billion. If we take the midpoint of the EBITDA guidance this year and then the minimum guidance that you've been providing for '26 and '27 that will add up to DKK 86 billion of EBITDA in the same period and a conversion ratio, which is less than 60%. So how should we think about the correlation of -- between EBITDA and operating cash flow going forward? First and foremost, in -- up and until '27, and I think given the development in Hornsea 3 and the first 3 years with a 50-50 split, that should be fine. But beyond that, that's maybe too far out. But just to get a sort of sense for what you expect in terms of operating cash flow for the coming years? That's the first part. And then the second part, just a housekeeping, which is, Trond, you mentioned the Changhua transaction. How much exactly would that impact the net interest-bearing debt for this year? Trond Westlie: Very well, on the operational cash flow relative to the EBITDA, there are 3 sort of buckets of elements that comes into the difference. It's the taxes paid. It's the reversal of noncash tax equity in EBITDA, and it's basically a working capital after changes. That is the major bucket. That's the 3 buckets. And then there is, of course, ups and downs relative to working capital changes that goes in there. But those 3 elements, taxes paid, reversal of noncash tax equity in EBITDA and working capital after changes is the 3 elements that really drives the bridge between the DKK 50 million and the EBITDA element. So that's those elements. When it comes to the Changhua 2b and 4 and the transaction, we still have the ambition to sign the transaction during the year. But since we're not able to close the transaction during the year, that there will be no transaction as such. So there will be not debt reduction as a result of that. So the statements that we have made earlier when it comes to the DKK 35 billion of the proceeds guideline that we have for '25 and '26, we have the DKK 7 billion that we did before half year. We now have the DKK 10 billion from Hornsea 3. And then the 2 outstanding elements is the around the -- short of DKK 20 billion left. And that's basically evenly divided between the Changhua and the EU onshore transaction. So -- and as I said, Changhua will not be closed during the year, so no effect. Lars Heindorff: Okay. And just a follow-up on the first part, which is the conversion between EBITDA to operating cash flow. Is that fair to assume that when you get to '28, which will be the first year, at least as we look right now without any offshore CapEx, that you will have still the same relationship, which is around slightly below 60% cash conversion from EBITDA to operating capital flow? Trond Westlie: I need to get back to that -- on that because the DKK 11 billion to DKK 12 billion coming out of the 6 projects is not going to be evenly divided as a result of how much of tax equity that comes into that gross up. So not quite sure I can guide you on that right now. Operator: We now have a question from the line of Deepa Venkateswaran from Bernstein. Deepa Venkateswaran: I wanted to quiz you a bit on what the Equinor CEO has been saying about offshore wind and Ørsted, where he's been talking about new business models, the need for consolidation and industrial cooperation with Ørsted. What are your thoughts on any cooperation with Equinor and what form and over what time line? So that's the question. If you can't answer that, then I have another question, which I'd like to ask. Rasmus Errboe: I will give it a go, Deepa. Thank you very much. So I think first of all, we are, of course, very pleased with the support that we continue to receive from Equinor as the second largest shareholder. We have no doubt about it. And of course, I have also noted the comments that you are alluding to. Our focus right now -- my focus right now is to deliver on our plan, is to deliver on our strategy quarter-by-quarter centered around the 4 priorities that I mentioned before. I -- of course, as any responsible management team, if you look further out in time, of course, you will look at all options that would improve value for your shareholders, no doubt about it. I am confident that we still have a very well-suited business model for offshore wind. Operator: The next question comes from the line of Jenny Ping from Citi. Jenny Ping: So 2 questions I have are somewhat linked. Firstly, just on the negative construction EBITDA that you printed in 3Q that you say is linked with the Greater Changhua 4 project. And given some of the cost overruns that you highlighted, are we expecting this to be this magnitude effectively until the close of the project at COD in 2026, so DKK 300 million, DKK 400 million negative each quarter? And then just linked to that, I guess, going back to the Apollo deal, Rasmus. Clearly, this is a fully EPC wrapped project, which you will take on any overspend and any delays risk. So what sort of comfort can you give to the investors that this project has been operationally derisked as we go into the full construction phase to minimize any of the delays and overruns, which ultimately will be borne by Ørsted? Trond Westlie: Just taking the negative of the construction agreement provision that we made in the third quarter. That is, of course, the full amount of loss that we expect to have on the construction agreement on Changhua 4. So it's not a repetitive element. It's an estimate of the full loss on the construction agreement. Rasmus Errboe: Jenny, and as for Hornsea 3, you are right that the way we have done the CA is, you can say, our normal model where we wrap sort of parts of the construction risk the same way as it is also our normal model on the OMA part where we do O&M for our partner. We are progressing very much according to plan on Hornsea 3. It's, of course, a very big project, 197 positions. But it is in our core market, and it is in a zone that we are comfortable working with. Some of the things we have been focused on in the beginning from a construction risk perspective, if you will, are going quite well. The onshore converter stations and the cable landfall is progressing. That is a key focus point for us, also making sure that we get -- that we can deliver and also National Grid can deliver on time. We have no reason to believe not to. When we get to that point in '27, monopiles has been a key focus for us. We have now sufficient robustness on the supply chain for that project on the monopile side. We have sort of roughly a handful of monopile suppliers on the project, SeAH, EEW, Haizea, Steelwind to name a few. And we have a great deal of flexibility in terms of making sure that if one is not exactly on time, then someone else can deliver. And we are starting to see monopiles being produced with a couple of them. So that is very much on track. Half of the export cables have been produced, the offshore monopile installation will start in Q2. And also, as I said before, the 2 offshore converter stations are progressing according to plan, 1 already in Norway from Thailand, the other 1 on its way. One thing that we and I have been focusing on, and that's my last point, Jenny, from the very beginning has also very much been on installation vessels. We have 3 installation vessels that will do the work on Hornsea 3. And 1 of them is now done here in September. So during Q3, that is very good. The other 1 is working on other projects. So 1 of the 2 turbine installation vessels, the Wind Peak is now working for Sofia and on the East Anglia THREE. So that is all fine. And then the last 1 is being produced, and we expect for it to be done by the end of the year. So I would say across the board, construction and thereby construction risk is progressing according to plan. Operator: We now have a question from the line of Jacob Pedersen from Sydbank. Jacob Pedersen: Just a question for me regarding Baltica 3. You still have it as a part of your pipeline in offshore in your presentation. What is the status on this project? And will it play any role in bridging the standstill in new installations after 2027? Or will it be more attractive for you to go into other [ auctions? ] Rasmus Errboe: Thank you, Jacob. Baltica 3 is a project that we jointly own. As you know, together with our partner, PGE. We continue to be very, very pleased with that partnership, and we are also moving forward with PGE on Baltica 2. As you know, we put Baltica 3 under reconfiguration a few years ago now. And the reason being that we didn't see sufficient value as the project stands in our portfolio to move it forward. That is still the case. The project is under reconfiguration. And we will only move it forward if we see a significant improvement in the value. So it is one of the options that we have in our portfolio. But as I said before, it would also have to stack up against the other opportunities. We are very strict on value over volume and also on capital discipline and allocation. So that is what I can say about Baltica 3 right now. Jacob Pedersen: Okay. If I may, a second one, just housekeeping. The rights issue cost, will we see that in financing costs during Q4? Or is it already in the Q3 numbers? Trond Westlie: It will come in the Q4 numbers. But having said that, there was a good estimate in the prospectus. So I think you can -- if you want to have an estimate, you can use that. Operator: The next question comes from the line of Olly Jeffery from Deutsche Bank. Olly Jeffery: My first question is that my understanding is that Judge Lamberth [ and Revolution Wind -- so ] Judge Lamberth, who put in place the preliminary injunction is likely to be writing a detailed opinion, which we haven't received yet. I mean if the Trump administration were to appeal the injunction that will most likely happen after that detailed opinion is being written. Would you agree with that broad assessment? And then the second question is just on the Section 232 investigation into wind components. Has there been any development on that? And are you able at all to say if were to lead to further tariffs, would that be of any material consequence in terms of impairments? Or is that not such a risk key? Rasmus Errboe: Thank you, Olly. I can take the appeal, and then I will leave the tariff question to Trond. And I will be quite brief, Olly. I don't want to speculate in potential legal outcomes and whether or not something will be appealed. And if so, when. We rely on the injunction that we received on the 22nd of September by Judge Lamberth. And we were immediately back to work, and that is very much our focus. But as I said before, we are pursuing 2 avenues still, the legal track and also the conversation track. And our aim is to get a complete solution for Revolution Wind. Trond Westlie: Just to be clear, firm -- or have a clear view of where the tariff goes in the U.S., it's quite difficult. So -- but what we have taken into consideration is, of course, the June 4 announcement, the 19th announcement and the 21st announcement. That means that we have looked at the inquiry of the specific imports for wind turbines and associated parts. We have included more than 400 items that they have included on the list. As such, we have also considered the 50% level. And that is really the elements that we can do as best estimate as of now. And that is what we have included in our best estimate that gets us to the DKK 2.5 billion of impairment effect in the third quarter. Operator: We now have a question from the line of Roald Hartvigsen from Clarksons Securities. Roald Hartvigsen: On gross investments, you keep your DKK 50 billion to DKK 54 billion guidance unchanged, and given that you've already spent about DKK 40 billion so far this year, the low end of your guidance would suggest only an additional DKK 10 billion for the last quarter, which is like quite a material step down compared to the DKK 15 billion this quarter, especially given the fact that reported CapEx figures historically have been quite high in the end of the year quarter and that the full Hornsea 3 project will still be on your books, I guess, at least part of the quarter or so. So can you help us reconcile the expected drop in the investment level from the third quarter and give some color on what assumptions are embedded in especially the lower end of the gross investment guidance range here? Trond Westlie: I do think that you had to take the full guidance into perspective, basically DKK 50 billion to DKK 54 billion. And that if you take the upper number, it's actually going to be around the same number in gross investments in fourth quarter as in third quarter, if you take that as a sort of a possibility. Having said that, I think the important element to this is not necessarily the timing whether the payment is done the 20th of December or the 10th of January. The important thing is that our investment level for all the 3 years is around DKK 145 billion, as we have said earlier. We expect that to be DKK 50 billion to DKK 54 billion this year. And that means that it's going to be sort of in the DKK 50 billion range for the 2 consecutive years of '26 and '27. So I think it's important not to sort of be razor sharp on 31st of December. But our best guess as of now and the sensitivity we have relative to timing of payments at the year-end is between DKK 50 billion and DKK 54 billion. Operator: The next question comes from the line of Rob Pulleyn from Morgan Stanley. Robert Pulleyn: Lots of questions already answered. So if I may just ask something a bit nitty-gritty. On Slide 23, I noticed some of these numbers have changed since 2Q. So when we look at the 10% ITC bonus, sensitivity impact, Sunrise and Revolution now add up to DKK 6 billion. And previously, I think that was DKK 4.6 billion. And the sensitivity to a 50 basis point move in WACC is now DKK 2.1 billion and previously, it was less. I'm just wondering what was going on there? And if I can just ask a clarification from earlier because the audio was a bit crackly. Did you confirm you hope to announce the deal on Changhua 2 in 2025? I know you answered that you expect to close it in 2026. But is the disposal still going to happen this year? Trond Westlie: When it comes to the Slide 23, the reason for changes is, of course, changes in some of the CapEx levels. So the elements, I don't have the sort of the gross numbers in the top of my head. So you have to contact IR to actually get the more detailed level in that. When it comes to the Changhua transaction, yes, we still have the ambition to sign the deal during this year and then close it when we have COD in the third quarter next year. Operator: We now have a question from the line of David Paz from Wolfe. David Paz: Just wanted to follow up on Revolution Wind. Just 2 quick questions; a, is the DKK 5 billion, has that been updated since August in terms of the remaining investment? I think that was your share. And then b, what of those 3 items you've listed, onshore substation, the remaining turbines and the array cables, which are the -- would you say they're like first and last? In other words, like what is the critical path, I guess, if you can just give us some color, particularly given the comments on the onshore substation being substantially complete, just what gets you to second half 2026 COD? Trond Westlie: When it comes to the CapEx on Revolution, yes, our total CapEx -- our 50% share of the CapEx is DKK 20 billion. And as last quarter, we had spent about DKK 15 billion of that. So the remaining DKK 5 billion for us, DKK 10 billion in total for Revolution has sort of been paid during the time. And basically -- but I think it's more important that we have come so far on the Revolution that the commitment we have on the whole value is there. So whether we have paid it or not, doesn't really matter relative to the timing of the -- it's more the timing of things. Rasmus Errboe: And with respect to the critical path for Revolution Wind, it is still the onshore substation that is on the critical path. It is moving forward well, as I said, on both the turbine installations with 52 and on array cables with 41 out of the 65. So -- and we -- as I said, we expect energization of the onshore substation early next year. But the reason that is still on the critical path is that following the energization of the onshore substation, you then basically go area by area in the wind park, starting with the export cables, then on to the offshore substations and then the turbines in terms of the electrification and the hot commissioning of the turbines. And that takes -- that brings us into our expectations for COD. so still on the critical path, the onshore substation. Operator: We have a follow-up question from the line of Mark Freshney from UBS. Mark Freshney: Just regarding security of some of the subsea cables, we know that there's a lot of work being done at the industry and government and NATO level on protection of those cables. But from your perspective, have any of your subsea cables being knowingly sabotaged? And when you think about that at board level as a risk to the business, how are you tackling that from your own internal perspective? Rasmus Errboe: Thank you, Mark. Mark, as I'm sure you can appreciate, I will not be super granular on this question. So I'm not going to comment on sort of impacts on individual cables and what have you. What I can say is that you can say, security and working with the governments and also you mentioned NATO before, is something that has been part of the way we do development in Europe for a very long time. Governments are asking for conversations and solutions for defense coexistence, and we see very good cooperation between the relevant authorities in the markets that we are in and also the sector, including us to develop successful mitigations from a coexistence perspective. That is as far as I can take it in terms of defense. Operator: We have a follow-up question from the line of Dominic Nash from Barclays. Dominic Nash: It's actually on Hornsea 3 and the numbers announced sort of yesterday, I just need some clarification on them, if you can help me out, please. So could you work out whether my math is right, you basically said that you've spent DKK 20 billion to date. Apollo are paying you DKK 10 billion for what you spent today, so fine. You also say you're doing DKK 70 billion to DKK 75 billion of CapEx still to go for the project, so DKK 90 billion to DKK 95 billion in total. And you say about 1/3 of that is transmission, I think. But you then -- if you then take Apollo's DKK 39 billion contribution and DKK 10 billion has been used for buying into the project for historics, at least DKK 29 billion remaining, how does that DKK 29 billion fit into the DKK 70 billion to DKK 75 billion still to go at 50% ownership? And on that, I think the transmission might be the one that's a bit odd, is that in or out of the amount of cash that they're paying into? And is that the sort of debt associated with it? Or have you got some other way of getting that one financed? Trond Westlie: Dominic, just a starting point for -- it's a bit difficult to follow sort of your math over the phone. But I think one material element in your math is that DKK 70 billion to DKK 75 billion is the total project and not what is remaining. But I do think that if you take the rest of your math together with the IR, I think they will be better of guiding you through it. Operator: We have a follow-up question from the line of Deepa Venkateswaran from Bernstein. Deepa Venkateswaran: So the question I have is on the legal process in the U.S. for Revolution Wind. So the stop-work orders allowed you to start construction, seems to be going well. What happens if you finish constructing the project, but you've not resolved the underlying challenge of the stop-work order? Can you start already selling the power and so on and energize? Or will it kind of come to a standstill? And in some scenario, I don't know if you lose the appeal at a later stage after 1 or 2 years, will you then be forced to decommission? I'm just thinking about what happens given that now you are constructing and so far, the legal process might take much longer to settle -- might take longer than your construction time line. So if you could just elaborate on those scenarios. Rasmus Errboe: Thank you, Deepa. I would be brief. The impact of the injunction relief allows us to continue the project, to continue constructing and also to produce power. Operator: We have a follow-up question from the line of Lars Heindorff from Nordea. Lars Heindorff: Very fortunate to be after Deepa's question because it's also regarding Revolution Wind. Now you got the stop-work order on the 22nd of August. You got the injunction filing on the 17th of September. That is now 47 -- sorry, 49 days ago. And if I'm correct, you have installed roughly 7 turbines in that period. You have 13 turbines left to install for Revolution Wind. How long do you expect that will take? Rasmus Errboe: Thank you, Lars. So the guidance we gave on progress is that we basically guide on COD. But of course, it is also -- as it always is, it is also relevant when you install all the turbines and also when you can have first power and that we expect during H1. Lars Heindorff: But is it fair to assume normally, I think installation of vessels taken 2 -- 1.5, 2 days and then maybe winter period, it will be longer, 4 days, something like that. Is that a fair assumption? Rasmus Errboe: Lars, I look forward to telling you about the construction progress on -- when we are done with the year. And there I will be very specific about how far we have come on the turbine installation as well. It is moving forward quite well right now. But of course, we are also entering a period with more uncertainty on the weather. But right now, turbine installation on Revolution Wind is going really, really well. Operator: We have a follow-up question from the line of Rob Pulleyn from Morgan Stanley. Robert Pulleyn: Yes, sure. May I ask on the onshore U.S. business. I know this is a bit different to the vein we've had so far. During the rights issue process, you talked about effectively separating this out legally and financially into its own stand-alone entity. Is that still the case? And any further strategic plans for this given, of course, there is a somewhat shortage of power in the U.S. and quite a lot of optimism around that market? Rasmus Errboe: Thank you, Rob. You are right that we have progressed our separation of our U.S. onshore business. And as of 1st of October, our onshore business has become a separate business unit reporting into our global development chief. And the Americas onshore business will then continue to focus on development and operations of the projects within the U.S. We have a pipeline of 6, 7 gigawatts of projects with capacity that meets the definition of sort of IRA qualification through 2029. And there are envelope opportunities in the market. And also the 2 projects that we have under construction. So Old 300 BESS in Texas and also Badger Wind in North Dakota are moving forward really well. Operator: Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to CEO, Rasmus Errboe, for any closing remarks. Rasmus Errboe: Thank you all very much for joining. We appreciate the interaction and the interest as always. And if you have any further questions, please do not hesitate to reach out to our IR team, who will be here to answer all of them. Thank you very much. Stay safe, and have a great day.
Operator: Good morning, everyone, and welcome to the Trulieve Cannabis Corporation Third Quarter 2025 Financial Results Conference Call. My name is Danielle, and I will be your conference operator today. As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Christine Hersey, Vice President of Investor Relations for Trulieve. You may begin. Christine Hersey: Thank you. Good morning and thank you for joining us. During today's call, Kim Rivers, Chief Executive Officer; and Jan Reese, Chief Financial Officer will deliver prepared remarks on the financial performance and outlook for Trulieve. Following the prepared remarks, we will open the call to questions. This morning, we reported third quarter 2025 results. A copy of our earnings press release and PowerPoint presentation may be found on the Investor Relations section of our website, www.trulieve.com. An archived version of today's conference call will be available on our website later today. As a reminder, statements made during this call that are not historical facts constitute forward-looking statements, and these statements are subject to risks, uncertainties and other factors that could cause our actual results to differ materially from our historical results or from our forecast, including the risks and uncertainties described in the company's filings with the Securities and Exchange Commission, including Item 1A, Risk Factors of the company's most recent annual report on Form 10-K as well as our periodic quarterly filings. Although the company may voluntarily do so from time to time, it undertakes no commitment to update or revise these forward-looking statements whether as a result of new information, future events or otherwise, except as required by law. During the call, management will also discuss certain financial measures that are not calculated in accordance with the United States Generally Accepted Accounting Principles or GAAP. We generally refer to these as non-GAAP financial measures. These measures should not be considered in isolation or as a substitute for Trulieve's financial results prepared in accordance with GAAP. A reconciliation of these non-GAAP measures to the most directly comparable GAAP measures is available in our earnings press release that is an exhibit to our current report on Form 8-K that we furnished to the SEC today and can be found in the Investor Relations section of our website. Lastly, at times during our prepared remarks or responses to your questions, we may offer metrics to provide greater insight into the dynamics of our business or our financial results. Please be advised that we may or may not continue to provide these additional details in the future. I'll now turn the call over to our CEO, Kim Rivers. Kimberly Rivers: Thank you, Christine. Good morning, everyone, and thank you for joining us today. First, I'd like to extend a warm welcome to Jan Reese, our new Chief Financial Officer. Jan brings a wealth of leadership experience and has already made impactful contributions since joining the team. We're thrilled to have him on board. Turning to the third quarter, we are pleased to report results that highlight the continued strength of our core business. Despite seasonal pressure in the quarter, the team delivered robust margins and strong cash generation, while also expanding our customer base. As we prepare for the busy holiday season, we remain encouraged by the momentum behind meaningful cannabis reform. Trulieve continues to lead the industry forward, pushing for impactful change, while reducing the stigma surrounding cannabis. Moving to our results. Third quarter revenue of $288 million was in line with guidance and typical seasonal trends. Industry-leading gross margin at 59% reflects pricing compression, partly offset by operational efficiencies. Adjusted SG&A expense declined by $9 million compared to last year, demonstrating the team's commitment to reducing expenses in our core business. Adjusted EBITDA of $103 million improved by 7% versus last year to 36% margin, underscoring tight expense control. Operating cash flow of $77 million contributed to cash of $458 million at quarter end. Yesterday, we announced the planned redemption in December of our notes due in October 2026. Depending on terms, we may issue new notes were up $250 million. During the third quarter, retail traffic and units sold increased by 6% and 7% year-over-year, highlighting strong demand for cannabis. Consumers continue to lean in towards value and mid-tier products, reflective of general economic conditions. Wholesale revenue grew 16% compared to last year, highlighting continued execution. Outperformance in wholesale was driven by strength in Maryland, Ohio and Pennsylvania. We are expanding our wholesale business as conditions permit with careful monitoring of the credit quality of customers and industry development. In our core markets, October traffic has improved compared to September, in line with historical seasonal patterns. We are continuing to monitor consumer behavior closely for any changes in preferences and spending. As we approach year-end, our team remains focused on 4 key areas: reform, customers, distribution and branded products. I'd like to start by discussing federal and state cannabis reform given the importance for our industry. We remain optimistic that the Trump administration will address cannabis reform by rescheduling marijuana to Schedule III. This important milestone would acknowledge the medical value of cannabis and open the door for additional research. Millions of Americans rely on medical cannabis for relief, a fact that contradicts the current Schedule I classification. Rescheduling would not legalize cannabis, but it would remove the punitive tax burden on state legal operators, enabling greater conversion from the illicit market. We believe Rescheduling represents the first major domino in federal reform. Additional steps are needed to address challenges with banking and the growing divide between federal and state laws. SAFER Banking enjoys widespread bipartisan support as elected officials from both parties recognize the need to remove excess cash from dispensaries to ensure safety for workers and discourage criminal activities such as money laundering. In our home state of Florida, Trulieve continues to support the Smart and Safe Florida campaign for adult-use legalization. The 2026 ballot language includes revisions to address concerns raised during the 2024 campaign, which narrowly missed the 60% threshold required for passage. The new ballot language prohibits products and packaging that could be attractive to children, prohibits smoking in public, direct issuance of new nonvertical licenses and expressly clears the way for the state legislative body to allow homegrown marijuana. Signature gathering efforts are ongoing, and the campaign expects to reach the required number of validated signatures prior to the February 1 deadline. As of November 1, more than 1.1 million raw signatures have been submitted with over 675,000 signatures validated. We expect Florida Supreme Court review of the ballot language and summary will be concluded as required by April 1 of next year. To date, Trulieve has been the primary financial contributor to this effort, leading this charge for change in Florida. While we firmly believe in the potential for Florida to serve as a model for successful state cannabis programs, we are preserving optionality in deciding whether to contribute meaningful financing to the 2026 campaign. Trulieve's ongoing support of the campaign will be determined based upon data and the political landscape heading into the 2026 election. In Pennsylvania, we remain optimistic that a compromise can eventually be reached to enact adult-use legalization. We believe state legislators recognize the potential for adult-use to satisfy constituent demand for cannabis, while generating revenue for the state. Several bills have been filed this year, and many constructive sessions and hearings have been conducted. If adult-use is launched in Pennsylvania, Trulieve is well positioned given our established retail footprint, strong brand in retail and wholesale and scale production capabilities. With the adult-use programs already launched in 5 of 6 neighboring states, we expect Pennsylvania will enact adult-use in the near-term. In addition to reform efforts, we are driving operational improvements in 3 key areas: customers, distribution and Branded Products. Since inception, Trulieve has grown with customers at the forefront of everything we do. By providing a normalized retail environment alongside superior service, we strive to deliver exceptional customer experiences throughout the customer journey. Personalized customer messaging and engagement continues to evolve as we add new capability to our customer data platform and analytical tools. During the third quarter, we implemented new product recommendation schemas, including prompt for suggestions and repurchases. Similarly, we added enhanced customer segmentation features to allow predictive modeling for shopping patterns, frequency and anticipated order dates. These tools allow identification of customers and personalized timing of recommendations to drive reengagement. Our generous Rewards program continues to grow, reaching 820,000 members at the end of September. We continue to see greater retention and monthly spend among members, who spend on average 2.5x more than nonmembers. Rewards members completed 77% of third quarter transactions. We recently introduced new monthly rewards statements, that highlight key milestones achieved to enhance program engagement and visibility. Building upon the success of our Rewards program, today, we launched a new mobile app available for download in the Apple App Store. The Trulieve mobile app is uniquely designed to deliver a best-in-class experience that centralizes shopping, deals, gamification and rewards. The app gives customers an effortless and engaging way to browse and reserve products, push notifications to learn about special promotions or when orders are ready for pick up provides a more seamless experience compared to e-mail and text messaging. We are excited to bring these new features to our Apple customers in Florida, and we look forward to launching the app in additional markets and on Android devices in 2026. Personalized messaging, loyalty rewards, and seamless digital experiences all contribute to customer retention. Third quarter retention improved by 1% sequentially to 68% company-wide with 76% retention in medical-only markets. While customer retention metrics are strong, we are amplifying the Trulieve brand through local engagement to attract new customers. Across our markets, we are recalibrating community events to focus on 4 key areas: helping patients, serving veterans, assisting seniors, and promoting restorative justice. Through community activities, partnerships and charitable work, we are directly addressing the needs of these stakeholder groups. In October, we raised awareness and funding to fight breast cancer through register roundups, specialty products and charitable locks. This month, we are supporting veteran organizations to serve those who have sacrificed so much for our country. This weekend, Trulieve is sponsoring a weekend retreat for operation resilience led by the Independence Fund, which is an event designed to help veterans who are at high risk for suicide. We are proud to give back to these worthy causes and partner with groups that support our mission to expand access to cannabis. Alongside engagement efforts, we are investing in retail and wholesale distribution to reach new customers and drive sustainable growth. We met our 2025 retail target by opening 10 new stores in Arizona, Florida and Ohio, expanding our network to 232 stores. In September, we relocated 1 Arizona store from Scottsdale to Bisbee, broadening our reach by entering an underserved area. We are on track to refresh or remodel up to 45 stores this year. In wholesale, Maryland and Pennsylvania continue to outperform. In Ohio, our production partner continues to ramp sales of branded products, including Modern Flower and Roll One. With over 4 million square feet of production capacity, our scaled platform provides a meaningful competitive advantage, including strong gross margins and the flexibility to adapt to evolving market conditions. Our production team continues to identify operational efficiencies, driving costs lower, while delivering great products. Consistent product quality differentiates our brands in an increasingly competitive landscape. During the third quarter, we sold over 12.5 million branded product units. In-house brands, Modern Flower and Roll One continue to resonate with customers, representing almost half of the branded products sold. In Florida, we recently launched a new Roll One Clutch All In One vape. This new compact disposable vape card sold out in less than 2 weeks. We plan to launch additional Modern Flower and Roll One SKUs, including new All In One vapes in several markets. Turning now to the beverage category. Last February, we launched a new line of Farm Bill-complaint THC and CBD cocktail alternative beverages called Onward. Throughout the year, we have added new flavors and expanded distribution. In July, we added a line extension of CBD and THC energy drinks called Upward. In September, we launched new 10-milligram flavors for Onward and Upward. Onward Berry Smash, Cosmopolitan, Lemon Drop Martini and Paloma, and Upward Half & Half iced tea and Lemonade flavors are performing well, enjoying positive customer feedback. These Farm Bill-compliant THC beverages provide an opportunity to reach new customers with approachable products in familiar outlets. Onward and Upward beverages are available online and in more than 440 stores, including ABC Fine Wine & Spirits and Total Wine in Florida and specialty grocers and convenience stores in Florida and Illinois. We recently launched distribution through Anheuser-Busch in Florida and Romano Beverages in Illinois, and we are actively working to expand distribution with new and existing partners. Visit drinkonward.com to find a retail location near you or order online. Overall, we are making real progress across our focus areas, reform, customers, distribution and branded products. With continued momentum and significant flexibility in our core business, we are set to expand our leadership position while pushing for cannabis reform. With that, I'd like to turn the call over to our CFO, Jan Reese. Please go ahead. Jan Reese: Good morning, and thank you, Kim. I'm thrilled to join Trulieve, and I'm focused on driving profitable growth at a leading company and industry pioneer. Third quarter revenue was $288 million, up 1% year-over-year, driven by new store openings, adult-use in Ohio, and wholesale growth, partially offset by pricing compression and wallet pressure. Gross profit was $170 million or 59% margin. Margin performance driven by increased pricing compression, loyalty point redemption and product mix, partially offset by lower production cost. We continue to expect quarterly fluctuation based on product mix, market mix, inventory sell-through, promotional activity and idle capacity costs. SG&A expenses were $99 million or 34% of revenue, a significant improvement driven by reduced operating expenses and lower campaign support. Adjusted SG&A declined to 30% of revenue, 34% last year due to ongoing operational efficiencies. Net loss in Q3 was $27 million or $0.14 per share versus $0.33 last year. Excluding non-recurring items, net loss per share would have been $0.07. Adjusted EBITDA was $103 million, up 7% year-over-year or 36% margin, reflecting expense leverage in our core business. Turning now to our tax strategy. As a reminder, we have filed amended returns starting 2019 and continue through today. Challenging the applicability of 280E to our business. To date, we have received refunds totaling over $114 million, while we are confident in our position and strategy, final resolution may take years. We continue to accrue an uncertain tax position, while realizing lower tax payments. Important to note, rescheduling to Schedule III would have removed 280E burden, the -- and Q3 and year-to-date results would show positive net income under those conditions. Moving now to the balance sheet and cash flow. We ended Q3 with $458 million in cash and $478 million in debt. Cash flow from operations totaled $77 million with capital expenditure of $12 million with -- and free cash flow of $64 million. Turning now to our outlook, we expect low single-digit sequential revenue growth in Q4. We expect full year gross margin will be comparable to 2024. We anticipate at least $250 million in cash from operations for the full year. CapEx of $45 million, up to prior target of $40 million, reflects investments to relocate stores and minor cultivation upgrades in Ohio and Pennsylvania. We remain focused on finishing the year strong, delivering results aligned to our strategic priorities. With that, I will turn the call back over to Kim. Kimberly Rivers: Thanks, Jan. Cannabis has gained widespread support across the U.S. with public opinion shifting significantly over time as more Americans recognize its therapeutic benefits. Today, nearly 90% of Americans favor some form of legalization for medical or recreational cannabis. Currently, 40 states have established programs for medical cannabis, providing millions of patients access to relief from chronic pain, anxiety, sleep disorders, epilepsy and symptoms associated with serious illnesses, including cancer, multiple sclerosis, and PTSD. While federal and in some cases state policy lags public opinion, momentum for reform is gaining traction. The Trump administration can deliver on campaign promises to address cannabis reform by rescheduling cannabis to Schedule III. In Florida, we remain supportive of signature gathering efforts for the Smart and Safe Florida ballot initiative to legalize adult-use. With over 23 million residents and 143 million tourist visits per year, we believe Florida could be the strongest market in the U.S. striking an appropriate balance between individual freedom and responsible consumption. In Pennsylvania, we are hopeful that bipartisan adult-use legislation can pass in the coming years. We believe both Florida and Pennsylvania will eventually enact adult-use programs. As an industry leader, we remain firmly committed to pushing for meaningful reform and expanded access to cannabis. Given the strength of our core business and flexibility across our platform, Trulieve is poised and ready to define the future of cannabis. Thank you for joining us today, and as I always say, Onward. Christine Hersey: At this time, Kim Rivers and Jan Reese will be available to answer any questions. Operator, please open up the call for questions. Operator: [Operator Instructions] The first question comes from Luke Hannan from Canaccord Genuity. Luke Hannan: Kim, you touched on in your prepared remarks there, you continue to generate an industry-leading EBITDA margin. There's a couple of things underscoring that. Obviously, you have a very efficient cultivation footprint. But then also, as you pointed out, you were a little bit more efficient when it came to adjusted SG&A as well. So if we just think about those 2 components, I'm not necessarily asking for guidance here. But when it just comes to opportunities, I suppose to potentially improve on that margin, what do you see as sort of the lower-hanging fruits going forward? Kimberly Rivers: Yes. So I'm very, very proud of the team for continuing to be laser-focused on bringing as much of that top-line down all the way through the P&L. And of course, I think that we stand out among our peer set for our consistency, as it relates to being able to do that efficiently and effectively kind of regardless of what's happening at the macro level. I would tell you that really in terms of what we're seeing coming into Q4, it's going to be somewhat dependent on what happens with the customer, right? And certainly, obviously, the holiday season is something that we've got our eye on, which is typical this time of year. But given, I would say, we have a little bit of opaqueness candidly, as it relates to the consumer, at the end of Q3 coming into Q4, we saw some trading down and some price compression. I want to tell you to answer your question, the fact that we have the ability in our platform to meet the consumer where they're at, and be strategic in how we do so. I am confident in our ability to continue to deliver a strong margin. But that has to be, again, coupled with the reality, again, of the consumer profile, it will be impacted by product mix and promotion. But again, also keeping in mind that we have an amazing and flexible and modular production footprint that we're able to flex again to meet the consumer where they're at. And so I would say that, again, in line with what we've said all year, we expect that full year to be consistent with again last year as it relates to margin. And I think given the sort of differences in this year's consumer profile, I think that's pretty -- I'm very, very happy with that. Luke Hannan: That's great. And then for my follow-up here, you touched on the launch of the mobile app and then also some of the benefits associated with that. It sounds like more customer engagement is chief among them. But you also place Trulieve places emphasis on data and analytics and being able to use that effectively when it comes to the entire sort of go-to-market strategy. So I guess I'm curious, does the app make you any more efficient when it comes to being able to gather insights from that data? Or does it give you a richer set of data points to be able to sift through as well? Kimberly Rivers: Yes. Well -- so certainly, we are excited about the ability to connect in a more personal way to our customers. And I would tell you that the ability to, again, have more of an interactive platform with our customers will be important as we continue to develop our strategies around consumer personalization. So I mentioned that even on our existing web platform, we're now able to more suggestive sell based on someone's past buying patterns, as well as to be more predictive in terms of when he or she may be coming back into the store based again on past behavior. And so, which is very exciting and being able to bring those features into an app landscape, but again is a bit more real time and then to be able to also seamlessly integrate our loyalty platform into an app shopping platform is, I would say, the best of both worlds. And really, we think that it's critical as we think about getting away from the confines, and -- because we are in cannabis, we're restricted in terms of what we can do via text messaging. And given the fact that we're all mobile these days, the ability to have push notifications to remind folks when they have points available, to remind folks when there are certain things happening within our stores that, that particular shopper may be interested in, I just think it's going to be very dynamic as we move forward into this next stage of our connectivity journey here. Operator: The next question comes from Russell Stanley from Beacon Securities. Russell Stanley: First, just around retail. You've refreshed and remodeled a significant number of sites this year. Can you -- I don't know if you have this handy, but can you provide any data points regarding the impact of those efforts on traffic or basket size, what you've seen relative to expectations? And any lessons that you've learned through the process that will inform your Refresh, Remodel plans next year? Kimberly Rivers: Sure. So I, for one thing, it's very important for companies to keep an eye on the aesthetics and -- of their stores. I think there's lots of lessons that we can go over on companies that did not do that, and where they ended up with their customer base. So that's going to be, I would say, something that you should expect from us on a pretty regular basis. We'll be analyzing and it's a constant review of stores across the platform, especially with our business since many stores, as everyone will recall, were initiated in a different regulatory landscape where there were different restrictions. In Florida, for example, at the very beginning, we had to have, there were very strict rules about where we could be located, and the types of lobbies we had to have, the security features between showroom and lobby et cetera. And so opening up those floor plans as those regulations have changed to make a more welcoming environment for customers and improving customer flow, vault size, how product moves from back of house to front of the house, et cetera, is certainly important from an efficiency standpoint, and then, of course, from a customer experience standpoint as well. And so we're going to always be looking for those types of opportunities across the platform. And then again, I think it's just good hygiene to make sure that you've got welcoming fresh, bright environments for our customers that are adapting to what the expectations of a premier retail experience would be. Russell Stanley: And maybe just on the balance sheet, given the redemption -- plan of redemption, and you talked about another debt issue for up to $150 million, I think. I guess, can you talk -- it's a relatively modest amount given what you're redeeming, but can you talk about what you're seeing in terms of appetite out there, especially given the recent seemingly short-lived blip in credit spreads? Just wondering what kind of the environment you're seeing from? Would it be lenders and the appetite that you're seeing relative to 3 months, 6 months ago? Kimberly Rivers: Sure. So we haven't gone to market yet, Russ. So, I think that color on that should be probably reserved for future commentary. And I can tell you that, again, we have flexibility in our ability to whether to complete or not complete depending on terms and depending on appetite. Again, I think that our balance sheet is strong, our cash generation is strong, our core business is very solid. I think our consistency in our core business is very solid in terms of our ability to generate cash and bring that -- again, like we talked about before, bring that revenue down to bottom line profitability. So I would say stay tuned, but I feel pretty confident that we'll have optionality there, and then we'll be in a decision along, of course, with the Board to make a determination as to how much or if we decide to move forward with the race. But again, we're generating cash every quarter and feel good about where we sit. Operator: The next question comes from Bill Kirk from MKM Partners (sic) [ Roth Capital Partners]. William Kirk: In 2024, the Florida initiative didn't seem to get the kind of deserved monetary support from other MSOs. Do you expect those other MSOs to better contribute either monetarily or in other ways this time around? Kimberly Rivers: Yes. So I would say that certainly, I would love for -- you guys to asked that question on the earnings call. I have been in talks with the other CEOs. And I think that we're going to have some pretty robust conversations after Supreme Court review, once we have -- just like we said in our prepared remarks, once we have additional data and visibility into the political landscape, pulling right all the things, I do think that folks are certainly at the table in a different way than they were the last cycle. But I also think, right, that some of it is going to be dependent on where everyone sits as it relates to available cash. And of course, 280E is a big contributor there. So we shall see. But I would say that I think that the MSOs at least are working together as it relates to reform. And I think that that is a positive. And definitely, we could see that also come over to the Board effort. William Kirk: Awesome. And then are you seeing any increased momentum for regulating intoxicating hemp differently or possible closing of any -- what people call the Farm Bill loophole? And I guess if we step back, how would you like to see intoxicating hemp treated by the federal government and states? Kimberly Rivers: Yes. I mean, certainly, it's -- as you know, it's a checkerboard out there, as it relates to the states, and how they're treating intoxicating hemp. We have a little bit of a front race seat to it, not only, of course, from the regulated cannabis side of the business, but also from the beverage side of the business. In Florida, there were new rules that were issued midyear this year, and a big crackdown across the state. Products in Total Wine -- beverage products in Total Wine and ABCs were taken off shelves, because of labeling challenges among some other regulatory concerns, our branded beverage products Onward and Upward were actually able to stay on shelf. We are -- and we're compliant, which I think is actually becoming a little bit of a differentiator for us, because we're very used to, right, having to have all of our testing back up and making sure that consumers can scan back to a finished product test and that the labeling is accurate and all of those things. So certainly, we have seen a step-up in enforcement, I would say, across markets. And I think that's in line with sort of an increase in attention that it's getting, again, at both state and at the federal level. I think I hear what you hear as it relates to the federal differences in terms of potential pathways for regulating intoxicating hemp. And I think we'll see where that lands. But it does seem to me that similar to the states, the intensity of the conversation is increasing both at the state level and at the federal level. Operator: The next question comes from Brenna Cunnington from ATB Capital Markets. Brenna Cunnington: It's Brenna on for Frederico. And congrats on the results this quarter. Just continuing on the theme of the Florida ballot measure. We all know that Florida legalization would be a game changer. But the 60% approval threshold does seem to be a bit of an issue, since we saw that the majority of Floridians do actually want to legalize. So just trying to understand here, theoretically speaking, what about this time could be different? Do you think it's more of a factor of raising more voter awareness? Or was there a specific verbiage that needed to be changed last time to address potential voter issues or perhaps something else? Kimberly Rivers: Sure. So I think there's a couple of main differences. Well maybe actually 3. One, I think that there will be a big component of this that centers around just, again, the political landscape. We're in a gubernatorial race this time as opposed to a presidential race. And so the dynamics in Florida in particular, shift sometimes dramatically in terms of profile of voters that turn out between those 2 different types of races. So I think that's an important thing that we'll certainly be analyzing and watching. Two, the ballot initiative itself had some changes, as mentioned in the prepared remarks that were very -- that were specifically responsive to pulling and feedback from the last campaign, particularly voters indicated that they wanted more certainty around what the legalization program would look like in the state of Florida, specifically around confirmation that these products would not be attractive to children, that there is, of course, age gated for adults over the age of 21, that there would be no smoking allowable in public, and that there would be additional licenses that would be issued for additional competition in the marketplace as well as a pathway for home-grow. And so really by addressing those specific concerns, it does -- and early polling indicates that that does change the chances on a just plain ballot read perspective. And then I would say the third thing is really about the -- just the landscape. There's been obviously quite the news cycle around what happened in the last campaign as it relates to some public dollars being spent and taxpayer money, et cetera. The legislature passed a package of laws last legislative session that clarifies, and candidly locks down that activity, such that we believe that there will not be that same level of opposition at least from those particular paths in this next election, which we think is very important. And at the end of the day, right, I think that just a fair and straightforward election process could definitely be a game changer as well. So I do think that at least early indicators are that it's going to be a more positive backdrop. But again, we want to make sure that, that's confirmed by, again, the data and the political backdrop before we decide to move forward. Brenna Cunnington: Understood. And then our second question is just regarding the hemp and beverages, which we do know is a small category. But we would just love any additional color you could add on how sales are ramping in Florida and Illinois? And also specifically how online sales are doing? Kimberly Rivers: Yes. So it's ramping candidly ahead of what our initial expectations were. We -- I think as we have developed our partnerships with both Total Wine and ABC, they have grown pretty dramatically since inception. In addition, right, our ability to successfully land additional distribution partnerships has also been a positive, and there'll be more announcements from us on that in the near-term. We are being thoughtful in terms of how we ramp, and simply because we want to make sure -- I mean, we believe very strongly at Trulieve, and this goes back, it's in our DNA since inception, that it's important to launch and penetrate. And make sure that you're understanding and getting as much data as possible about the consumer and making pivots early to get it right, so that we're able to, again, really have lasting brand equity with those customers. And so we -- I could tell you that we -- candidly, we could be ramping faster, but we want to make sure, again, that we've got the opportunity to really have a presence in those stores and in those markets by doing things such as tasting events, trainings with the employees in those stores to make sure that they're actually educated on THC and how our beverages are different than all the other brands that may be on shelf, why they should feel comfortable recommending our beverages to consumers, what is [Technical Difficulty] as it relates to our beverages, et cetera. And so we are making sure that we do this the right way, which I think will pay dividends for the long-term. Operator: [Operator Instructions] The next question comes from Aaron Grey from Alliance Global Partners. Aaron Grey: Congrats on the quarter. First question for me, just on some of the consumer engagement initiatives, loyalty program, now mobile app. Obviously, it would seem like you're most able to leverage that in states where you might have more of an existing moat like Florida as well as Arizona. But also curious to know how you might be looking to leverage that? And build a larger presence in markets where smaller today, and maybe you rely more on wholesale. So maybe just some more color in terms of how you're able to leverage some of these products and learnings to build out a market share where you're smaller today? Kimberly Rivers: Sure. So again, our loyalty program has had incredible success across all the markets in which it's launched. And so I wouldn't say, of course, in our bigger markets like Florida, you're going to have more of an adoption rate. But I will also tell you that some of our other markets like Arizona, for example, it's been a huge tool for us, because -- and really the big learning there is, to your point, Aaron, as markets go adult-use, right, we don't necessarily have as much required data on a particular patient. So when you think about it in a market like Florida or Pennsylvania, we have a lot of information, because they have to have a patient identification card, and we have to allocate and make sure that we've got the tracking of the product that's dispensed across their recommendation from their physician. So there's a lot more already known component of those purchases and of those customers. But you contrast that with an adult-use market where someone is just -- we have to age gate, of course, and take their license information, confirm that they are an adult age 21 and up. But aside from that, you can really be more anonymous in those markets. And the loyalty program has been phenomenal in terms of having those customers actually voluntarily, right, engage with us in a more regular way, so that we can again begin to get to know them, and have that truly reciprocal relationship where we're understanding their buying patterns. We're able to offer them additional product suggestions or deals that they may be -- they may have not known about, right, because there's no reason for -- previously, there would have been no necessary reason for them to connect with us in that way. We think the app is going to take that to a completely different level. So right, you'd have the ability to preorder online, track your order, push you a notification just like Starbucks or other places where we all use apps across our normal retail experience to say, hey, your order is ready for pick up. In addition, we can talk about as it relates to our wholesale business, hey, we just launched this new all-in-one, just find it near you, right, we saw that you purchased an All In One vape previously. It's available a mile from your house at this particular location, right. So there's all kinds of capabilities that are going to be available through the app. Initially, we are definitely using it to reinforce our in-store branded products through branded retail being our core, right, our core business driver. But Aaron, to your point, in a state like Maryland, for example, where we only have 3 stores, but we have a bigger wholesale business, being able to leverage things like an app to offer gamification, et cetera, of products that are available -- and our in-house brand products that are available throughout the state and certainly is something that we'll be looking forward to as we further develop that. Aaron Grey: Really helpful color there, Kim. I appreciate that. Second question for me, just on Florida and store saturations and opportunities. Any color you could provide in terms of how you're feeling about the Florida market today additional opportunities for you to open up stores, both for the -- at the level of Trulieve and more broadly where you're seeing that? And then how that might differ for the different store model types that I know Trulieve has? And whether or not that would be dependent on adult-use becoming legalized in the state? Kimberly Rivers: Sure. So I would tell you that in Florida, we certainly -- it's interesting, because it's a little bit of a mixed bag right now. And as I mentioned, we're certainly seeing across the entire system, not just in Florida, but we're certainly seeing some price compression and some wallet pressure, and some trade-down activity. Florida is a big state. And I would tell you that one of the things we've been focused on is really ensuring that we can manage down to that specific store level, and that we understand, because not every store is positioned the same, right? And we have some stores that have very little competition around them. We have other stores that are in highly competitive environments, we have some stores that cater more towards maybe a more higher-end kind of store crowd, other stores that are more value-oriented crowds. So being able to strategically differentiate and ensure that we have the right product mix, we have the right promotional cadence, we have the right messaging techniques on a store-by-store basis is something that we have been -- we're really excited about, and that we have been really focusing on. And thankfully, we have the -- maybe the correct investments through our customer data platform and other tools that we are able to segment more specifically and effectively down to that store level. And so we look at it in Florida as really a store-by-store landscape. And you'll be seeing us launch different strategic initiatives to further lean into that. I would say that as it relates to new stores, I'll answer that as it depends, right. And I think what we are seeing in Florida is we're seeing some of our competitors actually close stores and shutter stores, which we believe is a tremendous opportunity for us to absorb those customers and let them rediscover Trulieve, and hopefully bring them into our fold. But also, right, gives us an opportunity to reevaluate the landscape and see if there are areas where we feel like we need to reposition or even potentially open additional location. So I would just say stay tuned on that, that analysis is ongoing. And absolutely, it will depend on the specifics of the location, to your point, as it relates to whether or not we would consider opening a full service, a flagship or a express type model. And as well as, of course, if adult-use is on the table, and obviously, that does change the narrative a bit as it relates to where store attractiveness -- the attractiveness of certain stores may change depending on that. Operator: The next question comes from Andrew Semple from Echelon Capital Markets (sic) [Ventum Financial Corp]. Andrew Semple: Start off with a pair of questions on capital expenditures. Just want to hone in on the capital budget of $45 million for the year. I believe you're already at $40 million in the first 9 months. So just want to check in on that, anticipate if you're seeing -- expecting to see a slowdown in the fourth quarter here on capital spending? And then just secondly on the -- on capital budgeting, I'm wondering if you have a capital budget for next year, just kind of directionally, how much you would think to spend, maybe whether it's higher or lower or roughly the same as what we're about to see in 2025? Jan Reese: Thank you. Let me take this question, Kim. First off, yes, we do have a very robust capital expenditure process and [ review ] process. We do take opportunities though, when we do have the opportunity to relocate stores to a more customer service, customer-facing program. So if you look at the $45 million that we have currently in the forecast, you can divide this in 2 main buckets. One is relocation store in Arizona, and the other one is the cultivation in Pennsylvania and Ohio, both investments long- and short-term will yield a much better return. So we went forward and make this investment. As we always do with our review process, the good things we will execute and we will do yield higher returns as we promise ourselves. Andrew Semple: Okay. And then maybe just pivoting to inventory balances. The inventory levels continue to inch higher. Do you have any color or thoughts about your inventory balances? Are you happy where that sits today? Just any thoughts around that would be appreciated. Kimberly Rivers: Yes. So as we've said consistently, our inventory is going to fluctuate a little bit from quarter-to-quarter. I think that it was $2 million increased in a -- $1.8 million in Q3. So to us, that wasn't really anything to cause any sort of alarm. And again, we believe that it's going to fluctuate quarter-to-quarter. Yes, we are happy with it now. I mean I think a couple of things just to note that we will, of course, ramp inventory prior to some store openings, which we've had in Ohio. And then additionally, as we mentioned in the prepared remarks, we've got in some markets, some new products launching as well as in Ohio, some of our brand portfolio coming through for the first time. So like we said, there's going to be a slight swings, but I don't think that there's really anything out of the ordinary there for us as it relates to inventory. Operator: This concludes our question-and-answer session. I would like to turn the call back to Christine Hersey for closing remarks. Christine Hersey: Thank you for your time today. We look forward to sharing additional updates during our next earnings call. Thanks, everyone. Have a great day. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the American Financial Group 2025 Third Quarter Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Diane Weidner, Vice President, Investor Relations. Please go ahead. Diane P. Weidner: Good morning, and welcome to American Financial Group's Third Quarter 2025 Earnings Results Conference Call. We released our results yesterday afternoon. Our press release, investor supplement and webcast presentation are posted on AFG's website under the Investor Relations section. These materials will be referenced during portions of today's call. I'm joined this morning by Carl Lindner III and Craig Lindner, Co-CEOs of American Financial Group; and Brian Hertzman, AFG's CFO. Before I turn the discussion over to Carl, I would like to draw your attention to the notes on Slide 2 of our webcast. Some of the matters to be discussed today are forward-looking. These forward-looking statements involve certain risks and uncertainties that could cause our actual results and/or financial condition to differ materially from these statements. A detailed description of these risks and uncertainties can be found in AFG's filings with the Securities and Exchange Commission, which are also available on our website. We may include references to core net operating earnings, a non-GAAP financial measure, in our remarks or in responses to questions. A reconciliation of net earnings to core net operating earnings is included in our earnings release. And finally, if you're reading a transcript of this call, please note that it may not be authorized to review for accuracy. And as a result, it may contain factual or transcription errors that could materially alter the intent or meaning of our statements. Now I'm pleased to turn the call over to Carl Lindner III to discuss our results. Carl Lindner: Good morning. I'll begin by sharing a few highlights of AFG's 2025 third quarter results, after which Craig and I will walk through more details. We'll then open it up for Q&A, where Craig, Brian and I will be happy to respond to your questions. We're pleased to report an annualized core operating return on equity of 19% for the third quarter. Our underwriting margins in our Specialty Property and Casualty insurance businesses were strong. Net investment income increased by 5% year-over-year despite muted returns from our alternative investment portfolio when compared to the long-term historical performance of those investments. Our compelling mix of Specialty Insurance businesses, entrepreneurial culture, disciplined operating philosophy and an astute team of in-house investment professionals continue to position us well for the future and enable us to continue to create value for our shareholders. Craig and I thank God, our talented management team and our great employees for helping us to achieve these results. I'll now turn the discussion over to Craig to walk us through some of the details. Craig Lindner: Thank you, Carl. Please turn to Slides 3 and 4 for third quarter highlights. AFG reported core net operating earnings of $2.69 per share compared to $2.31 per share in the prior year period, a 16% increase. I'll begin with an overview of AFG's investment portfolio, investment performance and share a few comments about AFG's financial position, capital and liquidity. The details surrounding our $16.8 billion portfolio are presented on Slides 5 and 6. Net investment income in our property and casualty insurance operations for the 3 months ended September 30, 2025, increased 5% year-over-year as a result of higher interest rates and higher balances of invested assets. As shown on Slide 6, nearly 2/3 of our portfolio is invested in fixed maturities. In the current interest rate environment, we're able to invest in fixed maturity securities at yields of approximately 5.25%. The duration of our P&C fixed maturity portfolio, including cash and cash equivalents, was 2.7 years at September 30, 2025. The annualized return on alternative investments in our P&C portfolio was approximately 6.2% for the 2025 third quarter compared to 5.4% for the prior year quarter. Although the overall return on our multifamily investments continue to be tempered by challenges within the broader economic environment, we're seeing evidence of recovery. Strong occupancy, a return to historical levels of lease renewals and more stability in the overall rental rate environment contribute to improving conditions despite a prolonged softer market caused by excess supply of new properties in several of our targeted regions. Importantly, a large portion of our portfolio of multifamily properties is located in desirable geographies with strong job and wage growth. Although the supply of properties in these locations is elevated as compared to historical levels, new starts have declined significantly and at a faster pace than in other regions. We believe that tightening supply and a significantly reduced development pipeline will drive higher rental and occupancy rates and improve results by the end of 2026. Longer term, we remain -- we continue to be optimistic regarding the prospects of attractive returns from our overall alternative investment portfolio with an expectation of annual returns averaging 10% or better. Please turn to Slide 7, where you'll find a summary of AFG's financial position at September 30, 2025. During the third quarter, we returned $66 million to our shareholders through the payment of our regular quarterly dividend. In October, AFG's regular quarterly dividend was increased 10% over the previously declared rate to $0.88 per share and paid on October 24, 2025. In conjunction with our earnings release, we declared a special dividend of $2 per share payable on November 26, 2025, to shareholders of record on November 17, 2025. The aggregate amount of special dividends will be approximately $167 million. With this special dividend, the company has declared $54 per share or $4.6 billion in special dividends since the beginning of 2021. Carl and I consider these special dividends to be an important component of total shareholder return. We expect our operations to continue to generate significant excess capital throughout the remainder of 2025 and into 2026, which provides ample opportunity for acquisitions, special dividends or share repurchases over the next year. We evaluate the best alternatives for capital deployment on a regular basis. We continue to view total value creation as measured by growth in book value plus dividends as an important measure of performance over the longer term. For the 9 months ended September 30, 2025, AFG's growth in book value per share, excluding AOCI plus dividends, was nearly 11%. I'll now turn the call over to Carl to discuss the results of our P&C operations. Carl Lindner: Thank you, Craig. Please turn to Slides 8 and 9 of the webcast, which include an overview of our third quarter results. Our commitment to underwriting discipline and prudent growth was evident in the solid performance of our Property and Casualty businesses in the third quarter. We're finding attractive opportunities to grow our Specialty Property and Casualty businesses despite walking away from challenging market conditions in a few markets or poorly performing accounts. I'm pleased with the overall underwriting profitability in our Specialty Property and Casualty businesses in the third quarter of this year and remain confident about the strength of our reserves. A continued favorable pricing environment, increased exposures and new business opportunities enabled us to selectively grow our Specialty Property and Casualty businesses. Although the timing of reporting of crop acreage by our insureds shifted some crop premium from the third quarter to the second quarter, as we discussed on last quarter's call. This tempered premium growth in the third quarter. We continue to expect premium growth for the full year in 2025 in the low single digits. In addition to organic growth opportunities and evaluating acquisitions, always try to maintain a pipeline of start-ups that have the potential to become new business units in our portfolio of Specialty businesses. Taking an early look at next year, we currently project 2026 premium growth to rebound as we're optimistic about the growth from these start-ups and the near completion of numerous underwriting actions taken in our Specialty and Casualty businesses. Turning to Slide 8, you'll see that underwriting profit in our Specialty Property and Casualty insurance businesses grew 19% and generated a 93% combined ratio in the third quarter of 2025, an improvement of 1.3 points from the prior year period. Results for the 2025 third quarter include 1.2 points related to catastrophe losses compared to 4.4 points in last year's third quarter. Third quarter 2025 results benefited from 1.2 points of favorable prior year reserve development compared to 0.8 points in the third quarter of 2024. Third quarter gross and net written premiums were down 2% and 4%, respectively, when compared to the third quarter of last year. Excluding our crop business, gross written premiums grew 3% and net written premiums were flat year-over-year. Average renewal pricing across our Property and Casualty Group was up approximately 5% in the third quarter, both including and excluding workers' comp. We reported overall renewal rate increases for 37 consecutive quarters, and we believe we are achieving overall renewal rate increases in excess of prospective loss ratio trends to meet or exceed our targeted returns. Now I'd like to turn to Slide 9 to review a few highlights from each of our Specialty Property and Casualty business groups. Details are included in our earnings release, so I'll focus on summary results here. The businesses in the Property and Transportation Group achieved a solid 94.1% calendar year combined ratio in the third quarter of 2025, an improvement of 2.7 points from the comparable 2024 period. This group's third quarter 2025 combined ratio included 0.4 point attributed to catastrophe losses compared to 3.7 points in the 2024 third quarter, which was the primary driver of the improved year-over-year profitability. Third quarter 2025 gross and net written premiums in this group were 6% and 9% lower, respectively, than the comparable prior year period. As mentioned before, the earlier reporting of crop acreage by insureds impacted the timing of the recording of crop premiums and contributed to the year-over-year decrease, particularly when compared to later reporting of acreage the previous year. Excluding the crop business, gross written premiums in this group grew by 2% and net written premiums were flat. We continue to see new business opportunities, a favorable rate environment and increased exposures in our transportation businesses. Overall renewal rates in this group increased 6% on average in the third quarter of 2025. We continue to remain focused on rate adequacy, particularly in our commercial auto liability line of business, where rates were up approximately 11% in the third quarter. In our crop business, harvest pricing for corn and soybeans settled 10% and 2% lower, respectively, than spring discovery pricing, which is well within acceptable ranges and yield expectations are steady. Based on these factors, we continue to anticipate an average crop year. Our third quarter results reflect an element of seasonality as most of our crop insurance premiums are earned in AFG's third quarter but booked at a more conservative combined ratio until the fourth quarter. Over the coming weeks, we'll have better visibility into actual yields and claim activity in our MPCI businesses, and we'll also have a clear indication of the performance of our private products business. With this more complete picture, we'll record the majority of our calendar year crop profitability in the fourth quarter as is our standard practice. The businesses in our Specialty and Casualty Group achieved a 95.8% calendar year combined ratio overall in the third quarter, 3.7 points higher than the 92.1% reported in the comparable period in 2024. Third quarter gross written premiums increased 3%. Net written premiums were flat compared to the same prior year period. Primary drivers of growth included new business opportunities and favorable renewal pricing in several of our targeted market businesses and an increase in M&A activity that contributed to growth in our mergers and acquisitions business. This growth was tempered by lower premiums in our excess and surplus, executive liability and social services businesses. Overall renewal pricing in this group was up approximately 7% during the third quarter, an increase of about 1 point from the previous quarter. Average renewal pricing, excluding workers' comp, was up approximately 8%, in line with pricing in the second quarter. And I'm pleased that we again achieved renewal rate increases in the mid-teens in our most social inflation exposed businesses, including our social services and excess liability businesses. In addition, our workers' compensation businesses collectively achieved a modest pricing increase during the quarter, a favorable trend. Several businesses in this group, particularly our excess liability businesses have been navigating the challenges of social inflation for several years and have demonstrated their nimbleness and resilience through the cycle. Over the last 5 years, one of our largest excess liability businesses has decreased aggregate limits by 25% while more than doubling premium, primarily as a result of rate increases. We're continuing to exercise discipline through the use of predictive analytics, risk selection and careful coordination between our underwriting, actuarial and claims professionals to ensure that our businesses are earning targeted returns. The Specialty Financial Group continued to achieve excellent underwriting margins and reported a combined ratio of 81.1% for the third quarter of 2025, 11.2 points better than the comparable period in 2024. These results reflect 4.1 points related to catastrophe losses compared to 14.4 points in the prior year period, contributing to higher year-over-year underwriting profitability in our financial institutions business. Third quarter gross and net written premiums in this group were up 3% and 1%, respectively, when compared to the prior year period. The growth is primarily attributed to our growth in our financial institutions business and our Great American Europe business, which designs and delivers a broad portfolio of innovative and customized insurance programs across the U.K. and Europe. Net written premiums were tempered by our decision to cede more of the coastal exposed property business in our lender services business. Renewal pricing in this group was down approximately 2% in the third quarter, reflecting the strong margins earned overall in these businesses. Craig and I are proud of our history of long-term value creation. We have years of experience navigating economic and insurance cycles. Our insurance professionals continue to exercise their Specialty Property and Casualty knowledge and experience to successfully compete in a dynamic marketplace. And our in-house investment team has been both strategic and opportunistic in the management of our $17 billion investment portfolio. One of our greatest strengths is finding opportunities in the times of uncertainty. We're well positioned to continue to build long-term value for our shareholders for the remainder of 2025 and beyond. Now we'll open the lines for the Q&A portion of today's call. And Craig and Brian and I will be happy to respond to your questions. Operator: [Operator Instructions] Our first question comes from the line of Michael Zaremski of BMO Capital Markets. Michael Zaremski: First question on capital management. We clearly saw the special dividend announcement. But curious why there were no buybacks or not material buybacks in the quarter. Last quarter, you had done buybacks and valuation wasn't too dissimilar from the average this quarter is my understanding. So just curious, any color there? And do you expect repurchases to resume depending on your, I guess, your answer. Craig Lindner: Yes. Mike, this is Craig. What I would say is if you look at our purchases, we become very active when the stock is trading at a very significant discount to what we believe is the appropriate value. There have been periods when we have repurchased very large amounts of shares period back in -- I think it was 2008 through 2010, we repurchased around 30% of our shares at a very attractive level. So I wouldn't read too much into one quarter's repurchases or lack of repurchases. What I would say is we've retained a lot of dry powder to be able to take advantage of the opportunity to repurchase shares if it presents itself. Michael Zaremski: Okay. That's helpful, Craig. Pivoting to the operating environment on the P&C side. I thought it was -- it's a good comment to hear, but I thought it was a bit surprising, at least we got some reaction last night from investors when you said that pricing was about 5% with and without comp, and you believe you're achieving rate in excess of prospective loss trends because most -- many companies, and I think if you look at Triangles too would kind of estimate loss trend is north of 5%. Any commentary you'd like to elaborate there on in terms of my assumption there? Carl Lindner: I can't speak for other companies. I can speak for us. And an overall 5% price increase is still exceeding our prospective loss ratio trends. We have a decent chunk of our business in workers' comp where loss ratio trends are really pretty benign. And a lot of other businesses, we have a very diverse portfolio. So not all of our businesses are -- reflect a casualty loss ratio trend in that. So I can only speak for our own mix of business and what our own actuaries tell us. Michael Zaremski: Got it. And so just -- that's helpful, Carl. And so sticking to kind of loss trend and pricing. If we can kind of try to laser in on some of the lines of business that have been causing more friction over the past year for you all in the industry. Obviously, appreciate your ROE -- AFG's ROE is industry-leading. But if we think about the social inflationary lines of business, are we seeing pricing, which had been accelerating kind of stopping its acceleration trend? And do you believe loss cost trend is kind of remaining stable? Or are we continuing to see some upwards bias? It's looking at the underlying loss ratio and Specialty and Casualty, for example, the trend line there moving a bit north? Carl Lindner: Again, with 30 businesses, there's -- we adjust loss ratio trends every quarter. We do actuarial valuations and evaluation of the business. And some loss ratio trends improve, other loss ratio trends, particularly in social inflation-exposed businesses. We're very careful about trying to be conservative enough to consider pricing in that. So I think not a lot of changes, I don't think over the past couple of quarters in overall loss ratio trends in that. But some businesses would have improved, some businesses would have increased a little bit. In our case, the part of our business where we had a slight decline was in our specialty financial business and particularly in our lender-placed property business, which at the big margins that, that business have earned for us. And after multiyears of pretty significant rate increase, it's not surprising that there was some plateauing of price on that business in that. So compared to what a lot of the E&S market and some of the large property guys are seeing with price change, I'll take a couple of percent decline on our lender-placed property business over the chunk of business that's seeing double-digit declines, if you understand what I'm saying. So I think that was one of the main drivers of our pricing being a little bit lower in that. I think what I am happy about is the pricing in our Specialty Casualty, excluding comp, is still up 8% in the quarter. And to boot, I'm very pleased that we saw some price increase in our overall workers' comp book, particularly being led by California and that clearly. And I think the California will probably only get better. Brian, you were telling me that they're going to be taking 11% increase and was it September? Brian Hertzman: Effective September 1. Carl Lindner: Yes, effective -- yes. So I think that's the price increase there in California should just get better in that. I hope that gives you a little color. Operator: Our next question comes from the line of Andrew Andersen of Jefferies. Andrew Andersen: Maybe just back on the workers' comp. It was good to see that price tick up, and it sounds like California could see some further momentum. But perhaps we could touch on some other geographies. Are you seeing some pricing tick up a little bit elsewhere? Carl Lindner: In our strategic comp business, which is a fairly sizable business, there was some positive price change there also in that. I think in the Southeast and the Summit business continues to be some kind of a mid-single-digit price decline in that. Andrew Andersen: Okay. And maybe a bigger picture macro question just on crop. Pricing on corn and soybeans has been coming in for a couple of years, and I suppose that could partially be due to some change in trade policies. But I'd be interested in hearing your thoughts just kind of on the outlook maybe intermediate term for crop premium and crop pricing as kind of trading with global partners changes. Carl Lindner: Well, I think you probably need a pretty good crystal ball trying to figure that out. You would think that probably the trade aspect of soybeans is probably being reflected in the futures prices at this point, which would lead you to believe that premium should be stable or maybe even increasing corn when you look at futures prices into '26, it looks to be pretty stable against spring discovery prices this year in that. That said, we don't know until the actual 30-day average in the first quarter next year establishes spring discovery prices in that. But what I've seen so far, it seems like prices should be stable or if there's an improvement in the China relationship with the U.S., maybe soybean pricing continues to improve more. Operator: [Operator Instructions] Our next question comes from the line of Meyer Shields of Keefe, Bruyette, & Woods. Meyer Shields: I also had 2 questions on crop. The first, I completely understand the comments about written premium having moved to the second quarter. I'm wondering whether there was a higher percentage of earned premiums in Property and Transportation this year rather than last year as a contributor to the higher attritional loss ratio. Brian Hertzman: This is Brian. So if you remember, last year at this time, we were feeling pretty optimistic about the potential for an above-average crop year. And then in the fourth quarter, there was some variation in harvest by county that caused us to end up at a more of an average crop year. So we booked a little bit more crop income last year in the third quarter than we did this year in the third quarter. So this year, in the third quarter, we have about half of our crop premium earned for the year in the quarter, booked at close to 100 combined ratio. If you pull out all the noise from crop, our accident year loss ratio for Property and Transportation actually improved due to lower frequency in our transportation and marine businesses. So if you kind of put the noise of crop the side, we did see an improvement there in the loss ratio. Meyer Shields: Okay. That's very helpful. And I'm just wondering, bigger picture in crop. So there's a new participating insurance company over the last couple of years. Is that having any impact on the amount of premium you're getting from agents or maybe some agents moving along? I don't know how mobile we should think of that premium as being. Carl Lindner: I think it probably impacts us marginally on that. What our guys would say is they're probably getting some of the business that we'd be least excited about. Operator: [Operator Instructions] Okay. I'm showing no further questions at this time. I'll go ahead and turn the call back over to Diane Weidner for closing remarks. Diane P. Weidner: Thank you all for participating today. We appreciate your questions and look forward to talking to you again next quarter when we share our fourth quarter results. Hope you have a great day. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Brilliant Earth Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Colin Bourland, Vice President of Strategy, Business Development and Investor Relations. Please go ahead. Colin Bourland: Thank you, and good morning, everyone. Welcome to the Brilliant Earth Third Quarter 2025 Earnings Conference Call. My name is Colin Bourland, Vice President of Strategy, Business Development and Investor Relations. Joining me today are Beth Gerstein, our Chief Executive Officer; and Jeff Kuo, our Chief Financial Officer. During today's call, management will make certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially. Please refer to our SEC filings for a description of the risks that could cause our actual performance and results to differ materially from those expressed or implied in these forward-looking statements. These forward-looking statements reflect our opinion only as of the date of this call, and we undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements in light of new information or future events unless required by law. Also, during this call, management will refer to certain non-GAAP financial measures. A reconciliation of Brilliant Earth's non-GAAP measures to the comparable GAAP measures is available in today's earnings release, which can be found on the Brilliant Earth Investor Relations website. I'll now turn the call over to Beth. Beth Gerstein: Good morning, everyone, and thank you for joining us today. As always, we're pleased to share our third quarter results with you, and this quarter is more special than usual as it marks the 20-year anniversary of Brilliant Earth's founding. Two decades ago, Eric Grossberg and I set out to create a company that reimagined our industry with impact at its core. Over the years, we've created industry-leading practices that set new standards for how jewelry is sourced and manufactured. And we have revolutionized how consumers shop for and experience jewelry with a highly personalized and seamless omnichannel shopping experience. I am incredibly proud of our achievements over the past 20 years, and today's results reflect both the consistency and the resilience with which we've built our company. We've built something truly extraordinary that has redefined what luxury means, creating a globally loved brand with beautifully designed collections, and we've shown that purpose and profit can be a powerful force for good. We've been able to do this with an innovative asset-light data-driven business model while achieving consistent profitability quarter after quarter. As we look to the next 20 years, our optimism and ambition are as strong as ever. As one of the largest stand-alone jewelers, we are uniquely positioned to continue challenging the status quo, capturing market share and leading the transformation of the highly fragmented $350 billion jewelry industry. And now turning to our third quarter performance. I'm pleased to report that we delivered exceptional results across the board. Our net sales grew 10% year-over-year, surpassing our guidance and exceeding expectations. This strong performance included a return to growth in engagement ring bookings, our largest quarter ever in wedding and anniversary band bookings and an impressive 45% year-over-year growth in fine jewelry. We believe that we are continuing to outpace industry growth and build brand awareness. And we were able to do this all while delivering another quarter of profitability with Q3 adjusted EBITDA landing at $3.6 million, near the midpoint of our guidance range. I'm particularly proud of how we delivered this profitability with 2 key operational advantages that demonstrate the strength and differentiation of our business model. First, we showed our ability to maintain strong gross margins despite facing some of the most challenging input cost pressures our industry has ever seen. During the quarter, on average, gold and platinum prices were up approximately 40% year-over-year at or near all-time highs, while we also navigated new industry-wide tariff impacts. Despite these significant industry-wide headwinds, we maintained our gross margin within our medium-term target range of the high 50s. This speaks directly to the strength of our geographically diversified supply chain, our strong vendor relationships, our price optimization engine and our ability to adapt quickly in dynamic environments, advantages that truly set us apart from competitors. Second, we achieved remarkable marketing efficiency, driving 300 basis points of year-over-year marketing leverage while still increasing traffic and delivering double-digit revenue growth. Our ability to continually optimize our model and to leverage technology, including AI and machine learning has enabled us to keep refining how we allocate our marketing spend while also driving increased awareness and quality traffic. Now let me take you through some other highlights from the quarter. For Q3, total orders grew 17% year-over-year, while repeat orders grew 16% year-over-year, demonstrating strong brand resonance in attracting new customers as well as driving long-term customer loyalty. As you know, engagement rates are an important first purchase for our customer as well as a meaningful portion of our sales. Over the past several years, you've heard me speak about the multiyear market normalization following the peaks in engagements during 2021 and 2022. I'm thrilled to share that this quarter marks an inflection point in our engagement business with a return to year-over-year bookings growth. We've also seen continued stabilization in engagement ring average selling prices with sequential ASP growth in the last 2 quarters this year. This reflects the strength of our brand positioning and product assortment, especially our exclusive Signature collections. The Signature collections, exclusive collections that we are known for, grew nearly 3x faster than our total engagement ring assortment. This tells us that customers are increasingly seeking Brilliant Earth as a design leader for one of the most meaningful purchases in their lives. Together, our engagement ring acceleration demonstrates that the investments we've been making over the last few years are delivering strong returns as the bridal market recovers. And this momentum extends beyond our bridal portfolio. Our wedding and anniversary band assortment delivered double-digit year-over-year bookings growth, including growth in both men's and women's collections, resulting in our largest quarter of wedding and anniversary band bookings ever. Fine jewelry, which was 14% of our bookings in Q3, continues to be a standout growth driver. Bookings grew an impressive 45% year-over-year, driven by both unit and ASP growth, reinforcing the increasing resonance that we have as a fine jewelry destination of choice. As in engagement rings, our iconic fine jewelry collection significantly outpaced our total fine jewelry growth. This quarter, we added breathtaking new pieces to our design-leading [indiscernible] and Jane Goodall collections, collections that are increasingly establishing Brilliant Earth as the go-to brand for unique and distinctive fine jewelry. The Jane Goodall collection remains our best-performing new collection launch to date and is a testament to how customers connect with jewelry that combines exceptional design with meaningful purpose. Sadly, Jane passed away just a week after we launched our second collection with her. Our hearts go out to her family and The Jane Goodall Institute. Over the past 2 years, I had the honor of getting to know Jane personally. She was an innovator, disruptor and champion for good. We couldn't have asked for a better partner for Brilliant Earth. We're so proud to continue honoring her legacy through our ongoing partnership with the institute. Our business results reflect our continued strategic brand investments, which are delivering awareness and resonance. This quarter alone, we achieved incredible celebrity placements with stars like Justin Bieber, Sabrina Carpenter, Sydney Sweeney, Halsey, and Brittany Snow choosing Brilliant Earth for everything from music videos to the red carpet. These celebrity moments resulted in over 200 placements and generated over 13 billion impressions in Q3. Additionally, our partnership with Tennis Champion Madison Keys as our first athlete ambassador continues to resonate [indiscernible]. These authentic brand moments, combined with our strategic marketing investments are driving outsized success across earned marketing channels, ultimately translating to accelerated order growth and strong brand recognition. As we enter the holidays, I am confident we're more prepared than ever to deliver another successful season. We've approached this quarter with exceptional focus across the business to ensure we maximize this critical opportunity and build on our track record of strong holiday performance. We're exceptionally well positioned for the season from our showroom experiences and marketing strategy to a strong pipeline of new products, including our recent Love Decoded collection and the expansion of our incredibly popular 20th anniversary, Pacific Green Diamond into a new fine jewelry collection. We've curated an incredible range of giftable products under $1,000 that we believe will resonate strongly this holiday season. And as the holidays are also a peak engagement season, we are leading bridal design trends with new styles, including wider widths, bezel settings and fancy shapes alongside our timeless bestsellers and ready-to-ship preset engagement rings. This holiday, you will see us execute elevated visual merchandising, targeted showroom events like trunk shows and increased inventory to continue elevating our overall showroom experience. These investments reflect the application of our continuous test-and-learn approach and the growing sophistication of our omnichannel model. Our captivating delight in the details holiday campaign celebrates the artistry and craftsmanship behind our jewelry through whimsical illustration by renowned French illustrator, Geoffroy de Crécy, capturing both the precision of our collections and the joy of the season. We're still early in the season, but I'm pleased with the performance we're seeing across the business through October, including year-over-year bookings growth in engagement in wedding and anniversary band, strong outperformance in fine jewelry and year-over-year growth in both new and repeat orders. While metal prices and tariffs continue to present industry-wide headwinds, our agile data-driven business model and globally diversified supply chain position us to navigate these challenges and deliver successful business performance this holiday season, just as we've done throughout the year. Before I hand the call over to Jeff, I want to thank our incredible team whose dedication and execution continue to drive these outstanding results. This is just the beginning of what we can achieve as we leverage our 20 years of expertise of designing beautiful collections, driving brand strength and executing with industry-leading operational excellence to capture the enormous opportunity ahead in the global jewelry market. Chuenhong Kuo: Thanks, Beth, and good morning, everyone. As Beth mentioned, we're pleased to report Q3 results where we continue to successfully drive our strategic initiatives, deliver strong top line growth and continued profitability and cash generation. Let me take you through the details for Q3. Q3 net sales were $110.3 million, up 10.4% year-over-year, exceeding the top end of our guidance range by approximately 40 basis points. Total orders grew 17% year-over-year and repeat orders grew 16% year-over-year in the third quarter, demonstrating the effectiveness of our customer acquisition and retention efforts and the resonance of our brand and products with consumers. Average order value, or AOV, was $2,209 in Q3. This represents a decline of 5.5% year-over-year in Q3 and up 6.5% quarter-over-quarter. Our AOV reflects the great success we have had broadening our overall assortment, including strong performance in our fine jewelry collection, which carries a comparatively lower price point, growth in engagement rings and the increases that we've seen in engagement ring ASPs this year. Q3 gross margin was 57.6%, within our medium-term gross margin target in the high 50s and a 320 basis point decline over Q3 last year. We were able to drive this robust gross margin even in the face of record gold and platinum prices and dramatic changes in the tariff environment that were not included in our Q3 guidance. This highlights the agility and resilience of our business model, including our data-driven approach to decision-making and our globally diversified supply chain. We delivered Q3 adjusted EBITDA of $3.6 million or a 3.2% adjusted EBITDA margin within the midpoint of our guidance range, driven by our compelling gross margins, significant year-over-year marketing leverage and overall OpEx discipline. This marks our 17th consecutive quarter of positive adjusted EBITDA and highlights the strength and sustainability of our business model. Q3 operating expense was 58.1% of net sales compared to 61.9% of net sales in Q3 2024. Our disciplined management of expenses while also driving growth and investing in the business is strongly demonstrated in the 380 basis points of leverage year-over-year. Q3 adjusted operating expense was 54.4% of net sales compared to 57.3% in Q3 2024. Adjusted operating expense does not include items such as equity-based compensation, depreciation and amortization, showroom preopening expenses and other nonrecurring expenses. Q3 marketing expense was 23.7% of net sales compared to 26.7% of net sales in Q3 2024. This represents approximately 300 basis points of year-over-year leverage, demonstrating our capabilities to drive significant marketing efficiencies while delivering strong top line growth ahead of expectations. Employee costs as a percentage of net sales were higher in the third quarter by approximately 30 basis points as adjusted year-over-year. This includes growth in showroom employees, including from newly opened showrooms as we continue to strategically focus on our showroom expansion. Other G&A as a percentage of net sales decreased year-over-year by approximately 20 basis points as adjusted for the quarter as we continue to prudently invest in our business while driving strong top line growth. Our year-over-year inventory grew approximately 28%, principally as a result of strategic procurement opportunities in Q3 to purchase inventory at advantageous prices in light of the current tariff environment as we did in Q2. Even with this year-over-year increase, our inventory turns continue to be significantly higher than the industry average, and we maintain conviction that the agility of our data-driven, capital-efficient and inventory-light operating model continues to be a compelling competitive advantage. We ended the third quarter with approximately $73 million in cash. On a trailing 12-month basis, we've generated approximately $12 million of free cash flow, demonstrating our ability to generate cash. And on a pro forma basis, adjusting for the onetime dividend and distribution of approximately $25 million completed in Q3, net cash would have ended the period approximately $4 million higher year-over-year. As you know, our Q3 results also include paying down our term loan, leaving us with no debt on the balance sheet. In Q3, we spent approximately $96,000 repurchasing our common stock. This takes our total spend on stock repurchases to date to approximately $1.1 million as of the end of Q3. Turning to our outlook for fiscal year 2025. We are raising our full year net sales guidance to 3% to 4.5% growth year-over-year. Drivers include improvements in engagement ring bookings year-over-year performance, strong fine jewelry performance, coupled with the fact that Q4 is the seasonally biggest fine jewelry quarter and the growth and annualization of our showrooms. In terms of year-over-year comps, our guidance also considers the fact that 2024 Q4 year-over-year net sales were comparatively stronger than 2024 Q3. For full year adjusted EBITDA margin, we expect that to be approximately 2% to 3% as we continue to manage for strong gross margins, drive marketing leverage for the year and balance making investments with driving near-term profitability. For Q4 gross margin, we do expect some impact from gold and platinum spot prices, which are both near all-time highs with gold and platinum spot prices up 19% and 20%, respectively, just in the time from our last earnings call to the end of October. We are also now incorporating the additional 25% tariff on India announced in August 2025. We continue to believe that we are better positioned than most to nimbly navigate this environment with our agile, data-driven approach and globally diversified supply chain. As mentioned before, we expect to drive year-over-year leverage in marketing spend for the year, including through the use of AI and machine learning to capture efficiencies. And we expect to continue to make near- and longer-term investments through the end of the year, including in employee costs and other G&A while managing the business for profitability. We expect that some metal and tariff headwinds will continue into Q1. We'll provide further perspectives on 2026 in our next earnings call. Our data-driven approach, including agile price optimization, disciplined expense management and our asset-light business model position us well to outperform the industry while delivering profitable growth. This quarter's strong execution reinforces our capability to identify and capture opportunities to drive sustainable, profitable growth and create value for our shareholders. With that, I'll turn the call over to the operator for questions. Operator: [Operator Instructions] our first question comes from the line of Oliver Chen of TD Securities. Oliver Chen: Great quarter. As we think about engagement ring bookings, it was exciting that they returned to growth this quarter. How sustainable do you think the inflection here? And what are your expectations for bridal recovery versus fine jewelry mix over the next year? Second follow-up is the cost of goods sold and inflation that you're seeing now. You maintained some really high gross margins. What do you think will happen in terms of what you're trying to do with hedging going forward? It's a pretty dynamic environment. And how are customers feeling and executing around pricing from what you see in the market? It's a bifurcated consumer with money to spend, but the consumer is being choiceful in our view. Beth Gerstein: Thank you, Oliver. Well, maybe we can start with that in terms of the consumer. We have been pleased with the consumer demand that we have been seeing. And I think you're right that we typically do have a higher income customer and that bifurcation, we haven't necessarily seen some of the volatility in the lower end of the market but have been really encouraged by the response that we've seen in terms of the products, the brand, the overall experience. So generally speaking, we're pleased with what we're seeing on the consumer side. As it relates to kind of the mix that we're seeing around the assortment, I think what we were really excited about during the quarter is just strength across the assortment. So from engagement rings to wedding bands and anniversary rings to fine jewelry, we really saw strength kind of across all of what we were intending to do. And that was, I think, something that we were excited by as well. I think engagement rings, we were really happy to see that bookings increase, and I think you remember last quarter, we saw a big unit increase as well. So we're not going to "call it." We do recognize there are puts and takes in any given quarter as it relates to bridal recovery, but we are pleased with what we are seeing, and we expect to continue taking share, outperforming the industry with the broader market as it continues to recover. So we're very well positioned. And then I would just say we continue to think we have very strong fine jewelry opportunity. It's a massive market. The growth that we're seeing is extraordinary with plus 45% in Q3, and we continue to think that there's an outsized opportunity there across all of our channels. So I would expect to see that mix continue to increase. Jeff, I don't know if -- I think maybe why don't we stop it there. Operator: Our next question comes from the line of Anna Glaessgen of B. Riley Securities. Anna Glaessgen: I'd like to start with the shift in adjusted EBITDA margin guidance. Could you put a finer point on what -- how you're contemplating the various headwinds between the metals pricing and the incremental tariffs? And to what extent you've taken price already to help compensate for some of these? Or could that be layering on to the model in the future? Beth Gerstein: Maybe I can start a little bit on the price. As you know, we've been -- we continually optimize on our pricing. It's basically part of the test and learn culture that we have as a company. I will say that we've taken selective pricing increases. And I think especially as we're leaning more into Signature styles that are proprietary to Brilliant Earth, we've seen strong demand even as we've been increasing some of those prices. So generally speaking, I think there's -- we're on the journey. Q4, we find to be a more promotional season. So I think as we're thinking about price increases, we're much more selective as it relates to the Q4 environment. But generally speaking, I think we've done a really good job in terms of being able to absorb some of the costs, especially in Q3, if you look at how costs increased throughout the quarter, and yet we were still able to maintain that -- the margin that we expected and gave guidance to. I think that's a testament to the strong operational excellence that we have in order to do so. So Jeff, maybe you can talk a little bit about adjusted EBITDA guidance. Chuenhong Kuo: Sure. I'd be glad to. And I think I'd just like to build on what Beth was saying in that we're able to adapt and adjust very quickly to dramatic changes in input costs, and you can really see that in the success of our Q3 results. We are factoring in ongoing metal and tariff changes into our Q4 guidance. As you know, both metal and tariff costs continue to change significantly since our last earnings call. As I mentioned, gold and platinum were up at 19%, 20% even in time just since our earnings call to the end of October, and we're also now factoring in the 25% additional India tariff, which went into effect in August. And so I think those factors are significant. We're able to adapt and mitigate significantly. For outlook for gross margin for the quarter, we do expect a similar year-over change in gross margin as we saw in Q3 as we continue to work to mitigate these changes that we're seeing. And we do believe that over time, we have additional tools at our disposal to continue to adjust and be nimble and really deliver strong top line and gross margin performance. And we think that we're better positioned than most and results that we've demonstrated over the last couple of quarters, I think, are real great illustration of our agility. Anna Glaessgen: Turning back to the Bridal category. Could you remind us what the typical lag is between engagement and wedding bands, if there is one? Just trying to think through if there's a possible tailwind into 4Q and beyond from the inflection in the engagement in 3Q? Beth Gerstein: Sure. I would say that typically, people get married about a year after they get engaged, and there's a very wide range there, including people who will buy a matching set upfront. But that's typically what the profile looks like. And I think the only thing I would add also is just that we're seeing nice repeat behavior. And so it's very important for us to be able to convert that engage our end customer to wedding band and then nurture them to other light stage moments. And so we're happy to see the repeat business that we've been seeing. And I think it's a testament to a lot of the activities that we're doing to drive brand loyalty. Operator: Our next question comes from the line of Ashley Owens of KeyBanc Capital Markets. Ashley Owens: Maybe just to start, Jeff, could you talk a little bit about the top line guidance for the full year? I know comp -- and then just backing into 4Q as well. I know comp isn't as favorable as 3Q, but I believe we're looking at a range of about 2% to 7% top line growth in the quarter, if my math is correct. Just anything to call out in terms of headwinds you're embedding, then any insight as to how we should bridge between those 2 goalposts? It sounds like October is off to a good start, if I'm not mistaken. So is there some caution embedded in that top line number? Chuenhong Kuo: I would say that in terms of the top line guidance that we've provided, we're factoring in things that Beth was saying about what we've seen through October, including growth in engagement and wedding and anniversary bands and the strong outperformance in fine jewelry. And so we were glad to be able to raise our outlook for the year. We've seen good performance in the business overall. And it's a big quarter for us. The bulk of the holiday still lies ahead. So there's naturally some range in terms of possible outcomes. But I think we've seen strong performance. We're glad to see the inflection in engagement rings, and we think that we're very well positioned to deliver a strong holiday. Beth Gerstein: And I would just add that, yes, the comps on Q3 were a little bit weaker than Q4 as well. So that's something that we factored in. Ashley Owens: Okay. Got you. And then just as a follow-up, I noticed AOV declined less sharply this quarter. I think it was mid-single-digit declines versus the double digits we've been seeing for a few quarters now. How much of that improvement is driven by engagement recovery versus a broader normalization within that KPI? And then just as we look ahead, should we think of mid-single-digit declines as a more sustainable run rate moving forward? Beth Gerstein: Jeff, do you want to take that one? Chuenhong Kuo: Yes. I would say that factored into that is, of course, underlying, we've had outperformance in fine jewelry, which is a comparatively lower price point. We've seen that nice inflection in terms of engagement rings. And so that's contributing as well to the overall AOV mix. And I think one other thing that's noteworthy is just the sequential increases in engagement ring ASPs that we've seen in each of the last couple of quarters. And I think that really speaks to how people are resonating with our brand and our products. And so we don't have a specific number out there in terms of forward-looking AOV percents, but we do think that those factors like growth and success in fine jewelry will continue to contribute to the -- what happens to overall AOV, and we're glad to see the strength that we're having in engagement, both bookings and ASP. Operator: Our next question comes from the line of Dylan Carden of William Blair. Anna Linscott: This is Anna on for Dylan Carden. Could you just elaborate further on what efficiencies you're seeing in marketing to allow better sales and leverage in that line item? Beth Gerstein: Yes. Thanks, Anna, for the question. We were really pleased to see the marketing efficiencies. As you picked up, we had about 300 basis points of marketing leverage. And I would say that we've driven this efficiency in a variety of different ways. We've been getting smarter about the allocation of spend across channels. We have a lot of sophistication across our team with machine learning models to help drive increased site conversion. We're seeing strength in the showrooms, which are always a nice lever there as it relates to driving marketing efficiencies as well. So overall, we've been -- we were really happy to see that we had such strong sales growth even as we were able to be much more efficient about deploying our marketing spend and continuing to drive that brand awareness that's so important strategically for us. Operator: [Operator Instructions] For our next question, we welcome back Oliver Chen with TD Securities. Oliver Chen: The cash position is also attractive and brilliant. What are your capital priorities as you think ahead -- as you think about marketing versus collections and international expansion in terms of cash and CapEx? And then on this quarter that we just had, what factors drove the upside in terms of find versus engagement or existing versus new customers, if there were factors that you'd call out? Beth Gerstein: Sure. Well, maybe I can start with that. Overall, I feel like we've been doing a really fantastic job in terms of driving an optimized curated assortment. So the products that we're offering are really resonating with our customers, both in terms of the key diamond collections, those essentials that everybody wants in their jewelry box as well as the designs that we're increasingly known for with our iconic new collections. For example, our [indiscernible] expansion, the Jane Goodall collaboration. All of those, I think, were really received very well by our consumers. And I think the marketing campaigns that we do behind them have been also a standout and helped really break through and are resonant in today's environment, especially for that key consumer that we have. So really in terms of driving upside, it was fine. In fine jewelry, it was repeat, it was new, it was really across the collection. So I would say that there were bright spots all around. As it relates to how we think about our investments, maybe I can start and Jeff, you can please add on. I think you're right that we have a really strong balance sheet with a nice cash position. So that gives us a lot of flexibility. And we continue to invest in opportunities that we see a strong return on investment. So that continues to be expanding our showroom footprint, looking at how we drive brand awareness, but we do it all with a very keen eye towards that ROI. So we have high benchmarks. We continue to see opportunity to invest and have seen good returns on those investments. But I would say that's really the -- how we think about overall that allocation going forward. Chuenhong Kuo: Okay. And on the lab diamond trends that you're seeing now, lab has been an important gifting factor and more. What are the latest lab diamond demand and pricing trends that you'd highlight in your forecast for how that market is growing? Beth Gerstein: Sure. Well, what I would say about the lab diamond product is that there's very wide consumer awareness at this point. I think consumers love the product. On the fine jewelry side, we see a lot of opportunity there and have seen really nice sales growth as it relates to the lab diamond assortment. I think it provides accessible price points for consumers. And that's why you see so many tennis bracelets and more and more, I think, embracing some of the fine jewelry trends with layering multiple earrings, et cetera. So overall, I think that it's been great at expanding that accessible market. And because we've been leaders introducing lab diamonds over a decade ago, I think we've been at the forefront of that. I think one more thing I would just add is that I mentioned we are really excited about the holiday season. Part of that is we've curated an exceptional collection under $1,000. And I think the lab diamond component of that is really exciting. Oliver Chen: That was the last question, Beth, on this holiday, you called it out. Why was this different this year? Or what are your thoughts in the environment that make it conducive to the strategy you're speaking to? Beth Gerstein: I'm not sure it's necessarily different. I just think that we continue to see opportunity, and we're very prepared in terms of the holiday season. We've been doing really well across some of the key moments. So Valentine's Day, Mother's Day, I think we just do a really fantastic job with the team of executing well in key holiday moments. Operator: I'm showing no further questions at this time. I would now like to turn it back to Beth for closing remarks. Beth Gerstein: Thank you, everyone, for joining us for our Q3 quarterly call. Hope you all have a fantastic holiday, and we look forward to talking to you in Q1. Operator: All right. Thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Beth Gerstein: Thank you.
Randall Giveans: Thank you for standing by ladies and gentlemen, and welcome to the Navigator Holdings conference call for the third quarter 2025 financial results. On today's call, we have Mads Peter Zacho, Chief Executive Officer; Gary Chapman, Chief Financial Officer; Oyevind Lindeman, Chief Commercial Officer; and myself, Randy Giveans, Executive Vice President of Investor Relations and Business Development in North America. Now I must advise you that this conference call is being recorded today. As we conduct today's presentation, we'll be making various forward-looking statements. These statements include, but are not limited to, the future expectations, plans and prospects from both a financial and operational perspective and are based on management assumptions, forecasts and expectations as of today's date, November 5, 2025, and are as such, subject to material risks and uncertainties. Actual results may differ significantly from our forward-looking information and financial forecast. Additional information about these factors and assumptions are included in our annual and quarterly reports filed with the Securities and Exchange Commission. With that, I now pass the floor to our CEO, Mads Peter Zacho. Please go ahead, Mads. Mads Zacho: Thank you. Good morning and good afternoon, and thank you all for joining this Navigator Gas earnings call for Q3 2025. As a start, I'll just review the key data from our Q3 '25 performance, and then I'll go over the outlook for the coming quarter. After that, as usual, Gary and Oeyvind and Randy will discuss the results in more detail. The quarter was, in many ways, a return to more calm waters after the unusual and difficult Q2. In Q3, we saw geopolitical tensions recede somewhat. Port fees from the U.S. and later China now seem to be gone and tariffs appear to have found their level. However, for Navigator, we still saw an impact from the trade turmoil in our Q3 trading, particularly from the significantly lower ethylene exports from U.S. to China. Oyevind is going to bring a little bit more color to this topic shortly. Please turn to Slide #4. With that background and moving to our results. In Q3, we generated revenues of $153 million, up 18% compared to the previous quarter and 8% compared to same period last year. The main driver of revenue was both higher time charter equivalent rates, but also robust utilization. We're pleased to disclose that we achieved the highest EBITDA on record at $86 million and an adjusted EBITDA of $77 million, the latter number, which excludes the $13 million of book gain from selling Navigator Gemini. You may recall that we sold Navigator Venus last quarter at a book gain of $12 million. And I think if we combine the 2, I believe it gives pretty strong credence to our estimated net asset value. The balance sheet is very strong with a cash position of $216 million at quarter end plus drawing rights, which leaves us with $308 million of liquidity. You will note on 4th November, we increased our capital return to 30% of net income from previously 25%. Similarly, we have increased the fixed dividend from $0.05 per share to $0.07 per share. This reflects our strong balance sheet and equally important, our commitment to increasing the return of capital to shareholders. Commercially, we achieved average TCE rates of $30,966 per day during Q3, which is a 10-year high and well above the just over $28,000 that we achieved in Q2. We reached a utilization of 89.3%, well above the 84.2% we saw in Q2. Average utilization was supported by a steep recovery for our ethylene spot fleet, while our semi-ref fleet stayed robust. Throughout the throughput at our joint venture ethylene export terminal increased to 271,000 tons for the quarter, roughly similar to Q2, but still below full capacity. We paid further installments on our [ Panda ] newbuilds, and we paid the first installments of the new 2 ammonia-fueled vessels that we have chartered out to Yara. Due to our balance sheet strength, the contract cover and robust financing markets, we expect to finance all of our newbuilds at attractive margins and loan to value. So they'll tie up limited equity capital and be earnings accretive from delivery in 2027 and 2028. While I already covered the sale of Navigator Gemini, I should mention that you should expect to see more sale of older vessels that will enhance earnings over the coming months. Headwinds experienced in the first half of '25 have eased but not disappeared. We hope to see more stable market conditions going forward when geopolitical uncertainties ease. As a result, we expect both utilization and average TCE rates to remain near Q3 '25 levels. And we're noting both September '25 and October '25 utilization were above 90%. Now we can't really predict the outcome of trade discussions between the U.S. and trading partners such as China and much can still change. But with the diversified customer base we have, the trading capability and the strong balance sheet we have, we remain resilient even if the geopolitical situation takes an unexpected turn. And with that, I'll just hand it over to Gary, who will talk a little bit more about our financial results. Go ahead, please, Gary. Gary Chapman: Thank you very much, Mads, and hello, everybody. During this quarter, as Mads mentioned, we've continued to experience headwinds from geopolitics that have affected our markets. So it's very pleasing to us to be able to report strong results despite this backdrop and compared to the results we delivered in the previous second quarter of this year. These results are a function of many things, including our cargo diversification, our geographical flexibility, our market position, our strong financial foundations and very importantly, as a result of the people side of our business being our colleagues here internally and also the strength and depth of our customer relationships and market knowledge. And arising from this, our third quarter 2025 results are the best so far this year, and some data points are even record-breaking for Navigator, where we've been able to push charter rates and maintain utilization, supported by our operational flexibility and efficiency and our cost controls. On Slide 6, we report the highest quarterly TCE in the last 10 years of $30,966 per day, leading to quarterly net operating revenue of $133 million and our highest quarterly EBITDA on record of $85.7 million. The high TCE this quarter was primarily due to the performance of our ethylene vessels and our semi-refrigerated handysize fleet, supported by a solid performance from our fully refrigerated and midsized vessels. Utilization was 89.3% in the third quarter, practically at our preferred benchmark of 90%, which is down 2% compared to the second quarter of 2024, but up 5% compared to the second quarter of 2025. In this third quarter, we sold another of our vessels, the Navigator Gemini, as Mads has mentioned, for net proceeds of $30.4 million, resulting in a book gain of $12.6 million, which demonstrates our ability to refresh our fleet on both buy and sell sides as opportunities arise. Excluding this gain from EBITDA as the main difference, we get to an adjusted EBITDA result of $76.5 million, considerably above the still respectable $60 million we posted in the second quarter of this year. Vessel operating expenses were up compared to the third quarter of 2024 at $49.3 million, with the increase primarily driven by the net increase in our fleet size following the purchase of 3 secondhand vessels in the first quarter of this year, which you can see is reflected in the table shown bottom right, as well as simply the timing of maintenance costs incurred. We expect to close the year on or close to budget for our OpEx costs, adjusting for the extra vessels, and we'll see our guidance on Slide 9 shortly. Depreciation is slightly down compared to previous quarters despite our now increased fleet, mainly due to 2 older vessels that have reached the end of their accounting life during the quarter, and hence, no longer will be depreciated. Unrealized movements on non-designated derivative instruments resulted in a loss in the third quarter of $2.6 million. This being related to movements in the fair value of our long-term interest rate swaps, which affects net income, but which has no impact on our cash or liquidity. Our income tax line reflects movements in current tax and mainly deferred tax in relation to our equity investment in the ethylene export terminal and in relation to the Navigator Aries, which was sold on October 1, 2025, to another group company. And under U.S. GAAP accounting rules state that intra-group sale required us to recognize an associated deferred tax liability at September 30, 2025. The ethylene terminal throughput volumes in the third quarter of 2025 were solid at 270,594 tons, up from 268,000 tons in the previous quarter, resulting in us recording a profit this quarter of $3.3 million. But overall for the third quarter of 2025, net income attributable to stockholders was $33.2 million, which is our highest quarterly net income on record, with basic earnings per share of $0.50, which is our highest quarterly EPS in the last 10 years. Our balance sheet, shown on Slide 7, continues to build and be strong with a cash, cash equivalents and restricted cash balance of $216.6 million at September 30, 2025, which if you include our available but undrawn revolving credit facilities, gives us total available liquidity of $308 million at the same date. This is despite paying out $31 million for scheduled loan repayments, $5.4 million under our return of capital policy in respect to the second quarter of 2025, $37 million as payments for our vessels under construction and a further $20.4 million of share buybacks as part of the $50 million share repurchase plan that we've just executed. Our liquidity in the quarter was also boosted by the $30 million net proceeds from the sale of the Navigator Gemini, which completed in September. It's worth noting that our investment in the Morgan's Point terminal on our balance sheet sits at an equity value of $252 million. It is almost fully unencumbered now with only $4 million of debt remaining, which will be repaid in December this year. Alongside this, we paid from our own cash a total of $99 million at September 30, 2025, towards the vessels we have under construction. The small difference to the balance sheet figure represents capitalized interest under U.S. GAAP. I think the unencumbered terminal and the construction payments made from our cash on hand, together with still a growing liquidity profile are further reflections of the financial stability and strength that Navigator is able to demonstrate. And to bring you up to date, including our available but undrawn revolving facilities, we continue to have over $300 million of liquidity at the close on November 3, 2025. On Slide 8, we show a summary of the main capital events across the quarter where with a very supportive banking group and a strong underlying business, we were able to return capital to shareholders, boost our liquidity and continue to work towards managing our debt financing needs and interest rate risk. Following 2 particularly active quarters this year, during which the company successfully entered into new secured term loan, refinanced 2 existing loan facilities and issued a $40 million tap of our existing senior unsecured bonds. This quarter, we completed a full $50 million share repurchase plan that commenced in the second quarter of 2025 with a total of 3.4 million shares repurchased at an average price of $14.68 against the company's estimated net asset value of around $28 per share. We also returned 25% of net income to shareholders in respect to the second quarter of 2025, $2.1 million of share buybacks and $3.3 million as a cash dividend of $0.05 per share. And as announced, we will now return 30% of net income in respect of this third quarter of 2025, which Randy will cover in more detail shortly. But we think the uplift in the return of capital policy strikes the right balance at this point, rewarding our shareholders with higher returns while ensuring that our steps here are considered and sustainable. In addition to our scheduled repayments, we now only have 2 small debt balloons due in the next 24 months with payments due in 2026 of $54 million in total. And on the right side of this slide is a summary of our main debt movements across the last quarter. Our next priority is to close financing in relation to our now 6 newbuild vessels, and this work has already started with the transactions being pursued. We're currently targeting to complete the finance for all 6 vessels in the early part of 2026. And I'd like to thank all of the finance partners who have worked with us so far on this, and we look forward to being able to report on a successful outcome when this work is all done. In this third quarter, we further strengthened the company's interest rate hedging position, whereby we entered into 2 interest rate swap agreements to boost our fixed rate position and reduce our exposure to variability in interest rates and interest expenses associated with our variable rate borrowings. And as of September 30, 2025, 59% of the company's debt was either hedged or on a fixed interest rate basis with 41% open to interest rate variability. And whilst we keep the subject under close review, we believe this split of fixed to floating is about the right balance for the company at this time, such that if U.S. dollar rates fall, we can to a degree, benefit, but we are majority protected, should rates rise. We continue to make substantial loan repayments with $31.3 million in this third quarter, and we have an average of $122 million of annual scheduled pro forma debt amortization per year across 2025 through 2027, with our net debt adjusted EBITDA last 12 months sitting at a comfortable 2.6x as of September 30, 2025. In addition, our net debt to our on-water fleet value resulted in a loan-to-value LTV of 33%, which falls below 30% if you include a reasonable value against our Morgan's Point terminal. On Slide 9, showing again our estimated all-in cash breakeven for 2025, which at $20,510 per day per vessel is significantly below our average TCE revenue for this third quarter of 2025 of $30,966 per day. The difference or headroom this quarter being over $10,000. The graph bottom left shows how this headroom has developed over the last few years, and you'll see in there the consistency of our business, particularly over the last 4 years, but even going further back. The all-in breakeven rate includes forecast scheduled debt repayments and our scheduled dry dock commitments. And the latest figure here is materially unchanged from the estimate we provided in our last earnings call back in August 2025. On the right is our updated OpEx guidance for 2025 across our different vessel size segments, ranging from $8,050 per day for our smaller vessels to $11,100 per day for our larger, more complex ethylene vessels. This guidance also remains materially unchanged from our last quarterly call in August 2025. And following below that is further next quarter and full year guidance across vessel OpEx, general and admin costs, depreciation and net interest expense in dollar terms. The full year guidance for vessel OpEx towards the bottom is now slightly lower than in total than previous guidance given in August as we have 1 less vessel across the remainder of 2025. And net interest expense is also a little lower than previous guidance given at that same time. However, both are materially unchanged. Slide 10 outlines our historic quarterly adjusted EBITDA, adding this third quarter's strong results. On the right side, as we have done before, we show our historic adjusted EBITDA for 2024 and our last 12 months adjusted EBITDA. In addition, the EBITDA bars then to the right provide some sensitivity and continue to illustrate as we have done in the past, but an increase in adjusted EBITDA of approximately $19 million, all other things being equal for each $1,000 incremental increase in average time charter equivalent rates per day. And then finally, an update on our vessels dry dock schedule, projected costs and time taken can be found in the appendix, Slide 30. And I'll leave you to look at that if you would like. But for now, I'm going to hand you over to Oyevind to provide an update on the commercial picture. Thank you very much, Oyevind? Oeyvind Lindeman: Thank you, Gary, and good morning, everyone. Let's turn to Page 12 for the rate environment. I'd like to start off with echoing Mads and Gary, who mentioned earlier that the 10-year record average TCE and utilization is climbing back above 90% tells me one thing; the second quarter was a one-off, and we're back more or less on track. Now while uncertainties around U.S. and China trade and tariffs are still hanging over us, trade has picked up elsewhere to compensate. We've seen tremendous growth in demand for semi-refrigerated LPG vessels out of the Middle East in recent months. Iraq has ramped up both production and export capacity and is now taking in additional handysize vessels to cover the demand. At the same time, a steady stream of handysize ships has been moving butadiene from the U.S. from Brazil and from Europe to Asia, either via Cape of Good Hope or the Panama Canal. Together, these flows have tightened the supply-demand balance in the segment, pushing rates and utilization higher. That trend is shown in the dark and light blue lines in the graph. Of course, we have more vessels in the semi and fully refrigerated segments totaling 29 compared to 15 in ethylene, the positive momentum that I just mentioned carries more weight on our overall TCE and utilization numbers. On the ethylene side, lingering trade and tariff uncertainty has softened rates by about $2,500 per day. Traders remain cautious, hesitant to commit to long-haul ethylene cargoes. Remember that it can take more than 2 months from contracting a ship until it discharges in Asia, which is a long time if one is worried about potential tariffs coming. Instead, we're seeing a more active shorter-haul voyages to Europe, which carry less tariff risk and are perceived as safer from a trade perspective. I'll touch a bit more on these nuances in the next few slides. If we look at Page 13, you can see the recent increase in our LPG earnings days. LPG accounted for 42% of our demand during the quarter, the highest share since first quarter of 2023, while petrochemicals remained the largest segment at 44%. The benefits of our flexibility to switch between cargoes and trades are further highlighted on Page 14. In the bottom left graph, utilization for our semi-refrigerated vessels climbed to 98%, meaning that effectively all our semi-refrigerated vessels were employed during the quarter with almost 0 idle time. This is driven mainly by the stronger LPG demand and also the fully refrigerated fleet shown on the bottom right, saw incremental demand both from LPG and importantly, also long-haul butadiene cargoes. It's been 5 years since our fully refrigerated vessels were employed in what we call easy petrochemical trades. As mentioned, the segment still feeling the effects of trade and tariff uncertainty is our ethylene-capable vessels. You can see in the top right graph that utilization for these vessels are averaging around the 85% level. Overall, though, for the fleet, utilization for third quarter was about 5 percentage points higher compared to the second quarter. On Page 15, we take a closer look at quarter-on-quarter U.S. exports and ethylene to Europe and Asia on handysize vessels. Since April, U.S. exports of ethane and ethylene have been impacted by trade uncertainties. It is interesting to note that shipments to Asia Pacific have halved from averaging 195,000 tons per quarter to averaging 97,000 tons per quarter. Conversely, European imports are up 30% when doing the same comparison. This suggests Europe has structural short and is plugging it with U.S. volumes, whereas Asia remains more opportunistic and is more sensitive to external factors. Turning to Page 16. Here, we track the U.S. ethylene arbitrage. Right now, it is open to Europe at around $200 per ton, which works. So exports continue to flow across the Atlantic, but the Asia arbitrage at roughly $250 per ton is harder to make work. As a result, and for the time being, most of Morgan's Point ethylene exports are heading to Europe. On the supply side on the next page, there are only minor changes since our last presentation and none that materially affects the handysize segment. The order book remains low. So to summarize, trade and tariff uncertainties between U.S. and China are still influencing parts of our trades. But despite that, we delivered a very solid quarter. The flexibility of our fleet allows us to capture opportunities across multiple trades. The fourth quarter has started in line with how September ended, which suggests a degree of normalization, especially when it compared to the second quarter. Happy to take more questions on this after, but first, the one and only Randy Giveans, the floor is yours. Randall Giveans: Thank you, Mr. Oyevind. Following up on several announcements we made in recent months, we want to provide some additional details here and updates on our recent developments. So starting on Slide 19, we're pleased to announce our new and improved return of capital policy that is effective immediately, which includes a fixed quarterly cash dividend of $0.07, up 40% from $0.05 per share, but that's not all. We want you to have your cake and eat it too. So we're also increasing the payout percentage to 30%, up from 25% of net income. Now before we go further into that, I want to highlight that during the third quarter and specifically as part of our return of capital policy, we repurchased almost 130,000 common shares of NVGS in the open market, totaling $2.1 million for an average price of around $16 per share. Now looking ahead, in line with our new return of capital policy and the illustrative table below, we are returning 30% of net income or a total of almost $10 million to shareholders during this fourth quarter. The Board has declared a cash dividend of $0.07 per share payable on December 16 to all shareholders of record as of November 25, equating to a quarterly cash dividend payment of $4.6 million. So in order to get your $0.07 dividend, do not wait until Black Friday or Cyber Monday to buy some NVGS shares as the record date is prior to Thanksgiving. Additionally, with NVGS shares trading well below our estimated NAV of $28 a share, we will use the variable portion of this return of capital policy for share buybacks. As such, we expect to repurchase $5.4 million of our shares between now and quarter end, such that the dividend and share repurchases again equal $10 million this quarter. Now continuing on the topic of share buyback, let's turn to Slide 20. During the first quarter, as you all know, we announced a new $50 million share buyback program back in May. As you can see, the announcement was not just a positive headline. We immediately put it to good use and completed the program in July after repurchasing 3.4 million shares at an average price of $14.68 per share. Now as you can see in the bottom left chart, we've historically had around 56 million shares outstanding for many years, and that was up until the merger with Ultragas back in 2021, in which we issued 21 million shares in exchange for the 18 vessels. Now since peaking around 77 million shares 3 years ago in December of 2022 and including those aforementioned share buybacks coming in the next few weeks, we'll have repurchased more than 12 million shares totaling $174 million for an average price of around $14.20 per share. Now additionally, by year-end, we'll have paid out $36 million of cash dividends for a total of $210 million of capital returned to shareholders over the past 3 years. So this equates to $3 a share, which is greater than a 20% return during that time. So as seen over the last few years and demonstrated again today with our increased return on capital policy, I want to look you squarely in the eyes and reiterate that returning capital to shareholders will remain a priority for us going forward. Now turning to our ethylene export terminal on Slide 21. Ethylene throughput volumes have remained strong, reaching 270,000 tons during the third quarter. To note, following first quarter very low throughput, volumes increased substantially and the Flex Train was utilized in both the second and third quarters. Now looking at the bottom right chart, U.S. ethylene prices fell during the third quarter, resulting in multiple ethylene spot cargoes being completed to both Europe and Asia. And although the internal spreads have tightened temporarily entering the fourth quarter here, the longer term outlook is for U.S. ethylene prices to stay at an attractive level around $440 per ton in the coming quarters and years. As for the contracting of the expansion values, we're still in active dialogue with multiple new customers for potential offtake contracts. As such, we continue to expect that additional offtake capacity will be contracted in the coming months, but the global uncertainty we've seen, and as Oyevind mentioned earlier, has slightly delayed some of our customers from making those longer-term commitments right now, but stay tuned. Now turning to our fleet on Slide 22. Our fleet renewal program continues to be implemented as we sell our older vessels and replace them with more modern tonnage. Now starting with the divestiture. As you've heard in September, we completed the sale of the Navigator Gemini, a 2009-built 20,750 cubic meter gas carrier to a third party for over $30 million, resulting in a $12.6 million profit. That was our sixth vessel sale since January '22, and we continue to engage buyers who are showing interest in acquiring other older assets, as Mads mentioned earlier. Now on the purchase side of the equation, in October, a few weeks ago, we acquired an additional 15.1% ownership in each of the 5 vessels owned via the Navigator Greater Bay joint venture for a total of $16.8 million, and that was paid from cash on hand. Based on an average of the last few years, this additional ownership should increase our net income by around $3 million per year. So a very attractive return on investment. Now as a result of our recent sale and purchase activity, our current fleet is now 12.4 years of age with an average size of 20,818 cubic meters. To note, we continue to upgrade our vessels with various energy savings technologies. And starting in 2026, we'll be rolling out new artificial intelligence, or AI, programs to make our fleet even more efficient. Now looking at Slide 23. Our average fleet is set to decrease further while our average vessel size is also set to increase. In July, we announced a new joint venture in which we'll own 80% and Amon, our partner in Azane Fuel Solutions will own 20% of 2 new 51,000 cubic meter ammonia-fueled liquefied ammonia carriers. The newbuildings are scheduled to be delivered in June and October of 2028 at a price of $87 million each. Now importantly, each vessel will receive a NOK 90 million or USD 9 million grant from the Norwegian government agency, Enova, resulting in a net price of $78 million. And assuming 70% LTV debt financing, we expect the total equity needed to be only $17 million per vessel, and that will be split between us and Oman. To note, these ice-class newbuilding vessels will be the largest in our fleet. They'll have dual fuel engines for clean ammonia and be able to transit through both the old and new Panama Canal locks. Additionally, each of the vessels will be employed on a 5-year time charter upon delivery to Yara Clean Ammonia. Lastly, in terms of vessel financing and future capital requirements, we've included an illustrative CapEx table on this slide. We paid the first 10% shipyard deposits in August, and we're currently targeting to complete financing arrangements in the early part of 2026. Now finishing on Slide 24. I want to personally invite you to our 2025 Analyst Investor Day happening next week here in Houston, Texas. On Tuesday afternoon, we'll be hosting our Morgan's Point tours at the ethylene export terminal in one of our vessels. Tuesday evening, the management team and Board of Directors will host a dinner for our analysts and investors. The following day, on Wednesday, we'll host company and industry presentations covering current market trends, a financial update as well as our medium-term strategy. We'll then have lunch followed by an appreciation event for our analysts, shareholders, customers and partners. So let me pull up the weather here. And yes, the forecast seems to match our outlook, warm and sunny. So we hope you can join us next week. With that, I'll turn it back over to Mads. Mads Zacho: Thanks a lot, Randy. Q4, as you can see or that we've indicated with our utilization numbers has come off to a robust start, and we are currently seeing a gradual normalization of our operating environment. If we don't see any further geopolitical surprises, we think we are back on our previous trajectory. This will be driven by the continued growth in U.S. natural gas liquids production and the significant build-out in U.S. export infrastructure over the next 4 years. We expect that this will support exports of natural gas liquids and thereby also transport demand for the products that we carry. The vessel supply picture remains attractive with small handysize order book, which is low and also an aging global fleet. We'd like to leave you with the impression that return of capital is very high on our list of priorities, and this is why we've decided to increase our earnings payout and our fixed dividend. We have a little bit of work ahead of us in terms of financing our 6 newbuildings. Financing markets are competitive and Navigator is a good credit. So we expect competitive terms. We'll continue to renew our older vessels so that you should expect to see more earnings-enhancing vessel sales, but potentially also further consolidation initiatives whenever accretive vessel acquisition opportunities are rising. So thanks a lot for listening. Back to you, Randy, and for some Q&A. Randall Giveans: Thank you, Mads. [Operator Instructions] Christopher Robertson: This is Chris Robertson at Deutsche Bank. Happy to be on my first inaugural call here since launch. I had a couple of questions for you guys here. So one, in the dry bulk space and in the tanker space, we've seen a few companies target either net debt 0 or net debt below kind of the scrap value of the fleet. I was wondering, just in general, how you guys think about the net debt position over time as it relates to lowering breakevens and kind of what the general strategy would be over the long run? Mads Zacho: Yes. Maybe I can kick us off and then Gary, you can take over. But in general, I think we have a comfortable balance sheet right now. I don't think there's any reason for us to go to a net debt zero position. We are in a capital-intensive business. We do see financing markets, which are very competitive, and we can source debt at attractive cost. I think it is to the benefit of our shareholders, the equity holders to have some debt on the balance sheet in order to enhance returns. We have 2.6x net debt to EBITDA right now. I think we could even carry a little bit more, but overall, I think we're in a good position. Christopher Robertson: My next question is more just general market related. I think there's some prevailing fear in the market with low oil prices that will impact U.S. oil and gas production, and therefore, translate into lower NGL and LPG exports. So if you could comment on what you're seeing on the upstream side, just in terms of the dynamics domestically to continue to support NGL production, which specific kind of gas fields people are looking at? I think Enterprise has been out there with some commentary as well around their positive outlook here. So just some commentary to maybe assuage some fears in the market that around low oil gas prices. Oeyvind Lindeman: Yes. We'll give more details on that in the Investor Day next week, but in short, generally, in our conversations with Enterprise and other midstream companies here in the U.S., then they are all very confident for NGL production, the midstream part specifically, which is also export terminals and hence, for us, export volumes. So over the next 5 years up to 2030, the graphs that we have seen are pointing upwards in terms of NGL production, which is then ethane and propane and butane, which is important to us. And we believe that most of those infrastructure projects to support that growth are already been FID-ed. They're under construction. Most of them are under take-or-pay. So that brings some comfort to us in talking about the next few years in terms of volume growth from the U.S. Omar Nokta: This is Omar Nokta from Jefferies. Thanks for the update. Always a lot of good detail and information. Just had a couple of questions. Maybe just perhaps on the capital allocation. You've been very clear, especially with this call that that's a key part of the dividends and buybacks are a focal point of the strategy going forward. But just wanted to get a sense from you in terms of what drove you to do this bump here from, say, a 25% to 30% payout and the $0.05 going to $0.07. I know it's not perhaps maybe a big change in the grand scheme but just what drove that? And can we expect perhaps that this base payout will grow over time? Mads Zacho: Yes. Maybe I can kick us off and then I'll ask my colleagues to chime in. It is -- we think over time, we should be growing our payout. What we paid out so far, it's a good decent dividend, but it's not a high dividend. We have the financial strength, and we have the operating cash flow that can support the payout that we are increasing it to now. And I think also bar, difficult market situation, geopolitical tension and trade wars, et cetera, we should be in a position where we could support higher payouts in the future also. Now that said, this is, of course, always a Board decision, but you can see the trend in the cash flows that we have delivered, and you've seen the trend in our debt that we paid down over time. So we will -- if we do nothing see and markets stay as benign as they are right now, you'll see a gradual buildup in our capacity to pay out dividends. So I think any good company should strive towards having a stable but growing payout over time. Gary Chapman: Yes. I think in addition, Omar, I mean, from my perspective, I mentioned in my commentary there that what we want to do is be sustainable and be fairly predictable as a business. And we do want to do all of those things that Mads has just said around growing our distribution. I think also getting the balance. We've done a lot of buybacks. Our share price has been where it is, and we believe that's very cheap. So we've been doing a lot of buybacks in the background. And I think Randy illustrated really well the strength of returns to shareholders that we've actually done over the last 3 years, albeit not all of it in cash direct back to shareholders. So I think we're trying to strike the right balance in that as well. But certainly, as Mads said, we'd certainly be looking to do more in the future, all things being equal and if the business keeps going in the way that we think it's going to. Randall Giveans: Yes. And quickly on the scale, we went back and forth between 6%, 7% in terms of the dividend, but went up to 7%. Obviously, we're going for more there. But we also don't want to cannibalize the buybacks on a quarterly basis. So obviously increasing that payout percentage to 30% as well. Omar Nokta: Got it. And then maybe just one follow-up I had is, Randy, you mentioned in the Greater Bay $16.8 million in the fourth quarter to pay for that step-up in ownership, which will maybe yield, say, $3 million in net income annually. Not a bad return, fairly, I would say, decent. Just I guess, in terms of going forward with that joint venture, is there a mechanism to get that to the full 100% ownership for Navigator? Is that something that you aim to do, if possible? Mads Zacho: The ownership, we don't have a mechanism you could say that mechanically will increase it. We would probably be looking to continue that discussion with our partner. We are very happy with our partner, Greater Bay. We think they give us a good inroad into the Chinese market and to opportunities that arise both with Chinese shipyards, but also business in the region. So I think we have a great interest in sustaining the partnership that we have with them. But of course, we control the vessels, we operate them. So we do consider them, you could say, an integrated part of our fleet. Omar Nokta: Okay. All right. Great. And then final one, and Gary, I think I may have asked you this perhaps last quarter, the one before, but just on the terminal, as you were highlighting in your opening remarks, it's held, I think, you said $252 million. You've got a final $4 million debt to pay off here in the fourth quarter, and then it's owned debt free. Just as you mentioned, looking to lock up financing for the new buildings, but what do you think about this -- about the terminal itself, given the long-term sort of contract nature of that business, it sort of lends itself perhaps to a nice financing package. What are you thinking? Is this something that you expect to finance in '26 or do you still want to own it fairly debt-free? Gary Chapman: Yes. I think what we've said before probably still stands and to a degree, goes back to a little bit maybe what Chris was talking about with our net debt being 0. I think the terminal itself, if we do put finance on it, it's not, at this stage, going to be cheaper financed than our vessels, and we've got vessels that we can use as collateral and raise money on those. So I think at the minute, we're not in a rush to do that. I think part of me raising it in this call as well is just to remind folks that it is there. It's substantial. And we don't, at the moment, leverage that asset on a financial basis, but it is a substantial asset for us as a business, and it's returning pretty good money over the long term. To answer your question, we probably will put finance on it at some point. I mean one of our strategic aims is to expand our port-to-port, if you like, business in terms of it supporting our shipping. So if another Morgan's Point opportunity came along somewhere else, then we may look at that, and that may be a really good opportunity to take the money out of that project and maybe put it into a new project. But at this moment, it's not top of our priority list, but it's certainly available to us, and we've had no shortage of people wanting to come and talk to us about it, put it that way. Unknown Analyst: Most has already been covered, but I want to ask you a modeling question. In the press release, total outstanding CapEx for newbuild additions is quoted at $480 million. And I was wondering, does it include 80% or 100% of the total CapEx associated to the ammonia and newbuild carriers? And secondly, is the $480 million figure net of the Enova grant? Gary Chapman: If you're referring to CapEx, then that will be the gross cost of the vessel, we would show financing separately to that. I'd have to go back and just check that number and make sure what's in and what's out. But essentially, we have put in the CapEx payable to the yard, not the sources of funds. So I can come back to you after this call and clarify with you, but I would expect that, that number is the gross cost of the vessels. Unknown Analyst: Yes. But I mean, is that only your proportionate amount that you need to put in or does that include also your partners? Gary Chapman: That would be our commitment. Unknown Analyst: And final question from me. Could you remind us what's your proportionate depreciation run rate on the ethylene export terminal? Randall Giveans: Yes. On an annual basis, the initial terminal is coming down by about for us, a little over $3 million per year. And then on the expansion, it's another $2 million or so. So we use about $5 million a year. Gary, target for financing the newbuildings in terms of size. Is there a goal to finance all remaining newbuilding costs or payments due on delivery? Gary Chapman: Yes. We're looking to answer that question right now. We've got some proposals out with various potential lenders. We're looking at a range of things to try and look to have an average LTV across all of the 6 vessels. We're not in a position where we need to over leverage those vessels but obviously, in the competitive banking market that we're at, at the moment and with Navigator's credit, we can push that a little bit higher than perhaps normal. So I think we're not going to be in very high leverage territory on average across all the 6 vessels, but maybe we'll have a difference between some of the vessels under different deals and transactions. Sorry, Randy, I don't have the question in front of me, so I'm not sure if I answered that. Randall Giveans: No, I think that covered it. And Paul, feel free to reach out to me, and we'll chat after this call but thanks again. Mads, last words? Mads Zacho: No. Thank you so much for listening in. I hope you got the impression that our laser focus is on ensuring that capital is returned to our shareholders. And with the Q3, the strength of the results here and the robust outlook for the next quarter or so that, that capacity should be sustained. So look forward to seeing you all in Houston. And I guess, Randy, you have another comment here. Randall Giveans: One more question. Charles, I think your line should be open now -- Chad, sorry. Unknown Analyst: Can you hear me now? Randall Giveans: Got you, Chad. Unknown Analyst: Great. So just on charter rates, moved to record levels in your business. I know it's early, but any insights on how 2026 is shaping up from a charter rate perspective? And any reason why this momentum that you've seen can't continue into next year? Oeyvind Lindeman: I think I'm going to lean on Mads comments. Barring external changes in tariffs or geopolitics, et cetera, et cetera, then the supply-demand balance looks positive, meaning that there are not that many ships coming, there's more growth in demand. So we remain optimistic on that. But the caveat is like we've seen this year, many things can happen that influences the business. But all things being equal, I think we're ending the year on a good note, as we mentioned, and then preparing for next year. Unknown Analyst: Okay. Got it. And then just on Morgan's Point contracting, what are the remaining items that potential customers kind of need to clear to start signing contracts? And is this a situation where we could see several come in quick order once kind of the first one gets signed? Randall Giveans: Yes. Thanks for the question. The first is securing supply domestically. I don't think that's a huge issue, right? We are oversupplied in ethylene here in the U.S. So on the other side, it's securing buyers. Now we're hearing about and seeing firsthand that European rationalization taking place where older, less efficient ethylene crackers are being shut in. So that has to be replaced. And a lot of that will be replaced by direct imports of U.S. ethylene. So that won't happen tomorrow, right, but it certainly has been happening in recent months and will continue in the coming quarters. To answer your second question, we believe so, right? We have term sheets out to several, I won't give you the exact number, but several potential offtakers. And I think once 1 or 2 sign, the others will quickly come as well because there is some scarcity here, right? There's a limited amount of offtake that is available. Sorry I cut you off there, Mads. Now we're done. Mads Zacho: No, no. Yes. Good. Thanks a lot, and I look forward to updating you all on our next quarterly call. And in the meantime, I hope many of you will join us in Houston in next week too, so we can show our terminal, our vessels and our plans for the year to come.