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Operator: Good day, and thank you for standing by. Welcome to the Frontier Group Holdings Quarter 3 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 first speaker today, David Erdman, Senior Director of Investor Relations. Please go ahead. David Erdman: Thank you, and good afternoon, everyone. Welcome to our third quarter 2025 earnings call. On the call with me in speaking order are Barry Biffle, Chief Executive Officer; Jimmy Dempsey, President; Bobby Schroeter, Chief Commercial Officer; and Mark Mitchell, Chief Financial Officer. Each will deliver brief prepared remarks, but before they do, I'll recite the customary safe harbor provisions. During this call, we will be making forward-looking statements, which are subject to risks and uncertainties. Actual results may differ materially from those predicted in these forward-looking statements. Additional information concerning risk factors, which could cause such differences are outlined in the announcement we released moments ago, along with reports we file with the Securities and Exchange Commission. We'll also be discussing non-GAAP financial measures, actual results of which are reconciled to the nearest comparable GAAP measure in the appendix of the earnings announcement. And as well, we'll be talking about stage adjusted unit metrics, which are based on 1,000 miles. So I'll give the floor to Barry to begin his prepared remarks. Barry? Barry Biffle: Thanks, David, and good afternoon, everyone. We delivered third quarter results per share at the midpoint of our guidance range, demonstrating disciplined execution as we navigated competitive fare pressures and excess peak capacity through the rigorous cost management. Operationally, our performance was noteworthy in September and October, ranking third and fourth, respectively, in completion factor among domestic carriers, underscoring our reliability and operational strength. Looking ahead, the competitive landscape is shifting in our favor. With our largest low-fare competitor significantly reducing capacity, we anticipate a more balanced supply-demand environment. This positions us to accelerate key commercial initiatives aimed at driving RASM growth and reinforcing our competitive advantage. Our strategy remains clear: to be the leading low-fare carrier in the top 20 U.S. metros. We are leveraging enhancements to our loyalty program and upgraded product offerings, including the rollout of first-class seating by spring, an important milestone in elevating customer experience and revenue opportunities. At the same time, we will continue to aggressively manage costs to preserve our industry-leading cost advantage, which is central to delivering sustainable margin improvement. I want to thank our 15,000 Team Frontier members, including pilots, flight attendants, mechanics, airport staff and more, whose dedication enables us to deliver the exceptional service and execute on our strategy every day. I'll now turn the call over to Jimmy for commercial review. Jimmy? James Dempsey: Thanks, Barry, and good afternoon, everyone. In the third quarter, total revenue was $886 million on 4% lower capacity year-over-year. Revenue per passenger rose to $106, up 1% from the prior year, supported by an 81% load factor, nearly 3 points higher than last year. RASM was $0.0914 and stage-adjusted RASM improved 2% year-over-year to $0.0876, reflecting disciplined capacity deployment. For the fourth quarter, we expect capacity to be roughly flat year-over-year with an average stage length of approximately 890 miles. Importantly, competitive seat capacity is projected to decline by 2 percentage points, including significant reductions by Spirit Airlines, which is exiting 36 overlapping routes and reducing frequencies by 30% across 41 others in December. This dynamic should drive sequential improvement in stage-adjusted RASM and supports our confidence as we plan for 2026. We expect to return to growth next year given the developing competitive landscape, and we'll provide formal 2026 capacity guidance on our next earnings update. To capitalize on emerging opportunities, we announced 42 new routes launching through early 2026, expanding our presence in major metro areas such as Atlanta, Baltimore, Charlotte, Chicago, Dallas-Fort Worth, Detroit, Fort Lauderdale and Houston, along with new international destinations, including Guatemala, Honduras, Mexico, Turks and Caicos and the Bahamas. These additions reinforce our commitment to scale and strengthen our network. Finally, I'm pleased to welcome Jeff Matthew as our new Chief Information Officer. Jeff brings deep experience leading large-scale IT organizations and will accelerate our digital transformation, enhancing customer engagement and driving efficiency. I'll now hand it over to Bobby to provide a brief loyalty update. Robert "Bobby" Schroeter: Thanks, Jimmy. The significant investments in our loyalty assets, including Frontier Miles, our co-brand credit card, Go Wild Pass and Discount Den generated approximately $7.50 in revenue per passenger in the third quarter, up more than 40% year-over-year, driven by enhancements that resonate with higher income, higher credit customers. Frontier Miles now offers the most attainable elite status in the industry with meaningful benefits like premium seat upgrades, free bags and unlimited companion travel. We've expanded redemption options through miles for bundles and improved boarding for our most loyal customers. In addition, cardholders received 2 free check bags, a benefit we introduced last year that has been very well received, and we recently introduced free companion passes with the credit card. These initiatives are fueling engagement and position us to double loyalty revenue per passenger over time, creating a durable high-margin revenue stream. I'll turn it over to Mark now for the financial update. Mark Mitchell: Thanks, Bobby, and good afternoon, everyone. Recapping our cost performance during the third quarter. Our nonfuel operating expenses were $729 million, down 6% sequentially, driven largely by fleet impacts associated with spare engine inductions and related sale-leaseback financing gains. The increase in nonfuel expenses over the prior year quarter was primarily related to a onetime $38 million nonrecurring credit tied to a legal settlement recognized in the 2024 quarter and fleet-related growth. On a unit basis, adjusted CASM ex fuel in the third quarter was $0.0753, 9% higher year-over-year due largely to a 15% reduction in aircraft utilization resulting from our disciplined capacity deployment primarily on off-peak days. Fuel expense was $234 million, down 10% year-over-year, driven mainly by a 5% decrease in the average fuel cost, 4% lower capacity and slightly higher fuel efficiency. We generated 105 ASMs per gallon in the quarter, 2% higher than the corresponding '24 quarter. Third quarter net loss was $77 million, including $1 million of tax expense, resulting in a net loss per share of $0.34 at the midpoint of our guidance. We ended the quarter with $691 million in total liquidity, in addition, post quarter end, we issued a $105 million par value note in a private placement that is secured by substantially all of the spare parts and tooling related to our fleet of A320 family aircraft. The note matures in 2032. Pro forma for this transaction, liquidity on September 30 was approximately 21% of trailing 12 months revenue. Briefly recapping fleet activity during the quarter, we took delivery of 2 A321neo aircraft, both financed with sale-leaseback transactions, bringing our total aircraft fleet to 166 at quarter end. We expect another 10 aircraft deliveries in the fourth quarter, our largest quarterly allocation of the year, comprised of 7 A320neos and 3 A321neos, of which all have committed sale-leaseback financing. Following the agreement with Pratt executed in July, we took delivery of 6 GTF spare engines in the third quarter, all of which were financed with sale-leaseback transactions. We expect to take delivery of another 10 GTF spare engines in the fourth quarter, which we also expect to finance with sale-leaseback transactions. Turning to guidance. As provided in this afternoon's announcement, we expect fourth quarter adjusted earnings between $0.04 and $0.20 per diluted share on capacity, which is expected to be roughly flat year-over-year. The average all-in fuel cost is expected to be $2.50 per gallon, which is $0.09 higher relative to the prior quarter forward curve indication. Our fourth quarter guidance reflects an expected improvement in competitive overlap capacity versus the prior year quarter, continued progress across key commercial initiatives, fleet-related financing activities and jet fuel prices, which are elevated relative to the prior quarter guidance expectation. Lastly, we do not expect a material tax provision in the fourth quarter due to a cumulative tax loss carryforward, which will largely offset any tax expense. Thanks again, everyone. And operator, we're ready to begin the Q&A segment. Operator: [Operator Instructions] Our first question comes from Ravi Shanker of Morgan Stanley. Ravi Shanker: Just a couple of questions on the competitive capacity here. Obviously, you guys are being pretty disciplined right now with flat growth next quarter. But what's the rest of the industry potentially fills in for the capacity that's coming out here and we end up in roughly the same situation that we had before? Barry Biffle: I don't think that's likely. Thanks for the question. Look, the capacity that's coming out right now is some of the lowest cost capacity and some of the lowest yielding customers. The only ones that could actually profit off that is actually us. So, I just don't see that being replaced by big airlines. It's not their business. Ravi Shanker: Understood. Maybe a quick follow-up. Kind of how long do you think the tailwind here lasts? And is this something that is really strong out of the gate kind of given the disruption? Or do you think it gets kind of better, if you will, from your perspective, the long way it goes on? Barry Biffle: Well, I wish I knew the answer to the pace of that. I mean it's dribbling pretty good tailwind right now. Could that tailwind go from 30 miles an hour to 100 miles an hour? Possibly it increases, but we see a lot of tailwinds over the next year. At some point, it's going to change. But right now, we see a pretty good path to a very good environment for Frontier. Operator: Our next question comes from Atul Maheswari of UBS. Atul Maheswari: I have a question on the government shutdown. There's just recent news that if a deal is not reached by November 7, we're looking at 10% cuts across the top 40 airports. If that were to come to pass, what would be the financial impact on Frontier? Presumably, this is good for RASM for the fourth quarter, but then you would end up carrying excess costs. So maybe can you help us dimensionalize relative to your current guidance, like how much of an incremental risk this would be? Barry Biffle: We -- listen, we've heard about this in the last 20 minutes just like you did. My knee-jerk reaction is we need to figure out how to make sure we can accommodate all of our customers. I guess the good news here is that we're in a low demand period of November. I mean the high demand, obviously, is Thanksgiving. So, I think we'll be able to accommodate everyone. And so I would actually expect on balance, this is probably a positive just simply because of the RASM that we're going to generate on less flights. But I think that the customer disruption is more my larger concern. But I don't see this being a major impact to us. Atul Maheswari: Okay. Got it. That's fair. And then as my follow-up, Boeing recently announced that is expecting certification to MAX 10 next year and with some aircraft in inventory that it already has that is ready to be delivered upon certification. So, assuming this does come to pass and this happens in '26 and the legacies get hold of this aircraft, they're likely to use this higher gauge asset to expand the basic economy type of offering, which directly competes with the product that you have in the marketplace. So, the question then is how much of a risk does this present to Frontier next year and beyond? And what would you do to counter this risk going forward? Barry Biffle: I think the main risk is probably anyone holding the residual value of a 737-100. I don't think it's a challenge to us. I think if you look at the situation, we see less capacity in our markets, not more. And I don't see basic economy improving. I mean just think about that relatively definite math. It doesn't improve your margins to expand basic economy selling product below your cost. So, I don't think that's going to be a major opportunity. You've seen across the industry, domestic profits have been under pressure. So, I think that I think cooler heads are going to prevail on capacity over the next year. This may enable them to be more efficient, but I think you actually see the lesser efficient aircraft leave the United States. Operator: Our next question comes from Brandon Oglenski of Barclays. Brandon Oglenski: Comrades. Good afternoon and thanks for taking the question from the people of comm union of New York. Barry, well, there is going to be free bus travel here. So, I don't know that might be a competitive mode looking forward. But Barry, in all seriousness, can you talk to how Spirit cutting in November has maybe changed the pricing dynamic here closer in on the fourth quarter? Because I suspect that they were pretty close in booked to begin with. Barry Biffle: Yes. I think, look, I mean, look, we were really excited, I would say, 2 months ago when things started changing over there, and we started seeing some book away. And then you got to, I guess, probably second week of September. And unfortunately, what we believe is their book away caused them to drop their fares dramatically. And so we saw a significant drop to fares that had been improving, by the way. I mean, on our last call, we were staring at advanced yields going up considerably year-over-year and then they went down. Now we're getting into a better phase. So, the fares are now restoring. It did do damage to September and again to October. But we're getting into the capacity cut phase. And I think this will give a sugar high to them for RASM, right, because they would consolidate flights. But it's starting to show up and be meaningful to us. And I don't think it's going to benefit this quarter that much. But like this morning, we just -- we haven't had a chance to flow it through, but they pulled out of another 5 cities. So, I expect that this continues to improve, and we think it's pretty meaningful. Where they have cut, we've seen high single digits plus RASM improvements where they're cutting. So this is going to continue. I think this is going to be really meaningful for Frontier. Brandon Oglenski: Okay. I appreciate that response. And you guys talked a lot about loyalty on this call. I mean can you give us your initial impact from Southwest maybe recently? And more importantly, especially as you look to launch First Class, like are you seeing more momentum on that angle? Barry Biffle: Yes. So, look, I mean, we haven't gotten the benefit of First Class yet, but we'll work backwards from your question, and Jimmy or Bobby can chime in. But First Class is going to be wildly accretive, right, because we haven't had that product, and we know the demand is there. So that's going to be worth several points next year. But I think if you look at the loyalty, there's no real benefit, I don't think necessarily from Southwest. It's mainly all the investments we've made over the last year. I don't know, Bobby, if you want to kind of add to that? Robert "Bobby" Schroeter: Yes. This is Bobby. So, we talked about what we added quite a bit in terms of benefits that we've had over the past really 1.5 years, 2 years, a lot of that actually kind of building up to this past year as well as we transformed what we're providing some of the elite tiers, the accessibility we're providing that. So, look, in the end, we've created a program that is the most rewarding in the sky. And it is something where people can get to these elite tiers much faster than you see with other airlines. They actually are getting those benefits where it might be more difficult to see those at other airlines as well. We've talked before, you get a much higher conversion rate on seat upgrades at 80% on our top tiers. They're getting 80% upgrades to our top premium seat upgrade there. So, they're also getting free bagged, and we've added free companions on not only the higher elite tiers, but also that's unlimited companion travel, but also on the credit card, you're getting companion passes as you spend and hit certain milestones. So, just a lot that we've put into this, and you're seeing the engagement there. Look, you have a lot of people out there that are disenfranchised with their other programs, whether those are airlines or other types of travel programs or other credit cards. We're providing an incredible value there, and you're seeing people not only engage in terms of acquisition, but also spend. I mean spend was up tremendously year-over-year because people are wanting to move up that ladder in terms of elite status because they see the benefits that they're getting. Barry Biffle: And I would just add, I mean, and Brandon, you're old enough to remember, I mean, the Starwood program in the 2000s was just amazing, and they kind of used their costs and so forth to build that loyalty and that credit card was one of the -- consistently one of the top-ranked cards. And now that we've kind of got it underway, we sat down 1.5 years, 2 years ago and said, we've got the lowest cost. We should be able to provide the most value and loyalty. And so, we have made methodical changes over the last year, 1.5 years, as Bobby mentioned, and now we're starting to see the benefits of that. And it's early. But when you see 40% jump to the loyalty ecosystem year-over-year, we're on a track. And so, we're doing in the $7, $7.5 range, and we can see that doubling in pretty short order. So, we're pretty excited about it. I think it's one of the key pillars to getting back to sustainable margins, but it's a big part of what we're doing. And the savings that people get are real like I mean it's thousands of dollars a year that you can save if you use this card. And to Bobby's point, when he mentioned kind of the disenfranchise, what we're seeing is the customer that just flies a couple of times a year on one of the big airlines, they don't have the actual tier that they need to get really upgraded. They're #36 on the upgrade list. They never get upgraded. And so, when they take that spend and put it on our card, they actually get rewarded with real loyalty. They get real upgrades, and that upgrade is not going to be upfront plus next year, it's going to be first class. So – so, I think that we've just started. We're kind of in the first inning or 2, but we are going to close the gap on loyalty revenues with the big guys, and this is going to be a material part of our discussions, I think, in the quarters to come. Robert "Bobby" Schroeter: Yes. And just on the -- just a quick add to on First Class. I mean, obviously, we're going to be selling that, and we anticipate a variety of the income coming from just people buying it outright. But that is a product that, again, those disenfranchised customers with other programs have the opportunity to get upgraded to that they would never see. And with us, they will be able to see that at a much lower rate. Therefore, they'll get it faster. So, we're excited about that. Brandon Oglenski: And #36 on the upgrade sounds good to me. I'm usually way behind that. Operator: Our next question comes from Savi Syth of Raymond James. Unknown Analyst: This is Carter on for Savi. I was wondering what you guys are seeing on pricing in your Spirit overlap markets relative to your other markets more broadly? And are you seeing anything different in Fort Lauderdale where you guys most recently added service? Barry Biffle: Look, I mean, I think I mentioned this a while ago, we saw pricing go down after they filed. We've seen that kind of recover now. And we've seen our pricing obviously go up in those markets. So, I wouldn't say it's over, but -- and then obviously, they're trimming capacity and pulling out, so there is no more pricing in some of those. So, I think it's stabilized. Unknown Analyst: Got it. And then just for my follow-up, I want to clarify, does your earlier comment about returning to growth in 2026 mean you're no longer planning on having flattish capacity through the first half of '26? Or is that more of just a comment of returning to growth in the back half? Barry Biffle: It's a very dynamic situation right now. I mean we're watching the competitive situation. And based on how that plays out, we have the ability to flex up or down. But we believe there will be opportunities for us in our cost structure to kind of replace that capacity in several places. And if so, that will dictate growth. But it's -- we'll update everybody by Q1 in our next call because I think most of this -- we believe most of this should be sorted out by then. Operator: Our next question comes from Michael Linenberg of Deutsche Bank. Shannon Doherty: This is Shannon Doherty on for Mike. Barry, earlier this year, we were talking about double-digit margins by the summer of '25. Obviously, Liberation Day threw a monkey wrench into that plan. But do you see a path back to double-digit margins in '26 with the current competitive landscape? And if so, can you help us bridge just there from today? Barry Biffle: Well, look, I mean, we didn't plan on all of the things that happened in the turmoil in the front half of this year and what has happened. But I can tell you that as far as our pillars of kind of path back to sustainable profitability, look, I think doubling our loyalty revenues from where it is, introducing first class, getting that premium, getting kind of our fair share of that premium as well as the fair share of loyalty. I think the competitive capacity reduction, as we've talked about, I mean, that's going to be a huge tailwind for us going into next year. And then we're going to double down on our costs. I know everybody kind of accepts the inflation, but we're going to double down. We hope to have all that ready to lay out at the next call. But you're going to see kind of another wave of us kind of pushing further down on cost to ensure that we maintain a wide margin of cost advantage versus the industry. And we're going to continue to improve our operation. Our complaints are down dramatically year-over-year. We continue to be kind of 30%, 40% down every month year-over-year in complaints, and that's kind of tied to what's happened with our improvement in the operations. So, I'm not going to declare the day we're going to get back to any margin target, but I can tell you that there's plenty of fundamentals that are in our favor at this point. Shannon Doherty: And maybe a follow-up on like thinking our growth for next year. Will Spirit cutting deeper than 20% next year, maybe a lot more be the determining factor of unlocking growth again? I mean, clearly, you are carrying a lot of extra costs, taking down aircraft utilization and you want to get back to growth. So, I'm just trying to figure out what gets you there. James Dempsey: Yes, Shannon, it's Jimmy here. Look, we're watching what's happening in terms of network deployment across the industry, including Spirit at the moment. And there are certainly opportunities that are existing. You've seen us launch some stuff across the United States in the last couple of months that fill in for some capacity that we think is going to be adjusted in their network. Whether that drives material growth next year or not, we don't know. We've got to see how things develop in the next 2 or 3 months. Hence, we're kind of deferring to the next earnings call to give you an insight into our growth. But clearly, we have a substantial body of aircraft that we can deploy to infill for any disruptive capacity that comes out of the marketplace in the next couple of months. And so, we're positioned for that. As I said in the last earnings call, it does take time from a growth perspective to hire and train pilots and get them deployed in our network. And that's typically a 6- to 8-month process. And so, any meaningful growth will occur sometime Q2 or Q3 or Q4 next year, depending on our view over the next couple of months and what we want to do in terms of growing the airline into opportunities that crop up. Operator: Our next question comes from Duane Pfennigwerth of Evercore ISI. Duane Pfennigwerth: Just one question for me for the team. How has your thinking about consolidation of the ULCC sector evolved or changed over the last 90 days? Barry Biffle: Good to hear from you, Duane. I don't know that it's changed. I think we're going to see -- and I've said this before, I think you're going to see less capacity in the United States. And I don't know if that's a U.S. ULCC thing. I think it's just a domestic capacity thing. And I think it will be far beyond just the ULCC space. I think you're going to see a lot less seats. Consolidation is one of the mechanisms to help facilitate that, but it's not the only way to get there. But I do think there'll be less seats. There's another carrier that is not a ULCC that we suspect is going to shrink a considerable amount over the next year. So, I think a seat is a seat and the more that go out, it's probably constructive to the supply and demand balance as we move into '26. Operator: Our next question comes from Scott Group of Wolfe Research. Ryan Capozzi: This is Ryan Capozzi on for Scott. So, aircraft utilization has been down pretty significantly so far this year. Just curious how we should think about utilization levels into 4Q and really more so into next year? Barry Biffle: Yes. I mean from a utilization standpoint, I mean, I think to Jimmy's point, when you look at the lead time that's needed to ramp that up, I mean, from the environment that we sit in today, the overall macro environment, I think you'll see consistency and where we've been Q3 to Q4 from a utilization standpoint. But then as both Jimmy and Barry have mentioned, as you look into '26, we need to evaluate what that landscape looks like and how we want to move forward with utilization. Obviously, the higher you're able to drive that, that brings down unit cost. So, there's positive there, but you just need to balance that with the larger macro. James Dempsey: Yes. And just to give a little context, we have -- there's 2 things going on with the fleet. One is you have a delivery order book that can provide growth, and then you can also utilize your assets more. And what we've been doing in the last 8 to 9 months is reducing some utilization on the asset base. What you're likely to see as you progress through next year is growth more on peak days and off-peak days through new aircraft deliveries, which is healthy growth coming into the business. Whether we choose to do higher utilization or not, that's something that we have to consider going into next year to see where the competitive capacity environment looks. Ryan Capozzi: Got it. Appreciate the color there. And then I guess on competitive capacity, I think you had mentioned 2 percentage points of improvement in 4Q. Any sense of what level of reductions you're expecting in 1Q here? James Dempsey: Look, we haven't quantified the level of reductions that we expect. As people solidify their schedules going into Q1, we'll have more of an insight into that in the coming month or 2. Operator: Our next question comes from Jamie Baker of JPMorgan Securities. James Kirby: This is James on for Jamie. A lot of questions about domestic capacity. Maybe just a question on the international routes you guys announced and what you're seeing there, particularly how RASM is trending into 4Q and 2026? Barry Biffle: Yes. I mean -- so just you're talking about the fourth quarter starts. We've been seeing some pretty good results happy with the new routes, specifically, as you brought up within the Latin America kind of VFR or Latin VFR routes that are launching sort of in the holiday, Christmas, three Kings peak period. So pretty excited about the results that we've been seeing so far. James Kirby: Okay. Got it. And then for my second question, we're seeing smaller regional airlines enter the market? I'm just in the past few years, are you seeing any -- particularly in the routes that Spirit exited, are you seeing any of those airlines come in to fill that capacity that you're now competing with? Barry Biffle: No, we're not really seeing that. I mean, look, I think the landscape has become pretty clear. I mean Frontier has been the one to outplay and out last. And so, I don't think that -- I don't see a new entrant trying to come in on some of the things that we're doing. Operator: Our next question comes from Tom Fitzgerald of TD Cowen. Thomas Fitzgerald: I'm curious on the loyalty program, if you're -- where you're seeing the most strength in sign-ups and whether it's just kind of any place where you have a base or a decent enough schedule density of those particular markets that stand out? Barry Biffle: Yes. Look, it's obviously where we have bases. We've got 13 bases and then we've got large concentrations, right, in other cities, Raleigh, Baltimore, New York and so forth. But I mean, it's where you would expect. I mean customers, you've got to be able to earn it when you fly and you've got to be able to use it. So, it kind of fits our geography. But I think the big thing that's changed, I mean, obviously, to see this kind of growth when we're not actually growing the airline right now is actually really impressive. James Dempsey: Yes, I mean, to echo what Barry said, you're going to see it where there's relevance on both the network and the program and where you can -- you're looking for aspirational opportunities where you can go and then, frankly, the benefits you can get from that. And we're hitting on all those things. Thomas Fitzgerald: That's really helpful. And then just curious on first-class seating as you kind of just keep going up market. Is there a -- do you assume any like time for that -- those products to mature in the market? Or do you think it hits right away? And I'm wondering if there's any like kind of if you're upgrading a lot at the beginning to kind of entice people to get them familiar with the product if then it shows up in the revenue, but if it's a lot of it's upgrades or if there's like a noncash component. Barry Biffle: Yes, thanks. So look, I mean, we're not expecting it to go to full maturity. That could take honestly, years. I mean -- but you're going to see an immediate benefit in the product moving to first from just having Upfront Plus. It took us about a year for Upfront Plus. At first, a lot of people got it for free and so forth. And our top Elites will get upgraded into it, which is what helps kind of feed the loyalty asset ecosystem. But you're going to mature as more people figure it out. I mean, at the end of the day, we've observed in the United States a huge change in the appetite for leisure customers to pay for first class seats. And we believe that given our cost structure, we can deliver a first-class seat cheaper than anyone. And so we're going to obviously benefit from not only having a premium product, but it's going to be priced at a level that you won't see for the big guys. So, I mean, I wouldn't be surprised that we're going to be priced under a premium economy seat in many cases. But yet for us, that could double the revenue we're getting per passenger. So, it's great for us, and I think it's going to be great for consumers, but it could take 1 to 3 years to get -- reach full maturity. But it will be huge. I think it's going to be huge, not just for our kind of our revenue on board, but also in the credit card because at the end of the day, I mean, that frustration about people getting upgraded at the big airlines, you're going to get real value with Frontier with that product, but it will take time. Operator: Our next question comes from Daniel McKenzie of Seaport Global. Daniel McKenzie: I just have 2 house cleaning questions and then one other question just following up on Duane's. But the house cleaning questions, it looks like full-time equivalents are down 6% year-over-year, but unit labor costs are up 10%. So I'm just wondering if you can square that dynamic. And I guess what I'm really wondering here is if it's just the beginning of sort of unit cost derisking for future labor deals. And then the second housecleaning question is, what percent of the network you expect will be premiumized, so to speak, by year-end '26? Barry Biffle: Well, there are several things going on, on the salary wage and benefits. I mean we, we stopped hiring flight attendants and what happens when you're looking at in your numbers, we actually were largely kind of rightsized, I guess, on the flight attendants, but we carried a lot -- hundreds and hundreds of extra pilots. So, I think it's a little -- I think that's just a mathematical nuance. As we get back to hiring flight attendants as an example, I think you'll see the numerator and denominator change. And I'm sorry, what was the second question? Daniel McKenzie: Just the percent of the network that will be premiumized by year-end '26. Barry Biffle: Okay. Well, 100% of the fleet will actually have the first class product. And look, it's 8 seats. We've got 202, give or take. I mean, it's going to be 4% of your seats. So, it's pretty rough -- it's pretty simple math, right? If you take 4% of your seats and we end up getting paid close to double what we were getting on the others, once this is rolling out, this is a material jump in your RASM. Daniel McKenzie: Yes. Second question here, just following up on Duane's question. Some of Spirit's creditors are pushing their management team for a merger and Frontier is the most -- one of the most logical airlines, of course. And I guess just to kind of push on that a little bit further is, has that ship sailed as far as Frontier is concerned, just given the network overlap? Or is that -- I guess my question really is if that were to become a possibility at some point in the future, is that network overlap manageable, say, with carve-outs or givebacks? Barry Biffle: I'm not going to comment on merger. We spent a lot of time on this in the past. I've spoken about it a lot. We're not going to comment on I'll go back to, we see significant opportunity for Frontier focusing on our business and what we see is pretty significant tailwinds to our business due to competitive capacity. And we don't see that changing. We've not seen anything that's going to change that opinion. And again, every day, it seems to get better for us. I mean they just closed another 5 cities or announced closing another 5 cities today, including like Phoenix, St. Louis, Milwaukee. So, these are all key cities for Frontier. So, we see pretty good upside, but we're not talking about a merger. Operator: Our next question comes from Christopher Stathoulopoulos of SIG. Christopher Stathoulopoulos: Barry, I wanted to ask for an update on the revenue initiatives because there's a lot going on here. I heard [ $715 ] per passenger in the third quarter. But the comment you made 2 questions ago, I think it was first class priced. I think you gave a price point or you quantified a certain percentage below a basic economy seat or what I took to be an entry-level product versus, I'm assuming network peers. Barry Biffle: I said premium economy on one of the big airlines, not basic. Christopher Stathoulopoulos: Okay. Okay. Maybe -- I think that's an interesting point. If you could speak to is that in select markets? And I think you said that that's going to take 2 to 3 years to mature. I think that's an important point and one that I hope you could give some more color. Barry Biffle: Look, I think we'll get somewhere between 60% to 80% of the benefit within the first year, right? I think for it to fully mature, it will take you a few years. But it will be additive incremental -- it will be positive ROI within months. I mean -- and so -- and when you think about the pricing, I'll just go back to the pricing. I mean, if you look where we fly today, it's not uncommon for us to have a $49 fare and maybe the legacies have got a $69, $79 basic economy, but then they're $400 or $500 for first class. And so I think you could see us easily being in that $200 to $250 range for first class. And it's going to be a smacking deal for anybody that wants to fly first class, but it's going to be a huge improvement. I mean we're going to take 4 seats off the plane that were actually the lowest fares that we were selling, and they're now going to become the highest fares we're selling. That's a huge move on your RASM when you do something like that. So this will be a massive improvement to us. But we -- I mean, look, the pricing is going to be dynamic by route, by day and depending upon the situation. Christopher Stathoulopoulos: Okay. Great. And the comment on the down to competitive capacity for the fourth quarter, I'm guessing that's your system or select routes. And then if there are any markets where you're seeing, I guess, better or worse in so far as additions or deletions from competitors? Barry Biffle: Yes. I mean there's a number of routes where -- I mean, Jimmy spoke about this in his prepared remarks. But Jimmy, I don't know if you want to remind them of the numbers there. James Dempsey: Yes, we've seen a significant change in 2 areas. One is where they've exited markets. And so we've seen them exit about 36 routes that overlap with us. And we've also seen a significant reduction in frequencies, about 30% across 41 other markets. So, it's a considerable change in overlap capacity between us and Spirit. And it's across the system in a lot of cases. But the predominance particularly in the West. Operator: I am showing no further questions at this time. I would now like to turn it back to the Chief Executive Officer, Barry Biffle, for closing remarks. Barry Biffle: I want to thank everybody for calling in. We're really excited about the future and things have really kind of turned around from a foundational perspective. So I look forward to updating you again and talking to you again in the new year. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Graeme Jennings: " Renaud Adams: " Marthinus Theunissen: " Bruno Lemelin: " Sathish Kasinathan: " BofA Securities, Research Division Tanya Jakusconek: " Scotiabank Global Banking and Markets, Research Division Anita Soni: " CIBC Capital Markets, Research Division Mohamed Sidibe: " National Bank Financial, Inc., Research Division[ id="-1" name="Operator" /> Thank you for standing by. This is your conference operator. Welcome to the IAMGOLD Third Quarter 2025 Operating and Financial Results Conference Call and Webcast. [Operator Instructions] The conference call is being recorded. [Operator Instructions] At this time, I would like to turn the conference over to Graeme Jennings, Vice President of Investor Relations for IAMGOLD. Please go ahead, Mr. Jennings. Graeme Jennings: Thank you, operator, and welcome, everyone, to our conference call today. Joining us on the call are Reno Adams, President and Chief Executive Officer; Martin Newson, Chief Financial Officer; Bruno Lemelin, Chief Operating Officer; Annie Torkia Lagace, Chief Legal and Strategy Officer; and Dorna Quinn, Chief People Officer. We are calling today from IAMGOLD's Toronto office, which is located on Treaty 13 territory on the traditional lands of many nations, including the Mississaugas of the Credit, Anishinaabe , the Chippewa, Haudenosaunee and the Wendat Peoples. At IAMGOLD we believe respecting and upholding indigenous rights is founded upon relationships that foster trust, transparency and mutual respect. Please note that our remarks on this call will include forward-looking statements and refer to non-IFRS measures. We encourage you to refer to the cautionary statements and disclosures on non-IFRS measures included in the presentation and reconciliations of these measures in our most recent MD&A, each under the heading non-GAAP Financial Measures. With respect to the technical information to be discussed, please refer to the information in the presentation under the heading Qualified Person and Technical Information. The slides referenced on this call can be viewed on our website. I'll now turn the call over to our President and CEO, Renaud Adams. Renaud Adams: Thank you, Graham, and good morning, everyone, and thank you for joining us today. This is an exciting time for IAMGOLD with another quarter of production, led by strong performance at Cote Gold and Esakana mines, helping to fuel record cash flow generation for the company. The current strong gold market has been very well timed for IAMGOLD, coinciding with the advancement of our assets, allowing the company to advance our strategic plans ahead of schedule. We are proud of this transformation and also to introduce today our new logo and refreshed brand, which we believe reflects who we are today. We are extremely proud of our roots and history. But now our name stands for innovative, accountable mining. IAMGOLD is a modern gold mining company that is proudly Canadian with strong cash flow and significant long-term growth opportunities ahead. We mine with a mining redefined purpose in mind, putting safety, responsibility and people first. We hold ourselves accountable and embrace change and drive innovations at every level from smarter systems and technology to better ways of working. There are many highlights to discuss for IAMGOLD today from our operations, financial achievement and an improved share buyback program, which remains subject to TSX approval. We will also discuss our forward-looking plans, including the expansion scenario for Cote Gold, which is expected to demonstrate significant upside to the current mine plan at Cote. Finally, we will cover the recent announcement of acquisitions to consolidate the Chibougamau region in Quebec to create an elegant complex. These transactions further position IAMGOLD as a leading modern Canadian-focused multi-asset gold mining company. I am proud of our team's achievement and remain confident in our ability to deliver enduring values for our investors and partners while maintaining a steadfast commitment to safety and accountability. Turning to the quarter, and we're now on Slide 5. At IAMGOLD, the safety of our people and communities remains our top priority. In the third quarter, our total recordable injury rate was 0.56, a 15% improvement year-over-year on a 12 months rolling average and comparing well with our industry peers. We are focused on advancing our critical risk management program, including an important integration of contractor into the IAMGOLD way of safety management with the goal to reduce high potential incidents. Looking at operations on an attributable basis, IAMGOLD produced 190,000 ounces of gold in the third quarter. The quarterly performance was led by strong results at Cote, which produced a record 106,000 ounces on a 100% basis. followed by improved quarter-over-quarter attributable production at Essakane as the mine saw grades bounce back while mining deeper into Phase 7 of the pit. Year-to-date, IAMGOLD has reported 524,000 ounces of attributable production. As we will walk through in a moment, production is expected to be the highest in the fourth quarter, positioning the company well to achieve our guidance target of 735,000 to 825,000 ounces of gold this year. On a cost basis, IAMGOLD reported third quarter cash cost of $1,588 an ounce and an all-in sustaining cost of $1,956 an ounce. Costs remain higher year-to-date as the record gold prices directly translate into higher royalty compound with the new royalty regime in Burkina Faso as well as higher unit costs at Cote from an increased proportion of supplementary contracted crushing to stabilize operations during our first full shutdown and until the second cone crusher is installed in the fourth quarter. Cash costs and all-in sustaining costs for the year are expected to be at the top end of the guidance range, though we expect to see a strong end to the year with higher expected cash flow in the fourth quarter on an improved production and higher margins. With that, I will pass the call over to our CFO to walk us through our financial highlights. Maarten? Marthinus Theunissen: Thank you, Rud, and good morning, everyone. It was indeed an important quarter for IAMGOLD as we were able to use the strong financial results to take significant steps towards our goal of delevering the company and advancing our plans to reward shareholders. Mine site free cash flow was $292.5 million in the third quarter, a record achieved of IAMGOLD's high production levels following the ramp-up of project, increasing the company's exposure to the gold price during a record high gold price environment. The record mine site free cash flow improves our financial position and the company's net debt was reduced by $210.7 million to $813.2 million at the end of the third quarter. IAMGOLD had $314.3 million in cash and cash equivalents and approximately $391.9 million available on the credit facility resulting in total liquidity at the end of the third quarter of approximately $707.2 million. As we noted last quarter, Essakane declared a significant dividend in June of approximately $855 million, representing all of the undistributed profits of Essakane up to and including the 2024 financial year. IAMGOLD's 85% portion of the dividend net of taxes was approximately $680 million and is expected to be paid over the next 12 months through a revised framework that enables payments to be made at any time of the year based on the cash generated in excess of working capital requirements by Essakane. At September 30, $186 million of IAMGOLD's consolidated cash and cash equivalents was held by Essakane in Burkina Faso. -- which was used to pay IAMGOLD a dividend of $98 million in early October. The remaining portion of the company's dividend receivable was converted into a shareholder account with the first payment against the shareholder account of $56 million also received in October. The company expects to receive monthly payments going forward. These funds were used to make additional payments of $170 million against the company's second lien notes with $130 million of the original $400 million remaining outstanding on the 4th of November. Holistically, when we consider our liquidity outlook under high gold price environment, we are in the fortunate position to continue to repay debt and commence in the not-too-distant future on another of our strategic initiatives, which is to reward our shareholders. Accordingly, subsequent to quarter end, our Board of Directors approved a share buyback program to be put in place through an NCIB program, allowing for the purchase of up to approximately 10% of IAMGOLD's outstanding common shares. All common shares purchased under the NCIB will be either canceled or placed under trust to satisfy future obligations under the company's share incentive plan. IAMGOLD will file a notice of intention to implement an NCIB with the TSX and which is subject to TSX approval. Following the approval, IAMGOLD will be allowed to purchase these common shares over a 12-month period in the open market. This initiative reflects management confidence in the company's long-term value and its commitment to disciplined capital allocation. The actual number of common shares that may be purchased if any, and the timing of such purchases will be determined by the company based on a number of factors, including the company's financial performance, the availability of cash flows and the consideration of other uses of cash, including capital investment opportunities and debt reduction. Turning to our financial results. Revenues from continuing operations totaled $706.7 million from sales of 203,000 ounces on a 100% basis at a record average realized price of $3,492 per ounce. Cost of sales, excluding depreciation, was $324.2 million and adjusted EBITDA was a record $359.5 million compared to $221.7 million in the third quarter last year. At the bottom line, adjusted earnings per share in the third quarter was $0.30. Looking at the cash flow waterfall on the left side of Slide 7, we can see the year-to-date impact on our operating cash flow of the gold prepay deliveries, which we completed in June as well as the impact of the second lien term payment and the dividend payment to the government of Burkina Faso following its account driven declaration. On a mine site free cash flow IAMGOLD generated $292.3 million in the third quarter, including $135.6 million from Cote and $150.5 million from Essakane, driven by higher revenues due to the higher realized gold price, partially offset by higher production costs. And with that, I will pass the call to Bruno Lemelin, our Chief Operations Officer, to discuss our operating results. Bruno? Bruno Lemelin: Thank you, Martin. Starting with Cote Gold, it was a strong quarter with Cote reaching new milestones while maintaining stable performance at the processing plant. Notably, the plant underwent its first full shutdown in August, which was executed successfully. I'm very proud of our team at Cote. It's important to remember that it's still the first full year of operation at the mine with nameplate throughput achieved at the end of Q2. Our teams are learning every day how to better position Cote for success, including the refinement of the mine plan of the maintenance schedules and identifying efficiency to drive continuous improvement. Now looking at the third quarter, Cote produced 106,000 ounces on a 100% basis, which is a record quarter of production for the mine. Mining activity totaled 11.5 million tonnes in the quarter with 3.8 million ore tonnes mined equating to a strip ratio of 2:1. The average grade mined was 0.96 gram per tonne in line with plan and demonstrating good reconciliation with our reserve and grade control model. Looking ahead, mining activities will continue to work on extending the pit perimeter to support efficient gold mining and also in preparation for the future expansion of Cote. On processing, mill throughput totaled 3 million tonnes in the quarter, averaging near nameplate in July and September. The first annual maintenance shutdown in August was successful with the comprehensive maintenance cycle completed and including the replacement of the high-pressure grinding roll tires, relining of the ball mill, changes to the primary crusher outer shell and additional maintenance work on the electrical infrastructure. Head grade averaged 1.18 gram per tonne with feed material comprised of a combination of direct feed ore and stockpiles. Mill recoveries averaged 94% in the quarter, which continues to be above design rates. Turning to cost. A major driver of cost this year has been associated with the temporary aggregate crusher, which is being contracted to support the processing plant. The plant was built with a single secondary cone crusher as part of the crushing circuit. And through day-to-day operations, we learned that this is a bottleneck. This has been addressed with the addition of a second cone crusher to sustainably achieve the nameplate throughput rate and provide redundancy during shutdowns. We accelerated the push to achieve nameplate to midyear from our original target of Q4 in part because we found a way to maximize throughput and offset the bottleneck by incorporating an additional refeed system using a contractor aggregate plan. Moving ahead, nameplate by 5 to 6 months allows for maximizing tonnes milled today versus waiting for the second cone crusher to provide the additional facility. This may account for an extra $4 per tonne milled, yet brings the opportunity to monetize tonnes already mined through the end of the year. In the third quarter, the aggregate crusher processed a higher proportion of ore due to the shutdown in August. The use of the aggregate crusher is expected to be reduced following the installation of the secondary cone crusher in Q4 and eventually eliminated. Looking at mining costs, we averaged $4.51 per tonne in the third quarter. Mining costs are higher than planned due to higher tire and wear and also impacted by the operation of the aggregate crusher and the feed system. The aggregate crusher requires the utilization of mining equipment to feed it, including haul trucks and a shovel, resulting in higher amounts of rehandling that is accounted to mine. These trucks will decrease into 2026 as further operational improvements are made and the elimination of the contracted aggregate plan. Milling unit costs also increased in the quarter, averaging $22 per tonne mill. The temporary aggregate crusher system has a direct impact on our processing unit cost as it is more costly to operate. And in the third quarter, we rely on it more due to the August shutdown. Overall, we estimate around $6 per ton was associated with the cost of the aggregate crusher in the third quarter. Maintenance costs to replace the HPGR tire and wear components accounted for $1.87 per tonne during the quarter. Unit costs are expected to decline over the course of 2026 following the installation of the additional cone crusher in the fourth quarter of this year. Looking ahead, we remain confident in our Cote Gold production guidance of 360,000 to 400,000 gold ounces on a 100% basis, which is essentially a doubling of production from last year. As noted here, we expect cash costs to exceed the top end of our updated guidance range of $1,100 to $1,200 per ounce sold, primarily due to a combination of higher royalties impacted by a significant increase in gold price, an increase in the expected usage of the supplementary crushing during the year to support the mill feed and the expensing of certain parts and supply that were previously expected to be capitalized. Taken together, Cote is performing very well from operation of this site less than 20 months after pouring its first gold. We are looking forward to seeing the impact of the installation of the second cone crusher in Q4 on availability and throughput paving the way for future expansion option, which leads us to what is the most exciting slide, the advancement of the Cote Gas and super pit scenario. As we have discussed previously, we are working towards announcing in 2026 an updated mine plan that envision the Cote operating at a higher throughput, targeting a significantly larger ore base from both Cote and Gosselin. The first step is drilling out the super pit of Cote and Gosselin to provide the resource foundation for the mine plan. Our drills are busy at work with over 50,000 meters drilled so far this year with the goal to infill and upgrade mine and bring the bulk of mineralization there into measured and instated. Our currently designed, Cote has the mining capacity to average an annual ore mining rate of 50,000 tonnes per day versus our current nameplate processing rate of 36,000 tonnes per day. As part of the 2026 technical report, we will look to find the right balance between an increased processing rate with mining rates targeting the combined Cote Gosselin super pit. In this scenario, we anticipate a mine plan that prioritize the expansion of the plant, which should be implemented years before other major capital items that would be part of the super pit scenario, including tailings capacity expansion and all. The updated mine plan and technical report is expected to be completed by the end of next year. And in the interim, we will continue to focus on optimizing Cote, reducing our cost profile and capturing low opportunities for operational improvements and capacity expansion. Turning to Quebec. In the third quarter, Westwood produced 23,000 ounces, bringing the year-to-date production to 76,000 ounces, tracking below the bottom end of the guidance range of 125,000 to 140,000 ounces. The third quarter at Westwood saw similar results as prior quarters this year as mining activities underground operated to lower grade stopes encountering areas of challenging ground conditions resulted in higher-than-expected dilution and lower mining recoveries. The teams are implementing mitigation measures that include changes in blasting techniques and refinement, stope design and sequencing. We are already seeing improvements from these efforts in October with the average grade so far this month from underground averaging over 9 gram per tonne in the month. The Grand Duc open pit added another quarter of decent ore volumes with a reported of 315,000 tonnes mined. Open pit activities from Grand Duc are currently being evaluated for an expansion and extension of the pit. The outline scenario would push the pit into Phase 4, which would allow for mining until 2027. Mill throughput in the third quarter was 250,000 tonnes, which was below the average throughput rate over the previous quarter due to a 14-day shutdown of the plant in July for the replacement of a critical gear in the grinding circuit, resulting in plant availability in the quarter of 75% versus 90% in the same prior year period. We expect to see mill throughput return to near 90% as we see in the fourth quarter. As a result of the low availability and lower tonne mill, we saw an increase in milling unit costs in the quarter. Likewise, mining costs also remained elevated due to an increase in the number of stopes prepared underground to set up the mine for the remainder of the year, combined with an increase in mining cost, labor cost and exclusive and power consumption. Together, cash costs were $1,924 an ounce in the quarter. Looking at this year, as noted, Westwood production is expected to be below the bottom end of the range of 125,000 to 140,000 ounces. Accordingly, and despite unit cost improvement expected in the fourth quarter, annual average cash costs are expected above the guided range of $1,275 to $1,375 per ounce and AISC is expected to be above the range of $1,800 to $1,900 per ounce. The turnaround in October is expected to be sustainable as we continue to refine stope design and the varying underground condition at Westwood. Despite the challenges in the first 9 months of this year, I'm very proud of the team there as they have demonstrated their innovative and accountable mindset to operation, safety and environmental care. Turning to Essakane. It was a strong quarter for the mine with production of 108,000 gold ounce on a 100% basis or 92,000 ounces based on our 85% interest. Production rebounded on higher grades as mining activities were deeper into Phase 7. Mining activity totaled 8.7 million tonnes with ore tonnes mined of 3.2 million tonnes, equating to a strip ratio of 1.7:1. Total tonnes mined was lower than prior periods as the mining fleet did not operate at full capacity in August due to a fuel shortage in the country. The situation improved in September and the mining fleet was able to operate at capacity to end the quarter and into October. Net throughput was 3.1 million tonnes at an average head grade of 1.18 grams per tonne. The transition to the higher grade benches in Phase 7 was initially expected earlier in the year, but was realized in the third quarter. Grades have continued to reconcile positively to the reserve model in October, positioning the mine for a strong fourth quarter. On a cost basis, Essakane reported cash costs of $1,737 per ounce and AISC at $1,914 an ounce in the quarter, an improvement on the prior quarter. Despite the production improvement costs remained elevated in the quarter. Over the same period last year, royalty costs have increased 61% on a per ounce basis due to the strong gold market and the new royalty decrease. Royalties accounted for $283 an ounce in the third quarter. Additional drivers include a higher proportion of mining costs being expensed as well as higher maintenance activities and an increase in consumable costs, including diesel and grinding media. With the equivalent labor, contractor and facility costs also increased due to the appreciation of the local currency, which is drag to the euro. Looking ahead, we estimate that Essakane will be at the midpoint of the 100% basis estimate of 400,000 to 440,000 ounces, which equates to the lower end of the attributable production guidance target based on 85% of 360,000 to 400,000 ounces. Production is expected to be higher in the first quarter due to the higher grade as the mining sequence move in the primary zone of Phase 7. Cash costs are expected to be at the higher end of the guidance target of $1,600 to $1,700 per ounce sold and AISC is expected to be $1,850 to $1,950 per ounce sold. Looking beyond next year, we are initiating conversations with the government on the mining lease renewal when ours expires in 2028. While the cost of operations in country have risen, Essakane continues to be a world-class mine and an important member of the Burkinabe. The mine has over 2 million ounces in reserves and is positioned to generate significant free cash flows moving forward. With that, I will pass it back to Renaud to discuss our latest exciting news coming from Chibougamau Chapais. Renaud? Renaud Adams: Thank you, Bruno. I really want to take a moment here to talk about our news from the 2 weeks ago when IAMGOLD announced the proposed acquisitions of Northern Superior in Orbec mine for total consideration of approximately $267 million in shares of IAMGOLD and approximately $13 million in cash. The strategic rationale for these transactions are clear when you look at this map here. Our goal was to consolidate IAMGOLD's land position and gold resources in the Chibougamau Chapais district, where IAMGOLD Nelligan and Monster Lake assets are located, creating the next great Canadian mining camp. Our Nelligan deposit has 3.1 million ounces indicated and another 5.2 million ounces of inferred with rapid growth from minimal drilling in recent years. Nelligan is a large-scale open pit style of deposit with average grades around 0.95 grams a tonne. Monster Lake located approximately 15 kilometers north of Nelligan is a high-grade underground style project. Prior to the acquisition announcement, we were looking at putting out economics on Nelligan and Monster Lake envisioning a project that would take most of the ore feed from Nelligan with a high-grade kicker from Monster Lake. The potential additions of Philibert may result in a revised time line of technical study and proposed mining scenario. Northern Superior's primary asset, Philibert, is an open pit style deposit located 8 kilometers northeast of Nelligan. Philibert has estimated mineral resources of approximately 2 million ounces at an average of 1.1 grams of gold, making it at this time, smaller but yet higher grade than Nelligan. In the consolidated scenario in a conceptual mill to pit and underground complex mine plan, we envision Philibert as having the potential to be the initial deposit due to the higher grade infrastructure advantage, providing important synergies versus a stand-alone Nelligan. This year, we have drilled over 16,000 meters at Nelligan and over 17,000 meters at Monster Lake, with both projects having seen the programs upside and continued success at the drill pit. Upon completion of the transaction, we look forward next year to putting together a comprehensive program at Philibert to extend and expand mineralization as we look to bring all these assets together. As of today, the combination of Nelligan and Monster Lake with Northern Superior's assets an Orbec's property, which are now referred as the Nelligan Mining Complex will rank as the fourth largest preproduction gold camp in Canada with estimated mineral resources of over 3.8 million ounces indicated and 8.7 million ounces inferred. The closing of the proposed transactions remain subject to shareholder votes from both Northern Superior and Orbec shareholders as well as other customary closing conditions for transactions of that nature. Together, this asset has a bright future, and we look forward to welcoming the Northern Superior and Orbec shareholders to the IAMGOLD team. It will be an exciting year for us with significant value growth opportunity ahead and many catalysts, starting with the upside scenario for Cote Gold, but also including the advancement of the Nelligan mining complex as well as the valuable contribution of Westwood and Essakane. So thank you for your support. With that, I would like to pass the call back to the operator for the Q&A. Operator?[ id="-1" name="Operator" /> [Operator Instructions] First question will come from Sathish Kasinathan with Bank of America. Sathish Kasinathan: Congrats on a strong quarter in addition to initiate share buybacks. My first question is on Cote Gold. So once the secondary crusher is installed, can you give us a sense of like what the anticipated cost improvements could be? Maybe talk about how you see the exit rate of cost as you exit 2025? Renaud Adams: Yes. It's an excellent question. As we mentioned, we appreciate the very high record free cash flow at Cote and everywhere, but that doesn't take away our focus on cost. We made a conscious choice in the Q2 to maintain the aggregate plant functioning, maximizing throughput, maximizing grade by allowing more rehandling and maximizing grade and production and free cash flow it has worked just perfectly. Now as you've mentioned, moving forward. So as Bruno mentioned in his note or Maarten both, there's about $6 a tonne right from the start on a per tonne of ore by using and operating the aggregate plant. And we think that with the second crusher, we'll be capable to generate our own stockpile internally. So that's one of the focus. So right from the start down the road, and I'm not saying that's going to be a walk in a park in a quarter. But on the milling side, definitely, our objective remains to stabilize eventually down the road towards the $12. We appreciate that there are other assets maybe that could do slightly better. But for us at $12, we believe with the kind of design and configuration, that's probably achievable. There will be some transitions, of course, Q1, probably a transition as we enter Q2. On the mining side, yes, we appreciate the -- again, there's rehandling has been a big component of it. Could we stabilize in the short term more towards the 350. So we're working on our plan as we speak. But we believe that the big component here is to be capable to operate without the aggregate plan, which will have a big effect. There's other aspect we need to improve. We need to improve significantly tire consumption, life on it. There's probably room to improve significantly, 50%, 60% consumption. So all that will have an impact on it. Our objective remains down the road to be as close as the $3 per tonne mine. I know there's been inflation is all over the place and everyone is facing the same. But this is an objective, not going to be there at the start of the year, but as we advance in the year, 3 and 12 remains our strategic target. And that's the risk become pure math. You mine at the reserve grade as we're doing, you try to uplift your grade as you separate the lower grade. And with the 400,000 ounces plus and with a better unit cost and a very low strip ratio at Cote, we definitely see this asset performing amongst the best leading on the cost side. That's what we see. Bruno, do you want to add anything? Bruno Lemelin: That's exactly right. The mining costs will have better performance once we stop using the aggregate crusher, producing much more leading inland. There's also many projects in terms of improving drilling performance as we drive vertically in the pit with less fracture time. So we expect improvement quarter after quarter. Renaud Adams: No, no, that's what we could say at this stage as we complete our plan for next year. Sathish Kasinathan: Yes. That's helpful. Maybe one follow-up on the share buybacks. So I understand that you will begin share repurchases after you pay down the $130 million in debt. But is there like a minimum target in mind maybe tied to a certain percentage of free cash flow that we should look at in terms of the potential for buybacks going forward? Marthinus Theunissen: Once we have the program in plan by the end of the year, it gives us that flexibility to start allocating capital to the different parts of the business. And we're kind of looking at it in third, where we would look at internal growth and opportunities as well as we still want to repay the amount drawn credit facility, $250 million. And then the third part is buying back shares. We don't have to do this sequentially. We can do all of this at the same time. So we were kind of breaking it down into 2/3 and starting next year, we'll look at the cash being generated and then do it that way. So that's kind of as close as a percentage, I guess, 1/3 that we can give at this point. [ id="-1" name="Operator" /> The next question will come from Tanya Jakusconek. Tanya Jakusconek: On the balance sheet. I really was impressed on you getting your net debt to EBITDA down so low versus Q2. Sorry, the 4 calls going on at the same time. So I've missed a lot of yours. I want a clarification, if I could. Slide 11, you have a new technical report and mine plan to be released in the second half of '25. I thought that was coming in the second half of '26. Has that been moved forward? Renaud Adams: No. If there was any mention to '25, that would be a typo or a mistake, Tanya. But no, we remain with disclosure of our next Cote Gold expansion late '26. Tanya Jakusconek: No, no. I just -- I joined when you talked about Westwood and so it was a slide before, and I noticed that and I said, Oh my God, they've moved it. I wasn't aware of it. Okay. No worries. And just maybe still on Côté, if I could. You talked about bringing the processing cost down to about $12, the mining cost down to 3. We had talked on the previous conference call that you thought you would get there by mid-2026. Should it be fair to say that we're still looking for that second half of '26, where we should see these costs get into that range? Is that a fair assumption? Renaud Adams: Well, there is one thing that we don't control and it's some external factors. So let's start with that, like if there is an inflation. So I'm looking at our peers, I'm looking at what we could eventually do, and this is our objective. I think the parking the aggregate plan, you would start like transitioning in Q1 and starting in Q2, you must see the effect of much less rehandling, more direct feed to final destinations, a little bit of -- we're going to continue to rehandle around the HGO and if your mine, your grade is lower for a period of time, you would swap in an NGO. But yes, starting Q2, this is where we start seeing effect of it and continue to work very hard towards achieving the lowest. But we need to control our consumptions, mostly around, of course, mentioned tires and rehandling and so forth. I think we're competitive when it comes to the procurement and so forth. So it's really on consumptions and better control of our maintenance. We believe that the HPGR should be running better at 2, allowing to feed it at a smaller size and so forth and increases life. So it's not just like a ticket type of item, but the big impact would start with the pricing. And the cost will be what it would be in the sense that we cannot control some external factor. But what we can control, this is our intention in '26 to get it done. Tanya Jakusconek: Okay. SO I should sort of mid-'26 that we should hopefully be there. Renaud Adams: Yes, mid-'26 you should start. Tanya Jakusconek: Yes. Okay. And can I just come back? I wanted to -- one more technical, if I could. On just on your reserves and resources, I'm asking all companies, what are you thinking about in terms of pricing as you get your mine plans in place and start thinking about your pit shells and so forth. What pricing assumptions are you looking at for year-end 2025 and 2026 sort of inflation in cost? Renaud Adams: The most important aspects are the reserve. And as we're relooking at Côté and so forth. We're very comfortable to remain at the 1,700 or so for reserve at Côté, and we're going to -- we'll look at as well what the industry is aligning and so forth. So there is no real rush there. Essakane is a longer short-term life of mine. So there's an ability here to increase a bit and maximize cash flow down there. But typically, for our main asset like Côté, we're not seeing more than 1,700 at this stage for the year-end exercise. And we're also testing the long-term resource deposit like the Nelligan and so forth. We'll be testing it probably up to 2,500 as a resource exercise. But we'll be disciplined. We're not intended to use the full gold price in the short term and like to see how the industry -- eventually, of course, we're going to pick the price for the Côté study and so forth, but it is not our intention to transform our asset in low grade using the gold price. Tanya Jakusconek: Okay. And if I can ask a financial question. I just -- I saw your debt target, your net debt to EBITDA down to 0.74. And I think I heard that we still have another $250 million in 2026 that we want to reduce our debt by. So I'm just wondering, one, is that correct? I should think about another $250 million for 2026. Do we have a net debt-to-EBITDA target you're comfortable with so that I can -- and a minimum cash balance on the balance sheet, so I can then sort of look at my share buyback. Marthinus Theunissen: So that is correct. We $250 million drawn on the credit facility, and we would like to pay that down in 2025 or 2026. But we also have $130 million left on our second lien that we plan to do this year. So that then leads us to next year. We think $200 million to $250 million is a good minimum cash balance for our company. Over time, as I mentioned earlier, we will probably build that up as 1/3 of the capital allocation would go to that. But that's kind of the main benchmark is $200 million to $250 million minimum cash and then pay down that $250 million. So from a net debt-to-EBITDA ratio, that would bring us down to 0.5 or maybe even less. We are comfortable with 1 and lower, but we also understand it's a very high gold price environment. So we don't put all of our targets for net debt-to-EBITDA using a high gold price. So we're kind of looking at it what would it be at lower gold prices as well. So we don't want it to be much higher than in a lower gold price environment. Tanya Jakusconek: Okay. That's great. And if I could squeeze in an exploration question. I would really like to talk a little bit about the Nelligan camp. And maybe, Renaud, I'm keen to -- you said there are synergies of that entire camp. It's never going to be called the Nelligan camp once this is done. Can you talk about like is it going to be -- are you envisioning like one central mill to sort of treat all of these ores? Like how are you envisioning this? Renaud Adams: Well, the -- I have the pleasure to be leading the Rosebel Gold Mines at the very early days of IAMGOLD following the takeover of Cambior. And at the very early days when I rejoined this company, and I was looking at this camp, there was like a kind of an obvious type of look alike, if you will. And I'm sure you're very familiar as well with the Rosebel concept back in time where we started with 2 and eventually had 6 mining areas and so forth. I like that one even further because of the high-grade underground component as well that comes at play. So the kind of the close is for us, and we've operated this place for many years. So we have a pretty good understanding and mining experience. But think of it as a bit of a kind of a Rosebel concept back in time, definitely a center processing facility kind of gravity center and fed and hopefully, multiple mining sources that eventually comes and go as you advance in time. So that's the closest example I could take -- I could think of. Tanya Jakusconek: And one tailings facility or should I think of that as well? Renaud Adams: Sorry. Yes, definitely. Yes. One tailing. But again, with the new concept and minimizing footprint and the importance of protecting and minimizing environmental footprint, I could see over time, a kind of a use as well of depleted pit to be incorporated in the scenario of how you minimize for tailings purpose. So early stage, but this is our concept here. So the priority will be Philibert, Nelligan, and Monster Lake and eventually, hopefully, as we continue to drill, maybe incorporating more areas. Tanya Jakusconek: Look forward to hearing more about it next year. [ id="-1" name="Operator" /> [Operator Instructions] Our next question will come from Anita Soni with CIBC World Markets. Anita Soni: Similar position to Tanya with a number of competing conference calls. So I apologize if I missed anything. But I just want to follow up on Tanya's questions around costs going into next year. I guess I was just trying to understand if as we look at Cote and sort of push towards higher tonnage sort of things that you're thinking about what are the inflationary factors that you're facing on the mining cost front? And where do you see some offsets in terms of maybe pushing higher tonnes? Renaud Adams: You were breaking up a bit Anita. Maybe on the mining -- well, if we got your questions on the inflationary aspects on the cost and so forth, yes, we did see some pressure, but it's more around -- we don't see necessarily like on the pressure on the procurement side. And Maarten, you can add to this. I think it's really around the productivity and creating -- moving more towards bulk mining, as Bruno said, as we open the pit even further and creating more phases and minimizing the movement of equipment during blast. This is all productivity. This is all like same equipment, more movement, less rehandling and the tire and improving on drilling blasting. This is like the most important aspect of '26. that would probably get us to a significant improvement. There's no reason for Côté to lag its peers when it comes to the best mining we could do. But we've been very restricted, we haven't allowed the group to really mine within the perfect setting and force a lot of rehandling and so forth. So we need to be patient here and give a chance to the winner here to run the race. Bruno? Bruno Lemelin: Just to give you an example at the mill maintenance, we've done like numerous operation to try to find the right liners for secondary cone crusher like more than one, I guess. So 5 different type of liners were tested out. And now we are very glad to see that we have one that is performing very well that's going to double the lifetime of the liner. So we expect improved productivity, improved production, and lower cost on the tonne basis. But when you start an operation like the size Côté you need to do some predictors, you need to have an interactive process on some areas to find the best part that will trigger your top line. And that's what we do. It takes sometime, but we know where we have to work on. Anita Soni: Okay. I know these operations take some time to ramp and you've done a good job. Renaud Adams: Yes, exactly. And you mentioned more than once. And this is the thing maybe we sound like not direct to the question, but the reality being is from the commissioning, the building of the '23 to the full commissioning in '24 and you're looking at this year, our first year was to really eliminated any red flag remaining and so forth. 90% recovery at the mill, perfect reconciliation, mining at the mining grade, proven our concept of minimizing on segregation and make it more like work. And as you could see 3 quarters in a row where you've actually been capable to uplift at the mill. So those are all like significant milestones for us at the very early days. To say that we enter '26 and that what we want is an average for 4 years of the 36 with a full focus on the cost and you turn back and you look at what this group has achieved to date and now the mission is on the cost, and we're going to have the same focus and the same discipline and attacking this. I have all reason to believe that we're going to do like great, great, great improvement on this and that would be the first time really where we're going to be focusing on. So from -- it's kind of the next logical step for us after focusing this year on throughput and free cash flow and ounces and so forth. So I have all reason to believe, Anita, that you're going to see great things coming out of Côté as we make it our priority next year. Anita Soni: Yes. So for most of the operations that are doing well, year 3 is definitely the optimization year and that's year 2026. Renaud Adams: Absolutely. Anita Soni: So can I just ask just one more question in terms of grades. The mill plant feed has been above the mine grade, right? You had created something is in stockpile previously. But now the mining the grades are sort of in the 0.9 level this quarter. What should we be expecting like what the grade profile looks like going into next year? Is it going to be more along reserve grade? Or will you still have a couple of quarters of mill feed… Renaud Adams: I'll pass it to Bruno. Bruno Lemelin: Anita, this is Bruno. We have already like good inventory of high grade at the end of Q3. But the question is if we mine at 0.96, how long are we going to be able to mill at a grade above that. So we are currently looking at our 2026 budget and intent is still to mine higher proportion of ore that would have grade above the average grade. So the goal for Côté is definitely to be averaging mining at average grade, but the first three years is going to be a little bit above that. So we are talking about 1.1, 1.2, which will give us like a good path forward 400,000 gold ounce per annum. And while we are increasing capacity at the mill the grade will be reduced, but still protecting that 4, 4.50 level. Renaud Adams: Yes, if I may just add something to it. It has a lot to do as well with the volume you mine, correct? So if you look at this year how do you move from 0.96 mine to uplifting above 1.1 at the mill has a lot to do with, not super segregation, at least remove the lower grade glass from your inventory and just talk about the long term. So that practice could continue a little bit down the road. So I am confident by mining the reserve we will be capable to continue to uplift along the line of what we're seeing here. [ id="-1" name="Operator" /> The next question will come from Mohamed Sidibe with National Bank Capital Markets. Mohamed Sidibe: Apologies, I missed the start of the conference call due to conflict there. But on the grade front, but not at Côté, but maybe at Westwood, given the challenging ground conditions, I think you've seen improvement in October in terms of the underground grade there. How should we think about Q4 and maybe next year 2026 as we think about the Westwood grades and the mining rate there? Renaud Adams: Go ahead, Bruno. Bruno Lemelin: Mohamed, so the plan or if I can explain Westwood on the east side as areas with less challenging ground conditions, but with lower grade. On the central zone and western zone it has the ability to give better grades but with more challenging ground condition. So what -- when we started facing those challenging ground conditions, we just shifted our strategy and resequence the production mine tonnes toward the east. So that's the reason why you see the lower grade since the beginning of this year. Since then, we have readjusted the way that we do our blasting pattern, drilling patterns, stope design, stope parameters to take into account these ground conditions. I'm very pleased to say that we have been very successful in October in those zone and the average grade that we collected was above mine grams per tonne. And right now, what we have is we have an inventory of almost 1.5 months in front of us that are accessible. So I think the algorithm that we have developed over the past few years is working fine, but we just need to refine it further at the stope level so we can safely and profitably each so that we have in the sequence. So we just had to make some readjustment. So for the Q4, we expect a very strong Q4. And for 2026, it's going to be a balancing act between how much stope we're going to be scheduling in the east side and the central zone. So it's a risk adjusted type of plan. And again, Westwood is a mine that needs to deliver 10,000 gold ounce a month to be on [ XO ]. So very, very confident about the rest of the year and 2026 bodes very well. Renaud Adams: If I may just add to this, and thank you, Bruno, for this. To be very frank, like the mine like we did extremely well in '24, rehabilitated all the zone. There is maybe some aspect of it that maybe we try to run a little bit before walking. But the plan is I really have all the confidence that it's pure engineering, and we're already seeing quite a bit of turnaround and back on our feet. But the way we look at the mine is like we'll be absolutely happy, as Bruno says, an average of $10,000 a month, a mine capable to operate sub-2,000, bringing like significant free cash flow and longevity. So that's how we think of this mine for the next 2, 3 years. The future could be very exciting, depending on what happens in uncovering all the resources to the east and so forth. So more to come on that one. But for the time being, when I look at the next 2, 3 years, we'll be absolutely happy with the mine predictable capable to deliver if it's 10,000 a month, sub 2,000. With that, we'll be very happy and it would do very well for us. Mohamed Sidibe: That's very helpful. And if I could maybe shift to Essakane. I think you noted -- again, maybe you already commented on this, but you noted that you had in August a fuel shortage in the country. As you're looking at your operations now, we've heard kind of neighboring countries having issues and know that some of the Ivory Coast energy being provided to Burkina may have had some challenges there as well. But are you seeing any impact from fuel pressures at operation at Essakane currently? Or what is the latest that you can provide us on that front? Bruno Lemelin: So Mohamed, we are not using the same route as Mali does. So we have a very specific supply routes for fuel. So that's one. The second thing is that we have more than 48 days of inventory at site. So it gives us enough time to rearrange our logistics should we have like some hiccups. We have enough to maintain the operations uninterrupted. So it requires good logistic efforts, and we have continuous support from the government, allowing us to bring the fuels at sites at the appropriate time. But the main strategy was to make sure that we have enough fuel depo at Essakane so we can withstand a long period of time without supplies arriving to Essakane. So in a sense, we're not using the same roads. We don't see the same type of pressures as Mali and so far the other strategy that we have is increased inventory at site. Mohamed Sidibe: Great to hear. And a final question maybe on the complex and great consolidation of the complex there. What should we look at in terms of next key steps for this complex? I know that you're advancing an exploration campaign there with potential resource update in early 2026. But how could we look at this beyond what are the next key steps for the zone? Renaud Adams: So just quickly on it. So expect us like focusing on resource growth in '26, the incorporations of Philibert. So we need to answer one question that is really key. How big could that Philibert be and how does it fit in the mine plan, right? So this is the very, very key focus of '26, increased drilling program. We'll be aggressive but smart about proven record from the team. I'm not concerned at all there. And I think we will do a very good use of money deployed there. But that's the very short term. And as I mentioned, we were hoping of maybe putting some sort of a study in '26, but I think it's worthwhile like getting great answers from. Objective with almost 12 million already. So we could only shoot for the 15 million, 20 million camp. And this is what we're going to be doing. We're going to drill, drill, drill and hopefully having a very good update resource update late '26. Having said that, Nelligan and Monster Lake will be somewhat updated at year-end with the drilling of '25 in it. But look at it as resource grows in the next year or 2, and then we'll start putting study out there. And anything we could advance and start putting in place, we'll do it. But we have a high, high level of confidence that this is going to be a mining camp. Bruno, if you want to add anything to this? [ id="-1" name="Operator" /> This concludes the question-and-answer session. I would like to turn the conference back over to Mr. Graeme Jennings for any closing remarks. Please go ahead. Graeme Jennings: Thank you very much, operator, and as always thank you, everyone, for joining. If you have any questions please reach out to Bruno or myself. Thank you all. Be safe. Have a great day. [ id="-1" name="Operator" /> This brings to a close today's conference call. You may disconnect your lines. Thank you for your participation, and have a pleasant day.
Operator: Good day, and thank you for standing by. Welcome to the Revolution Medicines 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, Ryan Asay, Senior Vice President of Corporate Affairs. Please go ahead. Ryan Asay: Thank you, and welcome to our third quarter 2025 earnings call. Joining me on today's call are Dr. Mark Goldsmith, Revolution Medicine's Chairman and Chief Executive Officer; Dr. Wei Lin, our Chief Medical Officer; and Jack Anders, our Chief Financial Officer; Dr. Steve Kelsey, our President of Research and Development; Dr. Alan Sandler, our Chief Development Officer; and Anthony Mancini, our Chief Global Commercialization Officer, will join us for the Q&A portion of today's call. I'd like to inform you that certain statements we make during this call will be forward-looking because such statements deal with future events and are subject to many risks and uncertainties. Actual results may differ materially from those in the forward-looking statements. For a full discussion of these risks and uncertainties, please review our annual report on Form 10-K and our quarterly reports on Form 10-Q that are filed with the U.S. Securities and Exchange Commission. This afternoon, we released financial results for the quarter ended September 30, 2025, and recent corporate updates. The press release and updated corporate presentation are available on the Investors section of our website at revmed.com. With that, I'll turn the call over to Dr. Mark Goldsmith, Revolution Medicines' Chairman and Chief Executive Officer. Mark? Mark Goldsmith: Thanks, Ryan, and good afternoon. At Revolution Medicines, we are tireless in our commitment to revolutionizing treatment for patients with RAS-addicted cancers through the discovery, development and delivery of innovative targeted medicines. With robust operational capabilities, financial strength and 3 compelling clinical stage RAS(ON) inhibitors, we are building the leading global RAS-targeted medicines franchise that we believe has the potential to transform treatment for patients living with pancreatic, lung and colorectal cancers. In the quarter, we continued to make substantial progress as we scale the organization and advance our pipeline to fulfill our global development and commercialization ambitions. Today, we'll begin by highlighting recent progress across our pipeline, beginning with daraxonrasib in pancreatic cancer. I'd like to note that daraxonrasib has received 3 special designations from the FDA, recognizing its potential role in treating patients with pancreatic cancer, an aggressive disease that is nearly always caused by a RAS mutation. Previously, daraxonrasib was awarded breakthrough therapy status and recently, it received both Orphan Drug Designation and an Commissioner’s National Priority Voucher for accelerating review of a new drug application. These highlight the significant unmet medical needs in pancreatic cancer and the potential of this investigational drug to transform treatment for patients living with this devastating disease. I'd like to invite Dr. Wei Lin to walk through our most recent clinical updates in pancreatic cancer. Wei? Wei Lin: Thanks, Mark. daraxonrasib is our RAS(ON) multi-selective inhibitor with a promising clinical profile in multiple indications, including pancreatic cancer. In September, we presented long-term follow-up data from the Phase I daraxonrasib monotherapy cohort of patients with second-line metastatic pancreatic cancer. These results reinforce our understanding of the strong clinical antitumor activity and durability. The acceptable safety and tolerability profile remained consistent with earlier findings with no new safety signals observed. Slide 10 shows that with longer follow-up, durability outcomes remained encouraging. The estimated median progression-free survival for patients with both the RAS G12X and all RAS mutant groups exceeded 8 months. The estimated median overall survival was 13.1 months and 15.6 months for patients in the G12X and RAS mutant groups, respectively, with a lower bound of 95% confidence interval at approximately 11 months. These results are particularly compelling, especially in the context of standard of care cytotoxic chemotherapy regimens that were reported in randomized controlled trials to provide a median overall survival of 6 to 7 months in the second line and approximately 11 months in the first-line setting. RASolute 302, our Phase III registrational trial in patients with second-line metastatic PDAC is winding down enrollment globally as we near completion of enrollment across all U.S. and international sites. We remain on track for an expected data readout in 2026. In September, we also shared encouraging initial results for daraxonrasib in first-line metastatic pancreatic cancer, both as monotherapy and in combination with standard of care chemotherapy. As shown in Slide 11, daraxonrasib monotherapy induced tumor regressions in most patients with an objective response rate of 47% and disease control rate of 89%. The majority of patients remained on study treatment as of the data cutoff. While the data were not sufficiently mature to estimate the median progression-free survival or overall survival, we continue to follow these patients to assess the durability of clinical benefit. The acceptable safety profile of daraxonrasib monotherapy in the first-line metastatic setting was generally consistent with what has been reported in patients with second-line metastatic disease. On Slide 12, the combination of daraxonrasib plus gemcitabine nab-paclitaxel or GnP chemotherapy also delivered significant antitumor activity represented by deep and sustained tumor regressions with an objective response rate of 55% and disease control rate of 90%. Most patients remained on treatment as of the data cutoff. Again, longer follow-up is required to estimate median progression-free survival and overall survival. As with monotherapy, the combination regimen showed an acceptable safety profile. The rates of treatment-related adverse events were additive of the individual agents. No new safety signals were observed. We expect to share updated data from patients treated with daraxonrasib with or without GnP in first-line PDAC, including preliminary durability in the first half of 2026. Building on the encouraging early phase data in the first-line and second-line settings, we are advancing RASolute 303, a randomized 3-arm Phase III trial in patients with first-line metastatic PDAC as shown on Slide 13. This registrational trial will compare daraxonrasib monotherapy or daraxonrasib plus GnP followed by daraxonrasib monotherapy to a comparator arm of GnP alone. The design of this 3-arm study provides 2 distinct opportunities to demonstrate potential survival benefit for patients. Treatment with daraxonrasib as monotherapy in first line, followed eventually by chemotherapy in second line or alternatively treating concurrently with both daraxonrasib and chemotherapy in first line. Both strategies have scientific and clinical merit and deserve to be evaluated. We remain on track to initiate RASolute 303 this year. I'd like to provide an overview of the current standard of care in the setting of resectable PDAC. While surgery along with perioperative cytotoxic chemotherapy offers patients the possibility of a cure, the relapse rate is high at approximately 80%. The current standard of care for perioperative treatment is cytotoxic chemotherapy, either modified FOLFIRINOX or gemcitabine and capecitabine. The publicly reported disease-free survival rate on these chemotherapy regimens ranges from 13.9 months to 21.6 months. Our 3-year disease-free survival ranges from approximately 20% to 40%. We believe there remains significant room for improvement that may be served with RAS-targeted therapy. The strength of the daraxonrasib monotherapy data so far in both first- and second-line metastatic disease provides a compelling rationale for advancing daraxonrasib into the adjuvant setting. And Slide 15 shows our Phase III trial design for RASolute 304 in perioperative therapy. We plan to evaluate approximately 500 patients after surgical resection and 4 months or more of perioperative therapy with the local standard of care, either FOLFIRINOX or gemcitabine, capecitabine administered before and/or after surgery. Patients will be randomized to either observation or daraxonrasib monotherapy 300 milligrams daily for 2 years. The primary endpoint will be disease-free survival with secondary endpoints of overall survival and safety. We have initiated this trial and site activation is currently underway. I'll also touch briefly on zoldonrasib, our covalent RAS(ON) G12D-selective inhibitor in pancreatic cancer. zoldonrasib has demonstrated compelling clinical profile with encouraging antitumor activity and a particularly favorable safety tolerability profile. With this differentiated profile, we believe zoldonrasib has high potential to contribute as a key component of a combination therapy in first-line PDAC with current standard of care chemotherapy and/or with daraxonrasib as a RAS(ON) inhibitor doublet. The potential for this doublet was featured at last month's triple meeting, where new preclinical data demonstrated that the combination of zoldonrasib with daraxonrasib can maximally inhibit RAS G12D and improve both the depth and durability of response. We expect to initiate our first zoldonrasib combination registrational trial in first-line metastatic PDAC in the first half of 2026. We look forward to share the 12D details and additional supporting data around that time frame. I'll now return the call to our CEO, Mark. Mark Goldsmith: Thank you, Wei. Following closely behind pancreatic cancer, our non-small cell lung cancer clinical program remains an area of strategic priority, and we are progressing well in our efforts. Focusing first on daraxonrasib, the RASolve 301 registrational trial studying daraxonrasib versus docetaxel in previously treated patients with RAS-mutant non-small cell lung cancer continues to enroll patients across sites in the U.S. and is now also enrolling in Europe and Japan. We also continue advancing plans to initiate a registrational trial in the first-line metastatic setting in 2026 evaluating daraxonrasib in combination with pembrolizumab and chemotherapy, and we expect to disclose study details around the time of initiation. As a reminder, this plan was based on the encouraging initial data we presented in May showing the combination of daraxonrasib with pembrolizumab with or without chemotherapy was well tolerated and demonstrated encouraging early antitumor activity. In the G12C non-small cell lung cancer space, we continue to make progress with elironrasib, our RAS(ON) G12C inhibitor. Last month, at the Triple Meeting, we presented encouraging monotherapy data in heavily pretreated patients with G12C non-small cell lung cancer who had received a median of 3 prior lines of therapy, including treatment with a G12C(OFF) inhibitor. As shown on Slide 22, elironrasib demonstrated a confirmed objective response rate of 42%, a disease control rate of 79% and a median duration of response of 11.2 months. On Slide 23, the median progression-free survival was 6.2 months in these heavily pretreated patients. While the median overall survival had not yet been reached, 62% of patients were alive at 12 months. We are encouraged by the strength of these data in late-line KRAS G12C(OFF) inhibitor experienced patients and continue to expand enrollment in this and other elironrasib monotherapy and combination studies while exploring a number of options for continued development of this differentiated RAS(ON) G12C selective inhibitor. Regarding zoldonrasib in lung cancer, we are evaluating a Phase I monotherapy expansion cohort of patients with previously treated non-small cell lung cancer as well as exploring combination regimens, including zoldonrasib with pembrolizumab and zoldonrasib with daraxonrasib. In addition to plans mentioned earlier to initiate a registrational trial for a zoldonrasib combination in patients with first-line metastatic pancreatic cancer in the first half of 2026, we expect to initiate one or more additional pivotal combination trials in 2026 that incorporate either zoldonrasib or elironrasib. We also continue to advance RMC-5127, an oral tri-complex RAS(ON) G12V-selective inhibitor. As a reminder, approximately 48,000 patients are diagnosed with the KRAS G12V mutant cancer in the U.S. each year, including non-small cell lung cancer and gastrointestinal cancers, such as pancreatic and colorectal. RMC-5127 has been shown to induce deep and durable regressions in preclinical models, and it has been advancing toward clinical development. We are on track to initiate the planned first-in-human trial in Q1 2026. Based on the progress we've made across our 3 clinical stage assets, we are confident in the potential of our RAS(ON) inhibitor portfolio to change the standards of care across pancreatic, lung and colorectal cancers. We also have several discovery and clinical collaborations designed to expand the range of treatment strategies we can bring to bear for patients with RAS-addicted cancers. These collaborations enable us to explore diverse combinations of our RAS(ON) inhibitors with inhibitors of novel disease targets, including vopimetostat, a PRMT5 inhibitor under our agreement with Tango Therapeutics and ivonescimab, a bispecific PD-1/VEGF inhibitor, under an agreement with Summit Therapeutics. With our rich promising clinical and preclinical pipeline, we continue making investments to scale our organization to meet the extraordinary range of opportunities it affords. In support of this work, we've made new key appointments across late-stage functions. In our R&D organization, we announced that Dr. Alan Sandler joined RevMed as our new Chief Development Officer. As an accomplished leader in oncology with a strong track record in cancer drug development, Alan brings valuable insights and expertise to our organization. We likewise expanded and strengthened our global and regional commercialization capabilities with additional appointments across our commercialization functions, including 2 key regional leaders. Alicia Gardner was appointed Senior Vice President and General Manager of the U.S. region, and Gerwin Winter recently joined RevMed as Senior Vice President and General Manager of the European region. I'd now like to turn the call over to Jack Anders to summarize our third quarter financial results. Jack Anders: Thanks, Mark. We ended the third quarter of 2025 with $1.93 billion in cash and investments. This balance includes the receipt of the first royalty monetization tranche of $250 million in June 2025 from our partnership with Royalty Pharma, and there remains an additional $1.75 billion in future committed capital under this arrangement. Turning to expenses. R&D expenses for the third quarter of 2025 were $262.5 million compared to $151.8 million for the third quarter of 2024. The increase in R&D expenses was primarily due to increases in clinical trial-related expenses and manufacturing expenses for our 3 clinical stage programs, with daraxonrasib being the largest driver of the increase given the ongoing Phase III trials. Personnel-related expenses and stock-based compensation expense also increased in 2025 due to additional headcount. G&A expenses for the third quarter of 2025 were $52.8 million compared to $24.0 million for the third quarter of 2024. The increase in G&A expenses was primarily due to increases in personnel-related expenses and stock-based compensation expense associated with additional headcount, increased commercial preparation activities and increased legal expenses. Net loss for the third quarter of 2025 was $305.2 million compared to $156.3 million for the third quarter of 2024. The increase in net loss was primarily driven by higher operating expenses. We are reiterating our 2025 financial guidance and expect projected full year 2025 GAAP net loss to be between $1.03 billion and $1.09 billion, which includes estimated noncash stock-based compensation expense between $115 million and $130 million. That concludes the financial update. I will now turn the call back over to Mark. Mark Goldsmith: Thank you, Jack. We are highly encouraged by continuing momentum as we seek to build the leading global targeted medicines franchise for patients living with RAS-addicted cancers. We believe our strong financial position, expansive development plans for our compelling pipeline assets and global commercialization ambitions will allow us to establish new global standards of care. We've made great progress across our pancreatic and lung cancer clinical programs and continue to generate encouraging data that informs our plans in colorectal cancer. Underpinning the passion and drive at RevMed is our collective commitment to patients. November is recognized globally as both Pancreatic Cancer Awareness Month and Lung Cancer Awareness Month, which align with 2 highly visible cornerstones of the clinical development efforts by our organization. We have expanded our partnerships with the advocacy community to better understand the dynamics that affect the patient's experience with RAS-driven cancers. Insights from these engagements will continue supporting our development of patient-friendly clinical protocols, access solutions and educational initiatives. We hope you will join us in supporting the high-impact work by advocacy organizations as they seek to improve outcomes for patients through educational resources, support and research. Before closing, I'd like to acknowledge the continued support of our patients and caregivers, clinical investigators, scientific and business collaborators, advisers, shareholders and importantly, the remarkable team of revolutionaries who drive exciting steps forward on behalf of patients. This concludes our prepared remarks, and I'll now turn the call over to the operator for the Q&A session. Operator: [Operator Instructions] Our first question comes from the line of Jonathan Chang of Leerink Partners. Jonathan Chang: How are you thinking about the impact of receiving the Commissioner's National Priority Voucher on daraxonrasib time lines and your plans? Mark Goldsmith: Jonathan, thanks for your question. Well, obviously, we're very proud to have receive one of the first 9 vouchers. Actually, it's the only oncology product that's featured in that particular set. The stated goal of that voucher program, the pilot program is to accelerate the review time lines by some significant amount and potentially making the review time line as short as 1 to 2 months, and we'll do everything we can to support that. But we've been aggressively preparing for the data readout and then an expected submission of an NDA and to be ready at the earliest possible time for launching a product. I don't think at this point in time, we anticipate that we would have any difficulty meeting whatever time line might be delivered under the CMDB process. Operator: Our next question comes from the line of Charles Zhu of LifeSci Capital. Yue-Wen Zhu: Congrats on the progress. I've got a couple regarding RASolute 304, the adjuvant daraxonrasib trial. This might be a little naive, but can you help us understand and perhaps educate us on the decision to randomize against observation in the post perioperative chemotherapy setting? And is there, I guess, clinical value in maybe at some point, evaluating whether or not one could displace chemotherapy in this particular disease setting as well. Can you also talk about -- help us understand and talk about the requirement for at least 4 months of perioperative chemotherapy as an eligibility criteria prior to randomizing against the 2 arms? Mark Goldsmith: Thanks a lot, Charles, for your question. I think Dr. Sandler would be happy to comment on the rest of the RASolute 304 trial. Alan Bart Sandler: Great. Yes. Thanks. It sounds like it was a 3-part question, and hopefully, I'll remember all 3 parts. So the aspect of the -- I'll start with the 4 months of therapy, that's considered to be the standard of care that's been established previously. And so we wanted to add to that. So we're requiring that patients receive standard of care therapy for that, and that's at least 4 months of therapy. So that's number one. Then the idea is to randomize patients to no further treatment or 2 years of additional adjuvant therapy with daraxonrasib. And the idea then is to build upon the success that has been seen. It's modest, but success that has been seen with chemotherapy in this setting. And so this, I think, offers the best approach to patients with resectable pancreatic cancer. Your last question, I think, was to potentially replace chemotherapy. And I think based on what we see from the adjuvant study, we'll reassess a plan accordingly. But I think we've -- we're very excited about this particular opportunity already and are looking forward to initiating the trial. Yue-Wen Zhu: Congrats on all the progress. Operator: Our next question comes from the line of Michael Schmidt of Guggenheim. Michael Schmidt: And congrats on all the progress. A couple of questions on PDAC. So as we think about RASolute 302, how would you expect results from the Phase II study to translate to the large global Phase III study? Are there any anticipated differences, for example, in patient characteristics when you go from a smaller Phase II to a large global study? And secondly, I guess, in anticipation of positive data next year, how are you tracking towards commercial readiness in terms of CMC manufacturing capacity and then ramping up commercial infrastructure? Mark Goldsmith: Thanks, Michael. Appreciate the questions. Maybe Dr. Lin can first comment on the Phase III versus Phase I/II question. Wei Lin: Yes, happy to do that. Thanks a lot for the question. So it's certainly an important question that we thought very deeply before initiating Phase III. So we looked extensively at the patients who enrolled in the Phase I cohort compared to the Phase III randomized studies that we reported historically. I think our patient populations are actually fairly similar in looking at all the baseline characteristics that are prognostic or predictive of response to either chemotherapy or our own therapy. There's a -- almost all the metrics are either comparable or in some measures, the historical Phase IIIs were actually a little worse. So I think we do have a patient population in the Phase I setting that's fairly representative of what we expect to enroll on the Phase III. And furthermore, the RASolute 302 study, while it's a global study, the predominant enrollment will occur in the U.S. with representative enrollment in Europe and in Japan. And therefore, another reason why we feel that the population on the Phase I will translate to the Phase III. So -- and then finally, look at historically, the trial after trial, there's a degree of consistency over a period of a decade or 2 of all the Phase III trial delivering very, very similar performances with the chemotherapy. Again, I think we expect the performance certainly on the control arm will perform historically similar. So all these give us a large measure of reassurance that we can replicate to a large measure because the patient population as well as the performance of the treatment historically are pretty representative. Mark Goldsmith: And then the question regarding commercial readiness, maybe I'll answer -- comment on part of it and then Anthony Mancini can comment on the other part. With regard to manufacturing, we have a very strong organization and supply chain that's really been prepared over the last number of years. We're already scaling at the proper level to be able to support whatever level of uptake there might be should we be able to launch a product. So I think we're in a very strong position there and don't anticipate anything that could pose a significant problem for us. With regard to commercialization readiness beyond that, maybe Anthony can comment. Anthony Mancini: Yes. Thanks, Mark, and thanks, Michael, for the question. We're really pleased with how our launch readiness plans are advancing. We've as was outlined earlier, we now have experienced and talented executives leading our commercialization team, including now building into the region, so across multiple functions, including medical affairs, market access, marketing and sales. And we're deeply engaged in market-shaping activities and planning and KOL and advocacy organization engagement and building broader organizational capabilities around launch readiness. We continue to add highly experienced and talented team members as we advance our organizational launch readiness, including U.S. field-based teams, and we're making great progress there. And we're confident in our ability to continue to attract the right talent with the right experience and capabilities, which is a key success factor for a successful launch, and we're confident that we can do that. Operator: Our next question comes from the line of Andrea Newkirk of Goldman Sachs. Morgan Lamberti: This is Morgan on for Andrea. Based on the initial frontline metastatic PDAC data, how do you think about the efficacy of combination treatment relative to monotherapy, whether greater time on treatment could increase the delta on ORR and DCR? And then with regard to updated daraxonrasib monotherapy and combination data in the first half of next year in frontline metastatic PDAC, how should we be thinking about durability? Mark Goldsmith: Thanks for the question, Morgan. We would you like to comment on those? The first question being the difference -- what level of difference is there between monotherapy versus combination? And will that clarify over time? Wei Lin: Yes. So the monotherapy versus combination in frontline, I think as we discussed previously, really test 2 very distinct hypotheses. I think one is really the sequential treatment by introducing additional line of therapy because currently standard of care, only 2 lines of therapy are exist for patients, a gem-based and a 5FU based. And by using daraxonrasib monotherapy, we introduced the third line of therapy. And could that introduction of third-line therapy with very promising data in the second-line setting translate to prolongation of overall survival. And then the other chemo combination arm really test very distinct hypothesis, which is a potential synergy by combining the 2. Those patients still get 2 lines of therapy, but then the first-line therapy is actually a combination regimen of [indiscernible] standard of care chemotherapy potentially extending the progression survival and can also translate to longer overall survival. So I think these hopefully will translate into surviving benefit as well as different options for patients who can tolerate a more potent regimen versus who are seeking better quality of life and that provides by monotherapy. Mark Goldsmith: And just to add that, of course, there's really no way to answer the question about how those 2 regimens compare except to test them both. And they're both very credible on the meritorious scientific hypothesis. The second question, I think, had to do with what sort of update can be expected next year with regard to the durability of the effects that we have already reported. We will -- we do intend to provide an update in the first half of 2026. Operator: Our next question comes from the line of Brian Cheng of JPMorgan. Lut Ming Cheng: Just first on your Voucher. What additional pieces of information have you learned on the use of it since you received it mid-October? Specifically, do we know which line of setting the Voucher is for since the language on the press release seems to be more broadly applicable to PDAC. And then we have a follow-up. Mark Goldsmith: Yes. Thanks for your question, Brian. We don't really have any additional information to share with you today. We are certainly in ongoing dialogue with the FDA and learning more about how this voucher system will work and what impact it might have on how we approach preparing an NDA, but no other comments available today. Lut Ming Cheng: Okay. And then just quickly on zoldon's combo Phase III in frontline PDAC. Now that you have 303 on track to start later this year, I'm just curious if you can talk a little bit about just some consideration that you currently have when it comes to the selection of the doublet versus triplet. And I think also the active comparator piece. How should we think about which active comparator arm you should put in to make it -- make sure that physicians understand how they look at zoldon combo in the future? Mark Goldsmith: Yes, that's a great question, and it perfectly tees up when we present some information about that, we'll be able to address all of those questions. But I assure you we will comment on all of that. Maybe the big picture right now is just that we are taking multiple approaches to treating this devastating disease. And we're in the second or third inning of this battle, and we're going to keep investing in it until we've really moved the needle as much as we possibly can. So we're excited to bring that approach forward, and we'll give you more color about it when we are able to lay that out much more explicitly. Operator: Our next question comes from the line of Marc Frahm from of TD Cowen. Marc Frahm: On all the progress. Maybe just start on that zoldonrasib first-line trial. Just the idea of only pursuing combinations, I guess, should we read into that the monotherapy maybe doesn't seem as durable as daraxonrasib as a monotherapy since you were interested in pushing forward the monotherapy in first line in that setting? And then I'll likely have a follow-up. Mark Goldsmith: Thanks, Marc. I'm not sure about that last comment. I'm not sure that we ever gave any inclination with regard to zoldonrasib in first line and what sort of strategies we might pursue. So I don't think we need to explain something that I don't think we ever committed to. daraxonrasib alone, we're studying in first line as monotherapy. We're going to learn a lot from that study. And zoldonrasib is an ideal combination agent because of its pretty remarkable safety and tolerability profile. So it is a real opportunity to see how far we can push things. And in terms of further differentiating options for patients, we will certainly continue to be committed to that. So I don't think you should infer anything from that decision and that strategy other than we're looking for the best possible ways to deliver impact for patients that would complement the other options that are coming out of our portfolio. Marc Frahm: Okay. That's helpful. And then on 302, now that you're getting pretty close to the end of enrollment, you can maybe speak to kind of how the event rate has been trending maybe relative to kind of how you guys were projecting it when you designed the trial? And then as the interim start to get taken, just what's the latest thoughts on disclosure strategy? Will you inform investors whenever an interim is taken, whatever the result of that was or likely only speak if the interim results in some sort of stoppage of the trial? Mark Goldsmith: Unfortunately, Mark, I think you're over for 2 of those questions, anything to comment on either of those at this time. Operator: Our next question comes from the line of Leonid Timashev of RBC. Leonid Timashev: Just wanted to ask on sort of the commercial opportunity. I mean, given that you recently hired President of EU strategy, just how you're thinking about the landscape in the European Union with respect to where patients lie in terms of the commercial opportunity, the concentration there, awareness and diagnostic opportunities. Just anything you can speak to how you think the European strategy might take shape. Mark Goldsmith: Thank you. Appreciate the question. It's a gigantic question. So I'm immediately going to ask Anthony to address that. Anthony Mancini: Look, it's -- there's been a lot of thought put into how we're thinking about bringing daraxonrasib to patients. Clearly, different from many companies' opportunities with a first launch in a first indication. We think the second-line pancreatic cancer indication is a meaningful one. So you can look at the -- in the key European markets, starting with Germany and the EU4 and beyond, and there are many patients to treat. We think that we'll bring a compelling value proposition in Europe, and we think it's going to be a meaningful opportunity in Europe, in the U.S. and Japan. And so we're pursuing that. I think there's nothing more to comment on except that those are our priority markets, and we intend to bring -- put our best foot. Operator: Our next question comes from the line of Clara Dong of Jefferies. Jenna Li: This is Jenna on for Clara. Could you talk about if there were any rationale behind starting the adjuvant study before the first-line study? Mark Goldsmith: Jenna, thanks for your question. That's pretty straightforward. There's nothing profound underneath it. It's a simpler study. Obviously, it's a single treatment arm, and we're just able to get that up and running a little bit earlier, but I don't think it will materially differ in terms of the overall conduct of it. Of course, that is going to be a longer study in terms of the readout given the time lines that we talked about. So it doesn't make much difference, and it just happened that we were able to proceed with it. Operator: Our next question comes from the line of Asthika Goonewardene of Truist Securities. Asthika Goonewardene: So you described what resistance mechanisms emerge with daraxonrasib in PDAC. And you should have a considerable amount of data with daraxonrasib in non-small cell lung cancer, too under hood. So I'm just wondering, do you expect non-small cell lung cancer to also follow a similar path of resistance as PDAC? Or are there any new resistance mechanisms that are emerging that you can tell us about? I'm wondering how this guided your choice of selecting pembro and chemo for the combination versus just a chemo-sparing pembro combo? And then I have a follow-up. Mark Goldsmith: Thanks for your question. That's sort of a subtle comment at the end of that question. Maybe Dr. Kelsey can discuss resistance, what we know about PDAC expectations across other tumor types and how has that affected our thinking for trials? Stephen Kelsey: The data that we have on emerging mechanisms of resistance to daraxonrasib in non-small cell lung cancer is probably not sufficiently mature for public disclosure at this stage. There are a number of confounding issues around that. The first is, as you know, we declared our recommended Phase II dose for non-small cell lung cancer after we had declared the recommended Phase II dose in pancreatic cancer. So the information that we have would only really be important at the recommended Phase II dose. The second is the number of people that actually have progressed and been documented to progress. And the third issue there are the number of patients with progression that actually have detectable circulating, ctDNA in order to make an assessment of whether there's anything to see. The other thing is that traditionally in non-small cell lung cancer, there appear to be -- from the literature that's available, a lot of resistance mechanisms that are possibly not even genomic. And so it's going to take a little bit more time to figure that out. And I think that all bets are off really mapping mechanisms of resistance in pancreatic cancer to mechanisms of resistance in non-small cell lung cancer. We already know that the biological resistance mechanisms in colorectal cancer, for instance, to G12C inhibitors are different from the biological resistance mechanisms to G12C inhibitors in non-small cell lung cancer. They are qualitatively similar and overlap, but they're not identical. And I don't think that we can infer anything at this stage. With regards to how that information informs how we move forward with combinations, it really has no bearing on it. The selection of pembrolizumab as a partner for any of our RAS(ON) inhibitors is driven really by 2 things. One is the almost ubiquitous inclusion of pembrolizumab or an equivalent checkpoint inhibitor into the standard of care for non-small cell lung cancer. And the second is the increasingly compelling body of evidence that suppressing RAS does actually make pembrolizumab more effective because it profoundly changes the immune microenvironment for the -- and allow the immune system much more access to the tumor for a whole load of reasons that we have published and a number of other groups have published. So when we have the data, we will disclose it, and it may influence how we move forward, and it may not. There are really 2 separate issues. Asthika Goonewardene: And then if I can just tag on to Charles' previous question. By requiring in the 304 study, by requiring patients to have 4 months of chemotherapy, does this help select out patients who are deemed to be borderline resectable? Alan Bart Sandler: Yes. I'll take that. No, the -- first, we'll talk about the purpose of it was, again, the 4 months of standard of care. The question about your border line and the readily resectable. What we've done is we've allowed those patients to undergo the standard treatment that they would locally and whether they're surgically resectable or not. And then the only way they're able to enter on study is if they are pathologically completely resected, either with totally clear or narrow margins, the R0 or R1 that was shown on the slide. And then those patients are then randomized to the treatment as such. In a sense, it eliminates those patients who are not able to be resected, but it also allows those patients with the borderline resectable an opportunity to receive adjuvant therapy if their perioperative therapy and surgery was successful. So it broadens the number of patients who have access to this therapy and the study. Mark Goldsmith: I'd also add one point about the question of why 4 months. There is a variety of different approaches that people take in treating that disease. They all center around using chemotherapy before, after or both before and after and by requiring a standardized duration of treatment, we can make the patient population more uniform and easier to compare the 2 groups to each other and avoid imbalances in their treatment regimen. Operator: Our next question comes from the line of Alec Stranahan of Bank of America. Alec Stranahan: And congrats on the update. Two from us. First on zoldonrasib. Curious how you're thinking about the opportunity for zoldon on top of chemo versus daraxonrasib plus chemo and RASolute 303. Do you plan to enroll similar patients in both studies or maybe try to subset the frontline opportunity? And secondly, how important is the RAS doublet in terms of your ideal commercial strategy longer term, specifically thinking about zoldonrasib to daraxonrasib in the frontline PDAC? Mark Goldsmith: Okay. Maybe I can just comment on the second one and then maybe Wei can comment -- can address your first question. So with regard to RAS(ON) inhibitor doublets, we still have high conviction about it. We just showed some data on zoldonrasib plus daraxonrasib in preclinical models just last month at the Triple Meeting. And we're -- we feel like it's a compelling option. Just stay tuned as we roll out the various studies that will be coming in the future and I think we have high interest in that. The first question, I think, had to do with zoldon versus daraxon each in a first-line population. And are we selecting patients differently between those? Obviously, one is all RAS mutations and the other is just KRAS G12D mutations. So there's that difference between them, but are there any other differences, Wei? Wei Lin: Clinically, the eligibility otherwise are no different. And I think in the Phase I setting, when we're doing the combination with the chemotherapy, it's really -- the eligibility are really mainly designed to make adequate organ function allow to deliver chemotherapy. So they're actually also very, very similar. Operator: Our next question comes from the line of Joe Catanzaro of Mizuho. Joseph Catanzaro: Just maybe one quick one from me. As it relates to CRC, just wondering if there are any sort of key data points you are looking towards before maybe committing to earlier line, later-stage trials and whether we should expect any of those data points in 2026? Mark Goldsmith: Thanks for your question. Thanks for joining us. Steve, do you want to comment on CRC? Stephen Kelsey: Yes, I'm happy to do that. I'm not going to comment on timing because we haven't really guided to data disclosure with regards to colorectal cancer. But I think we have previously made it pretty clear that due to the biological complexity of RAS mutant colorectal cancer, we believe that combination therapy is absolutely essential in order to maximize clinical benefit and the studies that are designed to figure out which combinations are most efficacious in that context are currently ongoing. And so as soon as we figure it out, then we can follow a path forward. We also don't forget that we have the -- there are several dimensions to this issue. I mean you mentioned one of them, which is line of therapy, whether or not we try and go into the first-line metastatic setting or whether we just tackle patients in the third and fourth line who are essentially being salvaged after chemotherapies failed. There are several different biologically rational combinations, including combinations with our own -- within our own portfolio of RAS(ON) doublets. And so we just need the opportunity to figure that out. It's a very complex -- colorectal cancer is a very complex disease. It's not entirely clear that RAS mutant -- RAS is the only driver, the only oncogenic driver even in situations where it's actually mutated. So we've got -- we're just going to sort it out. Operator: Our next question comes from the line of Sean McCutcheon of Raymond James. Unknown Analyst: This is Yang on for Sean. We have 2 quick ones. The first one regarding the first-line NSCLC with daraxonrasib. What kind of a threshold for efficacy by you looking at anticipating that you have the update for the frontline and also commenting on the daraxonrasib and elironrasib combination in the first-line NSCLC? Mark Goldsmith: Thanks for your questions. Let me make sure I understand. The first question had to do with an update on first-line PDAC with daraxonrasib... Unknown Analyst: No, no. Sorry. Yes, that's all non-small cell lung cancer, frontline daraxonrasib, what's the threshold efficacy bar you're looking at? Mark Goldsmith: Okay. So in lung cancer, since we indicated that we'll proceed with a trial, and we'll provide information later. Yes, I mean, obviously, we look at standards of care and what we see in a single-arm trial versus standards of care, even though they're not immediately comparable since it's not randomized data, but we'll look at standard of care and see if we can improve upon that. We typically wouldn't provide guidance as to what we consider an acceptable improvement. That's something that's a complicated topic, and that's between us and the statistical analysis plan and the FDA and so on. So no pre-guidance that we'll be able to offer you today on that. And your second question? Unknown Analyst: Yes. The second question is related to the combination potential with your pan-RAS and G12C elironrasib in first-line NSCLC. Mark Goldsmith: Okay. That's back to the RAS(ON) inhibitor doublet. And in this case, it's the doublet of elironrasib plus daraxonrasib. And that, too, is a very interesting combination. I think I'd just reiterate that we are -- we believe that the combination of a mutant selective inhibitor with the RAS multi-inhibitor provides potentially the benefits of both of those compounds as complementary and delivering the greatest impact. And we've now shown 2 clinical data sets to support that, one in colorectal cancer and one in lung cancer, both of which were directionally quite similar. As to how we prioritize that relative to other options, that's a very complex matrix of considerations and don't have anything to be able to guide you to specifically today about that. Operator: Our next question comes from the line of Laura Prendergast of Stifel. Laura Prendergast: Congrats on the quarter. I was just curious if it's possible any type of accelerated approval pathway could be there for first-line PDAC, whether that's an early cut for the Phase III study or something -- or anything else? Also, how are you factoring daraxonrasib being approved in second line into how you're thinking about the statistics for OS in the first-line study? Mark Goldsmith: Okay. Laura, thanks for your questions. Maybe I'll comment on the AA question and then maybe Wei can comment on daraxonrasib. No comment. That's basically -- that's always a question for the FDA. That's not so much of a question for us. And I think there's no doubt that the initial data that we showed were quite encouraging. And I'm sure they're viewed that way by many people, what the FDA -- how they view it in a formal sense and what they want to do with it would be the subject of future dialogue and so on. Really nothing that we can say about that. I would say, just generally speaking, we've had a pretty strong habit of focusing on full approval strategies, which I think has served us well with regard to a PDAC for sure so far. We're not at the end game yet, but it seems to have made sense. And we'll continue to prioritize that. There may be some situations in which an accelerated approval can make sense to get something to patients as early as possible and where we think it makes sense. And the FDA, more importantly, thinks it makes sense, then we could always welcome that opportunity. Wei Lin: Yes. Regarding the design and statistics of the frontline given our second-line efforts and data, I think probably there are several layers to maybe that question. So on the first layer is, we're still designing a fully powered randomized trial to enable registration based on overall survival. And from that regard, it doesn't really impact the fact that we deliver on overall survival. We still intend to deliver overall survival in front line, even after overall survival in second line. I think the second line data that we have reviewed so far, I think, give us further confidence about the monotherapy benefit and therefore, give us confidence about the arm with monotherapy as well as the combination. Therefore, we're actually fully evaluating and fully powering both arms independent testing them. So that does affect in that sense. That's the second layer. The third layer is, I think you may be hinting at a question we addressed previously, which is with the second approval in the U.S., there may be impact on crossover and whether that will impact our design. It doesn't really impact our design per se. It only impacts our operational footprint. I think we'll certainly assign the sites more on ex-U.S. to minimize the impact of crossover due to the availability of daraxonrasib for second patients in the U.S. Operator: Our next question comes from the line of Ami Fadia of Needham. Ami Fadia: And apologies if this has been asked already. I've been juggling some calls here. So my question is regarding the acquired alterations post dara monotherapy that was presented at the Triple Meeting. How do you see that potentially impacting the durability of response in first line? And where you're studying in combination with chemo, would you consider exploring combinations with other mechanisms at this stage? Mark Goldsmith: Thanks, Ami. I'm trying to get to the gist of that question. Would we consider combining daraxonrasib with other compounds that target other potential drivers that are resistance mechanisms? In order to increase... Ami Fadia: That's right. Mark Goldsmith: Sure. We're already considering it and we're already actively exploring some of those and are open to and may well expand that. There's obviously many potential targets that could influence the outcome if you were to inhibit them. And we look at these opportunities all the time. We have significant operations studying those, and we have a lot of inbound requests to combine things. And we try to prioritize them based on their -- the scientific data behind them. And for sure, we'll continue to do that. Operator: This concludes the question-and-answer session. I would now like to turn it back to Mark for closing remarks. Mark Goldsmith: Thank you, operator. Thank you to everyone for participating today and for your continued support of Revolution Medicines. Operator: This does conclude the program. You may now disconnect.
Operator: Thank you to everyone for joining Robinhood's Q3 2025 Earnings Call, whether you're tuning into the live stream at home or here with us in person. With us today are Chairman and CEO, Vlad Tenev; CFO, Jason Warnick; SVP of Finance and Strategy and Treasurer, Shiv Verma; and VP of Corporate Finance and Investor Relations, Chris Koegel. Vlad and Jason will offer opening remarks and then open the call to Q&A. During the Q&A portion of the call, we will answer questions from the audience, which includes institutional research analysts, finance content creators who may hold an ownership position in Robinhood and both institutional and retail shareholders. As a reminder, today's call will contain forward-looking statements. Actual results could differ materially from our current expectations, and we may not provide updates unless legally required. Potential risk factors that could cause differences, including regulatory developments that we continue to monitor are described in the press release we issued today, the earnings presentation and our SEC filings, all of which can be found at investors.robinhood.com. Today's discussion will also include non-GAAP financial measures. Reconciliations to the GAAP measures we consider most directly comparable can be found in the earnings presentation. With that, please welcome Vlad and Jason. Vladimir Tenev: Good to see everyone. It's great to be here with all of you today. We have a live audience again this time from Downtown San Francisco. And also great to, I think, for the first time in our earnings call, have institutional and retail shareholders, so buy side joining us. So welcome, and thank you. Also, we have our institutional analysts. So good to see a lot of familiar faces here. Q3 was another quarter of relentless product velocity. So we were excited to see that. It was really across our 3 focus areas, which, as a reminder, #1 in active traders, #1 in wallet share for the next generation, #1 global financial ecosystem. So I'll briefly go through each of these. Active traders. We want active traders to feel like they are at a disadvantage if they trade anywhere other than Robinhood. And we've rolled out a ton of great new products for active traders. You guys might have seen second annual HOOD Summit in Vegas just a couple of weeks ago. We announced a bunch of brokerage updates, shorting multiple brokerage accounts, AI-driven custom indicators powered by Robinhood Cortex, a whole new social platform, Robinhood Social. And we've got more. We've got more for you guys. We can't wait to share more next month at our first ever AI event on December 16. Innovation like this really has the active trader engine humming. In Q3, we had record equity and option trading volumes, and October looks even better. For both equities and options in the month of October, we had new single day all-time and new monthly records. So both of those businesses just continuing to perform strongly. Prediction markets are really on fire. It's hard to believe that we launched this just about a year ago with the presidential election markets. We've doubled volume every quarter since then to 2.3 billion contracts in Q3. And the month of October alone was up to 2.5 billion contracts. So October by itself was bigger than all of Q3 combined. Customers really love the product, and we're bringing them even more. We're now at over 1,000 live contracts, and we've expanded categories. So it's not just sports but also economics, politics, culture. We're making the UI much cleaner to experience even better. And I think it's really exciting to see where this can go. I mean, we love being early to this new asset class. And some people are saying this could be one of the largest asset classes because you can price risk in pretty much anything. We have a massive opportunity with assets as well. Turning to wallet share. Our assets are now up to over 1/3 of $1 trillion as the generational wealth transfer of $120 trillion is fully in motion. So I think it's really great to see our financial super app accelerating. On the long-term money side, retirement, now up over $25 billion, which more than doubled in the past year. And Robinhood Strategies, which we just launched in March, now has over $1 billion in assets and is one of the fastest-growing digital advisers. On the banking front, Robinhood Gold Card, now over 0.5 million cardholders with over $8 billion in annual spend. So the numbers there just keep growing. That's 5x growth in cardholders since the beginning of the year. And we'll get into this a little bit more in Jason's section, but we like what we see there. The customer behavior is good, and that's given us confidence to accelerate the rollout, and we're going to accelerate it even further. And Robinhood Banking started early customer readout -- early customer rollout quite recently. So far, we like what we're seeing there, too. Customers are direct depositing. You might have seen some nice screenshots of the user experience and the onboarding flow and people really love that they're getting interest, not just on their savings, but they have an opportunity to earn a good interest on checking. So it's really about simplifying things for customers. And the plan is to just keep scaling this, keep adding more services, more products. And last but not least, we've been really grinding to build out the #1 global financial ecosystem. So 10 years from now, the aim is to have over half of our revenue be outside the U.S. and also cut another way. Right now, we're majority retail. We think we can get to over half being non-retail institutional. And these are tough goals, but I think the opportunity is there, and we're going after it. Three areas of progress to highlight from Q3. tokenization, which are stock tokens in the EU. We're now up to 400-plus public companies and growing. There's a lot of innovation to be done. We're working hard. Robinhood Ventures in the U.S. So we found a way to give exposure to non-accredited retail to private companies, which we think is super important and a huge opportunity for us. We've already made some initial investments. We're working towards the public offering for Robinhood Ventures in the coming months. Bitstamp around the world, our first scaled institutional business, we're very excited about that. We are continuing to grow. We're adding capabilities. We're adding more institutional customers. Volumes are up 60-plus percent quarter-over-quarter for Bitstamp. And it's great to see that we're accelerating even as we're integrating. And I think that's like not a common thing. It's a big business. I think the team has done a really nice job kind of integrating and making sure that product velocity just continues to increase. And as a result of all this, great business results in Q3, revenues up over 100% year-over-year to a record of nearly $1.3 billion, record net deposits in the quarter, over $20 billion. We've already exceeded last year's record of $50 billion in net deposits, and we still have another entire quarter to go. So we feel really good about the traction there. Gold subscribers up to a record 3.9 million, and that's 14-plus percent adoption when you look at the overall net account base, and it's nearly 40% for customers that joined in quarter, our new customers. International customers, nearly 700,000 international funded, including Bitstamp. So the U.K. and EU are continuing to grow nicely. And we feel great about Q3 product velocity and results. I think it was a strong quarter, and I'll turn it over to Jason to go through financials before we get into Q&A. Jason Warnick: Sounds good. Thanks, Vlad. In Q3, we delivered another quarter of strong profitable growth. Revenue doubled while margins expanded and earnings per share more than tripled from last year. Year-to-date through Q3, revenues are up 65%. Earnings per share is up 150%, and we continue to stay disciplined on expenses to deliver 75% incremental adjusted EBITDA margins. And it's exciting that as our business grows, we're continuing to diversify. In Q3, 2 more businesses, —Prediction Markets and Bitstamp each surpassed $100 million in annualized revenue, bringing us to $11 million in total and underscoring the growing diversification and strength of our business. Prediction Markets reached that milestone in less than a year. It's our fastest in history, and it's already tracking towards a $300 million run rate based on October volumes. So just really, really going fast. Now let's take a closer look at our Q3 results compared to a year ago. Revenues doubled to an all-time high of nearly $1.3 billion as our customers remained engaged and continue to bring more of their assets to the platform. Trading volumes were up double to triple digits across equities, options and crypto, and we continue to grow market share across product categories. We're also seeing strong contributions from newer products like prediction markets, index options and futures. Interest-earning assets were up over 50%, driven by strong margin and cash sweep growth. It's great to see margin continuing to hit new highs as we win larger customers and gain market share. And securities lending also hit an all-time high with a strong market backdrop as IPO activity continued to pick up. And Robinhood Gold grew to 3.9 million subscribers. That's over 75% year-over-year growth as we continue to broaden the value proposition, including Robinhood Banking, which is just beginning to roll out. Turning to expenses. Q3 adjusted OpEx and share-based compensation came in at $613 million, it's about $40 million above the midpoint of our prior outlook range. This was driven by 2 items that are both related to our strong performance. First, stronger year-to-date results led to higher Q3 employee bonus accrual. That is higher for Q3, but also includes a catch-up for the first half of the year. And second, the significant increase in our stock price this year triggered vesting on the remaining tranche of the 2019 CEO market-based award. This resulted in unplanned payroll tax expense in G&A. We are through that award now, so glad you get to go back to your $40,000 a year. Looking ahead to the rest of the year, we're tracking toward full year 2025 adjusted OpEx plus SBC of around $2.28 billion, but it could be higher or lower depending on how the rest of the year plays out. This reflects our strong year-to-date business results, which had us tracking to the top end of our prior outlook range as well as some increased investment in new growth areas like Prediction Markets and Robinhood Ventures. I think each of these areas have significant potential for us. And lastly, this also incorporates the cost of Vlad's market-based award, which were not previously included in our outlook. I'll also provide a quick update on the strong results we're seeing so far in Q4, as you may have seen in the release. October was a strong month across the business. We saw continued momentum in net deposits, new records set across equities, options, prediction markets, and margin and a nice step-up in crypto volumes. And before we go to Q&A, I'm sure you saw in the release that I'm going to be retiring next year. I'll transition in Q1 from my operating role into an advisory role and will stay on until September 1. I'm incredibly happy and proud to share that Shiv Verma will be stepping into the role of CFO. I've worked closely with Shiv these past 7 years, and I've got absolutely complete confidence in him. You're going to find that he's seriously world-class. Vladimir Tenev: At this time, I'd like to invite Shiv Verma to join us up here. Okay. First of all, I want to thank Jason for all he's done for Robinhood. He's been an incredible steward of the company, not just the finance team, but the entire company and is leaving the finance team in a much stronger position than when he joined. Among his many assets, and you guys are obviously familiar with some of them, I would be remiss to not mention that his good looks were a main reason why we wanted to do these earnings on video, which everyone can agree. So I'm sure he'll be missed by this audience as well. I also want to congratulate Shiv. He's been working closely with me for some time now. You guys will increasingly see he's an exceptional operator. He's got a strong track record of not just being lean and disciplined, but also advocating for growth. And I think that balance is critical to so much that we do here. Tomorrow, Shiv celebrates 7 years at Robinhood. So while he's got his hands on nearly everything, he's currently SVP of Finance and Strategy and also our Treasurer. So Shiv, welcome. Maybe he'll say a few words as well. Shiv Verma: Yes. Thank you, Vlad. I'm so excited and humbled for the opportunity to serve our customers and shareholders. Much appreciation to you, the Board and the entire leadership team for the trust. To Jason, a heartfelt thank you. We joined 6 weeks apart, and we've been on quite the journey together. Many of you know Jason is a fantastic CFO, but he's also an incredible colleague, mentor and friend. I just want to express my sincere gratitude. For today, I'll keep it short and just want to introduce myself. As Vlad said, I've been here a little over 7 years, and I've seen the company scale from a couple of million customers and a few billion assets to now 27 million customers and over $300 billion in assets globally. I work closely with Vlad, Jason and the entire team. I've gotten to worn a lot of different hats. And as Vlad said today, I lead 4 teams: finance, strategy, corp dev, and treasury. In terms of what to expect, big picture, more of the same. Our top goal is still to grow and to keep delivering for customers to ship amazing products with high velocity. We also believe in a lean and disciplined culture, and this is personally where I spend a lot of time. We obsess about capital allocation and ROI. We pride ourselves on small teams that can deliver outsized results, and we believe in profitable growth. And lastly, our financial North Star is going to remain the same, grow earnings per share and free cash flow per share and compound long-term shareholder value, plain and simple. So I'm excited to partner with everyone. I'll turn it back to Vlad and Jason and talk about this great quarter. Jason Warnick: Thanks, Shiv, and I do look forward to seeing Shiv competing on Jeopardy someday. Chris, why don't we go ahead and take some questions. Chris Koegel: All right. Thank you, Jason. For the Q&A session, we'll start by answering shareholder questions from Say Technologies from shareholders who are joining us on video. And after the Say questions, we'll turn to live questions from our audience and then go to dial-in participants. So I'll kick it off with our first question from Say, which comes from Preston. Unknown Analyst: Well, Vlad and Jason, can you guys see me okay? Vladimir Tenev: I see you now. There you are. Look at that. He's got the Robinhood logo. Did you draw that yourself? Unknown Analyst: I painted that in class a couple of days ago. Vladimir Tenev: Awesome. Unknown Analyst: But I was wondering how quickly do you expect to roll out Robinhood Banking to users? Vladimir Tenev: Yes. Great question. This will be a relatively fast rollout. When you compare banking to the credit card, there's not the same considerations around making sure the economics between the borrowing and the spending are perfectly calibrated. I think banking is a simpler product in that way. And so the rollout will just be governed by customer feedback. We like what we see thus far, and so we're going to continue to rollout. And we expect that if there's no surprises, it should be pretty quick. We've already got customers trying it, including cash delivery available in some markets and early results are really good. So if you're in the state of New York and have access to banking, you can try it right now. Chris Koegel: All right. Thank you, Vlad. The next question is from [indiscernible]. All right. I'll read it. So [indiscernible] question was there was recent AWS-related outage. How are you strengthening platform resiliency to address that? Vladimir Tenev: Sure. Yes, that's a great question. So for those of you that don't recall this, even though pretty much the entire Internet was briefly affected, including my kids elementary school, they couldn't take attendance. AWS had an outage a few weeks back, and that led to degraded app performance for a significant number of our customers. Now the good news is it actually demonstrates how much progress we've made in the resilience of our systems over the past few years. If this had happened to us like an outage of the infrastructure provider of this magnitude, if it had happened a few years ago, we probably would have been fully down. But we made a lot of investments in that time period. And so even though things were slower and there were higher latencies, a lot of customers could manage their risk and place orders, although we didn't provide them with the type of experience that we would want. That's for sure. And one thing that you can be assured of is every opportunity, every outage like this, even if it's a third-party related is an opportunity for us to further strengthen our resilience. So we've been hard at work looking at how we could become even better. And that's internally and also in conversations with all of our partners. So this is part and parcel of what we have to do. We want to be our customers, not just primary financial account, but we want to be their secondary financial account as well, which means that we have to continue to be robust. Chris Koegel: All right. Thank you, Vlad. And let's take one more question from Say on video and see if we can go 2 for 3 here. So the next question is from Griffin. Unknown Analyst: Really great quarter, first of all, but I wanted to ask around the super-app nature and kind of the evolution of Robinhood. So obviously, it was started to democratize investing for everyone. And now as you evolve into the full financial kind of ecosystem and also the true super-app for the next generation, how do you see this ecosystem maturing? So what products do you think will kind of be the core tie around all of this? And also, how do you see the biggest opportunities for this next generation as everyone's finances get more complex? Vladimir Tenev: Yes. I think that's a great question. I mean you're seeing that part of this vision is somewhat predictable in a sense. We have to look at how does money enter our ecosystem. And of course, we have all of the existing mechanisms, but Robinhood Banking -- the goal with Robinhood Banking is to be the place where our customers deposit their paychecks as well. So that will handle the inflow of money. And a lot of the assets over time, we do believe will be invested. But the question is, can we minimize the reasons customers have for ever withdrawing money and make it as easy as possible for people to get money in. And over time, there will be new products, new product categories like Prediction Markets that arise. And we want to use our combination of best-in-class user experience and also economics to make sure we're a big player in everything that customers want to do with their money, not just in the U.S. but increasingly globally. So it's going to be a combination of getting broader, but also selectively going deeper in areas where we feel like we have competitive advantage. Chris Koegel: All right. Thank you, Vlad. That concludes our shareholder questions from Say Technologies. And so now we'll move to Q&A from our live audience. The first question is going to be from Patrick Moley at Piper Sandler. Patrick Moley: For my question, I want to say congratulations to both Jason and Shiv. Jason, really enjoyed working with you. Shiv, looking forward to getting to know you a little better. So I had one on Prediction Markets. You've obviously become one of the leaders in the space, but there's been a lot of new entrants recently. So I was hoping you could talk about just the strategy there and what you think gives you the right to win long term? And then as a second part to that, can you talk through some of the strategic considerations around maintaining your position today as kind of a retail distribution for the venues versus maybe trying to develop something internally, whether that's organic or inorganic? Vladimir Tenev: Yes, yes. So I think one of the advantages we have entering any market, Prediction Markets aren't an exception is that we have distribution. And we have lots of customers, 26 million-plus funded accounts in the U.S. that are trading and using us for all sorts of things. And from an infrastructure standpoint, we actually have an increasing set of tools that can plug in and are being built to be multi-asset. So not just our mobile app, but increasingly on web. We have Robinhood Legend. We have all of these things that, that we announced at HOOD Summit. And it's really an ecosystem of financial services, and you'll see great integration between all of our platforms and all of our assets and account types increasingly so in the future. I think when we think about vertical integration, like should we be a market maker or should we be an exchange in any asset? One thing we look at is, is the vertical integration going to be accretive to us? Is it going to be something that is increasingly commoditized over time? And my feeling for how this is going to evolve in Prediction Markets at least is there's going to be a lot of entrants in the space, a lot of exchanges. And in the same way that across equities and options, customers are well served because there's a wide variety of venues that are competing on cost to offer great execution. I think Prediction Markets will evolve that way, too. And I think in that world, the customer certainly benefits because different DCMs and markets will compete for who offers the lowest cost. And I think the power continues to be in our distribution and offering a wide variety of products and services. I think we're the only ones currently that have this powerful combination for traders, not just being able to trade Prediction Markets, but crypto, options, equities, futures, I think it's a great combination, and there are certain advantages for everything being in one place under a simple, easy-to-use platform. I think we can keep pressing on that advantage. And as you've noticed, I think the product has continued to evolve at a pretty rapid pace. I think you should expect that to continue and to even accelerate. Chris Koegel: All right. Next question from Alex Markgraff from KeyBanc. Alexander Markgraff: Jason, Shiv; congrats. Maybe, Jason, one on crypto, the crypto business for a second. Just want to understand better as you've moved through the third quarter and early part of the fourth quarter, the mix of smart exchange routing and how that's sort of factored into the numbers that we're seeing. Jason Warnick: Yes. So the blended take rate is kind of in the high $0.60 zone. And we are liking what we're seeing for smart exchange routing, really robust interest by customers. And the take rate that we're seeing so far into Q4 is kind of in the same zone. We'll have to watch how the mix plays out. But we like what we're seeing from customers. They're bringing more -- when they select smart exchange routing, they're bringing more of their trading volume to Robinhood. So we feel really good about the offering that we have. Vladimir Tenev: Yes. And I would just add one thing there. It's a big step towards pricing being a little bit more personalized, right? And what we had before, a lot of people ask us as well, your take rate is so much lower across the board. Can you raise your take rate. But I think the real story is a little bit more complex than that because certainly, if you're an active trader, you're trading huge volumes, you're able to use advanced offerings on exchanges. And in the past, we didn't have tools to offer those customers we might not have been super competitive for lower take rates. And that's what smart exchange routing really unlocks for us for those that are super active and bringing a ton of volume, almost like prosumer traders which we're seeing more of now that we've got Robinhood Legend, can we make Robinhood a no-brainer for them. And we've seen more and more of those customers choosing us and coming in here after smart exchange routing, which is very exciting because that's just customer segment that we felt we were underpenetrated with. Chris Koegel: All right. The next question is from Devin Ryan from Citizens. [Operator Instructions]. Devin Ryan: Vlad, Jason, Shiv, and Shiv welcome to the call. I know you've been a big part of the story already. So kind of welcome to the stage here. And Jason, to you as well, the success to date and the best practices you put in place with the firm on strong footing. So congratulations. Jason Warnick: Thanks, Devin. Devin Ryan: Question on private markets. Demand and activity that we're tracking is recovering. Last week, Morgan Stanley announced the acquisition of EquityZen. I know there can be some barriers with accredited investors, maybe that makes a little bit complicated. But can you just talk about whether there's demand from your customer base and especially as companies stay private longer, just -- and a lot of the values created in the private markets, it would seem like Robinhood is in a great position to both be a trading hub and help create liquidity in the system, but then also maybe even in primary capital for private markets. So the question is just whether there's an increasing interest in private markets, if there's a plan there to do more. I know it connects to tokenization as well and also if M&A would make sense there as well. Vladimir Tenev: Yes. Maybe I'll start, but Shiv has also been working on the Robinhood Ventures front. So maybe I'll ask him to say a few words as well. Look, I think private markets are a huge opportunity and just let's focus on the U.S. perhaps first because that's where we have the largest portion of our business, although international with tokenization provides some interesting opportunities as well. In the U.S., I think it's one of the biggest iniquities that we think is part of our mission to help resolve. You mentioned yourself, you have a lot of these companies that are staying private longer. They're avoiding the public markets. They're private in valuations of hundreds of billions now, right? And if you want access to the AI innovation economy or space technologies, you don't have a ton of pure-play public companies to select from. So we think it's a bigger problem, particularly as these technologies have so much potential to upend the lives of retail consumers, giving access to that is a big part of it. A few years ago, we rolled out IPO access. And I would say that at first, people were kind of skeptical about it, right? Like we would have to really work hard to get companies to be interested to give retail IPO allocations. And recently, pretty much every company that's notable that's thinking about going public comes to us, talks to us about their retail engagement strategy. And now they're looking at how do we engage retail better earnings calls, not just shareholder Q&A, but doing -- making earnings more compelling so that retail wants to actually watch and participate and learn as well. And we've noticed the allocations to retail going up in public companies, public IPOs, which we've been very happy about. And I think that's a trend that's going to continue. And we want to do that at earlier stage. And I think that's really the thesis behind Robinhood Ventures. And we found a way to do it, we believe, unaccredited. And maybe Shiv can talk a little bit more about that. Shiv Verma: Yes. We've been working on this for a while, and we're super excited. In terms of the demand, when we talk to customers, it's one of the top things they want. They want access to these best-in-class technology companies that they use and love. And when you ask them, there's 3 big things they want. First is daily liquidity. Second, not to be accredited. 85% of Americans aren't accredited today, so they get left out. And third, more concentrated portfolios. They want to access again the names they love. And so when we designed the product, that was our main use case, how do we do that? And we think we found a great way to do that. We're on a file with the SEC for Robinhood Ventures I. We're in the quiet period, so we can't say too much more there. But we think this vehicle will be great and expect pretty strong customer demand. And then the other thing we're working on is how do you make it great for companies because you need both the customers but also the companies. And so we're trying to think what's the best way to partner and innovate with these customers and companies as well and have some really great traction there. So we're excited to share more about the fund in the coming months. But as Vlad said, this is just Fund I and just to start, our ambitions in the space are pretty large. Chris Koegel: The next question is going to come from Jeff John Roberts from Fortune. Jeff John Roberts: My question is about tokenized equities, which seem to be the future, and they seem very cool. But I'm curious, when do you think they're going to scale Vlad? And also what implications they might have for Robinhood's revenue when it comes to payment for order flow or otherwise? Vladimir Tenev: Yes. Great to see you, by the way. I forgot to mention we have some folks from the media joining us today, too. So thanks for the question. So tokenized equities, as you might remember from the event in France, there's 3 phases to the rollout. And we're still in Phase 1, but we're really ramping up the number of tokens available on the platform. So we're now up over 400 available. And I think that makes us the largest in terms of selection. I think, the largest, maybe one of the largest at the very least. But I think where it really starts to get interesting is Phase 2 and Phase 3, which is them available for secondary trading on Bitstamp and then eventually them being on DeFi where the possibilities really start to multiply. You start thinking about self-custody collateralized lending and borrowing, which we think could be very, very disruptive as well. Currently, the model is just foreign exchange in the EU. Yes, we take a relatively low simple foreign exchange fee for tokens. And actually, we're pretty happy with that. I think that's 10 basis points, if I'm not mistaken, which is actually slightly higher than what we would be foregoing with payment for order flow. Chris Koegel: All right. The next question in the front row. Unknown Analyst: Vlad, this is for you. Anyone who's had the pleasure of being an investor or customer over the last many years, I think has seen an incredibly inspirational change in product execution base. I'm curious to understand from you guys, what have been the contributing factors there? How do you see that maintaining or increasing over the coming years, but really incredible job, and it's so fun to be a customer. Vladimir Tenev: Well, thank you. Yes, we appreciate that. I think that we've grown as a company and I think it's easy to sort of like dismiss what happened during COVID as we were sort of like too bloated and got too big and got away from us. But I think a lot of what we did actually was we built the foundation for the company subsequent to that. So we brought great people into the company. And I think we realized well -- we realized that we had to ask ourselves serious questions about what kind of culture we wanted, what we wanted to be, did we want to ship fast. And I think that set the foundation, both infrastructurally and from a people standpoint to the product velocity that you see now. So I think we obviously had to make some tough decisions getting fit. I think we've also -- I think this is sort of underreported. I think a lot of people don't like to talk about this, but we were pretty early to adopt AI and actually like drive that through the organization, particularly in the areas where we think there's maximum impact, customer service and engineering, where we actually -- I believe, we're best-in-class in our industry. So you'll hear more about that at the AI event, but I think that there's not a lot said about that because we're not a foundation model company, but I think we're right up there leading the financial services industry with -- how we're deploying it at scale. Jason Warnick: Two things that I would add, which I think both relate to speed of decision-making. We made the change to a general manager model. And I think having leaders over their specific business owning goals and driving against their milestones helped us move faster. The second piece was alignment on what our financial tenants were around kind of what the ROI and other financial guardrails are and just getting a complete alignment across the teams that build and the teams that support on what those hurdles are and what those requirements are allowed us to move even faster once there was alignment on that. So those are 2 aspects that I think help us move faster. Chris Koegel: All right. Yes, and also in the front row. Unknown Analyst: Cryptocurrency-related products and revenue have been an important part of Robinhood's growth story. What are your thoughts on adopting Bitcoin or other digital assets as part of your corporate treasury strategy? Vladimir Tenev: Shiv, what do you think about that one? Shiv Verma: So we spend a lot of time thinking about this. We like alignment with the community. We are a big player in crypto. We want to keep doing it. We like that our customers are engaged in it. What we always try to figure out is, is it the right thing for shareholders as well. If you put it on your balance sheet, it has the positives in that you're aligned with the community, but it does take up capital. Our shareholders can also go and buy Bitcoin directly on Robinhood, and so are we making that decision for them? And is it the best use of our capital? There's a lot of different things you're doing from new products for growth, investing in engineering. So we have this debate constantly. And I think the short answer is we're still thinking about it. There's pros and cons to both of it, and it's one that we're going to keep actively looking at. Chris Koegel: All right. Before we move to the virtual queue, are there any other questions from folks in person? All right. Now to the dial-in community. All right. [Operator Instructions] So the first question is from James Yaro at Goldman Sachs. All right. We're not -- we don't have James at the moment. So we'll go to the next question. And James, jump back in if you can hear us. All right. So the next question is from Ben Budish at Barclays. All right. Well, in the meantime, while we work to connect with our virtual community, Alex Markgraff, do you have another question? All right. Let's get Alex a mic. Shiv, do you want to tell -- share any more about yourself while we're waiting? Shiv Verma: I think we're getting Alex on mic. So we're in good shape. Alexander Markgraff: Vlad, you mentioned the wealth transfer in your prepared remarks. And I'd just be curious to get your thoughts as to in that sort of longer arc opportunity where we are today. And then Jason or Shiv, maybe just thinking about the contribution to growth, again, sort of a longer-term question, but when we think about the contribution to growth from the wealth transfer, how should we sort of think about that over a 5-, 10-year arc? Vladimir Tenev: Yes. Maybe I'll start with some of the things we're thinking about on the product side. We've been really thinking about how to make Robinhood more useful for you, the more of your family is on it. So -- and -- you see this with credit card and now the banking offering. Like the product is really a family product. Family is a first-class experience. You can get your partner, a credit card or a bank account and make it really easy to create accounts for children and other household staff as well. And a lot of people have been using it as like a family financial hub. And I think you should expect that to be broader and deeper across the entire ecosystem. You guys might probably recognize even though we've added a bunch of account types to the product, a few years ago, Robinhood just used to be a single individual brokerage account. We didn't even have retirement accounts. Now you have retirement accounts. You can have recently launched up to 10 custom individual brokerage accounts, which people have been really loving. But we still have a ways to go. We don't have trust. We don't have custodial, but we think that's an opportunity to continue to both get people when they're younger, but also when customers get wealthier, they tend to start diversifying, putting things into trust. So we see that as an opportunity as well. And I think this is an area where trade PMR is also going to become increasingly important as we work to integrate that platform, particularly as financial needs become a little bit more complicated, having a person there to help you navigate the entire thing and give a little bit more customized advice, I think will be a great complement to our suite of digital services. So over the next year, you'll see a lot more. We're attacking this problem and this huge $100-plus trillion opportunity from multiple angles. And I actually -- I don't think it's on the radar of a lot of our competitors. I mean you don't hear about people designing with the whole family in mind. And I think that's a big opportunity for us to differentiate. Jason Warnick: Stepping back, we've been winning market share really across every category that we're in. And I think as we execute against the vision that Vlad was sharing, we're positioned to take an outsized share of that -- of the wealth transfer. Chris Koegel: All right. The next question I'm going to read on behalf of James Yaro from Goldman Sachs. We are seeing tokenization across Robinhood and other firms and your tokenized equities product and those of peers are not interoperable as they are slightly differently structured and on different blockchains in many cases. Does this result in fragmentation of liquidity across the equity market? How do you expect this market to develop? And how would you make these tokenized stocks interoperable? Vladimir Tenev: Yes. Yes, I can peel that one. So right now, certainly, Robinhood stock tokens are not as interoperable as we would like, but that's just because they're actually not on DeFi yet. So they're very much in the Robinhood walled garden, which has certain advantages. Right now, every trade that a customer does is backed by a traditional equities trade in a TradFi market. And as we continue to build up the liquidity and the collection of -- and the supply of tokens, I think that's going to lead to actually a really great initial customer experience. Over time, I do expect greater interoperability. As you've seen with other assets in the crypto world, even if they're on other chains, the community tends to get involved and build bridges and wrappers. And so I think that's less of a concern. I think every major tokenized asset will eventually end up being multichain. So it's just a question of how do we get there. But interoperability, not a huge concern. I think it will come. In terms of liquidity fragmentation, I mean, that's nothing new, especially if you look at it on a global level across all asset classes, there's multiple exchanges. There are multiple market makers involved. And this is something that they know how to deal with, managing liquidity and trading across different venues. And I think in some ways, crypto technology and infrastructure makes that a somewhat easier problem because the cost and complexity of integration from an engineering standpoint is just -- tends to be much simpler. Chris Koegel: All right. Thank you, Vlad. The next question is for Jason, and it's from Ben Budish at Barclays. I'll read it on his behalf. You've called out a number of cost items impacting this year, some of which it sounds like won't recur. How should we think about the run rate into 2026? Jason Warnick: Yes. So we're working through planning right now for 2026. But what I would tell you is that we're approaching it the same way that we've approached the last couple of years, which is we think that we can invest for growth while delivering profitable growth, meaning margin expansion. The way that we approach that is that we ask the existing businesses to find efficiencies. And when we set targets and build our plans, we ask them to grow their cost base in the low single digits and in some cases, even lower. And we use those savings then to reinvest into growth, things like increasing spend in marketing, which we love the ROI efficiency of our marketing spend, but then also investing in new businesses. And you see the kind of outcomes that we've been able to deliver the last couple of years in terms of fast revenue growth and relatively more modest expense growth, and that's the approach that we're taking right now for -- as we plan for 2026. Chris Koegel: All right. Thank you, Jason. We're going to take another shot at going to the live phone queue. All right. So the next question is from Brian Bedell at Deutsche Bank. Brian Bedell: Can you hear me okay? Jason Warnick: We hear you. The telephone works. Brian Bedell: Excellent. All right. The old-fashioned, TradFi telephone. Well, I just want to say, first of all, congrats, Jason, on retirement. It's been great working with you, and welcome, Shiv. Looking forward to working with you as well. Maybe my question will go to Prediction Markets. So maybe if you can just talk about how the customer behavior has been forming just in the last 2 months. We've seen a big increase in volume, obviously, in September with the NFL and college games added. And how are you seeing that maybe sort of shape in coming into October? Are you seeing that volume increase coming from more new users coming into the Prediction Markets or rather greater usage of existing users? And then if you can talk about maybe just your thoughts around time line of launching new contracts and potentially even weaving in things around maybe single stocks that active traders can start using. Vladimir Tenev: Yes, I can start. We are working on this. We've actually increased the diversity of the contracts we offer tremendously in the past few weeks, launching entirely new categories. I mean, recently, lots of new entertainment and culture markets -- you've seen us broaden out the technology markets as well. So now we're offering over 1,000 live event contracts for customers to trade. We're seeing a lot of adoption. It might not be surprised because we have such a large established customer base, a lot of adoption from existing users, particularly traders, but we're seeing new customers as well. So there's customers that join Robinhood because they want access to our prediction markets offering. And I think there's plenty more we could do, not just increasing contract diversity, but making the user experience better, making it a little bit more discoverable in the product. And the team continues to work hard. You should see the product continue to improve week-over-week. Jason Warnick: Much like our active trader offering, a relatively smaller portion of our customers are participating in the market. And I think as we continue to work on the user interface and discoverability of the product, we've got expectation that we can take that higher. Chris Koegel: All right. The next question is from Dan Dolev at Mizuho. Dan Dolev: Great job again on an outstanding quarter. I wanted to thank you Jason. Thank you, Jason. It was a pleasure working with you, and I look forward to working with you, Shiv. And my question for you, Vlad, is Bitstamp very, very strong, I think, over 60% growth quarter-over-quarter. This seems incredibly strategic to Robinhood. Can you maybe elaborate on the long-term strategic importance of this because it seems to be off to a great start. Vladimir Tenev: Yes. And actually, it was -- we've had the pleasure of the Bitstamp team on the engineering side is actually at our offices. So we got to hang out with a lot of them yesterday with Johann and really talk through what's our plan for next year. And you're right that we've had pretty tremendous success growing volumes and improving the product post acquisition. But we definitely aren't getting complacent. We're not slowing down. We see a huge opportunity. I think Bitstamp can be very key to our tokenization plans as we enter Phase 2 of our tokenization vision. We really want to lean in there and give people access to real assets that have fundamental utility on the platform. It's also our first institutional business. And the one thing I really appreciate with institutional customers is they have lots of choices for where they take their business, and they're definitely not shy about telling us all of the things that we do -- that we need to do better, which there are a lot of, believe it or not. I think we -- there's so many things that we hear from our institutional customers. So we're going to have a busy year. And I think that as we continue to be successful and build more things, I think we'll see that volumes and market shares will follow. Chris Koegel: All right. Vladimir Tenev: Johann is very nervous watching me say all this. Chris Koegel: All right. The next question is from Brett Knoblauch at Cantor. Brett Knoblauch: Congrats on the quarter. On the Robinhood Social, could you maybe just dive into that a bit deeper and when you expect for that to rollout and how you expect maybe users to begin using that and how should impact maybe financials and when you would expect it to impact financials going forward? Vladimir Tenev: Yes. I think this is something where it may be somewhat challenging to forecast precisely the impact because the way we see it is this is going to be a new source of information for customers. It will be a source of trading ideas. We really want the product to be great, and we think that it can be just a source of information. We want to -- we think we can be the place where a lot of business and financial-related discussion can happen and hopefully originate. And we've done some experiments with social features over the years. And we have seen that when executed properly, and I think we're being very thoughtful with how to make sure all of the content is high quality, of course, with verification of traders, we have an advantage there. We think it can be an engaging product that makes Robinhood not just useful when you have an idea that you want to trade on, but it can be actually where your ideas originate, which I think is a big opportunity because it allows us to close the loop. And if the ideas come from Robinhood and we're the place where they execute on the trades, the platform just becomes more powerful. And that power and the network effect will continue as we continue to roll out more assets. I think we're going to be the only place where you're going to have live verified trades across not just equities, options and crypto, but also prediction markets and futures. And so the diversity of content, I think, should be quite compelling for folks that are interested in business and finance. Jason Warnick: In terms of monetization, we really see this as an opportunity to spin the flywheel, attract more customers to the platform because of the rich social experience and then be able to capture a greater share of trading activity and other financial activities across the platform. Chris Koegel: All right. Next question is from Ed Engel at Compass Point. Edward Engel: You talked about aspirations outside the U.S. and you guys talked about over half of, hopefully, one day, your user base will be outside the U.S. How does M&A play into that strategy? And can we expect you to kind of continue kind of launching market by market? Or could they create an opportunity to kind of launching a couple of markets simultaneously given a bigger transaction? Jason Warnick: Over time, I think it's probably a mix. I mean we naturally gravitate towards organic growth, and you're seeing examples of that, for example, in the U.K., but we do have an active corp dev team. Actually, Shiv has been leading that for some time now. And when deals make sense for us, great team, great technology, ability to accelerate the roadmap, we don't shy away from those kinds of opportunities as well. Chris Koegel: Okay. The next question is from Steven Chubak at Wolfe. Steven Chubak: Congrats, Jason and Shiv. I wanted to start with a question just on the international strategy and the growth that you've seen thus far. I was hoping to get some perspective, Vlad, in terms of how that growth is tracking relative to plan? Is there more that you can do in terms of product deployment and innovation to maybe help accelerate that growth? It just hasn't gotten as much airplay as like some of the other opportunities. So I was hoping you can unpack that a little bit further. Vladimir Tenev: Yes. I think it's still early in our international plan. That's why when we talk about this opportunity, it's really a 10-year vision because unlike the U.S., when we expand into these markets, we don't have an existing established customer base to cross-sell into. But we're really seeing signs that we like. And so we've continued to invest even more. Cohort activity, both in the U.K. and the EU has been improving, and that's actually led us to start doing marketing initiatives because we're starting to see like real ROIs to marketing activity as revenue goes online. In the EU with -- to catch a token event just a few months ago, we launched in 30 countries with stock tokens, which we're really excited about. I mean you've seen that ramp up. But again, it was a couple of months ago. So not much time has passed. So I think this is one of those things where 5, 10 years from now, we'll look back and we'll say, man, we underestimated the growth of that business as we tend to do with things that are early. But we like the early signs, and we're continuing to increase our investment. And there's so much to build. I mean, even I mentioned with tokenization, we're still just in Phase 1. So I think over time, it will become clear how those products actually have significant advantages over what you might find elsewhere. Chris Koegel: All right. Thank you. The next question is from Amit. Amit is investing. Unknown Analyst: A big thank you, Jason, over the years on your execution and congrats to you, Shiv, on your new role. My question is for you, Vlad. Going back to tokenization, you recently said tokenization will eat the broader financial system. Outside of just tokenized equities, can you give us a more larger look on how big of a size the opportunity is, why right now is the time to go after it? And what Robinhood is really thinking about over the next couple of years in terms of taking advantage of the opportunity? I know there's a lot of different other assets besides equities that could be tokenized. So can you just speak a little bit more on how you guys are thinking of the opportunity? Vladimir Tenev: Yes. I think the opportunity is very exciting. One of the things that I think is both a problem and an opportunity with the traditional crypto is that crypto and the traditional financial system up until fairly recently have kind of been 2 separate worlds. And I think Robinhood has a unique position as a scaled crypto business, but also a scaled business in traditional finance to bridge the 2 and actually make room for what we consider traditional assets, but really things like securities, products with real fundamental utility to leverage blockchain technology and actually be tradable on chain where customers can self-custody, they can engage with a variety of protocols, collateralized borrowing and lending and where those assets can be traded 24/7 real time in fractional quantities. You've obviously seen some efforts in private companies in the EU with our OpenAI and SpaceX token giveaways there. So I think we're really interested in continuing to pull on that and making those products available to customers. The other opportunities that I'm personally excited about is real estate, private credit, unique assets and collectibles like art. If you think about what's a part of your portfolio, if you're a high net worth individual, there's a lot of these assets that actually retail can't access currently. And I think that tokenization is a way to enable that at scale and sort of like reduce some of the downsides that would typically be associated with holding those assets, like lack of liquidity being locked into positions, not being able to like chunk the assets out and invest in portions of them. So that's why we're continuing to push on it, both in the U.S. and outside. And you should expect this to become bigger and bigger in the coming years, of course, starting with stocks, which is the asset class that we think has the most potential, and we're also closest to. Chris Koegel: Okay. Thank you, Vlad. The next question is from Roy from Crossroads. Unknown Analyst: Huge congratulations to Jason and also Shiv, and congrats to everybody on a great quarter, too. And very impressive, there's been a huge increase in predictions market activity. And I'm curious if the volume shown in the platform is a mix of Kalshi and Robinhood? Or is it just pure Robinhood? And also, is Robinhood considering expanding this internationally even alongside or even ahead of its current trading expansion plans? Jason Warnick: Yes. I mean, sure. The volumes that we're showing are the volumes that are on Robinhood. I'm sure Kalshi is counting the activity that we send to them, which is quite substantial. And for contracts that we offer, I think a very large chunk of Kalshi's volume is actually coming from Robinhood. In terms of international, Vlad, I'll let you cover that one. Vladimir Tenev: Yes. We're definitely looking into it closely. And you talk about tokenization as some of the previous callers have brought up, Prediction Markets is another asset class that actually has a strong crypto component, particularly outside the U.S. So we're definitely taking a look at what's the most effective way to get that to our customers. And I think it's going to be on a case-by-case basis, maybe slightly different in each jurisdiction, but we have some options as a scaled traditional player, but also on the crypto side, I think we will have our pick of what's best in each jurisdiction, and that's something we're definitely closely looking at. Chris Koegel: Okay. The next question is from Matti Daleiden from JPMorgan. Madeline Daleiden: This is Matti on for Ken. On shorting, has Robinhood experienced a noticeable pickup in customers applying for margin accounts in order to participate in the short selling since your 3Q launch? What have early adoption numbers and customer behavior looked like in these first few months? Vladimir Tenev: Yes. So shorting is something that we've announced at the HOOD Summit event in Vegas a couple of weeks ago. Customers are very excited about it. It's somewhat hard to believe that we've been able to get to this point without offering shorting. But we've been rolling it out to employees and doing final testing. It's actually not yet rolled out to external customers. So we think people will love it, but too early to tell. And I guess to answer your question, no. I mean, I don't think the increase in margin usage has been in anticipation of shorting because it's just not yet available. Chris Koegel: The next question is from Tannor with Future Investing. Unknown Analyst: First off, I just wanted to start off with a -- can you guys hear me? Jason Warnick: Yes, we can hear you. Unknown Analyst: Okay. Sorry. With a crypto question around crypto staking on the Robinhood platform so far, if there's any insights there? And then also just maybe a small request, if you guys are open to publishing event contract volume on their monthly metrics updates going forward? That's it. Jason Warnick: On the amount stake, I think it's -- we exited the quarter at about $1 billion. The market has been pretty volatile over the last few days. So I think it's come down a little bit, but customers are responding very well to the ability to stake. Vladimir Tenev: And what about the event contract volume published and monthly metrics? Jason Warnick: Yes, I'll leave that with Shiv as something to consider. I don't want to promise that for him, but we do like, in all seriousness, being as transparent as possible for investors, and we're always looking at ways to provide incremental disclosure to help you understand the business. So that's something we'll look at. Vladimir Tenev: Yes. Thanks for the suggestion. Chris Koegel: All right. That is the last question from our virtual queue. Is there anybody else in the audience here who didn't get to ask a question earlier that wants to ask a question? Vladimir Tenev: Perhaps one of the virtual... Chris Koegel: All right. Well, I think let's pass it back to you, Vlad. Vladimir Tenev: Okay. I think you guys should know that we are not slowing down. The team remains incredibly excited to continue our mission, and there's so much to do. Roadmap is full. AI event is coming up, which I think will be very, very exciting. So hopefully, some of you will be able to join us there, at least virtually. And to commemorate this occasion, bittersweet, though it might be, I've learned that Jason has a favorite dessert. And so we've actually brought one here, and Jason wanted to share this with everyone in person and virtually vicariously, a [Baked Alaska]. Jason Warnick: You all wonder why I'm retiring. Vladimir Tenev: Unfortunately, they wouldn't let us light it here even though that would have been very cool. So this is... Jason Warnick: It looks incredible. It's the first time I've ever had it, actually growing up, my favorite was Lemon meringue pie, and this brings back fond memories. So -- and underneath, I anticipate there's ice cream, which is my favorite. Vladimir Tenev: I wish they gave me the lighter, and I just like tried unsuccessfully to light it. But... Jason Warnick: Thank you, and I appreciate all the kind words of encouragement. And I do believe we're leaving the company in an incredible position. And I think you're going to find in short order that Shiv is, if not an upgrade, equally as good at driving the company forward. So thank you. Vladimir Tenev: Thank you. We'll see if he can finish an entire one of these. It looks like there's one for each of us up here. Shiv Verma: We'll bring some of the team to help with that. Jason Warnick: All right. Thank you. Vladimir Tenev: Thank you, all.
Operator: " Omer Karademir: " Ebubekir Sahin: " Ümit Önal: " Unknown Executive: " Madhvendra Singh: " HSBC Global Investment Research Cemal Demirtas: " Ata Invest Co., Research Division Unknown Analyst: " Operator: Ladies and gentlemen, thank you for standing by. I'm Costantino, your Chorus Call operator. Welcome, and thank you for joining the Türk Telekomünikasyon conference call and live webcast to present and discuss the third quarter 2025 financial and operational results. [Operator Instructions] The conference is being recorded. [Operator Instructions] We are here with the management team, and today's speakers are member of the Board, Ümit Önal; CEO, Ebubekir Sahin; and CFO, Omer Karademir. Before starting, I kindly remind you to review the disclaimer on the earnings presentation. Now I would like to turn the conference over to Mr. Ümit Önal, member of the Board. Sir, you may now proceed. Ümit Önal: Hello, everyone. Welcome to our 2025 third-quarter results conference call. Thank you for joining us today. Before we begin our quarterly presentation, I would like to take a brief moment to share a few personal words. Following my recent appointment as the Head of Cybersecurity Direct trade under Turkish Presidency, I have transitioned from my executive role as the CEO of Türk Telekom while continuing to serve as a member of the Board of Directors. I am pleased to introduce our new CEO, Mr. Ebubekir Sahin, who assumed his role on October 24. I have full confidence that under his leadership, Türk Telekom will continue to flourish. With that, I would now like to hand over the call to our CEO for his remarks before I return to take you through our third quarter results. Ebubekir Sahin: [Interpreted] Thank you very much, Ümit Önal. It's a great honor to take on the role of CEO at such an important stage of Türk Telekom's journey. I would like to begin by expressing my sincere gratitude to Mr. Ümit Önal for his leadership and continued contribution as a member of our Board. Telecom today stands on strong foundations built on transparency, accountability, and consistent delivery. As we move forward, we will continue to build on this strength, maintaining an open dialogue with the investment community and driving sustainable growth across all our businesses. I am pleased to meet you all in this occasion. With that, I would now hand the call back to Mr. Ümit Önal, who will deservedly walk you through the third quarter development. And also, I would like to thank him for the good inheritance has left. Ümit Önal: Thank you, Ebubekir Sahin. First, I would like to take you through some important achievements that marked the period. Starting with concession renewal on Slide #3. I am sure most of you are familiar with this slide, as we had the opportunity to engage with you through our webcast and subsequent meetings to discuss this important milestone in detail. To recap briefly, the renewed concession extends our right to operate and develop Türk's fixed telecom network until 2050 under flexible and manageable financial terms, providing long-term visibility and continuity for our business. The total contract value is USD 2.5 billion plus VAT payable over a 10-year period, enabling a balanced cash flow planning over the coming decade. We have also committed to an investment plan of USD 17 billion through 2050 in areas covered by the agreement. The plan incorporates building flexibility that allows us to maintain our financial discipline. Beyond its financial framework, this agreement reinforces Türk Telecom's leadership position in fixed line services and enables us to accelerate growth in verticals, including AI, IoT, cybersecurity, data centers, and digital platforms, whilst continuing to further capitalize on Türk's fiber transformation. On Slide #4, 2030 targets. Our priority will continue to be FTTH conversion investments, an area that we have been monetizing effectively. Having completed most of the copper-to-fiber transformation, we now aim to significantly expand the share of FTTH connections in our network, targeting 37 million homes by 2030 with FTTH penetration rising to around 76% and fiber subscribers reaching 17 million. By 2030, through accelerated FTTH transformation, we aim to meet the growing demand for high-speed connectivity, enabling a sevenfold increase in average speeds of our customer base from 86 megabits to 570 megabits. This transformation will not only enhance network efficiency and customer experience, but also help contain churn and strengthen ARPU growth potential. On Slide #5, let's look into where we are with the 5G process. We achieved strong results in the recent 5G auction, securing available spectrum that will carry our mobile business into the next phase of growth. We acquired key spectrum blocks in both the 700 megahertz and 3.5 gigahertz bands with a total spectrum fee of USD 1.1 million plus VAT payable in 3 equal installments in January 2026, December '26, and May '27. Following the auction, we became the operator with the highest capacity per subscriber in 3.5 gigahertz frequency and in our overall capacity, expanding our total spectrum portfolio to 315 megahertz. With 56% of our LTE base stations fiber-connected, we are well ahead of global 2030 benchmarks. Our pioneering 5G pilot tests across health care, agriculture, transport, sports, and tourism have showcased our network capabilities and our ability to effectively implement next-generation technologies. Slide #6, financial and operational overview. Consolidated revenues increased by 11% to TRY 60 billion. Excluding the IFRIC 12 accounting impact, revenue growth was 9%. Once again, 22% of EBITDA growth year-on-year was well ahead of the revenue growth, pushing the EBITDA to TRY 27 billion, along with a solid 410 basis points margin expansion year-on-year to 45%. Net profit for the period came in at TRY 10 billion. CapEx, excluding license fees and solar investments, stood at TRY 18 billion. Unlevered free cash flow grew by 14% to TRY 6 billion. Net leverage improved to 0.6x. Slide #7, net subscriber additions. Our total subscriber base reached 56.2 million with 2 million net additions Q-on-Q. Excluding the 178,000 loss in the fixed voice segment, quarterly net additions were 2.2 million. Both mobile and fixed Internet enjoyed strong demand from individual customers during high season, but the mobile additions were further supported by the corporate segment. Fixed broadband base remained flat around 15.5 million. Subscriber dynamics were mostly shaped by pricing and seasonality in the STP market. We gained 15,000 net subscribers in the third quarter, thanks to the 71,000 net additions in retail segment, more than offsetting the losses in wholesale segment in the aftermath of July price revisions. Subscriber activity strengthened Q-on-Q amid a robust back-to-school period with net additions exceeding Q2 levels. Activations were strong across both retail and wholesale segment. Despite intensified recontracting volumes and pricing actions, monthly retail churn averaged 1.2%. Mobile segment added 2.3 million subscribers on a net basis in its historic high performance, pushing up the total base to 30.8 million. Activation volume reached its historically highest quarterly level. This was mostly driven by the postpaid segment, but prepaid acquisitions also came higher compared to same period last year and our expectation. Churn volume, on the other hand, was parallel to same period last year and our expectations. Mobile net additions were further supported by 1.5 million of M2M additions by the corporate segment. Subscriber growth remained on a strong track with 776,000 net additions, excluding M2M. While postpaid segment added 2.1 million subscribers, prepaid segment posted 208,000 net additions, marking its best performance since Q3 '22. Slide #8, fixed broadband performance. We introduced the first price revisions in the wholesale segment starting from July 1. Subsequent to that, we adjusted the retail segment prices for the second time in July for new acquisitions and in August for existing customers. Most players in the market followed our price adjustments to varying degrees. Still, price parity stayed distant but less so compared to prior quarters. Both recontracting and upselling volumes scored higher Q-on-Q and year-on-year. ARPU growth remained strong at 13% year-on-year in Q3 despite last year's exceptional 21% base. The combination of solid upsell and sustained recontracting performance, along with successful price implementation, enabled us to maintain double-digit growth. We expect the robust ARPU trajectory to continue in Q4. Average package speed of our subscriber base increased by 50% year-on-year to 86 megabits, while average speed in retail base reached 94 megabits with 54% growth. 58% of our subscribers now use 50 megabits and packages compared to 44% a year ago. Moving on to mobile performance, Slide #9. Effectively, competitive environment remained unchanged from previous quarter. MMP market where we reclaimed our long-standing net leadership after a pause in Q2, maintained its historic high volume in the high season. That said, we introduced the second price revisions of the year in August, which has been followed by competition. Given that December tends to be the month where promotional activity peaks, we do not expect a major shift in competitive landscape in the final quarter of the year. Postpaid segment recorded 2.1 million net additions in the third quarter. With that last 12 months postpaid net additions surpassed 4 million in total. The ratio of postpaid subscribers in total portfolio rose to 78% from 74% a year ago. Excluding M2M, postpaid base added 569,000 subscribers, marking a strong underlying trend in the segment. Mobile ARPU increased 2% year-on-year over last year's strong 17% base. Obviously, M2M additions had some dilutive impact at the blended level. Excluding M2M, ARPU growth depicted a healthy growth of 8%, thanks to successfully managed pricing and churn, as well as higher recontracting and upsell volumes year-on-year. Excluding M2M, postpaid ARPU was also on a robust trend with 10% growth year-on-year. On Slide #10, let's take a look at the full-year outlook. We were pleased to see first half's robust performance running into the second half in our main businesses. We keep our operating revenue growth and CapEx intensity guidance unchanged at 10% and 29%, respectively. As of the first 9 months, we are looking into nearly 13% operating revenue growth. Although this points to some upside risk to our 10% growth forecast, we prefer a cautious stance against Q4 inflation outlook. We stick to our CapEx intensity guidance as we tend to see an accelerated spending in final quarters. 9-month EBITDA margin has once again surpassed our revised guidance for 41%, thanks mainly to strong operational performance. We now revise our full year '25 EBITDA margin guidance up to 41.5%, taking into account better-than-expected Q3 performance and our expectation of a contained OpEx in the final quarter. Before I finish, it has been an immense privilege to lead Türk Telekom. I must say, a company that stands at the heart of Turkey's digital transformation, whilst adhering to create sustainable growth at all times. I take great pride in having been part of this journey, one that saw us strengthen our balance sheet, accelerate fiber transformation, renew the fixed line concession agreement until 2050, and kickstart the 5G era. These milestones have laid a strong foundation for the next phase of growth and innovation. I would like to express my sincere gratitude to all our investors and analysts for your continued engagement, feedback and trust in Türk Telekom. Your insights have been invaluable in helping us move to the company forward. Thank you. Omer, the floor is yours now. Omer Karademir: Thank you, Ümit Önal. Good morning and good afternoon, everyone. We are now on Slide #12. In Q3, consolidated revenues increased 11% year-on-year to nearly TRY 60 billion compared to TRY 54 billion in the same period of last year. As a result, total revenues for the 9-month period reached TRY 166 billion, up 14% annually. Excluding the IFRIC accounting impact, Q3 revenue was TRY 55 billion, up 9% year-on-year, including increases of 14% in fixed broadband, 13% in mobile, 21% in TV, and 31% in corporate data, as well as contractions of 1% in fixed voice, 40% in international, and 14% in other segments. Fixed Internet and mobile have continued to lead growth, together making 78% of operating revenue in the quarter. The 2 lines of business made the largest contribution to more than TRY 5 billion higher revenues in total year-on-year. The strong performance was maintained, thanks to seasonal support, ongoing subscriber growth, multiple pricing actions, as well as the contracting and selling performance. The strong pickup in corporate data can largely be explained by the contribution from repricing of contracts and strong growth in certain verticals, such as data centers and cloud, cybersecurity, and managed services. ICT Solutions' revenue strongly bounced in Q3 from a slow pace of project revenues in the first half, but still fell short of last year's figure in the same period due to a significantly high base. The sizable jump Q-on-Q is largely attributable to new projects secured. We expect strong performance in ICT Solutions revenue to continue in the final quarter. In our international business, the decline is largely owing to contracting voice revenue. Moving on to EBITDA. Direct costs fell 2% year-on-year, with interconnection cost and equipment and technology sales costs coming down 42% and 4%, whilst tax and cost of bad debts going up 11% and 8%, respectively. Decline in interconnection costs was driven by contracting international revenue, whereas drop in equipment and technology sales cost was driven by last year's high base, similar to the revenue side of this line item. Annual increase in commercial costs moderated from last quarter to 11%. Other costs remained flat year-on-year. Within other costs, network expense dropped 3% year-on-year and personnel cost rose nearly by 2% under the impact of inflation accounting. Another quarter of successfully continuous cost base led OpEx to sales ratio down from 59% in the same period last year and 58% in the previous quarter to 55%, the lowest level over the comparable 11-quarter period of inflation accounting as operational leverage continued. 22% of EBITDA growth year-on-year was lifted EBITDA to TRY 27 billion from TRY 22 billion a year ago, along with a robust 410 basis points margin expansion year-on-year and 270 basis points Q-on-Q to 55%. Excluding the IFRIC 12 accounting impact, EBITDA margin was close to 48%. As such, 9 months EBITDA margin surpassed 42%, whilst cumulative EBITDA rose to TRY 70 billion with a sizable 23% increase from last year. Operating profit grew 46% year-on-year to TRY 16 billion in Q3, bringing the 9-month total to TRY 37 billion, up 63% year-on-year. Coming to the bottom line, TRY 6 billion net financial expense was nearly 30% lower both annually and quarterly. Annual trend can largely be explained by a 25% increase in USD TRY and Euro TRY rates on average, behind inflation in the same period. Lower interest rates and hedging costs also helped. The quarterly change in exchange rate was about 5% on average, again behind quarterly inflation. Additionally, the impact of volatility in financial markets, which was triggered in March has subsided quickly, leading to lower market interest rates and hedging costs on Q-on-Q basis also. Hence, expectedly, the net financial expense in Q3 proved more favorable compared to Q2. We recorded EUR 3.5 million of tax expense in total, largely driven by current taxes. In a normalizing trend, effective tax rate receded to 26% from 33% a quarter ago. As a result, we recorded TRY 10 billion net income for the period, up more than 150% year-on-year, thanks largely to significantly improved operational performance and lower net financial expense. With that, net income exceeded TRY 21 billion in the 9-month period, up nearly 70% year-on-year. Moving on to Slide #10. CapEx spending, excluding license fees and solar investments was TRY 18 billion, higher Q-on-Q as pace of investments pick up in line with our expectation. As such, 9 months CapEx on the same basis reached TRY 40 billion, taking the cumulative CapEx intensity to 24%. Moving on to Slide #14, debt profile. Cash and cash equivalents of which 25% is FX-based, totaled TRY 14.5 billion. The FX exposure includes U.S. dollar equivalents of TRY 1.9 billion of FX-denominated debt, TRY 1.4 billion of total hedge position, and close to TRY 190 million of hard currency cash. Net debt over EBITDA fell to 0.6x from 1 a year ago and 0.7 a quarter ago. We have been consciously deleveraging our balance sheet for some time in order to comfortably accommodate the upcoming multiple investments. Obviously, that has helped us immensely to successfully raise a comprehensive and efficient financing package in a short period of time. To elaborate on that, we are now on Slide #15. We have recently demonstrated a remarkable capacity to access a wide range of funding sources, enabling us to deliver on our major strategic commitments, notably the fixed line concession renewal and the 5G spectrum acquisition through our solid positioning in our business, robust financial power, and long-standing relationships with key stakeholders. In September, October 2025, we successfully executed a comprehensive USD 1.8 billion financing program, securing the long-term and cost-efficient funding from a wide range of global sources. The package included 4 long-term credit facilities totaling USD 610 million equivalent, USD 600 million 7-year green Eurobond, and USD 600 million with an average maturity of 5 years. These transactions further enhance our liquidity position and extend our debt maturity profile. On the loan side, we obtained highly competitive long-term facilities backed by leading international financial institutions. reflect continued confidence of global lenders in Telekom's fundamentals and disciplined balance sheet management. On the capital market side, we achieved 2 landmark issuances, reaffirming our strong market access and broad investor appeal. The USD 600 million green Eurobond priced at 6.95%, more than triple oversubscribed or the new green issuances attracted more than 100 global investors, with more than 60% allocation to accounts with a strong focus on ESG. The deal expanded our green financing portfolio to USD 1.1 billion, the largest in the Turkish telecom sector. Shortly after, we issued USD 600 million 5-year skruk at 5.6%, marking a historic place for the transaction as the first international corporate skuk out of Turkey. The Sukuk was met with more than 3x demand led by Gulf-based institutional investors. The deal achieved the tightest yield for Turkish corporates since 2022 and for Türk Telekom since it is debut in international debt capital markets, once again, proving our ability to ride large-scale funding at attractive terms. Through this transaction, we secured the resource to fund majority of our commitments for the announced long-term investments of which the payment plan is shown on the table at the bottom. Following the completion of the legal process, we expect to see the accounting impact of the renewed concession agreement in our Q4 '25 financial statements, along with the mentioned financing transactions. Finally, on Slide #16, we recorded USD 410 million short FX position as of Q3. Excluding the ineffective portion of the hedge portfolio, namely PCCS contracts, our short position was USD 450 million. Finally, we generated close to TRY 6 billion of unlevered free cash flow, which carried the 9-month figure to TRY 22 billion. This concludes my presentation. We can open up the Q&A session. Operator: [Operator Instructions] The first question comes from the line of Singh Maddy with HSBC. Madhvendra Singh: My first question is on your margins performance. It looks very strong during the quarter. Incrementally, it looks like almost all of your revenues quarter-on-quarter growth in revenues basically translated to EBITDA. So if you could explain the cost dynamics and why the margins are so strong during this quarter, that will be very good. And is that the sustainable level we should think about going forward? So that's the first question. The second question is on your recent concession wins. So just wondering how the depreciation and amortization charges will be treated for D&A expenses going forward? Will you be looking at the entire length of concession? Or is there a straightline method? I mean if you could just talk about the annual number we should think about for D&A going forward, that will be on account of the 5G and the fixed concession that will be great. My third question is on your dividend policy, given that your margins in Q4 -- sorry, Q3 now is very strong for the full year, you are now guiding for more than 40% margin. Does that trigger a dividend event going forward, if at all? So if you could talk about that. So these are the 3 questions. I will get back in the queue for more. Unknown Executive: Thank you for your questions. On your first question, EBITDA margin, traditionally, we have got the highest season in the third quarter in our mobile and fixed businesses. The reason being the summer months and the back-to-school season. So we generally generate the highest margins in the third quarter. So this was the case, and in line with our expectation in the third quarter. And generally speaking, the fourth quarter is the lowest season, and that is why we are incorporating that into account for the fourth quarter and guiding for a 41.5% margin relative to our performance in the 9-month period of 42.2%. Is this a sustainable level? I mean this is really a good question because we have been enhancing our margin over the last 2 years since 2023 to be more specific by 9 points. So that's a huge margin improvement to. So for the next year, our aim is going to be to sustain these margins. And for the longer term, of course, for through operational leverage or efficiencies or transformation. So that would be the answer to the EBITDA question. The second question, how we are going to account for the concession is we did say that we will take it into our books in the fourth quarter. So what's going to happen is the fee that is $2.5 billion is going to be discounted today's value when we take it into the books. And then it will be written as CapEx. And then throughout the lifetime of the concession agreement, which is until 2050, it will be amortized on a straight-line basis. Have I answered your questions? [indiscernible] Madhvendra Singh: Yes, the D&A charges for the 5G. Unknown Executive: Yes, it will be more or less the same. So the amount that we are going to pay for the 5G is THB 1.4 billion. So I don't know, I mean, if it's going to be the fourth quarter or the first quarter of 2026. But when we take it into our books, it's going to be the similar methodology. So it's going to be recorded as CapEx, and it will be amortized throughout its lifetime, which is 2026. Ebubekir Sahin: [Interpreted] Allow me to answer your dividend-related question. First of all, 2025 is not finalized yet, and we haven't seen the fourth quarter yet. So first, we need to see the year-end results. Once we complete 2025, the Board of Directors, to which I am a member, is going to make a decision to propose the general assembly for the dividend -- if the dividend to be paid. So we should definitely keep in mind one thing. The upcoming period includes our annual investment expenditures as well as the fixed line concession and 5G frequency payments. In this regard, 2026 is particularly noteworthy in terms of looking like accumulation of payments. Of course, the final decisions will be made and taken by our main shareholders. However, as in previous years, when making a dividend decision, our Board of Directors will consider our company's debt service profile, cash flow, and investment needs in the coming years. Madhvendra Singh: If you could just details of any price hikes you have taken in the third quarter in mobile and fixed side? And the second question is on the hyperinflationary accounting. There were some talks about Turkey coming out of it. So in that scenario, hyperinflationary accounting is ended. What impact do you think will have on Telecom earnings and outlooks? Unknown Executive: Thank you again for the questions. On the hyperinflationary accounting, the methodology and the discussions is for the -- I mean, at the first place for the legal accounts, not for the IFRS accounts, which is all the CMD accounts. So it is early to say that it's going to be abolished for the Capital Markets Board reporting. Therefore, I mean, for the time being, it would be reasonable to assume that we will continue at this -- and on the price hikes, yes, I mean, there were several price hikes in the third quarter. To recap, we did the first price hike in the wholesale FPB segment. It was, I think, along the lines of 49%, 49%. And that was followed by the second price increase in the retail segment, which was about 13% on average. And following that, these are for the new acquisitions. And following that, we did the usual thing with a 1-month lag, and we increased the prices also for the existing customer base in retail segment in August. And that was around the same level. And in mobile, there was also the second price hike of the year in August, and I think it was around 10%-ish. So I mean, it will be reasonable to say that for the time being, I mean, we are more or less done with the price increases for this year, and we are preparing our budget for the next year for the -- I mean, all of the KPIs and price increases. Operator: The next question comes from the line of Cemal Demirtas with Ata Invest. Cemal Demirtas: Congratulations for very good results. First of all, I would like to thank Ümit Önal for a very good performance during his time. Sincerely, I really appreciate from the investor perspective, and I'm trying to be objective as much as I can. Just I want to point out that. And I wish the best to Mr. Ebubekir Sahin. And I think it will be good for him to just get your experience when you are in the Board. So it will be definitely support for him. And I wish you the best for your term. I think it's going to be a challenging, but very interesting time. And I think most of the uncertainties ended at least in terms of the regulatory side. So I wish you the best. at all. My question is about -- the first one is about the short-term performance. In third quarter, you had very good performance. And could we see some upside risk to your estimate? Is there any specific reason for you being very cautious about the fourth quarter, or just being just conservative? That's my first question. And the second question, I think for the following years, we need -- you will need more guidance from you from this -- because this investment period time. And at least for 2026, could you mention anything about the CapEx over net sales ratio or net debt to EBITDA limits you will have during 2026 or 2027? And the third one is about the financing side. And from the previous quarters, each quarter, we had difficulty to understand the high level of FX, even if there was stability in the currency side. But with this quarter, we see real improvements in terms of the -- I don't know if there was a specific in this quarter or more stability after a very volatile second quarter. So could you give us some hint about the fourth quarter if the currency level and the interest rate -- if the currency level continues like this and the interest rates coming down slowly, could we assume a similar level of financial expenses? Ebubekir Sahin: [Interpreted] Allow me to start and leave it to my first of all, I would like to thank you for your nice words. I mean I have been working as the CEO -- I have been working as the CEO of this company for over 6 years. And also I have been a part of the member of the Board of Directors for 3 years. Within this process, we have always carried the responsibility of abiding by the corporate governance principles, and we have always had this transparent communication with you. As of 24th of October, Ebubekir Sahin has taken over the CEO position. It's like carrying the flag from now on. He's going to be carrying this leg just like we have been doing so far, and I'm sure he's going to raise it even higher. And as we have said, I will continue as the Board of Director -- as the member of the Board of Directors, and I will be giving the best of my support. We know that, as you said, we have actually left behind a very important milestones and uncertainties behind. And now we have also got a very important momentum. And I believe Mr. Sahin is going to add better and more successful performances, which will be sustainable for the company. And then I will continue to answer your questions. I believe it would be reasonable to evaluate our 2025 operating income growth expectations by considering the base effects that emerged last year on the cost of inflation. We have recently seen some volatility in inflation with negative surprises in September and slightly positive surprises in October. As you know, our end-of-2025 inflation forecast is 29%, but we will be closely monitoring the last 2 months of data. Therefore, while our 9-month real operational growth was 12.7%, we choose to maintain our 2025 forecast at guidance at 10%. I mean, yes, if you see a positive trend in inflation over the last 2 months, we are run the risk of exceeding our 10% guidance. However, if inflation exceeds expectations, we believe our forecast is well protected and does not pose any downside risk. My friend continue to answer your question. Ümit Önal: For your financial expenses question, I'm going to report that. The financial expenses consists of the interest payments and hedging costs. As we have discussed in the second quarter investor call, we have stated that for the second quarter, the volatility in the market impacted our hedging costs. But we are not expecting that to continue, and we expect to decline in the third quarter. So that's why our hedging cost declined for the Q3. And also the interest payments also declined with the half of the disinflation program Central Bank. And in addition to that, lastly, our total debt is declining. So the leverage ratio came to 0.6 at the moment. Cemal Demirtas: There was one question about 2026 net debt to EBITDA and the CapEx over net sales ratio, where should that ratio be standing? Just a rough picture or indication. Ümit Önal: For the leverage ratio, our expectation for the next year, we have stated several times in quarter calls, we said that in our operations, we don't need to borrow. We don't need additional financing since our operations generate cash. So that's why our leverage declined to 0.6 at the moment. But for the upcoming 5G and concession payments, the leverage ratio, unsurprisingly, will increase. But we can say that it will not reach to a level, let's say, to close to 2.5x. But we can say that it will make its peak in 2026. But it's going to decline since our payments will be done, and with the help of our operations with the help of its operations, we are expecting it will be well below 2.5. And after its peak, it's going to decline in the year 2027. For CapEx over revenues, we can expect since regarding the time of big investment period for 5G and concession. So we can expect similar levels of this year's CapEx over sales -- CapEx intensity ratio for the next year, maybe next couple of years for our mainly FTTH conversion and 5G rollout. But we can expect it will decline to its historic average levels in the coming periods. Operator: The next question comes from the line of [indiscernible] with Barclays. Unknown Analyst: Congratulations on the results and also on the changes within the team, and all the best of luck. I have just maybe one follow-up question regarding your revenues outlook or revenue growth outlook. Do you think -- I mean, this year, it has been very great 10% and looks like you're on track to achieve that. So I was wondering how sustainable is this level of revenue growth going forward, maybe for next year and after that, given the concession expansion and the 5G? Unknown Executive: Thank you, Daniel. I think we are going through a relatively high growth period over the last couple of years because part of that was driven by the recovery from high inflationary periods. '24 and '25 have been great. We have to expect some normalization for the next year. But you're right, we have got new drivers now that we should be working on strategizing. These are the securing of the concession agreement and securing a successful result in the 5G auction as well. So we haven't finalized our budget yet. It needs a few more rounds to be completed, and we will be sharing our guidance together with the fourth quarter results. But I can tell you that we will hopefully, I mean, maintain a momentum in this business because unless an exogenous factor comes into the play, we have to be, I mean, building on this momentum. And therefore, we are hopeful and we are optimistic that we will be sharing a nice real growth together with you in the guidance. So that's all I can say at the moment. But hopefully, we will not -- I mean, keep you in the dark for too long. Operator: [Operator Instructions] Ladies and gentlemen, there are no further questions at this time. I will now turn the conference over to Türk Telekom management for any closing comments. Unknown Executive: Thank you. Thank you, everyone, for joining us today, and we'll see you next time. Thank you. Have a nice day. Bye-bye. Operator: Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you for calling, and have a good afternoon.
Operator: " Andrea Sejba: " Rajiv Prasad: " Scott Minder: " Alfred Rankin: " Alfred Moore: " ROTH Capital Partners, LLC, Research Division Edward Jackson: " Northland Capital Markets, Research Division Unknown Analyst: " Imperial Capital. Jack Fitzsimmons: " Prudentials Eric Ballantine: " CVC Credit Partners, LLC Operator: Good day, everyone, and welcome to the Hyster-Yale Inc. Third Quarter 2025 Earnings Call. [Operator Instructions]. Please note that today's event is being recorded. I'd now like to turn the floor over to Andrea Sejba. Ma'am, please go ahead. Andrea Sejba: Good morning, and thank you for joining us for Hyster-Yale's Third Quarter 2025 Earnings Call. I'm Andrea Sejba, Director of Investor Relations and Treasury. Joining me today are Al Rankin, Executive Chairman; Rajiv Prasad, President and Chief Executive Officer; and Scott Minder, Senior Vice President, Chief Financial Officer, and Treasurer. We'll be discussing our Q3 2025 earnings release issued yesterday. You can find the release and a replay of this webcast on the Hyster-Yale website. The replay will remain available for approximately 12 months. Today's call contains forward-looking statements subject to risks that could cause actual results to differ from those expressed or implied. These risks are outlined in our earnings release and SEC filings. We'll be discussing adjusted results, which we believe are useful to supplement our GAAP financial measures. Reconciliations of adjusted operating profit, net income, and earnings per share to the most directly comparable GAAP measures are available in our earnings release and investor presentation. With that, I'll turn the call over to Rajiv. Rajiv Prasad: Thanks, Andrea, and good morning, everyone. I'll begin with our view of the current economic environment, how we're shaping customer behavior, and how Hyster-Yale is responding. Scott will follow with our financial results and outlook, and I will wrap up before we open the calls for questions. Throughout the first half of 2025, we maintained a cautiously optimistic outlook, predicting an improvement in market demand in the second half of the year. However, since our last update in August, that optimism has faded largely due to the impact of tariffs on the market demand and on our costs. This shift in sentiment is not unique to our industry. It's a broad trend across the capital goods sectors. Customers are navigating volatile interest rates, tariff pressures, and geopolitical developments, all of which are influencing long-term investment decisions. This is reflected in our own experience during the third quarter. These were overall lift truck market demand declined across all regions and most product categories compared to Q2. Many customers are postponing capital expenditures and taking a more conservative approach to balance sheet management, citing uncertainty about the trajectory of interest rates, inflation, and broader economic stability. Despite the broader market contracting, Hyster-Yale's booking activity ticked higher compared to both the prior year and the previous quarter. This dollar value booking increase is partly due to higher prices on our trucks, driven by higher tariff-related material costs. Bookings rose to $380 million in Q3, up from $330 million in quarter 2. Gains were led by the EMEA and APAC regions, while the Americas remained stable. Bookings improved across all product classes, with Class 1 trucks showing solid growth, improving our positioning in the warehouse segment. Notably, in October, we saw a strong bookings rate in the Americas for Class 5 trucks and, to a lesser extent, Class 2. While it's still early, this uptick may signal that the market is beginning to stabilize and that customers are recognizing the need to invest in new equipment. We view this as an encouraging indicator amidst an otherwise cautious environment. While quoting activities remain solid, ongoing macroeconomic uncertainty, largely due to tariff and interest rate discussions, is causing delays in customer order conversions. To safeguard our competitive position, we're implementing targeted initiatives aimed at increasing bookings through enhanced market participation and quote closure rates. These actions support our dual commitment to deliver optimal solutions and outstanding customer service. For example, we've announced our product offerings by expanding to our full range of modular and scalable lift truck models that support customer applications from basic to complex. This allows customers to select configurations that best fit their operational requirements and budget constraints. The flexibility of our solution helps customers increase productivity at the lowest cost of ownership. In addition, our advanced warehouse truck technologies provide improved safety, efficiency, and automation options, helping customers optimize their material handling processes and reduce operational costs. On the customer care front, we're strengthening our connections with dealers and end customers by offering comprehensive support throughout the buying cycle. Our dedicated account teams work closely with customers to analyze fleet performance, identify opportunities for upgrade, and ensure recommendations are tailored to each customer's specific challenges. We also provide responsive after-sales support, including rapid maintenance services and proactive parts availability to minimize downtime and keep operations running smoothly. Regular training sessions for dealer personnel ensure that our partners are equipped to deliver prompt, knowledgeable service to end users. By engaging closely with our customers, we can better understand their changing priorities and collaborate to solve their most critical needs. We back these efforts with robust support services, continuing to deliver value beyond the product. We strive to help our customers maintain efficient, reliable fleets across all business conditions. We have a deep understanding of our market and our customers' buying cycles. We recognize that many customers are choosing to postpone investment in new lift trucks due to the current environment. However, we're confident in the market's long-term growth drivers and demand for existing fleet upgrades over time. Our experience shows that although customers may defer purchases for a period, the rising cost and operational efficiency issues associated with maintaining aging equipment make new fleet acquisitions inevitable. As maintenance expenses and downtime increase, the financial and productivity advantages from new truck investments become more apparent. This cycle reinforces our confidence in the long-term stability and vitality of the market. We're committed to supporting our customers through every life cycle phase with flexible solutions tailored to their evolving needs. Globally, the competitive landscape is changing rapidly. We are facing increasing pressure from low-cost foreign competitors, especially in South America and Europe. This competition is most pronounced in the Class 5 market for standard and value configurations, compressing margins in those markets. To address these challenges, we are expanding our lineup of modular, scalable models to more fully meet the requirements of all potential customers. These products, including those from our own China operations, will make us more competitive across all capability and price points in this critical product class while also protecting our margins. In addition, our new warehouse products and advanced truck technologies are helping us to stand out in global markets and are receiving strong customer feedback. At the end of Q3, our backlog stood at $1.35 billion, down from $1.65 billion in Q2. Shipments outpaced new bookings in the quarter, particularly in the Americas. This reduction was driven by fewer trucks, partially offset by higher value trucks due to increased product costs and favorable currency further diminished the real value of our backlog, intensifying the effect of lower truck volume. Maintaining a backlog that supports multi-month production is increasingly difficult in the current environment. The pace of market recovery remains below expectations despite underlying demand as a result of persistent uncertainty. As a result, we are managing our production schedule and inventory levels with caution, ensuring alignment with real-time market signals. Our expectation is for demand to remain soft in the near term, with production rates adjusted to reflect actual booking and cancellation trends, as well as backlog held. We are moderating near-term production expectations to preserve manufacturing efficiency, optimize inventory, and maintain appropriate backlog levels. As a result, we anticipate further backlog degradation in the near term. If shipments continue to outpace bookings, we may need to take additional actions to better align our cost structure with evolving market conditions. We've seen many market cycles, and our experience tells us that resilience and readiness are key. Regardless of external factors, we remain focused on what we can control: efficiency, productivity, innovation, and responsible cash management. To ensure this commitment, we're executing on several fronts to position Hyster-Yale for long-term success. These are operational efficiency. We continue to streamline operations, optimizing inventory levels and improving working capital efficiency to generate cash in a lower revenue and profit environment. Manufacturing flexibility. Our module vehicle designs allow us to produce the same model in multiple regions, giving us the flexibility to shift production in response to tariff changes or supply chain disruptions. Customer engagement. We're deepening our relationship with our dealers and end customers. We're listening closely to their evolving needs and co-developing solutions that address their most pressing challenges. Product innovation. We're accelerating the rollout of new products and technologies that enhance performance, reduce total cost of ownership, and differentiate us in the marketplace. Market readiness, we are watching leading indicators closely and preparing to scale quickly. Our goal is to be a first mover, ready to capture growth as soon as customer confidence returns. Global optimization. We're realigning our manufacturing footprint and supply chain to ensure cost competitiveness and responsiveness across all regions. These actions are enabling us to navigate the current environment with agility and discipline so that when the market recovers, we're prepared to emerge stronger. Over the longer term, we're reducing earnings volatility through a lower breakeven point and more resilient product margins. We remain committed to our strategy. By maintaining operational discipline and investing in the right areas, we're confident in our ability to deliver sustainable growth and profitability over time. Now I'll turn it over to Scott Minder to walk you through our financial results and outlook for the remainder of 2025. Scott Minder: Thanks, Rajiv Prasad. Let's take a closer look at our Q3 results, starting with the Lift Truck business. Lift Trucks Q3 revenues were $929 million, reflecting a 4% decline compared to the prior year. This decrease was primarily due to lower truck volumes across all product lines. Lower volumes were a direct result of ongoing economic uncertainty, which has led to a slowdown in customer bookings over the past several quarters. In response to the softer demand and lower backlog, we adjusted our production rates to better align with current market conditions. Looking at the results by region. In the Americas, truck volumes fell with a significant drop in our higher-value Class 4 and 5 trucks in the 1 to 3.5 ton range. Many industrial customers deferred lift truck purchases due to lower equipment utilization rates within their existing fleet. These were largely caused by reduced manufacturing output amid demand uncertainty. Looking at EMEA, revenues increased year-over-year, primarily due to higher truck sales and favorable currency translation. Sequentially, overall lift truck revenues improved, supported by stronger sales of higher-value 4- to 9-ton electric and internal combustion trucks. Q3's operating results fell short of our expectations, primarily due to higher tariff costs, including new tariffs on steel imports during the quarter. Operating profit declined by $27 million year-over-year, mainly driven by lower truck volumes. Some of these negative impacts were offset by our strategic pricing actions and a favorable sales mix shift toward higher-value 4- to 9-ton trucks in the Americas. Additionally, Q3's operating costs decreased compared to the prior year, mainly because of lower employee-related expenses, including reduced incentive compensation and savings from Nuvera's previously announced strategic realignment. Breaking down regional performance, operating profit in the Americas declined primarily due to higher tariff costs and lower truck volumes. These negative factors were partially offset by increased selling prices and reduced freight expenses. In EMEA, the operating loss was mainly a result of pricing and margin pressures as lower-priced foreign trucks increased their market share in a variety of European markets. Additionally, material costs were elevated due to inflation. Sequentially, adjusted operating profit decreased largely due to lower product margins from increased tariff costs. Moving to Bolzoni. Q3 revenues were $87 million, dropping 11% year-over-year. This decrease was primarily driven by our planned phaseout of lower-margin legacy transmission components and softer lift truck demand in the U.S. Gross profit declined moderately, but a favorable product mix offset the impact from lower volumes and reduced manufacturing overhead absorption. Q3 operating profit was $2.1 million, down from $6.2 million in the prior year, with higher employee-related costs negatively impacting profitability. On a sequential basis, Bolzoni sales decreased mainly due to lower specialized attachment sales in the Americas. Gross profit remained stable, supported by a favorable product mix in EMEA. However, operating profit declined due to increased employee-related expenses. Next, I'll cover the company's tax position. We recorded an income tax benefit of $2.9 million in Q3, reflecting the positive impact of recent U.S. tax reform. This legislation allows us to immediately expense research and development costs versus deferring a significant portion over the next several years. Looking at cash flow and our balance sheet. Q3 operating cash flow of $37 million improved by nearly 25% from Q2's level. This favorable move was largely driven by improved inventory performance. Excluding foreign currency and tariff-related impacts of $40 million, Q3 inventory decreased by $155 million year-over-year and by $35 million sequentially. Q3 working capital stood at 20% of sales, down from Q2 levels, but above our long-term target. The company continues to make progress on its initiatives to align production schedules with available materials and expects further inventory improvements in the coming quarters. Q3's net debt of $397 million remains in a solid position, improving modestly from the prior year and prior quarter. While our debt levels did not reduce significantly, stability in a volatile demand and cost environment highlights our focus on cash generation and disciplined capital allocation. The company's unused borrowing capacity of $275 million increased by 6% from Q2. Q3's financial leverage, as measured by net debt to adjusted EBITDA, increased to 2.9x due to lower earnings. We remain committed to managing our debt and leverage ratios across market cycles. We're focusing on the things that we can control, optimizing working capital and maintaining operating and capital expense discipline. These actions help to ensure that our leverage level remains supportive of our strengthened credit ratings. With that, I'll move on to our fourth quarter outlook. First, I'll outline some key tariff-related assumptions in our guidance. Chinese tariffs in aggregate of 79% Section 232 tariffs included for steel and steel derivatives. Our Section 301 tariff exemption for lift truck parts ends on November 29, 2025. There are no lift truck-specific tariffs put into place. Our demand projections lose bookings, backlog, and market trends. We assume no demand drop due to a U.S. or global economic recession. Finally, our proactive sourcing, costing, and pricing initiatives are expected to reduce but not fully offset negative tariff impacts. Recent informal announcements suggest that Chinese tariff levels will be reduced and that our Section 301 tariff exemption will be extended by 1 year to November 2026. These changes, if finalized, will benefit our Q4 financial results by $2 million to $3 million compared to our current assumptions. Evolving tariff policies continue to shape our financial outlook. Despite our mitigation strategies, tariffs remain a major challenge for the company. In Q3, direct tariff costs totaled $40 million, while also dampening demand levels across a variety of end markets and customers. These negative impacts are expected to persist for the foreseeable future. The business is working diligently to limit these negative impacts. Our sourcing teams proactively seek alternative suppliers and regional solutions to reduce our exposure to high-tariff countries. At the same time, we're driving operational efficiencies and maintaining cost discipline to enhance our margin resilience. In addition to these actions, pricing has been a critical lever in our mitigation strategy. As the tariff landscape has shifted in value and focus, we've seen a variety of competitor approaches in the market. As an American company with a significant domestic manufacturing base and global supply chain, we felt the tariff impact more quickly and often more robustly than others in our market. As a result, we led with pricing actions that have delivered a strong year-to-date benefit. However, they've not fully offset the negative tariff impact, largely due to the rapid changes in tariff rates applied to different countries. Competitive intensity has increased in our core markets as industry volumes have contracted. As a result, we're focused on a range of tactical and strategic actions to support long-term growth and profitability. The ongoing tariff policy uncertainty makes it increasingly challenging to predict future financial impacts. In this environment, we remain committed to cost discipline and to driving revenue through higher truck volumes, increased penetration of new technologies, and enhanced market adoption of our new products, including additional modular truck configurations and lithium-ion batteries. With the foundation laid, I'll cover our Q4 outlook, starting with the lift truck business. We expect Q4 revenue to decline compared to Q3 due to lower production rates caused by reduced bookings over the past few quarters. We're projecting a moderate operating loss mainly due to lower production rates and persistent tariff headwinds. We anticipate that elevated tariff levels and softer market demand will remain negative factors into early 2026. Our outlook assumes positive impacts from cost control and prior pricing actions to service partial offsets. We'll watch market demand and tariff rates closely, and we will take additional cost actions as needed to maintain profitability. Longer-term, we continue to make progress on the project announced in late 2024 to streamline our U.S. manufacturing footprint. So far this year, we've invested $2.4 million with another $3 million planned for Q4. This project is expected to deliver between $30 million and $40 million in annualized savings by 2027, lowering our financial breakeven point and enhancing our margin resilience. Turning to Bolzoni's Q4 outlook. Revenues are projected to decrease slightly compared to Q3, reflecting weaker demand in U.S. operations. Operating profit is expected to be modestly above Q3 as product mix improvements compensate for lower sales volumes. I'll close with a few comments on financial discipline and capital allocation and how they position us for the future. Over the past several years, we've increased our business's resiliency, improving product margins with pricing discipline and lowering costs, ultimately enabling us to better navigate challenging market cycles. While we continue to target a 7% operating profit margin across the business cycle, it's important to recognize that tariffs have significantly and unexpectedly increased our costs and created substantial market uncertainty. They've negatively affected industry demand, our bookings, our backlog, and ultimately, our revenue. While we've taken meaningful actions to offset these impacts, we expect our near-term financial results to fall well below targeted levels. Looking ahead, our focus remains on taking actions that further strengthen our financial performance during an economic downturn. We're driving significant fixed cost reductions, building greater revenue resiliency, and investing in innovative new products that we believe will allow us to capture profitable market share over time. Generating solid operating cash flow and deploying capital accretively remain top priorities throughout the business cycle. For the full year 2025, we anticipate cash flow from operations to be solid but well below strong 2024 levels, reflecting significantly lower net income, partially offset by working capital improvements and cost-saving benefits. Strategic investments are core to our ongoing business strategy. In 2025, we expect capital expenditures to be between $50 million and $60 million, with investments focused on developing new products, manufacturing efficiencies, and IT infrastructure upgrades. These investments will help to streamline our operations, lower our financial breakeven point, and position the company for long-term profitable growth. As we generate cash, we're committed to our capital allocation framework, reducing debt, making strategic investments to support long-term profitable growth, and delivering sustainable shareholder returns. Now I'll turn the call over to Al for his closing remarks. Alfred Rankin: Thank you, Scott. We are operating in a period of extraordinary transition, facing both significant challenges and new opportunities. Today's environment is particularly shaped by the effects of elevated tariffs, which have raised our operating costs and made supply chain planning and pricing more complex. While these tariffs are short-term obstacles, we expect their impact to gradually stabilize as prices and tariffs come into equilibrium. This transitional phase is further complicated by a cyclical low in industry booking demand following an unprecedented surge in bookings during the COVID-19 pandemic. However, shipment levels have remained significantly higher than factory booking levels, which suggests to us that the time for new factory booking orders is now being reached. As booking demand returns to more typical levels, we will also need to navigate the shift in the competitive environment to increase value and standard applications with discipline and strategic foresight. Broader economic factors also influence our outlook. The manufacturing sector is showing shipment resilience, yet ongoing volatility and fluctuating interest rates continue to affect both investment decisions and customer purchasing behavior. These conditions highlight the need for a flexible and highly responsive forward-looking strategy, which allows us to adjust quickly to protect and build a long-term market position. In response to these near-term pressures, our strategic focus remains on transformation and sustainable growth. As Rajiv and Scott have described, we are both strengthening our core counterbalance business and investing in warehouse lift trucks, technology solutions, energy solutions, and attachments. These initiatives are helping us address current challenges and position our company to capture future opportunities. Our goal is to ensure both competitive advantage and market responsiveness in the next market upturn. We remain committed to providing optimal solutions and exceptional care for our customers. We are confident that the actions we are taking today will deliver lasting benefits to our customers, shareholders, and stakeholders. As we continue navigating this complex environment, we look forward to keeping you up to date on our progress and achievements. This concludes our prepared remarks. We will now open the call for questions. Operator: [Operator Instructions] Our first question today comes from Chip Moore from ROTH. Alfred Moore: I just wanted to ask about the current environment of demand uncertainty. Obviously, every cycle is unique. But just how would you compare this, I guess, with some of the prior ebbs and flows you've been through over the years? And how long do you think these deferrals could last? It sounds like you're thinking maybe you see some improvement perhaps early next year, but what are your thoughts? Rajiv Prasad: Yes. Maybe I'll get started, and others can make the comments, Chip. So I think the way that we see the market, the market is still pretty active. And what I mean by that is there are still requests for quote processes running. People are reaching out to our salespeople and our dealers. What is slow is decision-making. I think that's really driven by the volatility of the environment people find themselves in, whether they're worried about tariffs because, for instance, we have surcharges and some of our competition do, or our competition has adjusted their prices. So those things are difficult for our customers. And then the other piece is they're worried about interest rates and what dynamics that's going to have with that whole environment. There's a cutting environment, but there are other things going on. So I think one last thing I would say, Chip, is that a large number of our customers have still also been digesting trucks that they ordered in the past, which we're towards the end of it, but we've still got probably another quarter of production to go, which were ordered a while back. So if you look at it from a customer's point of view, they've been getting a series of trucks. They haven't been ordering anything because they've been digesting it. And I think that's coming to an end. So we expect slowly the market will start to recover. People will start to make those decisions because there is no avoiding it ultimately. But I think the next 2 to 3 months, maybe a little longer, are going to be that stop-start where processes are being implemented, but decisions are not being made. We've seen that open up a little bit over the last few weeks, but I think that's still got a ways to go. One last element is that our dealers were in a similar situation with their inventory, and those inventories have mostly worked their way down. So we're starting to get orders from our dealers now as well to restock. Alfred Moore: And I guess maybe a follow-up would be, if you do see more degradation, if we get some macro downturn, what actions could you take if needed? And what would really trigger that? Rajiv Prasad: Yes, Chip, I mean, we're pretty much looking at everything right now. All of our cost structures, how we're utilizing our plants, is there a better way to run the plants? We haven't come to conclusions. We will come to conclusions, I would say, in the next few weeks. So we are actually -- I mean, if you look at it from a production point of view, we're going to prepare for something that you're talking about, but still stay vigilant and ready to ramp up if we start to see bookings and backlogs grow. So we are going to take a bit of a conservative posture for the next quarter or two. Alfred Moore: Maybe just more long-term, as things do normalize, just strategically around some of the investments you're making, just more of an update on the new modular scalable platform, how that's progressing, any challenges? And then lithium ion, some strategy there. Just maybe speak to that. Rajiv Prasad: Yes. I think for the modular scalable product, if you look at our most important markets, North America and Europe, those products, the full scale has just got to those markets. Now we've had it in APAC, Asia Pacific, for a while, and Latin America for a while. And we've had very, very positive feedback from those markets. Now, as our dealers and some customers start to see this as a full-scale, we're getting similar responses from them. Based on some advice from our dealers, we have updated some of our nomenclature for them to better position the products in this new way. So we feel really good. We're still due to land and distribute significant numbers of these trucks, which will happen over the next 3 months or so. And then we'll start to get a better feel for how the customers are feeling about the more, what we're calling the prime match and the core match, which are, I would call the standard and the prime solutions in the field. And very similar to lithium-ion. We have one customer in North America, where we've put lithium-ion batteries in a large number of their operations. It's been very successful. And then we're launching our integrated lithium-ion solution, which we call the XT/LG or MX/LG. LG is lithium-ion, and the XT/MX is the name of the model. These will be rolled out both in North America and Europe. They're already in the Asia Pacific and are being very successful. So we feel really good about where lithium-ion is going. Early next year, we'll introduce a new set of electric trucks, which will come ready to -- ready with lithium-ion batteries. Operator: Our next question comes from Ted Jackson from Northland Securities. Edward Jackson: So the first question would be with regard to the weakness that you're seeing, I know you talked about it from more of a macro level with uncertainty and tariffs, and whatever. What about from a vertical level? So the Americas are the key ones. I mean, I've understood from people I've talked to that, in particular, like, for instance, the auto market has been a little soft because you have a few things and headwinds. One is the redeployment of assets around EVs that weren't necessarily needed. So there was some excess there. And then I'm also curious about what you've had with this aluminum issue and the impact on the auto markets, because there's a bunch of news with regard to Ford trucks and such. So I guess what I'm asking is, is there any kind of vertical for you that stands out in terms of some of the headwinds? And then is it auto? And if it's not, can you talk a little bit about how your auto exposure is and what's going on in there? Rajiv Prasad: I think in terms of material availability, I don't think we have any specific issues. I mean, we obviously have our normal, I would say, back to 2018, 2019 type of things where we get stock out because of some reason or suppliers are late with delivery, but no foundational issue with our materials or components. The other piece, though, is the cost of it. I mean, certainly, we're not so aluminum-intensive, but we are definitely steel and iron-intensive. And those are those have been a significant issue for cost, but also for transition. We were using global steel in North America, and we are transitioning to mostly U.S. steel as much as we can, especially in our Mexico operations. So that's good. I mean, from a customer's point of view, in terms of how they're being impacted, we've certainly seen a slowdown on the manufacturing side. You've touched on auto. We would also put most heavy manufacturing in that environment. I think retail has been fine. I think I would say even light manufacturing and distribution has been fine. Food and beverages have been okay. So I think a majority of it has been the heavy side. And obviously, that's very important to us when we're talking about the paper industry, the metals, and large equipment. So that's been the big customer issue. We're starting to see that ease a little bit. But as I said, it's very new. We haven't seen that spread yet. Edward Jackson: So what you're telling me then is so more larger equipment, more industrial. Then moving over to pricing pressure. You're seeing a lot of pricing pressure, you said, with EMEA and APAC. And does that mean you're not seeing as much pricing pressure in the Americas? And if so, why? I mean, is this maybe a sideline that you're actually benefiting from tariffs on that front because it's keeping cheaper Chinese stuff out? Rajiv Prasad: I think pricing pressure is everywhere. And normally, that happens when we are not fully utilizing our capacity. Everybody wants the extra capacity, extra share to drive it. What I was saying is that we didn't have all the right solutions in place, the scalable solutions. They were going through their validation process. We need to meet some very specific requirements, for instance, UL in North America, and we need to meet all the CE requirements in Europe. So that's taken a while, and now we are ready to deliver trucks. So it was more an availability issue, not so much that we didn't see the competitive pressure. Now I would say that certainly if I look at how the Chinese competitors are behaving in EMEA and APAC versus North America, there's definitely some inhibition in the U.S.A. because of the tariffs. Now we're also being -- some of these trucks that we compete with them on do also come from China for us. So it's not as if we have an advantage, but it's at least until recently, we didn't have the availability because of completing our validation processes. Edward Jackson: So when I listen to some of the things that same to the pricing pressure and your response to pricing pressure, the biggest response to pricing pressure for you, I mean, it's not that you're getting more aggressive in discounting. It's that you're going to have the new modular products going to allow you to be able to offer a lower-priced product. Rajiv Prasad: Absolutely. So the idea behind this whole scalability was to give the customer the product that works in their application. And if we can do that, they will get the productivity they need at the lowest cost of ownership. So that is the mission behind this whole scalability, and it's going to take a little bit of time to get that through to our network and our customers. But we've been working on that, getting everybody ready. We had some feedback. We've adapted to that feedback. And so I think now it's just a case of getting the products out in the hands of our customers so they can see how good these are and feel that it's the right option for them. But you're absolutely right. We expect our margins to be around our target margins because we're putting the right truck at the right customer, whereas in the past, we would have taken what we had and tried to put it into segments where it didn't work, compromising margin. Edward Jackson: My last question is, you referenced in the press release that you're going to be taking actions to increase your closure rates. The quoting activity is fine. Rajiv Prasad: Our participation is fine. What we are starting to do is work closely with customers to understand what their actual fleet position is. Customers focus on what their core value proposition is, and material handling for a number of them isn't. So we're going to do some extra work with them to show them that if they have older vehicles in their range, that could lead to being on the wrong side of the cost of ownership. Working with our partners, create some very specific solutions for them in terms of what's in the truck, but also how we finance it, et cetera. So there are a number of steps with really going customer by customer and looking at what it would take for the customer to get over the hurdle of not wanting to make this decision when there is all this volatility around them. Edward Jackson: So, just really more of a sharpening of the pencil, if you would. Rajiv Prasad: And making that whatever we're doing, much more focused on that customer rather than a general hey, look, let's do this, let's reduce price, or let's offer extended warranty, or let's do something else. I mean, if the customer is concerned about something, we want to be able to solve their problem. Operator: Our next question comes from Kirk Ludtke from Imperial Capital. Unknown Analyst: I just had a follow-up on the automation topic. Amazon's efforts to automate its facilities have been in the press recently. And I was hoping maybe you could expand on the pace of automation. Is it accelerating? And what impact does that have on your mix? Rajiv Prasad: Let's say, the interest in automation is enormous because some of the basic trends that we are seeing, availability of people, and if you do get people, what is their expertise like in driving trucks. The implementation has been slower than we would expect. And part of that is, as you automate, you have to redesign some work, you have to redesign some of the material flow. And so the approach we've taken is we are working with customers in a very partnered approach so that they can experience what automation can do for them. Once they realize that, then they're able to identify how they could reconfigure their operation to better suit. At the moment, we're working with some of the largest companies. I won't go into those. But all the ones that are talking and writing about automation, we are working with at the moment. I think it's one of those things that's going to take some time for people to really understand how best to deploy these technologies, how to implement them, and integrate them into their operations, and then it will take off. So I expect a buildup, but then a fast acceleration after that. Alfred Rankin: And Kirk, I would add that as that trend takes hold, those trucks, whether they be with our hybrid automation or our full automation, come with higher prices and higher margins generally. So the benefit will accrue to the customer and their total cost of ownership, but will come back to us as well from the sale of the unit and the ongoing revenue of the technology. Unknown Analyst: So you would consider this automation to be a positive for your business? Rajiv Prasad: Yes, absolutely. I mean, we have automated trucks. We have about 600 or 700 of them running around today. And we're building that up slowly. We have a primary product released now and in the marketplace, and then every 6 to 9 months, we'll be releasing another automated product. Unknown Analyst: And then a follow-up on the excess equipment that you see out there. And when do you expect that excess equipment to be depleted and orders to pick up in a quarter? Any guess as to timing? Rajiv Prasad: Yes. I think we're working with our network to get their excess inventory in the right place by the end of the year. So we expect our dealers, and they're showing signs of it, as I said, to start ordering from the factory rather than fulfilling from their inventory at their retail. And then customers, similarly, we understand our backlog. We also understand the industry backlog, and the majority of what customers were waiting for has already been delivered. But it takes a little bit of time to cut and some help from the customers to switch stands. They haven't been running RFQs, some of them, especially the heavy side of the business, and really making decisions. And that's where I talked to Ted about that we're putting some special activities in place to help customers get through that process efficiently. Unknown Analyst: And then lastly, if some of your customers' hesitancy on placing orders, are they waiting for interest rates to come down? Is that part of what is going on here? I'm sure there are a lot of things, but is that a meaningful factor? Rajiv Prasad: I think if I just think about ourselves, we're like them. We're looking at the ISM numbers. We're looking at what is going to happen to interest rates. We're looking at tariffs and the dynamics of tariffs and what this means to us. We're also looking at, in the worst conditions, what capital requirements do we have? And then once you've evaluated all of that, you go all right, what should I do now? The one thing that gets left out because it's not obvious to the customer is that their fleet has aged as well. And the downside of that is that their cost of operation is going to go up. And so we just want them to put that into the mix of their analysis and help them with it. So that's the way we feel we can move them off center because we can absolutely understand why those elements could create a bit of a freeze moment for making capital, at least capital expenditures that you feel that you have some flexibility with. Unknown Analyst: And then, if I could just sneak one last one in. On the tariff front, I think I heard you say you're not at an advantage. I mean, everyone is sourcing the same components from the same countries. You're not at an advantage, you're not at a disadvantage with your competitors with respect to your competitors? Rajiv Prasad: I think that's generally true, but there are definitely exceptions. I mean, I think if I just take South Korea as an example, so if you are a South Korean manufacturer, you can pretty much import parts from anywhere, mostly tax-free. You can build with Korean steel. And when you bring it in, you'll have to pay the duty on steel. And then on top of that, 15% duty on the truck. And I think the same thing from Japan. So I think those end up being -- whereas we're buying U.S. steel, which is because of the duty, those just I need to look at the price of steel and see what's happened. Then we're paying duty depending on where it comes, if a lot of our components come from globally, so China, India, other Far East and Eastern European countries, and you could be paying significant tariffs on those, especially from China and India. And then you build trucks with those in North America, I think under those conditions, we feel that's a bit of an unfair situation. Operator: Our next question comes from Jack Fitzsimmons from Prudential. Jack Fitzsimmons: I think you mentioned cancellations in the prepared remarks. So I was just wondering if you saw a pickup in cancellations in 3Q? And if so, you could just quantify that number? Rajiv Prasad: Yes. I mean, I think the majority of our cancellations are behind us. They were particularly difficult during, I would say, the first and second quarters. I think as our backlog has come down, those have really whittled out. So we wouldn't expect many cancellations looking -- there weren't many during this quarter, and we wouldn't expect many moving forward. And these cancellations were from orders that were made in late 2023 or 2024, so there weren't recent cancellations or recent orders. Jack Fitzsimmons: And then just one more for me. I guess in the release, you mentioned $40 million tariff impact in 3Q. Just a clarification, is that net of price increases and other actions? And if not, kind of how much of that cost were you able to mitigate? Rajiv Prasad: Maybe I can say a few words and then Scott can -- so don't forget, we build trucks in backlog. And as I already said, the market is pretty intense because of us not all fully utilizing our capacity. So we felt that there wasn't an easy way for us to go back. We tried to go back to the marketplace. Customers pretty much said, "Hey, we'll just go back to the market." So on these backlog trucks, we weren't able to get in any extensive way, any pricing on it. So we took the cost, and the majority of that $40 million was the tariff, and it mostly hit our P&L. And I think that still be somewhat the case next quarter because we're still in that situation. And then the things we are booking now are better from incorporating the tariffs in them, either as surcharges or price increases. So, Scott? Scott Minder: Well, I think you covered it pretty well. I would say, yes, the $40 million was the gross tariff cost, and we were able to offset less than half of that with the price in the quarter for the factors that Rajiv laid out. Operator: And our next question comes from Eric Ballanntine from CVC. Eric Ballantine: Just a follow-up on that question on the backlog and pricing. I know in the past, you've talked about that you want a profitable backlog and so forth. Now it sounds like there's still some unprofitable or lower-profitable new units in the backlog. Of the overall backlog, what kind of percent is related to those unprofitable, lower-profitable units? And so, when do we think that when you start showing the value of the backlog, $1 billion, $1.2 billion, whatever that number is, that's really 100% profitable backlog or pretty close to it? Rajiv Prasad: Yes. I think we'll get there in January, February. And I wouldn't say that these were bad margins when taken. Those were actually very good margins. But then we've had, as you heard, $40 million worth of tariffs, which went around when we took those bookings. So really, the untariffed covered backlog will be out of mostly by early first quarter next year in terms of what we're building. And of course, we are booking those right now. Eric Ballantine: And then on your comments about the kind of the fourth quarter and the profitability falling off there, I know you've talked about that you didn't want to go back to the days of EBITDA negative and so forth. I mean, obviously, EBITDA is falling off pretty significantly this year. I mean, are we looking at a situation where we could potentially be back into the EBITDA negative sometime next year until the industry flips around? Or are you pretty confident that you're going to stay at least positive? Rajiv Prasad: I think it's really difficult to tell at the moment. You saw us, we're pretty close to breakeven this quarter. I think as we've guided, we're going down, so going a little lower for the next couple of periods. So I think that's the best I can do right now. Eric Ballantine: And then just on the AI issue, I mean, your comments around you're working with the customers. Is it really the customers or the issue in the sense that you have the product that you can deliver to them that's functional, AI-automated, and so forth? It's really the customers that need to kind of figure out their plans and figure out how they want to operate. Or is there something else that's limiting you guys? Rajiv Prasad: Yes. The way we've designed our automated solution is really more from a material handling point of view. We are not software guys. We use software, but we're really material handling people. And we know to most effectively use -- again, we're using our own solutions in our own plants. So we know what it takes to optimally use it. And we think we have a role to play in that with our customers. We've always felt that with the solutions we put in place. That's part of our value proposition. That's how we can differentiate ourselves and give the customer a solution that is better value for them. So we're getting all of our salespeople, dealers, ready as well as customers to be able to do the same thing. And we have a pilot going on right now with a number of key customers working with our internal automation implementation team to pilot these concepts. And so far, we've had very, very positive feedback from those customers in what we're doing, and it is seen as very differentiated. Operator: With that, we'll be concluding today's question-and-answer session. I'd like to turn the floor back over to Andrea Sejba for closing remarks. Andrea Sejba: Thank you for your questions. A replay of our call will be available online later today, and the transcript will be posted on the Hyster-Yale website. If you have any follow-up questions, please feel free to reach out to me directly. My contact information is included in the press release. Thank you again for joining us today, and I'll turn the call over to Jamie to provide the replay information. Operator: And we would like you to note that to access the replay of today's event, you may dial (855) 669-9658 or (412) 317-0088 and use the access code of 479-9887. Again, that is 479-9887. Replay will be available approximately 1 hour after the completion of today's event, and we do thank you for attending the presentation.
Operator: Greetings. Welcome to the Cinemark Holdings Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note this conference is being recorded. I will now turn the conference over to Chanda Brashears, SVP, Investor Relations. Thank you. You may begin. Chanda Brashears: Good morning, everyone. I would like to welcome you to Cinemark Holding, Inc.'s third quarter 2025 earnings release conference call hosted by Sean Gamble, President and Chief Executive Officer; and Melissa Thomas, Chief Financial Officer. Before we begin, I would like to remind everyone that statements or comments made on this conference call may be forward-looking statements. Forward-looking statements may include, but are not necessarily limited to, financial projections or other statements of the company's plans, objectives, expectations or intentions. These forward-looking statements are subject to risks and uncertainties that could cause the company's actual results to materially differ from those expressed or implied in the forward-looking statements. The factors that could cause these results to differ materially are detailed in the company's 10-K. Also today's call may include non-GAAP financial measures. A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures can be found in the company's most recently filed earnings release, 10-Q and on the company's website at ir.cinemark.com. With that, I would now like to turn the call over to Sean Gamble. Sean Gamble: Thank you, Chanda, and good morning, everyone. Over the past several years, we have made significant strides in advancing our company since the pandemic, including enhancing the experiences we offer our guests, strengthening our operating capabilities, further bolstering our competitive position, growing new sources of revenue and driving incremental process efficiencies. These efforts have enabled us to reach multiple important milestones in our recovery as well as attain numerous record-breaking results year-after-year, all of which reflect the discipline, focus and commitment of our entire organization. This morning, I'm excited to share that we have realized another significant achievement. As of today, we have settled the final outstanding warrants related to our convertible notes, thereby fully extinguishing the remaining portion of our COVID-related debt. This accomplishment marks another major milestone for Cinemark that is the byproduct of our team's highly proficient execution and versatility, prudent fiscal decision-making and the substantial benefits we have derived through our strategic initiatives. Furthermore, in recognition of our company's robust financial position as well as the sustained conviction in our ongoing business strategies, team and industry, our Board of Directors just authorized a new $300 million stock repurchase program and an increase of our dividend to $0.36 per annum. These results would not have been possible without the hard work, tenacity and resourcefulness of our collective team, and I want to extend my sincere gratitude to every member across our company for all they do, including our Board and key business partners who so diligently support us. The talent, passion and determination that runs throughout Cinemark is truly remarkable and provides me with the utmost confidence in our continued ability to maintain our financial strength, actively capitalize on future growth opportunities and deliver meaningful value to our guests, partners and shareholders. With that in mind, let's turn our attention to our third quarter results and the road ahead. During the third quarter, North American industry box office reached $2.5 billion, which was down approximately 10% year-over-year as a well-rounded slate of compelling films couldn't fully match last year's extensive lineup of breakout hits that included the highest grossing R-rated film of all-time, Deadpool & Wolverine, as well as sizable carryover from the highest grossing domestic animated film of all-time, Inside Out 2. That said, 3Q '25 featured a multitude of solidly performing titles that connected well with moviegoers across a wide range of genres, including Valiant superhero reimaginings such as Superman and The Fantastic Four: First Steps, heart racing action thrillers like Jurassic World: Rebirth and F1, terrifyingly successful horror films, including The Conjuring: Last Rites and Weapons, family-friendly fair such as Freakier Friday and The Bad Guys 2, and yet another non-traditional sensation, Demon Slayer: Infinity Castle, that became the highest grossing anime film ever, generating over $130 million domestically and nearly $670 million worldwide. Notably, during the quarter, Demon Slayer: Infinity Castle also became Latin America's biggest anime film of all time and The Conjuring: Last Rites grew to become the region's highest grossing horror film ever. So while the third quarter was down slightly versus 2024 due to a challenging comparative, there were plenty of highlights, which continue to showcase strong consumer appetite for immersive cinematic experiences. Within that industry backdrop, Cinemark once again delivered stand-out results as our ongoing efforts to build audiences and grow box office continue to yield tangible results. During the quarter, we surpassed year-over-year North American industry box office performance by nearly 250 basis points, and we achieved our highest third quarter domestic market share in our company's history. The data-driven learnings, analytical advancements and automation improvements we keep enhancing within our programming, pricing and operating platforms, coupled with our highly impactful and evolving marketing actions, continue to provide material benefits quarter after quarter. These initiatives helped propel our 3Q box office and market share performance, and were further amplified by a heightened mix of horror films and alternative content that resonate particularly well across our circuit. Our results also benefited from a film release cadence that was well spaced throughout the quarter, thus minimizing capacity constraints. It's worth noting that our concentrated efforts to scale anime, multicultural, faith-based, music and specialty titles produced our second highest quarterly box office of all time for non-traditional programming, trailing only the fourth quarter of 2023 that included Taylor Swift's highly successful Eras Tour film. Altogether, alternative content accounted for a significant 16% of our domestic box office in the quarter. We also achieved a new third quarter domestic food and beverage per cap record of $8.20. This accomplishment can be attributed to superb execution by our field teams as well as our continued focus on enhancing the variety and appeal of products we offer our guests, further optimizing our pricing and improving ease of purchase. Overall, our collective efforts to deliver sustained top line performance that outpaces our industry and to do so as efficiently as possible once again translated into solid all-around financial results. We generated $858 million of third quarter global revenue, $178 million of adjusted EBITDA and achieved a 21% adjusted EBITDA margin. We are thrilled to have produced yet another quarter of consistent outperforming results, while at the same time further refortifying our financial strength and competitive position by putting our convertible notes behind us. Once again, I'd like to recognize our sensational team for their outstanding execution and impact. Looking ahead, we are highly enthusiastic about wrapping up 2025 on a strong note as we approach one of the most robust and promising film slates we've seen over the past 5 years throughout Thanksgiving corridor and year-end. The upcoming movie lineup is jam-packed with a diverse and compelling assortment of films that offers something for everyone during the holidays. For action and adrenaline seekers, there's Predator: Badlands, Now You See Me: Now You Don't, and The Running Man as well as Anaconda that snakes in some Jumanji-like humor. For family going fun, there's Zootopia 2 and The SpongeBob Movie: The Search For SquarePants! which are sure to entertain audiences of all ages. Moviegoers in search of some deeper emotional resonance and character-rich storytelling have Eternity, Ella McCay and Song Sung Blue to look forward to. In contrast, for a bit of horror and suspense, there's Five Nights at Freddy's 2 and The Housemaid. Alternatively, upcoming non-traditional content includes the animated faith-based film David as well as anime sequel Jujutsu Kaisen: Execution. And of course, for those craving fantasy and spectacle, there's the highly anticipated follow-ups to their smash hit predecessors, Wicked: For Good and Avatar: Fire and Ash. And beyond 2025, based on our recent conversations with our studio partners and the future development plans they've shared with us, we remain highly encouraged about further box office growth as film releases continue scaling up in size, variety and volume. In the near term, 2026 already looks prime to captivate audiences with a slew of high-profile new releases from franchise favorites, including Super Mario Brothers, Spider-Man, The Avengers, Toy Story, Minions, Moana, Star Wars, Dune and The Hunger Games as well as original new concepts from visionary filmmakers like Christopher Nolan and Steven Spielberg. And Cinemark remains optimally positioned to make the most out of this compelling pipeline of films on account of the many distinctive advantages we have developed over time, the unparalleled value proposition we offer consumers and the ongoing initiatives we continue to advance. Our overall aim at Cinemark is to deliver unmatched entertainment and service that consistently delights our guests and keeps them coming back for more by creating unforgettable, larger-than-life, immersive experiences that can't be found at home or anywhere else. To do that, we have been deliberate about focusing on actions, details and amenities that make the biggest consumer impact across the entirety of our theaters, while prioritizing investments in enhancing and maintaining our circuit that distinguish us from our peers. We have also stayed highly diligent about managing and preserving the financial health of our organization to sustain our ability to make these investments even in times of macro level headwinds. These actions have enabled us to create a differentiated entertainment experience at Cinemark that we have started showcasing more widely in our first-ever comprehensive brand campaign called It's Showtime. We launched It's Showtime last week and believe it powerfully captures the joy, fun and positive emotional impact we create for moviegoers as well as the communal connections we foster. Moreover, the campaign challenges the notion that all movie theaters are created equal by spotlighting various facets of Cinemark's movie magic methods that set us apart from the pack, including our heroic service, immersive technology, craveworthy indulgences and the passion we bring to everything we do. We're excited about the many possibilities we have to augment and amplify our current marketing strategies with It's Showtime as well as the tangible way it illustrates what is unique about our company. Leveraging our competitive edge that is reflected in our new campaign, which includes the elevated experiences we create for our guests, our financial strength and our advanced operating capabilities, we believe Cinemark is well situated to continue thriving as we move forward. We are highly enthusiastic about our future growth prospects, including the many opportunities we have to unlock incremental value for our customers and shareholders through our ongoing strategic initiatives and continued execution. I will now turn the call over to Melissa, who'll provide more information about our third quarter results as well as our capital allocation strategy going forward. Melissa? Melissa Thomas: Thank you, Sean. Good morning, everyone, and thank you for joining the call today. Cinemark delivered solid financial results in the third quarter, underscoring the effectiveness of our strategy and our ongoing operational rigor. Despite facing a softer box office environment, our team remained focused, nimble and disciplined in their execution, successfully capitalizing on the film slate and surpassing broader North American industry box office performance year-over-year. In the third quarter, we welcomed 54.2 million guests across our global footprint, a 10% decrease year-over-year, reflecting a challenging comparison against last year's exceptionally strong film slate. We delivered worldwide revenue of $857.5 million and $177.6 million of adjusted EBITDA. This resulted in a healthy adjusted EBITDA margin of 20.7%, despite operating deleverage driven by lower attendance levels. Shifting to our U.S. operations. We hosted 33.2 million patrons and expanded our market share by 40 basis points year-over-year. Our outsized market share in the quarter was supported by a compelling slate of horror titles and alternative content that aligned exceptionally well with our audiences. Our team capitalized on that demand through effective showtime scheduling, agile operations and marketing investments to drive awareness and engagement. We also benefited from minimal capacity constraints throughout the quarter. Notably, when compared with pre-pandemic levels, our market share gains remained above the 100 basis points we view as structural. We reported domestic admissions revenue of $348.5 million with an average ticket price of $10.50. Our average ticket price grew 5% year-over-year, primarily due to strategic pricing actions and a higher mix of alternative content, which typically carries higher ticket prices than traditional films. We delivered $272.4 million of domestic concessions revenue, setting a new third quarter record with concession per cap reaching $8.20, an increase of 3% compared with the third quarter of last year. Our per cap growth was achieved despite a more challenging year-over-year comparison and was primarily driven by strategic pricing initiatives and a favorable shift in product mix with a notable uplift from merchandise sales. Other revenue was $62.7 million in the third quarter, representing a 6% decrease year-over-year due to lower attendance levels, which affected the variable components of this line item, including transaction fees. This impact was partially offset by increases in both promotional income and gaming revenue. In total, our domestic operations generated $683.6 million of revenue and $140.2 million of adjusted EBITDA, yielding a solid 20.5% adjusted EBITDA margin. Moving to our international operations. We entertained 21 million guests in the third quarter. Despite the tough year-over-year comparison I mentioned earlier, our international segment benefited from record-setting performances from The Conjuring and Demon Slayer, as well as highly successful cinema weeks in select markets throughout the region. Importantly, similar to the U.S., we continue to maintain strong market share gains in the quarter when compared with pre-pandemic levels. International delivered $81.2 million of admissions revenue, $64.3 million of concession revenue and $28.4 million of other revenue during the third quarter. In aggregate, our international operations generated $173.9 million of revenue and $37.4 million of adjusted EBITDA, resulting in a robust adjusted EBITDA margin of 21.5%. Turning to global expenses. Film rental and advertising expense represented 57.1% of admissions revenue this quarter, a 60-basis point improvement year-over-year, primarily due to a reduced concentration of high grossing titles, partially offset by increased marketing investments, given the strong and consistent returns we have observed. Concession costs as a percentage of concession revenue were 19.5% for the quarter, up 190 basis points compared with the prior year period, primarily driven by the timing of concession rebates, growth of lower-margin merchandise sales and ongoing inflationary pressures. These impacts were partially offset by our strategic sourcing initiatives and pricing strategies, which continue to play a key role in managing inflation. Global salaries and wages totaled $106.3 million, a 3% improvement year-over-year, driven by lower attendance levels and reduced operating hours as well as benefits realized from our labor productivity initiative and foreign exchange rate favorability. These factors were partially offset by wage and benefits inflation. As a percentage of total revenue, salaries and wages were 12.4%. Facility lease expense was $81.9 million for the third quarter, a 5% decrease compared with the prior year period, largely due to lower percentage rent associated with the reduced box office as well as favorable movements in foreign exchange rates. These were partially offset by inflationary increases. As a percentage of total revenue, facility lease expense was 9.6%. Utilities and other expense totaled $127.4 million, flat versus the third quarter of last year. Higher utilities, repairs and maintenance, and gift card expenses were partially offset by lower attendance, which impacted variable and semi-variable costs. As a percentage of total revenue, utilities and other expense was 14.9%. G&A expenses were $61.9 million and increased year-over-year, mainly due to wage and benefits inflation, investments in headcount to advance our strategic initiatives, increased cloud-based software costs and higher share-based compensation. Favorable foreign exchange rate fluctuations partially offset these impacts. As a percentage of total revenue, G&A was 7.2%. Globally, we delivered $49.5 million of net income attributable to Cinemark Holdings, Inc., resulting in diluted earnings per share of $0.40. With respect to the balance sheet, we ended the third quarter with $461 million in cash and generated $38 million of free cash flow. Turning to capital allocation and starting with the first pillar of our strategy: maintaining a strong balance sheet. During the third quarter, we successfully retired our remaining pandemic-related debt with the repayment of the $460 million convertible notes. This milestone underscores the strength of our balance sheet and the overall financial health of our company, made possible by disciplined execution, financial resilience and strategic focus. We also amended the warrant agreements related to the convertible notes to accelerate the settlement and satisfy half of the obligation in cash and half in shares. The cost to settle the warrants was determined using our volume weighted average stock price from August 18 through November 3, with the final settlement occurring today. The total cost was $196 million, with $98 million paid in cash and 3.6 million shares issued to our counterparties. Importantly, our proactive approach to managing dilution proved effective. By repurchasing 7.93 million shares in March of this year, we more than offset the shares issued to settle the warrants, resulting in no net dilution for our long-term shareholders. With respect to our capital structure, now that the convertible notes and associated call spread have been fully addressed, our nearest maturity is not until 2028. We continue to target a net leverage ratio of 2 to 3x, ending the quarter with a net leverage ratio of 2.4x. Moving to our second pillar: pursuing strategic and financially accretive investments to grow and secure our long-term success. During the first 9 months of this year, we have invested $106 million to maintain and enhance the quality of our global circuit. We continue to target $225 million of capital expenditures for the full year with a significant weighting towards the fourth quarter, given the timing of several key projects underway. As always, our ability to achieve this target is subject to project-specific variables and external factors, which may impact the pace and timing of execution. We continue to actively manage these dynamics. Now to our third capital allocation pillar: returning excess capital to shareholders. As Sean mentioned, given our strong financial position and sustained confidence in our business, we are pleased to announce that our Board of Directors has authorized a $300 million share repurchase program. We intend to execute the program in a measured and disciplined manner, ensuring it aligns with our financial priorities and broader strategic objective. Our Board also approved a 12.5% increase in our quarterly cash dividend, raising it to $0.09 per share, reinforcing our objective to deliver a sustainable and growing dividend. The increased dividend will be payable on December 12 to shareholders of record as of November 28. Collectively, the authorization of the share repurchase program and the dividend increase demonstrate our intent to return a greater proportion of free cash flow to shareholders over time. These actions also reflect our balanced approach to capital returns, supporting our long-term objective of driving sustainable growth, maintaining financial strength and maximizing shareholder value. It's important to note that we will continue to prioritize the health of our balance sheet and growth opportunities. The timing and extent of our capital returns will be governed by maintaining our net leverage ratio within our target range as well as our cash position and overall liquidity. This disciplined approach provides us with the flexibility to pursue accretive opportunities as they arise, while continuing to manage risk and preserve our financial strength. In closing, we are pleased with our financial performance in the third quarter and the progress we have made in executing our capital allocation strategy. Our approach remains anchored in financial discipline, operational excellence and a long-term strategic view. With a strengthened balance sheet and prudent capital deployment, we are well positioned to deliver shareholder value. Operator, that concludes our prepared remarks, and we would now like to open up the line for questions. Operator: [Operator Instructions] Our first questions come from the line of Ben Swinburne with Morgan Stanley. Benjamin Swinburne: My question is really just continuing the conversation on kind of capital allocation. Obviously, great to see the dividend and the buyback. I guess, Sean, can you talk a little bit about sort of your appetite around M&A and how much of a, let's call it, a cushion you want to keep in terms of financial capacity now that you're -- you've got the convert behind you and generating healthy free cash flow? And then I didn't know, Melissa, if there's any reason to change any of your prior comments on kind of thinking about CapEx over the next couple of years. Maybe I don't know if there's an update there. Just would be interested in hearing how we should think about that. And then just one housekeeping on the same topic, hopefully for the last time. Can you give us what the fully diluted share count should be now going forward now that you've cleaned all this stuff up for us? Sean Gamble: Sure. Thanks for the questions, Ben. As you know, one of our key areas of focus as we position ourselves for success over time is optimizing our footprint, which includes growing and recalibrating our circuit over time. And M&A is certainly a part of that. So we certainly have an appetite for M&A as we look forward. Melissa mentioned that with regard to overall capital allocation priorities, investing in the future success of our company is a top priority of ours. And again, that includes M&A. Broadly speaking, with regard to M&A, as you know, we evaluate all prospective opportunities. And our focus is on high-quality assets that we believe can deliver solid assured returns over time. So that continues to be our focus. We tend to prefer deepening penetration in those areas where we already have some presence to leverage our existing infrastructure and relationships, but we also do consider other factors such as scale, strategic importance, margin profile, competitive position. So we do look at a wide range of options as they come to market and we have targets in mind. So we look at a range of things, but we've been very disciplined in our approach that served us well over time. We continue to believe that's the right strategy in terms of going after the right types of assets. But broadly speaking, we do believe we have and we intend to maintain the right flexibility to be able to pursue those types of opportunities as they come to the table. Melissa Thomas: And then Ben, with respect to your question on CapEx 2026, we do intend to remain prudent with our CapEx, and we'll continue to prioritize maintaining a high-quality circuit as well as pursuing high confidence ROI-generating opportunities. But it is premature -- a bit premature at this stage to provide specifics on CapEx expectations for '26, given that we're still underway with our budgeting process. But given the abundance of ROI-generating opportunities available as well as some modest deferred maintenance CapEx that we're still working through, it is reasonable to anticipate some increase in CapEx for 2026 above what we're targeting in 2025. So we'll provide more clarity once we finalize our budget and have assessed all the moving pieces. I'd expect that to be on the February call. And then in terms of your question regarding fully diluted share count. So just to kind of speak more broadly to our share count and how to think about that. As of September 30, we had 116.5 million shares outstanding. That reflects 1.4 million of shares that we issued in Q3 to settle a portion of the warrants. In Q4, we issued 2.2 million shares to settle the remaining portion of the warrants. So you'll want to factor that into the share count. In Q4, in particular, you will still have some noise from a diluted EPS standpoint, just given GAAP accounting. But once we move forward into 2026, you should start to see our diluted share count more closely aligned with basic share count with just modest variations for certain share-based compensation awards. Operator: Our next questions come from the line of David Karnovsky with JPMorgan. David Karnovsky: Sean, there's been a lot of handwringing in the trade press about the fall box office so far and whether the performance of films in aggregate is representative of the demand trend or whether you can dismiss this -- the quality or scheduling or genre preferences. So I wanted to give you a chance to kind of expound on the last 2 months and how you see the state of things. And then I have a follow-up. Sean Gamble: Sure. Well, look, I think when you look at the overall box office for our industry, it's always important to keep in mind, it's something that needs to really be looked at over time just due to the nature of how movies get released, the scale of those movies, ultimately how well they resonate with audiences. So I think it's tough to any -- to ever look at any short-term period and try to draw too many conclusions from that. You got to look at longer term trends. Specific to what we've seen as of late -- third quarter, as an example, we had some -- and really October as well. When you look at just the scale of some of the movies that were released last year, you had some big, big overperformers in the third quarter with like a Twisters and a Beetlejuice Beetlejuice, and films like that. You just had a wider release slate than you had in the third quarter of this year as well as the past couple of months. But as we look ahead to November and December, the inverse is the case. You've got just a loaded slate of movies coming to wrap up the year just the way the dates got planned out, which on paper should far exceed last year. So we'll see how that all continues to play out for the rest of this year. So I think 2025 is still got to see. There's still plenty of room to go in terms of that. Probably the one big difference year-over-year that I would call out is we didn't have a major animated release in the third quarter like we traditionally do. And I think if that had been the case, people would be looking at this year much differently in many respects. So like one movie can make a big difference in terms of the overall perception. But again, there's a lot of big stuff still to come, and I think the story is still to be written on how 2025 ends up. David Karnovsky: Okay. And then I was hoping to follow up on theatrical windows. Around the time of CinemaCon, it seemed like there was a lot of talk between studios and exhibitors over this, but still work to be done or research to be executed on the topic. Maybe can you just update on where things stand? And is there any movement towards a more uniform or longer window? Sean Gamble: It's a great question. I would say that there continue to be quite a number of conversations on that matter and evaluation taking place. Obviously, there has been quite a shift in windows that happened fairly rapidly since the pandemic with regard to the timing of things, and it's become quite varied. So the overall implications of that long term on consumer behavior and how it's affecting attendance and box office patterns is still being sorted out, especially because, as you know, volume has been continuing to recover. So there are things like that, which kind of muck up the evaluation a bit. The good news is while there doesn't appear to be a material impact on the week-to-week box office trajectory when you look at films that have shorter versus longer windows, I will say there's some concern and some signs emerging that highly shortened windows below the 30 to 45 days may be affecting overall attendance recovery and results for casual moviegoers and smaller titles. So I think that's the point of discussion in particular, as we're all trying to understand what's happening with that. It has been clearly demonstrated that a theatrical release significantly benefits the overall performance of films and the asset value over time for those films, but a significant enough of a window is necessary in order to deliver those proceeds. So that's still a matter of discussion. I would say the good news for Cinemark specifically is we have done a lot of work to reorient our business to be both highly successful in the current environment as it stands today, and we remain highly encouraged about where things are going. So the matter of windows specifically is something that I expect will continue to be discussed over the coming quarters as we all try to sort out what's the best optimal structure going forward. Operator: Our next questions come from the line of Eric Handler with ROTH. Eric Handler: Sean, I wanted to follow up on M&A. Earlier this week, Kinepolis announced its buying Imagine Entertainment. It's been reported National Amusements is up for sale. Can you talk about like is the pipeline as deep as it's been since the start of the pandemic? And maybe give some color around that. Sean Gamble: Sure. Sure thing, Eric. I don't know if I'd say the pipeline is as deep. I'd say it's been pretty consistent. If anything, the pipeline has -- we had been expecting more opportunities, as we said in the past, coming out of the pandemic than have played out. There are a few things percolating now like the deals that you just mentioned. I think the timing of those 2 may be more coincidental than kind of anything indicative of a growing volume of opportunities or activity that may take place. So I would still say that while we still believe there will be more opportunities as we look ahead and opportunities for higher quality circuits, the overall volume of those has still been fairly limited. And at least there's no indications at this moment in time that that's going to accelerate or anything like that. But we still believe in time, there's unique circumstances in most of these cases. In time, we will start to see more opportunities become available. Eric Handler: Great. And then secondly, given the success of alternative content that we saw in the third quarter, is there a way to sort of lean into this more? We're finding -- I know Chris Oliver does a lot in the music space. There's clearly a vault of anime movies and opportunities there. And so I'm curious to have your thoughts there. Sean Gamble: Absolutely. Look, I mean, we have been leaning into non-traditional programming quite significantly and trying to hone what are those better opportunities that are out there. And as a result of that, we've seen for the last 3 years that non-traditional content has represented in excess of 10% of our box office. And importantly, it's not just a percentage. The overall dollar amount last year was almost 2x what it was in 2019 for us. So that's the byproduct of actively focusing on this and trying to stimulate more growth as well as just more compelling content becoming available that is resonating with audiences. So we continue to see growth. As mentioned in our prepared remarks, it was 16% of our box office this past quarter. So we remain optimistic about further growth in this category as a way to add to the box office. If anything, it was something as we had talked about before the pandemic, that was always an area of frustration where it seemed like there was tremendous potential and never quite got off the ground. It's great now to see that we're really seeing some movement in anime, faith-based, multicultural content, repertory content, like there's a range of these categories, and they all appear to be working really well. So we're optimistic about more growth there, and it is something that we're going to continue to lean into. And we're not alone. It's something that's happening across the industry. Operator: Our next questions come from the line of Drew Crum with B. Riley Securities. Andrew Crum: A question on '25 and one on '26. Melissa, you've expressed confidence in your ability to grow adjusted EBITDA margin this year. Nine months in, you're down a little bit, but it seems that you're poised to make that up in 4Q. I just want to confirm that's still your expectation to grow margin year-on-year this year. And then, Sean, just a follow-up on Eric's question concerning non-traditional content. Looking ahead to next year, with '26 being a World Cup year for FIFA, curious if there are opportunities to incorporate that into your programming and/or if this is a competitive headwind for your business, particularly in Latin America. Melissa Thomas: Thanks, Drew. So I'll start with your first question on margin. So in terms of our margin expectations, ultimately our margin for the year is going to be driven by attendance and box office performance as the primary driver, given the operating leverage inherent in our business model as revenue scales. Other factors that will influence our margin will be market share of food and beverage per cap and average ticket prices, along with the incremental value we capture from our strategic initiatives. Naturally, we have ongoing inflationary pressures, other expense headwinds and the impacts of FX movements that also will be considerations. As you think about kind of specific to fourth quarter, our margin should benefit from the anticipated box office recovery as well as growth in concession per cap and average ticket prices. But we do recognize that our market share may temper in the fourth quarter, given the cadence of releases as well as the overall scale and relative mix of films. Also keep in mind, other revenue in the fourth quarter of last year included a onetime $6 million contractual payment received from a third-party service provider that will not recur in Q4 of this year. And then expense considerations that you would want to take into account namely I'll point out on utilities and other, we continue to incur some elevated expenses as we work through some deferred maintenance needs across the circuit. So we remain highly focused on maximizing profitability and margin potential, but our ability to grow margins year-over-year is largely going to be dependent upon how the box office unfolds in the fourth quarter as well as the other dynamics I mentioned. Sean Gamble: And then to your question on the World Cup, I guess starting on the opportunity front, one of the challenges that we've had with the World Cup, much like sports in general, are just the complicated rights issues. So the ability to program those games in theaters is something that has been limited because of that. So it's not for lack of trying, but like many of the major sports leagues, the rights have just been preventative. The other thing, too, with the World Cup, in particular, is it is so widely displayed everywhere that there even is some question as to how big of an opportunity might there be in terms of showcasing those games and drawing people to theaters versus just walking down the street and being able to see these things all over the games all over. Specific to LatAm and what that -- how that could impact there, we've seen historically, it really just depends on how the teams are performing and playing out, like depending on what their games are, there are times where the studios will schedule some of the content around particular games, so they'll try to work that to the extent they can. But it hasn't historically presented a huge headwind. It can create a little bit of headwind depending again on a particular country, as -- particularly as you get closer to the finals, but that is something that just has to play out. I don't think it would be something that ultimately would be material in the whole scheme of things. Operator: Our next questions come from the line of Robert Fishman with MoffettNathanson. Robert Fishman: Two for you guys. Sean, you talked about the sustained structural share gains over the past few years and the success in the quarter. Do you see an opportunity to continue to expand your market share in the U.S.? And also if you could help us think about internationally? And what are the biggest drivers to grow share organically aside from obvious M&A away from your competition? And then for Sean or Melissa, can you just maybe discuss your strategy on premium large screen formats and how you prioritize your own XD brand over the other formats, especially I think there was news of your recent IMAX agreement in U.S. and Latin America. Sean Gamble: Sure. Thanks for the questions, Robert. Well, first, starting with share, yes, we've been thrilled with the results of our share over the last several years. We've been really pleased again this year that it's performed at levels even beyond our expectations, partly due to all the initiatives that we have pursued to gain those structural benefits as well as just some further upside from the way content mix has played in our favor as well as just the overall release cadence of films that has kept us from hitting those max threshold capacity limits. So our focus, obviously, is on how do we continue to extend that further. Your question on how to do that, it boils down to a range of things. We continue to advance and hone the way we're programming our screens to extract the absolute maximum value out of each screen, getting the right films on the appropriate screens to match demand. So we don't have any underutilized capacity or just hit limitations on given screens based on the demand of individual titles. Our continued marketing efforts to build audiences and attract people to our circuit, loyalty, all those things, pricing, I mean, all that stuff adds up. And we continue to work on varied initiatives in all those areas to extend that further. And that's on a -- really, I'm speaking mostly to just a same-store basis, how do we keep growing share within our existing theaters beyond the new theaters we may add to our circuit through new builds and/or M&A, as we've talked about before. So it boils down to a whole bunch of different actions that we're pursuing to extend that further, which is clearly the aim. Our hesitation to take up that kind of focus on, we've been delivering at least 100 basis points of structural gains since the pandemic. We're just waiting to see a bit of a more normalized box office environment to be able to evaluate that more thoroughly with regard to how much is structural versus how much are some of these other factors that are further boosting that. Premium amenities, I mean, look, premium amenities is something else that can play into share to a certain degree. I would say, our overall strategy hasn't changed. We're continuing to lean into enhanced offerings based on the demand that we continue to see from consumers, and that's everything -- when I talk about enhanced offerings, everything from seating to the food and beverage we offer to our screens as well. We announced -- and it's a comprehensive strategy. I mean we announced earlier this year plans to increase our number of ScreenX auditoriums by 20 over the next couple of years. We've also announced that we're going to be adding an additional 80 D-BOX seats to an additional 80 auditoriums, which already are close to 500 auditoriums across our circuit. We've been adding more XD screens. We continue to -- we plan to continue to do more of those. And then yes, we also just last week announced plans to upgrade our 12 existing remaining auditorium -- IMAX auditoriums in the U.S. to their laser technology, add 4 more screens throughout the U.S. We're also exploring opportunities in LatAm, and we're going to be activating 3 70-millimeter projectors. So it boils down to a theater-by-theater analysis, but we're pursuing a wide range of different opportunities throughout that. So no change in strategy, just further leaning into what is an opportunity based on consumer demand. Operator: Our next questions come from the line of Eric Wold with Texas Capital. Eric Wold: Just one question. I guess, as we kind of head into the holiday slate and then into next year, how much pricing power do you feel you have on ticket pricing in general and then on XD and the other premium offerings? Just trying to get a sense if you think in this environment, you feel it's better to kind of raise pricing on kind of all boats or kind of keep baseline pricing somewhat more stable and kind of mainly push up the higher end kind of premium offerings and kind of make that more of the consumer choice instead of kind of raising pricing across the board? Melissa Thomas: I can take that one, Eric. So from a pricing standpoint, we do continue to identify opportunities to optimize pricing for both tickets as well as the concession side of our business, and that's guided by robust data and analytics. Our pricing decisions, they continue to be driven by us closely monitoring elasticity of demand, which allows us to make informed decisions so that we can maximize attendance, box office incidents and then overall revenue. We are mindful of the current macro environment, and that's -- we are applying a disciplined data-driven approach as we evaluate those pricing actions. But ultimately, we want our guests to perceive strong value from their overall experience, which we believe has contributed positively to our attendance recovery and how that's outpaced industry trends, and then also, when you look at the strength of our concession per cap growth since the pandemic period. So we do continue to rely heavily on the data, but we also do see further opportunity to capture benefits on both the ticket pricing side as well as concession per caps from our pricing strategies. Operator: Our next questions come from the line of Chad Beynon with Macquarie. Chad Beynon: Just one for me. Just wanted to ask about the approach towards the dividend. Obviously, great to see the increase announced tier in the print today. Melissa, how are you thinking about -- I know you talked about your leverage currently at 2.4 and some of the initiatives from a growth and buyback standpoint. But how are you thinking about maybe consistently raising this dividend or viewing it against some type of a payout ratio? Melissa Thomas: Yes. So overarchingly, I mean, as you think about broadly our returns to capital -- capital returns to shareholders, those decisions are guided by a balanced framework. We're prioritizing maintaining financial strength as well as investing in accretive growth opportunities, first and foremost, followed by returning excess capital to shareholders. We'll evaluate payout decisions holistically based on a number of factors, and that will include cash and overall liquidity, leverage and strategic priorities at any given time, among other factors. But that ensures we can remain nimble and well positioned to pursue value-creating opportunities as they arise. As we think about kind of sizing of the dividend and then the share repurchase program, we're really looking at those together, right, as means that we can execute on our strategy to return more capital to shareholders over time. So on the dividend front, objective is to provide a sustainable and growing dividend while preserving flexibility. And then the share buyback program allows us to lean in as there's excess cash to return. So really looking at those holistically, and we'll be guided in a disciplined approach as you've seen us take historically. Operator: Our next questions come from the line of Patrick Sholl with Barrington Research. Patrick Sholl: Just on the concessions, I was just wondering if you could discuss if there's anything in like the macro that you're seeing and having an impact on merchandise sales? And just any detail you could provide on the merchandise component on concessions and how that sort of maps out across either the film slate or the attendee base. Sean Gamble: Sure thing. Thanks for the question, Pat. Much like, I would say, our overall moviegoing as well as our food and beverage sales, from a macro standpoint in terms of any -- if you're referring to any macroeconomic influences on that, fortunately, we've continued to see consumption hold up very strong through some of the higher inflationary periods we've gone through recently, throughout concerns of recession. So we haven't seen any slowdown of that. The historic trend of consumers coming out to movies, maybe trading off on other things, but still coming to theaters when compelling content in the marketplace and then indulging when they're there, that has continued to play out both domestically and internationally. Specific to merchandise, as you were asking, merchandise has continued to show great signs of growth. In fact, if anything, consumers have been shown up for it. There have been more and more of these viral moments. The talent has been getting involved in using those as ways to help promote their films as has the studio. So we've continued to see nice growth year-after-year with merchandise, and we believe there's further opportunity to come. So -- and similar to all of our concessions categories, that has not shown any drag or any issue with regard to any kind of macro level economic trends. So we're just really encouraged about further opportunity ahead. Operator: Our next questions come from the line of Omar Mejias with Wells Fargo. Omar Mejias Santiago: Sean, one for me. There was a recent article in the press that talked about how David Ellison and the new Paramount leadership wants more theatrical content and how they're looking to build their slate from their current 8 annual releases to 15 by '26 and 18 by '28. This is clearly great news for the industry. So just wanted to get your thoughts on how your early conversations either with the new leadership of Paramount or other studio partners that are developing and just the potential increases to the volume of films that will come to market in '26 and beyond. Just curious on early thoughts on that. Sean Gamble: Sure. Well, I appreciate the question, Omar. I would say, at a high level, the conversations have been very positive and continue to encourage us with regard to volume recovering to pre-pandemic levels, if not beyond. As you mentioned, our discussions with Paramount and what has been stated publicly have been positive in terms of their desire to expand the amount of volume that they're putting out. Obviously, there's been conversation. Amazon has been public about growing to 15 or so films a year, while Apple is still -- it's still not entirely clear kind of where they go. We know that they were extremely pleased with the results of F1 and Eddy Cue just recently talked about viewing very positively the theatrical space and with intentions to put more films out that way. A24 has been growing their volume. Universal has been holding their volume, pre-pandemic levels, like we're getting these encouraging signs from Disney from -- really from everywhere. And as we just talked about earlier, all the non-traditional programming continues to grow. So when you put all that together, we just -- we remain encouraged about just the overall volume of films getting back because even this year for 2025, wide releases, by the way, we define it, are looking to get back to about 120 or so films by the end of the year. That compares to about 130 on a pre-pandemic basis. We expect next year will be another notch further from that closer to the 130, could even get to the 130 based on how the slate ultimately plays out. So all those signs are positive. Operator: We have reached the end of our question-and-answer session. I would now like to turn the floor back over to Sean Gamble for closing comments. Sean Gamble: Thank you, Darryl, and thank you all for joining us this morning. We're thrilled with the results we're able to deliver in the third quarter, and again, the advances we made with capital allocation and our balance sheet. And we're looking forward to a strong close to the year and speaking with you again following our fourth quarter results. So hope you all have a great day and great quarter. Operator: Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. Please disconnect your lines at this time and have a wonderful day.
Operator: Good day, and welcome to the B&G Foods, Inc. Third Quarter 2025 Financial Results Conference Call. Today's call, which is being recorded, is scheduled to last about 1 hour, including remarks by B&G Foods management and the question-and-answer session. I would now like to turn the call over to AJ Schwabe, Senior Associate, Corporate Strategy and Business Development for B&G Foods. Thank you, and over to you. AJ Schwabe: Good afternoon, and thank you for joining us. With me today are Casey Keller, our Chief Executive Officer; and Bruce Wacha, our Chief Financial Officer. You can access detailed financial information on the quarter in the earnings release we issued today, which is available at the Investor Relations section of bgfoods.com. Before we begin our formal remarks, I need to remind everyone that part of the discussion today includes forward-looking statements. These statements are not guarantees of future performance, and therefore, undue reliance should not be placed upon them. We refer you to B&G Foods' most recent annual report on Form 10-K and subsequent SEC filings for a more detailed discussion of the risks that could impact our company's future operating results and financial condition. B&G Foods undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. We will also be making references on today's call to the non-GAAP financial measures, adjusted EBITDA, segment adjusted EBITDA, adjusted net income, adjusted diluted earnings per share, adjusted gross profit, adjusted gross profit percentage, base business net sales and segment adjusted expenses. Reconciliations of these financial measures to the most directly comparable GAAP financial measures are provided in today's earnings release. Casey will begin the call with opening remarks and discuss various factors that affected our results, selected business highlights and his thoughts concerning the outlook for the remainder of fiscal 2025. Bruce will then discuss our financial results for the third quarter of 2025 and our updated guidance for fiscal 2025. I would now like to turn the call over to Casey. Kenneth Keller: Good afternoon. Thank you, AJ, and thank you all for joining us today for our third quarter 2025 earnings call. Today, I will cover an overview of third quarter performance; Bruce will cover more detailed financial results, an update on recent divestitures and future portfolio, and the outlook for Q4 and beyond. Q3 results. The third quarter demonstrated significant improvement in adjusted EBITDA delivery with sequential improvement in base business net sales trends. Q3 net sales of $439.3 million finished minus 4.7% versus last year, although base business net sales, which excludes the impact of divestitures were down minus 2.7%. Third quarter adjusted EBITDA was $70.4 million, flat versus last year on a reported basis, but up year-over-year, excluding the impact of divestitures. Some of the key drivers. Q3 benefited from the implementation of our back half $10 million cost savings initiative. SG&A overhead was down $2 million from last year as a result of specific restructuring actions. Cost of goods sold, or COGS, as a percentage of net sales improved 40 basis points versus last year behind incremental productivity efforts. The Frozen & Vegetables business unit delivered strong segment adjusted EBITDA recovery in Q3, plus $3 million, as new crop pack costs came in favorable to last year's weak crop and our Mexico facility achieved strong productivity gains. The Spices & Seasonings business unit grew net sales plus 2.1% in Q3, benefiting from the growth in fresh food and proteins as well as strength in our club and foodservice channels. Segment adjusted EBITDA was impacted by tariffs with targeted pricing implemented to recover those costs in Q4. The divestiture of the Don Pepino and Sclafani business in May and the Le Sieur U.S. canned peas brand in August, removed approximately $10.3 million of net sales and $3.2 million in adjusted EBITDA from Q3. Portfolio divestitures. B&G Foods continued strong progress in reshaping and restructuring our portfolio in the third quarter. Last week, we announced the divestiture of our Canadian Green Giant business in canned and frozen vegetables. That divestiture is subject to Canadian regulatory approval and is expected to close late in the fourth quarter or during Q1 fiscal year '26. Further, we continue to evaluate and pursue the divestiture of our Green Giant U.S. frozen business, the last part of the Frozen & Vegetables business unit. Green Giant is a strong brand in a good category, but is not the right fit for the B&G portfolio -- B&G Foods portfolio with seasonal production, a different temperature state, geographic complexity and higher working capital intensity. These Green Giant divestitures, along with the recently completed Don Pepino, Sclafani and Le Sieur divestitures will create a more highly focused B&G Foods, which we believe will lead to adjusted EBITDA as a percentage of net sales approaching 20%, increased cash flow generation, a lower leverage ratio closer to 5x, a more efficient cost structure and clear synergies within our portfolio. Fiscal year '25 outlook. We expect the fourth quarter to show continued improvement versus the first half fiscal year '25 trend. Flat net sales, excluding the divestitures with year-over-year growth in adjusted EBITDA. The key assumptions behind our latest guidance. The 53rd week is expected to add 2% to 3% sales growth in Q4, a partial week benefit. Excluding the impact of the 53rd week, base business net sales are projected to be down approximately 2% to 3% in Q4, consistent with the trend in Q3. We expect to realize additional savings in Q4 as part of the incremental $10 million cost efficiency initiative launched earlier this year with an annual run rate of approximately $15 million to $20 million in savings. These include additional productivity in COGS, trade and market spending efficiencies, accelerated SG&A savings and discretionary spending cuts. The U.S. Frozen & Vegetables business is expected to continue to show improved adjusted EBITDA performance behind more favorable crop pack costs and strong productivity in our Mexico manufacturing facility. We have executed targeted pricing to recover incremental tariffs at existing levels, which become effective for most customers starting in November. As a result, we have revised a narrow guidance for fiscal year '25 to $1.82 billion to $1.84 billion in net sales and $273 million to $280 million in adjusted EBITDA, which reflects the impact of recently completed divestitures and the base business trends. Finally, we are committed to reducing leverage and balance sheet risk. In the third quarter, typically the high point of our seasonal inventory pack, our consolidated leverage ratio was 6.88x. We expect to reduce our consolidated leverage ratio to 6x within the next 9 months by using divestiture proceeds and excess cash generated through improved EBITDA performance and lower working capital needs to reduce long-term debt. Looking forward, fiscal year '26 is poised to be a transformational year with a more focused, higher margin and stable portfolio once divestitures and post-closing transition services have been completed. We expect continued improvement in base business trends towards the long-term algorithm of 1%. Further, we will also become a less complex, more efficient and leaner company behind a simplified portfolio, restructuring operations to rightsize overheads and focus resources and investments behind the core categories and brands in Spices & Seasonings, Meals and Baking Staples. Thank you, and I will now turn the call over to Bruce for more detail on the quarterly performance and outlook for the remainder of fiscal 2025. Bruce Wacha: Thank you, Casey. Good afternoon, everyone. Thank you for joining us today. I am pleased to report that despite a challenging consumer backdrop, we had a reasonably strong third quarter, driven by a mix of continued strength in some channels such as club and foodservice as well as the validation of our cost savings initiatives. As a reminder, we divested the Don Pepino and Sclafani brands at the end of May and then the Le Sieur brand in the United States on August 1 of this year. As a result, our third quarter financial results this year exclude Don Pepino and Sclafani for the full quarter and Le Sieur U.S. for approximately 2 of the 3 months of the quarter. Last week, we announced the agreement to sell our Green Giant and Le Sieur frozen and shelf-stable product lines in Canada to Nortera Foods, subject to regulatory approval in Canada and the satisfaction of customary closing conditions. We expect the transaction to close in the fourth quarter of 2025 or the first quarter of 2026. Because the Canadian transaction has not yet closed, it did not impact our financial results for the third quarter. Although when reviewing our 10-Q, you will notice that the business has been designated as an asset held for sale on our balance sheet as of the end of the third quarter of 2025. For the third quarter of 2025, we generated $439.3 million in net sales, $70.4 million in adjusted EBITDA, 16% adjusted EBITDA as a percentage of net sales and $0.15 in adjusted diluted earnings per share. Overall, net sales for the third quarter of 2025 decreased by $21.8 million or 4.7% to $439.3 million from $461.1 million for the third quarter of 2024. Base business net sales, which excludes the net sales for the Don Pepino, Sclafani and Le Sieur U.S. brands for both periods, decreased by $11.9 million or 2.7% in the third quarter of 2025 compared to the third quarter of 2024. $12.9 million or 290 basis points of the decline in base business net sales was driven by lower volumes and $0.3 million or less than 10 basis points of the decline was driven by foreign exchange. The decline was offset in part by $1.3 million or 30 basis points of benefit from an increase in net pricing and the impact of product mix. Our Spices & Flavor Solutions business unit led our top line performance for the third quarter with net sales up by $2.1 million or 2.1%. Driving the performance was continued growth for our partnered brand in club and our foodservice business. Spices & Flavor Solutions segment adjusted EBITDA was down by approximately $2.1 million for the third quarter as a result of higher raw material costs and tariffs primarily on Chinese garlic and black pepper that is sourced from Vietnam, as well as cinnamon and onions. Much like our peers in the industry, we have executed pricing actions to help offset these cost increases. Our Spices & Flavor Solutions business unit began to see the benefit of pricing to offset certain commodity increases in July, and we expect to begin to see additional benefit to offset tariffs beginning this month. Our Meals business unit had reasonable top line performance for the quarter despite its concentration in a still challenged retail grocery environment. Net sales for Meals decreased by $1.6 million or 1.4% for the third quarter. However, Meals segment adjusted EBITDA increased by approximately $0.6 million for the quarter. We continue to see softness for our Specialty business unit. Base business net sales for Specialty, which excludes net sales for the Don Pepino and Sclafani brands for both periods decreased by approximately $7 million or 4.5% for the third quarter of 2025 as compared to the third quarter of 2024. Nearly 60% of that decline was driven by Crisco. Crisco net sales were down by $4.1 million for the third quarter, with approximately half of the decrease as a result of lower net pricing that was reduced in part to reflect lower input costs for soybean oil and half driven by lower volume. Despite the decline in net sales, Crisco segment adjusted EBITDA was flat for the third quarter as compared to the third quarter of 2024. Overall, Specialty segment adjusted EBITDA was down $3.6 million or 8.7% for the quarter, including the negative drag from lapping third quarter 2024 profits from the Don Pepino and Sclafani brands. Base business net sales for our Frozen & Vegetables business unit, which excludes net sales for the Le Sieur U.S. brand for both periods, declined by $5.4 million or 6.7% for the third quarter as compared to the third quarter of last year. However, Frozen & Vegetables segment adjusted EBITDA increased by $3 million as we cycled past the expensive 2024 crop season and unfavorable peso exchange rates. Green Giant is also benefiting from productivity improvements and cost savings initiatives in our Mexican manufacturing facility. Overall, for B&G Foods, gross profit for the third quarter of 2025 was $99 million or 22.5% of net sales. Adjusted gross profit was $98.8 million or 22.5% of net sales. Gross profit for the third quarter of 2024 was $102.3 million or 22.2% of net sales. Adjusted gross profit was $102.4 million or 22.2% of net sales. Promotional trade spend, which is captured in our net sales line, increased by approximately 110 basis points in the third quarter of 2025 versus the third quarter of 2024, sequentially favorable to year-over-year increases of 178 basis points in the first quarter of 2025 and 120 basis points in the second quarter of 2025. While we continue to invest in our brands and reduce prices on shelf for consumers, we must also balance this with managing our profitability. Our material, labor and overhead costs improved by nearly 100 basis points as a percentage of gross sales during the third quarter of 2025 as compared to the third quarter of last year. Material, labor and overhead costs were favorable by 40 basis points as a percentage of net sales. Input cost inflation as measured by raw material costs across the basket of inputs in our factories has remained modest thus far in 2025, except for elevated costs in black pepper, garlic, olive oil, tomatoes, core vegetables and cans. We continue to closely monitor inflation amid ongoing trade and tariff negotiations. Tariffs again pressured our portfolio, reducing adjusted EBITDA in the third quarter by nearly $3.5 million. Approximately 60% or $2.2 million of this impacted our Spices & Flavor Solutions business unit. Year-to-date tariff impact totals negative $5.1 million. Selling, general and administrative costs decreased by $1.4 million or 3% to $44.6 million for the third quarter of 2025 from $46 million from the third quarter of 2024. The decrease was composed of a decrease in consumer marketing expenses of $1.8 million, general and administrative expenses of $0.6 million, warehousing expenses of $0.5 million, and selling expenses of $0.3 million, partially offset by an increase in acquisition, divestiture and nonrecurring expenses of $1.8 million. Selling, general and administrative expenses as a percentage of net sales was 10.2%, approximately flat when compared to 10% for the prior year period. We generated $70.4 million in adjusted EBITDA or 16% of net sales in the third quarter of 2025 compared to $70.4 million or 15.3% and of net sales in the second quarter of 2024. The divestiture of the Dan Pepino, Sclafani and Le Sieur U.S. brands during the second and third quarters of 2025, negatively impacted third quarter adjusted EBITDA by approximately $3.2 million. Net interest expense decreased by $4.9 million to $37.3 million for the third quarter of 2025 compared to $42.2 million for the third quarter of 2024. The decrease in interest expense was primarily driven by a decrease in net debt and the benefits of lower interest rates on our variable rate debt as well as a net gain on the extinguishment of debt of $0.7 million during the third quarter of 2025 compared to a loss on extinguishment of debt of $1.9 million during the third quarter of 2024. We repurchased an additional $20 million aggregate principal amount of 5.25% senior notes due 2027 in open market purchases during the third quarter of 2025, taking us to a year-to-date total of $40.7 million aggregate principal amount of repurchases at an average discounted purchase price of 92.94% or a discount to principal amount of approximately $2.9 million. Depreciation and amortization was $16.6 million in the third quarter of 2025, which is largely in line with $17.2 million in the third quarter of last year. Adjusted net income increased to $11.7 million or $0.15 per adjusted diluted share in the third quarter of 2025. In the third quarter of 2024, we had adjusted net income of $10.1 million or $0.13 per adjusted diluted share. Adjustments to our EBITDA and net income are detailed further in our earnings release. Now moving to our consolidated cash flows and balance sheet. We continue to expect cash flows to be strong this year, but there are some discrete items that negatively impacted net cash from operations in the third quarter of 2025. These included an unfavorable working capital comparison due in large part to the Le Sieur U.S. divestiture and the timing of our inventory purchases during pack season prior to the closing date of the divestiture, which had negative impact on our net cash from operations during the third quarter of 2025, but increased the purchase price we received for the Le Sieur U.S. divestiture, which then had a positive impact to our net cash provided by investing activities during the quarter. Also pursuant to our transition services agreement for Don Pepino and Sclafani divestiture, we purchased inventory during the third quarter for those brands for which we were reimbursed by the new owner in the fourth quarter. Net cash from operations was also negatively impacted by the timing of cash interest payments made during the third quarter of 2025 compared to the third quarter of 2024 as a result of the June 2024 refinancing of our 5.25% notes due 2025. We have reduced our net debt to $1.984 billion, and our consolidated leverage ratio as calculated pursuant to our credit agreement to 6.88x in the third quarter of 2025, despite being at our seasonal peak for net debt and inventory. As we roll off the typically heavy third quarter inventory pack build, we expect leverage to improve going into the fourth quarter of this year, and we remain on track to reduce our consolidated leverage ratio to approximately 6x by mid-2026. And as a reminder, approximately 35% to 40% of our long-term debt is tied to floating interest rates or SOFR. A 100 basis point reduction to SOFR would be expected to reduce our interest expense by approximately $7 million to $7.5 million. As Casey mentioned earlier, we continue to make progress on our portfolio reshaping efforts as evidenced by last week's announcement regarding Green Giant Canada and the Don Pepino, Sclafani and Le Sieur U.S. divestitures that we completed earlier this year during the second and third quarters. These divestitures are continued examples of the strategy that we believe will make us a more focused and ultimately a stronger company, while also helping us to reduce debt and eliminate heavy seasonal pack businesses from our portfolio. While these are great brands that will do well for their new owners, they don't align with the focus that we have laid out for the B&G Foods of the future. Green Giant Canada generates approximately $100 million in annual net sales in U.S. dollars, but minimal adjusted EBITDA to our P&L. The divestitures of Don Pepino, Sclafani and Le Sieur brands in the U.S. were factored into our fiscal 2025 guidance that we provided during the second quarter earnings call. We are not yet adjusting our guidance to reflect the pending divestiture of Green Giant and Le Sieur brands in Canada, given that the transaction has not yet closed. We are largely holding our fiscal 2025 guidance to the levels previously provided. However, given the still challenging consumer environment, we are revising and narrowing our top line guidance to $1.82 billion to $1.84 billion, adjusted EBITDA of $273 million to $280 million and adjusted earnings per share guidance of $0.50 to $0.58. Our guidance continues to account for a modestly soft economic environment that has persistently impacted consumer spending patterns. It reflects our expectation that our top line will continue to stabilize, combined with the benefit of the 53rd week, that modest pricing around tariffs will offset the majority of these costs and that material input costs will remain relatively consistent. In addition, our guidance incorporates our cost reduction plans, which remain on track to produce the anticipated $10 million of cost savings that we have targeted for the second half of this year. We live in an uncertain world, however, and so the risks to our guidance include increased challenges in an already difficult consumer environment, a greater-than-expected negative volume impact as the result of our pricing initiatives to offset tariffs, trade negotiations and the potential impact of any increased or retaliatory tariffs, a softer-than-expected holiday season or any destocking or other inventory management by our retail customers. Additionally, we expect for full year 2025 interest expense of $147.5 million to $152.5 million, including cash interest expense of $142.5 million to $147.5 million; depreciation expense of $47.5 million to $52.5 million; amortization expense of $20 million to $22 million; an effective tax rate of 26% to 27%; and CapEx will likely be at the lower end of our $30 million to $35 million target. And as we mentioned on our last call, we are committed to reducing our consolidated leverage ratio, which we expect to reduce to approximately 6x or less by the second quarter of 2026 through the successful execution of our divestiture strategy, continued stabilization of our adjusted EBITDA, our excess cash generation and continued improvements in working capital. Now I will turn the call back to Casey for further remarks. Kenneth Keller: Thank you, Bruce. In closing, B&G Foods remains focused on a few critical priorities: improving the base business net sales trends of our core business to the long-term objective of 1%; reshaping the portfolio for future growth, stability, higher margins and cash flows as well as structuring key platforms for future acquisition growth; reducing leverage closer to 5x through divestitures and excess cash flow to facilitate strategic acquisitions. This concludes our remarks, and now we would like to begin the Q&A portion of our call. Operator? Operator: [Operator Instructions] We have the first question from the line of Andrew Lazar from Barclays. Andrew Lazar: Maybe first off, Casey, third quarter sales came in a bit better than at least consensus was looking for. As you mentioned, you sort of lowered the midpoint of our full year sales guidance and the low end is a bit below the previous low end that you had. So maybe what are you seeing in the fourth quarter and maybe the broader environment that has sort of caused this shift? Kenneth Keller: Yes. I think on sales guidance, we -- mostly what we did was narrowed the range down to $20 million from the previous $50 million range. We brought the bottom end down a little bit, not much. I think all we're doing is reflecting the impact of the divestitures fully. And also, we've kind of kept the base business net sales trends consistent with what we were seeing in Q3. So that the improvement that we saw in Q3 versus Q1, Q2, we're kind of projecting that into Q3 -- into Q4, sorry, into Q4. Andrew Lazar: Got it. And then I know it's a little early still because more of the pricing in the Spices & Flavorings business is still going to flow through. But so far, what have you seen in that segment around volume elasticity with respect to some of the pricing that you've taken? Kenneth Keller: I mean, we've just taken it literally. So it's only been out -- we don't have really consumption data yet for it because most of that pricing hit kind of at the end of October. We were expecting some elasticity, but not a huge amount. I mean, I think we're projecting more like 0.5, 0.6 and we'll be able to measure that within a couple of weeks now. But we've seen other manufacturers take spice increases -- price increases behind tariffs and commodity costs without a significant effect. Bruce Wacha: Yes. And the pricing that we took for spices on the commodity costs earlier this year kind of went through and we had a pretty good third quarter performance for spices. As Casey said, we think that we should be fine. Kenneth Keller: Yes. And on average, Andrew, these price increases to reflect tariffs are kind of in the low to single mid-digits. Operator: We have the next question from the line of Scott Marks from Jefferies. Scott Marks: First thing I wanted to ask about, you noted that you're expecting kind of the base business performance in Q4 to be kind of in line with Q3. If we strip out the impact from the Green Giant U.S. business and the Frozen & Vegetables business, how should we be thinking about that for the remaining 3 segments? And then further, how should we be thinking about the building blocks for getting back to that 1% number in 2026? Kenneth Keller: Yes. So I think -- well, first off, what we said about Q4, we will still have the Green Giant Canada business and the U.S. frozen Green Giant business in those trend lines that we talked about. So when I said Q3 was minus 2.7% and what we're projecting into Q4 is minus 2% to 3%, we will still have the Green Giant pieces in there because, remember, even though we announced Canada, we can't close it until we get regulatory approval from Canada, and we're assuming that, that business remains in the portfolio for the fourth quarter. I think as we go forward, once we are able to complete divestitures around Green Giant, if we're looking at the other 3 business units, my expectation would be that those top line trends would be better because Green Giant has been probably a little bit more of our difficult comparisons over the last couple of years. So I don't want to give you a specific number now because it's all dependent on things happening. But I would expect more stable performance from the Spice & Seasoning business, we're seeing growing. That category has actually been growing, and we were up 2% in Q3. Meals is down just a little bit, but we are starting to see some improvements in our Ortega and other trends. Our Baking Staples business has probably been a little bit weaker. Some of that is due to the lower oil pricing on Crisco that we've reflected in market, and that's part of the sales degradation. But if I take those 3 businesses, I think you're going to see more stable trends on the top line. I would hope that would be part of our -- that's going to be part of our track towards getting to a flat to up 1% over time. Scott Marks: Got it. I appreciate the answer there. Second question for me is just as we think about that spices business, I know you mentioned kind of the strength in the foodservice and club business there. Just wondering if you can remind us how big is that business for you and maybe what are the trends that you're seeing there as it relates to consumer or customer demand relative to more traditional retail channels. Kenneth Keller: Yes. And I'll give you an answer overall in our portfolio. I mean we could talk more specifically about spices. But in total, our food service business is about 13% to 14% of our portfolio. And we've seen pretty stable trends in that business. So we haven't really seen declines. We've seen flat to modest growth in our foodservice business, which is a lot of spices business going to different restaurant, outlets through distributors, and we also have a syrup business going to breakfast establishment. So that business has been relatively stable. Our private label business, we do have one -- we have one large business in the club channel and in private label that is a good business, profitable business and has had very strong growth trends. So we've seen our private label business actually doing pretty well in addition to our foodservice channels. That's about foods -- I mean, private label in total is about 8% of our total sales, and that's been kind of a little bit of a growth that's been driving some mid-single-digit growth for us. So I mean, I hope that answers the question, but that's -- we've seen some relative stability or strength in those 2 areas of our business, probably relative to the center store packaged goods branded side. Operator: We have the next question from the line of Robert Moskow from TD Cowen. Robert Moskow: Two questions. The 6x leverage target by mid-next year, Casey and Bruce. So can I assume that assumes that you will exit the rest of Green Giant? And then now that you've exited the Canadian side and then Le Sieur, like does it make it easier to market the remaining U.S. business to potential buyers? And then I have a follow-up. Bruce Wacha: Yes. So on the leverage piece, and we walked through this on our second quarter call. We were talking about that full turn of deleveraging. About half of that was coming from the divestiture of the various Green Giant pieces, Le Sieur Canada and then U.S. And so I think that's the answer to your first question. The rest was stabilization of EBITDA, excess cash and working capital management. On a go-forward basis, after all of the strategic review of Green Giant is completed, assuming we no longer own the business, there will be significantly less working capital swings between quarters. So we'll still have things like Crisco and Clabber that have a seasonal bake season where we build inventory in the third quarter and sell it, but it won't be as extreme as the pack plan for Green Giant, which is why you see inventory high now, but it always comes down in the fourth quarter and then kind of continues. So that's part one. Your second question around does the divestiture of Le Sieur and the signed agreement still to close for Canada, does that impact the sale of the remaining business sort of to make it easier? Not really. They are distinct conversations with logical strategic partners on all pieces. But this is 2 out of the 3 or 3 out of the 4, if you go back and include the can business that we sold to Seneca about 1.5 years ago. Robert Moskow: Okay. Got it. And then a follow-up. There's a lot of noise in the press about the SNAP cutbacks and then -- and also, just like this immediate disruption related to the government shutdown. It's not just the press, I guess it's really happening in many states. So have you seen any early signs of that impacting grocery sales in your categories? Or is it just too soon to know whether it will matter? Kenneth Keller: I think it's too soon to know whether it will matter. My expectation is that if, let's say, the shutdown continues and SNAP benefits are get cut in half for any extended period of time that there could be some impact from that. I mean, I've heard Walmart and others talk about that. But I think that's going to be a temporary effect until the government gets back up in operation and SNAP benefits are restored. So yes, I do expect there might be a temporary impact. I can't -- it's too hard to figure out exactly how much given the way consumers were spending and how much of their SNAP benefits they're actually receiving. But I don't -- I think this is just a temporary phenomenon until this gets resolved. Bruce Wacha: Yes. And Rob, just to reiterate on that, we typically try not to talk too much on inter-quarter performance. But certainly, with regards to SNAP and any impact, we haven't seen any impact so far to date in our shipments. Operator: We have the next question from the line of William Reuter from Bank of America. William Reuter: I just have a couple. The first, in terms of your outlook to get to the 6x leverage target, is there any expectation there that you will either be gaining or losing any shelf space over that period? Bruce Wacha: Other than what we've sold? Kenneth Keller: Other than the divested businesses, you mean? Yes. William Reuter: Yes, whether there could be any business wins that you kind of see on the horizon or alternatively if there are businesses that you're having to respond to RFPs to maintain your shelf space? Bruce Wacha: So the 6x assumes that we hit our model for 2025 and kind of preliminary 2006 (sic) [ 2026 ] thoughts. I guess that would include any performance for those businesses that we anticipate. But we haven't done a further probability weighting by like inches of shelf space, if that's what you're asking. Kenneth Keller: But our forecast would factor in how we see distribution wins and losses across our innovation launches and any cut of slower moving items. Our forecast always includes those kind of projections. William Reuter: Got it. And then given you have been successful with the 3 divestitures so far, are you fairly certain that you're going to be able to come to an agreement with the buyer on the Green Giant U.S. sale within the time that you laid out? Bruce Wacha: Not really fair to comment on that other than we're making progress on getting these transactions done. And we certainly laid out what we thought made sense from a time line, and that's where we are. William Reuter: Got it. Okay. And then lastly for me. You laid out the timing of the 6x net leverage mid next year. A couple of times you touched upon the 5x. Is that kind of a longer-term goal? Or is there a time line associated with that we should be thinking about? Bruce Wacha: We haven't put out a time line, but it's very much a longer-term goal, and Casey will remind me of that every quarter. Kenneth Keller: I mean our long-term leverage goal is between 4.5 and 5.5. So I mean that's the midpoint, and I think would actually reflect the right kind of risk. Operator: We have the next question from the line of David Palmer from Evercore ISI. David Palmer: I just wanted to ask you guys about the organic sales numbers. You mentioned foodservice roughly flat and the private label business sounds like it's up mid-single digits. That might get us close to where we are when we adjust our consumption numbers, get close to the numbers that you had, but it still feels like I might be down 4% to 5% versus the under 3% decline that you showed and you're guiding to as well for the fourth quarter. So I'm just trying to think about like other reasons why that would be different. Is there any shipment dynamics, other nonmeasured channels that are happening? Kenneth Keller: No. I mean I think it's really simple. There's about 35% to 40% of our portfolio that's unmeasured by Nielsen U.S. data. So I mean, if I just give you the numbers, Canada is about 7% to 8%. Foodservice is about 13% to 14%. Private label is around 7% to 8%. We have an industrial business also that's about 5%. And there's unmeasured customers in the U.S., Costco, et cetera, it's about 3%. So it's more than just the foodservice and private label business I talked about. So you do all that math, and it kind of gets you to that base business trend roughly the 2% to 3% kind of base business trend. David Palmer: So your assumption on like basically this back part of the year is that your consumption all channel, obviously, not that it wouldn't be even captured by Circana either would be also down 2% to 3%. Fair to say. Kenneth Keller: Yes, but that would move across foodservice and channels. And then it would include our private label business. We have a very strong club private label spice business that's been growing very rapidly. So it would -- it assumes that we're kind of static in terms of our performance in the fourth quarter that we were in the third quarter across measured and unmeasured kind of channels and businesses. Bruce Wacha: And Dave, the other part where you might be missing if you're thinking about fourth quarter, just a reminder, this is the 53rd week, and it's in our fourth quarter this year. And so we've talked a number of times, referenced either $15 million to $20 million or $16 million to $18 million, but there'll be some benefit, which is as also impacting is factored into our guide. Kenneth Keller: Which kind of offsets the base business trend. The two of those kind of offset each other to get to roughly flattish net sales in the fourth quarter. David Palmer: Great. That was great. And with regard to the tariffs language you had in the release, just it seems like as stated language that you're not including all the tariffs in there. It seems kind of... Bruce Wacha: We can only include what we know, right? It's going in front of the Supreme Court. Kenneth Keller: We price for all known existing tariffs. But these negotiations are... David Palmer: And certainly guided for it, too, I would assume. Kenneth Keller: Yes. David Palmer: Is there -- have you talked about the inflation, inclusive of tariffs that you're expecting, call it, into the first half of '26? Have you talked about that? Kenneth Keller: I mean we're seeing outlook, Dave. I wouldn't want to tell you that we've actually finalized our projections, but we're kind of seeing 1.5% to 2% input cost inflation before tariffs. But that's a very early number, probably mostly driven by packaging. Bruce Wacha: I think our key thing is similar to 2025, we haven't seen anything that suggests a big uptick in inflation based on our basket of inputs. Kenneth Keller: And our strategy for that would be that we expect the price to recover tariffs, which we've already done, and that's been implemented. We will look at final inflation assumptions and projections when we get pretty close to the new year. But it's a combination of some targeted pricing where we have significant increases in certain commodities as well as productivity efforts that would offset that -- more than offset that rate of inflation in very low single digits. Operator: We have the next question from the line of Hale Holden from Barclays. Hale Holden: I just have three very quick clarifications. Bruce, I really appreciate the working capital talk through that you did on the inventory swings. Can you give me a sense of what the baking business will be 3Q to 4Q in terms of percentage of inventory because I just don't really have a baseline on what that flowback for you would be? Bruce Wacha: For our existing business, like the Crisco and Clabber, we haven't disclosed that. Probably directionally, you can think about what our sales breakdown is by quarter for those businesses. And I do think we disclosed that for both businesses to have a rough impact of the swings, not perfect. Kenneth Keller: There's a little bit of a -- there's a small prebuild in advance of baking season. Hale Holden: Okay. The spices pricing that you're talking about on tariffs, is this the second one from the summer? Or was there one at the end of the summer? Or is this the first one? Bruce Wacha: Yes. So what we did just in a couple of pieces of the spice portfolio is we put pricing in effect to offset increases in commodity costs. So nontariff-related stuff that we knew was coming this year, particularly black pepper and garlic. And then separately, and that was pretty small, modest. I think we talked about it a little in July. Kenneth Keller: Yes, in July. Bruce Wacha: We talked a little bit about it on our second quarter earnings call. We've since followed up across the board where we needed to for tariffs to take price. And that's really an end of October, early November phenomenon. Kenneth Keller: When it's effective. Yes. Hale Holden: Got it. And then my last question is the $55 million to $60 million in charges that you outlined for Canada, is that a good proxy for the sale price or a bad proxy? Bruce Wacha: It's not -- yes, that $55 million to 65 million is a good proxy for the sales price, assuming -- and it's somewhat dictated by inventory. And so assuming that we closed with inventory levels where we are in September is kind of where that lays out. Operator: We have the next question from the line of Carla Casella from JPMorgan. Carla Casella: You talked about working capital anomaly in third quarter related to, I think it was Le Sieur. Did you say how much was moved in the third quarter that you will be reimbursed -- that you will reimburse in the fourth quarter? Bruce Wacha: Yes. So the 2 pieces for working capital around inventory were Le Sieur, the U.S. business that we sold. And we bought -- it's pack season. It's a little bit nuanced, the ins and outs, but we bought about $20 million of inventory for a business that we no longer own. About half of that ended up finding its way into higher pricing on the transaction and floating as a benefit in cash from investing. Then there's another $2 million, $3 million of inventory that we bought for the Don Pepino and Sclafani brands on behalf of the new owners that they reimbursed us for in the fourth quarter. That was a temporary hurt in the third quarter numbers. Carla Casella: Okay. So it's like a $2 million to $3 million that you were paid in fourth quarter that hurt third quarter? Bruce Wacha: Yes, for Don Pepino, and then another $20 million that we spent on the business that we no longer own for Le Sieur. And the interest delta because we did a refinancing last year. And so that ended up moving an interest payment from what was October into September. And that's about, I think, a $7 million to $10 million swing there. Carla Casella: Okay. Great. Any early thoughts in terms of the broader refinancing for the capital structure as we start to get closer to the first maturity? Bruce Wacha: No. I mean we continue to think that at some point, when it makes sense and it's appropriate, we'll look to refinance those 2027 notes. Obviously, watching the market, and we'll pick an opportune time. Carla Casella: And do you have additional secured capacity? Bruce Wacha: I think that the notes will be refinanced as unsecured, not secured. Carla Casella: Okay. Great. And then just one follow-up. You mentioned that pricing effect went into effect for customers in November. I mean you passed on to retailer, so it's going into the consumer, like on shelves in November. And I'm wondering if you've seen any change in elasticity since then. Kenneth Keller: I mean most of the pricing has taken place in the last couple of weeks, and we don't really have kind of market-based scanner data yet, but we'll watch it pretty closely. Operator: Ladies and gentlemen, this concludes our question-and-answer session. The conference has now concluded. Thank you for attending to this presentation. You may now disconnect.
Operator: Good day, and welcome to the Biote Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Szymon Serowiecki, Investor Relations. Please go ahead. Szymon Serowiecki: Thank you for joining us today. This afternoon, Biote published financial results for the third quarter ended September 30, 2025. This news release is available in the Investor Relations section of the company's website. Hosting today's call are Bret Christensen, Chief Executive Officer; and Bob Peterson, Chief Financial Officer. Before we get started, I'd like to remind everyone that management will make statements during this call that include forward-looking statements regarding, among other things, the company's financial results, future performance and growth opportunities, business outlook, strategies, goals, research and development, manufacturing and commercialization activities, its competitive position, regulatory process operations, benefits of its solutions, anticipated impact of macroeconomic condition on its business, results of operations, financial conditions and other matters that do not relate to historical facts. These statements are not guarantees of future performance. They are subject to a variety of risks and uncertainties, some of which are beyond the company's control. Actual results could differ materially from expectations reflected in any forward-looking statements. These statements are subject to risks, uncertainties and assumptions that are based on management's current expectations as of today. Biote undertakes no obligation to update them in the future. Therefore, these statements should not be relied upon as representing the company's views as of any subsequent date. For discussion of risks and other important factors that could affect our actual results, please refer to our SEC filings available on the SEC's website and the Investor Relations section of our website as well as risks and other important factors discussed in the earnings release. Management will also refer to adjusted EBITDA and adjusted EBITDA margin, which are non-GAAP financial measures to provide additional information for investors. A reconciliation of the non-GAAP to GAAP measures is provided in our earnings release, the primary differences being stock-based compensation, fair value adjustment to certain liabilities, transaction-related expenses and other nonoperating expenses. Please refer to our third quarter 2025 earnings release for a reconciliation of these non-GAAP measures to the most comparable GAAP measures. I'll now turn the call over to Bret Christensen. Bret Christensen: Thank you, Szymon, and thank you all for joining us. I'll provide an update on the state of our business and our ongoing corporate initiatives. And then I'll turn the call over to Bob for a review of our third quarter financials and our 2025 financial outlook. After our comments, we'll open the call up for questions. During the third quarter, we continued to make solid progress, advancing our top strategic priorities that we believe will drive increased and sustainable growth. As you'll recall, these 3 priorities are: one, accelerate growth from new providers; two, maximize value from our top-tier clinics; and three, improve our financial performance through greater accountability and discipline. I'll begin with priority one, accelerating growth from new providers. To achieve this goal, we are rebuilding our commercial organization and instilling a high-performance culture while also directly aligning sales incentives with our growth objectives. In doing so, we are significantly enhancing the quality, capabilities and effectiveness of our sales team. With new commercial leadership in place, we have implemented fundamental improvements to how we recruit, train and equip our sales reps to ensure their success in the field. We continue to invest in talent to address our market opportunity, and I have been pleased with the performance-oriented approach and positive energy our new team members bring to Biote every day. To add some color to the scope of this ongoing transition, approximately half of our commercial team joined Biote in the past year. In terms of team size and sales territory coverage, we are currently at about 75% to 80% of where we would like to be. We are consistently onboarding new sales reps and expect to achieve our planned sales rep headcount for 2025. To more efficiently expand and scale our network, we continue to refine our training and onboarding methods for new practitioners. To meet our practitioners' diverse needs, for example, we have expanded availability of training sessions. This flexibility helps practitioners achieve certification more efficiently, enabling a quicker path to clinic productivity that we believe is important for optimizing long-term clinic success. As I noted in last quarter's call, the process of rebuilding our sales team and enhancing our core sales and marketing functions has impacted procedure revenue in the near term. Even as we expanded our clinic network in the third quarter, the third quarter sales contribution from new clinics was impacted by last year's slower pace of new business. While our financial results don't yet demonstrate the improvements we have made to the quality and capabilities of our commercial team, I'm highly confident we remain on the right path to return our core hormone optimization business to a growth trajectory. Turning to our second priority, maximizing value from top-tier clinics. As an established leader in hormone optimization therapy, Biote has been long recognized for our science and evidence-based approach to care. It's one of the primary reasons practitioners choose our innovative solutions to treat their patients and sets Biote apart in the marketplace. In September, we hosted our annual Sun, Sea and Biote marketing event in Cancun. More than 800 attendees from our provider network participated to share insights and align on Biote's vision of advancing health span and vitality with innovative hormone optimization and healthy aging solutions. At our marketing event, we were joined by several world-renowned speakers, including Dr. David Sinclair, Dr. Rhonda Patrick, Dr. Jim Simon, Dr. A. B. Morgentaler and more. Each of these experts delivered compelling perspectives on the future of personalized medicine. Attracting these high-profile speakers to our event reinforces Biote as the leader in evidence-based hormone optimization and therapeutic wellness. We will continue to invest in education and training to further strengthen our market leadership position. An event of this size and caliber served to further strengthen our relationships with our practitioners and advanced our goal of integrating hormone optimization into mainstream health care. We aim to leverage the positive energy and momentum from this event into potential new growth opportunities as we move into 2026. Turning to our third strategic priority, improving our financial performance through greater accountability and discipline. Over the past 6 months, we have successfully implemented many fundamental changes and improvements to our internal processes and systems. While not visible externally, these actions are essential to driving operational excellence and long-term value creation. The upgrades we have implemented are already beginning to deliver positive results, enhancing our data insights, productivity and facilitating more consistent and more disciplined execution across the organization. As we continue to build our commercial team and expand our clinic network, our strength in infrastructure and internal processes will support our ability to scale our business more efficiently. In summary, I am pleased with the solid progress the Biote team has achieved over the past 6 months. While we have further work ahead of us, we have laid much of the groundwork to achieve outstanding commercial execution that I am confident will translate into improved financial performance. I'll now turn the call over to Bob. Robert Peterson: Thank you, Bret, and good afternoon, everyone. Unless otherwise noted, all quarterly financial comparisons in my prepared remarks are made against the third quarter of 2024. Third quarter revenue was $48.0 million, a decrease of 6.7%. Procedure revenue declined 10.4% and dietary supplements revenue grew 8.4%. Similar to the second quarter of 2025, procedure revenue was primarily impacted by a slower rate of net new clinic additions and lower procedure volume during the third quarter of 2025. While necessary to achieve our long-term strategic objectives, the ongoing transformation of our commercial team was a headwind to procedure revenue in the third quarter, as Bret noted. Moving forward, we will continue to add new sales talent to expand our sales coverage and make additional strategic investments to further strengthen our sales and marketing capabilities. We anticipate reaching our targeted sales rep headcount by the end of this year, which should help us return to procedure revenue growth. Despite a challenging comparison due to a successful product launch in last year's third quarter, dietary supplement revenue increased 8.4% to $11.2 million, primarily driven by the continued growth of our e-commerce channel. New product offerings are an important market opportunity for Biote and we continually identify promising new opportunities to optimize our portfolio. Looking forward, we continue to expect mid-teens revenue growth from our dietary supplements business for the 2025 fiscal year. Gross profit margin was 71.8%, a 150 basis point increase. The improvement primarily reflected cost savings from the vertical integration of our 503(B) manufacturing facility and effective cost management. As our primary pellet production facility, Asteria has secured 44 state licenses to date and is currently supplying more than 50% of the pellets ordered by practitioners. Selling, general and administrative expenses increased 9.3% to $26.2 million. The increase reflected the timing of our annual marketing event, which was held in the second quarter last year as well as continued investment in sales and marketing to drive new customer growth. Net income was $9.2 million and diluted earnings per share attributed to biote Corp. stockholders was $0.22 as compared to net income of $12.7 million and diluted earnings per share attributable to biote Corp.'s stockholders of $0.33. Net income for the third quarter of 2025 included a gain of $2.9 million due to the changes in the fair value of the earn-out liabilities. Net income for the third quarter of 2024 included a gain of $7.2 million due to the changes in the fair value of the earn-out liabilities for that period. Adjusted EBITDA decreased 20.5% to $12.9 million with an adjusted EBITDA margin of 26.9%. This compares to adjusted EBITDA of $16.2 million and adjusted EBITDA margin of 31.5%. Both adjusted EBITDA and adjusted EBITDA margin decreased due to lower sales, reduced gross profit and higher operating expenses, which included the shift of our annual marketing event to the third quarter of 2025. Third quarter cash flow from operations increased $14.1 million to $27.6 million. As of September 30, 2025, cash and cash equivalents were $28.0 million compared to $19.6 million as of June 30, 2025. Supported by our strong balance sheet and liquidity, Biote recently undertook two separate actions to deploy capital that the company believes will provide long-term value to shareholders. First, Biote repurchased approximately 1 million shares of our Class A common stock at an average price of $3.28 per share. These repurchases were made within our $20 million common share repurchase program approved by the Board in 2024. Second, Biote amended its settlement agreement with Marci Donovitz to repurchase her remaining shares at a savings to the original agreement. Under this amended agreement, Biote paid Mrs. Donovitz $12.5 million in October, which fully settled the multiyear payment obligation. In addition, earlier this week, Biote amended its settlement agreement with Dr. Gary Donovitz to repurchase his remaining shares at a savings to the original agreement. Biote agreed to pay Dr. Donovitz $18.5 million in January 2026, which when paid, will fully settle the multiyear payment obligation. Now turning to our financial outlook for 2025. As Bret noted, Biote continues to make solid progress in pursuit of our strategic priorities. As a result, we reiterate our fiscal 2025 revenue guidance of above $190 million and our fiscal 2025 adjusted EBITDA guidance of above $50 million. Now I'll turn the call back to Bret for his closing comments. Bret Christensen: Thanks, Bob. While the full impact of our initiatives will take time to realize, I remain confident in the strategic path we've set. Our teams are fully aligned on our vision and we are executing with discipline, strategic clarity and a shared commitment to delivering a higher level of financial performance that builds long-term shareholder value. Operator, let's now open the call for questions. Operator: [Operator Instructions] our first question comes from Kaumil Gajrawala with Jefferies. Kaumil Gajrawala: I guess a couple of questions. First on this, I guess, the speed of hiring the sales folks. We hear some of these sort of oscillations between really difficult time to hire, maybe it's getting a little bit better. Is it going about according to pace? And is it also going at about the cost you had expected? Or is it a tighter market and maybe there's -- it's taking longer, it might cost more than you thought? Bret Christensen: Yes. Kaumil, this is Bret. Thanks for the question. Let me start by just saying, as you remember, in May, when we did our restructure, we did a couple of things. We we changed a lot of incentives, a lot of comps, a lot of definitions of the roles. We also did a restructure that essentially increased the size of our sales force by about 25% as we made everybody a salesperson and everybody responsible for growing revenue. That created quite a number of openings starting in May. Since May, we've had some turnover due to the culture change, and we've been actively hiring a new and improved profile of rep that we think could be even more effective here at Biote. And so I'm pleased with the progress. For a few months, it was a little bit of ups, a little bit of downs, but we've made great progress recently and are about 85% of where we want to be by the end of the year and we're committed to getting there by the end of the year. It just means full territories so that we can give the attention to our customers that they deserve that we can protect our business and that we can have every territory growing at the rate that we need it to. So making good progress as of late, and we'll make further progress in the coming quarter. Kaumil Gajrawala: Okay. Great. And can you maybe just lay out like in sort of practical terms, how the transition is impacting the number of procedures? Just maybe just talking about how you're adding folks but the procedures are coming off. Is it just year-over-year or something else going on in practical terms that leads to that? Bret Christensen: Sure. We -- if you remember, we highlighted this at the very beginning of the year. So the real headwind to volume started at the end of last year with the launch of our CDSS system and really moving the attention and the focus of our sales force into making sure that the training and the onboarding of that new system went as smooth as it could go at the end of last year. Then, of course, we've had some change and some restructure this year, which has created these openings. In all, it's meant pressures to volumes. And so slightly higher attrition, which we highlighted a few quarters ago relative to the past and, of course, slower new starts. And those two things combined, slower new starts of customers and slightly higher attrition have created lower volumes year-over-year. And so everything we're doing now is focused on remedying both of those initiatives, getting more new customers to start and then protecting and growing our business, which were the 2 of the 3 initiatives that I mentioned just a second ago. Robert Peterson: And then Bret, just one other thing to add to that. Just one other thing to add would be, as we look at the new hires, you highlighted just a second ago that they were a little bit lower and we've started to ramp up. But to kind of bring both of your questions together, Kaumil, I mean, as you look at where we were in July, we're in that kind of mid-60s zone. We have ramped up at the tail end of Q3 up to around 80 people on board. And so the second half of Q3, we have really started to see that increase. So as we start getting into the end of Q3 and even into Q4, we expect to see that impact of having a more full staff on board. So as we progress, I think that's just another practical aspect of this. It's tough to sell without the people. And back to Bret's earlier comment, we're progressing well on that. Kaumil Gajrawala: Got it. And maybe sneaking just one more in is the new structure with the Donovitz is how does -- it's less money? What was the motivation maybe from their side to take less money but to take it now versus sort of multiyear payout? Just trying to understand the intentions on that. I think I understand intent is from your side than from the other one. Robert Peterson: No. Look, I mean, I can't speculate on the drivers for either Marci Donovitz or Gary. I can only imagine it was personal reasons. But what I can tell you is that we are confident that this makes sense for the company given the future cash flow savings that we're seeing now. So to know that we got the cash flow savings on both of these transactions and a couple of other benefits, that's a really good move for us. Operator: And the next question comes from Leszek Sulewski with Truist. Leszek Sulewski: So coming out of the marketing event, can you provide any feedback that you received from some of the practitioners in attendance? What is the area of focus or improvement? Or what are they essentially saying? And do you have a sense of trends following the event? And how has October and November been trending, if you can comment on that? And then the second part, does the focus still remain on the top-tier accounts? And eventually, when could you expect an inflection point in procedural growth? And is it more of a bolus or a step-up? Bret Christensen: Yes. Thanks, Les. Let me make sure I get all your questions, but I'll start with the marketing event that you asked about. Every about 18 months or so, we do something that's called Sun, Sea and Biote. And what we attempt to do is get our top-tier providers off-site together to learn. And it's not all about current Biote products. A lot of it is some of the innovation that's happening in the field. I mean, as I noted earlier, the speakers that we had this year were amazing. It was an amazing lineup. It was a big draw completely packed house. And while this was my first Sun, Sea and Biote what I heard consistently, not just from the attendees, but from employees that have been to many of these that this was the best one we've ever had. So it was a packed house, nearly 800. Providers that all gathered together in Cancun. It creates a real sense of family. There's a lot of collaboration, a lot of problem solving, a lot of discussion. You can imagine what it does to our volumes for the 3 days that we take a lot of our best customers out of the field. But we quickly see that pick up again. And we think what it does is just reinforce again why you're doing business with Biote, why you're one of our customers, the value that we offer in education and learning. And it's just a fantastic event. So I can't say enough about it. The providers raved about the speakers, the event, just the interaction. It was a great time. So we were sort of on a high coming off of that, the field members, the customers, and it was just a great way to end the month of September. So really, really positive event. As far as trends go post event, it's too early to tell. But what we do believe is it's a retention factor because if you go to that event, you recognize just how far ahead really Biote is a leader in this field and what we do. So we'd love to get all of our providers. I've heard over and over again, it would be great if we could get the almost 9,000 trained Biote providers to all go to that event. It's a very powerful event. So we'll watch the trends closely, but we're -- we love the event. We think it's going to bear fruit, which is a good time. Now your question about top-tier providers, which is a good lead-in from that event. That is our focus. It's the #2 priority that I mentioned, accelerating new practitioner growth being #1 and then maximizing value from top-tier providers. It's all linked to some of the questions we had earlier from Kaumil. We've got to make sure, one, we have reps in the field, we have good coverage so that we're meeting customers where they are, that we are attentive to their needs and that we're constantly driving value and protecting that business, frankly. So it's a really important initiative of ours. We've launched a number of internal initiatives that help us monitor closely the volumes from our top-tier providers so that we can reach out proactively and not reactively. And so we're doing a better job of that. We haven't seen yet the fruits from some of those efforts. But again, we've got to get attrition a little bit lower and we've got to maintain that business and get new customers coming on board. So that's just key to our growth. And then just your question on when will we see that, which I think was your third question right. Too early to tell. But we think we're doing everything in the right way and we know it's going to have results. It's just too early yet to forecast when we'll start to see things go in a different direction. For us, we want to see sequential multiple months in a row of growth and get comfortable that things are definitely headed in the right direction before we call it. We're going to be cautious there until we see that trend. Operator: And the next question comes from Jeff Van Sinderen with B. Riley Securities. Jeff Van Sinderen: I guess since we're just touching on the attrition rate, I'm just wondering, has that stabilized? Has it? Has the attrition rate declined from Q2 sequentially? Or has it accelerated? And then I guess when you're out in the field, you're talking to your providers, what do you think is driving that attrition rate at this point? Bret Christensen: Yes, Jeff, thanks for the question. I would say we didn't quote an attrition rate this call but it's been similar to the elevated rate. We said historically, it's been around 5%. I think Q2, we said it had elevated to around 8%. It was similar to that in Q3. And so not improvement but not material declines in attrition, but that is still higher than we'd like it to be. I think it's -- I think the issues are multiple. There is more competition in the field today. When we took our eye off the ball with the launch of CDSS, we certainly lost some accounts and started to lose some accounts. Again, that was the end of last year. But in this annuity model, those losses follow you for a year. And so that's probably the start of it. And then the other factor that we just got to make sure we remedy is just having a rep in every territory. And so -- and frankly, I think we've gotten better here, not just with our hiring, which we spoke about earlier to an earlier question but the hiring profile, the interview process, the training for sure. We've improved all of those processes to make sure that we get a better prepared and we think better individual in the field. Now it's about just making sure we fill all the territories. I'd say on top of that, we need these early warning systems, and we need to improve the value proposition. And that is multiple faceted. There's things we can do in the short term, rep coverage, service, education. But longer term, there's things that we're working on. We haven't talked about yet but that materially add, we think, to the value proposition and further separate us from any of the competitors out there. Essentially, those things are around doing business with Biote, making it easier to do business with us and then probably some portfolio enhancements and potentially further investments in sales and marketing. And so we'll probably talk about those things more in the future. For now, it's getting good hygiene in the field and making sure that we're serving our customers in the best way that we can. Jeff Van Sinderen: Okay. And then if we could just circle back to the Marci and Gary accelerated situation. Did they -- or maybe you could just remind us how much at this point you're saving versus the prior agreements in total, the dollar savings there? Robert Peterson: Okay. Yes. No problem. So on the Marci agreement, we owed installments of $10 million in June of '26 and $10 million in June of '27. We have agreed to pay $12.5 million or we did pay $12.5 million in October 6 for a cash flow savings of around $7.5 million. On the Dr. Donovitz deal, we had 2 installments, one in April of '26 for $19.1 million and one in April of '27 for $10.5 million. So rather than paying $29.6 million, we will pay Dr. Donovitz $18.5 million on or before January 2, 2026. So the overall cash flow savings there is around $11.1 million. Jeff Van Sinderen: Okay. Great. So that's -- yes, it's a pretty good chunk of savings. Robert Peterson: Absolutely. Jeff Van Sinderen: I guess one of the other things, if I could squeeze one more in. I guess when you talk to your providers, you were just at Cancun. What do you hear from them as far as why maybe the procedures are down with some of them? Or are they high-tier providers, so they're not -- their procedures are not declining. Maybe just touch on that, what you're seeing between the high-tier and low-tier -- lower-tier providers? And then just anything you learned from those providers at the Cancun event relevant to your business? Bret Christensen: Yes, Jeff. And just consider that it might be a bit of a biased data set, right, because we get some of our biggest and most committed customers to make that trip. But we -- I heard a ton of positives about what we're doing, a lot of good feedback on CDSS, albeit some fair criticism on how we launched that software. A lot of excitement into the product offerings that we have today. They, of course, had a lot of questions about where we're going with Biote and we've got to be cautious with what we can share there. But I didn't hear any massive changes into their volumes. There are some small tweaks that we made to CDSS that could either shorten or lengthen the cycle in which a patient gets pelleted. That's hard to quantify meaning, if you're coming back every 4 to 6 months and now we're doing trough labs, if those trough labs suggest, hey, you might want to wait on this patient 30 days or so, that could push a patient back 30 days. But honestly, that type of stuff is short term, and we will lap that if there is any headwind to something like that. And again, it's just really hard to quantify. I think our customers want more of these types of things from us. They reiterated how good we are with education. We have things called advanced training that they love more of and like to participate more in. And again, that's a happy customer base. I mean the 800 or so providers that showed up for Sun, Sea & Biote are very happy and just excited to be part of the family. So I think we learn more from customers that we either recently lost or that might be at risk. And we do. Again, I think that happens when we're quiet in the field. We don't have a rep. We've got to make sure we have a rep that's attentive to those needs. And we've got to -- we just realize what the competition is doing so we can be responsive and proactive. Operator: And the next question comes from Jonna Kim with TD Cowen. Jungwon Kim: Curious on the ramp cycle of your sales force when they're hired, is there typically a couple of months that you have to wait until they're more productive? And any color on the supplements business, whether that's tracking in line to your expectations? And what are some of the growth drivers that you look forward to next year? Robert Peterson: Yes. So I'll start with the last one first and then go back to the ramp period, and Bret can supplement also. We continue to see strong performance in our Amazon channel in the Nutra's business. But just you know that we are going to start seeing in the coming quarters, we're going to begin to lap some of the gains that we've had in the past. I would just say you would -- you saw a slight reduction in growth. And that was really, as I said in the prepared remarks, related to a product that we launched at the end of Q3. But we can't forget that as far as Nutra's go, that 70% of our Nutra business come from clinic sales. And these have largely followed that of the procedure business. So we continue to identify opportunities for growth. But on the Nutra front, it was right in line with where we would have expected, and that's reflected in our guide of mid-teens growth. On the second front, I would just say that as we look at hiring, there is a ramp-up period anywhere from that the typical 3- to 6-month ramp on new hires. That's one of the reasons why we're trying to get as many people on board to hit that target by the end of the year so that we can really get those individuals trained through our new training operation and then get them ready to go by the time we hit our national sales meeting in early Q1. So there is that ramp period, but I think that's kind of baked into our expectation. I don't know, Bret, if you had anything more to say there. Bret Christensen: No, just we're conscious of that ramp because we need people in the field and to be productive right away. We're tailoring our training classes, which is a 2-week course. We're having those as often as possible to make sure that we don't just hire people and make them wait around to be trained. So they're getting trained quickly. They go into the field with a field trainer. And we think that they get out pretty prepared to start growing their business. They still have relationships they need to make and a value proposition to pitch. Anecdotally, Jonna, we had a POA meeting, a plan of action meeting recently where we highlighted some best behaviors from reps as we sort of called reps up to do role plays and things. I want to say of the 5 reps that we called up, 4 were hired within the last 3 months to demonstrate and talk about a new account that they had won. So we are getting people off to a quicker start, I believe, than we have historically because of better training and better hiring. But there's -- to Bob's point, there's definitely a ramp that we've got to account for. Robert Peterson: And better targeting, Bret, I think that's the other side. We highlighted on who we want to bring in, and we're starting to see some of that. I think that's a testament to what you just said. Operator: And the next question comes from George Kelly with ROTH Capital. George Kelly: First, back to the marketing event. Can you quantify what the spend was in the quarter? Robert Peterson: Yes, it was around $1.3 million, which was a little bit less than what we had expected because of sponsorship. George Kelly: Okay. Great. And then second question on Asteria. I think you said in the quarter that it supplied over 50% of your procedure fulfillments. Do you expect that to ramp? What's -- how should that sort of progress in the coming quarters? Robert Peterson: Yes, George, good question. And just think about where we were at the time of the last call, we were in that 42% range. We -- by the end of September, we were just above 50%. We've said routinely that our goal is to progress this forward in a slow and tempered fashion as not to impact our providers. I would say that as we think about going forward, our next wave of conversion will probably be in the next month, 1.5 months. So it probably won't have a material impact on Q4. But as you know, ordering patterns oscillate throughout the period, so it's tough to really nail down that exact figure. But we are still in the process of converting clinics, and we expect to see some ramp through the rest of the year. George Kelly: Okay. Okay. And then on the Donovitz transactions, can you remind me, it's you're buying -- it's 2.8 million shares from Marci and 6.1 million from Gary. Is that correct? That's correct. Robert Peterson: That is correct. Both the shares. George Kelly: And then are they getting any other -- or any of the other terms of those agreements changed? Robert Peterson: Very good comment and I was going to -- let's just touch on it really quick. So the Marci Donovitz transaction was pure cash flow elimination and restructure of the original settlement. We did add a couple of key parts to the Dr. Donovitz transaction. So in addition to settling the cash flow, the liability, Dr. Donovitz extended his non-compete and non-solicitation agreement for an additional year, which puts us all the way through April of 2027. And he agreed to dismiss all pending litigation between Biote and himself. So that was a pretty big win for the company also. George Kelly: Okay. That's great. And then just one last question for me. With respect to your guide and the procedure revenue growth you just posted negative 10.4% in the quarter. I know that you don't want to get too far in front and maybe you just don't want to say anything, but can you help us at all with any -- like the kind of monthly trend there? Or just trying to gauge your full year guide implies that maybe that growth rate steps down again in 4Q. And so I don't know if there's kind of any help you can give just around your expectations in the near term for that growth rate. Robert Peterson: Yes. Good question, George. And I think the way that I would characterize it is quarter-over-quarter, sequential quarter-over-quarter, one thing to keep in mind, when we think about how this operation works, it's very workday focused, very retail focused. So in Q3 compared to Q4 of this year, we will have 3 less business days in Q4 than we did in Q3. So just be thinking about it from that perspective. The only other thing that I would highlight is we also are dealing with some uncertainty around the holiday period. We've seen some ups and downs around the holiday period. And as you can imagine, I know you were only focusing on procedure growth. But I would also just say those 3 less days also impact that 70% of our B2B sales. And just remember, from a B2B perspective, that week between Christmas and New Year is typically a bit of a slower period also. So on both, you've seen the guide. I think when we think about procedures in the high single digits from a reduction perspective and then mid-teens growth, I think, puts you in the right place from a revenue perspective. Hopefully, that adds a little bit of color. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Bret Christensen for any closing remarks. Bret Christensen: Thank you, everyone, for joining us today. We appreciate your interest in Biote and look forward to speaking with you on our next conference call. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Thank you for standing by, and welcome to the Dutch Bros Third Quarter 2025 Earnings Conference Call and Webcast. This conference call and webcast is being recorded today. November 5, 2025, at 5 p.m. Eastern Time and will be available for replay shortly after it has concluded. [Operator Instructions] I would now like to turn the call over to Neil Patel, Dutch Bros Senior Manager, Investor Relations. Please go ahead. Neil Patel: Good afternoon, and welcome. I'm joined by Christine Barone, CEO and President; and Josh Guenser, CFO. We issued our earnings press release for the quarter ended September 30, 2025, after the market closed today. The earnings press release, along with a supplemental information deck have been posted to our Investor Relations website at investors.dutchbros.com. Please be aware that all statements in our prepared remarks and in response to your questions, other than those of historical fact are forward-looking statements and are subject to risks, uncertainties and assumptions that may cause actual results to differ materially. They are qualified by the cautionary statements in our earnings press release and the risk factors in our latest SEC filings, including our most recent annual report on Form 10-K and quarterly report on Form 10-Q. We assume no obligation to update any forward-looking statements. We will also reference non-GAAP financial measures on today's call. As a reminder, non-GAAP measures are neither substitutes for nor superior to measures that are prepared under GAAP. Please review the reconciliation of non-GAAP measures to comparable GAAP results in our earnings press release. Before I pass it off, I'd like to take a moment to acknowledge Paddy Warren, our former Senior Director of Investor Relations and Capital Markets, who has made a significant impact on Dutch Bros since the IPO. We are grateful for his contributions and look forward to continuing the dialogue with many of you at upcoming investor-focused events. With that, I would now like to turn the call over to Christine. Christine Barone: Thank you, Neil, and good afternoon, everyone. Dutch Bros continues to exceed expectations, driven by the passion our Broistas bring to our shops every day and a focused set of transaction-driving initiatives that provide multiyear growth visibility. Our differentiated culture, our long-term shop growth model and our superior 4-wall economics reinforce that Dutch Bros is in a category of its own. Our third quarter results reaffirm the strength of our differentiated strategy, one that continues to fuel our momentum and unlock meaningful long-term value creation. The road ahead is both exciting and full of opportunity, and we are just getting started. In Q3, we delivered revenue growth of 25%, system same-shop sales growth of 5.7% and company-operated same-shop sales growth of 7.4%, reflecting the strength of our strategic focus and continued customer demand. Our transaction-driving initiatives continue to demonstrate outstanding results, with growth across all dayparts. System transaction growth was 4.7% and company-operated transaction growth was 6.8% in the quarter. Q3 marked our fifth consecutive quarter of transaction growth, making us a clear outlier in the current environment and putting Dutch Bros in a category of its own. This performance underscores our ability to drive durable growth through a focused set of idiosyncratic transaction drivers. New shop productivity remains elevated with system-wide AUVs at record highs. We continue to see consistently long lines and strong customer demand as we expand into the Midwest and Southeast. These results underscore the broad appeal and portability of our brand across diverse geographies. Our long-term system shop opening cadence remains firmly on track and we remain highly confident in our goal of 2,029 shops in 2029. We've successfully expanded into six continuous new states this year, including five in the third quarter, bringing our total presence to 24 states. I'm very excited to share that our shop opening cadence is expected to accelerate heading into next year, with approximately 175 new system shops projected to open in 2026. We continue to step forward in our growth journey, reflecting the strength of our pipeline, our confidence in our 4-wall model, our continued performance of shops in new markets and an annual growth rate consistent with our mid-teens new shop target. We've also made continued investments in people, tools and processes and market planning over the last 24 months. These investments enhance our ability to execute with discipline and transition us to a place of accelerating our pipeline. Our pipeline, which has now reached record levels, has approved shops at a pace of 30-plus potential sites per month over the last 6 months as the investments in our real estate team and strong AUVs continue to reinforce our confidence in reaching our goal of 2,029 shops in 2029. Momentum is continuing to build, and I've never been more confident in our ability to execute on our ambitious growth plans. Our Q3 results set a strong tone for the year and the strength has continued through October. We are raising our full year guidance for total revenues and same-shop sales growth, reflecting the confidence in the long-term durability of our model and the effectiveness of our transaction-driving initiatives. Josh will share more details shortly. Let's begin today's business update by talking about what differentiates our brand. Our culture and our baristas are the heartbeat of our brand. It's something that simply cannot be replicated. It is not just what we do, but how we do it that sets us apart. From the moment the customer pulls into our drive-thru, they experience energy, authenticity and a genuine sense of belonging. We are in the business of making people feel seen, heard and appreciated. Our baristas create a high-energy welcoming environment that turns a stop at a drive-thru into a memorable moment. Our service model is built around authentic interactions and fostering real relationships. This deep emotional connection keeps our customers coming back day after day. We have a simple but very powerful mission. It is to be a fun loving, mind-blowing company that makes a massive difference one cup at a time. During every interaction, our baristas have an opportunity to brighten someone's day by living our core values of radiate kindness, get up early, stay up late and change the world. Our drive-thru model is purpose-built to deliver an exceptional experience that balances the interplay of speed, quality and service. This one-of-a-kind approach allows us to serve high quality, handcrafted, customized beverages with remarkable efficiency and consistency without compromising on our customer experience. Since 1992, we've been hand pulling espresso shots, crafting beverages and serving love with precision and care. Our ability to offer extensive customization is unmatched, empowering customers to create drinks that are uniquely theirs, turning every drive-thru interaction into a moment of powerful emotional connection. This level of customization, paired with our high energy service model continues to resonate with our customers. It is about the connection, the excitement and the consistency of our experience that keeps the Dutch Bros customer emotional connection so powerful. And our customization-forward approach is improving with our focus on throughput. The sequential transaction growth we saw in Q3 showed clear progress on this initiative as we begin translating our efforts into results. Our training programs for shop leadership are driving smarter labor deployment decisions across production zones and dayparts, improving quality and elevating the customer experience through consistency. We are beginning to see a shift in peak demand patterns, driven by our transaction-driving initiatives. With improved labor deployment, we are now better positioned to meet this evolving demand. Enhanced shop dashboards are empowering shop leaders to make better deployment decisions during peak and off-peak hours. And as a result, we're gaining better traction across order taking, order making and order handoffs, all while delivering industry-leading customer service. Let me take a moment to highlight how we ensure a consistent customer experience. Before Broistas ever make any beverage, they're immersed in our purpose. They learn what makes Dutch Bros so unique. It's the connection, service and energy. Only then do they begin our training, mastering not only the beverage-making process, but learning every role in the shop. We've built a shop environment that is electric, fun and unmistakably Dutch. It's this energetic environment that fuels a positive Broista experience which in turn drives a consistent differentiated experience for every customer. Our company-operated model provides a clear path for growth, whether it's through the operator pathway or becoming a leader for our MOB training teams. Today, we have over 475 operators in the pipeline, with an average tenure of approximately 7.5 years. It's this clear pathway that allows us to build depth and experience and to scale our culture effectively, and it's working. In the 2025 InTouch Insight's QSR drive-thru report, we ranked #1 in order accuracy, satisfaction and beverage quality across beverage players. Dutch Bros also earned the top spot in Forbes 2026 Best Customer Service list in the beverage category within restaurants. That is the power of investing in our people, and the Dutch Bros' difference. We're thoughtfully expanding our beverage-first concept through our food program, which has evolved from a pilot into a broader rollout as we close out 2025 and head into 2026. Our food program rollout is designed to strengthen our beverage offering by driving breakfast and morning daypart occasions, a time of the day where we have tremendous opportunity. As we expand the food program throughout 2026, we're aiming to be a one-stop shop during the morning daypart. We continue to see both ticket and transaction lift from our food program, which expanded to approximately 160 shops by the end of Q3. We are regularly measuring customer feedback KPIs such as quality, likelihood to recommend and value and we are very pleased with the results, which have remained consistent or improved with each successive phase of the rollout. Looking forward, our 2026 rollout cadence will follow a strategic and methodical approach, with plans to complete the rollout by the end of the year. Due to shop layout constraints, we expect that approximately 25% of our 2025 year-end shop count may not be able to accommodate hot food. However, that percentage will decline over time as our new shops are being built to accommodate hot food. Our strategic push into breakfast in the morning daypart through our focused food rollout only strengthens the Dutch Bros model, making it even more compelling. We have built a strong and differentiated digital presence, powered by our initiatives that are continuing to translate to transaction strength. Our enhanced paid advertising strategy to build brand awareness continues to deliver impressive results across our shop base, especially in our newer markets and vintages. These efforts are fueling our transaction momentum, and we expect this trend to continue as we pursue our TAM in parallel with strategic paid media investments. We believe there is a sizable room for aided and unaided awareness to grow long term, and we are at the early innings of our momentum. Order Ahead is continuing to gain traction and our investments are making accessing Dutch Bros seamless across multiple touch points. We're adding meaningful sophistication to our analytics engine, setting Dutch Bros apart even at this early stage. At the end of Q3, our Order Ahead mix reached 13% with some new markets mixing at nearly double the system average. This growth highlights the natural strength of our program and the enthusiasm our customers have for Dutch Bros. To build on this momentum, we recently enhanced the user experience by introducing a more precise order pickup time feature, which has already led to improvements in order readiness and an increase in scheduled orders. The increasing Order Ahead mix has also created a powerful on-ramp for our Dutch Rewards program. This program continues to remain a key engine for driving transaction growth over the long term. In Q3, approximately 72% of system transactions were attributed to Dutch Rewards, marking a 5-point improvement year-over-year. With Order Ahead feeding into this ecosystem, we're now focused on unlocking the full potential of segmentation, deepening engagement and driving transaction growth by confidently reaching the right customer at the right time. Notably, in Q3, Dutch Rewards contributed to transaction growth with us running almost exclusively segmented offers, further underscoring the organic strength behind our loyalty platform and the ability to manage discounts strategically year-over-year. Even more encouraging is the momentum we're seeing from younger cohorts within Dutch Rewards, highlighting the strength and long-term potential of our loyalty program. In addition to a strong digital presence, we have a differentiated innovation platform. Since 1992, our commitment to beverage innovation has been a cornerstone of our success. We have seen success in leading the industry in beverage trends and delivering exceptional experiences across our coffee, energy and refreshment offerings. In July, we introduced three exciting new beverages, Blue Lagoon with Strawberry Fruit, Mudslide Mocha and Strawberry Colada, demonstrating the breadth and strength of our innovation across the entire menu. We kept the buzz going throughout the quarter with engaging brand activations, including the launch of the FUNBOY drink floatie, National Dog Day Bandanna and Car Coasters, all designed to deepen customer connection and drive brand love. In August, we brought back fall LTO offerings like the Caramel Pumpkin Brûlée and Cookie Butter Latte, alongside the Candied Cherry Rebel, reinforcing our commitment to category-wide innovation and customer relevance. This LTO lineup was our most successful fall LTO launch to date. At Dutch Bros, innovation goes far beyond beverages. Our value proposition is about the experience, the connection and the energy our customers feel every time they visit. We pioneered the drive-thru innovation platform, and these limited time offerings provide that unforgettable moment. In addition to our differentiated innovation engine and robust digital presence, we've reached an incredible and advantageous scale. Just 4 years ago, we celebrated our 500th shop opening in Texas during the year of our IPO. This year, we surpassed 1,000 shops and we're well on our way to doubling that as part of our multiyear journey to reach 2,029 shops in 2029. Beyond shop growth, we've successfully scaled system-wide AUVs, which are at record levels and significantly improved adjusted EBITDA, clear indicators of the durability of the Dutch Bros brand. We've also assembled a management team with experience at scale, positioning us to execute on our rapid growth ambitions with confidence. Our team brings depth, enabling us to successfully make agile strategic decisions that support our long-term vision. We are investing in advanced analytics, tools and processes to maintain differentiated momentum as we scale, laying the foundation for disciplined, self-funded growth. In closing, the momentum in our business remains strong, and we are just getting started. We're in the early innings of a multiyear journey, and our focused strategy is clear and working. We are built around culture. It's the engine of our differentiated customer experience. Our Broistas bring this culture, energy and connection to life every single day, delivering magic at the window that continues to connect deeply with our customers. We are focused on delighting our customers and growing sales and it's paying off. Our multiyear transaction-driving initiatives continue to resonate, marking our fifth consecutive quarter of transaction growth. We have a differentiated innovation engine and strong digital presence that isn't easily replicated. From high-velocity LTOs to the virality of our product in merch drops, we're delivering a best-in-class experience that is setting us apart and positioning us to naturally take share. We are on track to have 2,029 shops in 2029. Our AUVs are at record levels, highlighting the portability of our brand. Our long-term 4-pronged strategy is simple and powerful; grow our people, grow our shop base, grow our transactions and grow our margins. We are playing the long game, and we're executing. We are on the offensive and our efforts are positioning us to win. With that, I will turn it to Josh, who will discuss our financial results. Joshua Guenser: Thanks, Christine. I'll provide a recap of our third quarter results, along with an updated outlook for 2025. Our third quarter performance built on the strong momentum from Q2 and reinforced that a differentiated model is resonating with customers. With our digital presence and our other transaction-driving initiatives still in the early stages, we remain confident in the long-term growth potential of our business. Third quarter revenue was $424 million, an increase of 25% or $85 million over the third quarter of last year. System same-shop sales growth was 5.7%, driven by an exceptional 4.7% transaction growth. We saw strength across our transaction-driving initiatives throughout the quarter. particularly Order Ahead and Dutch Rewards, which contributed to the Q3 momentum. With Q4 off to a great start, we are raising our full year system same-shop sales growth guidance to approximately 5%. This implies approximately 3% to 4% system same-shop sales growth in the fourth quarter, which includes the continued momentum we have seen in October, the early positive impact we are seeing from shops that have the new hot food program, a full quarter lap of Order Ahead and the impact of cycling a strong Q4 from last year. We remain excited about the opportunity with food. Early shop results suggest that we could expect an approximate 4% comp lift in shops that have food, with about 1/4 of that coming from transaction growth. We plan to continue rolling this out to shops that can support hot food throughout 2026. So we would expect that lift to be phased in throughout the year. During the quarter, we opened 38 new shops, bringing our total system shop count to 1,081 shops. In Q3, a substantial portion of our openings occurred later in the quarter, and we anticipate a similar situation in Q4. Any new openings below 160 in 2025 are expected to be incremental to our 2026 target of approximately 175 system shops. As Christine mentioned, our development pipeline is at record levels. And the pace at which we are adding to our pipeline provides strong visibility on our path towards 2,029 shops in 2029. In the quarter, adjusted EBITDA was $78 million, an increase of 22% or $14 million over the third quarter of last year. Switching to our company-operated shops. Revenue in Q3 was $393 million, an increase of 27% or $85 million over the third quarter of last year. Company-operated same-shop sales growth was an outstanding 7.4% with 6.8% coming from transaction growth. Company-operated shop contribution was $109 million, an increase of 20% or $18 million year-over-year. Company-operated shop contribution margin was 27.8%. Beverage, food and packaging costs were 25.9% of company-operated shop revenue, which is 60 basis points unfavorable year-over-year, driven primarily by higher coffee costs. We continue to expect the impact of coffee costs to accelerate into Q4 and as of now anticipate that coffee costs may remain elevated into 2026. We would also expect elevated costs associated with our broader hot food rollout to begin in Q4 of 2025. Labor costs were 27.5% of company-operated shop revenue, which is 10 basis points favorable year-over-year, primarily driven by sales leverage and partially offset by the impact of labor investments made earlier in the year to support our long-term growth. Looking into Q4, we are anticipating the quarter to be impacted by approximately 50 basis points from regulatory changes, resulting in higher employer payroll taxes in the state of California. Occupancy and other costs were 17% of company-operated shop revenue, which is 60 basis points unfavorable year-over-year, driven largely from the impact of occupancy rates from new shops as we have made great progress in shifting our portfolio to more capital-efficient, build-to-suit lease arrangements. We expect this impact to continue in Q4 and into 2026 as we maintain this momentum. Preopening expenses were 1.8% of company-operated shop revenue, which is 60 basis points unfavorable year-over-year, driven by the proportion of shops in newer markets and the associated cost of sending our training teams to support these openings. Given our planned openings for Q4, we would expect preopening expenses on a per shop basis to remain relatively consistent with what we experienced in Q3. Moving down the P&L. Adjusted SG&A was $58 million or 13.6% of total revenue. We continue to be thoughtful about investments we make in SG&A while driving consistent leverage as we grow the top line. Given the continued momentum here, we now expect approximately 110 basis points of leverage on adjusted SG&A for 2025. For the quarter, we delivered $0.19 of adjusted EPS, up from $0.16 or 19% from Q3 of last year. Let me now provide an update on our balance sheet, cash flow and liquidity. As of September 30, we have approximately $706 million in total liquidity. This liquidity includes $267 million in cash and cash equivalents and approximately $440 million in our undrawn revolver. During the quarter, our net cash position sequentially increased by approximately $14 million from Q2, driven by strong cash flow from operations. In Q3, our average CapEx per shop was $1.4 million, clearly demonstrating our ability to transition our portfolio to more capital-efficient, build-to-suit lease arrangements. This gives us strong visibility and confidence into positive cash flow generation, reinforcing the scale and strength of our long-term financial model. Now let me provide an update on our 2025 guidance. In light of our strong performance throughout the third quarter and into October, we are raising our full year guidance for total revenues and system same-shop sales growth. Total revenues are now projected to be between $1.61 billion and $1.615 billion. System same-shop sales growth is now expected to be approximately 5%. Adjusted EBITDA remains in the range of $285 million to $290 million. Total system shop openings in 2025 are targeted to be 160. Any new shop openings below 160 in 2025 are expected to be incremental to our 2026 target of approximately 175 shops, reflecting confidence in our shop growth trajectory. Capital expenditures remain in the range of $240 million to $260 million. We are energized by the strength of our business. Our people, our resilient financial model and our differentiated transaction-driving initiatives place us in a category of our own. Our high-growth, multiyear trajectory is exceptionally well positioned to deliver consistent, dependable results supported by record high AUVs and a superior 4-wall model. Thank you, everyone. We will now take your questions. Operator, please open the lines. Operator: [Operator Instructions] Your first question comes from Christine Cho with Goldman Sachs. Hyun Jin Cho: So I'd like to kind of understand a little bit better in terms of -- when comparing kind of innovation, paid advertising, Order Ahead, industry awards, all of these things that were catalyst to your traffic year-to-date which are some of the levers do you think have the highest remaining runway? And what 2026 product and platform innovations are most likely to continue as a Bros' multiyear growth algo? Christine Barone: Yes, Christine, thanks so much for your question. When I look across all of the different levers we have, I actually think we're in early innings in many of them. I look at innovation and how our teams are really looking at each promo period and understanding what worked exceptionally well, where the market is going and what they can tweak to add to that. We just had our strongest fall LTO launch and brought back a number of the drinks for last year and just executed them really well. With paid advertising, I think we're continuing to do a lot of learning in which channels work best for us, where we spend versus the maturity of the market. And so again, early innings there as we continue to learn analytically just where to place those -- place our dollars in that paid advertising. And just as a reminder, we're really using paid advertising to grow brand awareness. It's that on-ramp for the brand that we then get customers into Dutch Rewards, where 72% of our transactions are Dutch Rewards transaction. So we really have this very efficient channel to speak with them. On Dutch Rewards, we've really made the transition this year in moving from all broad-based offers to more segmented offers. We have a lot of runway still ahead to further segment that customer base, learning what drives different customers to increase their frequency. So a lot of runway still there as well. Then looking at mobile order, again, we continue to see that nice steady march up in mobile order. And we are really learning like operationally as we hit some very high penetration levels, especially in newer markets. how to split our KDSes between different stations to deliver on those. And then we're at the very beginning of food, but incredibly encouraged by what we're seeing early on. The love from both our Broistas and our customers for that program. So when I look across the board, I actually think we still have a lot to go in each of our areas to drive transactions. Hyun Jin Cho: We've heard some of the peers highlight consumers under 35 as kind of particularly challenged cohort in the recent months, driven by unemployment and student loan repayment, et cetera. So given kind of your exposure to this age cohort, could you kind of talk to any changes in consumer spending behavior that you're seeing amongst the younger consumers, although your numbers really seems to suggest that, that's not the case for you? Christine Barone: Yes. So as you can see, we had an incredibly strong quarter with 5.7% system same-shop sales growth. When we look across our younger cohorts, again, with 75% of those transactions coming from Dutch Rewards, we can segment that by age cohort. And we're seeing really incredible performance out of those younger cohorts. I think that during times like this, customers are choosing the brands that they love the most and really deciding to spend their dollars there. And what we're seeing out of gen Z and that continued growth and that huge in that cohort is really encouraging. Operator: [Operator Instructions] Next question comes from Dennis Geiger with UBS. Dennis Geiger: Congrats on the strong results, guys. Very helpful data points on the food offering. I was wondering if you could speak a little bit more to what you're seeing from a customer feedback standpoint. Employees, how that's working. I'm curious, anything else on sort of attachment for mentality. I mean you gave us the important numbers, I know. And just related to that, that 25% that won't get food, can you give us a breakdown of company versus license there and what that looks like? And I guess last, just on the food. If you could touch at all more on the food costs in the fourth quarter, the hot food costs that you spoke to. Christine Barone: Thanks so much, Dennis. I'll start with customer and Broista feedback. So that's something that we're carefully managing. We actually have trackers in place to manage that every single week. One of the things I'm really encouraged by is, as we are rolling this out in successive markets, we're actually seeing improvements in both Broista feedback and in customer feedback as we continue to roll this out. So I think we have just an incredible launch and start of the hot food program. I am incredibly impressed with how our Broistas are embracing the program and rolling this out to our customers. I'll give it to Josh for some of the margin questions. Joshua Guenser: Yes.Well, and the question on the kind of the breakout between company franchise, really, that limitation is related to space constraints and the size of the shop. So we haven't given the specific breakdown of what that looks like. But you can imagine in the older shops that where there are more franchise shops, that's where there would be challenges in being able to launch hot food. On the margin specific, we're in 160 shops at the end of Q3. So you can imagine just on a relative percentage basis, it is a smaller impact, but as you might expect, COGS for food is relatively higher than beverage. So I would assume a slight amount of pressure coming into Q4 and then as we roll this out that adding to it in 2026 as well. Operator: Next question, Andy Barish with Jefferies. Andrew Barish: Could you give us a little more color just sort of on the ticket dynamic or check dynamics? Obviously, you're seeing a negative mix with pricing, I think, around 2% or so. What's going on there? And then as you look out to '26, I'm assuming food could be a part of getting that going back in the right direction. Joshua Guenser: Yes, Andy, thanks for the question. As you pointed out, yes, we're sitting on about 2 points of price, that's being offset by about 1 point of mix. That has been fairly persistent, consistent throughout the year. So we've seen a bit of offset coming from mix, largely driven by lower items per transaction, certainly contributing to that as we've launched Order Ahead, that is targeting more of an individual type occasion. So that would be an element of it as well. Certainly, not providing guidance on 2026 comp yet, but what I would share is we're sitting on about 2 points of price. We roll off about half of that in January and the other half in July. Going to be very thoughtful about how we think about our overall value prop for the year, but feel really good about how we're positioning ourselves heading into next year. Christine Barone: And I would just add with that 4% comp lift that we're seeing in food, about 1/4 of that is coming from transaction growth, which we're really excited about. We thought we might be missing a beverage occasion there. So starting to see that and then 3/4 of that coming from ticket and attach. Operator: Next question, Andrew Charles with TD Cowen. Andrew Charles: Your successes in competition with the largest restaurant in the world, piloting a new line of energy and iced coffee and beverages in Colorado at the start of September. Can you help articulate what you observed in the last 2 months of sales in that market since that pilot launch? Christine Barone: Yes. Thanks so much for your question, Andrew. So as we actually look across all of our markets and have been paying particular attention to shops in that market, we have not seen any impact on our shops. We continue to have a great quarter and into a great October. And so really excited by what we're seeing overall, but did not see an impact from that test. Operator: Next question, Sara Senatore with Bank of America. Sara Senatore: Hopefully, I can get in a question. The half is just a clarification on, Christine, your comment about your consumers kind of choosing the brands that resonate with them. I guess do you have a sense of coffee, you're sort of really taking share in the coffee segment? Or if coffee broadly is doing better? I guess just trying to put that in the context of this perception that maybe coffee would be more cyclical or more easily kind of given up. But it sounds like actually, there's a lot of strength, and I wasn't sure if that was the segment or Bros particular or both. And the question was about seeing improved transactions during peak hours. Are there any metrics you can share about throughput? I don't know if it's a number of transactions or number of beverages? Just sort of where you are now and what you think a target might be as I think about how throughput might contribute to transaction growth. Christine Barone: Yes. So on your first question on the strength of the market, so we do believe it is a strong market overall. We also believe we're performing exceptionally well within that market and able to compete in a way that is likely driving some share gains. I think that we are just super well positioned when you take beverage overall. Both coffee and energy are growing. Energy is -- seems to be growing faster. And we are -- the category creator really of customized energy. So very well positioned in that high-growth space. We're also seeing higher iced, higher customization customers that want that quick interaction, but for it to be quite memorable. So we just believe we're incredibly well positioned across the market. And then from throughput metrics, we haven't shared those, but that is something that we track. So we are tracking transactions at peak. We're tracking things like window time, other things like that. And then we're also very closely looking at how our labor is deployed to really match those demand curves. And all of those things, our teams are just doing a great job to make sure that our customers are having an incredible experience. Operator: Next question, David Tarantino with Baird. David Tarantino: Congrats on great results here. Josh, I was wondering if you could comment on why the EBITDA guidance range didn't increase in the sales guidance range. I'm just wondering what some of the cost offsets were that you didn't contemplate previously? Joshua Guenser: Yes. Great question, David. So we've been really thrilled with the overall performance of the business and the strength of our 4-wall model that supported us to the ability to make some investments. In particular, if you look at our preopening costs, we are continuing just to see incredible openings as we go into these new markets. We continue to be met with really long lines. So we're sending our training teams out to -- in support of those openings, just to really set our teams up for success. So as we commented, we validated preopening costs in Q3, and we'd anticipate seeing on a per shop basis, preopening costs being consistent in Q4 with what we saw in Q3. Certainly, with a greater number of openings in Q4, that's higher absolute dollar basis as well. The other side of that is we've continued to see accelerated coffee costs coming into the P&L. That will accelerate into Q4. Certainly previously contemplated, but it is one that will continue to accelerate into Q4. And then the third piece that is impacting is the higher taxes that I referenced in the State of California, putting about 50 basis points of margin pressure in the labor line. And that's really kind of a full year amount that we're expecting to impact the individual quarter. Operator: Next question, Brian Harbour with Morgan Stanley. Brian Harbour: When you talk about the left from food, is that basically -- is that like the original cohort of stores that had it measured after 6 or 12 months. Could you just talk about how you arrived at that? And then is -- do you think that you can sort of augment that over time? Like obviously, once you have it more broadly rolled out, maybe awareness goes up, you could advertise it? Like how do you think about continuing to drive food over time? Christine Barone: Yes. So as we look at the lift from food and how we're measuring that, we are measuring a kind of pre-post versus control. We're looking at absolute transaction growth. We're looking at overall same-shop sales growth in those markets and have had the food program in some shops for a longer period of time now. So giving us confidence to share the numbers at that point. And then I think the way to think about food is it's really a program that we're just getting started with. We've had traditionally about 4 SKUs within our shops, the 3 Muffin tops and the granola bar. This initial food rollout is just moving us to 8 SKUs, so just adding 4 SKUs there. But what it is, if it's providing a capability where we now have ovens. We're putting in the inventory management required to have that food program. So I think of it as really serving as a base for what this could be over time and think that it has huge potential as we go forward. Operator: Next question, Sharon Zackfia with William Blair. Sharon Zackfia: I'm curious, as you've been expanding into the Southeast and now into the Midwest, by the way, welcome to Greater Chicago. Are you seeing kind of a similar customer demographic? And anything that surprises you in the way that customers are using Dutch or the dayparts or the product mix? Just wondering what you're learning as you're growing further nationally. Christine Barone: I think we're seeing some of the same things that we've seen in that we do have a higher coffee mix as we first go into newer markets. We are seeing that higher mobile order mix as well as we go into new markets. Those things have been pretty consistent. I do think if we really reach this more national scale as we pass that 1,000 shop mark, the brand kind of proceeds itself. And so when we show up in these markets, we're just met with incredible excitement initial demand. They already know that our sticker days are coming and are lining up for the sticker day. So I do think as we reach higher scale, we are seeing the benefits from that as we go into new markets. I think we've also done a lot of learning in what is the best way to go into a new market, make sure the team is set up for success and what are our phases of marketing as we go through those new markets. And as we've shared, we're incredibly excited by that new shop productivity that we continue to see. Operator: Next question, John Ivankoe with JPMorgan. John Ivankoe: I was hoping to drill in a little bit in terms of what's going on in some specific markets. And obviously, you're located next or at least near some specialty coffee outlets that have been closing stores. And yet in other markets, there's a number of specialty coffee outlets that have been significantly opening stores. So I wanted to see if there is any interesting dynamics we can talk about on a market level basis that maybe you're influencing in positive or negatively, your access to real estate people and customers? Anything that we can maybe talk about that's a little bit below the surface. Christine Barone: Yes. So I think as we continue to open shops like the one dynamic that you'll see is more of our new shops and those newer vintages, are in the company-operated side in the business. So I think as you probably saw, we had a 7.4% same-shop sales within company-owned driven by very strong traffic at almost 7% there, 6.8%. And as we continue to look for new shops and new markets, I think the strength of the brand, the longevity that we have, we have been out there as a landlord. We have incredibly attractive cap rates now as we continue to grow across the country. We're really not seeing any shortage in sites. And as I shared in my prepared remarks, we've actually added about 30 sites per month over the last 6 months into our pipeline. So seeing great availability of great sites. And I think it's also due to, as we're ingesting data more quickly into our models and seeing the performance that we're seeing now, we're really able to better pinpoint how we're going to do in a market. So we have both confidence in what that will look like when it opens, but also, we are finding great sites as we move across the country. Operator: Next question, Gregory Francfort with Guggenheim Partners. Gregory Francfort: I just wanted to follow up on that, Christine. I mean 30 sites a month, I mean, that's a ton of stores. Is that normal that -- that would only translate if you open 300 sites approved or 350 sites approved, that would only translate into 150 or 200 openings? Or is this an indication that '27 and '28, you're going to really ramp the store growth? And can you maybe just talk about the availability of real estate and what you're seeing out there from a competitive perspective? Just a follow-up to John. Christine Barone: Yes. So thanks, Greg. As we look ahead, we're really confident in that 2,029 shops in 2029. And part of that is building that really strong pipeline right now. So as we look ahead, a lot of the shops that we're adding now are really going to open 2 years from now. And so that gives us just great visibility into getting to that ramped up period where we'll be opening those shops. Not all of them will translate, but the majority of them certainly do translate into actual sites as we've looked at history. So we are ramping up that pipeline to prepare for that higher growth as we move ahead. Operator: Next question, Jeff Farmer with Gordon Haskett. Jeffrey Farmer: You did touch on it, but any color you can offer on the scale of your paid advertising efforts in the Q3, Q4, just the back half of this year relative to, let's say, a year ago? And then as we look forward, would you expect that scale to further build? Christine Barone: Yes. So as we look at paid advertising, we really look to continue to ramp that as we ramp our sales and for that to keep pace. We've been very happy with the results that we're seeing and really view that as paired along with our Dutch Rewards program. So 72% of our transactions are coming through Dutch Rewards at the shop level. And as we look at that, it's really important to use paid advertising to build the brand awareness and then to quickly get our customers into the Dutch Rewards program so that we can speak to them that way. Operator: Next question, Jeffrey Bernstein with Barclays. Jeffrey Bernstein: Great. Just a question on the mobile order and pay. I think you said it's now at a 13% mix, so creeping higher, but I don't believe that's with any material internal push on your part. And I think you mentioned some of those markets are actually double that, so maybe 1/4 of their sales or traffic from mobile order. So I'm just wondering -- there are clearly peers in the beverage segment well above that. I'm just wondering if you could talk about what you'd like to see with that in terms of the acceleration, maybe quantify any kind of benefits you see in terms of traffic or check or frequency? Anything incremental learnings as we think about the next couple of years and where that 13% goes? Christine Barone: Yes. So as we look at that 13% mix, we're very happy with where that is. I think we've shared in the past that this is something that's customer-driven and was the #1 thing that our customers were asking for from functionality from our app. And we want our customers to be able to order in the channel and in the way that they'd like to order. I think naturally, over time, given what we're seeing with new shops, if that percentage will increase as I think we're seeing very close to like market level volumes in mobile order in those new shops. And some -- I think customers actually really act in a way that makes a ton of sense. So in our smaller shops or our double -- original double drive-thrus, it just doesn't add as much speed to your day as it does in the new shops that we're rolling out. So I would expect to have some bifurcation in the newer and legacy markets over time, but incredibly encouraged by what we're seeing. It continues to grow. We also like the interplay that we're seeing between mobile order and food and how easy it is to attach items once you're mobile ordering. So a lot of good things there. Operator: Logan Reich with RBC Capital Markets. Logan Reich: Congrats on the solid results. My question is on the food rollout. More on the operational side. I'm trying to fit it into one question. But can you just give any additional color on what the changes in the operations are in the back of house for the stores that have proved? Like just curious if you need to add any additional labor to fulfill food or any differences you're noticing on throughput with the stores with food versus those without? And then just separately on your last comment related to mobile order pay. Like do you view food as a driver of mobile order pay or vice versa? I'm just trying to get an understanding of the interplay between those two aspects of your business. Christine Barone: Yes. So from an operations standpoint with food, we are adding new equipment into the shop. We're adding new training, obviously, as we roll that out. And then some of the operational metrics we're looking at is, one, as we built out the food platform and the offering that we have, the oven cycle time for the food items is below the average drink make time. And so that was very intentional. We never want to slow down our line as we add in food. And as we roll this out to new shops, we're continuing to see throughput gains in those AM dayparts in the shops that we've rolled out food. So we really are seeing that work seamlessly. And then from a labor perspective, we are investing in labor and food as those sales grow. So overall, I think that food has slightly higher COGS, but a lot of the other line items, really, as you scale, work quite well with food, and it can really leverage some of those other places. So as we are seeing those volume gains, we are investing against the volume gains themselves. And then for mobile order and how that's interplaying, I just think that the app is such an easy way to discover new offerings that we have. And so I think part of that is interplaying with it. I also think that there is a high mix between a customer in the morning, who wants mobile order, who might also want a food item. And so I think we're seeing some of that natural mix together as well. Operator: Nick Setyan with Mizuho. Nerses Setyan: Congrats on the qreat quarter. Just a clarification, a question. The clarification, the 50 bps labor headwind, that's just in Q4? Or is that something that's going to continue into 2026? And then the question is just an update on the CPG rollout in 2026. But how are we supposed to think about modeling it? Is it just pure licensing flow through? Any numbers around it or just bracket in terms of how we should think about the CPG overlap next year would be very helpful. Joshua Guenser: Nick, thanks for the question. Yes, the labor impact is a full year impact that we would anticipate in Q4 as a result of some regulatory changes. So that would come into effect in Q4. The ongoing run rate, obviously, would be something less than that. The amount is a full year amount in a quarter. Christine, would you talk through the CPG piece? Christine Barone: Yes. and then on the CPG rollout, so we are really in the midst of selling right now to retailers. We are also finalizing all the products and doing all the final testings as we get ready to launch this. We are really encouraged by the enthusiasm that we're seeing from retailers for the CPG lineup. That is something that we'll roll out throughout 2026. So as retailers do their resets throughout the year, you'll start to see the Dutch Bros product come in. We've also shared that we're really going to have the CPG offering follow our shops. And so it will be a regional rollout based on where we have shops so that customers can really experience Dutch Bros at the shop first and then go experience at home. Operator: Chris O'Cull with Stifel. Christopher O'Cull: Congrats on another great quarter. Christine, I appreciate the comments you made earlier about the people first culture and the Broista engagement as being the concept's primary competitive moat. But as you scale to, let's say, 2,000 or more shops, it would be harder to sustain this culture. And I'm just wondering, beyond promoting from within, what specific or measurable mechanisms do you have in place to ensure the quality and consistency of the Broista experience isn't diluted? For instance, how do you systematically identify and correct any kind of cultural drift as you expand? Christine Barone: Yes. Thanks so much for your question. So as we look ahead, I think we are in a really unique position with being able to open all of our new shops in all of our new markets with operators that have been with the brand for quite some time, on average 7.5 years. And I think at 1,000 shops, that's what's really served us incredibly well is having culture carriers who have been looking forward to that opportunity to go open a new market. We do have measurement mechanisms in place. We do surveys. We do things like that. I think that those are important metrics to have, but we also have great listening systems. And I think that's the most important piece is making sure that as we roll anything out, we are listening very deeply to how our teams are feeling about different things to make sure that we're enhancing the experience as we roll out food, for example, doing a food benefit for our Broista and so that they can taste and share in that great food as they come on to their shifts. And so I think we're being incredibly thoughtful about ensuring that our shops are staffed well, that we're listening to what's driving satisfaction at the Broista level and just continuing to enhance that experience the same way we're looking at our customer experience. Operator: I would like to turn the floor over to management for closing remarks. Christine Barone: Yes, thanks for your questions. In September, we proudly hosted our annual book for Kids Day with the Dutch Bros Foundation supporting over 245 local nonprofit organizations focused on programs serving youth in our communities. Giving back to the communities we serve is core to who we are. Our local operators and franchisees selected each of these nonprofit partners, ensuring the impact was felt directly in the neighborhoods we serve. Also in September [indiscernible] from all around the country to join us at our headquarters for a leadership development program. It was an incredible opportunity to share stories, learn from each other and continue building the strong foundation that fuels our growth. Investing in our people and giving back to our communities is core to who we are and our mission remains unchanged. Whether we are swinging drinks or serving up love, Dutch Bros has always been and will always be about the people. It's this deep connection with our communities that continues to fuel our purpose and drive our growth. Thank you to all our team members for bringing our mission to life. You are the reason our customers continue to show up every single day. I am incredibly grateful for all of you. Thank you. Operator: This concludes today's teleconference. You may disconnect your lines at this time, and thank you for your participation.
Operator: Good afternoon, ladies and gentlemen, and welcome to LiveRamp's Fiscal 2026 Second Quarter Earnings Conference Call. [Operator Instructions]. I would now like to turn the call over to your host, Drew Borst, Vice President of Investor Relations. Please go ahead, sir. Drew Borst: Thank you, operator. Good afternoon, everyone, and thank you for joining our fiscal 2026 second quarter earnings call. With me today are Scott Howe, our CEO; and Lauren Dillard, our CFO. Today's press release and this call may contain forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially. For a detailed description of these risks, please read the Risk Factors section of our public filings and the press release. A copy of our press release and financial schedules, including any reconciliation to non-GAAP financial measures, is available at investors.liveramp.com. Also, during the call today, we'll be referring to a slide deck that is also available on our Investor Relations website. With that, I'll turn the call over to Scott. Scott Howe: Thank you, Drew, and thanks to everyone joining us today. We delivered solid Q2 results with revenue and operating income surpassing our guidance. This quarter showcased strong execution of filling our near-term financial commitments whilst strategically investing in growth drivers like AI product enhancements and our new usage-based pricing model. Q2 revenue increased by 8% and led by a notable acceleration in Marketplace and other to 18% growth. Subscription revenue grew by 5%, as expected, based on bookings a year ago and what we foresee to be the low watermark. The good news, as we anticipated at the start of the year, a growth upturn appears to be on the horizon as evidenced by ARR, which is the best leading indicator of our subscription revenue. Net new ARR in Q2 was $14 million, the largest organic increase in the past 7 quarters and equating to year-on-year growth of 7%. We are seeing good momentum across a range of use cases including Commerce Media, CTV and Cross-Media measurement. Million-dollar plus subscription customers increased by 5% sequentially to a new high of $132. In Q2, we signed a multimillion dollar new logo contract with 1 of the largest global auto manufacturers and signed a multimillion-dollar upsell with a leading social media platform. Our non-GAAP operating income climbed 10%, a testament to improving cost efficiencies achieved through expanding offshore operations in India. GAAP operating income more than doubled and the margin expanded by 7 points to a record quarterly high, driven by sustainably lower stock-based comp. Overall, it was a strong second quarter, particularly in our revenue leading indicators. Lauren will provide further details, we'll all focus on 3 key areas: First, our data collaboration platform's impact on Commerce Media integration benefits with CTV and other major publishers in catalyzing effect for AI. Second, an update on our new pricing model rollout; and third, our commitment to achieving our long-term Rule of 40 financial targets. Commerce-media, CTV and AI. I spent much of September and October on the road. Meeting with customers and prospects around the world at a variety of industry conferences and LiveRamp hosted events. In addition to dozens of one-on-one customer meetings, I participated in Ad Week in New York in Canada, Synchrony's Partner Summit in Chicago, ramp up on the road conferences in London and Sydney and our AI in marketing forum in New York City and a handful of other industry events. Throughout my many conversations, a common theme emerge, our customers recognize the immense value and expansive reach of our data collaboration network by seamlessly integrating first, second and third-party signals across diverse platforms and partners, we empower brands to execute and measure exceptional experiences throughout the entire customer journey. The tangible excitement and impactful potential of our network are evident in several key areas. Commerce Media, LiveRamp has long been the pioneering industry leader in retail media networks. Over the past year, our success has evolved into what we call Commerce Media. We are powering new networks for industry giants like Uber, PayPal, General Motors, United Airlines and many others. Each of these companies boast vital commerce partners from quick-serve restaurants and small business to local auto dealerships and travel partners. Presenting unparalleled opportunities to revolutionize the customer experience through data-driven collaboration, robust measurement, innovative media channels and expanded off-platform audience reach. CTV and deeper publisher integrations. Collaboration is thriving through deeper publisher integrations and CTV partnerships. For instance, we recently introduced new Meta attribution insights for retail media networks, including Albertsons and Target Roundel. By connecting Meta campaign results with our first-party sales data, RMNs and their partners can now clearly see how off-property sites, including Meta, drive sales orders and return on ad spend. These insights help RMNs prove value to merchant partners, improving campaign performance visibility and enabling data-driven budget allocation. CTV remains a key focus for our customers given the growing consumer engagement across various ad-supported CTV and streaming services. Our network is fully integrated with all these services, providing brands with seamless connectivity and comprehensive measurement, including de-duplicated comparative analysis across platforms. Through a clean room, unique publisher audience insights can be combined with unique advertiser insights to discover new prospects and drive superior performance. We are particularly excited about our expanding partnership with Netflix, which encompasses a range of integrations across our connectivity, data marketplace and measurement solutions. This quarter, we extended our Netflix connectivity integrations beyond the U.S. to 10 new international markets, exemplifying the type of network expansion we are pursuing with all CTV and streaming platforms, and serving as a steady source of growth for our business now and in the future. AI. AI is integral to every discussion as customers navigate its transformative opportunities and challenges. We are uniquely positioned to guide them through this evolving landscape. Our scaled data network with its comprehensive links to all of the critical data signals empowers customers to unlock AI's full potential for superior marketing outcomes. We are excited about our strategic positioning to help the entire ecosystem harness AI's power. By extending our collaboration network, we're seamlessly integrating with a wide array of AI partners. Our efforts are categorized into 6 distinct areas, each featuring multiple AI application partners, search, conversational and chat, commerce, creative, measurement and a genetic trading. These partnerships span from industry leaders like Perplexity to niche innovators like Dappier, in every instance, we connect our network to these AI-powered search experiences, enabling personalized advertising. While partner integration is a key scaling strategy, we also introduced our own AI tools for clients. For example, our new AI-powered audience segment builder is an industry-first solution, allowing marketers to instantly create precise multisource audience segments using natural language prompts, activating them in minutes. Furthermore, we've launched our AI Agentic orchestration. LiveRamp is the first platform to empower autonomous AI agents with governed access to identity, segmentation, activation and measurement solutions, enabling marketers to plan smarter campaigns, optimize investments, improve impact across all touch points. New pricing model. Turning to our second major topic. Let me now give you an update on our new pricing model. We are actively rolling out a usage-based pricing model designed to unlock incremental revenue growth by significantly boosting both our land and expand sales motions. This new model enhances our land motion with a lower cost of entry and a more flexible usage-based structure, which is particularly beneficial for midsized brands, media platforms and data providers. It also accelerates our expansion by utilizing fungible usage tokens that can be seamlessly applied across all platform capabilities and use cases. This allows customers to explore additional features at no extra cost, and these tokens are valid across the entire 12-month annual contract period rather than being limited monthly. Since launching our customer pilot in July, which runs through March, we've been steadily onboarding customers to the new pricing model. The feedback from both our sales teams and customers has been overwhelmingly positive. So much so that we are strategically expanding the pilot beyond our initial target list. We have a robust pipeline of customers perfectly positioned to benefit from this innovative model. The key selling feature for customers is a lower upfront fixed commitment, combined with the fungibility of usage across platform use cases and months. Let me share 2 compelling customer examples. One new customer, a rapidly growing beverage company perfectly illustrates how our new pricing model attracts new logos. They start with a relatively low annual contract value or ACV, but have significant upside as their business growth drives increased customer data and advertising budgets, leading to greater use of our capabilities. These factors can quickly transform a 5-figure ACV customer into a 6-figure success. In another example, we recently signed a leading domestic airline through our new pricing model. This is an existing 7-figure customer who secured an early renewal with a 20% upsell. They leverage various platform capabilities, including clean room insights for social media measurement. For them, the fungibility of usage tokens across different platform capabilities was the decisive selling point. In short, the early feedback on our new usage-based pricing model is incredibly encouraging. Consequently, we are opportunistically expanding the pilot beyond our original target list. We anticipate this new model will drive incremental revenue growth by improving our land and expand sales motions and better aligning our variable data costs with subscription revenue. Rule of 40. Moving to my final topic, let me briefly comment on our long-term financial targets. While once again hitting our short-term financial targets this quarter, we remain focused on our long-term objective of being a Rule of 40 company by FY '28. Based on the midpoint of our updated guidance, we will achieve Rule of 31 this fiscal year with 9% revenue growth and 22% operating margin, with sales productivity and ARR trending up and AI creating incremental growth opportunities for our business. We are confident that we can get back to 10% plus revenue growth. And with that level of revenue growth, our operating margin should naturally expand because our costs are highly fixed and we have ongoing cost efficiencies from our offshoring initiative. All of this to say that we remain confident, confident in our ability to reach this Rule of 40 target by FY '28. In closing, let me reiterate our strong financial performance and future outlook. Q2 success, Q2 delivered solid results, exceeding both top and bottom line expectations with double-digit operating income growth and the highest organic net new ARR in 7 quarters. Strategic leadership. Customers are actively seeking our guidance in navigating AI, Commerce Media and CTV. We've launched innovative capabilities, including cross-media intelligence, expanded CTV integrations and new AI capabilities. Positive pricing model. Early feedback on our new usage-based pricing model is consistently positive, leading to an expanded pilot. We anticipate this model will drive incremental revenue growth and better align data costs with subscription revenue. Confidence in Rule of 40. We remain confident in achieving our Rule of 40 goal by FY '28, an increase from Rule of 31 this year, fueled by incremental AI revenue growth and ongoing cost efficiencies. Thank you again for joining us today. We extend our gratitude to our exceptional customers, partners and all LiveRampers for their unwavering dedication and support. We look forward to updating you on our continued progress in the coming quarters. And with that, I'll turn the call over to Lauren. Lauren Dillard: Thanks, Scott, and thank you all for joining us. Today, I'll review our Q2 financial results and then discuss our updated outlook for FY '26 in Q3. Unless otherwise indicated, my remarks pertain to non-GAAP results and growth is relative to the year ago period. I will be referring to the earnings slide deck posted to our IR website. Starting with Q2. In summary, we delivered solid results exceeding our expectations, reflecting strong execution by the team and ongoing sales momentum against a relatively stable macro backdrop. Revenue increased by 8% and was $3 million above our guide. Non-GAAP operating income increased by 10% and was $6 million above our guidance. GAAP operating income more than doubled. Net new ARR was a 7-quarter high and we posted a strong upturn in million dollar plus subscription customers. Let me provide some additional details. Please turn to Slide 5. Total revenue was $200 million, up 8% ahead of our guide and consensus. Subscription revenue was $150 million, up 5%. Fixed subscription revenue was up 6%, in line with our expectation and usage was down slightly. ARR increased by $14 million quarter-on-quarter, which was the best organic result in the past 7 quarters. On a year-on-year basis, ARR was up 7%, pointing to an acceleration in the second half. Our $1 million-plus subscription customers increased by 5% quarter-on-quarter to a new high of 132. Subscription net retention was 102% and in line with our 100% to 105% near-term expectation. Total RPO or contracted backlog was up 29% to $652 million and current RPO was up 15% to $430 million. RPO and CRPO is declined sequentially, consistent with the historical pattern, driven by seasonality in our contract renewals. And which skewed to our fiscal second half. Turning to the selling environment. It was a solid quarter overall with signing strongly year-on-year. We had an especially strong new logo quarter and churn was better than expected. Our average deal cycle was stable sequentially at roughly 9 months and for the second consecutive quarter, our conversion rate of pipeline into contract signings was several points above the recent trend line. We're seeing good momentum with our Clean Room Insight solutions including use cases for commerce-media, CTV and cross-media measurement, and this gives us increased confidence heading into our seasonally high renewal period in Q3 and Q4. Marketplace and other revenue increased 18% to $50 million. Data Marketplace, which accounted for roughly 75% of Marketplace and other revenue grew by 14%. As expected, data marketplace growth accelerated by approximately 5 points sequentially, driven by a stable ad spending environment and new CTV integrations. Moving beyond revenue. Gross margin was 72%, in line with our guide and down 3 points year-on-year due to higher cloud hosting expenses related to our platform modernization. Operating expenses were $100 million, roughly flat year-on-year and lower than expected due mostly to the timing of project-related spending in G&A. Operating income was $45 million, up 10% versus a year ago, and our operating margin edged up to over 22%. GAAP operating income was $21 million, up from $7 million a year ago, and the margin expanded by 7 points, driven in part by a more disciplined approach to stock compensation. Free cash flow was $57 million, of which $50 million was put towards opportunistic share repurchases in the quarter. Fiscal year-to-date, we've repurchased $80 million in stock. We have $177 million remaining under the authorization that expires on December 31, 2026. Our balance sheet remains very strong with $377 million in cash and short-term investments and 0 debt. In summary, Q2 was solid, coming in ahead of our guidance on the top line and especially on the bottom line, record GAAP operating margin, the best net new ARR quarter in 7 quarters, strong growth in million-dollar plus subscription customers and a sizable return of cash to shareholders for our buyback. Let me now turn to our financial outlook for FY '26 and Q3. Please turn to Slide 12. Please keep in mind our non-GAAP guidance excludes intangible amortization, stock comp and restructuring and related charges. Starting with the full year. We are increasing our FY '26 revenue guidance by $3 million at the midpoint, passing through the Q2 [ beat ]. We have narrowed the range by lifting the low end to reflect less macroeconomic risk now that we're halfway through the fiscal year. We now expect FY '26 revenue to be between $804 million and $818 million, which is growth of 8% to 10%. Let me now provide some color on the revenue components. Subscription revenue is still expected to be up mid- to high single digits. Fixed subscription is still expected to be up mid- to high single digits with improving growth in the second half. Subscription usage growth is now expected to be up high single digits, driven mostly by the above trend growth in Q1. We assume second half usage is roughly flat year-on-year. Marketplace and other revenue is now expected to grow mid-teens, outpacing digital ad market growth and benefiting from the new CTV platform integration Scott and I mentioned. Beyond revenue, we now expect gross margin to be approximately 72% versus our prior expectation of mid-70s. We originally expected second half gross margins to rebound to the mid-70s, driven by savings associated with migrating customers to an upgraded back end. While the migration remains on track for completion in Q4, the cost optimization is taking longer than expected as we continue running 2 platforms to ensure stable customer experience. That said, we reiterate our guidance for non-GAAP operating income to be between $178 million and $182 million. Our operating income guide is unchanged despite an increase in revenue, reflecting the lower gross margin I just mentioned, offset by incremental OpEx efficiency. At the midpoint of the guide, operating income is growing 3%, and the margin is expanding 4 points to 22%. The combination of offshoring and general cost discipline continues to afford us the ability to invest in key growth areas, while at the same time, driving significant margin expansion. That comp is expected to decline 23% year-on-year to $83 million, again reflecting a more disciplined approach to share-based compensation over the last couple of years. We now expect GAAP operating income to be between $83 million and $87 million, equating to a record high margin of 10% to 11% and a year-on-year increase of 9 to 10 points. Lastly, we continue to expect free cash flow to be up this year with savings from the new federal tax legislation offsetting a normalization in working capital. Our EBITDA conversion rate is expected to be above our 75% target rate. We expect to deploy a substantial amount of this year's free cash flow towards share repurchases, consistent with our recent practice. As always, we will be opportunistic depending on market conditions. Given the decline in stock-based comp, combined with our repurchase activity, like last year, we are again expecting to more than offset dilution. Now moving to Q3. We expect total revenue to be between $209 million and $213 million, non-GAAP operating income between $55 million and $57 million, an operating margin of roughly 27%. A few other call-outs for Q3, we expect subscription revenue to be up mid-single digits. Marketplace and other revenue is expected to be up low teens. And finally, we expect gross margin to be similar to Q2 as we work through the final phases of our back-end upgrade and migration effort, which will be completed in Q4. Let me wrap up before Q&A. Our second quarter featured strong execution and healthy demand with results ahead of expectation across the board and double-digit growth in operating income. We're seeing sustained sales momentum and a robust pipeline heading into our seasonally high renewal quarters in the second half. Our focus remains on converting that pipeline into signing and keeping churn low to set the stage for accelerating revenue growth in FY '27. And finally, we remain on track for another strong year of free cash flow, reflecting more than 30% growth in operating income, benefits from the recently enacted tax legislation and continued discipline in balancing growth investments with efficiency. We plan to deploy a substantial portion of that free cash flow towards share repurchases and underscoring both our confidence in the business and our commitment to long-term shareholder value. Thanks again for joining us. We're excited for what's ahead and grateful to the customers and teammates who may get possible. Operator, we will now open the call to questions. Operator: [Operator Instructions]. And we will take our first question from Jason Kreyer from Craig-Hallum. Cal Bartyzal: This is Cal on for Jason tonight. Maybe just to start, can you elaborate on some of the drivers of the improvement in ARR in the quarter? Lauren Dillard: Sure. I'd be happy to, Cal. This is Lauren. A few things I'd highlight. First with respect to the strength of gross new ARR cross-sell and upsell of our clean room solution continues to be a big driver here. And these are for the use cases that Scott mentioned. So measurement and, in particular, CTV measurement cross-media intelligence and to support just a growing number of retail and commerce-media use cases. We also saw a really nice uptick in new logo activity in the quarter, which was encouraging, specifically for our connectivity or data onboarding use cases. And we think this is a reflection of an increase in focus as we've rolled out now a dedicated new logo sales team, as well as the new pricing model, which allows us to address a larger ICP. In addition, we also had much lower customer churn in the quarter both on an absolute basis and particularly compared to Q1, which was impacted by the couple of unusual events we discussed last call. Importantly, though, we believe these trends are durable. And while 7% ARR growth is solid and certainly trending in the right direction, it's not our final destination. We believe we have the product and market demand for faster growth over time. And that's exactly what the team is focused on here in the back half. Cal Bartyzal: Great. And then as a follow-up, you alluded to some of this on the call, but your renewal cycles, they're a little skewed towards the second half of your fiscal year. So with these new solutions and integrations coming to market, how do you feel about the upsell opportunity here over the next 2 quarters? Scott Howe: I think we feel really good about it. And I'll reference again the road trip I just took. There are so many different levers of growth and depending on which client we're talking to, they're excited about something a little bit different. So we have XMI Cross-Media Intelligence. We have our commerce-media networks that are taking us in completely new directions with new types of clients. We have CTV expansion. And we have some really exciting opportunities in AI. So I was talking to a sales rep just last night, and he told me, I can't remember being at LiveRamp and having this many things that our clients are excited to talk about. So we've got to deliver, but I feel really optimistic about our ability to do that. Operator: Our next question comes from the line of Shyam Patil from Susquehanna. Unknown Analyst: This is [ Mitchel ] on for Shyam. There's been a lot of debate about how AI search and AI overviews are hurting click-through rates to the open web. How are you thinking about the implications that this dynamic might have on your business? Scott Howe: Yes, [ Mitchel, ] this is Scott. I'll take that. And thanks for being on the call today. I recognize to everybody who's on the call that this is 1 of the busiest earnings weeks and you're juggling a lot of balls. 2 thoughts come to mind with your question. First off, I would tell you our exposure to the open web is low. I mean throughout LiveRamp's history, we've always seen changes in our activation profile. We see the winners and losers sometimes far before the market as a whole does. And if some things don't work as effectively, the money just flows to the things that do work. And we've seen that in recent years. We've been the beneficiary of that with the growth in CTV, and social media and commerce media as well. I looked at our top destinations actually just earlier today. And the vast majority of our top 20 destinations, I mean in no particular order. Companies like Meta, Roku, LinkedIn, Spotify, Disney+, Pandora, Twitter X, I guess, and TikTok, they're simply not impacted by these open web shifts that people are talking about. And then the second point that I'd make is our upside from AI is high. AI models are only as effective as the signals that power the underlying intelligence of those models. And first and second-party data, the kind that empowers everything we currently do is the great differentiator that makes any model even better. Our clients want to standardize and control how their data is used, which puts us right at the center of a long-term future growth driver. And the investments that we've made that Lauren and I both referenced, modernizing our stack, creating AI readiness and usage-based pricing, they build the foundation for our success as AI starts to take off. Operator: Our next question comes from the line of Mark Zgutowicz from the Benchmark Company. Unknown Analyst: This is Alex on for Mark. I have 2, if you don't mind. First one, just on the degree of macro conservatism baked into the guide on the revenue guide for the year. Curious if you can provide an update there. And how you're thinking about potential incrementality from these pilots in addition to working with AI labs? And then second question. Curious if you can elaborate on the mix of retail in CPG versus non in terms of incremental ARR in the second half as you point towards an acceleration? Lauren Dillard: Sure. I'm certainly happy to take the first. So with respect to our guidance, kind of at this point in the year, the swing factors are mostly in our variable revenue sources, so specifically subscription usage and data marketplace. And as we typically do, we have built in some conservatism here, which is -- accounts for the relatively wide range in the back half. At the midpoint, we're assuming the macro remains fairly consistent with what we've seen recently. The low end of the range assumes a pretty major deterioration in the macro in the back half. But in short, we believe we've built in an appropriate level of conservatism into our guide. Scott Howe: Yes. In terms of the retail versus non-retail commerce-media stuff, I don't know if I have those specific numbers because I don't know if we broke it out, did the math. We can get that. But I would tell you that if I just think about what I believe is happening. We're seeing growth in both places. And our kind of traditional retail media, what we're trying to do is build density. So it's usage increases. We're trying to scale the number of merchant partners that are working with each major retailer. And then from a new logo, new starts perspective, that's where we're really excited about expanding from retail to commerce-media. Some of the things I talked about, like PayPal or Uber, the airlines, that just exposes us to really different businesses. And instead of just thinking about merchant partners it's causing us to think about, well, how do we connect with quick-serve restaurants or restaurants as a whole, how do we connect with SMB merchant partners that are driving payments usage. How do we connect with travel partners. And so all of that opens up new TAM for us. And so I think that will be an even greater accelerator for our growth next year than even maybe the traditional retail media side where we've long been strong. Lauren Dillard: Alex, really quickly. There was a second part of your first question, which is on the pricing pilot, and I didn't answer it. So on to now. We have not baked in any upside in this year's guide to account for pricing upside. I may just take the opportunity to reiterate what Scott mentioned, which is at a high level, our hypothesis is, over time, the new model will unlock incremental revenue growth by benefiting both our land and expand sales motions. As Scott mentioned, on the land front, it offers a lower entry point, which should allow us to address a larger ICP. And on the expand front, due to the fungibility of the tokens, enables customers to more seamlessly grow into our product suite. Right now, we're in the middle of the pilot, which we expect to run through the balance of this fiscal year. We're learning a lot. We expect to continue to learn a lot, which will help us fine-tune the model and approach ahead of rolling it out in the early part of next year. And we expect to roll it out very thoughtfully and for the benefit to accrue over several quarters. So this is something you -- we would expect to see some benefit from as we move through next fiscal year. But so far, nothing baked into this year's guide. Operator: [Operator Instructions]. Our next question comes from the line of Clark Wright from D.A. Davidson. Clark Wright: Maybe to start, can you elaborate on the step-up in platform investments this year? Is this something that stretches into fiscal 2027? Scott Howe: Yes. Clark, I'll start, and Lauren will certainly probably jump in here. But yes, we have actually stepped up our investments recently. We are confident about this driving incremental revenue in the coming quarters and years. The investments are in 3 critical areas. First, we're upgrading our platform both the front and back end to provide our customers just with a better experience, more intuitive UI, faster processing, more stability. Second, we're investing in AI product capabilities. I mentioned that. AI-powered segment builder, Agentic orchestration, I talked about those in my prepared remarks. AI is really reshaping the digital advertising ecosystem. And so these investments ensure we're ready to capture the opportunities that are emerging from these changes. And then third, the kind of companion piece with this is the investments we're making in our new usage-based pricing model. And that ensures that we'll have the optimal revenue model as the volumes kind of expand from what we're seeing in terms of increased collaboration and the AI opportunity, we're going to monetize that through this new variable usage-based pricing model. Lauren Dillard: And Clark, I would just simply add that while we're making these investments to fuel future revenue growth, we're not sacrificing bottom line growth in the short term. Again, we're guiding to FY '26 operating income growth of over 30% and 4 points of margin expansion and finally, we just mentioned to the earlier part of your question, we believe this investment period will abate by the end of this fiscal year, which puts us in a really strong position for both revenue growth and continued margin expansion in FY '27. Clark Wright: That's helpful. Appreciate that color. And then turning to the growth picture, direct subscription customer count has effectively stabilized after declining for 5 straight quarters. Do you have the visibility to call this the trough or a potential inflection in growth going forward? Or is that still yet to be determined given some of the other moving factors? Lauren Dillard: Yes. I would characterize that it's stabilizing, especially now that we've worked through the international headwind that we've discussed on past calls, and you saw that in the results this quarter. In addition, I mentioned this a bit earlier, we saw a nice uptick in new logo activity in the quarter, which we think is durable. This is a combination of building out a dedicated new logo sales force and also having a new pricing model that allows us to serve a larger TAM over time. As we look out over the medium to long term, we do think there are a couple of meaningful levers for customer count growth, the pricing model, which I just mentioned. And then also our Clean Room strategy. As Scott discussed as kind of these big Clean Room networks to support use cases in retail or commerce media take hold, we have the ability to pull customers through these large anchor nodes that we're supporting. And we think that can be a source of sustained new logo growth over time. The final point I would just make here is that the quality of our new customer adds continues to be very impressive. It certainly was again in Q2. GM, Uber, constellation brands. I think this is a real testament to the criticality of what we do and to the value we deliver to our customers. Operator: We have no further questions. I will now turn the call back over to Lauren Dillard for closing remarks. Lauren Dillard: All right. Thank you. I'd love to close with just a few remarks. So first, our second quarter featured again, strong execution and healthy demand with results ahead of expectations across the board and double-digit growth in operating income. We're seeing sustained sales momentum and a robust pipeline heading into our seasonally high renewal quarters in the second half. Our focus, of course, remains on converting that pipeline into sales and keeping churn low to set the stage for accelerating top line growth next year. And finally, we remain on track for another strong year of free cash flow reflecting more than 30% growth in operating income and continued discipline in balancing growth investments with efficiency. We plan to deploy a substantial portion of that free cash toward share repurchases, underscoring both our confidence in the business and our commitment to long-term shareholder value. Thanks again for joining us. We look forward to speaking with many of you in the days ahead. Operator: The meeting has now concluded. Thank you all for joining. You may now disconnect.
Kristina Casey Katten: Thank you for joining us today to discuss e.l.f. Beauty's Second Quarter Fiscal '26 results. I'm KC Katten, Vice President of Corporate Development and Investor Relations. With me today are Tarang Amin, Chairman and Chief Executive Officer; and Mandy Fields, Senior Vice President and Chief Financial Officer. We encourage you to tune into our webcast presentation for the best viewing experience, which you can access on our website at investor.elfbeauty.com. Since many of our remarks today contain forward-looking statements, please refer to our earnings release and reports filed with the SEC, where you'll find factors that could cause actual results to differ materially from these forward-looking statements. In addition, the company's presentation today includes information presented on a non-GAAP basis. Our earnings release contains reconciliations of the differences between the non-GAAP presentation and the most directly comparable GAAP measure. With that, let me turn the webcast over to Tarang. Tarang Amin: Thank you, KC, and good afternoon, everyone. Today, we will discuss our second quarter results and our outlook for fiscal 2026. I'm proud of our incredible e.l.f. Beauty team for another quarter of consistent category-leading growth. In Q2, we grew net sales 14% and delivered $66 million in adjusted EBITDA. Q2 marked our 27th consecutive quarter of net sales growth, putting e.l.f. Beauty in a rarefied group of high-growth companies. We are 1 of only 6 public companies out of 546 that has grown for 27 straight quarters and average at least 20% sales growth per quarter. Beauty continues to be a resilient category. In Q2, the U.S. mass cosmetics and skin care categories grew approximately 2% year-over-year, in line with the low single-digit growth we've seen in the category over the last 10 years. On a consumption basis, our namesake e.l.f. brand grew 7% this quarter, 3x the category and grew our market share by 140 basis points. We delivered triple-digit share gains across eye, lip and face. Consumers continue to choose e.l.f. Q2 marked our 27th consecutive quarter of market share gains, making e.l.f. the only brand out of nearly 1,000 cosmetics brands tracked by Nielsen to gain share for 27 consecutive quarters. In August, we closed on the acquisition of Rhode, the high-growth beauty brand founded by Hailey Bieber and executed a record-breaking launch in Sephora North America. The acquisition contributed $52 million or approximately 17 percentage points to our net sales in Q2. On an organic basis, excluding Rhode, our net sales were down approximately 3% this quarter. Shipments were below consumption, primarily driven by our decision to temporarily stop shipments to retailers who are slower to execute our price increase that took effect on August 1. We're pleased to report this is now resolved and normal shipments have resumed. Looking at fiscal '26, we're pleased to provide full year guidance, which calls for net sales growth of 18% to 20% year-over-year. This is on top of the 28% net sales growth we delivered in fiscal '25 and projects another year of best-in-class growth among consumer companies. Within that, we expect organic net sales, excluding Rhode to be up approximately 3% to 4%. We believe our consumption trends and market share gains are the best indicator of the underlying health of our business and are pleased by our ongoing strength we've seen in fiscal '26 to date. We expect our shipments to be below consumption in fiscal '26, particularly as we lap significant distribution gains in Dollar General and Target that occurred in the second half of fiscal '25. Over a longer period of time, shipments tend to even out with consumption. We remain confident in our strategy to grow market share and capitalize on the white space ahead of us. We believe the addition of Rhode enhances our long-term growth. In fiscal '26, we expect Rhode to contribute about $200 million in net sales to our results. When considering the $98 million of net sales Rhode achieved in the first half of the year prior to the acquisition close, our outlook assumes Rhode will generate approximately $300 million in net sales on an annualized basis for the 12 months ending March 31, 2026, growing approximately 40% year-over-year. The strength of our brands is evident when viewed in the context of the overall beauty market. While beauty has comparatively low barriers to entry, very few brands have been able to scale. Of the over 1,900 cosmetics and skin care brands tracked by Nielsen, only 26 has surpassed $100 million in annual retail sales. With our acquisition of Naturium 2 years ago and the acquisition of Rhode in August, we now have 4 brands that surpass this threshold. Our brands are unified by our vision to be a different kind of company by building brands that disrupt norms, shape culture and connect communities through positivity, inclusivity and accessibility. Let me take a moment to discuss our brands and key milestones we achieved in Q2. First, turning to e.l.f. Cosmetics and e.l.f. SKIN. The combination of our value proposition, powerhouse innovation and disruptive marketing engine continue to fuel our market share gains, deepen existing community connections and expand our audience segments. In Piper Sandler's semiannual, Taking Stock With Teens survey, e.l.f. Cosmetics ranked the #1 favorite team makeup brand for a record 8 consecutive surveys. It's the first time in the 25-year history of this survey that any cosmetics brand has achieved this level of sustained leadership. Notably, our 36% mind share is now 4.5x the #2 brand. E.l.f. SKIN also reached a new high, increasing its ranking to the #7 favorite teen skin care brand, up from #8 last year. We continue to grow our audience beyond Gen Z. Our latest awareness and usage study shows e.l.f. purchasers growing substantially amongst millennials and Gen X. We're also the most purchased brand among Gen Alpha, showing our multigenerational appeal. Today, e.l.f. Cosmetics is purchased by approximately 1 in 3 females in the U.S. Our marketing is working, delivering ROIs multiples above industry benchmarks and expanding our brand awareness. Over the last 5 years, we've grown e.l.f.'s unaided awareness in the U.S. from 13% to 45% in Canada from 8% to 26% and in the U.K. from 6% to 19%. Looking at innovation. We have a unique ability to deliver a steady stream of holy grails, taking inspiration from our community and the best products in prestige and bringing them to market in an extraordinary value with our signature e.l.f. Twist. As one example, Power Grip Primer is the #1 SKU across the entire U.S. cosmetics category. Our customers crave more, which is why we recently launched our limited edition Mega Power Grip Primer, containing 50x the amount of product as the original Power Grip. Mega went viral, selling out in 3 minutes on TikTok Shop where it launched exclusively. Our latest e.l.f. SKIN campaign highlights our Bright Icon Vitamin C + E + Ferulic Serum and its incredible value at $17 compared to a prestige item at $185. Proof of our ability make the best of beauty accessible and expand the category. [Presentation] Tarang Amin: Our value proposition continues to resonate with our consumers. Our $1 global portfolio wide price increase went into effect on August 1 to help mitigate some of the increased costs we're seeing from higher tariffs. Even after this increase, 75% of our portfolio sits at a phenomenal value of $10 or less. For context, the average price for e.l.f. Cosmetics is $7.50 today as compared to approximately $9.50 for legacy mass cosmetics brands and nearly $30 for prestige brands. While still relatively early since our price increase went into effect, we're pleased that our consumption continues to outperform category trends. The strength of our productivity and category-leading results continue to earn e.l.f. additional space with our global retailers. In Target, our longest-standing national retailer, we increased our footprint earlier this year to 20 linear feet, up from 13 feet previously. In Walmart, we increased our space last year to 12 feet from 8 feet previously. We're pleased to report that in spring 2026, we'll be increasing our space with e.l.f. Beauty beyond the 12 feet of space we have today. Looking outside the U.S., we're excited for the expansion we have planned this fall. E.l.f. will be launching with Rossmann in Poland and with Sephora in the 6 countries in the Gulf Cooperation Council, our second launch with Sephora following our success in Mexico. We're also pleased to announce we'll be expanding our reach in Germany in spring 2026, launching e.l.f. with DM, building upon the successful launch we had with Rossmann last year. Next, turning to Rhode, the breakthrough beauty brand founded by Hailey Rhode Bieber. I've been in the consumer space 34 years and continue to be blown away by what Hailey and her team are building. In just under 3 years since its founding, Rhode has seen exceptional growth, achieving $212 million of net sales, DTC only with just 10 products. In September, we launched Rhode with Sephora, the world's leading global beauty retailer. The launch is off to a phenomenal start. In fact, Rhode had the biggest launch in Sephora North America's history, exceeding the previous record by 2.5x. To celebrate the launch, we have the opportunity to ring the opening bell at the New York Stock Exchange, bringing together the trailblazing female founders that are part of the e.l.f. Beauty family. In terms of what's next, we're seeing significant pent-up global appetite for Rhode. International drives nearly 20% of Rhode's DTC sales, while 74% of the brand's social followers are from outside the U.S. We're excited to launch Rhode in Sephora U.K. this month and further its global reach. Turning to Naturium, a disruptive brand focused on ingredient-led biocompatible skin care. This quarter, we ran Naturium's first-ever awareness campaign, shaped by the voices of Naturium's loyal community who share how its products help them love their skin. The campaign reflects the brand's unwavering commitment to delivering the consistent skin care to everyone, everywhere, every day. [Presentation] Tarang Amin: As we look ahead, I'm proud that we continue to lead with purpose as we strive to create a different kind of beauty company, one that is purpose-led and results driven. Our newly released fourth annual impact report demonstrates how we make the world a better place for every eye, lip and face. [Presentation] Tarang Amin: In summary, we're excited by the momentum we're seeing across our brand portfolio and remain confident in our ability to continue to gain share and deliver best-in-class beauty I'll now turn the call over to Mandy to talk more about our second quarter results and our outlook for fiscal '26. Mandy Fields: Thank you, Tarang. Q2 net sales of $344 million grew 14% year-over-year on top of the 40% growth in Q2 of last year. The acquisition of Rhode contributed $52 million or approximately 17 percentage points to our Q2 results. Looking to our organic sales trends. Our consumption outpaced category trends by over 3x, leading to 140 basis points of market share gains in the quarter. As Tarang mentioned, our Q2 shipments were below consumption, primarily driven by our decision to stop shipments on orders not reflecting our August 1 price increase. Pricing and product mix added approximately 21 points to net sales growth, partially offset by a 6 percentage point impact from lower unit volumes. Looking to our geographic regions. Our net sales in the U.S. grew 18% year-over-year in Q2, while international net sales grew 2%. As a reminder, this quarter, we lapped our launch into Rossmann, Germany in the year ago period, which marked our largest international launch to date. We are pleased with our continued portfolio and geographic expansion. We're in the early days of the international opportunity we see. For context, international drives approximately 20% of our net sales as compared to legacy peers having over 70% of their sales outside of the U.S. Q2 gross margin of 69% was down approximately 165 basis points compared to prior year. The year-over-year decline was largely driven by incremental tariff costs. This was partially offset by gross margin benefits from our price increase and mix. On an adjusted basis, SG&A as a percentage of sales was 56% in Q2 as compared to 53% in Q2 last year, primarily driven by ongoing investments in our team and infrastructure. Marketing and digital investment for the quarter was 23% of net sales as compared to 24% in Q2 last year. Q2 adjusted EBITDA was $66 million, down 4% versus last year. Adjusted net income was $41 million or $0.68 per diluted share compared to $45 million or $0.77 per diluted share a year ago. Moving to the balance sheet and cash flow. Our balance sheet remains strong, and we believe positions us well to execute our long-term growth plans. We ended the quarter with $194 million in cash on hand compared to a cash balance of $97 million a year ago. Our liquidity position remains strong with less than 2x leverage after our acquisition of Rhode. We expect our cash priorities for the year to remain on investing behind our growth initiatives and supporting strategic extensions. The specific initiatives we're focused on this year include investing in our people and infrastructure, our ERP transition to SAP and our global expansion. I'm pleased that our transition to SAP has been successful since our go-live in July with Q2 marking our first full quarter close on the new system. Our smooth go-live is a testament to the exceptional talent and dedication of our e.l.f. Beauty team and partners. Now let's turn to fiscal '26. As we spoke about last quarter, we plan to provide a full fiscal '26 outlook once we had greater clarity on tariffs. To set the foundation, about 75% of our global production today comes from China. Between April 9 and May 13, we were subject to tariffs at the 170% level. From May 14 through the end of October, product imports to the U.S. were subject to tariffs at the 55% level. As of November, we are now subject to a lower tariff at the 45% level given the recent reduction announced by the administration. While tariff rates remain volatile, we believe the lead time of our supply chain gives us greater visibility into our costs for the second half of the year. Our outlook assumes that the 45% tariff rate stays in place for the remainder of our fiscal year. For context, we estimate every 10 percentage points of incremental tariffs results in a $17 million gross impact to our cost of goods sold on an annualized basis before any mitigating actions. For the full year, we expect net sales growth of approximately 18% to 20%. Adjusted EBITDA between $302 million and $306 million, adjusted net income between $165 million to $168 million and adjusted EPS of $2.80 to $2.85 per diluted share. We expect our fiscal '26 adjusted tax rate to be approximately 23% and a fully diluted average share count of approximately 59 million shares. Let me provide you with additional color on our planning assumptions for fiscal '26. Starting with the top line. For the full year, we expect net sales growth of 18% to 20% year-over-year. Within that, we expect organic net sales, excluding Rhode, to be up approximately 3% to 4% year-over-year. On top of that, we expect Rhode to contribute about $200 million in net sales over the 8 months since our August 5 closing date. Looking to the second half, our guidance implies net sales growth of 24% to 27% year-over-year. We expect Rhode to contribute 22 percentage points to net sales growth in the second half. On an organic basis, this implies 2% to 5% net sales growth. As Tarang discussed, we are pleased by the ongoing strong consumption rates we have seen in fiscal '26 to date and expect to continue to outperform category trends into the second half. We expect shipments to be lower than consumption as we cycle expanded distribution in Dollar General and the over 50% space expansion in Target that we had in the second half of last year. Turning to adjusted EBITDA. For the full year, we expect $302 million to $306 million in adjusted EBITDA, up 2% to 3% year-over-year. This implies adjusted EBITDA margins of approximately 17% in the second half as compared to 22% in the first half. There are 2 key factors impacting second half adjusted EBITDA margins. First, marketing. We are targeting marketing and digital spend in the 24% to 26% range for the full year. That implies marketing spend of approximately 27% to 29% of net sales in the second half, up about 600 basis points on the top end relative to the 23% of net sales we spent in the first half. We expect this to be partially offset by gross margin improvements. We expect our gross margin in the second half to be approximately 71%, up about 200 basis points sequentially relative to the first half with anticipated benefits from price increases and mix of business given our acquisition of Rhode. In summary, we're pleased to have delivered another quarter of industry-leading sales and market share growth. We believe we have a winning strategy and are in the early innings of unlocking the full potential we see for our growing portfolio of disruptive brands. With that, operator, you may now open the call to questions. Operator: [Operator Instructions] And today's first question comes from Dara Mohsenian with Morgan Stanley. Dara Mohsenian: I just wanted to delve a bit more into the corporate top line guidance for the year and the downside in the quarter ex Rhode when you think about the base e.l.f. heritage business. Just can you give us more of a sense for how much of a drag shipments was versus underlying consumption trends in fiscal Q2 around the pricing [indiscernible]? And a similar question for the back half, are you making up any of that gap from the pricing issue as you start to ship again? And maybe what's the total full year impact? Perhaps another way of asking it more simply is what are you expecting for underlying U.S. consumption trends? And then also, Tarang, just how did you resolve the issue around pricing with your retailers? Did it change the economics of the relationship at all going forward? Was it more just a temporary issue that you move past? And are there any issues with out of stocks that may impact forward consumption trends just as we think about the go-forward consumption? Mandy Fields: Dara, I'm going to start off by answering the question. I'll start with Q2. As we said, we're very pleased with the consumption that we saw in Q2, outperforming the category. Category grew around 2%. E.l.f. brand grew around 7%, so almost over 3x what we saw from the category performance. When we talk about the pricing impact, that is the primary driver of the disconnect between consumption and the shipments that we delivered in the quarter. And so I would say it's never a one-to-one consumption to shipments, but we know that over time, consumption and shipments do net out. And so to answer your second question on are we going to pick up any of that as we go into the second half? Yes, I think it's fair to assume that we're going to pick up some of that as we head into Q3. But like I said, it's not going to be a one-for-one exact on the quarter. But over time, we do expect consumption and shipments will net out. Also to answer your question on underlying growth on the second half, as we talked on the call, on an organic basis, we're outlooking 2% to 5% growth on the top line. That, again, is led by strong consumption. Our consumption is up 10% on a fiscal year-to-date basis and has even strengthened as we've gotten into this quarter. And so again, pleased with what we're seeing from a consumption standpoint. But what we have in the second half is cycling space expansion at Dollar, about 11,000 doors in the base as well as our 50% space expansion in Target. So we are cycling that pipeline that's going to have an impact there from a shipment standpoint, but feeling very good about the consumer strength that we're seeing with that consumption continuing to be strong. Tarang Amin: Dara, on your second question on pricing, let me step back a little bit and talk a little bit about our philosophy on pricing, which is different than many of our competitors. We believe in an everyday low price that's consistent across retailers. And so the way we've done that is we have -- we basically have the same price everywhere that same kind of low price every day. The other thing that's different and that contrasts with many of our competitors who tend to price higher and then discount or run promotions. We believe that approach has been really good for our consumers in terms of knowing that they can buy e.l.f. everyday low price. The other area that we're different is unlike many of our competitors who have large trade budgets, we don't offer trade funds for one retailer to embarrass another one in terms of sale and lower pricing. So that's our overall approach. In the quarter, what we had is our pricing went into effect August 1. We had a few retailers that are slow to reflect that new pricing. As soon as we don't see the right price on the PO, we don't fill that order. And the way we resolve that is it naturally resolves. Retailers want to have e.l.f. and they want to have it at the right price. And so we're now, as I said, resolved it. We're shipping normally, and it's a way of us keeping price sanctity in the market. Operator: And our next question today comes from Olivia Tong at Raymond James. Olivia Tong Cheang: You touched a little bit on this earlier, but where did you exit the quarter? And then can you help us understand sort of where the deceleration was the highest? It looks like it was both in the U.S. and international markets. Obviously, you priced them both. I know you just said you don't expect a one-for-one catch-up. But I'm surprised if it's just a disagreement towards when pricing first went into place and things are back to normal levels now, why you wouldn't expect more of a catch-up in a more rapid manner. So if you could help explain the discrepancies there, that would be great. Mandy Fields: So from a consumption standpoint, as we talked, Olivia, we had about a 7% consumption rate in Q2. As we've gotten into Q3, we have seen that to be a bit stronger. So feeling great again from a consumption standpoint. In the quarter, from a U.S. versus international growth rate, we saw an 18% growth in the U.S. and a 2% growth rate in the international markets. Now as a reminder, the 2% on international, we are lapping or we're lapping the launch into Rossmann, Germany, and that was our largest international launch that we've had to date. And so that was impacting that international growth number as we cycled through that. And to answer your last question on the catch-up, like I said, shipments and consumption will net themselves out over time. But based on order patterns or maybe the consumer has kind of moved on from that order, orders are resubmitted at different levels. It's not going to be exactly a one-to-one catch-up on those shipments into Q3. Olivia Tong Cheang: Got it. So just to clarify, you didn't see any of this consumption mismatch in your view in international markets with respect to pricing. It was primarily the tough comp associated with the launch into Rossmann in Germany? Mandy Fields: That's right. I would say that was the primary driver of the international performance. Olivia Tong Cheang: Got it. Understood. My second question is really around your view on tariffs and how much of the inventory that was at the peak has now flown through, whether all of it has flown through or there are some that continues to impact you in the second half? And then on marketing, I guess, why the need to increase it as much as you are planning in the second half? Are there initiatives in place that you want to support? Is it primarily behind Rhode? Just trying to understand that 300 basis point increase in marketing and what's driving that? Mandy Fields: Yes. All right. So then on tariffs, so let's see here. Tariffs, as we talked on the call, a little bit of good news on tariffs with the administration calling out that tariffs were reduced by about 10 points to 45%. So we were pleased to hear that news. I will tell you that all in on an average basis, China tariffs impact to us this year is about a 60% tariff that we face, so versus the 25% tariff last year. So we have about 3,500 basis points of tariff headwinds that we're dealing with this year. I would say from a gross margin cadence standpoint, you are starting to see that gross margin improve as we head into the back half. In our prepared remarks, we talked about seeing a 71% gross margin in the second half. That's relatively flat to where we were last year from a gross margin standpoint. And on the year, if you play that through, gross margin is looking to be about down 100 basis points on the year. Again, most of that in the first half where we were down 200 basis points. So I think we have done a great job of shoring up gross margin as we've gotten into the second half of the year, again, with the pricing piece with Rhode coming into the mix, feeling good about our gross margin position given the headwinds that we faced from a tariff standpoint. And then on marketing, marketing really is a timing shift. So if you look at what we spent in Q2, we spent about 23% of our net sales behind marketing and digital. As we've talked all year, we want to be in that 24% to 26% range. We did have some campaigns shifting out into Q3 and to Q4. And so that, I would say, is just more of a timing thing. No difference in where we have been targeting marketing for this year in that 24% to 26% range. Operator: And our next question today comes from Andrea Teixeira with JPMorgan. Andrea Teixeira: I just want to follow up on the consumption number you gave us for year-to-date. So you said 10% year-to-date, which is supported. But then in the last -- since you implemented the price increase, can you comment on since August, I believe went through, how much was that? And then related to the performance that you had in Rhode quarter-to-date, I think it was like $57 million. Just curious with the shipment and consumption dynamics there. Understandably, you have the $200 million for the 8 months, but just to understand how we should be thinking in terms of the timing of the shipments, the Sephora initial shipments were not part of your $200 million. But just as we think about the potential for consumption in Rhode itself. So if you can give us the Rhode consumption number relative to the $212 million that they had prior to the deal. Mandy Fields: Andrea, so first, to answer your question on consumption, even post the price increase on August 1, we've still seen consumption hold strong, which is very encouraging to us. And as I said, we've even seen it a little bit better as we've gone into Q3. So we feel great about the core business consumption. From a Rhode standpoint, we said $200 million is going to be the contribution on the year post acquisition. But on an annualized basis, Rhode is expected to be $300 million in net sales. That's a 40% growth on a year-over-year basis. And what you're picking up there, Andrea, is the $200 million, like I said, is post-acquisition. But then you're also picking up the $40 million from Q1 that was disclosed in the pro formas. And then the delta there, about $57 million is related to net sales or shipments that went out prior to us acquiring Rhode in Q2. So you'll see in our Q that's filed tomorrow, you'll actually see on a pro forma basis what Q2 would have looked like all in with Rhode for a full quarter along with e.l.f. results. You'll see that Rhode was about $110 million in Q2 from a net sales standpoint. Andrea Teixeira: Sorry, just to understand the $110 million would be the difference, as you said, like the $57 million plus the actual consumption? Mandy Fields: No. So the $57 million would just be their net sales prior to acquisition in Q2. So that's going to be a mix of D2C consumption plus shipments to Sephora. Those are initial shipments to Sephora. Andrea Teixeira: Okay. And then going -- just to clarify what you just said, like August and Mandy, it is super helpful when you said, okay, it picked up even towards the third quarter. So what was the consumption in August and September and how we should be thinking relative to the 10%? Is that similar to 10% in August or that took a little bit of -- because the price increase on itself, $1 over $7.50 is a pretty large number. So I was hoping to see what the volume decline was if you were not seeing consumption accelerated even more than the 10%. Mandy Fields: Yes. So in the August and September time frame, again, as Tarang mentioned, it took some time for retailers to roll that pricing out. And so you're right, on a dollar increase is about 15%, 16% growth from an AUR standpoint. And that's what I'm saying as we've gotten into Q3, we have seen that consumption be a bit stronger than that 10%. And so we're pleased with that our consumption is actually holding up given that we took a broad price increase, $1 across the entire portfolio. We have not done that before and are pleased that our consumption rates continue to hang in there. Operator: And our next question today comes from Ashley Helgans with Jefferies. Sydney Wagner: This is Sydney on for Ashley. First, just starting with the guide. Can you just share a little bit more about your expectations for the category that are informing that kind of core brand growth expectation? And then when we think about Rhode, I would love to hear a little bit more about how you sort of are thinking about the balance between wholesale versus DTC. It looks like with the birthday launch, you're still doing some drops that are exclusive to brand.com, but would love to know kind of how you're thinking about that mix between the 2 channels long term. Tarang Amin: Sydney, this is Tarang. So on -- our expectations for the category, we're pleased with what we're seeing in the category in the quarter, we saw the category up 2%, which is pretty consistent with the level that we've had for the last decade. So we're pretty much assuming similar rates of category growth for the balance of the year. And then in terms of Rhode, our strategy is a strong focus both on our Sephora launch, both in-store as well as online and our own DTC business. And the specific strategy on DTC is having some of these exclusive windows of -- for our DTC site. We see it makes a real big difference in terms of the impact we see on sales. So we expect strength in both wholesale as well as DTC. And again, the brand is off to a phenomenal launch at Sephora, continue to see strength in DTC and are excited next week to introduce Rhode into Sephora U.K. There's already a lot of excitement built up for that. Operator: And our next question today comes from Anna Lizzul with Bank of America. Anna Lizzul: I wanted to go back to the question on the EBITDA guide. It looks like in fiscal Q2, margins were slightly better than expected on both gross margin and EBITDA. But the guide, as you mentioned, much lower due to the higher marketing spend. And I understand there is timing shift, but I think the expectation was that you would be getting some leverage on this line item in the future. Should we be expecting this high rate of marketing spend, excluding the timing shift moving forward? And then also, how are you allocating the spend between your brands now, especially with Rhode and the further expansion internationally? Mandy Fields: Anna, great to hear from you. So on EBITDA for the year, so as we look at that, we are outlooking a 2% to 3% growth on adjusted EBITDA for the full year. From an EBITDA margin standpoint, it's somewhere in the 19% range, so maybe 300 basis points lower than where we were last year. And to your point on the marketing, 24% to 26% on marketing is what we had outlook last year, and it's consistent with where we are this year. So we've actually not taken that rate up. It's consistent on a year-over-year basis. And just for the second half, you're going to see that be a little bit more outsized just given the timing of that spend. I would say on the G&A side, on the non-marketing SG&A side, I do think that over time, we can get back to leverage there as well. We are continuing to be in growth mode. We're continuing to invest in our team and infrastructure. And when I say team and infrastructure, that really means making sure that we have the right resources here in the U.S. and internationally to support the growth that we expect to see. And then also making sure that we're showing up in the right way from a visual merchandising standpoint as we expand our distribution footprint, investing behind that as well. And so that's really what's driving some of that non-marketing SG&A this year as well. And so overall, again, given the tariff headwinds that we're facing, a 3,500 basis point tariff headwind this year, feel like we're net out in a pretty good spot from an EBITDA standpoint, showing growth on a year-over-year basis. Anna Lizzul: Okay. Great. And if I could add on a follow-up. In terms of pricing, we've been hearing from some retailers that maybe they were disappointed that e.l.f. actually led the pack with pricing recently and that others have followed in the space. And how do you think about your value proposition here and just the fact that maybe others have attempted to follow on the pricing side? Tarang Amin: Anna, this is Tarang. I'll take that one. I would say on the pricing front, we've always led pricing. We've only taken 3 price increases in our history. And in each case, it's only been because of external factors. Our preferred approach for margin progression is innovation mix, and that's how we've successfully grown our margins over time. So on pricing, we expect it to be first because we've always been first. And then over time, people will follow. We haven't seen as much -- as many follow yet, but we have heard from many of our retailers that others plan to. So we feel confident in our overall value proposition. I mean our average unit retails, as we said after pricing, $7.50 compared to $9.50 before pricing for the legacy mass players and around $30 for prestige. Even after the pricing, 75% of our portfolio is still $10 or less. So we feel that value proposition is strong and will just get stronger as others follow the pricing. Operator: And our next question comes from Peter Grom at UBS. Peter Grom: A couple of questions. Maybe just -- I'm kind of curious maybe to follow up on the EBITDA and EPS guidance a little bit. I think we and probably a few others are just trying to understand why there's not a bigger benefit from Rhode, especially just given in the pro forma financials you outlined that would suggest there was some solid accretion. So just kind of what are you assuming in terms of the EBITDA or EPS benefit as it relates to Rhode in this guidance? Mandy Fields: Peter, so we still expect Rhode to be accretive from an adjusted EBITDA margin standpoint. To your point, they have had some incredible margins, but there are areas that we want to invest behind. Team is one of those. We want to continue to build out that team. And also in marketing, that's another key area where we see an opportunity to invest behind Rhode. And so overall, very pleased with what Rhode is contributing to this year. And as a reminder, this is our first time issuing guidance this year. So this is your first view into how we see things playing out. And again, with the tariff headwinds that we faced overcoming those and actually looking at having a flat gross margin as we go into the second half and then balancing that with continuing to invest behind the growth opportunities that we see, $302 million to $306 million in adjusted EBITDA, we feel is a solid place to be. Peter Grom: Great. And I guess just a question on international. I think you mentioned -- I forget whose question it was, but I think you mentioned it was up 2% in the quarter. So what's the underlying consumption growth outside of the U.S.? I know there's the sell-in dynamic, but how should we be thinking about the right underlying growth rate for international ex the shipment dynamic from here? Mandy Fields: Yes. So international is going to continue to be a growth opportunity for us. As we think about U.S. and international and even on an underlying basis on the organic business, we expect to see growth out of both the U.S. and international on the year. And so we will have these moments from quarter-to-quarter where you're cycling a space expansion or something like that. But the opportunities remain. I mean we've talked about a number of international launches that still are in our plan for this year, whether it be Rossmann, Poland or Sephora in the GCC countries. We talked about Sephora Australia for Naturium. I mean there's a number of VM in Germany we'll be going into later this year. Just a number of opportunities still remain on the international front. And so we expect growth there as well this year. Operator: And our next question today comes from Bonnie Herzog of Goldman Sachs. Bonnie Herzog: I guess I'm hoping for a little more color on your expectation for the slow organic growth in your business this year ex Rhode. You didn't provide guidance earlier. So I guess I'm curious if your outlook for top line moved lower since the beginning of the year on your core business? And if so, why? I mean maybe could you guys touch on some of the key innovations that you have this year and whether they've -- I don't know, maybe fell below your expectations? And then I guess it does sound like consumers have absorbed your pricing. So elasticities coming in maybe in line with your expectations or better. I guess, ultimately, I'm struggling with the expected slowdown on your core business, even considering lapping the strong space gains that you called out from last year. Any color would be helpful. Mandy Fields: Bonnie, great to hear from you. I would say -- I would start with consumption. On a year-to-date basis, our consumption is still quite strong, 10% on a year-over-year basis and even stronger as we start Q3. So we're feeling great about the consumer and how they're engaging with e.l.f. and they continue to choose e.l.f. From an innovation standpoint, our fall innovation is strong, growing faster than last year's fall innovation. That's something that we didn't see in spring. As we've talked about, our spring innovation was behind last year, given that we were cycling the exceptional launch of our lip oils. And so as we've come into the fall, we actually have seen fall outperform fall of the prior year. So that's also a good signal. On the whole of it, the main driver of why you're not seeing our second half outlook match up to that strong consumption we're seeing is because we're cycling that space expansion. Again, as 11,000 doors in Dollar General and a 50% expansion type expansion related to Target, that's really the primary driver of that disconnect between the consumption and the shipments outlook that we've given. Bonnie Herzog: Okay. Just maybe a quick follow-up. So should I assume for the full year on core business, your consumption and shipments should essentially even out? Or do you expect, I don't know, consumption to remain stronger than shipments for the full year? Just trying to think through that. Mandy Fields: Yes. So for full year '26, we've outlooked so 3% to 4% organic growth on the business, which is below the consumption rates that we're seeing right now. Again, it goes back to cycling that space expansion in the base over time. So it may take a couple of quarters to get there. But over time, shipments and consumption do net themselves out. And so yes, that would be our expansion that over time, we do see those numbers kind of marry up a little bit better. Operator: And our next question today comes from Susan Anderson at Canaccord Genuity. Susan Anderson: I guess maybe just touch on Naturium a little bit and how we should think about or how you're thinking about the growth of the brand going forward. I think the consumption data has slowed a bit recently in the U.S. So just trying to think about the cadence of new product rollouts there as well and then also new space for the brand, including internationally. And then not sure if you can give any color on Rhode and how you're thinking about kind of the longer-term margins for the brand, especially as you increase marketing spend for the brand. Tarang Amin: Susan, this is Tarang. We feel great about Naturium. We're seeing great momentum on Naturium. We actually have seen a pickup in the growth rates on Naturium, both as we've taken a look at our target rates, but also our [indiscernible] Beauty and how strong Naturium is there. We mentioned the great launch we just had with Sephora in Australia and to pick up the space in boots. And so overall, we're seeing really good momentum for Naturium continues to build, and we're pleased, particularly as we put that awareness campaign on. We saw really good consumer response to that. Mandy Fields: And then on the Rhode margins, we haven't given a longer-term outlook on the margins other than to say we expect those to be accretive to our EBITDA margins as we go through. Rhode is a beautiful business, very strong margins. We will invest behind the brand, as I mentioned earlier, but still expect those margins to be accretive. Operator: And our next question today is from Oliver Chen at TD Cowen. Oliver Chen: On the organic growth for the second half, the 2% to 5%, is the assumption that pricing is a double-digit benefit and then volume offsets that to be negative given the tough compares? And then secondly, on Rhode, I would love your view of the inventory levels currently at Sephora. I know it's been very successful. So how have inventory levels in terms of product availability been? And then as you look forward, there's a limit on the number of SKUs and tons of opportunity. What's on your Rhode map for that as well as -- our assumption is that it's Sephora for 3 years plus. Any thoughts or guidance there in terms of what you see happening with the footprint? Mandy Fields: Oliver, so I'll answer the first question. On our organic growth in the second half of the 2% to 5%, yes, you're thinking about it the right way. Pricing will be a benefit. And then volume, we are expecting to be lower than last year, again, cycling those shipments, which would have been higher volume. Tarang Amin: And Oliver, on your second question regarding Rhode inventory, I'm extremely pleased with the work the team has done to be able to keep up with the exceptional consumer demand we've seen. Our operations team has done a terrific job of making sure Sephora has enough inventory. The biggest challenge is getting that inventory on the shelf. And so similar to what we've done with e.l.f. in the past, we're partnering very closely with Sephora to make sure that they're replenishing those shelves more frequently just given the unprecedented demand that they've seen themselves. And so we feel really good about where we stand in terms of our ability to support the business and the demand that we see, and we'll continue to work on that. Operator: And our next question today comes from Steve Powers of Deutsche Bank. Stephen Robert Powers: A couple of cleanups and then a question. So first cleanup is just, I think the 2% international growth would have included a little bit of Rhode. Just curious if you could call out the magnitude of that, number one. And number two, Mandy, there's been a lot of questions on the back half shipment headwinds from the space expansions that you're lapping last year. Maybe just if you could zero in on the magnitude of that and if there's any differential 3Q versus 4Q, that would be helpful. And then the question I had was around Rhode. You talked about the structure of the P&L and the accretion. But I'm curious on the gross margin line as that business moves from DTC to a hybrid DTC and wholesale revenue base, what impact does that have on the gross margin relative to the historicals that we've all seen? Mandy Fields: Steve, all right. So the 2% growth that we saw in international, that would have included some Rhode volume as well. We've talked about Rhode having about a 20% international sales outside of the U.S. And so that would have been included in that 2% growth for Q2. On the shipment headwinds, like I've said here, the 2% to 5% that we're outlooking on net sales versus the consumption rates that we're seeing today, the primary disconnect between those consumption rates and the shipments that we're calling out, the net sales outlook we're calling out is cycling that volume. I would say that's the primary contributor there. And then on the Rhode P&L, from a gross margin standpoint, yes, we expect to see the gross margin come down as they transition more into a wholesale mix, but still the gross margin is accretive. It's accretive and our outlook as we stand today, it's already baked in, still accretive to where e.l.f. is positioned today. Operator: And our next question then comes from Rupesh Parikh with Oppenheimer. Rupesh Parikh: So I guess just going back to adjusted EBITDA margins, your guide implies around 19.5% this year. Is there a way to think about like the steady-state margins, I guess, going forward beyond this year to understand some of the temporary headwinds because you guys were in that 22% plus range prior to this fiscal year. Mandy Fields: Rupesh, so this is just our first quarter getting back to issuing guidance. And so we don't have a longer-term algorithm out there of what to expect on EBITDA margins. But what I can tell you is that we have had a track record of improving those margins over time. And I talked a little bit earlier about leverage in our non-marketing SG&A over time. We're getting our gross margins back to a better place as we go in, to the second half and pricing kicks in. We have the 45% tariff in place now versus as we get into next year, the average 60% that we'll be cycling through. So there are some things that are working in our favor as we look out longer term that would enable us to improve those EBITDA margins over time. Rupesh Parikh: Great. And then my follow-up question, just on Rhode, strong initial guide. Just curious how that -- I think you mentioned 40% pro forma growth for this year, how does that compare versus your initial expectations for the deal? Mandy Fields: We're very pleased with the performance that we're seeing out of Rhode. I mean, Tarang talked about it earlier, 2.5x better than any launch Sephora has had in North America. I mean it's really a fantastic brand. We're so happy to have them as part of the e.l.f. family and look forward to continuing to drive that growth on the Rhode ahead. Operator: Thank you. That concludes our question-and-answer session. I'd like to turn the conference back over to e.l.f. Beauty's Chairman and CEO, Tarang Amin, for any closing remarks. Tarang Amin: Well, thank you for joining us today. I'm so proud of our incredible team at e.l.f. Beauty for delivering another quarter of industry-leading results. I'm also thrilled to officially welcome Rhode to the e.l.f. Beauty family. We look forward to seeing some of you at our upcoming investor meetings and speaking with you in February when we'll discuss our third quarter results. Thank you, and be well. Operator: Thank you. That concludes today's conference call. You may now disconnect your lines, and have a wonderful day.
Aurelien Nolf: Good afternoon, and welcome to Lyft Third Quarter 2025 Earnings Call. As a reminder, this conference call is being recorded. I'm Aurelien Nolf, VP, FP&A and Investor Relations. On the call today, we have our CEO, David Risher; and our CFO, Erin Brewer. As a reminder, our full prepared remarks are available on the IR website, and we will use this time to answer your questions. We will make forward-looking statements on today's call relating to our business strategy and performance, partnerships, future financial and operating results, trends in our marketplace and guidance. These statements are subject to risks and uncertainties that could cause our actual results to differ materially from those projected or implied during this call. These factors and risks are described in our earnings materials and in our recent SEC filings. All of the forward-looking statements that we make on today's call are based on our beliefs as of today, and we disclaim any obligation to update any forward-looking statements, except as required by law. Additionally, today, we are going to discuss customers. For rideshare, there are 2 customers in every car. The driver is Lyft customer and the rider is the driver customer. We care about both. Our discussion today will also include non-GAAP financial measures, which are not a substitute for GAAP results. Reconciliations of our historical GAAP to non-GAAP results can be found in our earnings materials, which are available on our IR website. And with that, I will pass the call on to David. John Risher: Thank you, Aurelien. Wow, Q3 was another record quarter across driver hours, Active Riders and gross bookings. Adjusted EBITDA grew 29% year-over-year, and our free cash flow generation for the trailing 12 months was over $1 billion for the first time in Lyft's history. As you saw this morning, our partnership with United Airlines is now live. You can now all link your accounts to earn miles on all eligible rides you take anywhere, not just to the airport. And even better, rides taken through your company business profile earn even more. Now that's big stuff. Don't worry. I'm going to give all of you about 20 seconds right now to link your account. I'm not kidding. I want you to be opening up your Lyft app. Go to that profile on the lower right-hand side, click that profile button, look for rewards, get managed rewards, add United MileagePlus . Every single one of you. That's going to be your ticket to ask a question today. So that give you a couple of seconds to get that done. Okay. Additionally, we focused on continuing to create AV partnerships that are differentiated and purposeful with each bringing unique learnings and dynamics to Lyft. We further build upon our AV framework this quarter with the announcements of Waymo as well as Tensor powered by NVIDIA, and we're demonstrating how we're positioning ourselves across the entire AV value chain. Looking ahead to 2026, we are well positioned with multiple growth catalysts converging to accelerate our momentum. I am very excited for this comeback story. And with that, let's get to your questions. Aurelien Nolf: Great. Thank you, David. We will now open the call to questions. [Operator Instructions] So I think our first question is coming from Doug Anmuth from JPMorgan. Douglas Anmuth: David, maybe I'll just ask first about your very last comment there, just about the multiple converging catalysts in 2026 and what makes you so excited there. And then if you could also just comment on insurance. You had talked about the savings from SB 371. And just curious if that is still the plan to kind of benefit from all of those savings or if there's some component that gets reinvested into the business? John Risher: Sure. Doug, two great questions. I'm going to speak very briefly here, and then Erin is going to take both of those. But I'll say very briefly on the catalyst side. I've been in this job 2.5 years now. And oh man, that we have more opportunity ahead of us than we've had since the first day. And again, we'll talk about each of the different pieces there in just a couple of seconds, but I can give you some very live data since I was just in our weekly business review. We were just looking at what happened last week. Last week was Halloween, of course, and Halloween was not only our biggest day, it was actually our biggest hour by hour. We've never had as many rides, never been able to fulfill as many rides as we have. It's our biggest day. It was our biggest week and not by a little bit. Just extraordinary momentum going on here that's allowing us to continue to grow. And I should say, just to sort of say the very obvious there, that's just in the United States. That's not even the FREENOW and Europe opportunity and the TBR opportunity. So we're coming into the quarter operationally so strong, so customer test and with so many opportunities next year, it's really a pretty extraordinary time. So I'll turn it over to Erin to talk both about the catalyst and then the insurance question or the [indiscernible], the California question. Erin Brewer: Yes. Great. Thanks, Doug. I might go on a little longer than David because I'm kind of excited about this subject. But you see our Q3 results, Active Riders growth at 18% year-over-year, all-time high. Gross bookings up 16% year-over-year, another all-time high. Adjusted EBITDA, as David mentioned, up 29%, another all-time high. So that's our consolidated business, but take any of those metrics just for North America, same, all-time highs. So we've got a lot of momentum. Our guide for the fourth quarter is for rides to be up mid- to high teens, gross bookings up 17% to 20%. So we see accelerating growth into the fourth quarter. And as we sort of sat and reflected on where we'll end up for 2025, it was important for us to talk about how we see 2026. So it really starts with our marketplace is stronger than ever, right? We've got record levels of Active Riders. We've got record driver hours, as David mentioned, record rides. And so multiple catalysts coming together to keep driving this momentum forward. And I'll just mention a few. First, David led off with the United partnership. Doug, you were first, so maybe you connected your accounts first. That's great. Congratulations. But we're excited about that. We think that's going to be a great program. Obviously, great value for Lyft, great value with our partner, United, we will see full year contributions from FREENOW, and we expect that business to grow year-over-year. We're also going to see a full year of impact from TBR Global Chauffeuring, the acquisition that we announced recently. That's only going to show up for a pretty small portion of Q4 in 2025. Underpenetrated markets remain a fantastic area for us. We had previously talked about those markets in the U.S. representing about 2/3 of that 161 billion personal vehicle trips annually that we see as our market opportunity. And in Q3 alone, about 70% of our rides growth came out of those areas in North America, and we see strong continued catalyst for growth there. I'll get to California insurance reform in a moment, but that's another area that we think has great upside in terms of continuing -- driving new demand on the platform as a result of that. And we've just got strength across our core platform. As you know, we've been driving many programs over a long period of time now to drive driver preference. We've got a great driver rewards program. That's going to underpin our platform health. We've got a fantastic business rewards program that we're continuing to promote and get out there. The acquisition of TBR is a natural catalyst. A lot of those people are business travelers. So yes, there's a lot to be excited about as we think about how we're ending 2025 and then what the setup is for 2026. So thank you for indulging me. Hopefully, you could hear the excitement in my voice. As it relates to California, just to kind of bring everyone on the same page, some people talk about this is the California insurance reform. It's also formerly known as SB 371. The headline here is the passage of this bill, which is going to go into effect in 2026 is a true win-win-win. Riders win, drivers win. And the great thing is when both of those constituents win, so does Lyft. So what does it mean? Rideshare is going to become more accessible to riders with a reduction in insurance. It does away with outdated $1 million required coverage for uninsured -- underinsured motorist requirements. It's been in place for a while. And it's 16x higher than the typical auto coverage, where a vast majority of claims are settled for under $100,000. And over time, this has increased the cost of Lyft rides. In 2025 in California, riders have been paying an average of over $6 per ride just in insurance costs alone. And then in certain areas like L.A., it's even higher. It's almost double than that. It's just nuts. So this bill modernizes those regulations. We see passing along the vast majority of those savings to riders in the form of price reduction. That's going to stimulate demand. That's going to be great for drivers, more earnings opportunities and then great growth opportunities for Lyft overall. Aurelien Nolf: Our next question comes from Eric Sheridan with Goldman Sachs. Eric Sheridan: David, I think there's a debate going on among investors right now in the sector on how to think about the engines of growth when measured against incremental margins in the sector beyond just the end of this year, but out over the next couple of years. Can you just hit refresh on your philosophical view on how to think about the balance between incenting growth, driving innovation, but also delivering on continued margin trajectory over the next couple of years? John Risher: Yes, sure. Good to hear from you. I mean, I think, gosh. When you hear that perspective, I think it almost immediately should make you think the people asked that question are sort of thinking a little bit small. They're thinking kind of 0 sum. Because, again, just to sort of state the obvious, but as you say, kind of reground, we're now doing 2.5 million rides a day. That's a big number. And by the way, when I started this job at an Investor Day, you'll have heard us say 2 million rides a day. Now it's 2.5 million rides a day. But we are more profitable now than when I started by a lot. And we're delivering better service. Here's a fun fact. Remember those Halloween stats I was just sort of putting out, we actually pick people up faster this year than we did last year, even though we were doing more rides by a lot. So what that tells you is there is an enormous amount of service upside that we've unlocked over the last couple of years that did not come at the expense of our economics. In fact, it was exactly the opposite. It's exactly the opposite. Now why might that be? Well, that might be because those 2.5 million rides, which then translates to 900 million rides a year, let's call it, plus the other guys, 1.5 billion rides a year, let's call it, so 2-point-some billion rides per year is a tiny fraction of the 161 billion rides just in North America. And then remember, with our FREENOW acquisition, TBR acquisition, we now have a TAM that's twice as big. So I sort of -- I mean, like I get this kind of conceptual trade-off, but I think that conceptual trade-off is sort of a scarcity mindset sort of 0 binary, kind of like we win, the other guys lose or whatever, whatever. I think there's so much innovation left. I'll give you a little tiny story there. We launched Lyft Silver, whenever that was, maybe 6 months ago. And now we've increased ridership just in Silver. So this is for older Americans. It's only available in the United States right now. For older Americans, those rides have increased 50% just in the last 6 months to well over 1 million rides in total. And that's just the beginning of that program. And that's not like a low-cost program or sort of a margin dilutive program, whatever. So anyway, I'd go on this for a long time, but I think that the -- customer obsession drives profitable growth. That continues to be our mantra. Innovation is what is -- that's how you get from tiny to small and medium to large, extra large. And it's a great product, and it's only going to get a better product. And I sort of -- I don't worry a whole heck of a lot about having to buy that growth or anything like that. I think there are much better ways to get that growth, and it's through innovation. Aurelien Nolf: All right. Our next question is coming from Justin Post with Bank of America. Justin Post: I'll ask a couple on AVs. I'd love to hear your thoughts on how -- nice job on the Waymo deal, but how do you think about AV economics and if that changes anything on margins? And then second, what you're seeing in markets where Waymo is currently operating? John Risher: Yes. Let me -- it was Justin, right? Yes. Let me -- I'll take the last part first. I'll kind of back into it a little bit and then maybe hand it over to Erin to talk a little bit about the economics of what we're seeing. So the first -- okay, the answer to the first question is, in markets where AVs operate, rideshare is growing faster than -- and I'm talking about comparable apples-to-apples markets than rideshare -- than markets where AVs are not operating. So that tells you right there that the first thing that happens as AVs come on is they expand the market. And this is what we -- because these are new markets, right? I mean, let's be clear. So that's very exciting for us. As an industry, we should be very excited about AVs. It's a good product. It works well. People like it, and they take that and then they take traditional driver-driven rideshare as well. So that's wonderful. So then let's talk about the economics. So in the medium term -- okay, first, like any new thing requires investment. You know that, right? So for example, in Nashville, where we're hooking up with Waymo, we're going to build a depot. Erin will talk to you about that in a couple of seconds. But the relationship -- the reason I'm going to go into a little bit of depth on this, we spent quite a lot of time with the Waymo team really trying to work out an arrangement that was built to scale. And built to scale means it's good for us and it's good for Waymo and it's good for riders. Okay. So what does that look like? That's good on one click. When you put AVs, we're talking about now in Nashville, a couple of hundred AVs that will be on the ground over the next year, and that will grow over time. When you put AVs on the ground, the first thing you want to make sure is are you set up for them to be highly available. It doesn't do any good to have an AV sitting there that's not charged, it's not clean, it's not repaired, it's not properly maintained, not ready to go. If you don't have that, you got nothing. So why are we good at that? We're good at that because our Flexdrive subsidiary has been doing it for many, many years. We have a 90% availability rate. Talk to the rental car guys, and they'll tell you that, that is an admirable enviable number. So we're good at that, and we're only going to get better. So that's number one. And we get paid for that, Erin I'll talk about that in a couple of seconds. And the second thing is you have to talk about utilization. Utilization means, okay, the car is available, but is there a rider in it because that's how revenue is generated. And the answer there is we've worked very, very closely, very deeply, very technically with Waymo to set up an arrangement where regardless of whether the car is ordered on Waymo or on Lyft, we're going to be maximizing utilization. It's an integrated supply management system that's quite technical, but -- and will be hard to implement. But once we've got it right, we'll be able to scale it up because both companies have ambitions to scale up both within Nashville and beyond over time. So that's sort of the structure of this thing. You got to have high availability, you got to have high utilization. You got to have systems that are super tightly integrated to make sure that the physical world and the digital world all come together seamlessly, and it's a beautiful experience for riders, which is how you drive growth. And now we can talk about the economics, broadly speaking, of course, you've got to invest in some physical infrastructure, but we like the unit economics there a lot, and I'll turn it over to Erin to talk about that. Erin Brewer: Yes, sure. A couple of things to think about here. David just sort of described what we call an integrated supply management partnership, right? So that's number one, on the fleet side, driving availability. And number two, as we think about the sort of integrated supply piece of it, it's about driving utilization, 2 critical things. The good thing is about this construct that we have going in with Waymo is that Lyft earns regardless of platform, right? So regardless of where the car is deployed, we're responsible for it being available. Obviously, when a ride is deployed on Lyft, then there's economics there. So that's the piece of the arrangement. David mentioned we're building a depot. We had previously disclosed we thought it would be about $10 million to $15 million investment. We signed the lease. Teams are raring to go. So we're excited about that for 2026. Aurelien Nolf: And our next question is coming from John Blackledge with TD Cowen. John Blackledge: Great. Two questions. First, can you talk about the opportunity in the low-scale markets as a driver of growth over the next couple of years? And then second, I think you maybe just got through your -- the annual insurance renewal. Just curious what we should expect to see in terms of impact to cost of revenue. Erin Brewer: Sure. John, I'll start with that, and then I'll turn it over to David to talk about what we're seeing in those scale markets. So yes, we just completed our 10/1 renewals. What we're seeing is we expect a mid-single-digit increase on a per ride basis, great outcome, very competitive. Our team continues to make really strong progress in bending that insurance cost curve. All the pillars that we talked about at our Investor Day are the same things, continuing on technology and approaches to make our platform to reduce accidents and reduce accident frequency on our platform, critical pillar. We continue to make strong advancements there. We've continued to build -- to continue to deepen our relationship with our third-party insurance partners, which has a number of benefits, including the way that we share data and can quickly and efficiently resolve claims. And then, of course, on the policy front, we talked -- I talked a little bit about California a little a minute ago, but we continue to push forward with what we think are common sense reforms on the policy front. So really, really proud of our team for the outcome on our 10/1 renewals. And I'll turn it over to David. John Risher: Sounds good, and we can even tag team on this. I mean -- so for the last -- I'll give you just a little color. Maybe it's been 18 months or so since we've really started to focus on underpenetrated markets. And the reason is, I mean, aside from just sort of diversification, let's say, you don't really want all your eggs in the sort of biggest city basket. But 2/3 -- we look at -- I just mentioned that 161 billion rides in North America. About 2/3 of those are in underpenetrated markets. And we saw in Q3, about 70% of our growth came again from those markets. So there -- so I mean it's a large part of the country, a large part of the TAM. And then there's -- we're seeing great opportunity there by doing some very clever and careful market management in those markets. I'll give you some examples so you can kind of visualize. You might think of -- back-to-school is just kind of come and gone. And so when you think back-to-school, you might think high school. But if you think college, you're talking about very significant communities, Bloomington and East Lansing and state college and so forth and so on. And in each one of these, we deployed a specific program to really tap into that back-to-school market, and we saw incredible results, actually outsized results compared to the growth we've seen elsewhere. So this is one of those -- and I will also say, without sort of tipping our hat too much, I think AI can play an interesting role here as well as we look to manage those markets more carefully than maybe we have in the past. So a lot of opportunity there, more to come. But for sure, you should expect to see quite a bit of our growth come from there in the future. Aurelien Nolf: And our next question is coming from Michael Morton from MoffettNathanson. Michael Morton: This one is for David. David, with the FREENOW acquisition complete and then the TBR deal, your global vision for Lyft is starting to come into view, and you love to talk about 2 customers in the car. So what I would love to learn what is the opportunity that you see outside of the U.S. for where those 2 consumers are being underserved by the competition and how Lyft can offer a better product for both of those consumers? And then maybe a very quick one. For Erin, we've had a couple of questions on this so far. But the #1 question we got from investors this last 90 days and after the Waymo announcement was, how can Lyft deal be accretive when the other guys talk about that they're losing money on AVs? So I don't know if maybe you could talk a little bit about is the take rate different because it's a hybrid network or anything around there, I think, would be really helpful for some of the investors asking those questions. John Risher: For sure. So Michael, if you'll permit me, I'm going to zoom out just a click from your question and then zoom back in. So the premise was, gosh, you've acquired FREENOW and you've acquired TBR. What are you going to learn, particularly about service and sort of maybe like underserved markets maybe for riders and drivers. I'll come back to the second part in a second. But let's just talk about those acquisitions for just 30 seconds each. So FREENOW, you'll remember the theory of the case is fairly simple, right? It sets us up great in the short term to become a much, much more global company. It doubles our TAM. It works with a leader in Europe across the taxi segment in particular, which is an incredibly important part of the sort of European ecosystem kind of ethos. And it sets us up very, very nicely for autonomous in the future because fleet management and government relations turned out to be really important in the world of autonomous. TBR, more recent, and we haven't talked about that publicly, of course, because it happened during the quiet period. This is a global chauffeur network, very, very global. I'd say that in the sense that it operates in some 3,000 cities around the world. And we're talking about Paris and London and Frankfurt and Manchester and Zurich and Hong Kong and Singapore and Dubai. So world capitals. Why? Because -- it focuses on executives, people doing, for example, non-deal road shows, many of the bankers on the call are very familiar with big events like the Super Bowl or F1, the sorts of things. And so -- and it offers a very, very high level of service. It's part of a $54 billion market. This is a different market from the on-demand sort of even the on-demand high-value mode, like Lyft Black, for example. This is a thing way up above that, a much, much higher service level. Okay. So if you then look at those assets that we now have, then the question becomes, right, how can you deploy them best? And also how can you take what you've learned in the United States and bring it globally? And just maybe a little bit of editorialization here. I think taking a North American company and making a global company is no small thing. But we're going to do it. We're going to do it because the great companies are truly global. They're the ones that are not just thinking of the U.S. as center of the universe and everywhere else is kind of being less them. They're the ones that learn from what you see overseas and bring it back to the United States and then take it all around the world. And so for example, if you look at TBR, their service excellence is unmatched. They're very much a global company. They're actually headquartered in Glasgow. They have their global operations center, center of excellence in Dubai. Extraordinary, extraordinary skill set there to level up the service that Lyft can provide all up and down the stack. And then FREENOW, of course, has been a high service group forever. Okay. So what are then the opportunities? I think the opportunities are I'd say that ride-hailing in Europe, in particular, has been a little bit of a degraded experience. If you spend time overseas, it's maybe not even to the quality here in the United States, and I'm not satisfied with where we are in the United States either. So I don't want to tip my hand too much, but I would say a lot of the value we're going to add from "Lyft" is bringing some of our marketplace skills like priority pickup and wait and save and some other modes to Europe, bringing our driver obsession, I think, in particular, to Europe. And then from Europe, bringing some of the service excellence that we're seeing, particularly at TBR, but also from FREENOW and bringing that all around the world. So a bit of a long answer, but I hope that gives you a list of flavor of how we're thinking about it. Erin Brewer: Yes. A couple of things maybe that I would add to that, and then I'll come back to your question, Michael, on the Waymo deal is also as you think about FREENOW, think about the skill set that we have around the way that we drive value and volume through partnerships. And our partnerships, the partners that we are aligned with are global, right? There's a great opportunity there. We talked about -- David talked about AVs just a minute ago, another great opportunity there. I think I mentioned earlier, TBR. Obviously, David highlighted that a lot of those are business rides. We've been investing across our high-value modes now for some time and just organically seeing some very strong success in Q3 alone, our high-value modes were -- grew 50% year-over-year. And so TBR is a great addition to that overall strategy. Sort of back to your Waymo question, I'd talk about a couple of things. I articulated this as being about driving availability and driving utilization. So the availability side leverages Flexdrive. And I think the unique thing here and maybe a bit of the advantage we have is this is something we know. We know how to keep a car available with very high quality, very high uptime, so to speak. And so we feel great about our ability to drive value to the partnership through that in-house expertise where, again, we're bringing skill and experience to the table. The second piece of this is all about utilization, right? And these two words are kind of, I think, the magic ingredients here, high availability and then high utilization. And if you think about this fairly differentiated way that this integrated supply management partnership is constructed, it's really designed for high utilization, whether the car is deployed across Waymo One, dispatched across Lyft, you're going to get maximum utilization. It's really sort of our vision of a hybrid network over time. So that's the framework with which I would leave you to think about this. John Risher: If you don't mind, I want to underscore exactly what Erin said and point out that in the Flexdrive side, not only are we best-of-breed in terms of availability. But as Erin said, it's an owned asset of ours. That means we don't have to pay someone else for that. So you can partner with other fleet management but that's going to cost you money, right? So we've got a very, very nice cost -- both high expertise and very nice cost position on that side. And then on the utilization side, yes, we think we've worked out a scheme that allows whether you get the car from Waymo or the car from Lyft, it's going to be the same pool, dynamically sort of dispatched depending on this kind of algorithmic work we do, and that will lead to higher utilization, which then improves the economics for both of us. Aurelien Nolf: Our next question is coming from Brad Erickson with RBC. Bradley Erickson: Two for me. So first, I think last quarter, Erin, you've given us some nice insight on how FREENOW might layer into the model, both on bookings and then on the margins. I see the 42,000 rides in the letter, but just curious if you can update us on anything there, what you wound up seeing in Q3 and then what you're embedding into the Q4 outlook? And then secondarily, when you're calling for the bookings acceleration next year, I guess, in both North America and globally, just curious if you're embedding anything additional partnerships wise that you have in the pipeline or if that's just based on everything you've announced as of today? Erin Brewer: Yes, I'll work my way backwards. The 2026 sort of building blocks that I articulated right out at the set, if you'll notice, it's just all of the things that you know about today, announced partnerships, announced acquisitions, et cetera. So that's what's embedded overall in that outlook. And then as it relates to FREENOW, I don't have a big update for you here for the back half of the year. We sort of talked about the incoming run rate. We expect FREENOW to accelerate in 2026. We're expecting about EUR 1 billion on the top line overall. So hopefully, that's helpful. We gave some additional guidance about the dynamics of how FREENOW flows into our P&L, talked about the impact on revenue margin, et cetera, but happy to go into any more detail, Brad, if you have anything else. Bradley Erickson: I guess just -- yes, you had talked about those gross margin effects last quarter. Just curious if those are playing out as expected. It sounds like they are. Erin Brewer: Yes, they are. Yes. John Risher: Brad, I might add just because we're now talking about the international world outside of the U.S. Canada also turns out to be a nice growth driver for us. We've talked about the growth there in the past. I think we delivered about 11.5 million rides in the quarter there as well. So again, I know your question was about FREENOW, but just to sort of fill up the international story just a bit more. Aurelien Nolf: Our next question is coming from Nikhil Devnani with Bernstein. Nikhil Devnani: If I could please follow up on the Waymo partnership. How does the algorithm kind of balance demand between your funnel and their funnel? Presumably, you're going to have a lot more demand on day 1 than they are. So what does that balance look like? And do you fully expect to be facilitating rides during peak times of day as well? Or is their platform the first one of choice when ride requests come in? It would be helpful to understand that. And then maybe a follow-up for Erin on insurance. Following California, are you expecting any movement in other -- any other major markets as you think about 2026 and 2027? Erin Brewer: Nikhil, I'll start with that and then turn it over to David. So as I mentioned when I talked about our 10/1 renewal, working toward common sense, what we view as common sense policy and insurance reform has long been a pillar. I think in the past, we've talked about changes to reform in Florida, changes in Georgia. So this is something that's not new. We will continue to work on it. Progress is difficult to predict. There's nothing inherently in any of the remarks that we've talked about for 2026 necessarily assumed. I mean these things are difficult overall to forecast. But I would say that we are certainly optimistic that as perhaps other states see how some of the reforms in California, we believe will lead to much better ride accessibility, better earnings opportunities for drivers that they'll think that's pretty interesting. John Risher: Well put. And then Nikhil, I'm not going to give you too much detail, but I'll say a little bit, I think, maybe so that everyone kind of understands the complexity that you're referring to. So yes, so imagine a world as will be the world we exist in next year, where there are hundreds of AVs in a market, but there's no way that all of those AVs can satisfy all the ride requests, not even close. So okay. So -- and then imagine -- again, you don't have to use your imagination. This is the future, where those ride requests for AVs are -- well, those ride requests in general, but specifically for AV, of course, are coming in from 2 different platforms. They're coming from the Waymo platform and they're coming from the Lyft platform. So -- so you get quite a complex situation there that you have to manage if you want not to do goofy things like saying, okay, well, you, Waymo, get 100 of those and Lyft, you get 300, which is never a good idea because it means inevitably, there'll be some stranded on one side, they don't get to the other and get stranded on the silly stuff like that. So anyway, to your point, so then your first thought is, well, maybe you're just going to come up with some other very basic heuristics. But it turns out those heuristics are not the way the world -- the real world is very, very -- head of marketplace stochastic. It changes very quickly, very dynamic. You have some peak times, you've got some low times. Neither one of us wants to be stuck with anyway. So I can go into detail about this maybe another time. But the point is it's not going to be straightforward. It's not going to be like, okay, someone so gets the first 10 and then you get the next 10 or whatever it is. Literally, every single time a ride request comes in, the work that we have done and we'll continue to do will be to figure out what is the absolute best way to fulfill that ride. And there will be many, many dimensions of that. Some of it is ETA and so forth, ETA, meaning how fast it is pick you up. Some of it might be time of day. It might make all the sense in the world to start picking people up at certain times of day using only AVs for certain reasons. So anyway, it's sort of a non-answer, non-answer. I grant you that. But this is the reason why this partnership, frankly, took quite a while for us to work out. But we're very confident, both companies are very confident having run a [ bajillion ] models across this thing that we have something that is going to be effectively accretive for both and keep these assets best utilized. The last thing I'll say is I think in a sense, this is really the argument for the big thing, which is a hybrid network. It's really, really hard to satisfy demand just with AVs anytime in the near future. There's just not enough supply in the world. And so -- but drivers, they own their own cars of that size. There's no asset ownership you have to have, and they come on and off quite dynamically, again, depending on pricing. So that's the third dimension. Put it all together, and we think we're going to create something where the whole is great than some of the parts. Maybe someday down the road, we'll tell you a little bit more about how we do that, but that's the big picture. Aurelien Nolf: All right. Our next question is coming from Ben Black with Deutsche Bank. Unknown Analyst: This is Kunal for Ben. A couple of follow-ups on the AV and the Waymo opportunity. One would be in terms of building out the centers, the service centers in each market. Is that something that you're going to do ahead of time like planning for the next few markets? Or is that going to be on a market-by-market basis based on partnerships that you have already entered into? And then second, what level of availability and utilization do you need to be breakeven or contribution profit neutral for the network to kind of pay off? So like in a 24-hour day, how many hours do you need the vehicle to be available? And how many hours of usage does it need to have? Erin Brewer: So Kunal, I'll start there. And then maybe, David, do you want to talk about how we think about over a much longer period of time, how you scale AVs across a broader set of partners. Short answer here, Kunal, is I'm not going to go into the details, obviously. As we ramp up this partnership, as we gain experience together, we have a lot of optimism. Obviously, both the teams will have more to say down the road, but I'm going to stop it at that. John Risher: Yes. This is going to be an area where we're going to have to be a bit a little vague. The thing -- so, yes. Let me just -- let me talk about utilization for one more second and then zoom out. So you might think to yourself, well, it's not that hard to keep an AV utilized because you don't have that many of them and you got a lot of demand. Well, it turns out that's not the way riders think about things. Riders think about things, is this close enough? So I need to get some place. And is this car close enough to pick me up on time? And if it is, then I'll take it. If it's priced right. And if it's not, then I won't. And so this is where our history comes in, right? I mean we've been operating in Nashville for a decade now. So we have an enormous amount of data about what time you would expect supply to be needed, where the demand is going to be, specifically, I mean, down to the block-by-block level. So it is this sort of -- the inputs here are everything from geography to history, to weather, to special events, is a big event weekend and so on and so forth. And that's something we've been doing for many, many years. And that's expertise that we can bring even in a -- in a new city, like it's a new city for Waymo, not a new city for us. So -- that's kind of the good news. And then you've got to make sure that, as I say, the car is available to drive and that it's priced right and so forth and so on. Again, I'm not going to talk about exactly those breakeven points. But I will say that we look at the economics of this, and we don't -- we're not scared by effect of the opposite. The unit economics you would expect would favor AVs over time, you would expect because the variable cost, obviously, to running an AV is relatively low, not 0, to be clear. There are cloud costs or electricity costs and maintenance costs and so forth. But it's -- there are certain costs you don't have to pay. And then you would expect insurance to be lower as well. So those are sort of some of the inputs that we put in our model when we try to model these things out. But we like the economics of AVs a lot and think that we've set up something that from the start is going to be accretive and then we'll get better from there. Aurelien Nolf: Great. So our next question is coming from Walt [indiscernible] from [indiscernible]. Unknown Analyst: Can you hear me now? David, I just want to go back to the earlier question in terms of Nashville, and I think you said expand beyond Nashville. I think you meant maybe downtown Nashville, but can you just update us on how you see that relationship going over time if you execute with this kind of shared inventory that you have with Waymo that obviously is different than how Uber has structured it in Phoenix. Is there opportunity to get additional markets? And what time line do you think would have to occur before that relationship could expand not just beyond downtown Nashville, but into new markets? John Risher: Yes. Good question and good clarification, Walt. So we have structured this partnership. I would say it this way. Both companies have ambitions to scale beyond just Nashville. And we built this partnership with the belief that, that's the goal. Talking about time lines is premature. But I would say that certainly, the constructs we're using here are constructs that both companies believe can be the basis of something that expands to other markets, and I'll just sort of leave it at that. Unknown Analyst: And do you think -- just a quick follow-up. Do you think the structure of how you've done this deal with Waymo, because it obviously is different when you're sharing that fleet, right, as opposed to separate fleets and Flexdrive make it a stickier relationship. Obviously, if you execute on both, it becomes maybe harder for Waymo to -- at least in those markets that you launched to try and execute on something different. John Risher: I mean I don't want to comment exactly on how they view it, but I would certainly say that our goal, and I'm speaking just from a Lyft perspective here, is to provide such a great level of service that no one has any reason to look anywhere else. But yes, and I think it's also fair to say that the deeper a partnership, the more likely it is that neither one wants to do too many other things beyond that. But here, I'm just speaking sort of generically. Aurelien Nolf: And our next question is coming from Stephen Ju with UBS. Stephen Ju: David, I don't think I've seen you guys talk about the university programs in a while. And I suppose the opportunity is as attractive as it's ever been as you get to onboard these users who get hopefully very accustomed to using Lyft on other people's money. But I also recall there were all kinds of other directions for these partnerships between getting folks to doctors' appointments, et cetera. So can we talk about the resources that you might be putting together to maybe accelerate the signing of the, I suppose, the enterprise customers because it seems like such a win-win development for everybody involved. John Risher: Yes, Stephen, I appreciate the question. I guess maybe as -- I don't know if my habit today, I'll zoom out a touch before kind of zooming in. So business-to-business opportunity, and there are different types, right? You mentioned universities as a particular area of interest, and we have specific relationships with certain universities to provide transportation on campus, very interesting. We have health care. Lyft Healthcare remains a leader in the field. It's called nonemergency medical transportation, and it's getting quite a lot of additional focus now versus the past. We've got a new -- Buck, who continues to lead that is the same, but then over him, Suzie now brings kind of new perspective and new energy to that. And then B2B, when you're thinking about kind of corporate transportation of various different types. Of course, TBR is a very high-end thing. We talked about that already, but many companies have preferred travel partners and so forth. So I'd say each of these areas is getting renewed focus. One of the nice things about really focusing on rideshare is there are a lot of -- like we're not distracted by food delivery and all kinds of things, like we can really, really focus on rideshare and look at all the different segments and how we're treating each one of them in the highest quality way. So -- maybe what I'll do, if you don't mind, I'll pivot just a tiny bit towards the business rewards or the business side of things rather than just the university and the health care side. We, for a number of years, if I'm honest, we haven't had a great offering for business travel managers who want to give their companies -- excuse me, their employees a reason to choose Lyft. Now we have one. We rolled one out at the beginning of September. You get 6% back. You just mentioned this idea of other people's money. So yes, so often as a company, it's the company that's paying. We're giving you 6% back. You can then use that on your personal rides as well. That's literally Lyft cash back, you can use it in personal rides. We've seen great uptake there. And by the way, how much does it cost? 0. It costs 0, which is different from the other guys that cost not 0. So that's an area where we -- so I would say just generally, again, business-to-business has become an increased area of focus for us. We're seeing really good traction in some of these early programs we put out. Health care has been a strength of ours for a long time. And then universities, I'm glad you bring it up. Maybe stay tuned for more on that one. Aurelien Nolf: All right. Thank you, Stephen. Thank you, David. David, any closing remarks? John Risher: I think if that's it, my main including remark is you -- then, well, better be hooking up your United MileagePlus to Lyft because that's a great program and up to 4 miles back for every dollar you spend. Look, we've had a great quarter. And the reason we've had a great quarter is not just because of what we've done in the last 3 months. It's because we've been doing over the last at least 2.5 years since I've been here, obsessing of our customers. That's what drives profitable growth. I think when Erin and I started, I think the first quarter, I think we had consumed $329 million of cash, if I'm not mistaken. Now we're producing $1 billion of cash. It's a $1.3 billion swing. And the reason that's happened is because we've been obsessed with our customers, and we have an incredible team every single day that wakes up and just crushes it, and they're the ones that get all the credit. So we get to talk about it. They're the ones that do the work. And thank you all very much to investors for traveling along with us, and we're looking forward to keeping up to date. Aurelien Nolf: Great. Thank you, David. Thank you, Erin. This concludes today's conference. Thank you for joining, and you may now disconnect.
Operator: Ladies and gentlemen, thank you for joining us, and welcome to the Resideo 2025 Third Quarter Earnings Call. [Operator Instructions] I will now hand the conference over to Chris Lee, Global Head of Strategic Finance. Chris, please go ahead. Christopher Lee: Thanks, and good afternoon, everyone, and thank you for joining us for Resideo's third quarter 2025 earnings call. On today's call will be Jay Geldmacher, Resideo's Chief Executive Officer; Mike Carlet, our Chief Financial Officer; Rob Aarnes, President of Resideo's ADI Global Distribution business; and Tom Surran, President of Resideo's Products and Solutions business. We would like to remind you that this afternoon's call contains forward-looking statements. Statements other than historical facts made during this call may constitute forward-looking statements and are not guarantees of future performance or results and involve a number of risks and uncertainties. Actual results may differ materially from those in the forward-looking statements as a result of a number of factors, including those described from time to time in Resideo's filings with the Securities and Exchange Commission. The company assumes no obligation to update any such forward-looking statements. We identify the principal risks and uncertainties that affect our performance in our annual report on Form 10-K and other SEC filings. In addition, we will discuss non-GAAP financial measures on today's call. These non-GAAP financial measures, which can sometimes be identified by the use of adjusted and the description of the measure should be considered in addition to, not as a substitute for or in isolation from our GAAP results. A reconciliation of GAAP to non-GAAP financial measures is included in the financial data workbook, which is accessible on the Investor Relations page of our website at investor.resideo.com. Unless stated otherwise, all numbers and results discussed on today's call other than revenue are on a non-GAAP basis. With that, I will turn the call over to Jay. Jay Geldmacher: Thank you, Chris, and thanks to everyone for joining us today. Resideo demonstrated solid execution in our third quarter. Adjusted EBITDA was a record high and approximately the midpoint of our outlook range. Net revenue was within our outlook range, despite incremental macro and operational headwinds that we believe are transitory and record high adjusted EPS exceeded the high end of our outlook range due primarily to higher net income associated with terminating the Honeywell Indemnification agreement. Our results continue to demonstrate the company's healthy operating fundamentals. We achieved low single-digit organic revenue growth year-over-year at both our ADI and Products & Solutions business segments. We increased year-over-year margin rate and profit dollars at both the gross margin and operating margin levels, leading to record high gross margin and record high EBITDA. Demand for our new products, including the First Alert combined smoke and CO connected detectors continues to be strong. We are excited about our new products introduced in the third quarter, including our new premium ElitePRO Honeywell Home smart thermostats that we believe will be one of our drivers of future growth. As been the case for several quarters, ADI's integration of Snap One continues to progress well ahead of schedule. Tom, Rob and Mike will speak more to our operating activities shortly. On the macro environment, Resideo continues to execute well amidst an unpredictable economic landscape as further rate cuts remain uncertain with concerns of inflation, along with the ongoing volatility of the tariff landscape. On tariffs, our mitigation actions continue to be effective and are materially unchanged from what we shared with you last quarter. In addition, we have not seen material tariff-related impacts to customer demand at either ADI or P&S this quarter. We also have not seen any meaningful impacts to our business from the recent U.S. government shutdown. Before I turn the call over to Tom, I'll touch upon the ongoing separation activities we announced this past July. Our various work streams are proceeding with pace and discipline, and we are on track to complete the separation during the second half of 2026 as previously communicated. Most importantly, our P&S and ADI teams remain focused and are working diligently to advance their respective go-forward strategies. I'm very pleased to announce that Rob and Tom will lead separate companies as CEOs at the completion of the anticipated spin, and they have both started to work on their go-forward organizational design and structure. Let me now hand the call over to Tom. Thomas Surran: Thanks, Jay. On a year-over-year basis, the Products & Solutions team delivered another quarter of organic net revenue growth, lapping a tough comparison and the 10th consecutive quarter of gross margin expansion. P&S' net revenue grew 2% year-over-year, which includes approximate 1% favorable impact from currency. Revenue grew due to both volume and price across the majority of our product families and sales channels, which more than offset the performance of our air products that were impacted by a softer residential HVAC channel. Let me walk through each of our primary sales channels. Let's start with the retail channel, which experienced strong point-of-sales volumes as demand for our products led by the new First Alert SC5 connected smoke and CO detector continues. As a reminder, the SC5 was developed in partnership with Google Nest and was specifically designed to seamlessly replace Google's discontinued Nest Protect alarms. The OEM channel was another highlight of the quarter, posting low double-digit percentage revenue growth year-over-year. The OEM channel posted a fourth consecutive quarter of year-over-year revenue growth, driven by greater volumes of higher-priced units in both the Americas and EMEA. The electrical distribution channel also had another quarter of year-over-year revenue growth. Greater volumes of our BRK branded safety products were sold to more residential homebuilders, increasing our dollar content per new home. We also saw volume strength in the MRO, manufactured housing and commercial markets as we look to diversify sales of our UL 8th edition safety products. Revenue in the security channel was up year-over-year, primarily due to volume increases with several customers. This includes ADT with whom we recently signed a new multiyear commercial agreement. Revenue in the HVAC channel was down by a low double-digit percentage year-over-year due to the softer residential HVAC market, which impacted sales volume. Let me add some color here. The residential housing market continues to be soft and previously relatively unchanged throughout this year. Towards the end of the third quarter, we started to see stronger market headwinds relative to last quarter, primarily due to inventory of HVAC equipment subject to the regulatory change for new refrigerants. While our thermostats do not use any type of refrigerant, we still experienced a ripple effect from the market disruption related to the regulatory change. We believe these conditions in the HVAC market are transitory. The health of the broader industry appears better now than it did several years ago. Various market signals indicate those industry participants currently impacted are looking to normalize inventory over the next quarter or 2. We believe we are well positioned to capitalize on the anticipated positive change in market conditions as our channel inventory levels in the third quarter are relatively healthy. We also have been experiencing continued demand for our Focus Pro thermostat introduced in the third quarter of last year and have received strong interest in the recently introduced ElitePRO product. Given our customer engagement, we believe demand has been building for our new products introduced this quarter, including the ElitePRO premium smart thermostats, which recently began shipping. These modern and energy-efficient premium thermostats have the largest touchscreens in their class, interoperate with video doorbells and offer precision sensing and control functionality around temperature and indoor air quality. These thermostats are powered by our Pro-IQ services, which can help our professional customers by streamlining labor, increasing loyalty and generating leads. We began taking orders for the ElitePRO during the third quarter and commenced shipping recently. Moving on to profitability. Gross margin was 43%, up 80 basis points year-over-year, driven primarily by continued efficient utilization of our factories. This is the 10th consecutive quarter of year-over-year gross margin expansion and gross margin has increased by approximately 500 basis points over that time span. Efficiency at the gross margin level, combined with operating leverage drove our 5% growth in adjusted EBITDA year-over-year. Looking ahead, we have conviction in our strategy to continue introducing differentiated new products across our Connected Home product portfolio. We anticipate profitable growth opportunities that leverage our operational scale while establishing and expanding our leading position in key markets. With that, let's turn the call over to Rob. Robert Aarnes: Thanks, Tom. The ADI team delivered another quarter of year-over-year organic net revenue growth and the 6th consecutive quarter of year-over-year gross margin expansion. ADI reported 2% net revenue growth and average daily sales growth of 3%, both year-over-year. Both include an approximate 1% favorable impact from currency. From a product category perspective, ADI saw most product categories growing a low single-digit percentage year-over-year. Tariff-related pricing more than offset volume in the quarter. ADI also achieved solid growth in our strategic focus areas. Both the datacom and Pro AV businesses each grew revenue by low double-digit percentage points year-over-year. Growth in residential AV was flat year-over-year amidst continued softness in the market. Exclusive Brands revenue grew 3% year-over-year, driven by positive momentum from our new products such as Lux Lighting and the new X4 smart home user interface from Control4. E-commerce revenue also grew 3% year-over-year, highlighting the optionality that customers have with our omnichannel experience, while also mitigating some of the temporary impact on stores arising from our ERP implementation. In August, we implemented a modern ERP platform in our U.S. business, replacing an over 40-year-old system. This deployment sets ADI up for future growth and margin expansion versus the market and our peers. Tech stack enhancements and corresponding capability building are expected to deliver even more cross-selling capabilities, optimize pricing management and enhanced digital user experiences. We prepared for the known complexity of the transition. This included the planned closure of all U.S. stores for 1 to 2 days and a modest revenue impact. The expected impact was factored into the 2025 outlook provided on last quarter's earnings call. Now despite that preparedness, we experienced additional process headwinds to those initially expected, leading to a greater financial impact than planned. Specifically, while we had a strong sales month in July, the transition headwind amounted to a few points of unachieved revenue growth in the quarter and lower cash collections. We believe the disruptions are temporary. The implementation is now nearly complete, and I can say that we see no material systems risk ahead. Operations on the new system are now running smoothly, and we are driving progressive improvement in our revenue run rate. In October, we saw increased customer engagement and pipeline size resulting in our order rates approaching pre-system implementation levels. Moving on to profitability. ADI reported 22.6% gross margin in the third quarter, up 130 basis points year-over-year and up 40 basis points sequentially. This is the 6th consecutive quarter of year-over-year gross margin expansion and gross margin has increased by approximately 300 basis points over that time span. The year-over-year margin expansion was primarily driven by another quarter of high cross-sell volumes of exclusive brands across ADI's entire customer base and mix benefits from higher e-commerce sales. The increased margin dollars were offset by nonrecurring costs associated with the system implementation, contributing to flat adjusted EBITDA growth year-over-year. The integration of Snap One continues to progress nicely. We remain ahead of our commitment of $75 million of run rate synergies exiting year 3 post acquisition. We have great confidence that we can overdeliver that amount in that time frame, if not sooner. Looking ahead, we look to build upon our scale and leading position in both the security and residential AV market, underpinned by our customer-first ethos. A proof point of our ethos was a recent award from the B2B eCommerce Association, recognizing ADI as the Enterprise B2B eCommerce Distributor of the Year. This was a result of the company's organic e-commerce growth and implementation of leading technologies that improve the customer experience. We look to continue making investments to drive profitable growth opportunities in our areas of strategic focus. We also look to maintain our world-class execution, capitalize on the revenue and cost benefits of our modern platform and achieve greater fixed cost leverage to drive stronger profitability in the future. Now let's turn the call over to Mike to discuss our third quarter financial results and outlook for the remainder of the year. Michael Carlet: Thank you, Rob. Good afternoon, everyone. Let's get straight into the quarterly earnings for the total company, including record highs in gross margin, net income, adjusted earnings per share and adjusted EBITDA. Total net revenue was $1.86 billion, up 2% year-over-year, including a 1% favorable impact from currency. Both Tom and Rob spoke earlier about the drivers of organic net revenue growth in their respective businesses. Gross margin in the quarter was 29.8%, up 110 basis points year-over-year. The increase was primarily driven by the more margin-accretive activities at ADI and the continued structural operating efficiencies at P&S. Adjusted earnings per share was $0.89, above the high end of our outlook range and up from $0.59 in the prior period. The primary reasons for the increase year-over-year were higher net income and a onetime tax benefit from terminating the Honeywell Indemnification agreement. Adjusted EBITDA was $229 million in the quarter, up 21% year-over-year and in line with the midpoint of our outlook range. The primary reasons for the increase year-over-year were the benefits associated with terminating the Honeywell Indemnification agreement and P&S' EBITDA outperformance year-over-year. Total reported cash used by operating activities was $1.571 billion, driven solely by the termination payment made to Honeywell in the quarter. After adjusting for the termination payment, adjusted cash provided by operating activities was $19 million. This amount was lower than anticipated due primarily to the timing of payments and from lower cash collections at ADI. We anticipate ADI's cash provided from operations to rebound in the fourth quarter now that the system implementation is substantially complete. Now before I provide our financial outlook for the fourth quarter of 2025 and the full year, I'd like to make a couple of framing comments. First, ADI's ERP implementation is now nearly complete, but those activities crossed into the fourth quarter and the related impact is included in our revised outlook. As Rob noted, we are achieving progressive improvement across various sales and operating metrics. Also, ADI continues to execute well against its strategy in a market where the mid-single-digit market growth rate has not meaningfully changed during 2025. Second, P&S is executing its strategy well against a challenging residential macro environment. We believe the benefit of continued new product introductions across a diverse portfolio enables P&S to offset the recent incremental softness in residential HVAC. Our continued focus on driving margin and working capital efficiencies allows for greater contribution of segment cash flow that is reflected in our increased outlook for total company cash from operations. Given some of the headwinds we are facing, we are adjusting our 2025 outlook as follows: total company net revenue to be in the range of $7.43 billion to $7.47 billion, total company adjusted EBITDA to be in the range of $818 million to $832 million, total company fully diluted adjusted earnings per share to be in the range of $2.57 to $2.67 and on cash from operations, excluding the Honeywell termination payment, we are raising our outlook to $410 million to $450 million. Our outlook for the fourth quarter of 2025 is as follows: total company net revenue to be in the range of $1.853 billion to $1.893 billion, total company adjusted EBITDA to be in the range of $211 million to $225 million and total company fully diluted earnings per share to be in the range of $0.42 to $0.52. Please go to our Investor Relations website to access our earnings presentation, which includes our outlook ranges, along with key modeling assumptions for 2025. Now before we open the call for questions, I'd like to share that we are in the midst of our 2026 financial planning process. Based upon what we know at this time, our 2026 outlook is positive and anticipates year-over-year growth in organic revenue and adjusted EBITDA that are both above current analyst estimates for 2026. We will provide more details on 2026 on the fourth quarter 2025 call as usual. Operator, let's now open the call up for questions. Operator: [Operator Instructions] Your first question comes from the line of Ian Zaffino with Oppenheimer. Ian Zaffino: Just kind of wanted to get my arms around some of the, I guess, headwinds here. Can you maybe quantify the impact of the HVAC regulatory change, I guess, both maybe in the third quarter and then as we look at your guidance? And can you maybe do the same thing on the ERP side, so we kind of understand what the different moving parts are of what hit in the third quarter? And then what's driving the delta in the guidance now versus what it was previously? Michael Carlet: Ian, yes, thanks for the question. We don't want to get into the specific impacts of each one of those. They're roughly overall similar type of impacts on the business. As we look at the headwinds that we're seeing, we're very, very focused on the fact that we believe they're transitory. They both caught us a little bit by surprise in the quarter, as we said, we had set our guidance based upon what we saw 3 months ago. And as we went through the quarter, as the HVAC market changed at the end of the quarter, as Rob and his team went through the ERP implementation, that took a bit more than we thought, but it's mostly behind us now. We're about 6 weeks through the current quarter, and we feel really good about the guidance that we're putting out there. Ian Zaffino: Okay. So I guess to be clear, both of these headwinds are going to end in this quarter or have ended and there'll be no bleed into 2026? Michael Carlet: Yes. Everything we see right now says the definitely the ERP will behind us by the end of the year. On the HVAC market, we see it bleeding slightly into next year. We see what other folks are talking about in the market out there. I'll let Tom speak to it specifically, but we do believe it is transitory in nature and won't bleed much into 2026. Tom, anything you'd add to that. Thomas Surran: No, there's -- people have estimates that whether it's at the end of this year or the end of Q1. But by midyear, almost everyone says expect it to be over. We expect it to be over by the end of the first quarter. Ian Zaffino: Okay. And then maybe on P&S, I'm just trying to understand this. If you back out the HVAC side on the P&S, can you maybe talk about what the growth would have been? Or maybe just talk about different areas of P&S that grew and did particularly well. Thomas Surran: You want me to do it? Michael Carlet: Sure. Thomas Surran: I don't think we want to give what the growth would be had we not had the headwinds in the HVAC market. But I do want to emphasize that we're really excited about how we're positioned in that market, right? So we introduced that Focus Pro as our low-end product. That product has been very successful in the market in terms of its acceptance. We just introduced a premium product. We had previously not participated in the premium market. So here's a market we're adding a product. We're going to -- our goal is to create the best product you can buy at all price points, entry, mid and premium, and we're very excited about the ElitePRO. So long term, our position in HVAC, we're very, very enthusiastic about. Now in terms of the other markets, it was pretty much everything was doing great. Retail did great. Our OEM business did great. The safety products did well. Everything seemed to do quite well, but we did have those headwinds, which, again, I think long-term, when you look at how we're going to be positioned in HVAC, it's a very positive picture. Operator: Your next question comes from the line of Erik Woodring with Morgan Stanley. Erik Woodring: Great. Maybe if we just touch on -- reask the HVAC question. I'm just trying to get a little bit better understanding of why we think these headwinds are transitory. And then I guess if the issue is an inventory glut -- for products that you don't have exposure to, why does that impact Resideo? Just trying to -- maybe just a little bit more color. Just maybe that last question is really the key there. If it's not a Resideo issue, why is Resideo being impacted? And then a quick follow-up, please. Thomas Surran: Okay. So Erik, great question. All right. So what's going on is because of this, you had a lot of inventory that was brought in, in order to protect all the distributors from the transition and the regulatory change. That inventory is still sitting in there. It's impacting the balance sheet of all the distributors and their cash and their ability to fund. It's also creating a little bit of disturbance and chaos kind of in the marketplace because now you have discounts going, trying to liquidate this and whether people hold to see if there's further discounts. There's just a lot of things that are kind of in a very dynamic situation. The amount of the impact people are saying, and you can look at all -- a lot of the HVAC equipment guys, the carriers, the trains, the Linux, what have you. You can look at the distributors of Watsco, you can look at the AHRI data, it's having a material impact. But there's also then the effect of what's actually happening in the residential housing market. There's a little bit of instability there as well. that's why we look at it long-term, why is this transitory? Because every home is going to need an HVAC system. Every -- these systems have a certain life. So you know there's going to be a replacement. We know how well we're positioned in what we've introduced with the products and then what share we're capturing. So long-term, that's why we see this as transitory. Erik Woodring: Okay. And Tom, maybe just a very quick follow-up on there. You mentioned discounts in the marketplace. Is it safe to then say your P&S gross and operating margins were negatively impacted by HVAC as well? Thomas Surran: No, that's not what I was saying. So I'm just talking about that because of this disturbance that's occurred in the market. Other parties, especially people with the equipment, especially this inventory that's the older generation, the older gases that uses the older refrigerants, that product in terms of the discounting. I wouldn't overplay that, right? So just in looking at it, I'm just saying there's a number of things that happen when you have excess inventory in the channel and how people behave. Now our products, there is no discounting of our products, but the ability of distributors to stock our product at a certain level because they have cash tied up, the ability of what's happening within customers, all of those things have some ripple to this. Erik Woodring: Okay. Okay. Super clear. Thomas Surran: We have very strong -- yes, we do have very strong margins in the HVAC market. Erik Woodring: Okay. That is -- that was super helpful. And then I don't know who wants to field this one, but I'll leave it up to you guys is, one of the most important factors that can drive a re-rating for Resideo is this kind of continued margin expansion. And granted on a year-over-year basis, you showed nice gross margin expansion. But in 3Q, we saw operating margins compress for both companies sequentially. I guess how to think about operating margins for each business into 4Q? And then like as we look out 1 to 2 years and think about investors that are looking at Resideo today for the long-term opportunity, what type of margin should they be looking for from -- operating margin should they be looking for from each one of these businesses, again, looking out, call it, 1, 2, 3 years? Just would love some framing of that, please. Michael Carlet: Sure. Sure, Erik. I'll kick it off, and I'll let Rob and Tom join in if they want to correct anything or want to add on to it. Clearly, in the quarter, when we talk about margin expansion, there's both gross margin and the operating margin. So really pleased with continued gross margin expansion. Despite the fact that the headwinds at P&S and the HVAC market, as Tom said, our HVAC margins are very robust. So as we think about that having a headwind, it flows through the bottom line at a different rate than the overall blended rate, a bit higher. So that does compress it. So that transitory nature does compress the bottom line despite which we still saw margin improvement. At ADI, as Rob talked about the impacts of the ERP implementation, as we work through that, there was incremental costs, whether that was overtime in the warehouses, whether that was work with consultants to implement the system, there's incremental SG&A in both Q3 and Q4 that, again, is onetime in nature as we work through those 2 things. I think overall, at a high level, as we go through the separation of these businesses, I want to make sure we're careful about talking about what the margins are today as segments without the allocation of overhead and what they might be in the future. But as we sit here today and look at the ADI business, Rob continues to target a double-digit operating margin as this goal. We've got long-term plans that get us there. Again, that's going to change a little bit once the business is stand-alone and we allocate all the costs out. But as it exists today, we would think that we have the ability to drive the business towards double-digit operating margins over the next 3 to 5 years. Similarly at P&S as we continue to see the operating efficiency in our factories, which that race is not yet run. We're well into the game, but the race is not yet over at all. And then the incremental margin that we think we drive with the ongoing product development and the incremental margin we can demand from that, we think there will continue to be operating margin expansion, 300 to 500 basis points over the next 3 to 5 years probably makes a lot of sense. But again, as we work through our modeling for each business on a stand-alone basis, we'll update that and get those numbers out to the market at the appropriate time. Erik Woodring: That was super helpful, Mike. And then maybe just last question, just a clarification. I'm going to pick on that last comment you made in your prepared remarks about 2026 numbers. So just a clarification as I see consensus at $7.76 billion of revs, $3 of earnings and your comment is despite the ERP, despite the HVAC kind of leakage into 2026, those estimates are on, let's call it, the lower end of what -- how you're planning for 2026? Michael Carlet: That's right, Erik. We're early in our detailed planning. But as we sit here today, we want to be clear that these headwinds are very transitory. Now we can't guarantee what else is going to happen next year. We'll guide 2026 when we usually do in February. But just as we're sitting there today, we want to be clear that we are -- we remain very comfortable with those numbers that are out there, and we would say they're at the low end of what our initial budgeting process for next year looks like. Operator: And your next question comes from the line of Neil Matalia with Jefferies. Neil Matalia: I want to ask again on the ERP impact because I think this is a really important point, especially to understand some of the fourth quarter dynamics relative to what the implied fourth quarter guidance previously was. It would be helpful to understand how much of a quantitative impact this is having on the fourth quarter. In the press release, you mentioned that there was nearly $15 million of higher costs year-over-year on SG&A and R&D related to the ERP. What level of impact are you seeing in the fourth quarter? Michael Carlet: I think at a high level; it's roughly half in the third quarter and half in the fourth quarter of those SG&A impacts as they flow through. So if you take that $15 million, you sort of split it between the 2, you're in the ballpark. And we think the impact on the revenue will be greater in Q3 than Q4, but not significantly greater. We do think we're most of the way through it right now. I think, Rob, I'll let you comment, but we're really confident with the metrics and KPIs we're seeing right now that we're getting our feedback under us. The system is running well. We're through most of the growing pains that you go through with something like this. They were higher than we expected. But at the end of the day, they didn't take much longer than we thought. They were just more than we expected. Rob, anything you'd add. Robert Aarnes: No, no. Actually -- yes, actually, Mike, you nailed it. But I'd be remiss, first of all, I didn't say that this is a really exciting time for us despite the fact that the results were disappointed, this represents a major step towards modernizing and digitizing our tech stack, which is basically a 2.5-, 3-year project finally coming to fruition, which will net a number of benefits. A lot of those I actually talked about in the prepared remarks. But we are seeing 2 real good indicators that make me feel optimistic about the go-forward recovery. One, as I mentioned earlier in the remarks, we're seeing our average daily sales rate approach pre-go-live levels, the deeper we get into Q4. That's one. Even more positive is what's going on with our project pipeline. Normally, the biggest month of the year where our pipeline would be at its peak is kind of midyear, July time frame. And we ended October with a higher pipeline volume amount than we had even in July. It was a record number for us. And so that is the -- really the most I guess, prudent indicator of the future health of the business, and we expect to convert that pipeline at the same conversion rates we've seen in quarters and years past. And so those 2 things make me optimistic that the impact of the ERP is truly transitory. Neil Matalia: Okay. That's helpful. Maybe just then to clarify and make sure we're 100% clear on this fourth quarter issue. The EBITDA guide down relative to the implied guidance previously is, call it, $40 million or so. Part of that is the higher cost from the ERP impact. Part of it is the HVAC. Can you give like a numerical breakdown relative to that $40 million of how much is coming from each, including the revenue impact for the ERP related issues that you're facing? Michael Carlet: I think at a -- yes, at a high level, if you're modeling it, I think as we said, it's roughly high single digits millions of the cost side of ERP side. The rest of it is driven by the revenue, and it's roughly equal across both businesses. Neil Matalia: Got it. Okay. And then on 2026, again, very helpful to hear the guidance. This is very much in line with the way we've been thinking about it. We just felt that the outlook was quite strong for '26 relative to what consensus had been modeling. Specifically, though, I know without giving any numbers, given you're going to wait to the fourth quarter to give that, can you at least address qualitatively what the different factors are that we should be considering from an idiosyncratic perspective. For example, there's a $70 million step-up in EBITDA just from the Honeywell-related indemnity. Are there other factors that we need to be taking into account where it's just, hey, we can look at the full year guidance for EBITDA of $865 million -- or sorry, of $825 million and then say, all right, at least $70 million higher is the bare minimum. And then from there, what other factors there are? Michael Carlet: I think that's a good way to frame it. I think the -- you take this year, you add that $70 million, you add back these transitory impacts on top of that, which gets you somewhere a little bit above what that consensus number is. And then everything else is the initiatives that we're working on, the things that we're building. Again, we're going through our plans, we'll guide what we do, but I don't think there's anything significant, but Tom talks about his new product launches that are out there. They'll continue to drive performance. As Rob talks about the benefits of the ERP system, right? Right now, it's all about the short-term pain. But the reason we're doing it is for the longer-term, midterm and long-term benefit. Those will start coming through our continued investments in the omnichannel experience at ADI, the Snap synergy that we continue to realize from bringing those together. So all those things go together. Again, there's lots of work still to go in building the specific models. But when we look at all that today, as we said, we're very comfortable that the numbers that are out there are definitely achievable. Neil Matalia: Okay. And then lastly for me on the project pipeline you just mentioned earlier, you said October was higher than where you ended July, which is not normal. What exactly are you hearing from your customers in there? Part of what we've heard in our research and background check here is that security never goes into recession. And obviously, there's a number of instance that have happened recently that we're just wondering if there's like some kind of multiyear secular up cycle that might be happening in the security market that kind of underlies a lot of these. Is there more proactive versus reactive customers now? Robert Aarnes: I would say not a whole lot has changed in that space this year going forward. We're still expecting the commercial security market to grow at low to mid-single digits. I mean it has during my entire tenure here at ADI. And in terms of ADI, we've always been able to grow kind of mid- to high single digits, and we fully expect that going forward. And I always look at our pipeline to be able to give me the -- an indicator of what we can expect 3 to 6 months out. And I think some of it is just our execution and other parts of it is we had customers that were patient with us as we navigated the disruption of ERP, and we're bringing those -- now those customers back in, and that's actually increased our pipeline as well. So I would say those are the biggest factors in terms of why I think the pipeline is growing and why we're in that position this late in the year versus we normally see these peak levels in the middle of the year when most of our big installations happen, kind of that June through July -- June, July, August time frame for our large integrators. Operator: There are no further questions at this time. This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Thank you for standing by. At this time, I would like to welcome everyone to today's Hamilton Beach Brands Third Quarter 2025 Earnings Conference Call. [Operator Instructions] So with further ado, I will turn the call over to Brendon Frey, partner with ICR. Brendon, you have the floor. Brendon Frey: Thank you, Tamika. Good afternoon, everyone, and welcome to the Third Quarter 2025 Earnings Conference Call and Webcast for Hamilton Beach Brands. Earlier today, after the stock market closed, we issued our third quarter 2025 earnings release, which is available on our corporate website. Our speakers today are Scott Tidey, President and CEO; and Sally Cunningham, Senior Vice President, Chief Financial Officer and Treasurer. Our presentation today includes forward-looking statements. These statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in either our prepared remarks or during the Q&A. Additional information regarding these remarks and uncertainties is available in our 10-Q, our earnings release and our annual report on Form 10-K for the year ended December 31, 2024. The company disclaims any obligation to update these forward-looking statements, which may not be updated until our quarterly conference call -- our next quarterly conference call, if at all. The company will also discuss certain non-GAAP measures. Reconciliation for Regulation G purposes can be found in our earnings release. With that, I'll now turn the call over to Scott. Scott? R. Tidey: Thank you, Brendon, and good afternoon, everyone. Thank you for joining us today. Our third quarter performance represents a step in the right direction towards normalization following the significant disruption our industry faced after higher tariffs were implemented in April. As the third quarter progressed, retailers started to resume more typical buying patterns after destocking inventory purchases purchased evident in the sequential improvement in our year-over-year sales trend compared with the second quarter. While profitability declined more meaningful than revenue in Q3, this was driven primarily by onetime incremental tariff costs of $5 million and to a lesser extent, a timing mismatch between ongoing tariff rate increases and our pricing adjustments. This significant headwind was partially offset by a favorable mix shift led by increased penetration of our higher-margin commercial and health businesses. Importantly, we have fully absorbed the impact on gross margins from the peak tariff rate and have moved forward with a more balanced inventory position and a clear line of sight on returning gross margins more in line with historical levels. This will be achieved over the coming quarters through the strategic actions we've taken in response to higher tariffs. To review, we meaningfully accelerated our margin -- our manufacturing diversification efforts away from China to other APAC countries and remain nimble as multiple trade negotiations played out and agreements are finalized. With a more diversified geographical sourcing structure, we have the ability to quickly shift our procurement to markets that are in the best economic interest of the business. We took decisive actions, implementing increases at the end of June and August that align with the current tariff rate increases. Our retail partners have been understanding and acceptance of necessary price adjustments, which were carefully balanced to maintain our competitive market position while protecting margins. Our strong brand equity and market leadership have enabled us to take these necessary steps while maintaining our value proposition to consumers. And we have been implementing comprehensive cost management measures across the organization that generated $10 million in annualized savings with the benefit of these actions starting to materialize in the third quarter. Looking at the performance highlights by business division, our core business continued to expand its reach as we shipped our kitchen collections by Hamilton Beach line to a leading mass market retailer nationwide. This commercial -- this broader rollout increases our already significant retail presence and reinforces our market-leading position across the small appliance space. Looking ahead, our robust pipeline of new products in high-growth categories like blender kitchen systems, specialty coffee and air fryer should position us for further market share gains. Our premium business continues to perform well, highlighted by the successful launch of our high-end Lotus brand. Initial sell-through results have exceeded expectations by strong double digits, which is remarkable for a new premium line, especially as the majority of our initial advertising support for Lotus is planned for November and December. Based on this performance, we are actively negotiating to increase shelf space, positioning Lotus for even broader market reach. Beyond Lotus, we also have new innovative launches planned across our CHI and Clorox brand partnerships in the coming quarters that should help fuel further growth. Our commercial business delivered outstanding results in the third quarter. In fact, we believe inventory constraints limited our performance, which speaks to the strong and growing underlying demand for our innovative commercial solutions. Our recent Sunkist brand launch continues to be a resounding success with branded commercial juicers and sectionizers continue to deliver outsized results. Looking ahead, we are focused on accelerating our commercial business expansion through new channel penetration and expansion of our relationships with large food and hospitality chains. Furthermore, we are diversifying our manufacturing base for our commercial line to make sure we are positioned to fully capture the growing market opportunity ahead. Our newest division, Hamilton Beach Health achieved a major milestone by reaching positive operating profit for the first time this quarter. We're seeing new partnership deals develop, including a new specialty pharmacy partnership with CenterWell and Lumisir, both of which are top 15 specialty pharmacies in the U.S. Additionally, we saw the successful launch of a new HealthBeacon Harmony software product with Novartis Ireland with strong interest for expansion into other markets. Beyond these product advancements, the team has also recently implemented several digital improvements, resulting in a smoother patient experience, lower patient acquisition cost and higher conversion rates. These new developments, along with expanding our patient subscription base by 50% this year and the conditions treated using our SmartSharp system leave us very excited about HealthBeacon's future. Finally, our digital initiatives continue to gain traction this quarter. We exceeded our point-of-sale expectations during one of the largest digital retail events of the year. Looking ahead, we're placing a large emphasis on digital growth in Q4 to capitalize on the important holiday shopping season. In closing, we have greater clarity into our cost and pricing architecture now that tariff rates on certain Chinese imports have moderated significantly from the peaks reached in the second quarter and trade relations have improved. While uncertainty in the marketplace remains, we expect the strength of our brand portfolio, recent sourcing diversification efforts and pricing actions will lead to further top line and margin recovery in the fourth quarter. With that, I'll turn it over to Sally. Sally Cunningham: Great. Thank you, Scott. Good afternoon, everyone. As Scott detailed, our third quarter sales trend improved compared with the second quarter. And while gross margins were down year-over-year, the pressure was largely temporary and the impact from the peak tariff rate on China is now fully behind us. Turning to our results, starting with revenue. Total revenue in the third quarter was $132.8 million, down 15.2% from last year's third quarter, but up 300 basis points compared with the second quarter's year-over-year performance. The revenue decline was primarily driven by lower volumes in our U.S. consumer business, reflecting overall softness in consumer demand as well as timing of retailer purchases, specifically one large retailer that delayed orders for most of the third quarter. As a reminder, some retailers paused buying in the second quarter to assess inventory levels and price increases flowing from the new tariffs implemented by the United States in April 2025. While most retailers resumed buying in the second quarter, the [indiscernible] negatively affected volumes during the early part of the third quarter. Turning to gross profit and margin. Gross profit was $28 million or 21.1% of total revenue in the third quarter compared to $43.9 million or 28% in the year ago period. The decline in gross profit margin was primarily due to the flow of onetime incremental tariff costs of $5 million, the majority of which are related to the temporary 125% China tariff costs that were in effect for a period of time earlier this year. Additionally, gross margin was impacted by a delay between tariff-related rising costs and the effective date of pricing adjustments. This created a temporary compression of gross profit margin that we expect to normalize in future periods. It is important to note that excluding the $5 million of 125% onetime tariff costs, gross margin would have been $33 million or 24.8% of total revenue. Selling, general and administrative expenses decreased $8.2 million to $25.1 million or 18.9% of total revenue compared to $33.3 million or 21.2% of total revenue in the third quarter of 2024. The decrease was primarily driven by $6.8 million of lower personnel costs, including reduced stock-based compensation expense due to changes in our stock price year-over-year as well as benefits associated with the restructuring actions we took in the second quarter. Operating profit was $2.9 million or 2.2% of total revenue compared to $10.6 million or 6.8% of total revenue in the third quarter of 2024 as the temporary impact on gross margins from the peak tariff rate more than offset the expense leverage we delivered in the third quarter. Excluding the $5 million, 125% onetime tariff costs, operating profit would have been $7.9 million or 5.9%. Income before taxes was $2 million compared to $2.7 million. The prior year period included a onetime noncash charge of $7.6 million related to the termination of the company's overfunded pension plan. Income tax expense was $0.4 million in the third quarter compared to income tax expense of $0.7 million a year ago. Net income was $1.7 million or $0.12 per diluted share compared to net income of $1.9 million or $0.14 per diluted share a year ago. Now turning to our balance sheet and cash flows. For the 9 months ended September 30, 2025, net cash used for operating activities was $14.6 million compared to net cash provided of $35.2 million for the 9 months ended September 30, 2024. The decrease was primarily due to a $27.5 million change in accounts payable due to lower purchasing activity from decreased sales volume and inventory turnover as well as shorter payment terms with new suppliers under the company's China diversification initiatives. During the 3 months ended September 30, 2025, the company repurchased approximately 39,000 shares totaling $0.6 million and paid $1.6 million in dividends. On September 30, 2025, our net debt position or total debt minus cash and cash equivalents and highly liquid short-term investments was $32.8 million compared to a net debt position of $22.5 million at the end of the prior year period. In closing, we are encouraged with how we have navigated the dynamic trade environment this year. With greater clarity around the go-forward tariff rates for most all of the U.S.'s trade partners, the situation continues to stabilize. We anticipate that our fourth quarter results will show further progress towards improving our sales trend and gross margins. And while our continued recovery won't be linear in 2026, we expect our annual performance to benefit nicely from the actions we've taken this year, diversifying our sourcing structure and lowering our fixed cost base. This concludes our prepared remarks. We will now turn the line back to the operator for Q&A. Operator: [Operator Instructions] Your first question is from the line of Adam Bradley with AJB Capital. Adam Bradley: Thank you for the color around the gross margins. Can you please clarify the 370 basis point or $5 million tariff cost, was that a charge? Or how should we think about that? In the past, I believe you used FIFO accounting, and it's taken time for costs to flow through the P&L. And this seems different. What we hear you saying is that the $5 million charge was recognized in the quarter that those purchases were made. Just some clarity around that to help us understand that better. Sally Cunningham: Okay. Sure. Adam, so the costs relate to the 125% tariff that was temporarily put in place in the April time frame earlier this year. So you are right. These are costs that were incurred in April of this year that did flow through our P&L in the third quarter. And what it really represents is some containers that we had on the water when this spike in tariff occurred that we are not able to -- or we made the decision to not pass on to the consumer. And so for us to absorb as a onetime cost, and that flowed through in its entirety in the third quarter. And I think that's a little bit different from kind of the more go-forward increased tariffs that we're seeing from IEPPA in from China and other Asian countries. which we do consider part of our go-forward kind of cost structure and that we have taken actions to cover those additional expenses. Adam Bradley: Okay. So the $5 million that you paid, you didn't -- it's not a charge on the P&L separately. It just flowed through in your cost of goods? Sally Cunningham: Correct. Operator: [Operator Instructions] We do have a follow-up from Adam Bradley. Adam Bradley: And can you expand a little bit on a more normalized rate from your largest retailer. Can you give us a little bit more color around that? The second quarter earnings report, you shared that they had pretty -- I may be paraphrasing here, but paused orders. And then it sounds like from what you are stating in this Q3 report that they continue to pause orders. Did they -- did you lose shelf space? Did -- are you back to normal ordering patterns? Are you almost back? What kind of color can you give us on that to help us understand sales trends? R. Tidey: Yes, Adam, this is Scott. So yes, on that customer and specifically, they -- you're right, they did pause placing orders. Their inventories got lower throughout that time period. But if you look now, we've been shipping them now for several months, and we feel like the business is back on track. As we indicated, we had a very robust promotional event in October, and that customer was included, and we exceeded our expectations with that customer. And we really, now looking into the fourth quarter, we feel like we're going to be having a record number of promotional activities this fourth quarter. And that customer, along with many of our other retailers will be part of that. Adam Bradley: Are you experiencing any catch-up of inventory to replace what was lost? Or is it more of a normal flow? R. Tidey: I think we're kind of in the normal flow right now. I mean we had a little bit of a catch-up. The market has been a little bit different depending on the category of lower in units, but up in dollars because of price increases. But I think we're kind of back into a normalized pattern with this customer. Adam Bradley: Okay. Great. Are you seeing a different behavior from other large customers? Or is it consistent with some of the larger ones? R. Tidey: No. I think for the most part, we feel like we're in a normal cadence with a lot of our -- a lot of -- I mean, actually probably with all of our retail partners. There was definitely that time period where they stalled in the second quarter, took a hard look. Some people were sitting on higher cost inventory that due to these surprising 125% tariffs and everybody is trying to figure that out. But I think really for the last -- most of the third quarter, with the exception of this one retailer, we were shipping as normal and promoting. Operator: At this time, there are no further audio questions. I will now hand the call back over to our speakers for any closing remarks. Adam Bradley: Thank you, Tamika. I think that's it from the Hamilton Beach brands. Appreciate everybody's time. Operator: This concludes today's call. Thank you for joining. You may now disconnect your lines.
Operator: Ladies and gentlemen, thank you for standing by, and welcome to the Deluxe Quarterly Earnings Conference Call [Operator Instructions] Today's call is being recorded. At this time, I would like to turn the conference over to your host, Vice President of Strategy and Investor Relations, Brian Anderson. Please go ahead. Brian Anderson: Thank you, operator, and welcome to the Deluxe Third Quarter 2025 Earnings Call. Joining me on today's call are Barry McCarthy, our President and Chief Executive Officer; and Chip Zint, our Chief Financial Officer. At the end of today's prepared remarks, we will take questions. Before we begin and as seen on the current slide, I'd like to remind everyone that comments made today regarding management's intentions, projections, financial estimates and expectations about the company's future strategy or performance are forward-looking in nature as defined in the Private Securities Litigation Reform Act of 1995. Additional information about factors that may cause actual results to differ from projections is set forth in the press release we furnished today in our Form 10-K for the year ended December 31, 2024, and in other company SEC filings. On the call today, we will discuss non-GAAP financial measures, including comparable adjusted revenue, adjusted and comparable adjusted EBITDA and EBITDA margin, adjusted and comparable adjusted EPS and free cash flow. All comparable adjusted metrics reflect the removal of impacts from business exits. In our press release, today's presentation and our filings with the SEC, you will find additional disclosures regarding the non-GAAP measures, including reconciliations of these measures to the most comparable measures under U.S. GAAP. Within the materials, we are also providing reconciliations of GAAP EPS to adjusted EPS, which may assist with your modeling. And with that, I'll hand it over to Barry. Barry McCarthy: Thanks, Brian, and good evening, everyone. I'm pleased to report our strong third quarter results. During the period, we drove organic growth across all key financial metrics, revenue, adjusted EBITDA, EPS, margin rate and year-to-date cash flows. Adjusted EBITDA grew significantly faster than revenue with margins expanding across each operating segment, demonstrating our ability to deliver consistent operating leverage. This was our 11th consecutive quarter of year-over-year EBITDA expansion with profits growing faster than revenue. Our strong expansion of earnings also drove robust cash flow results. Year-to-date operating cash flows have expanded by more than 25% versus the prior 9-month period. These profit and cash flow outcomes contributed to continued reduction of our overall debt, aligning to our clear capital allocation priorities. As a result of the strong performance through 3 quarters, we reached our targeted year-end leverage ratio of 3.3x, a full quarter ahead of our previously indicated pacing. We were particularly pleased with this result as we continue to drive efficiencies on path to our 2026 year-end debt-to-EBITDA target ratio below 3x. Based on these results, we are raising our full year outlook range for adjusted EPS while affirming all other guidance metrics, narrowing to the midpoint or better of the prior ranges. Chip will cover these updates in additional detail in a bit. Our overall third quarter execution remained very strong, including the following enterprise-level financial highlights. 2.5% comparable adjusted revenue growth driven by a fourth consecutive quarter of double-digit year-over-year expansion for the Data segment, nearly 14% growth of total comparable adjusted EBITDA, reaching nearly $119 million for the period; expansion of margin rates by more than 200 basis points, reaching 22% of revenue; adjusted EPS growth of nearly 30% year-over-year to $1.09 per share. Continued reduction of our net debt lowered by more than $20 million during the quarter, contributing to our improved leverage ratio and year-to-date free cash flow expansion of just over 49%, growing by more than $31 million versus the prior year period. Each of these third quarter results align directly to our overall value creation algorithm, providing us strong momentum as we approach the end of the year and continue our progress toward 2026 financial targets. Now I'll briefly review some financial and segment highlights for the period in the context of 3 ongoing strategic priorities. Number one, shifting our revenue mix towards payments and data to deliver profitable organic growth; two, driving operating efficiencies across the enterprise; and three, increasing EBITDA and cash flow to both lower net debt and improve our leverage ratio. I'll discuss each of these 3 big strategic priorities in order, starting with our first priority, shifting our revenue mix towards payments and data. We're pleased with our progress here. Through the third quarter, blended Payments and Data segment revenue has grown nearly 9.5%. Combined, these segments are nearing revenue parity with our print businesses. Through Q3, payments and data now account for 47% of total company revenue, up nearly 400 basis points versus previous year. We're delivering our strategy to transition the company towards payments and data growth while leveraging robust cash flows from the Print segment. Data was our standout performer again in Q3, growing revenue by 46% year-over-year. We remain very pleased with continued strong FI demand for revenue-generating campaigns spanning deposit gathering, lending and other product offerings supported by our proven end-to-end data solutions. Our growth over the past 4 quarters has been driven by both continuing strong FI demand and expansion of data offerings to other markets whose target customers have high lifetime value. Beyond the good news in data, Merchant Services also continued its expansion as third quarter revenues expanded by around 5% versus the prior year period, improving sequentially as promised. We've reached our mid-single-digit expectations for the segment despite some persistent ongoing macroeconomic uncertainty. We continue to expand our merchant base, both through our direct-to-market channels as well as FI and embedded ISV partnerships. Additionally, our One Deluxe model continues to help accelerate merchants. For example, we recently announced the expansion of our existing multidivisional relationship with Peoples Bank, a $9.5 billion Ohio-based FI to now include merchant services. This is another example of Deluxe building trust by delivering in one area, giving us the opportunity to cross-sell offerings from multiple other divisions. Moving to B2B payments. Third quarter revenues for the segment declined modestly as we had signaled during the last quarter's call. Importantly, we did continue to see both sequential revenue growth for B2B and year-to-year year-over-year expansion of EBITDA margins, which improved 260 basis points on evolving mix and operating efficiencies across the segment. Further, we continue to expect to return to growth within B2B revenues as we exit 2025. Within Print, during the third quarter, the stronger margin check portion of the business continued to perform in line with our long-term expectations with revenues declining around 2%. As we discussed last quarter, the lower-margin branded promo portion of the Print segment has remained the primary area where demand headwinds persist. As expected, top line pressure across the product group again resulted in fairly immaterial impacts to segment profits. To summarize this first strategic priority, revenue growth from our combined payments and data businesses delivered overall third quarter growth, more than offsetting expected headwinds and anticipated secular declines, particularly in print. These results are consistent with our long-term strategy. Now on to our second big strategic priority, driving efficiencies across the business to improve margins and sustain our operating leverage. Ongoing cost discipline across the enterprise contributed to our success expanding margins and improving overall operating leverage during the third quarter. Of these savings, the overall enterprise reduced SG&A expenses by more than $15 million. This reflected a reduction of roughly 7% year-over-year during the third quarter. Overall, we were very pleased to deliver adjusted EBITDA margin expansion across all 4 operating segments simultaneously. Now on to our third big strategic priority, increasing adjusted EBITDA, driving cash flows and lowering both our net debt and leverage ratio. As I noted earlier, we continued to convert our expanding earnings base into strong cash flow results and to reduce our debt levels through the third quarter. This resulted in realization of our targeted year-end leverage ratio of 3.3x, 1 quarter ahead of our previously signaled expectations. Our third quarter free cash flow of just under $44 million reflected a 37% cash to EBITDA conversion rate. This result demonstrated continued improvement aligned to our targeted long-term yield remaining above 30%. To summarize overall, we are making clear progress on all 3 big strategic priorities: one, shifting the mix towards payments and data; two, driving operating efficiencies; and three, increasing cash flow, reducing debt and lowering our leverage ratio. As our overall third quarter and year-to-date results illustrate, we are achieving this progress through disciplined capital allocation and strong execution, pushing our value creation algorithm forward. Our pipeline remains strong across each operating segment, and we have positive momentum as we sprint towards the 2025 finish line and prepare to launch 2026. Finally, before passing this to Chip, I want to again to take a moment to thank my fellow Deluxers. As we celebrate the company's 110th anniversary this year, our strong enduring culture and clear commitment to meeting and exceeding our customers' needs while driving value for shareholders truly reflects the Deluxe difference. With that, I'll turn it over to Chip. Chip Zint: Thank you, Barry, and good evening, everyone. As Barry noted in his opening, we were very pleased with our third quarter progress and particularly our better-than-anticipated delevering pace. Continuing expansion of our comparable adjusted EBITDA and EPS growth rates accompanying our strong year-to-date free cash flow conversion highlight our progress through 3 quarters of the year. Over recent quarters, we've shown continued improvement in the health of our core fundamentals and quality of earnings continues to improve as we execute our clear strategy. I'll begin this evening providing some additional detail around our consolidated highlights for the period before moving on to individual operating segment results, our balance sheet and cash flow progress and updated full year 2025 guidance ranges. For the third quarter, we reported total revenue of $540.2 million, increasing 2.2% against prior year reported results, while expanding 2.5% on a comparable adjusted basis. We reported GAAP net income of $33.7 million or $0.74 per share for the period, improving from $8.9 million or $0.20 per share in the third quarter of 2024. This increase was driven by improved operating results aligned with expansion of revenues during the quarter as well as lower overall SG&A and restructuring-related expenses versus the prior year period. Comparable adjusted EBITDA was $118.9 million, up 13.8% versus the third quarter of 2024. Comparable adjusted EBITDA margins improved to 22% of revenue, expanding by 220 basis points versus the prior year third quarter, as Barry referenced. Q3 comparable adjusted diluted EPS of $1.09 expanded by 29.8% from $0.84 in 2024, driven by the operating income drivers previously noted, net of a slightly higher year-over-year share count. Turning now to our operating segment results, beginning with the Merchant Services business. The Merchant segment grew revenues by 4.8% year-over-year, finishing the quarter at $98 million, while continuing a sequential quarterly acceleration trend from 2.9% second quarter growth. This result reflected largely stable core merchant processing volumes as well as channel partner additions and planned in-year pricing actions. As is customary, these growth drivers netted against normal course merchant attrition activity and reflected macroeconomic conditions continuing to signal some ongoing uncertainty pressuring areas of discretionary spend. Segment adjusted EBITDA finished at $20.4 million, improving $2.6 million or 14.6% versus the prior year, with margins expanding 180 basis points to 20.8%, driven by both the improved sequential revenue growth and ongoing cost efficiencies. We continue to expect full year Merchant segment revenue growth in the low single-digit range with fourth quarter revenues remaining strong as demonstrated over previous quarters. We also continue to anticipate a low 20% adjusted EBITDA margin profile. Both these expectations are consistent with our prior guidance commentary for the segment. Moving to B2B payments. For the third quarter, B2B segment revenues finished at $73.1 million, sequentially improving from the prior quarter, but declining 2.7% versus the prior year result, consistent with the quarterly cadence expectation within our prior quarter commentary. B2B adjusted EBITDA expanded during the quarter, finishing at $16.8 million, reflecting growth of 9.8% versus the prior year period. Third quarter adjusted EBITDA margins of 23% for the segment reflected a 260 basis points expansion versus 2024, as Barry noted. The segment sustained its focus on driving efficiencies across lockbox operations while optimizing SG&A to align to the anticipated onboarding and implementation efforts for new B2B wins across the portfolio. We continue to expect low single-digit full year revenue growth for B2B, implying a return to an improved fourth quarter exit growth rate for the business as we enter 2026. Margins are expected to remain in the low to mid-20% range, consistent with overall year-to-date levels within the segment. Moving on to Data Solutions. This segment extended its revenue growth trajectory during the third quarter as demand for core marketing campaign execution across key FI partners continued to accelerate. Q3 data segment revenues finished at $89.2 million, reflecting growth of 46% versus the third quarter of 2024. This growth reflected a fourth consecutive quarter of strong double-digit demand growth for core bank customer marketing campaigns. Our FI clients have increasingly turned to our proven data-enabled audience development and targeted marketing capabilities to support revenue generation across their core lines of business. Data adjusted EBITDA finished at $29.1 million, growing 66.3% versus the prior year, while adjusted EBITDA margins expanded by 400 basis points to reach 32.6% for the quarter. These results were primarily reflective of the level of revenue expansion during the period. The segment further benefited from operating expense efficiencies inclusive of volume-related savings. Specifically, over the last 6 quarters, as the data business has grown rapidly, we have realized volume-related vendor rebates, benefiting segment margins beyond our long-term expectation of the low 20% EBITDA margin range. Looking ahead, with baseline volumes now set at these increased levels, we would no longer anticipate having this magnitude of rebates and anticipate overall segment EBITDA margins beginning to return to the previously signaled low 20s range beginning in the fourth quarter. We also expect some typical fourth quarter revenue moderation as the holiday period is seasonally lower for marketing activity across segments served by our core data offerings. We will also begin to lap our more challenging prior year results. Despite this forecasted moderation, we expect to see strong growth continue with fourth quarter revenues remaining above the long-term mid- to high single-digit growth expectations. To summarize for the Data segment, strong year-to-date growth for this segment leads to an expectation of a solid double-digit full year revenue growth for 2025 with EBITDA margins in the mid- to high 20% range. Turning lastly to our print lines of business. Print segment third quarter revenue was $279.9 million, reflecting an overall decline of 5.9% versus the prior year. Branded promotional products continue to see the primary revenue headwinds, declining 14.7% year-over-year, improved from last quarter while remaining concentrated towards lower-margin noncore product offerings. As Barry noted, legacy check continued to perform well, consistent with our recent history, declining 2.1% for the period. Forms and other business products declined 7.8% during the quarter. On a combined basis, these 2 core areas blend to an overall 3.6% rate of year-over-year decline, consistent with our low to mid-single-digit history and long-term expectations for the segment. The 4% rate of adjusted EBITDA decline seen within Print for the quarter aligns to the blended rate of decline for the more core print product focus areas. This result drove an overall print margin rate of 33.4%, remaining solidly in line with our longer-term low 30s target for the segment. Importantly, and despite shorter-cycle promo revenue challenges, we expanded margin rate by 60 basis points versus our prior year Q3 results. These healthy ongoing margin results reflect the overall continued segment mix shift towards stronger margin offerings, the continued focus on driving operating expense discipline and cost efficiencies realized across our scaled print fulfillment operations. Consistent with our strategy, we remain focused on core profit drivers for the Print segment, leveraging in-house production of checks and printed forms and accessories. For the near term, we expect the noncore branded promo portion of print revenue to continue to decline faster than the higher-margin offerings within the segment, limiting impact on overall print profitability. On balance, we continue to anticipate revenue declines in the mid-single-digit range across the overall Print segment for the full year, with adjusted EBITDA margins remaining in the low 30s, consistent with our longer-term flat rate outlook. Turning now to our third quarter balance sheet and cash flow progress. We finished Q3 with a net debt level of $1.42 billion, reflecting a reduction of just over $44.5 million versus our 2024 year-end level of $1.47 billion. As Barry referenced, this result reflected a sequential improvement of just over $20.5 million versus our second quarter ending debt balance, consistent with our clear commitment to debt reduction as a top capital allocation priority. We were particularly pleased to finish the quarter with a net debt to adjusted EBITDA ratio of 3.3x, showing continued improvement of our leverage position from the 3.6x ratio reported at the end of 2024. Reaching our targeted 2025 year-end leverage ratio on an accelerated basis demonstrated our ongoing commitment to balance sheet improvement. Additionally, this result will reduce our ongoing interest obligation as we now move to a lower interest tier for variable rate borrowings per our credit agreement terms. Our long-term strategic leverage target remains at 3x or better by the end of 2026. Free cash flow, defined as cash provided by operating activities less capital expenditures, finished at $95.9 million for the year-to-date period. This reflected improvement of $31.6 million from the results reported through the first 3 quarters of the prior year and finished within roughly $4 million of our full year 2024 free cash flow result. Our year-to-date improvement continued to be driven by strong operating results and core working capital efficiency in addition to significantly lower restructuring spend versus the prior year period. Finally, we remain well positioned from both a liquidity and go-forward capital structure perspective following our December 2024 refinancing. As of the end of the third quarter, we maintained over $390 million of available revolver capacity with all material debt maturities extended to the 2029 horizon. Before turning to guidance, consistent with prior quarters, our Board approved a regular quarterly dividend of $0.30 per share on all outstanding shares. The dividend will be payable on December 1, 2025, to all shareholders of record as of market closing on November 17, 2025. As mentioned previously, our year-to-date execution and momentum provide confidence to raise our overall range of expectations for adjusted EPS. Further, we are affirming our existing guidance for revenue, adjusted EBITDA and free cash flow, each within a narrow range at or above the midpoint of our prior outlook for the year. With that context, our updated full year guidance figures are shown on the current slide, keeping in mind all figures are approximate. Revenue of $2.11 billion to $2.13 billion, which represents a range of flat to positive 1% comparable adjusted growth versus 2024. Adjusted EBITDA of $425 million to $435 million, reflecting between 5% and 7% comparable adjusted growth. Adjusted EPS of $3.45 to $3.60, now a range of 6% to 10% comparable adjusted growth and free cash flow of $140 million to $150 million. Finally, to further assist with your modeling, our guidance assumes the following: interest expense of approximately $123 million, an adjusted tax rate of 26%; depreciation and amortization of $133 million, of which acquisition amortization is approximately $45 million; an average outstanding share count of 45.5 million shares and capital expenditures between $90 million and $100 million. This guidance remains subject to, among other things, prevailing macroeconomic conditions, as noted previously, including interest rates, labor supply issues, inflation and the impact of divestitures. In summary, we remain pleased with our continued strong performance shown in the third quarter and year-to-date periods as the underlying core fundamentals of the business continue to improve. Revenue mix continues to rotate towards the growing Payments and Data segments. Adjusted EBITDA and EBITDA margins continue to expand. Free cash flow conversion continues to improve and the balance sheet is the healthiest it's been since 2021 as we achieve our anticipated year-end leverage ratio ahead of schedule. All of this is a result of the clear strategy and capital allocation priorities we have been executing against over recent years, and we look forward to continuing this momentum. Operator, we are now ready to take questions. Operator: [Operator Instructions] We will take our first question. Kartik Mehta: This is Kartik, Northcoast Research. Chip, I wanted to talk about free cash flow, impressive increase in guidance. And maybe you can talk through the drivers behind it and the sustainability of the free cash flow as we move into next year. Chip Zint: Yes, sure. Thank you, Kartik. Good to see you. I think you know over the last few years, we've been really focused on improving the free cash flow, not only absolute dollar, but on a conversion rate. And as we've outlined over the last couple of quarters, the goal of adding $100 million of annual run rate free cash flow coming into 2026 was one of the core tenets of the North Star program. And so we came into the year this year, and we laid it out for you exactly how we would get there, achieving the original guidance and ultimately raising it to where we did would be a function of improved profitability, having lower restructuring spend and continuing to execute strong working capital efficiency in terms of maintaining a solid DSO and a solid DPO. And so what you have seen throughout this year is us just execute on that strategy. So as we sit here today, executing nearly in line with what we delivered for the full year a year ago, that obviously gives us confidence in narrowing our guidance range up to the upper end and obviously puts us on a good path to be able to deliver that full run rate $100 million as we go into next year. So very pleased with the progress we've made improving the EBITDA and the underlying profitability of the business as well as pulling back on the restructuring spending, winding down that program and delivering that improved free cash flow conversion that we've been talking about. Kartik Mehta: Barry, on the merchant side, you talked about Peoples Bank here in Ohio as a partner. And I'm wondering if you could talk about a little bit about the pipeline for your distribution partners, whether it be financial institutions, ISVs or any other channel you're kind of focused on right now? Barry McCarthy: Sure. So let me just tell a little bit more about the Peoples Bank win because I think it's really a good small view of how effective our One Deluxe go-to-market solution, our process is. So as we mentioned in -- or as I mentioned in my prepared comments, I talked about how we can convert success in one part of the company into success across many parts of the company by building trust and delivering what the customer needs. And Peoples Bank is the latest example that we can talk about, which is follow that exact playbook and that exact model where we start with one place, we expand to multiple others. And in this case, now, it also includes the merchant business. And we have a very strong healthy pipeline of additional opportunities for us in financial institutions, but also in ISVs, our integrated software vendors. And we have recently hired a new sales leader in the ISV space that we think will also help us accelerate our efforts there. But I really think the main message here is the effectiveness of our One Deluxe model, where we can land and build a relationship with the customer, deliver on our promises and our commitments and then expand that relationship over time. And merchant is a clear beneficiary of that, which was central to our original hypothesis of moving into the merchant space. Operator: And we will take our next question. Charles Strauzer: It's Charlie Strauzer with CJS. Just a couple of quick questions. Another impressive quarter from [indiscernible] and hoping that you can expand a little bit further as to kind of what the key drivers were and how sustainable this kind of growth can be a number of quarters in a row now where data has had some really good strength there. Maybe a little bit more about that. Barry McCarthy: Sure, Charlie. You'll recall that we had made an investment in building our infrastructure so that we have what we believe is the largest data lake of consumer and small business data, we think, in the country. And then, of course, we put our proprietary AI tools that sit on top of that data lake to help build high converting lead list helping those institutions or organizations identify, target and market to a customer that's likely to be interested in the offering of that organization. In this particular moment in time, financial institutions are increasing their investment, specifically around all of their core products, whether it is low-cost deposits, but it's also things like high-reward credit cards, it's around lines and loans and many other bank products. And we can see some great uptake on that. And we think that is sustainable, Charlie. Now probably not at the rate we've been talking about, and Chip did a good job, I think, of setting that expectation. But we have a very unique offering here that we can show a specific return on a marketing expense that delivers a customer with measurable value to a financial institution. And that is a very compelling proposition for financial institutions. But we're also expanding, as you know, Charlie, beyond financial institutions into other market verticals where there's a high lifetime value for that customer, and it's worth a significant marketing investment to acquire that customer. And we continue to make inroads there, and we feel very good and bullish about this business over the intermediate long term as well as what's right in front of us in Q4. Charles Strauzer: Excellent. Yes, very impressive. And just a follow-up question on the Print segment, margins were above where they've been in at least in recent memory. And what was this all from? Is it basically driven by promo having better margins? Or is it across the board? Maybe a little more color there, that would be great. Barry McCarthy: Charlie, we've been saying for a while that we have 3 core strategic initiatives for the company. We want to shift our mix towards payments and data. We want to drive efficiency across our portfolio. We want to increase EBITDA, free cash flow to lower debt and our leverage ratio. In the case of the print business, we have a great cash generator in the check business, and that had a very solid and very predictable Q3. We continue to struggle a bit in the promo business with just headwinds in the industry. We've also just been very clear, we're going to focus on profitable volume. We're not going to play the game that others in the space are playing, which is taking product or making sales that have little or no margin. And so we're walking away from deals that we just don't think we can make a decent profit on. And you can see that in the revenue part of that equation. But what you come down to what's really important here is that we're able to largely hold on to the EBITDA. And as you can see, we're expanding margin here as well. So we think it's just a matter of being really choiceful and really fully in alignment with our 3 big strategic initiatives around shifting mix to payments and data, driving efficiency, increasing EBITDA, free cash flow, lowering debt and the leverage ratio that we're being very choiceful and disciplined about the business we take and making sure we do have is operated with great efficiency. Chip, do you want to build on that? Chip Zint: Yes, I think you said it well. But Charlie, if you think about the extra materials we've added in the last few quarters, you can see while promo -- the promo side is still struggling and declining a bit higher than we would like, it has improved. But to Barry's point, the real story is how Check continues to deliver solid results, decline better than long-term expectations and how those 2 things together deliver a really solid mix story to the business. So I think Barry said it all right. When you put that all together and you add on top of it, the focus on efficiency that we've been delivering over the last 2 years as part of our efficiency improvement program, it's all leading to this solid sustainable low 30s margin rate that we've been talking about for print that you can see is really stabilizing. And so we're very proud of that result and very pleased with how that team is executing. Charles Strauzer: Great. And can I sneak one more in, kind of a bigger picture thing as we approach year-end here. Any initial thoughts for next year? Barry McCarthy: That was a really good try, Charlie. We'll be back at the next call with good guidance for next year. Operator: [Operator Instructions] And we will go to our next question. Jonnathan Navarrete: It's Jonathan from TD Cowen. Just one question for me. Now that you've reached your leverage target, and congrats on that, how are you balancing capital between, let's say, debt reduction, potential buybacks, some M&A and maybe even some reinvestments in the growth segments like payments and data? Chip Zint: Yes. Well, first of all, thank you for acknowledging that progress, Jonathan. I think you know we've been very committed to this goal of bringing the leverage ratio down and getting ultimately at or below 3x sometime next year. So obviously, the work is not done yet. Very pleased with the execution and progress that allowed us to reach our original target for year-end '25 a bit faster. But nothing really changes. Our capital allocation priorities remain. We're still focused on paying down that debt and bringing the leverage ratio down. We're still marching down the path towards that 3x or better by the end of next year. And we're going to continue to invest internally for high-return growth that helps Barry's #1 strategic priority, shifting the mix to payments and data. And then obviously, we'll keep returning value to shareholders through the dividend. So very, very pleased with the progress, but don't expect anything to change. We're going to keep executing based off this updated guidance range we've provided, I would say we're now in a place to land year-end around 3.25 depending on the rounding. So continuing great progress, and we're continuing on that journey to get at or below 3x by the end of next year. Operator: And we will take our next question. Marc Riddick: It's Marc Riddick from Sidoti here. I was sort of -- you've sort of covered quite a bit already. I wanted to sort of touch on how we should think about the -- how CapEx might flow out through -- we have for the year. Is it reasonable to think that we might see similar levels next year? Or how should we think about the potential for whether it's technology-driven investments or the like, how that might play into CapEx next year, just generally, not a specific guide on numbers, I suppose, but just sort of generally. Chip Zint: Yes. So again, to reiterate, we've been holding in this $90 million to $100 million guidance range for all of this year, and we're executing pretty well in that. Stopping short of providing full guidance. But where we are is a very comfortable level for us. Like I said, we continue to focus on good internal return projects that can allow us to drive that strategic initiative to shift the mix. And so we're obviously not going to starve the business, but we also feel good about the progress we've made. So as we get into next year, we'll go through our normal process of evaluating all the investment opportunities inside the business and stack rank them based off the best returns, helping drive the long-term strategy. And I would expect CapEx will settle somewhere around where it is right now. But again, stopping short of guidance, we'll wait to see where the final demands of the business land and what are the best returns inside the 4 walls to deliver the best outcome for both investors and our customers. Marc Riddick: Great. And then I guess -- and admittedly, this might be a bit of a squishy question, but are there any parts of the business where you would like to expand bandwidth as far as internal, whether it's personnel or the like? Are there any areas that you feel as though you might need to expand bandwidth in the near term to take advantage of opportunities? Barry McCarthy: So I appreciate the question, Marc. We regularly look at our resource allocation, our capital allocation and where we're spending for maximum return. We don't anticipate any need for a surge in any one of our businesses. We are investing appropriately, particularly in the payments and data, the growth businesses for the future. I mentioned earlier, we're putting a bit more investment towards sales, particularly in the merchant business. But we like the mix of what we have today and how we're investing to grow and really like how it played out for us in Q3. Operator: And at this time, we have no further questions. I would now like to turn the call back. Brian Anderson: Thanks, Rachel. Before we conclude, I'd like to share that management will be participating at the Citizens Financial Services Conference in New York and the Stephens Annual Investment Conference in Nashville on November 18 and 19, respectively, and at the Bank of America Leveraged Finance Conference on December 2 and 3 during the fourth quarter, for which additional information will be posted on the Investor Relations website. Thank you again for joining us today, and we look forward to speaking with you all again in early February as we share our fourth quarter and full year 2025 results. Operator: Thank you. This concludes today's call. Thank you for your participation. You may now disconnect.
Operator: Ladies and gentlemen, good afternoon. My name is Abby, and I'll be your conference operator today. At this time, I would like to welcome everyone to Penumbra's Third Quarter 2025 Conference Call. [Operator Instructions] Thank you. And I would now like to introduce Ms. Cecilia Furlong, Business Development and Investor Relations for Penumbra. Ms. Furlong, you may begin your conference. Cecilia Furlong: Thank you, operator, and thank you all for joining us on today's call to discuss Penumbra's earnings release for the third quarter of 2025. A copy of the press release and financial tables, which includes a GAAP to non-GAAP reconciliation, can be viewed under the Investors tab on our company website at www.penumbrainc.com. With me on today's call are Adam Elsesser, Chairman and CEO; Shruthi Narayan, President; and Maggie Yuen, Chief Financial Officer. Also joining us for the Q&A portion of the call is Jason Mills, EVP, Strategy. During the course of this conference call, the company will make forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including statements regarding our financial performance, commercialization, clinical trials, regulatory status, quality, compliance and business trends. Actual results could differ materially from those stated or implied by our forward-looking statements due to certain risks and uncertainties, including those referenced in our 10-K for the year ended December 31, 2024, filed with the SEC. As a result, we caution you against placing undue reliance on these forward-looking statements, and we encourage you to review our periodic filings with the SEC, including the 10-K previously mentioned, for a more complete discussion of these factors and other risks that may affect our future results or the market price of our stock. Penumbra disclaims any duty to update or revise our forward-looking statements as a result of new information, future events, developments or otherwise. On this call, financial results for revenue and gross margin are presented on a GAAP basis, while operating expenses, operating income, and adjusted EBITDA are presented on a non-GAAP basis. The corresponding GAAP measures and a reconciliation of GAAP to non-GAAP financial measures are provided in our posted press release. Non-GAAP operating expenses and operating income exclude expenses related to the wind down of our Immersive Healthcare business in the third quarter of 2024 of $5 million and adjusted EBITDA excludes wind-down expenses, stock compensation expense, depreciation and amortization, provision for income taxes and interest income expenses. And with that, I would like to turn the call over to Adam. Adam Elsesser: Thank you, Cecilia. Good afternoon. Thank you for joining Penumbra's Third Quarter 2025 Conference Call. In the third quarter, we generated total revenue of $354.7 million, representing underlying year-over-year growth of 17.8% on a reported basis and 16.9% on a constant currency basis. Our strong third quarter results reflect broad-based execution against our strategy and significant progress in further enhancing our competitive technological and market positioning across all franchises. Total U.S. revenue was $275 million in the third quarter, an increase of 21.5% compared to the third quarter of 2024. Total U.S. thrombectomy sales increased 18.5% year-over-year to $192 million. Our VTE franchise once again led overall corporate growth, delivering 34% year-over-year growth. U.S. embolization across and access revenue of $83 million increased 29.2% year-over-year. Growth in our embolization and access business exceeded our expectations, reflecting the benefit of a dedicated peripheral embolization sales team alongside our investment in continuous innovation and new product introductions. Internationally, the work we previously undertook to enhance our long-term market positioning is beginning to play out. We are now operating from a position of portfolio and geographic strength with our commercial execution in the quarter more than offsetting the China growth comp headwinds we continue to face. Total international revenue of $79.7 million increased 6.6% year-over-year or 3% in constant currency. Below the top line, gross margin of 67.8% expanded 130 basis points over the prior year period, and we delivered operating income of $48.8 million or 13.8% of revenue with our operating expense in the quarter, reflecting the full impact of our embolization sales force build-out. We remain on track and are well-positioned to achieve a gross margin profile of over 70% by the end of 2026 and expect operating margin expansion to outpace gross margin expansion for the foreseeable future as we prioritize delivering profitable growth and an expanding profitability profile. Turning to our U.S. peripheral business. Our third quarter thrombectomy performance reflected both the clinical benefit and competitive strength of our CAVT technology alongside enhanced commercial focus from our now peripheral thrombectomy dedicated sales force. We delivered the highest sequential quarterly increase in VTE case volume growth to date in 2025. Our U.S. arterial business also delivered another strong performance with the combination of Bolt 7 and Bolt 6X supporting further physician conversion from open surgery or the use of lytics to CAVT. Penumbra received FDA clearance during the third quarter for both Lightning Bolt 16 and Lightning Flash 3.0. Lightning Bolt 16 brings proprietary modulated aspiration technology to our 16 French system and Flash 3.0 improves the fidelity of the algorithm by updating both the hardware and the software. These new products significantly add to the growing portfolio of advanced CAVT devices, opening up a clear path for us to reach the over 800,000 patients in the U.S. who suffer from VTE and arterial clot with our CAVT technology. I also want to remind everyone that the core technology in our CAVT products is protected by a robust patent portfolio. We recently secured a victory from the Court of Appeals for the Federal Circuit, which similarly and unanimously affirmed the Patent and Trademark Appeal Board's IPR decisions in validating several competitive patents challenged by Penumbra. We will continue to vigorously defend all of our patents and IP for our CAVT technology. At the TCT and VIVA conferences, we presented the landmark results from STORM-PE, the prospective multicenter randomized controlled trial evaluating CAVT plus anticoagulation versus anticoagulation alone for the treatment of acute intermediate high-risk PE. Shruthi will provide additional detail on the trial and study outcomes in her prepared remarks. But needless to say, taking into account the medical community's reaction to the data, we are highly optimistic that STORM-PE will act as a major catalyst in positively impacting the treatment of PE while significantly increasing the number of patients receiving intervention with CAVT. In our U.S. peripheral embolization business, our new Embo dedicated 50-plus member sales team delivered strong 21.2% sequential growth in embolization revenue in the quarter. We believe the team's performance this quarter and the enhanced focus across our comprehensive current coil portfolio represents a new phase of sustainable growth in our U.S. embolization franchise. Shruthi will discuss how the integration of this new team is unfolding. Shifting to our Neurovascular business. Recent market trends in the macro U.S. stroke market showed a slight decline in the third quarter. Notwithstanding that, our stroke thrombectomy portfolio delivered positive growth and share gain. Historically, new innovation has catalyzed the stroke market, and we are optimistic that with the anticipated introduction of Thunderbolt, we will see a similar dynamic play out. In neuro embolization, the recent interest we've seen in utilizing our Swift coil for MMA embolization continues to translate into extremely strong above-market procedure growth, further contributing to sustainable growth in the U.S. embolization franchise. Now I'd like to give you an update on Thunderbolt. In October, we submitted thorough responses to all the outstanding questions received from the FDA during the 510(k) review process. We are now in the stage where we address any final questions or provide any required clarifications to our answers. For obvious reasons, we'll be prudent in our discussion today about Thunderbolt. However, we remain excited about the prospect of introducing CAVT to the neurovascular field. Overall, based on our third quarter performance and reflecting the trends we've seen in our business and our target markets highlighted previously, we are raising our revenue guidance for the year to $1.375 billion to $1.380 billion. We reiterate 20% to 21% year-over-year growth for 2025 for U.S. thrombectomy. Now I will turn the call over to Shruthi, who will discuss a few details on the expansion of our sales team as well as the STORM-PE trial. Shruthi Narayan: Thank you, Adam. Good afternoon, everyone. Starting off with an update on our recent commercial expansion initiatives. Based on the significant ramp in physician interest in CAVT we experienced throughout 2023 and 2024. Entering 2025, we made the strategic decision to build out an additional peripheral sales team to focus on our embolization business, enabling our existing peripheral sales team to shift exclusive focus to CAVT. Through the first half of 2025, we added over 50 new peripheral embolization sales reps under our existing peripheral sales leadership team. The build-out and integration went extremely well with the new team fitting seamlessly into our organization. This allowed the team to execute the launch of Ruby XL while also maintaining our momentum in our established portfolio, achieving strong 21.2% sequential growth in embolization revenue in the third quarter. As we execute the shift in our commercial structure, our existing team helped integrate our new team and supported the transition of embolization case coverage across our accounts. This transition process will taper in the fourth quarter, well-positioning our teams to enter 2026 fully focused on their respective sales objectives, CAVT and embolization. Turning to STORM-PE. At the TCT conference early last week, Dr. Rob Lookstein presented the study's primary endpoints alongside key safety data. Additional secondary endpoint data, including key physiological and functional outcomes was presented by Dr. Rachel Rosovsky at VIVA earlier this week. The trial proved CAVT superior in reducing right heart strain in intermediate high-risk PE patients with a comparable safety profile to the current standard of care. In addition, while not powered to show statistical significance on secondary endpoints, the trial data demonstrated statistical significance in favor of CAVT across multiple secondary endpoints. In addition, the initial trial results were published in circulation on Monday. STORM-PE proved CAVT superior to the current standard of care across the primary as well as multiple secondary endpoints showing CAVT patients recovered earlier and have significant long-term improvement in functional outcomes. The trial also highlighted the ability of the field's most advanced technology to deliver faster procedure and device times, reestablishing the baseline and expectations around acceptable case times. With procedures in the trial requiring minimal prior experience with Flash ahead of enrolling patients in STORM-PE, the strong results also highlight CAVT's ease of use and exceptional safety profile. The physician feedback across the interventional and non-interventional community has been enthusiastically positive. Since the presentations, we are seeing a shift to CAVT from older mechanical thrombectomy options for PE. We expect to see this continue. We are also working with societies and organizations to disseminate the now published data from STORM-PE to hospitals so they can update their current hospital protocols. Over the next year, this will be one of our top priorities. We are executing at a high level across our peripheral and neuro business units and are well-positioned to continue to build off our groundwork to date. As we look towards 2026 and beyond, we remain highly confident in our long-term strategy grounded in meaningful innovation, data generation, and investment in our team, supporting durable, profitable growth and the ability to treat a significant number of patients with our technologies. I'll now turn the call over to Maggie to go over our financial results for the third quarter of 2025. Maggie Yuen: Thank you, Shruthi. Good afternoon, everyone. Today, I will discuss the financial results for the third quarter of 2025. Financial results on this call for revenue and gross margin are on a GAAP basis, while operating expenses, operating income, and adjusted EBITDA are on a non-GAAP basis. The corresponding GAAP measures and a reconciliation of GAAP to non-GAAP financial measures are provided in our posted press release. For the third quarter ended September 30, 2025, our total revenues were $354.7 million, an increase of 17.8% reported and 16.9% in constant currency compared to the third quarter of 2024. Our geographic mix of sales for the third quarter of 2025 was 77.5% U.S. and 22.5% international. Our U.S. region reported growth of 21.5%, driven by 18.5% growth in our thrombectomy franchise and 29.2% growth in embolization and access, driven by our Ruby XL product compared to the same period last year. As we previously shared, due to easing of China's headwind and double-digit growth for the remaining international regions, our international business has returned to growth, increasing by 6.6% reported and 3% in constant currency compared to the same period last year. Moving to revenue by product. Revenue from our global thrombectomy business grew to $236.4 million in the third quarter of 2025, an increase of 15.8% reported and 15.1% in constant currency compared to the same period last year. The growth was primarily driven by an increased 18.5% increase in our U.S. thrombectomy business. As expected, our international thrombectomy revenue also increased by 5.6% when compared to the same period last year. Revenue from our embolization and access business was $118.3 million in the third quarter of 2025, an increase of 22% reported and 20.8% in constant currency compared to the same period last year, primarily driven by an increase in U.S. peripheral embolization sales due to the momentum from our successful launch of Ruby XL, combined with strategic investment we made in expanding our U.S. embolization team in the first half of the year. Gross margin for the third quarter of 2025 is 67.8% compared to 66.5% for the third quarter of 2024. And consistent with our expectations, we delivered sequential gross margin growth of 180 basis points, driven primarily by favorable regional mix, product mix, and productivity improvements. We are very pleased at how quickly the team stabilized our Ruby XL build, of which our Ruby XL product has an accretive impact on our gross margin and the sales model supports a more efficient working capital dynamic. In addition, we are on track to achieve our full year gross margin targets and remain well-positioned to deliver our long-term gross margin profile of 70% by the end of 2026. Now on to our non-GAAP operating expenses, non-GAAP operating income and margin and adjusted EBITDA. Total operating expense for the quarter was $191.6 million or 54% of revenue, compared to $160 million or 53.1% of revenue for the same quarter last year. Our research and development expenses for Q3 2025 were $22.7 million or 6.4% of revenue compared to $22.6 million or 7.5% of revenue for Q3 2024, which reflects savings of $3.6 million due to our Immersive business wind down, offset by continued investment in product development. SG&A expenses for Q3 2025 were $168.9 million or 47.6% of revenue compared to $137.4 million or 45.6% of revenue for Q3 2024. As we have stated previously, we have made targeted hires in our commercial and market access teams, which will support customer demand and allow us to capitalize on long-term growth drivers. Sequentially, our SG&A expenses increased by $8.9 million, reflecting the full quarter presence of our embolization sales team investment along with other variable spend. With this build-out now complete, we are positioned to capture sales and operation leverage in future quarters. We recorded operating income of $48.8 million or 13.8% of revenue compared to an operating income of $40.3 million or 13.4% of revenue for the same period last year. We posted adjusted EBITDA of $66.7 million or 18.8% of total revenue compared to $56.7 million or 18.8% in the third quarter last year. Turning to cash flow and balance sheet. We ended the third quarter of 2025 with cash, cash equivalents, and marketable security balance of $470.3 million and no debt, which is an increase of $45.7 million sequentially. This increase includes improving working capital ratios in both receivable and inventory turns and strong profitability. We continue to expect positive operating cash flow trends to continue in 2025 and beyond. Turning to 2025 guidance. As Adam previously stated, we are raising our revenue guidance for the year to $1.375 billion to $1.380 billion. We reiterate 20% to 21% year-over-year growth for 2025 for U.S. thrombectomy. Finally, we remain -- we maintain our previously stated 2025 gross and operating margin expansion guidance. This concludes our prepared remarks. Operator, we can now open the call to questions. Operator: [Operator Instructions] And our first question comes from the line of Travis Steed with Bank of America. Travis Steed: Congrats on the good quarter. I'll start with Thunderbolt since it's topical. It sounds like you're a lot closer to approval than you were. I assume nothing surprising with the FDA back and forth. But just maybe how you're thinking about the product when it hits the market, how much share you can take and how much -- when investors will see the data from Thunderbolt? Anything else you can share on the FDA process would be helpful if you could have the product approved by year-end or not? Adam Elsesser: That's great. Thanks, Travis. A lot of nuances to that question. So let me try to cover as much as possible. Let's maybe start with the process and give a little additional color, and then we can talk about at a point in time of what happens subsequently. I know there's been a lot of comments and thoughts around the timing of the process. I want to maybe level set the process and the timing because there's some -- I think, some maybe misunderstanding. Thunderbolt is a brand-new product. It doesn't -- it's not already approved. It doesn't -- it's not just seeking a new indication. So I know in the past, there's been comparables to products that have been already on the market that have a history, that have safety information that obviously, the FDA sees and collects. And all they're looking for is a new indication. That's a different time period usually, and those can be shorter. For products that are brand new, those processes, at least in our experience with the neuro division sometimes take a while. For example, this is not fundamentally different timing than our original RED 72 SILVER LABEL, which was an update on an existing product, but it was a new product with some new materials and so on. And it takes a while because the FDA, and I applaud them for this are incredibly thorough. So there's nothing about this process and timing, but we're feeling at least hopeful and optimistic. Needless to say, without sharing competitive information about what does the launch look like. And obviously, we don't want to do that. We obviously are ready and to launch this product and are excited about it when that time comes that we can do that. So we'll stay optimistic. And again, got to have a little prudence until we have a clearance letter from giving you more sort of detail on that, okay? Travis Steed: Makes a lot of sense. And maybe a follow-up on the STORM-PE secondaries now that those are out earlier this week and you've had a chance to talk to doctors. Curious how you're thinking about kind of the impact to the market and acceleration of the market and the potential to kind of take share given your safety profile on the device. Adam Elsesser: Yes. There's a couple of interesting and exciting things that have happened. One, the reaction to the data within the medical community has been really just incredibly positive. I think folks who were at either TCT or VIVA or both saw that, they felt it. The safety -- the endpoints, the primary endpoint and of course, the secondary endpoints are really, really positive and strong and will have a big impact on non-interventionalists as well. But in addition, the safety profile of the product was really striking, and I think that's led to a number of interventionalists who have not traditionally used our product call and want to start doing cases and have done cases in the last really weeks since last Sunday, with our product really for the first time in multiple cases. So that momentum is exciting as the field moves from the older technology that sort of got the field started to sort of the more modern CAVT technology. And as it relates to the non-interventional community and sort of what that reaction is, which is really core to building this market and growing it, Shruthi maybe can give you some additional comments. She's had a number of conversations with people and can share her perspective. Shruthi Narayan: Yes. Thanks, Adam. So yes, on the non-interventional community, for example, specific conversations with like pulmonologists, hematologists, they're all now very happy that there's validation that right heart recovery then leads to the sort of 6-minute walk test progress that we saw in the functional outcomes. And so they're now doing the work to start updating protocols within their institutions and start to see more and more patients get access to care. That was a comment Dr. Rachel Rosovsky made on the podium right at the end of the presentation. And now different physicians in the non-interventional community are looking at their own hospital protocols to make those updates. Just since the release of Rachel's presentation on Monday, I've had conversations myself with physicians that have had the same reaction. So I think it's really positive for the field and hopefully, it's going to open up access to care for a lot more patients. Operator: And our next question comes from the line of Robbie Marcus with JPMorgan. Robert Marcus: Congratulations on a nice quarter. I wanted to touch on margins here. I'll stay away from the revenue questions. And reiterating gross margin and operating margin guide, just wondering how you're thinking about the ability to drive margins. Is it -- is Thunderbolt going to be a big component to get those moving higher versus where you were thinking originally? And how should we be thinking about the impact of tariffs and how that impacted full year '25 margins? Adam Elsesser: Let me start briefly and then Maggie can address most of this. All of our CAVT products have very, very strong margins. So all of them, whether it's just Thunderbolt or any of the other areas that we've just spent a lot of time talking about have the ability as that mix changes. The other thing is with our newest coil that we launched, that's also accretive. So I think we're feeling pretty good. But Maggie can maybe go through some of the more specifics. Maggie Yuen: Yes, yes. Thanks. With the remaining factors, this quarter, you see favorable, especially on a regional mix standpoint since we have seen a lot of U.S. growth, but continued product mix and also the recovery from the operation teams to stabilize our Ruby XL yield improvement and productivity. And for going into Q4, we'll continue to see this trend. I think we'll continue to see sequential improvement from product mix, regional mix, and productivity improvement and also some volume leverage. I think what we have seen in this quarter already reflected some tariff impact. We do not have material impact on tariff, although still a little bit, but the number and trend that we've seen has already reflecting absorbing those headwinds. Robert Marcus: Great. Maybe just a quick follow-up. If I zoom in on thrombectomy, U.S. and OUS, but I guess more specifically U.S. here. It's been decelerating throughout the year. I imagine a lot of that has been pressure in the stroke market, offset by really strong venous growth, market growth and Penumbra growth. How do you think about -- is it fair to assume that it will continue to downward trend? Or do you think there might be a stabilization in stroke as we move out to '26 with venous offsetting that and returning it more towards accelerating growth? Adam Elsesser: Yes. Robbie, thank you. And thanks for -- in the body of your question, sort of highlighting and pointing out the dynamic in the market. You're exactly accurate. Obviously, VTE has led the growth sort of quarter after quarter. And some of that's market growth, obviously, some significant share gain. I think arterial has also been very, very strong. Stroke over the last couple of quarters has definitely been the drag that notwithstanding, we've held our own and used that opportunity to continue to take share. So we're not negative there. We're not seeing a decline in our business. It's just not growing at the same rate, obviously. Over the course of the many, many years we've been in the stroke market, we have seen this. This happens. This is not new, and you've known that from watching us for many, many years. It doesn't -- it comes in waves. It doesn't happen always linearly. So there's nothing at this moment to be particularly concerned about. I do think having new technology that's very, very novel, not sort of similar to others has usually been a pretty significant catalyst. And so that certainly could help. But even without that, the market typically sort of ebbs and flows a bit, and we would expect that to turn around. The fourth quarter is usually a growth quarter traditionally in terms of the volume that grows. But overall, I'm optimistic about the future. It just comes in these waves. Operator: And our next question comes from the line of Larry Biegelsen with Wells Fargo. Larry Biegelsen: Congrats on the nice quarter here, Adam. Adam, I wanted to ask about Embo Access, which was -- in the U.S., which was extremely strong in Q3. And in fact, worldwide Embo Access grew faster than worldwide thrombectomy. So was there anything you would characterize as onetime in Q3? How much of the strength was Ruby XL versus Swift, which you called out? And going forward, should we expect Embo Access to now outpace thrombectomy? And I had one follow-up. Adam Elsesser: Yes. It's a great question. We're really -- to answer the immediate question, there was nothing onetime about this quarter. The two things that were really stood out in the U.S., which was what was driving that -- well, two things around the peripheral part of the business. One, we have a dedicated team for the first time in a while. So their focus is on that. Obviously, over the last few years, our focus with our peripheral team had been split between our coils and our thrombectomy, making it pretty hard to do both well. So I think that bodes well for our future that the integration, as Shruthi said, was really seamless. And I'll be honest, I was incredibly impressed with every member of that team and the leadership of the sales team for getting to allow that to happen that way. It was -- it's not a normal process to be that seamless and it really was. So I think we're in really good shape. I think what this shows is that there's a huge market and appetite for our very distinctive products that are different than others on the market, and I think that will continue. And I said that in my prepared remarks. As it relates to the neuro side, I'm really fascinating to watch that. The growth continues to happen there. The number of cases that people are doing in general for MMA embolization has increased notably. And more and more people are moving to our product because of the safety profile of it compared to more traditional means of treatment. So I think we're pretty optimistic about this business. And I think together with the thrombectomy, they both become equal drivers of growth. Obviously, you're going to see a quarter -- the quarter that you launch a product have slightly bigger growth on a sequential basis. But overall, I think going forward, we're not going to be looking at that business is dragging down our growth. I think both Embo and thrombectomy will be an important part of our growth in '26 and beyond. Larry Biegelsen: That's helpful. Adam, one quick one on the guidance. It does look like the guidance implies a deceleration in Q4. So my question is why? And the guidance for the year, 15% to 16% for 2025 has about a 4% headwind from China. So I guess on a reported basis, that 15% to 16%, is there any reason why growth would slow next year? Adam Elsesser: Yes. Look, I think we've been pretty clear about learning our lessons on guidance, not getting ahead of ourselves. I do not -- we're obviously not going to give sort of backdoor guidance, if you will, for 2026. I'm not going to do that. We'll give our guidance on the fourth quarter call. But obviously, if you listen carefully and you did to what we've just said about our business and where we stand, we feel particularly good about our -- where we stand, not just this quarter, but for a while to come well into next year and the years beyond. Operator: And our next question comes from the line of Joanne Wuensch with Citibank. Joanne Wuensch: I want to dig a little bit into international sales, please. It seems based on your commentary that China headwinds are waning. At what stage are they done? And if we adjusted for said headwinds, what would OUS growth have been this quarter? Maggie Yuen: Yes. I think pretty much by next year, early next year, a lot of our headwind will be very minimal. We do have some China revenue a little bit this year, but I wouldn't look at it as a headwind for next year. In terms of our international -- rest of the international region growth, we mentioned that other than outside of China, the rest of the international regions are growing in double digits. I think in the prior quarters, sometimes we have highlighted that thrombectomy part of the OUS a lot of time grow in the mid-teens. So that has been kind of our trend throughout this year and still a lot of growth momentum next year. Operator: And our next question comes from the line of Vijay Kumar with Evercore. Vijay Kumar: Congrats on the nice one here. Adam, maybe my first one for you on the STORM-PE. I think in the past, you alluded to STORM-PE is having the potential to change clinical practice. I'm curious now that we've seen the primary and secondary endpoints, is this enough to change practice? Should we start seeing an acceleration in procedures adoption? Or are there any sort of hurdles, if you will, on the adoption of thrombectomy treating PE cases? Adam Elsesser: Yes. Look, I can only tell you what we have heard in the last week or so, lots and lots of conversations. I will tell you that a number of non-interventionalist. And I think Shruthi alluded to two pulmonologists that she's had personal conversations with and a number of other non-interventionals have indicated to us that they would be leading the effort in their particular hospitals to change the protocols based on this data. So I think the reaction -- the positive reaction to this data has been uniform just across interventionalists, non-interventionalists. So now the work starts to get protocols in hospitals change. And usually, as we've said, you heard members of our steering committee say, guidelines sort of lag behind practice sometimes. So I think you'll see the behavior and the protocols in hospitals change and guidelines will follow that effort. But it's been really heartening to see the excitement around this and not just with interventionalists, but with non-interventionalists knowing that they now have a very strong alternative for when they know their patients need something more significant. So I think it's a good day for the field and a good moment in time, and we're very optimistic about that. Vijay Kumar: Understood. And then maybe one P&L question. Gross margins up 180 basis points Q-on-Q, with SG&A growth was quite striking up 25%. Was there any timing benefit on -- or timing impact, if you will, on SG&A OpEx? Or is this number being proactive as you look at that pipeline, some of these new products coming to fruition? Maggie Yuen: Yes. No, thanks for your question. On the operating expense side, most of the increases that you see is pretty much all from the investment of our embolization team and the commercial team structure. We have pretty much completed the investment or the build-out by the end of this quarter or last quarter. So going forward, we'll start to see more leverage and it will be -- the investment level will be lower than what you have seen earlier in the year. Operator: And our next question comes from the line of Brandon Vazquez with William Blair. Brandon Vazquez: I wanted to stay on this STORM-PE train of thought for a minute, but I'll ask this question slightly different, but it sounds like there could be kind of an initial benefit from the current interventionalists performing more mechanical thrombectomy. But one of the other tertiary benefits that might come is really that like smaller hospitals that aren't using any thrombectomy at all today might start performing these procedures. We saw in the data that it was a very low learning curve, a lot of naive users in this trial. So the question that I'll kind of frame here is like, one, talk to us a little bit about the time lines and your expectations of kind of turning on some of these accounts, how difficult or easy that might be? And then two, once your foot is in the door with PE treatment, are there other venous opportunities now that you've placed the lightning in these smaller hospitals that you could start to go after as well? Adam Elsesser: Yes. There's a lot to your question. So at a respectful time, I'll try to give you a fairly complete, but brief answer. There's so many layers of opportunity here. There's practices that are not treating everyone, which is the most of them who now will hopefully start to change their internal protocols. There are hospitals that don't really do intervention for PE that -- as you alluded to, that might now take it on. Sometimes that could also have a benefit because once you're doing PE, you really are sort of related to its cousin of DVT treatments. Some of those places are using our technology for arterial, for example, which is a little bit of a different dynamic. So there's some overlap. All in all, what it does is really put a spotlight on the newest technology, which is CAVT, the speed of those cases, the safety profile of those cases. In the past, as you know, we've talked about and presented really robust data on the health economics of that, which justifies doing this. It's a procedure that is clearly validated not only clinically but also economically. So I think it just really opens the door for a lot of people. I personally had the experience at TCT of talking to a cardiologist who runs a very well-known national practice, but their group doesn't typically do PE. It's covered by another specialty in their hospital. And after hearing the data, they were particularly excited about getting in there, helping their colleagues, opening up the coverage capacity pretty dramatically. So -- and that was just one of many, many conversations. So it takes some time. It can't all happen in 1 quarter, but it puts us in a really good spot for 2026. Brandon Vazquez: Okay. And a separate follow-up question here. Forgive me if you guys had kind of gone over these details already before, but this is the first I'm hearing a little bit more of Lightning Flash 3.0. Can you just spend a minute talking about timings for when that goes into a broader launch? How important it is? Where do you think we'll see the benefits of this 3.0 over 2.0? Shruthi Narayan: Yes. So with 3.0, as Adam alluded to on the prepared remarks, it is really a hardware and a software update. And what it does is it really improves the fidelity. And so what that means is these cases, as you saw from STORM-PE, 25-minute device times and really the fastest on the market right now, but Flash 3.0 is going to make it even faster, even better in terms of overall safety profile, blood mitigation, all the things that our physicians have now sort of come to expect. And so this really moves that even further forward by improving those case times even more. Operator: And our next question comes from the line of Bill Plovanic with Canaccord. William Plovanic: The first is going to be -- I understand on the guidance, you want to be conservative, but the high end of that guidance is up 2% sequentially. You did up 4.8% and 5.1% in last year and the year before. And I'm just trying to -- is there anything specific that you're concerned about that you're only guiding up 2% and not the 5% that would be in line with the past 2 years? Adam Elsesser: Not something sort of I look at in all the various way you look at it. I look at what we beat by and what we raise by. And I think that's a pretty solid guide up. We're obviously not going to want to get ahead of ourselves, and there's so much positive work to do over the next period of time. Let's give us a chance to get started. Let's get going. We're only a week into STORM-PE. And I think we'll feel pretty comfortable. We got a couple of products to launch in peripheral and neuro is strong. Bear with us, we'll be good. William Plovanic: All right. And then just a follow-up again on the FDA. I truly appreciate the update, a lot of detail today. My question is, is the FDA requiring any additional testing and/or clinical data from you? Or is this a purely back and forth at this point? Adam Elsesser: Yes. So again, I want to remain prudent. I was pretty clear about that. The -- we -- what I said in my prepared remarks is we have already answered very thoroughly all the questions that we had received at that point. So that has already been done. They are now in the phase where they can obviously ask for clarifications or additional questions. But -- so I can't tell you what that's going to be yet. But we've been through, obviously, for a period of time here, very, very thorough questions like any new product that they review in the neuro division. So totally appropriate and not totally unexpected. William Plovanic: And is the shutdown impacting their responses? Or are they continuing to work through? Adam Elsesser: As -- I can't speak to that on a sort of daily basis. But as of now, we have not experienced any sense of delay because of the shutdown. But obviously, that's a process that's in real time and continues. So I can't speak to that what might happen end of this week or next week or what have you. Operator: And our next question comes from the line of Michael Sarcone with Jefferies. Michael Sarcone: There's been a lot of focus on STORM-PE and pulmonary embolism. Your U.S. VTE business continues to grow at a healthy clip. Maybe you can give us kind of the latest and greatest trends on the DVT side of the business and how you're thinking about growth there? Shruthi Narayan: Thanks. That's a great question. So on the DVT side, what we're again seeing is just a positive response to Flash 2.0, we have commented on the VTE segment as a whole growing consistently the past several quarters, and that trend is expected to continue. And you're just going to see physicians as they hear about STORM results start adopting the technology on PE. And if they haven't yet used us on DVT, you're going to see that dynamic play out. So I think it just sets us up really well here for the future. Hopefully, that answers the question. Michael Sarcone: That does. That's really helpful. And just one quick follow-up there. In the past, you've talked about DVT being a little bit different in that you're focused more on the health economic side and working in collaboration with some hospital accounts. I guess, do you still have a focus there? And are you going to continue to execute on that kind of health economic data on the DVT side? Shruthi Narayan: Absolutely. We're starting to see those results get presented at different conferences, just some of the market access data sets, working with the Vizient and the Premier databases. So the physician community is starting to hear about that. We also have our hospital engagement team that is actively having conversations with different folks within the hospitals to communicate that information. And what you'll also see is, again, the benefit of STORM-PE applies to the overall sort of VTE segment. So you're just going to see more excitement within the hospital to treat these patients. The Level 1 evidence that's now available will help on the DVT side as well. Operator: And our next question comes from the line of Pito Chickering with Deutsche Bank. Pito Chickering: A few follow-up, Peter, on U.S. thrombectomy. Can you talk about market share versus market growth in the quarter? And can you quantify how many new accounts you added this quarter and how you see that in the fourth quarter post the STORM trial? Adam Elsesser: Yes. Obviously, we have -- there's comparative information out there with other companies. So obviously, a huge chunk of -- this is all before STORM, obviously, came out, but a huge chunk of that was market share. And I think that's known. It's not -- just number of new accounts isn't really the complete way to look at it because obviously, there are number of different physicians within each account. Some use one product and other uses another. So there's mix between that. So that's not a good measure. But when we look at the people who were using something and switched to us, that has continued all year long, obviously, at the end of last year and all the way through this year. And really, what was surprising was, I guess, not surprising, but pleasant to see is just in the last week, because of the data and the safety profile as one of the cited reasons for their switch, we saw people who have moved from older technology to newer and all signs are that, that will continue. So I think it's a combination going forward of continued share shift from older type of technology to the newer CAVT and what will play out, I think, over the next year or so is the increase in the number of patients treated. And I think they're tied. DVT and PE play into each other that way. And I think you're going to see some growth over the next 2, 3 years. Pito Chickering: Okay. If I step back and look at market growth, how many PER teams do you think were created this year? And how do the from hospitals look post storm trials? There seem to be a lot of excitement last week at TCT about starting more programs. Adam Elsesser: Yes. I think, look, there's two different groups of PER teams. There's the formal PER teams that are also members of the PERT consortium. And then there are lots and lots of sort of local PER teams that aren't -- haven't joined the PERT consortium. Some of the times, smaller hospitals are just newer in the process. What I was very pleased to see is at the beginning of TCT, the PERT Consortium announced a pretty significant effort over the next couple of years to dramatically increase the number of members of their consortium as well as really help get sort of with the most current technology and the idea that these people can be helped in a different way. So I think there's a lot of energy ready to go and coming out of the TCT meeting and also at VIVA, that was really clear that people are going to have either informal PERT programs, which is a cross-functional group of people caring about these patients differently or formalize them and be part of the PERT consortium. Either way, I think we're seeing a huge change in energy and focus around pulmonary embolism patients. Operator: And our final question comes from the line of Ryan Zimmerman with BTIG. Ryan Zimmerman: I appreciate that very much. So I'll ask the two questions upfront. We haven't talked much about the interim update on STRIKE-PE out of TCT. And I'm wondering if you can kind of give us your high-level thoughts, Adam, on that. We looked at the data, good kind of RV/LV changes. But I think certainly, there are some other aspects to it that may have stuck out or been on people's minds. I'm curious to kind of get your high-level thoughts. And then the other question is just directed to Shruthi, which is embolization and access, you talked about it. These markets typically don't grow at the kind of rates that you're seeing. And so is it just the products themselves? Is it higher use of MMA? I'm just curious if you could kind of talk specifically about what is going to drive this durably for the time being. Shruthi Narayan: Yes. Great questions. So on the first one there with STRIKE-PE, just like you commented on, I mean, there's obviously STORM-PE is kind of the highlight right now, but STRIKE-PE certainly confirms the longer-term benefit of CAVT. As you may recall, that study goes out to 1 year and looks at functional outcomes. Longer term, how do these patients do out to 1 year. And so it just adds to the overall body of evidence. At VIVA, there was a specific subset presented on just the use of the Flash product in these patients and their follow-up out to 1 year. At TCT, there was a data set around the high-risk PE patients and just showing that CAVT can have a real benefit in that patient group. So overall, I think it's just a growing body of evidence in PE. And so I think the -- what you'll start to see is that these PER teams and PE teams across the board are just going to have more of a focus around treating more patients with CAVT. On your second question, as it relates to the embolization products and that category as a whole, the team now is in place to focus 100% on our embolization products. And while we are market leading, we do not yet have 100% of the market. So I think there is still opportunity to continue to grow that. Our physicians love the way the coils perform. And so the focus just allows our team to be able to go and make sure that the coils are available to everyone. On top of that, you see MMAs are sort of a newer procedure overall. And as Adam alluded to, there are some of the more traditional options like embolics that have been available, but the coils, the way they perform, our coil specifically have really been -- our physicians have been really been responding well to that. So I think you're seeing here a combination of what we have with the peripheral embolization focus as well as the growing number of procedures in the MMA category. Operator: And that concludes the question-and-answer portion of today's conference call. Ms. Furlong, I will turn the call back over to you. Cecilia Furlong: Thank you, operator. On behalf of our management team, thank you all again for joining us today and for your interest in Penumbra. We look forward to updating you on our fourth quarter call. Operator: And ladies and gentlemen, this concludes today's call, and we thank you for your participation. You may now disconnect.
John Streppa: [Technical Difficulty] everyone, and welcome to Amplitude's Third Quarter 2025 Earnings Conference Call. I'm John Streppa, Head of Investor Relations. And joining me today are Spenser Skates, CEO and Co-Founder of Amplitude; and Andrew Casey, Chief Financial Officer. During today's call, management will make forward-looking statements, including statements regarding our financial outlook for the fourth quarter and full year 2025, the expected performance of our products, our expected quarterly and long-term growth, investments and our overall future prospects. These forward-looking statements are based on current information, assumptions and expectations and are subject to risks and uncertainties, some of which are beyond our control, that could cause actual results to differ materially from those described in these statements. Further information on the risks that could cause actual results to differ is included in our filings with the Securities and Exchange Commission. You are cautioned not to place undue reliance on these forward-looking statements, and we assume no obligation to update these statements after today's call, except as required by law. Certain financial measures used on today's call are expressed on a non-GAAP basis. We use these non-GAAP financial measures internally to facilitate analysis of our financial and business trends and for internal planning and forecasting purposes. These non-GAAP financial measures have limitations and should not be used in isolation from or as a substitute for financial information prepared in accordance with GAAP. Additional information regarding these non-GAAP financial measures and a reconciliation between these GAAP and non-GAAP financial measures are included in our earnings press release and the supplemental financial information, which can be found on our Investor Relations website at investors.amplitude.com. With that, I'll hand the call over to Spenser. Spenser Skates: Good afternoon, everyone, and welcome to Amplitude's Third Quarter 2025 Earnings Call. Today, I'm going to cover 3 things: first, our strong Q3 results and progress in the enterprise; second, the AI opportunity within analytics; third, product innovation and our customers. Let's go ahead and get started with our Q3 results. We delivered another strong quarter, continuing the acceleration we saw in Q2. We exceeded expectations on our core financial metrics and made solid progress against our enterprise strategy. Our third quarter revenue was $88.6 million, up 18% year-over-year and exceeding the high end of our guidance. Annual recurring revenue was $347 million, up 16% year-over-year and up $12 million from last quarter. Non-GAAP operating income was $0.6 million. Customers with more than $100,000 in ARR grew to 653, an increase of 15% year-over-year. Our Q3 performance reflects our continued execution against our strategy. We are winning simple by bringing Amplitude to everyone with AI. We are winning the enterprise with broad-based success with both AI natives and traditional enterprises, securing larger multi-year contracts. And we're winning the category with multi-product adoption now representing 71% of our ARR. Finally, we're winning together by leading the shift to being AI native across the entire Amplitude team. I wanted to take a little bit of time to talk about how AI is changing how software gets built. Every single product team runs the same loop: build, ship, use and learn. The left side of that loop, build and ship, has been transformed by AI. AI coding has made it faster than ever to turn ideas into products. We are now at a point where someone can create a product that's used by millions overnight. By contrast, the right side of this loop, use and learn, remains in the stone ages. Companies ask users what they want, but actions are more powerful than words. The best way to understand what people want is to watch what they do. This is what Amplitude solves. Our AI analytics platform helps companies understand how people engage in their product, what they like, where they get stuck and what keeps them coming back. These behavioral signals are the most powerful indicator for what to build. Automating and scaling that understanding is the next frontier. In this context, analytics is the perfect problem for AI to solve. To use analytics, you have to do a lot of manual work in specifying and setting up your query in between rounds of thinking. AI can handle all of that manual work, freeing up humans to focus on the thinking that leads to great insights. Amplitude has a unique position to build the AI analytics platform of the future. We have the world's largest database of product behavior. We have spent a decade working with world-class analytics teams. Over the past year, we've rebuilt the Amplitude team to be AI native. We've reorganized product development twice, and we've acquired 4 AI companies. We've trained our engineering, product management and design teams deeply in AI. The company that disrupts the right side of this loop, the use and learn, the fastest will define the future of this space. We are all in here. Let's get into the details on product innovation. In the last few weeks, we have launched several AI-native products here at Amplitude. I want to start with MCP. In October, we announced the public availability of our MCP server, the top requested feature from our customers. MCP is made for data analytics. It exposes all of Amplitude's functionality, so an AI agent can interact with it directly. It allows you to use Amplitude without knowing anything about the Amplitude UI or your data taxonomy. This is the best MCP use case that I have ever seen. Watching an AI agent think, reason, query Amplitude and then repeat that process iteratively is magical. It shows what is possible in the AI analytics future I talked about earlier. It brings the power of our data to anyone in any workflow. This opens Amplitude up to an entirely new cohort of nontechnical users, in turn driving our growth. Let me show you with a quick demo. MCP lets AI tools interact directly with Amplitude data. You can ask a vague question about your product inside any AI model and have a query Amplitude iteratively. Our MCP already has native connections to Claude, Cursor and GitHub with more to come soon. For this demo, I'm going to use Claude. I'm going to start with a simple prompt, give me high-level web traffic metrics. Claude will then get contacts, search web traffic metrics and then it's identified that during the week of September 21, we've had a peak. I can then ask follow-up questions to drill down, investigate the September spike. What's driving this growth? Claude then accesses behavioral insights, checks traffic sources, marketing campaigns and content performance. It shows that our webinar campaigns and the release of our product benchmark report drove this traffic. To get deeper insights, I'm going to ask, what are the downstream growth metric impacts by these campaigns? Claude then queries the campaign data set, downstream conversion funnels and sales force metrics. It concludes that the September campaigns drove a higher number and quality of visitors to the site. Of course, I'm going to want to share these findings so I can prompt it to create an Amplitude notebook for the growth team. So in a few minutes, customers can get deep research, insights and a detailed shareable notebook that allows them to take action. In addition to the launch of MCP, we expanded the open beta for our AI agents. These agents continually monitor product data, detect anomalies and surface insights automatically. In June, we launched our closed beta. And then 2 weeks ago, we opened the beta to all customers. Our focus is now on 2 agents. The first is the Dashboard Agent, which analyzes charts and proactively flag significant changes. And the second is the Session Replay Agent, which reviews thousands of user sessions, detects points of friction and then shows curated clips that highlight issues. Both are powered by the same behavioral data that MCP can access. They are already helping customers uncover opportunities and resolve issues faster. In addition, last week, we also introduced AI Visibility. As consumers turn to AI tools like ChatGPT, Claude and Google's AI summary when they search, marketers are flying blind. They have no idea how their companies show up or rank within the results produced by these new tools. To solve that problem, we launched AI Visibility for free last week. Think of it as SEO for LLMs. It shows where a brand appears or doesn't across all major AI models, how they rank against competitors and how they can improve their position. We saw a lot of excitement around the launch with our customers and on social media. The conversation about the future of AI Visibility is still going today on Twitter. Let me show you a quick demo of this, too. Understanding how your products appear in AI responses and improving it will be the key to increasing awareness. With AI Visibility, customers can now see the percentage of mentions of their product and AI responses. They can also see competitor mentions versus their own and then topics by visibility. They can dig into prompts to see the exact questions customers are asking and how AI is answering. For example, when people ask LLMs for product-led growth tools, they mention Amplitude 90% of the time. Customers can also learn how to improve their ranking. I can use the Analyze page to see how AI interprets the existing content or run a series of simulated changes to test updates before publishing. AI Visibility tracks your brand and helps you turn that visibility into growth. Finally, next week, we will launch AI Feedback. This is our newest AI-native product based on the core offering from our Kraftful acquisition in July. We're going from acquisition to new Amplitude product launch in 4 months. AI Feedback takes user feedback and information from multiple sources and turns it into insights a company can use. By bringing feedback, behavior and action into a single platform, it helps teams hear customers and understand them. Let me show you with my last demo. AI Feedback is the new way to listen to users at scale and act on their feedback. AI Feedback collects input from all of our customers' feedback sources. You can link Zendesk tickets, Gong call transcriptions, App Store reviews, comments on Reddit and other social media, first-party surveys and more with no engineering help. In this example, I have already set up AI feedback for a mobile app and connected it to reviews from the Apple App Store, as well as Google Play. Agentic AI processes the massive volume of unstructured data and sorts it into categories like you see here. Our proprietary AI analysis gives product teams the right level of detail. Users can see feature requests to help build a road map or can filter by topics like complaints to know which issues to address. Here, there are 26 mentions of reliable read, start and alert query. I can click in to see specific comments for more detailed information and subtopics. For example, there are 4 mentions and notifications not syncing across devices. With Amplitude, customers can then turn that feedback into action. We can create a cohort of these 96 users watching session replays of how they interact with notifications or surveying them for more on what they need. Our innovation will accelerate from here. In addition to what I've just shown, over the next few quarters, we'll introduce new AI-first products like automated insights, global chat assistant and additional agents that extend our reach. These new capabilities expand who can use Amplitude and strengthen the value of the analytics platform overall. Every new product draws on the same behavioral data set and feeds back into it, creating a single system of improvement. That's what makes our use and learn opportunity so large. Innovation is the biggest driver of long-term growth at Amplitude and our strongest moat in this AI-first world. Let's talk about customers. We had a great quarter for new and expansion deals with enterprise customers, including Bentley Systems, FanDuel, Thomson Reuters, Taco Bell, Global Radio, Empower, Granola, Algolia and Gusto, among others. I'm going to highlight how a few of them are putting this all to work. Three examples stand out this quarter, each showing the power of the Amplitude platform in a different way. First is FanDuel. They continue to be a great example of platform consolidation at scale. FanDuel is constantly refining its experiencing -- its experiences and tailoring them for millions of fans. Connecting real-time feedback to customer experience is critical to their success, and Amplitude powers that loop. FanDuel uses Amplitude end-to-end across multiple product lines from analytics to guides and surveys to session replay. That unified view helps their teams test, learn and improve faster. Their expansion and renewal patterns remain among the strongest in our base. Second, Granola. This fast-growing AI start-up adopted Amplitude before launch after hearing about us through the AI ecosystem. Today, more than half the company uses Amplitude every day to understand how people use their product and where to iterate next. Granola ships new features quickly and relies on real-time feedback to guide product decisions. Their story is a great example of how AI-native companies are choosing Amplitude to accelerate growth and scale with confidence. Third is Bentley Systems, a global leader in design, construction and infrastructure software. Bentley selected Amplitude as a single analytics platform across all products. The company previously relied on siloed legacy tools but needed one system to understand usage, drive adoption and guide feature development. By activating historical data from Databricks and combining it with behavioral insights in Amplitude, Bentley can now test, learn and implement improvements far more quickly across its portfolio. These stories all point to a common theme. From AI start-ups to global enterprises, customers are betting on Amplitude as the AI analytics platform that will help them thrive in this new era. We are at the beginning of redefining analytics as an AI-native system that learns, reasons and acts. Over the next few quarters, we will bring a new wave of AI-native products to market that will reshape how companies use data to build better products. This is just the beginning of the AI era for analytics. I'll now hand it over to Andrew to walk through the financials. Andrew Casey: Thank you, Spenser, and good afternoon, everyone. We've delivered another solid quarter of acceleration in our ARR, improved operational efficiency and created greater durability in our future revenue base. Our customers are increasing their pace of innovation and in turn, need to understand how the changes are being received, how to adapt and how to implement those changes. As such, we believe Amplitude's importance to the enterprise is increasing. On our business, we have continued to perform against our strategy that we communicated at our Investor Day earlier this year. We've increased the value that our platform can deliver by adding Guides and Surveys, AI agents, our MCP server and others. We've grown the base of our enterprises we are serving, the number of customers that are using multiple products and the full platform. We've done all this while improving operational efficiency of the business. We continue to improve the durability of our business as measured by improving our contract duration and remaining performance obligations, or RPO. This quarter, our average contract duration grew to nearly 22 months, up from 19 months just 1 year ago. Our RPO growth has improved from Q2 with current RPO growth year-over-year accelerating to 22% from 20% last quarter and long-term RPO growth accelerating to 78% year-over-year, up from 64% last quarter. This results in total RPO growth of 37%, accelerating from 31% last quarter. The growth in our RPO is a direct result from building a more repeatable and scalable go-to-market strategy, focused on enterprise customers. Turning to our third quarter results. As a reminder, all financial results that I'll be discussing with the exception of revenue are non-GAAP. Our GAAP financial results, along with a reconciliation between GAAP and non-GAAP results, can be found in our earnings press release and supplemental financials on the Investor Relations page on our website. Third quarter revenue was $88.6 million, up 18% year-over-year and 6% quarter-over-quarter. This quarter's growth benefited from better linearity in deal signings earlier in the quarter, growth in our services business and the strong net new ARR growth we had in Q2. Total ARR increased to $347 million exiting the third quarter, an increase of 16% year-over-year and $12 million sequentially. Here are more details on the key elements of the quarter. We had a strong quarter for both new and expansion deals in the enterprise. Platform sales were also particularly strong. 39% of our customers now have multiple products with 71% of our ARR coming from that cohort. The number of customers representing $100,000 or more of ARR in Q3 grew to 653, an increase of 15% year-over-year and up 19 customers since last quarter. In-period NRR progressed to 104%, led by cross-sell expansions. Gross margin was 76% for the third quarter, down 1 point from the third quarter of 2024 but up 1 point since last quarter. We continue to make progress on optimizing our hosting costs, driving multi-product contracts and monetizing services engagements. And we will continue to look for opportunities to incrementally improve our gross margin over time. Sales and marketing expenses were 43% of revenue, a decrease of 1 point from the second quarter. We continue to focus on improving sales efficiencies, driving improvement through our changes in process, coverage and expansion of enterprise customers. At the same time, we are investing for future growth, while balancing this incremental investment with efficiency gains. G&A was 13% of revenue, down 3 points from the third quarter of 2024. We expect G&A to improve as a percentage of revenue over time. R&D was 19% of revenue, up 3 points from the third quarter of 2024. We expect to continue to invest in the talent and the capabilities of our team to drive greater innovation in the future. Total operating expenses were $67 million or 75% of revenue, down 1 point sequentially. Operating income was $0.6 million or 0.6% of revenue. Net income per share was $0.02 based on 143.2 million diluted shares compared to net income per share of $0.03 with 131.3 million diluted shares a year ago. Free cash flow in the quarter was $3.4 million or 4% of revenue compared to $4.5 million or 6% of revenue during the same period last year. In the third quarter, we managed our cash collections and made meaningful progress, shifting to contracts with annual payments in advance. Now, turning to our outlook. As Spenser laid out, the world of development, test and ship is changing rapidly. Analytics and the use of data to understand outcomes and drive action will be more important than ever for enterprises. Our strategy remains consistent with our go-to-market. We will continue to focus on gaining new enterprise customers and driving cross-platform sales with our existing customer base. We also believe that with the release of our AI capabilities, the monetization of data ingested into our platform and cross-sell opportunities of new products gives us the right strategy to align the value of our customers receive with our growth opportunities and to grow our business in a profitable way. For the fourth quarter of 2025, we expect revenue to be between $89 million and $91 million, representing an annual growth rate of 15% at the midpoint. We expect non-GAAP operating income to be between $3.5 million and $5.5 million. And we expect non-GAAP net income per share to be between $0.04 and $0.05, assuming diluted weighted average shares outstanding of approximately 142.6 million. For the full year 2025, we are raising our revenue expectation for the full year due to the quarter's positive performance. We expect full year revenue to be between $340.8 million and $342.8 million, an annual growth rate of 14% at the midpoint. We are adjusting our range for the full year non-GAAP operating income to be between $0.5 million and $2.5 million, reflecting growth investments. We expect non-GAAP net income per share to be between $0.06 and $0.08, assuming weighted average shares outstanding of approximately 142 million as measured on a fully diluted basis. In closing, we continue to execute our strategy of growing our enterprise customer base, expanding multi-product attach with our customers and growing with additional leverage in our business model. This has only occurred through the focused execution of our employees and our relentless drive towards creating value for our customers. With that, we'll open it up for Q&A. Over to you, John. John Streppa: Thank you, Andrew. We will now turn to Q&A. [Operator Instructions] Our first question will come from the line of Koji Ikeda from Bank of America, followed by Patrick Schulz. Koji Ikeda: I wanted to ask on RPO. I look at ARR, nice growth there, but RPO, real nice acceleration of 37%, most added sequentially in a long time. Andrew, totally hear you on the repeatable and scalable enterprise aspect of the execution here. But I was hoping you could break it down a little bit by enterprise, mid-market, vertical, maybe even annual contract size and contract duration. What's really driving that 37% growth there? Andrew Casey: You may recall, Koji, that back in the beginning of the year, we made a lot of efforts at resegmenting our customers, refocusing our sales coverage on the enterprise group of clients. And we even have a stratification that's even larger than that, we call, [ Strat ] in the enterprise. And for those who don't remember, we define enterprise clients as anyone who has 1,000 employees or more or over $100 million in revenue. And when we did that, we really had a lot of marketing efforts, focused efforts to show how we are consolidating the space, how we could increasingly -- by customers, increasingly leverage the power of the Amplitude platform, how they get greater value. And I would tell you, when you have those conversations with clients, they often look to not just a single tool replacement, but rather a multi-year journey, how they're going to continue to drive value as their business changes, as their business grows. And that's led to more strategic conversations and thus the deal constructs, which have more duration to them. I mentioned earlier, our contract duration has increased overall to 22 months. I will tell you, in the enterprise space, it's even larger. And the reason is because so many of those multi-year -- million-dollar contracts result in multi-year commitments, and that's driving our RPO. Now, you don't do that without getting the sales teams very focused in an execution way and aligning incentives [ proportionately ] to drive those outcomes. And I would tell you, they've done a great job in multi-year contracts and making sure that our RPO is growing quite rapidly. Koji Ikeda: And maybe a question here for Spenser. In the presentation, you talked about this, I'll call it, the build, ship, use and learn circle of life here. Where are enterprises today... Spenser Skates: Product circle of life. Koji Ikeda: Product circle of life. Yes. Where are enterprises today? Where are they investing now? And where are they really going to be investing in the future? Spenser Skates: You mean, in product or in analytics? Koji Ikeda: In that circle. Are they investing more in the build process, the ship process? Are they yet to really start to invest in the use and learn side, and that's the real opportunity for you guys? Spenser Skates: I think it's much earlier on the use and learn side, right? If you look at the state-of-the-art for how companies do this, it's literally you go ask, talk to a bunch of customers, you do a focus group, you send out a survey, you're getting lots of qualitative feedback. The point I am trying to make is that if you can master that quantitatively, that is so much more powerful because you can -- actions are much more powerful than words. Users are great at describing the problem they have. But it's like that old great Henry Ford quote, if you just listen directly to what they do, they'd ask you for faster horses. And so, the companies like the Facebooks or the Netflixes of the world that have done a great job of that has this incredible edge over anyone else. And so, we see ourselves as bringing that infrastructure much broadly. Now, to your question, it's much, much earlier there. I think we see a lot of excitement. Like I was just in Europe a few weeks ago, and every single customer wants to talk about, yes, how is my learning side going to get completely disrupted by AI. Like we're already on coding. They're having the developers use Cursor and Claude Code and a whole bunch of other coding -- AI coding tools. They want to know how the same is going to happen in analytics. And so, what I was presenting is like, hey, what's our vision for that future? John Streppa: Our next question will come from Patrick Schulz from R.W. Baird, followed by Elizabeth Porter from Morgan Stanley. Patrick Schulz: Maybe first, just thinking about the growth for revenue and ARR, another very strong quarter. And looking at the Q4 guidance, there's some revenue deceleration implied there. Just wondering if you could provide a little bit more color on what went into that forecast. And maybe more broadly, there's always some trade-off between investing for growth and driving profits. But curious to hear how you guys are balancing these 2 as you head into next year, especially just given the velocity of innovation you guys are seeing. Andrew Casey: So I'd tell you that our guidance is always based upon the lens of execution for us. And as we've gotten better and better at executing our enterprise play, that's given us a lot more visibility into future revenue, and it shows up in our RPO. And so, rather than go back on what has worked very well for us as we progressed this year, we're going to stick with that guidance pattern and stick with what we know we can go execute in the market, and we believe that will continue to deliver benefits for us. Now, on balancing growth with leverage, if you were a fly on the wall within the Amplitude offices, you'd find that we're often making debates -- we have debates about when to make the right investment, how much leverage can we expect from it, and then how can we make sure that we are continuing to drive towards the expectations we set at Investor Day back in March. And so, it's always a little bit of a difficult conversation. But I think the teams have learned to manage within those constructs, and we're making the investments that really matter while still delivering progressions on our growth with leverage plan. Spenser Skates: Yes. I mean, Patrick, I'll say you don't find -- the bottleneck to growth is actually not a lot of time spend. It's about how can I retrain this team to be more effective. So Andrew and I and with Thomas have been looking at sales productivity and how do we drive that for next year. The teams have really stepped up and done a good job of how do we be really effective. You can get a lot of leverage from AI tooling in this world without a crazy amount of spend. Patrick Schulz: Okay. That's very helpful. Maybe just one quick follow-up, too. Very impressive list of customer wins during the quarter. And one of your goals over the past year has been to improve the enterprise go-to-market motion. Just can you maybe talk about how some of these improvements have impacted the trends with initial deal wins? What are you seeing in terms of change to sales cycles, size of initial lands and maybe landing with multiple products? Spenser Skates: Yes. I mean, we're -- I mean, as I kind of outlined in all 3 examples, I mean, I think we're doing everything across the board way better than we were a year or 2 ago. You're seeing many more multi-years, which is reflected in the RPO growth. You're seeing 71% on multiple products. That's a huge [ freaking ] deal. You're seeing customers willing to just invest in analytics, invest in the whole platform. They're very excited about what we're doing on the AI side as well. And so, I got to give a lot of credit to the go-to-market teams for how they've built much stronger relationships with those. Even though I didn't speak to it too much, they've done a phenomenal job, and that's why you see ARR reacceleration, as well as all those other numbers. One other just data point to call out, we had a really broad-based set of 7-figure wins. It was about -- it was 5 7-figure wins in Q3, which was just fantastic to see, everything from some of the enterprises, the very traditional enterprises I called out, all the way to -- we actually had a foundational model company that we can't disclose who it is but sign for Amplitude. So it's just exciting to see kind of, hey, across the full spectrum, we're doing well. John Streppa: Our next question will come from Elizabeth Porter from Morgan Stanley, followed by Willow Miller from William Blair. Elizabeth Elliott: Awesome. I think one of the really exciting parts about Agents is its ability to tie together multiple products across the Amplitude platform. And should we expect kind of a step function increase in multi-product adoption? I know that it was about 70% of ARR, but the customer base is still below 70%, which is -- 40%, which is a big opportunity. So how does the Agent strategy just overall accelerate that mix shift in the broader platform strategy? Spenser Skates: Okay. So there's what we're doing today and then there's future. What we're doing today, we are focused on the analytics adoption piece because more people using analytics, the more people sending us data, the more people querying that data, the more value we create, and that will naturally expand and lead to a whole bunch of these other use cases. So the 2 agents I talked about, the dashboard monitoring agent as well as the session replay agent, those are all kind of insights-level agents. Now, what we do have coming and will be in next year is we're going to be doing a lot more on the action side, so suggested experiments, as we showed in June on the last earnings call, where we come up with a strategy for how you can improve conversion on your website, suggested guides for you to send out to users, hey, you don't have a new user onboarding guide. We've created one for you. Do you want to go ahead and deploy that? Suggested cohorts of users to target with messaging. So I'd say today, on the Agents front, we're specifically focusing on the analytics and insight layer because that's where we're hearing the most pull from customers, but we'll add a whole bunch of action layer stuff as a fast follow-up. Elizabeth Elliott: Great. And then, just as a follow-up more on the financial side. As Amplitude moves further upmarket, should we expect there to be any seasonality in in-quarter NRR, just given we can have some of these quarters that are heavy in the enterprise deals? And how would you frame kind of the cadence in NRR trend and how it could evolve through the year? Andrew Casey: So I'd say that everything is better with -- in the enterprise. Our NRR is much higher than the overall average for the business. We still have cohorts in the SMB and mid-market that have higher churn rates. But as we get more -- a higher and higher percentage of our ARR in the enterprise, NRR will continue to progress. And we expect that we'll see a continued progression in our enterprise content. As we delineated at our Investor Day back in March, we'll see that progression continue to go up. That drives better gross retention as well. And so, although we didn't see a big progression this quarter, the reality is, we have a lot of faith in our long-term expectations of being that 115% that I talked about last quarter. John Streppa: Our next question will come from Willow Miller from William Blair, followed by Ian Black from Needham. Willow Miller: I'm Willow on for Arjun Bhatia. I believe, in your prepared remarks, you mentioned that you believe the new AI functionality like MCP and Agents can open up Amplitude to nontechnical users. Can you comment more on this? And could this expand your market opportunity? Spenser Skates: Absolutely. I mean, the hard part -- there's 2 hard parts in analytics today. One is, you have to learn an analytics product. And so, as easy as we made it with Amplitude, you still have to learn our interface, what drop-downs, what type of charts to use, all of that sort of stuff. The other thing you have to learn, and this is the biggest bottleneck in analytics, is the data taxonomy that you have. And the problem with particularly product data taxonomies is they are huge. Like the average product has thousands of different things you can do in it. So, no one is going to be able to keep that in their head. The huge leverage point you get, which I showed in the MCP demo, is that you can start with a very vague question, like show me my onboarding funnel, and then it will look across your data set to see, okay, which are likely the onboarding events, let me construct a funnel with them. And then, if you're not happy with the result, you can iterate with it. But the point is, you're not having to learn our interface or any analytics interface. You're also not really having to learn your data taxonomy. It's leveraging -- it's doing the thinking and reasoning for you on specifying the query and constructing it and putting that back in a chart. So you're just getting the result and then kind of going back and forth with it. So I -- so the answer is, highly yes. We've set really aggressive internal targets for next year for what we expect the -- how we expect the adoption of Amplitude to grow because of what we're building. John Streppa: Our next question will be by Ian Black from Needham, followed by Claire Gerdes from UBS. Ian Black: Congrats on the great quarter. As you guys start to lap the switch to multi-year contracts that you started last year, is there an impact on sales productivity? Andrew Casey: No, I don't think that -- we certainly look at sales productivity both on a gross and a net basis. But I think that the opportunity for us to continue to drive expansions within our existing customer base is well over $150 million. We said something similar at our Investor Day when we had even fewer customers. We've done a pretty good job of adding new enterprise clients. And even at the rate that we're adding them, we still think that there's a large footprint within each one of them where we can show great expansion opportunities. Ian Black: Awesome. And then, you mentioned customers increasingly viewing you as key strategic partners. Is there an opportunity to expand your service partner network as you go deeper within your customer base? Andrew Casey: Yes. That is one of the other growth engines that is somewhat nascent for us today. I think that as Amplitude becomes increasingly important to enterprise clients, you'll start to see more and more partners look at ways in which they can develop on our platform and create their own value add. And that's something that, over time, we believe will happen. John Streppa: Our next question comes from Claire Gerdes from UBS, followed by Jackson Ader from KeyBanc. Claire Gerdes: I'm on for Taylor McGinnis. Great to see the results today. I wanted to ask about some of the newer AI products that you're offering. I know some are still in beta. But as we think about where you are with those and balancing adoption and monetization in the future, I know, again, still very early, but is it more that you're wanting customers to adopt and get familiar and we can expect more of those free at this time? Or how are you thinking about that right now? Spenser Skates: Yes. Adoption is our key focus. Like they drive a bunch of value. Customers will track more data. They'll use that data a lot more broadly across more users, and that will very naturally lead to more value and upsells and everything else. I mean, if you look at our ASP, we're hovering around $400,000 a year. In a lot of companies, we are the largest spend after their cloud hosting. So we have no problems already commanding a premium price point. The key is to be able to consistently deliver value and make that barrier lower and lower, which is what we're doing with MCP and Agents and all of the stuff that's targeted at nontechnical users. Claire Gerdes: And then, just maybe a quick follow-up, a bit broader, but can you just comment on the selling environment right now? Obviously, still a lot going on, but you're putting up a great acceleration. So just if you could comment on that, that would be great. Spenser Skates: Yes. I mean, I think there's been -- I don't think there's any change quarter-to-quarter. There's a continued cost consciousness among all customers, the same way it's been for the last few years. I think what they're really excited to see is like, hey, does this AI stuff work? Is it legit? Every B2B company under the sun is like pitching them on AI this, that or the other thing. And so, what I always say is show me the demo. So that's why I kind of did that on today's call. And they're really, really -- yes, a lot of customers are very, very excited about that. They want to know how can I get 5, 10, even more times leverage with leveraging AI Agents, MCP, get a lot more insights than I would doing all of that work manually. John Streppa: Our next question comes from Jackson Ader at KeyBanc, followed by [indiscernible] from Citi. Jackson Ader: The first one is kind of a product question. One of Francois' major initiatives, I guess, if you want to call it that, is a tighter integration between customer feedback and the product road map and kind of getting that flywheel going. So I'm curious, what are customers -- agents are rolled out. You've got AI features and functionalities. What are customers kind of looking for as we head into 2026 that might be able to like continue to compound the growth that we've seen? Spenser Skates: Yes. I mean, look, just to be really clear, we're in the really early days of Amplitude in this category. I think -- let's see what would I call out. So first, take all the AI stuff and set it to the side. Just with the enterprise execution, plus the expanding breadth of the platform, that already, we expect to continue to accelerate us to the ranges that we talked about on the Investor Day earlier this year, so beyond the 20%, which, in my mind, is kind of the bare minimum for this category. And then, you add how this category gets dramatically reshaped by AI, as I've been outlining, like the same thing that happened to software engineering with Cursor and with a whole bunch of other AI coding products, that is going to happen in analytics, and we see what that opportunity is. We're going to go really aggressive after it, and there is a lot of appetite to adopt that. So I'm very excited and bullish on it. And I think as we see customers adopt and use and get value on that, that will all translate downstream to Amplitude revenue growth. Jackson Ader: Okay. All right. Great. And then, the follow-up question is just on the split between -- or I guess, not split, but just product analytics versus marketing analytics. I know we're getting into kind of new budget territories with the marketing piece. At what point does that split become material enough to where [ I'm sure ] that the high growth rates coming from marketing analytics is able to contribute to like a material amount of your overall revenue? Or are we there already? Spenser Skates: No, no. It's early on it. I mean, there's customers that have switched off of legacy marketing analytics products and moved wholesale to Amplitude. Like DECATHLON is one. [ Realtor ] is another. There's a few that have that -- that do that, that are like saying, "Hey, Google Analytics or Adobe is not working well enough. So let me move on to something like an Amplitude." Now, there's still more for us to build there, and we're going to be -- we haven't really talked about what we're going to be doing there, but there's -- yes, we're going to be doing a lot in 2026 that will allow us to capture a significant amount of the marketing budget and have that contribute to growth. John Streppa: Our next question will come from [indiscernible] from Citi, followed by Clark Wright from D.A. Davidson. Unknown Analyst: Spenser, the AI Agents launch over the summer was like pretty big [ fun for OSF ]. So today, with better availability, could you kind of give us an update how has customer adoption been? What are some of the most effective use cases you are seeing and the ROI from customers? And then, also if there's any update on pricing monetization effort for AI Agents as it goes better? Spenser Skates: Yes. So let me hit the pricing one first. So, as I said to Claire earlier, focus is just let's make Amplitude more valuable. Like we command already an extraordinarily high price point with a lot of our customers. And so, we're not looking to squeeze them for more. We just want to give them a lot of value. So I think it's a common misconception -- sorry, misunderstanding about our business relative to other SaaS is, we already command like very, very high price points, which is great, but you obviously want to make sure you're consistent about delivering the value. In terms of what use cases work very well, so the 2 I highlighted, dashboard monitoring and session replay are the big ones that customers use a lot of. They -- I think customers are not ready to trust AI agents to come up with a whole strategy of wholesale for them and then recommend a series of actions. But they are very excited about using things that can monitor the data and just proactively tell them -- like this is, in a lot of ways, the holy grail of analytics, like can you tell me when something has changed in my data and deliver that insight as to why it changed? And so, in the MCP demo, we have a -- I didn't do the demo today, but we have a dashboard monitoring agent that can do the exact same thing at that, deliver kind of a root cause analysis saying, "Hey, you had a spike in September and here are the particular causes the product benchmark report and this other launch that you did. And that customers are using and getting a bunch of value, and that's what our focus is in the short term. And then, same with session replay. With session replay, you'll have often millions of sessions, and it's like you can't watch them all. So how can you have AI summarize the highlights for you? And then, you can maybe watch 3 or 4 that are relevant you're like, "Oh, okay, I can see how the product experience can improve if we make these changes to the app." Unknown Analyst: Got it. That's clear. And Andrew, maybe one for you. I think the guide implies like a stronger kind of momentum going into Q4. Can you kind of help us understand the dynamic that you're seeing that have made you raise the guide bigger than [ a bit ] in the quarter and kind of how much conservatism you see in the guide and how is the pipeline going to year-end? Andrew Casey: Well, as we moved our business more towards pursuing enterprise opportunities, you still -- you have a pattern like many enterprise companies, and we're a calendar year company. So, all of our reps have end-of-year incentives to achieve and exceed their targets. And so, we typically have our strongest quarter in Q4. So that's the first thing. Pipelines and the maturity of those pipelines are something we look at very closely when we're putting together our guidance. What we've seen so far, that gives us confidence. And it would be remiss of me if I didn't say the RPO gives us great visibility into future revenue periods. And the more that the sales team executes on driving greater relationships with clients, more strategic agreements, we're getting those multi-year agreements booked. And so, as I said earlier, the guidance is based on the lens of execution for us, and we've pursued that same philosophy throughout this year, and it's led to strong performances. So we're going to continue that. Unknown Analyst: Congrats on the great result. John Streppa: And our last question comes from Clark Wright from D.A. Davidson. Clark Wright: Spenser, your product teams have been hard at work this quarter. Spenser Skates: Every quarter. But yes, we're accelerating. Clark Wright: Yes. And the pace of innovation has been great to see. I was wondering if you could talk about how you think right now about building versus buying incremental capabilities at this point in time in order to keep up this pace of innovation. Spenser Skates: Yes. So you always want to be able to do both. Like I think experiment -- we actually looked for a while for the right team to come in but ended up deciding to be able to build was the faster way to get that to market because there wasn't a company at the time that was the right fit. Conversely, like we bought when we think it makes sense, so Activation back in 2022, Guides and Surveys, now AI Feedback, that made a ton of sense. So you're kind of always doing both. I think the important part is we're not religious. And so, whatever gives us the shortest path to market, like with AI Feedback, that would have taken us a year -- I mean, I'd like to say only a year, but the reality is probably more like 2 to get to the same point a state-of-the-art product like Kraftful was. And the same with Command on Guides and Surveys, that would have taken us 2 to 3 years, no question, at least to build internally. So it's just a much faster path to market. So we're always looking at both. The other thing I want to point out is that I think -- I mean, I've been really excited to work with the founders that we have. Yana on -- from Kraftful has done a phenomenal job of kind of educating me about AI and educating a lot of the rest of the company. Same with Enzo and Ferruccio from June, same from Frank and Eric from Inari, like they've all done a phenomenal job of like they've been building in this space in an AI-native way for a bunch of years. And so, as we're looking to change the makeup of the team to be able to build -- to look much more like an AI start-up, then like they're kind of the tip of the spear on that. And so the explosion of products you've seen has come from ideas seeded by different folks from that group. So just as an example, like AI Agents was led by James Evans from Command, and then now Frank from Inari is taking it. And then, like Yana is working on LLM analytics, as well as a bunch of automated insights that we haven't even got to talk about yet. And then, you combine that with folks who have been at Amplitude for a long time and you get just incredible results. So like, yes, you kind of -- you pair a lot of long-time product veterans at Amplitude with some folks who have been in the AI ecosystem and you're just able to be really aggressive about the innovation. Clark Wright: Awesome. And then, just in terms of monetization, you talked about the fact that you're going to be giving away some of these features. How do you think -- are events going to be the denominator going forward in order to look at really kind of pricing and packaging? Or is there another way to think about that, that we should be considering going forward? Spenser Skates: Okay. So this is a topic I'm very passionate about. A lot of people in the AI space talk about outcomes-based pricing. I think it is an awful idea because you spend out a lot of time arguing with your customers about, was that a good outcome? It's like -- what works much better is the same meter-based pricing that you had in SaaS. So whether that's, in our case, events, some seats, some cases like tickets handles or size of customer base or what have you. But the customers have been most receptive. Like they don't want to feel like they're getting screwed. And like whenever you try to introduce a new metric or a new way of doing pricing, it raises a huge number of red flags. Whereas if you go with something they've already been used to using like events and data volume, like they're extremely comfortable with that. And so, we're not -- yes, we're not planning -- while I think there are things we're going to continue to improve about our pricing to better make sure we have a fair exchange of value between us and our customers, we don't want to -- we actually are looking to simplify our meters, and that's something we're going to be coming out with next year where we're just going to focus on the events piece. John Streppa: Great. Thank you, Clark. That will conclude our third quarter earnings call. Thank you for your time and interest, and we look forward to seeing you on the road this quarter as we attend conferences hosted by UBS and Needham. Thank you. Spenser Skates: Thank you, guys.
Operator: Good day, and thank you for standing by. Welcome to the Q3 2025 Novo Nordisk 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, Jacob Rode, Head of Investor Relations. Please, go ahead. Jacob Martin Rode: Thank you. Welcome to this Novo Nordisk Earnings Call for the First 9 Months of 2025. My name is Jacob Rode, and I'm the Head of Investor Relations. With me today are CEO of Novo Nordisk, Mike Doustdar; Executive Vice President, Product and Portfolio Strategy, Ludovic Helfgott; Executive Vice President, U.S. Operations, Dave Moore; Executive Vice President, Research and Development and Chief Scientific Officer, Martin Holst Lange; and Chief Financial Officer, Karsten Knudsen. All speakers will be available for the Q&A session. Please note that the call is being webcasted live, and a recording will be made available on our website as well. The call is scheduled to last a little more than 1 hour. Please turn to the next slide. The presentation is structured as outlined on Slide 2. Please note that all sales and operating profit growth statements will be at constant exchange rates unless otherwise specified. Next slide, please. We need to advise you that this call will contain forward-looking statements. These are subject to risks and uncertainties that could cause actual results to differ materially from expectations. For further information on risk factors, please see the company announcement for the first 9 months of 2025 as well as the slides prepared for this presentation. And with that, over to you, Mike, for an update on our strategic aspirations. Maziar Doustdar: Thank you, Jacob. Next slide, please. In the first 9 months of 2025, we delivered 15% sales growth and 10% operating profit growth. We've also narrowed our guidance range to 8% to 11% on sales and 4% to 7% for operating profit. This is because we expect lower growth for our GLP-1 treatment in diabetes and obesity. Karsten will get back to the guidance update later in the call. Looking into the R&D in diabetes, Rybelsus is now approved in the U.S. and EU with CV indications based on the SOUL trial. Within obesity, and business development, we have progressed on a number of projects that Martin will come back to later. In rare disease, we have now submitted Mim8 for regulatory approval in both U.S. and EU. We're now serving around 46 million people living with diabetes and obesity. This is around 3 million more people with our GLP-1 treatment compared to just 12 months ago. Furthermore, I would like to note that 2025 strategic aspirations is our current framework for reporting, and we look forward to updating this next year as the current strategic aspiration runs out. Next slide, please. Since I became CEO, I have said several times that Novo Nordisk will sharpen its focus on core areas, specifically diabetes and obesity. I want to take a moment to explain how we have refined our strategy. For more than 100 years, we have been guided by a simple purpose: to identify and solve major unmet medical needs. This commitment is unchanged. There are many people who can benefit from expertise in diabetes and obesity, and we believe we can serve them better than anyone else. Going forward, we will concentrate on these areas where we can make the greatest difference. Our strategy begins with patients at the center of everything we will do. Way more than 1 billion people are affected by diabetes or obesity. We will work tirelessly to develop products that help them live healthier, fuller lives. Some of these products will be developed internally. Others will be added to our portfolio through partnerships and acquisitions. Many of these assets can address multiple unmet needs. We will explore those opportunities and expand indications where appropriate to serve our patients. Speaking of patients, it is a known fact that obesity and diabetes vary by individual and often comes with comorbidities that lack effective treatments. As with the Akero acquisition, Novo Nordisk will keep pursuing innovation with identification within research and then advancing those to development to address comorbidities within our core and the overlaps with those cores. We are now shaping our focus -- sharpening our focus. In the past, we spread our resources into areas a bit further away from our core. Think about stem cell research for Parkinson's disease. Therefore, during this last quarter, we have discontinued several noncore assets and redirected resources to areas aligned with our strength. We will intensify our commercial efforts to strengthen competitiveness. To meet evolving market dynamics and increasingly consumer-like behavior, we will, for example, expand telehealth capabilities across markets. In short, we remain disciplined about where we will compete within diabetes, obesity and related comorbidities in the years ahead. We will also continue our targeted research and commercial work in rare disease. And to support this strategy, we have launched a company-wide transformation, which I would like to give you an update on its progress right now. Please go to the next slide. We previously announced a company-wide transformation designed to simplify our operating model, accelerate decision-making and reallocate capital and resource towards the highest growth opportunities in diabetes and obesity. This program supports our strategy to capture rising global demand and strengthening our competitive position in the increasingly consumer-like obesity market. As part of the plan, we expect a reduction of approximately 9,000 positions globally. While this decision was not taken lightly, it is expected to drive approximately DKK 8 billion in annual savings by the end of 2026. Those savings will be redeployed to expand our diabetes and obesity franchises and fund strategic priorities. We recognize the human impact of these changes and remain committed to responsible transition for affected colleagues. At the same time, we're confident this transformation will increase operational efficiency and strengthen our long-term future and enhance return for our shareholders. I will now hand over to Ludovic for an update on our commercial execution for the first 9 months of 2025. Ludovic Helfgott: Thank you very much, Mike, and please turn to the next slide. In the first 9 months of 2025, our total sales increased by 15%. The sales growth was driven by both operating units. U.S. operations grew 15% and international operations grew 16%. Sales growth in the first 9 months of 2025 was positively impacted by one-offs in the U.S. of around DKK 6 billion. Our GLP-1 sales in diabetes increased by 10%, driven by both operating units growing at the same rate. Insulin sales increased by 3%, driven by U.S. operations growing 18%. The sales increase was positively impacted by gross to net adjustments related to prior years as well as channel and payer mix. This was partially countered by a decline in volume. International operations sales decreased 2%. Obesity care sales increased 41%, driven by U.S. operations growing 24% and international operations growing 83%. Our rare disease sales increased by 13%. This was driven by sales increase in the U.S. of 14% and in international operations of 13%. Next slide, please. Sales in international operations grew by 16% in the first 9 months of 2025, driven by GLP-1 products. GLP-1 diabetes sales increased by 10%, driven by sales growth of Ozempic and Rybelsus. In Region China, GLP-1 diabetes sales decreased by 4%, which was negatively impacted by wholesaler inventory movements. Obesity care grew by 83% to DKK 22.4 billion. Sales of Wegovy reached approximately DKK 20 billion growing at 168%, driven by sales growth across all regions. Please go to next slide. In the combined diabetes and obesity GLP-1 market, Novo Nordisk remains the market leader in international operations with a volume market share of 68%. Rybelsus is now available in more than 40 countries, and Ozempic continues to be the leading GLP-1 diabetes product within international operations have been launched in around 80 countries. In obesity, Wegovy is now launched in more than 45 countries with more to come. Oral semaglutide 25-milligram or Wegovy in a pill has been submitted in the EU for potential launch in selected EU markets. The GLP-1 class growth of 35% in international operations is encouraging. And while competition in diabetes and obesity across international operations is intensifying, the unmet needs remain substantial. And with that, I would like to hand it over to Dave for an update on our U.S. operations. David Moore: Thank you, Ludovic. Please go to the next slide. Sales of GLP-1 diabetes care products in the U.S. increased by 10% in the first 9 months of 2025. The sales increase was driven by continued uptake of Ozempic, partially countered by Victoza and Rybelsus. Ozempic sales in the U.S. were positively impacted by gross to net sales adjustments and wholesaler stocking. Weekly Ozempic prescriptions are currently around 670,000 in standard units compared to 690,000 standard units in the second quarter of 2025. The GLP-1 diabetes market grew around 10% in the third quarter of 2025 compared to the third quarter of 2024. In the U.S., we continue to invest in commercial activities and have recently launched Ozempic in our direct-to-patient cash offering. Please go to the next slide. Wegovy sales increased by 25% in the U.S. operations in the first 9 months of 2025. The Wegovy sales growth was driven by increased volumes, partially countered by lower realized prices. Wegovy has around 270,000 weekly prescriptions compared to 280,000 weekly prescriptions at the end of last quarter. In August, we announced that the U.S. FDA approved Wegovy for the treatment of MASH. In U.S. operations, we have established a sales force targeting U.S. hepatologists and gastroenterologists while we work to build access in this segment. Generally, we also continue to work on expanding access to safe and authentic Wegovy. Around 55 million people with obesity have Wegovy coverage in the U.S. with more than 10 million people estimated to be covered with Medicaid. However, looking into 2026, Several states have already announced changes to coverage for obesity medicines in response to budgetary concerns, which will affect Medicaid access to Wegovy. Regrettably, Novo Nordisk market research shows that compounding has continued to increase. Multiple entities continue to market and sell compounded GLP-1s and it is now estimated to be well above 1 million patients in the U.S. that are currently on compounded GLP-1. Novo Nordisk launched NovoCare Pharmacy in March of 2025 and together with retail channel, total cash market is up around 10% of total Wegovy prescriptions. Novo Nordisk will continue to invest in the expansion of direct-to-patient initiatives like the recently announced collaborations with GoodRx and Costco. We continue to anticipate a regulatory decision regarding Wegovy in a pill later this year, which then we will be ready to launch in early 2026. Now back to you, Ludovic. Ludovic Helfgott: Thanks, Dave. Please turn to the next slide. Yesterday, we confirmed that we submitted an updated proposal to acquire Metsera to further strengthen our research and development portfolio in diabetes and obesity. As we said before, unlocking the full potential of the obesity market will require a broad and deep portfolio with different treatment options, formats, serving differentiation groups and their very different preferences. Obesity treatment is still in its early stage. And in Novo Nordisk, we foresee future patient segments that, for example, could be categorized based on BMI, age, gender, lifestyle behaviors and comorbidities. We believe that Metsera's innovative pipeline would further enhance our opportunity to meet all these very different needs of all these very different groups. MET-097 is a potential best-in-class once-monthly GLP-1 treatment and MET-233 is a next-generation amylin asset. The pipeline of Metsera also includes a combination of the 2 mentioned above as well as innovative oral and injectable preclinical assets. Furthermore, Metsera's institutional knowledge and capabilities around peptide engineering and synthesis, half-life extension technologies and oral peptide delivery nicely complements Novo Nordisk's core strength in research. The proposed deal structure includes an upfront payment of USD 62.2 per share in cash, equal to an approximate enterprise value of USD 6.7 billion. The cash consideration is paid at signing in exchange for nonvoting preferred stock, representing 50% of Metsera's shared capital. In addition, up to USD 2.8 billion in contingent value right CVRs will be issued upon the closing of the acquisition in exchange for the remaining shares. The CVRs are based on the achievement of certain clinical and regulatory milestones. In total, Metsera is eligible to receive up to USD 10 billion or USD 86.2 per share. Novo Nordisk believes that the proposal, including the structure of the transaction complies with all applicable laws and is in the best interest of patients, who will benefit from our commitment to innovation as well as Metsera's shareholders. The offer highlights Novo Nordisk's commitment to investing in the U.S. and interest in continuing to grow the scale of its U.S. investment. Now over to you, Martin. Martin Lange: Thank you, Ludovic. Please turn to the next slide. As Mike described, we are intensifying our focus on key therapeutic areas such as diabetes and obesity, while continuing our commitment to related comorbidities as well as rare disease. The strategy aligns with our recent acquisition agreements of Akero and Omeros' zaltenibart assets. In early October, we announced the agreement to acquire Akero's efruxifermin, a once-weekly subcutaneous long-acting FGF21 analog with potential to be first to market in F4 and best in class. Efruxifermin complements a strategic position in Novo Nordisk MASH pipeline. Current treatment options such as Wegovy, primarily target patients with F2 and F3 disease states. Consequently, there remains a significant unmet need in the F4 cirrhosis population, for which no approved therapies are currently available. The Phase II data for efruxifermin are encouraging across F2 to F4. Specifically, the SYMMETRY Phase IIb trial demonstrates that after 96 weeks of treatment, 29% of F4 patients show improvement of at least 1 fibrosis stage with no worsening of MASH and 42% achieved MASH resolution with fibrosis -- without fibrosis worsening. This is the first Phase II trial to show statistically significant fibrosis regression in F4 patients for an FGF21 analog. Efruxifermin is currently in the Phase III SYNCHRONY program with pivotal readouts in the coming years and expected launch by the end of this decade. As a result, efruxifermin has the potential to be first-in-class FGF21 analog targeting the F4 population as well as playing a role in F2 and F3 patients, including people who are not responsive to existing treatments. We look forward to leveraging our capabilities to further optimize the SYNCHRONY program trials, assess the potential combinations with our current GLP-1-based portfolio and explore opportunities for additional indications such as alcohol liver disease. Also in October, we announced the agreement to acquire the clinical stage MASP-3 inhibitor zaltenibart from Omeros for rare blood and kidney disorders. This action aligns with the rare disease strategy with a key focus on rare blood disorders. Zaltenibart is currently in Phase II for the acquired rare blood disease paroxysmal nocturnal hemoglobinuria or PNH. Plans are in place to begin a global Phase III program for zaltenibart in PNH. The molecule holds big potential in a number of additional indications within rare disease and kidney disorders, which will be evaluated at a later point in time. We believe our extensive expertise in the development, manufacturing and commercialization of medicines within these fields makes us well positioned to advance these assets, optimize the value of their innovation and ensure they reach the patients in need of these treatments in a very timely fashion. Please turn to the next slide. Looking towards our internal pipeline, we recently published a sub-analysis of REDEFINE 1, focusing on cagrilintide. In the trial, cagrilintide achieved 11.8% weight loss at 68 weeks, assuming full treatment adherence. About 1 in 3 patients on cagrilintide lost at least 15% of their body weight. Overall, cagrilintide was very well tolerated. The most common side effects were gastrointestinal of nature. And the discontinuation rate due to gastrointestinal adverse events was 1.3%. Obesity is a global challenge that requires continued scientific innovation. More treatment options also focusing on tolerability are needed to meet their diverse individual needs and preferences. We are very encouraged by the first Phase III data for cagrilintide from REDEFINE 1, and we look forward to studying it further in Phase III, the so-called RENEW program. RENEW 1 and RENEW 2 will assess the 2.4 milligram dose in people with obesity with and without type 2 diabetes, respectively. Both trials have already been initiated and additional studies evaluating higher doses of cagrilintide are anticipated in the beginning of first half of 2026. Please turn to the next slide. Turning to the upcoming R&D milestones. We're looking forward to the remainder of 2025 with a number of readouts and milestones. In the first half of 2026, we anticipate the readout of the REIMAGINE 3, which is the first of 3 pivotal trials for CagriSema and people with type 2 diabetes. REIMAGINE 3 is a smaller study with CagriSema as an add on to basal insulin. REIMAGINE 2 is the largest study, which will provide comparison to semaglutide and will read out in the first quarter of 2026. We also look forward to the Phase II results of the subcutaneous and oral amycretin in type 2 diabetes in Q4 this year. Within obesity, we completed the Phase I trial with our internal GLP-1/GIP/amylin triagonist. The study assessed the safety, tolerability, pharmacokinetics and pharmacodynamics of the triagonist in the trial. All multiple doses tested appear to have a safe and well-tolerated profile. The result of this study allowed progression to a Phase Ib/II trial in individuals with overweight obesity, which was initiated in October of 2025. Looking forward, we expect the FDA decision regarding the new drug application for the Wegovy pill by the end of this year. Further, the submission of CagriSema as well as the readout of the REDEFINE 4 trial remains on track for the first quarter of 2026. Within rare disease, we have filed Mim8 as once monthly, once every 2 weeks and once weekly prophylaxis treatment to prevent or reduce the frequency of bleeding episodes in people with hemophilia A with and without inhibitors for regulatory approval in the U.S. and in EU. Finally, we anticipate the results of the evoke trials in patients with early Alzheimer's disease later this year. While there are a number of high unmet need for the treatment of Alzheimer's disease, it is important to remind you that this represents a high-risk opportunity. And as the very final remark, while it is not on the slide, I would be remiss if I don't mention that the first readout of ziltivekimab is anticipated to read out in the second half of 2026. With that, over to you, Karsten. Karsten Knudsen: Thank you, Martin. Please turn to the next slide. In the first 9 months of 2025, our sales grew by 12% in Danish kroner and by 15% at constant exchange rates, driven by both operating units. In the third quarter, DKK 9 billion in costs related to the restructuring was booked. The gross margin decreased to 81.0% compared to 84.6% in 2024. The decline in gross margin mainly reflects impact of around DKK 3 billion from the one-off restructuring costs and impairments related to a few production assets. Further cost of goods sold are impacted by amortization and depreciations related to Catalent as well as costs related to ongoing capacity expansions. Sales and distribution costs increased by 12% in Danish kroner and by 15% at constant exchange rates. The increase in costs is driven by both U.S. operations and international operations and is primarily related to Wegovy S&D costs are impacted by one-off restructuring costs of around DKK 2 billion. Research and development costs increased by 9% in Danish kroner and by 10% at constant exchange rates. This reflects increased R&D activity across the early and late-stage portfolio, particularly within obesity care. R&D costs are impacted by one-off restructuring costs of around DKK 4 billion and impairments related to the closure of early noncore projects to free up resources for projects in core therapy areas. This is partially countered by the impairment loss related to ocedurenone of DKK 5.7 billion and other impairments of intangible assets in 2024. Operating profit increased by 5% measured in Danish kroner and by 10% at constant exchange rates. Operating profit adjusted for costs related to the restructuring increased by 16% measured in Danish kroner and 21% at constant exchange rates. Net profit increased by 4% and diluted earnings per share increased by 4% to DKK 16.99. Free cash flow in the first 9 months of 2020 was DKK 63.9 billion compared to DKK 71.8 billion in the first 9 months of 2024, driven by increased capital expenditures. And finally, in the first 9 months of 2025, we have returned DKK 53 billion to shareholders, mainly through dividend payments. Please go to the next slide. For 2025, sales growth is now expected to be 8% to 11% at constant exchange rates. The new range reflects lower expectations for sales growth of our GLP-1 treatments in diabetes and obesity. Given the current exchange rate versus the Danish kroner, sales growth reported in Danish kroner is expected to be around 4 percentage points lower than constant exchange rate growth. In international operations, the updated outlook reflects current growth trends driven by GLP-1 penetration in diabetes and obesity, partially offset by intensifying competition within both diabetes and obesity. In U.S. operations, the outlook is based on current prescription trends for Wegovy and Ozempic as well as intensifying competition and pricing pressure within both diabetes and obesity. Operating profit is now expected to be 4% to 7% at constant exchange rates, negatively impacted by DKK 8 billion in restructuring costs. Given the current exchange rates versus Danish kroner, growth reported in Danish kroner is expected to be around 6 percentage points lower than at constant exchange rates. The narrowing of the guidance range mainly reflects the lower sales growth outlook and costs related to the agreed acquisition of Akero and Omeros, partially countered by reduced spending. Novo Nordisk expects net financial items to show a gain of around DKK 2.6 billion, driven by gains on hedged currencies, whereas capital expenditure is now expected to be around DKK 60 billion driven by adjustments to expansion plans. Free cash flow is now expected to be DKK 20 million to DKK 30 billion, reflecting lower-than-expected trade receivables in the U.S. and reduction in capital expenditure. Furthermore, the free cash flow guidance assumed an impact from the acquisition of Akero contingent on final timing of closing. Potential financial impacts related to the potential acquisition of Metsera has not been included. For the coming years, Novo Nordisk has previously informed that the compound patent expiry of semaglutide molecule in certain countries in international operations is expected to have an estimated negative low single-digit impact on global sales growth in 2026. In 2026, the agreed acquisition of Akero is expected to lead to increased R&D costs with an estimated negative impact on full-year operating profit growth of around 3 percentage points depending on the timing of closing. Lastly, Novo Nordisk accepted the Inflation Reduction Act maximum fair price, MFP, for Ozempic, Rybelsus and Wegovy in Medicare Part D for 2027. The estimated direct impact of semaglutide MFP in Medicare Part D had it been introduced first of January 2025, would have been a negative low single-digit impact on global sales growth for the full year of 2025. The MFPs for semaglutide will be effective as of 1st of January 2027 in Medicare Part D in the U.S. That covers the remaining details on the outlook for 2025. Now back to you, Mike. Maziar Doustdar: Thank you, Karsten. Please turn to the next slide. It's been a busy and productive quarter. Throughout the first 9 months of 2025, we delivered 15% sales growth and nearly 46 million people are now benefiting from our treatments. We have also advanced our R&D pipeline, launched a company-wide transformation program and announced a few strategically aligned R&D acquisitions and agreements. With that, back to you, Jacob. Jacob Martin Rode: Thank you, Mike. Next slide, please. And with that, we are now ready for the Q&A, please. [Operator Instructions] So with that, operator, let's take the first question, please. Operator: [Operator Instructions] And your first question comes from the line of Carsten Lønborg Madsen from Danske Bank. Carsten Madsen: I think I'll start -- I have two. I'll start out with sort of a relatively basic question for Mike now that it's the first time you have your sort of a real quarterly conference call here. If we look at your roadshow presentation, you can see that in the combined obesity and diabetes market, the GLP-1 market, you lost 9 percentage points global market share over the last 12 months. That's quite a massive loss of share. We obviously knew about this trend. But still, when you look at what you can actually do in terms of strategic initiatives to turn this around, what is it the intangible initiatives that you are thinking about implementing? You tried pricing in U.S. in Q3. It doesn't really seem to have a sort of a big delta effect on your momentum in the U.S. market. So maybe if you could give some examples. And question two is for Karsten. The acquisitions you have done or are planning to do will lead to sort of a quite significant cash outflow, especially if you get the Metsera. So if you have Akero, Metsera, you have CapEx, you also need to pay dividends next year, I assume. Is there anything you can talk about the capital planning, capital allocation and also how high in the hierarchy is the dividend payout ratio in terms of being extremely important for our investors, of course? Jacob Martin Rode: Very good. Thanks for those two questions. On the first one on market share development and perhaps market growth also will turn to you, Mike. Maziar Doustdar: Thank you very much, Carsten. So as someone who has been part of the commercial organization for so long, then I would not lie and say I don't like losing market share. But our job right now is to focus the company's strategy around diabetes and obesity predominantly because we see a huge expansion potential as we go forward. We are expanding our pipeline through our own activities as well as, of course, acquisitions. We are getting our costs under control to invest and really make sure that no stone is unturned and we're really putting most of our efforts at this point in expanding the markets. There are millions and millions of diabetes and obesity patients out there, including in the U.S. that are not getting their treatments. Launching new products like our Wegovy pill is one way to go get there. Other ways is through increasing our commercial partnerships. You have seen Costco, Walmart, GoodRx, LifeMD, Ro, all of those are ways for us to expand the market and really make sure that through that we succeed and have a successful future. But it does take time for those measures to take effect. It's a marathon, as I have said a number of times now, not a sprint. Jacob Martin Rode: Thank you, Mike. And for the second question on capital allocation, we'll turn to you, Karsten. Karsten Knudsen: Yes. Thank you for the capital allocation question. We have a clearly articulated capital allocation framework, which is invest in the business, provided attractive return, pay out dividend in a consistent manner, do pipeline additions through BD and M&A and finally, if excess cash, do share buyback. So that's our framework, which has remained unchanged for quite a while. And with that, I'm saying that we do have a consistent approach on dividend and have no intention of changing that. The starting point is clearly to convert our earnings into cash flow, which we focus on each and every day. And then looking at value-generating opportunities, both organically and inorganically as in the case with Akero as an example. So I hope that's clear. Back to you, Jacob. Jacob Martin Rode: Thank you, Karsten. And also thanks to you, Carsten, for the two questions. With that, operator, let's turn to the next set of questions, please. Operator: Your next question comes from the line of Peter Verdult from BNP Paribas. Peter Verdult: Two questions, please, for Mike and Martin. Mike, don't shoot the messenger, but there are many people that view your pursuit of Metsera as an implicit signal that the -- or your confidence in the internal pipeline has waned over the past 12 months. My question is, where do you see the clinical differentiation between the assets you're looking to acquire versus a cagri, CagriSema and amycretin. Is it just the multi-dosing angle? Or are there other factors at play? And then secondly, and this is a very simple question. But we've heard overnight from our network that Novo has been contacted by FTC for information relating to Metsera, I know you're not going to go into any details, but can you at least confirm if this is actually the case? Jacob Martin Rode: Thank you, Pete. And on the first question, on Metsera, we'll turn to you first, Mike, and then Martin, you can add on the different assets. Maziar Doustdar: Thanks very much, Pete. I would say, Pete, that I am very excited about our own pipeline. I think we have a fantastic pipeline. But when you have an ambition to go to hundreds of millions of people and treat them, then no pipeline is broad enough. So we have been looking at Metsera for a long time. We are very excited about these assets. The proposal to acquire Metsera really supports our long-term strategy. And it's mainly because these assets are differentiated and complemented to our products and portfolio. That's why we are doing it. I'll pass it on to Martin, who can more easily explain you the differentiation to our own assets, but I would say it works very complementary to what we have. Martin Lange: I can only echo that. What we are looking for is complementary to our pipeline. You've heard us speak to many, many times, obesity is not just one disease, it's many different diseases with many different presentations. Different patients coming in with different age, different BMI, different behaviors, different needs, different body composition and different comorbidities. They have different focus areas. And for us to really serve the full palette of patients suffering for obesity and their comorbidities, we need a diversified pipeline. What we've seen is differentiation and complementarity. And when we see that, then if we can progress that with diligence and in [indiscernible], then obviously, we're interested. Jacob Martin Rode: Thank you Mike. And thank you, Martin. And then on the second question, the FTC we'll turn to you, Karsten. Karsten Knudsen: Yes. So the short answer is that at this point, we don't want to get into any details around the process. It's still TBD where everything lands out. We note that Metsera board assessed our to be superior, and that's what we can relate to. And then I can say as part of this due diligence, as with any other due diligence, we do comprehensive homework in terms of living up to all laws and regulations in order for the deal to close. We always do that, and we did that here also with the assistance and channels of external experts. So we are confident that this deal can close according to regulations. Jacob Martin Rode: Thank you, Pete, for those two deal questions. Let's turn to the next set of questions, please. Operator: Your next question comes from the line of Florent Cespedes from Bernstein. Florent Cespedes: One question, a follow-up. About Medicare, maybe could you share with us your view on Medicare, on one hand, the opportunity if there is a broader coverage of people with obesity on this channel? And the second, about the potential risk or the IRA -- the next step on IRA, you gave some color on the press release about that. So any comments about this opportunity and risk on Medicare would be great. Jacob Martin Rode: Thank you, Florent, for those two questions. For both of those, we'll turn to you, Dave, on Medicare potential and then on IRA. David Moore: Thanks for the question, Florent. The Medicare opportunity is very important to us and something we've been pursuing since we launched into obesity over a decade ago. And we know that there's roughly 30 million people of Medicare age that are suffering from obesity, and that is something that we feel is really important that those individuals have access to anti-obesity medicines. We can't speculate on what the potential is and how many of those patients will be able to reach, but we do see this as a very important development for us. Regarding your second question about IRA. As Karsten mentioned, we gave an understanding of the expected impact in the company announcement as well. And it's not something that we are able to comment on. We are under strict confidentiality with CMS, and CMS will be making the announcement of what those prices are at some point in the near future. Jacob Martin Rode: Thank you, Dave, and also thanks to you, Florent. And let's move to the next set of questions in line, please. Operator: Your next question comes from the line of Martin Parkhoi from SEB. Martin Parkhoi: Two questions. I have to come a little bit back to the question that's getting from Carsten because I think he was a little bit kind to you, Mike, with respect to market share loss because if we look at the your old area IO and look at reported sales, then Lilly have actually done a sprint. They -- 2 years ago, you had a market share of 80% on all GLP-1 sales on reported numbers. And today, you are at 50%. So can you talk a little bit about what has gone, not wrong for you, but what have they done right in IO to basically capture so much more share than you? Is it commercial execution in IO across the countries? Or is just due to product superiority? Why can they sprint and you cannot? And then second question is just on device strategy. A bit of a setback for Wegovy FlexTouch in U.S., you had argued for that to be an important part of flexibility in the consumer channel. What are you -- going to '26, are your device strategy overall also with respect to launch of products in vials and in which market would that be relevant? Jacob Martin Rode: Thank you, Martin. On the first question on IO, I'll turn it over to you, Mike. Maziar Doustdar: Yes. Thanks very much. So a couple of different ways to answer your question, Martin. There are markets that we are clearly competing well and gaining market share within IO and there are markets that we are losing. So it is market dynamics that dictates IO and averages sometimes cloud the picture. In certain markets, take China as an example, the market is not growing as much as we had anticipated. We have said it in the past. It's predominantly because we have never launched a previous version of obesity drugs in that market. At the same time, we have seen in the same market that we're losing in the online battle to our competitor, predominantly because obesity drugs or Wegovy is not allowed to be sold online, while if you have a mega brand, then it's a very different picture. So that's, I would say, for China. If you take a look at some of the European markets, take U.K. as an example. We have seen how our share of growth over a period of 1 quarter has now bypassed on initiation our competitors' numbers. So this is a dynamic market that changes. And it is really to be seen on a longer horizon and not quarter-by-quarter. We still have a patient base more than -- 2x more than our competitor in international operations. The volume strategy and the future potential of international is still incredibly attractive for us. But we came to this market with a very high level of market share, 100% on our own. So losing market share is something that we had anticipated. And as our competitor comes and as we go also into next year, it will not just be Eli Lilly, but also in some of the markets, other players as we lose LOE. So we have to look at this longer term. And when we do look at it longer term, I am incredibly optimistic for the volumes and the level of unmet need that exists in international operations. Jacob Martin Rode: Thank you, Mike. And let's move to Dave for the device question, please. David Moore: Thank you, Martin. Yes. As you mentioned, it's a setback to receive the CRL on Wegovy FlexTouch. Looking into 2026, we are looking at other presentations. This includes vials. It includes other devices that we're thinking about entering into the market, which would lead to more optionality, especially as we continue to grow in the cash channel as well. On the FlexTouch specifically, we are in active dialogue with FDA and working through the CRL, but can't comment on any specific time lines yet at this point. Jacob Martin Rode: Thank you, Dave. Thank you, Martin, for the set of two questions. And let's move to the next question, please. Operator: Your next question comes from Sachin Jain, Bank of America. Sachin Jain: I have two questions please, one commercial, one financial. Commercial on Wegovy pill, just wondering if you could talk about how you're scenario planning around orforglipron pricing given some news overnight and given your API restrictability, your ability to compete on price? And any further color you can give on launch cadence as we think about that launch? And then second one for Karsten, I'm sure you're expecting the question, but the last couple of years, you've given some high-level color on year forward sort of you'd be willing to just share moving parts as we think about '26. A lot of factors there, gross to net in the base, certain IO patents, Akero, consensus sitting at roughly 7% sales, low teens EBIT, so just any high-level thoughts. Jacob Martin Rode: Thank you, Sachin. The first question on oral sema, let's go to you, Dave, in terms of preparedness. Of course, for competitive reasons, we cannot go into any details, but the high-level picture, Dave. David Moore: Yes. Thanks a lot, Sachin. We're incredibly excited as we move closer to the approval date of the Wegovy pill. I think this is a big step forward in terms of expanding the market and for those individuals that align better with taking a pill for their obesity. We can't comment on specific pricing, of course. But what I would say is we are going to have the Wegovy pill available in all channels. And this is different from previous launches because we will have the ability to focus on Medicaid, Medicare and commercial, but also have a cash offering available through all of our different telehealth partnerships as well as our own NovoCare Pharmacy and the retail partnerships that we've aligned as well. This is a new way to launch for us. And we're also thinking about the competitiveness. This is a competitive profile with respect to efficacy and tolerability, and we're really looking forward to bringing this to people living with obesity in the U.S. Jacob Martin Rode: Thank you, Dave. That's very clear. And the second question, we'll turn it to you, Karsten. Karsten Knudsen: Yes. Thank you for that question, Sachin. And I think you actually already captured some of the key elements going into your own question. So the starting point is we do not guide for next year today. We'll come back to guide for next year at a later point in time as we normally do. What I can say is, as always, current momentum is the foundation for future trends in the business. Not saying everything continues, but current momentum is where we start. Then we have a few specific items worth calling out in relation to next year's growth rates. One is this year, we have some gross to net favorability, I would estimate it to around 2 percentage point on group sales growth this year that will not repeat into next year. So that needs to be factored into a growth rate. Then loss of exclusivity in certain IO markets. We've been calling that out for quite some time, including in our release that will have an estimated negative impact of low single digits on next year's sales growth on group sales. Then on sales, Dave was covering the Wegovy pill, which, of course, is our main launch into next year and upon regulatory approval by the FDA. And then the final discretionary factor to call out is Akero and the step-up in R&D costs associated with that transaction pending closing expected later this year. That will have a 3% negative impact on operating profit growth in 2026. Jacob Martin Rode: Thank you, Karsten, and thank you to you, Sachin, for those two questions. Now let's move to the next one in line and those set of questions, please. Operator: Your next question comes from the line of Mike Nedelcovych from TD Cowen. Michael Nedelcovych: I have two. My first is actually a follow-up on Metsera. Martin, can you articulate what specifically about the Metsera agents is differentiated from Novo's own pipeline candidates other than the potential for once monthly dosing? In response to the previous question, you've restated that Metsera is differentiated and complementary, but I'm wondering what public data lead you to that conclusion or if those data are not public, can you confirm that? That's my first question. And then my second question is on the evoke trials. We are now less than a month away from the CTAD presentation. So I'm assuming that Novo has the data in-house and is simply cleaning them up before top line release ahead of the presentation. So my question is, if it is an unequivocally negative result, would Novo cancel its CTAD presentation? Jacob Martin Rode: Thank you Mike, for those two questions. Now let's start with the first one on revisiting Metsera and the view on differentiation from your side, Martin. Martin Lange: Yes. Thank you very much for the question. I don't want to go into specifics, but maybe just to iterate what we're looking at, where we look for complementarity to our pipeline. It's data on efficacy, and those can be differentiated at many levels. It's data on safety and tolerability, a little bit of the same consideration. Its scalability. And then obviously, in this case, the dose in frequency. We, on more than one parameter, see complementarity to our pipeline. And therefore, this is an effective proposition for us. On evoke, I do want to iterate, we do not know the data in-house in this room. If we did, we would actually had to issue a corporate announcement immediately. So no knowledge amongst any of us in this room. Our starting point is to disclose data, good or bad. So we currently aim to present whatever data that we will have at CTAD in the beginning of December. Jacob Martin Rode: Thanks, Martin. That's very clear. And also thank you to you, Mike, for both of those questions. Now let's move to next question, please. Operator: Your next question comes from Harry Sephton from UBS. Harry Sephton: Two on the U.S., please. So just in light of the agreed IRA direct negotiation discounts on semaglutide. And also some of the press reports yesterday on potential obesity Medicare coverage. I don't want you to comment directly, but it appears you'll end up with significantly different prices for your products across different channels. So I wanted to get your thoughts on how you expect that you're able to maintain this segmented pricing by channel? Or should we assume that all prices gradually trend towards the lowest level? And then the second one on the U.S., just on the current U.S. market trends. Can you discuss how you're currently thinking about the levers to improve access and commercial insurance coverage on Wegovy and Ozempic going into next year? Or do you expect that the majority of the 2026 U.S. growth is really going to come from the launch of the Wegovy pill. Jacob Martin Rode: Thank you, Harry. Noted two questions here. I'll send both to you, Dave. The first one on the pricing dynamics and then subsequently on the current access picture. Over to you, Dave. David Moore: Yes. Thank you much. As we mentioned, we can't discuss any of the specifics around IRA or MFN, but we do appreciate the question. And the fact that historically, we have been able to maintain different prices in different channels, given that be Medicaid, Medicare or commercial and now are increasingly expanding cash channel. Of course, we can't speculate what that will mean in the future. But historically, we have been able to maintain the differentiation between those markets and the access that comes with it. To your second question around the trends in terms of the quality of access, it's something that continues to be really important for us as sometimes receiving an obesity medication can be a challenge because of the friction that exists in the marketplace. So we are continuing to push for and invest in improved access. It's a clear priority for us. This includes both our cash offerings. It's also what we do with payers. But we haven't seen a large uptake yet in terms of that opportunity, but it's something that we're going to continue to push for in 2026 access. We don't really expect the access to be largely changed in 2026, but we do know that each of the payers or Medicaid, as we mentioned earlier, have budget constraints and there could potentially be some loss of coverage as well. Jacob Martin Rode: Thank you, Dave, for those two. And also thanks to you, Harry. Let's move to the next question, please. Operator: Your next question comes from Emmanuel Papadakis from Deutsche Bank. Emmanuel Papadakis: A few follow-ups, perhaps. Maybe taking a step back on U.S. commercial channel trends and obesity. Excuse the background noise. Wegovy scripts are pretty much flat since July despite the NASH launch. Even Zepbound has seen most of the growth coming from the cash channel. So talk us through what you think the obstacles actually are to better penetration in that commercial channel? Is it on the demand side due to product profile, lack of demand beyond the motivated minority? Or is the barrier really on the access side, for example, as you referenced potentially insurance companies making it difficult for patients to actually get on or main on therapy? Maybe a follow-up on Metsera, the deal structure and the risk associated with that. Can you just help us understand your comfort with the risk around the way you are structuring your offer? It seems there's a reasonable chance you could end up with 50% of the company you don't control to its ultimate benefit preventing someone else from owning them. So why are you comfortable with that possibility? Or how do you expect to avoid it? And then just a quick clarification on the Medicare access discussions. What would be upper limit discount you're contemplating be? Would that be in line with the MSP or this would be something in addition to that? Jacob Martin Rode: Thank you, Emmanuel. I noted two questions there. On the first one on the Wegovy scriptions, I'll turn it to you, Dave. And on the second one afterwards, on the deal structure, I'll turn to you, Ludovic. But first, over to you, Dave. David Moore: Yes. Thank you, Emmanuel. As we mentioned earlier, the quality of access remains a focus point and certainly a challenge in the reimbursed channel. Of course, we've got that combined with intense competition. And we also mentioned that the compounding is continuing to increase as well. So that focus and investment in the quality of access, we do think is an important factor with respect to expanding the market. And in addition, you'll continue to see our efforts in expanding the cash channel through more partnerships and certainly having our product offerings available in that channel as well. Jacob Martin Rode: Thank you. And now I'll hand over to you Ludovic. Ludovic Helfgott: Thanks for the question, Emmanuel. Well, I think everything stems from, I guess, what you feel is an excitement for the portfolio of Metsera. We really believe in the assets. We believe in the team. And we believe that the deal structure that we have now, which, by the way, as Karsten said, has been vetted and discussed with external councils and experts. And believe that it's in line with all legal standards, boils down to the quality of the asset and the data that we -- and the confidence we have in the data that we have. So of course, we know when you get into such acquisition that this deal will be reviewed, but we're comfortable that even the 50% of the shares that we would have in our pocket would be actually worth a lot if the product stands out to be the way we think it is, products with an edge, by the way, because as you said, Martin, it's a convention of product. So in all cases, as it boils down to science, we believe that we have a good value proposition. Of course, we would prefer at the end to have that in our portfolio from an operational perspective, but the value there, we believe is really, really high in all scenarios. Jacob Martin Rode: Thank you, Ludovic. And now let's turn to the last two questions. For the second last question. Please go ahead, operator. Operator: The question comes from the line of Richard Vosser from JPMorgan. Richard Vosser: First question, Mike, you alluded to more telehealth involvement, particularly in the U.S. I think the prior arrangements, particularly with Hims, have faced challenges given they continue to bulk compound. So there's been some discussion around continuing or new agreements with Hims, but also the wider involvement of the telehealth. So I wondered what was different this time and whether there's any evidence of any increased pressure around from the FDA or legal pressure to remove the compounders and what could change on that front. And then the second question, just you mentioned a couple of times about coverage, maybe even getting a little bit worse in Medicaid and maybe even the commercial payers, the barriers staying high. Well, in that case, how should we think about the pricing? Normally, we think about increased rebate levels and increased pricing should remove barriers to get more reimbursement. So how should we think about that going into '26? Jacob Martin Rode: Thanks, Richard. On the first one, I'll turn to you, Mike, on the telehealth. Maziar Doustdar: Yes. A couple of comments on that, Richard. There's been no increased pressure to answer your question directly. But what we have been quite consistent with regards to the illicit API that is coming from China and being used by compounders, we find -- since these are not FDA approved, their safety is questionable. And as a pharma company, we don't basically like that. That hasn't changed at all. We also have been saying that we need to increase our access and we need to find ways to get to many more patients. The cash channel and eHealth is definitely an attractive way to go about it. In that context, we're having dialogue and discussions with multiple players on how we could actually increase our access and then we will see with who we should go into partnership. We've made a number of those partnerships available. So we talked about Costco. We have talked about EMed. We have talked about Walmart. And ongoing dialogues with many, many more are ongoing in pursuit of our market expansion that I spoke to earlier on. Jacob Martin Rode: Thank you, Mike. That's clear. And for the second one, let's move to you again, Dave, please. David Moore: Yes. Thanks very much, Richard. We continue to have dynamics that we've discussed in the past, continued pressure, both in GLP-1 as well as in obesity with respect to price as we look to unlock more volumes. But I think it's -- I do want to reiterate that the quality of access is a clear priority for us. We are working with payers to make sure that the experience is one that patients are able to receive their medicine more seamlessly. That means lower utilization management, right? That means less of a prior authorization criteria. When we say we're investing in quality of access, that's really what we mean. And that's the focused conversation that we're having with payers. In 2026, we don't really expect a large difference in terms of access in the commercial channel. As we mentioned, there may be some in Medicaid. But when we look at the commercial opportunity, I think it is important to note that we haven't been making progress in terms of the access. We continue to believe that the CVS opportunity remains there, and that will -- we will see Wegovy as the exclusive brand at AOM, at CVS in 2026 as well. Jacob Martin Rode: Thanks a lot, Dave. That's clear. And let's move to the final question before I hand over to you, Mike, for closing. So final question, please. Operator: Your final question today comes from the line of James Quigley from Goldman Sachs. James Quigley: I've got two left, please. So firstly, on REDEFINE 4, how important is this into demonstrating differentiation from a physician and a marketing perspective versus Zepbound? Have you thought any more about how Zepbound could behave in a flexible dosing scenario versus other trials and real-world data? And can you confirm that you still look to launch CagriSema if REDEFINE 4 shows no statistically significant difference? And second one, can you talk through the launch preparations for Wegovy in ex U.S.? I mean you've highlighted in the release and in the comments that you could look to launch in select countries versus previously when it's likely to be mainly focused in the U.S. So what's happened such that you consider also launching in the ex U.S.? And how do you balance this with U.S. launch processes and pricing, et cetera, as we head into an MFN world? Jacob Martin Rode: Thanks, James. That's two. One on the REDEFINE 4 and one on the orals sema in IO. But on the REDEFINE one, I'll turn it to you first, Martin. Martin Lange: Yes, REDEFINE 4. As you well know, we've taken some learnings from REDEFINE 1 more specifically that we needed to do a lumber study. So we amended the REDEFINE 4 study. That being said, our base case has always been non-inferiority with an upside of superiority. In the case of non-inferiority on weight loss, we still see a potential for upside on gastrointestinal side effects and tolerability. But also we do believe that the CV benefits that we know from semaglutide could also potentially pan out and will read out from REDEFINE 3, thus clearly differentiate CagriSema vis-a-vis potential competitors. But I do want to iterate, there is still the potential for superiority upside. But obviously in an amended study, that should be taken with a little bit of a risk. Jacob Martin Rode: And let's turn to you, Ludovic, for the second one, please. Ludovic Helfgott: Absolutely. So let's take a step back. The real focus and the priority of our Wegovy pill launch is the U.S. and will remain the U.S. in 2026. As you rightly read, we are indeed opening -- we've filed, and we are opening the option to launch in selected markets in the course of 2026, depending, of course, on how things are ramping up, and we are definitely ready to -- in this market to be able to make the -- the best and the most of the Wegovy pill. By the way, we're also very quickly transferring some knowledge from the telehealth channels, for instance, in the U.S. into some higher markets. We are very active right now as we speak in many markets across the world, not just in Europe, but also in Australia, for instance, or in other part of the world where we believe that we really are gaining progress on the telehealth side. So again, we're accelerating our overall experience curve on the telehealth and that will be -- we believe will be proven very helpful at the time we launch the Wegovy pill. It's also not worthy to say that the IO market are also markets where we have some of the nicest experience in Rybelsus in Europe and elsewhere, which means that we can also leverage our experience in the oral markets that have been successful for Rybelsus to build even quicker position with the Wegovy pill. So priority to the U.S., but fully ready to take on some selected markets in IO when time comes. Jacob Martin Rode: Thanks, Ludovic. And with that, let's conclude the Q&A session. Thank you for participating, and please feel free to ask in the Investor Relations for any follow-up questions if that's case. Before we finally round off, I'll just turn it over to you, Mike, for some final remarks. Maziar Doustdar: Thank you, Jacob. Thank you to everyone for calling in. Before closing, I did want to make a few remarks. Although we have narrowed the full year outlook for this year and see currently competitive headwind, the unmet need is huge. The volume opportunity longer term in our core area is enormous. We are sharpening our focus on diabetes, obesity and associated comorbidities in order to address this unmet need. This is our home turf, and this is for us to drive the commercial execution and raise the innovation bar to treat many more patients and treat them better than ever before, and we will not stop until we do that. Thank you. Operator: Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Thank you for standing by. My name is Kayla, and I will be your conference operator today. At this time, I'd like to welcome everyone to the 60-minute Sonos Fourth Quarter and Fiscal 2025 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to James Baglanis, Head of Corporate Finance. You may begin. James Baglanis: Good morning, and welcome to Sonos' Fourth Quarter and Fiscal 2025 Earnings Conference Call. I am James Baglanis, and with me today are Sonos CEO, Tom Conrad; CFO, Saori Casey; and Chief Legal and Business Development Officer, Eddie Lazarus. Before I hand it over to Tom, I would like to remind everyone that today's discussion will include forward-looking statements regarding future events and our future financial performance. These statements reflect our views as of today only and should not be considered as representing our views of any subsequent date. These statements are also subject to material risks and uncertainties that could cause actual results to differ materially from the expectations reflected in the forward-looking statements. A discussion of these risk factors is fully detailed under the caption Risk Factors in our filings with the SEC. During this call, we will also refer to certain non-GAAP financial measures. For information regarding our non-GAAP financials and a reconciliation of GAAP to non-GAAP measures, please refer to today's press release regarding our fourth quarter and fiscal 2025 results posted to the Investor Relations portion of our website. As a reminder, the press release, supplemental earnings presentation, including our guidance and conference call transcript will be available on our Investor Relations website, investors.sonos.com. I will now turn the call over to Tom. Thomas Conrad: Good morning, everyone, and thank you for joining us today. Q4 brings a strong close to fiscal 2025 for Sonos. In Q4, we grew revenues 13% year-over-year and posted strong positive adjusted EBITDA. 2025 was, without question, a transitional year for the company, but I'm proud of all we accomplished. We restored the quality of our software and now can speak confidently about the new capabilities we're delivering across the Sonos experience. We drove efficiencies and financial discipline into every aspect of our operations. We reorganized the way that we work in product and engineering. And as a result, today, we are executing with greater urgency, focus and effectiveness. Over the course of the last 3 quarters, you've also seen the work we're doing to rebuild our senior leadership team. And today, I'm thrilled to announce another important step on this front. In January, Colleen DeCourcy will join Sonos as our new Chief Marketing Officer. Colleen is one of the most celebrated creative leaders of her generation, bringing extraordinary taste, cultural insight and a proven ability to connect creativity with business growth. She joined us following a successful tenure at Snap, where she served as Head of Marketing and Chief Creative Officer and before that, as Co-President and Chief Creative Officer at Wieden+Kennedy. All of this progress creates a strong foundation of excellence from which to return to growth and expand profitability, but there is more to do. The company doesn't just need more discipline, better execution and a revitalized team. We need a new strategy. Over the last several years, Sonos has produced excellent products. But in thinking about what hardware to make, what software experiences to deliver and how to bring those offerings effectively to market, we've lost focus on what makes us different and better. And what's more, we've lacked an organizing theory of the case. I'm changing that, and I'd like to tell you a bit more about the details today. While others sell fragments, a sound bar for the TV, headphones for the commute, Bluetooth for the beach, Sonos is every dimension and sound for the home, music, movies, stories, rooms, formats, conversations and control, all connected into a single, cohesive and radically easy system. The pursuit of this system is now our organizing lens for decisions and the foundation of our durable advantage. The Sonos system is independent by design and is the premier platform to connect first- and third-party experiences with incredible audio. It's why today, Spotify, Apple Music, YouTube Music, Amazon Music and over 100 others all thrive on Sonos. It's also why we bring together Bluetooth, AirPlay, Spotify Connect and analog sources alongside formats like Dolby Atmos and Lossless Audio to uniquely deliver every dimension of sound. With our installed base of over 53 million smart Internet-connected devices and more than 17 million homes and growing every day, the Sonos platform is the trusted place where services old and new work side by side, giving households freedom of choice anchored in a system that they love. Casting into the future, we see a world where live natural conversations with AI personalities are as commonplace as smartphones are today. And we believe Sonos' expertise in Internet-connected, voice-enabled personal hardware products for the home can position us as the center of these interactions. Starting now, our future hardware and software road maps are single-mindedly directed at leveraging our position in the home to deliver bold experiences, both traditional and entirely new that will make Sonos even more relevant and beloved in the eyes of our customers. From a financial perspective, this strategy is underpinned by a compounding model built on generating new households and increasing lifetime value. Generating new households means bringing more homes into the Sonos ecosystem, growing our installed base through great gateway products, sharper marketing that tells our story more forcefully and continued international expansion. Increasing lifetime value is about deepening our relationship within every household. That starts with engagement, delivering products that become an essential part of everyday life and then encouraging people to grow their Sonos systems over time, whether that's adding more rooms, headphones or building out a comprehensive home theater experience. At the end of fiscal 2025, the average Sonos household grew their system to 3.13 products and multiproduct households increased to an average of 4.49, still well below what we believe a fully realized Sonos home can become. But lifetime value isn't just about how many products someone owns, it's about the horizon over which they're investing in their Sonos systems. We want households to keep upgrading, expanding and discovering new ways to enjoy Sonos for decades. We'll do that by keeping system fresh through reliable software, excellent service and product updates that inspire people to reinvest in Sonos. As one example of the power of this compounding model, we see a $5 billion revenue opportunity in driving devices per multiproduct household higher to 6 per home and another $7 billion in converting single product households to current multiproduct levels. Taken together, this alone is a $12 billion opportunity just within our existing base. Our opportunity is to write the next great chapter for Sonos. For the last many years, we were just selling speakers and experimenting with new categories. Today, we're building a cohesive system that compounds in value, stronger as it grows, smarter as it evolves and more essential over time. We hold just 6% of the $24 billion global premium audio market. There is no reason we cannot garner a much larger share of this market while we simultaneously grow the sound system category that we invented. While our strategy will take time to fully manifest in our hardware portfolio, including the delivery of entirely new products for use cases and spaces in the home that we do not occupy today, we enter fiscal 2026 with an incredible portfolio of products that we are bringing into tight alignment with the strategy through software updates. We'll further strengthen the family with new hardware products launching in the second half of the year, and we'll continue to sharpen our brand storytelling, expand internationally, drive excellence in our installer channel and partner selectively to reach new audiences. As we turn this page, we also continue to execute effectively and with discipline. We've reduced our operating expense run rate by more than $100 million while selectively investing in the opportunities where our conviction is highest. We've kept margins healthy even while navigating tariffs. We've grown adjusted EBITDA despite top line challenges. We've invested in innovation to unlock future growth while returning capital to shareholders through buybacks. And we've deepened our relationships with our channel and installer partners. What drives all of this is the world we're building for our customers, a home that comes alive with sound and experiences that move seamlessly between moments, moods and spaces where every product, software component and interaction works together and the whole becomes much greater than the sum of its parts. I've said before that Sonos is one of the few companies in the world with the ingredients to build beloved consumer products at the very highest level. As we enter fiscal 2026, I've never been more certain of our ability to do this. I see it in the passion of our team in the way customers respond when we make their systems better and in the discipline with which we've reshaped the company around our core strengths. Great things lie ahead. Now let me turn things over to Saori. Saori Casey: Thank you, Tom. Hi, everyone. We closed out fiscal 2025 on a high note as we delivered strong Q4 financial results. Revenue of $288 million was near the high end of our guidance range, driven by solid demand. On a year-over-year basis, revenue grew 13% versus our guidance of up 2% to 14%. We saw strong double-digit growth in EMEA and our growth markets more than doubled in Q4. Our growth markets contributed more than 1/4 of our overall Q4 growth rate. On a product basis, we also achieved strong double-digit growth in home theater and plug-ins. Q4 GAAP gross margin was 43.7% and non-GAAP gross margin was 45.1%, both at the high end of our guidance range. Compared to last year's Q4, gross margin improved nearly 340 basis points on a GAAP basis and more than 400 basis points on a non-GAAP basis, driven by comp over onetime hits in prior year from inventory reserves to app recovery-related costs, in addition to cost savings and leverage, partly offset by impact of tariffs this year. Q4 GAAP operating expenses were $160 million, down 7% year-over-year. Non-GAAP operating expenses of $135 million were down 6% year-over-year. On a normalized basis, primarily for variable compensation, non-GAAP operating expenses declined by 19% due to cost optimization efforts we had set out in August of last year. Adjusted EBITDA was positive $6 million, which was $4 million above the midpoint of our guidance range. This is a $29 million improvement year-over-year due to higher revenue, better gross margin and lower operating expenses. Our balance sheet remains strong as our net cash balance ended the quarter at $228 million, which includes $53 million of marketable securities as we hold some excess cash in short duration treasury bills. We also have an undrawn revolving credit facilities at our disposal, which we just extended for another 5 years. Q4 cash flow was negative $2 million, up from negative $54 million last year, primarily due to higher cash earnings. CapEx was $5 million, down from $16 million last year. Our period-end inventory balance declined 26% year-over-year to $171 million as we comp over last year's inventory build ahead of launch of Arc Ultra and Sub 4 and work down of component inventory. Our inventory consists of $153 million of finished goods and $18 million of components. As I said in the past, returning capital to shareholders remain a key pillar of our capital allocation framework. Accordingly, we spent $20 million of share repurchases in Q4 at an average price of $13.39, reducing our share count by 1.3%. For fiscal 2025, as a whole, we spent $81 million to repurchase 5.7 million shares at an average price of $14.23. We have $130 million remaining on our current share repurchase authorization. In addition to keeping our share count in check through regular share repurchases, we're managing dilution through the actions that we took to reorganize and reduce layers of senior management, which has resulted in our annualized stock-based compensation expense decreasing from $101 million in Q1 to $68 million in Q4. For the full year, our revenue was $1.44 billion. While our overall revenue declined 5% year-over-year, we saw strong double-digit growth in our growth markets, which contributed almost 1 percentage point of growth rate to total revenue. We also saw growth in home theater, which helped us gain further share in U.S. premium home theater for the third year in a row, where we retained our #1 position. We also improved our share in EMEA, where we hold the #2 position in premium home theater. In fiscal 2025, we grew our installed base 5% to 17.1 million households. Devices per average household grew to 3.13, up 2% from the prior year. We also saw growth in devices per multiproduct household, which improved to 4.49, up 2% year-over-year. Consistent with past years, our existing households accounted for 45% of product registrations. GAAP gross margin came in at 43.7%. Non-GAAP gross margin of 45.2% was down just 60 basis points year-over-year despite price decrease on key products and tariffs due to cost savings efforts and product mix. Our GAAP and non-GAAP operating expenses declined by 8% and 10%, respectively, on a reported basis and 16% and 17% on a normalized basis. Adjusted EBITDA increased 23% year-over-year to $132 million, driving 210 basis points of margin improvement to 9.2%. This is a direct result of our transformation efforts over the past 5 quarters, which have resulted in Sonos becoming a leaner and more focused organization with sharper financial discipline. As we continue our transformation journey and gain operating leverage through top line growth, we expect to increase our margin over time. Non-GAAP earnings per share grew 31% to $0.64 due to lower operating expenses and reduced diluted share count. Lastly, free cash flow was $108 million, down from $135 million in fiscal 2024 due to $35 million of nonrecurring items this year. Excluding these nonrecurring items, which included $24 million of cash restructuring payments and $11 million of tax payments for intercompany transfer of IP, fiscal 2025 cash flow would have been $144 million, up [ $9 billion ] or 7% year-over-year. Turning to our guidance. The Q1 outlook we're providing today reflects the trends that we have observed quarter-to-date as well as our expectation of demand in the holidays. We expect Q1 revenue to be in the range of $510 million to $560 million, down minus 7% to up 2% year-over-year. Growth in underlying demand should be slightly positive at the midpoint, better than the year-over-year change in revenue as we comp over launch and channel fill of Arc Ultra and Sub 4 in Q1 of last year. Looking beyond Q1, we expect improving year-over-year comparison with new product launches concentrated in the second half of fiscal 2026. We expect Q1 GAAP gross margin to be in the range of 44% to 46% with non-GAAP gross margin approximately 110 basis points higher than GAAP. This represents a year-over-year increase of more than 100 basis points increase at the midpoint for both figures. This guidance comprehends the impact of tariffs and pricing changes. Please note that we expect our Q1 gross margin to benefit from the following 2 factors: one, leverage from holiday sales volume; and two, a lower effective tariff rates, thanks to our seasonal inventory build in Q4. We expect our effective tariff rate to step up and stabilize in Q2, representing a further 100 basis point headwind versus Q1. We expect Q1 GAAP operating expenses to be in the range of $152 million to $162 million, down 19% at midpoint from last year, with non-GAAP operating expenses to be lower than GAAP by approximately $16 million. Please note that our operating expenses will vary quarter-by-quarter in part due to timing of product launches and associated expenses. Bringing it all together, we expect Q1 adjusted EBITDA to be in the range of $94 million to $137 million, representing year-over-year growth of 27% and a margin of approximately 22% at midpoint of roughly 500 basis points of margin expansion. When I first outlined our transformation journey in August of 2024, we committed to improving efficiency, regaining profitability and investing in long-term growth. In fiscal 2025, we executed on this pivotal work, growing adjusted EBITDA by 23% and non-GAAP EPS by 31%. Our results reflect the progress we've made in becoming a leaner and more nimble organization. Furthermore, we evolved our pricing strategy with an eye towards growing households and increasing lifetime value. I want to thank the entire Sonos team for their commitment and resilience in executing and adapting to many changes this past year as we navigate this journey. It is important to note that this critical improvement in our profitability did not come at the expense of future growth. Though we have significantly reduced our operating expenses, we have grown our investments in enhancing our core software experience, expanding our global footprint and investing in our people. We'll remain disciplined as we focus on returning to durable top line growth, balancing continued profitability improvements with reinvesting efficiency gains and advancing our pricing framework in alignment with our corporate strategy to strengthen our platform, attract new households and increasing customer lifetime value. With only a small fraction of the global market captured so far, our view is that there is a vast opportunity in front of us. After the call, we will upload our new investor presentation to our IR website, which has been updated to reflect the strategy Tom described earlier in the call as well as our fiscal 2025 results in our Q1 guidance. With that, I'd like to turn the call over for questions. Operator: [Operator Instructions] Our first question comes from the line of Steven Frankel with Rosenblatt. Steven Frankel: Tom, you've laid out an interesting new description of your strategy. And I'd like to drill down just a little bit. To date, you relied on third parties like Alexa for bringing intelligence to the product. Are you talking about maybe trying to bring some of those capabilities in-house when you're describing AI interactions with your products? Thomas Conrad: I think you'll see us be a platform for both third-party AI experiences as well as our own first-party experiences in the same way that in the past, we hosted Alexa and Google Assistant and our own Sonos Voice experience. So I think there's tons of opportunity in both of those lanes for us. Steven Frankel: Okay. And then in terms of the holiday season, could you give us some insights into your promotional posture for holidays and what you expect your competitors to be doing at this point? Saori Casey: Steven, it's Saori. Thanks for the question about the holidays. Clearly, the holiday -- the peak of the holidays are still ahead of us and with some of the tariff-related activities, mitigation factors that we've put in place. We're monitoring that. And so far, those are coming in as expected. And so that's comprehended in our guidance that we provided on the call. We're continuing to see demand track so far. And so as we go into the holidays, we have some of the usual activities that we're contemplating, but combined with some of the, again, the tariff mitigation activities that we have contemplated. And so we are monitoring how those play out. Steven Frankel: And should we expect you to -- given your desire to improve the products per household and get upgrades going, extend a lot more efforts going forward in the installed base through e-mail marketing and promotions to the installed base as opposed to advertising, marketing promotions in the channel in general? Saori Casey: Yes. One of the things I mentioned on the call or referenced was the pricing strategy that we're now starting to take, which is in alignment with the strategy that Tom described on the call, which is exactly to improve the household acquisitions, but the quality household that will provide the repurchase cycle. And so the pricing strategy that we have started to reorient ourselves in the spring when we, in particular, reduced the pricing of the Era 100 speaks to product selectively that we're taking on the pricing where we'll bring in the quality household with the tendency for the future repurchases and maximizing our lifetime value from our customers. Thomas Conrad: I was just going to add. I think it's important to remember that there's really kind of these 2 levers in the model. The first is growing households. And so part of growing households is going to be about doing a better job of telling a sort of full funnel marketing message from driving awareness for the Sonos system to gaining consideration among consumers and then driving to purchase for new households. We'll do that through better gateway products, more compelling experiences, better differentiation and stronger marketing. And then as you point out, there's real opportunity for us around better engaging with our existing customer base to drive expanded lifetime value, and we'll do that through both the current product portfolio, marketed better and through entirely new products that will drive new use cases in the home for our customers. Operator: Your next question comes from the line of Erik Woodring with Morgan Stanley. Erik Woodring: Tom, I think it's really exciting that you can lay out this new strategy for Sonos. And I just wanted to ask you about it. Again, I guess I'm putting words in your mouth here, but it sounds a little bit like you're attempting to become more of a broad-based smart home platform because obviously, to date, the differentiating Sonos value prop has been the system of connected sound devices that you've provided. So when you say a cohesive system that compounds in value, can you maybe just give us a little bit more granular understanding of exactly what that means and maybe some of the adjacencies that you're referencing? And then I have a quick follow-up, please. Thomas Conrad: Sure. I'd like to start by kind of contrasting what we're doing under this new strategy to where we've most recently been. I think for the last -- maybe as many as 7 or 8 years, the company has been very focused on building great individual products, best-in-class sound bar, a best-in-class pair of noise canceling headphones, a best-in-class portable speaker. And the execution of the company from product to marketing has really reflected that category approach. And what we're doing with this strategy is going to seem at some level familiar because in a way, it is a return to form. Sonos started as a connected system, not just this kind of loose collection of products. And so thematically, we are going back to our roots. But I think what has changed in the last decade is the scale of what system can mean today. Early Sonos really just connected a few rooms together to play music in sync and frankly, at the founding, not even from the Internet, from a collection of MP3 files that sat on a hard drive in your home. Fast forward 20 years, the canvas is just far, far bigger. We have hundreds of services, formats, traditional voice control and this whole new explosion of AI personalities that I think can all come together in the home. And so yes, we are evaluating the opportunity for ambience in the home and entertainment in the home outside of just audio and video and film. But I think better to think about like the entirety of the canvas of what the consumer experience can be in the home and what the Sonos platform with our 17 million homes, more than 53 million Internet-connected voice-enabled devices already in the field, what that platform can become in this sort of new era. Erik Woodring: Okay. I got you. That makes sense. I'm looking forward to hearing more about that as we keep going. And then say, can you maybe help us better understand how you guys are absorbing what I think are relatively outsized tariff costs? Like if I just say 60% of your business is in the U.S. and the average tariff rate in the areas where you produce your devices is, call it, roughly 20%. That's a pretty sizable tariff headwind. We're talking like several tens of millions of tariff -- incremental tariff costs. So at the same time, I think you're trying to open your funnel a bit with certain pricing actions. So just can you help bring it all together and help us understand, obviously, a very strong 1Q profitability guide even before we get to the OpEx dynamics. How are you absorbing all of these costs? Thomas Conrad: Erik, I'm going to jump in here because I'm just so proud of how the company has reacted to this unexpected headwind that sort of fell in our lap in April. And it's taken a real kind of not just cross-functional effort inside of Sonos, but in our entire ecosystem of working with our partners to get to the mediation of these tariffs that we've been described in Saori's remarks. But just to put some numbers to it, so you can think about it. In Q1, we're looking at about 300 basis points of margin impact due to tariffs at their sort of current blended rate. Virtually all of that impact has been mitigated by our actions. And so what are those actions? Those are pricing, those are how we're using promotion. That's all the work we've done with our channel partners to share the burden of these costs. So great progress for Q1. Now looking forward to Q2, the blended rate -- the tariff rate stays the same, call it, about 20% on the products that we make in Malaysia and Vietnam that come to the United States. But as the sort of blended effective rate fully sort of lands in Q2, we see that margin impact in total, it was 300 basis points become about 400 basis points. And so our mitigations sort of are already fully landed. They're going to land at about that 300 basis points place. So in the end, fully realized, we'll see about 100 basis points of margin impact across the whole business due to the tariffs. Again, this is just one of those things, those curve balls that you tackle in a company like ours. I'm just really, really proud of all of the hard work that the team has done. And frankly, also how well it's all landing in the market because, of course, going into it, there's a lot of modeling that you do, a bunch of analysis, particularly around the elastic response to things like price changes. And I think the team has done just a great job of predicting where the market would be. And so far, we're seeing that our estimates are really playing out in the real world. Erik Woodring: Well, okay. That is awesome. That is very impressive. And maybe just the last one, and this is kind of open-ended for you, Tom, is you characterized 2025 as a transitional year. How are you characterizing 2026 today? And then that's it for me. Thomas Conrad: Thanks. I mean I really feel like it's a whole new chapter. I mean last time we were together on the call, I had just been named the CEO and described that when you're an interim CEO, particularly under the circumstances that I came into Sonos, you're focused kind of on the immediate horizon. And we did a lot of work to sort of transition the company in 2025. And I really feel like we're turning the page on a new chapter for the company now. We're looking much farther out on the horizon. I'm so excited about Colleen joining us to breathe new creative energy and execution into our marketing organization. We've delivered a strategy that brings the entire company together around the Sonos system. And we're beginning to execute on the road map that will land first a whole set of new experiences powered by software and to land new messaging in our marketing that will tell the world about what we intend to be and the services that we can provide in their homes. And then in time, of course, you'll see new hardware expression of the strategy come to market as well. And it's just -- I mean, honestly, it's just sort of a delight to get to be focused on the next chapter of Sonos and to feel like the transition is now behind us. Operator: And your next question comes from the line of Brent Thill with Jefferies. Brent Thill: Just to follow up on the heels of that question. Just when you think about being in the C5 months, I know you've had a playbook, but as you kind of put it, you're now the full-time coach. So on this new playbook that you're unveiling, maybe if you can give us just a hint of how you think about the biggest areas of improvement and the action plans to achieve those improvement plans. Thomas Conrad: I'm an engineer and builder by background. And when you face a new sort of opportunity, product definition, the first work that you do is sort of decompose it into its constituent parts and begin to execute. And so much of what we've been doing is that work of decomposition of building the right team, improving our operating discipline, setting out a clear strategy to the team, setting a financial model that we know will drive growth and then doing the work of defining what are the product executions that deliver on the strategy. And so for my part, I'm just -- I'm excited about doing that decomposition and getting to work on the constituent pieces with the entirety of the company behind me. And I'm just -- again, I'll just reiterate my enthusiasm for where I think we can be in time. Brent Thill: I guess the question we get is how much change needs to happen in your mind for you to get and achieve this? Is this a fine-tune? Or is this more of a drastic overhaul? Thomas Conrad: I think we're really building from a place of strength here. We have tens of millions of Internet connected voice-enabled devices of the highest quality in 17 million homes. We've got a software platform that was designed from the ground up for both third and first-party services to express themselves. We have best-in-class sound and microphone technology. We now have an incredible world-class marketing leader at the helm of our marketing organization. And I think at the end of the day, in most cases, setting the strategy is a tiny fraction of the work, and it's just about execution after that. And so now we're really just in execute mode. Saori Casey: Just to add to that, Brent, this is Saori. Some of the other activities that we've already have started reoriented, as Tom called 2025, the transition year that we're looking forward to advancing is things like the pricing strategy that we started to implement in the middle of FY '25 that we're starting to see some of the fruit of that. And with Tom's new strategy that's being more clearly articulated, we're really aligning that sort of the portfolio view of how we look at our products and how we price and how we expect the margin of those products with a lifetime value of the customer in mind as well. And so that's another aspect of how we're approaching the company differently than in the past that we can speak to. And this is all in addition to some of the OpEx cost optimizations that we've been doing, the transformation work that we've been doing that has taken, as Tom said, over $100 million, and there are more efficiencies that we're working on that we're really actively looking to where to best invest for the future growth of the company. So there's many aspects of how we operate are different than in the past that I wanted to just add to the point that Tom is making. Brent Thill: Yes, that's great. Just while we have you, just when you mentioned EMEA was strong in the quarter, maybe just double-click into what you're seeing in EMEA. Saori Casey: Yes. No, aside from some of our execution, we are seeing also some parts of EMEA market also doing as well. But certainly, we've seen EMEA respond well to some of these pricing changes that we've made in the middle of the year and products like Arc Ultra, that's more of a global speak, has done really well at the home theater space. They've continued to gain share in the space. And so both between the innovation of the products that we have and the pricing strategy and how we're approaching some of these markets that have been relatively depressed in the last couple of years. EMEA had been hit even harder than U.S. in the past years. And so we're starting -- we're really excited to see some of the recoveries that we're seeing in those markets. In addition, as we also mentioned, we're looking at some of the geographic expansions as well. And so there are some markets that we focused on that are also starting to fruit. Operator: [Operator Instructions] And there are no further questions at this time. Tom Conrad, I'll turn the call back over to you. Thomas Conrad: Thank you. Just as we close, I want to come back just for a second to the heart of our strategy. At the center of everything we're working on is the Sonos system. One connected experience that gets better with every product, update and household we add and most importantly, where the whole is far greater than the sum of its parts. It's a pretty simple idea with enormous potential, and I'm so excited about where we're headed. I also want to thank the team for the hard work that brought us here, our partners for the incredible teamwork they've shown us this year and our investors for believing in me and where the company is headed. So thank you so much for joining us today, and we look forward to talking to you next quarter. Operator: This concludes today's conference call. You may now disconnect.