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Trip Taylor: Good afternoon, everyone, and welcome to our third quarter 2025 earnings conference call. Participating from the company today will be John Treace, Chief Executive Officer; and Mark Hair, Chief Financial Officer. John and Mark will discuss our third quarter financial results and updated 2025 outlook. We'll then host a question-and-answer session following our prepared remarks. Our press release can be found on the Investor Relations section of our website at investors.treace.com. This call is being recorded and will be archived in the Investors section of our website. Before we begin, we would like to remind you that it is our intent that all forward-looking statements made during today's call will be protected under the Private Securities Litigation Reform Act of 1995. Any statements that relate to expectations or predictions of future events and market trends as well as our estimated results or performance are forward-looking statements. All forward-looking statements are based upon our current estimates and various assumptions. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated or implied by these forward-looking statements. All forward-looking statements are based upon currently available information, and Treace Medical assumes no obligation to update these statements. Accordingly, you should not place undue reliance on these statements. Please refer to our SEC filings, including our Form 10-Q for the third quarter of 2025 filed after the market close today, November 6, and can be found in the Investor Relations section of our website at investors.treace.com for a detailed presentation of risks. With that, I will now turn the call over to John. John Treace: Thank you, Trip. Good afternoon, everyone, and thank you for joining us on our third quarter 2025 earnings conference call. In our press release issued this afternoon, we reported third quarter revenues of $50.2 million, representing 11% growth over the third quarter of 2024 and a 49% improvement in adjusted EBITDA versus the prior year. We also provided some color on the market dynamics we have seen and are continuing to see and our revised outlook for the full year. Before I get into details on our results and outlook, market dynamics and the execution of our strategy, I wanted to take a moment to recognize one of our directors, Richard Mott, who has chosen to retire from our Board for personal reasons. Rich has made significant and valuable contributions to Treace Medical throughout his time as a director, and we appreciate the expertise, insights and guidance that he's provided to the Board and the company. We wish him all the best, and he will no doubt always be a friend here to Treace Medical. Turning to our performance. Throughout the year, we've discussed what a transformational time this is for Treace Medical as we continue to focus our strategy to evolve our business from a single technology Lapiplasty company to a comprehensive bunion solutions company. Building upon our flagship Lapiplasty and Adductoplasty systems, we have developed and commercialized 3 new bunion correction systems this year. We believe we're now positioned to address virtually 100% of surgeon preferences for bunion correction with 5 best-in-class instrumented systems spanning all 4 classes of bunion deformities. And these are further bolstered by expanded commercial availability of several other new technologies to broaden our footprint in the foot and ankle market. To support this expanded portfolio of products and extend our customer relationships, we brought on a Chief Commercial Officer earlier this year, and we recently appointed a new Senior Vice President of Sales and have added leading foot and ankle sales experts to our sales team. We expected our growth to accelerate each quarter through 2025 and particularly in the second half, given our new solutions and ability to target a broader base of surgeons. Successful execution of our strategy helped drive revenue growth in the third quarter. However, we also benefited from sales to a limited number of stocking distributors that we don't expect to recur at the same levels in future quarters. At the same time, we experienced pressure on Lapiplasty volumes as surgeon and patient preferences continue to shift towards minimally invasive osteotomies. In addition, we're seeing broader economic conditions and softer consumer sentiment leading to a greater number of deferrals of elective bunion procedures. These headwinds have continued early into the fourth quarter, which, as you know, has historically been our strongest period of the year. Given these market dynamics, we are revising our outlook for the full year. We now expect 2025 revenue to be in the range of $211 million to $213 million, representing growth of 1% to 2% compared to full year 2024. As the founder of this company and a large shareholder myself, I'm disappointed in our results and that we are not growing our top line the way we'd anticipated for the year. I would like to provide some additional color on the drivers of our updated outlook as well as our focus areas as we move forward. First, I'd like to talk to our product portfolio and what we are seeing in surgeon and patient preferences. With our broader portfolio of products, we have now become a one-stop shop for all bunion needs with customers who use Lapiplasty technology already and have established relationships with their Treace sales reps. Our new bunion technologies have also allowed us to attract a new audience of surgeons, those who currently prefer metatarsal osteotomy procedures for the majority of their bunion cases versus our Lapiplasty solution. With our 2 differentiated 3D MIS osteotomy solutions as well as our new SpeedMTP Great Toe Fusion system, we now have multiple opportunities to appeal to this surgeon audience. We are also seeing interest from some of these new surgeons adopting our flagship Lapiplasty and Adductoplasty solutions as well. During the third quarter, we experienced mid-single-digit case volume growth versus the prior year. However, case volume growth was still below what we originally anticipated, and it was largely driven by our 3 new bunion systems, which have lower ASPs relative to Lapiplasty. While we believe this volume growth demonstrates that we are capturing a larger relative share of available bunion procedures, our system sales mix is shifting away from Lapiplasty which as a higher ASP system impacts our overall revenue levels. Further, as we ramp up with our expanded portfolio of products, we are not yet seeing a level of adoption on Lapiplasty from new product surgeons that would offset other pressures on the Lapiplasty line. That said, we continue to believe we can achieve increased adoption over time. Second, we believe in addition to the change in mix, macroeconomic conditions and consumer sentiment are impacting our case volumes. In October, we conducted a survey with a cross-section of our surgeon customers and the responses to date have indicated that on average, their bunion surgical volumes year-to-date through October had decreased approximately 7% compared to the same period last year. This is consistent with what we are hearing from hospitals and surgical centers, which are reporting that outpatient elective surgeries are being deferred, particularly for commercially insured patients and the more elective the procedure, the more likely they are to be pushed out. Third, I'll touch on the timing-related impacts of our strategy to shift our contractual arrangements with a limited number of distributors. With a new commercial leader and a new product portfolio, we have evaluated our selling strategies and saw an opportunity to enter into stocking relationships with certain key distributors, which we believe better positions us competitively in those markets. In the third quarter, in particular, we had a greater-than-expected benefit from this change. We recorded approximately $6 million in stocking distributor sales within the quarter, with approximately half of this amount being above our plans as our distributor partners responded positively to the availability of our new products and build inventory ahead of Q4 bunion season. While we are already seeing replenishment orders from our distributor partners, this pull forward of approximately $3 million in sales creates a headwind for us in Q4 as we do not expect this benefit to recur at the same level. Looking forward, we plan to continue to execute our strategy with a focus on driving continued market share gains, accelerating our top line growth and delivering improved profitability in 2026. To do this, we'll continue to train more of our 3,100-plus current customers on our new systems while also focusing on adding new surgeon customers. In Q3, 1 quarter into launch, over 20% of our surgeon customers have already adopted one or more of our new bunion technologies. As a technology and innovation leader in the space, we expect we will drive increased adoption of our best-in-class portfolio, tapping into more cases and expanding our procedure volumes with our surgeons. We are already seeing encouraging traction on this front with continued enthusiasm around our new systems and high attendance at our surgeon training events. Next, with a focus on strengthening our sales team's presence and procedural opportunities with surgeons, we plan to continue to deliver a robust pipeline of new innovations expected to impact 2026. To highlight a few, our new Lapiplasty Lightning platform. This next-generation instrumentation is designed to further increase the precision and speed of the Lapiplasty 3D correction. As a reminder, Lapidus fusion, though lower volume than osteotomy, remains the largest dollar segment in the bunion market today. We have been the pioneers and leaders in this segment, and we are committed to advancing our technology leadership and bolstering our competitive position in this market. Next, our Percuplasty compression screw system, which incorporates the innovative design features of our MIS Percuplasty screw implants into a new line of compression screw implants. This provides our sales team a new core fixation technology, which complements our SpeedPlate platform. We believe the addition of this new system will further strengthen our sales team's ability to serve more reconstructive procedures throughout the foot and ankle. And we'll continue to offer new procedure-specific SpeedPlate implants and problem-solving sterile instrument designs, opening up incremental procedure opportunities, serving more procedures and helping our surgeon customers achieve better results. And with new commercial and sales leadership, we plan to continue to build upon the capabilities of our already strong sales team, adding experienced foot and ankle sales professionals with deep knowledge and credibility in the market to deliver increased productivity and impact in 2026 and beyond. Treace is known for innovation and helping surgeons deliver greater patient outcomes. As we move forward with our growing portfolio of offerings alongside of our Lapiplasty solution, we expect our sales team to be better positioned to more broadly service existing customers and onboard new surgeon customers. Finally, while we navigate this period, we are already taking action to control what we can control with respect to our organizational cost structure and plan to evaluate levers as we move forward. We have a scalable business model and are focused on improving profitability and adjusted EBITDA and reducing our cash burn in 2026. With that, let me now turn the call over to Mark to review our financial performance. Mark? Mark Hair: Thank you, John. Good afternoon, everyone. Revenue in the third quarter was $50.2 million, an increase of $5.1 million or 11% over the prior year period. Growth was mainly driven by an increase in bunion procedure kits sold compared to the prior year. Gross margin was 79.1% in the third quarter of 2025 compared to 80.1% in the third quarter of 2024. Total operating expenses were $55.4 million in the third quarter of 2025, an increase of 8% compared to total operating expenses of $51.3 million in the third quarter of 2024. These increases reflect increased medical education, surgeon training events on our new bunion systems, restructuring charges and increased litigation expense in the quarter compared to the prior year. Third quarter net loss was $16.3 million or $0.26 per share, an increase in our net loss of 6% compared to a net loss of $15.4 million or $0.25 per share in the third quarter of 2024. Year-to-date, net loss was $49.6 million, a decrease of 10% compared to a net loss of $55.2 million for the same period in 2024. Adjusted EBITDA loss for the third quarter was $2.6 million compared to $5.1 million in the third quarter 2024, a reduction of 49%. This represents significant progress towards our improved profitability goals. Year-to-date, adjusted EBITDA loss was $10.1 million, a decrease of 54% compared to a loss of $22.1 million in the same period last year. Total liquidity as of September 30, 2025, was $80.6 million, comprised of $57.4 million of cash, cash equivalents and marketable securities and $23.2 million of availability under the revolving loan facility as of September 30, 2025, compared to $90.7 million at the end of Q2. Compared to the prior year, cash usage decreased in the third quarter 2025 and year-to-date by 17% and 58%, respectively. Before concluding, let me turn to our outlook for full year 2025. As John mentioned, we are revising our full year guidance. We now expect full year 2025 revenue to be in the range of $211 million to $213 million, representing growth of 1% to 2% compared to full year 2024. In addition, we now expect a loss in adjusted EBITDA in the range of $6.5 million to $7.5 million for the full year 2025, reflecting a 32% to 41% improvement over the prior year. We also expect a reduction in cash use of 43% to 47% for the full year 2025 as compared to the full year 2024. Supported by a strong and flexible balance sheet, we believe we are well positioned to continue executing our strategic and growth initiatives for the foreseeable future. I'll now hand it back over to John for some closing remarks. John Treace: Thanks, Mark. As we close today, I would like to reiterate that we are not satisfied with our results and that we are not delivering the growth we had initially planned for the year. However, looking ahead, we believe we are strongly positioned to drive market share gains with our new products, innovation pipeline and ability to leverage our dedicated commercial organization. We remain a recognized leader in the market, and our team is focused on increasing our top line growth, improving profitability and delivering value to shareholders. With that, let me now turn the call over to the operator to open the line for your questions. Operator: [Operator Instructions] Our first question comes from the line of Lily Lozada with JPMorgan. Lilia-Celine Lozada: Can you talk a bit more about the softness in the core Lapiplasty business and how you're thinking about that trending from here? If there is a growing preference for MIS osteotomy, do you think this is something that can turn around eventually? What could get this to return to growth if doctor preferences have just been shifting elsewhere? John Treace: Lily, John here. Yes, it's a great question. There's definitely a trend towards popularity of minimally invasive osteotomies, yet there is a segment of the market that is the Lapiplasty or Lapidus domain where you have the more significant bunion deformities, where we started in that market and built our business around that. Now we're going to go capture share in the minimally invasive osteotomy market and the MTP fusion market. These are significant volume opportunities for us. And right now, we're getting good market share penetration. We're taking competitive share in that arena, but it's coming at a lower price point. So the success we're having on the ground and in the surgeons' practices is not translating to the top line. That said, the reason we are doing this is we believe we can capture more customers and bring them into Treace and get them wherever they relegate the Lapiplasty procedure to for the Lapidus segment. Every surgeon has to do Lapidus at some point. There are deformities that are really severe or they're unstable and they have to use a Lapidus product there. So it's always going to be there. We just have to get more surgeons on board, and we're doing it using our new product technology and then pulling through the Lapiplasty. But to date, the Lapiplasty gains we're getting from those new customers aren't enough to make up for the softness overall that's coming at the trade-off of minimally invasive osteotomies to Lapidus. Lilia-Celine Lozada: Got it. That's helpful. And then I know it's still early, but I'm hoping you can share some thoughts on what this all means for next year. By my math, the guide implies fourth quarter sales down 10% or so or 6% if you adjust for that pull forward that you called out. So is that how we should be thinking about at least the first few quarters of 2026? Mark Hair: Lily, this is Mark. I'll take that one. We're not providing guidance for 2026 at this time, and we plan to provide an update at our fourth quarter earnings call. But with that said, we're navigating a change, this transition that John talked about, and there are a lot of reasons why we are very optimistic. John talked about being the leader in the space, and we're growing case volumes. I think that's a really important point to focus on. Our case volumes increased in Q3 versus the prior year, and we fully anticipate for additional case volumes in Q4 as well. So we've really been encouraged by the reception of these 3 new bunion systems. And we've got more innovation coming that should impact 2026 as well, of course, our strong commercial organization. So we look forward to providing an update about the progress at our Q4 earnings call. Operator: Our next question comes from the line of Ryan Zimmerman with BTIG. Marie Thibault: This is Marie Thibault on for Ryan this evening. I wanted to sort of follow up a little bit on the shift in preferences. I would like to understand -- I know that this has been sort of an ongoing shift, but has there been some sort of acceleration that you've seen away from Lapiplasty? A little curious why this has sort of become a bigger issue here, I guess, in the second half of this year. And then as part of that, trying to understand sort of a good reaction to the 3 new bunion technologies, very encouraging to hear. Is that something that could be accelerated? Is that a focus for the sales team to sort of drive those products a little faster and partially offset some of the shift away from Lapiplasty? John Treace: Yes, Marie, John here. Definitely, there is a trend with the minimally invasive osteotomy and minimally invasive foot surgery. That's why we're here. And we're playing in that market with some really novel technologies, our Percuplasty System, our Nanoplasty System. And then there's another segment of the market that's the great toe fusion, and that can be about 20% of the overall 450,000 bunions. So these are -- osteotomies are 70% of the market procedure-wise, Lapidus is, call it, 30%. We're playing in all of these spaces now, and we're using the tools we have and extracting market share in our minimally invasive procedures while we work on next-generation Lapiplasty, and that will be there as a driver going forward for us as well. And what was the second part of the question that I missed? Mark Hair: Is the sales force focusing on these new products? John Treace: Yes, they are. Yes. Sorry about that, Marie. They absolutely are, and they're using it to drive greater penetration, greater engagement with their surgeons. We're seeing really solid uptick with the new products. And we think that opens the door to present Lapiplasty to more surgeons and our Adductoplasty solution. So they absolutely are, and we're doing really well on that front. And that's why we were talking about the procedure volume growth mid-single digits in Q3 that we expect to continue through Q4. And if we can accelerate that, you do reach that point where the top line starts to grow again, and we'll be back on track. Marie Thibault: Okay. Sure. That's really helpful. And then a follow-up here. You mentioned taking action to control what you can control. Any specifics that you can give around where you might be able to find some efficiencies on the P&L, things to kind of offset the little bit of a lower top line? Mark Hair: Yes, this is Mark. So we have been and will continue to take actions to control those things that you said, that we can control. If you look at the financials, we had reported a little somewhat of a restructuring charge already in Q3, where we've looked for opportunities to change -- make some changes in the organization and the cost structure, and we'll continue to evaluate levers as we move forward. Fortunately, for us, we have a very scalable business. We have high margins, and we're focused on driving the top line and improving profitability. So it's definitely going to be an area of focus for us. Operator: I'm showing no further questions at this time. This does conclude the question-and-answer session. Thank you for your participation in today's conference. This does conclude the call. John Treace: I think we've got somebody -- I think we have somebody in the queue. Operator: We have someone now? We are sorry about that. We have Jayna Francis with UBS. Jayna Renee Francis: Just wondering, how would you plan to recoup some of those deferred procedures when you're going into next year? And then the second one would be just the puts and takes to 2026 qualitatively since we appreciate you're not giving quantitative guidance? John Treace: Jayna, this is John. Yes, the deferred patients into next year, our approach is now we have a lot more ways to get at the patient population and whether that's a little lighter or a little heavier. But going into next year, if we will get a little bit of improvement in consumer sentiment, we continue to get our sales team more familiar and more engaged with these new products as well as Lapiplasty. I think we set ourselves up really nicely to capture a larger share of more patients coming back into the front and having surgery. Operator: [Operator Instructions] All right. I'm showing no further questions at this time. This does conclude the question-and-answer session. Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Operator: Good morning, and welcome to Fluor's Third Quarter 2025 Earnings Conference Call. Today's call is being recorded. [Operator Instructions] A replay of today's conference call will be available at approximately 10:30 a.m. Eastern Time today, accessible on Fluor's website at investor.fluor.com. The web replay will be available for 30 days. A telephone replay will also be available for 7 days through a registration link, also accessible on Fluor's website at investor.fluor.com. At this time, for opening remarks, I would like to turn the call over to Jason Landkamer, Vice President, Investor Relations. Please go ahead, Mr. Landkamer. Jason Landkamer: Thanks, Ian. Good morning, everyone, and welcome to Fluor's 2025 Third Quarter Earnings Call. Jim Breuer, Fluor's Chief Executive Officer; and John Regan, Fluor's Chief Financial Officer, are both with us today. Fluor issued its third quarter earnings release earlier this morning, and a slide presentation is posted on our website that we will reference while making prepared remarks. Before getting started, I would like to refer you to our safe harbor note regarding forward-looking statements, which are summarized on Slide 2. During today's presentation, we will be making forward-looking statements which reflect our current analysis of existing trends and information. There is an inherent risk that actual results and experience could differ materially. You can find a discussion of our risk factors, which could potentially contribute to such differences in our 2024 Form 10-K and our Form 10-Q, which was filed earlier today. During the call, we will discuss certain non-GAAP financial measures. Reconciliations of these amounts to the comparable GAAP measures are reflected in our earnings release and posted in the Investor Relations section of our website at investor.fluor.com. With that, I'll now turn the call over to Jim Breuer, Fluor's CEO. Jim? James Breuer: Thank you, Jason, and good morning, everyone. Thank you for joining us today. To start, I'd like to comment on our very successful long-term investment in NuScale. I'm pleased to say that we've reached a major milestone with this investment since we pivoted earlier this year away from a strategic investor to a market-focused solution. Working with NuScale's management and Board, we announced yesterday the conversion of our remaining investment into Class A shares. We will begin monetizing these shares in an orderly way starting next week and expect to complete this process in the second quarter of 2026. This accomplishment is a result of negotiations with NuScale over the past several quarters. Our monetization plan ensures we can have line of sight to deliver the significant value of this investment to Fluor shareholders while also considering NuScale's own capital raising needs. John will provide details about Fluor's capital allocation plans in a moment. Furthermore, this milestone accelerates our broader strategic journey, where we have moved successfully to an asset-light model with a majority reimbursable backlog, creating a strong foundation to fuel long-term growth. Now let's turn to our operating review beginning on Slide 4. Revenue for the third quarter was $3.4 billion, which includes a $653 million revenue reversal in Energy Solutions related to the Santos litigation. Consolidated new awards for the third quarter were $3.3 billion and 99% reimbursable. In addition to these awards, we recognized nearly $800 million in positive backlog adjustments, which keeps our total backlog around $28 billion, of which 82% is reimbursable. Moving to our business segments. Please turn to Slide 6. Urban Solutions reported profit of $61 million in the third quarter. Results in this segment reflect a ramp-up of recently awarded projects in ATLS and in Mining & Metals. New awards for the quarter totaled $1.8 billion, a significant increase from $828 million in the same period last year. Awards for the quarter included incremental bookings for 2 projects, a copper mining project in Canada and a life sciences project in the United States. We were also awarded a front-end engineering and design services contract for MP Materials as they build a new rare earth magnet manufacturing facility in Texas. These awards reflect our exposure to growth markets and highlight our leadership in professional and technical solutions supported by our global engineering and construction expertise. Ending backlog now at $20.5 billion represents 73% of Fluor's total backlog. Now please turn to Slide 7. In Infrastructure, we continue to make solid progress on the 4 remaining loss projects. At Gordie Howe, we anticipate completing all construction required to open for traffic in Q4 or early next year. On the LAX People Mover, construction activities will be largely complete and positioned for operation in early '26. The 635/LBJ project will reach substantial completion in Q2 of 2026. And on the I-35E Phase 2 project, most of the major construction activities will be nearing completion in late '26. On many of these projects, we continue to pursue cost recoveries and change orders from clients and subcontractors. While we ultimately expect to be successful in these recoveries, in many cases, these efforts materialize on an extended time line. One proof point for this is a favorable negotiation result in the third quarter on an infrastructure project that we completed in 2019. Please turn to Slide 8. For the next few quarters, we remain very excited about the opportunities in the Urban Solutions space. In Mining & Metals, we continue to engage clients developing copper, rare earth and critical minerals as well as aluminum and green steel. In Life Sciences, we anticipate a Q4 award for a pharmaceutical facility with a new client. In Data Centers, we're looking to translate our success in India and in Europe to North America. While many clients are asking for terms and conditions that don't align with our pursuit principles, we are confident in the value that we provide for the more complex programs, including hyperscalers. Moving to Energy Solutions. Please turn to Slide 9. For the quarter, Energy Solutions reported a segment loss of $533 million compared to a profit of $50 million a year ago. Results reflect a $653 million court ruling that we had previously announced in August. This was on the long completed reimbursable Santos project in Australia. John will provide further details in his comments. New awards in energy for the quarter totaled $222 million, mostly in services. If you recall last quarter, we rebaselined our full year expectations for our joint venture in Mexico and slowed down our execution activities pending payment from a client. I am pleased to report that the client has made significant payments during the quarter and again in October. This enabled us to begin a controlled ramp-up of our execution activities. Turning to Slide 10. Last week at LNG Canada, we achieved RFSU on Train 2, and all systems have been handed over to the client. Our team is now focused on the remaining punch list items. This marks our final progress update. I want to congratulate the entire team and all workers for their dedication and hard work. This project will be remembered as one of the largest and most complex projects in Fluor's history, and its success is a testament to our global capabilities even in remote or difficult locations. Our work with the client continues as we update the fee package and estimate for a potential Phase 2 expansion. Please turn to Slide 11. Trade and policy uncertainty, oversupply of chemicals and defunding of energy transition have caused delays in our clients' FIDs and have impacted 2025 new awards. We're staying close to our clients by performing front-end work and remain encouraged by their commitment to traditional oil and gas. Most new awards in 2026 will be weighted towards the second half of the year. Now with regards to growth opportunities, we're accelerating our efforts in the power market given the increased need for power generation. Currently, we're active on the RoPower and Cernavoda projects in Romania. We're also executing a gas-fueled power plant in Indonesia and pursuing a number of opportunities in the U.S. and internationally, particularly where we have an operational footprint. We're also tracking short-term midsized opportunities in chemicals and in upstream. Moving on to Slide 12. Mission Solutions reported a segment profit of $34 million for the third quarter compared to $45 million a year ago. During the quarter, Mission Solutions continued to deliver solid performance across its portfolio of projects. However, third quarter results reflect allowances for certain questioned and disputed costs on a defense support project. This was mostly offset by additional revenue recognized in connection with a favorable judgment on a long competed weapons project. New awards totaled $1.3 billion compared to $274 million a year ago. This includes a $1.1 billion 6-year contract for the DOE, which extends our presence on the Portsmouth project in Ohio. We also received a final extension for work at the Strategic Petroleum Reserve, and we're also awarded a position under a contract for the Defense Threat Reduction Agency. This award provides the opportunity to compete for task orders with a combined value of up to $3.5 billion over 10 years. On our project at Tinian Island, the stop work order has lifted, and we are ramping up operations. As we look ahead to the fourth quarter and the first part of 2026, prospects include work on a strategic range services contract for the Air Force, additional work to support the intelligence community, and work for the National Cancer Institute. We also anticipate hearing on a small but strategic AUKUS-related award with our partner in Australia. On the nuclear enrichment front, Fluor is well positioned on 4 prospects. We anticipate that over the next 2 quarters, DOE will announce grant awards to allow our clients to effectively move forward. The above opportunities in Fluor's current portfolio of projects could shift based on any further impacts related to the government shutdown. Before I turn the call over to John, I want to provide an update on the business environment and how that aligns with our 4-year strategic plan. Please turn to Slide 13. During our strategic update in April, we set clear targets for the management team to achieve throughout the grow and execute phase of our strategy. So far, in 2025, we have strengthened financial discipline, making significant progress in maintaining a robust capital structure while returning substantial capital to shareholders. This has been supported by our core business performance and will be enhanced by the monetization of NuScale. We have continued to pursue fair and balanced contract terms with a majority reimbursable backlog. And when we take on fixed price projects, we do so in areas where we have a distinct competitive advantage and without overburdening our backlog mix. And we have remained focused on project delivery, consistently executing at or above the as-sold gross margin. Now while we're pleased with our strategic progress, external factors resulted in award delays, which means that our backlog remains level at $28 billion. These delays have put pressure on our EBITDA growth rates. We still anticipate approaching $90 billion in new awards over the 4-year planning cycle ending in 2028. But most of these awards will be concentrated in 2026 to 2028, with EBIT from these contracts coming in, in 2027 to 2029. Based on our current discussions with clients, these deferrals and cancellations are causing a roughly 4-quarter shift in EBIT delivery. To mitigate this, we've accelerated our plans to lean into markets where we can capture opportunities on the short to medium term. This includes deploying additional teams into mining and metals, power, advanced technologies and LNG. As a leading EPC firm, we are one of the few with high-demand capabilities that include project execution leadership, complex engineering acumen, robust supply chain and construction expertise. We can deliver projects that support global GDP growth and are confident in our ability to win work that meets our pursuit criteria. We see tremendous potential in our end markets and with an asset-light model, and a flexible workforce, we intend to take advantage of our ability to pivot our key execution resources across the organization into areas where we have a clear and distinct advantage. With that, let me now turn the call over to John for the financial update. John? John Regan: Thanks, Jim, and good morning, everyone. Today, I'll be going over third quarter results and sharing our view on financial guidance for the full year, plus details on our ongoing capital allocation plan. Please turn to Slide 15. Our GAAP results notably reflect 4 items: one, the $653 million charge related to Santos, which because it's customer related, was recorded as a reduction to revenue in establishing the liability. Two, a $400 million mark-to-market loss related to our investment in NuScale, but with a related tax benefit of $230 million. More on the tax effects later. Three, a net charge of $13 million for additional infrastructure items. And four, anomalous tax outcomes wherein the Santos charge was not tax benefited, but the NuScale conversion yielded $125 million release of valuation allowances with no corresponding book income. For Q3, our 10-Q reflects a consolidated segment loss of $439 million, impacted by many of those same enumerated items. When you remove the effects of the charge for Santos, results for the quarter trended well above our expectations. Adjusted EBITDA for Q3 was $161 million compared to $124 million a year ago. Our adjusted EPS of $0.68 compares to $0.51 in 2024. Adjusted results exclude the mark-to-market effect of our investment in NuScale, the charge for the Santos legal ruling, customary FX impacts, and notably, for this quarter, the favorable judgments and settlements on 2 long completed projects. G&A for the quarter was $43 million, up from $37 million reported a year ago. Results actually reflected a reduction of G&A year-over-year when you set aside $12 million in restructuring costs included in the '25 figures. Some of that is the result of our share price reducing from $52 to $41 during the quarter and the related impact on stock-based comp. Net interest income in Q3 was slightly lower than last quarter at $13 million and compares to $37 million a year ago. This reduction results from less cash on hand at a large JV project nearing handover and to a lesser extent, by lower prevailing interest rates. Moving to Slide 16. As Jim mentioned, we've seen market improvement from last quarter in Mexico, where we scaled down execution activities for much of Q2 in the face of liquidity constraints related to unpaid AR. Since then, we've seen significant cash receipts, including JV level collections of $800 million in Q3 plus $300 million more in October. On a consolidated basis, we ended the quarter with $2.8 billion of cash and marketable securities, up $0.5 billion from June 30. This included over $400 million in net proceeds from NuScale shares sold during the quarter. Not reflected in our Q3 numbers were an additional $190 million in NuScale proceeds from October. This initial 15 million share conversion and sale created no meaningful cash tax liability due to the tax attributes we've talked about over the last several quarters. After this conversion, we have consumed most but not all of the attributes that we began the quarter with. That means the upcoming conversion will have the same but not complete tax shielding. As guided, operating cash flow for the quarter was strong at $286 million. This was driven by reduced working capital on several large projects as well as distributions from a large Energy Solutions joint venture. Because our JV in Mexico is recognized under the equity method, the robust collections there have not yet impacted our balance sheet cash or our operating cash flow results. For the fourth quarter, we expect to send payment to Santos to enable the appeal process as is customary in Australia. The estimated payment will include several items, which we can only currently estimate, including contributions from our insurance providers, interest on the ruling and legal fees. We continue to make progress with our carriers regarding their financial support for both the appeal payment and for the legal costs associated with the appeal. We'll update the markets once we finalize this and remit the funds. As an update on our legacy projects, in Q3, we provided $73 million in funding, half of which came through operating cash flow and with the remainder reflected as an investing activity. For the fourth quarter, we expect legacy funding to be in the $70 million range, 20% coming from operating cash flow. And for 2026, we anticipate around $140 million with 50% of that coming from operating cash flow. I'd also like to point out that projects in the loss position represented $642 million of our total backlog, down $200 million from last quarter, reflecting our continued march to completion for these projects. Please turn to Slide 17. On the capital allocation front, we bought back 1.4 million shares in Q3, spending $70 million to do so. Since last December, we've cut our outstandings by over 11 million shares. We modified the pace of the repo in Q3 when we believed the judgment on the Santos case could occur imminently and in our desire to preserve capital for that potential event. Last quarter, we lowered our full share repurchase plan in consideration of our concerns around operating cash flow. Since then, cash flow generation has improved, and we have monetized the initial conversion of SMR. We now see a path to target an additional $800 million in repurchases through the end of February. That would put us on pace for total share repurchases of $1.3 billion over the 15-month period beginning December 2024. We see this $800 million as a great addition to our existing repurchase program and expect to announce additional capital allocation programs next year with the clarity of the proceeds from the upcoming conversion. Moreover, this deployment should be a clear signal of the confidence we have in our strategy and the operating ability we have to execute against it. Regarding our NuScale investment, I want to reiterate that our conversion happens in November and funds from the sale of these shares are partially tax shielded. Monetization should begin next week. Moving to Slide 18 and the outlook. Based on the results from this quarter, we are increasing our '25 adjusted EBITDA guidance to $510 million to $540 million, and our adjusted EPS guidance to $2.10 to $2.25. Our guidance, like many of our competitors, does assume that the government shutdown ends relatively soon. Our expectations for operating cash flow increased, and we now expect $250 million to $300 million generated for the full year, excluding the anticipated payment to Santos. Key assumptions and expectations for Cal '25 are shown on the slide, but include a new awards outlook of $13 billion and revenue roughly flat with 2024 when excluding the Santos effect. Our expectations for segment margins in Cal '25 are approximately 2.5% for Urban Solutions, approximately 6% for Energy Solutions, when excluding the Santos effect, and approximately 4.5% for Mission Solutions. With respect to income taxes, in Q4, we hope to find a better outcome on deductibility for the Santos ruling. Moreover, we note that our income tax rate for the balance of 2025 will hinge significantly on the taxes arising from the conversion of our NuScale shares later this week. We generally expect to fully utilize the remaining tax attributes to shield some of that step-up. We, of course, would have tax effects for the gain or loss on sale that could arise after conversion. While we are not prepared to give detailed guidance for 2026, I do want to echo Jim's comments that the ongoing market conditions have had a meaningful impact on our ability to capture new awards and earnings in the short to medium term. Early indications would suggest EBITDA generation will be marginally better than our guide for full year 2025. In February, we'll provide more perspective for full year 2026 after we finalize the operating plan. And with that, Ian, we're now ready to field our first question. Operator: [Operator Instructions] Our first question comes from the line of Jamie Cook with Truist Securities. Jamie Cook: Congratulations on NuScale. I know it's been a long time coming. Anyway, I guess just my first comment, John, you talked about 2026, and 2026 being EBITDA being marginally better than 2025. That even could be aggressive just given what you're saying about bookings in ES being more back-end loaded in 2026. So can you just help me understand what the puts and takes are? Is it just less noise related to the problem projects? Is it Mexico, like stuff that was deferred into 2025 goes into 2026? Just trying to understand your thoughts there. And it sounds like flat to up modestly at best? And then my second question, understanding you don't want to get too granular, but the margins in ES, excluding Santos, was pretty good. Just trying to understand -- I know there's 2 factors that drove the margin outperformance if we exclude Santos. How would we think about a normalized margin in the quarter, just so we can think about that going forward? And last, on Santos, just how you're planning to fund it? Does any of the funding come from NuScale? John Regan: Yes. So one question, 7 parts, Jamie. With respect to 2026 guidance, yes, it's part of overall the portfolio nature of our business. So we do see significant contributions coming in growth in Urban Solutions, I'd say, particularly in the Metals & Mining space. Energy Solutions does catch a tailwind based on the resumption of work in Mexico. So that will normalize in 2026 to kind of 2024 levels for us. So that's where we're thinking. And as I may have suggested in the prepared remarks, based on our guide for 2026 and where consensus is -- I'm sorry, based on our guide for '25 and where consensus is for '26, probably trending somewhere in the middle. And it's continued progression in the business and unburdened by what we expect will be completion of some of those legacy projects. On ES operating margin, the significant impact there, very clearly, we are reaching the end of the line on LNGC with handover on Train 2 having occurred earlier this month. So very naturally, the risk mitigation process that comes with handover would suggest that there are some reductions in reserves, giving them a bit of a tailwind there. But moreover, it is on the strength of what's happening in Mexico and where that resumption of work is taking us. So in terms of normalized margin, we'll have to coalesce around that figure and potentially get back to you. In terms of the Santos payment, you should be thinking -- we've been planning for this for a long time. And in fact, the step down of our share repo intensity that came out of Q2 was in large part to preserve capital from our core business to fund that liability. And so it's my expectation that the $600 million-ish payment that we're expecting will come from cash on balance sheet generated from our core operations, not just in '25, but through the last several years. And so as a consequence, it is generally my intent to deploy everything that we generated from the early NuScale -- the first conversion of NuScale as part of the $800 million program that I described over the next 3 months or so. And then from the second conversion will feed into the March and beyond share repurchase program. So not using NuScale and the benefits therein for Santos, but to honor our commitment to deploy those proceeds for the benefit of our shareholders. Operator: Our next question comes from the line of Sangita Jain with KeyBanc. Sangita Jain: So first off, can you talk a little bit more about the opportunity set for next year? I know, Jim, you said you're going to maybe accelerate momentum in some of the power gen opportunities. So can you talk about the data center ecosystem, whether it's gas-fired power or just data centers, where you are in the process of standing up your power gen practice, and what kind of opportunities you're looking for, the sizes of opportunities? James Breuer: Thanks, Sangita. Good morning, everyone, again. Yes. So let me spend a little bit of time talking about the short-term opportunities. Of course, many of these projects, we're already working on the front end. So we have good line of sight of them. It's a little hard for us to determine the exact timing of the full release, but the good news is we are inside of many of these opportunities. In Urban -- let me start with Urban, there's a lot of momentum around Mining & Metals, particularly copper. So there's some good opportunities there in the coming quarters. There's also aluminum projects in the Middle East. There's a pharma project here in the United States in addition to just a general wave of opportunities in all our other businesses. And let me get back to data centers in a minute. But in Energy, there is a good, healthy pipeline of midsized projects. I mentioned specialty chemicals in the chlorine space. I mentioned a midstream project in -- upstream-midstream in the United States. There is some services work in Europe around a large integrated petrochemical refining complex. There's some services work in Canada. And of course, in Mission, we are looking at various opportunities for the government, such as the O&M opportunity in multiple bases for the Air Force. As far as Power is concerned, in addition to the current work that I mentioned in Romania and in Indonesia, we have accelerated our efforts and our conversations with U.S.-based clients for gas-fired opportunities. We are talking to several of the major utilities in the U.S. around their need to engage reliable contractors early on to help work with them in shaping and developing these projects. So we're not looking, Sangita, at competitive bidding. We got 3, 4 bidders and lowest price wins. We're looking at strategic relationships where clients are trying to secure key resources, get involved early, and then jointly get to an EPC contract. That fits better our preferred pursuit criteria. But on the flip side, it takes a little longer to mature projects. So that's for gas-fired in the U.S. And as far as Nuclear, we're active both internationally and domestically, again, talking to the various technology providers. Early conversations, how do we position jointly to get these projects off the ground. Obviously, scope definition, risk allocation are important components. So we're excited about those opportunities. We're being diligent in shaping them and making sure that the commercial side of it fits our criteria. And we think we're going to have some very good progress next year in maturing these projects and turning them into real opportunities. As far as Data Centers, as I said in my prepared remarks, we've been very successful in Asia and in Europe. What we're seeing in the U.S. for the smaller projects, the terms and conditions and the conversions are not always ideal for what we're looking for. But we're still very well positioned for the bigger, more complex projects, the big campuses, the big hyperscalers. We continue to talk to multiple clients about those opportunities. We have not yet announced any, but we continue to work on those diligently. So we hope to see some good news there in the coming quarters. Sangita Jain: That was very comprehensive, so I appreciate that. And then just one more following up on the same theme. On the White House memo on Trump's visit to Japan, they cited a couple of EPCs who would be working on the Westinghouse build-out. I'm just curious if you think that list is final or if it's a work in progress and if you even have an interest in being part of the mix. I know it's a long lead time, but just kind of wanted to hear your thoughts. James Breuer: Yes. No, great question, Sangita. We are in conversations with multiple technology providers, including the one you mentioned about collaborating on projects. There are a lot of opportunities out there, some in the U.S., some overseas. There are very few companies in the world that can really tackle these projects. We are one of them. And so yes, we are excited about those opportunities. You're right, they will take time, but you got to get there early. And we're talking to all the big players about being a part of that market. Operator: Our next question comes from the line of Andy Kaplowitz with Citigroup. Andrew Kaplowitz: Jim or John, maybe just on NuScale again, what does it mean when you talk about agreeing to give up some of your economic rights? I know there's been negotiation around Fluor doing back-end NuScale work, but maybe talk about sort of where you are in the new agreement here on that. James Breuer: Thanks, Andy. I'll start maybe with the nonfinancial side of it, and I'll let John talk about the more technical financial stuff. So on the rights to do work, we have modified the exclusivity of rights to do work, but we still have those in the sense that we have the opportunity to bid on the projects that they have with their strategic partner, and we have the same rights for projects that are not involving that strategic partner. But more importantly, what we've analyzed, Andy, is if you step back and think about it, we're the only EPC contractor that has real project experience on NuScale. We did the first of the project that ended up not going forward for economic reasons, but we have that experience. Now we're working on the Romania project. That's an active project. that we're doing the FEED and the estimate and the execution plan. And so we feel we're very well positioned to do NuScale work in the future. We have the expertise for large complex projects. But we're also very clear to say we're going to do work following our pursuit criteria and where we have a competitive advantage. So there's still a favorite position there, and we're very excited about the market. We look forward to working with NuScale and their clients and our collective clients for the future. I think there can be some good opportunities there for us. As far as the technical side of things, John, maybe you can explain that. John Regan: Yes. I mean, to Jim's point, I think we remain commercially in a favored nation status because of the work we've done for them. And we expect that as they continue to deploy their technology, whether strategic partner or otherwise, that we'll be in the Rolodex and on speed dial for them to deliver EPC services. But the overarching message in the bargain was the chorus that we heard from our shareholders about getting something done and providing clarity as to value. And so in the negotiation, there are gives and gets. And for us, we feel like the get around a speedy transaction with lots of clarity and the ability for our shareholders to measure our progress against that in very short order was extremely valuable to us. And so that was the crown jewel as it were of the bargain. And I don't want anything on the commercial arrangement side to diminish the shine that comes from that crown jewel. Andrew Kaplowitz: Very helpful, guys. And then, Jim, I just want to follow up on your commentary on data centers and gas-fired plants. Just I know you said you hope to book a data center. But as you know, I mean, we're getting much larger in these projects and Fluor historically has been very good at mega projects. I mean you're talking about a gig data center. There's a couple of trillion dollars of potential spend out there. So I mean, do you expect to book one in '26 or '27? Can you get it at the terms that you want? I know you said you hope to, but should we expect one over the next 12 to 24 months or more given your historical prowess in doing this stuff? James Breuer: Well, look, Andy, we're confident in our capabilities. We're confident that we can sell a compelling story to clients. We're talking to multiple clients about the more complex projects, many of them Tier 1 companies. But we're going to make sure we follow our pursuit criteria and our commercial discipline. I cannot guarantee that we're going to win one, but I'm telling you that our team is very focused, and we have some very clear expectations and plans to get there. So I'm hopeful and I'm confident we can break into that market on the complex projects, but we'll see what the next few quarters bring. John Regan: Yes. We think we've got the credentials. We think we're sitting in the right space. We've got the right relationships. It's just that the commercial terms come to us in a way that is sufficiently appetizing. Andrew Kaplowitz: John, just a quick follow-up. You mentioned on the 3 Infrastructure projects that they were offset by a refinement of expected claims against your subcontractors. Do you pick that up in short order? Is that just a change in accounting? Like how does that work to offset the incremental cost? John Regan: Yes. So to be clear, on the infrastructure projects, what we had was a negotiated outcome for a long completed project that gave us some favorable results in the P&L, and that was offset by some changes in our views on variable consideration. And so you shouldn't think of it as cost growth or schedule extension or anything like that. Just some things that we thought we were entitled to under the contract through June 30 began to dissipate for us in Q3. We'll continue to negotiate to get a better outcome there, but we're dealing in some of the vagaries of contracts. So it is not really cost growth. So I don't want to leave you with that impression that, that was the impact during the quarter. But on an aggregate basis, those are around $12 million or $13 million for the good guy that came, coupled with the reduction in expected consideration. Operator: Our next question comes from the line of Steven Fisher with UBS. Steven Fisher: Congrats not only on the NuScale, but also pretty much closing out the chapter on the first phase of LNG Canada, a very long process, but good to see that. Can you just maybe remind us on the $90 billion of potential awards? What's the competitive set overall look like on those? How much of that is sole source? And really how to think about the potential win rate there, because even though it's over a few years, it is still obviously quite substantial relative to your existing backlog. James Breuer: Thanks, Steve. Let me start that. This is Jim. It's spread across the 3 businesses, Steve, with perhaps more focus on Urban in the first half of the remaining period, if you will, and then shift into Energy on the second half. So if you look at Urban, I would say the biggest contributor, not the only one, but perhaps the more significant one would be in Mining & Metals. And our position in copper, Steve, is extremely strong, and we're already working on the front end of a lot of those opportunities, North America, South America, Australia. And sole source, the way I would characterize it is, we're already on the project. The question is, will they get FID-ed or not. On the other urban markets around life sciences, advanced technologies, data centers, et cetera, we have a leading position in life sciences. Some of this work will have to be not necessarily competitively bid, but negotiated. And again, we feel pretty good about our position there. We already talked about data centers and our situation there. We're also looking at semiconductors. And again, to the extent that these are large projects, and many of them will be large projects, we have a competitive advantage there. So I think we're well positioned there. And then on Energy Solutions, LNGC Phase 2, you know where we are there. That job is obviously not guaranteed because we're going through a process with the client, but it's a negotiated position. On the Power side, we are refocusing on Power. We're rebuilding those relationships. But like I said earlier, we're not looking at these competitive bidding processes, but we're looking at more relationship-driven engagements where clients are realizing the market has really changed. It used to be a lot more competitive price-driven market 5, 10 years ago. Now it's more about securing resources and having good execution plans, and that's where we come in. So it's a combination of, we're already on the project and we need to go to the next phase, we have to convince our clients that we are the right solution, and we think we have a very compelling story for many of these markets. And then on the Mission side, of course, we've been talking about SRPPF for some time. But also we have a very strong position with DOE and some of the other agencies. So again, we think we are well positioned to win that work. So we feel good about the convertibility of the $90 billion, and we are very focused on doing that going forward. John Regan: Yes. I might just chime in with a little bit on the Nuclear front and then a little bit in the growing relationship with the Department of War and what we expect there in terms of national security also being rather critical elements to getting to the $90 billion. Steven Fisher: Great. That's very helpful. And then just on NuScale, not sure how much you can say on this, but just curious if there are multiple options for how you plan to execute this monetization? Is it just going to be sort of in the kind of the chunky sales like we've seen you do to date, just more of them and more frequently? Or are there other options that you're considering for how to get this done by the end of the second quarter? John Regan: Yes. So I think in the first conversion, we did a very transparent market-based approach, daily kind of Form 4 requirements. And it was 15 million shares, but it did allow for a little gamesmanship in the marketplace there. So it's my expectation that when we get to conversion and get into the market next week that will be under a structured program, you should probably expect to see a 144 filing out there. But we expect a program that will be executed across the balance of the year and into the new year. And you won't see quite the Form 4 tempo, but we're working with our financial advisers on a program that we think will get us the overall best NPV and allow us to add the most turbocharging to that repo program. Operator: Our next question comes from the line of Andy Wittmann with Baird. Andrew J. Wittmann: I just wanted to clarify a couple of things that I think you touched on. Maybe the first one is for John. John, I think maybe I misheard this, but on the Mexican joint venture, you talked a lot about how the cash is coming in, you're restarting to work, and that's great. But I hear you say that the cash that came in, in the quarter, I think it was $800 million during the quarter, then $300 million after the quarter. Did you say the $800 million was not on the balance sheet? Or if I heard that correctly, how is that not on the balance sheet if you've collected it? John Regan: Yes, I did explicitly say that. So again, I caveat it because it's an equity method JV. And so when the JV collects it, it sits on their balance sheet, but I am consolidating them into a single line item on my balance sheet called investments. So their entire balance sheet is collapsed into that single line item. And when that JV or any JV that is equity method makes a distribution to its partners, that is when it comes into the frame for purposes of recognition as cash and cash flow in my statements. Andrew J. Wittmann: Okay. That makes total sense. But when you say we collected it, I thought you meant for we, not JV but we, so that makes sense. John Regan: I believe I said JV level collections. Andrew J. Wittmann: You probably did. These are complicated things. I hear you now. Okay. Just the other one here, just the $800 million backlog adjustment, we've had a couple of these in the last few quarters. Was that another kind of change on how you're recognizing customer furnished materials? Or was this actual incremental scope with real profit dollars attached? John Regan: Yes. So it was across a couple of projects, and it did subsume both some CFM growth as well as some overall scope growth. And I would say it was kind of single-digit million -- I'm sorry, deferral of income in the current quarter. So stuff that we had expected to recognize in quarter 3, drifting into the remaining term of those handful of projects. Andrew J. Wittmann: Got it. And then just finally on Santos here and kind of the cash associated with that. I understand $650-ish million. I guess that number is -- I just want to confirm, that's net of insurance. Did I hear you say that you still think there's potentially more insurance that could go against that? Is that right? John Regan: Yes. So we'll do a full accounting retelling of this next week, Andy. But essentially, the insurance proceeds that we recognized in the quarter were those committed proceeds where we had signature saying from the carriers that we are going to fund this. We continue to chop wood in terms of the rest of the carriers in the program. So we are expecting the payment in quarter 4. So we're very busy in the negotiations with the carriers. And that's why I said in my prepared remarks, when we actually remit the payment, we will have crystallized the interest component, the legal fee component and the insurance contribution component. But you should expect the insurance to only get better from what we recognized in the quarter as we hope to bring more carriers into the agreed-upon path forward. Andrew J. Wittmann: Got it. Okay. Yes. It looks like there was -- 15 of the 20 carriers have signed up and agreed, and it sounds like you got to get those other 5 on board to collect that portion. Is that the right way to think about it? And are all carriers the same size inside of this and we would... John Regan: No, no. Our program is very complicated and obviously has many different layers. It is absolutely like untangling a bowl of spaghetti to get to it. So it's very complicated. But in broad strokes, yes, there are several carriers, many of them play at different layers in the tower. But anyway, I expect we'll have some form of announcement in the next 30 days around the ultimate cash. And as I said, the contribution that came from the tower. Operator: Our next question comes from the line of Michael Dudas with Vertical Research. Michael Dudas: Jim, you've been very helpful with the color on opportunities in new bidding and the pipeline over the next several years. But maybe you could step back from when you discussed your 4-year plan in April with us, and obviously, there's been quite a bit change in the last several months. But how does like that FEED opportunity, like the amount of FEED work that you were looking into when you put together your 4-year plan, how does that look today? How much has it changed a bit? Has it gotten better? Is there still this expectation of clients want to do work and they want to invest. Obviously, we've had some delays in certain end markets, but is it still that sensitivity? And then just a follow-up. Can we assume that the 5-year -- the plan of 10% to 15% EBITDA through 2028, that's pushed out, so that would be "likely 2029". Is there any changes or amplitudes on that? I don't want to get too far ahead, just directionally how we think about the outlook given some of the changes we've seen in the last couple of quarters. James Breuer: Thanks, Michael. So let me respond to 2 questions. The quality of the FEED pipeline is still very good across Urban and Energy. For example, the awards in Q3 for Energy, [ Granite ], the absolute number was fairly low. Most of that was in services. So the pipeline still is getting fed. Similarly, in Urban, I'll repeat myself, but in Mining & Metals and Life Sciences and some of the other markets, aluminum, copper, et cetera, very healthy pipeline of FEED work. So the tone hasn't changed. I would say energy transition, that has more permanently, or at least for the foreseeable future, slowed down because of just the changing [indiscernible] in Europe around the funding of energy transition, but... John Regan: [indiscernible] and the impact of the tax legislation. James Breuer: Tax legislation. So on the flip side, traditional oil and gas is picking up steam. So we're seeing some increased activity there. We're looking at the Middle East very closely or potentially do a lot of front-end PMC services-type work there. So we still feel good about the FEED pipeline, Michael. As far as growth rates, the growth rates that we mentioned at the beginning of the year, as I said in my remarks, we're probably looking at a 4-quarter shift in EBITDA generation, which would take us to the lower range of that growth rate, but I think we still expect to see significant growth between 2025 and 2028. But I think it'd be a good way to look at it to say that 2028 ultimate goal may shift to 2029. John Regan: Now I would like to just append that with some of the tailwinds that could amplify those numbers coming in the form of settlement of sort of trade policy on a global basis. Certainly, the trend in interest rates generally should be encouraging of more capital investments. And so that's certainly the lay of the land of the day, but there are some things that could lead to an even better outcome there. Michael Dudas: Duly noted, John and Jim. That makes perfect sense. Operator: Our next question comes from the line of Brent Thielman with D.A. Davidson. Brent Thielman: Just, I guess, a clarification on the $800 million in additional share repurchases through February, that's completely exclusive of the monetization of the remaining NuScale stake? John Regan: Yes, the conversion of, I'll say, today has no bearing on the $800 million that we're going to repo. Now obviously, it feeds into the confidence that there is near-term augmentation to our liquidity that will come from the monetization of the $111 million. But directly, none of the proceeds from the program we're about to embark on feed into the $800 million. Brent Thielman: Got it. And then just from the perspective of the award cycle over the next kind of 12 to 18 months, maybe if I look at Urban Solutions, it seems like that's where you've got most momentum, pretty healthy pipeline. I guess, with what you see coming forward within your sort of visibility, can you sustain a book-to-bill over 1x in that segment with all the things in front of you there? James Breuer: Let me start, Brent. We're still working through our operating plan for 2026. So we don't yet have full visibility, but I'll tell you that the next few quarters will be more weighted on the Urban side. Starting in the second half of 2026 and 2027, we're expecting more awards in the Energy Solutions side. So it's initially weighted on Urban, back end of '26 and into '27, greater contribution from Energy, and a steady stream from Mission across the quarters. John Regan: Caveated only by SRPPF when that award comes and how chunky or not that award ultimately is. Operator: There are no further questions at this time. I would like to hand things back over to Jim Breuer for closing remarks. James Breuer: Thank you, operator, and many thanks to all of you for participating in our call today. As the year draws to a close, I'm encouraged to see that our strategic priorities of project delivery and financial discipline continue to guide us through today's economic landscape. I'm also pleased to see that with our announced agreement, we can deliver significant value in the short term to our shareholders. We appreciate your interest in Fluor, and thank you again for your time.
Operator: Good morning. Thank you for standing by. Welcome to Sylvamo's Third Quarter 2025 Earnings Call. [Operator Instructions] As a reminder, your conference is being recorded. I'd now like to turn the call over to Hans Bjorkman, Vice President, Investor Relations. Sir, the floor is yours. Hans Bjorkman: Thanks, Tina. Good morning, and thank you for joining our third quarter 2025 earnings call. Our speakers this morning are Jean-Michel Ribiéras, Chairman and Chief Executive Officer; John Sims, Senior Vice President and Chief Operating Officer; and Don Devlin, Senior Vice President and Chief Financial Officer. Slides 2 and 3 contain important information, including certain legal disclaimers. For example, during this call, we will make forward-looking statements that are subject to risks and uncertainties. We will also present certain non-U.S. GAAP financial information. Reconciliations of those figures to U.S. GAAP financial measures are available in the appendix. Our website also contains copies of the earnings release as well as today's presentation. With that, I'd like to turn the call over to Jean-Michel. Jean-Michel Ribiéras: Thanks, Hans. Good morning, and thank you for joining our call. I'll start on Slide 4 with our third quarter highlights. Our uncoated freesheet sales volume increased quarter-over-quarter by 7%. Our teams also executed well, resulting in improved operational performance. We returned $60 million in cash to shareowners by distributing $18 million in third quarter dividend and repurchasing $42 million in shares. Our Board also approved a new $150 million share repurchase authorization in the quarter. Let's move to the next slide. Slide 5 shows the third quarter key financial metrics. We earned adjusted EBITDA of $151 million with a margin of 18%. Free cash flow was $33 million and we generated adjusted operating earnings of $1.44 per share. Now I will turn it over to Don to review our performance in more detail. Donald Devlin: Thank you, Jean-Michel, and good morning, everyone. Slide 6 contains our third quarter earnings bridge versus the second quarter. The $151 million of adjusted EBITDA was in line with our outlook of $145 million to $165 million. Price and mix was unfavorable by $14 million, primarily driven by paper and pulp prices in Europe. Volume increased by $14 million, mainly driven by stronger seasonality in Latin America and North America. Operations and other costs were favorable by $5 million, driven by improved operational performance. Planned maintenance outage costs improved by $66 million as we had no planned outages at our mills. Input and transportation costs were unfavorable by $2 million. Let's move to Slide 7. North America and Brazil industry conditions are solid while Europe and other Latin America are challenged. In Europe, market conditions continue to be very challenging. Pulp and uncoated freesheet prices remained under pressure. However, some pulp grades started to show signs of recovery at the end of the third quarter. Uncoated freesheet demand is down 5% year-over-year through September, while supply is down 7%. Wood costs in Southern Sweden are starting to ease, recently decreasing by a reported 8%. In Latin America, demand remains mixed. Brazil is up 3% year-over-year through September and prices are stable. However, demand in Latin -- other Latin American countries are down 5%. Pricing is under pressure in some countries. Even though the majority of this demand decline is due to Argentina and Mexico, some countries across other Latin America are having economic challenges as well. This demand decline in addition to shifts in global trade flows is resulting in continued pricing pressure across other Latin America. North America demand is stable year-over-year through September. Imports were up 46% year-over-year through August in anticipation of the tariffs are expected to moderate. In fact, customer feedback indicates inventories from increased imports are being consumed and returning to normal levels. Industry supply was reduced by 6% in the third quarter after Pixelle closed their Chillicothe Ohio mill in August. There's still uncertainty caused by the U.S. tariffs, which may take a while to settle out. Let's go to Slide 8. Looking ahead, we expect to deliver fourth quarter adjusted EBITDA of $115 million to $130 million. We project price and mix to be unfavorable by $20 million to $25 million, primarily due to paper prices in Europe and mix across the regions. We expect volume to be favorable by $15 million to $20 million, largely due to Latin America and North America. Other operations and other costs are projected to be unfavorable by $5 million to $10 million, primarily due to seasonally higher costs, and we expect input and transportation costs to be stable. Planned maintenance outages will be unfavorable by $18 million as we have 1 outage in North America planned in the quarter. Let's move to Slide 9. In August, International Paper announced plans to convert their uncoated freesheet paper machine at its Riverdale mill to produce containerboard by the third quarter of 2026. Last week, we announced we would continue to receive uncoated freesheet from Riverdale Mill until May 2026. Riverdale should supply us with approximately 260,000 tons in 2025 and we expect to receive around 100,000 tons in 2026. As a result of the supply agreement ending, we will optimize our product segment and customer mix and leverage our European mills to supply the U.S. and Mexico. We will be building inventory over time to help bridge the gap until our Eastover investments are complete, and we have the additional 60,000 tons of incremental capacity, which is expected to ramp up in the fourth quarter of 2026. Let's go to Slide 10. The Riverdale amendments we recently executed had a few components. One component was the IP agreeing to a $15 million reduction to the $100 million payment we would owe to IP in the event we sell the Brazil forest lands. We have no intention of selling forest lands as we believe we are unlocking value every day by producing uncoated freesheet. Owning forest lands in Brazil is a unique strength that differentiates Sylvamo. These assets provide a competitive advantage and goes beyond operational benefits. Direct control over wood fiber ensures security of supply, reduces exposure to market volatility and supports long-term cost management. Our forest lands represent a significant part of our intrinsic value that we feel is not reflected in our current market valuation. We recently had an appraisal completed on our forest lands, which are now valued at almost BRL 5 billion. Forest lands are tangible and appreciating resources that are the cornerstone of our strategy, delivering cost advantages and a source of intrinsic value for our shareholders. Now I'll turn the call over to John. John Sims: Thank you, Don, and good morning, everyone. I'll pick up on Slide 11. As we navigate through cyclical industry conditions and headwinds, we are focused on the things we can control. We are continuously working to improve our business. We are driving operational excellence and strategic initiatives across all our regions. These efforts should improve margins, reduce costs and strengthen our competitive position. In Europe, we're improving our product mix, winning new customers at our Saillat mill. We're actively working to reduce wood cost at Nymolla, a key lever of cost efficiency. Additionally, we're focused on reducing fixed costs and improving operational efficiency and reliability across the European region. In Latin America, we've secured new strategic Brazilian customers and further develop key partnerships in other Latin American countries, expanding our market presence. We're investing to improve wood sales efficiency to reduce costs by decreasing the need of higher cost third-party wood. Our team is also executing a pipeline of more than 100 initiatives across the entire business designed to strengthen EBITDA and cash flow. In North America, we're focused on strategic commercial initiatives to improve volume and margin by reducing supply chain costs and optimizing inventory. Finally, we're investing in our flagship mill in Eastover, South Carolina to improve our competitive advantages by lowering costs, enhancing efficiency and increasing capacity by 60,000 tons. Across all regions, these initiatives reflect our commitment to customers' operational efficiency and strategic investments to deliver sustainable value. So let's move to Slide 12. Our long-term capital allocation strategy drives shareholder value. We are focused on maintaining a strong financial position, reinvesting in our business and returning cash to shareowners. Our healthy financial position allows us to stay focused on our customers with a long-term perspective in mind, especially during times of challenging industry conditions like we're currently experiencing in some of our markets. It enables reinvesting in our business, enhancing our reliability, productivity and improving our service through operational excellence initiatives and it preserves the flexibility to return cash to shareowners. Dividends are an important part of our cash returns to shareholders and after paying $0.45 per share in all 4 quarters, we have returned approximately $73 million through dividends this year. Another strategic pillar of cash returns to shareowners are share repurchases. We will continue to evaluate opportunities to repurchase shares at attractive prices, especially when we feel our valuation is well below our intrinsic value. This is why in the third quarter, we repurchased $42 million worth of shares at an average price of $44.74, exhausting the remaining amount of our share repurchase authorization. This brings our year-to-date share repurchases to $82 million. In September, the Board also approved a new $150 million share repurchase authorization. Slide 13. Our strategy is to be singularly focused on uncoated freesheet paper which remains the largest and most resilient segment in the graphic paper space. We view the uncoated freesheet industry landscape as an opportunity. We are investing to strengthen our competitive advantages to drive earnings and cash flows. We view these investments as high return and low risk as we are staying in our core product line and reinforcing our position as a supplier of choice for customers. We will leverage our strength to generate high returns on invested capital. I'll now wrap up my comments on the next slide, Slide 14. You likely saw some public filings yesterday related to Atlas Holdings and a couple of our directors resigning. I want to spend a minute discussing this topic. At the direction of Atlas Holdings, Karl Meyers and Mark Wilde resigned from the Board effective November 5. I would like to thank both of them for their contribution to Sylvamo. As a reminder, they both joined our Board in 2023 as part of a cooperation agreement with Atlas. Sylvamo Board also thanks them for their service. With these resignations, the restrictions on Atlas and the cooperation agreement will terminate. When we move to the Q&A portion of this call, I hope you can appreciate that we will not be taking questions or commenting further on this matter. We appreciate your cooperation on that. Lastly, as we prepare for our leadership transition on January 1, and I am honored to lead Sylvamo as the next CEO. As Jean-Michel is retiring at the end of the year, on behalf of our senior lead team and all the employees of Sylvamo, I would like to take this opportunity to thank him for his 4-plus years of dedication to Sylvamo as its CEO. He led Sylvamo through the spin-off and other challenges in our first few years and has been instrumental to Sylvamo's success, positioning it for further long-term value creation. We wish him all the best. Jean-Michel, would you like to say a few words? Jean-Michel Ribiéras: Thanks, John. I appreciate your kind words and well wishes. Leading Sylvamo has been an absolute honor these past 4 years, and I'm pleased with everything we have accomplished. I would like to thank our employees, customers, suppliers and investors for their support and partnership. I'll leave knowing that the company is in very good hands, and its brighter days ahead of it. As I've said many times before, I'm confident in the future for Sylvamo and motivated by the opportunities that lie ahead. Thank you. I'll now turn it over to Hans. Hans Bjorkman: Thanks, Jean-Michel. John and Don. Okay, Tina, we're ready to take questions. Operator: [Operator Instructions] Our first question comes from Daniel Harriman with Sidoti. Daniel Harriman: Jean-Michel, congratulations on the retirement, and we certainly appreciate all your help since we've had you under coverage. I just have -- I'll start off with 1 today, and then I'll get back in the queue. But regarding North America, you highlighted stable demand even with imports running higher earlier than the year. And as those inventories continue to be worked down, I'm wondering if you think we can expect that normalization to translate into potentially a more stable or improved pricing environment as we move into 2026. John Sims: Daniel, it's John Sims. Thanks for your question. Yes, we're expecting and we are already seeing and we heard from our customers that the inventory is being working down -- worked down from the import surge that occurred earlier in the year as a result of the threat of tariffs, if you will. And that is working through the system and also the fact that imports have actually started to decrease coming in as a result of the tariff. And then also, you have the closure of the Chillicothe mill that we talked about, so that the operating rate should improve and strengthen going into next year. Operator: Our next question comes from the line of Matthew McKellar with RBC Capital Markets. Matthew McKellar: Just a follow-up on the last one there. How far along are we in that process of inventories being consumed? Are they approaching normal levels today? Is that something you'd expect by year-end? Or will that process continue into '26? John Sims: No, I would say that we're approaching normal levels right now. That's how we're seeing it currently. Matthew McKellar: Okay. Very helpful. And then a couple of quick ones on Riverdale, and how you're preparing for the end of that supply agreement. Can you give us a sense of how much inventory you're intending to build to bridge you to that incremental capacity at Eastover? And then maybe what kind of working capital investment you'd expect? And then at the time that the cancellation of that supply agreement was announced, I think you said the impact to 2026 EBITDA would be about $30 million at current margins. Is that still a good estimate of what you expect the impact to be based on how margins may have evolved and any changes to your plans since that time? Donald Devlin: Matthew, this is Don. Thanks for the question. So for the first part of your question, we plan to build about 60,000 tons of inventory through the year. Most of it will happen in the first half leading up to the Eastover outage for the conversion speed up of Eastover. And then we plan to consume that inventory in the balance of the year. So from beginning to end, it would even out and relative to the $30 million, I think in the previous call, we estimated the impact to Riverdale to be about $30 million. And that's the same. That hasn't changed for 2026. Operator: [Operator Instructions] And with no further questions in queue, I will now hand the call back to Hans Bjorkman for closing remarks. Hans Bjorkman: Thanks, Tina. We appreciate it, and thank you all for joining our call today. We appreciate your interest in Sylvamo, and we look forward to our continued conversations over the coming weeks. Thank you. Jean-Michel Ribiéras: Thank you. Bye. Operator: Once again, we would like to thank you for participating in Sylvamo's Third Quarter 2025 Earnings Call. You may disconnect.
Operator: Thank you for standing by. My name is Joe, and I will be your conference operator today. I would now like to turn the conference over to Robert, Chief Financial Officer. You may begin. Robert Wright: Good morning, and welcome to the Delek Logistics Partners Third Quarter Earnings Conference Call. Participants joining me on today's call will include Avigal Soreq, President; and Reuven Spiegel, EVP. As a reminder, this conference call will contain forward-looking statements as defined under the federal securities laws, including statements regarding guidance and future business outlook. Any forward-looking statements made during today's call will include risks and uncertainties that may cause actual results to differ materially from today's comments. Factors that could cause actual results to differ are included in our SEC filings. The company assumes no obligation to update any forward-looking statements. I will now turn the call over to Avigal for opening remarks. Avigal? Avigal Soreq: Thank you, Robert. Delek Logistics Partners had another record quarter. We reported approximately $136 million in quarterly adjusted EBITDA. Due to the strong progress year-to-date, DKL has increased its full year EBITDA midpoint guidance of $500 million to the upper end of the range between $500 million and $520 million. Delek Logistics continue to advance its key initiatives in natural gas, crude and water businesses, further improving its position as a premier full service provider in the Permian Basin. After successfully completing the commissioning of the new Libby 2 plant in the third quarter, DKL advanced its ongoing effort on acid gas injection and sour gas handling capabilities. The AGI and sour gas handling capabilities are enabling DKL to fill the plant to capacity and paving the way for further processing capacity expansions. We are also seeing solid operations in our crude and water gathering segments. Both VPG and DTG crude gathering operations had a strong third quarter with record volume for DTG. This strength has continued in the fourth quarter. Between our two water acquisitions in increasing dedication, our competitive position in both Midland and Delaware basins is increasing, and we expect to continue to build on these strengths. Our well-timed and cost-effective acquisition of 3 Bear, H2O Midstream and Gravity Water Midstream have supplemented our organic growth and enable DKL transition to full suite service provider. We will remain consistent with our strategy of growing the partnership through a prudent management of leverage and coverage. Along with seizing the growth of opportunity we see in our business, we intend to remain good stewards of our stakeholder capital. With that, I'm pleased to announce that the Board of Directors has approved the 51th consecutive increase in the quarterly distribution to $1.12 per unit. This is an extraordinary achievement, and we're extremely proud of our team and the financial prudence that has gotten us in. To conclude, Delek Logistics is making great progress in becoming a strong independent full suite midstream service provider and expect to continue on our value creation path well into the future. I will now hand it over to Reuven, who will provide more details on our operations. Reuven Spiegel: Thank you, Avigal. As Avigal mentioned, we are very excited about DKL's future and are working to increase our advantaged Permian position. I am very pleased with the commissioning and operation of our Libby 2 gas plant. The plant is performing according to expectations, and we are completing the associated sour gas AGI infrastructure to fill the plant in the most efficient manner. The planned CapEx for Libby 2 included investments that will support future expansion of the Libby complex, and our confidence in these expansion opportunity is increasing as we progress our AGI infrastructure. We continue to believe that our expanded gas processing and sour gas handling capabilities provide a unique offering to our customers and provide us with a long runway of growth in the Delaware Basin. Our crude gathering volumes had a record third quarter, and we expect to continue to see this trend going forward as we close out the year. On the Midland side, the integration of the two water gathering systems from H2O and gravity is progressing well, and we expect to use our larger footprint to enhance our combined crude and water offering in the Howard, Martin and Glasgow counties. Finally, we continue to look for opportunities to make our operations more efficient and robust and are looking for ways to increase our margin profile throughout our operations. With that, I will pass it on to Robert. Robert Wright: Thank you, Reuven. As both Avigal and Reuven highlighted, we continue to make meaningful progress in advancing the Delek Logistics growth story. While we drive forward expansion across the partnership, we remain equally focused on achieving our long-term leverage and coverage targets. Over the past 12 months, we've successfully closed two acquisitions, H2O Midstream and Gravity Water Midstream, which were well-timed from a purchase multiple perspective. And we also completed the construction of the Libby 2 gas plant. Our focus now shifts to capturing the full value of these investments by optimizing synergies and realizing the associated EBITDA uplift as we move toward our strategic goals. Importantly, we maintain a strong financial position with approximately $1 billion of availability on our credit facilities, giving us flexibility to continue executing our growth agenda. Moving on to our third quarter results. Adjusted EBITDA for the quarter was approximately $136 million, up from $107 million in the same period last year. Distributable cash flow as adjusted totaled $74 million and the DCF coverage ratio as adjusted was approximately 1.24x. We expect this ratio to continue to strengthen through the remainder of the year as our recent growth projects, including the Libby 2 gas plant begin to make a more meaningful contribution to our financial performance. For the Gathering and Processing segment, adjusted EBITDA for the quarter was $83 million compared to $55 million in the third quarter of 2024. The increase was primarily due to the acquisition of H2O and gravity. Wholesale Marketing and Terminalling adjusted EBITDA was $21 million compared to $25 million in the prior year. The decrease was primarily due to the impact of last summer's amend and extend agreements with DK. Storage and Transportation adjusted EBITDA in the quarter was $19 million compared with $19 million in the third quarter of 2024. And lastly, investments in pipeline joint venture segment contributed $22 million this quarter compared with $16 million in the third quarter of 2024. The increase was primarily due to the contribution from the Wink to Webster drop down in August of last year, in addition to stronger performance by the venture in the current period. Moving on to capital expenditures. The capital program for the third quarter was approximately $50 million. $44 million of this capital spend relates to growth CapEx, which included spend to optimize the Libby 2 gas processing plant. The remainder of the capital spend for the period was other growth projects, namely advancing new connections in the Midland and Delaware gathering systems. Looking ahead to the remainder of the year, as Avigal mentioned, we remain confident in our earnings trajectory and are raising our full year EBITDA guidance to the upper end of our range, now expected between $500 million and $520 million. With that, we can now open the call for questions. Operator: [Operator Instructions] Your first question comes from the line of Doug Irwin of Citi. Douglas Irwin: I was wondering if you could maybe expand on the comments in the press release around producers increasing activity on your acreage ahead of Libby 2 coming online. Just curious how you're thinking about the treating capacity ramp at the year-end as well as maybe some of the benefits you might be seeing across your broader gathering system just as you bring that sour gas offering to your customers? Avigal Soreq: Yes, absolutely. So why don't I take a minute or two to give you a bit broader overview. As you saw on our numbers, crude and water are extremely strong, and we are very happy about that. And I think we also can be proud of the strategy we set to be a premier crude gas and water provider in the heart of the Permian basin. I think that we were pretty much the first one to put that strategy together, and it's starting to give us a very nice yield. That's part of the reasoning that we are increasing our forecast, our guidance for the year, and we are very proud of the timely manner acquisition and build we did. We saw a record crude. We do not see any material change in the drilling activity in our acreage. And with the discussion we have with our producer and we are seeing more and more synergies between the different streams that we are actively managing. And with that, I will let Reuven comment more about the sour progress we are seeing. Reuven Spiegel: The actual construction and start-up of Libby 2 has been above our expectation on time and on budget. Originally and based on producers' forecast that we anticipated to fill up the plant with sweet gas. But as they were drilling, the landscape has changed and the producer needs solutions for sour gas as soon as possible. As a result, we accelerated some sour programs to provide solution in a more rapid time line. We have very high confidence in not only filling up Libby 2, but because of the full suite, sour gas, crude and water solution that we provide, we will need to expand processing capacity earlier than our previous expectations. Douglas Irwin: Got it. That's helpful. And maybe as a follow-up on CapEx. You talked about potentially already having expansion opportunities, but also kind of spend some CapEx this year on Libby 2. I guess where do you see '26 trending in general now that you have Libby 2 online? And I guess, to the extent that it's trending lower next year, how are you thinking about just your flexibility to make you pay down some debt or maybe even buy back some more units from DK next year? Avigal Soreq: Yes, that's a very nice question, Doug. While the macro and the strategy going very well, we still have some tactics to finish for planning for next year and budgeting and we plan to give you another guidance on the next earnings call like we did this year. So we have something to look looking forward. So we'll leave it to that. Operator: Your next question comes from the line of Gabriel Moreen of Mizuho. Gabriel Moreen: I just want to ask on the equity income line. I think Robert mentioned some, I mean, better performance or improving performance. Clearly, that was equity investment line. That was clearly a very strong point in the quarter. Can you just talk about that a little bit? And is this current run rate something that's maybe sustainable going forward? Robert Wright: Yes. Thanks for the question. Yes, as I mentioned in the prepared remarks, most of that line item was impacted by strong performance in the quarter by Wink to Webster. I think when you look at our JV results on an annualized basis, like year-to-date, I think that's a good run rate of what to expect going forward. I think we're pretty happy with our JV results overall. Gabriel Moreen: Great. I appreciate it. Can you maybe also talk a little bit about the water landscape overall? I think Reuven and Avigal, you both mentioned others trying to emulate your 3-stream strategy here. As far as you see with the landscape, are you seeing new competitors, new opportunities? Just curious kind of with some mergers happening and IPO happening, whether anything has shifted in your view? Avigal Soreq: Yes. So that's a very good question. And we should see very important trends that you can see is the gas and oil ratio and the water and crude ratio. Both of them are working extremely well from our position standpoint. And if you go one year back, Gabriel, and you think about the timing that we did the both H2O and Gravity acquisition, we brought that pretty much at half price versus what we've seen the market trending today. So we are very happy about the timing and the trend in the market. Obviously, as you can see in the Delaware Basin, it's almost impossible to get SWDs permitted in a timely manner. So we were very fortunate to have the position we are at, and it's going very well to our expectations. Gabriel Moreen: And if I could just squeeze one more in relative to Reuven's comments about Libby 3 earlier than expectations. I'm just wondering if you'd be able to define what that would mean from a timing standpoint? And then also on the AGI disposal front as well, whether what you've done here to handle the sour gas at Libby 2, whether that gives you really the runway or whatever volumes you're going to need to handle at Libby 3 when the expansion comes on, hopefully. Avigal Soreq: Yes. Obviously, the market is telling us that it needs our sour capabilities and the market tell us that it needs our gas treating and the market tell us that it needs our water treating. All of that are detailed question. Obviously, once we finish the planning session, we will come to you with a very detailed and the execution plan like we did in the past, all the time in the past, we'll do that again this time. And -- but the very good news here that we are on the right timing. And I would say, with the right product basket to give to our customers. Mohit, do you want to add anything? Mohit Bhardwaj: Yes. Gabe, thanks for your question. Just to answer your specific question, we are very happy with our permitted capacity on the asset gas side, and we don't see any near-term restrictions on that. Operator: With no further questions, that concludes our Q&A session. I will now turn the conference back over to Avigal for closing remarks. Avigal Soreq: Thank you, everyone. Thank you to my colleagues around the table. Thank you for our Board of Directors for trusting us. Thank you for the unitholder. We're enjoying a very good return and growth story. And most importantly, thank you for our employees for making that partnership as good as it is. Thank you, guys. We'll talk again. Operator: This concludes today's conference call. You may now disconnect.
Operator: Hello, and thank you for standing by. My name is Mark, and I will be your conference operator today. At this time, I would like to welcome everyone to the Mettler-Toledo Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Now I would like to turn the call over to Adam Uhlman, Head of Investor Relations. Please go ahead. Adam Uhlman: Thanks, Mark, and good morning, everyone. Thanks for joining us. On the call with me today is Patrick Kaltenbach, our Chief Executive Officer; and Shawn Vadala, our Chief Financial Officer. Let me cover some administrative matters. This call is being webcast and is available for replay on mt.com A copy of the press release and the presentation that we will refer to on today's call is also available on our website. This call will include forward-looking statements within the meaning of the U.S. Securities Act of 1933 and the U.S. Securities Exchange Act of 1934. These statements involve risks, uncertainties and other factors that may cause our actual results, financial condition, performance and achievements to be materially different from those expressed or implied by any forward-looking statements. For a discussion of these risks and uncertainties, please see our recent annual report on Form 10-K and quarterly and current reports filed with the SEC. The company disclaims any obligation or undertaking to update any forward-looking statement, except as required by law. On today's call, we will use non-GAAP financial measures and a reconciliation to these non-GAAP financial measures to the most directly comparable GAAP measure is provided in the 8-K. Let me now turn the call over to Patrick. Patrick Kaltenbach: Thank you, Adam, and good morning, everyone. We appreciate you joining our call today. Last night, we reported our third quarter financial results, the details of which are outlined for you on Page 3 of our presentation. Our third quarter results were strong and reflected very good growth, especially in Industrial. I'm very pleased with our team's strong execution as we leverage our Spinnaker sales and marketing program and innovative product portfolio to drive growth while delivering solid EPS. Looking ahead, we are well positioned to capture growth opportunities while benefiting from trends like automation, digitalization and onshoring. We continue to remain very agile as we face several uncertainties in global trade disputes and governmental policies. We are confident that our strategic initiatives and strong culture of innovation and operational excellence will enable us to continue delivering strong performance in this dynamic environment. Let me now turn the call over to Shawn to cover the financial results and our guidance, and then I will come back with some additional commentary on the business and our outlook. Shawn? Shawn Vadala: Thanks, Patrick, and good morning, everyone. Sales in the quarter were $1.03 billion, which represented an increase in local currency of 6% and was 5%, excluding several recently completed acquisitions. On a U.S. dollar reported basis, sales increased 8%. On Slide #4, we show sales growth by region. Local currency sales increased 10% in the Americas, including a 1% benefit from acquisitions, 6% in Europe and 1% in Asia/Rest of the World. Local currency sales in China increased 2% during the quarter. Slide #5 shows local currency sales growth by region on a year-to-date basis. On Slide #6, we summarize local currency sales growth by product area. For the quarter, Laboratory sales increased 4%, while Industrial increased 9% and included a 1% benefit from recent acquisitions. Excluding acquisitions, core Industrial grew 10% and Product Inspection grew 7%. Food Retail grew 5% in the quarter. Lastly, service grew 8% in the quarter and included a 1% benefit from acquisitions. Slide #7 summarizes our local currency sales growth by product area on a year-to-date basis. Let me now move to the rest of the P&L, which is summarized on Slide #8. Gross margin was 59.2% in the quarter, a decrease of 80 basis points, primarily due to incremental tariff costs, offset in part by positive price realization and benefits from our Stern Drive program. R&D amounted to $51.1 million in the quarter, which is a 4% increase in local currency over the prior year. SG&A amounted to $248.4 million, a 6% increase in local currency over the prior year, which includes sales and marketing investments. Adjusted operating profit amounted to $309.9 million in the quarter, up 5% versus the prior year. Adjusted operating margin was 30.1%, a decrease of 100 basis points or down 30 basis points on a currency-neutral basis versus the prior year. We estimate the gross impact of tariffs reduced our operating margin by 140 basis points. A couple of final comments on the P&L. Amortization amounted to $20 million in the quarter. Interest expense was $17.7 million and adjusted other income amounted to $4.3 million. Our effective tax rate was 19% in the quarter. This rate is before discrete items and is adjusted for the timing of stock option exercises. Fully diluted shares amounted to $20.6 million, which is approximately a 3% decline from the prior year. Adjusted EPS for the quarter was $11.15, a 9% increase over the prior year. Incremental tariff costs were a gross headwind to EPS of 6%. On a reported basis in the quarter, EPS was $10.57 as compared to $9.96 in the prior year. Reported EPS in the quarter included $0.26 of purchase intangible amortization, $0.29 of restructuring and acquisition transaction costs and a $0.03 tax headwind related to the timing of stock option exercises. Slide #9 summarizes our year-to-date P&L. Local currency sales increased 2% for the 9-month period. Adjusting operating profit declined 2% and our operating margin contracted 130 basis points. Adjusted EPS increased 2%. Excluding the impact of 2023 shipping delays that benefited 2024 results, we estimate local currency sales grew 4% on a year-to-date basis, operating margin declined 10 basis points and adjusted EPS grew 7%. Gross tariff costs reduced operating profit by 3% and EPS by 4% on a year-to-date basis. That covers the P&L, and let me now comment on adjusted free cash flow, which amounted to $689.5 million for the first 9 months, a 6% increase on a per share basis. DSO was 34 days, while ITO was 4.2x. As mentioned, we completed several smaller acquisitions that add to our North American distribution footprint, add new service capabilities and expand on our life science equipment offering. Overall, we paid approximately $75 million related to these acquisitions and may pay contingent consideration up to $31 million in the future. Going forward, they will approximate 1% of our sales and are modestly accretive to adjusted EPS. Let me now turn to our guidance for the fourth quarter and our initial thoughts on next year. As you review our guidance, please keep in mind the following factors. First, our guidance assumes U.S. import tariffs as well as the impact of retaliatory tariffs from other countries will remain in effect at recently announced levels. Trade disputes are dynamic, and there's a potential for new tariffs or retaliatory tariffs that we have not factored into our guidance. Second, while our third quarter results were better than expected, market conditions remain challenging with continued uncertainty related to trade disputes, governmental policies and geopolitical tensions. Our forecast does not assume a significant improvement in market conditions over the coming year. Third, we have continued to make important investments in our business to capitalize on our customers' investments in automation, digitalization and nearshoring. We believe this will position us to very effectively capture these opportunities over the coming years. And finally, please keep in mind that our third-party logistics provider delays negatively impacted our Q4 2023 results by $58 million, nearly all of which was recovered in our Q1 2024 results. For the full year 2025, this reduces our sales growth by 1.5% and is a headwind to operating margin expansion of approximately 60 basis points and a headwind to adjusted EPS of approximately 4%. Now turning to our guidance. For the fourth quarter of 2025, we expect local currency sales to grow approximately 3% Operating margin is expected to decrease approximately 200 basis points or down 130 basis points on a currency-neutral basis at the midpoint of our range due to higher tariff costs. We expect adjusted EPS to be in the range of $12.68 to $12.88, a growth rate of 2% to 4%. Included within the EPS guidance is a gross headwind of approximately 7% from higher tariff costs. Currency for the quarter at recent spot rates would be a benefit to the fourth quarter sales by approximately 2.5% and would be neutral to adjusted EPS. For the full year 2025, our local currency sales growth forecast is approximately 2% or up 3.5%, excluding the shipping delays. Adjusted EPS is forecast to be in the range of $42.05 to $42.25, which represents a growth rate of 2% to 3% or 6% to 7%, excluding the impact of prior year shipping delays. Adjusted EPS also includes a gross headwind of approximately 5% from higher tariff costs. We have also provided our initial guidance for 2026. And based on our assessment of market conditions today, we would expect local currency sales to increase approximately 4%. Adjusted EPS is forecast to be in the range of $45.35 to $46, which represents a growth rate of 8% to 9%. At recent spot rates, foreign exchange is estimated to be a 1% benefit to sales and a slight headwind to EPS. Lastly, I would like to share a few other details on our 2026 guidance to help you as you update your models. We expect total amortization, including purchased intangible amortization, to be approximately $77 million. Purchased intangible amortization is excluded from adjusted EPS and is estimated at $26 million on a pretax basis or approximately $1 per share. Interest expense is forecast at $72 million, while other income is estimated at approximately $12 million. We expect our tax rate before discrete items will remain at 19% in 2026. Free cash flow is expected to be approximately $865 million in 2025 and $900 million in 2026. As mentioned earlier, we have recently completed several small acquisitions that approximate $75 million of consideration in 2025 and have adjusted our share repurchase program accordingly. Share repurchases are now expected to be $800 million for the full year 2025 and share repurchases in 2026 are expected to be in the range of $825 million to $875 million. Our capital allocation philosophy is unchanged, and you will see us continue to use our free cash flow primarily for share repurchases and small bolt-on acquisitions. Our Board has also authorized an additional $2.75 billion to be added to our share repurchase program, which had $1.1 billion remaining at the end of the third quarter. That's it from my side, and I'll now turn it back to Patrick. Patrick Kaltenbach: Thanks, Shawn. Let me start with some comments on our operating businesses, starting with Lab, which had good growth in the quarter. We saw growth from pharma and biopharma customers with strong results in bioprocessing. These results were offset in part by softer demand from academia, biotech and the chemical sectors. We are optimistic that some of the market uncertainty could ease in 2026, but we have also not assumed a significant recovery next year. Amid the challenging market backdrop, Lab has benefited from the many innovations we have introduced into the market. Most recently, we have launched the NineFocus pH Meter, our new high-performance multiparameter benchtop meter for pH, conductivity, iron concentration and dissolved oxygen measurements. When use of our broad offering of digital sensors, NineFocus provides consistent, accurate results that support regulatory compliance with automating data transfer to our LabX software. Our instrument can also be paired with our InMotion autosampler automation solution that allows users to calibrate, verify and measure over 300 samples fully automatically. Turning to our Industrial business. Growth in our core industrial business was very strong this quarter, especially in the Americas, although it benefited from easy multiyear growth comparisons and favorable timing of customer activity. Global market conditions for industrials are soft, and our sales are expected to grow low single digits in the fourth quarter. Looking ahead, our Industrial business is well positioned to benefit from increased replacement demand as market conditions improve, and it is also poised to benefit from near-shoring investments over the coming years. Turning to Product Inspection. Sales growth was very strong again this quarter despite challenging market conditions in food manufacturing industry. Our unique go-to-market approaches and innovative portfolio are supporting market share gains, and we look forward to continued growth over the coming year. Lastly, Food Retail sales grew 5% against easy year ago comparisons. Now let me make some additional comments by geography, starting in the Americas, which had good growth across most of the portfolio, especially with our Industrial Solutions. Growth in our laboratory business was good and included strong bioprocessing growth. Turning to Europe. Our results were very good this quarter and better than we had expected. Our Industrial business delivered very strong results, while Lab had more modest growth. Finally, Asia and the Rest of the World grew modestly and was slightly better than expected. Our business in China also grew modestly in the quarter and included growth in our industrial business for the first time in over 2 years. Our team has remained highly agile and successful in identifying opportunities in China. And while we are monitoring efforts by the central government to reduce excess capacity across certain industry, we believe we are well positioned to continue to capture growth as conditions improve and should also benefit from trends such as the latest China Pharmacopoeia update. In summary, we are very pleased with the strong execution from our team that has allowed us to deliver very good results. I recently came off our annual budget tour and met with senior leaders across the globe, and I'm inspired by the excellent progress our teams are making on our initiatives. Throughout 2025, our team's resilience and agility have been important differentiators that have allowed us to successfully navigate very challenging market conditions. Our high-performance culture is a hallmark of our success and appears to shine the brightest during challenging times. Looking ahead, we are confident that our unique growth initiatives and focus on operational excellence will provide tangible benefits over the coming year. We continue to invest in global market trends around automation, digitalization, near-shoring and hot segments and believe we are well positioned to capture growth around the world. Our team's passion to pursue these opportunities is inspiring, and we have several initiatives that further strengthen our capabilities to serve customers as we also benefit from our significant digitalization investments over the past several years. Innovation is essential to our success, and we continue to advance the digital capabilities of our products, services and software to provide additional insights and productivity improvements to our customers with many examples throughout their value chain. Spinnaker 6 has strong traction, and our global teams are actively deploying new digital solutions to further increase our effectiveness and improve our customers' digital experience. We are also further increasing our ability to identify growth opportunities via our Spinnaker program and Top K initiative. And we are enhancing the capabilities of our sales force to leverage AI to further optimize our pipeline management. Service also remains a significant growth opportunity given our large installed base of instruments, and we continue to invest and leverage sophisticated analytics to identify and capture these opportunities. Internal productivity improvements from digital tools and automation also continue to be exciting opportunities. This is especially effective as MT as we operate from a single instance of our ERP and CRM systems that are fully integrated under the Blue Ocean program. Blue Ocean provides globally harmonized processes with extremely rich data that is essential to effective digitalization. While conditions in China have been challenging over the past couple of years, our emerging markets outside of China have continued to grow and in total, are now larger than China. We see significant growth potential in these markets and expect to benefit from our strong market organizations around the world. Now let me share some additional insights into our outlook for 2026. As mentioned earlier, we forecast our growth next year to be in the range of 4%, which assumes market conditions do not significantly improve from current levels. We continue to face uncertainty in the global economy with trade disputes, U.S. governmental policies and geopolitical tensions. However, we expect conditions to gradually improve and replacement cycles will gain momentum again. While we continue to see short-term uncertainty in our end markets, we believe we are very well positioned to continue to gain market share with our broad portfolio of new innovations. We have also recently launched new initiatives to ensure resources are effectively focused and reallocated towards the most promising growth opportunities. I am very proud of the resiliency and strong execution from our global supply chain organization as we navigated new challenges with trade tariffs. Our team has been very agile and effective in implementing our supply chain optimization strategies. Our focus is to strengthen and evolve our in-region, for-region manufacturing capabilities to increase flexibility and resiliency, and we continue to expect to fully offset incremental tariffs cost in 2026. And lastly, as Shawn mentioned earlier, we also recently completed several small acquisitions that broaden our distribution and service capabilities and also expand our life science equipment portfolio. While these acquisitions are small and will add less than 1% to our sales growth in 2026, they add new products and services to our portfolio and increase our sales capabilities. We are very happy to welcome our new colleagues to our team. This concludes our prepared remarks. Operator, I would like now to open the line to questions. Operator: [Operator Instructions] And our first question comes from the line of Luke Sergott with Barclays. Luke Sergott: I wanted to start talking -- start off with the guide for '26. Can you just kind of give us a breakdown of how you're looking at that by segment, particularly around the industrial side and what you're seeing there from PID and core industrial? Shawn Vadala: Yes. Luke, this is Shawn. I'll take that one. So for 2026, we're looking at low to mid-single-digit growth in our laboratory business. Of course, we'd probably expect to do better than the average on our process analytics. We saw really good momentum in bioprocessing in the quarter that we expect to kind of continue into next year. Maybe the other side of that is that the early research area like where we participate like liquid handling will be a little bit softer. In the industrial business, we're estimating core industrial to be low to mid-single digit and product inspection to also be low to mid-single digit. Both of them will have like a modest benefit from some of these smaller acquisitions that we talked about. And then retail would be -- we estimate it to be flat for next year. And then if you break it down by geography, we're assuming the Americas at mid-single digit with low single-digit growth in Europe and China. Luke Sergott: Great. And then as I think about the overall consumer market and some of the more consumer-facing segments like PID and what you're seeing there as the consumer starts getting weaker, how is that kind of playing out when you're thinking about baked into that guide and how the pacing has been through the quarter and into 4Q? Shawn Vadala: Yes. I mean we've been really pleased with the results in that business this year. I mean if you think about the end market, the end market still is challenging. I mean 70% of that business is sold into food manufacturing. But the dynamic we've seen is that we've invested a lot in innovation over the last few years, and we've really been able to build out our portfolio, particularly targeted towards the middle market. And we find that to be a sweeter spot in terms of where there's growth opportunities as well. And so when we step back from that, our teams are executing really well and the recent product innovations are being very well received in the marketplace. And Patrick and I just came out of our annual tour that he talked about in his prepared remarks, and we also spent time with the our executives and the Board this week. And as we just look at the pipeline of -- for the future in that business as well as our other businesses, we feel really good about what we have coming out in the future as well, too. So I feel like we're competing very well. But you're right, the backdrop is still more challenging market conditions. Operator: And your next question comes from the line of Vijay Kumar with Evercore ISI. Vijay Kumar: Congrats on a really nice sprint here. Maybe back off of Luke's question on fiscal '26. I think, Patrick, you mentioned macro you're not assuming any change from current environment. When I look at your back half of '25, you're averaging 4.5%. So that 4% for '26 seems a step down from back half. What changes in how you think of price versus volume? Patrick Kaltenbach: Yes, I'll start and let also Shawn chime in there. Look, Vijay, when you look at how we guided for 2026, we said we don't expect any significant change to what we're seeing today. The market situation is still quite uncertain out there with global trade politics and tariffs in place, which leads to a lot of customer uncertainty. And that led us to really guide to the 4% for 2026. We think it is a very prudent guidance in this environment. And well, there could be some upside, of course, I mean, again, if the market uncertainties become less, if the customer confidence increases, as we also mentioned in our remarks that we think there's a good opportunity in our replacement business. We have seen probably now 2 years of subdued replacement business that hopefully will come into play once customers' confidence comes back. But in terms of the overall sequence in terms of the growth first half versus second half next year, Shawn, I don't think we have... Shawn Vadala: Yes. I mean the one thing to keep in mind, Vijay, is that we do have more pricing in the second half of this year than we'll have next year. We had about -- we benefited about 3.5% or so in the third quarter. on pricing. We expect to benefit by a similar amount in Q4. As we kind of go into next year, we're assuming about 2.5% for price realization for the full year. That includes some of the benefits from these midyear pricing actions to mitigate tariffs. But when you step back from that, the assumption on organic volume growth, it's going to be certainly -- it's going to be modest growth next year. And I think if you look at the back half of this year, yes, Q3 was a little bit better. Q4 is maybe kind of down a little bit, but I don't think it's a significant change in terms of how we're seeing things. And I think the reality is it's early, right? There's still a lot of uncertainty. Headlines are more favorable in the last few weeks. If that continues, we're optimistic that, that can help increase the stability and confidence within our end markets. But we're just a little bit cautious given all the volatility we've seen with our -- and the pressures on some of our core end markets over the past year. Vijay Kumar: That's helpful. And Shawn, maybe on margins for '26. I think your guide implies maybe modest operating margin expansion. Your tariff headwinds should abate quite meaningfully, but should we see a more -- a little bit more robust margin expansion? Shawn Vadala: Yes. One of the -- it's a good question because one of the dynamics we face is that the way currencies have evolved just over the past quarter, we have a lot more benefit on the sales side, but we have -- that's being offset by cost increase and the Swiss franc strengthening against the euro. And so even though it's not having a significant impact on EPS, it has a bigger impact on operating profit as a percentage of sales. And so when you kind of do that math, our operating margin expansion for next year is about plus 60 basis points on a currency-neutral basis. So it's not -- it's -- so I think it's a much better story than the reported number, which is probably in the 20 to 30 basis point kind of a level. And I do feel very good about execution in the organization, and I do feel good about our ability to mitigate these tariffs. Operator: And your next question comes from the line of Dan Arias with Stifel. Daniel Arias: Patrick, to what extent do you think onshoring demand can work itself into the picture for 2026 versus 2027 and beyond? You guys have some products that seem like it could be part of what's done earlier rather than later. But I also know you guys tend to not get too worked up about some of these high-level ideas in the earlier stages. So can you just maybe think a little bit about -- tell us a little bit about your thoughts on '26 there? Patrick Kaltenbach: Very good. Look, I think we are very well positioned as a global company to benefit from the homeshoring activities. There are big numbers out there, as you know, from pharma, from semiconductor and other places. And as you know, we -- about 50% of our sales are sold into production and plus QA/QC. So that's a big part of the portfolio as these companies will start reshoring or building out capacities in the United States and in Europe as well. Again, there have been large announcements, but it will take multiple years to build these new plants. So I think it will not have an immediate effect. It will be a gradual effect. We expect some of it in 2026, probably even more in 2027. But again, we make sure that we are ready to work with our customers. We're talking to all of our key accounts at the moment who have also made some of these statements. So if you think about the pharma companies that they will build out capacity in U.S., we are ready to help them with establishing their labs, their manufacturing floors, the QA, QC labs, et cetera, with our products. But this will be a multiyear journey. I mean if you think back even on the Semiconductor Act, how long that took until really we saw some momentum in the end market. I think the impact for 2026 will be moderate. But again, for us, it's important that we are very early for our customers to help them as they design the labs and the manufacturing floors that they get the latest of our innovation to help them to drive productivity and efficiency, which they are looking for together with all the digital capabilities that we have. Daniel Arias: Okay. That's helpful. And then, Shawn, maybe on the comments that you guys made on China, can you maybe just compare what you expect on the lab/biopharma side versus more of the industrial side? I'm trying to understand just the macro headwinds and what that might translate to for China for you guys next year. Shawn Vadala: Yes. I mean we're assuming low single-digit growth in both of those businesses. As Patrick mentioned in the prepared remarks, one of the upsides, I think we have on the lab side is the latest update of Pharmacopoeia in China, which I think is a nice opportunity. All the investments that are going on in country with GLP-1s is a really good example. And so we feel like there's medium to long term some upside here, but we're a little bit more cautious as we think about things today. And then on industrial, one of the one of the highlights of the third quarter was our industrial business. And within that, we had good -- we had good growth in each region, but it was nice to see growth in core industrial in China in the quarter. It's actually the first time we've had growth in that business in 2 years. And so when you think back to the beginning of the year and some of the things that were on our mind, that was a bigger -- an area where we would have like had placed more risk just given all the uncertainty with their economy. And it's nice to see that they had some growth. And I feel very good about our ability to continue to execute there. We kind of walked away from our visit there just 1.5 months ago, feeling optimistic and the team was really motivated and engaged. So it was good to see. Operator: And your next question comes from the line of Brandon Couillard with Wells Fargo. Brandon Couillard: Patrick, I mean, it's atypical for Mettler to do one deal, much less a handful of them. I'd love if you could just kind of elaborate on how this came about, some background on the assets and really what you think they add to the portfolio. Patrick Kaltenbach: Yes. Thank you, Brandon. Yes, of course, normally, we do not this amount of deals in one quarter, but to be honest, the deals also take a long preparation times. And we always look to expand our portfolio at new technology vectors or adjacencies that we don't own and also expand our distribution in this quarter, we acquired a few North American distribution partners that gave us additional sales and service capabilities including some new services. We also acquired the Genie Vortex mixers, which is a really strong brand and expands our life science equipment portfolio that complements, for example, our pipette business and the businesses, shakers and others that we sell through our house business. So it has been a good number of smaller acquisitions, not one big one, but the small acquisitions that we will continue to do in the future. And as Shawn mentioned before, the revenue contribution was less than 1% this quarter and about 1% through the first half of next year. Brandon Couillard: And then just one follow-up, Shawn, did you give the lab -- the China lab growth in the quarter? And what is embedded for '25 for China and those 2 segments specifically? Shawn Vadala: Yes. So for Q3, it was up low single digit. Let me just -- I'm sorry, let me just confirm that. Yes, it was up low single digit in Q3. And then for next year, we also expect it to be up low single digit as well. Operator: And your next question comes from the line of Patrick Donnelly with Citi. Patrick Donnelly: Maybe one just on the core industrial side, can you just talk about what you're seeing there, what the trends are, conversations with customers? Obviously, it's helpful to hear a little bit about the go forward on that front. I would love just to hear what the trends look like there and the visibility as you work your way forward on core industrial. Patrick Kaltenbach: Yes. Okay. I'm happy to take that. Look, I think we are performing extremely well with our innovative portfolio in a market that is still very challenging. As you know, most of the PMIs are still below 50. But we are benefiting from the demand for automation, digitalization, and this is where our innovative products play strong and it also helps us differentiate nicely from our competitors, including China. As Shawn mentioned, it was good to see that China came back to growth for the first time in 2 years. We think these soft market conditions probably will continue for some time, but we are very well positioned then in the future also from the onshoring investments in the future because those will demand a lot of digital capabilities and automation solutions that we have developed and that we either implement directly with end customers or through system integrators. So long story short, I think the market will continue to be challenging in many areas. It probably will benefit next year and the year after from the homeshoring activities. But for us, it's most important that, again, that we have a very competitive portfolio and continue to help our customers with their demand for automation and digitalization in a fully compliant environment and also with products that also have very strong capabilities when it comes to cybersecurity, which we spend a lot of activity as well. Patrick Donnelly: Okay. That's helpful. And then maybe one on the geography side. I think Europe flattish year-to-date. It seems like it's been improving a little bit. I think Shawn talked about low single digits next year. What are you guys seeing there? Has it been kind of steady improvement? Is it just comps? And again, the confidence level there going forward would be helpful. Patrick Kaltenbach: Yes. I'll go a little bit through the macro of Europe. Again, it's, I would say, a tale of many cities series. If you look at our -- how we see the end markets, I would say the Southern European markets actually are performing better than the northern at the moment or in the mid, I think -- the biggest stress in Europe, I would -- as you can imagine, is probably right now in Central Europe with a large economy in Germany that is under significant pressure still from higher energy costs, et cetera. You all hear the news about them also offshoring some of their manufacturing in other areas to try to address the cost issues. Nordics has performed well, but then we also had the news coming out of Denmark in the last quarter or so about Novo Nordisk going through some resizing there, and that puts that piece of the market under pressure right now. So it's really a mixed bag. But overall, we are pleased with our own performance in Europe. I think it's very important that we leverage our tools to be always guide our sales teams to the hot segments that we see there like bioprocessing. There's a lot of good activities in bioprocessing, for example, some of it in the new energy markets as well and also in pockets also in semiconductor again. I think really the story is here, yes, it's a more difficult environment. We see definitely better momentum right now in the U.S. and in Europe. But we're still very keen on capturing all the growth opportunities to compensate the macro trend that Europe is probably slower at the moment and probably will also be next year a bit slower than the U.S. Operator: And your next question comes from the line of Doug Schenkel with Wolfe Research. Douglas Schenkel: I'm going to try to just throw out 2 and then get back and just listen given I'm out of the office. So on the industrial side, lab came in, as we've talked about, pretty well above our model and your guidance at mid-single-digit organic growth. You talked a little bit about what you're seeing there, but I'm just wondering how much of this was driven by PA process analytics versus traditional lab equipment? And maybe more specifically, are you seeing increased demand for bioprocessing sensors as several large CDMOs start to build out brownfield plants in the U.S. And then that's on the lab side. On the industrial side, 9% organic growth is impressive. As I've talked about with you guys, I mean, some of this is a function of maybe the name industrial being a little bit of a misnomer given how the business has evolved. But that being said, still impressive. And last quarter, you said you had visibility into certain projects that would drive maybe a better than typical quarter. And I think this was even better than that. So long lined up to, does this start to normalize? Were there timing dynamics? Or is there some real momentum here? Shawn Vadala: Yes. Maybe I'll start here. So on the laboratory side, we were very pleased with the quarter. As you mentioned, certainly a highlight in the laboratory portfolio was process analytics. We saw really good growth on bioprocessing. This business also benefits from some of the investments that are being made to the power grid as you think about data centers as an opportunity in the future. But a lot of it was pretty much bioprocessing. And the power is like we have ultra-pure water solutions, et cetera, that help with power plants. On the rest of the business, we also saw some good growth, like, for example, within our analytical instrument portfolio, we were very pleased with growth in that business. If you look at weighing Solutions, also really good growth. The one soft spot that kind of we -- I think I alluded to earlier was in our liquid handling business. We still see a lot of softness in that business. And that business really is in the crosshairs of a lot of the topics out there regarding funding and research, whether it's with biotech, whether it's with academia, whether it's with currently the government shutdown. Now these are smaller exposures for Mettler-Toledo. But when you get into liquid handling, they tend to be a little bit bigger and they tend to feel, especially the consumable nature of that business. But we did have modest growth on the consumable side. It's really more on the instrument side where we saw softness. On the industrial side, we did have some good -- much better activity, as you mentioned, in the quarter than we expected. I think we were kind of walking into the quarter feeling pretty good. And then just a lot of things happened in different parts of the world that just all came together. As an example, we have some activity in our transportation and logistics business, which is selling -- it's part of how facilities are trying to automate their factories, and we have these solutions around dynamic dimensioning that's super effective, provides strong paybacks -- to our customers and a lot of that kind of caught on in the quarter. But it's not only that. If you look at the rest of the portfolio where we are facilitating customers' automation and digitalization needs, we saw some good trends there. We also saw good growth in each region of the world. But we also probably had in fairness, a little bit of an easier comp in Q3. If you look at it on a longer-term CAGR basis. And so that comp is maybe a little bit more difficult in the fourth quarter. And as we kind of listen to the organization and customers, just the timing of activity seems to have been a little bit more skewed towards Q3 versus Q4. We're actually a lot more cautious on our core industrial projection for the fourth quarter. We're probably looking at more like low single digit in the fourth quarter. So we do see a step down there quarter-on-quarter. But when you like look at the second half of the year and combined, we actually feel really good about how we're executing and how we're positioned going into next year. And I just think that the portfolio is doing well. It's being really well received globally. And we always talk about how this business is -- while it's exposed to the macro, it also has a lot of opportunity with all these onshoring needs. And as companies are onshoring, they're investing more in automation as well as digitalization, and we continue to invest in our portfolio to optimize these opportunities. Operator: And your next question comes from the line of Michael Ryskin with Bank of America. Michael Ryskin: Great. I want to follow just kind of what you were just touching on, on the 4Q moving pieces. I had a lot of questions on sort of comparing 3Q, 4Q. First of all, maybe you could just give us sort of the segment results. You gave us a little bit here in there, but I want to make sure we have all the numbers together. And then just anything on pull forward timing? What are you seeing for government shutdown? Just are there any other moving pieces you touched on the comp in core industrial just now, but we would love to flesh out the 3Q to 4Q dynamic? And then I've got a quick follow-up. Shawn Vadala: Yes. Mike, maybe I'll walk down the Q3 versus Q4, like you said, so everybody has that, and then I can make a couple of comments on it as well. So in Q3, lab was up 4%, and our guidance for Q4 is to be up low single digit. As we think about lab, we're a little bit more cautious here on budget flush going into the fourth quarter. I mean, last year, you recall, we actually had a pretty good budget flush. We're not such a budget flush company, but the reality is we do have seasonality in our business. And as we just sit here today, there seems to be a little bit more caution with some of the uncertainties out there around governmental policies. In terms of our core industrial business, as you know, it was up 11%. That was 10% organic. And our guidance for Q4 is up low single digit. We just talked about that. Product inspection was up 7% in Q3, and our expectation is that business grows high single digit in Q4. There's a little bit of -- there'll be a little bit of acquisition benefit in that number as well. And then retail actually had growth in the quarter, 5%. They've -- it's always a lumpy business. They've been on the other side of the lumpiness now for the last couple of years, but it was nice to see growth, and they're actually looking at good growth here in the fourth quarter of about 10%, but it's also against maybe softer comparisons. But that business is actually competing really well. There's some really neat examples of innovation in that business with some like imaging technologies, et cetera, and I think we're competing really well. In terms of the geographies, our business in the Americas grew 10% in Q3. If you exclude the acquisitions, it was 8%, and our guidance for Q4 is to grow mid-single digit. Europe was up 6% in constant currency in Q3, and our guidance is more flattish here. So we're definitely a little bit more cautious on Europe. I mean, as Patrick mentioned, we're executing well there. Europe tends to benefit the most from our Spinnaker programs just given the magnitude of our direct sales force with -- in terms of our go-to-market strategy, but the economy is a little bit more softer. And I think there's just more uncertainty with a lot of the different topics around trade disputes, et cetera, that have a potential impact on customer behavior. And then China was up 2% in Q3, and we're estimating it up low single digit in the fourth quarter. Michael Ryskin: Okay. That's all incredibly helpful, Shawn. For a follow-up, if I could just touch on tariffs in 2026. You said a couple of times you're going to fully offset. But just walk us through exactly what that means. Is that fully set over the course of the year, fully offset as of Jan 1? Is there like a net tariff impact on EPS next year that you could point to? Just walk us through sort of exactly how that's happening and the mechanics behind it. Shawn Vadala: Yes, yes. So I mean, we're extremely happy with the organizational's performance in this area. As Patrick said in the prepared remarks, our culture does tend to shine the brightest during challenging times, and I just couldn't be more proud of the colleagues in terms of how they've responded to these challenges over this past year. The journey towards offsetting these tariffs also didn't start in 2025. We had also -- coming out of COVID, like a lot of other companies, we wanted to create more flexibility in our global supply chain, and we also wanted to derisk our global supply chain. So we already had some things that we were working on and that we could accelerate over the past year. And then the other thing is that we also have the opportunity in pricing to mitigate. And I think that comes down to we've been investing a lot in innovation and the value proposition that we're providing to customers. And so fortunately, with strong value propositions, it gave us an opportunity to take a look at pricing in a few areas over the course of the past year. So as we kind of go into next year, I think we should be in pretty good shape at the beginning of the year in Q1. We'll provide more color on that at the end of this year. If you want to be a little conservative in your models, that's okay. But I think we'll probably be -- I think we should be in pretty good shape kind of as we start the year next year and certainly on a full year basis. In terms of what it means, which I can anticipate is a question out there. So tariffs right now are about -- if you look at the tariff rate increases that were put in place in 2025, we're probably looking at about a 6% headwind -- gross headwind on 2026 that we -- and that's the magnitude that we're talking about offsetting. Operator: And your next question comes from the line of Tycho Peterson with Jefferies. Jack Melick: This is Jack on for Tycho. Just wanted to double-click on China industrial for a minute. Did China's anti-involution campaign have an impact on the business over there? The macro data seemed to get worse intra-quarter, but it didn't seem like they were impacted much at all. So I would appreciate any additional granularity on the core industrial side and what you saw in terms of activity. Patrick Kaltenbach: Very good. Thanks, Jack. Look, China has struggled with overcapacity for some time now. And if you look at the anti-involution policy, I think it's mainly focused on trying to stop price wars and address overcapacities in areas like solar, steel and other areas. These are, for us, not really large markets. And as we exited the heavy industrial infrastructure-related markets over a decade ago, it doesn't mean that we are totally immune to this, but we are now more focused with our industrial portfolio on a broader market is really looking for automation capabilities, digitalization features. And that's why we also saw some growth in Q3, frankly. I think our portfolio competes really well in a market that is fighting also for continued increases in productivity, driving cost down, and you only can achieve that through automation and digitalization. I think our portfolio plays really strong there. We have a strong R&D and manufacturing organization in the market that really also understands the local dynamics and the needs of our customers. So I think we are set up well to capture these opportunities. And with that, again, we think we will continue also in China to perform -- to outperform the underlying market dynamics with our strong portfolio. So again, anti-involution for us, probably not as big as a topic as you would think because we are not playing in these market segments that are under most pressure or most focused by the government. And the rest of the market still is looking for the portfolio opportunities that we can deliver to them. Jack Melick: Okay. Great. That's really helpful context. I guess, second, you talked a bit about onshoring in the call. Curious how conversations there, particularly among pharma customers have evolved in the past 45 days or so with commentary getting better around MFN and other issues sort of clearing up. Patrick Kaltenbach: Yes. I don't want to repeat myself. But again, there's a lot of big announcements out there, but we are in the very, very early innings with that. I mean it still will take time to build these manufacturing sites and build the labs, et cetera. Most important for us, as I said, is to really be with the customers in the planning phase to help them to implement the right solutions to not only replicate of what they have seen in other places or have in other places as they try to onshore it, but really go to the next step in terms of automation, digitalization. Operator: And your next question comes from the line of Josh Waldman with Cleveland Research. Joshua Waldman: Patrick, a follow-up on the bioprocessing side. I'm curious where all you're seeing the impact of stronger demand across the portfolio? And I guess, any sense on durability into Q4 and '26? Did it seem like volumes strengthened throughout the quarter? And then I guess on the portfolio exposure piece, I believe you have bioreactor equipment exposure within core industrial. Were there any signs of strength there? Patrick Kaltenbach: Yes. Very good questions, Josh. And yes, you're absolutely right. We see this across the portfolio. Bioprocessing is a strong segment for us, of course, especially for the process analytics piece. But as you think about the entire value chain of these customers when it comes to QA, QC solutions, where our lab products play well or in the Industrial Solutions that tank scale weighing, et cetera, play a big role, we will definitely continue to benefit from the strong momentum in this market. We actually, we anticipate this to continue into 2026 as well. This is a market that shows strong momentum and also we have very strong engagement of our sales teams with the customers in this space. Joshua Waldman: Did you see strength in the tanks and weighing side as well? Or was it more on the consumable side here in the third quarter? Patrick Kaltenbach: Yes, we saw it in both. I mean, probably more on -- a bit more on the bioprocessing sensor side, but also, again, really good customer engagement and also are building momentum on the tanks going, et cetera. As these customers will build out their manufacturing capacities or do green home shoring, again, they will look at us to help them to put in the newest and most effective solutions. Joshua Waldman: Got it. Okay. And then as a follow-up, I was curious if you could talk through what you're seeing on the service side, maybe how service performed versus expectations, your thoughts going into '26. And then if there's been any update on attach rates or change in strategy to drive better attach rates would be helpful. Patrick Kaltenbach: Good. Yes, actually, we are very happy with the 8% service growth that we have seen in the quarter, including about -- that includes about 1% through the acquisitions we made. Service is really strong. We have also a great growth initiative in the company to build out not only our service portfolio, but also the coverage in the markets. We continue to target mid- to high single-digit growth in both 2025 and 2026. And we are really confident that the long-term growth will be above the company average for services. And that's actually, again, a segment that will -- that I'm also putting a lot of energy as a CEO, help making sure that we really capture the full opportunity out there. And we have great programs in place, and I'm looking forward to continued growth there. Operator: And your next question comes from the line of Catherine Schulte with Baird. Joshua Montpas: This is Josh on for Catherine. I just wanted to unpack a little bit. Have you seen any change in sentiment from pharma customers since some of these MFM deals? I'm just wondering what those have kind of looked like since some of these announcements have been rolling out. Patrick Kaltenbach: I'll take this question. Look, I think that the most favored nation discussion has been out there. I think it probably created some initial uncertainty of what that means. But overall, the Pharma segment performed for us really well. I think the customers are really now looking forward how they address the reshoring, home shoring opportunities for them, also what they have -- the commitments they have made to U.S. government, and they also see the underlying demand for biopharmaceuticals and others. I think the uncertainty, there's still some uncertainty there, but it's not around the most favorite topics, at least when we talk to our customers, that is not the first topic that comes up. They are really looking forward to optimize their processes to drive efficiencies and also as they continue to expand their manufacturing sites that they can work with us on implementing the best efficient and most profitable solutions for them. Joshua Montpas: Great. And then you talked through the replacement cycle opportunity here maybe starting to ramp up a little bit. Just wondering if any of this is baked in the 2026 guidance? And how should we think about the impact here longer term? Patrick Kaltenbach: Yes. Well, look, I mean, I would have to give you a glass wall to really see what's going to happen. What we do know is that we have 2 years of a little bit subdued replacement business. We also see our installed base aging a bit more, but I cannot really tell you when the customers are ready to pull the trigger and replace the equipment. I think it's upside potential, but we have not factored that fully into our 2026 guidance. Operator: And your next question comes from the line of Casey Woodring with JPMorgan. Casey Woodring: Maybe the first one, you mentioned that you were in China recently. Just what's the latest there on the ground in terms of potential stimulus and what that could mean for 2026? Shawn Vadala: Yes. Casey, maybe I'll take that one. So we had a really great visit with the Chinese colleagues. As you can imagine, it's a pretty dynamic environment, but what's interesting is to see how the pace of change there and just -- and our teams like their effectiveness in terms of like really being agile in the marketplace really stood out to us. It's a very fast-moving market, and it's really exciting to see how, like I said, agile our teams in terms are identifying and pursuing those opportunities. In terms of stimulus, as we've kind of talked about in the past, it's not so much of a topic for us. I mean, yes, there's maybe a little bit of benefit. Our teams do go after that. But if you just think about the nature of our portfolio and our customers in China, it doesn't lend itself as much to the current program for stimulus. Now when we start talking about broader programs about fiscal stimulus with bigger packages, we've benefited a lot from those in the past, but the current program is a little bit more isolated in terms of opportunity. Casey Woodring: Got it. That's helpful. And then maybe if you could just unpack the product inspection performance, that 7% growth number in the quarter. I understand the comp dynamic you mentioned earlier. But in the past, you've talked about the sort of strategy shift towards focusing on the midrange market there that's really driving growth. So just curious if that's a tailwind that you're assuming extends into 2026 and the sustainability there. Shawn Vadala: Yes. I mean, like I said earlier, we feel very good about the performance here. We feel really good about the portfolio. We have come out with new products over the last few years. And the nice thing is that the cadence of product introductions will continue, and we'll start -- we'll continue to see some nice things coming out over the course of next year as well to help. And I feel like that's what gives us a little bit of confidence in our ability to sustain here. Now it's, of course, against a more challenging backdrop, but we do have good momentum. And I think there's even some synergy opportunities with some of these acquisitions as well. One of them, in particular, has like some additional services that we didn't provide in the past and that we feel like is an opportunity that we can leverage. Operator: There's no further questions at this time. I will now turn the call back over to Adam for closing remarks. Adam? Adam Uhlman: Okay. Great. Thanks, Mark, and thanks, everybody, for joining our call today. If you have any follow-up questions, feel free to reach out to me. I hope you all have a great weekend, and we'll talk to you soon. Thank you. Operator: That concludes today's call. You may now disconnect.
Operator: Thank you for holding, and welcome to Alliant Energy's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Today's conference call is being recorded. I would now like to turn the call over to your host, Susan Gille, Investor Relations Manager at Alliant Energy. Please go ahead. Susan Gille: Good morning. I would like to thank all of you on the call and the webcast for joining us today. We appreciate your participation. With me here today are Lisa Barton, President and CEO; and Robert Durian, Executive Vice President and CFO. Following prepared remarks by Lisa and Robert, we will have time to take questions from the investment community. We issued a news release last night announcing Alliant Energy's third quarter and year-to-date financial results. We narrowed our 2025 earnings guidance range, provided 2026 earnings and dividend guidance and provided our updated capital expenditure and financing plans through 2029. This release as well as the earnings presentation will be referenced during today's call and are available on the Investor page of our website at www.alliantenergy.com. Before we begin, I need to remind you that the remarks we make on this call and our answers to your questions include forward-looking statements. These forward-looking statements are subject to risks that could cause actual results to be materially different. Those risks include, among others, matters discussed in Alliant Energy's news release issued last night and in our filings with the Securities and Exchange Commission. We disclaim any obligation to update these forward-looking statements. In addition, this presentation contains references to ongoing earnings per share, which is a non-GAAP financial measure. References to ongoing earnings include material charges or income that are not normally associated with ongoing operations. The reconciliation between ongoing and GAAP measures is provided in the earnings release, which is available on our website. At this point, I'll turn the call over to Lisa. Lisa Barton: Thank you, Sue. Good morning, everyone, and thank you for joining our third quarter earnings call. Today, we're pleased to share our Q3 and year-to-date results, another quarter and year where we delivered solid financial and operational performance. We will also share the outlook for the remainder of this year, update you on our strategic initiatives, including our capital expenditures, financing plans through 2029 and discuss how we're positioned to accelerate and extend our earnings expectations. We are well positioned because of the Alliant Energy Advantage and the realization of additional near-term low growth opportunities from data centers. We are continuing our consistent track record of execution and financial performance. Our performance is driven by our customer-focused investments and supportive regulatory environments, a winning strategy for driving continued growth, while prioritizing affordability and reliable service. Our focus on customers and building stronger communities is at the heart of everything we do. With our compelling large load opportunities and diverse capital investment plans, we are well positioned to continue meeting customer, community and investor expectations. We will cover each of these advantages today, as shown on Slide 3, as they power Alliant's future. To start, I am pleased to share updates for the quarter. Our projected peak demand growth by 2030 has increased to an industry-leading 50% through the execution of a fourth electric service agreement with QTS Madison. We signed a new agreement with Google that further accelerates the load ramp in Cedar Rapids, and we continue to cultivate an active pipeline of additional opportunities. Our focus has been on prioritizing plug-in-ready sites, which minimize transmission investments and accelerates our ability to serve new customers. As a result, we can deliver project certainty, near-term earnings and near-term positive community and customer benefits. Concurrently, we continue to execute well against our capital plans. We completed construction of the Grant and Wood County energy storage projects totaling 175 megawatts and completed the Neenah and Sheboygan Falls Unit 1 advanced gas path projects, which increases the efficiency and capability of each of these Wisconsin facilities. These load growth opportunities and continued investments in our existing generation show how we're continuing to efficiently grow at the pace of our customers to foster economic developments across our service territory. Next, our financial highlights. We delivered strong performance through the first 3 quarters. We are maintaining our midpoint and narrowing our 2025 ongoing earnings guidance range to $3.17 to $3.23 per share, as shown on Slide 5, and we are trending towards the upper half of this range. As shown on Slide 6, we are initiating 2026 earnings guidance of $3.36 to $3.46 per share, which represents a 6.6% increase over our 2025 midpoint. Our 2026 annual common stock dividend target is $2.14 per share, a 5.4% increase from the 2025 target of $2.03 per share. And we're increasing our 4-year capital expenditure plan by 17% to $13.4 billion. This translates to a projected rate base and investment compound annual growth rate of 12% from 2025 to 2029. We expect our compound annual growth rate across 2027 to 2029 to be 7% plus. This is based on the planned growth in rate base and the expected data center revenues during that period. We will continue to assess our long-term earnings growth potential as we execute on our data center expansion and load growth plans. As shown on Slide 9, construction is well underway on 3 of the 4 data centers under agreement, 2 in Cedar Rapids, Iowa and 1 in Beaver Dam, Wisconsin. This progress clearly demonstrates that we are focused on meaningful near-term opportunities, each of which serves to unlock the potential of our customers and communities. The contracted demand from the 4 facilities totals 3 gigawatts, translating to 50% peak demand growth by 2030. Accordingly, we've updated our 4-year capital plan, and we will invest $9 billion in both new and existing generation, complementing investments we are making in electric gas and technology enhancements. Looking beyond the plan, we have a solid outlook of investment opportunities that extend our growth potential. Investment upside would be driven by additional load growth beyond what is included in the base plan. We are focused on enabling real near-term growth, attracting high-impact projects to accelerate economic development as part of our commitment to Iowa and Wisconsin, and providing investors with a clear view of well-developed opportunities. As we continue to expand our pipeline, we remain committed to proactive community and stakeholder engagement, positioning Alliant Energy and the communities we serve for growth. Advancing win-win outcomes that maintain affordable service for customers and communities ensures Alliant continues to deliver value while unlocking the potential of our customers and communities. To share a few examples of win-win outcomes. First, the Iowa retail construct stabilizes electric base rates for customers through the end of the decade, serving as a perfect example of a win for our existing customers through stable rates. Second, we executed an agreement to enable fiber connectivity to one of our data center customers by leasing our underground conduit in our service territories, which provides substantial financial benefits to our existing customers. And third, last week, QTS advanced its Wisconsin data center plans with meaningful community contributions, full funding of all infrastructure and the purchase of renewable energy credits from new projects, reducing costs and creating value for all WPL customers. Support from our regulators has been key to moving our plans forward. The Iowa Utilities Commission approved the individual customer rates for our 2 data centers currently under construction in Cedar Rapids. Through these filings, we've demonstrated that our approach effectively protects existing customers, while allowing them to benefit from additional growth. And yesterday, the Public Service Commission of Wisconsin approved our unanimous retail electric and gas rate review settlement for forward test periods 2026 and 2027. This rate review cost effectively advances responsible energy solutions, strengthens the safety and resilience of our energy network and expands options available to customers. Our strategy is rooted in being a trusted partner in delivering outcomes, customers and regulators seek with a strong focus on customer value and forward-looking investments. We are well positioned to provide competitive rates for both new and existing customers over the long-term as a result of our economic development success and our continued focus on cost controls. The Alliant Energy Advantage is an acute focus on driving near-term growth, making smart investments to serve that growth while keeping bills low and benefiting new and existing customers. In short, being plug-and-ready enables stronger alignment between our revenue growth and capital investments. I will now turn the call over to Robert to provide our financial results, earnings and dividend guidance, financing plans and an update on our regulatory matters. Robert Durian: Thank you, Lisa. Good morning, everyone. Yesterday, we announced third quarter and year-to-date ongoing earnings. With third quarter ongoing earnings of $1.12 per share, we have realized over 80% of the midpoint of our 2025 earnings guidance. As shown on Slide 5, our ongoing earnings change year-over-year was primarily due to higher revenue requirements from capital investments at our Iowa and Wisconsin utilities and the positive impacts of temperatures on electric and gas sales. These positive drivers were partially offset by higher operations and maintenance expenses, driven by increased generation costs from planned maintenance activities and the addition of new energy resources as well as higher generation development costs to support long-term growth. Additionally, higher depreciation and financing expenses contributed to earnings fluctuations. Through September of this year, net temperatures positively impacted electric and gas margins by approximately $0.02 per share. In comparison, net temperatures negatively impacted electric and gas margins for the first 3 quarters of 2024 by $0.10 per share. Margins from our temperature-normalized electric sales have also been better than planned with higher-than-expected sales to commercial and industrial customers in both states. Electric margin comparisons to last year have experienced timing differences through the first 3 quarters of this year as a result of the new rates implemented in Iowa in the fourth quarter of 2024. The new seasonal rates are flatter, resulting in a less pronounced increase in summer rates, which has distributed earnings more evenly throughout 2025, resulting in quarterly timing differences from last year's margins, but no material impact on full year results. Turning to our full year 2025 earnings forecast. As a result of our solid earnings through September and our projected fourth quarter results, assuming normal weather, we have narrowed our 2025 earnings guidance and are trending within the upper half of the $3.17 per share to $3.23 per share updated range. As Lisa mentioned, we also announced our projected 2026 earnings guidance range and dividend target. We are expecting to continue delivering an attractive total return to our investors through a combination of earnings growth and dividend yield. The 2026 earnings growth represents a 6.6% increase from our 2025 guidance midpoint, which is higher than our typical 6% forecasted growth. And our 2026 annual common stock dividend target is $2.14 per share, a 5.4% increase from 2025. We are moderating the pace of expected dividend growth to efficiently fund our increased capital expenditure plan. We will continue to target a dividend payout range of 60% to 70%, but expect to be in the lower end of the range during the period of our plan with higher investment opportunities. As shown on Slides 11 and 12, we have updated the capital expenditure plan, which strengthens the diversity of our resources. We are investing in natural gas generation and energy storage projects to meet the capacity requirements of our growing customer demand. We are also making improvements in our existing fleet to enhance the capacity and energy output of those resources. And we continue to invest in our renewable portfolio by adding new wind and repowering existing wind sites. We have proactively safe harbored our energy storage and wind projects in our plan in order to preserve tax benefits for our customers, making these projects more cost effective, providing lower fuel costs and delivering greater affordability for our customers. With our refreshed investment plan, we now have a compounded annual growth rate of 12% for rate base plus construction work in progress, reinforcing our confidence in meeting our long-term growth objectives. Moving to our financing plans. In the third quarter, we successfully refinanced $300 million of debt issuances at IPO and issued $725 million of our first junior subordinated notes at our parent company. We plan to use the proceeds from the junior subordinated note issuance to retire maturing debt in March 2026. The equity content of this debt issuance is expected to assist us in maintaining cushion in our FFO to debt metrics to retain our current credit rating. As we look to future financings and with the increase in our capital expenditure plan, we provided an updated financing plan through 2029 on Slide 13. Of note, our capital expenditures will primarily be financed with a combination of cash from operations, including proceeds expected from the continuation of our tax credit monetization and new debt, hybrid and common equity issuances to maintain authorized regulatory capital structures and a desired consolidated capital structure of approximately 40% to 45% after factoring in the equity component of hybrid instruments. We have significant growth opportunities. The $2.4 billion of new common equity included in our current financing plan for 2026 through 2029 will primarily be used to invest in the resources needed to supply our customers' growing energy needs. We believe the equity is manageable over the 4-year planning period and are anticipating settling the planned equity issuances ratably over that period of time. We plan to continue derisking our planned equity issuances on a forward basis, utilizing the ATM, while also being opportunistic with favorable market conditions. Of the $2.4 billion of new common equity, we have raised our planned 2026 amounts already through forward agreements. And therefore, we have only $1.6 billion of remaining equity to be raised over the next 4 years, excluding equity expected to be raised under our Shareowner Direct Plan. As shown on Slide 14, our 2026 debt financing plans include up to $1.1 billion of long-term debt issuances, including up to $300 million at Alliant Energy Finance or parent, up to $300 million at WPL and up to $500 million at IPL. Finally, I'll update you on our regulatory initiatives included on Slide 16 and 17 as well as those filings planned for the future. In Wisconsin, we have 4 active dockets currently in progress, 3 of which involve requests for preapproval of customer-focused investments. First, a request for investments to refurbish the Forward wind farm, targeting additional production tax credits from the project for the benefit of our customers. Second, a request for investments in a liquefied natural gas storage facility, our first ever, to add firm natural gas capacity. This will ensure we can reliably meet current and anticipated gas supply needs, while maintaining an adequate reserve margin during Wisconsin's coldest winter days. And third, a request for investments to expand the Bent Tree Wind Farm, adding over 150 megawatts of new wind to provide more 0 fuel cost energy and additional tax benefits for our customers. We are also awaiting the PSCW's decision on the individual customer rate filing for our Beaver Dam data center. In Iowa, we have 3 active dockets in progress. We have requested advanced remaking principles for up to 1-gigawatt of wind, which has the potential for customers to avoid significant fuel costs, while investing in cost-effective and responsible energy resources. And we requested 2 certificates of public convenience, use and necessity, one for 720 megawatts of natural gas-fired simple cycle combustion turbines, which will be located in Marshall County, Iowa; and a second for a 94-megawatt natural gas RICE unit in Burlington, Iowa. We expect decisions from the Public Service Commission of Wisconsin and the Iowa Utilities Commission on these dockets in 2026. Turning to our planned regulatory filings in the future. We expect to file our individual customer rate tariff for QTS Madison later this month. And in conjunction with our updated capital expenditure plan, we also expect to make future regulatory filings in both Iowa and Wisconsin for additional renewables and dispatchable resources to enhance reliability, continue to diversify our energy resources and meet growing customer energy needs. I'll now turn the call back over to Lisa to provide closing remarks. Lisa Barton: Thank you, Robert. In conclusion, we're excited about our year-to-date performance and the growth opportunities in front of us at Alliant Energy. What sets us apart? Unlocking the potential of our customers and communities is at the center of our strategy. By pursuing win-win solutions and focusing on near-term opportunities, we're driving affordability, fueling growth and creating lasting shareholder value. Thank you for your continued support. We look forward to speaking with many of you at the EEI Financial Conference and plan to post updated materials on our website later today. At this time, I'll turn the call back over to the operator to facilitate the question-and-answer session. Operator: [Operator Instructions] Your first question comes from Bill Appicelli with UBS. William Appicelli: Just a question around -- the color, if you could provide on the ramp on the demand, right, around what that could mean for the trajectory of earnings above that 7% as the load starts to come on to the system? Lisa Barton: Yes. Great question. So the way to think about the 7-plus is that it would be at least 7% to 8%, and this is before upside to the plan. And as a reminder, this is all known projects and so forth. One of the things to keep in mind in terms of that time frame, and we've talked about this being our desire to create cascading ways of growth. And as such, timing is important. So there's some lumpiness. When you think about the 50% load growth, that's really significant. So timing is something that we'll certainly be watching on a going-forward basis. William Appicelli: Okay. So the 12% rate base growth. So when we just think about backing off of that, it's really the equity dilution. Is there anything else to think about when you walk that back to earnings growth? Robert Durian: Yes. Great question, Bill. I think of the 12% is a combination of both rate base growth plus QIP growth. So roughly about 10% rate base growth, but also about 2% of QIP growth over that time period. Given the volume of capital expenditures we've got in our plan, the QIP balances are going to increase pretty significantly. But to your specific question as far as the walk between the 12%, the combination of those 2 and what we're signaling here for at least 7% to 8%, most of that is related to the equity dilution. We've also got what I would characterize as a conservative set of financial assumptions when it comes to interest rates. And then there might be what I would characterize some small regulatory lag, but it's pretty modest. So it's primarily the equity dilution and just kind of probably more our conservative nature with some of the interest rate assumptions. William Appicelli: Okay. And then just one follow-up there. Specific to Iowa because of the uniqueness of that regulatory framework. I mean, what are the assumptions here in terms of earned returns? Is it just at your authorized across the plan? There is some optionality for you to the upside to retain some of those benefits if you can outperform, right? Robert Durian: That is correct, Bill. Yes, think of the State of Iowa right now, we've got the electric side of the business that does have a new regulatory construct that was put into effect last year that does provide us a lot of certainty of our ability to be able to earn our authorized return and does have some upside opportunity for us. If we go beyond our authorized return, we share those benefits with our customers. Right now, we've just assumed that we're going to earn our authorized return. And then on the gas side, it doesn't have that similar construct. We will have to go in for future rate cases to be able to minimize the regulatory lag there, and we'll time those based on future capital projects to ensure that we can get as close as possible to earning that authorized return. Operator: The next question comes from Nicholas Campanella with Barclays. Nicholas Campanella: Maybe just your kind of calling out that it seems that this 7-plus is pretty conservative. You're in active negotiations for the 2 to 4 gigawatts of additional load. Can you just give a little bit more color on what stages of those incremental opportunities are, and what your line of sight is to maybe have another kind of signed load contract in 2026? Lisa Barton: Yes. No, great question. So yes, I'm going to go back to last year. When we talked at EEI last year, we announced a gigawatt, Q1, 2.1 gigawatts. And today, we're at 3 gigawatts. We have been very focused on making sure that there are near-term opportunities that they are less transmission dependent. And we're also having a very high bar in terms of what we're sharing with you all. So these are ones that we are in active negotiations on. These are ones where we have our transmission interconnection studies done and so forth. And so this is something to very closely watch over the next 12 months and some of which, of course, will be sooner. We will -- we are committed as we have in the past to continuing to give you a very clear line of sight and to avoid speculation on all of these. Nicholas Campanella: And then just so I'm kind of understanding it correctly, that would then kind of put this growth rate above 8%. Is that the right way to think about it? Lisa Barton: It would be above that, yes, above that 5% to 7% that we talked about. So this is all great upside to our plan. Nicholas Campanella: Maybe I could also just ask, thank you so much for the financing commentary. What is your FFO to debt going to be at the end of '25? Where do you kind of see it through '26? And then also just you have $300 million of tax credits through '26. Does that continue at that level through 2030? And just understanding if you have to eventually replace that cash flow down the line? Robert Durian: Great question, Nick. So yes, if you think about our FFO to debt metrics, throughout the planning period, we're really targeting to try and have roughly about 50 to 100 basis points of cushion. And really, that's going to let us further grow into the plan. When you think about the 2 to 4 gigawatts that Lisa indicated, we want to make sure we've got strong balance sheets to be able to grow into that at even higher levels than we've got kind of currently indicated with the 7% to 8% plus. So -- and as we think about the tax credits, there's roughly about, I want to say, $1.5 billion, $1.6 billion in the plan over the next 4 years. We've had a lot of strong interest from counterparties to be able to buy those credits and have a lot of confidence in being able to execute those as far as generating the credits and then turning those into cash. And so I feel really good about the plan with all of those aspects. Nicholas Campanella: One more, if I could. Just the 12% load growth CAGR is large. And I understand the timing of how you get above this 7% plus could also be related to just the load ramping. So just what's the starting point that's embedded in '26, so we have a base to work off of? Robert Durian: It's actually pretty modest in 2026. We do start to see some of the data centers taking more what we call production load instead of construction load in the second half, mainly in the fourth quarter of 2026. And you'll see that continue to ramp through 2020 -- sorry, 2030 is when we expect to be at that full level of the 3 gigawatts of max contract demand that we have in our plan right now. Nicholas Campanella: All right. Looking forward to seeing you guys soon. Operator: The next question comes from Julien Dumoulin with Jefferies. Julien Dumoulin-Smith: Just a follow-up on the 2 to 4 gigs in the pipeline here. Previously, you've identified something like 1.5 gigawatts of mature opportunities with a high probability of conversion, maybe 85%. Taking out QTS Madison, there's something like 600 to 800 megawatts theoretically still in that bucket, perhaps more. But how would you characterize the probability of conversion over time for the remaining 3 to 3.5 gigs there? And then -- and maybe how fragmented is this pipeline? Is the demand dispersed across Iowa and Wisconsin evenly? Just any commentary you have there. Lisa Barton: Yes, I appreciate that. So everything that we had in the 1.5 that I'll call it the blue zone from previous decks means still an incredibly high level of confidence in that. Quite frankly, we've got a high level of confidence in all of this. And think about -- this is how I think about it. You look at Iowa. We serve 75% of the communities in Iowa. We serve 40% of the communities in Wisconsin. If you're a data center, what do you need? You need fiber, you need land, you need transmission, you need a utility that's willing to work with you and that is well positioned to be able to deliver on its commitments. And that's where I think when you think about the Alliant Energy Advantage where we hit it out of the park, we are in rural Iowa and rural Wisconsin, surrounded by transmission. We've been focusing these data centers and continue to focus this 2 to 4 gigawatts on those locations where they don't have to wait for a 100-mile transmission line or anything else. We're really trying to make sure that we can bring this load in sooner and faster. So that gives us a lot of confidence in being able to price appropriately and why we're just so excited about our ability to unlock the potential of our customers and communities. And not only that, we're in MISO. And MISO is acutely focused on making sure it's got robust transmission planning, that it's got an interconnection process, both for new generation as well as for loads that allows us to grow at this very active pace. Last thing I'll mention is we've got really constructive states between Wisconsin and Iowa. Right now, it's -- Iowa is very well positioned. As is Wisconsin, I think you'll see more of the data centers gravitating a little bit more towards Iowa, and that's just simply because we've got a lot of sites there. Remember, we've invested heavily over the years in land, and we've been able to have that as an attractive source for folks. But we're confident in the fact that in both jurisdictions, the significance of this load growth is really going to be driving affordability for all customers. And I think that, that's another key differentiator for us. And that allows us to be very well positioned from a regulatory standpoint. Regulators, as we mentioned earlier in my comments, are at the key -- they're just a key gating item for the entire sector. And our performance here that you've seen with the approvals of the ICRs and the approvals that you're seeing with the generation projects and the approval of the rate settlement, the unanimous rate settlement, it really just tells you that we've got the wind at our back when it comes to making sure that we're aligned with what our regulators care about. That's what you have to solve for in this space. Julien Dumoulin-Smith: Yes, absolutely. No, I mean, given your execution thus far and kind of the plan you've set out here, that 8% plus after 2027, it seems reasonably achievable here. I kind of want to follow-up on that specifically, just as you mentioned in the slides that you have, as you integrate more load and growth into the plan, you could reassess guidance looking forward. Your current look-forward period, it coincides sort of with the end of the stay out in Iowa or there could be some uncertainty to the timing kind of as to whether you'd like to file then or how you'd like to approach the construct. But how should we think about rate case timing here? The way you're going to look at the outer years of your plans, the growth rates you're willing to commit to, knowing that you have that regulatory further out, you might have regulatory uncertainty in the forward period. Just kind of going -- bringing that together with the idea that you've got this really visible above-average growth plan that you could potentially attain with upside here. How should we think about all these factors in the outer years? Lisa Barton: So let's start with Wisconsin. Wisconsin, we've got forward-looking test years every 2 years. That positions us very well to have that clean line of sight on what we need from a generation investment standpoint, really ensuring that we're able to minimize lag. As you recall, in Iowa, we did not have that. And the introduction of the individual customer rate in combination with the structure that we have really allows us to make sure we're able to earn our authorized every year and be able to grow at the pace of our customers. So in terms of how we're thinking of that over the period, I'm just going to point back to how successful MidAm has been. And over the past 10 years, they have not gone in for a rate review because of this construct. So that is why we are doubling down on our focus on making sure that we're unlocking the potential of our customers and communities. Rural Iowa, which is what we serve at 75%, they want to grow. They want data centers. They want to grow. This allows the property base to go up as well as driving costs down for customers. So we're going to continue to focus on that. Ideally, we wouldn't have to go in for another rate review. So I don't know, Robert, any additional commentary you'd like to provide? Robert Durian: Yes, we feel confident about the future of the plan. We only went through 2029 just because that's our standard process of just adding another year to the previous year, but don't read into that, that we have any concerns about beyond 2029. With all the growth that we see in front of us, we've got a really strong plan and feel like that's going to go well beyond 2029. Julien Dumoulin-Smith: Understood. So with the certainty you kind of have here in the construct, are you confident that there's a possibility here post '27 into the '28 time frame, you could be considering an 8% plus EPS guide? Is there further upside to the upside you've said here? Lisa Barton: You really want to look at what's coming online from a data center standpoint. Everything is timing related. If we can get data centers to be coming online sooner, that's certainly good. We have transmission investments that both ATC and ITC are making. They're relatively minimal in the scheme of things, but a lot of that is going to be associated with timing. And I think a really good indicator is what we announced with Google. And Google is working with us to accelerate that load ramp. So those are all the kinds of things to be watching for. And as we mentioned earlier, we're going to be very transparent. We're not going to throw a bunch of speculation at you. We're going to give you that clean line of sight. So that should -- I'm hoping that will be very helpful to you all. Operator: The next question comes from Aditya Gandhi with Wolfe Research. Aditya Gandhi: Just on your 7% to 8% plus commentary, what should we think of as the base for that 7% to 8%? Is that the midpoint of 2026 guidance for now? Is that a good way to think about it? Lisa Barton: It is. Aditya Gandhi: Okay. Great. And then on the 2 to 4 gigawatts of negotiations that you're having, can you give some more color on whether these are expansions of existing facilities or customers you've contracted with? Or are they new customers? And then just how should we think about the cadence of updates going forward? Will you just update your plan in Q3 next year? Or could we see an update potentially before that like you did in Q1 of this year? Robert Durian: Yes. I would think of the 2 to 4 gigawatts is a combination of expansions of existing sites as well as, as Lisa indicated, we have a lot of additional sites across our service territory that have transmission capabilities, land availability that we think are going to be great spots for new data centers. So it's a combination of those 2. When I think about the counterparties to these, these are all very high-quality hyperscalers or colocators. And so that's what really gives us a lot of confidence in being able to get these to the finish line because we know they're motivated customers with a lot of financial wherewithal to be able to kind of get us to the finish line on these. And as far as the timing goes, I would say in the next 12 months, we'll probably have a lot more clarity within the 2 to 4 gigawatts. And as Lisa indicated, every quarter, we'll give updates as far as the status of those. And if we make progress within the next 3 to 6 months, we'll obviously share with you information on the quarterly call. Aditya Gandhi: Great. And just one more, if I may. Could you give us some more color on sort of the agreement that you signed with Google to accelerate the load ramp there? Can you just remind us what the load ramp looked like earlier and what it's looking like right now as you're trying to accelerate it? Robert Durian: Yes. I think of that as of the 3 gigawatts, it's about 300 megawatts in total. And yes, they were interested in just going faster. I'll go back to my earlier comments. You'll see some of that starting to come in, in the second half of 2026, and then just going to ramp quicker than we originally anticipated. So you'll see more load in '27 and '28 than we originally expected. But that's built into our base model right now and included in the plan. Aditya Gandhi: Understood. Lisa Barton: 3 of the 4 projects are under active construction. So it's an amazing thing to watch how quickly these folks grow. Operator: Ms. Gille, there are no further questions at this time. Susan Gille: No more questions. This concludes our call. A replay will be available on our investor website. We thank you for your continued support of Alliant Energy, and feel free to contact me with any follow-up questions. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: [Interpreted] Good morning and good evening. Thank you all for joining this conference call. And now we will begin the conference of the third quarter of fiscal year 2025 earnings results by KT. We would like to have welcoming remarks from KT IRO, and then CFO will present earnings results and entertain your questions. [Operator Instructions] Now we would like to turn the conference over to KT IRO. Jaegil Choi: [Interpreted] Good afternoon. This is Choi Jaegil, KT's IRO. We will begin the third quarter 2025 earnings presentation. Please be reminded that today's presentation includes K-IFRS-based financial estimates and operating results, which have not yet been reviewed by an outside auditor. We, therefore, cannot ensure accuracy nor completeness of financial and business data, aside from the historical actuals. So please note that these figures may be subject to change in the future. With that said, let me now invite our CFO, Jang Min, to discuss KT's Q3 2025 earnings. Min Jang: [Interpreted] Good afternoon. This is Jang Min, KT's CFO. Before going into the earnings for Q3 2025, I would like to extend my sincere apologies to our customers and investors for the unauthorized micro payments and infringement incident perpetrated through the illegal base station connection. KT is currently implementing a comprehensive plan to compensate customers affected by such unauthorized micro payments and personal information breach. Starting November 5, KT is replacing used SIM free of charge for all of its customers. Going forward, KT will do its utmost to put in place technical and system-based guardrails to protect customers, and to ensure that such incidents are prevented through preemptive and far-reaching security measures. On November 4, we officially began the process for CEO nomination. KT's Director Candidate Nomination Committee, comprising of all of the independent auditors, will select a pool of candidates from various different channels to recommend one candidate to the Board of Directors before the end of the year. BOD will then make the final confirmation and the new CEO will be appointed at the General Meeting of Shareholders. Now I will move on to KT's third quarter earnings for 2025. Based on our telco business and continuing growth of group's core portfolio, as well as real estate profit gained from Gwangjin District development, KT sustained growth in revenue and operating profit this quarter. We are also collaborating with global big tech companies to launch specific services, and have secured a solid footing for AX business execution by opening KT Innovation Hub, placing momentum behind the transformation towards an AICT company. We released consecutively our proprietary model, Mi:dm2.0, SOTA K, which is a model developed in collaboration with Microsoft, as well as Llama K, based on Meta's open source technology, introducing AI LLM lineup catering to Korean requirements. Under the AI multimodal strategy, we will expand AI-driven usage base across various verticals including media press, education, public and financial domains. In October, we opened KT Innovation Hub under strategic partnership with Microsoft, where we can hold exhibitions on AX and AI experience and provide industry-specific consulting services. AI experts of both companies, together with our clients, will be working together in the hub to explore new AX business opportunities. Third quarter dividend is KRW 600 per share as we maintained 20% higher dividend payout year-over-year as was the case in Q1 and Q2. Corporate value enhancement plan also is ongoing as planned. We had concrete results in securing capacity required for structural transformation into becoming an ICT company, with SOTA K launch being one of such endeavors. We continue to work on streamlining assets and driving profitability enhancements through rationalizing low-margin businesses and liquidation of noncore assets. As part of the value enhancement plan, we also completed KRW 250 billion share buyback on 13th of August. Next on financial performance for Q3 of '25. Operating revenue was up 7.1% year-over-year, reporting KRW 7.1267 trillion and sustained growth from core businesses, including telecom, real estate, cloud and data center and profitability improvement efforts as well as onetime real estate sales gains. Operating profit was up 16% Y-o-Y, reporting KRW 538.2 billion. Net income was up 16.2% Y-o-Y, recording KRW 445.3 billion, driven by increase in operating profit. EBITDA increased 5.2% Y-o-Y, reaching KRW 1.5039 trillion. Next page, I will walk through the operating expense items. Operating expense increased 6.4% year-on-year to KRW 6.5886 trillion, an increase in cost of goods sold, cost of services and selling expense. Next is the financial position of the company. Debt-to-equity ratio at end of September 2025 was 123.3%, while our net debt ratio went up 4.2 percentage points year-over-year, reaching 34.5%. Next, on CapEx. Total CapEx up to the third quarter of '25 of KT and its main subsidiaries accounted for KRW 1.9637 trillion. KT's separate basis CapEx was KRW 1.3295 trillion, while major subsidiaries spent KRW 634.2 billion. Next, performance breakdown by business. Wireless revenue was up 4% year-on-year, reaching KRW 1.8096 trillion. Subscriber base expansion around 5G drove the top line growth, with 5G penetration as of third quarter end reaching 80.7%. Next is fixed-line business. Broadband internet revenue increased 2.3% year-on-year to KRW 636.7 billion on the back of GiGA Internet subscriber growth and value-added services. Backed by higher IPTV subscriber net addition and sale of premium plans, media business posted growth of 3.1% year-over-year. Home telephony revenue fell 6.6% year-over-year to KRW 160.9 billion. Next is B2B business. B2B service revenue reported 0.7% year-over-year growth on the back of enterprise messaging, corporate broadband and network-based business growth, despite streamlining of low-margin businesses. For the AI and IT business, revenue came down 5.7% year-over-year due to structural enhancement work done on certain businesses in line with our selective focus strategy, notwithstanding AICC project wins from large customers and ongoing monetization. Next is performance of major subsidiaries. Revenue from content subsidiaries dipped 1.8% year-over-year due to less number of original title production. KT cloud revenue was up 20.3% year-on-year, following higher data center usage by global clients and AI cloud demand growth. KT Estate revenue was up 23.9% year-on-year to KRW 186.9 billion, backed by good performance from hotel business and new development projects. This ends report on KT's third quarter earnings results. Once again, I would like to extend my sincere apology for causing concern over unauthorized micro payments and the infringement incident. KT will cooperate with the government's investigation process and exert our utmost effort in ensuring network security and stronger customer protection. Also, we will bring true AI CT transformation. And by successfully implementing corporate value enhancement plan, we'll endeavor to drive stepwise upgrade in KT's corporate value. Once again, thank you to our investors and analysts for your continued interest and support. Jaegil Choi: [Interpreted] For more information, please refer to the document and materials that we had previously circulated. We will now begin the Q&A session. To give as much opportunity as possible, I would like to ask that you limit your questions to 2 per person. Operator: [Interpreted] [Operator Instructions] The first question will be provided by Hoi Jae Kim from Daishin Securities. H.J. Kim: [Interpreted] I'm Kim Hoi Jae from Daishin Securities. You were able to record good financial performance up until the third quarter. I know that for the fourth quarter, usually there is a seasonality expense-related impact, so it will be hard to make that projection. But still I would like to get some color as to what your projection is going forward for the fourth quarter. And you've decided to pay out dividend per share of KRW 600 up until Q3. Just wondering whether there is further upside to the dividend payment for -- when the fourth quarter comes? And also until -- so in 2025, you had decided to do a share buyback and cancellation in the amount amounting to KRW 1 trillion. Just wondering whether in 2026, you will be able to grow that size of share buyback and cancellations? Min Jang: [Interpreted] Thank you for that question. Responding to the question on Q4 outlook. As you have correctly mentioned, in the fourth quarter, there are usually seasonality issue. And also, we have to consider all the measures to compensate for customers. And also, there are certain uncertainties that currently exists relating to the fines or the penalties that we will be subject to. So at this point, we are making a quite conservative stance when it comes to making a forecast going forward, but we are putting our utmost efforts to minimize any impact or any damage to our customers and also to our financials. Now, however, because we were able to report a quite solid performance up until Q3, if we were to make projections on the full year 2025 financials, thanks to our efforts in growing our top line growth, at the same time, improving the profitability and considering that there was also a one-off gain from the NCP business, the real estate, and also due to the fact that we are able to drive our core business-centric group affiliate growth, we believe that both on a consolidated and separate basis, we could achieve a year-over-year growth. On the second question, basically, when it comes to the dividends, yes, there will be a onetime impact coming from this hacking incident, and there will be certain uncertainties in terms of its impact on the financials. However, we will be considering the annual based financial performance as well as the expectations that the shareholders have, based upon which I am most certain that our BoD will make a reasonable decision. So lastly, regarding our announcement of the plan to do the share buyback and the cancellation amounting to a total size of KRW 1 trillion, so for this year, we had already conducted the buyback and cancellation amounting to KRW 250 billion. And your question was whether for next year, can you expect about the same amount or more bigger as we go forward. I can tell you that our value up plan will continue to be implemented. And in consideration of the confidence that the market is giving us, we will make sure that either this could happen on the same size basis as it was for this year, for next year or there could be certain adjustments. We will very flexibly and nimbly respond to changes in the overall operational backdrop and deciding on the specific size. Next question, please. Operator: [Interpreted] The following question will be presented by Chan-Young Lee from Eugene Investment & Securities. Chan-Young Lee: [Interpreted] I am Lee Chan-Young from Eugene Investment & Securities. My question relates to the recent hacking incident. I would like to understand as to what the financial impact will be in line with your compensation to the customers and your subscribers, and also for the measures that you are putting in place to make sure that you prevent a recurrence of such incident going forward. And I would like to know the extent of this expense that is currently captured in Q3 numbers. And also going forward, what will be the timing or the scope of that expense? Min Jang: [Interpreted] Thank you for that question. As I've mentioned before, we have put in place a measure and a compensation plan to compensate for any harm that has been inflicted due to the unauthorized micropayment incident as well as the data breach issue. Now -- and also on November 5, we had made the announcement that we will be replacing the used SIM cards of all of the KT customers. And if and when we go through this investigation process by the government as well as the police, if additional harm is identified, then the -- eventually, the final amount of the compensation will be determined. Now in terms of the timing as well as the size of this expense, we cannot make a perfect prediction based on where we are today. However, we believe that in terms of the used SIM chip replacement, the relevant costs will be recognized under Q4 figures. There is also free data that we are planning to provide and KRW 150,000 discount on the handset tariff as well as certain other expenses. Now these expenses, when they are actually incurred, that would be the timing upon which it will be booked in our financials. Now we've also already made an announcement to the market that for the coming 5 years, that we have put in place an information security-related investment in the amount that exceeds KRW 1 trillion. We've actually communicated that plant was into the market. And looking back at our track record, we've been investing about KRW 120 billion to KRW 130 billion on a per annum basis for this security purposes. So we believe that this KRW 1 trillion, which we'll be investing in the upcoming 5 years, is not going to be overly burdensome for the company. Next question, please. Operator: [Interpreted] The following question will be presented by Eun Jung Shin from DB Securities. Eun Shin: [Interpreted] I just have one question. Your CEO appointment process has just begun. Can you just walk us through the process under which your new CEO will be appointed? And when there is a new CEO that comes into office, will there be any changes to the current value of program that the company has? Min Jang: [Interpreted] Thank you for that question. Let me walk you through our CEO appointment process. We've actually officially kick started the discussion process on appointment of the new CEO as of the November 4. And under the BoD rules, there is going to be a director candidate recommendation committee that's going to be comprised of all of our independent directors, who are 8 of them in total, and they will go through the relevant processes. So first off, we begin with the candidacy pool of the CEO, who's going to be recommended by a third party and outside entity. And also, we will go through an open call process as well and also receive recommendation from the current shareholders as well as include a candidate from the -- internally from inside the company. So the Director of Candidates Recommendation Committee will then go through the screening and vetting process based upon the documentation, and we'll also engage in interviews. And by the end of the year, the committee is going to select one CEO candidate to be tabled at the BoD. So this one candidate that is recommended by the recommendation committee is going to be tabled at the BoD, BOD making the final confirmation on that candidate, and this candidate will go through the General Meeting of Shareholders deliberation process in 2026 to be finally appointed as the CEO of the company. Lastly, your question on the consistency of the sustainability of the current value up plan that's in place. Now the company went through the BoD resolution last November and had made appropriate market disclosure. And we also went through the disclosure on the implementation progress in May as well. And so I do not think that there is a correlation between the CEO change and the changes to the value up plan. Basically, because of a new CEO, there is not -- the value up plan itself is going to be made invalid for instance, because the BoD understands the direction for the company that is deflated in the value up plan and actually, the value up plan is a commitment and promise that we make to the market. And therefore, I believe the action plans that are included in the plan itself is going to be sustained. Operator: [Interpreted] There are no questions in the queue right now. Jaegil Choi: [Interpreted] With no questions in the queue. We would now like to close the Q&A session. Thank you, everyone, for your interest and for your questions. And once again, thank you very much for joining us despite your very busy schedules. This ends KT's third quarter 2025 earnings call. Thank you. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]
Operator: Greetings. Welcome to Doman Building Materials Group Limited Third Quarter 2025 Financial Results Conference Call. [Operator Instructions] Please note that this conference is being recorded. At this time, I'll turn the conference over to Ali Mahdavi. Please go ahead, Ali. Ali Mahdavi: [Operator Instructions] joining us this morning for Doman Building Materials Third Quarter 2025 Financial Results Conference Call. Joining us today on today's call are the company's Chairman and Chief Executive Officer, Amar Doman; and Chief Financial Officer, James Code. If you have not seen the news release, which was issued after the close of markets yesterday, it is available on the company's website as well as on SEDAR along with our MD&A and financial statements. I would also like to remind you that a replay of this call will be accessible until midnight, November 21. Following the presentation of the third quarter results, we will conduct a Q&A session for analysts only. Instructions will be provided at that time for you to join the queue for questions. Before we begin, we are required to provide the following statements regarding forward-looking information, which is made on behalf of Doman Building Materials Group Limited and all of its representatives on this call. Remarks and answers to your questions today may contain forward-looking information about future events or the company's future performance. This information is subject to risks and uncertainties that may cause actual events or results to differ materially. Any information regarding forward-looking statements is made as of the date of this call, and the company does not undertake to update any forward-looking statements. Please read the forward-looking statements and risk factors in the MD&A as these outline the material factors, which could cause or would cause actual results to differ. The company will not provide guidance regarding future earnings during today's call, and management does not anticipate providing guidance in future quarterly or interim communications. I'll now turn the call over to Amar. Amardeip Doman: Thanks, Ali, and good morning, everybody. Thank you for joining us. On the back of a very strong first half of the year, the third quarter was similar in terms of our focus on optimizing operational and financial performance on both sides of the border while navigating through continued macroeconomic headwinds stemming primarily from rising interest rates, inflationary pressures, affordability and concerns around the risks of things slowing down. Throughout the third quarter, we worked through the impact of what I would qualify as a very challenging pricing environment. While volumes and general demand have been steadier than the pricing side, we are seeing choppy demand in certain areas of the business due to some of the macro pressures I just mentioned. These trends continue to exist in our day-to-day activities. Overall, the North American market has been shaped by a mix of cooling demand on housing, high mortgage rates and tariff uncertainty, all of which have tempered buying activity. While price volatility remains, we expect modest gains during the remainder of the year if housing activity rebounds and policy conditions, including tariffs and trade measures, stabilize. Despite these external pressures impacting our numbers, our focus remains on what we can control to ensure we maximize margins and free cash flow generation. While we see a cautious tone and sentiment from our customers and how they are managing through some of the same macro headwinds, demand remained steady across all key end markets during the quarter, with volumes in various categories remaining range bound. However, given the lower pricing for construction materials, revenues and margins experienced some pressure in the third quarter when compared to the first and second quarters of the current year. Despite the pricing pressures caused by the various factors I mentioned, I remain pleased and encouraged by the strength of our business model and our ability to perform while ensuring that our first-class level of service remains on point. As a result of our collective efforts, the revenues amounted to $795 million, gross margin remained strong at 15.5% or $123.1 million, EBITDA of $62 million. Net earnings came in at $18.1 million. And lastly, we paid another quarterly dividend totaling $0.14 per share, representing our 62nd consecutive quarter of paying a dividend. I'm also very pleased with our ongoing focus on balance sheet management and optimization. To this point, after 9 years of ownership and planting approximately 10 million new seedlings, we sold the remaining portion of our timberlands during the third quarter, with net proceeds of the sale further strengthening our balance sheet, which Jay will comment on a little bit later. Looking ahead, we remain excited as we work through the macro and pricing-related dynamics while we continue to manage our costs and always look for growth opportunities. As always, we remain confident in our ability to work through volatile markets diligently while serving our customer needs with the highest level of service. We remain excited about our growth profile and the overall prospects of the business. And with that, I'd like Jay Code, our CFO, to take over and provide a review of the company's third quarter 2025 financial results in greater detail, and then we'll open the call up for questions. Jay? James Code: Thank you, Amar. Good morning, everyone. Sales for the 3 months ended September 30, 2025, were $795 million versus $663.1 million in Q3 '24, representing an increase of $132 million or 19.9%. The increase in sales was primarily driven by contributions from Doman Tucker Lumber, which was acquired October 1, 2024, and therefore, did not factor into our results for the comparative third quarter of '24. Our sales this quarter were made up of 79% construction materials, with the remaining balance resulting from specialty and allied products of 17% and other sources of 4%. Gross margin for the quarter was $123.1 million versus $103 million last year, an increase of $20.1 million, again, benefiting from the results achieved by the Doman Tucker Lumber acquisition as well as ongoing focus on the company's margin enhancement and stabilization strategies. This quarter's overall gross margin percentage was 15.5%, which was consistent with the percentage achieved last year. Expenses for the third quarter were $86.1 million compared to $73.5 million, an increase of $12.6 million or 17.1%. And as a percentage of sales, this quarter's expenses were 10.8% compared to 11.1% last year. Distribution, selling and administration expenses increased by $5.5 million or 9.9% to $61 million this quarter from $55.5 million in '24, mainly driven by the addition of expenses related to Doman Tucker Lumber. As a percentage of sales, DS&A was 7.7% this quarter compared to 8.4% last year. And this quarter's EBITDA was $62 million compared to $46.3 million in 2024, an increase of $15.7 million or 34%. Finance costs in Q3 were $18.1 million compared to $11.8 million in Q3 '24, an increase of $6.3 million, largely driven by additional interest costs related to last year's debt financing of the Doman Tucker Lumber acquisition. Doman's net earnings for the quarter were $18.1 million compared to $14.6 million in '24, an increase of $3.5 million. And turning now to the statement of cash flows. Operating activities before noncash working capital changes generated $131.6 million in cash in the first 9 months of 2025 compared to $108.9 million for the same year-to-date period in '24. Operating cash flows during the period were positively impacted by this year's inclusion of the results of Doman Tucker Lumber. Seasonal changes in noncash working capital generated $15.4 million this period compared to $12.2 million in the first 9 months of last year. Overall, financing activities reflected significant reductions in debt during the first 9 months of this year. 2025 year-to-date net repayments of our revolving loan facility totaled $150 million, driven by strong operating cash flow as well as the proceeds from the sale of the company's timberlands, to be discussed further later. This reduction in debt provides the company with available liquidity of $397 million at September 30, 2025, compared to $163 million at December 31, 2024. We also note that in the comparative period in '24, the company completed the issuance of our 2029 unsecured notes. resulting in gross receipts of $265 million, with partial proceeds used to repurchase a portion of the company's 2026 unsecured notes in the amount of $52.3 million, with the balance allocated to reduce the company's revolving loan balance last year. Dividends this year returned $36.7 million to shareholders, largely in line with 2024 dividend amounts and payment of lease liabilities, including interest, consumed $24.1 million of cash compared to $21.3 million in '24. The company's lease obligations are -- generally require monthly installments, and these payments are entirely current. We also note the company was not in breach of any of its lending covenants during the 9 months ended September 30, 2025. Overall, investing activities generated $59.9 million of cash in the first 9 months of '25 compared to consuming $71.4 million in '24. Investing activities this year include the sale of the company's Southeast BC timberlands for cash proceeds of $75.2 million as well as an investment in a small electrical distributor in Southern California in September 2025. The first 9 months of 2024 included the Southeast lumber acquisition for total cash consideration of $62.3 million. Additionally, the company invested $14.7 million in new property, plant and equipment this year compared to $9.5 million in 2024. This concludes our formal commentary, and we're now happy to respond to any questions that you may have. Thank you. Operator? Operator: [Operator Instructions] And the first question is from the line of Kasia Kopytek with TD Cowen. Kasia Trzaski Kopytek: Amar, I think, buyers like Home Depot and Lowe's comfortable holding less inventory now than they would be in prior cycles, in your opinion? Amardeip Doman: Yes, definitely. I wouldn't say it's just lumber. I would say across all categories. This started probably a year ago where a lot of the big-box stores and other retailers are very much a little bit compressing their working capital down and trying to push their inventory turns up. We obviously play a part in that. It's keeping us closer to the markets, though, and turning our inventories faster as well. So all the way down the pipe, I don't think it's a big impact on our final sales numbers. Kasia Trzaski Kopytek: Okay. And we've seen lumber prices move a bit here in the recent months or so. How much of that do you think is a reflection of the industry realizing that sawmill cash burn has gotten extreme here and that there will have to be cuts? West Fraser just announced last night. And how much of that is just the supply chain trying to get ahead of any more supply cuts that may be coming down the line? Amardeip Doman: Yes. I don't think there's any panic, to be honest with you. There's two things going on in the market. One, what you read in random lengths is one thing, what's happening is another. So the cash markets are very soft, very weak. The mills have a lot of inventory, both sides of the border, it's not good. So this little uptick is kind of just coming off the bottom. I wouldn't say there's any deliberate attempt for anyone to start piling down lumber, but the activity and the takeaway just isn't strong. So it's just not a good period. So it is nice to see it stabilize with some of the curtailments and see a little bit of uptick, but I wouldn't [ write ] home about it just yet. Kasia Trzaski Kopytek: Yes, that's probably fair. And just back to the 2-tiered market that you referenced, we know what the price for U.S.-bound lumber is. How much of a discount are you seeing right now versus the random length print for Canadian-bound lumber? Amardeip Doman: Yes, it's all over the map, Kasia. I couldn't tell you exact numbers. But if you're a buyer, you still got the leverage today on lumber. And if you're showing up ready to buy carloads or truckloads in any sort of volume, you're just going to make your price today. It's -- we need more curtailments to adjust to the slow takeaway that's happening. And we hope that things get better next year with more interest rate cuts, and we start to see more takeaway. But right now, it's sort of make your bid and set your price. Kasia Trzaski Kopytek: Right. And Amar, I think the general consensus is that something north of 1 billion board feet of lumber capacity has to come out. When would the distribution channel kind of start to get a little bit more incentivized to start positioning themselves if we get kind of 500 cumulative? Like what's the number you think? Amardeip Doman: I would say, over the next few months, if we see some more curtailments happen and again, get closer to the takeaway numbers that are out there that are still stubbornly weak, it's just sort of a flat market. So I couldn't tell you exactly when, but I can tell you that we're moving in the right direction for pricing upswing. I just don't see it tomorrow morning. But directionally, we are starting to see lumber come off, like you mentioned the West Fraser curtailments. And there'll be some others, I think, happening and some smaller sawmills just can't make it probably through this. And if they've got a bad balance sheet, it's going to be difficult, so they're going to have to shut down. So I think directionally, we've bottomed, but I just don't see a big torque tomorrow morning. Kasia Trzaski Kopytek: Yes, that's fair. And then stepping back a bit, I imagine now is the time when you're starting to have discussions about new programs for 2026. Any early indications about the tone of those discussions? Amardeip Doman: We have started some of that. I think the business will be steady through 2026, which we're happy with. We're very happy with how this fall shaped up. September and October were good for volumes. Obviously, pricing has been in the tank. But for our volumes, things have been decent. So wood is moving on our end, which is good. Repair and remodel has not died. It's doing fine. So it's nice to see that for our end takeaways. And I think rolling into '26, if we can have volumes that were the same as '25, Doman will make a lot of money, and we will, I think, continue to just work on our balance sheet and get our debt down even further than we just did. So I think we'll be in good shape in '26. Operator: The next questions are from the line of Frederic Tremblay with Desjardins Capital Markets. Frederic Tremblay: You spoke about the leverage a little bit there. I wanted to maybe tie that into potential M&A activity. Just wondering if you had any comments on the pipeline of opportunities that you're seeing and if you'd be comfortable transacting in the near term if the right opportunity was available, considering the positive evolution of your leverage position lately. Amardeip Doman: Thanks, Frederic. I'll answer the latter part of the question, and I'll let Jay discuss where our liquidity is today and the debt reduction that's moving in the right direction. The M&A activity, we've got certainly our eyes open and in discussions all the time with certain companies that we'd like to acquire that fit our strategy. The balance sheet is now back to more than ready to move on some things if we feel like the valuation is right. So certainly, we're not hamstrung by any means, and the liquidity opening up here has been excellent. So we can think very clearly and be disciplined as we always have on our acquisitions. And hopefully, in '26, we'll see 1 or 2 come down the pipe. So maybe, Jay, you can answer on the leverage. James Code: Yes. Sure. Thanks, Amar. Frederic, yes, as you pointed out, the leverage has come down, sitting at about 3.8x at the end of September. down significantly from recent peaks for financing the Tucker acquisition in Q4 of '24. So we'll expect that to continue to drop through to the end of '26 at least, given market conditions, we expect to generate -- continue to generate significant debt reductions going forward. Frederic Tremblay: Great. That's helpful. And maybe switching just to margins, some nice margin protection in Q3, despite the lumber price headwinds in the U.S. Should we think about Q4 margins in a similar fashion, i.e., not at the very top of the 14% to 16% gross margin range, but somewhere in there? Amardeip Doman: Yes, Frederic, I would say so. I think that the bottoming of lumber has happened. So we're starting to see, as we just talked about in the last couple of questions there, we're seeing stable to a little bit of an uptick. It's still soft in the cash markets. But certainly, I think the margin stabilization should start to trend a little bit better as we go into the fourth and first quarter and the lumber slide has finished going down. So hopefully, that will perk us up a little bit on margin and hopefully, the volumes will continue. And just to finalize on the liquidity, I believe now with our revolver and combined full liquidity, we've got over $400 million of liquidity right now. So we're in very good shape to take care of some M&A. Operator: The next question is from the line of Zachary Evershed with National Bank Capital Markets. Zachary Evershed: Congrats on the quarter. With the larger acquisitions now playing on your team for some time now, do you think you've reached a level where your distribution S&A in dollar terms should remain roughly flat or in line with inflation? Amardeip Doman: Yes, I would say so. I think inflation or wage inflation, obviously, we take care of our team members, and there's always that push up on wages, et cetera. But yes, I think we'd be in line there. And also, we're consolidating and -- we don't have huge numbers to report or anything, but we're consolidating a lot of our SG&A in the U.S. into Plano, Texas into our office there. So that's going to bring some operating leverage to the system as we continue to lever up and organize all of our computer systems in the states, and that's going to drive some good synergies and cost savings as well. Zachary Evershed: Got you. And then the latest acquisition does look pretty small, but maybe you could tell us a bit more about it. Any expected synergies and what you like about it? Amardeip Doman: Yes. It's a strategic acquisition that came through one of our business leaders, and it's very small, but putting our toe in the water in Southern California to assist our Alpha electrical division that's out in Hawaii. This will help some buying synergies. It will also put us on the map on the mainland and electrical, and we'll continue to grow. It's a smaller business for us, but certainly very strategic. And we're excited about Temecula Electric being in our fold now. Zachary Evershed: Excellent. With your customer concentration up since the acquisition of Tucker, how are you feeling about it? Do you view it as a risk? Amardeip Doman: Sorry, Zach, could you say that again? Zachary Evershed: How are you feeling about your customer concentration these days? Do you view it as risk? Amardeip Doman: No, certainly not. We're very close to our large customers. And of course, we work hard every day to maintain those relationships. It's our business to lose. So we got to work on that every day. And our team members do that. So I think our customer relationships are in very, very good shape. We work hard at it. I think we're one of the best as far as having relationships with the folks that issue us purchase orders, which we thank them for every day. But I think our customer concentration is not any issue, as far as the Tucker acquisition went. It's helped broaden our base with one of our largest strategic customers, and we continue to grow with all of our customers. So things are in good shape there. Operator: The next question is from the line of Nikolai Goroupitch with CIBC Capital. Nikolai Goroupitch: Considering the shopping demand you're seeing, could you maybe highlight some pockets of strength and weakness in the business? Amardeip Doman: Yes. The R&R business, repair and remodel, has been surprisingly steady to up in the fall after a soft summer of takeaway. So we're pleasantly surprised to see that consumers are still spending despite, I think if we read the headlines, we all want to kill ourselves and it feels like the world is coming to an end, it's not. Things are going on. And frankly, consumers have money. We're not seeing mass, mass layoffs in the U.S. Consumer is good there. And in Canada, we're having a nice fall on all building materials. So we've had a nice pickup in our distribution system in Canada, starting kind of late August, early September, and it continues into October here and into November. So a nice pickup later in the year. So we're surprised at these trends. A lot of it is R&R. Obviously, new homes, construction is flat to soft. So the R&R business has been good. Nikolai Goroupitch: I see. And then maybe looking into next year, respective of commodity prices, what sort of main projects or initiatives are you looking at that could potentially provide some gross margin uplift? Amardeip Doman: Yes. We're going to -- well, we are, I should say, we're upgrading our Gilmer, Texas production line and fencing. We produce a lot of fencing in the states, and we're going to continue to invest in our mills and upgrade them, reduce labor and modernize and optimize. So we're working on that. If that works, we'll roll it across all of our sawmills, and we're looking at planting a flag in the East Coast as well as far as producing fencing on the East Coast. There's a lot of tariffs and things that are happening with South America, which is squeezing production coming north. And we want to take advantage of that opportunity, not for the short term, but for the long term and establish ourselves as a large fencing player on the East Coast of the United States as well. So you're going to see some pretty good exciting things come from us on the sawmill side in specialty. Operator: We have a question from the line of Amit Prasad with RBC. Amit Prasad: It's Amit on for Matt. Just a quick follow-up on the last one. You called out some benefits to the Canadian distribution side. Just wondering if you've seen any changes to the competitive environment on the U.S. side. Amardeip Doman: Yes. Yes, the strength in Canada has been nice. It's not robust or crazy, but it's certainly picked up from where it was, where it was looking very dire most of the year. And we've caught up to our budgets, and it's nice to see that. The team has worked hard at that for sure. As far as the U.S. goes on the competitive landscape, I haven't seen or saw, I should say, in our kind of runway or our space too much activity as far as M&A goes. We've seen it kind of in the pro dealer with Lowe's and Home Depot doing a lot of acquisitions like FBM, [ Accestra ], and SRS. Those acquisitions are large, but they're not really in our space. Those are different product lines that Doman doesn't participate in. So really kind of a nothing burger as far as what's going on with kind of LBM and what we're up to. Operator: At this time, I'd like to turn the floor back to management for closing comments. Ali Mahdavi: Once again, thank you, everyone, for joining us this morning for the quarterly call. If you have any follow-up questions, by all means, please feel free to reach out to myself. We look forward to speaking with you again on our next earnings call, which will be in the new year. That concludes today's call. Wishing you all a great weekend. Operator: Ladies and gentlemen, thank you for your participation. Please disconnect your lines, and have a wonderful day.
Operator: Good day, ladies and gentlemen. Welcome to the ePlus Second Quarter Fiscal Year 2026 Earnings Conference Call. As a reminder, this conference call is being recorded. [Operator Instructions] I would now like to introduce your host for today's conference, Amanda Dupree, Associate General Counsel. You may begin. Amanda Dupree: Thank you for joining us today. On the call is Mark Marron, CEO and President; Darren Raiguel, COO and President of ePlus Technology; and Elaine Marion, CFO. I want to take a moment to remind you that the statements we make this afternoon that are not historical facts may be deemed to be forward-looking statements and are based on management's current plans, estimates and projections. Actual and anticipated future results may vary materially due to certain risks and uncertainties detailed in the earnings release we issued this afternoon and our periodic filings with the Securities and Exchange Commission, including our most recent annual report on Form 10-K, quarterly reports on Form 10-Q and in other documents that we file with the SEC. Any forward-looking statement speaks only as of the date of which the statement is made, and the company undertakes no responsibility to update any of these forward-looking statements in light of new information, future events or otherwise. In addition, we will use certain non-GAAP measures during the call. We have included a GAAP financial reconciliation in our earnings release, which is posted on the Investor Information section of our website at www.eplus.com. I'd now like to turn the call over to Mark Marron. Mark? Mark Marron: Thank you, Amanda. Good afternoon, everyone, and thank you for joining us today for our second quarter fiscal 2026 earnings call. This quarter represents a significant milestone for ePlus as we delivered the first quarter in our history with over $1 billion of gross billings, underscoring the momentum across our business and the strength of our diversified model. Our performance this quarter again reflects our unrelenting focus on delivering the products and services our customers require in today's market. We are seeing this growth not only in the quarter, but in our year-to-date results as well, with revenue up over 20% and total gross billings of almost $2 billion in the 6-month period. I want to highlight 4 key messages. First, as I mentioned, our record $1 billion in gross billings in the quarter underscores strong and broad-based demand across our portfolio, customer segments and verticals. Notably, most of the growth was organic with acquisitions accounting for only 10%. Second, our consolidated net sales for the quarter grew 23.4%, but adjusted EBITDA grew at a rate that is more than twice that of net sales as operating leverage continues to shine through. This was supported by increased demand for our products and services, underscoring the resilience in our strategy and internal automation initiatives. Third, we continue to invest and align our resources in higher-growth areas of AI, security and cloud to deliver value-added products and solutions, enabling us to both grow our customer base and increase sales to existing customers. And fourth, our balance sheet remains strong, closing the quarter with over $400 million in cash, giving us flexibility to continue investing organically and inorganically while returning capital to shareholders. Let me start with a brief overview of the quarter's financial results. As a reminder, we completed the sale of our domestic financing business on June 30, 2025, which is now accounted for as a discontinued operations. During the quarter, we had solid execution across the board, delivering strong financial results with most of the growth organic. Net sales increased 23.4% year-over-year with broad-based growth across products, professional services and managed services. Additionally, growth was across all customer sizes and industries with notable performance in the mid-market and enterprise segments. Lastly, we saw especially strong performance across almost every vertical, except state and local government, where budget constraints persisted. Let me talk about some additional drivers of this robust performance as it relates to fast-growing areas. Security continues to be a standout performer with gross billings of security products and services up 52% year-over-year, now representing 24% of trailing 12-month gross billings, up from 21% last year. Networking posted its second consecutive quarter of sequential growth, which we believe is being fueled by AI-driven infrastructure investments. And in Data Center and Cloud, net sales grew nearly 30% year-to-date, reflecting customer modernization initiatives tied to AI deployments. Shifting to profitability. Second quarter adjusted EBITDA increased 62% and the 6-month adjusted EBITDA was 40% higher than the same period of the prior year. The operating leverage reflects our strategic alignment of headcount towards high-growth focus areas of AI, data center and cloud, security and networking. We have also leveraged AI internally to provide faster incident resolution and closure, leading to a better customer experience. Although we have grown through automation, we have been able to maintain headcount in parts of our internal and external services teams over the last couple of years. These actions provide a solid platform to build upon. Now let's turn next to AI, an area that continues to accelerate across our customer base and within ePlus itself. Our recently released AI industry pulse poll revealed that nearly 3/4 of IT and business leaders now view AI primarily as a driver of revenue growth, surpassing cost savings and customer satisfaction. This marks a significant shift in how organizations approach AI from efficiency to expansion. At the same time, the survey showed that 81% of leaders are concerned about whether their infrastructure can support advanced AI applications, underscoring the opportunity for ePlus to help customers scale securely and effectively. During the quarter, we acquired Realwave, a cloud-based AI-powered software that integrates video, Internet of Things and sensor data to detect events, make decisions and trigger automated actions, expanding our ability to deliver real-time AI-driven insights to customers. Shifting to our balance sheet and capital allocation. We have a healthy balance sheet with over $400 million in cash, enabling disciplined capital allocation, both organically and through M&A that can fuel long-term growth. In summary, our second quarter results reflect continued progress across our segments. We remain focused on driving growth, optimizing margins and deploying capital to maximize shareholder value over time. I want to close by thanking all of our ePlus teammates for their efforts in delivering a strong quarter and first half for ePlus and our shareholders. I will now turn the call over to Elaine. Elaine? Elaine Marion: Thank you, Mark, and thank you, everyone, for joining us. I will review our financial performance in the second quarter of fiscal 2026. Continued momentum across our business led to another quarter of double-digit increases in our key financial metrics. Consolidated net sales totaled $608.8 million, up 23.4% year-over-year, driven by sustained demand across our focus areas of security, networking and cloud. As Mark mentioned, we continue to see demand across all customer sizes with particular strength in the mid-market and enterprise segments. As you may recall from our last earnings call, enterprise customers resumed purchasing in the first quarter following a period of product digestion, and we saw a continuation of this trend in the second quarter. Gross billings of $1.02 billion in the quarter represented a 26.5% increase in year-over-year with the majority of this growth being organic. This milestone underscores the strength of our diversified business model and our strategic focus on high-growth areas, including offerings that enable AI consumption. Product sales in the quarter totaled $485.1 million, up 24.5% from the prior year, led by robust demand in networking and security solutions, aided by increased AI adoption as well as growth in data center and cloud. Service revenue reached $123.8 million in the quarter, representing growth of 19.4% year-over-year. Professional Services grew 23.3%, led by the addition of Bailiwick in August of 2024, while managed services increased 13.5%, led by the strength in enhanced maintenance support and cloud offerings. Services remain a strategic focal point for ePlus, and we remain committed to add to our capabilities in this segment to build out our strong recurring revenue base over the long term. Taking a look at our customer verticals, Sales remained broad-based. Telecom, Media and Entertainment and SLED, our 2 largest verticals accounted for 27% and 14%, respectively, of net sales on a trailing 12-month basis. Health Care, Technology and Financial services represented 13%, 13% and 9%, respectively, with the remaining 24% divided among other end markets. Second quarter gross profit totaled $162.1 million, up 27.4% from the prior year quarter. This represents a consolidated gross margin of 26.6%, up 80 basis points from 25.8% last year, driven by increased product margins. Product gross margin expanded 160 basis points to 24.5%, reflecting a favorable mix as we sold a higher proportion of third-party maintenance and services in the quarter, which are recorded on a net basis. Professional Services' gross margin was 38.2% compared to 41.3% a year ago. This change was due to the acquisition of Bailiwick, which had lower gross margin than our legacy Professional Services. Managed Services gross margin was 29.5%, in line with the prior year quarter. Consolidated operating expenses increased 12.9% to $113.3 million, reflecting higher salaries and benefits, primarily from a full quarter of Bailiwick and additional variable compensation due to the increased gross profit generated in the quarter. Headcount from continuing operations at quarter end was 2,138, down 6% from the prior year quarter as we focus on roles in high-growth areas, including AI, cloud, security and networking. Operating income rose 80.9% to $48.8 million, significantly outpacing the increase in operating expenses, demonstrating meaningful operating leverage. Earnings before taxes increased to $54 million from $27.3 million in the prior year quarter. Other income was $5.2 million, which includes $4.5 million in interest income and foreign exchange gains of $700,000. Our effective tax rate for the quarter was 29.3% versus 27.5% in the second quarter of fiscal 2025. Consolidated net earnings from continuing operations were $38.2 million, above net earnings of $19.8 million in the prior year quarter, and net earnings from continuing operations per diluted share was $1.45 compared to $0.74 in the prior year quarter. Discontinued operations net loss was $3.3 million compared to net earnings of $11.5 million in last year's quarter. Diluted loss per share from discontinued operations was $0.13 compared with earnings per share of $0.43 last year. Non-GAAP diluted earnings per share for continuing operations was $1.53, up from $0.94 in the prior year. Our weighted average diluted share count was 26.4 million compared to $26.7 million in the second quarter of fiscal 2025. Adjusted EBITDA totaled $58.7 million, up 61.6% from $36.3 million a year ago. Adjusted EBITDA grew more than twice as fast as net sales, underscoring the operating leverage inherent in our business model. Moving to our results for the 6 months ended September 30, 2025. Consolidated net sales totaled $1.25 billion, up 21.1% from $1.03 billion in the first half of fiscal 2025, driven by an 18.8% increase in product sales and a 32% increase in services revenue. Year-to-date gross billings totaled $1.98 billion, an increase of 20.3% year-over-year. Consolidated gross profit for the first 6 months was $310.3 million, 22.1% above the $254.2 million in the first half of fiscal 2025. Gross margin expanded 20 basis points to 24.9%, led by an increase in product margins. Year-to-date consolidated net earnings from continuing operations were $65.3 million or $2.47 per diluted share compared to $44 million or $1.64 per diluted share in the first half of fiscal 2025. Discontinued operations net earnings for the first 6 months was $7.3 million versus $14.7 million in the first 6 months of fiscal 2025. Diluted EPS from discontinued operations was $0.28 compared to $0.55 in the comparable period last year. Non-GAAP earnings per share from continuing operations were $2.79, up 42.3% versus $1.96 in the prior year period. Turning to our balance sheet. Cash and cash equivalents at quarter end totaled $402.2 million, up from $389.4 million at the end of the last fiscal year. Our cash position remains robust, providing us with significant flexibility to continue investing in both organic and inorganic growth initiatives as we support our capital allocation strategy. Inventory at quarter end was $154.1 million, up from $120 million at the end of fiscal 2025. Inventory days outstanding were 15 days, slightly above 14 days in the prior sequential quarter and 12 days in the prior year. Despite the slight uptick of inventory days outstanding, our cash conversion improved to 30 days from 32 days in the prior year period. Our capital allocation strategy remains focused on 4 priorities: strategic acquisitions that complement our capabilities, organic investments in high-growth areas, quarterly dividends and opportunistic share repurchases. Consistent with these priorities, we repurchased 60,000 shares during the quarter after our stock repurchase plan authorization began on August 11, 2025. In addition, we are continuing to deliver shareholder value with the announcement of our second quarterly dividend of $0.25 per common share payable on December 17, 2025, to shareholders of record on November 25, 2025. In summary, we delivered strong second quarter and first half results, demonstrating superb execution by our employees, momentum in our business and the success of our strategic initiatives. Now I will turn the call back over to Mark. Mark? Mark Marron: Thank you, Elaine. The second quarter and year-to-date growth reflects momentum in the business and is aligned with our focus on high-growth areas. Underlying end market demand is healthy across much of the portfolio, and we continue to be pleased with our current positioning. Reflecting the strong financial performance to date and momentum we expect to continue, we are increasing our fiscal year 2026 net sales, gross profit and adjusted EBITDA guidance. Net sales growth over the prior fiscal year is now expected to grow at a rate in the mid-teens from fiscal year 2025's $2.01 billion from continuing operations. Gross profit is also expected to grow at a rate in the mid-teens from fiscal year 2025's $515.5 million from continuing operations. Adjusted EBITDA is expected to increase from fiscal year 2025's $140 million at approximately twice the rate of net sales growth for fiscal year 2026 as continuing operation results are expected to benefit from operating leverage. We also announced today our quarterly dividend of $0.25 per common share, which will be paid on December 17, 2025, to shareholders of record on November 25, 2025. Our solid cash balance positions us well to allocate capital to growth while returning capital to our shareholders. It was a significant quarter and first half for ePlus with double-digit growth across all key metrics. The sale of our domestic financing business has simplified our business model and allowed us to focus on being a pure technology player. It also gives us the financial flexibility to expand our footprint and customer base, both organically and through acquisitions while continuing to expand and enhance our solutions and service offerings. We are well positioned to build on our momentum, capitalize on new opportunities and deliver value to stakeholders over the long term. Thank you for joining us today. We will now open it up for questions. Operator: [Operator Instructions] Your first question comes from the line of Maggie Nolan with William Blair. Margaret Nolan: Congratulations on the results. I'm hoping that you can double-click for me on the strength in security. It was a pretty impressive numbers that you shared there. So what is driving the strength in that offering? Mark Marron: Well, a couple of different things, Maggie. So Security was up 56% in terms of gross billings. Overall trailing 12 months, it's up nicely as well. What we're starting to see is a lot of the AI initiatives with customers making investments, looking at data classification, data cleanliness and projects along those lines. And then just the normal network security and all the other things that we've done over time. We are starting to see an uptick in, I'll say, AI-related deals across compute, storage and security. And that's part of the reason we had a nice quarter in those areas. Networking, by the way, I know you didn't ask for it, but Networking was up nicely. So that also contributed nicely to the quarter. And if you remember, a few quarters back, it was actually down due to the supply chain issue with the digesting of product that Elaine talked about. That's actually starting to pick up as customers look to modernize their networks to be ready for AI. Margaret Nolan: Okay. Great. And maybe to round it out, can you talk a little bit about what you're seeing by customer end market as well? There seem to be some variability in strength and weakness across your different end markets. Mark Marron: Yes. In terms of -- well, let me touch on 2 things, make sure -- as it relates to the verticals, we had a strong quarter across almost every vertical. The only thing that was down was our state and local, which I think had to do with a lot of what's going on in the government and funding and things along those lines. Otherwise, all the verticals were up. And as it relates to our customer size segments, Maggie, the mid, the 500 to 10,000 and the 10,000 and above, which we consider to be enterprise was up real nice. So across, I'd say, all 3 of our segments, product, professional services, managed services, across all the verticals, except for the state and local in the SLED space, and then across all the different product areas, we were up significantly, except for collab -- collaboration, I should say. Operator: Your next question comes from the line of Gregory Burns with Sidoti & Company. Gregory Burns: It's good to see the AI starting to now translate into some order flow for you. Could you just talk about maybe how the pipeline looks? What gives you confidence in kind of the raised outlook for the year? Any kind of color you can give on preorder or demand activity and pipeline, how the pipeline is shaping up? Mark Marron: Yes, Greg. So a couple of different things. So as it relates first to the quarter, really proud of the team in terms of the execution, especially in a kind of an uncertain economic market with what's going on with the government shutdown, tariffs and inflation up or down, right? So team really did a nice job in the first half. We also -- as we talked about on previous calls, we do a nice job of tracking the pipeline and opportunities that are in there. We did have a couple of nice large deals that fell in Q2. But as you can see, based on our guidance, we're still very optimistic about the rest of this year. And I think that kind of shows in our guidance. Gregory Burns: Okay. And then the leverage, obviously coming through really nicely now. How should we think about leverage versus need to invest. Obviously, there's a lot of growth opportunities out there for you, particularly maybe now with AI becoming more of a meaningful driver. So how should we think about leverage and how much the margins could expand from, I guess, where you're guiding to for this year? Mark Marron: Yes. So 2 things there, Greg. One, I think you can expect operating leverage for a little period of time here. But as we've talked about on previous calls, we're a growth company. We're in -- after selling a finance, we're in a pretty strong, I'll say, cash position that we have a lot of flexibility in terms of how we can go grab market share, expand our footprint, our customer base, and that could be through organic hires, which we will be making to kind of build out our services and AI capabilities and also through acquisitions. So short term, I think you continue to see some operating leverage, but we're still going to be active in looking at where we can build out our footprint and customer base, both organically and inorganically. Operator: That is all the questions that we have. I would like to turn it back over to Mark Marron for closing remarks. Mark Marron: Okay. Thank you, operator. Everybody, thank you for joining us on the call today. Once again, we feel good about what the team put up this quarter and for the first half and want to thank you for joining us on this call. Take care, and have a great holiday season, if you can. Take care. Operator: This concludes today's conference. You may disconnect.
Operator: Welcome to the Crinetics Pharmaceuticals Third Quarter 2025 Financial Results Conference Call. I would now like to turn the call over to Gayathri Diwakar, Head of Investor Relations. Please go ahead. Gayathri Diwakar: Thank you, operator. Good afternoon, everyone, and thank you for joining us to discuss the third quarter 2025 results. Today on the call, we have Dr. Scott Struthers, Founder and Chief Executive Officer; Isabel Kalofonos, Chief Commercial Officer; and Toby Schilke, Chief Financial Officer. Also joining for the Q&A portion will be Dr. Steve Betz, Founder and Chief Scientific Officer; Dr. Dana Pizzuti, Chief Medical and Development Officer; and Dr. Alan Krasner, Chief Endocrinologist. Please note there's a slide deck for today's presentation, which is in the Events and Presentations section of the Investors page on the Crinetics website. In addition, a press release was issued earlier today and is also available on the corporate website. Slide 2. As a reminder, we'll be making forward-looking statements, and I invite you to learn more about the risks and uncertainties associated with these statements as disclosed in our SEC filings. Such forward-looking statements are not a guarantee of performance, and the company's actual results could differ materially from those stated or implied in such statements due to risks and uncertainties associated with the company's business. In particular, today, we will be reviewing launch progress to date, our commercialization plans as well as estimates relating to market size, future performance and other data about the acromegaly market, which are all necessarily subject to a high degree of uncertainty and risk. These forward-looking statements are qualified in their entirety by the cautionary statements contained in today's news release, the company's other news releases and Crinetics’ SEC filings, including its annual report on Form 10-K and quarterly reports on Form 10-Q. I would also like to specify that the content of this conference call contains time-sensitive information that is accurate only as of this live broadcast. Crinetics takes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date of this conference call. With that, I'll hand the call over to Scott. R. Struthers: Thank you, Gayathri, and thank you to everyone joining us on today's call. This is a landmark year for Crinetics. It's a rare privilege to be part of a team that has taken a molecule conceived in our own labs, developed with our own global clinical trials and is now bringing it to patients as a commercial stage biotech. With PALSONIFY, we are now redefining efficacy in acromegaly as both biochemical and symptom control. When you think about it, the last time you know of someone who made an appointment with their HCP to complain about their lab results. On Slide 5 are pictures of people we've gotten to know, people who have acromegaly, carcinoid syndrome, CAH and have helped guide the vision for PALSONIFY and Atumelnant. We've worked with the acromegaly community for over a decade. We've listened to their stories and hopes, stories from Ellen about the frustration of symptoms that injections don't fully control or from Wendy about the simple desire to feel like yourself again. We recently observed acromegaly awareness Day and utilized this important moment in time to both drive broader consumer awareness of the disease and advance our patient engagement strategy. Our own Chief Endocrinologist, Dr. Alan Krasner, and acromegaly patient Tony, were featured in numerous broadcast media interviews across key PALSONIFY markets. These broadcasts will continue throughout the month of November, pointing viewers and listeners to acromegalyreality.com. I am proud we can help them and many, many others struggling with acromegaly enter a new era of therapy with PALSONIFY. My hope is that PALSONIFY brings them freedom, freedom from the symptoms and freedom from the burdens of managing their disease. I hope they can focus on their lives while PALSONIFY fades into the background as just another pill that they take in the morning. PALSONIFY is just the beginning. We've proven that we can discover important new drugs, proven that we can conduct high-quality global clinical development and are now in the early stages of proving that we can bring them to people struggling with acromegaly as a commercial company. We plan to apply that same focus intensity to carcinoid syndrome and CAH and the other serious endocrine diseases in our pipeline. We're just getting started. With Slide 6, I'm excited to share that the launch of PALSONIFY is going very well. Isabel will share more details. Our goal is to make PALSONIFY the first-line treatment of choice for acromegaly. In the initial 31-week days since approval, we've already made significant progress, and the team is executing seamlessly. The first patients received their bottles of PALSONIFY only 11 days after the PDUFA date. All U.S. patients in our open-label extension studies are in the process of transitioning to commercial supplies. As expected, the bulk of our initial patients are those switching to PALSONIFY from other therapies. However, we're also pleased to see a number of patients who are newly diagnosed starting with PALSONIFY as their first medical therapy. We are making headway activating the pituitary centers and have had very good reception from community endocrinologists, some of whom are proactively calling their patients to have them come in to talk about PALSONIFY. I've spent a lot of time in the past few weeks with our field force and their enthusiasm and knowledge of the practitioners and offices in their territories is impressive, but we aren't relying on just the sales force. It's our entire field team, MSLs, field reimbursement specialists, nurse educators, our clinical development team and executives. We're all out there trying to help improve the care of people with acromegaly. I'm also pleased that our early experience indicates that payers also recognize the value of PALSONIFY. Prior authorizations have been mostly straightforward and in some cases, reimbursement has been approved for up to 12-month supplies even before we've secured formulary coverage. Because of our proactive work with payers, we're seeing meaningful numbers of patients starting on reimbursed PALSONIFY. I look forward to January when we'll have a full quarter's worth of launch metrics to share with you. At that time, we will update on revenue, new patient starts, number of unique prescribers and further characterize what we're seeing on the payer reimbursement side of the business. We are currently in the earliest days of Phase 1 of our 3-phase strategy illustrated on Slide 7 to help more people with acromegaly get the care they need. The focus of Phase 1 is to concentrate on switching patients already on injectable SRL depots and other therapies to PALSONIFY. This is a readily identifiable population regularly visiting their HCP offices. In this phase, we also think that PALSONIFY's rapid onset of action will make it the medical therapy of choice to treat newly diagnosed patients. Looking ahead to next year, while we continue to serve both switching and naive patients, we will also begin additional efforts towards returning previously diagnosed patients back to care. There are multiple reasons why these 1,700 patients have discontinued medical therapy recently. We hope that PALSONIFY will provide a path for them to return to the care they need. From there, we will extend our efforts to reach the approximately 7,500 patients who have unfortunately been lost to follow-up after diagnosis and returning them to medical care. There can be multiple reasons why these patients have discontinued medical therapy. It won't be easy and it will take time, but we believe that PALSONIFY will offer these patients a path back to care as well. The third and final phase will be to improve the time to diagnosis of acromegaly. Diagnosing acromegaly is easy once you suspect it, but suspecting it can be challenging even for experienced providers. We anticipate launching specific initiatives later next year and our general efforts to improve acromegaly awareness and its treatment options should start making a difference sooner. The story of Crinetics is not just the acromegaly launch, it's about our execution across the entire pipeline shown on Slide 8. I want to emphasize the strength and depth of what we've built through our internal discovery and development efforts. On the discovery front, we remain committed to holding our clinical candidates to the highest possible standards. Unfortunately, during IND-enabling tox studies, we identified weaknesses in our lead TSH candidate for Graves' disease. Therefore, we're delaying the IND time lines as we prioritize and activate the best of the backup molecules. We're also delaying the time lines for our SST3 agonist program for ADPKD as we conduct follow-ups to the core IND-enabling studies. Given the launch of PALSONIFY and acromegaly and the multiple late-stage programs in development, we will no longer provide regular updates on the timing of preclinical programs until those programs dose their first patient in a Phase 1 study, but rest assured, we are committed to not only advancing the late-stage pipeline, but also to expanding the clinical pipeline and our discovery activities continue unabated. We expect the clinical pipeline to continue to expand in 2026 and the years to come. Moving to the top of the pipeline. carcinoid syndrome is the second indication in development for paltusotine. People with carcinoid syndrome struggle with debilitating and frequent flushing and bowel movement episodes. Like in acromegaly, standard of care for these patients is painful monthly depot injectable SRLs. Based on our Phase 2 data, we believe paltusotine could offer consistent daily control of these in an oral formulation. Our Phase 3 study shown here on Slide 9 is designed to evaluate its efficacy and safety in both naive and switch patients and the OLE study will also evaluate control of the underlying neuroendocrine tumors. More than 20 clinical sites have been activated and are currently screening patients for this study. Complementing paltusotine is CRN09682, the first candidate from the non-peptide drug conjugate program. 9682 is comprised of a novel ligand targeting SST2 to drive internalization into tumor cells, a novel linker that is cleaved only in the tumor cell and a payload to be delivered, in this case, MMAE. We believe 9682 will be differentiated from other current modalities, and as shown on Slide 10, we are studying it in the BRAVESST2 Phase 1/2 basket study in patients with SST2-expressing tumors. This includes neuroendocrine tumors as well as other types of tumors that overexpress SST2. The first 6 sites in this study have been activated and are actively screening patients. The enthusiasm for this study from both investigators and potential participants has been high. This is an important study for Crinetics. It's designed to provide the first human proof of concept for our entire NDC platform, and we're thrilled for it to be underway. Moving on to Atumelnant on Slide 11. In the first 3 cohorts of our Phase 2 ICANS trial for congenital adrenal hyperplasia, or CAH, Atumelnant showed a remarkable ability to highly suppress adrenal androgens in these patients. As you know, we added a fourth cohort to look at morning dosing instead of evening dosing as well as the ability to lower adrenal androgens while simultaneously reducing glucocorticoid therapy towards physiologic levels. Patients in this fourth cohort have recently completed their 12-week treatment period, and we continue to see favorable benefit risk profile. I look forward to sharing the data from Cohort 4 in January once our analysis is completed, along with initial data from a handful of patients from prior cohorts who have now reached the 13-week assessment in the open-label extension study. Now moving on to the design of our global Phase 3 CALM-CAH trial of Atumelnant in adults with CAH. The study shown on Slide 12 builds on the strong top line results from the first 3 cohorts of our Phase 2 study. It's designed to provide a novel therapeutic paradigm for CAH, where atumelnant is used to treat the disease itself and glucocorticoids are only needed for physiologic replacement. People with CAH deserve physiologic levels of both, and that is why we are utilizing a novel uncompromising primary endpoint that combines both goals. This is a very high bar, but appropriate for the level of efficacy we expect from Atamelin. I'm pleased to report that the first sites for the CALM-CAH trial have been activated. Screening is underway, and we expect the first patients to be randomized before the end of the year. Moving on to Slide 13, which shows our BALANCE-CAH study for pediatric patients in more detail. We believe it is crucial to address both high androgen and glucocorticoid levels in pediatric patients because each can cause significant clinical sequelae, and we designed our clinical program with that goal in mind. This study is operationally seamless Phase 2/3 design with a Phase 2 dose selection during which glucocorticoids remain stable, followed by a Phase 3 portion in which new patients will be randomized and have the opportunity to taper glucocorticoids. Eligible patients from both phases will have the opportunity to enroll in an open-label extension. We look forward to enrolling the first patient before the end of the year. With that, let me turn the call over to Isabel to provide additional color on the launch of PALSONIFY for acromegaly. Isabel? Isabel Kalofonos: Thank you, Scott. Turning to Slide 16. Based on our strong label, our strategy is to establish PALSONIFY as the foundational care for acromegaly. To that end, I'm pleased to share the launch is off to a very good start. Since the approval, our team has been engaging with stakeholders and executing across all aspects of the launch. Our field team is reaching patients, physicians in the community and in academic setting and payers, and we are hearing encouraging feedback. Starting with the patient on Slide 16. Our strategy is to activate both switch and naive patients by reinforcing PALSONIFY's consistent IGF-1 and symptom control in a once-daily order. It has been exciting to see that our omnichannel marketing and messages are resonating, and we are beginning to see enrollment forms that from patients who requested PALSONIFY specifically. We're also encouraged by the fact that all of the 22 U.S. patients in the OLE are in the process of transitioning on to commercial product. As expected this early in the launch, 95% of our filled prescriptions are from switch patients, reflecting the demographic to the acromegaly population. However, it is encouraging that we are already starting to see enrollments from treatment-naive patients. This supports our thesis about the significant unmet need in both of these patient segments and represents a good start to Phase 1 of our overall strategy. Moving into to healthcare providers on Slide 17. Even 1 month prior to approval, PALSONIFY had high levels of awareness among academic and community physicians. Building on this foundation, our field teams had called on more than 95% of our highest priority prescriber targets, most of whom are in academic centers. We are leveraging PALSONIFY's unique label, which includes symptom control to engage with healthcare professionals. We believe our efficacy-first messaging is resonating with providers because they prioritize both symptom and IGF-1 control alongside ease of administration. Our sales force is using these messages in the priority PTC centers and high-volume community practices, while targeted marketing extends our reach to the broader community. At this point, we are seeing about 70% of prescribers coming from the community setting and 30% of prescribers coming from PTCs. This is encouraging because it demonstrates that PALSONIFY is also attractive to community-based prescribing physicians. In the PTC setting, our broader field-facing team is working through the typical administrative processes to support uptake. This includes taking a comprehensive approach by engaging both endocrinologists and nurses as well as pharmacists and support staff. Finally, turning to payers on Slide 18. Our payer simple launch engagement work has positioned us well to understand the payers' coverage landscape. So far, we have had follow-up meetings with plans covering majority of lives and the feedback in our broad label and overall value proposition remains consistently favorable. We are pleased to see coverage approvals coming across commercial, Medicare and Medicaid plans. For those that are approved, prior authorization decisions are taking only a few days, and we are encouraged to see some approvals for up to 12 months even in the early days of the launch. Medicare patient support program and field teams are helping patients navigate their treatment journey. We are seeing a balanced mix of reimbursed patients and those on our Quick Start program. Our team is actively working with plans to transition quickest start patients on to reimbursed product. As expected, we anticipate the full formulary process will still take the standard 6 to 9 months. Overall, our commercial team is doing an excellent job executing against our plan. We look forward to providing launch metrics in the first quarter once we have had a full quarter of experience behind us. As Scott mentioned it, in addition to revenue, we will provide the number of new patient starts, the number of [GE] prescribing physicians and updates on our progress with payers. Our goal remains to make PALSONIFY the first treatment of choice for all acromegaly patients, and we are perfectly on pace relatively to our expectations. With that, I will hand the call to Toby for our financial update. Tobin Schilke: Thank you, Isabel. Turning to Slide 20. Our financial results for the third quarter of 2025 reflect our continued disciplined execution and strategic investment in advancing our pipeline and commercialization of PALSONIFY. In the third quarter, we recognized $0.1 million in revenue from our licensing agreement with our Japanese partner, SKK. As expected, we did not recognize any revenue related to the launch of PALSONIFY in the third quarter due to the timing of approval, which was close to the end of the quarter. Under GAAP, we recognize PALSONIFY revenue upon delivery of product to our specialty distributor and specialty pharmacies. Product was shipped in the first few days of the fourth quarter, as Isabella stated, so we have recognized revenue in the fourth quarter. Our research and development expenses for the third quarter were $90.5 million compared to $80.3 million in the second quarter. This increase reflects our continued investment in our clinical programs, including start-up costs for our late-stage clinical trials and ongoing advancement of CRN09682, the first candidate from our novel non-peptide drug conjugate or NDC platform in early-stage clinical studies. Selling, general and administrative expenses were $52.3 million for the third quarter compared to $49.8 million in the second quarter. This increase reflects our investments to drive the successful execution of PALSONIFY's launch, including onboarding and deploying our field force, strategic marketing initiatives and the growth of corporate functions to support our commercial team. We used $110.7 million of cash in operations during the quarter, reflecting continued clinical development and launch preparation activities. Cash used in operations was slightly higher than anticipated this quarter, primarily due to timing of payables. We ended the quarter with $1.1 billion in cash, cash equivalents and investments. As of October 28, 2025, we had approximately 94.9 million shares of common stock outstanding. On a fully diluted basis, we had 111.9 million shares outstanding. This includes our outstanding options, unvested restricted stock units and shares expected to be purchased under our employee stock purchase plan. Moving to Slide 21. We are maintaining our guidance for net cash used in operations in 2025 and continue to expect that we use between $340 million and $370 million. Based on our current operating plans and cash position, we maintain our guidance that existing cash and investments will be sufficient to fund our operations into 2029. This provides us with significant runway to execute on multiple value-creating milestones, including the U.S. commercialization of PALSONIFY and the advancement of the rest of our pipeline. I will now turn the call back to Scott for some closing remarks. R. Struthers: Thank you, Toby. Slide 23 lays out the major commercial and clinical catalysts that we expect to drive significant value starting early next year and continuing over the next 18 to 24 months. Commercially, our entire focus is on executing a strong U.S. launch trajectory for PALSONIFY. We're already seeing the validation of our strategy with prescriptions coming from both community endocrinologists and the major pituitary centers. Initial feedback from patients, physicians and payers is positive. As I mentioned, we'll provide detailed launch metrics from the full Q4 results in January. We also have a great deal of momentum in the clinical pipeline. We have a key near-term data readout for the T2CANS study, which will include data from Cohort 4 and the initial open-label extension patients from prior cohorts. Beyond that, we have a robust set of late-stage programs advancing. We expect them to produce key data readouts, including from our CALM-CAH adult Phase 3 trial, the BALANCE-CAH Phase 2 pediatric study and our CAREFNDR Phase 3 trial in carcinoid syndrome. At the same time, our BRAVESST2 study for CRN-9682 is underway, and we anticipate initial data from dose escalation and expansion cohorts from this. Our Phase 2/III program for Cushing's disease is also kicking off soon. Behind all this, our discovery engine remains our foundation. We expect new internally discovered candidates to enter the clinic and provide their first early readouts during this period. In summary, we have a deep pipeline, a strong balance sheet and a clear path to continued value creation. We are executing on all fronts and look forward to updating you as we achieve these important milestones. Thank you for joining us today. We're now happy to take your questions. Operator? Operator: [Operator Instructions] First question comes from Catherine Novack with JonesTrading. Catherine Novack: I just want to ask a little bit maybe about some of the data that you showed at NANETS last week. I'm very interesting to see the PFS data in the NET patients with paltusotine that is. Can you tell us what the evidence is for somatostatin receptor ligands in this setting? Will you ever want to conduct survival studies with paltusotine alone? R. Struthers: Thanks, Catherine. Somatostatin receptor ligands are known to be slowing of the growth of neuroendocrine tumors, and that was proven in the CLARINET study with lanreotide. Mechanistically, we expect the same thing out of paltusotine, which is why we're monitoring this in the open-label extensions of the carcinoid Phase 2 and then soon the carcinoid Phase 3, but maybe, Alan, do you want to comment a little bit more on that to clarify what we see and what we're hoping to see. Alan Krasner: Sure. Yes, Catherine, so as Scott said, the SRLs have a known cytostatic kind of effect, improving progression-free survival in neuroendocrine tumors in general. We recently presented at NANETS, our exploratory data from our Phase 2 trial open-label extension patients, a small cohort of patients. In general, the PFS in that cohort looks comparable to what you would expect in a long-term trial in neuroendocrine tumors. Neuroendocrine tumors are very, very slow growing and advancing. In general, the time it would take to do objective response kind of trial, survival kind of trials is sort of out of bounds. It would be very, very long. PFS is usually used as the surrogate of those kinds of outcomes in this tumor type. In general, we're seeing an uncontrolled data, what we would expect to see, and we'll have a lot more data coming from the long-term Phase 3 cohorts as well. Catherine Novack: Then just it's disappointing to hear about the Graves' disease candidate, but glad that you were able to catch it early. Any clarity on what model you saw the tox signals? Was it an on-target toxicity? Or do you find that you're hitting a receptor that was unexpected? Any information? R. Struthers: No. It's idiosyncratic finding that really was driving the decision, nothing related to on-target activity. I think we have a very good understanding of the mechanistic biology of the TSH receptor, so that's never something we've worried about. Operator: We now turn to Cory Jubinville with LifeSci Capital. Cory Jubinville: You mentioned that the sales force has called on greater than 95% of top priority prescribers. Can you just remind us, one, how many prescribers that specifically includes? Two, the concentration of the immediately addressable, call it, 10,000 acromegaly patients that are at those top priority prescriber centers? Three, can you speak directly -- as you speak directly with these centers, what was the initial perception from those docs on PALSONIFY? How many of them have converted to actual prescribers or are actively working to make it part of their practice in the long term? R. Struthers: Yes. Thanks, Cory. Maybe before I hand it to Isabel to answer in a little more detail, just a reminder that we're deeply part of the pituitary community and the endocrinology community more broadly. It's great that our field force has been out there talking now at that level, but they've been out there with warm introductions from those of us who know these people for these prescribers for a long time. I'm really glad to see the response from the community, which has been quite favorable by all comments from all across our field force and directly that I've been hearing from them. We're still working our way through some of the administrative aspects of the pituitary centers, but I think that's well underway. Maybe you want to answer in more detail, Isabel, some of the more specifics that Cory was asking about. Isabel Kalofonos: Yes, absolutely. Thank you. First of all, I want to start with your second question. We are delighted that the treatment is very well received by the healthcare professionals, the patients and the payers. With healthcare professionals, they are responding really well to our very simple powerful message on first line of treatment, fast onset of action, fewer symptoms in finally on a pill. It's a very simple message, but it resonates because it really encompasses everything that they were looking for in a better treatment in a new standard of care. The response has been positive, and that has led to initial prescriptions from both, as Scott alluded to, PTC centers, but also community, where we see 70% of the prescriptions coming from community prescribers and 30% from PTC centers. We're encouraged by the community because many times, community tends to follow PTCs. The fact that both segments are adopting is a really good signal for us on the launch trajectory. When you look at our prescriber base, we have approximately 110 total prescribers, and the 95% doesn't refer to all of those 110 prescribers, but that the initial prescriptions, many of them are coming from members of that list. Cory Jubinville: I mean, it's interesting, building off that point, it's interesting to see that 70% of scripts are coming from community docs. Can you just help us better understand that dynamic a little bit more? I guess, why are some of these PTC centers, for lack of a better term, lagging behind? Is it just small sample size because we're early in the launch? Or are these community practices just a bit more nimble and you're dealing with some of the bureaucracy at these centers? Or yes, just curious to hear more about your strategy of how to activate centers. R. Struthers: Well, I think that we've seen in some of the other launches that have happened this year and recently, how important it is to think about the community upfront. That's how Isabel designed the whole field force as we were going into it. We deployed out to the community and to the centers in parallel. I think the thing that we've seen with the community, which is I don't know, very rewarding is that they are a little bit more nimble and more willing to reach out directly to patients and call them in and not just wait for the next appointment. If we think about the centers, I think they are more waiting for the patients to come in for their next appointment. The other thing that we're working with, with the centers, which is pretty much taken care of now, but it takes a little while to get the electronic medical systems so that they have one push button prescribing. It took a little bit to get the pharmacies activated at many of the centers. These are kind of normal administrative things that we've worked through. In no way do we see the centers as being slow. We just are pleasantly surprised at how nicely the communities responded. Operator: We now turn to Yasmeen Rahimi with Piper Sandler. Yasmeen Rahimi: Congrats to a great start, and thank you for sharing all the color. Maybe one question for the commercially related. I appreciate if you could kind of tell us about how you're thinking about providing free drug while getting reimbursement and how do you make those decisions? Then very excited to look forward to the CAH open-label data early 2026. Help us understand sort of in early 2026, whether you would be able to get to all 10 patients and what you hope to show in that data set? Then I'll jump back in the queue. R. Struthers: Yes. Let me take the second part first, and then Isabel, maybe you can take the first part about -- on the acromegaly side of things. Look, in addition to Cohort 4, patients have been rolling on to the open-label extension. That one has a relatively infrequent sampling, and so the first sampling there is 13 weeks. By the time we get to the early part of the year, we'll then have data from the Cohort 4 patients, plus a handful of patients who've gotten to 13 weeks from Cohorts 1 to 3 in the open-label extension. Now it's still a relatively small sample size, but we'll start to give a sense of what -- how this is behaving in a real -- more real-world setting where physicians can both reduce glucocorticoids and see what's happening with adrenal androgens. Isabel, sorry, I wanted to take care of that part. Maybe you want to talk about the question she had on acromegaly. Isabel Kalofonos: Yes, of course. Our market access team is executing with excellence. Our goal is to partner with our specialty pharmacies. When we get an enrollment form, our specialty pharmacies file the prior authorization to ensure that the claim is reimbursed. That's our first step. That's why we are very pleased that 50% of the claims has been reimbursed. Then if there is a challenge to the prior authorization, we send the Quick Start program because we want to make sure that while we do benefit verification and we complement any gaps that they have had, either adding some of the clinical records or putting the correct IGF-1 test in the file that we are able to process that in the background while the patients are on drug. We are ready to go with the Quick Start program as soon as possible, but we first give the opportunity to our specialty pharmacies to process the claims. Operator: We now turn to Douglas Tsao with H.C. Wainwright. Douglas Tsao: Again on all the progress. I guess maybe just feeding off the question in terms of where you're initially seeing demand in the community versus the centers of excellence. I'm just curious to the extent that you get a sense that this is -- there's awareness within the acromegaly community, who I know has a very active patient group and how much is sort of coming from the ground up versus prescription written by clinicians who as they see their patients are sort of recommending a switch or offering that choice to patients. R. Struthers: Yes. Thanks, Doug. I think it's still very early days, so it's very anecdotal, but we're hearing both, right? We're hearing physicians who talk to patients and tell them about something they hadn't heard of and are ending up switching to PALSONIFY. We're hearing about patients going in asking their doc for PALSONIFY. That's kind of cool, actually. I think it's a mix of both, but it's too early to start putting any sort of numbers to that. Isabel Kalofonos: I was just going to say that we have a very experienced dedicated team that had also connections in the community, which is also really helpful, right? They wanted to make sure that across the board, we are nimble, we're executing, and we make sure that -- those physicians that are ready to prescribe has the opportunity to do so. As Scott said, we are seeing prescriptions that are primarily coming from the prescribers, but we also see prescriptions that are coming from awareness that we have built through our marketing team and advocacy from the patients. Regardless, whichever prescription is done is because both of them agree that it's the best choice for the patients, so both the patient and the physician have to be informed. We are working across the board with those 2 audiences. Douglas Tsao: I'm just curious, and I know it's anecdotal, but I'm just curious in terms of prescribers as well as patients, what is interesting them? Is it the convenience of an oral therapy? Or is it really just the standout efficacy that were shown in PATHFNDR-1 and PATHFNDR-2 as a better treatment option for patients? R. Struthers: Go ahead, Isabel. Isabel Kalofonos: We have a mix actually. It's very interesting. Some of the doctors are very intrigued by the fast onset of action of the treatment and the fact that it's a reliable disease control. They see that also as the first treatment choice for some of the switching patients, but also naive patients. For example, we have a naive patient that has surgery but had a residual tumor. The patient now has reached 3 weeks on treatment. The physician did a second IGF-1 test, and he was really pleased to see that the patient was controlled, less than upper limit of normal in the IGF-1 test, but also saw an improvement on symptoms like swelling. That kind of experience is going to motivate that physician to put more patients on treatment as well as that patient is going to also share that experience later on with patients. We are very encouraged by that. We also see some patients that want to travel. We have -- or that their job description requires that they are free from the burden of the injections. That is also resonating, for instance, we have a firefighter that, of course, didn't want to come every month to the appointment. In addition to having -- not wanted to have the painful injection, had lots of breakthrough symptoms. Both the efficacy and the ease of use were important to him and the physician, so that's the kind of experience we're hearing from the field. R. Struthers: Yes. The other one that I was told about is an ER doc, Doug, who got just burned out on the injection, so reached out to his doc to switch. Again, these are just -- these are anecdotes, but they're very heartwarming, honestly. Douglas Tsao: That's really helpful to hear, and it's good to hear that feedback around the sort of broader value proposition of the product. Operator: We now turn to Maxwell Skor with Morgan Stanley. Selena Zhang: This is Selena on for Max. Has the timing of benefit verification for the Quick Start program met your expectations? When do you expect to have clear visibility into the breadth and depth of prescribing trends? R. Struthers: Well, I think the prescribing trends will update you further in the -- as we finish out the quarter, and we'll see and gain experience with that over time. Isabel, maybe you want to talk about the Quick Start program. Isabel Kalofonos: Yes. Of course, at the moment that we send the Quick Start program, benefit verification is happening in the background. Some of them are issues that are easy to resolve, like there was missing IGF-1 test or is missing clinical data. Other plans are requiring a little bit more. On average, in rare diseases, it takes around 57 days to be on Quick Start program, and we are trying to be below that number. R. Struthers: Yes. That's -- and then to kind of add to that, that's why we were pleased that we're already seeing patients getting on reimbursed PALSONIFY before we even have to give them the quick start program. That's been good to see. Not all of them, but some. Isabel Kalofonos: Yes, 50-50, which is really good results early in the launch. Because what we're seeing actually that is really encouraging is that payers are reimbursing to label as we had anticipated. We are also seeing that once it's approved, those approvals are coming for 6 to 12 months. The patient will continue on drug before any additional documentation is required. Operator: We now turn to Richard Law with Goldman Sachs. Jin Law: Congrats on the results so far. Based on your launch experience with PALSONIFY so far, what has been going well for you? Where can you see improvements? It would be great if you can talk about it in context of like commercial, Medicare and Medicaid segments. I don't know if it's too early because I assume most of these patients are coming from commercial. Yes, it would be great to hear how you things going well across these segments and where you can do better. I have a couple of follow-ups. R. Struthers: Yes. I mean, broadly, I'm super pleased with the way the team is out there performing and the response to the community. Any improvements are really incremental, but maybe you want to comment on some of your favorite pieces, Isabel? Isabel Kalofonos: Yes. Well, I was very pleased we have Dragon channel very early in the process. I believe that the team is executing with excellence across the board. Our sales team, our marketing team, our market access team and also commercial operations having the right tool. We know who to target and where the physicians are and where the patients are. So going very well, our CRM activation, our omnichannel strategy to create awareness, both with physicians and patients, our sales team executing and having great success in getting access with both community and PTC centers. and really delivering very powerful and simple messages. That is going really well and is resonating very well. We also had a successful initial advisory boards, and we're continuously getting feedback from the doctors as to what resonates with them and what else they would like to see in the future. That's also shaping our communication plan for [indiscernible] next year. We want to continue to create urgency. Some of those physicians are following the appointment cycles, waiting for the patient to come. A lot of what we want to continue to do is to create that sense of urgency. Those early positive experiences that we are seeing, that the physicians are seeing and the patients are seeing are very important for us, and we'll continue to translate them as testimonials in the future to continue to drive the uptake of the drug to our final goal, which is making PALSONIFY the new standard of care and continue to expand the acromegaly market. Jin Law: Then what about the insight to the segments? Are these mostly commercial so far? Then maybe comment on Medicare and Medicaid segments. Isabel Kalofonos: Interesting. There is a mix. We have commercial patients, Medicare patients and Medicaid patients, and we had claims approved for all 3 segments. One last point. is following the market trend, basically, the majority of them are commercial claims, but basically very similar to the actual payer mix. Jin Law: Then what is the turnaround time and that range of that for payers to approve PALSONIFY, assuming that patients already met the prior authorization requirements, including step edits. What's that turnaround time for payers to approve? R. Struthers: Let's get a little larger sample size before we start doing calculations like that, right? Still a little too small to -- a little early in the launch to do that. Jin Law: Then just one more. In terms of the payer rebate, I know you guys are not doing payer rebate for commercial. Is that still the case? R. Struthers: That's correct. Isabel Kalofonos: That's correct. We are not planning to do that. R. Struthers: Reminder folks, let's try and keep to one part question. We got a bunch more people waiting in line. Operator: We now turn to Tyler Van Buren with TD Cowen. Nick Lorusso: This is Nick on for Tyler. Congrats on the progress so far in this launch. My question is you reported that 95% of filled prescriptions today are from switch patients, which we've talked about a little bit now. What's the plan to reach additional treatment-naive patients? Which do you expect will be the largest drivers of long-term growth? R. Struthers: Yes. I think if you look at the -- what we've said in the past, there's roughly 500 patients a year coming on to medical therapy. It's kind of a trickle of those new patients. The fact that we're starting to pick those up, I think, goes very much to the profile of the drug, like this one patient that's already controlled 3 weeks in. I mean that's awesome. I think the bigger challenge then is, as we talked about this phase -- 3-phase strategy is getting to those patients who, for whatever reason, are not on medical therapy, but should be. There's roughly 4,500 treatment naive. Some of these are patients who probably are not at the level of control that they should be, and so we're digging into that. I think like many rare disease therapies, once you start getting the word out there that there's a new therapy that's not the burden that you have with the depots that we'll start to get people back. Those are the ones -- those first ones in Phase 1 are just the tip of the iceberg because the next part are these patients who've discontinued therapy and/or have been lost to follow-up and bringing those back in is another very significant group. Then, of course, the big aim is to really start to improve awareness and find better ways of getting people to suspect acromegaly so that you can do an IGF-1 test and diagnose it. there's 17,000 people out there that the best we can tell that have yet to be diagnosed, but they're getting damaged to their joints, their heart every day. We'll be launching a variety of different efforts to do that more specifically next year. I think even these awareness things that we're doing like Alan's interviews with Tony, I think that's going to start helping sooner rather than later. Isabel Kalofonos: I have been in the field together with our sales team, and I was having a conversation with one of our key prescribers in a key center. He answered the way I think about this, who is not the right patient for PALSONIFY. Early on, of course, we're going for the switch and naive patients. but we believe that this treatment will help us expand the market over time. Operator: We now turn to Andy Chen with Wolfe Research. Brandon Frith: This is Brendan on for Andy. In the opening remarks, you mentioned aiming to position PALSONIFY as a first-line therapy. We're curious to know how you expect to do that with generics currently on the market. R. Struthers: Well, that's an easy one. I mean, if you look at the label, it's indicated for the treatment of acromegaly in-patients who have not had adequate response to surgery or for whose surgery isn't indicated or appropriate. The biggest reason why you want to go on to PALSONIFY in that situation for the new patients is like that one I mentioned, they're controlled in 3 weeks. We got great data from PATHFNDR-2 showing 2 to 4 weeks to get people controlled, whereas in the depots, your first dose adjustment isn't for 3 months. You don't even know if that first dose works after 3 months, and then you go to the second dose, so you wait until 6 months. Then you may need the highest dose until you're 9 months out before you know whether it works. That's not the right medicine, so PALSONIFY is really the best option for somebody newly diagnosed. I don't see an argument that whether it's generic or not matters. Isabel Kalofonos: Yes, we are not seeing that kind of pushback from payers also. We see that the value proposition is resonating really well with them, and they understand the value of the treatment. The reduction of waste applies whether it's generic or not generic. The fact that patients continue to have -- is irrelevant to whether it's generic or not. Also, as you know, generics don't have the support services that we are able to offer like a Quick Start program, the co-pay for the patients, 0 co-pay for commercial patients and all the support that they will get. Operator: We now turn to John Wolleben with Citizens. Jonathan Wolleben: Congrats on the progress. Scott, you kind of discussed the 3 phases of PALSONIFY 's launch. I was hoping you could talk a little bit about the timing of the sequence and how you think about moving from one phase to the next, if there's benchmarks you want to hit in each one or if it's going to be more of a continuum. Just wondering how to think about you guys tackling these different buckets of patients. R. Struthers: Yes. I don't mean to imply it's a sequence, but it's a sequence of enhanced efforts. I really want the group out there in the field focusing on those patients in the first phase and getting the word out so that we have broad prescriber base. I think you're seeing that already with the response of the community. Then, in addition, because it will take some time to work our way through all those Phase 1 patients. Before we're done with that, then we also would start getting more active in finding ways to bring patients back to care. That may be -- that may take a variety of different forms. It's really just about how we layer on our efforts rather than go from one phase to the next, if that makes sense. Jonathan Wolleben: Do you think the current sales force is rightsized to handle that expansion over time? R. Struthers: Yes, absolutely. I think we're doing very good in the coverage. It's a fairly concentrated prescriber base. We were planning for the community from the start. I think it's more about the types of activities that we do to try and help find these patients who need to come back to care, improve diagnosis rather than just switching efforts from one thing to another. Operator: We now turn to Jessica Fye with JPMorgan. Jessica Fye: I wanted to follow-up on one of the earlier questions. What should we be most focused on when we take a look at the Cohort 4 data for Atumelnant? What are you going to be watching for similarly in that Phase 2 OLE data? I guess, stepping back, how much of a read is Cohort 4 or these initial OLE patients going to give us into the potential steroid reductions that we could expect in Phase 3? R. Struthers: Yes. Well, a couple of things. One, I'll just put some caveats. It's still relatively small numbers of patients. It allows the chance for physicians to begin to do steroid reductions in the actual treatment period of 12 weeks, that's pretty fast, right? I think that, together with the open-label extension data where there's a little more time. Generally, I think it will give the directionality, but I wouldn't start doing power calculations or things based on it. That makes sense. I think there's been a lot of interest in this Cohort 4 data, and it's interesting, but again, it's relatively small numbers. Jessica Fye: When should we expect the preliminary Phase 2 data for Atumelnant in peds? R. Struthers: I don't have exact timing on that, but that will come out in some phases because we're starting with older adolescents and then working our way down the age groups, right? We'll start expanding those populations into the Phase 3 portion as the age groups get the dose validation that we need. Operator: We now turn to Alex Thompson with Stifel. Patrick Ho: This is Patrick Ho on for Alex. I guess on the naive patients, are you guys seeing different dynamics here from payers? Or is it similar to the switch patients? Isabel Kalofonos: Similar dynamics. We had some reimbursed claims and some that we are processing through the Quick Start, so similar in both cases. R. Struthers: Again, early days. Operator: We now turn to Joe Schwartz with Leerink Partners. Joseph Schwartz: How does the traction you're getting at this early Phase 1n the PALSONIFY launch compared to the market research you've done in terms of willingness to prescribe or any other factors you consider important? R. Struthers: Thanks, Joe. I think we have not had any real pushback from prescribers about use of PALSONIFY, as was mentioned earlier by Isabel, who shouldn't get PALSONIFY. I think it's just the normal -- we're observing the things that are basically in line with our expectations. We're building momentum and working through a little bit of inertia in the system, but the patients are starting to come in. As they come in, I think they'll be best served with PALSONIFY. There's really not much pushback. Joseph Schwartz: How much of a continuum is there in terms of running from inertia to excitement given providers are encountering a new treatment option, but they've been quite used to using legacy treatments for quite some time? R. Struthers: Maybe you want to take that, Isabel. I don't think it's the legacy of use that is anything that's really in the way. I think they see the benefits of PALSONIFY. Go ahead, Isabel. Isabel Kalofonos: Yes. We see a lot of excitement in the prescriber community. When they look at the data, they really understand the value proposition with the efficacy, the fast and of action finally on a -- the inertia that Scott was referring to is more the normal cycle that takes place in rare diseases where appointments take place every 6 months to a year and physicians are not necessarily always having the support system to start calling the patients, but they will go with the flow of the appointments and wait to offer this new option to patients when the patients have their next appointment. We see that narrowing down the story to a particular patient for that physician where urgency is higher is helping, but we know that there will be a cycle similar to all rare disease launches. Operator: We now turn to Dennis Ding with Jefferies. Anthea Li: This is Anthea on for Dennis. Just 2 quick ones. On PALSONIFY, could you elaborate on just how many patients in the open label are now transitioning to commercial supply and the time lines there? Just curious if we would see all of that contribution in Q4 or later in 2026. Then on the pipeline, any updates on the progress for the GLP programs? I think there was previous talk of candidate selection in '25, so just curious on progress there. R. Struthers: Yes. Just on the open-label extension patients, all 22 are in various stages of enrollment. They've all enrolled for commercial supplies, but they have to wait until their final follow-up visit as part of the open-label extension so that we can finish all the monitoring as part of that. I think most of those are through -- are completed by the end of the year, but I don't know the exact numbers at this point. Then the GLP-1s, obviously and other obesity things we're working on, obviously, a very interesting space, especially today. I think we're going to stop talking as much about our early-stage programs now that we're really concentrated on the launch and our late-stage clinical development. I think it's just more appropriate that we -- when we're in the clinic, we'll let you guys know, but we're thinking hard about it, working hard on it, and you're going to see a lot of new things come out of the Discovery Group and not just soon, but for years to come. Operator: Ladies and gentlemen, we have no further questions. This concludes our Q&A and today's conference call. We'd like to thank you for your participation. You may now disconnect your lines.
Operator: Welcome to BCP Investment Corporation Third Quarter Ended September 30, 2025 Earnings Conference Call. An earnings press release was distributed yesterday November 6, after market closed. A copy of release along the earnings presentation is available on the company's website at www.bcpinvestmentcorporation.com in the Investor Relations section and should be reviewed in conjunction with the company's Form 10-Q filed yesterday with the SEC. As a reminder, this conference call is being recorded for replay purposes. Please note that today's conference call may contain forward-looking statements, which are not that guarantees of future performance or results and involve a number of risks and uncertainties. Actual results may differ materially from those in forward-looking statements as a result of a number of factors, including those described in the company's filings with the SEC. BCP Investment Corporation assumes no obligation to update any such forward-looking statements unless required by law. Speaking on today's call will be Ted Goldthorpe Chief Executive Officer, President and Director of BCP Investment Corporation; Brandon Satoren, Chief Financial Officer; and Patrick Schafer, Chief Investment Officer. With that, I would now like to turn the call over to Ted Goldfarb, Chief Executive Officer of BCP Investment Corp. Please go ahead, Ted. Edward Goldthorpe: Good morning. Welcome to our third quarter 2025 earnings call. I'm joined today by our Chief Financial Officer, Brandon Satoren, and our Chief Investment Officer, Patrick Schafer. Following my opening remarks on the company's performance and activities during the third quarter, Patrick will provide commentary on our investment portfolio and our markets, and Brandon will discuss our operating results and financial condition in greater detail. We are pleased to report strong results for the third quarter our first earnings as a combined company on the completion of our merger with Logan Ridge on July 15, 2025. This milestone marks the beginning of a new chapter for BCIC, as we continue to leverage our expanded scale, broader portfolio diversification and enhanced operating efficiency to drive long-term value for shareholders. I'm pleased to report meaningful progress on the value creation initiatives we announced in June 2025. Notably, consistent with our previously stated intentions, the company plans to commence a modified Dutch auction tender approximately $9 million combined with the daily share repurchases executed by the company under the buyback program as well as open market purchases by management, the adviser and its affiliates. We anticipate total repurchases when combined with managements, advisers and its affiliates ownership of BCIC's outstanding stock can approximate 10% by year-end. These actions underscore our continued focus on driving shareholder value and narrowing the discount to NAV. During the quarter, we generated net investment income of $8.8 million or $0.71 per share compared with $4.6 million or $0.50 per share in the prior quarter. We expect to realize further benefits of our expanded scale and broader investment platform. For the fourth quarter of 2025, the Board of Directors approved a base distribution of $0.47 per share, which been annualized based on November 6, 2025 closing price of $12.13 per share represents a yield of 15.5%. Before handing over the call, I'd like to take a moment to address recent commentary in the broader private credit markets. While recent high-profile collapses of certain borrowers understandably drawn market attention, we firmly believe the full scale of concern for the overall private credit market is unwarranted. Echoing sentiment from other leaders in our industry, in the case of First Brands, for example, only 2% of its nearly $12 billion balance sheet was linked to private credit highlighting that events like this aren't signs of systemic weakness, if the sector has been subject to disproportionately heightened scrutiny despite its limited involvement in these high-profile bankruptcies. Looking ahead, our focus remains on disciplined capital allocation, maintaining a high-quality portfolio and delivering attractive risk-adjusted returns to our shareholders. With a larger, more diversified platform, and a stronger balance sheet, we believe we are well positioned to drive continued earnings growth and long-term value creation. With that, I will turn the call over to Patrick Schafer, our Chief Investment Officer, for a review of our investment activity. Patrick Schafer: Thanks, Ted. Overall M&A activity in our core markets continued to increase during the quarter as a combination of easing benchmark rates and more settled tariff framework gave sponsors more confidence in the macro environment. To illustrate this, over 80% of our new fundings during the quarter -- we're a new borrowers, a significantly higher percentage than what has historically been over the last several quarters. With the renewed activity has also come renewed competition on deals and overall tightening of spreads. As we've noted in the past, our focus on companies with less than $50 million of EBITDA and our sourcing of nonsponsor-backed companies provides some inflation to these trends. We continue to be selective from a credit quality perspective and are focused on maximizing risk-adjusted returns for our shareholders. Turning to Slide 10. Originations for the third quarter were $14.2 million and repayments of sales were $43.8 million, resulting in net repayments and sales of approximately $29.6 million. Overall yield on par of the new debt investments during the quarter was 12.5%. This compares to a 13.8% weighted average annualized yield, excluding income from nonaccruals and collateralized loan obligations, as of September 30, 2025. Excluding the impact of purchase discount accounting, the weighted average annualized yield, excluding income from non-accruals and collateralized loan applications, was approximately 10.3% as of September 30, 2025. Our investment portfolio at year-end remained highly diversified. We ended the third quarter with a debt investment portfolio, when excluding our investments in CLO funds, equities and joint ventures, spread across 79 different portfolio companies and 28 different industries, with an average par balance of $3.2 million per entity. Turning to Slide 11. At the end of the third quarter of 2025, we had 10 investments on nonaccrual status, representing 3.8% and 6.3% of the portfolio at fair value and cost, respectively. This compares to 6 investments on nonaccrual status as of June 30, 2025, representing 2.1% and 4.8% of the portfolio at fair value and cost, respectively. I would note that the quarter-over-quarter increase does include investments acquired through the Logan Ridge transaction that were on nonaccrual at the time of that transaction. It's further worth noting that 2 of the investments currently on nonaccrual status, we continue to recognize interest income on a cash basis, but is only when payments are actually received. On Slide 12, excluding our nonaccrual investments, we have an aggregate debt investment portfolio of $429.5 million at fair value, which represents a blended price of 93.1% of par value and is 84.4% comprised of first-lien loans at par value. Assuming the par recovery, our September 30, 2025 fair values reflect a potential of $31.2 million of incremental net value or a 13.7% increase to NAV. But applying an illustrative 10% default rate and 7% recovery rate, our debt portfolio would generate an incremental $1.36 per share of NAV or a 7.8% increase as of our [indiscernible]. I'll now turn the call over to Brandon to further discuss our financial results for the quarter. Brandon Satoren: Thanks, Patrick. For the quarter ended September 30, 2025, the company generated $18.9 million in investment income an increase of $6.3 million compared to $12.6 million reported for the quarter ended June 30, 2025. Core income for the same period periods was $15.3 million and $12.6 million, respectively. The increase in investment income from the prior quarter was primarily driven by the Logan Ridge acquisition, which contributed $7.4 million of GAAP income and $3.8 million of core. For the quarter ended September 30, 2025 gross expenses were $10.3 million and net expenses were $10.1 million, which includes the $0.2 million performance-based incentive fee waiver. This represents a $2 million increase compared to $8.1 million for the prior quarter. The increase in expenses compared to the prior quarter reflects the larger combined company. Accordingly, our net investment income for the quarter ended September -- for the third quarter of 2025 was $8.8 million or $0.71 per share, which constitutes an increase of $4.3 million or $0.21 per share from $4.6 million or $0.50 per share for the second quarter of 2025. Core net investment income for the third quarter of 2025 was $5.3 million or $0.42 per share compared to $4.6 million or $0.50 per share for the second quarter of 2025. As of September 30, 2025, our net asset value totaled $231.3 million, an increase of $66.6 million from the prior quarter's NAV of $164.7 million. The increase in total NAV on a gross dollar basis was primarily driven by net realized and unrealized gains of $14.8 million, the $49.6 million impact on a GAAP basis of the Logan Ridge acquisition, partially offset by the third quarter distribution exceeding core net investment income for the prior -- compared to the prior quarter's distribution of $1.1 million. On a per share basis, NAV was $17.55 per share as of September 30, 2025, representing a $0.34 decrease compared to $17.89 as of June 30, 2025. The decline in NAV per share was primarily due to core net investment income, which excludes purchase discount accretion, not fully covering the dividend for the quarter and approximately $4 million of mark-to-market losses across the portfolio. As of September 30, 2025, our gross and net leverage ratios were 1.4x and 1.3x, respectively, compared to 1.6x and 1.4x, respectively, in the prior quarter. Specifically, as of September 30, 2025, we had a total of $324.6 million of borrowings outstanding with a current weighted average contractual interest rate of 6.1%. This compares to $255.4 million of borrowings outstanding as of the prior quarter with a weighted average contractual interest rate 6%. The company finished the quarter with $110 million of available borrowing capacity under the senior secured revolving credit facilities subject to borrowing base restrictions. Consistent with our long-term capital approach, we proactively extended and laddered our unsecured debt maturities, issuing a $75 million, a 7.75% note that is due in October 2030 and a $35 million, 7.5% note due October 2028, while at the same time, initiating the redemption of our 4.875% notes due in April 2026 expected to be completed on or about November 13. These actions diversify funding reduce near-term refinancing risk and enhance financial flexibility. With that, I will now turn the call back over to Ted. Edward Goldthorpe: Thanks, Brandon. Other questions, I'd like to reemphasize how excited we are about the opportunities. The newly combined company are already creating. As we move forward, our focus remains on disciplined capital allocation, maintaining a high-quality portfolio and delivering attractive risk-adjusted returns for our shareholders. With a more diversified platform and a strengthened balance sheet, we believe we are well positioned to drive the continued earnings growth and value creation and the earnings in the quarters ahead. Thank you once again to all of our shareholders for your ongoing support. This concludes our prepared remarks, and I'll turn over the call for any questions. Operator: [Operator Instructions] Your question comes from the line of Erik Zwick with Lucid Capital Markets. Erik Zwick: To start first -- I wanted to start first in terms of -- with your kind of announcement of potentially repurchasing 10% of the share. Just want to make sure, is that relative to the 9.30 million outstanding balance of about 13.96 million? Brandon Satoren: It's relative to the transaction closing shares, which was about 13.2 million off the top of my head. Let me... Edward Goldthorpe: Yes, when we announced -- when we closed the transaction, we committed to shareholders that we buyback a bunch of stock between like as soon as practically possible. And obviously, we were in a blackout period until today. So the intention is to buyback 10% of the closing amount of shares. Patrick Schafer: But Erik, the short answer is there were not a lot of days in Q3 that we could do anything because of some of the rules around 6-day pulling off period, things like that. So it's off of a slightly higher number than the September 30, but that's going to be a decent approximation. Brandon Satoren: That's right. If you recall, we had -- I was going to say, Erik, we had to wait 60 days until after closing before we could turn the buyback back on, but we did provide some color on post quarter end. Daily repurchases in our subsequent events, which was about $1.2 million. Erik Zwick: Actually, yes, I did see that, too. So great. Yes. That's helpful. And then secondly, looking at Slide 11 and just noticing the quarter-over-quarter improvement in your internal ratings performing versus underperforming. Was the majority of that change from June 30 to September 30, the result of the combination as well? Or is there any additional kind of upgrades going on within the combined portfolio? Patrick Schafer: Yes. I mean the short answer is like both. I mean, there were certain upgrades going into the portfolio, but the reality is we added a significant chunk through the Logan and kind of using those internal ratings kind of gives you that. So again, it's a little bit of both, but my hunch is the -- without giving the specifics like the -- it's probably the assets from Logan coming on to the balance sheet in those ratings as opposed to a broad swath of increases. Edward Goldthorpe: Yes, probably like the biggest surprise for us over the last 6 months is we really haven't had a lot of negative portfolio surprises. And we've had a bunch of positive portfolio surprises. And again, our LPs and our shareholders are a little rattled by some of the recent headlines out there around First Brands, Tricolor, this telecom name last week. The reality is a lot of those are really idiosyncratic. I mean a lot of them are related to fraud, #1. But #2 is a lot of the underperformance has been in their asset-based parts of their business as opposed to their cash flow-based parts of their business. So this BDC sell-off, we think, is probably overdone. It's beginning to correct a little bit, but we're not seeing broad-based weakness in our portfolio. Erik Zwick: I appreciate the commentary there. And I would echo that sentiment just from the number of portfolios I've reviewed so far this earnings season. And just with respect to the 10 credits that are on nonaccrual at this point. Could you just kind of maybe walk through your strategy and methodology for resolving those, if there's any potential for restructurings or sales or resolutions in the near term for any of those? Patrick Schafer: Yes, Erik, I mean, the short answer is they're all very like company specific. So there's 1 name that we're in the process of restructuring and that hopefully is going to get resolved in Q4, it maybe it flips into Q1, but that's a kind of relatively near-term thing that we'll get resolved out. There's one of them that is sort of for sale in the market and hopefully, they have a couple of provisions and hopefully some are all that get resolved in Q4 and then -- but other than that, the rest of them is, again, continuing to optimize what's the best return, whether that is putting a little bit more capital to growing the businesses, whether it's looking for restructuring the balance sheet or just kind of an outright sale, each of the opportunities are sort of like one-off and have their own kind of crossing path. But there are, again, probably 2 or 3 companies that we would hope to have a near-term resolution on. Edward Goldthorpe: Erik, it's worth highlighting. Last quarter, you may have noticed there were 2 assets we put on cash basis income recognition, that's generally a good indicator when you start recognizing some income on the assets. And again, when those assets are current on the debt and paying their coupon interest. Operator: Your next question comes from the line of Steven Martin with Slater Capital. Steven Martin: Congratulations on getting the deal done and cleaning -- starting the cleanup process. With respect to the buyback, which you know we applaud, how is that going to affect your ability to continue to do deals going forward? And can you also talk about what the Q4 activity level looks like? Edward Goldthorpe: Yes, I'll answer the first comment. I mean, if you look this quarter, we obviously came into the quarter with a lot of cash because we were just kind of gearing up for this, again, when you take huge step back, if you look at where spreads are in the middle market, versus where our stock trades, it's still accretive for us to buyback stock. So we aren't seeing -- there's a massive pipeline that I should really defer to Patrick on this, but we have a massive pipeline of what I would call generic sponsored finance. The ability to get premium pricing, I would say, or wider spreads. Our pipeline in that area is probably not as robust -- so we've a limited amount of supply like L475, L500 kind of thing. We're not seeing a lot of like much wider spread and stuff that we like right now. I don't know, Patrick, if you approve that. Patrick Schafer: No, those are right. I've kind of said this several times on our calls. But from our perspective, it's around getting the right pipeline in the portfolio as opposed to, as I said, that we could load up on S475, S500 (sic) [ L475, L500 ] unitranches. I'm not sure that, that ultimately spits out the right ROE for our shareholders. So we're being careful and judicious with how we actually deploy our capital, but we do have a very, very large pipeline of opportunities to the extent that sort of we feel like the credit and the pricing align with each other. Steven Martin: [indiscernible] your investing in your own stock at the -- where your own stock trades? Patrick Schafer: Yes, that's right. So again, we run the math every single quarter for our board and we show the math of doing a new investment versus the buyback and buybacks generally. They're kind of fairly similar, to be honest, depending on what you see on pricing, but buybacks over guaranteed return. And we feel like it's pretty shareholder friendly and we're supportive of making the right capital allocation decisions for our shareholders. Edward Goldthorpe: Yes. And I think it's worth noting, Steve, that, just to sort of reinforcing the point that we think it's important to do for shareholders at these prices, especially because of the day 1 have impact. However, it is hard to buyback large swaths of our equity and maintain prudent leverage ratios. So you'll note the fund is going to buyback $7.5 million. Management is going to come in and fill out the rest of the order flows for the buyback. So recognizing exactly what you're heading at. Steven Martin: Yes. No, look, we applaud both and we have been a proponent of management increasing its stake as well. Just out of a curiosity, has there been any further realizations. I assume most of what's in the legacy LRFC portfolio is still a lot of equity? Patrick Schafer: No, I don't think that's a fair statement. I don't have the number off the top of my head to be honest, Steve. But it's probably disproportionate relative to the rest of our book. But I would have to run the math, but I'd -- I mean, maybe it's 1/3 to 1/2 of it, $20 million or so of equity. But I would not say it's the majority of it. Steven Martin: Okay. On that same page, just out of curiosity on Page 10, the weighted average yield on debt investments at par is 13.8%, does that have something to do with the purchase accounting because it jumped up from 10.7% to 13.8%? Edward Goldthorpe: Yes, that's exactly right. So on a core basis, it's about 10.3%, Steve. But that is the impact of purchase accounting accretion you may note when you do an asset acquisition, the Board negotiates everything on a NAV-for-NAV basis, but the actual accounting for it, when you issue the equity, it actually is issued at the market price or closing stock price on the issuance date. So because of the discount to NAV on the issuance date, that creates a large disconnect between the NAV you're bringing on. And the dollar value of the purchase reflected in your financials, which creates an unrealized gain that's allocated to the cost basis of your investment portfolio, which is accretive... Steven Martin: I got that. You might want to consider either footnoting that or putting a second number there? Patrick Schafer: Yes, good call. Again, putting the 2 portfolios together was slightly dilutive on a yield at par basis. But as I mentioned on the call, our new origination was about 12.5% yield. So obviously, we're -- we're being thoughtful and selective about our new investments to kind of work on increasing that yield despite sort of where kind of spreads are going in the market in general. Steven Martin: Okay. Can you talk about PIK this quarter? It didn't move too much and what's going on, on the PIK side of the portfolio? Brandon Satoren: Steve, it actually did come down quite a bit as a percentage of the book. It's down to about 14.3% and it was pulling up what it was last quarter, but it was quite a bit higher, north of 20%, I believe. Yes, 19.5%. Steven Martin: As a percentage of the current quarter's income. Edward Goldthorpe: Yes, that's right. Yes, I mean, it's come down quite materially, Steve. It's got its come down on a combined basis by a quarter. Patrick Schafer: Yes, by 5 points. And again, we're -- as I said, like , but part of our strategy is a good amount, but -- not good amount, but we have securities on our book to have a mix of cash and cash and PIK, we have investments that we do that we look at a first-lien and a preferred equity investment together for the same company, and that preferred is PIK and the first lien is cash. So again, as you've kind of noted before, not all PIK are bad PIK, but we are certainly actively working to reduce that number and are conscious of market perception of that and are being careful as we think about new deals and how we think about allocating to kind of make sure that we are overweighting cash opportunities versus things that have a blend of cash impact... Steven Martin: Okay. Brandon overhead expenses and the expense side of the income statement. Is this quarter exemplary -- or is there -- does this quarter still have merger-related costs that are going to come out? Brandon Satoren: So this is actually a pretty decent run rate. Most of the transaction costs don't flow through the income statement here, they hit NAV on the closing date. There were some elevated expenses, obviously, for time spent integrating the portfolios, et cetera. However, we closed on July 15. So there's next quarter we'll have 15 days of extra expenses. However, we think that $1.9 million, $1.8 million number is a reasonable run rate for the combined. Steven Martin: Got it. Professional fees were elevated. Is that still residual? Brandon Satoren: Yes, exactly. Operator: Your next question comes from the line of Christopher Nolan with Ladenburg. Christopher Nolan: Steve, just asked all my questions. Operator: [Operator Instructions] Your next question comes from the line of Erik Zwick with Lucid Capital Markets. Erik Zwick: Just a quick follow-up. On the topic of the purchasing accounting accretion, was all of the discount recorded in 3Q? Or I suspect there may still be potentially more so what is that balance and over what kind of time period will the remaining amount be recognized? Brandon Satoren: Yes. Brandon, but it's generally recognized over the duration of the underlying assets themselves -- so it's tough to tell you exactly in what that would be, the decline curve, if you will, is going to be based on how those assets get monetized and what their maturity dates are, et cetera. Erik Zwick: In terms of -- go ahead. Brandon Satoren: I was going to say, Erik, there was about just north of $21 million of purchase accounting accretion. There's about $18 million left. So I would just say, generally speaking, the a lot of the purchase accounting increase in tends to work its way through the book in the first couple of quarters after closing. It is recognized over time, but obviously, you have assets with shorter maturities, things like that and natural portfolio rotation as a result of the integration that again, this quarter, we had $3.6 million on effectively a stub quarter, so. Erik Zwick: Yes. Okay. So a greater amount up front end and it will kind of trail off as that portfolio kind of matures and pay down over time. That's very helpful. Operator: There are no further questions at this time. I will now turn the call back over to Ted Goldthorpe for closing remarks. Edward Goldthorpe: Thank you all for attending our call. As always, please reach out to us with any questions, which we're happy to discuss. We look forward to speaking to you again in March when we announce our fourth quarter and full year 2025 results. Have a good weekend, and thank you very much. Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
Operator: Hello, and welcome to the Proximus Q3 2025 Results Conference Call. My name is Sergey, and I'll be your coordinator for today's event. Please note, this conference is being recorded. [Operator Instructions] I will now hand you over to your host, Nancy Goossens, Investor Relations lead, to begin today's conference. Thank you. Nancy Goossens: Thank you, ladies and gentlemen. Welcome to the Proximus Third Quarter Results Webcast. We will begin with our presentation, and it is my pleasure to introduce our new CEO, Stijn Bijnens, who will walk you through today's highlights. Our CFO, Mark Reid, will then present the financial results. A Q&A session will follow with Jim Casteele, the consumer market lead also participating. Handing over now to Stijn for the highlights. Please go ahead. Stijn Bijnens: Also, welcome from my side. I'm honored to present my first round of Proximus results to you today. As you have seen in our published report this morning, Proximus continued its robust domestic performance despite the intense competitive environment. This is reflected in both another strong financial and operational quarter. Network leadership remains at the core of the success with 5G coverage now over 85% and fiber in the street covering more than 47% of the Belgian homes and businesses. We're pleased that the Belgian Competition Authority announced the launch of the market test and our proposed gigabit network collaboration in Flanders, while the negotiations in Wallonia are ongoing. The Proximus Global segment continues to experience challenges related to SMS CPaaS and integration issues, prompting a reassessment of ambitions, which will be addressed later in this presentation. And finally, we concluded the sale of Be-Mobile, keeping us well on track to realize the EUR 600 million asset sales program. Based on the results and current projections, we've updated our outlook, which I'll discuss shortly. Moving to our key financial results now. For the Domestic segment, we closed the third quarter with stable services revenues. Thanks to a favorable revenue mix, driving higher margins and costs turning stable year-on-year, we closed Q3 with a domestic EBITDA growing 1.8%. For the Global segment, the direct margin was down by 12.2% at constant currency, caused by the headwinds previously mentioned. This resulted in an EBITDA decline of 22.3% despite cost synergy realizations. This brings our group EBITDA to EUR 475 million for the third quarter, a decline by 1%. Our CapEx for the first 9 months was EUR 826 million. And the free cash flow, we ended the first 9 months with EUR 428 million in total. Excluding the proceeds from asset sales, our organic free cash flow was EUR 159 million, a strong improvement year-on-year. Let's have a look now at the operational results. Despite the intense competition, the operational performance was very strong with mobile postpaid adding 45,000 cards and our Internet subscriber base growing by 12,000 lines. Our convergent base continued its steady growth, adding 12,000 residential customers in the third quarter. The solid commercial performance was supported by the portfolio changes of the Proximus brands, attractive mobile joint offers and the ongoing convergence strategy. We also continued focusing on innovation and optimizing the customer journey as we launched our new features to help customers onboard via eSIM. Regarding the B2B unit, which closely aligns with my professional background, Proximus holds a robust position in the market today, and we are developing strategies to capture growth opportunities. I'm committed to shape Proximus B2B future and to drive growth, leveraging the strong network assets of Proximus while exploring new layers of innovation. Our focus is on sovereignty and next-generation AI opportunities. To make this happen, we will be collaborating with leading technology partners to validate impactful use cases. We will elaborate on this during the Capital Markets Day in February. As previously mentioned, the high-quality network is an essential contributor to the success of Proximus. Across Belgium, we have now a total of almost 2.5 million fiber homes, meaning a population coverage of over 41% and including fiber in the Street, we are at 47% coverage. The fiber network filling rate progressed to 33%, up from 30% 1 year back. At the end of September, the base of active fiber customers totaled 684,000, including 39,000 added over the third quarter. We are pleased with the announcement of the Belgium regulators on the start of a market test assessing our proposed gigabit network collaboration between wire, Telenet and Proximus in France. The market test will conclude on Friday, November 21. At the same time, fiber negotiations in the South are ongoing. As a last point on the domestic side, I would like to highlight the progress made on the disposal program of noncore assets. As was announced at closing, the sale of Be-Mobile was completed early October and leaves us very much on track for the EUR 600 million ambition that we have set for the end of '27. Turning to the full year guidance. For domestic, we reiterate our outlook given end of July with domestic EBITDA expected to grow up to 2%. This despite the impact of the Be-Mobile divestment and not having renewed the football broadcasting contract with DAZN. Taking into account the ongoing headwinds regarding the Proximus Global segment, we expect the EBITDA of Global to be lower year-on-year by around minus 10%. We have lowered this year's guidance for accrued CapEx to approximately EUR 1.250 billion. This is because the integration of Fiberklaar is leading to more effective and efficient fiber rollout some lower project-related CapEx and less investment needs for Global. This, combined with not having renewed the Belgian football contract leads to organic free cash flow expected to land to around EUR 100 million. And finally, the projected 2025 net debt-to-EBITDA ratio improved to around 2.8. We also confirm our intention to return an interim dividend of EUR 0.30 per share payable on December 5, post final approval of the Board scheduled later this month. For Global specifically, we have reassessed our growth projections for the coming year. While new growth initiatives have been launched and cost synergy delivery is progressing, high exposure to the legacy P2P voice and messaging and as well as SMS CPaaS is expected to continue having a significant impact. Therefore, the '26 Global ambition is being adjusted. The preliminary review for 2026 indicates Proximus Global EBITDA will be in the range of EUR 100 million to EUR 130 million. In collaboration with Seckin Arikan, the new global CEO, a strategic plan is being developed with the objective of resuming growth from 2027 onwards. An update on the plan for Proximus Global will be provided at the Capital Markets Day. I hand over to Mark now for the detailed financial results. Mark Reid: Thank you, Stijn. Let me start by taking you through the financial sections of the domestic business. Starting with our domestic revenue, as illustrated on the chart, services revenue grew slightly. And when including revenue from Terminals and IT hardware, the total revenue remained broadly stable year-over-year. The third quarter growth was mainly driven by continued increase in the Services revenue of the residential unit. This -- thanks to the January 2025 price indexation and ongoing convergent customer growth. Revenue from Terminals was only slightly lower year-on-year in contrast to the previous 2 quarters. The most valuable part of the residential revenue, customer services revenue is growing by 1.8% with convergent revenue up by 4.5 percentage points year-on-year. The ARPC continued to show a positive evolution, growing 1.2%, including the price indexation effect and the benefit of a continued increase in convergent customers and fiber upselling. Turning to the business unit. The B2B, the total revenue declined by negative 0.8%, essentially due to a decrease in service revenue of 1.1%, which resulted from the continued headwinds in fixed voice and moderate decline in mobile services. The decrease is partially offset by a 1.5 percentage increase in products revenue. Taking a closer look at the B2B revenue from services, the third quarter included higher revenue from IT services growing 2.8% year-over-year, driven by growth in recurring services. Fixed data revenue recorded a limited decrease of negative 0.9% year-over-year. This resulted from the decline in traditional data connectivity services, nearly offset by continued strong revenue growth from Internet services. Despite the competitive intensity, the B2B unit maintains a solid mobile base and sees the mobile revenue decline sequentially stabilizing to 2.1% negative year-over-year. Fixed voice continued its steady decline due to a lower customer base, while value managed through price increases resulted in a sustained positive ARPU trend. The wholesale business posted a revenue decline of 11.8% due to the ongoing innovation of Interconnect revenue with no margin impact and a decline in Wholesale services revenue by 4.6% from an exceptionally high comparable base from revenue in the prior year. Moving to Domestic OpEx, which, as you can see, illustrated on the graph, continued its favorable trend and for the first time since several quarters, ended the quarter stable on a year-over-year basis. For the third quarter, inflationary and other cost increases were fully offset by our cost efficiency program. With OpEx stable and direct margin growth, the domestic EBITDA rose by 1.8% in the third quarter. Turning now to Proximus Global, for which we closed the third quarter with direct margin down 12.2% on a constant currency basis. The product group communications and data was impacted by the ongoing decline in the CPaaS SMS market, especially in the onetime password domain. Moreover, the margin from P2P voice messaging was down, reflecting structural trends in the legacy market. Whereas synergy delivery for Go-to-Market is delayed, we have realized cost synergies successfully, improving the OpEx for Global by 8.4%, again on a year-over-year basis. This could only partially offset the pressure on direct margin and led to a decrease in EBITDA for the Global segment by 22.3% on a constant currency basis. Turning to Group CapEx, we closed the first 9 months of the year with EUR 826 million compared to the same period last year. CapEx was lower mainly due to reduced customer-related CapEx as a result of, among other things, higher refurbishment rates, increased self-installation rates and improvements in operational processes. Fiber-related expenditures were slightly up with the rollout in dense areas coming down, while Fiberklaar continued expansion in the mid-dense areas. This brings me to the free cash flow for the first 9 months of the year. As illustrated on the graph, the organic free cash flow for the first 9 months of 2025 was EUR 159 million, strongly improving from 1 year back, thanks to lower cash CapEx and growing EBITDA. Our reported free cash flow of EUR 428 million includes the net proceeds from the sales of our data center business and the Luxembourg Mobile Towers. I'll now turn over to Stijn for the conclusion. Stijn Bijnens: Thanks, Mark. Just five things to conclude. Being just over 2 months in the company, it's clear for me that we have a strongly performing domestic segment, especially the residential unit is in very good shape, considering the changed market structure. Proximus maintains a solid B2B position, but there's still growth potential, and we are developing strategies to capture it. Secondly, Proximus has incredibly well-performing networks and the expanding fiber network provides Proximus a strong head start. Thirdly, we've been successful in realizing CapEx efficiencies for this year, which is supportive for an improved estimated for the Group organic free cash flow. Fourth, in contrast to the successes domestically, it is clear we have challenges with the global segment and with ongoing pressures anticipated, we have reset as a result, our targets for 2026. And as a final point, we will present our new strategic cycle for the Proximus Group together with the full year results on February 27. I'm sure you understand that given this context, I'm unable to share insights regarding the strategy at this time. However, we welcome any other questions you might have and are pleased to address them now. Operator: [Operator Instructions] Our first question is from Ganesha Nagesha from Barclays. Ganesha Nagesha: A couple of questions from my side. The first one on the global division. So following the recent downward revision to the global segment EBITDA guidance, so could you share like what factors give you confidence in the stability of this outlook going forward? And could you also provide some color on what specific integration challenges that still remain, which impacting the realization of the expected margin synergies? And my second question on the CapEx guidance. So your CapEx guidance for the current year implies like EUR 50 million savings achieved in the current year. You earlier indicated that the CapEx would remain stable around EUR 1.3 billion over '25 to '27. So do you still see a potential for further savings in '26, '27 as well? Or is this just one-off CapEx savings in the 2025? Stijn Bijnens: Well, thank you for the question. I'll take the first one and give the CapEx question to Mark. About Global, as an initial outcome for a broader planning process, we have done a new estimate for 2026. That has been a bottom-up exercise on a product line basis. So there are product lines that grow, as you know, and other product lines that declined. And in absolute terms, the growing business lines are still smaller than the declining business lines. So at the moment, we think and believe in 2027, there will be an inflection point of that the current smaller business lines that are growing offset the decline. So the business lines that are declining are A2P SMS, B2B voice, and it's offset by business lines that grow like cloud, omnichannel, IoT, travel SIM and digital identity. So we've done that exercise, and that's currently the best estimate we have on the business. Mark Reid: Ganesha, thank you for your question. And on 2025, look, we're pleased with the ability to have kind of taken those CapEx savings and the effect that had on our '25 free cash flow. I think as you -- as Stijn said in the presentation, we're all in the process of co-creating our strategy, and then we'll come back at the Capital Markets Day with the future outlook on CapEx. So I think unfortunately, we have to answer that today. Stijn, do you want to add to that? Stijn Bijnens: Yes. The second part of the first question, on integration issues, it's at different levels, so we had some churn of executive leadership. We strongly believe we have a strong CEO now who comes from the CPaaS market, Seckin. He knows the business. So integration issues are on the one hand in the Go-to-Market, and we're fixing that. Also in the product portfolio, we do understand the challenges are actively improving the operations and the operating model to handle these challenges. Operator: We will now take our next question from Paul Sidney from Berenberg. Paul Sidney: I also had two, please. Just firstly, on Global, you've chosen to give the Global guidance for full year '26 today. Should we view this decision as in your intention to set a floor for Global profitability ahead of the February strategic update as you sort of think about how the business looks beyond 2026? And then secondly, on domestic and Digi appears to be having a little impact in the Belgian mobile market even at the extremely low price points that they've come in at. What are you seeing in the market in terms of Digi maybe revamping their offers or doing something different? And do you expect the other operators also to do anything different going forward? Mark Reid: Paul, thank you for the question. On Global for 2026, clearly, we've done an estimate. We were conscious of the market consensus was higher than what we disclosed today. And therefore, with Stijn and Seckin arriving, we accelerated that kind of bottom-up planning process for that period of '26 and the start of '27. And so that's our estimation, and we're confident with it. It is a fairly wide range at this point, but that's what we wanted to inform the market today. So that's how we thought about updating that specific number. Jim, do you want to take the question? Jim Casteele: Yes. So indeed, on Digi, they're in the market with quite aggressive offers. For the moment, I would say that the visibility on their market campaigns is rather limited. That said, the Belgium market since the arrival of Digi has been very competitive with the B brands of the competitors also being active with assertive promotions. So in that sense, I'm really happy to see that our multi-brand strategy with Mobile Viking, Scarlet and Proximus addressing the different price points in the market is delivering on our strategy, not only allowing us to realize again very strong commercial results, but at the same time, also keeping value in the way that we do that, as you have seen in the further growth of our service revenues. Paul Sidney: Mark, can I just have a quick follow-up. In terms of when you say growth, returning to growth within Global in 2027, just to clarify, is that revenue, EBITDA, free cash flow or all of the above? Jim Casteele: It's at the level of EBITDA. Operator: We will now move to our next question from Roshan Ranjit from Deutsche Bank. Roshan Ranjit: I've got two questions, please. Maybe just touching on the domestic point. Stijn, you mentioned the good performance that you've had and if we look at the KPIs, coupled with the fact that you announced a price increase for ’26, how should we think about kind of the future evolution of your product revamp, sorry? You've been quite successful over the last, I guess, 2 years on those campaigns. What made you kind of choose the products where you have allocated those price increases to? Is that a case of trying to migrate customers away from the legacy products? Or are you still kind of running with those multi-brand options within the Proximus bundle, so the different packs within Proximus. And as an aside, you've got the Scarlet and Mobile Vikings, as you said? And secondly, we're obviously getting to the end now of the collaboration -- finalization of collaboration in Flanders. Has that given you more confidence or any insights on how the discussions with Orange Belgium in Wallonia is going as well, please? Anything you could say there, very helpful. Jim Casteele: So thank you for the question. So I will start with the price increase. So indeed, we continue to do price increases also in January next year. The way we do that is, on the one hand, trying to understand where are the products where price sensitivity is a bit lower. Next to that, of course, we recently launched our Flex+ new convergent offer in April. And then, of course, when you launch a new offer, you put it at a price point that you think is going to last for a longer period in time. So it's obvious that those tariff plans are not part of a price increase 8 months after launch. I would say, at the same time, what we do is when we do price increases, we also try to do a more-for-more approach, not necessarily always at the same time, but definitely in a short period before or after, depending on market conditions, of course. And so that's how we've been able to manage our price increases over time while keeping our customers satisfied. Of course, also always looking at the level of inflation as a sort of reference point for those price increases. It's true that we also look at management of the back prices and trying to see if we can leverage price evolutions to move people from older products to newer products, which helps them to simplify your IT systems, but also operationally makes life easier for our salespeople. And then in terms of future portfolio evolutions, as always, we look at the market to make sure that we stay competitive. As I mentioned also in my previous answer, we do this from a very value-based perspective. So if you see, for instance, October 1, we updated the midrange of the Proximus mobile offer because by doing that, we also anticipate that we can create additional value for the company. And we always look at how the 3 brands are positioned in terms of segments and price points. So that's a bit the pricing strategy that we've been executing on over the last years. And I'm happy to hear that you think this has been successful. So thank you for that. Stijn Bijnens: About your second question about the fiber rollout in Belgium. So the North and the South. In the North, in a few weeks, we will have the outcome of the market test. We're confident in that and that once the black box gets open, we can make a detailed CapEx plan and rollout. In the South, it's kind of 3 months behind that cycle. It's the same cycle where we need to go through. We first need to finalize the agreement with Orange and then go to the market authorities to do that. But we're fully confident that all these deals are on track at the moment with the different timings that I just mentioned. Operator: We'll now move to our next question from Kris Kippers from Degroof Petercam. Kris Kippers: Firstly, just going back to Global again. I haven't heard the mentioning of the EUR 100 million improvement in synergies that initially was communicated. Is that a number that could alter now that the scale has changed? Or what should we see in that? And then secondly, classical one perhaps, but I'm quite pleased to see indeed that also on the domestic side, the workforce expenses have been declining. Is this something we should continue -- keep continuing in the quarters ahead? How -- could you guide us a bit more on the reduction in FTEs? Mark Reid: Thanks for the question on Global. So first of all, on Global, I think, again, you've seen from our disclosure today, we -- the operating costs continue to kind of deliver probably a bit ahead of plan. So in terms of our operating cost synergies and our direct COG synergies there kind of as we've said before, I think the cross-sell, upsell synergies that are Go-to-Market related are really alluded to in terms of our integration phasing and that taking a bit longer. Look, I think we'll come back in the Capital Markets Day and allude to that as Seckin kind of gets the grip with what the phasing of that looks like. So I think that's where we are today. But as I said, we're very pleased with the cost synergies there fully on track. The Go-to-Market ones will come as part of the strategy update when we get there. Stijn Bijnens: Regarding the second question on workforce. So we're very pleased about this quarter that OpEx stays flat. We have a strategic workforce planning and management is executing well on that plan. We're currently reviewing things, and I'll come back on that in -- on the Capital Markets Day once we have our strategy crystallized and then we will also give more guidance on that part of our business. Kris Kippers: Okay. And then if I just may, just a small follow-up regarding the fiber communication. When the market test would be finished on November 21, do you intend to communicate direct to the market at that day? Or what is the -- what should be the time frame for that? And regarding when, do you provide an update as well? Stijn Bijnens: So when the market test ends on November 21, it's actually the competition authority that has to assess it and analyze it, and they will come with a communication. Once that's done, we can move forward. So it's in their hands regarding communication. And it will be the same process in the South as it are the same people at the authority level. Operator: [Operator Instructions] Our next question is from Michiel Declercq from KBC Securities. Michiel Declercq: My first one would be on the Global business. So you mentioned that, of course, we have the SMS part that is declining and then I assume the OTT and Digital Identity is growing. Can you maybe remind us what the split of revenue is here or in terms of profitability, given that you mentioned an inflection point in 2027? And as a follow-up on this, of course, the non-SMS business is growing. Can you maybe elaborate a bit on how this compares to competition? Because I see that competitors are also growing. But in terms of market share, are you improving here? Or are you losing customers? And then the second one is maybe for Spain specifically. You recently joined, of course, from Cegeka, an IT group, of course. But what experience can you bring? And in the beginning, you also elaborated a bit on the opportunities that you see within the B2B. Can you maybe explain a bit what opportunities there are here for to unlock? Mark Reid: Michiel, thank you for that. So I think if you look at our disclosures, you kind of see a little bit about our kind of split of the overall direct margin revenue split between B2B is kind of our legacy voice and messaging business and then CPaaS and data, which is effectively a mixture of traditional CPaaS A2P, omnichannel where you can think of kind of RCS, WhatsApp, Viber, e-mail type products and then Digital Identity, which is more kind of our fraud prevention products. We don't disclose the mix of that. But clearly, the A2P SMS part of that business is the majority. And as we said, the element that we've been exposed to is we do a lot of international OTP traffic there. The rate of change of that business towards omnichannel was a little quicker than we expected but Proximus Global was always set up to manage that transition. But clearly, the 2 parts of the business are different scales, but we are seeing growth in the omnichannel part, the RCS, WhatsApp, Viber, e-mail part of the business. And so that is really -- as we start to look forward through the end of this year into this first part of '27, that's really where we see the inflection point of that part of the business starting to be contributed and return us to growth from an EBITDA perspective. I hope that helps. We don't disclose the exact detail. In terms of market share, again, we don't talk about the specific market shares. Clearly, at the moment, in the last couple of quarters, it's been a difficult market for us there. But again, as we effectively get these integration problems behind us and the products and Go-to-Market, we clearly believe that we will have a competitive advantage given the structure of Proximus Global, our cost base and our product portfolio to Go-to-Market and be successful in capturing that growth going forward. Stijn, do you want to take that? Stijn Bijnens: Yes, we should. Regarding the second question, Proximus today is a market leader in B2B at the connectivity level. Of course, we intend to stay that, and it's also due to our strong footprint and network superiority. But there are additional services to be offered that Proximus is currently doing, but I do think there is an opportunity to grow further in everything that has to do in cybersecurity, cloud. I strongly believe in hybrid cloud. So a combination of strong partnerships with the hyperscalers, but also having our own sovereign cloud solution, there is an increased interest. And I think Proximus is in a superior position in Belgium to capture the part -- the growth in hybrid cloud. Also, AI will go towards the edge. You see a lot of announcements, if you look at NVIDIA and Nokia. So we kind of own the edge real estate in Belgium from a telco perspective. So we see many opportunities. It will take time to capture those opportunities, of course. But I do think we have the team and we will build the organization to unlock that value that we really leverage our telco infrastructure in those new pockets of growth. Operator: There are no further questions. So I'll hand back to your host to conclude today's conference. Nancy Goossens: Thank you for joining us today, and thank you for your questions. As always, should there be any follow-ups, you can address those to the Investor Relations team. Bye. Operator: Thank you for joining today's call. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Globalstar Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference call is being recorded. I would now like to hand the conference over to your first speaker today, Rebecca Clary, CFO. Please go ahead. Rebecca Clary: Thank you, operator, and good afternoon, everyone. Before we begin, please note that today's call contains forward-looking statements intended to fall within the safe harbor provided under the securities laws. Factors that could cause the results to differ materially are described in the Risk Factors section of Globalstar's SEC filings, including its annual report on Form 10-K for the financial year ending 2024 and its other SEC filings as well as today's earnings release. Also note that management may reference EBITDA, adjusted EBITDA, free cash flow or adjusted free cash flow on this call, which are financial measures not recognized under U.S. GAAP. As required by SEC rules and regulations, these non-GAAP financial measures are reconciled to their most comparable GAAP financial measures in the earnings release, which is available on our website. Today, I will walk you through our third quarter and year-to-date financial results, discuss our liquidity position and touch briefly on outlook. We delivered solid top line performance in the third quarter with total revenue of $73.8 million. This represents growth over the prior year's third quarter, reaching a record quarterly amount. This improvement was driven by two key areas: wholesale capacity services, and continued strength in Commercial IoT. Our wholesale capacity services revenue increased primarily due to the timing of service fees associated with the reimbursement of network-related costs as we continue to expand and upgrade our global ground infrastructure. Commercial IoT also continues to be a growth driver for us. IoT service revenue increased on the back of subscriber growth with average subscribers reaching 543,000, a 6% increase from the prior year's third quarter. This growth was again propelled by a record number of gross activations over the last 12 months. We also saw particularly strong equipment sales performance. Equipment revenue from Commercial IoT device sales was up 60% compared to the prior year's third quarter. We expect this momentum to continue, particularly with the recent commercial availability of our two-way module, which we believe will drive additional demand. Income from operations was $10.2 million in the quarter, up from $9.4 million in the prior year's third quarter. This improvement came despite higher operating expenses during the quarter due to planned increased investments in our business. Net income was lower than the prior year's third quarter, driven primarily by noncash items. Specifically, we recognized higher interest expense from noncash imputed interest related to the 2024 prepayment agreement. We also recorded net foreign currency losses from the remeasurement of intercompany balances. These items were partially offset by a noncash gain on the quarterly mark-to-market adjustment of our derivative assets. Adjusted EBITDA for the third quarter reflects our strategic investment in growth opportunities, particularly XCOM. We continue to enhance and develop our XCOM RAN product and service offerings. And as we've discussed previously, we're incurring costs, primarily personnel related in advance of significant revenue contribution from this business. We believe this is a solid investment for the company, and we remain confident in the strategic value of this initiative, particularly based on recent developments towards commercialization. Importantly, we continue to maintain healthy adjusted EBITDA margins, 51% in the third quarter and 52% year-to-date, even while making substantial investments in XCOM and next-generation products. This demonstrates the profitability of our core business and gives us confidence that as these new revenue streams scale, we'll see meaningful margin expansion. For the year-to-date period, total revenue was $201 million, representing 6% growth compared to the same period last year. Service revenue was also up 6%, while equipment revenue increased 21%. The revenue and operating income story for the 9-month period largely mirrors what we saw in Q3. Now let me turn to our balance sheet and cash flow. We ended the third quarter with cash and cash equivalents of $346.3 million. During the first 9 months of 2025, we generated operating cash flow of $445.8 million, a strong result that reflects $299.6 million received in connection with the Infrastructure Prepayment and also demonstrates the cash-generating capabilities of our business. Capital expenditures were $485.9 million during the period, reflecting our commitments under our Updated Services Agreements for network expansion and upgrades, including ground infrastructure as well as satellite construction and launch costs. These investments are fundamental to our ability to deliver enhanced services and support our long-term growth. Financing activities used $6.1 million in cash, primarily for debt recoupment under the 2021 Funding Agreement and preferred stock dividend payments, offset partially by $27.1 million in proceeds under the 2023 Funding Agreement, which will be used to fund CapEx for our replacement satellites. Adjusted free cash flow for the 9-month period was $133.3 million, up significantly from $74.5 million in the prior year period. This increase reflects primarily higher customer payments, including $37.5 million in accelerated service payments received during 2025. Total debt principal outstanding was $418.7 million at September 30, 2025, largely in line with the prior year-end and reflecting the financing activities previously discussed. Our financial position remains strong with solid cash generation, ample liquidity and strategic investments that position us for long-term growth. We're making deliberate investments in XCOM and next-generation products, and we're executing on our infrastructure commitments to support our wholesale services agreement. The fundamentals of our business are sound. We're growing revenue in strategic areas, generating strong operating cash flow and managing our cost structure while investing for the future. Given our results to date and expectations for the balance of the year, we are reiterating our full year 2025 outlook and continue to expect revenue in the range of $260 million to $285 million and an adjusted EBITDA margin of approximately 50%. With that, I'd like to turn the call over to Paul. Paul Jacobs: Thanks, Rebecca, and good afternoon, everyone. I'm pleased to be with you today and to discuss what has been a robust quarter for Globalstar. Across every major part of our business, we're executing our strategy and delivering measurable progress that strengthens our position in the market. It's really never been a more exciting time to be in the connectivity industry and for Globalstar in particular. My team and I have spent our careers driving many of the hottest trends in mobile communications and computing. And well, here we are again. On the satellite side, we couldn't be more proud to have helped pioneer direct-to-device services and witnessed the life-saving impact of our network. There are now over 0.5 billion devices capable of utilizing our network, and we continue to invest and innovate to maintain our leading position. And on the mobile wireless network side, our XCOM RAN technology is proving its benefits both in performance for mission-critical applications and its cost effectiveness and ease of deployment. As I've said previously, what drew us to Globalstar is the strength and differentiation of our globally harmonized spectrum, 3 decades of LEO constellation operations and deep engineering capability to deliver secure, reliable connectivity worldwide with the quality of service demanded by some of the world's most innovative technology leaders, something few others, if anyone, can claim. Recent activity in the market underscores that value as a wide variety of players now better understand the need for dedicated mobile satellite service or MSS spectrum. Other participants in the direct-to-device solution space have spent tens of billions to acquire L- and S-band assets that, while useful, lack the global coverage, priority rights and harmonization with an established hardware ecosystem that defines our portfolio, one that has been deployed for decades by our Globalstar customers. We believe this validates the global orientation of our strategy from inception, building the company around globally harmonized and licensed spectrum assets and a global LEO platform. We see extraordinary potential for disruptive innovation around our spectrum bands and are confident we are playing a defining role now and for some time to come. For many reasons, Globalstar holds the critical jigsaw pieces that complete the broader D2D puzzle. This moment is a strategic inflection point that could shape or reshape the future of a rapidly converging communications industry. Before I turn to the other parts of our business, let me acknowledge that you may have seen recent media reports regarding a potential strategic transaction involving Globalstar. As a matter of policy, we do not comment on press articles, rumors or market speculation. And therefore, we will not be addressing this topic during today's call or the Q&A following our remarks. Now let's turn to the business, and let me start with our infrastructure expansion and satellite road map for our C-3 constellation. We continue to make significant progress in the construction of our extended MSS network. In addition to development of our third-generation C-3 satellite system, this effort includes the build-out of our global ground network with new infrastructure across multiple continents, including Europe, Asia and North America. This global ground expansion is continuing, including up to 90 new tracking antennas supporting Globalstar's C-3 satellite system, representing a significant investment in the functionality, capacity and future-proofing of our network. This significantly underscores our mission and strategy to support resilient and robust connectivity that not only serves the needs of today, but also prepares for those of tomorrow. And to that end, our HIBLEO XL-1 filing is designed to expand operational frequency, which is a foundational step towards our planned next satellite era. This system will introduce new satellites, orbital shells and frequency bands to enable greater capacity and throughput. It's an important step forward that aligns with the other network investments we are making today. And while we are not currently planning significant investment in our own mega constellation, this filing gives us the future option to work with partners supporting our constellation -- sorry, our spectrum on a mega constellation that is coordinated with our existing and planned constellations. Let's turn to the government sector. We continue to see strong traction following our wins earlier this year. We've made meaningful progress with Parsons Corporation, transitioning from proof of concept to commercial engagement that leverages our satellite network within their advanced software-defined communications architecture. This partnership highlights Globalstar's ability to deliver resilient, low latency and mission-critical connectivity for defense and public safety applications. We continue to expect government-related opportunities to represent an expanding source of revenue in 2026 and beyond. Our Commercial IoT subscriber growth is strong and accelerating with strong MSS device sales supported by growing adoption in safety, logistics and infrastructure markets. Gross activations are up 40% over the same quarter last year, and total units are up 100% on a quarterly basis compared to the prior year. That doesn't even include the new two-way module, which is now being integrated into our customers' finished products. These sales, combined with increased enterprise demand are contributing to a balanced and diversified revenue profile. Another milestone this quarter is the global availability of our two-way Commercial IoT module, the RM200M. Already receiving certifications in key regions, the RM200M is now officially available for worldwide deployment. Leveraging Globalstar's licensed L&S band spectrum and second-generation satellites, the module delivers reliable two-way connectivity, reducing friction when deploying across numerous geographic regions. On the private wireless side, momentum continues to build for XCOM RAN. During the quarter, we received an initial order from a new XCOM RAN customer, advancing their next-generation robotics application and a significant expansion of this program. XCOM RAN is positioned to play a critical part in ensuring quality of service in warehouse and factory automation, where reliable and secure connectivity is at the core of a robotic future in these environments. We believe we can demonstrate not only significantly differentiated performance of our 5G-based systems over industrial Wi-Fi, but also improved economics for large area applications. And we are addressing new applications outside of warehouse automation, which we will believe -- which we believe will grow our addressable market significantly. Stepping back, this has been a year of meaningful acceleration for Globalstar. We've expanded our infrastructure, strengthened our product lineup, deepened our government relationships and enhanced the commercial viability and visibility of our technology portfolio. These accomplishments have not gone unnoticed. Increased partner engagement and growing investor confidence reflect a renewed understanding of Globalstar's strong market position, combining spectrum ownership, global infrastructure, product lineup and operational expertise that few others can match. Overall, this has contributed to positioning the company in the market as a high-value strategic asset in the rapidly converging satellite and terrestrial communications ecosystem. While we remain focused on executing our plan, this recognition underscores the scalability and relevance of what we've built and what's still ahead. As we look to the close of the year, our focus remains on execution, including completing key infrastructure milestones, expanding enterprise and government deployments and continuing to drive adoption of our new technologies across both satellite and terrestrial domains. We're proud of what our team has accomplished and energized by the growing momentum we see across all segments of our business. Thank you for your continued support. I look forward to sharing more about our progress in the quarters to come. With that, I will turn the call back to the operator. Operator: [Operator Instructions] Our first call comes from the line of Mike Crawford at B. Riley Securities. Michael Crawford: Regarding your C-3 constellation, correct me if I'm wrong, if this is not completely synonymous with your extended MSS network. But can the ground segment improvements that you're putting in at these gateways be used by your existing constellation that's being refreshed? Paul Jacobs: Yes. So we put in antennas that are specific for the [indiscernible] system -- or sorry, the C-3 system. And yes, so we have the existing satellite antennas for the existing constellation already. Michael Crawford: Okay. And I believe it's going to be two batch launches for -- to replenish that constellation. Is there any update on when the first of those might occur? Paul Jacobs: We have not given any new indications on when the launches are going to occur. Rebecca Clary: And just to add to that, Mike, for the Extended MSS network, as you know, we haven't provided timing. For the replacement satellites, which you might be referring to that are being launched in two batches, we're working with SpaceX to confirm an updated launch window in the first half of 2026. Michael Crawford: Okay. And then maybe just stepping back, Paul, to Globalstar's global harmonized spectrum holdings. Can you just maybe define those again in terms of megahertz POPs or some related measurements or what you have in the U.S. as well as where you have landing rights internationally? Paul Jacobs: I mean it's essentially global coverage. So on the S-band, we have 16.5 megahertz. On the L-band, we have almost 9. On the C-band, we have over 300 megahertz. So let's see there are 7 billion people on earth. So... Michael Crawford: Okay. I can do that math. And then on the C-band, I believe there remains 59 megahertz slot that might not necessarily be required to operate your satellite networks given improvements in technology over the past 20 years? Paul Jacobs: No. It's -- there's actually -- so if you look at the C-band spectrum, it's a large percentage of it is covered by Wi-Fi, so unlicensed band use. And then there's a chunk at the lower end that is not covered by that. And all of the spectrum is being used as feeder link because the way the existing satellites work is that chunks of the feeder spectrum are allocated to reproducing the entire spectrum band on the L&S band side. per beam on the satellite. So it is actually all used for the satellite system. It's a question of if we look at it for terrestrial use, there's a chunk that hasn't been allocated for Wi-Fi use. Now with that said, even in Wi-Fi bands, the team that came along from XCOM Labs is the same team that built the unlicensed band cellular technologies. And so it is possible that we can look at those bands for hosting unlicensed band NR, for example, 5G. Michael Crawford: Okay. And then final question for me just goes back to XCOM RAN. So in the test applications that you've been doing for quite some time now. What is the latest data that you're seeing in terms of increased performance and reliability versus industrial Wi-Fi? Paul Jacobs: Yes. So it works much better than industrial Wi-Fi because we don't have handoff regions and Wi-Fi wasn't really built for handoffs anyways. We also have ease of deployment. We have this clustering where if the robots cluster under one of the radios, you don't just depend on the capacity of that radio, actually depend -- you actually get the capacity of the entire system. So in terms of performance benefits, it's dramatically better. It's more reliable, more mission-critical. But what we've also been finding is that in these large area deployments, we're also economically better. So the economics of rolling out our system relative to an industrial Wi-Fi is much better. And part of that comes from the fact that we have now built our own radio units and significantly cost reduce those as well as being able to provide more frequency bands on a faster basis when those are requested by our customers. Operator: Our next call comes from the line of Greg Pendy at Clear Street. Gregory R. Pendy: Just on the accelerating IoT, can you just add any color on what the acceleration is? Do you think you're gaining share in the space? Or do you think the market was just seeing outsized healthy growth? And how should we think about pricing with the two-way capabilities on a forward basis? Paul Jacobs: Okay. So we -- there are definitely new applications that we're able to address. I think that there is also the fact that when we look at some of the competitors in the area who have been in this area for a long time, there's definitely interest of our customer base to have diversity of supply or change suppliers. So that's definitely driving part of it. So some of it's taking share, some of it's new, it's growing the pie. And then the other -- on the two-way pricing, yes, I mean, it's a new set of capabilities, and there is market pricing out there for two-way systems. Of course, we expect to be aggressive and take share with the two-way system. And the growth so far, though -- if I just want to reiterate, the growth so far is not on the two-way system yet. The two-way system is still -- we brought out the module. We betted it with people. They then started building it into their products, and that takes a little bit of time for them to get up to speed and get their products rolled out. So the growth that you're seeing is actually the existing -- of the existing systems, which is really quite impressive. Gregory R. Pendy: Got it. That's very helpful. And then just wholesale looks pretty strong relative to what we were thinking. Just wondering, you mentioned there's 0.5 billion devices. So just trying to understand the underlying growth. Is it just a growing number of enabled devices? Are you seeing usage? Is it -- can you just kind of -- higher usage from those who are already enabled? Just trying to understand why that... Paul Jacobs: Right. So I can't really comment on the customers of our customer. So let me not do that. But it's -- the number of devices that are out there is just talking about the growth of the number of devices that actually have the satellite modem and radio capabilities in it. So that -- those set of devices continues to grow quite rapidly. Operator: [Operator Instructions] Our next question comes from the line of George Sutton of Craig-Hallum Capital Group. Logan W Lillehaug: This is Logan on for George. You guys have been kind of talking about the XCOM RAN investment throughout the year, and I think you've been expanding the sales force a bit. And it certainly feels like you have a lot of opportunities in front of that asset. I was wondering if you could just talk a little bit about sort of how should investors think about the return profile or even the profitability of those assets over the next few years? Paul Jacobs: Okay. So I mean, the margins are good in that business. We're right at the beginning of the sort of the commercial adoption cycle. And so we expect to see growth not just from the existing customer that we had been focused on in the past, but from a new set of customers and also into a new set of areas. And we've put up various numbers on sort of total addressable market. And so there's a significant addressable market going forward. And what we're seeing also is that companies that have been in the 5G private network space that didn't have any differentiated technology are starting to feel a lot of pressure. We've seen layoffs and things like that. And we have not just differentiated technology, we have better economics. And of course, we have the dedicated spectrum for mission-critical applications, which, by the way, that hasn't even really started to come into play yet because we were focused on CBRS. So a lot of areas of growth. We don't expect to see a lot of revenue in this fiscal year. But as we look forward into the next year, we expect to see growth there. And then like I said, the margins are good. So we should be in a good place to build both revenues and profitability off of that business. Logan W Lillehaug: Got it. And then next one for me. I was kind of hoping you could talk a little bit about early traction with the two-way module, just sort of the feedback you're getting, any use cases that you want to call out that are kind of standing out and just sort of maybe your sense on adoption here over the next few years. Paul Jacobs: Yes. I can't really give you a lot on the customers because they're all in the process of building their products and want to make their own announcements. But it is a lot of the similar industries that we've been in the past, but with new applications and new sets of customers. And there was a set of customers that weren't very interested in talking to us when we were only one way, and now we are able to -- I think we'll take share in a number of markets with the two-way system. And then as we look forward to making the system also multimode with cellular capability as well, that will also satisfy demands of a certain customer base. So yes, it's not like there is some brand-new area that I'd say, okay, this we can address now that we didn't, but we certainly have a set of customers that are talking to us that wouldn't have talked to us in the past with a one-way-only system. Operator: [Operator Instructions] Our next call comes from the line of Michael Ridgeway. Michael Ridgeway: Paul, a question first on the XCOM RAN warehouse implementation. Is this related to the early work that you have been doing and has been ongoing since you alluded to a large retail testing implementation? Paul Jacobs: Yes. So we are now in a position where I think we can address a larger customer set and also not just the original application that we were looking at of the sort of micro fulfillment concept, but larger scale operations as well. And then we're going beyond just the warehouse automation space. We're talking to companies that do things like build out high-density environments, convention centers, airports, stadiums, that kind of hotspots, that kind of stuff. And so as time has gone on and we've been able to invest in the system, it's got a more horizontal feature set as opposed to just super focused on the warehouse automation space. So all these things provide us with growth opportunities. Michael Ridgeway: So is that to say then that ultimately, there's more of a unified connectivity outside the warehouse as well using that as an example? Paul Jacobs: Yes, for sure. Yes, that's where we're... Michael Ridgeway: And then can you help us understand the revenue model behind this? Obviously, you've got an equipment side and then there's the spectrum side of this. Is there any ongoing service associated with those implementations? And how should we think about the profitability over time as clients grow, as new customers grow in that space? Paul Jacobs: Yes. So there is those things that you said, but also there is an annuity component of software license because the main computation is done on commercial off-the-shelf servers. And so we license the software into those servers as well. And then the other thing that's happened is that over time, we've been able to build out the entire stack. So we look forward to the ability to provide Network as a Service. And that obviously is very much a nice annuity kind of business. So that hasn't happened yet. That's the thing that we're sort of looking to in the medium term, but we get the idea that we don't want to just sell something and then walk away. Michael Ridgeway: All right. So from a margin perspective, we could expect a delay on margin accretion as installs happen over the last several quarters? Paul Jacobs: Margin accretion to the overall company? Michael Ridgeway: To the overall business. From that business... Paul Jacobs: Yes, yes. Well, this business right now is still in an investment phase, so for sure. But on a gross margin basis, gross margins are solid here, and we have differentiated technology, and we put the effort into driving the cost -- driving down the cost curve. So yes, so margins should be good. And then to the extent that you get an embedded base, I think this might be where you were going, embedded base of kind of annuity revenue, then obviously, that's very high margin. Michael Ridgeway: That's super helpful. Just last question, talking about this. We've come through 10 years where we haven't seen any market transactions in MSS and now we've gotten a few and another one announced this morning. Can you maybe spend a little bit more time, you did at the beginning of the call, but just differentiate what Globalstar has and the utility and the global harmonization from a relative value perspective from what we've seen in the market, if you could? Paul Jacobs: Yes. So I don't want to talk about transactions or speculation, but I will talk about our competitive positioning, which is we have spectrum, which is globally harmonized, meaning that it is not just for a small number of markets. You don't have to worry as a satellite operator, whether you're crossing boundaries, whether there are country boundaries or just inter system, interoperator boundaries. The spectrum covers the entire earth. And yes, there might be a few countries here and there, we didn't get landing rights. But for the most part, the world is covered by our spectrum and system. So that is differentiated. Some of the transactions that have been seen in the market have been focused on particular geographies. And in some cases, I would say there's questions about whether some of the spectrum that -- whether it will continue to be available post license reauthorization processes of some of the spectrum that's transacted. So that -- we're watching that. We've put our hat in the ring for some of these spectrum assets in case they are reallocated, and we certainly can put them to good use, and they are also covered by our HIBLEO XL-1 filing. Michael Ridgeway: Great. That's helpful. One last question on the C-3 ground station build-out. You've mentioned 90 new tracking antennas. Does that -- where does that put you in terms of the total build-out plan in percentage terms? Paul Jacobs: That's the build-out. I mean the 90-plus is the new set of antennas for the... Michael Ridgeway: Okay. And how many of those are actually deployed... Paul Jacobs: Some not -- I mean, we're in the process of rolling out. I don't think we've given an exact number to date. But you Rebecca, if we have said anything more precise than that, please speak up. Rebecca Clary: No, we haven't. We've talked about the sites where we're currently in construction, which is around now close to 30. So making really good progress and definitely on track with those milestone dates in the various agreements, both regulatory ground infrastructure build-out and satellite construction. Operator: At this time, I'm showing no further questions. I would like to turn the call back over to Paul Jacobs for closing remarks. Paul Jacobs: Well, I think it has been a great quarter, and we're really firing on all cylinders, and we're excited by, as I said, the fact that we focused on building a global company and a global spectrum position, global set of customers, global infrastructure from the very beginning. And that is showing to be a particularly valuable place to be in this change in the industry. And I do, as I said earlier, see this as a strategic inflection point. And so being in that part of the industry again and with the ability to play in a new inflection point, it's extremely exciting and should be -- we expect it should be good for all of us and our supporters and investors. So thank you very much for being there for us, and we look forward to updating you more into the future. Operator: Thank you very much. This concludes today's conference. You may now disconnect.
Operator: Good day, and welcome to The GEO Group's Third Quarter 2025 Earnings Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Pablo Paez, Executive Vice President of Corporate Relations. Please go ahead. Pablo Paez: Thank you, operator. Good morning, everyone, and thank you for joining us for today's discussion of The GEO Group's Third Quarter 2025 Earnings Results. With us today are George Zoley, Executive Chairman of the Board; Dave Donahue, Chief Executive Officer; and Mark Suchinski, Chief Financial Officer. This morning, we will discuss our third quarter results as well as our outlook. We will conclude the call with a question-and-answer session. This conference call is also being webcast live on our investor website at investors.geogroup.com. Today, we will discuss non-GAAP basis information. A reconciliation from non-GAAP basis information to GAAP basis results is included in the press release and the supplemental disclosure we issued this morning. Additionally, much of the information we will discuss today, including the answers we give in response to your questions, may include forward-looking statements regarding our beliefs and current expectations with respect to various matters. These forward-looking statements are intended to fall within the safe harbor provisions of the securities laws. Our actual results may differ materially from those in the forward-looking statements as a result of various factors contained in our Securities and Exchange Commission filings, including the Form 10-K, 10-Q and 8-K reports. With that, please allow me to turn this call over to our Executive Chairman, George Zoley. George? George Zoley: Thank you, Pablo, and good morning to everyone. Thank you for joining us on our third quarter earnings call. During the first 3 quarters of the year, we believe we've made significant progress towards meeting our financial and strategic objectives. Since the beginning of 2025, we've entered into new or expanded contracts that represent over $460 million in new incremental annualized revenues that are already under contract and are expected to normalize next year. This represents the largest amount of new business that we have won in a single year in our company's history. We've entered into new contracts to house ICE detainees at four facilities totaling approximately 6,000 beds, which include three company-owned facilities where we announced in the first half of 2025, the 1,000-bed Delaney Hall, New Jersey facility, the 1,800-bed North Lake Facility in Michigan, and the 1,868-bed D. Ray James Facility in Georgia. And more recently, the 1,310-bed North Florida Detention Facility, which is a state-owned facility where we are providing management services under a joint venture agreement that we announced in early October. The Florida contract arrangement demonstrates GEO's ability to provide management services through alternative solutions like the State of Florida's partnership with the federal government. Additionally, during the third quarter, we reactivated our 1,940-bed Adelanto ICE Facility in California, which was previously underutilized due to COVID-related court cases. On a combined basis, these five facilities are expected to generate more than $300 million in incremental annualized revenues at full occupancy as they normalize their financial contributions next year. These facility activations have increased our total ICE capacity to over 26,000 beds, and our current census is over 22,000, which is the highest ICE population we've ever had. In addition to these facility activations, we are reviewing the physical plant at 20 of our ICE facilities to determine our capacity to expand the office space for additional ICE staff and their expanding mission. Our Delaney Hall and D. Ray James facilities will have added ICE office space as part of our new contracts, and we have submitted similar proposal for Moshannon Valley in response to a request from the agency. This effort is representative of our long-standing partnership with ICE and our company's flexibility in adjusting to and addressing the ever-changing needs of ICE. With respect to our secure transportation, we have significantly expanded our footprint for ICE and the U.S. Marshals over the course of 2025. Earlier this year, we signed a 5 -- new 5-year contract with the U.S. Marshals for the provision of secure transportation services covering 26 federal judicial districts spanning 14 states. Throughout the year, we've executed new or amended contracts to expand secure ground transportation services at four existing ICE facilities and at our three new recently activated ICE facilities. Additionally, the services we provide under our ICE air support contract have steadily increased throughout this year. On a combined basis, this new transportation business represents approximately $60 million in expected incremental annualized revenues. We are encouraged by the growth opportunities at the state level as evidenced by the three recently managed-only contract awards from the Florida Department of Corrections, including two facilities we do not currently manage, which are expected to generate approximately $100 million in incremental annualized revenues beginning in July of 2026. Of particular importance, we are very honored to have been awarded a new 2-year contract for the ISAP 5 program at the end of September. We believe this significant contract award is a testament to the high-quality electronic monitoring and case management services, our wholly-owned subsidiary, BI has consistently delivered for over 20 years. There are presently approximately 7.6 million immigrants on the non-detained docket with approximately 182,000 enrolled in the ISAP program at this time. As part of the ICE's alternative to detention or ATD system, many immigrants are placed in the Intensive Supervision Appearance Program, ISAP, as a subprogram within ATD. It's mainly used for people ICE considers a higher flight risk or who have been pending a silent or removal cases but are still allowed to live in the community. The program relies on several forms of surveillance. Some are required to wear GPS ankle or risk monitors that track their movements in real time. Others are enrolled in SmartLINK Mobile App, which relies on facial recognition, voice ID and GPS to confirm a person's location during check-ins. Under the previous 5-year ISAP contract, the participant count started at 91,000 individuals and thereafter doubled ending at 183,000 individuals. The present ISAP 5 participant count is more than 182,000, but the new contract includes pricing for 361,000 participants in year 1 and 465,000 participants in year 2. In order to further assure our success in the rebid competition and provide lower unit cost for further ISAP growth, we've reduced our pricing as in the past on a variety of services, which has resulted in a new financial baseline, which will later be discussed by Mark. We are able to implement this strategy by identifying staffing efficiencies through the program services, along with the continued development of less costly new generation monitoring devices, which also required margin compression. We are optimistic that ISAP ramp-up could begin early next year. GEO has the capability in monitoring devices and case management services to achieve those significantly increased participation levels and far beyond if desired by ICE. But of course, we cannot provide definitive assurance of future ISAP participation levels, which are determined by ICE management. And as I said on our previous call, the focus of ICE at this time has been toward the increase in detention capacity in which we are participating. But what we have seen is a steady increase in more intensive and higher-priced monitoring devices such as ankle monitors and a steady decrease in the less intensive and lower-priced use of phones or phone apps. This new policy seems to be consistent with the objective of more aggressive supervision of the 7.6 million immigrants on the non-detained docket. As the world's largest service provider of electronic monitoring devices, we remain optimistic in the importance and growth potential of the ISAP 5 contract. Going forward, we expect to be able to capture additional growth opportunities. We believe the federal government's objective continues to be to scale up immigration detention to approximately 100,000 beds or more from the approximately 60,000 beds ICE is currently utilizing. This objective of scaling up to 100,000 detention beds is a 270% increase from the 2024 average of 37,000 beds. However, the pace of new detention contracts has been slower than anticipated, which we believe is possibly due to three factors. First, as has been reported in the media, the Department of Homeland Security has implemented a policy that requires Homeland Security Services Secretary to review and approve all contracts above $100,000, which is time and staff intensive. We have been intensely cooperating in this financial and staffing review process toward providing assurance that the government is receiving best value at GEO facilities and services. Second and more recently, the government shutdown has likely delayed the award of new contracts. During the government shutdown triggered by a lapse in appropriations, federal agencies are generally careful about making new contract awards unless the award is related to an accepted activity or is funded by a source other than the regular appropriations. Third is the need for ICE to have more staff to carry out its enforcement efforts, which is indicated by ICE's new recruitment program to double its employees from approximately 10,000 to 20,000, which is also time and staff intensive. Following the resolution of the current government shutdown, we believe ICE will have ample funding to support its priorities. Not only will ICE receive annual appropriations baseline of approximately $8.7 billion, but the agency also has access to $45 billion in incremental funding for detention services, which is available through September 30, 2029. While the exact timing of government actions, including our new contract awards is difficult to estimate, we believe that our remaining idle facilities are likely to play an important role in supporting the objective of increasing overall detention capacity. We have approximately 6,000 idle beds at six company-owned facilities, which remain available. Most of these facilities are formally contracted -- were formally contracted to the U.S. Bureau of Prisons and are of high security, which makes them ideally suited for the current needs of the federal government. On a combined basis, these 6,000 beds could generate more than $300 million in additional incremental annualized revenues. We also believe that increasing detention capacity to 100,000 beds or more will likely require ICE to seek alternative solutions in addition to traditional hard-sided facilities. Based on our best estimate, the current beds available by the private sector at traditional hard-sided facilities would likely provide ICE capacity for approximately 80,000 beds. Thus scaling up to 100,000 detention beds or more will likely require additional partnerships with states or additional temporary soft-sided facilities on a military basis or other sites. We will be exploring opportunities to participate in these new government sites, whether state-sponsored or procured by the military. Meanwhile, our focus is also on the activation on our remaining idle facilities. As evidenced by our recent joint venture agreement in Florida, we believe GEO is well positioned to pursue other state partnership opportunities that increase detention capacity for ICE. Finally, we have and will continue to evaluate the potential acquisition or leasing of third-party-owned facilities, and we have identified approximately 5,000 combined beds that could be added using several options of temporary and permanent facilities at several of our existing ICE sites. We are also pursuing additional diversified opportunities in the field of mental health services, which we exited approximately 13 years ago when we became a REIT and subsequently de-REITed. We are currently participating in a procurement in the state of Florida for the management contract at the South Florida Evaluation & Treatment Center, which we expect to be awarded in Q1 of next year. Our goal with all these efforts is to place GEO in the best competitive position to pursue available growth opportunities. In addition to the steps we have taken to capture quality growth opportunities, we have made significant progress towards strengthening our capital structure by reducing outstanding debt, deleveraging our balance sheet and enhancing shareholder value through capital returns. In 2025, we reduced our total net debt by approximately $275 million, closing the third quarter with approximately $1.4 billion in total net debt with a total net leverage of approximately 3.2x adjusted EBITDA at this time. Our debt reduction efforts were boosted by the successful sale of the Lawton, Oklahoma facility for $312 million or $130,000 per bed, which was a transformative event for our company, allowing us to significantly deleverage our balance sheet and launch a stock buyback program ahead of our prior expectations. Approximately $60 million of the Lawton Facility sale gain was used to purchase the 770-bed downtown San Diego, California facility that we've been operating for 25 years for the U.S. Marshals Service. During the third quarter, we repurchased approximately 2 million shares for approximately $42 million under our newly launched buyback program, bringing our total shares outstanding to approximately 140 million at the end of the third quarter. Given the intrinsic value of our assets and already captured, expected future growth, we believe that our current equity valuation offers a very attractive opportunity. To this end, our Board of Directors has increased our stock buyback program authorization by $200 million, increasing the total authorization to $500 million and extending expiration date to December 31, 2029. We plan to execute our stock buyback program opportunistically, balancing it with our growth, capital needs and our objective to reduce debt and deleverage our balance sheet. At this time, I will turn the call over to our CFO, Mark Suchinski, to review our financial highlights and guidance. Mark Suchinski: Thank you, George. Good morning, everyone. I am happy to report that we had a very solid third quarter. For the third quarter of 2025, we reported net income attributable to GEO of approximately $174 million or $1.24 per diluted share on quarterly revenues of approximately $682 million. This compares to net income attributable to GEO of approximately $26 million or $0.19 per diluted share in the third quarter of 2024 on revenues of approximately $603 million. During the third quarter of 2025, we completed the sale of the Lawton, Oklahoma facility for $312 million and the Hector Garza, Texas facility for $10 million. These two transactions resulted in a $232 million gain on asset sales during the third quarter. Approximately $60 million of the Lawton Facility sale was used to purchase the 770-bed Downtown San Diego, California facility that we have been operating for 25 years for the U.S. Marshals Service. Additionally, during the third quarter of 2025, we incurred a noncash contingent litigation reserve of approximately $38 million in connection with a legal case in the State of Washington involving claims of individuals who participate in the voluntary work program while in ICE detention. The Ninth Circuit Court of Appeals has ruled that the ICE volunteer detainees are entitled to state minimum wage payments, but stayed their ruling pending GEO's appeal to the U.S. Supreme Court. The Ninth Circuit of Appeals ruling is in stark conflict with other federal court rulings on individuals providing work while in confinement. No company has ever paid state minimum wages to individuals working in confinement facilities. While we are appealing the case to the U.S. Supreme Court, due to accounting rules, we recorded this noncash contingent litigation reserve during the recent -- our most recent third quarter. Excluding this noncash contingent litigation reserve, the gain on asset sales and other items, adjusted net income for the third quarter of 2025 was approximately $35 million or $0.25 per diluted share compared to $29 million or $0.21 per diluted share for the prior year's third quarter. Adjusted EBITDA for the third quarter of 2025 was approximately $120 million, up from the approximately $119 million reported for the prior year third quarter. Beginning with revenues. Quarterly revenues in our owned and leased secure service facilities increased by approximately 22% year-over-year, driven by the activation of our new ICE contracts, which drove the census across our contracted ICE processing centers to an all-time high. Revenues for our nonresidential contracts increased by approximately 10% from the prior year third quarter. Revenues for our managed-only contracts increased by approximately 8% from the prior third quarter. Revenues of our electronic monitoring and supervision services and for our reentry centers were largely unchanged from the prior year third quarter. Now let's turn to our expenses. During the third quarter of 2025, our operating expenses increased by approximately 15% due to the start-up of new contract awards and increased occupancies compared to the prior year quarter. Our G&A expense for the third quarter of 2025 increased from the prior third quarter, in part due to the reorganization of the senior management team at the end of last year, higher employee-related benefit costs and support for the revenue growth from our new contract awards. Our third quarter 2025 results reflect a year-over-year decrease in net interest expense of approximately $7 million as a result of the reduction in our net debt. Our effective tax rate for the third quarter of 2025 was approximately 25%. Now let's move to our outlook. We have updated our financial guidance for the fourth quarter and full year 2025. Our updated guidance for the fourth quarter incorporates a new reduced contract pricing for ISAP 5, which, as George mentioned, is being favorably impacted by a steady shift in technology mix as well as higher intensity of case management services and the potential for higher volumes, all of which should improve the economics of the new contract. Based on these variables, the federal government assigned an estimated value to the 2-year contract of over $1 billion. Because the exact scope and timing of the government actions are difficult to estimate and are outside of our control, we have not included any assumptions with respect to favorable mix shift or census growth in the ISAP contracts in our 2025 guidance. Additionally, we are in the process of implementing several cost mitigation measures for the ISAP contract by the end of this year, which we expect to result in cost savings of approximately $2 million to $3 million per quarter beginning in 2026. The fourth quarter was also impacted by additional start-up costs at the Adelanto, California facility, which has required the hiring of 179 additional staff due to its reopening and the increase of overtime costs due to new staff awaiting their final ICE clearance before being allowed to perform their responsibilities. We expect both issues to normalize in 2026. As a result, we expect fourth quarter 2025 GAAP net income to be in the range of $0.23 to $0.27 per diluted share on quarterly revenues of $651 million to $676 million. We expect fourth quarter '25 adjusted EBITDA to be between $117 million and $127 million. Taking into account our updated fourth quarter guidance, we expect full year 2025 GAAP net income to be in the range of $1.81 to $1.85 per diluted share, including the $232 million gain on the sale of the Lawton, Oklahoma and Hector Garza, Texas facilities. We expect full year 2025 adjusted net income to be in the range of $0.84 to $0.87 per diluted share on increased annual revenues of approximately $2.6 billion and based on an effective tax rate of approximately 25%, inclusive of known discrete items. We expect full year 2025 adjusted EBITDA to be in the range of $455 million to $465 million. We expect total capital expenditures for the full year of 2025 to be between $200 million and $205 million, which includes our previous announced $100 million investment to enhance our ICE facilities and services and the approximate $60 million for the purchase of the Western Region Detention Facility. With the already announced contracts that are expected to normalize next year and new opportunities that are in discussions, we could see a path to approximately $3 billion in annual revenues in 2026. Now let's move to our balance sheet. We closed the third quarter of 2025 with approximately $184 million in cash on hand and approximately $143 million in available capacity under our revolving credit facility. We believe we have ample liquidity to support our working capital needs during the current government shutdown. We have received verbal support from several of our banks to provide additional liquidity should the government shutdown continue for a prolonged period of time. We also believe we've made significant progress towards deleveraging our balance sheet. Year-to-date, we've reduced our net debt by approximately $275 million, closing the third quarter with total net debt of approximately $1.4 billion and total net leverage of 3.2x adjusted EBITDA. As a result, we've achieved an annualized reduction in interest expense of over $25 million. Our debt reduction efforts were bolstered by the successful sale of the Lawton, Oklahoma facility for $312 million during the third quarter. We believe this important transaction is representative of the intrinsic value of our real estate assets, totaling 50,000 owned beds, and it allowed us to significantly deleverage our balance sheet and begin to return capital to our shareholders. During the third quarter, we repurchased approximately 2 million shares for approximately $42 million under our recently launched stock buyback program, which our Board has increased by $200 million, bringing the total authorization to $500 million. We expect to continue to execute our buyback program opportunistically within the covenant requirements of our debt agreements. We remain focused on disciplined allocation of capital to enhance long-term value for our shareholders, and we believe that our strong cash flows will allow us to support all of our capital allocation priorities. At this time, I will return the call back to George for some closing comments. George Zoley: Thank you, Mark. In closing, we believe we've made significant progress towards meeting our strategic objectives. So far in 2025, we've announced new or expanded contracts that are expected to generate more than $460 million in new incremental annualized revenues, which will normalize next year and likely achieve approximately $3 billion in total company revenues for 2026. The amount of new contracted revenues is the largest in our history of our company. Going forward, we expect to be able to capture additional growth opportunities. We have approximately 6,000 idle high-security beds that remain available, which could generate in excess of $300 million in annualized revenues if fully activated. With the award of the new 2-year ISAP contract and the investments we've made to stock up on the inventory of GPS tracking devices and development of new generation devices, BI is well positioned to respond to the future demands under the ISAP 5 contract. We are also well positioned to continue to expand our delivery of secure transportation services for ICE and the U.S. Marshals. While the exact timing of government actions, including new contract awards is difficult to estimate, as a management team, we are focused on maintaining a level of readiness to successfully pursue and capture future growth and continuing to allocate capital to enhance value for our shareholders. That completes our remarks, and we would be glad to take questions. Thank you. Operator: [Operator Instructions] Our first question comes from Joe Gomes with NOBLE Capital. Joseph Gomes: I wanted to start off here. I think there's a big question hanging out there with the government shutdown, with the ICE focus on hiring the extra 10,000 people that the rate of ICE population detentions has not been as robust here as originally anticipated. Just was wondering what you guys are seeing out there. Is it flowing at what your expectations were? Or has it come in a little less than what you may have been previously expecting given the current status there with the federal government? George Zoley: No. It's obviously gone slower than we previously expected. And our existing facilities are at almost full capacity, and they're churning out deportations almost at the rate of approximately 100% of their capacity per month. So we've never seen anything like this before. So our existing facilities are on full throttle. We were expecting additional contract awards, but there is a need for additional ICE staff to support additional facilities. That's why they're trying to recruit 10,000 staff. Well, as I said in my remarks, it takes a lot of time and staff-intensive activities to recruit, hire, train and bring on board that ICE staff to support new facilities around the country. We think our idle facilities totaling 6,000 beds are ideal high-security facilities that are available. But just looking at a combination of factors of the government shutdown, the need for additional ICE staff, there have -- those factors have caused the delays that we hope will be concluded by the end of the year, if not the end of this month. Joseph Gomes: Okay. Really appreciate the color there. On the ISAP, congrats on the contract win. I understand there's going to be some puts and takes there, some changes. But historically, if you look at that contract, it's run roughly about a 50% NOI margin. Do you think even with all these puts and takes that stays at least at that level? Or do you think there'll be contraction in that NOI margin? George Zoley: Well, we really don't discuss our margins by business unit to that level of granularity. We made a pricing cut to be competitive in this last rebid as we have done, I think, in two or three times previously. So every time there's a rebid of the ICE contract, there's a lot of competition, and we've reduced our unit pricing, and there's 40 different units in that pricing. So we took a hard look and we identified cost savings opportunities at the corporate level, regarding staffing field level, cost savings on devices, the identification of new generation devices on a less costly basis. So all of that was combined to present the government with the best value in winning the contract. Now the count, as I've said, has been fairly stable which is a little disappointing, obviously. But the mix of monitoring devices is leading towards more intensive devices that cost a bit more and more intensive supervision of case management services with regarding the existing population that will be applied to the increasing population as priced in years 1 and year 2. Remember, year 1 is priced to double the existing capacity and year 2 is almost tripling. So that remains to be seen. It's up to the government as to how do they get to those levels. But right now, I think we've been fairly consistent in saying the focus has been on increasing detention capacity. And that's where the activity has been and the actual participation levels increase. Mark Suchinski: Joe, it's Mark. I would just add that our electronic monitoring business has been and will continue to be our highest margin business. We publish that quarterly. It's -- we're fully transparent about that. And we -- as George indicated, we've made some adjustments, but we're working on the cost side of things, and we expect those actions to be complete by the end of the year and reap those benefits in 2026. Joseph Gomes: Okay. And then one more, if I may. Staffing has always been challenged especially when you're opening so many idle facilities at one time. I'm just wondering how are you guys looking at or seeing the ability to staff up the facilities that you're opening? George Zoley: Great question. I think we've been targeting hiring 1,000 or 1,500 additional staff this year, which is an enormous amount comparatively speaking. And that's been a very costly feature that has impacted our earnings this year, which I don't think a lot of new shareholders are aware of the impact. When you hire people, you have to put them into -- you have to recruit them, you have to do background checks, you have to put them in training. All of that is a cost that's predominantly borne by us and not the client until the facility opens and normalizes. So almost all of that -- those staff are paid according to Department of Labor determined wages. And so I think we're having a good shot at finding the people, but it takes a long time to get them through the ICE clearance process. And that's a costly wait for us. Operator: The next question comes from Jason Weaver with JonesTrading. Matthew Erdner: This is Matthew Erdner on for Jason. So going back to the ISAP, I just kind of want two clarification questions. First, the $1 billion, that is over the 2-year term period. And then I just want to make sure I get the numbers right on the scale up. It was, I believe, $361 million you said in the first year and then $465 million for year 2? George Zoley: Yes. Matthew Erdner: Okay. And then as it relates to that, should we kind of expect that 1/3 of that revenue trickles through over '27 with the remainder kind of coming through in 2027 as that program continues to scale? Mark Suchinski: Well, as we indicated, that's -- we responded to the government's request. And the government had in the RFP, identified those counts for us to respond to. And so we -- today, the counts are at 182,000. We really -- we don't know exactly the exact timing of the change in ISAP participants over time. But I think as George has articulated, their focus right now is on detention. And once we get to 100,000 beds, the pivot will be to ATD. So I think it's hard for us to predict the exact timing of that. But what we do know is that the RFP had allocated significantly higher funding and participant counts than -- as compared to where we are today. And so I think that's what we know. George Zoley: The contract term will go into 2027, obviously. That's part of the answer to your question. The exact counts, we are beyond our control. They are identified in the pricing procurement document that everybody had to bid on. So the counts are as we've discussed, and it remains to be seen if we achieve or exceed those counts. Because as I said in my comments previously, that the count on the previous ISAP 4 awards started at 91,000 and ended at 183,000. If that's any indication of the future, then I think we're going to be on solid ground. Matthew Erdner: Got it. That's helpful. And then touching on the additional growth opportunities and alternative solutions that you guys are still on the table. It's nice to see you guys working with the state of Florida. How big is that opportunity set? And how many states are looking for these kind of management services as ICE continues to try to look for additional beds? George Zoley: There are several, which we can't name at this time. But they're generally beds that would be part of their correctional system, idle beds or refurbished beds and that number typically in the hundreds, possibly getting up to 1,000 beds per location that we're aware of. But we're not fully privy to what DHS is doing or who they're talking to, obviously. Matthew Erdner: Got it. And then looking at that from kind of a margin perspective, would that kind of fit in with the historical managed services margins? George Zoley: It's actually a bit better than that because the staffing levels for this kind of population is different than what we typically seen at our state facilities that were managed only. This is a higher security population requiring more staffing, and we make a margin on the staffing. Operator: The next question comes from Greg Gibas with Northland Securities. Gregory Gibas: I wanted to ask, I guess, regarding your commentary on the mix shift within the ISAP program. Can you confirm that, that mix shift toward more intensive uses is currently happening, but not included in your Q4 guidance? I guess what assumptions with mix are implied by guidance? Mark Suchinski: It's Mark. Let me address that. As George said, we are seeing a shift of a movement towards less usage of an app or a phone and higher participant counts using our ankle bracelets. And so what we've seen to date has been a slow and steady growth on the ankle bracelets, which are higher cost and more intensive as it relates to the case management services. And to a certain degree, we've built that in. What we're saying is we only have a couple of months left in the year. We've factored that into our overall assumptions. But over the coming next 2 years, we're expecting the continued shift towards the higher intensive supervision, which is the higher cost services from a technology device standpoint as well as a case management. So the point we're making is we think there's some opportunities as we've rebid that contract, both on the mix shift and some of the cost actions that we're taking to mitigate things. Obviously, the new pricing went into effect on October 1. It's going to take us a little while to implement the actions that we have, and that had an impact on the fourth quarter. But we're working hard to push through that and potentially take advantage of the shift towards the more intense services. And we think that would continue into 2026, and we'll know better when we provide guidance in February of next year. Gregory Gibas: Got it. That's helpful. And nice to see the increased share repurchase authorization. With where the stock is trading now, could you maybe discuss your thoughts on leaning into it more or considerations of an acceleration of repurchase activity? Mark Suchinski: Well, we're aligned. We think our share price is way undervalued, right? George talked about our business. When we look at our profitability and our cash flows and the growth that we've achieved here, we think our stock price is significantly undervalued. That's why we launched our share purchase program with George's support and the Board's. With where the stock price is, we had another dialogue with our Board at our Board meeting, and we increased the size of that. And we're confident about our cash flows over time here, and we're leaning into this. I think earlier in the year, we talked about shareholder returns. We talked about doing that once we got less than 3x levered. We're over 3x levered, but we're leaning into it, and our banks are supportive of that. So we're going to lean into it. We're going to, as George said, be opportunistic about it and balanced. But where our stock price is, we're going to continue to pursue the buybacks and take advantage of the lower stock price and our cash flows and our ability to go do that. Gregory Gibas: Got it. Makes sense. And I know timing, like you said, is difficult to predict. Just I guess, referring to your prepared remarks, you mentioned being optimistic on ISAP ramping up early next year. I guess I would just ask like what leads you to expect that or support that expectation? Is there anything new you've heard since maybe last quarter? George Zoley: Well, there's millions of people that are on the non-detained docket. And there's going to be a desire to provide more clarity as to where they are, what stage they are in with respect to their hearing process, and making sure they get to their hearing and if they're not qualified to be in the country to deport them. So I think those are all publicly identified objectives of this administration. And I think the ISAP contract will be an important tool toward that -- towards those objectives. Mark Suchinski: And as we've mentioned in the past, once the detention continues to grow, the government has talked about targeting 100,000 beds at that point in time. Once they max out that capacity, and they continue the enforcement efforts that they have, the next logical tool to use is the ISAP program. Operator: The next question comes from Raj Sharma with Texas Capital. Raj Sharma: Quite a few of my questions have been answered. But can I go back to the question on margin and the ISAP program. I guess -- and I know you're not providing that much detail, but could the margins match or exceed your existing or earlier margins at a certain volume of monitored and supervised accounts? How do we sort of model that out? George Zoley: Well, I think it will have to be over time as both Mark and I have said that we have to implement some cost savings with regard to staffing efficiencies and service efficiencies as well as cost of devices. That will -- all of that will take place over the next succeeding months. And if the numbers materialize as they're identified in the pricing that was required of all the bidders, our margins and revenues will exceed what we had previously, I believe. Raj Sharma: Got it. And then on the guide, the fiscal '25 guide, the margins of about 23%, 24%, historical had been 26%. Is this -- should we consider this to be sort of a new base of EBITDA margins? George Zoley: Are you speaking regarding ISAP or? Raj Sharma: No, I'm talking about the overall -- sorry. Yes, talking about the overall margins. This quarter was flat to last year on higher revenues. Anything that explains the EBITDA margins not picking up as much, and should we consider that as the base EBITDA margin going forward? Mark Suchinski: No, I think we tried to articulate it. We talked about the fact that as we're starting up these contracts, there's a cost investment that takes place. We talked about the Adelanto Facility and the rapid increase in the participants and us working hard to hire those folks. So both in the third quarter and the fourth quarter are going to have -- are going to be impacted to a certain degree by those costs, and we're working hard to get those normalized, those operations normalized like our existing facility. So I wouldn't necessarily say that the third quarter is the new baseline. It has been impacted by some puts and takes. And so I would just say you're just going to -- we're going to continue to work hard to satisfy our clients and work hard to manage our business and continue to do the best job that we can here, but there was some -- a few anomalies that took place in the quarter. Raj Sharma: Great. That's really helpful. And then just lastly, on the activated facilities normalizing in 2026. What revenue and EBITDA step-up should we expect for '26? George Zoley: I don't think we've given guidance for '26 as yet. Mark Suchinski: No. We'll -- we want to wrap up the quarter, and I think we'll be able to provide you further details when we see you guys or when we chat with you guys early next year. Raj Sharma: Got it. I guess the activated facilities would have normalized by Q1 or by Q2 next year? George Zoley: Well, the ones that have been activated this year, that would be correct, but we assume that will be activated the middle of next year. Operator: The next question comes from Brendan McCarthy with Sidoti. Brendan Michael McCarthy: I wanted to start off in electronic monitoring. I think you mentioned you're continuing to invest to stock up on some of the higher-intensity wearables. Can you quantify what your ultimate capacity is for some of the higher-intensity wearables? Perhaps what number of population counts could you monitor under that kind of segment of your products? George Zoley: I don't know how high is high. We are capable of monitoring, obviously, several hundreds of thousands in concurrence with our pricing model, but we can go far beyond that and have -- we're the largest monitoring company in the world, and we've streamlined our operations over the course of this year, and we are developing new generation products for every one of our products that will be rolling out sometime next year. And we have the largest capacity of any monitoring company in the world to roll out new devices each and every week. Brendan Michael McCarthy: Great. That makes sense. And then last question for me, just amid the government shutdown, are you still having active negotiations for the remaining idle beds that you have available? Or have those negotiations paused? I'm just curious if anything has really changed as it relates to your discussions with reactivations. George Zoley: I would characterize them as discussions. I don't think they fall in the formal negotiation stage. But our discussions with ICE really take place almost on a continuous basis. Operator: The next question comes from Kirk Ludtke with Imperial Capital. Kirk Ludtke: With respect to ISAP, if I remember correctly, ISAP 4 was a 5-year deal. And I'm -- this is now a 2-year inclusive of the option period. What is the -- what is it exclusive of the option periods? George Zoley: The option period, it would be a 1-year contract. Kirk Ludtke: It's a 1-year deal with a 1-year option. George Zoley: A lot of our contracts are 1 year with four 1-year extensions, and we call them 5-year contracts because they almost always take all options of the contract. Kirk Ludtke: Okay. Got it. And so it's a shorter deal. What do you -- what is the -- what's the takeaway there? George Zoley: There's been no formal policy announcement of the change that I'm aware of, but it is a technology-driven kind of service and technology changes fairly rapidly. So it may make sense to make it a 2-year contract. And that's one of the reasons that we are doing new generation devices. Kirk Ludtke: So just given the, I guess, uncertainty about how they want to proceed, they decided to pursue a shorter deal? George Zoley: It's the large population base that you're grappling with. It's almost 7 million people. And it's -- the service is in two forms, as I said, technology and case management services. And there may be a better way of doing that 2 years from now. That's possible. And we have the flexibility to respond to whatever the policy change may or may not be 2 years from now. Kirk Ludtke: Got it. Okay. And you've committed to be prepared to monitor 361,000 people next year at some point? George Zoley: For next year, and we could monitor far beyond that. Kirk Ludtke: Yes. Is there a -- will that mean significant CapEx next year? George Zoley: It will be some CapEx, yes, but we've been stocking up on our devices this year, as we've said. We've made significant investments. And I think we have more devices than any other company in the world. Kirk Ludtke: Got it. Okay. I appreciate it. And how much -- you mentioned increasing the authorization to $500 million, and you've got some limitations under the credit documents. How much stock could you buy back under your covenants today? George Zoley: I think we've said that we would be buying back approximately $100 million of stock per year. And I think we're -- at this present time, we're sticking to that. We've done $42 million so far this year. That would leave the balance for the balance of the year. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to George Zoley, Executive Chairman of The GEO Group for any closing remarks. George Zoley: Well, thank you for listening and giving us your questions, and we hope to address you at the next conference call. Thank you. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Ladies and gentlemen, welcome to Turkish Airlines' Third Quarter 2025 Earnings Call. [Operator Instructions] Now I will leave the floor to our host. Sir, the floor is yours. Murat Seker: Thank you very much. Good afternoon, everyone, and thank you for joining us. During the third quarter, the airline industry's operating environment was shaped by a number of external and internal factors. Traveler confidence in North America weakened amid unpredictable immigration policies, while the competition across Europe intensified as carriers increased capacity to capture peak season demand. Persistent supply chain constraints in aircraft and engine manufacturing, combined with cross-border tensions continue to affect market conditions. In this context, Turkish Airlines remained agile and disciplined. Our third quarter results reflect our ability to adapt dynamically to rapid evolving market conditions while maintaining a firm focus on our long-term strategy. In the third quarter, we also underlined our commitment to sustainable shareholder returns with the second installment of our dividend payment amounting $110 million. Before moving to the financial results, I would like to highlight the major developments and achievements of the quarter. Most importantly, we took an important step towards preserving our growth trajectory by placing orders for 50 firm and 25 options for Boeing 787 aircraft. Deliveries are scheduled between '29 and '34. Once completed, they will significantly elevate our operational efficiency, flexibility and passenger comfort across our network. Similarly, we completed negotiations with Boeing regarding the purchase of a total of 150 737 MAX aircraft, consisting of 100 firm and 50 option orders. Currently, we are working on the details of the deal with the engine manufacturer, CFM International. These steps reflect our goal of operating in an entirely new generation fleet by 2035 in addition to our annual capacity growth target of 6% for the coming decade. During the last quarter, we launched flights to Seville in Spain and Port Sudan, while resuming operations to Aleppo in Syria and Misrata in Libya, rebuilding our presence in these important regional markets. Turkish Airlines continued to be recognized internationally for its achievements in both service and quality and aircraft financing capabilities. We received the World Class Award from APEX for the fifth consecutive year, along with best-in-class distinctions in both sustainability and food and beverage categories, reflecting our strong commitment to delivering an exceptional passenger experience. Moreover, at the Airline Economics Aviation Awards in London, we were recognized with 3 major titles: European Overall Deal of the Year for an Islamic finance lease in Swiss francs, European Supported Finance Deal of the Year for a Balthazar-guaranteed JOLCO financing and Sustainability Aviation Overall Deal of the Year for our sustainability-linked JOLCO financing. These achievements underscore the depth of our financial expertise and our ability to secure competitive diversified funding from global markets. Following these updates, I would like to briefly touch on the rationale behind our investment in Air Europa. Based in Madrid, Air Europa operates a fleet of 57 aircraft across 55 destinations, carrying more than 12 million passengers annually. As a leading carrier between Europe and Latin America, its strong regional presence and complementary network will further strengthen our role as a bridge connecting continents. This investment also aligns closely with our long-term strategy, enhancing our access to the fast-growing Latin American market and creating new opportunities for both passenger and cargo traffic between Spain and Turkiye. By linking these 2 major global tourism destinations, we will improve connectivity across Europe, Latin America, the Middle East and Asia, offering passengers greater options, new travel itineraries and smoother connections. The collaboration will also foster tourism flows between Turkiye and Spain, supporting both economies and deepening cultural exchange. Importantly, this partnership is structured as a minority investment, ensuring Air Europa maintains its independent identity while benefiting from Turkish Airlines operational expertise and global network. Now let's take a closer look at our results. In the third quarter, Turkish Airlines total passenger capacity rose by around 8% annually. We carried more than 27 million passengers to their destinations, reaching a record number in a single quarter and recorded a load factor of 85.6%. Growth was largely driven by robust demand in Asia and Africa. On the other hand, softer demand in North America, intensifying competition in Europe and the geopolitical situation in Middle East presented the headwinds. During the July-September period, total revenues increased by 5% year-on-year, reaching nearly $7 billion. Passenger revenues rose by 6%, benefiting from strong volume growth. Meanwhile, cargo revenues declined by 7% to around $850 million, mainly reflecting ongoing trade tensions and increased competition from sea freight. Despite the revenue growth, profitability was lower compared to last year, mainly due to sequentially higher jet crack spread, the second half wage adjustment and partly softer yields. As a result, EBITDAR stood at almost $2.1 billion with a margin of 29.6%, while net income realized -- was realized close to $1.4 billion. With the slowdown in cost inflation, our structural improvements will become more visible as we progress in our initiatives to improve flight productivity, accelerate organizational streamlining and advance more centralized back-office functions. On the revenue side, we are taking steps to strengthen our passenger mix with increased premium offerings while supporting ancillary revenue generation through our Miles&Smiles loyalty program, TK Holidays, along with our express cargo subsidiary, Widect. Looking ahead, our forward bookings indicate optimism, supported by buoyant demand across Asia and Africa in addition to swift recovery in the Middle East after the peace deal. As evidenced by our October traffic results, improvement was across the board. Compared to same month last year, our number of passengers was up materially by 19% load factor by 2 percentage points, yields by 1% and RASK by more than 3% despite substantial capacity increase. Cargo volume rose by 16%, 10 percentage points higher on a monthly basis, demonstrating a good start to high season. Together with easing cost pressures and supportive fuel prices, we anticipate an EBITDA growth in the last 3 months of the year. In closing, against the headwinds, our positive traffic trajectory is encouraging us as we approach '26, supported by continuous investment in our business, and capitalizing on new opportunities, we remain strongly confident in the potential of our long-term strategy and return targets. I will now pass the call over to Fatih Bey to elaborate on our results and provide additional insights. Mehmet Korkmaz: Thank you, Murat Bey, and good afternoon, everyone. In the third quarter of the year, we expanded our passenger capacity selectively considering aircraft delivery delays, GTF groundings and regional conflicts. Sequentially, capacity growth increased by 1 percentage point from the previous quarter, standing 43% above pre-pandemic levels, while European peers recovered only 9% during the same period. Despite of the busy summer air traffic, our on-time departure performance increased by almost 10 percentage points compared to the third quarter of last year. In the July-September period, international transfer traffic expanded faster than direct traffic. On short-haul routes, particularly within Europe, direct growth remained relatively subdued due to intensified competition. However, a closer look at figures shows a significant increase in direct traffic from Latin America and Asia to Turkiye, demonstrating the continued appeal of our network's global reach. Similar to the second quarter, over 80% of total sales were made through direct channels, reflecting the success of our new distribution platform, TKCONNECT. This shift not only supports profitability by reducing costs, but also enhances our ability to offer personalized products and promote ancillary services more effectively. Accordingly, these results in cost savings of $48 million in the first 9 months of the year. Details of our traffic results show that the Far East remained one of the strongest regions. Compared to the same period last year, almost 9% capacity increase combined with a more than 11% higher demand led to almost 2 percentage points in rising load factor, well above our budget and encouraging for the upcoming months. Demand in Japan stayed robust, supported by sustained travel appetite and ongoing Osaka expert. Starting from the fourth quarter, we plan to expand capacity to Tokyo Narita by 40%. China also stands out as a key -- another key growth market where we will gradually raise weekly frequencies from 21 to 32. Given the strength of demand, we do not expect any weakness in load factors in near term. Further capacity growth is also planned in Indonesia, Thailand and Vietnam in addition to the launch of scheduled flights to Phnom Penh in December. On the other hand, rising competition in Malaysia and Singapore may put some pressure on unit revenues. Africa delivered another quarter of strong performance. Following a substantial capacity expansion, demand remained highly resilient with particularly remarkable results from our newly launched Libya routes. Benghazi and Misrata performed above expectations and contributed to overall regional momentum. The recent capacity increase in China is also expected to support growing flows towards West Africa, enhancing our network connectivity across the continent. In the North America, the impact of U.S. policy changes continue to weigh on the ethnic travel demand. As peak travel season came to an end, we are now transferring part of the capacity towards Asia to better align with market dynamics. On the other hand, Latin America demand continues to perform well, particularly on rout to Panama and Argentina. In Europe, competition remained intense throughout the quarter as local carriers significantly expanded capacity and pursued aggressive pricing strategies. Capacity additions from low-cost carriers have also negatively impacted AJet unit revenues. Demand from key markets such as Germany, U.K. and Scandinavia was slightly weaker, while increasing transit traffic partially offset the slowdown in local demand. Consequently, we observed a slight slowdown in direct travel from Northern Europe to Turkiye. Demand to and from Middle East began to recover as tensions that had escalated in June started to ease. Following the peace agreement, bookings have accelerated noticeably, pointing to a swift normalization in the region. In the domestic market, yields declined by 7% due to base effect and change in passenger mix. Last year's low economic class availability prompted more passengers to trade up to business class. With this year's higher capacity, economy availability increased, which in turn reduced the business class share. During the July-September period, passenger revenues rose by 6%. Strong performance in ancillary and technical services also contributed positively to our growth. External technical revenues grew by more than 28%, reflecting continued demand for maintenance services as production bottlenecks persist and the utilization of older aircraft remains elevated. We expect this momentum to continue in the coming quarters given the limited availability of new aircraft deliveries. Conversely, cargo revenues followed a different pattern. Trade restrictions and tariff measures weighed on overall cargo flows, which led to a 7% lower revenue in the third quarter. Apart from trade tensions, additional capacity from new vessel deliveries as the order book-to-fleet ratio is at its highest point in more than 15 years and expectations of a reopening of Red Sea continue to pressure yields. In the third quarter, AJet carried more than 7 million passengers. Despite groundings related to GTF engine issues, capacity increased by around 23%. During the period, AJet continued expanding its international network from Ankara, adding capacity to markets such as Egypt, Sweden, Uzbekistan and Kyrgyzstan. New direct services to European cities, including Madrid and Barcelona strengthened Ankara's role as a regional hub, connecting Europe, the Middle East and Central Asia. This expansion remains central to Ajet's strategy of positioning itself as a competitive low-cost carrier with a strong presence beyond Turkiye's borders. By the end of September, active fleet recorded 80 aircraft. With additional deliveries planned for the remainder of the year, annual capacity is expected to rise around by 15%, accompanied by higher load factors. As in previous periods, revenue growth during the third quarter was mainly supported by passenger operations benefiting from capacity increase. Conversely, lower cargo revenues and softer yields in certain regions limited overall profitability. On the cost side, although Brent fuel prices remained favorable, higher crack spread, wages and weaker U.S. dollar negatively affected performance. Consequently, profit from main operations declined by around 21% to around $1.1 billion, while EBITDAR decreased by 12% year-over-year to almost $2.1 billion. In the third quarter, total cost per ASK increased by 2.8% year-over-year, mainly driven by higher personnel expenses following the midyear inflation adjustments. On the fuel side, even though average jet fuel prices were lower than last year, widening crack spread limited the overall benefit compared to the previous quarters. Meanwhile, strict control over advertisement spending and a higher share of direct sales and fewer wet-leased aircraft partially offset the cost pressures. Negatively, airport and air traffic-related unit costs increased by almost 12%, mainly due to revised fee schedules at major European hubs and stronger euro. Aircraft maintenance CASK also remained elevated, reflecting the ongoing GTF engine issue. Free cash flow generation remained healthy during -- in the third quarter, amounting to around $350 million. Accordingly, 12-month community free cash flow reached $1.6 billion. After debt service, liquidity rose by $200 million sequentially to almost $7.9 billion. On the other hand, net debt increased by $700 million compared to previous quarter, mainly due to new aircraft deliveries and the weaker U.S. dollar. Correspondingly, leverage recorded is 1.4x, well below the target range of 2 to 2.5x. As mentioned by Murat Bey earlier, while travel demand remains positive in the fourth quarter, the softness observed in North America during the summer led us to slightly revise down our revenue growth guidance by 1 percentage point to 5% to 6%. Since the beginning of this year, ex-fuel unit cost development followed our expectations. In the final quarter, we anticipate a notable improvement in cost performance driven by base effect. With that, we are on track to reach our unit cost guidance of a mid-single-digit annual increase. Taking these factors into account, we are maintaining our 22% to 24% EBITDA margin expectation for 2025. With this, we conclude our prepared remarks section of our earnings call. Now back to Maria for the investor questions. Operator: [Operator Instructions] Mehmet Korkmaz: Welcome back. Before we start the Q&A question, I would like to just briefly mention about a couple of actions that we took during the summer. Summer was a busy period not only for our operations, but also for our Investor Relations team. As part of our improving IR activities, we conducted a perception study to gather valuable feedback from you, our analysts and investors. In the coming period, we will be gradually implemented the suggestions offered to strengthen our engagement with you. And with this occasion, I would like to thank all of the participants for taking time to share their views. Now let's continue with the Q&A section of our call. Murat Bey, we got quite a few questions from our analysts and investors. Starting with, could you walk us through the main factors that shape the third quarter performance? Murat Seker: Sure. Thank you, Fatih. On the positive side, the first thing comes to mind is the strong demand we have been seeing in the Far East and Africa and then third wise, the domestic market. In the Far East, for example, RPK was up by double-digit 11%. In Africa, it was up by almost 20%. And the third-party revenue share of Turkish Technic, which currently is the third biggest MRO provider in Europe. The revenue from third party went up by 28% in this quarter. These were the positive developments, plus brand continuing to be lower than projected. And the structural tailwinds that Fatih also touched upon a little bit, the improvements on our distribution and sales costs as we started to use more of our direct channels, they were also helpful in the -- to the bottom line. On the negative side, the volatile geopolitical situation and unpredictable immigration policies and cargo yields being down by almost 16% year-over-year, the jet crack spread being up by 8% to 10% level, and the inflation adjustment on salaries, personnel expenses were the 3 big items that provided a negative development for this quarter's performance. Mehmet Korkmaz: Murat Bey, can you provide an update on the current status of the GTF groundings and how they are impacting your operations? We got this question from [indiscernible] and [ Kurt Hofton ]. Murat Seker: Well, I mean we know we have been in a very, very close coordination with Pratt & Whitney, who is trying to solve the problem in this speediest way. Still, we have quite a sizable number of aircraft that are grounded. Of the 100 GTF-powered neo aircraft we have in the fleet, today, 40 of them are parked. And this seems to be continuing around 40. It will go up to 50 come down a little bit, all throughout '26 as well. So there has been a major improvement. But this, of course, is a little related to the fact that we keep getting more GTF-powered neos to the fleet. So we keep using them so that our staff -- the capital utilization and aircraft utilization continues. Mehmet Korkmaz: Murat Bey, could you also provide insights into current passenger booking trends? October results were quite strong. And maybe region-wise, you may elaborate on the details. Murat Seker: Sure. Well, as I just said, Far East, Africa and domestic have done well so far. And looking into the future, this -- in the Far East, for example, we expect to have a 13% and then another like a 13% to 15% capacity growth in the next 2 quarters, including the fourth quarter of this year and the first quarter of next year. Overall, before getting the region-specific details, we are planning to put 10% to 11% ASK growth with a flattish yield in the last quarter of this year in overall our growth. Into the regions, I just mentioned Far East. Then after Far East, we will see a very significant growth in the Middle East. There is, of course, a lot of the base effect here. And then Africa is going to have about 13% to -- 12% to 13% capacity growth in the next 2 quarters. The forward reservations from November for the next 6 months look quite positive. We are expecting a busy winter travel seasons ahead of us, especially from December to April of next year, we see double-digit capacity growth month-over-month, and then we also see mid-single-digit yield growth going forward. Mehmet Korkmaz: The unit revenues in some regions has been weaker in recent months, particularly in North America. Have you made any adjustment in pricing or market share strategy? And do you consider to defer some aircraft deliveries to reduce capacity growth? Murat Seker: As we keep saying in almost every investor call, the diverse network we have is allowing us to channel the capacity between regions easily depending on the demand environment. While relative softness in North Africa -- North America, sorry, we have started to transfer that capacity to Asia at the beginning of the quarter where the demand has been much stronger. Additionally, we expanded the product segmentation in pricing to all international regions after implementing it in Americas and Europe. Also in Asia, we have done some tactical adjustments like increasing the capacity to Bali and exotic destination and getting a larger share of the segment traffic out of Philippines, for example. Mehmet Korkmaz: This is quite a popular question. We have been getting a lot of this from our investors. Some suggest that Turkiye is becoming a more expensive travel destination compared to its peers. Considering the third quarter performance, what is your view? How the demand looks like in the upcoming period? Murat Seker: Well, according to the tourism figures of the first 9 months, which was announced last week, number of visitors to Turkiye went up by 2% to 50 million, which actually aligns closely with the updated annual growth target of 4 million for 2025 from about 62.5 million to 65 million, which was the number announced at the beginning of this year. Moreover, over the last 5 years, tourists to Turkiye increased tremendously. When you compare the amount of tourists we had in 2024, compare that with the number in 2021, it is more than -- it has more than doubled. And just from -- it has even went up higher than its 29 (sic) [ 2019 ] level of about 20%. So when you look at this macro scale, number of tourists coming to Turkiye has been increasing dramatically. However, in particular in '25 -- in '24 to '25 we have been seeing some slowdown in the pace which we think is natural. So it cannot keep continuing 10%, 15% year-over-year. When you look at the third quarter, in particular, still number of tourists coming to Turkiye was up by almost 2%. And then it's -- as I said, it resonates well with our year-end target numbers. For Turkish Airlines, in the third quarter, we carried almost the same number of passengers to Turkiye compared to last year. So we don't see much of a deterioration or shrinkage in this segment. Although there might be some negative effects due to relative strength of Turkish lira, tourism members -- tourism numbers suggest the resiliency of this industry. Also, we have been seeing some change in the composition where the tourist is coming from. Latin America, and Far East has been growing rapidly, which yield higher ticket price and tourism income for the country. For example, we have recorded 7% increase in number of passengers traveling from Far East to Turkiye in the first 9 months of this year, especially after we opened our route to Australia. And in addition to that, to Japan, South Korea and Thailand were sending a significant number of tourists to Turkiye. Mehmet Korkmaz: Thank you, Murat Bey. Can you also share how premium cabin performance compared with the economy during the quarter because most of the peers also mentioned about the strength of the premium class. Murat Seker: Well, the network-wide, we actually have been observing stronger premium segment performance than the main -- the economy cabin. Passenger profile for the premium segment is much less sensitive, both the economic volatility and the low-cost competition. In the third quarter, premium segment revenue yield change was almost 11% -- sorry, 11 percentage points higher than the main cabin. In the second quarter of this year, the difference between premium and economic class was 5%. So in the summer months, the difference in the passenger yield went up by more than twice. As a result, premium resilience to competition has been showing itself. '25 is the record year for our premium class load factors. In terms of aircraft, wide-body performance has been much, much stronger. Demand is being driven by the flows mainly from the Asian countries like Japan, China, Vietnam and Hong Kong. Mehmet Korkmaz: How would you assess cargo performance last quarter? And what is the outlook for the remainder of the year? Murat Seker: Well, the -- by its nature, the third quarter is typically a soft season for air cargo. Nevertheless, Turkish Cargo demonstrated a strong tonnage performance, achieving an increase of more than 10% compared to the previous year. On the other hand, unit revenue performance was significantly negatively affected by tariff-related concerns and effect of these tariffs on trade flows, especially on Asia, North America axis. And to some extent, spillover effects of the conflict in Middle East region. However, the recent trade deal between the U.S. and China, along with the peace talks in Middle East could potentially improve the outlook as we enter the high season for cargo. Internally, though, our new cargo revenue management system, which went online recently, is expected to bring additional 2% to 3% revenue in 2025. We continue to expect close to flat cargo revenues with a high single-digit increase in volumes, which we hope to compensate most of this drop in the yields with higher load factors. Mehmet Korkmaz: Continuing with the cost questions, what are your expectations for fuel unit costs, on what assumptions? Can you also share your hedging ratios? And do you anticipate any changes in this ratio in near term? Murat Seker: Well, although the oil prices trend downward with slight volatility, jet fuel costs tend to stay high, which reduces the benefit attained from the low Brent price. We expect around 10% lower fuel cost year-over-year in '25 with the assumption that year over average is going to be around $68, $69 levels. Our current hedging ratios for '25 is around 50%. And for '26, it is around 23%, respectively, with a breakeven price of approximately [ $64.5 ]. We expect a minimal fuel hedge loss this year, less than $20 million. And we maintain a structured and scenario-based approach designed to remain effective under various market conditions. Mehmet Korkmaz: Murat Bey, could you also share your ex-fuel unit cost expectations for 2025? And are there any efficiency measures to be implemented? Murat Seker: Well, the ex-fuel CASK, as you saw in the presentation on the third quarter, it was quite high. We expect that to come down to mid-single digits lower than 5% -- lower than 4% levels year-over-year in '25. And the reason for this improvement on the top of 9-month results is, first, we see moderation in inflation, which is decreasing the pressure on the inflation adjusted costs. And we have paused hiring, except for capacity growth. This will enhance our operational leverage and generate greater efficiency. And we have been increasing the crew and aircraft utilization through both schedule optimization and improving our on-time performance. Capitalizing corporate-wide functions like -- and scaling down the international organization structure is another component of it. We have put significant KPI monitoring scheme to all of our subsidiaries and the expansion of our direct sales channel, TKCONNECT has been improving our distribution and sales costs. Further, we are implementing quite a few AI projects on customer support and for back-office automation, which is also bringing us some internal efficiencies. We expect these items on the personnel efficiency, on strongly monitored KPIs and on more utilization of the AI tools to bring ongoing efficiency gains for Turkish Airlines. Mehmet Korkmaz: Murat Bey, just to add a couple of things. Hanzade from JPMorgan also asked about why staff costs are increasing ahead of our initial expectations while agreements are fixed and seem to have favorable sport cost inflation this year? Hanzade, be honest, the Turkish lira depreciation was lower than our expectation. At the same time, Turkish lira inflation was higher than expectation. So there is a mix of between 2. So we saw around 2 percentage points of ex-fuel CASK headwind from that impact. And continuing with the guidance question, are there any changes to your guidance for the fourth quarter considering third quarter revenue and forward bookings? Murat Seker: For the whole year, we are keeping our profitability target the same, while lowering the revenue growth guidance by 1 percentage point to 5% to 6% increase. As you might recall, in the earlier calls, we were targeting 6% to 8% revenue growth. This mainly is due to the softer revenue performance of the third quarter. The fourth quarter EBITDAR will be closer to last year with 22% margin. And for the whole year, thus, our EBITDAR margin expectation is going to be again between 22% to 24% levels. Nominally -- and nominally, we should be slightly lower than last year's amount of $5.7 billion EBITDAR. Mehmet Korkmaz: As we approach the year-end, we are getting a frequent question about our 2026 guidance, maybe just in terms of capacity and margins. What are the moving parts? Murat Seker: So we're still working on the budget. There is a lot of mileage we need to take before we share our '26 expectations. But roughly speaking, on the capacity-wise, I can say that we'll keep the growth continuing. This year, in '25, ASK growth expectation was around 8%. And next year, we expect that to be around 9% levels. For TK, it will be around like 7%. AJet is getting a lot of new aircraft. So the growth -- ASK growth, capacity growth for AJet is going to be larger. And thus, we are expecting overall 9% capacity growth. One, of course, big uncertainty here is the fleet. Although we believe all the deferrals that were supposed to be deferred in this year are planned and scheduled from Boeing and Airbus side. So we don't expect any surprise. But if anything, that might be one critical issue that would change our projections. For the profit evolution, we are going to be guiding somewhere between 24% -- 22% to 24% EBITDA margin as in '25, ex-fuel cost pressure should have less negative impact on our bottom line due to the better domestic and global inflation outlook. Still though, as I mentioned, because we have not agreed with the union yet, there is a collective bargaining agreement to be discussed, which is going to be initiated within the next few months. So that could bring some uncertainty. But overall, helped with the inflationary -- lowering of the inflationary pressure, we believe 22% to 24% EBITDAR margin will be attainable. Mehmet Korkmaz: What is the latest projection for the fleet size by the end of 2025? And any guidance for 2026? Murat Seker: So for '25, assuming getting our aircraft deliveries on time for the remaining 2 months, we expect around 35 net entries this year. Overall, we will be getting about 70 aircraft. This is together with TK, AJet and Cargo, and there will be 34 aircraft exiting the fleet. With the updated aircraft delivery table, we increased our '25 year-end fleet expectation to somewhere between 525 to 530 aircrafts. In '26, we are expecting roughly 50 net aircraft additions to the fleet. For TK -- sorry, for TK, it will be about 26 new additions, 20 narrow-body, 6 wide-body. For AJet, about 50, but a big portion of it will be replacing the old aircrafts and then short-term lease aircrafts. And then we'll get a cargo aircraft as well. So overall, there will be roughly 80 entries and 30 exits. Mehmet Korkmaz: In various mediums and public disclosures, you announced a number of significant non-aircraft investments in line with your growth strategy. Is it possible to elaborate on those? Murat Seker: There are significant investment projects we are undertaking, which were postponed during the pandemic. Starting from 2023, mainly, we started to revisit those projects. We needed a new aircraft maintenance hangar, which we initiated in '23. We need an additional second phase of our cargo terminal, and we need a new catering building in Istanbul Airport. These will be the biggest -- these 3 will be the biggest investment, non-aircraft-related investments ahead of us, a new cargo terminal, a new catering building, a new maintenance hangar. And in addition to these 3, after our agreement with Rolls-Royce to maintain A350 engines, we are going to be starting very soon to build an engine overhaul facility in Sabiha Gökçen Airport -- in Istanbul Airport. These 4 will be the major investments. However, they are not the whole list. As we are expanding our flight academy, we are expanding our simulator center with adding new simulators, and we are building data centers for Turkish Airlines' own needs. Mehmet Korkmaz: Third quarter leverage exceeded the guidance. And what were the main reasons? And we will be able to reach year-end targets? And how should we think about the expected leverage and net debt level? Murat Seker: So we were guiding a leverage of somewhere between 1.1 to 1.3x. In the third quarter, we realized 1.4x leverage, which is a net significant deviation, but it still is higher than our expectation. The reasons for this change is we had to lease additional aircraft to compensate the GTF-related groundings, which was about 9 aircraft of a value of about $1 billion. Then as -- the second factor, as the U.S. dollar was devalued against euro, the U.S. dollar equivalent total debt of Turkish Airlines increased because we have a significant amount of euro-denominated aircraft financing. It also led to an increase in the leverage. And third, slightly lower EBITDA due to the relatively softness in the demand that we saw in third quarter was the factors for this slightly higher leverage. For the new guidance to the end of 2025, factoring the above items plus the cash outflow regarding to Air Europa's share buy, we will see that the net debt-to-EBITDA multiple could be somewhere between 1.6 to 1.8x for 2025. Mehmet Korkmaz: Can you also comment on AJet's performance? And when will you -- when will AJet announce their results separately from Turkish Airlines? What is the capacity increase in AJet at year-end? And one last question about this -- IPO plans. Murat Seker: Well, AJet carried 7 million passengers in the first 3 quarters -- in the third quarter and more than 17 million passengers in the first 9 months of this year. So despite of the aircraft groundings due to GTF engine issues, passenger capacity increased by 24% in the third quarter. So the demand has been really strong on AJet side. They also have been investing heavily to improve their on-time performance, which was about 5 percentage points higher than 2024, and it reached 76% level. The annual capacity growth expectation is around 15% and 3.5% points higher load factors. So these all show that [indiscernible] work for AJet is going well. However, their cost base, their fleet is still needs to settle and then needs to improve. We believe we still have some more time to be able to separately report AJet's financials, but we are planning to report their traffic early next year separate than Turkish Airlines. This strong revenue evolution and improvements in the fleet have -- are going to increase -- improve its bottom line. For this year, for 2025, we are anticipating their revenue to be above $1.5 billion. And about the IPO, at the moment, we don't have such a plan. We think AJet is on a good and strong track. Next year, more than 70% of their fleet is going to be new generation aircraft. And then they are increasing their net operation in Europe, CIS region and North Africa. So the network is developing their sales channels and then ancillary revenue capacity is increasing. So -- and we are not in a rush to IPO AJet. Once it's on a seamless -- it's on a strong path of sustainable growth, we might consider such an option, but it's not in our agenda at the moment. Mehmet Korkmaz: Are we interested in any other deal like Air Europa in the foreseeable future? Murat Seker: Well, we did a little bit of an introduction about why we chose Air Europa and why we went through such an investment. So on the big picture, of course, being such a big network carrier, we are always open in similar collaborations throughout the world, being in Europe, in Americas, in Asia, Africa or Middle East. As long as we see a valuable value addition proposition, and it doesn't need to be only through an equity acquisition. It can be through several other channels, too, like the airline JV we had with Thai Airways. So as long as the partnership complements and supports our operation and it creates synergies, we remain open to this kind of opportunities. Mehmet Korkmaz: Murat, we also got another question related to Air Europa. Are there any -- I'm going to answer that, just sake of time. Are there any potential risks related to regulatory or required operator approvals at this stage? Could you also share any insights on lease expense or true EBITDAR performance and net debt level? To be honest, at this moment, due to regulatory application process, we are not able to answer any of those questions. Continuing with the fleet size, you expect a significant expansion. How will we manage the capacity increase? Do you believe the market will grow enough to accommodate your future capacity? Should we consider an erosion in margins due to massive capacity expansion? Murat Seker: Well, currently, our flight network is spanning about 355 destinations across 130 countries. And we believe there is still potential of growth in the market. To put it into some perspective, our network currently is reaching over 90% of the world's population, GDP and trade volume. We see Istanbul as a very strategic location, which is sitting across major global passenger and trade corridors connecting Asia to Europe, Middle East to Africa, Asia to Americas. And each of -- each new route that we open and each new frequency we add exponentially increases our unmatched connectivity. The aviation is currently expected to grow around 4% annually over the next decade. So our guidance of around 6% annual growth is seeming to be reasonable. And we are not going to keep adding new destinations. A very significant portion of this growth is going to come through increasing frequency in the existing markets and getting deeper in our existing network. And by our -- in our 2033 strategy, we have already factored in a low single-digit decline in unit yields by taking the competitive pressure and market dynamics into account. Thus, a growth of 6% ASK growth and EBITDAR margin between 20% to 25% is -- we think is reasonable. Mehmet Korkmaz: You also got a number of questions regarding our Boeing orders. Could you update us on the recent Boeing order and deals? What is the expected delivery schedule? And also, we got additional online questions. For example, Hanzade is asking about, do you see any risks on Boeing orders given continued engine negotiations in case of a decision not to proceed, would you be able to meet your capacity targets? Murat Seker: So the Boeing order, I think the question is referring to the narrow-body side because the wide-body is already placed and the deliveries, as I said, are going to be between '29 to '34, '35. On the narrow-body side, actually, next week or within 2 weeks, there will be another face-to-face meeting. But no matter how the meeting goes, we don't see this as a big threat on Turkish Airlines growth projections because we have proven that when the -- we don't get a direct order from the both OEMs that missing capacity has been successfully fulfilled through operating leases. Last 5 years, in particular, we were -- we had a lot of deferrals in our orders from Boeing and Airbus, yet we could grow the fleet size by more than 150 aircraft between 2020 and 2025. So we don't think it's going to be a big threat. And in any case, even if we place the order today with Boeing, the first delivery of this narrow-body is going to start in 2029 or 2030. So it's still -- we are talking about too far into the future. And there are a lot of options being from the Airbus, being from the leasing companies in the market that can be considered. So keeping these options there, to Hanzade's question, we don't see a threat on our growth projections. But this doesn't mean that we are not going to be continuing to discussions with Boeing. It has been quite a long time together with the wide-body order book. We have started negotiations together on the wide and narrow-body front. It's 150 aircraft, narrow-body aircraft. And once we settle the few remaining issues with CFM, we believe we might also be in a position to announce this deal not too far in the future once the negotiations finalize and meet our demands. Mehmet Korkmaz: Considering recent results and the operating environment, will there be any update on the 2023 strategy? Do your expectations align with the recent results? Murat Seker: When you look at it more broadly, we introduced our strategy by 2023, and we are in 3 years now into the strategy. When you look at the bottom line, we are fully in alignment with our strategic profit targets. But when you break it down, you'll see that because of the delayed deliveries, we are a little below from our strategic targets on the revenue front. And because of the higher inflation than anticipated, there has been pressures on the cost side. But the demand, again, which was not factored in to be this strong, the stronger-than-anticipated demand in '23 and '24 alleviated these negative factors and allowed us to be able to achieve from our -- to achieve the profit targets. So we are not revising our 2033 targets, but we will make an adjustment in the -- hopefully, by the first quarter of 2026, we will make some adjustments on the strategy, mainly because now it is -- seems impossible that we will be able to achieve the fleet and -- as we were targeting in '26 and '27. So those numbers need to be adjusted. But the bottom line, we don't think a big change on the profit and profit margins. Mehmet Korkmaz: Could you also provide information about the contribution of technical segment to operational profitability? Murat Seker: So usually, our main purpose of Turkish Technic is to serve Turkish Airlines maintenance needs. And as in the world, aircrafts are getting older, their maintenance requirements are increasing and to keep the fleet in operation in the busy summer months becomes more and more important. And due to Turkish Technic's strong capabilities in maintaining a very wide range of aircraft, its geographic location, its capacity to maintain aircraft currently in 3 -- in 4 different airports is giving it a lot of opportunities for third parties. As a result of this, in the first 9 months of this year, their total revenue went up by 75% to almost $2 billion. And -- by 2033, we keep investing in our MRO capacity. It will go up from the existing level of around like 65 aircraft being that we can maintain simultaneously. This number is going to go up to about -- it's going to double like 120 aircraft by 2033. Mehmet Korkmaz: Murat, we have 2 more questions, and I can quickly address them if you allow me. First, is there any major operational impact on your North America operations currently due to the airport slowdowns caused by current shutdowns? Before joining the earnings call, I spoke with our flight operation control center, and they said that it is related to the U.S. domestic market. So no, we are not seeing any impact. And also, we got questions about October traffic results. Could it purely something about extending season? To be honest, we don't believe so with -- by transferring capacity from United States towards Asia, that allows us to feed our after new flights in Istanbul. So that also increased our connectivity. And as a result, we expect fourth quarter passenger results to be strong because of that connectivity improvement. And with this question, we conclude our earnings call. Thank you all for your participation, and we look forward to being with you next quarter. Operator: We would like to once again thank you all for the presentation. So ladies and gentlemen, this concludes today's conference call. Thank you for your participation.
Operator: The contents of today's call are protected by copyright and may not be reproduced without the prior written consent of Pason Systems Inc. Certain information about the company that is discussed on today's call may constitute forward-looking information. Additional information about Pason Systems, including the risk factors relevant to the company can be found in its annual information form. Good morning. My name is Andrew, and I will be your conference operator today. At this time, I would like to welcome everyone to the Pason Systems Inc.'s Third Quarter 2025 Earnings Call. [Operator Instructions] Celine Boston, CFO. You may begin your conference. Celine Boston: Thanks, Andrew. Good morning, everyone, and thank you for attending Pason's 2025 Third Quarter Conference Call. I'm joined on today's call by Jon Faber, our President and CEO. I'll start today's call with an overview of our financial performance in the third quarter. Jon will then provide a brief perspective on the outlook for the industry and for Pason, and we'll then take questions. Pason's results in the third quarter of 2025 continues to demonstrate the resilience in our business model through very challenging industry conditions. Pason generated consolidated revenue of $101 million and adjusted EBITDA of $38.5 million or 38.1% of revenue in the third quarter of 2025. In our North American drilling segment, Canadian drilling activity increased through the third quarter as is seasonally expected after spring breakup. However, at a more moderate pace than the increases seen in the third quarter of 2024, resulting in a 15% decline in Canadian industry drilling activity year-over-year. U.S. drilling activity fell slightly through the third quarter, resulting in a 9% decline in overall North American industry drilling activity in Q3 2025 versus the prior year comparative period. Despite this decline, revenue in the segment only decreased by 7% year-over-year. In this challenging environment, Pason grew revenue per industry day by 1% to a new quarterly record level of $1,071 as the company continues to make progress with growing product adoption across its technology offering. Within the North American drilling segment, Pason generates a higher revenue per industry day with Canadian activity as compared to U.S. activity. In the third quarter of 2025, Canadian activity represented a lower percentage of total when compared to Q3 of 2024, and this muted the growth seen in consolidated revenue per industry day year-over-year. The segment's operating expenses remained mostly fixed in nature and fell by 6% year-over-year as the company focuses on disciplined cost management in the context of more challenging industry conditions and has seen lower levels of repair expenses, which can fluctuate with revenue levels. Resulting segment gross profit of $42.2 million was consistent as a percentage of revenue at 61% when compared to Q3 of 2024 despite the more challenging industry conditions. Continuing from earlier this year, our International Drilling segment faced headwinds in the third quarter with a larger customer in Argentina reducing activity levels through a pending shift in operational focus away from conventional wealth towards more unconventional drilling. The segment generated $12.5 million in quarterly revenue and $5.2 million in segment gross profit in the third quarter. Operating expenses for the segment are mostly fixed and came down by 11% year-over-year as the segment remains focused on disciplined cost management during a period of lower activity levels. Even more pronounced in our drilling segments, industry conditions for completions were very challenging through the third quarter of 2025 with several of IWS' existing customers beginning to slow their number of active frac spreads. In the third quarter of 2025, IWS had 30 active jobs, up from 28 in the prior year comparative period despite a 27% decline in active frac fleets in the U.S. Revenue per IWS Day also grew year-over-year by 11%. Revenue per IWS Day will fluctuate depending on the mix of technology adopted amongst new and existing customers going forward. Reported revenue for the segment was $14.6 million, up from $12.5 million in the third quarter of 2024 which represents a 17% increase against industry activity that fell by 27% during that time. Gross loss of $1.2 million for the segment represents operating expense investments made for the segment's current stage of growth, along with $7.6 million in depreciation and amortization expense associated with the property and equipment and intangible assets acquired on and since January 1, 2024. Our solar and energy storage segment generated $5.1 million in quarterly revenue, an increase of 30% from the 2024 comparative period with the timing on deliveries of control system sales driving the difference year-over-year. As we've noted in previous calls, the segment's revenue will continue to fluctuate with timing of these deliveries going forward. Sequentially, Pason's results were mostly impacted by the seasonal increase in Canadian drilling activity partially offset by further reductions in U.S. drilling and completions, resulting in a 5% increase in revenue quarter-over-quarter. Demonstrating the company's mostly fixed cost base and resulting operating leverage, revenue grew by $4.5 million quarter-over-quarter and adjusted EBITDA grew by $7 million at that time. Net income attributable to Pason for the third quarter of 2025 was $12.5 million or $0.16 per share, down from $24.2 million and $0.30 per share in the third quarter of 2024 reflecting lower levels of industry activity year-over-year and higher levels of depreciation and stock-based compensation expense. We continue to maintain a prudent balance sheet ending the quarter with total cash, including short-term investments of $75.6 million and no interest-bearing debt. In the third quarter of 2025, net capital expenditures were $10.7 million, which includes investments in building out our valve management and automation technology offering within Completions and the ongoing investments in our drilling-related technology platform. Free cash flow in the third quarter of 2025 was $18.7 million compared to $16.7 million in the third quarter of 2024 reflecting lower levels of capital expenditures and working capital investments year-over-year. With this free cash flow, we returned $13.1 million to shareholders, $10.1 million through our quarterly dividend and $3 million through our share repurchase program. Year-to-date, we've returned $49.6 million to shareholders through our quarterly dividend totaling $30.6 million and $19 million in share repurchases. In summary, we remain very well positioned in the face of challenging industry conditions. I will now turn the call over to Jon for his comments on our outlook. Jon Faber: Thank you, Celine. Our third quarter financial and operating results again demonstrated the continued strength of Pason's competitive position even in challenging industry conditions. Revenue from our North American Drilling segment decreased by 7% year-over-year despite a 9% decrease in North American land drilling activity over the same period. International drilling saw an 18% decline in revenue resulting from an operational shift of a large customer in Argentina away from conventional assets. Our Completions segment grew revenue 17% year-over-year from the third quarter of 2024 despite a 27% decrease in industry activity. Solar and Energy Storage segment revenue increased 30% year-over-year in the quarter on the strength of increased control system project deliveries. Adjusted EBITDA margins compressed slightly from 2024 levels as a result of the reduction in consolidated revenue and a higher contribution of revenue from the Completions and Solar and Energy storage segments where segment margins are lower given their current stage of development. We expect margins in these segments to expand over time as revenues increase. The third quarter of 2025 marked more than 20 consecutive quarters across a wide range of industry conditions in which the change in Pason's consolidated revenue outpaced the change in North American land rig counts. This track record speaks to the progress that we have made in reducing the correlation between our financial performance and underlying industry activity. The compound effect of outperformance over time has been significant. In the 6-year time period between the third quarter of 2019 and the third quarter of 2025, Pason's consolidated revenue has increased by 40% while North American land rig counts have decreased by 32%, representing a spread of more than 70%. Over that same 6-year time period, we have reduced our share count by 8.5%, completed the acquisition of Intelligent Wellhead Systems with no dilution to shareholders and paid over $200 million in dividends to shareholders through free cash flow generated within the business. When we completed the acquisition of the remainder of Intelligent Wellhead Systems at the start of 2024, we believe we have the opportunity to double Pason's revenue from 2023 levels. We continue to believe this opportunity exists over the next 5 to 7 years, even if industry activity remains near current levels. To do so, we are focused on executing against a number of priorities. We will build on our competitive position in the North American land drilling market. Our focus is on delivering on innovative products, best-in-class service and exceptional customer support in order to earn the ongoing trust and confidence of our customers. We also look to offer expanded features and enhanced functionality in our existing products and to develop new products that provide additional benefits for customers. We are expanding our presence in the Completions market with our valve management and automation technologies, and we are working to develop compelling data management products for completions that leverage Pason's decades of experience in the drilling industry. We look to grow our international revenue, particularly as unconventional drilling becomes a focus in international markets, we anticipate opportunities to achieve greater adoption of our more advanced technologies, including those for the completions market. The path to our medium- to longer-term growth aspirations is unlikely to be linear. In the near term, we expect ongoing economic uncertainty and concerns about the potential for oversupplied oil markets to result in the challenging industry conditions. Increasing adoption of existing products and rolling out new products are both significantly more difficult in the current environment. The near-term trajectory of our completions revenue is more closely tied to the activity levels of particular customers rather than the overall market. Newer products and services will likely benefit over time from revenue acceleration that comes from a growing market presence and awareness. We see several supportive industry trends that should provide tailwinds to our efforts over the medium to longer term. Pason stands to benefit from the growing proliferation of artificial intelligence. Our position as the leading provider of drilling data and our efforts to expand our data management capabilities to the completions market serve us well as AI technologies drive increased demand for data as inputs to the models being deployed. The anticipated growth in demand for natural gas as a source of baseload power for data centers is expected to result in increases in natural gas-directed drilling activity. Artificial intelligence tools also play a role in our product development efforts and in improving the efficiency of our own business operations. Technology has played an essential role in driving efficiency improvements in Drilling and Completions operations and we expect customers to look for further efficiency gains, driving greater demand for data and technology. Pason also benefits from the additional data and technology requirements associated with the increasing complexity of Drilling and Completions operations. Over time, we anticipate overall decline rates for global oil and gas production to increase, driving higher levels of drilling and completions activity as a result of more natural gas-directed drilling, more offshore development and more unconventional drilling, which have higher decline rates than oil-directed onshore and conventional drilling. Our capital allocation priorities are unchanged, and they are driven by a focus on return on invested capital. We are making investments in areas where we can generate high returns on capital, which are not directly available to shareholders in the market and we are returning excess capital to shareholders in a disciplined, flexible manner. Our highest returns on capital continue to come from the organic investments we are making to continue the growth of our Completions business coupled with the ongoing rollout of the Mud Analyzer in our drilling-related business. With the slowdown of industry activity, we anticipate our 2025 capital program will total between $55 million and $60 million, and we expect a similar level of capital investment in 2026. We evaluate our capital program with a focus on increasing revenue, generating free cash flow and creating value for shareholders over time rather than simply in response to prevailing near-term industry conditions. We will continue to pursue shareholder returns over time through our regular quarterly dividend, which we are maintaining at $0.13 per share and share repurchases. This combination of shareholder returns provide disciplined returns to shareholders over time while retaining flexibility to adjust our capital allocation during times of changes in industry conditions. Our balance sheet remains strong. At September 30, we had $75.6 million in total cash, including short-term investments and positive working capital of $111.9 million. At this point, we would be happy to take any questions that you might have. Operator: [Operator Instructions] Your first question is from Keith Mackey from RBC Capital Markets. Keith MacKey: Just the first question on the capital spend for this year and next year, kind of maintaining around that $55 million to $60 million level. Can you just talk about maybe I know it's Mud Analyzer and Completions weighted for anything beyond general maintenance. But can you talk about the mix of spending this year and next year? Will it be the exact same types of products that you're building? Or will it move on to a different stage of what you're actually spending the capital on related to those 2 products? Just curious for some more color on the growth CapEx for next year. Celine Boston: Yes. So I would say, similar level as you think about 2026 in comparison to 2025. We talked about in previous calls, we would have said roughly $25 million of the CapEx that we saw for 2025 goes towards growth-related investments in completions and expectations of growth into 2026 and beyond. And I would say that's a similar level that you can expect in terms of split in 2026. . And then on the drilling side, which would be the balance of that $55 million to $60 million, the majority of that CapEx actually would relate to the refresh investments that we're making on our existing hardware platform as we continue to look towards opportunities to grow product adoption and improve price realization on our existing technology base there. Keith MacKey: Okay. Got it. And can you just maybe talk a little bit more about the completion data management projects? How are you inserting yourself, I guess, in the product development life cycle, what kind of things are customers asking you for or looking to do as they use more of these IWS products? Jon Faber: Keith, I'll speak at a pretty high level at this point because we're still sort of in the early days of getting that sort of built out. But I think what is clear to us is that there are at least some parameters from the drilling process which could be helpful for somebody who's involved in the Completions process to understand perhaps what the rock properties might look like, which might help them think about how a fracture might propagate and so being able to make some of that information available during the completions process would be an example of an area where we think we're uniquely positioned having access to both the Drilling and Completions data sets. Keith MacKey: Okay. Got it. And maybe just one final one, if I could. Jon, can you talk about a little bit more about the growth drivers that you see in the target to or potential to double revenue from 2023 levels in 5 to 7 years? If industry activity stays roughly where it is now, what are sort of the general buckets of improvement that you'd see to be able to double that revenue? Jon Faber: Yes, sure. So I guess I kind of break it into a few things. There's obviously within the core drilling business, we've got an established track record over 15 to 20 years of growing revenue per industry day in the order of 6% to 7% compounded over time. And when we look at simply kind of inflationary effects of pricing over time, increased adoption of data-driven technologies related to people doing more with our automation and intelligence. And when we look at the rollout products like a Mud Analyzer, we're pretty confident that we can continue that sort of a track record in the drilling-related business. In the Completions side, we see, of course, opportunities just for all players in the industry to grow by as a result of people using more technology of the type we're offering in the Completions market. So we think there's sort of a broad-based technology adoption story that all participants would benefit from. And then as I would have referenced earlier, we think we may have some unique opportunities in that space related to the fact that we have access to both the Drilling and Completions data, and making those kind of available to customers in a uniform way. There's some ancillary services that happen around Drilling and Completions that probably would also stand to benefit from some data management capabilities which stand-alone have maybe been not attractive to people independently the drilling market or the completions market by participating in both markets, those sorts of opportunities we would think we would benefit from. And then in the international business, as I mentioned, we moved to more unconventionals, that tends to drive higher-value products from our product offering, things that are impacting drilling performance more directly. And so we think there's opportunities to grow on the international side as well. So at a high level, those are sort of the areas where we see growth. And as we said, it's probably a 5 to 7 years sort of a time frame, and it requires execution and hard work and focus on the things that we can be most impactful with. Operator: Your next question is from Aaron MacNeil from TD Cowen. Aaron MacNeil: I want to sort of build on Keith's last question. Obviously nice to see those longer-term ambitions. How do you suggest we sort of evaluate the success or failure of these initiatives in real time? And what sort of milestones would you point us to over the next couple of years? Jon Faber: Yes. Unfortunately, Aaron, these are very intentionally medium to longer-term priorities that we're talking about because they're nonlinear. It's a little bit easier to establish very near-term measurable things for you to evaluate against when you're talking about doing things you're already doing in a market that's already adopting this type of technology. And so because we're talking about, in a lot of cases, new things that are ramping into the industry, some of it, if you're honest, in the short term is much more around capability development, streamlining the product offerings to be able to scale in a more profitable manner. And those things are a little bit less directly visible. So we will certainly provide commentary on an ongoing basis around things we're doing in each of those sort of broad areas to ensure that we're moving them all forward. But it's not obviously that you're going to have very specific line items in our financials to point to in the next 12, 18, 24 months as interim measures when we're building towards where we need to be in 5 to 7 years as an outcome. Aaron MacNeil: It could be operational milestones as well, though, like if you're developing a new product or et cetera, like is there anything maybe not in the financials, but something more than qualitative that you could point to? Jon Faber: Well, I think we will provide comments on an ongoing basis about the types of things that we are working on to establish the ability to hit those objectives. Aaron MacNeil: Yes. Fair enough. Sorry to needle you. But maybe one more question on IWS. Presumably, you'll have some capacity expansions next year. How do you think of line of sight in terms of having homes for that incremental equipment today? Jon Faber: Well, when we look at the equipment, like a lot of what we're talking about on that capital build and Celine talks about CapEx, a lot of that's based on conversations with customers around what they expect to do going into 2026 type of a world. So I think as you can see from lots of folks in the completions market, the expectation in the fourth quarter, probably always is that it's lower than the third quarter. You hear things in Completions around white space, budget exhaustion and terms maybe those of us from the drilling world don't hear quite as often. But certainly hear lots of talk about what people plan to do early into 2026. And so we are certainly building with visibility towards where we think that equipment would go to work. Operator: Your next question is from Sean Mitchell from Daniel Energy Partners. Sean Mitchell: Just wanted to hit on the Completion side, maybe a little follow-up or color around, as you see the E&P consolidation and maybe a structural shift in completion design and strategies going from zipper to simul-fracs. How has that evolution really influencing your completions business in terms of utilization cycle times, customer engagement, maybe more sophisticated or a different kind of technology demand. Can you provide any color on that, that would be great. Jon Faber: Yes, you bet. In completions as with drilling, increased complexity, certainly increases the value proposition of the types of products that we're bringing to market. So when you're talking about ensuring that you can manage a more complex operation efficiently and very importantly, safely the types of technologies that we're deploying to those space become -- I don't say exponential that probably is overstating it, but it's significantly more important as you start adding more valves to the equation. And so that certainly is a driver of increased demand for the product and the value proposition resonates increasingly on a safety and efficiency perspective when you start to talk about more complex types of fracs happening. The other side of the question you asked around more consolidation. One of the things that we see is certainly a desire from customers to do things consistently across their operations and ensuring they're deploying standard operating procedures. And so a number of the technologies we offer to that market are really around ensuring consistent workflows and standard operating procedures are being followed as well. And so as you get larger, more sophisticated companies looking to do more complex operations, they are driving more standardization and how they do things, and that would also be a net benefit to things we do on the completion side. Sean Mitchell: Got it. And then maybe one more. Just as you think to expand internationally, where do you see the best opportunity set on the international front? Jon Faber: Well, certainly, Argentina is an opportunity in terms of it being one of our larger markets today. And so they're looking to do. We've talked a lot about part of the reason the revenue in the international decline is because of a shift to unconventionals. And so that shift to unconventionals starts to drive a lot more of a product offering from the drilling side, but also earlier enthusiasm for things around the Completion side. And then the Middle East, there's quite a bit of talk around unconventionals as well. There's opportunities for us there as well. So I'd point to those 2 specifically, not to say exclusively, but I think those two come top of mind if you think about kind of opportunities in the near term. Operator: [Operator Instructions] There are no further questions at this time. Mr. Faber, please proceed with closing remarks. Jon Faber: Thank you, Andrew, and thanks to those who joined us for this morning's call. As always, we appreciate your interest. We appreciate the questions and your support. If you do have other questions, you certainly are welcome to connect with Celine or myself at any point. And otherwise, we wish you a very good day and weekend. Operator: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating, and ask that you please disconnect your lines.
Operator: Greetings, and welcome to Orion Properties Third Quarter 2025 Earnings Call. As a reminder, this conference is being recorded. I would now like to turn the call over to Paul Hughes, General Counsel for Orion. Thank you. You may begin. Paul Hughes: Thank you, and good morning, everyone. Yesterday, Orion released its results for the quarter ended September 30, 2025, filed its Form 10-Q with the Securities and Exchange Commission and posted its earnings supplement to its website at onlreit.com. During the call today, we will be discussing Orion's guidance estimates for calendar year 2025 and other forward-looking statements, which are based on management's current expectations and are subject to certain risks that could cause actual results to differ materially from our estimates. The risks are discussed in our earnings release as well as in our Form 10-Q and other SEC filings, and Orion undertakes no duty to update any forward-looking statements made during this call. We will also be discussing non-GAAP financial measures such as funds from operations, or FFO, and core funds from operations or core FFO. These non-GAAP financial measures are not a substitute for financial information presented in accordance with GAAP, and Orion's earnings release and supplement include a reconciliation of our non-GAAP financial measures to the most directly comparable GAAP measure. Hosting the call today are Orion's Chief Executive Officer, Paul McDowell; and Chief Financial Officer, Gavin Brandon. And joining us for the Q&A session will be Chris Day, our Chief Operating Officer. With that, I am now going to turn the call over to Paul McDowell. Paul McDowell: Thank you, Paul. Good morning, everyone, and thank you for joining us on Orion Properties third quarter earnings call. Today, I will highlight the substantial progress in executing on our business plan and provide an update on our ongoing leasing, disposition and acquisition activity for the quarter. Following my remarks, Gavin will review our financial results and improved guidance outlook for the rest of the year. We had another very productive leasing quarter with 303,000 square feet of space leased at a weighted average lease term or WALT of over 10 years and an additional 57,000 square feet signed after quarter end. Our primary focus remains on continuing to enhance the quality and durability of our portfolio and its associated cash flows. One critical metric we use to measure that success is the weighted average lease term for the portfolio, which is now 5.8 years or approaching 6 years. This is a material improvement from the roughly 3.5 years at the time of our spin. This substantial progress reflects the steady execution of our business plan and the increasing stability of our tenant base. Year-to-date through November 6, we have completed 919,000 square feet of leasing, which is in addition to the 1.1 million square feet we leased last year, reflecting the improving market backdrop. Included in the total for the third quarter is a 5.4-year new lease agreement for 80,000 square feet at our Kennesaw, Georgia property that we mentioned on the last call. We also signed several renewals during the quarter, including a 15-year extension with AGCO Corporation for 126,000 square feet in Duluth, Georgia, a 7-year extension with T-Mobile for 69,000 square feet in Nashville, Tennessee and a 15-year extension with the United States government for 16,000 square feet in Fort Worth, Texas. Importantly, rent spreads on lease renewal activity were again positive in the third quarter, up over 2% for renewals and over 4% for total leasing activity. Overall, leasing momentum remains constructive heading into year-end and 2026. Our pipeline, which includes transactions in both the discussion and documentation stage, is over 500,000 square feet and includes several longer duration renewals and new leases with terms greater than the average of our portfolio. Orion's operating property occupancy rate was 72.8% at quarter end as compared to 73.7% at December 31, 2024. The year-to-date change is impacted by lease rollovers during the year and resulting vacancies we are holding on the balance sheet, which we intend to sell or lease in the reasonably near term. Adjusted for operating properties that are currently under agreement to be sold or have been sold since quarter end, our property occupancy rate would be 74.5%. We continue to expect that our portfolio occupancy will rise materially next year and even further the next as we lease space, sell vacant properties and selectively recycle capital into new assets. When talking about our occupancy expectations, it's important to note that our heavy lease rollover has improved markedly year-over-year. For example, in 2026, we have only $10.8 million of rent subject to rollover as compared to $39.4 million of rent that was subject to rollover risk last year in 2024. As further evidence of our active business plan execution, so far this year, we have closed on the sale of 7 vacant or soon-to-be vacant properties and 1 stabilized traditional office property totaling 761,000 square feet for a gross sales price of $64.4 million or about $85 per square foot. We also have agreements in place to sell another 4 properties, including 3 vacant or soon-to-be vacant properties and 1 stabilized traditional office property totaling over 500,000 square feet for $46.6 million or about $92 per square foot. These transactions are expected to close in the fourth quarter of 2025 and first quarter of 2026. Combined, that is close to 1.3 million square feet with gross proceeds of more than $110 million. Collectively, we have sold 27 properties since the spin, totaling 2.7 million square feet, which equates to more than 25% of the inherited portfolio's rentable square feet, saving an estimated $39 million of cumulative carry costs. Even with all this progress, we continue to evaluate our portfolio with particular focus on obsolete buildings and those assets requiring substantial capital investment. This includes the former Walgreens campus in Deerfield, Illinois, where we are close to completing the demolition of the outdated office buildings, and we expect to sell the 37.4-acre site in the coming quarters. 2025 marked a year of accelerating portfolio transformation, which positions us well for next year and beyond. We believe the sale transactions we've completed and are continuing to work on provide very attractive exit points for these properties and avoid the uncertainty and significant capital investment and carrying costs to retenant the assets. The stabilized asset sales we have announced will also allow us to continue to shift our portfolio away from traditional office properties. These transactions demonstrate our continued ability to monetize noncore assets and redeploy capital while improving the overall quality and durability of our remaining portfolio as demonstrated by our increasing WALT. We are also evaluating a number of opportunities to recycle the proceeds from our disposition activity as we continue to shift our portfolio concentration away from traditional suburban office properties and towards dedicated use assets or DUAs, where our tenants perform work that cannot be replicated from home or relocated to a generic office setting. These property types include medical, lab, R&D flex and non-CBD government properties, all of which we already own. Our experience is that these assets tend to exhibit stronger renewal trends, higher tenant investment and more durable cash flows. We are continuing to look carefully at limited targeted acquisitions of DUAs to recycle capital, stabilize rental revenues, increase portfolio WALT and further enhance portfolio quality. At quarter end, approximately 33.9% of our portfolio by annualized base rent and approximately 24.6% by square footage were DUAs, and this percentage will increase over time through disposition activity and targeted acquisition. Orion has also been very proactive in managing leverage while maintaining significant liquidity to support our ongoing leasing efforts. To do so, we have sold vacant properties, used sale proceeds and cash flow to pay down debt, manage G&A, have been highly selective on acquisitions and aligned our dividend policy. As a result, our net debt to annualized year-to-date adjusted EBITDA was a relatively conservative 6.7x at quarter end. We will continue disciplined execution focused on portfolio stabilization and enhancement with the goal of further unlocking long-term value, which we believe will make Orion attractive to investors and potential strategic partners alike. We've made very significant progress derisking the portfolio and executing the business plan this year with a portfolio WALT now approaching 6 years, more than 900,000 square feet of leasing and 12 properties sold or under contract for sale totaling 1.3 million square feet for over $110 million. Net of lease-related termination income, we believe 2025 should be the bottom for core FFO per share and that next year and subsequent years should show accelerating earnings growth, coupled with rising occupancy. With that, I'll turn the call over to Gavin. Gavin Brandon: Thanks, Paul. Orion generated total revenues of $37.1 million in the third quarter as compared to $39.2 million in the same quarter of the prior year. Core FFO for the quarter was $11 million or $0.19 per share as compared to $12 million or $0.21 per share in the same quarter of 2024. Core FFO results for the year-to-date 2025 period were $33.1 million or $0.59 per share and include approximately $0.05 per share of lease-related termination income. Included in the $0.05 per share is $0.02 per share associated with the simultaneous sale and early lease termination of a traditional office buildings in Fresno, California. We will recognize an additional $0.03 per share of lease termination income from this transaction in the fourth quarter. Adjusted EBITDA was $17.4 million versus $19.1 million in the same quarter of 2024. The changes year-over-year are primarily related to vacancies, a smaller portfolio and timing of leasing activity. G&A in the third quarter came in as expected at $4.6 million compared to $4.5 million in the same quarter of 2024. CapEx and leasing costs in the third quarter were $18.3 million compared to $6.1 million in the same quarter of 2024. The increase in CapEx in the 2025 period was driven by the acceleration in leasing activity. As we have discussed previously, CapEx timing is dependent on when leases are executed and work is completed on properties. We expect to allocate more capital to CapEx over time as leases roll and new and existing tenants draw upon their tenant improvement allowances. Turning to the balance sheet. At quarter end, we had total liquidity of $273 million, comprised of $33 million of cash and cash equivalents, including the company's pro rata share of cash from the Arch Street joint venture and $240 million of available capacity on the credit facility revolver. We intend to maintain significant liquidity on the balance sheet to fund expected capital commitments to support our ongoing leasing successes and provide the financial flexibility needed to execute on our business plan for the next several years. We ended the quarter with net debt to gross real estate assets of 33.4% and total outstanding debt of $508.9 million, including our nonrecourse $355 million CMBS loan that is a securitized mortgage loan collateralized by 19 properties maturing in February 2027. $110 million of floating rate debt on the credit facility revolver maturing in May 2026, $18 million under the mortgage loan for our San Ramon property maturing in December 2031 and $25.9 million, representing our share of the Arch Street joint venture mortgage debt maturing in November 2025. The joint venture has exercised the option to extend this debt obligation for an additional 12 months until November 2026 and the lenders are in the process of confirming all extension conditions have been met. We further reduced our borrowings under the credit facility revolver to $92 million during October. Regarding our credit facility revolver, as mentioned, the scheduled maturity date for this obligation is in May 2026, and we have no remaining extension options. We continue to have productive discussions with our lenders about extending and/or refinancing this debt obligation in keeping with our current business plan, and we fully expect to be successful. Extending and restructuring our credit facility continues to be among our highest priorities, and we will share updates on our progress on this front in future quarters. There are additional disclosures regarding our credit facility in our Form 10-Q. On November 5, 2025, Orion's Board of Directors declared a quarterly cash dividend of $0.02 per share for the fourth quarter of 2025. Moving to guidance. We are improving our outlook for core FFO, net debt to adjusted EBITDA and G&A in 2025. We are raising our full year core FFO guidance to a new range of $0.74 to $0.76 per share, up from our prior range of $0.67 to $0.71 per share. The increase is primarily caused by lease termination income from a negotiated early termination of the lease at our Fresno property in conjunction with the property disposition. The termination payment was agreed to in the third quarter, and the income will be straight-lined through the disposition date, which occurred in October, and we will generate approximately $0.05 per share of lease termination income for 2025. We are also improving our outlook for net debt to adjusted EBITDA which is now anticipated to range from 6.7x to 7.2x, down from 7.3x to 8.3x. The improvement is primarily driven by our continued net debt reduction efforts through expected property disposition proceeds as well as the lease termination income I discussed earlier, benefiting adjusted EBITDA. Lastly, we are improving and tightening our G&A range to $19.5 million to $20 million from $19.5 million to $20.5 million. While we are not providing formal 2026 guidance yet, we do expect 2025 to represent a trough for our core FFO, excluding a total of $0.08 per share of 2025 lease-related termination income as our recent leasing and capital initiatives begin to translate into improved recurring earnings next year and beyond. With that, we will open the line for questions. Operator? Operator: [Operator Instructions] Our first question comes from the line of Mitch Germain with Citizens Bank. Mitch Germain: Just I want to talk about some of the puts and takes of guidance. You get the benefit of the lease term income, you're selling some vacancy, which helps with some of the expense drag, though it seems like in effect, if I look at last quarter, the lease term income actually went down. So just maybe kind of describe some of the puts and takes that helped you kind of shape where your outlook is today. Paul McDowell: Gavin, do you want to take that? Gavin Brandon: Mitch, Yes. So the lease termination income was a result of the negotiated termination settlement with one of our tenants in the Fresno building. The puts really is driven by that and then as well as our leasing efforts that are taking place in the fourth quarter and the third quarter of leases that we signed in the prior year and the prior quarter as well for the free rent bridge now coming to an end. And then from an interest perspective, our interest rates are coming down, and so we're not paying as much interest expense. So we believe that, that also helped us in the fourth quarter. Mitch Germain: Okay. Your leasing pipeline went down quarter-over-quarter. Does any of that have to do with some execution? Obviously, a little bit of a smaller portfolio as well. Is there anything that we should be thinking about behind that with regards to demand? Paul McDowell: Well, I think it's a couple of things, Mitch. The answer is no on the demand scale. We've seen continued improved demand for our properties. So we feel pretty good about that. Some of it is exactly what you just mentioned, that is some of the properties that we talked about on the last call that were sort of in the pipeline have -- we've now got leases signed up. And I think the second thing is that's a little different is we have less rollover coming next year. So we have a somewhat smaller portfolio. We've been selling vacancy, and we have less expected vacancies for next year. So all that combines to probably shrinking the pipeline slightly. But the pipeline we do have, we feel pretty good about. Mitch Germain: Got you. Last one for me. You did one acquisition last year. Obviously, you want to change the composition of the types of assets that you're owning over time. It's not going to be an overnight thing. Curious about the pipeline of deals. Are you seeing deals? And is pricing and demand, what could be slowing your ability to acquire here? Maybe just provide some perspective, please? Paul McDowell: Yes. Well, I think that on the first -- on the last part, we are seeing a pretty strong pipeline of potential transactions. Of course, we are highly sensitive to a number of factors, pricing being probably the biggest one, of course. But then, of course, it's property location and lease duration. So it's a -- it's a little like Goldilocks. We kind of got to find the right temperature for the acquisition that we're looking for. But we do see some good transactions. We're being highly selective, but we do think it makes sense for us to recycle some of the capital -- some of this capital into new assets with long-duration WALT's and with higher quality cash flows. We're just not going to do it willy-nilly. We're going to be highly selective. We expect to add some assets in the next 12 months, but it will not be -- it will be a relatively modest number. Operator: Ladies and gentlemen, that concludes our question-and-answer session. I'll turn the floor back to Mr. McDowell for any final comments. Paul McDowell: Thank you all for joining us today, and we look forward to further updating you in the months and quarters ahead. Thank you. Goodbye. Operator: Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Greetings, and welcome to the Drilling Tools International Third Quarter Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce Ken Dennard. Thank you. You may begin. Ken Dennard: Thank you, operator, and good morning, everyone. We appreciate you joining us for Drilling Tools International's 2025 Third Quarter Conference Call and Webcast. With me today are Wayne Prejean, Chief Executive Officer; and David Johnson, Chief Financial Officer. Following my remarks, management will provide a review of third quarter results and 2025 outlook before opening the call for your questions. There will be a replay of today's call that will be available via webcast on the company's website at drillingtools.com. There will also be a telephonic replay -- a recorded replay, which will be available until November 14. Please note that any information reported on this call speaks only as of today, November 7, 2025. And therefore, you're advised that time-sensitive information may no longer be accurate as of the time of any replay listening or transcript reading. Also, comments on the call will contain forward-looking statements within the meaning of the United States Federal Securities laws. These forward-looking statements reflect the current views of DTI's management. However, various risks and uncertainties and contingencies could cause actual results, performance or achievements to differ materially from those expressed in the statements made by management. The listener or reader is encouraged to read the annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K to understand those risks, uncertainties and contingencies. Comments today will also include certain non-GAAP financial measures, including, but not limited to, adjusted EBITDA and adjusted free cash flow. The company provides these non-GAAP results for information purposes, and they should not be considered in isolation from other directly comparable GAAP measures. A discussion of why we believe these non-GAAP measures are useful to investors, certain limitations of using these measures and reconciliations to the most directly comparable GAAP measures can be found in the earnings release and our filings on the SEC. And now with that behind me, I'd like to turn the call over to Wayne Prejean, DTI's Chief Executive Officer. Wayne? R. Prejean: Thanks, Ken, and good morning, everyone. I will provide some opening remarks before handing the call over to David to review the financials and our reaffirmed 2025 outlook. I'll then come back and provide a few additional thoughts before we open it up for questions. We are pleased to report that our 2025 third quarter results came in better than we anticipated. Proactive communications with customers and our ability to flex pricing options in response to commodity price swings have successfully stimulated higher activity levels during the quarter, offsetting the impact of any previously negotiated pricing concessions. We also demonstrated strong financial discipline during the quarter by simultaneously reducing debt, building cash reserves and returning capital to shareholders through buybacks. Specifically, we paid down $5.6 million in debt, increased our cash position by $3.2 million and bought back an additional $550,000 of common shares. DTI has benefited from solid progress on our strategic initiatives, particularly the integration of our recent acquisitions in the Eastern Hemisphere. During the third quarter, we saw a significant increase in utilization of the DNR tool fleet in the Middle East and throughout the Eastern Hemisphere. This increase and DNR tools deployed contributed to our Eastern Hemisphere growth and Middle East expansion during the quarter. Year-over-year, our Eastern Hemisphere operations grew revenue by 41% and contributed approximately 15% of our total revenue in the third quarter. The Eastern Hemisphere is performing in line with our forecast plan, demonstrating our disciplined approach to capital allocation and our ability to successfully integrate new assets into our operations. Looking forward, commodity prices continue to flex as geopolitical uncertainty has enhanced volatility in oil and gas markets. However, average rig counts and activity levels appear to have stabilized during the quarter. In as much, our teams continue to skillfully manage their current fluctuations in commodity prices and rig counts delivering resilient financial results while navigating this evolving energy landscape. Again, while the rig count appears to be stabilizing, we still expect uncertainty to continue causing disruptions through both pricing pressure and utilization. To combat these disruptions, we implemented a cost-cutting program in the first half of 2025 to reduce expenses by an annual $6 million in order to align our spending with the activity levels of our customers. However, we have experienced an increase in customer activity that has directly offset price discounts, particularly in our DTR product line as well as new contract wins with customers. Therefore, we are pleased to report that we no longer anticipate needing the full $6 million of cost cuts to maintain adjusted free cash flow and achieve other outlook ranges. Our pricing strategies that we have implemented are yielding positive results on activity levels, and we currently believe $4 million of cost cuts will prove sufficient for 2025. Please note, however, that we still have contingency plans to adjust the organization while maintaining operational flexibility to quickly respond to any market events in the future. David will now take you through some third quarter and 9-month metrics as well as our 2025 outlook. David? David Johnson: Thanks, Wayne. In yesterday's earnings release, we provided detailed third quarter and 9-month financial tables. So I'll use this time to offer further insight into specific financial metrics. Looking at our third quarter results, we generated total consolidated revenue of $38.8 million. Third quarter tool rental revenue was $31.9 million, and product sales revenue totaled $7 million. Net loss attributable to common stockholders for the third quarter was $903,000 or a loss of $0.03 per share. And adjusted net income was $751,000 or adjusted diluted EPS of $0.02 per share. Third quarter adjusted EBITDA was $9.1 million and adjusted free cash flow was $5.6 million. Additionally, our capital expenditures in the third quarter were $3.5 million. If activity stays level, we expect CapEx to be relatively flat for the fourth quarter. Looking at maintenance CapEx for the third quarter, it was approximately 10% of total revenue. As a reminder, our maintenance capital is primarily funded by tool recovery revenue, which keeps our rental tool fleet relevant and sustainable regardless of market trends. As I say each quarter, we will continue to review all CapEx spending with an eye on activity levels while demonstrating our ability to generate adjusted free cash flow. As an update on our capital allocation strategy, we are constantly evaluating opportunities to strategically deploy capital with the sole focus of maximizing value for our shareholders. I am pleased to announce that during the third quarter, we paid down $5.6 million in debt, increased our cash position by $3.2 million and bought back an additional $550,000 of common shares at an average of $2.09 per share. As of September 30, 2025, we had approximately $4.4 million of cash and cash equivalents and net debt of $46.9 million compared to $1.1 million in cash and cash equivalents and net debt of $55.8 million at the end of the second quarter. We will continue to prioritize financial strength through a disciplined capital allocation strategy by utilizing all of the tools at our disposal when opportunity presents itself. Looking at our geographic segment mix, we continue to benefit from our diversified geographic footprint and customer base with 15% of our total revenue coming from our Eastern Hemisphere segment. We continue to expect gradual improvement in this area with additional product sales and rental opportunities as rigs are added back in the Middle East and customers' existing inventories are depleted. The Eastern Hemisphere segment has helped offset some of the activity declines in North America by contributing to our overall positive trajectory throughout the first 9 months of the year. Before I turn to our outlook discussion, let me recap the results of our first 9 months. Nine-month revenue totaled $121.1 million, adjusted EBITDA was $29.2 million, capital expenditures were $16.1 million and adjusted free cash flow during the first 9 months of 2025 was $13.1 million. Our team continues to execute well across multiple fronts from operational efficiency to customer satisfaction to strategic initiatives. As we disclosed in yesterday's earnings release, and as Wayne mentioned earlier, we are maintaining our 2025 full year guidance ranges, albeit leaning at or slightly above the midpoints of these ranges based on our past 3 quarters' positive results. 2025 revenue is expected to be in the range of $145 million to $165 million. Adjusted EBITDA is expected to be within the range of $32 million to $42 million. Capital expenditures are expected to be between $18 million and $23 million. And finally, we expect our 2025 adjusted free cash flow to range between $14 million to $19 million. In the long run, we believe we can position ourselves to improve our consolidated margin profile over time as we continue to manage our cost structure and add scale. The strategic acquisitions to our portfolio are positioning us for international growth and are also providing valuable synergies that will benefit our long-term growth trajectory. That concludes my financial review and outlook section. Let me turn it back over to Wayne to provide some summary comments. R. Prejean: Thank you, David. We are continuing to make substantial headway on our synergy program called OneDTI. Our OneDTI program has been onboarding all our operating divisions onto the same systems and processes and integrating the acquired business units to our Compass platform to manage assets and customer transactions. As I mentioned on our last call, we relocated our U.S. Drill-N-Ream repair facility from Vernal, Utah to Houston, Texas, and it is now fully operational. This strategic relocation came 2 years ahead of schedule and is delivering expected cost savings and efficiency benefits. Additionally, we expect to have integrated all Eastern Hemisphere operations into one centralized accounting platform by the end of December, going live in January of 2026. This is a major milestone for the growth potential of the company as it streamlines workflows, maximizes accountability and importantly will accelerate the integration of future acquisitions into the DTI platform much more quickly. And of course, we continue to be actively looking at M&A opportunities. So before we open up the lines for questions, I would like to highlight the following. We remain upbeat about our prospects for the remainder of 2025 and into 2026. While the activity declines to date have not been quite as severe as we initially anticipated 7 months ago, we have demonstrated that we can quickly adapt to a rapidly evolving market, preserve our financial strength and deliver meaningful shareholder value. We continue to see opportunities in our core markets. Our competitive position remains strong, and the acquisition integrations are positioning us well for sustained growth. We are confident that elevated demand for complex wellbore solutions will further strengthen the need for our differentiated technology and the value-added solutions we provide our clients across the globe. The foundation we've built through our strategic acquisitions gives us confidence in our ability to capitalize on emerging opportunities that broaden our geographic reach, diversify our revenue streams and serve our customers even more effectively in key markets. Our past M&A activity has enhanced our competitive position, increased our resilience in a dynamic environment and has positioned us to move quickly when new value-creating opportunities present themselves. We believe that our best-in-class performance-driven, technologically differentiated offerings, expanding global geographic footprint, combined with disciplined M&A activity will deliver solid results as energy markets recover in 2026 and beyond. In closing, I'm encouraged by the momentum we are building across the organization, and it's exciting to see how we have adapted and pushed ahead in a dynamic environment. We are seeing the benefits of our investments beginning to materialize, and our personnel continues to execute well in a rapidly changing global marketplace. I would like to thank every member of the DTI organization for their continuous dedication to working in a safe, inspired and productive manner. This commitment by our employees is critical in managing this volatile commodity cycle and is vital to our future growth and ability to deliver value to our shareholders. With that, we will now take your questions. Operator? Operator: [Operator Instructions] Your first question comes from Steve Ferazani with Sidoti & Company. Steve Ferazani: Appreciate the color on the call this morning. R. Prejean: Sure. Steve Ferazani: I want to break it down a little bit into U.S. versus Eastern Hemisphere. Obviously, 3Q, maybe the rig count didn't decline as much as a lot of people had anticipated. Nevertheless, it was still down about 5%. Can you talk about how you've -- how utilization has been for you? I mean when I look at your product sales, which is primarily drill pipe recovery, it held up very well. It was actually up sequentially in Q3. So you can talk about how the U.S. is holding up for you for your business and what we're still seeing maybe a moderating decline, but still a decline in 3Q? R. Prejean: So thank you, Steve. This is Wayne. We've been working on a number of initiatives to mitigate this slow creep of rig count decline, but it was certainly a lot less of a decline than we tried to anticipate early on with all indications where it was going to be more sphere. We've participated in a number of RFQs and tenders in the North American market throughout the last few months, and we were able to win some business and maintain some of the business we had with existing clients. So that enabled us to maintain a very reasonable level of activity despite seeing a rig count decline. Now rig count decline means some jobs are not going to be available for the suppliers. So there seems to be a mix that occurs when that happens. And we were more successful, we believe, in maintaining or aggregating some of that business over that period of time. And I think that sells itself well because what we're able to do is our best-in-class products and service and the things that we do usually are successful when quality and service matter. And what happens in these down cycles, these operators focus specifically on who or what service suppliers and product suppliers are giving the best quality and service because they need that to translate into performance and results in their wellbores and less in those events. So our market-leading position and tools and the things we provide to all of these clients, that leading indicator for us prevail throughout this little -- the cycle that we're experiencing. So we're pretty proud of that. And our other product lines have held up pretty well. So overall, I think we feel like it's a win-win. We've outperformed the down cycle. Steve Ferazani: Yes, no doubt, no doubt. We've seen the primary portion of the rig count decline was coming in the Permian, but we've seen some pockets of strength and/or stable drilling in other markets. Talk about your positioning because I know you have operations in every major U.S. basin. How that's helpful? And are you seeing an uptick in some of the markets outside of the Permian? R. Prejean: So we're well positioned in every market out there and appropriately positioned for scale, size and capabilities, particularly in the Northeast, where our activity in Haynesville is where gas activity is holding strong, and you're seeing some light at the end of the tunnel. And as your -- you remember in some of our discussions, we were able to move tools around to service those markets fairly easily because of the type of business we have. So we've made sure that we've supplied those customers in those areas where the activity creates -- is created. And we keep those supply chains running smoothly. Steve Ferazani: In terms of -- I know your guidance, you mentioned the seasonal slowdown through earnings season. We're hearing a lot of folks saying that it's not going to be as pronounced this year. What are you hearing from customers? I mean we're into early November. What are you seeing and hearing from customers so far as far as the normal seasonal slowdown in December? R. Prejean: You mean in Q4? Steve Ferazani: Yes. R. Prejean: Well, it seems to -- it doesn't feel like it's accelerating. It feels like we're still a month away from someone having budget exhaustion and thinking they're going to drop a number of rigs, but we're not seeing an acceleration of that happening as of today. That doesn't mean it couldn't -- we couldn't see a more accelerated decline. But it feels like it's just flat to slightly down the rest of the year than some optimism going into next year, depending on which operator you talk to. Steve Ferazani: That's fair. On the international side, I think you pointed out Middle East, Saudi strength. Can you provide a little bit more color on where you're seeing the stronger versus weaker areas versus your expectations 6 months ago or 12 months ago? R. Prejean: Sure. I'll tell you, I spent the last week in the Middle East and there's definitely some optimism, and there are some detailed announcements where Saudi is picking up a few rigs from land and offshore. And ADNOC, I think, in UAE is also going to maintain an activity that's solid. The interesting thing is there's so much talk about the unconventional gas becoming more prevalent in both of those major operating areas being Saudi and UAE. So again, because of our experience and the types of tools and services we provide, we will be more and more successful in supplying those markets because we have all the experience here, and we've transferred a lot of the tools and technology and people that we have aligned there. We're ready to -- we're kind of ready to go in the unconventional uptick that's going to happen in those markets. So we're pretty -- feel pretty positive about that. Steve Ferazani: Excellent. If I get one more in. You talked about the rental tools model and how you can generate cash flow in a down market, and you've proved it through the first 9 months. Your net leverage is basically flat from the beginning of the year. Your net debt is basically flat from the beginning of the year. And you've been able to buy back stock. I mean your net leverage is still very reasonable. Does that make you think you might get more aggressive on stock repurchase? Or how are you thinking about that given a very healthy balance sheet after going through several months of this slowdown or several years, you could say? R. Prejean: Well, we continue to try to look at the 3 or 4 tools that are at our discretion to use for our free cash flow. And debt reduction is probably the primary one that we'll use. So it's kind of baked into -- remember, our stock buyback program is baked into some limitations on volume. So as that ebbs and flows, we'll take advantage of that. And we believe our stock is undervalued. And we'll use a portion of those proceeds to do that with those limitations. So I think it's more debt pay down, some stock buybacks and some selective CapEx purchases were needed, where we think the opportunities arise. And then as usual, we've got our -- we're laser-focused on M&A opportunities going forward. Operator: Next question is Sean Mitchell with Daniel Energy Partners. Sean Mitchell: Wayne, I know you were recently in the Middle East. Obviously, that drove a lot of your -- the Eastern Hemisphere drove a lot of the growth. Can you talk a little bit about lessons learned from your acquisitions in the Middle East and maybe the opportunity set going forward? I know you said you're looking hard, but is there specific countries or regions that you're really going to be focused on? And then maybe even the opportunity set on the M&A front in the U.S.? R. Prejean: Yes, no problem. So historically, you could count on the international rig count, the international activity being NOC-driven, more longer-term different operating metrics there, driven by those NOCs for longer-term objectives. And so the rig count is usually stable. But we had a little outlier event when Saudi dropped a bunch of rigs here last year and kind of surprised. I think there was not a -- it was every surprised soul in the market was watching that with wonder. And -- but I think it was temporary, and I think the market is becoming more in balance, and we're hearing good -- we're good -- we're hearing some positive indications that they're going to pick up some rigs next year and reimplement some drilling programs that they had recently idled. So that's good news. But the remaining part of the international market was relatively flat. I mean with -- but for a few ebb and flows that naturally occur. We're seeing -- the enthusiasm around that show at ADIPEC is it's really an international oil show. It's amazing how many people throughout the world attend that show. And it's not just specifically focused on the Middle East. So there's a lot of enthusiasm around what's happening in the Eastern Hemisphere. And we're glad that we're strategically positioned to be a part of it. To answer your question about our acquisitions, the lessons learned is make sure we stay focused on executing on those. And -- but for the Saudi downturn of -- recent downturn activity, but hopefully pick up in the future, that would be the outlier on some of our acquisition execution expectations. Operator: I would like to turn the floor over to Wayne Prejean for closing remarks. R. Prejean: All right. Thank you, everyone, for your interest in listening. We continue to be focused on executing on our international expansion. And we've got a lot of resources focused on making that happen. We have a solid team here, a well-old machine here in North America that continues to be a market leader and perform well in a challenging market environment, but we see optimism on the horizon as well, and we'll continue to deliver solid financial results throughout this continuous cycle that we're experiencing. We have optimism for 2026. So thank you for your interest, and we look forward to the next call. Operator: This concludes today's teleconference. You may disconnect your lines at this time, and thank you for your participation.
Operator: Good morning, and welcome to the Alamo Group Inc. Third Quarter 2025 Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Edward Rizzuti, Executive Vice President, Corporate Development and Investor Relations. Please go ahead. Edward Rizzuti: Thank you. By now, you should have all received a copy of the press release. However, if anyone is missing a copy and would like to receive one, please contact us at (212) 827-3746, and we will send you a release and make sure you are on the company's distribution list. There will be a replay of the call, which will begin 1 hour after the call and run for 1 week. The replay can be accessed by dialing 1 (877) 344-7529 with the passcode 5234040. Additionally, the call is being webcast on the company's website at www.alamo-group.com, and a replay will be available for 60 days. On the line with me today are Robert Hureau, President and Chief Executive Officer; and Agnes Kamps, Executive Vice President and Chief Financial Officer. Management will make some opening remarks, and then we will open up the line for your questions. During the call today, management may reference certain non-GAAP numbers in their remarks. Reconciliations of these non-GAAP results to applicable GAAP numbers are included in the attachments to our earnings release. Before turning the call over to Robert, I would like to make a few comments about forward-looking statements. We will be making forward-looking statements today that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve known and unknown risks and uncertainties and which may cause the company's actual results in future periods to differ materially from forecasted results. Among those factors which could cause actual results to differ materially are the following: adverse economic conditions, which could lead to a reduction in overall market demand, supply chain disruptions, labor constraints, competition, weather, seasonality, currency-related issues, geopolitical events and other risk factors listed from time to time in the company's SEC reports. The company does not undertake any obligation to update the information contained herein, which speaks only as of this date. I would now like to introduce Robert Hureau. Robert, please go ahead. Robert Hureau: Thank you, Ed. I'd like to thank everyone for joining our third quarter earnings conference call. We appreciate your continued interest in the Alamo Group. Before we get started, I'd like to take a moment to say how excited I am to be part of such a great company to have the opportunity to lead it through our next chapter of growth. The Alamo Group has some of the most talented and passionate employees, a portfolio of high-quality, purpose-built products that are loved by its operators, brands that are leaders in their respective markets and a business model that is highly cash generative. In addition, A key pillar of the company's business model is its strategic positioning in attractive end markets, including reliable, municipal and contractor spending on infrastructure maintenance in public works with additional upside in other end markets such as tree care and land management. In my view, it's a really exciting time to join and be part of the Alamo Group as we shape its future and continue to create value for investors, employees, our customers and our operators. Overall, the results for the third quarter were mixed with continued strong performance in our Industrial Equipment division and continued weakness in the Vegetation Management division. Let me start by sharing a few highlights for the quarter. Net sales were $420 million, up 5% from the third quarter of 2024. Adjusted net income was $28 million, down 3% compared to adjusted net income of $29 million in the third quarter of 2024. Adjusted EBITDA was $55 million or 13% of net sales compared to $55 million or 14% of net sales in the third quarter of 2024 and operating cash flow for the 9 months ended September 30, 2025, was $102 million or 116% of net income. While I'm not pleased with the results, I am optimistic and confident in the future performance of the company and the opportunities ahead. I'll turn the call over to Agnes to review our financial results in detail. When she's finished, I'll come back and share thoughts on a number of items, including a deeper look into the performance of each of our divisions, our go-forward strategy and some thoughts on capital allocation. Agnes? Agnes Kamps: Thank you, Robert. Good morning, everyone. Net sales for the third quarter of 2025 were $420 million, up 4.7%, including organic growth of 3.4% compared to the third quarter of 2024. Gross profit for the third quarter of 2025 was $101.7 million, up 0.8% compared to the third quarter of 2024. Gross margin for the third quarter of 2025 was 24.2%, down 90 basis points compared to the third quarter of 2024. The degradation in gross margin was primarily due to unforeseen production inefficiencies related to the consolidation of manufacturing facilities in the Vegetation Management division and due to tariff costs in both divisions. Regarding the production inefficiencies in the Vegetation Management division we expect this to continue through the fourth quarter and into the first quarter before we start to realize the expected benefit. Regarding tariff costs, during the third quarter, we raised prices further to mitigate the impact of tariffs going forward. In addition, we are continuing to focus on a variety of supply chain initiatives to reduce costs and manage our supplier base. Selling, general and administrative expense or SG&A expense for the third quarter was $59.9 million, up 5.6% from the third quarter of 2024. SG&A expense in the third quarter of 2025 included $3.3 million related to the CEO transition, acquisition and integration costs. Excluding these items, our SG&A expense as a percentage of net sales in the third quarter of 2025 would have been slightly lower than the third quarter in 2024. Interest expense for the third quarter of 2025 were $3.9 million, down from $4.9 million in the third quarter of 2024. The reduction in interest expense was due to lower average outstanding debt. Interest income for third quarter was $1.5 million, up from $0.6 million in the third quarter of 2024 due to higher average cash balances. For the 9-month period ended September 30, 2025, our effective income tax rate was 25.3% which was higher than the effective income tax rate for the 9-month period ended September 30, 2024, and the full year 2024. However, the 2025 effective tax rate of 25.3% is in line with our current and long-term expectations. Adjusted net income for the third quarter of 2025 was $28.2 million, down slightly from adjusted net income of $28.6 million for the third quarter of 2024. Adjusted earnings per share on a fully diluted basis for the third quarter of 2025 was $2.34 compared to $2.38 for the third quarter. Now I'll share some comments regarding the results for each of the divisions. Net sales in the Industrial Equipment division for the third quarter of 2025 were $247 million, representing an increase of 17% or 14.5% organic growth compared to the third quarter of 2024. This performance reflects another record quarter for the Industrial Equipment division with strong sales across all groups. Adjusted EBITDA as a percentage of net sales for the third quarter of 2025 was 15.5% compared to 15.7% for the third quarter of 2024. Net sales in Vegetation Management division for the third quarter of 2025 were $173.1 million, a decrease of 9% compared to the third quarter of 2024. The decrease in net sales reflected persistent weakness in certain end markets such as tree care and agriculture and some production challenges associated with our consolidation activities, as previously noted. Adjusted EBITDA as a percentage of net sales for the third quarter of 2025 was 9.7% compared to 11.5% for the third quarter of 2024. Moving on to the balance sheet. We maintained a strong financial position and flexibility to support ongoing initiatives and future investments. At September 30, 2025, total assets were $1.595 billion, up $113.6 million from the third quarter of 2024 driven primarily by higher cash and cash equivalents. Accounts receivable decreased $21.4 million to $335.2 million, reflecting an improvement in days sales outstanding versus prior year third quarter. Inventory increased slightly by $6.2 million to $378.2 million to support growth in the Industrial Equipment division. However, days inventory on hand improved year-over-year. Accounts payable increased $32 million to $129.3 million at quarter end. As a result, cash provided by operating activity for the 9 months ended September 30, 2025, was $102.4 million, a healthy conversion of 116% of net income. Cash used in investing activities for the 9-month period ended September 30, 2025, was $41.9 million and reflects cash used in acquisition of Ring-O-Matic and $25.4 million used for capital expenditures. The increase in capital expenditure compared to the same period in prior year was primarily due to expansion of one of our manufacturing activities in the industrial management division. Cash used in financing activities for the 9-month period ended September 30, 2025, were $23.6 million reflecting repayments of principal on our long-term debt and dividends paid. As of September 30, 2025, our total debt was $209.4 million. In addition, as of September 30, 2025, we had $244.8 million in cash on the balance sheet and $397 million available on the revolver facility. To conclude, I would like to emphasize our commitment to delivering long-term value to our shareholders. We are pleased that our Board has approved a quarterly dividend of $0.30 per share. As we move forward, we will remain focused on driving growth and optimization of our operation. Thank you. I'll turn it back over to Robert. Robert Hureau: Thank you, Agnes. Let me start by providing a little more color on the operating performance for each of our divisions. First, the Industrial Equipment division. As Agnes mentioned, the performance in the division continued to be quite strong with net sales up 17% compared to the third quarter of 2024. The third quarter was the seventh consecutive quarter of year-over-year double-digit net sales growth for the Industrial division. Net sales in each of our excavators and vacuum trucks, snow and sweepers and safety groups performed well during the quarter. The net sales growth of 17% was due to several factors, including price, market growth, market share gains and the acquisition of Ring-O-Matic. I'd like to share some thoughts on each. Regarding price, during the year, many of the business groups executed fairly typical annual price increases. In addition, many of our businesses took price again more recently, as Agnes mentioned, to mitigate the impact of tariffs. As it relates to tariffs, our aim in both divisions will be to pass these costs along to customers and to continue availing ourselves of applicable tariff exemptions. In tandem with price increases, we continue to focus on local sourcing and supplier diversification where appropriate. Regarding our core end markets, they continue to be resilient. Our municipal and contractor exposure to end markets such as infrastructure, public works and utilities generates good, solid long-term growth. To help put this in perspective, state and local spending over the past nearly 20 quarters has grown at a healthy compound annual rate of approximately 5%. Regarding market share, we continue to demonstrate our leadership position in win share in certain businesses. Our teams have been doing great work, innovating our products and partnering with good dealers and customers. Let me share a quick example of what we mean related to product innovation. We recently showcased our new non-CDL vacuum truck at the Utility Expo in Louisville. This product was intentionally designed to accomplish several goals with a high level of standardization. The product can be built either as a hydro excavator or as a sewer combo cleaner. Additionally, both modules will fit into a container for economic international shipping, where we can -- where they can be updated on a chassis in country. This is a great example of how we can attract new customers and penetrate deeper with existing customers through product innovation. You'll continue to hear more about product innovation as a theme going forward. Lastly, as you know, we completed the acquisition of Ring-O-Matic in the second quarter of this year. While small, it contributed to the year-over-year growth in net sales. As a reminder, Ring-O-Matic produces trailer-mounted vacuum equipment. The addition of this type of product nicely rounds out our product offering in this attractive end market and continues to strengthen our leadership position. As I mentioned, the Industrial Equipment division has delivered double-digit growth for 7 consecutive quarters. Looking forward, however, we don't expect that double-digit pace of growth to continue. We expect it on an organic basis to return to more moderate but still attractive levels. During the third quarter, net orders were down year-over-year, resulting in a book-to-bill of less than 1. That book-to-bill reflects some lumpiness in the sequential order pattern, some intentional reduction in our lead times through improvement, improved manufacturing throughput and a little bit of cooling in the end markets. The early order pattern in the fourth quarter has started off in a reasonable position, and we have a healthy level of backlog in the division. Overall, we're pleased with the Industrial Equipment division's performance. Now let's discuss Vegetation Management division. As Agnes mentioned, the performance in our Vegetation Management division continued to experience weakness. Net sales were down 9% compared to the third quarter of 2024. Specifically, net sales in each of our tree care, government mowing and agricultural groups were down. The net sales decline of 9% was due to several factors, including the end markets and challenges with the consolidation of 2 of our facilities, partly offset by pricing. Regarding pricing similar to the Industrial Equipment division, many of the Vegetation Management businesses increased price during the year and more recently increased price again to mitigate the impact of tariffs. Regarding our core end markets like land management, agriculture and tree care, they continue to show weakness. And as a result, sales volumes were lower. Regarding the consolidation of our manufacturing facilities, I'd like to highlight a few items. Recall, we launched an initiative in the second half of 2024 to consolidate various facilities. The objective of the consolidation is simply to remove fixed costs, make them more productive, particularly given where we are in the end market cycle. These are absolutely the right initiatives. We made some progress in prior quarters. That progress was primarily centered around the winding down of operations in the originating facilities and a reduction in workforce. The progress during the third quarter was a bit more challenging. Those challenges centered around production activities in the manufacturing locations to which the operations were moved. These are complex products and complex processes. These types of consolidation simply take time. In addition, these activities were occurring while the end markets continued to decline. Both our net sales and operating margins were impacted in the quarter. As we sit today, we expect to make progress on these initiatives going forward, but it will take 1 or 2 more quarters before operations in those specific facilities will normalize and yield the full operating efficiencies we anticipate. Now at the same time, net orders in the Vegetation Management division in the third quarter of 2025 increased double digits on a percentage basis compared to the same quarter in 2024, and the book-to-bill was a solid one. The early order pattern in the fourth quarter is also off to a reasonable start. In addition, if the Fed continues to reduce interest rates, it's possible we'll see stabilization or improvement in the end markets in 2026. Overall, we're not pleased with the Vegetation Management division's performance in the quarter, but are confident we'll finish the consolidation activity and drive margin improvement as originally planned. I'd now like to share some comments regarding the broad framework of our long-term strategy. There are 4 pillars of the strategy in which we'll focus and devote resources: one, people and culture; two, commercial excellence, three, operational excellence; and four, acquisitions. Let me share some color on each. First, as it relates to people and culture, we intend to continue building on the good work that's been done around developing a safe and engaging work environment, investing in our future leaders and developing a mindset of continuous improvement with a truly engaged workforce, we believe we can outperform over the long run. Second, as it relates to commercial excellence, our emphasis will be on winning through product innovation and catering to the needs of our customers and the users of our products. In addition, expect emphasis on higher-margin profit pools, such as parts and service. And third, as it relates to operational excellence, we intend to drive margin improvement through a more efficient, lean-oriented manufacturing platform and a more cost-effective, high-quality focused supply chain. Lastly, acquisitions. Let me address this and share some thoughts in the context of a broader capital allocation framework. First, our primary use of cash will be aimed at acquisitions. In general, our interest will be more focused on tuck-in type acquisitions that can be accretive to organic revenue growth and EBITDA margins. Executed at attractive multiples in end markets that are nondiscretionary, less cyclical and close to our core, have good management teams and are market leaders. This doesn't rule out larger transactions, there may be unique opportunities for larger deals that have a great strategic fit. As Agnes highlighted, we have cash on the balance sheet and capacity to use leverage in a responsible manner. Our pipeline of targets is growing. We're working to continue the flow of good opportunities and are spending our time prioritizing them. Simultaneously, we'll continue to invest in capital projects allocating these dollars between revenue-generating projects, cost reduction projects, back office areas to support long-term growth, which will be needed in various maintenance items. Capital expenditures in some years may be more or less than others, but on average, we should be running around 2% of sales. In addition, we expect to continue with the dividend, which today is running around $15 million annually or $0.30 per share per quarter. And lastly, recall that in 2024, the Board approved a $50 million share buyback program. While this program is still authorized, we are very mindful of a growing and exciting M&A pipeline and the limited float of stock we have today. Before I conclude, I'd like to share with you a few thoughts on our financial targets. It's important to understand these are long-term through-the-cycle targets. First, sales growth of 10% plus, including the effects of acquisitions. Second, adjusted operating income margins of around 15%. Third, adjusted EBITDA margins of around 18% to 20%. And finally, fourth, free cash flow as a percentage of net income of 100%. We believe these targets are achievable and will demonstrate our leadership within the markets we compete. We look forward to updating you on our progress in the future. In summary, I'd like to say that I'm incredibly excited about the road ahead, confident in our ability to unlock the full potential of the Alamo Group. This concludes our prepared remarks. Operator, please open the lines. Operator: [Operator Instructions] The first question comes from Chris Moore with CGS Securities. Christopher Moore: Maybe we can start on the vegetation margin. So it sounds like we'll be improving, but still challenged Q4 into Q1. I guess my question is, can you get back above 10% operating margins on vegetation without meaningful revenue growth at this stage. Robert Hureau: Yes. We definitely can. Let me emphasize a few points that we made in the prepared remarks, and then I'll provide a little additional color. So first thing I would say is that we believe we can get to operating margins -- adjusted operating margins of 15%, adjusted EBITDA margins of 20%. I think there's a couple of steps along the way. First is as we get the production efficiencies improved over the next quarter or 2, we should see a 200, 300, 400 basis point improvement on that basis alone. In addition, we'll pick up some volume leverage as those markets stabilize and/or recover, hopefully towards the back half of 2026. And then in addition, I think there's 200 to 300 basis points of improved opportunity on both sides of the house with respect to procurement savings, improved parts and service as a percentage of the total business and overall lean efficiencies. So that was a little bit of a long-winded way of saying, definitely, yes, we can get those margins back. I'm confident it will take us 1 or 2 quarters to drive those efficiencies in the vegetation business in those specific facilities that are undergoing the consolidations. Christopher Moore: Got it. Very helpful. And maybe for my follow-up, just industrial orders seem okay but moderating a bit. Within the segment, are there specific areas that are a little more challenged than others that are staying strong? Or just kind of any insight or color you could give to the industrial kind of segment outlook? Robert Hureau: Definitely. First thing I'd say is on a year-to-date basis, industrial orders are still up. They're up single digits. We're generally pretty pleased with that in the quarter. As you noted, they were down. I would point to a couple of the groups. First, within excavators and vacuum, net orders down in the quarter, but they are lumpy. If you recall and you go back to the second quarter of this year, you would see a fairly significant robust order pattern. It came off of those highs in the third quarter. But again, on a year-to-date basis, that group is up double digits. Snow was also down in the quarter. But here, not only are the -- is the order pattern -- can the order pattern be lumpy. It's lumpy on an annual basis take, for example, parts of the Canadian market, certain regions in the Canadian market issue contracts to service providers on an annual basis every several years in 2025, only one of those contracts was given out in this particular region. We have several contracts being awarded in the fourth -- between the fourth and the first. And so I give that color to demonstrate that not only is it lumpy from quarter-to-quarter, but it can be lumpy from year-to-year in the snow division. Sweepers and safety were up and are up substantially on a year-to-date basis. So in the aggregate, they're down. There's a little bit of lumpiness going on here. There's some improved manufacturing throughput, which is bringing our lead times back into healthy states. That's something we feel good about. And sure, in some parts of the industrial business, there's a little bit of cooling in the end markets. We reported 17% growth in sales in the industrial segment. That's really robust growth that just over the long-term, probably will be hard to do, and you'll see those end markets cooling a bit in 2026, still healthy, still attractive, still less cyclical, but cooling a bit. Operator: The next question comes from Greg Burns with Sidoti & Company. Gregory Burns: Can you just talk about the state of the -- some of the channels within your Vegetation Management segment particularly Ag and forestry and tree care, how do the inventory level sit? And are you seeing any slowdown or headwinds in the ag market, given some of the trade headwinds that we're seeing lately? Robert Hureau: Yes. So a couple of comments. First, I would say we're pretty pleased with the order pattern. On a year-to-date basis, we're up 11%. In the quarter, we were up 12%. A lot of that is coming from North America ag. So at the highest level, pleased with the order pattern. When you then break it down into some of the segments, I would say that tree care is a space that we saw a little bit of weakness in the quarter. Recall that within tree care, there are subsegments. It's really the industrial subsegment within tree care that has experienced some softness. In this space, think about these products being really large, very expensive products. These are products that would cost $1 million or thereabouts. And we're seeing some of the customers just being hesitant at this time, placing those orders still looking out given the uncertainty in 2026 with respect to tariffs and generally the macroeconomic situation. So there's a little bit of softness there. There's a little bit of softness in the government mowing, some of those customers, DOT customers, et cetera, are a little bit hesitant on placing orders. But in the aggregate, we feel pretty good about the order pattern. When we talk to customers -- customer sentiment generally as we look forward to 2026 is somewhat neutral to still a little bit cautious. Inventory levels generally across the division are in a reasonable spot. So there's nothing unusual there and order cancellations are in line with historic averages. So generally speaking, we feel pretty good, recognizing, it feels like we're certainly during the year have continued to cycle down with the end markets, but hoping that we're at the bottom here with some stabilization and maybe some growth later in 2026. Gregory Burns: Okay. And then the margins on the Industrial segment, down a little bit year-over-year, but lower than where they were in the first half of the year. Maybe tariffs are a little bit of that. But what was the -- what are the primary drivers behind the decline in margin on the industrial side of the business? Robert Hureau: Yes. There's a little bit of noise, but it really is mostly margin -- sorry, mostly tariffs. Recall, none in the first quarter, a little in the second quarter and they picked up in the third quarter. So when we think about tariffs, particularly as we look forward to 2026, you should think about tariffs as somewhere in the order of magnitude of a little less than 1% of sales. I'll give you an approximate level of what we think tariffs will be going forward. A little bit less than that in 2025, they spiked up a little bit in 20 -- in the third quarter outside of that, nothing really unusual. That figure that I just gave you excludes any impact from the recent news around tariffs on truck chassis. We're still looking to work with our chassis suppliers to understand what that impact might be. But hopefully, that gives you a good sense as to where tariffs will trend. I think the other thing that's important is, as we mentioned, as Agnes mentioned, we did pass price along in the quarter, not enough to cover those tariffs completely. We'll continue to work to do so along with managing our supply base, et cetera. But that really was the noise in the Industrial division in the quarter. Operator: The next question comes from Mike Shlisky with D.A. Davidson. Michael Shlisky: The margin goals that you outlined, Robert, I think they're a bit of a step-up from the previous CEO's goals, which were also reasonably good goals. Do you have any sense, Robert, as to how long it might take for you to get to the 18% EBITDA? And are there any truly major transformations that have to take place to get there either a large M&A deal that has very high margins or something that we are thinking of that might help close that gap there? Robert Hureau: Yes. So good question, Mike. I think about it in steps and in phases. The first phase here is we want to return the Vegetation division margins to where they were working through some of these challenges around the consolidations. We think that will take 1 or 2 quarters. So that alone will return a couple of hundred basis points to that particular division. Secondly, I think a little bit of tailwind on the sales side, particularly in that division will be helpful and should generate another couple of hundred basis points of margin improvement. So as we look through the cycle with a little bit of tailwind, I can see 400, 500 basis points of improvement in the Vegetation business alone, which on a weighted average basis, will contribute a couple of hundred basis points to the consolidated operating margins. From there, I think there are 200 or 300 or 400 basis points of margin improvement that will come from procurement savings we had several major initiatives underway right now to drive those savings. It will come from just a bit improvement in our parts and service as a percentage of the total mix of the company think that has probably fallen off just a bit over the last year or 2. It's something we expect to put resources behind. And then a little bit another 100 or so basis points of margin improvement from really driving and shaping this continuous improvement mindset, this lean manufacturing culture, if you will. So I think we can get to 15% operating 18% to 20% EBITDA margins over the next couple of years. We do need a little bit of tailwind on the vegetation side to get there, though, perhaps not to the extent of a full recovery that we saw back in, I think it was '21, early part of '22, but we need a little bit of tailwind to get there. Does that help? Michael Shlisky: Absolutely. And maybe to follow up on that, in a few months that you've been at Alamo. Have you -- I guess, what have you done so far to push the company towards those goals? And maybe more broadly, what has -- have you changed anything major, just more in general about how Alamo runs on a day-to-day basis? Or is that still to come here? Robert Hureau: Well, it's been a busy first couple of months for sure. As I said in my opening remarks, I couldn't be more proud to be working with the team that we have here. We've got a great, great leadership team. We've got great brands products. I've talked to a lot of our customers. They really love our product. The #1 thing that our customers say that are important to them is the trust and the relationship and the partnership that they have with OEMs, and that is really strong with the company. So I'm super excited about that. A lot of the first 60 days or thereabout so far has been getting to know the team and understanding the business and the rhythm and getting to speak with our customers. In terms of changes, I would say one thing that was underway that we are pushing further, maybe we're accelerating it is to move from a bit more decentralization to centralization in certain key areas like procurement, supply chain, IT. We're shifting that to a much stronger centralization mode, if you will. That's critical in order for us to be able to deliver the procurement savings that Agnes and I and the other leaders in the organization see. There's a significant amount of opportunity that we're pretty excited to go after. We've engaged with some advisers to help us in that to accelerate that. And then I think the other area that I'm not sure if it's a change or not, but it's definitively an emphasis is around M&A, as Agnes highlighted, we've got significant cash on the balance sheet. We've got a significant amount available to us in our revolver, and we could go up in terms of our leverage to 2x, 2.5x or something thereabout would be very reasonable. So we've got a significant amount of dry powder. Ed and the team have been building this pipeline of really rich targets that we're pretty excited about, nothing we can share right now. But super excited around the M&A opportunity. I think if we can do 1 or 2 deals a year, as I said, they're more likely to be tuck-in type acquisitions. So let's say you're talking $100 million, $150 million of revenue a year. You're talking somewhere around $20 million to $30 million of EBITDA that we could acquire. That's pretty significant earnings growth that we can generate. And of course, we've got the cash to pay down the debt and keep it within a reasonable zone. So one, getting to know the team and getting to a good feel for the rhythm of the business; two, working to centralize some things, moving away from the decentralization mode that we've had in the past and then three, a really big emphasis around exciting M&A. Michael Shlisky: Great. And maybe my last question. That's on the growth rate on the top line that you outlined, the 10% growth. It sounds like if you got tuck-ins kind of in mind and maybe you're thinking about a few percent there of the overall 10% top line. But then I guess that kind of leads mid-single digit or even a little bit higher than that on the organic side. What can happen there? Obviously, besides some end markets that have been down coming back, but what can really drive that after everything is kind of back to normal again? Could innovation really mean 5% organic growth that you didn't have before? How much opportunity do you think there is to innovate in a lot of these end markets these days? Robert Hureau: Yes. I'm really, really excited about what we can do with product innovation. We just showcased a lot of our products to our Board. We just came off a number of ex positions. Really, really excited about it. Let me outline how I think about that 10% plus figure that I just shared in the prepared remarks. And keep in mind, we just printed 4.7% growth. We've had Vegetation business down for 2 to 3 years running. So that 10% plus maybe a little bit conservative, but we're going to start there for the next couple of years. I break it down loosely into 2 buckets. On an organic basis, I think about it in terms of 1% to 2% growth from pricing, maybe a little bit more depending on which way inflation goes. I think about it as maybe 2% to 3% from end markets. Certainly, that's conservative from where we've been in the industrial space today, but that would be aggressive compared to where we've been on the vegetation space. So 2% to 3% there. And then maybe another 1% to 2% in terms of market share growth from market share. That growth from market share is going to be driven through product innovation, and really catering to our customers and winning by loving our customers. Now that may add up to a slightly a bit more than 5%, but that's how I think about that organic piece today. Then I think about 5% plus from M&A. It doesn't take much to get there. It takes 1 deal, roughly at $100 million of sales to hit that number. I think that's roughly 6% growth. If I break it down somewhat equally between those 2 parts and I think you got a healthy 10% growth. If we can deliver 10% growth constant over the next 4 or 5 years, I think that's fantastic. I'd like to think we'll do better, particularly when we get that M&A engine really humming. If we can get to the point where we're doing 1 or 2 deals of that size of a year, then you're really cooking with gasoline. Operator: The next question comes from Mig Dobre with Baird. Mircea Dobre: Appreciate all the detail that's been covered already. Just to maybe put a finer point when we're thinking about the fourth quarter, can you give us directionally a sense for how things are supposed to be trending relative to what you've done in Q3 revenue and margin? Robert Hureau: Yes, definitely. So I think if you look at the company's performance historically over the last 10 years or thereabouts, and you kick out some of the extraordinary growth periods around COVID. You would typically see that the first and the fourth quarter are seasonally the lower quarters. And I think you'll see that this year. So as you move from the third quarter to the fourth quarter, I would expect sales to decline somewhere in the order of magnitude of about 4% to 5% sequentially. That's seasonally driven. That would be point one. Point 2 is when you look at that or you run that math on the sales decline from third to fourth, I would expect that decrement to drop through to gross profit somewhere around 30% or thereabouts, a little bit north of what the gross margins are today. And I think that will put you in a good spot as to where the fourth quarter is likely to shape. I would not expect improvement in the Vegetation business moving from third to fourth, just yet. I think those improvements will start to come in the later parts of the fourth quarter. So seasonal adjustment down from third to fourth, with a roughly 30% drop-through through gross profit with constant or with no dramatic improvements in vegetation margins. That's how I'd characterize the fourth quarter. Mircea Dobre: Yes. That's helpful. When we're thinking about industrial, I guess the way I'm reading your comment here is that you should not be thinking improvement in margin sequentially. If anything, it might actually be down relative to Q3. That's correct? Robert Hureau: Well, I think you got to -- first of all, those comments I just gave were for the consolidated Alamo. I made some comments with respect to vegetation, but I was leaving that in to describe what I thought the consolidated, what we think the consolidated results will be for the fourth quarter or the direction that we would head. To your question within Industrial, I think there are a lot of moving parts. One is you might see a slight sequential decline. And with a sequential decline, you're going to see inverse leverage on the fixed cost. So you'll see compression there. But at the same time, you might see a little bit of offset as we launched price increases late in the third quarter to impact tariffs. So we'll have a full effect of that in the fourth quarter, whereas we only had a partial effect in the third quarter. Some of these things may offset, but from a long-term kind of run rate, I wouldn't expect major movements in industrial margins from third to fourth in either direction. Mircea Dobre: No, I understand that. Really, the reason why I'm asking the question, the margin in Industrial was different than I think all of us were modeling. And you did explain that tariffs had a role to play here. It's just not clear to me in terms of the -- from a near-term perspective as to what the impact of some of the offsets pricing that you talked about are going to be. I mean we used to talk about the exit run rate for this segment to be 15% operating margin. And that clearly seems to be off the table, but the question is, are we really looking at 12%, 13% operating margin in the fourth quarter? Or can we actually get something that's a little bit better than that. Robert Hureau: Yes. I think we're in that ZIP code in the fourth quarter. I think as we look to 2026, we'll start to drive those improvements in operating margin that I highlighted. But I think in the very near-term, as we move from third to fourth, we're in that ZIP code that you described. Mircea Dobre: Very well. And then maybe a clarification. When you mentioned the hundred basis points of sales as impact from tariffs into 2026. Presumably, that is a gross number, so that is before any mitigation or offsets. Help us maybe understand that. Also the way I'm kind of thinking about it is that the year-over-year impact is going to be disproportionately tilted towards the first half of the year. And as far as offsets, how do you think that's going to start flowing through? Is this -- again, is this something that can be done relatively quickly? Or do we need to adjust our expectations for the full year '26 and then maybe hope that things get better in '27? Robert Hureau: Yes. So good question. Let me try to frame it a little bit and then just keep me in the fairway. So A little bit less than 1% of sales would be the expectation, the gross expectation for tariffs in 2026 before considering any impact from the recently announced tariffs on truck chassis. We're still working through suppliers on that. As you move from the third to the fourth quarter of this year, I think it will be largely neutral. We saw a bump or a spike in the third quarter. I think that was just ramping up. We then launched price increases late in the quarter to mitigate that. So I think going forward, we should probably be a little less than covering the tariffs moving into 2026. So a smidge of a major margin degradation from tariffs as we look forward. But I can say, at the same time, we're doing some pretty significant work around procurement and the supply chain making sure we get our fair share of the ag exemptions that are available to us. We continue to work those. We continue to work with suppliers. We've got a significant team ramping up to drive procurement savings. So I would not expect from '25 to '26 any significant margin degradation from tariffs alone. Yes, in the first part of the year, you're going to see a little bit more of that because there was none in the first quarter of 2025. Does that help? Mircea Dobre: That's very helpful. My final question is more conceptual. Again, sticking with industrial. Look, it's pretty clear that the vegetation portion of the business is at a cycle bottom. Orders are already getting better, and that's probably going to pick up in 2026. We're seeing that with small tractors, maybe lower rates are going to have to help your forestry business. So that part of the business seems to have reasonable visibility. But in industrial, this is where, at least to me, things are a little bit trickier because we have seen very good demand over the past few years. And there is a question as to the sustainability of this demand in the context that a lot of the stimulus dollars that have been allocated post-COVID have been frankly spend. And now we sort of have to ponder where we are in terms of the needs or the various replacement cycles that these municipalities have for various types of products that you sell in the segment. So kind of a complicated question, I guess, but what is your perspective on the sustainability of demand in this segment. And as you think about your goals that you have outlined, which are reasonably ambitious, what are some of the levers that you feel are within your control to be able to get this segment to perform in the kind at the sort of level that you have outlined? Robert Hureau: Yes. So big broad question there. Good question. We're thinking a lot about it. The first thing that I would say is I think you're spot on with respect to the way you're reading the end markets and the way we think about it. We've had tremendous amount of money inserted into certainly the U.S. economy coming out of COVID around the infrastructure or from the Infrastructure Act, Job Reduction Act, et cetera. That has poured a lot of money into the economy and boosted it. And you can see it in the results, we've grown, I think we said 7 consecutive quarters of double-digit growth, 17% print in Q3. That's extraordinary performance. I think that as we look forward, that will slow. I think those end markets are still really, really attractive end markets. They're less cyclical. They're longer cycle in nature. So we certainly love those end markets. I think the really interesting thing is, there are pockets within that business that also are really exciting that may surprise on the upside. So take hydro excavation as an example. This is something where there are state and local mandates driving the demand for the need for these types of products, which we sell. The penetration in that market is still fairly low, but the acceptance is growing quite rapidly. It's supported federally by OSHA. You see a lot of movement you see from an environmental perspective, those types of products are desired and demand. So you take that submarket within the, let's call it, excavation of vacuum group section within the Industrial division. You're going to see outsized performance there. I think a lot of the third-party data would suggest that's got 6%, 7% annual growth rate demand behind it. That's really exciting stuff. That's one pocket within this. I think the second thing other than the drumbeat around product innovation that we're going to have is M&A, right? I think we can target very attractive companies that have above-average EBITDA margins that will be accretive to our profile. So all of those things really -- we're really excited about even if the broader industrial end markets cool a bit as we roll off some of this heavy infrastructure spend. It's still really an exciting time to be part of Alamo. Mircea Dobre: That's super helpful. I look forward to seeing you in Chicago next week. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to management for any closing remarks. Robert Hureau: Thank you all for participating, and it's a great time to be part of the Alamo Group. We look forward to speaking with you again. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good day, and welcome to the Nephros, Inc. Third Quarter 2025 Financial Results Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Kirin Smith with Investor Relations. Please go ahead. Kirin Smith: Good afternoon, everyone. This is Kirin Smith with PCG Advisory. Thank you all for participating in Nephros' Third Quarter 2025 Conference Call. Before we begin, I would like to caution that comments made during this conference call by management will contain forward-looking statements regarding the operations and future results of Nephros. I encourage you to review Nephros' filings with the Securities and Exchange Commission, including, without limitation, the company's Forms 10-K and 10-Q, which identify specific factors that may cause actual results or events to differ materially from those described in the forward-looking statements. Factors that may affect the company's results include, but are not limited to, Nephros' ability to successfully, timely and cost effectively market and sell its products and service offerings; the rate of adoption of its products and services by hospitals and other health care providers; the success of its commercialization efforts and the effect of existing and new regulatory requirements on Nephros' business and other economic and competitive factors. The content of this conference call contains time-sensitive information that is accurate only as of the date of the live call today, November 6, 2025. The company undertakes no obligation to revise or update any statements to reflect events or circumstances after the date of this conference call, except as required by law. I would now like to turn the call over to Nephros' President and Chief Executive Officer, Robert Banks. Robert, please go ahead. Robert Banks: Thank you, Kirin, and good afternoon, everyone. I'm excited to share the results from our third quarter 2025, a period that marks another step forward in Nephros' transformation and growth story. We delivered $4.8 million in revenue, our second highest quarter ever, and we did it with strong contributions across our business. This past quarter also marks our fifth consecutive quarter of profitability, and I'm so excited to report that we reached the highest level of programmatic business in our company's history, a milestone that reflects the consistency, the resilience and increasing value of our recurring revenue streams. What's driving that? Well, our filtration installation program continues to be a powerful growth lever. We've seen that when we support our customers with the full installation experience, not just the product, reorder rates go up, engagement deepens and customer loyalty strengthens. That's not just good for the quarter. That's good for long-term business. Another exciting development, our PFAS, PFAS removal solution is now in the field. This breakthrough opens the door to new verticals beyond our traditional patient care markets, including municipalities, dialysis centers and labs as much more attention is being paid to this alarming issue. While early, the response has been encouraging, and we believe that this will be a growth engine for years to come. We've also deepened our commercial traction in cross-functional coordination. Our teams are firing on all cylinders, and our sales force continues to bring in high-quality opportunities, not just more business, but the right kind of business. As we expand into dental, municipal and government facilities, we're doing so with operational discipline and strategic focus. As I look ahead, I'm incredibly optimistic with strong customer retention, a record number of active sites and new innovations already in the market, we're executing extremely well today and building momentum for tomorrow. Our intense focus and financial discipline is clearly driving our revenue growth and profitability. With our strong balance sheet, 0 debt and the robust innovation pipeline, we remain confident that Nephros is well positioned to sustain growth, broaden our market reach and deliver strong value in the quarters ahead. Thank you to our employees, our partners and investors for your continued belief in Nephros. With that, I'll turn it over to Judy for a more detailed look at our financials. Judy? Judy Krandel: Thanks, Robert. I will now provide a closer look at Nephros' financial performance in the third quarter and year-to-date of 2025. We reported third quarter net revenue of $4.8 million, a 35% increase over the corresponding period in 2024, reflecting strong growth in our programmatic business and significant growth in our service revenue. Our active customer sites continued to grow sequentially and were over 1,650 as of September 30, 2025. Gross margins in the quarter came in at 61%, which is consistent with 61% in the third quarter of 2024, which reflects an increase in inventory handling expenses, including tariffs that were mostly offset by a reduction in inventory reserve adjustments. Research and development expenses in the quarter were $338,000 compared to $188,000 for the same quarter in 2024. Expenses were higher in 2025 due to higher accrual for employee bonuses and an increase in headcount. Sales, general and administrative expenses in the quarter were $2.2 million compared to $1.7 million for the corresponding period in 2024, an increase of 30% due to higher sales commissions resulting from increased revenue and higher accrual of employee bonuses. We are pleased to report a significant increase in net income for the quarter. We ended up with $337,000 compared to $183,000 in the same period last year. This marks our fifth consecutive quarter of profitability. Adjusted EBITDA in the quarter was positive $418,000 compared to $295,000 during the same period in 2024. Net cash provided by operating activities was $99,000 in the third quarter of 2025 versus net cash used of $623,000 in the prior year period, an improvement of $722,000. Net cash provided in the third quarter of 2025 reflects primarily our positive net income, offset by an increase in accounts receivable. Net cash used in the third quarter of 2024 reflects primarily our positive net income, offset by an increase in inventory. Now let me turn to our 9-month results. Sales for the 9 months ending September 30, 2025, increased by 37% to $14.1 million from $10.3 million in the prior year period, reflecting strong growth in our programmatic business and emergency response business and service revenue also showed significant growth. Gross margins improved to 63% in the 9 months ended September 30, 2025, from 61% in the prior year period. The increase in gross margin was primarily driven by lower product costs resulting from a more favorable product mix and a reduction in inventory reserve adjustments. SG&A expenses were $6.7 million, an increase of 15% in the 9 months ended September 30, 2025, versus the prior year period due to higher sales commission expense, increased employee bonus accruals and higher stock-based compensation expense. Net income increased to $1.1 million in the 9 months ended September 30, 2025, from a net loss of $0.3 million in the prior year period. Adjusted EBITDA in the 9 months ended September 30, 2025, was positive $1.4 million compared to $67,000 during the same period in 2024. I am also pleased to report that our cash balance on September 30, 2025, increased to $5.2 million compared to $3.8 million as of December 31, 2024, and we continue to be debt-free. So please refer to today's press release for more details about the calculation of adjusted EBITDA and its reconciliation to GAAP net income or loss. And as always, additional information about our results can be found in our filing on Form 10-Q, which we filed this afternoon as well. I would now like to hand the call back to Robert for concluding comments. Robert? Robert Banks: Thank you, Judy. As we look to the future, our focus remains clear: scale what's working, pursue what's next and stay grounded in our mission. The progress we've made across operations, our commercial strategy and financial performance has laid a strong foundation for sustainable growth. In a world where water quality and infection control are increasingly vital, Nephros is well positioned to lead. This quarter has shown what's possible when innovation meets execution and purpose drives performance. We are energized by this momentum, and we're not only at the beginning of what we believe is a long runway. It's a point where the future is up for us. At this point, we'd like to open this up for questions. Operator? Operator: [Operator Instructions] The first question comes from Thomas McGovern with Maxim Group. Thomas McGovern: Congrats on another strong quarter here. I just wanted to see if we could dive in a little bit more into the new PFAS filtration solution that you guys launched back in October. So it sounds like it kind of broadens your potential market into those municipalities and some, I guess, more rigorous regulatory environments like dialysis and other labs. But maybe just kind of unpack for me just what the significance really is as we look at how it could impact revenues in '26 and in the fourth quarter. Robert Banks: Great question, and great to hear from you again. Thank you for your support and continuing to dial in. So PFAS, what that does is gives us another opportunity to meet the needs of our customer. Often, we get hit with the most challenging situations. Typically, it's pathogen-based. And more frequently now, we're being asked about what do you have to remediate against PFAS. And in addition, we're also being asked about microplastics and nanoplastics. So an effort to meet the needs of our customers instead of turning them away to maybe potentially one of our competitors, we introduced this PFAS as an option. And what I've also noticed is it's not typically the same customer that you find in a patient care or hospital setting that is concerned about PFAS. PFAS tends to be a more longer-term impact and have implications over some broader period of time. So we're getting closer to more of the commercial and sometimes even high-end residential people that are asking us these questions. So the -- what we have to do at Nephros is figure out how do we turn that opportunity into something that we can make commercialable and not do what we're doing with the infection control part of our business. So I love how this is giving us this ability to look into other areas, other markets and have an opportunity to educate those who are reaching out to us about all the different hazards that they're going to find in water. So we see this more as a conjunction or even a door opener for lead-in to some of our other technology that we've been growing our core with. So in those regards, PFAS is a door opener. It's also branching out into new markets and giving us a chance to have a new conversation with somebody who wasn't always curious about viruses endotoxins and bacteria in the past. So that's pretty exciting for us. And what that means as far as growth is still to be seen as we're just now getting started and launching and exploring how we treat new customers with that technology. Hopefully, that answers the question. Thomas McGovern: Yes, absolutely. I really appreciate that insight. So when we kind of take a step back and look at the PFAS versus some of the other innovations you've launched recently, being the -- whether it's the S100 or the UltraFilter, all of those are pretty early stage in terms of how long they've been commercially available. But could you give us somewhat of an idea as to what you see as the largest driver of growth at least in the near term in 2026, then maybe taking a step further back and looking at this as what's the largest opportunity for you guys on the whole as you guys look at your business long term? Robert Banks: That's a good question. The strategy has always been and will be to grow the core and make sure that the items that we're most differentiated at, that's our [indiscernible], sorry, our infection control product line. And where I see the new products that were launched like the HydraGuard or even the -- all the other items that will address ST108, what that's doing is allowing us to meet some of the needs specified in ST108 and other regulations that hospitals are working with today. So those are pretty stringent, and they're asking our customers to do more and more, test more and be able to have mediation against endotoxins, some of the most difficult pathogen particles to remove. And that's what's driving a lot of our growth today. Customers are trying to understand what that means, how to create water management safety programs around those regulations and what products they might need to do in order to make sure that they're compliant. And the good part about that is we're very well educated on how to do that. We've got experts that are willing to talk. And it doesn't always mean that they're going to buy more Nephros filters. They may have to install more testing tasks, for example, or change the order of their equipment or how they maintain their equipment. Just the fact that we're there educating them on how to meet some of these guidelines usually means that they turn to us for other solutions and filtration needs as well. The philosophy I like to think about is an educated customer is a Nephros customer. The more we can teach them about how to meet their water needs and handle some of these more challenging environments, the more likely they are to not turn to a competitor who has technology that may not be able to do what they're trying to do and towards a Nephros product, which is able to handle the most tough conditions. Thomas McGovern: Understood. You also mentioned in your prepared remarks that you guys have a robust innovation pipeline. Just curious if there's anything we should be keeping our eye out as we kind of enter the end of the year and enter '26 as well. Robert Banks: Our innovation pipeline is pretty robust. We always have more that we want to do than we have time or bodies to be able to do. So we typically will pivot to try to meet whatever newest challenges are out today and what we see coming in the future. And today, the challenges such as forever chemicals, PFAS and more towards the future a bit, the microplastics, nanoplastics, I think those are going to be products that we see our pipeline meeting and satisfying that will drive more growth in the future. And why do I think that? It's because those situations, especially nanoplastics, are very difficult. The size of those particulates and the harms they can do by penetrating the blood-brain barrier and causing cellular disruption and endocrine disruptions, it's a really challenging situation. And as that becomes more and more known and more and more prevalent, there are not solutions out there today that can easily handle it. And I think we're well positioned to deploy our technology to be able to remove those nanoplastics. So you'll see innovation and products released and announcements around meeting some of those really tough challenging questions that are coming in the future. Thomas McGovern: I was muted there. Understood. I appreciate that. I'll have one more and then I'll hop back in the queue. You guys did call out specifically the filter and installation program is continuing to support growth in programmatic business, which is great to see. One thing that I didn't hear on the call was comments on the tracking app. I just wanted to see if we could get an update on that. And maybe if you could break out, as you see it at least, kind of this record programmatic sales, how much of that -- you have to get super specific, but just kind of high level, how much of that growth in programmatic business do you think is attributable to this filter installation program versus the tracking app itself? Robert Banks: Yes. No, great question. Tracking app is doing well and continues to grow. We've expanded not as much in the amount of sites that we're tracking, but more in the geographies that we're tracking. Now we've got key installations in Texas and California, Florida, New York. So the biggest markets, and we're still looking to penetrate the Midwest a bit more. But this tracking app is doing a couple of things for us. Number one, it's allowing us a tool to give the customer more value. They can see the installation, have a picture of what was installed, how it was installed, when it was installed, who did the installation. They can also see -- get the messages and reminders that it's time to change it. And I think that's the most important powerful part on our side as far as getting those repeat customers. But in addition, it's allowing us to create more touch points. And now the touch point is that we are out there doing the install in sight. And while the technician might be walking to install something at a sink, he sees a water fountain that might be offline since COVID, like, oh, by the way, we have a solution that can get that fountain back online. have you guys heard about the new install processing guidelines? Do you have any instrument washing on site? So those discussions that don't necessarily show up in the service revenue are -- do show up in core programmatic growth and allow us to expand within those existing sites. And that's what's got me most excited about the installation program. It's that dialogue and those touch points and yet another opportunity to educate the customer about how they can meet those water needs and satisfy the challenging environments that they face, especially with some of the new regulatory guidelines out today. Operator: Our next question comes from Ralph Weil with R. Weil Investment Management. Ralph Weil: You talked about PFASs and you've talked about microplastics. And hopefully, you will have solutions for both of them. And I'm just wondering whether you are going to be doing this and trying to enter these businesses on your own through your distributors or with joint ventures or partnerships with people who are already -- or companies, I should say, who are already in the field and where you could work with them or they could work with you at penetrating the market with your new products. That's one thing. And the second question I have at this point is there's been a tremendous amount of publicity about Legionella disease. And I'm wondering whether that has had an effect on your quarter and also whether the government realizing that this is a significant problem with the old water pipes and thinks, et cetera, et cetera, that the government regulations, whether they be the word we've heard in the past so many times, ASHRAE or any others, whether they will be more stringently enforced and thus become more meaningful to you going forward? Robert Banks: Rob, thanks for joining, and thanks for the 2 questions. And I'll answer the first one about penetrating the markets, and then we'll touch on Legionella after that. And if I don't answer any of them clearly or completely, just please ask more. So how will we penetrate the market? When we look at new technologies such as PFAS, and I mentioned this initially that it's not always the same customer that we're talking to today. So penetrating the market is a good question and a key one that we think about. At the end of the day, we sell our products to the market directly and through distribution. And that is -- those are the 2 channels that we'll continue to enter the market with. And one of the things that we're figuring out is do we have the right partners to talk about PFAS? Do we have the right internal arrangement in order to answer the questions and calls that might come in from organizations that are not the typical hospital networks. And that's the question we answer and look at every day. And we are having to change our model slightly. We're actively pursuing it. But what we find is that at the end of the day, it's still our salespeople are experts internally that end up explaining how their remediation is done. They're still the ones, whether it's through an introduction to a distributor or whether it's through a direct phone call or on marketing leads or a trade show, they still are the ones that are explaining the solution, giving the quote and helping the customer through that solution as they work to remediate that problem. So we're excited about the new opportunity. We're excited about the new audiences that it brings us to and the new conversations that we're able to have. And as our distributors and partners, some who are firmly entrenched in markets where it's health care and some that are not, both have had opportunities. We've seen the non-health care partners more so than the health care-focused partners, bringing up some of those opportunities. And that's fine. That's quite all right, and that's exactly why we have those partners. We don't currently have all of the reach and breadth and relationships that our partners do have, and they've been instrumental in growth. And we still do what we can to make sure that they're successful and that we support them in their needs and their efforts going forward. And that's been working for us. So microplastics, it's not quite as far down the road as I would think that PFAS is, and that's just my observation. And as I think it's because of 2 things. One, measuring a nanoplastic or microplastic is hard. It's difficult to have equipment that can take and separate the microplastics, identify the species and run the centrifuges. It's just hard to do that on large volumes of water to be able to test and identify, but it's more of a reactive and anecdotal based on what's seen as a result of everything. And two, it's -- there's no regulations driving what should be good enough or not good enough. So like the other markets, it just takes time for that to develop. It takes time for just enough people that are smart enough with technology good enough to measure it and to be able to track it and trend it and see what's harmful and not harmful. We remain very well poised to address that when the time comes and even try to drive that market and prompt some of those conversations. So very excited about that and those 2 opportunities. They are, as I mentioned, in summary of that question, first part, different customers usually than we're talking to today, which is often more exciting than anything else. It's a new segment, new bubbles, new TAMs and [indiscernible] to augment. And we remain focused on making sure that the water quality needs of our customers are met, however difficult that might be. Now, regarding your question on Legionella, there has been a lot of publicity. Legionella tends to get the most publicity out of all of the different situations, whether it's norovirus, rotavirus and some of the more difficult. But the truth remains that Legionella still is not the most-costly thing that health care networks are going to deal with. It's those other more difficult to remove pathogens that I just mentioned. I do see more questions being asked about it often, like several in New York City, it's related to air systems such as cooling towers where people are inhaling some of those situations -- some of the viruses and bacteria. So it's not always a water situation that we will address, but happy to have that conversation and give that education. And we do see that those -- that fuel the questions coming in more and more. And it's making us more aware of where the situations are occurring and also proactively able to have the discussion and get people addressing it and looking at it within their facilities. So it's definitely had an effect, I think, on awareness. And as previously mentioned, awareness and education brings customers towards Nephros in the long run every time. We prefer educated customers that do ask those questions, and we're able to talk to them about the creating water safety management programs and the like. So it's very exciting for us. And we hope that the momentum continues along those lines, and we don't hope that people get sick and injured from Legionella, but we do have solutions that will treat that when that does happen. Ralph Weil: Can I ask one other thing? Robert Banks: Absolutely. Ralph Weil: In the 10-Q, you talked about besides the hospital business, you talk about other newer areas where the filters are being deployed, such as laboratories, manufacturing facilities, aviation environments and government buildings. Can you elaborate a little more where you have made inroads and which of these you see could be a bigger market for the company? Obviously, not as big as hospitals, but where you can really grow them in a nice way. Robert Banks: Yes. So I'd love to share names and locations, but we -- our customers often don't want that information out there. But I often am seeing now where people that share the characteristics of patient care facilities when their populations have those same characteristics, they're often very strong candidates for our solution because you're looking at a market segment that shares a similar buying criteria. They may have populations at risk or elderly, younger immune compromised or they may have high-end populations of people just concerned about getting sick at all. But people in close proximity, people that have to share space, share appliances such as bathroom fixtures and shower fixtures, those are all opportunities. So think about correctional facilities, maybe schools, municipal buildings, and the like. So those are places where we are seeing deployment. And it's been that way, not just this quarter, but that's been a trend over the past 3 quarters or more, especially as the team goes out and focuses on more than just the 8,000 or 9,000 or so hospitals that are out there. Hospitals are still and will always be a very strong market for us because they are driven by some of the guidelines and even regulations and sometimes accreditations. So they're driven not just by desire for remediating the problems, but also the potential for losing business in customers and patients. So it's been -- I'm not sure if that answered the question, but those are really some of the other places we're looking and reaching out and it's been successful and a major driver for us, especially these past 3, 4 quarters or so. Operator: We have a follow-up question from Tom McGovern with Maxim Group. Thomas McGovern: I just wanted to hop back in queue to ask about the margins. So you guys explained it. I know you guys source a lot of your components or maybe not a lot, but some of your components, at least from Italy. It seems like tariffs have had somewhat of an impact. Just as we look at the fourth quarter and '26, should we expect this kind of -- you guys were operating around 63% gross margin, this closer to 61%, kind of more in line with some historicals. Is this a better run rate for us as we look forward? Or do you think that there will be some things that will alleviate some of the pressures you're seeing now on margin? Judy Krandel: Thanks for the question. Good question. So the impact of tariffs, tariff is an expense as we get inventory in stock, it's capitalized as we sell through the inventory, it affects the cost of goods sold. So as tariff impact has started to increase, obviously, we do source a lot of our filters from Italy. It has an impact as we sell through that inventory. So you certainly started to see some of that. Do we see a full quarter of it that quarter? Will we see a full quarter of it this quarter? It's too close to tell, but I don't think it will have too much more of an impact, but it's a part of our life. So what else affects our gross margin certainly is price increases, and we put through a price increase earlier this year. And so if we do put through another price increase next year, that's something that can offset it. We're managing our inventory very carefully and cleanly. Our reserves are very clean. It's also the mix of business. Certain customers get volume discounts. And depending each quarter on how the mix of business comes in, that affects the margins. So we don't expect a dramatic decrease in margins from the tariffs, but it's a reality. It did have a small impact. We still hope to maintain 60-plus gross margins that will just move around a bit to bit. We're not going to make any projections, but I think it's mostly manageable. Thomas McGovern: Understood. And last, just a clarifying question real quick. So when you talk about service revenue, that's just really pertaining to this the installation program that you guys have when you go and actually outfit the facility in exchange or replace filters that type of thing? Or is there anything else that's falling into that bucket? Robert Banks: The service revenue refers to -- when we're going in, there's 2 types for us. There's the initial installation where the customer may be either using a competitor's filter or no filter at all. In those cases, we would often put these quick connect fittings and make it so it's a properly installed scenario, maybe it's some manifolds as well. So there's that initial install, it tend to take a little bit longer. And there's also just the regular replacement business where after 3 months, after 6 months, whatever the filter expiration or the rated life of it might be, we would go in and change out that filter as well. So that service revenue refers to those activities that are charged and billed under either contract or onetime services with that customer for performing those tasks. Thomas McGovern: Understood. I appreciate you guys taking the time. Congrats again on the quarter and looking forward to seeing what you guys can do moving forward. Operator: Our next question comes from Nick Farwell with Arbor Group. Nick Farwell: Robert, Judy, thank you very much for a very strong quarter. I'm curious on 2 questions. One is, can you talk a little bit about the trade-off between trying to maximize margins and get -- capture higher incremental margins by managing SG&A? Or are you still in a mode where you feel incremental dollars spent in SG&A are more valuable than incremental profitability? Judy Krandel: I'll jump in there first and let Robert add anything additional. We very much have enjoyed this year profitability, EBITDA positive. It feels good. It's a good place to be. We certainly know that we are under-resourced in many areas. There's always room to add more resources in a small growing company, and we have departments that would like more resources. So we do want to manage it carefully. Obviously, we are continuing to add valuable sales resources. In fact, we'll have another one coming on sort of an inside salesperson supporting further our Western region. It's been a great fit, and we think the return is significantly there. But we do want to manage for profitability. We do think it's important. So we weigh opportunities carefully. and we want to be able to support the growth, too, from the warehouse perspective, from the quality perspective. So we're very carefully adding resources as we need them. But I do think it's important to try and maintain fiscal discipline as we continue to grow the company. And again, Robert, if you have more that you'd like to add, please jump in. Robert Banks: Yes. Absolutely, absolutely. When I think about SG&A and adding costs, whether it be headcount, vehicles, anything, it's still guided by the same principle I always have. If it makes sense and I can show a return for that investment that's reasonable and favorable, then I'll do it. If it means adding more people where necessary. But basically, we tested a model a couple of years ago with these associates working under the regional sales managers. And they basically were able to free up our experts to give them time to go out and talk and educate and cultivate and grow these new sales while the associates were cultivating the existing accounts. Super happy with the way that turned out, and we're double, tripling and quadrupling down on that model which will add cost, but it is more than offsetting those costs with the amount of revenue and profits being generated. Nick Farwell: And a little add-on question to that is, how have you changed your go-to-market strategy as you address new market verticals, are there different ways you can go to market that you can leverage your SG&A organization, sales organization? Robert Banks: Yes, absolutely. The one we just described is the most different, where we are no longer focused on head down in hospitals, but gotten out to even well beyond patient care areas into other different verticals by doing that. And it's using both direct and indirect channels. But in addition, it's trying to meet those decision-makers where they are. And by understanding who is making the buying decision, learn why they're making that decision and then focusing on potential objections to them choosing Nephros as their solution. Has really put us and led us to different types of solutions. That's why you'll see us taking a number of different paths and ways to make touch points with the customers. We've been attending more trade shows and more talking engagement, seeking engagements this year, and that's paid off as well by getting the Nephros name and solutions out there and matching up those solutions with our technology has been a winning formula for us. Operator: There are no more questions. I would like to turn the conference back over to Robert Banks for any closing remarks. Robert Banks: Thank you. Thank you. Great, great robust question-and-answer session today. I really enjoyed the questions where you're asking about how we're growing. And really when we're scaling and getting more speaking engagements and going to more of these conferences and hosting webinars, here's a plug for our LinkedIn page. You can go there and check out some of those speaking opportunities. It's really helping us to go beyond even individual hospitals and get more to the networks, get more to people to help them build their safety management plans. And I wanted to thank our exceptional team, our dedicated customers and our shareholders. You guys have been very supportive. And as always, if you have any questions, please feel free to reach out to us directly. With that, I'd like to wish you all a great day, great evening. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.