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Suhasini Chandramouli: Good afternoon, and welcome to the Apple Q4 Fiscal Year 2025 Earnings Conference Call. My name is Suhasini Chandramouli, Director of Investor Relations. Today's call is being recorded. Speaking first today is Apple's CEO, Tim Cook, and he'll be followed by CFO, Kevan Parekh. After that, we'll open the call to questions from analysts. Please note that some of the information you'll hear during our discussion today will consist of forward-looking statements, including without limitation, those regarding revenue, gross margin, operating expenses, other income and expense, taxes, capital allocation and future business outlook. These statements involve risks and uncertainties that may cause actual results or trends to differ materially from our forecast, including risks related to the potential impact to the company's business, and results of operations from macroeconomic conditions, tariffs and other measures and legal and regulatory proceedings. For more information, please refer to the risk factors discussed in Apple's most recently filed reports on Form 10-Q and Form 10-K and the Form 8-K filed with the SEC today, along with the associated press release. Additional information will also be in our report on Form 10-K for the year ended September 27, 2025 to be filed tomorrow and in other reports and filings we make with the SEC. Apple assumes no obligation to update any forward-looking statements, which speak only as of the date they are made. Additionally, today's discussion will refer to certain non-GAAP financial measures. You can find a reconciliation of these measures in our fourth quarter earnings release, which is available on our Investor Relations website. I'd now like to turn the call over to Tim for introductory remarks. Timothy Cook: Thank you, Suhasini. Good afternoon, everyone, and thanks for joining the call. Today, Apple is proud to report $102.5 billion in revenue, up 8% from a year ago and a September quarter record. Services achieved an all-time revenue record of $28.8 billion, growing 15% from a year ago. EPS came in at $1.85 setting a September quarter record. We grew in the vast majority of markets we track and had September quarter revenue records in dozens of markets, including the U.S., Canada, Latin America, Western Europe, the Middle East, Japan, Korea and South Asia. We also set a September quarter revenue record in emerging markets and an all-time revenue record in India. These results come at the close of an extraordinary year for Apple in which we achieved an all-time revenue record of $416 billion for the fiscal year. We set all-time revenue records in emerging and developed markets. We set an all-time revenue record for iPhone. And in Services, we achieved all-time records across every geographic segment. These results reflect the tremendous customer enthusiasm for Apple products and services as well as our deep commitment to innovation. We are incredibly excited about the strength we're seeing across our products and services and we expect the December quarter's revenue to be the best ever for the company and the best ever for iPhone. We are heading into the holiday season with a truly remarkable lineup. That includes the biggest leap ever for iPhone, which has had a tremendous response from our users around the world. Our Apple Watch lineup is more capable than ever to giving users ways to take charge of their health like never before, through new features like hypertension notifications and sleep score. And the next level sound quality and active noise cancellation of AirPods Pro 3 are hitting all the right notes for our users. In October, we also broke new ground and power-efficient performance with the uncomparably fast M5 chip, packed with neural accelerators in each GPU core to supercharge AI workflows. iPad Pro combines game-changing features in iPad OS 26 with the power of M5 to create our most capable iPad ever. At the same time, the M5 MacBook Pro raises the bar for what users can do with a laptop while the new M5 powered Apple Vision Pro opens up amazing possibilities on its infinite canvas. We also launched a beautiful new software design that creates a unified experience across all of our platforms for the very first time. The design is crafted with a new material called liquid glass that brings fluidity, vitality and flexibility to our products. Along with the new design, we delivered powerful new features to enable users to do even more with their devices. That includes updates to the phone and messages apps in iOS 26 to help users stay connected, continuity enhancements in MAC to deliver an even more seamless experience across devices and a powerful new windowing system that fundamentally transforms the user experience in iPad OS 26. As we continue to expand our investment in AI, we're bringing intelligence to more of what people already love about our products and services, making every experience even more personal, capable and effortless. At the heart of it all is Apple Silicon, and we were thrilled to launch new products powered by the A19 Pro chip and M5. These incredibly advanced chips make Apple products the very best place to experience the power of AI. With Apple Intelligence, we've introduced dozens of new features that are powerful, intuitive, private and deeply integrated into the things people do every day. Features like live translation, which help users communicate across languages in real time and visual intelligence, which opens new ways to learn about and explore the world. We also introduced Workout Buddy, a new experience that uses AI to provide personalized motivational insights based on a user's workout data and fitness history. And these joined so many others from cleanup and photos and new image creation tools to powerful writing tools, we're also seeing developers take advantage of our own device foundation models to create entirely new experiences for users around the world. We're also excited for our more personalized Siri. We're making good progress on it. And as we've shared, we expect to release it next year. Now let's take a closer look at the September quarter results across our lineup, starting with iPhone. iPhone set a revenue record for the September quarter at $49 billion, up 6% from a year ago, with growth in the vast majority of markets we track despite supply constraints we faced on several iPhone 16 and iPhone 17 models given strong demand. Redesigned from the inside out and powered by the outstanding A19 pro chip, the iPhone 17 Pro is by far the most powerful iPhone we've ever made, setting a whole new standard for the smartphone industry. The iPhone 17 Pro also offers our best camera system ever with an all-new ADEX telephoto camera and look stunning with bold new finishes like COSMIC Orange. The iPhone Air introduces an incredibly breakthrough design and with a bigger and brighter display with promotion, the iPhone 17 is a fantastic upgrade packed with features users will love. In MAC, we had a strong September quarter with revenue of $8.7 billion, up 13% year-over-year driven by the strength of the MacBook Air. The MacBook Air enables users to get things done easily on the world's most popular laptop. Mac mini users are loving how much performance is packed into our smallest Mac ever made while Mac Studio customers are pushing the envelope of what's possible with our most powerful Mac ever, and the latest 14-inch MacBook Pro unlocks incredible speed and next level performance with the all-new M5 chip, which delivers 3.5x faster AI performance than M4. Turning to iPad. Revenue was $7 billion for the September quarter. Last month, we released 1 of the most attention grabbing software updates we've had in years with iPad OS 26 and we recently gave iPad users even more to love with the launch of the incredible M5 iPad Pro, which offers an incredible boost in AI performance. With an unmatched combination of power and versatility, the new iPad Pro makes every interaction delightful with its thin, light and portable design. In Wearables, Home and Accessories revenue was $9 billion. As I mentioned earlier, we were excited to unlock new possibilities for users with the launch of our newest Apple Watch lineup, making the world's most popular watch even better. That includes Apple Watch Ultra 3 with the largest display ever in an Apple watch, improved battery life and emergency SOS via satellite. Apple Watch Series 11 brings our users the most comprehensive set of health features yet. And Apple Watch SC3 delivers advanced capabilities at an incredible value. AI and advanced machine learning are at the core of powerful health features like heart rate monitoring, fall detection, crash detection and more. With our latest Apple Watch lineup, we were proud to introduce hypertension notifications, developed using large-scale machine learning models. Hypertension is one of the leading risk factors for heart attack and stroke affecting more than 1 billion adults worldwide, and we expect to notify more than 1 million users of this life-threatening condition. We're also excited about sleep score, a simple, intuitive way to help users better understand their sleep quality and discover ways to improve it. That's something I'm sure we can all benefit from. Meanwhile, AirPods Pro 3 have been a huge hit. You have to hear them to really understand just how remarkable they are. users and reviewers alike are praising their incredible sound quality and improved fit. They feature the world's best in-ear active noise cancellation, removing up to 2x as much noise as the previous generation. And with live translation powered by Apple Intelligence, AirPods deliver an incredibly new and exciting experience for users around the world. Turning to Services. As I mentioned earlier, revenue was $28.8 billion for the September quarter, 15% higher year-over-year and an all-time record. We saw double-digit growth in both developed and emerging markets and set new all-time records across advertising, App Store, cloud services, Music, payment services and video. Apple TV celebrated a big night at this year's Emmy Awards with 22 wins. The studio led the night with 13 wins the most of any comedy series in Emmy's history. Severance topped all dramas with 8 wins, adding to the accolades for this landmark series. To date, Apple TV productions have now earned over 600 wins and 2,800 nominations in total, driven by powerful original storytelling. And we're excited for audiences to discover new productions like Pluribus and to catch returning favorites like slow horses and the morning show. And soon, Apple TV will be the destination for F1 fans across the U.S. on track Day, thanks to a new partnership with Formula One. F1 is one of the most exciting and fastest-growing sports in the world. And starting next year, Apple TV will be the place for subscribers to follow every twist and turn of the new season. And in addition, F1, the movie, one of the year's biggest blockbusters will be coming to Apple TV on December 12. During the September quarter, we also marked the 10-year anniversary of Apple News. Apple News provides access to front page news from all around the world, putting hundreds of publications right at users' fingertips. Turning to retail. We're heading into our busiest time of year with our best ever lineup. In the last few months, we've opened new stores in emerging markets like India and the UAE and new locations in the U.S. and China. I was also in Tokyo last month for the opening of the redesigned and reimagined Apple Ginza store and the energy among the crowd was truly remarkable. When it originally opened, it was our first store outside the United States, and so it was especially meaningful to come back to welcome customers to the beautiful new space. Everywhere we operate, and in everything we do, we strive to give the best to our users while living by our values, whether that's building new accessibility features into our most recent software releases or advancing our environmental work by using even more recycled materials in our latest lineup or providing free educational programming to train and support American businesses with our new Apple Manufacturing Academy in Detroit. And we're continuing to invest in innovation and user experiences that will transform our future. A great example is the work we're doing in the U.S. where we're committed to invest $600 billion over the next 4 years with a focus on innovation in strategic areas like advanced manufacturing, silicon engineering and artificial intelligence. These commitments build on our long-standing investments in America, while supporting more than 450,000 jobs with thousands of suppliers across all 50 states. We built a new factory in Houston for advanced AI service, for example, which just started shipping its first products off the line, and we're leading the creation of end-to-end silicon supply chain across the country. In recent months, I've connected with developers, innovators, artists, entrepreneurs and so many others around the world, people passionate about innovation and all the things they can do with Apple products. Each one is another reminder of why we do what we do. We're driven to empower people to do more of the things that matter most to them and enrich their lives along the way. As we head into the holiday season with our most powerful lineup ever, I couldn't be more excited for what's to come. With that, I'll turn it over to Kevan. Kevan Parekh: Thanks, Tim, and good afternoon, everyone. Our revenue of $102.5 billion was up 8% year-over-year and is a new September quarter record. We set some temporal quarter records in the Americas, Europe, Japan and the rest of Asia Pacific and grew in the vast majority of markets we track. Products revenue was $73.7 billion, up 5% year-over-year, driven by growth across iPhone and MAC and reached a September quarter record. Thanks to our exceptional customer satisfaction and strong levels of loyalty, our installed base of active devices has reached another all-time high across all product categories and geographic segments. Services revenue was $28.8 billion, up 15% year-over-year and an all-time record. The performance was broad-based, with double-digit growth in the vast majority of the markets we track and double-digit growth across most of our services categories. Company gross margin was 47.2%, above the high end of our guidance range and up 70 basis points sequentially, driven by favorable mix. This includes approximately $1.1 billion of tariff-related costs, which is in line with what we had estimated on our last call. Products gross margin was 36.2%, up 170 basis points sequentially driven by favorable mix. Services gross margin was 75.3%, down 30 basis points sequentially. Operating expenses landed at $15.9 billion, up 11% year-over-year, driven by increased investment in R&D. These strong levels of business performance led to September quarter records for both net income and diluted earnings per share. Net income was $27.5 billion and diluted earnings per share was $1.85, up 13% year-over-year on an adjusted basis, excluding the onetime charge we recognized during the fourth quarter of 2024. Operating cash flow was also a September quarter record at $29.7 billion. Now I'm going to provide some more details for each of our revenue categories. iPhone revenue was $49 billion, up 6% year-over-year, driven by the iPhone 16 family. iPhone grew in the vast majority of the markets we track with September quarter records in many emerging markets, including Latin America, the Middle East and South Asia and an all-time record in India. The iPhone active installed base grew to an all-time high, and we set a September quarter record for upgraders. According to the recent survey from World Panel, iPhone was a top-selling model in the U.S., Urban China, the U.K., France, Australia and Japan. We continue to see very high levels of customer satisfaction in the U.S. at 98% as measured by 451 Research. Mac revenue was $8.7 billion, up 13% year-over-year, driven by MacBook Air. We grew in every geographic segment with strong double-digit growth in emerging markets. The Mac installed base reached another all-time high with nearly half of customers who purchased a Mac being new to the product. And the latest customer satisfaction for Mac in the U.S. was reported at 96%. iPad revenue was $7 billion, flat year-over-year. Keep in mind, we faced a difficult compare against the full quarter impact of the iPad Air and iPad Pro launch from last year, offset by the better-than-expected performance on the iPad. The installed base reached an all-time high with a September quarter record for upgraders and over half of the customers who purchased an iPad during the quarter were new to the product. Based on the latest reports from 451 Research, customer satisfaction was 98% in the U.S. Wearables, Home and Accessories revenue was $9 billion, flat year-over-year. This was driven by growth on Watch and AirPods, offset by accessories, which was impacted by strong performance in the year ago quarter, driven by the iPad launches. Both the Apple Watch and AirPods installed bases reached new all-time highs. Over half of the customers purchasing Apple Watch during the quarter were new to the product, and we also set a September record for upgraders an Apple Watch. And in the U.S., customer satisfaction was recently measured at 95%. Our services revenue reached an all-time high of $28.8 billion, up 15% year-over-year. We achieved all-time revenue records in the Americas, Europe, Japan and rest of Asia Pacific as well as a September quarter record in Greater China. The majority of categories saw a sequential acceleration. And as Tim mentioned, we set many all-time revenue records, including payment services, where we reached an all-time revenue record and saw a double-digit growth year-over-year on Apple Pay Active Users. This strong momentum in the September quarter drove our total fiscal year services revenue to surpass $100 billion, up 14% year-over-year and our best ever. The growth of our installed base of active devices continues to offer us great opportunities for the future. Customer engagement across our services offerings also continue to grow both transacting and paid accounts reached new all-time highs, and we continue to improve the quality and expand the reach of our services offerings. From additional markets for Apple Pay, now available in nearly 90 countries, to AppleCare One, a great new way to cover multiple Apple products in a single plan. Turning to enterprise. We are seeing an adoption of Apple products accelerate across industries to improve productivity and drive innovation. The BMW Group has been deploying tens of thousands of iPhones, including the factory employees to further strengthen its digital capabilities and advance innovation at the company. Capital One has expanded its Mac Choice program by adding thousands more MacBook Airs across its workforce. In the Czech Republic, its largest bank, [indiscernible], continues to invest in the Apple ecosystem with over 5,000 iPhones in addition to its existing thousands of iPads and Macs. And Purdue University has launched a spatial computing hub built around Vision Pro, designed to help prepare students to lead the next wave of innovation in critical industries like semiconductor and pharmaceutical manufacturing. Let's turn to our cash position and capital return program. We ended the quarter with $132 billion in cash and marketable securities. We had $1.3 billion of debt maturities and decreased commercial paper by $1.9 billion, resulting in $99 billion in total debt. Therefore, at the end of the quarter, net cash was $34 billion. During the quarter, we returned $24 billion to shareholders. This included $3.9 billion in dividends and equivalents and $20 billion through open market repurchases of 89 million Apple shares. Taking a step back, we are very pleased with our record fiscal year 2025 results. As Tim mentioned, total company revenue for the year was $416 billion with growth in iPhone, Mac, iPad and Services and all-time records in the vast majority of markets we track. This revenue performance led to very strong full year operating results with all-time records for net income and for diluted EPS, which grew double digits year-over-year on an adjusted basis. As we move ahead into the December quarter, I'd like to review our outlook, which includes the types of forward-looking information Suhasini referred to. Importantly, the color we're providing assumes that the global tariff rates, policies and application remain in effect as of this call and the global macroeconomic outlook does not worsen from today. We expect our December quarter total company revenue to grow by 10% to 12% year-over-year, which will be our best quarter ever. We expect iPhone revenue to grow double digits year-over-year, which would be our best iPhone quarter ever. On Mac, keep in mind, we expect to face a very difficult compare against the M4 MacBook Pro, Mac Mini and iMac launches in the year ago quarter. We expect services revenue to grow at a year-over-year rate similar to what we reported in the fiscal year 2025. We expect gross margin to be between 47% and 48%, which includes an estimated impact of $1.4 billion of tariff-related costs. And as we've said before, we are significantly increasing our investments in AI, while continuing to invest in our product road map. And so for the December quarter, we expect operating expenses to be between $18.1 billion and $18.5 billion. We expect OI&E to be around $150 million, excluding any potential impact from the mark-to-market of minority investments and our tax rate to be around 17%. Finally, today, our Board of Directors has declared a cash dividend of $0.26 per share of common stock payable on November 13, 2025, to shareholders of record as of November 10, 2025. With that, let's open the call to questions. Suhasini Chandramouli: [Operator Instructions] Operator, may we have the first question, please? Operator: Certainly, we will go ahead and take our first question from Erik Woodring with Morgan Stanley. Erik Woodring: Congrats on the results. Tim, can you maybe share a bit more detail on why you think the iPhone 17 is having the degree of success that it is at this point. And really, the question is, do you believe this is the aged installed base replacement cycle kicking in? Or are there specific features or functionality you believe stand out this cycle versus past cycles that consumers are really looking for? And then just a quick follow-up. Timothy Cook: Eric, thanks for your comments. I think it's all about the product. The product lineup is incredibly strong, our strongest ever. The 17 Pro is the most pro phone we've ever done. It's incredible in the design things. The iPhone air is -- feels so thin and so light in your hand, it feels like it's going to fly away. And then the 17 phone is an incredible value and takes several of the features that were reserved for Pro before and brings them down to the consumer lineup. So overall, strongest iPhone lineup ever, and it's resonating around the world. Erik Woodring: Great. And maybe a follow-up for you, Kevan. Can you maybe just discuss your approach to managing component cost inflation during this time, you're obviously increasing the memory content in your devices quite substantially at the same time. Memory prices are going through some pretty significant inflation. So just how are you managing through this cycle. Kevan Parekh: Erik, thanks for the question. Look, as you know, we've got a pretty incredible world-class procurement team as we're constantly finding ways to continue to drive cost opportunities. Right now on the commodity side, I would say we're seeing a slight tailwind on memory in storage prices and nothing really to note there. And as we saw from our gross margin performance, we landed in a pretty good spot above the high end of the guidance range we provided at 47.2%. And as well, we're guiding at 47% to 48%. So I think we're managing costs pretty well. As you'll recall, when we talked about this time in the cycle, we just launched a bunch of new products. Those new products do have a slightly higher cost structure than the products they replace, but the team does a very good job of focusing our efforts on getting those costs down over time. And we feel pretty good about the performance we're seeing right now overall on material cost savings. Suhasini Chandramouli: Operator, can we get the next question, please? Operator: Our next question is from Ben Reitzes with Melius Research. Benjamin Reitzes: Tim, can you talk a little bit about iPhone in China specifically? How is that going to trend in the December quarter? And have you turned the corner there? And how do you think that trajectory is going? And then I have a quick follow-up. Timothy Cook: Yes. Ben, I was just there. It's incredibly vibrant and dynamic. The store traffic is up significantly year-over-year. The iPhone 17 has been -- the family has been very well received there. We do believe that we'll return to growth in Q1, and that is largely based on the reception of the iPhone there. And so I couldn't be more pleased with how things are going there in the early going. Benjamin Reitzes: All right. That's great. And then services, great upside there, a little surprising, right? We were a little worried about that one only a few quarters ago. I was wondering if there were any [indiscernible] payments in there or if the resolution that we saw with the antitrust ruling with one of your partners was a boost and and if that played a role or if it was all really just organic outperformance with many of the things you mentioned. Kevan Parekh: Ben, it's Kevan here. Let me try to answer that question. You're referring -- I just wanted to clarify, when you're referring to the antitrust piece, you're talking about the Google trial? Is that what you're referring to? Benjamin Reitzes: Yes. Yes, sir. Kevan Parekh: Okay. Yes, there was no tax-related impact. And what I would say is our strong performance for the quarter is really organically driven. And again, just to reiterate, we had an all-time revenue record here for the quarter at $28.8 billion. And as well, we surpassed $100 billion, so best year ever at 14% year-on-year. So really that was all organic growth. As Tim outlined and I outlined in the prepared remarks, we saw a majority of the categories have sequential acceleration, and we had many all-time revenue records. But nothing abnormal at all, really pretty much all organic growth. Suhasini Chandramouli: Operator, could we get the next question, please? Operator: Our next question is from Michael Ng. Michael Ng: I just have two as well. First, just to follow up on the last one. the services revenue growth, I think, was the fastest across many categories and certainly the fastest in the last 2 years. I was just wondering if you could just unpack a little bit more of the drivers of the acceleration, was there kind of cross-selling with the new iPhone launch? Was it just installed base growth? I know you've been doing a lot of bundling with Apple One and Apple Care One. So any thoughts on that would be very helpful. And then I just have a quick follow-up. Kevan Parekh: Michael, it's Kevan. Thanks for the question. Yes, let me build on the answer there. I think that the way we look at it is not one thing to point to that would have driven this higher performance. You're right that it is slightly higher than we've seen in the last few quarters. But as you know, our services portfolio is very broad with a broad range of businesses, all that have different growth profiles and different performance characteristics. So those can vary in any given quarter. I would say our strength, again, was very broad-based, both across categories and also geographically. So I wouldn't point to any particular factor that drove any kind of outperformance at all. We were just very pleased to see that result. Michael Ng: Great. And just on iPhone sell-through, I was wondering if you were seeing any notable shifts in trends between the sell-through coming from upgraders versus switchers? Is the U.S. carrier competitive dynamic helping at all in terms of promotional activity? And any thoughts on channel inventory. Timothy Cook: Okay. We did set a September quarter record for upgraders and so it was a great quarter from that point of view. It's really too early in the cycle on 17 to make any comments about upgraders or switchers. In terms of channel inventory, we ended the quarter toward the low end of the targeted range. Obviously, because we had constraints on several models of the 16 and 17. And for complete transparency and clarity, we're constrained today on several models of the iPhone 17. There's not a ramp issue. It's just we have very strong demand. And we're working very hard to fulfill all the orders that we have. Suhasini Chandramouli: Operator, could we get the next question, please. Operator: Our next question is from Amit Daryanani with Evercore. Amit Daryanani: I guess Kevan, maybe just start with gross margins. Can you just walk through the expectations for the December quarter. I think it implies up 30 basis points or so sequentially. Can you just talk about the puts and takes on gross margin given you do have very sizable operating leverage in the quarter. So just maybe what are the puts and takes around that would be really helpful. Kevan Parekh: Yes, sure. Amit, let me walk through the outlook. As we mentioned in our outlook, we are targeting a range of 47% to 48%. You take the midpoint of that range at 47.5%, you said it's roughly 25 basis points, 30 basis points higher. Really, there's a lot of puts and takes. As I talked about earlier, this is a quarter we launched a lot of new products. Those new products tend to have a higher cost structure than the products they replaced. So there's definitely an impact from the cost side of thing, but that was more than offset by a favorable mix, especially on the product side as well as you outlined, we typically see higher leverage in this quarter. So I would say those are the 2 big drivers. And so the sequential increase is really going to be driven by favorable mix particularly from the product side. Amit Daryanani: Got it. And then if I just go back to the China discussion for a minute, the performance in China, at least in September quarter was a bit muted. Could you just talk about what resulted in the weakness over there? And do you think it was a bit more of a pause given iPhone Air, for example, I don't think was available until a few weeks ago. So just somewhat what drove the weakness in September? And is the uptick of that expectation for December there just from the iPhone Air coming out? Or are there other factors as well? Timothy Cook: Yes. The Greater China revenue was down 4% in the -- year-over-year in the September quarter. It was driven by iPhone and if you look at the iPhone, the majority of the sequential year-over-year change was due to supply constraints that I mentioned earlier. And so it was basically supply constraints that drove the results. We're thrilled with what we're seeing right now with traffic being up significantly year-over-year and the reception of the 17 family we expect to return to growth this quarter. Suhasini Chandramouli: Operator, could we have the next question, please? Operator: Our next question is from Wamsi Mohan with Bank of America. Wamsi Mohan: Tim, if I can follow up on your comments about the constrained supply in the quarter, just given the very strong demand for iPhones. Do you expect that as you can see your visibility across demand and supply, do you think that you will be exiting December at a point where you wouldn't be constrained anymore? Or do you still expect that there could be constraints as you exit the December quarter? And any way to quantify sort of what revenue could have been in this quarter without constraints? Timothy Cook: Yes. If you look at the supply constraints, today, we are constrained on several 17 models. We're not predicting when the supply/demand will balance. We're obviously working very hard to achieve that because we want to get as many of these products out to the customers as possible. But today, I'm not going to predict. Wamsi Mohan: Okay. Okay. And then as a follow-up, how do you talk about new records across a lot of categories and services. I didn't hear Search explicitly called out. So maybe it's a little bit of a follow-up to Ben's question, but given that there are some concerns around search volumes decelerating at the expense of AI. How do you think about the broader sustainability of these very strong mid-teens growth rates for services or an extended period of time, not just for next quarter where you're obviously guiding to [ 14 ]. Timothy Cook: This is Tim. The advertising category, which is a combination of third-party and first-party did set a record during the quarter. Wamsi Mohan: Okay. And sorry, just to be clear, both Apple's own internal advertising and within the licensing individually set records? Timothy Cook: Actually I'm not saying that. I'm just saying that the combination of the 2 set of record. We don't -- I'm dodging the question intentionally because we don't split it at that level. Suhasini Chandramouli: Operator, could we get the next question, please? Operator: Our next question is from Samik Chatterjee with JPMorgan. Samik Chatterjee: Maybe for the first one, Tim, you talked about the strong momentum you're seeing in China, which is also driving your conference for the December quarter. Any thoughts on the role that the smartphone subsidies in that region are playing in this momentum? And how do you think about sort of what portion of consumers are maybe using some of those subsidies, leveraging the subsidies at this point? Any more insights into that? And I have a follow-up. Timothy Cook: Yes, the subsidies play a favorable role. The subsidies, as you know, are sort of across multiple categories from PCs to tablets, smart watches and smartphones. And however, it's important to note they only apply to certain price ranges. And so there's a maximum price, and there's several of our products that are -- that sell above that price and therefore, are not eligible for a subsidy, but it does have a favorable effect. And it's clearly and at least from our vantage point, driving some consumer demand. Samik Chatterjee: Okay. Got it. And a follow-up for Kevan here. On the OpEx increase going into the December quarter, a fairly sizable step-up. So if you could just dig into that number a bit more what are sort of the components towards what you're spending? And then that increase year-over-year in OpEx does sort of exceed your revenue growth. So is that sort of what we should expect on a going forward basis as well where you probably need to invest a bit more in the near future? Kevan Parekh: Yes, Samik, thanks for that question. As we've been outlining and reiterated in our last call, we are increasing our investments in AI. We're also continuing to invest in our product road map. So the vast majority of the increase to our operating expenses are driven by R&D. While we continue to manage the company in a thoughtful and disciplined way, we're also managing the business for the long term and are super excited about all the opportunities that we see ahead. As it relates to the question around OpEx and revenue growth, while OpEx has been growing at a faster rate than revenue, we have seen gross margin expansion. And so when we look at that on a combined basis, it does allow us to have healthy operating leverage, and our operating income growth has been generally outpacing revenue growth for the past several years. Suhasini Chandramouli: Operator, could we get the next question, please? Operator: Our next question is from David Vogt with UBS. David Vogt: So maybe, Kevan, can I ask first. Can you help us understand sort of the tariff impact sequentially from the September quarter to the December quarter, particularly around iPhone supply constraints because I think I heard you say tariffs go from $1.1 billion to $1.4 billion, but the sequential uplift in iPhone revenue and presumably production given supply chain constraints is dramatically bigger. So you can help us understand how to think about the timing of those tariff headwinds as we move forward and sort of that correlation? And then I have a follow-up. Timothy Cook: David, I'll take this one. You're right, it goes from $1.1 billion to a projection of $1.4 billion. And the $1.4 billion is based on sort of what we know right now and where the tariff rates and policies and so forth are. So it assumes a stable kind of environment for the quarter. It does comprehend the change that was just made, which we're very encouraged to see with the tariffs moving from 20% to 10% in China. And so that is factored in. And that is one of the reasons why the it's not linear to volume, if you will. Does that make sense? David Vogt: No, that's helpful. That's what I was asking if the change is reflected in that outlook. And then just as a follow-up, when you think about -- I think on the Macs, I know people aren't asking about it, you talked about the tough comp, but you're going into sort of a holiday season, I understand that. But when you think about the attached possibility for other products to the iPhone in the holiday season, how do we think about sort of where the consumers heads that and their wallet is at this point in the cycle and granted it is a tough comp, but is there an opportunity to see some maybe upside from an attach rate perspective given the strength in the iPhone portfolio? Timothy Cook: We always like to remind people that buy an iPhone, all the other things that we offer. And so you can bet that we're doing that. From a Mac point of view, the challenges that last year was sort of the mother of all Mac launches. All of these from Mac mini to iMac to all the Macbook Pros, all launched literally at the same time. And this year, that compares to launching the 14-inch MacBook Pro. And so there's a very difficult compare. Of course, in the long run, I'm very bullish on the Mac. And you can see that the Mac again last quarter outgrew the market. And so we feel really well about how Mac is positioned, but this certain quarter is an extremely difficult compare. Kevan Parekh: Yes. And Tim, I'll add to that, that we also have the DRAM upgrades last year for the Mac lineup also is another factor. Suhasini Chandramouli: Operator, could we get the next question, please? Operator: Our next question is from Krish Sankar with TD Cowen. Sreekrishnan Sankarnarayanan: My first one is on the iPhone constraints. Is there a way to quantify how much this is you left on the table because of those constraints? And is the different iPhone manufacturing from 2 different regions contributing to the constraint? And then I have a follow-up for you. Timothy Cook: To be clear, the constraint was not related to manufacturing capacity per se. It was that we called the number of iPhone 16s that we were going to make, and we're a bit short of where the demand really was. So we could have sold more. We're not publicly at least estimating the extent of that. And then on iPhone 17 family, the demand is very strong. And so we obviously came out of the Q4 time frame with lots of back orders. Sreekrishnan Sankarnarayanan: Got it. And then a quick follow-up. Given like the prevalence of chatbots and now some of these AI-infused services, do you think that could change the consumer behavior on mobile app ecosystems or are you seeing any of that? And would that have any impact on your App Store? Timothy Cook: I think there are opportunities on the App Store with artificial intelligence. And so I think as we have made our on-device models available for developers, and we've seen developers begin to adopt them and so I think as you -- as that proliferates, there's an opportunity to -- for developers and for Apple to benefit from that from adding features to their apps and so forth. Suhasini Chandramouli: Operator, could we get the next question, please? Operator: Our next question is from Aaron Rakers with Wells Fargo. Aaron Rakers: I have two as well. I guess the first question is when we look at the iPhone 17 demand, which you've repeatedly highlighted is very strong. I'm curious if there's been any discernible kind of change in the mix within the iPhone 17 categories between the Pro and the Pro Max versions relative to prior cycles? Timothy Cook: It's really too early to call the mix, to be honest. And we don't like to publicly disclose that because of -- for competitive reasons. But frankly, we don't really know what the mix will be yet because we have constraints on both sides of the ledger at the top and at the entry. And so we'll see what happens as we get more supply. Aaron Rakers: Yes. And then as a quick follow-up. I'm curious, as we kind of work through kind of the AI narrative that continues to build. Is there -- could you provide any kind of updated thoughts around the build-out of Apple's private compute cloud and how we should think about that kind of as we look forward? Timothy Cook: Yes. We're obviously using PCC, our private cloud compute today for a number of queries for Siri, and we will continue to build it out. In fact, the manufacturing plant that makes the servers used for Apple Intelligence just started manufacturing in Houston a few weeks ago, and we've got a ramp plan there for use in our data centers and it's robust. Kevan Parekh: Yes. Aaron, I'll add maybe there are two since you asked a question about private cloud compute that we -- in '25, we did have CapEx costs associated with building out our private cloud compute environment in our first-party data centers. So you would have seen that in some of the CapEx investment in the year. Suhasini Chandramouli: Operator, can we get the next question, please? Operator: Our next question is from Atif Malik with Citi. Atif Malik: Great execution. The first question is on iPhone Air. Does the consumer reception and iPhone Air gives you a feel on perhaps the foldable corn market? Or are the 2 form factors very different? Timothy Cook: I'm not sure that that one is a proxy for the other. The thing that I would say is that where we don't get into the model kind of demand. At the aggregate level, we are thrilled with how iPhone has been received, and that's the reason that we're expecting double-digit growth in the current quarter. Atif Malik: Great. And Tim, as a follow-up, good to know that the personalized Siri is making good progress and on track for next year. Will you continue to use a 3-pronged approach with your own foundation models and partner with other LLM providers and maybe potential M&A? Or is one strategy more emphasized over another? Timothy Cook: We're obviously creating Apple Foundation models within Apple. We ship them on device and use them in the private cloud compute as well. And we've got several in development. And so we also, from a continually to surveil the market on M&A and are open to pursuing M&A if we think that it will advance our road map. Suhasini Chandramouli: Operator, can we get our last question, please? Operator: Our last question is from Richard Kramer with Arete Research. Richard Kramer: Tim, we've often seen Apple be a fast follower with iPhone and new technology, whether large displays or 4G or 5G. But with all the height now around AI, are you seeing evidence that AI capabilities or features are a material purchase consideration for consumers or the record sales levels you're reporting simply reflecting other factors like the retention of your iOS space? Timothy Cook: I think that there are many factors that influence people's purchasing considerations. And so -- and we don't have a great in-depth survey yet on the current iPhone 17 because it's very new in the cycle, and we give it some time to formulate. But I would say that Apple Intelligence is a factor. And we're very bullish on it becoming a greater factor and so that's the way that we look at it. Richard Kramer: Okay. And then one for Kevan. In the wake of nearly every other large tech company massively increasing their CapEx in advance of AI demand and also mentioning that there's scarce capacity, do you anticipate Apple altering its sort of long-standing hybrid approach to your own and third-party data centers? And maybe can you talk a little bit about the role you see for Apple silicon with the new M5 series of chipsets? Kevan Parekh: Richard, thanks for the question. In general, I think as we've talked about before, we are expecting increases in our CapEx spending related to AI investments. For example, as I mentioned earlier, we did end up having investments this year to build out our private cloud compute environment. And we do believe this hybrid model has served us very well, and we continue to want to leverage it. And so I don't see us moving away from this hybrid model where we leverage both first-party capacity as well as leverage third-party capacity. We'll continue to want to build out private cloud compute, as Tim outlined, as we have more usage there over time. But I think in general, we want to continue to have this hybrid model. Suhasini Chandramouli: A replay of today's call will be available for 2 weeks on Apple podcast as a webcast on apple.com/investor and via telephone. The number for the telephone replay is (866) 583-1035. Please enter confirmation code 0689794 followed by the pound sign. These replays will be available by approximately 05:00 p.m. Pacific Time today. Members of the press with additional questions can contact Josh Rosenstock at (408) 862-1142. And financial analysts can contact me, Suhasini Chandramouli with additional questions at (408) 974-3123. Thanks again for joining us. Operator: Once again, this does conclude today's conference. We do appreciate your participation.
Operator: Thank you for standing by. Good day, everyone, and welcome to the Amazon.com Third Quarter 2025 Financial Results Teleconference. [Operator Instructions] Today's call is being recorded. And for opening remarks, I will be turning the call over to the Vice President of Investor Relations, Mr. Dave Fildes. Thank you, sir. Please go ahead. Dave Fildes: Hello, and welcome to our Q3 2025 financial results conference call. Joining us today to answer your questions is Andy Jassy, our CEO; and Brian Olsavsky, our CFO. As you listen to today's conference call, we encourage you to have our press release in front of you, which includes our financial results as well as metrics and commentary on the quarter. Please note, unless otherwise stated. All comparisons in this call will be against our results for the comparable period of 2024. Our comments and responses to your questions reflect management's views as of today, October 30, 2025 only, and will include forward-looking statements. Actual results may differ materially. Additional information about factors that could potentially impact our financial results is included in today's press release and our filings with the SEC, including our most recent annual report on Form 10-K and subsequent filings. During this call, we may discuss certain non-GAAP financial measures. In our press release, slides accompanying this webcast and our filings with the SEC, each of which is posted on our IR website. You will find additional disclosures regarding these non-GAAP measures, including reconciliations of these measures with comparable GAAP measures. Our guidance incorporates the order trends that we've seen to date and what we believe today to be appropriate assumptions. Our results are inherently unpredictable and may be materially affected by many factors, including fluctuations in foreign exchange rates, changes in global economic and geopolitical conditions, tariff and trade policies and customer demand and spending, including the impact of recessionary fears; inflation, interest rates, regional labor market constraints, world events, the rate of growth of the Internet, online commerce cloud services and new and emerging technologies and the various factors detailed in our filings with the SEC. Our guidance assumes, among other things, that we don't conclude any additional business acquisitions, restructurings or legal settlements. It's not possible to accurately predict demand for our goods and services, and therefore, our actual results could differ materially from our guidance. And now I'll turn the call over to Andy. Andrew Jassy: Thanks, Dave. We saw strong growth across our business in Q3, and we're reporting $180.2 billion in revenue, up 12% year-over-year, excluding the impact from foreign exchange rates. Operating income was $17.4 billion, but would have been over $21 billion, if not for 2 special Q3 expenses, $2.5 billion for an FTC settlement and $1.8 billion for estimated severance costs. Trailing 12-month free cash flow was $14.8 billion. I'll start with AWS. AWS is growing at a pace we haven't seen since 2022, reaccelerating to 20.2% year-over-year, our largest growth rate in 11 quarters. It's worth remembering that year-over-year percentage growth is a relative term. It's very different having 20% year-over-year growth on a $132 billion annualized run rate and to have a higher percentage growth rate on a meaningfully smaller annual revenue, which is the case with our competitors. Backlog grew to $200 billion by Q3 quarter end and doesn't include several unannounced new deals in October, which together or more than our total deal volume for all of Q3. AWS is gaining momentum. Customers want to be running their core and AI workloads in AWS given its stronger functionality, security and operational performance and the scale I see in front of us gives me significant confidence in what lies ahead. I'll share a little more detail on why. It starts with AWS having much broader infrastructure functionality. Start-ups, enterprises and governments want to move their production workloads to the place that has the broadest and deepest array of capabilities. AWS has more services and deeper features within those services than anybody else and continues to innovate at a rapid clip. These are key building blocks for anything that customers want to create, and they're a big part of why Gartner has named AWS leader in its strategic cloud platform services Magic Quadrant for 15 consecutive years. We're bringing the same building block approach to AI. SageMaker makes it much simpler for companies to build and deploy their own foundation models. Bedrock gives customers leading selection of foundation models and superior price performance to deploy inference into their next-generation applications. A lot of the future value companies will get from AI will be in the form of agents. AWS is heavily investing in this area and well positioned to be a leader. Companies will both create their own agents and use agents from other companies. For those building their own, it's been harder to build than it should be. It's why we launched strands to make it much easier to create agents from any foundation model that builders desire. For companies who successfully built agents, they've hesitated putting them into production because they lack secure scalable runtime services or memory or observability built specifically for agents. It's why we launched AgentCore, a set of infrastructure building blocks that allow builders to deploy secure, scalable agents. Ericsson used AgentCore to deliver AI agents across their workforce, Sony used it to build a agentic AI platform with enterprise-level security, observability and scalability. And Cohere Health is using AgentCore to deploy agents that will reduce medical review times by up to 30% to 40%. AgentCore's SDK has already been downloaded over 1 million times, and our builders are excited about it. It's an enabler. Companies will also use other agents, and AWS continues to build many of the agents we believe builders will use in the future. For coding, we've recently opened up our agentic coding IDE called Kiro. More than 100,000 developers jumped into Kiro in just the first few days of preview and that number has more than doubled since. It's processed trillions of tokens thus far, weekly actives are growing fast, and developers love its unique spec and tool call and capabilities. For migration and transformation, we offer an agent called Transform. Year-to-date, customers have already used it to save 700,000 hours of manual effort. The equivalent of 335 developer years of work. For example, Thomson Reuters used it to transform 1.5 million lines of code per month, moving from Windows to open source alternatives and completing tasks or a times faster than with other migration tools. Customers have also already used Transform to analyze nearly 1 billion lines of mainframe code as they move mainframe applications to the cloud. For business customers, we've recently launched QuickSleep to bring a consumer AI-like experience to work, making it easy to find insights, conduct deep research, automate tasks, visualize data and take actions. We've already seen users churn months long projects in today's get 80% plus time savings on complex tasks and realize 90% plus cost savings. And for contact centers, we offer Amazon Connect which creates a more personalized and efficient experience for contact center agents, managers and their customers. Connect has recently crested $1 billion annualized revenue run rate with 12 billion minutes of customer interactions being handled by AI in the last year and is being used by large enterprises like Capital One, Toyota, American Airlines and Ryanair. These are real practical results for customers, and there are many more examples like them. Because of its advantaged capabilities, security, operational performance and customer focus, AWS continues to earn most of the big enterprise and government transformations to the cloud. As a result, AWS is where the preponderance of company's data and workloads reside and part of why most companies want to run AI and AWS. To enable customers to do so, we need to have the requisite capacity, and we've been focused on accelerating capacity the last several months, adding more than 3.8 gigawatts of power in the past 12 months, more than any other cloud provider. To put that into perspective, we're now double the power capacity that AWS was in 2022, and we're on track to double again by 2027. In the last quarter of this year alone, we expect to add at least another 1 gigawatt of power. This capacity consists of power, data center and chips, primarily our custom silicon, Trainium and NVIDIA. We've recently brought Project Rainier Online, our massive AI compute cluster spanning multiple U.S. data centers and containing nearly 500,000 of our Trainium2 chips. Anthropic is using it now to build and deploy its industry-leading AI model, Claude, which we expect to be on more than 1 million Trainium2 chips by year-end. Trainium2 continues to see strong adoption, is fully subscribed is now a multibillion-dollar business that grew 150% quarter-over-quarter. Today, Trainium is being used by a small number of very large customers but we expect to accommodate more customers starting with Trainium3. We're building Bedrock to be the biggest inference engine in the world and in the long run, believe Bedrock could be as big a business for AWS as EC2, and the majority of token usage in Amazon Bedrock is already running on Trainium. We're also continuing to work closely with chip partners like NVIDIA, with whom we continue to order very significant amounts as well as with AMD and Intel. These are very important partners with whom we expect to keep growing our relationships over time. You're going to see us continue to be very aggressive in investing in capacity because we see the demand. As fast as we're adding capacity right now, we're monetizing it. It's still quite early and represents an unusual opportunity for customers in AWS. I'll now turn to stores. Where the team continues to deliver and innovate for customers across our key priorities, selection, low prices and convenience, particularly fast delivery, we're offering 14% more selection since last quarter from popular brands like The North Face and Charlotte Tilbury, and we've added hundreds of thousands of items from popular brands this year. Everyday Essentials continues to grow quickly, and year-to-date is growing nearly twice as fast as the rest of the business. We continue to make it easier for customers to order low-priced perishable groceries from Amazon, and customers in more than 1,000 cities and towns now can shop fresh groceries alongside millions of Amazon.com products with free same-day delivery. This is a game changer for customers who can now order milk alongside electronics, check out with one cart and have everything delivered to their doorstep within hours. The team also invented a new add to delivery button that lets customers add items to previously scheduled orders and it's been used more than 80 million times since launch, and it's just launch. It's an example of one of those seemingly simple but powerful innovations that make customers' lives easier. We remain committed to staying sharp on price and meeting or beating prices of other major retailers. In July, we had our biggest Prime Day event ever, with customers saving billions of dollars across more than 35 categories. We continue to break records on speed. We're on track to deliver at our fastest speeds ever for Prime members globally once again this year, and we've started rolling out 3-hour delivery in select U.S. cities. We're also continuing to invest in infrastructure to speed up rural deliveries and serve more customers in more communities. That includes committing over $4 billion to expand our rural delivery network across the U.S. These are small towns where people want fast delivery, but where other companies have been backing out and reducing service. In contrast, we've already increased the number of rural communities with access to our same-day and next-day delivery by 60%, reaching roughly half of the total communities we plan to expand to by the end of the year. The stores team is also innovating rapidly with AI. For example, Rufus, our AI-powered shopping assistant has had 250 million active customers this year with monthly users up 140% year-over-year, interactions up 210% year-over-year and customers using Rufus during a shopping trip being 60% more likely to complete a purchase. Rufus is on track to deliver over $10 billion in incremental annualized sales. Here are the highlights. Our generative AI-powered audio feature that combines product summaries and reviews to make shopping easier has expanded from hundreds of products at launch to millions of products and millions of customers have used it streaming almost 3 million minutes. In Amazon Lens, an AI-powered visual search tool that lets customers find products with their phones camera, a screenshot or a bar code, now includes Lens Live, which instantly scans products and shows real-time matches in a swipeable carousel. Tens and millions of customers are using Amazon Lens each month. Moving on to Amazon ads. We're pleased with the continued strong growth, generating $17.6 billion of revenue in the quarter and growing 22% year-over-year. We see strength across our broad portfolio of full photo advertising offerings that helps advertisers reach an average ad-supported audience of more than $300 million in the U.S. alone. We also continue to be excited about our demand side platform, Amazon DSP, which lets advertisers plan, activate and measure full funnel investments. Last quarter, I mentioned our partnership with Roku and we've built on that with a partnership with Netflix, providing advertisers using Amazon DSP with direct access to Netflix's premium ad inventory. We announced integrations with Spotify and SiriusXM. With Spotify, we provide advertisers with direct programmatic access to a global audience of more than 400 million monthly ad-supported listeners. And with SiriusXM, brands can reach 160 million monthly digital listeners across services like Pandora and SoundCloud and we're excited about the advertising opportunity around prime video live sports. Live sports got a lot of interest from advertisers in upfront negotiations for 2025, '26, and we exceeded our own expectations for upfront commitments with significant growth across the board. Finally, we're continuing to invade for advertisers with AI. For example, in September, we announced an agentic AI tool and creative studio that plans and executes the entire creative process in a matter of hours instead of weeks. We're also inventing and seeing strong momentum in several other areas, and I'll mention just a few. In Prime Video live sports, NBA on Prime tipped off last week and our opening night doubleheader averaged 1.25 million viewers in the U.S., a double-digit increase over last season on cable. You'll see us bring the same constant innovation here that we brought to our NFL broadcast. We're adding golf with The Masters in 2026 and new skins competition with the PGA Tour on Black Friday this year. And we've added Peacock and FOX One to Prime Videos add-on subscription offering of over 100 channels in the U.S. We continue to be energized by the response to Alexa+ compared to what we call the classic Alexa experience, Alexa+ customers are talking to Alexa 2x more. Those interactions are much longer, and they're covering a broader range of topics. So using Alexa+ and Fire TV at 2.5x the rate of classic using natural conversation to discover audio content 4x more, engaging with photos 4x more and customers are completing 4x more shopping conversations that end in a purchase. We've expanded the number of project hyper satellites and space to more than 150 and delivered over 1 gigabit per second speeds and test with our enterprise-grade customer terminal, the first commercial phased array we know of to clear that threshold. Finally, Zoox robotaxis are available to riders in Las Vegas, and we've announced Washington, D.C. as the eighth testing location. We're excited for these to continue rolling out to more riders. Q4 is one of our busiest and most energizing times of the year, and we're excited about the continued demand for AWS. The innovations will announce the reinvent in December, the positive customer response to our AI-powered experiences, all the guests will be delivering throughout the holiday season and a lot more. Thanks in advance to our teammates around the world who are gearing up to deliver for customers once again. With that, I'll turn it over to Brian for a financial update. Brian Olsavsky: Thanks, Andy. Starting with our top line financial results. Worldwide revenue was $180.2 billion, a 12% increase year-over-year, excluding a 90 basis point favorable impact of foreign exchange. In Q3, we reported worldwide operating income of $17.4 billion. This operating income includes 2 special charges, which reduced operating income by $4.3 billion. The first charge of $2.5 billion is related to a legal settlement with the Federal Trade Commission, which impacts the North America segment and is recorded in the other operating expense line. The second charge of $1.8 billion relates to severance costs for roll eliminations and impacts all 3 of our segments. The severance charge is recorded primarily in the technology and infrastructure, sales and marketing and general and administrative expense line items. Excluding these 2 charges, worldwide operating income would have been $21.7 billion or $1.2 billion above the high end of our guidance range. Moving to our segment results. We remain encouraged by the innovation our teams are delivering for customers across all 3 segments. In the North America segment, third quarter revenue was $106.3 billion, an increase of 11% year-over-year. International segment revenue was $40.9 billion, an increase of 10% year-over-year, excluding the impact of foreign exchange. Worldwide paid units grew 11% year-over-year. We continue to prioritize the inputs that matter most to our customers. In the third quarter, our sharp pricing, broad selection and fast delivery speeds continue to resonate with customers. Customers appreciate the ability to quickly receive items essential for their daily needs, including perishable groceries and have them delivered in the same day. Our millions of global third-party sellers continue to be important contributors to our vast selection, which helps customers find the items they need at competitive prices. We're committed to building innovative services and features for our sellers, including our ongoing advancements in generative AI. Today, more than 1.3 million sellers have used our generative AI capabilities to more quickly launch high-quality listings. Better listings translate into better traction with customers. And in Q3, worldwide third-party seller unit mix was 62%, up 200 basis points from Q3 of last year. Shifting to profitability. North America segment operating income was $4.8 billion, with an operating margin of 4.5%. Excluding the $2.5 billion charge related to the legal settlement with the FTC, North America segment operating income would have been $7.3 billion with an operating margin of 6.9%. North America segment operating margin also includes a portion of the severance charge. International segment operating income was $1.2 billion, with an operating margin of 2.9%. Excluding the impact of the severance charge International segment operating margins expanded year-over-year. Globally, our progress on key inputs is delivering a better customer experience while driving a more efficient cost structure. For example, we're making notable strides in improving inventory placement to speed up delivery to customers. And as a result, for the third year in a row, we are on track to deliver our fastest speeds ever for Prime members in 2025. We continue to tune and improve our fulfillment operations and our regionalized network is operating at scale. We see many benefits of our inbound process improvements, including a reduction of U.S. inbound lead time by nearly 4 days compared to last year. This allows us to be more efficient with our inventory purchasing, which benefits working capital. We're also placing inventory more strategically throughout the network. And by leveraging our existing infrastructure, we're now offering U.S. customers the ability to order perishable groceries and receive them the same day and as little as 5 hours. We're seeing positive early results since launching in January, when customers start shopping groceries on Amazon, they are visiting the site more often and returning twice as often as nonperishable shoppers. Looking ahead, we see further opportunity to improve our activity in our global fulfillment and transportation network. We continue to improve inventory placement to drive down distance travel and touches for package. We will also build on the gains from our regionalized network through algorithmic improvements as well as launching robotics and automation. Operating margin may fluctuate quarter-to-quarter, we have a delivered approach to achieve sustained progress over the long term. Shifting to advertising. Advertising revenue was $17.7 billion and growth accelerated for the third consecutive quarter. We continue to see strong growth on an increasingly large base, as our full funnel advertising approach of connecting brands with customers is resonating. Moving next to our AWS segment. Revenue was $33 billion, up 20.2% year-over-year. This is an acceleration of 270 basis points compared to last quarter, driven by strong growth across both our AI and core services and more capacity, which has come online to support customer demand. AWS revenue increased $2.1 billion quarter-over-quarter and now has an annualized revenue run rate of $132 billion. AWS operating income was $11.4 billion, and reflects our continued growth, coupled with our focus on driving efficiencies across the business. We are expanding our data center footprint, largely to accommodate Gen AI. And to the extent those assets were placed into service related to depreciation does impact our margins. As we've long said, we expect AWS operating margins to fluctuate over time, driven in part by the level of investments we're making at any point in time. Now turning to our cash CapEx, which was $34.2 billion in Q3. We've now spent $89.9 billion so far this year. This primarily relates to AWS as we invest to support demand for our AI and core services and in custom silicon, like Trainium as well as tech infrastructure to support our North America and international segments. We'll continue to make significant investments, especially in AI, as we believe it to be a massive opportunity with the potential for strong returns on invested capital over the long term. Additionally, we continue to invest in our fulfillment and transportation network to support the growth of the business, improve delivery speeds and lower our cost to serve. These investments will support growth for many years to come. Looking ahead, we expect our full year cash CapEx to be approximately $125 billion in 2025, and we expect that amount will increase in 2026. I'll finish up my remarks with net income. While we primarily focus our comments on operating income, our third quarter net income of $21.2 billion includes a pretax gain of $9.5 billion related to our investment in Anthropic. This investment activity is not related to Amazon's ongoing operations and is included in nonoperating income. We're encouraged by the start of the peak season and we are ready to serve customers in the coming months. I want to thank our teams across Amazon for their hard work as we get ready to delight customers during the holiday season. Our commitment to elevating the customer experience is the only reliable way to drive sustainable value for our shareholders. With that, let's move on to your questions. Operator: [Operator Instructions] And our first question comes from the line of Justin Post with Bank of America. Justin Post: I'll ask on AWS. Can you just kind of go through how you're feeling about your capacity levels and how capacity constrained you are right now? And then in your prepared remarks, you mentioned Trainium3 demand and maybe broadening out your customer base. Can you talk about the demand you're seeing outside of your major customers for Trainium? Andrew Jassy: Yes. On the capacity side, we brought in quite a bit of capacity, as I mentioned in my opening comments, 3.8 gigawatts of capacity in the last year with another gigawatt plus coming in the fourth quarter and we expect to double our overall capacity by the end of 2027. So we're bringing in quite a bit of capacity today, overall in the industry, maybe the bottleneck is power. I think at some point, it may move to chips, but we're bringing in quite a bit of capacity. And as fast as we're bringing in right now, we are monetizing it. And then on the Trainium demand, outside of our major customers. So first of all, as I mentioned on Trainium2, it's really doing well. It's fully subscribed on Trainium2. We have -- it's a multibillion-dollar business at this point. It grew 150% quarter-over-quarter in revenue. And you see really big projects at scale now, like our Project Rainier that we're doing with Anthropic, where they're running their next version of -- they're training the next version of Claude on top of Trainium2 on 500,000 Trainium2 chips going to 1 million Trainium2 chips by the end of the year. As I mentioned, we have -- today, with Trainium2, we have a small number of very large customers on it. But because Trainium is 30% to 40% more price performance than other options out there, and because as customers, as they start to contemplate broader scale of their production workloads, moving to being AI-focused and using inference, they badly care about price performance. And so we have a lot of demand for Trainium. Trainium3 should preview at the end of this year with much fuller volumes coming in the beginning of '26, we have a lot of customers, both very large, and I'll call it, medium-sized who're quite interested in Trainium3. Operator: And the next question comes from the line of Brian Nowak with Morgan Stanley. Brian Nowak: Congrats on the quarter, guys. So maybe 2. One, Andy, sort of a philosophical chip question. There's a lot of questions in the market about Trainium and sort of its positioning versus other third-party chips. So how do you think about the key hurdles of Trainium3 need to overcome to really make Trainium adoption broader, to your point on the last question and continue to drive Trainium as opposed to satisfying what could be broader demand with third-party chips in the near term? Andrew Jassy: Yes. Well, first of all, we're always going to have multiple chip options for our customers. It's been true in every major technology building block or component that we've had in AWS. Really in the history of AWS, it's never just one player that over a long period of time has the entire market segment and then can satisfy everybody's needs on every dimension. And so we have a very deep relationship with NVIDIA. We have for a very long time. And we will for as long as I can foresee the future. We buy a lot of NVIDIA. We are not constrained in any way in buying NVIDIA, and I expect that we'll continue to buy more NVIDIA both next year and in the future. But we're different from most technology companies in that we have our own very strong chip team, and this is our Annapurna team. And you saw it first on the CPU side with what we built with Graviton which is about 40% better price performance than the other x86 processors, and you're seeing it again on the custom silicon on the AI side with Trainium, which is about the same amount of price performance benefit for customers relative to other GPU options. And our customers to be able to use AI as expansively as they want. And remember, it's still relatively early days at this point. They're going to need better price performance and they care about it deeply. And so I mentioned earlier the momentum that Trainium2 has. And I think that for us, as we think about Trainium3, I expect Trainium3 will be about 40% better than Trainium2 and Trainium2 is already very advantaged on price performance. So we have to, of course, deliver the chip. We have to deliver it in volumes and deliver it quickly. And we have to continue to work on the software ecosystem, which gets better all the time. And as we have more proof points like we have with Project Rainier with what Anthropic's doing on Trainium2, it builds increasing credibility for Trainium. And I think customers are very bullish about it. I'm bullish about it as well. Operator: And our next question comes from the line of Doug Anmuth with JPMorgan. Douglas Anmuth: I'll stick with basically the same topic, Andy. But can you just talk a little bit about the architecture of Project Rainier and how it's differentiated and what that means for customers and for AWS? And do you expect Rainier to expand beyond Anthropic? And how do you replicate Rainier with Trainium3 chips? Andrew Jassy: Yes. I think what is compelling for entropic around Project Rainier is really is the Trainium2 chip, which we built a very -- first of all, we built a very large cluster that they can use in a very expansive way. And it's not simple to be able to build a cluster that has 500,000 plus chips going to 1 million. That's an infrastructure feet that's hard to do at scale. And so some piece of it is the infrastructure capabilities that we've built over a long period of time in AWS that is unusual in the industry. But it's just also the performance of the chip and the price performance, both of which matter. And I think that Project Rainier is something that is specific for anthropic, but we have a lot of other customers who are interested in employing large clusters of Trainium chips that we're going to hopefully give them a chance to do so with Trainium3. Operator: The next question comes from the line of Mark Mahaney with Evercore ISI. Mark Stephen Mahaney: I want to ask about 2 topics, groceries and then how to think about head count in the future. And on groceries, I want to -- the perishables, I think last quarter, you talked about 70% or something of users had never purchased from perishables from Amazon before. Just talk about whether you -- I think you used the term, Game Changer, before. Does this mean that maybe we don't -- you no longer need to Amazon Fresh stores. You always had this DVD delivery van density advantage. And have you kind of reached a point you think of scale and speed that you really can change people habit and really have them consider Amazon as one of their first grocery options? Do you really feel like you're at that point? And then secondly, just on the head count, some of the recent news. Just talk to us about how you think about head count going forward? Are you seeing -- is the level of efficiencies that you're getting from AI such that you can keep head count relatively flattish for the foreseeable future? Just talk about the pros and cons or the wins and losses in terms of that head count going forward? Andrew Jassy: Yes. So I'll start with grocery, Mark. We have a very large grocery business. If you look at our entire grocery business, if I don't even count Whole Foods Market and Fresh, in the last 12 months to over $100 billion of gross merchandising sales, which would make us a top 3 grocery in the U.S. A good chunk of it is a lot of the items that you'd find in the middle aisle so consumables and canned goods and pet food and health and beauty, very significant and continues to grow at a very good clip. But then we also have Whole Foods Market, which is the pioneer in organic foods, which is also growing at a faster clip than most grocery companies with an attractive trajectory on profitability, and we'll expand our Whole Foods physical presence over the coming years here. And I'm also very excited about this new concept, daily shop that we have, which is a smaller version of Whole Foods in urban settings, which we have 3 that we've launched that are off to very good starts that you should expect to see more of as well. And we have always been -- as you referenced, we've talked a lot about having a larger mass physical presence. And we continue to experiment with various formats. But the one that we are most excited about is what you referenced, which is the ability to provide perishable groceries with same-day deliveries. And if you think about how many of our customers are buying from us multiple times a week and who are buying things like shampoo or detergent or paper cups or water, where the ability to add milk and eggs and yogurt and other perishables to their order and have it live in the same shop in cart and then show up a few hours later, is very compelling. And we started with a few markets about a year ago, and we were really taken aback at the adoption, not just the number of people that started buying perishables from us very quickly but how often they came back downstream to buy perishables and groceries from us in the future. And so we've now expanded that to 1,000 cities around the U.S. and will be in 2,300 by the end of the year. And it's really changing the trajectory and the size of our grocery business. And I also believe that this many years tradition of the weekly stock up grocery stock up is changing. And I think we're a big part of that. And I think there's a lot of potential there for the grocery side. It doesn't mean that we won't continue to experiment with other physical formats, but we're on to something very significant with what we're doing with perish both from our same-day facilities. And then on your head count question, what I would tell you is the announcement that we made a few days ago was not really financially driven and it's not even really AI-driven, not right now, at least. It really -- its culture. And if you grow as fast as we did for several years, the size of businesses, the number of people, the number of locations, the types of businesses you're in, you end up with a lot more people than what you had before, and you end up with a lot more layers. And when that happens, sometimes without realizing that you can weaken the ownership of the people that you have who are doing the actual work and who own most of the 2-way door decisions, the ones that should be made quickly and right at the front line, and it can lead to slowing you down. And as a leadership team, we are committed to operating like the world's largest start-up. And that means removing layers. It means increasing the amount of ownership that people have, and it means inventing and moving quickly. And I don't know if there's ever been a time in the history of Amazon or maybe business in general with the technology transformation happening right now, where it's important to be lean, it's important to be flat, and it's important to move fast, and that's what we're going to do. Operator: And the next question comes from the line of Eric Sheridan with Goldman Sachs. Eric Sheridan: Wanted to know, Andy, if you could reflect on the opportunity that's continuing to present itself in terms of rolling out more robotics and automation and the broader theme of physical AI across your operations? And how should we be thinking about that as a driver of potential efficiencies, but also as a driver of the ability to possibly reinvest back in the business over the long term? Andrew Jassy: Robotics is a very substantial area of investment for us. We have over 1 million robots in our fulfillment network at this point. And I would say that while that's significant, we have a lot of invention in flight. So I expect that we'll have more over a period of time. Robotics are very important for us and for our customers and for our teammates because they improve safety, they boost productivity, they increased speed, and they let our human teammates focused on problem solving and what they do best. And we expect that our people remain at the heart in the center of our fulfillment network as they have from when we first started working the robotics. And we expect that over time, we will have a fulfillment network where robots and humans complement each other and work together. But I think you're going to continue to see us advance invest very significantly in robotics. It's going to help on the safety, the productivity, the speed and ultimately some of the cost pieces, which will allow us to continue to improve the customer experience. Operator: And the next question comes from the line of John Blackledge with TD Cowen. John Blackledge: How does Amazon think about agentic commerce going forward? And how do you think Amazon will serve customers using agents to purchase goods on Amazon in the future? Andrew Jassy: I'm very excited about -- and as a business, we're very excited about in the long term the prospect of agentic commerce. And it has a chance to be good for customers has a chance to be really good for e-commerce. And I think if you're -- if you know what you want to buy, there are a few experiences that are better than coming to Amazon. But if you don't know what you want, it's a physical store with a physical salesperson still has some advantages. Obviously, lots of people do it on Amazon all the time. But you very often want to ask questions and help get help narrowing what you're going to look for. And as you keep asking new questions, having a whole bunch of different options presented to you. And I think AI and agentic commerce are going to change the experience online where that experience where you're narrowing what you want when you don't know is going to get better online than it even is in physical environments. Now we obviously have our own efforts here in agentic commerce. We have Rufus, which I talked about in my opening comments, which is continuing to get better and better and used more broadly. And we have features like Buy for Me where we will surface on Amazon, even items that we don't stock that other merchants have. And then if customers want us to go and buy it for them on those merchants websites, we will do that. And both of those have been successful for us. But we're also having conversations with and expect over time to partner with third-party agents. And I think that it reminds me in some ways of the beginning of search engines many years ago being sources of discovery for commerce. And you had to kind of figure out the right way to work together. And today, search engines are a very small part of our referral traffic and third-party agents are a very small subset of that. But I do think that we will find ways to partner. We have to find a way, though, that makes the customer experience good. Right now, I would say the customer experience is not -- there's no personalization. There's no shopping history. The delivery estimates are frequently wrong. The prices are often wrong. So we've got to find a way to make the customer experience better and have the right exchange value. But I do think that the exciting part of this and the promise is that AI and agentic commerce solutions are going to expand the amount of shopping that happens online. And I think that's really good for customers, and I think it's really good for Amazon because at the end of the day, you're going to buy from the outfit that allows you to have the broadest selection, great value and continues to deliver for you very quickly and reliably. And I think that bodes well for us. Operator: And our final question comes from the line of Colin Sebastian with Baird. Colin Sebastian: I guess first on AWS, following up there. How much of this acceleration is driven by core infrastructure versus AI workload monetization? And I think part of it is trying to understand how important newer services like AgentCore are becoming and bringing enterprises to AWS to build agents? And then I guess, secondly, regarding the acceleration in advertising, if you could potentially disaggregate the core advertising contribution versus DSP and Prime video. That would be helpful as well. Andrew Jassy: I'll start on the AWS side, we are seeing -- we're really pleased with the results from this quarter, 20% year-over-year on a annualized run rate of $132 billion is unusual. And we have momentum. You can see it. And we see the growth in both our AI area, where we see it in inference. We see it in training. We see it in the use of our Trainium custom silicon. Bedrock continues to grow really quickly. SageMaker continues to grow quickly. And I think that the number of companies who are working on building agents is very significant. I do believe that a lot of the value that companies will realize over time and AI will come from agents. And I think that building agents today is still harder than it should be. You need tools to make it easier, which is why we built strands, which is an open source capability that lets people build agents from any model that they can imagine. But even more so, when you talk to enterprises or companies that care a lot about security and scale. They're starting to build agents, and they don't really feel like they've got -- they've had building blocks that allow them to have the type of secure scalable agents that they need to bet their businesses and their customer experience and their data. And that's why -- that was really the inspiration behind AgentCore was to build another set of primitive building blocks like we built in the early days of AWS, where it was compute and storage and database. We defined a set of building blocks that you needed to be able to deploy agents securely and scalably that we provide in AgentCore. And then when we talk to our customers, it really resonates. There is not anything else like it, it's changing their time frame and their receptivity to building agents, and it's very compelling for them. So I do think the combination of what we're doing to enable agents to be built and run securely and scalably as well as some of the agents that we're building ourselves that our customers are excited about are compelling for them. And I think the other place we see a lot of growth in AWS also is just the number of enterprises who are -- who have gotten back to moving from on-premises infrastructure to the cloud. And we continue to earn the lion's share of those transformations. And I look at the momentum we have right now, and I believe that we can continue to grow at a clip like this for a while. I think on the advertising side, that is also an area where I think collectively, we feel very pleased about the progress. Every single one of our advertising offerings this quarter grew in a meaningful way. I think there's a few things going on for us. We have what I think of as a pretty unusual full funnel offering. And if you look at the top of the funnel, which typically tends to be awareness building and broad scale to be able to use our own Prime Video and our live sports capabilities as well as going all the way down to the bottom of the funnel at point of sale being able to use sponsored products, that's -- most people don't have a full funnel offering as robust as that. And then when you layer on top of it, the combination of the audience curation and development we can do, along with the advantage measurement, it just all leads to a return on advertising spend is very unusual. And I think there are multiple places where we can expect to continue to grow. One is in our stores business. I still think if you look at the worldwide market segment share of retail, still 80% to 85% of it lives in physical stores. And that equation is going to flip over time. And I think AI is going to only accelerate that. So I think we have an opportunity -- a significant opportunity still in our existing stores. And then I think video, we've only been at this for a little bit of time, but it's already a very large amount of advertising revenue, and we're still relatively early stage. I think that will continue to be a big area of growth. And then as you referenced, the amount -- their demand-side platform or Amazon DSP, that is growing really quickly as well. And some of it had to do with the fact that we had some features. We always had a number of the core components people wanted around some of our properties, the measurement capabilities, Amazon Marketing Cloud, but we lack some features for a while as we were building out our DSP that customers told us mattered and the team over the last 20 months have closed those gaps in a very significant way so that now people feel like our DSP is fully featured. And then you look at some of the partnerships that we've done, the Roku partnership gives us the largest connected TV footprint in the U.S. And you layer on top of that, what we've recently done in providing our DSP customers, the opportunity to integrate with the ad inventory in Netflix and Spotify and SiriusXM, it's powerful. And so we are growing very quickly on the demand side platform. So very optimistic about what we're doing there. We've continued work to do, obviously, but I don't think we're close to being able to grow there. Operator: Thanks for joining us on the call today and for your questions. A replay will be available on our Investor Relations website for at least 3 months. We appreciate your interest in Amazon and look forward to speaking with you again next quarter.
Operator: Good day, and thank you for standing by. Welcome to the Prysmian's 9 Months 2025 Integrated Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Massimo Battaini, CEO. Please go ahead. Massimo Battaini: Good morning, everyone, and welcome to the earnings call of 9 months 2025. I'm very excited today to share with you this fantastic success. Quarter 3, EBITDA, '25 is the best quarter ever. It is over EUR 100 million higher than the same quarter last year, '24, in spite of the EUR 30 million -- almost EUR 30 million adverse impact. So you should raise on a like-for-like EUR 670 million versus EUR 540 million. Remarkable also the EBITDA margin that reached the outstanding level of 14.8%, 1 percentage point higher than the 9 months comparison to last year. The organic growth in the quarter has been outstanding also with a 9% increase that brings the overall 9-month growth for '25 at 6%. We also continue our successful journey towards sustainable targets. 39% has been the CO2 emission reduction in Scope 1 and 2 versus deadline and recycled content of material in our cables risen to 21%. Let me now enter into each business unit to explain you the strength and the performance of the individual business. Transmission, first of all, strong backlog, EUR 16 billion. We had it in line with what was in the past despite additional revenue consumption. And on top of this EUR 16 billion backlog, we have been pretty successful in the order intake in quarter 3 with EUR 3 billion worth of projects awarded in this quarter. They will turn and convert into backlog in the coming months as this project will be awarded in notice to proceed. Amazing has been the growth of Transmission, 40% in the quarter, which confirmed a solid growth in the 9 months, almost 39%, 40% also for the 9 months and outstanding is the EBITDA that has risen from EUR 90 million last year, same period to EUR 150 million. And by the way, this EUR 150 million, probably already is in 1 quarter, what one of our competitor makes in the full year. Extremely rewarding for us is the EBITDA margin achieved in the quarter, almost 18%. You'll remember that we set goals for 2028 for value, we need to achieve a range of 18% to 20% EBITDA margin by 2028. So we are well ahead of that trajectory. 17.8% is 2.5 points higher than same quarter last year and if you take the 9-month view is the same. We are 3 percentage points higher than last year. Thanks to outflows as a cushion, thanks to better margin in our backlog and thanks to entire team, regions in the Transmission BU working hand in hand to maximize the results and maximize the execution of the CapEx and the relevant projects. Let me now move into to Power Grid space. The organic has been significantly high 15%, basically driven by all countries, with North America actually outpacing this 15% growth, more than 20% was the growth in the United States. When you look at EBITDA, you see a moderate growth in EBITDA, but you have to take into account 2 effects in this EUR 6 million only increase in EBITDA in quarter '23 -- in quarter '25 or '24. There is a ForEx impact of close to EUR 8 million. And there is a Midwest impact driven by tariffs that hit one element, one family of products in our portfolio business in U.S., the overhead business. It's a project-driven business, where we have a firm price and we've been hit by projects landed in quarter 1 and quarter 2, where we could not stand a chance to increase and adjust the price to reflect the Midwest premium impact. So you see a temporary blip in the EBITDA margin, 15.2% last year, 14.7% this year. This will be recovered in the coming months as we flush out the old project backlog and we will end the new project. The rest of the Power Grid business in U.S. is immune to Midwest premium because we have formula in frame agreement to transfer the cost to the market. The organic growth in the 9 months has also been pretty successful with a solid 6%. Moving to Electrification. In spite of this moderate growth in I&C Global, you have to see behind this strong organic growth in United States, 10% year-over-year growth in quarter 3, remarkable growth in EBITDA in U.S. in quarter 3. Despite a weak start with July still affected by negative tariffs, thanks to August, September, we had performed a 15% EBITDA increase quarter 3 '25 over quarter 3 '24 in the U.S. in the I&C space, namely more than EUR 30 million in absolute value. Unfortunately, this has been offset by ForEx and has been offset by some pricing normalization in LatAm, where we had spikes last year in quarter 1, quarter 2, quarter 3 in Argentina, which has normalized over the period -- this period of time. The EBITDA margin, we achieved sustainable 14.5% level. And when you look at the 9-month view, you see the upgrade and the accretion of the EBITDA margin associated to the -- attributed to the acquisition of the accretive and profitable perimeter over Encore Wire. Specialty, I cannot say that we are happy. Actually, we are disappointed about this, nothing that was not foreseen. We are still struggling with the automotive performance. The demand is very weak. Price pressure is very high. We are still working on the disposal of a few plants and a process is -- unfortunately, I have taken longer than expected. We will resolve this in the next months. And we also continue to see some level of softening in the elevator space in the U.S. attributed to the weakness of the residential market in the U.S. Moving to the last business unit Digital Solution, we reported a significant organic growth stand-alone legacy Prisma, 13% in the quarter. And you see the EBITDA left from EUR 45 million to EUR 88 million, thanks also to the perimeter change. There is the inclusion of more or less EUR 40 million coming from the Channell integration. This is the first quarter where we have the full consolidation in the treatments of the Channell perimeter. Amazing is the EBITDA margin. We never had better than 14% EBITDA margin in the business in the past. Now we raised this level of margins sustainable in the future to 20% with additional scope, with additional connectivity in the U.S. space. Before I hand over to Francesco for more financial insight, let me draw your attention to maybe one only of these KPIs in the first one on the top of right-hand side of the page, revenues linked to sustainable solution. We raised this revenue from 43% last year to 44%, 45% already. In 12 months, we will show another improvement over this level. We have a target of 55% by 2028 as per our Capital Market Day. This is our important way, it is an important way, it's an important KPI to read our ability to innovate to drive EBITDA margin improvement. And the 14.8% EBITDA margin achieved in quarter 3 is a real reflection of the efforts that commercial, R&D, operation and rest of the team has put in innovating our portfolio, innovating our solution to increase share of wallet on the one end and improve profitability. And now Francesco. Pier Facchini: Thank you, Massimo, and good morning to everybody. As usual, let me recap our profit and loss and summarize some messages that Massimo has already passed. The -- an outstanding quarter, this 3 quarter. Starting from the revenues, EUR 14.7 billion with an organic growth in the third quarter, very robust, over 9%, which was driven by an outstanding growth in Transmission and a very strong improvement in the growth of Power Grid by the way, across the board, as Massimo said, both in North America, but also pretty strong in Europe. The highest quarter ever in terms of EBITDA. You see the bridge on the right of this page, quarter-by-quarter. I would focus on quarter 3, EUR 644 million, an increase of over EUR 100 million versus Q3 2024 in spite of pretty significant adverse ForEx effect of EUR 27 million, which is mainly in the Power Grid and the Electrification business, but also Digital Solutions business. In terms of margin, I don't have much to add to what Massimo said. At constant metal in the quarter, we grew 1 percentage point from Q3 2024, mainly driven by the growth of the margin, but also of the revenues in transmission, which is obviously changing the mix in the positive sense. It was driven definitely the increase of margin by the full inclusion of Channell in our third quarter results. And I would add also a pretty robust Q3 in I&C in North America, in particular. On the lower part on profit and loss, you see group net income, which is almost doubling compared to the first 9 months of 2024, over EUR 1 billion, EUR 1.022 billion. Of course, this was heavily impacted, positively impacted by the disposal of our 23.5% stake in YOFC, which generated gains in the region of EUR 350 million. But let me say that even taking out this obviously one-off effect on our net income, the net income was very robust. And I like to confirm what I did already in the first half of the year that in terms of growth of our EPS, we are definitely above the level that the CAGR, you remember the midpoint of this CAGR was 17% for the period '24, '28 that were setting last March in New York as a target. I would say we are more in the region in the first year of a 25% EPS growth for the full year versus 2024. Okay, I flip quickly to the cash flow generation. That's the usual bridge of our net financial debt from September '24 to September '25, it's a strong deleverage, which was obviously fueled by the cash proceeds coming from the YOFC disposal. You read the number on the right of this page, EUR 566 million, which were definitely much higher than we expected, thanks to the incredibly strong share performance of the company, specifically in the month of July and even more August. In terms of last 12 months free cash flow, we are a bit below the level that we saw in the last few quarters. You remember that we were last 12 months, half 1, slightly below EUR 1 billion, let me say. And this is not very concerning, in my opinion, because it's almost entirely attributable to a different distribution of cash flows in our Transmission business. To be more specific, last year, specifically in the first 9 months, Transmission was generating very strong cash flows because it was benefiting of a very, very large down payments and milestones that this year are more skewed on the fourth quarter. So no concern. I think that we will come back and we will regain our nice level of EUR 1 billion plus, by the way, in line with the guidance that Massimo will comment in a while. Also in terms of net debt, the boost of -- other than our strong cash flow, the boost of the transactions like YOFC will generate a faster deleverage than we originally expected. And I anticipate a net debt by year-end in the region of the EUR 3 billion, which was -- which is definitely much lower than the, thanks also to YOFC, of course. Back to Massimo for the outlook and the final conclusion. Massimo Battaini: Thank you, Francesco. So let me walk you through the upgrade of the guidance. On the right-hand side chart, you see the evolution of our guidance for the EBITDA. We started the year with a EUR 2.3 billion midpoint for full year guidance. We raised it to EUR 2.40 billion in light of the perimeter change, which was particularly set by the ForEx. So the EUR 40 million additional is the organic growth of the EBITDA of the legacy Prysmian perimeter, excluding the Channell benefit. And now we are happy to raise it to EUR 2.4 billion, so another solid EUR 60 million additional EBITDA coming from the strength of quarter 3 and the expectation of the quarter 4, of course. Free cash flow also you don't see the upgrade here, but we had a EUR 1 billion low range EUR 1.075 billion, now we raised EUR 25 million, the bottom range and by EUR 50 million in the top range. So making a net increase of circa EUR 40 million in free cash flow for the full year. Let me move to the final remark and wrap up the meeting and leave time for you to address comments and questions. So definitely, a quarter, which reported an excellent performance, as flawless execution in Transmission, also supported by a good order intake. The benefits of the accretion of the EBITDA margin coming from the Channell acquisition and a strong driver of the business growth coming from North America, Power Grid, I&C and Transmission with now North America really posed to benefit from the tariff benefit in the coming quarters. So thank you. I'd like now to open the Q&A session and get more insight into the business. Operator: [Operator Instructions] We will now take the first question from the line of Vivek Midha from Citi. Vivek Midha: I hope you can hear me well. My first question is around the I&C margin in the third quarter. Would it be possible for you to give a little bit more color around where the profitability of the U.S. low voltage business stands and how that progressed over the course of the quarter? You mentioned that July was lower and August, September improved. And then also on that, you mentioned just now about the benefits of the tariffs in the U.S. coming through in the coming quarters. Could you maybe give some color around how you expect that to phase in over the coming quarters? Massimo Battaini: Yes. Thank you, Vivek. So the I&C space in the United States, we had many turbulence in the very months -- in many months of 2025 due to the different dynamics interpretation of tariffs in the market. In July, we were still in the old scheme where tariffs were applied to metal, so imported metals, imports of metal and not on import cables. From August 20 -- from August 13, all the tariffs were set in a way that's also the meta content of cable imported were charged with 50% in addition to this called country tariff. So from August 13 onward, we had a full recognition of the fact that we are looking for local producer. So given that circumstances, in August, September, we've seen a reverse in trend. While in July, we saw pricing pressure because we had cost that importers didn't have from August -- from beginning of August onwards, we had certainly more even and normalized competition. Another pressure is on importers. So the I&C margin in quarter 3 in U.S. is the best ever margin achieved by Encore Wire best ever. Despite July was weak due to the former setting of tariffs. We are at least 1 percentage point ahead of the same quarter last year, 2023, which, by the way -- 2024, which, by the way, was a strong quarter, as you recall. Now how we are going to benefit from the tariffs in the coming quarters? We don't know what is going to happen. Certainly, the supply chain from imported is a long one because they're shipping cable from every place in the world. It's normally -- we consider it a supply chain of treatment. So it will probably take another 1.5 months or so before this -- the quantity of product has been shipped and our in stock in U.S. will gradually run down. And so we should be seeing hopefully, certainly from quarter 1 onwards, less lower pressure from importers and more opportunity for us to gain share of wallet. So we think that in the aluminum building wire space, the market started already and will more progressively shift from importers, whose price is not going to give them any more benefit into for -- into local suppliers. So we will certainly have a share of wallet opportunity. Whether this will turn in additional profitability, we will see. We'll have to gauge it. It depends more -- it doesn't depend on tariff. It depends more on the possible dynamics of shortage of cable availability in U.S. vis-a-vis the local demand. Local demand is expected to grow beyond that in '25, driven by the usual data center expansion, but also by some expectation that the residential market in light of the further reduction in interest rate will rebound a little bit in quarter 1, quarter 2 next year and also thanks to our solidity of the nonresidential market. I hope I answered your first question, Vivek. Vivek Midha: Absolutely. Just to clarify to make sure I heard correctly. I think you said was it was from -- at some point in the quarter, that was the best ever margin in Encore Wire, given that they had some very, very good margins after the pandemic. Did I hear that correctly, best ever margin? Massimo Battaini: Yes. July was not the best margin but August, September was few points higher than the same period 2024. So yes, you're right. Vivek Midha: Okay. And my second question is around the Power Grids margin. Just a clarification. Thank you for the color on the Midwest premium impact. Could you maybe confirm then was the margin in the power distribution business and high voltage AC, i.e., the business outside overhead, stable relative to the second quarter? Massimo Battaini: As you noticed, the blip in the EBITDA margin was really minor. The rest of the product -- the rest of the family side of Power Grid, so high voltage AC, power distribution and network components were not suffering any sort of margin contraction. It's only the overhead business in U.S., where we win projects is similar to the transmission space. We win one-off projects. We win projects and the price and the project is firm until you completed there's a cushion. And the Midwest premium has risen in the last 2 quarters due to the additional aluminum tons supplied to metal imported in the U.S. We could not transfer this to those firm price project. While we've been completely successful transferring this Midwest premium increase to the rest of the business, call it I&C, low voltage, medium voltage distribution, no way. We have no issue there. We have formula to reflect the cost inflation coming from Midwest premium, copper rod, all the rest to our customers in the existing frame agreement. In this specific niche on the portfolio Power Grid, we didn't have this chance. We actually renegotiated some contracts, but vast majority at firm price. So when we get past the end of this year, it is a backlog of old projects that suffered this price pressure -- sorry, this margin contraction due to cost increase will fade away and will enter 2025, '26 with a different speed. That's why I call this blip in 1 -- in '26, sorry, quarter 1, this will be fully reverted back to the original level of margin, 15% plus. Operator: We will now take the next question from the line of Daniela Costa from Goldman Sachs. Daniela Costa: I'll ask two, one on Electrification and the other one on Transmission, but given we just talked on Electrification, just following up on the comments there you made before. I think when you think about sort of this potential impact that you'll be better positioned versus the importers going forward on the Section 232, what's your view in terms of like will your intent be to mainly just grab share because they will be much more expensive? Or are you also planning to leverage pricing? Has that gap becomes so wide now out there? Massimo Battaini: Yes, it's a complicated answer because the tariff -- due to tariffs, first of all, been only applied to imported cables in the aluminum space. We expect the same treatment, the same approach to happen from December onwards where also for copper products imports, there will be the same logic. So the metal content of cable or copper cable import in U.S. will be charged with the same 50%. So -- but this still has to happen. Our interaction with the administration suggests that also for the copper space, this will happen. Should this happen, we'll have Electrification, Power Grid overhead, high-voltage businesses, where we see our position in the U.S. strengthened by the fact that importers have additional cost to live with, to bear with. Some of those importers decided to eat this cost to digest it. So they didn't increase the price. By now, after 3 months, we noticed the attitude or the chance to hold the same price and getting charged with is 50% of metal content and on top of country is becoming; too overwhelming for them. So we expect to see a reduction of imports of cables across the board for all importers in U.S., in high voltage, low voltage, medium voltage and electrification. So this reduction of supply to the U.S., driven by the extreme cost impact due to tariff will certainly create some imbalance in the market. So we think that the first immediate benefit will be the share of wallet. It is too early now to say whether on top of the share of wallet, we also have a price benefit. But be reassured that every time we had a chance to increase price and to improve profitability without losing share in the market, we go for it as we've done in the last 9 months. The market was not that strong, but we haven't seen a particular EBITDA margin erosion in any space in the United States, despite tariffs were not in favor of local producer. So price we will see. Certainly, share of wallet is within reach. Daniela Costa: And moving to the question on transmission. I mean, as you've mentioned, you're pretty much there sort of at the 18% and there's upside, as you said, to the 18% to 20% or that you're comfortably in there in the 18% to 20%. But the backlog is not dramatically different to the backlog we had at the CMD. So I guess you had visibility on sort of like what the gross margin on those projects were. So can you elaborate what you changed in execution and whether this is something that we kind of see has more longer lasting? And in that case, what is the ultimate ceiling of transmission margins? Massimo Battaini: To be honest, we also have to be more accurate in setting the target for '28. So the 17.8 today is based on standard metal. Should we base also the 18%, 20% target on the same standard metal, so the historical metal 10 years ago, we should naturally raise 18%, 20% to 18.5% to 20.5%. So in my view, the natural ceiling is 20.5% is the top of the range. It's the top of the range because it is true that the backlog is what it was 6 months ago. We've definitely been more successful or better -- sorry, more successful than anticipating in the execution, let me say. And some of the risks that were in our execution and that we quantify and we assigned to provisions didn't materialize or we handled them with lower cost than anticipated. So it's again back to this execution. The strong team, strong assets. So don't forget, we have now plenty of new assets. And the new Monna Lisa is a new super performing installation asset with different capabilities and Leonardo da Vinci. Alessandro Volta, the asset will join our fleet in December '26 has a different set of capabilities as well. So we have different tools for installing/burying cables underground. We have new factories. We have new vertical lines in Pikkala that has come to -- that came on stream at the beginning of this year. We have a new production line in Arco Felice. We have a fantastic new asset. Our cohesive team working with a strong focus on execution, and this is what has driven the significant uptake in EBITDA margin in quarter 3. And this has given us confidence that the 20.5% top of the range is also achieved over by 2028. Operator: We will now take the next question from the line of Max Yates from Morgan Stanley. Max Yates: Just my question is on capacity utilization in your Encore facility. So you've kind of mentioned there may be the opportunity to take share and take customer wallet share from -- as a result of the tariffs. So could you just give us a sort of indication of if 25% of the market is going to be challenged by these tariffs, how much can you ramp up your Encore facility in the next 1 to 2 years to maybe take advantage and knock out some of that competition that then has to put through higher prices. So where is capacity utilization and sort of how much room do you have? Massimo Battaini: Our strategy is pretty simple. We have spare capacity in the range of 30% in Encore Wire. We are not there in idle wire because we like to have spare capacity. It's there to guarantee the service. But in case we need it to respond -- to fast respond to market demand, we can utilize the Saturday and the Sunday shift to expand this capacity and leverage this available at incremental output. Of course, in the short term, this will be the answer. But as soon as we see stronger structural demand growth, we will resort to the short-term action to gain share and then we back up this action with additional investment, which might take 12 months, 18 months, it depends on what we're going to do in terms of where we want to spend capacity. Of course, it would be [indiscernible] which line. So short term, we respond with the shifts -- available shifts on Saturday and Sunday to avoid to compromise in the long term, the service level, we will immediately activate the CapEx deployment to increase the structure of the capacity. So we are the only one with this benefit, thanks to Encore. We didn't have it in Prysmian because Prysmian run facility at full capacity on 7 days a week. And the same does the other -- the same to the other players in the United States. So with this opportunity, we can certainly leverage the tariff in a better way than the other people and hopefully to gain share in the market. Max Yates: Okay. And maybe just a second question around what the competition are doing in North America? Because I guess when we look at Encore margins, they're clearly at very attractive levels. Obviously, your biggest competitor, Southwire is private, so it's harder to keep a track on kind of what they're doing. But when you speak to your sort of salespeople, what do they say about what the competitors are doing on capacity? How much availability do they have to ramp up? And are you seeing kind of new entrants or people expanding capacity that maybe you didn't see before given how attractive margins are now in this North America business? Massimo Battaini: Yes. The margin attracted new entrants from outside are really not coming because of the challenge. So there could be new entrants from inside, I doubt it. The copper building wire market is in the hand of 2 players, Southwire and Cerro and the aluminum in the hand of us and Southwire, the rest are importers. So behavior in the market is pretty simple to define. Southwire is very disciplined when it comes to price. Of course, they are suffering more than in the past because they are too exposed to the residential market. They have a significant exposure to residential market. This market has been sluggish and flattish over the last 2 years. And so they're probably not enjoying what we've been enjoying on the contrary of our side because with the electrification space, again, from Encore Wire, we have a huge exposure larger than before to the nonresidential space. And on top of the nonresidential space market, we have access to data center, stronger than anyone else because we have a product range, very broad, large and complete, from telecom to Electrification, to Power Grid, to Transmission, which is unique, not common to a telecom player like Corning on Costco, not even common to Sourthwire. So they are disciplined. They always follow our price. Sometimes they are the first at price increase in the market. For example, in the last 2 weeks, we've seen copper increasing -- increases that forced us to increase the price, but Southwire anticipated us. They came with a price increase in the market first. So we are happy about the level of competition. Whether they have spare capacity, I don't know. But what matters to this market is the service level. So if you have gained so much share in the center space, is because we serve these demanding companies, the likes of Microsoft, Meta and so on with our 24-hour service. It is because with 3, 2 days spare idle capacity we can respond with massive output increase that other people cannot respond to. So we are well positioned to leverage now the settlement achieved by the tariffs in the market to leverage our strength, our portfolio and the asset of McKinney and gain additional share in the market. Operator: We will now take the next question from the line of Sean McLoughlin from HSBC. Sean McLoughlin: Can I just build on the previous answer. Maybe could you specify what kind of growth you've seen in data centers, maybe across the different divisions? And my second question is related to fiber, particularly if you could maybe split out the growth in Digital Solutions in the U.S. versus other regions. And particularly, if we're looking at fiber shortages in the U.S., what kind of positive pricing impacts do you expect this might have over the coming quarters? Massimo Battaini: Thank you, Sean. In data center space, we've seen our revenues 9 months to date versus 9 months last year, doubling in value. And this is pretty much across 2 main spaces, Electrification, U.S. and Optical Digital Solutions U.S. So now in the optical space, 40% of our volume -- trade volume in U.S. belongs is for serving this data center business. And in Electrification, I say that we have 25% of the total Electrification business, I&C business U.S. attributed to the data center expansion. This is not the same that we've seen in other regions yet. We are still working in Europe, in LatAm and APAC to become more relevant, to become more engaged with the go-to-market with a proper supply chain to win more share in data center space also as well. As far as fiber is concerned, you are totally right. There is a shortage of fiber in U.S. to the point that we are really backfilling our capacity in the U.S., we have a factory in U.S. producing fiber with fiber production coming from Europe, price improvement happening -- has happened in quarter 1. Quarter 2 is happening as we speak. And so we count on this pricing and profitability enhancement in the coming quarters to set a new level of EBITDA for Optical Digital Solutions business U.S. next year. Operator: We will now take the next question from the line of Monica Bosio from Intesa Sanpaolo. Monica Bosio: I hope you can hear me. The first question is on -- from a strategic standpoint, Massimo. If I'm not wrong, in occasion of a recent interview, you anticipated that Prysmian could be ready for a big acquisition in 2026 in LatAm or Europe. Can you please give us more flavor on this side? And just a question, would you see as reasonable and external growth in the digital solutions space or in other areas? That's the first question. The second one is related to Sean's question in the Digital Solution space. So pricing is coming -- so what kind of margins could we expect on a steady state in the Digital Solution space and more in general, given the exponential growth of the data center, do you see any supply constraints or disruption that could bring to some stops and growth along the trajectory? Massimo Battaini: Thank you, Monica. So yes, our position regarding M&A is the usual one. We consider M&A, the natural to top up our organic actions, organic plans. We think we are well positioned based on our track record of M&A to leverage additional opportunity. We will be ready for large ones. And by that one, that means something closer to the size of Encore from 2027 onwards, not in 2026. We have some more financial flexibility also in '2026 due to the disposal of YOFC shares, the treasury share. So we have still some room for minor midsize acquisition in '26. Another point is to work in identifying the specific targets, the one that we can start the highest level of synergies. And certainly, we are looking at North America, LatAm and Europe as main priorities to expand leadership, expand portfolio and become more relevant within the customer base. I didn't capture the question about the standard growth in Digital Solutions. You mean internal -- the organic -- so there is growth in U.S.A. in Digital Solutions, again, partly driven by the rollout of Fiber to the Home and also complemented by rollout of data center expansion. There is not that much level of growth in the other countries because they are much more advanced in the fiber-to-the-home implementation. France is almost at the end. The U.K. is almost at the end. Spain is made way too. So Europe will not probably give us satisfactory organic growth. North America will continue for 5 years at least to support organic growth of Digital Solution space. Monica Bosio: Yes, my question was -- sorry, Massimo, my question was given the pricing that is coming in the U.S. in the digital solution, this could be a lever for further margin improvement. What you... Massimo Battaini: Okay. So the margin was coming to the point of mind. We reached a 20% EBITDA margin. So I think it's the level we consider sustainable. There will be upside in U.S. There will be probably stability or slight reduction in Europe. So I would not bank on significant expansion beyond 20%, which is already very accretive vis-a-vis the past trend. Of course, there will be additional synergies that we want to leverage, thanks to the acquisition of Channell. Because now we own a satisfactory portfolio of connectivity products with the ones that we had in Europe, with acquisition that we made, a small acquisition that we made in Australia, the Warren & Brown and Channell. Now we can leverage the full portfolio and eventually further enhance the profitability of the business unit. Operator: We will now take the next question from the line of Alasdair Leslie from Bernstein. Alasdair Leslie: I had 2 questions on Transmission. So you talked about 2028. I was just wondering whether you could help us a little bit in terms of kind of calibrating how transmission scales up here in maybe the next 6 to 12 months? I mean how should we think about top line growth margins both in the balance of 2025, but maybe also 2026 as well? Any early thoughts there as consensus only has around 15% like-for-like growth in '26. It feels like maybe that's now too conservative? And maybe also just a little bit more detail around the phasing of capacity coming online, please. I don't know whether you can kind of update us on those lines of Pikkala. The first one, I think you highlighted again, that's up and running. But the second 1 maybe an update there. Can that be brought forward a little bit? And maybe if you can, what's the kind of run rate on that submarine cable now in Pikkala? I think you were talking about starting with 32 tons and wanted to double that. So where do we stand now? Massimo Battaini: Your question is too detailed. I don't like to share all this stuff with -- not with you, but with the other people connected to the earning calls. I'll tell you a simple explanation what is going on. You draw a line from '26, '25 through 2028. You take the, let's call it, EUR 580 million EBITDA this year and take almost EUR 1 billion by 2026. This growth from EUR 550 million, EUR 580 million to EUR 1 billion is supported linearly by additional capacity increase across many sites. There is Pikkala with 3 lines. There is drone for HVDC interconnects with 3 lines. There is Naples with 1 additional line. There is capacity in Abilene, United States for HVDC capability. The capacity will grow linearly from this level of 2025 through 2028 from EUR 550 million, EUR 580 million EBITDA this year to EUR 1 billion. To complement this cable capacity across different submarine interconnectors, offshore and land interconnectors, you have the installation capacity that will grow hand in hand with the manufacturing capacity. So you draw this line, you can figure out what the organic growth for next year will be and for '27 and for 2028. Bear in mind that while we grow, expand the business organically with capacity and with expansion of installation capability, we also benefit from -- as we did in quarter 3 this year execution and better margins in our backlog. So move from the 17.8% margin today to 20%. I hope this clarifies the trajectory. And forgive me if I can enter into these tons kilometers details that really we don't like to share with our peers. Operator: We will now take the next question from the line of Uma Samlin from Bank of America. Uma Samlin: My first 1 is fairly short term. You mentioned that for Encore, you saw record margin profile in September and August this year. So what are you seeing in terms of Encore demand and pricing so far in October? If you could comment on that, that would be really helpful. And also for your raised '25 guidance, how much have you accounted for in terms of the tariff impact on I&C in Q4? And how should we think about this benefit going into 2026? That's my first one. Massimo Battaini: The record margin August, September is certainly an important -- is certainly important trend in the market. It is not really related to the tariff to the reduction of imports related to the fact that there is clarity in the market about where the market stands in terms of tariffs. October is coming in with a strong volume with some pricing or margin pressure due to the cost of copper cost increase that has been kind of sudden and sharp. And of course, us supplier, all keen on passing into the market. So October is coming up in a nice way as well. The big chunk of the 2025 upgrade -- guidance upgrade comes from North America due to the strength in Power Grid and I&C but also it comes from Transmission business. So those 3 family of products, I&C North America Power Grid, North America and also Europe, to a certain extent. And transmission is what has driven the 60-meter increase in 2025 guidance upgrade. Uma Samlin: Yes, super helpful. My second question is a slightly more longer term. Is that -- how should we think about the sustainability of the tariff benefit that you're seeing now? Do you expect to see further consolidation of the market? And what kind of long-term pricing benefit do you expect there? Massimo Battaini: It is a million-dollar question because we've never been in a situation like this where finally the U.S. market is -- that's historically been super protected against importers will be even further protected. So give us a couple of quarters to really assess what the situation would be. I think that things went in the way we think that we go, there will be significant reduction on the imports of cable in U.S. in favorable of local producers. As said before, we have capacity available to respond to the sharp market demand. And we have a CapEx and capital allocation available to be released to support the organic growth of the market in U.S. As we've done in the past, we'll do in the future, the market becomes more solid, more protected in the end of a few players. It's already kind of highly consolidated. And we made the last moving consolidation with the acquisition of Encore Wire. Operator: We will now take the next question from the line of Nabil Najeeb from Deutsche Bank. Nabil Najeeb: My first question is on data centers. Your direct sales into data centers have, of course, been very strong. And I think you previously said that you're on track to double data center-related revenues. Can you give us a sense of how you might look at the overall opportunity within data centers? I wonder if you've got any thoughts on the share of data center CapEx, you can maybe capture across low and medium voltage cables as well as fiber and connectivity. And the second question is on the New York listing. Do you have any updates on your plans there? I think earlier, you wanted to focus on the integration of Encore and Channell, which seems to be well underway. There were also some headlines that pressed on a potential revival of these plans. So just wondering if you can comment on that. Massimo Battaini: So data center, we've seen a significant growth in '25 or '24. We think that growth will continue. We have a visibility of long pipelines of projects and we become stronger and stronger, as time goes by because we add the innovative solution to our product range that can really benefit the data center. In the optical space, they require high-density cables with very compact standard diameter. And we just -- we cannot announce it today, but we have a breakthrough that we disclose to the market shortly in terms of size of fiber for compact cables for data centers. So we will be really benefiting from data center expansion. I think the growth, per se, will probably slow down because this year, we've seen a 150% growth over last year. So the pace of growth will probably slow down, but it still remaining -- this will still remain an important driver of EBITDA expansion and EBITDA margin increase in U.S., for sure, massively and also in other regions. U.S. listing is not an abandoned project. It's something that we parked for a few -- for the moment. I think you are correct. The integration of Encore is proceeding well. The Channell integration is also proceeding well. We will reopen the discussion in 2026. The project is extremely valuable to us. It will give more -- it will give us access to this company to many U.S.-based investors. So it is a priority for us. At the moment, we made the proper decision. Operator: We will now take the next question from the line of Chris Leonard from UBS. Christopher Leonard: Yes, hopefully you can hear me. Just digging in maybe on the margin differential again between North America and Europe. And I wonder Electrification division for Q3 if weakness in Europe was dragging margins down? And could you maybe speak to the potential for you to bridge the gap in the future and grow European margins? And is there anything in your strategy you're looking at to try and improve that? And maybe is M&A into '26 or '27 an avenue that you would pursue within Europe? Massimo Battaini: Yes. You're right, there is a significant difference in and between North America and Europe. Why in other regions, for example, a time a similar margin to U.S. So -- but Europe is not one margin fits all. It's a strong margin in the Nordics, weaker margin in the South Europe. Now how to bridge this gap? We are trying to implement similar mindset as the one we have in Encore Wire, also in Europe. So to leverage -- or to value the service more than the other part of the factory. So to make sure that we become more appreciated by customer for the short-term lead time, for the short-term service than anything else. Differentiation in sustainability and innovation in this space is also important. We have guide to cover, and we are really working across all drivers -- fixed cost organization, factoring footprint and possibly consolidation of the market in Europe to bridge this gap. Bear in mind, there is a structural difference between the fragmentation of the U.S. market, which is minimum and the fragmentation of the European market, which is extremely large, both on customer side and supply side. But we are working hard to reduce and minimize as possible as we get. Hope I answered your question, Chris. Operator: We will now take the next question from the line of Akash Gupta from JPMorgan. Akash Gupta: I got a couple as well. The first one is the clarification on your remarks earlier. I think you said that Encore had all-time high margins. And clarification, is this all-time high since you acquired or in their history? And given question -- given in 2022, they made more than 30% EBITDA margin. So just wondering if you can provide some context to these record margins at Encore? Massimo Battaini: Thank you, Akash. There is an important clarification of cash. Yes, you're right. This is not the all time ever. It's no time not since we acquired, it's no time since the level of EBITDA margin at Encore normalized, level of margin at Encore normalized after the spike in '22 and '23 towards the end of 2023. And since then, so let's say, quarter 4 '23 onwards, we had this kind of a stable EBITDA margin of 15% with some peaks and troughs, especially in 2025. So the EBITDA margin highest ever mentioned quarter 3 is the highest since quarter 4, 2023. Akash Gupta: And my second question is on your guidance range. I think if you recall last year, you had a bit of softness towards end of the year in Electrification because of some weaker volumes in end of the year, which also continued in early this year as well. So just wanted to understand the framework behind the guidance range that have you incorporated a similar scenario as well for this year? And maybe if you can also talk about what will take you to the upper end of the range and what will need to happen to come at the bottom end? Massimo Battaini: Yes. Thank you, Akash. So yes, you're right. Last year, we had a soft volume performance in November, December due to seasonality, but also due to some shortage in demand. October started very strong in volume. And we have visibility of a part of November. Don't forget that this is a very short-term business. We have weighted the month and we gained the orders of the month through the month itself. But prospect is positive, probably volume in October is the first reflection of some slowdown in cable imports, so that there is more demand for local producer. Volume is positive. We think that quarter 4 this year will also be extremely satisfactory versus quarter 4 last year. And so this expectation for quarter 4 I&C has played an important role in the guidance of a grid, but also the performance of Power Grid that at the global level, was in the quarter, 14% organic growth, by North America much more. And the growth we expect to see from North America in quarter 4 is in line with what we've seen in quarter 3. So also Power Grid U.S. has played its important role in convincing us to upgrade the guidance to a midpoint '24. And we think we will end up around the midpoint. So to be in the top part of the range we have to think of something that we don't think is realistic. So an extremely important shift change in the market to a local producer, importers decided to work away pricing going to a different level. So a scenario that we don't see realistic. So the tariff will play an important role benefiting us, but this will gradually kick in, in the market. So I don't see this spike possibly happening in quarter 4. Gradually, we will gain, as I said before, more share of wallet, more relevance and the importers will be neglected. They will be really considered the last resort also because they won't have the only leverage that they had in the past to enter the market, the price. The price will go because the cost they have to bear is immense. So this is how I see how we drafted the guidance and how I see we will end up vis-a-vis the different business movement. Operator: We will now take the next question from the line of Alessandro Tortora from Mediobanca. Alessandro Tortora: I have 3 questions, okay. The first 1 is on the Channell performance on a stand-alone basis. If you can comment a little bit on the organic performance of the company, but also the underlying profitability? This is the first question. The second 1 relates to the around EUR 3 billion net debt indication I got in the conference call. So if you can help understand the underlying assumption on CapEx and also, if you are assuming, let's say, significant advance payment in the last part, I may recall to the [indiscernible]? And then the last question is on the -- let's say, sorry, I don't recall lately, but if you can also give me some ideas on the tax rate level for this year because it was let's say, low in the 9 months and also on the level of financial charges. Massimo Battaini: Channell benefits from the strong rebound of the telecom market. The Channell performance in quarter 3, 2025 is well ahead over quarter 3, 2024 as also North America, our performance in optical cable business, '25 is ahead of that of last year. The market has rebounded. So Channell benefited from organic growth -- benefited organic growth upside, but also profitability side, the level of EBITDA that used to be in the range of 40% in 2024 has risen to a more solid 43%, 44% for quarter 2 this year. So we had this twofold the benefit coming from Channell, which, again, given the strong demand of optical business, U.S. supported by use cases like data center and fiber-to-the-home, we believe that it's going to be sustainable in the coming years. I will hand over to Francesco for the NFP, and tax rate question. Pier Facchini: Yes. The assumptions are pretty simple on the EUR 3 billion debt. First of all, let me highlight that the EUR 3 billion debt, of course, assumes -- is based on the treatment of the hybrid bond as equity, just to be very clear on that point, which is according to IFRS. So nothing new, but better to clarify. The assumption is that we are in the midpoint of the guidance of the free cash flow that Massimo highlighted. And of course, in this assumption, there is the down payment of AGL 4, no doubt. By the way, I commented that the reason why we are confident to recover the level of the free cash flow on a full year basis after the drop down to EUR 859 million last 12 months, September is exactly a very strong cash generation of Transmission business, which is more skewed on the fourth quarter than compared to last year. Nothing else on the extraordinary transactions which has been completed. And so this will not impact -- will not have a different impact from the one that you see in September. You are right. The tax rate is very low. The reason why it's very low is a technical reason, I would say, an accounting reason, which once again has to do with the disposal of YOFC, basically, the big gain of EUR 350 million has a pretty low level of taxation. And so I expect this to be stable also in the full year around 22%. It's a good point that you make because it's not certainly our sustainable long-term rate, it would be too naive to be true, Yuri. I go back to the indication that I gave at the Capital Market Day where our sustainable tax rate is more in the -- between 25% and 27%, I would say. And the financial charges are reflecting, obviously, the acquisition than in the past. The new financing are progressing quite steadily at EUR 70 million, EUR 70-something million a quarter. So an easy projection is in the region of EUR 285 million, let me say, between EUR 280 million to EUR 290 million for full year versus the EUR 216 million year-to-date September. Operator: We will now take the final question from the line of Xin Wang from Barclays. Xin Wang: I'm not sure if I'm the only one confused here, but I want to clarify one thing. So on the tariff impact, I think you explained how the aluminum tariff works, which is in July, it's applied to metals, not to cable. Therefore, you saw cost pressure in July. And then by 16 or 18th of August, is expanded to cables and you saw the best margin of Encore. And then you said we expect the same logic to apply to copper. Does this mean that we haven't really seen the tailwind from the copper side this quarter yet? And do you expect this to come in the coming quarters, please? Massimo Battaini: Yes, you are totally correct. The 232 section tariffs applied to metal has been expanded to import cables as far as aluminum cables is concerned from 18th of August, and our interaction with the administration suggests the same logic will apply to copper. This will probably take another quarter to be implemented. So we expect this to happen from somewhere in quarter 1, 2026 onwards. Then, of course, the copper space is not that relevant as aluminum space. So 80% of the aluminum I&C market is in the hand of importers. In terms of copper wire market, they are barely importing copper cable in U.S. in electrification, in I&C, but there are cable imported into the U.S., copper made in middle-market space and by distribution in HVAC. So we will not see a significant benefit of the total tariffs applied to import cables in I&C space, we will see some benefit in Power Grid and high-voltage should this approach be implemented at some point in the coming months. I hope I clarified the difference between the 2 family of products, aluminum and copper. Xin Wang: Yes. No, the first part is very clear. The second part, I just want to clarify, this is what I heard. Potentially, when we look at the benefit from copper and aluminum tariffs being on the I&C front or the Power Grid or Transmission front, you expect aluminum imports to be a more structural benefit that takes some time to flow through. Obviously, part of that is because aluminum import penetration is higher than copper and also is less exposed to the spot market. Massimo Battaini: Yes, correct. So the aluminum space -- I mean, aluminum cables are lighter than the copper cable. That is why U.S. is importing as other regions are importing more aluminum cable than copper cables. The aluminum space is inside the electrification space and that's the construction. The aluminum cables are also inside the Power Grid. For example, overhead lines are mostly made of aluminum conductors. And so a chunk of our transmission business that we own in U.S. compete head-to-head with importers bringing overhead transmission line from India, from China and other countries. And now also these importers that entered into the Power Grid space through overhead transmission line will feel the extra cost of the 50% tariff applied to metal content. And the conductor lines is only made of conductor, not insulation. So there are other benefits to come through. But again, I really suggested to pause a bit on tariff, it's not too big of a deal. We just had finally settlements in aluminum that will be copy pasted by copper approach in the next months, we will really need a few months to gauge the entire benefit. But be aware that we are really structurally poised to benefit from it. We have capacity available. We have a larger engagement with all major distributors and utilities in the U.S. So we have a strong connection with all customers. So we will be the beneficiary of the tariffs in a way or the other. And this is already starting to open in August and September for the I&C space, and this will carry on in the future. Xin Wang: It is very clear. We can totally afford to be a little bit more patient. My last question is on the high-density fiber cable and system. You talked about the opportunity out there because your peer Corning obviously is also talking about the same thing. I know you have made a technical breakthrough. But you -- but do you -- can you already share some thoughts on if there is any customer dialogue starting already? Or how do you think about the investment that is required out there? And on top of this, I think you made progress with Channell acquisition, but you previously also said you intend to grow -- to expand the portfolio offering on Digital Solutions. Do you have any progress to share, please? Massimo Battaini: So we keep working on innovation and Corning does the same, of course. So we have extremely -- we think that we have at least two breakthrough vis-a-vis Corning, but please don't make me share what we think of the other competitors. We have strong effort in innovating in fiber making very thin fiber solution and very compact cable solution. We're working on the local fiber, which is a new generation of fiber to increase speed of transmission of data, which is key for data center rollout. And we're working on very super compact cables that is also key for data center because there are little spaces in ducts, and they want to squeeze as many fiber as possible in the short space. So innovation is our key driver of profitability and volume and share enhancement in Digital Solutions space. You mentioned also Channell. Channell give us a range of products in connectivity and is completely complementary to that we are in Europe. And so now we will do a cross-selling. We would like to use the Channell product and sell them in European market using our go-to-market channels and do the opposite, the complementary use in our European portfolio connectivity and bring it to U.S. benefiting from the Channell to the market that Channell has. So the go-to-market Channell, Channell is go-to-market that this company we acquired has, which we didn't have before. So cross-selling our connectivity ranges, European one in U.S. and U.S. one in Europe is what we expect to deliver to our EBITDA in the coming quarters. Operator: We will now take the next question from the line of Luigi De Bellis from Equita SIM. Luigi De Bellis: Just one quick question for me. Could you share your current strategic view on the submarine telecom business? So are there any plans to renew the interest in expanding or investing in this area, considering market trend or potential synergies, if any, with your existing transmission and telecom activities, but also different business model, if I'm not wrong, so if you can share some view, please? Massimo Battaini: Let me share what I can because talking about strategy -- strategic decision, I cannot share much. We have a business inside the Transmission space, that is a telecom submarine. We are a small player because we can only play in regional connections, so short length, submarine telecom connection. We noticed that the market has certainly increased a lot in size because the data center expansion plays a significant role in expanding the market between -- especially in terms of long-haul submarine telecom interconnects, so planting interconnects between U.S., Europe and so on. Some players, the key players in the market have neglected the regional space. So we are thinking of expanding our presence in our portfolio in the regional, so short distance, midsized, short distance submarine telecom connection through organic moves and additional investments. I have to stop here. But we want to make this another opportunity for supporting transmission growth with another stream of revenues, more solid and more growing than what we are currently in our portfolio. I hope I gave you the sense of the strategic direction without giving too many details. Operator: There are no further questions at this time. I would like to hand back over to Massimo Battaini for closing remarks. Massimo Battaini: So thank you for your time and for your attention. We really want to give the sense of what's happening, a strong quarter and by more than some quarter a good selling for quarter 4 and what we think is going to turn out for us an opportunity in terms of Channell, organic growth, transmission growth in the coming quarters. So thank you very much for your time, and talk to you soon. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Jens Montanana: Good morning, and welcome to our FY '26 interim first half results. As per our usual format, I'll be providing a summary followed by the CFO's presentation on the financial results and then followed by my operational review of the divisions and finally, the concluding slides. Our results summary. Slide 4. We had an exceptionally strong H1 performance. All the group's divisions delivered strong year-over-year increases with higher profits, better margins and good working capital management. These results translated into a staircase of improvement down the P&L with strong operational leverage. Gross sales grew by 9%, gross profit close to 12%, adjusted EBITDA by 22% and underlying earnings per share jumped by 43%. The strong profit improvement and enhanced dividend payout ratio from last year led to a significant increase in our interim dividend, up from USD 0.043 to USD 0.10, an increase of 133%. As seen with the reporting of many tech companies, an AI-led generational upgrade to more advanced computing is beginning. It is hard to predict how long this will take or what impact it will have. But if is like previous technology cycles, it will be evolutionary and take time to mature. The ubiquity of AI will eventually augment all uses of technology and will drive faster networking, distributed data centers, more local computing and increased cyber threats. If we can continue to adapt and operate in the right areas of our industry, then the future is very bright for all our businesses. The profitable progress across our divisions is well anchored and the fundamentals are strong and sustainable. A remarkable transformation in our business mix. Not so many years ago, the vast majority of what we sold was mainly hardware with attached services driving just over 10% of the total sales. Today, that ratio has completely turned around with over 70% of our total sales or gross invoice income derived from software and services, while the vast majority of that is also recurring. As the businesses grow in a predictable way, so do the margins and profits as the leverage rises. We believe we are very well placed to continue to ride the core technology trends that we have long been associated with. I will hand over now to Ivan to go through the financial section. Ivan Dittrich: Thank you, Jens, and good morning, everyone. We are very happy to present another set of excellent results with continued strong operational execution. As we indicated in our trading update issued earlier this month, with effect from this financial year, we have changed the definition of underlying earnings per share to further align to our adjusted EBITDA definition and to also align with peer reporting. Underlying earnings per share now exclude IFRS 2 or share-based payment charges. The comparatives have accordingly been recalculated. Slide 8, the P&L. Revenues continue to be impacted by an increasing portion of software and services being accounted for on a net basis, including as a result of the accounting policy change in Westcon in the prior year. Revenue from sales arrangements where the company acts as an agent is accounted for on a net basis and the commission or gross profit earned on the transaction is recognized as revenue. Where the company acts as a principal in the transaction, the revenue is recognized on a gross basis. To get a sense of the real growth in the business, we therefore now show gross invoiced income or gross sales, which is not an IFRS term. Gross invoiced income grew by 9.4%, but more importantly, absolute gross profit grew by 11.7%. We had strong operating leverage with adjusted EBITDA growing by 22%. Reported EBITDA grew by 36% and included $15 million of settled tax litigation credits in Westcon, which are excluded from adjusted EBITDA. Finance costs were significantly lower than the prior year due to lower rates and efficient working capital management. Our quality of earnings down the P&L continued to improve. Our PBT or profit before tax increased by 92% with an increase of 43% in underlying earnings per share and HEPS more than doubled. Slide 9 shows the segmental income statement. This shows very pleasing improvements in gross profit to EBITDA conversion ratios in both the Logicalis businesses with a steady state in Westcon. All 3 divisions had solid operational execution during the period. Slide 10. The geographic mix of our businesses has remained relatively stable year-on-year with Europe representing about half of the group. We have once again seen an increased contribution from Asia Pacific. Fundamentally, our business involves selling U.S. technology complemented by local services. Over 90% of our business is outside the U.S. Slide 11. Software and services continued to grow, driven by growth in annuity business. This analysis is presented on a gross invoiced income basis. Slide 12, the group balance sheet. The balance sheet remains strong. Net debt reduced significantly from the first half last year, driven by tight working capital management with large reductions, especially in the 2 Logicalis businesses. Equity reduced due to a $73 million debit cash flow hedge reserve in Westcon. This resulted from Westcon's hedge accounting program and is due to the much weaker U.S. dollar prevailing during the first half. Slide 13 shows the divisional balance sheet and all the divisions have healthy balance sheets with strong liquidity. Slide 14, the cash flow statement. Despite the high growth during the period and resulting increased working capital requirements, especially in Westcon, operating cash generation improved over the prior year. Cash interest payments reduced, and we saw an increase in cash and cash equivalents compared to the prior year's first half. We have declared an interim dividend of USD 0.10 in line with our dividend policy. I will now hand over to Jens to cover the remainder of the presentation. Jens Montanana: Thank you, Ivan. Starting with the Westcon International division, Slide 17. All regions had robust sales growth. Demand for cybersecurity continues to climb in a continually increasing threat landscape environment. The strong financial performance and working capital management is delivering good cash upstreaming to the parent. Operational execution remains excellent, and the levels of service to customers and employee satisfaction are very high. The company has been certified in 27 countries by the Great Place to Work organization. Gross invoiced income or total sales grew by close to 10%. This healthy improvement came with continuing faster growth from recurring revenues, which grew by over 17%. The trend of growing recurring sales continues as hardware as a percentage of the total sales is now below 30%. Illustrating this point is the greater proportion of software in the mix. This shows that while gross invoiced income continues to rise, so does the element of net accounting. There was healthy volume growth in all regions reflected by growth invoiced income, while reported revenues remained similar. Asia Pacific and the Middle East and Africa had the highest growth rates. Gross invoiced income analysis. Both business units grew. The C store Cisco segment grew by 2%, while other technology sales from mainly cybersecurity vendors represented by the Westcon brand grew by 14%. The main customer base of SMB value-added resellers remains the majority of the business and has been very constant. There was an increase in sales to large global major telco service providers. All technology categories grew in absolute terms, but cybersecurity continues to grow the fastest and now drives more than half of the total sales. The cybersecurity category grew by 16% year-over-year. Software and services now represents over 60% of the mix and hardware less than 30%. This is a significant change to the segment sales mix and a complete reversal from a few years ago. Gross profit. Gross profit grew by 14%, significantly more than the increase in gross invoice income. This was almost entirely due to the release of various tax claim provisions that had been held previously. Adjusted EBITDA, this represents the true underlying trading picture and grew by 7.3%. In the early part of H1, there was a fairly abrupt weakening of the dollar. On a translated basis, this raised the U.S. dollar stated fixed cost base, especially in Europe, where all the costs are in euros and pounds. The impact of this was offset by good EBITDA growth in Asia Pacific and the Middle East. Europe continues to drive the majority of the total EBITDA. Reported EBITDA was boosted by the unwinding of previously accumulated tax provisions. The company has always taken a conservative approach in this regard and creates a buffer for potential tax claims, if likely. EBITDA increased by $20 million or almost 30% overall to $90 million. Working capital management. Overall, net working capital days fell slightly since year-end, but more significantly compared to the prior half year. Payables outstanding and payables days rose, driven by the strong top line growth and longer managed creditors arrangements. This flexibility helps drive business opportunities and reduces the working capital. Debt cycle. The working capital movements are represented graphically in this monthly chart, which shows the last 3 years of debt cycles. Debt falls at the end of financial quarters and especially at the half and full year-end, but then rises in between these periods with January being the peak. The plotted average of this over the past 3 years has been net debt of approximately $260 million. The environment remains robust with the business locked on to multiple positive themes across all its markets. Many technology areas are being fueled by accelerated AI demand. Cybersecurity remains one of the fastest-growing segments, while a new generation of networks is evolving to provide connectivity to vast hyperscaler communities. While there may be challenges to global trade from tariff imbalances and supply chain lead times, this appears to be a little consequence to technology demand, which remains very vibrant. Moving on to the Logicalis segment. And firstly, Logicalis International, Slide 30. Good top line and revenue growth. There was a strong order book with good momentum with multiyear contracts. Growth in higher-margin recurring sales and much better profitability, cash conversion and reducing debt. Overall, the leverage in the business model is coming through. Gross invoiced income. There was strong growth in gross invoiced income as total sales grew by over $100 million or 11%. As a percentage of the total sales value, the recurring element is now over 60% of the total. The increases in gross invoiced income and reported revenues were spread across all regions. Europe and the U.S. are similar in size. However, the U.S. has a greater net accounted software and vendor resold maintenance proportion. This explains the delta to reported revenue. Cloud-delivered and hybrid solutions requiring managed services were the fastest-growing segments. The segmental analysis at the top line shows all service types combined are now over 70% of the mix and annuity managed services forms approximately half of that. Managed services grew by 17% to become 35% of the total mix and cloud-derived sales grew 17% to represent close to 1/4 of the gross invoice income. Gross profit. The gross profit percentage increase was slightly higher than the rise in gross invoiced income, resulting in another uptick in gross margins to close to 30%. These best-in-class margins reflect the multiyear transition from what was mainly a product supply business to now a technology and managed services provider. Adjusted EBITDA. The expanding margin dynamic, coupled with controlled operating expenses drove a big jump in adjusted EBITDA of 36%. We are approaching the high end of the EBITDA margin zone targets we set out a few years ago, and we are now targeting gross profit to adjusted EBITDA conversion of over 30% from the 29% today. Reported EBITDA mirrored adjusted EBITDA rising 37%. All regions had strong growth with the U.S. driving the largest contribution of around 50% of the EBITDA mix. EBITDA margins still have the potential to go higher as previous loss-making or low-profit countries such as the U.K. and South Africa are performing better now and with much improved profit trajectories. Inventory is structurally lower, driven mainly by less hardware and more software in the mix. Strong sales growth in the period increased accounts payable. Good collections on the debtor side kept accounts receivable at a constant level. The overall cash generation was strong, leading to a big drop in net debt to $24.9 million. Cybersecurity is becoming an increasingly important area of focus and growth opportunity. The path of networking is increasingly interwoven with cybersecurity, for example, Cisco's recent purchase of Splunk and Palo Alto's acquisition of CyberArk just illustrate how these major technology areas are overlapping. AI will fuel more of this and is also driving a resurgence in enterprise computing with many more hybrid cloud solutions being adopted. All of this is driving more software and services. Lastly, Logicalis Latin America, Slide 40. Finally, a positive pivot for the business after a few years of poor performance and necessary reorganization. Areas of concern remain such as Mexico. Overall, the region has done better with Brazil, the largest market leading the way and with recent improvements also in Argentina and Chile. Better gross margins, lower operating expenses and improved cash generation resulted in a much better quality of EBITDA and profits. Gross invoiced income. Gross invoiced income was flat year-over-year. However, within that, the recurring element grew by 20% and is approaching half of the total sales value. This shift has occurred with a growing and more diverse customer base and with an increase in multiyear managed services contracts. The region of NOLA, Northern Latin America was poor, mainly dragged down by Mexico and Colombia. Tariff uncertainties and execution issues have been more impactful in that region. Brazil and Southern Latin America, SOLA performed much better and combined were almost 90% of the total revenue. The growth in reported revenues came from the increased annuity managed services contracts, which are gross reported. Managed annuity services have risen faster than anything else and are a reflection of more longer duration contracts. Overall, hardware and software sales remains pretty similar. There was good growth in the small but growing cloud segment. Gross profit. The quality of gross profit improved mainly from Brazil to $51 million in total. The gross margin percentage ticked up slightly from 22% to 23%. Adjusted EBITDA, a very pleasing result down the P&L. Adjusted EBITDA doubled to $12 million, a meaningful bounce back from the past 2 years' poor performance. The combination of better gross margins and lower operating expenses provided the leverage. Reported EBITDA. At a reported level, EBITDA also rose to $12 million. The prior year's base was slightly higher due to the inclusion of positive tax items. Working capital management. The more diversified business model has grown the number of enterprise customers and is less reliant on large telco clients. The result is a better balance of diversified receivables with less lumpy revenue streams. The working capital management was excellent and led to a modest positive net cash position at the half year-end close. Overall, a very pleasing set of results. Many things are getting better, but a lot still has to be done. The focus on diversifying the business is starting to work with better margins, longer-term contracts and improving cash flows. Mexico needs to recover and attention is being focused there. We have confidence that the overall execution will continue to improve. Additions to the executive team are having a positive impact. And finally, just moving on to some closing remarks. To summarize, we expect the robustness of the first half to contribute well to the full year. We seasonally have a stronger performance in the second half. The AI momentum underpinning the rebuild and upgrades for technology infrastructure is no longer just focused on hyperscalers, but increasingly moving to enterprises and most businesses. We remain focused on maximizing the value to shareholders and for the benefit of all our stakeholders. Thank you very much, and I'll hand over now to any questions. Sharne Prozesky: We've got our first question from Katherine Thompson from Edison. You mentioned better GP to EBITDA conversion in Logicalis International. Could you summarize the target for each division or group for this metric? Jens Montanana: Yes. Okay, I can take that. I mean, obviously, we operate in a universe of other publicly traded comparables. So this is not necessarily just a benchmarking for our AM driven from our own extrapolations. And we think to get to the right balance between growth, EBITDA conversion and absolute EBITDA dollars that these ratios should be in the low 30s, in the low to mid-30s. They're slightly higher in the distribution business, where the operations are less people intensive and in Logicalis and the broader IT services universe, best-in-class competitors are generally around 30% or mid-30s. And by the way, on that point, the gross profit to EBITDA conversion, it's become -- it's always been an area of focus, but it's something we report on because obviously, the changing top line with the way that we IFRS revenue... Ivan Dittrich: And the way that we report revenue and with sort of more revenues being net account and net accounted, your EBITDA margin becomes less and less relevant, and it's more sort of the absolute gross profit that you generate, i.e., the dollars you bring in the door and then how much of that converts into EBITDA, which demonstrates the operating leverage. Sharne Prozesky: We have next -- another follow-up question from Katherine Thompson. Could you give a bit more detail on the Logicalis International multiyear contracts, verticals, geo and type of business? Jens Montanana: The -- well, we have managed service contracts. There's no -- they're not geographic. They're spread -- this trend towards more managed services in Logicalis is not country specific. So it's most probably similar in most regions. There is a slight difference in the amount of software that's sold in some regions versus other regions. And in the U.S., for example, there's a higher mix of vendor resell maintenance. So you see the difference between gross invoice income or, let's call it, top line sales and reported revenues, that difference is greater in the U.S. than in other markets. But other than that, there's not -- there are not any particular sectorial or geo reasons for managed services growth. It's really more. The driving factor is customers are increasingly looking towards their IT provider to provide them with both infrastructure and the service of that infrastructure on an ongoing basis of OpEx versus CapEx. That's the big driver. Sharne Prozesky: Next question from Ruan Koch, Coronation Fund Managers. Do you expect further improvements in the working capital cycle across any of the segments as mix changes? What impact will that have on your free cash flow generation? Ivan Dittrich: Yes. So Ruan, I think the sort of the most important thing here is sort of with the move towards more software, you will have less inventory, less physical inventory. So that clearly sort of has some working capital benefits, especially in the Westcon business, which is our most working capital-intensive business. That said, as a distribution business and a channel intermediary, Westcon is still a major credit provider in that supply chain. And typically, with the distribution business, when the business grows strongly, you typically have sort of large cash outflows as you invest in your working capital. But I would say, in general, the quality of our working capital management has improved significantly compared to previous years. It's a lot more efficient. And you can also see that from looking at the operating cash flows that we had during the 6 months period that we're reporting on now because despite the very strong growth, we still had a very decent operating cash performance. In the Logicalis businesses, which are generally less working capital intensive, one would expect that the bulk of your operating cash would essentially -- so the bulk of your operating profits would essentially convert into cash. Sharne Prozesky: Okay. Next question from Mike Steere. Do you expect the increased share of software and services to continue? Or do we eventually see a hardware refresh cycle? Jens Montanana: Yes, good question. Look, there is a hardware refresh. There's 2 sides to this. There's going to continue to be a relentless rise of more software and services in the reported mix. But the reality of the hardware that's being shipped when measured in hardware processing capacity or other physical metric is going up as well. What's changing is the value that's apportioned to the hardware is going down and the value that's apportioned to the software or the intellectual property is going up. So that's changing our invoice value mix, the hardware. And we're seeing -- to be honest, we're seeing a bit of a resurgence in hardware in the numbers that we're reporting, and this is what you hear about all the time in terms of the AI infrastructure boom and so on. That's ongoing, and we think that's going to be a multiyear play from here on in or here on out. Sharne Prozesky: Next question is from Katherine Thompson again. Should we expect your M&A strategy to continue to be focused on small bolt-ons rather than anything more transformative? Jens Montanana: Yes. We haven't done much M&A in any of our main divisions in the last in almost the last 10 years actually. And where we do, do M&A, we look to basically augment our fairly -- our mature businesses normally through skills acquisition or there's an area or domain, the technology domain where we think we can advance faster through M&A versus doing it organically. I must also point out that since our results in good results in May and continuing, we continue to be inundated with bankers and would be investors with inbound inquiries, selling, buying. So it can tell you -- it just tells you the environment at the moment has bounced back quite a bit in terms of M&A activity. And of course, we think that will most probably continue to fuel things going forward. Sharne Prozesky: There are currently no other questions. Jens Montanana: Great. Okay. Well, thank you very much for everyone for attending online here, and we look forward to seeing you or talking to you rather, sorry, at the full year results in May. Thank you very much.
Operator: Good afternoon. My name is Julieanne, and I will be your conference operator today. At this time, I would like to welcome everyone to Reddit's Q3 2025 Earnings Call. [Operator Instructions] I would now like to turn the call over to Jesse Rose, Head of Investor Relations. You may begin your conference. Jesse Rose: Hi, everyone. Welcome to Reddit's Third Quarter 2025 Earnings Call. Joining me are Steve Huffman, Reddit's Co-Founder and CEO; Jen Wong, Reddit's COO; and Drew Vollero, Reddit's CFO. I'd like to remind you that our remarks today will include forward-looking statements, and actual results may vary. Information concerning risks and other factors that could cause these results to vary is included in our SEC filings. These forward-looking statements represent our outlook only as of the date of this call, and we undertake no obligation to update any forward-looking statements. During this call, we will discuss both GAAP and non-GAAP financials. Reconciliation of GAAP to non-GAAP financials can be found in our letter to shareholders. Our third quarter letter to shareholders and earnings press release are available on our Investor Relations website and Investor Relations subreddit. And now I'll turn the call over to Steve. Steven Huffman: Thanks, Jesse. Hi, everyone. Thank you for joining our earnings call. Q3 was a strong quarter for Reddit with differentiated results and solid execution across product, growth and revenue. We ended the quarter with 116 million DAUq and 444 million WAUq, both growing around 20% year-over-year. We're especially encouraged by the mix of growth with organic product-led improvements and successful marketing both playing a role. This balance is working, and we're focused on replicating it across markets. Revenue came in at $585 million, up 68% year-over-year, and our financial model is scaling very well. We continue to be GAAP profitable with a net income of $163 million and a net margin of 28%, an improvement of $133 million from last year. This quarter, we achieved a targeted adjusted EBITDA margin of 40%, which was a profitability goal we set at our IPO just last year. Today, Reddit is the #3 most visited site in the U.S. per Semrush, October 2025. That puts us in a rare company. YouTube is #2 and Amazon is #4 and reflects how Reddit is where people start, not just where they end up. People come here to find trusted perspectives to participate in communities that share their interests, no matter how niche or mainstream, and increasingly to engage directly with brands, institutions and publishers. In September, we launched new Reddit Pro tools tailored for publishers. Early adopters like the Associated Press can now sync their feeds, automatically import articles, track how their stories are shared and use AI-powered tools to find the right communities. Our consumer product strategy continues to focus on making Reddit easier to use and more rewarding from day 1, so casual users become daily users. They're already coming to Reddit. Now it's on us to make the experience worth coming back for by being more relevant and intuitive. To that end, we're making real progress across the 3 main focus areas we shared last quarter: core product, search and internationalization. Let's start with the core product. We're redesigning the Reddit experience with a more modern search-forward interface and streamlining onboarding so it's easier for new users to find what they're looking for with a dynamic personalized home feed. We're also helping more people contribute to their favorite communities by using AI to interpret subreddit rules and surface post insights. On the moderation side, we're investing in tools that help mods grow and strengthen their communities. These tools are now live in over 3,000 communities, which are seeing 30% more active moderators on average. Moderators aren't just enforcing rules. They're shaping culture, building communities and helping Reddit thrive. Our job is to give them the tools to do it more efficiently. Next, search. Search is one of our biggest opportunities because Reddit conversations are uniquely authentic, contextual and helpful. This is why we're investing in making Reddit a true search destination. In Q3, over 75 million people searched on Reddit weekly, and that number continues to rise. Reddit Answers provides users with curated community-powered insights that are often more helpful than traditional web results. We started integrating Reddit Answers into core search, increasing its visibility across conversations and rolling out to non-English languages. Our aim is to have a single great search experience on Reddit. And third, internationalization. Our international growth continues to accelerate. Machine translation is available in 30 languages, and it's a major driver of top-of-funnel growth outside the U.S. We've built a local content framework to identify top interests in each country, which we use to guide partnerships, content and marketing. This approach worked well in India, and now we're applying it in Australia, Brazil, Germany and France. We're focused on finishing the year strong and putting our strategy for 2026 in motion. Looking ahead, our biggest priorities are: growing app users by improving the experience and therefore retention; broadening the types of users and communities that call Reddit Home, both in the U.S. and globally; increasing top-of-funnel growth by diversifying the sources of traffic, including organic, paid and publisher-driven; and, of course, scaling monetization and ad formats for our users and partners. Reddit is in a unique position. We're not trying to be the next anything. We're focused on being the best version of ourselves and what the Internet needs most, a place where people can connect on almost any topic and find genuinely useful information because no matter what you're going through, someone on Reddit has already been there, done that and shared the story. Thank you for being a part of this journey. I'll now hand it over to Jen to walk through the business in more detail. Jennifer Wong: Thanks, Steve. Good afternoon, everyone. I'd like to start by building on what Steve mentioned about our consumer product strategy. We're excited about the opportunity to meaningfully grow our user base, both in the U.S. and internationally. And as we refine our strategies, our consumer product road map is focusing more intently on the Reddit app. This is where we can build direct, high-engagement relationships, which are most valuable to both our users and our business. The app can be more personalized, have easier onboarding and incorporate search more consistently. These kinds of changes can impact user retention, increase returns on marketing and help us better convert web users into the app. We're also working on expanding our users, communities and contribution across Reddit. We recently introduced tools focused specifically on publishers to help them share content and engage organically on Reddit through Reddit Pro. Now moving to monetization. In the third quarter, we demonstrated continued growth and strong execution with total revenue reaching $585 million, up 68% year-over-year. Our unique proposition and ad platform improvements delivered differentiated growth and positive outcomes for advertisers. The advertising business grew 74% year-over-year in Q3, reaching $549 million, and the growth was driven by broad-based strength across the business as we continue to expand existing relationships, acquire new customers and diversify our advertiser base. The total active advertiser count expanded by over 75% year-over-year in Q3 as we added new accounts across all channels, including large mid-market and SMB businesses. Now moving to our ad stack. Our strategy is focused on making all businesses successful on Reddit by driving performance of our ad solutions, improving usability for users and productivity for our sales force and offering our advertisers and partners Reddit-unique solutions and ad formats. We made meaningful progress against each of these areas in Q3. First, ongoing investments in our ad models and formats are driving greater performance and efficiency, which means better returns for advertisers. In Q3, we continued to optimize our models for lower-funnel objectives, including app installs and conversions. Model improvements to our lower-funnel app ads objective generated double-digit percentage improvements to performance outcomes and ML-driven optimizations in the lower-funnel conversion objective improved performance by over 20%. We continue to enhance our shopping solution, Dynamic Product Ads, or DPA, which launched to general availability earlier this year. We're excited by the capability and seeing ongoing improvements to performance beyond the core conversion objective. DPAs currently account for a small portion of our total lower-funnel revenue. Broader advertiser adoption remains an opportunity and as it takes a little more time and resources for clients to implement this more complex ad product. To strengthen our lower-funnel strategy, we continue to make it easier for businesses of all sizes to adopt our measurement tools, including Pixel and conversion API or CAPI. In Q3, CAPI-covered conversion revenue tripled year-over-year. Second, improving usability for advertisers and productivity for our sales force. We're investing in automation across our full ad stack to help drive adoption of our ad tools and improve performance for advertisers. For the upper funnel, we launched the beta of auto bidding, which simplifies budget management and improves efficiency, leading to over 15% more impressions and lower pricing for advertisers. In the middle and lower funnel, auto targeting is delivering strong results and adoption is growing over 50% year-over-year. We're also in early testing of our end-to-end automated campaign platform that uses AI to streamline campaign setup. It is focused on activating mid- and lower-funnel objectives and provides customers with insights on what made their campaign successful. Early results are promising with advertisers unlocking higher return on ad spend while spending less time managing campaigns. We're continuing to test the solution with a number of global advertisers across business sizes and verticals and adding new features. Third, building Reddit-unique solutions and ad formats for our advertisers. In the third quarter, we expanded access to conversation summary add-ons, a distinctive ad format that lets brands integrate positive Reddit conversations into ads. We're now testing this format with a broader set of advertisers across the funnel and seeing encouraging results with brands like Bethesda, the mid-market video game publisher, seeing 15% higher click-through rates. We're developing interactive ads built on our developer platform, allowing advertisers to create custom experiences like mini games or quizzes directly within an ad. This format is testing now and the plan -- with plans to scale more broadly next year. Finally, we're seeing momentum with our free-form ad format launched last year, which lets brands tell richer stories through multiple media types in a post that feels native to Reddit. For example, FootJoy used freeform ads to promote their new HyperFlex line of golf shoes, delivering click-through rates 100% above benchmark and time spent more than 50% above benchmark. Overall, Q3 was another strong quarter for Reddit. I'm proud of the progress and the importance -- and the improvements we're delivering for our communities and partners and excited about the opportunities ahead. Now I'll turn the call over to Drew. Andrew Vollero: Thank you, Jen, and good afternoon, everyone. Our solid Q3 results again demonstrated that financial model continues to scale well. And specifically, Reddit can be a leader in both growth and profitability. Total revenues grew 68% year-over-year, and our adjusted EBITDA margin reached 40%, passing that important profitability benchmark for the first time. The key to our financial success is continued traction across our 5 financial strategies. These strategies include: First, achieving differentiated revenue growth. Revenues grew more than 60% for the fifth consecutive quarter. Second, expanding margins. Gross margins expanded 90 basis points year-over-year to 91%, our fifth consecutive quarter of over 90%. Our adjusted EBITDA and net income margins expanded by 1,300 and 1,900 basis points year-over-year, respectively. Third, scaling profitably. GAAP net income reached $163 million and adjusted EBITDA hit $236 million, both new highs for Reddit. Our net income margin was 28%. Our incremental adjusted EBITDA margin hit 60%. Fourth, generating positive cash flow. Q3 cash flow ended at $183 million, and our free cash flow margin for the quarter was 31%. In the last 12 months, we've generated over $0.5 billion of free cash flow. Cash and cash equivalents on the balance sheet continued to build at $2.2 billion. And fifth, minimizing dilution. We continue to view stock-based compensation and dilution as business costs and manage them closely. The progress continues to be evident Total fully diluted shares outstanding were 206.1 million, down from both 206.6 million last quarter and 206.2 million last year. Similarly, stock-based compensation costs fell sequentially, both in dollars and a percent of revenue basis from 19% to 16%. I'll provide a bit more color on these headlines. First, Q3 total revenue of $585 million was driven by our advertising revenue, which grew 74% year-over-year to $549 million as we saw strength across objectives, verticals, geographies and channels. Other revenue, which includes revenue from our data licensing business, reached $36 million, up 7% year-over-year. Average revenue per user, ARPU, grew 41% year-over-year to $5.04, which is still low on an absolute basis and remains an opportunity. Regionally, revenue grew 67% and 74% year-over-year in the U.S. and internationally, respectively. In the quarter, 4 revenue drivers fueled growth. First, performance ads and brand ads had strong quarters, both growing more than 70% year-over-year. Second, impression growth remains our key driver, but we saw a tailwind from pricing in the quarter, a consistent trend so far this year as we continue to deliver value and favorable outcomes for advertisers. Third, we saw strength across the funnel with growth ranging from mid- to high double digits in the upper, middle and lower-funnel segments. And fourth, we continued to see diversified strength by verticals. We had 9 of our top 15 verticals grow revenues by 50% or more. Now moving to expenses. The growth rate in Q3 total adjusted cost was very similar to Q2. Total adjusted costs, which include both cost of revenue and OpEx, were $349 million in Q3, up 37% year-over-year, consistent with a 38% growth last quarter. Our main cost driver continues to be operating expenses, which, on an adjusted basis, were $297 million in Q3, about 85% of total adjusted expenses. Adjusted OpEx costs grew 35% in Q3, the same growth rate as Q2, close to half the growth rate of our revenue, which was 68%. Most of the increase in OpEx costs were driven by our growth investments in sales and marketing. Adjusted sales and marketing expenses were $115 million in Q3, about 20% of revenue, in line with peers. Sales and marketing investments were made in 2 key areas: first, building out our sales team; and second, brand and user marketing. Let me expand on each. First, our sales team investments are primarily adding people resources in customer-facing areas like sales, marketing and ad tech. In the quarter, the company grew total headcount about 3% sequentially, slightly more than 80 net adds with about 70% of the net hires focused in these 3 growth functions. Our investment track record continues to be very strong here with fast paybacks and investment returns multiples higher than the cost. Second, during the quarter, we continued to invest strategically in brand campaigns and user marketing to drive awareness, acquisition and engagement. Our marketing spend was aligned with creative campaigns and targeted specific growth segments. We maintained a balanced approach to investing in brand awareness and performance marketing in both the U.S. and international markets. We remain thoughtful with our Q3 spending, targeting marketing expenses in the low to mid-single digits as a percentage of revenue. We're poised to scale marketing spend where we see the traction is promising. We'll continue to invest in those areas if we see the returns are sustainable. Let me finish up the results discussion by adding a couple of other call-outs for the quarter. In Q3, our CapEx remained modest $2 million, less than 0.5% of revenue, which means both operating and free cash flow continue to move in lockstep. Net income was $163 million or $0.87 per basic share, $0.80 per diluted share, up 4 to 5x from $0.18 and $0.16 last year, respectively. So as we look ahead, we'll share our internal thoughts on revenue and adjusted EBITDA for the fourth quarter, which is where we have the greatest visibility. In the fourth quarter 2025, we estimate revenue in the range of $655 million to $665 million, representing 53% to 55% year-over-year revenue growth with a midpoint of about 54%. Adjusted EBITDA in the range of $275 million to $285 million, representing approximately 78% to 85% year-over-year growth and an adjusted EBITDA margin of 42% at the midpoint. So overall, we accomplished a lot in Q3 and the output metrics of users, revenues and margins reflect that progress. The business model remains quite powerful as we saw impressive revenue growth be converted into 90% gross margins, 60% incremental margins and now 40% adjusted EBITDA margins for the first time. That was a pre-IPO goal for Reddit and an important milepost to pass. That concludes my comments for Q3, and now we turn our attention to the seasonally important fourth quarter. Let me turn the call back over to Steve. Steven Huffman: Thanks, Drew. We'll start, as usual, with a few questions from the RDDT community, and then we'll turn it over to the rest of the call. Question one, I am impressed by the growth in international DAUq, 31% year-over-year. Can you give any detail on which countries in particular stood out for growth? Thanks for the question. We're seeing strength across a number of regions and our focus countries, in particular, France, Brazil and India. And these are some of the first countries where we launched our international playbook, which includes machine translation, which is a good driver of top-of-funnel growth, local content framework based -- a local content framework, which is based on interests and passions, marketing efforts to drive awareness and then finally, local partnerships with brands and notable people. Question two, a question about what we are doing to improve the user experience, making it easier to contribute and helping new users understand subreddit rules. So improving the onboarding experience and delivering value early in the user's journey is a top priority for us. We want them to see in their first session that Reddit is amazing and has content for them. So our goal is to connect users with relevant content very quickly. Community rules are a unique Reddit feature. So every subreddit has rules that is written by its own community and enforced by their own community. But what we're doing is we're using AI to make it easier for those user-written rules or moderator-written rules to be enforced automatically to make moderation more fun and efficient. And so that's coming along. That's out there and working nicely in many cases. And we're supporting the contribution journey, so users posting successfully using AI-powered tools like post guidance and community recommendations to, for example, tell a user before they submit a post, whether or not it violates the community rules, which has historically been a friction point for new users. Okay. Now I'll turn it over to the rest of the call for questions. Operator: [Operator Instructions] Our first question comes from Ron Josey from Citi. Ronald Josey: Steve, I wanted to ask about users and then also on product. And so can you talk to us a little bit more or talk to us a little bit more just about user growth trends here, particularly as we go into 4Q and going forward in the context, I think you said on the call, we're increasing top-of-funnel growth by diversifying traffic. So any insights on, call it, immediate term or near-term trends on traffic and more details on diversifying traffic progress? And then on Answers, now that we're embedded in search results reaching 75 million WAUs, would love to hear engagement trends from those users? Are they more -- are those users who are using Answers more engaged, asking more questions, things along those lines. Steven Huffman: Thanks, Ron. Okay. Question one, user growth trends. So as we mentioned in Q3, it's a nice balance between organic and paid. External search was basically flat. Of course, that can ebb and flow. The product initiatives, including machine translation, were the largest contributors. And our product road map, we're still working very hard through that. Marketing today is very broad, but we want to focus on growing our most valuable users in the app and improving ROI there. Looking into Q4, we exited Q3 higher than our average. So we have a head start. Beyond that, we're going to see how the quarter plays out. And thinking bigger and longer term, we're really focused on the product to drive sustainable growth. We have 190 million Americans visit Reddit every week. So the reach is there. Our aim is to increase the frequency of those visits. And that really means focusing on that first session user experience to improve retention, which compounds into growth. As for Answers, that integration is coming along nicely. Our goal there is to build a global unified and modern search experience. The community vote signals that we see on Reddit, the authenticity and trust are all differentiators in Reddit Search. We're currently handling about 20% of our search volume in Answers or in that kind of core search box, and that full integration is coming in the coming quarters. We've also expanded Reddit Answers to non-English languages very recently last week, Spanish, German, Italian, French and Portuguese. So I think lots of opportunity there. And then very high level, Search is something that many users do in their first session. And so this is a part of kind of the general onboarding and retention strategy, which is make sure that when new users run a search on Reddit, it's great results and it's differentiated, that should turn into improved retention for us, which is why it's such a priority. Operator: Our next question comes from Tom Champion from Piper Sandler. Thomas Champion: Jen, I was wondering if you could talk about Publisher Pro. Is there a revenue opportunity here? Or is this about bringing new content into the Corpus and maybe driving user engagement on Reddit. And Drew, maybe for you, curious if you could talk about user marketing, how you're approaching it domestically and in rest of world. And just curious if you intend to ramp user marketing spend going forward. Jennifer Wong: Thanks, Tom. I'll take the first one. So I think we think about Reddit Pro, first and foremost, is bringing, I think, value to the platform. So Reddit is better when we have a diverse set of users and entities and leagues and businesses and publishers add a lot of vibrancy to our community because they bring content and a lot of our communities are talking about these organizations. And so having them engage on our platform, we think, is a really -- and Reddit Pro is really positive and Reddit Pro is a way of finding -- giving them a home on Reddit from which to do that. And of course, obviously, if we have more engagement on the platform, that converts into revenue. Having Reddit Pro also allows businesses to find a home on Reddit. They can have their own profile. They have tools that allow them to find insights who's talking about their brands, et cetera, or their products. And so that is really helpful because that's -- those are potentially leads into our advertising platform. Publisher tools specifically, I think our vision there is to help those publishers be able to bring their content on to Reddit. That could be in multiple formats and text and video, et cetera. And I think we'll just increase the contribution, the content on Reddit and the vibrancy of the platform. So I think it's accretive in a lot of ways. Andrew Vollero: So on your second question on how we're thinking about the financials of it and where we're focused. Look, right now, we're in test mode. I would say that we're looking across a couple of dimensions. I would say we're top of funnel, lower funnel in terms of our spend. We're doing some brand spend at the top. We're also looking for conversion down at the bottom. I'd say we're spending in the U.S. and international markets. Right now, I've given you a couple of bread crumbs over the last couple of quarters on how much we've spend. We spend about low single-digit percent of revenue last quarter. This quarter, we're kind of low mid-single digits percent of revenue. To be honest with you, Tom, we don't have sort of a pinpoint number that we're going after. We're really, at this point, looking at that quality user. We're looking at the ROI and we're looking at the retention curves of people that we're bringing on to the platform. That's really what we're focused on. If we find an area that makes sense, we're not afraid to spend. Obviously, we have a P&L that we're continuing to show that we can both grow our business and grow it profitably. And so we do have that ability to invest. I think really right now, we're trying to understand how we can really drive that usage on our platform. And if we find an area that makes sense, we're not afraid to invest behind it. But if we don't see that, we won't be putting a ton of money behind it. So that's where we are. We're really idea driven at this point and really looking for engagement users. Over the last couple of quarters, we've been kind of consistent in that spend. It could be more than that if we move forward if we're starting to see the traction in certain markets or with certain initiatives running. Operator: Our next question comes from John Colantuoni from Jefferies. John Colantuoni: In your new marketing campaign, talk about returns and learnings so far? And maybe you could just sort of help compare how engagement for the users who come to you through performance ads compared to your existing users. And second, as you track engagement of these users acquired through performance channels, how does conversion to log in compare to overall company averages? Jennifer Wong: I can take that. Good questions. Let me start with some examples. So we do -- we've done a little bit of brand work. For example, we did a campaign in France, countries outside of the U.S. where our awareness and consideration is lower than in the U.S. because we're newer. We think we need to make some investment at the top of the funnel, very beginning of that journey. But things we like from that were the fact that we saw an increase in Reddit app installs as a result of a brand campaign, which I think is good. And we saw a movement in brand awareness and consideration, which I think was also positive and provides a foundation for performance later. Obviously, with things like that, you want to keep on being top of mind, et cetera, and that's work that you have to continue to do. But I think there are some good learnings there. I think over time, we can probably toggle how we think about brand and performance as the awareness sticks in some of those new markets outside of the U.S. So just to give you an example of the kinds of things that we're testing. On the performance side, I'd say it takes -- we've never marketed. So until recently, we really haven't spent a lot of money on marketing. And so there is some apparatus that you have to build in terms of the infrastructure for marketing and targeting, et cetera. And so the spend that we've done since we turned it on has allowed us to learn there. There's still more to learn. I think we -- what we're excited about is the opportunity to grow specific audiences. So if you look at Reddit in the U.S., for example, we have very robust content in parenting, in sports, in gaming. But yet when you look at the audiences that are available in those areas, like how many parents there are in the U.S. that could come to Reddit and have a great experience, about half of them don't even think about Reddit for parenting, only 1/4 of them are on Reddit today. It's a really big opportunity. That's both a little bit of awareness and a little bit of performance that needs to go into that. And there's a little bit of work that we're doing in thinking about the landing page experience for that. Like when we bring them in and show off that we have great parenting content, we bring them in like what do we show them first? And maybe it's a variety of different content from different communities from Daddit and Mommit and parenting, et cetera. So that's where we're really testing to see where we have the best residence for that audience. And as we go through the testing with one audience group, we want to expand to others. We see a lot of verticals where we have this opportunity. So that's kind of how we're approaching it. Operator: Our next question comes from Naved Khan from B. Riley Securities. Naved Khan: Great. Two questions for me. One, maybe just on the simplified onboarding flow. Are there any early results you can share in terms of how that effort is going? And then maybe just another one on referral traffic from AI chatbots. Just trying to understand how meaningful is that in terms of your overall traffic? And what kind of trends you're seeing there? Anything you can do specifically to improve that? Or maybe it's not necessarily very, very important to you? Steven Huffman: Great. Thanks for the questions. So on simplified onboarding, we're launching kind of a revamp of that relatively soon to get early results. I think intuitively, it makes a lot of sense. Reddit, we believe, has some of the best content on the Internet. But today, it's behind a couple of screens of interrogation before you actually get to see it. And so really streamlining that or even removing it are the things that we're putting into test shortly and making sure users are landing on feeds that are relevant to them. Jen was alluding to some of that where users are coming from specific channels with specific interest, making sure the content matches their expectations and what's going to work for them. So it's still very early there, but we're excited about where that can go. Second question on traffic from chatbots. They're not a traffic driver today. I think our relationships with the companies that we work for -- or work with directly are healthy, and we both learned a lot over the last couple of years, really the value of Reddit's data and where our respective products can go and how we can help each other. So I'm looking forward to continuing to work on these things with these partners, but they're not a major traffic driver today. But I think there's plenty of opportunity there as we continue to work together. Operator: Our next question comes from Jason Helfstein from Oppenheimer. Jason Helfstein: I'll just start with the LLM licensing. Is there any kind of color or just thoughts around progress with LLM licensing deals with both either your existing partners or non-partners? And then for those companies that you're kind of involved in lawsuits with, perhaps just share what is their logic? They think they can just take your IP without paying for it? And then just a quick follow-up. Is there any kind of deals you could do to capture identity for logged out users that would help with ad targeting, whether it's like a JV or partners? Steven Huffman: Okay. Thanks for the questions. On LLM licensing, no news to share here. Our relationships are very healthy and collaborative. As I mentioned, I think we've both learned a lot. And I think we've better identified the areas where we can mutually help each other's products and create better consumer experiences. So I'm looking forward to continuing to work through that with our partners there. But I think we're in great shape. Second, on the lawsuits, I can't add anything on that. Our complaints are worth a read. There's, I think, lots of information in there. I think you captured their logic, but I don't want to suppose it. But at the end of the day, look, our job is to protect our data for our business, for our users and for our paying partners. And finally, I think your third question was capturing identity of logged out users. Look, all of Reddit is really built around this idea of connecting users with their interests. So not necessarily what or who they are, but what they're into on Reddit. And so that's how we're different than some other platforms. We don't need to know who you are or necessarily even how old you are or other demographics because we look at your explicit interest on Reddit, right? Are you part of the skiing community, you're probably in the outdoor stuff. Are you coming from a parenting blog, you're probably a parent. And so that's generally how we think about it. And I think it's a little bit of a different model, but I think it's better for user privacy, and we can target on, I think, a unique but really powerful dimension. Operator: Our next question comes from Andrew Boone from Citizens Bank. Andrew Boone: I wanted to go back to logged-out users and talk about users that are coming in from search. Can you guys talk about the product road map of improving that experience? And then one for Jen. Jen, can you just talk about lower-funnel products that you're excited about for '26? What gets you most excited? And kind of what's the biggest near-term impact that you think investors should be thinking about? Steven Huffman: Okay. Thanks, Andrew. First question on logged out users coming in from Search. Look, our focus is on growing logged in app users. And so we do that in 2 ways. One, of course, we want to convert some of those search users into logged in, and I think there's more we can do there. I don't think that's going to be our best channel long term just because of what the user is doing. If they're running a search, they might be on the Internet to get off the Internet. But I do think we can do more there. For example, something we've been doing this year is showing those users not just the direct post they're arriving on, but also a Reddit Answers summary of the topic that that's about. And that has helped to increase engagement from those users. So there's plenty we can do there. But I actually think the biggest opportunity are the users who are opening the Reddit app for the first time. These are the users who are coming for the community and conversation product. And I think we have the biggest opportunity here to give them a better experience, improve their retention, which will obviously compound into more app growth. So that's the cohort that we care the most about. Second question, Jen, was lower-funnel products. Jennifer Wong: I think I love talking about the lower funnel, and I am excited about a lot of things. So I'll just pick 3. One is the engine automation, which we've been testing, really excited about that to make our platform easier, more accessible. I think that allows for the thousands of advertisers who aren't on Reddit today, some of them small to make it easier for them to activate and onboard on to Reddit and then allows us to deliver even more performance. We love making the impressions work harder for our customers and delivering more outcomes for them. The second is shopping. Shopping is something that we're really pleased with the results that shopping or DPA delivers. And we had a partnership with Smartly that we announced and a piece of that is also just doing work together on shopping, which we're excited about. And so feeling really optimistic of the opportunity around shopping. So that's another piece and also how shopping come alive on our platform in general. And then the third is the ongoing work we're doing in app install. We've been working on our measurement there and the attribution and this journey of becoming a SAN. And that can, I think, be very powerful in terms of measurement, making sure that advertisers see all the value we're delivering and then two, for signals that go into the ML for even stronger optimization for app install. Operator: Our next question comes from Josh Beck from Raymond James. Josh Beck: I wanted to discuss the onboarding flows a little bit. It obviously has historically had quite a few steps and quite a few kind of tiles to choose interest. I think the goal is to simplify that. I'm just kind of curious, as you've done the experimentation with the new flows, is it getting to a place where it's maybe closer to going GA? Or how should we think about maybe what you've learned so far? And how should we think about maybe the rollout there? Steven Huffman: Thanks, Josh. Great question. Yes, lots of steps. We want to get rid of those steps. I think the best pitch for Reddit is Reddit's content and making sure that first feed is amazing. And one of the big developments that we've had over the last couple of years since we released the kind of onboarding as we know it, the topic-based selection is our machine learning feed is much more capable, and it's actually the top driver of new subreddit subscriptions today. And so getting users into that feed sooner and letting the feed and the ML do the work of making good community recommendations. So we're pushing very hard here, getting some things in the test and then hopefully beyond as soon as possible because I think this is one of our biggest levers. Operator: Our next question comes from Doug Anmuth from JPMorgan. Douglas Anmuth: I apologize if this has been asked, but there's just been a lot of discussion around how Reddit shows up on search and on large language model results. Can you just help us understand how that ties to the value of your data licensing deals? Or do you view these as kind of 2 more distinct or separate items? Steven Huffman: Thanks for the question, Doug. Look, I think our relationships with the kind of search and LLM companies are multifaceted, right? Their products are different for sure. And so we look at, I think, all of the different ways that there can be a value exchange. Look, our top priority is growing the Reddit community and conversation product. so really helping our flywheel go faster. And I think looking the other direction, we can help these companies deliver kind of better search results in those moments. And so that's our attitude or that's our position in this space is how can we make -- like how can we use these relationships to grow the core Reddit product. I'd say, I guess the color commentary there is I think our relationships are as healthy and collaborative as ever. And so we're, I think, having interesting conversations on how we can help each other do this because we've learned so much over the last couple of years, I think we got into this relationship and maybe perhaps a simpler place. But now I think we mutually have much more confidence in where our products are going. And of course, I'll just remind everybody that our core business is ads, and that's really the driver of Reddit's revenue. Operator: Our next question comes from Rich Greenfield from LightShed Partners. Richard Greenfield: I guess, Steve, more than anything else, you've talked about 50% of your traffic comes direct and 50% from Google. I guess if you just think from a very high level, what are the top 3 or top 5, whatever the best number to think about is, what are the best drivers of someone becoming a Reddit app user? Like what determines that activity? Because that's obviously where you make your money and what is the biggest determinant of your success. Steven Huffman: Thanks for the question, Rich. I'd say those numbers are approximate, but pretty close. Look, the way somebody becomes a Reddit user, an app user is they install the app and they find amazing content. We see a lot of new app users every day and plenty of what we call like a reinstall or an opportunity for a reengagement every day. And so this is why I keep bringing your and our team's attention back to that first open experience and making sure there are no barriers between the user and seeing content on Reddit because the biggest driver of retention is following subreddits that are relevant to your interest. And so it's not rocket science. Now Reddit is very, very broad, and we don't always have a lot of information coming in. And so we do have to do that work. Our machine learning there has gotten much better. And then Jen was earlier describing opportunities where we know where a user is coming from, from a particular content source, whether it's a category source, so call it parenting or gaming or TV shows or whatever, to give them a tailor feed as well. And so that's really the way that we think about it. I think we have enough shots on goal here every day that improving this process will make the whole Reddit machine run much more efficiently. Operator: Our next question comes from Benjamin Black from Deutsche Bank. Benjamin Black: Great. Jen, I guess, can you talk a little bit about the operating environment you're seeing as we head into the 4Q holiday shopping season? And what assumptions have you baked into the guide from a macro perspective? And then secondly, Drew, one on margins. I guess, no good deed goes unpunished. You already hit your margin targets that you laid out at the IPO. So when we look ahead, your incremental margins are sort of hovering around the 60% range. How should we think about potentially sort of updated margin targets? Jennifer Wong: Great. I can take the first one. Look, I'd say the macros -- for us, the market feels largely stable, broadly stable, but I'd say there's low visibility. I'd say tariffs are on the minds of some of our customers. Efficiency is important. We're certainly delivering that. And we're definitely counseling our customers as they're navigating through a very dynamic environment and as they're thinking about investment across the funnel. I mean the great news is we have a full funnel offering. So we can meet their needs, I think, broadly. So I think it's broadly been stable in Q3. Andrew Vollero: Ben, on the margin side of things, you're right, that was our target, that 40% margin that we talked about. That was our North Star during the IPO. It's nice to hit it. Six quarters in. So that is something. The guide you probably picked up on in the fourth quarter is even higher than 40%. I think how we think about it is -- and the North Star is going to be something more than 40%. We're thinking that it's probably in the 50% range. That's our North Star. I think it's a couple of things are important on the day-to-day and kind of the near and mid-term. Obviously, we want margins to be higher and they will go higher. It won't be every quarter. I think that's the piece that I want to make sure that people understand here. We're really building a business, and we'll invest in things where it makes sense, right? You have a 90% gross margin, you just have the ability here to really do special things if you can get growth. And so there may be times that we'll have to invest in our business periodically. I think right now, we're doing fine and things continue to scale well. But for a North Star, I think 50% makes sense. I think in the medium term, we'll be focused on better than 40%, like that's how we'll be thinking about it. And then remember that our business won't always be that way quarter-to-quarter. We reserve the right to be strategic to grow our business. Operator: Our next question comes from Ken Gawrelski from Wells Fargo. Kenneth Gawrelski: Two, if I may, please. Two probably directed to Jen. First, could you talk about -- I mean, first, impressive expansion of the advertiser count again this quarter. Jen, can you speak to whether self-serve has become a meaningful part of that advertiser count expansion yet or when it may become meaningful? And then maybe a second one, please, probably also for you, Jen, is could you talk about how marketers may use you for GEO like generative optimization, AI optimization. Is this a major use case for your advertisers? And could you walk us through your pitch? Jennifer Wong: Sure. So on self-serve, that -- we do have self-serve today, but it's not a big part of our business. We want to have a self-serve offering, and I think the end-to-end automation work that we're doing will be a great step in that direction for more advertisers who want to operate on a self-serve basis. But it hasn't been the focus. I mean our focus is on the advertisers who really have a lot of significant budget who do want somebody to talk to some -- in a lot of cases. So they're in our managed segment, either our large customer segment, mid-market or even our managed SMB segment, where they provide some light counsel to them, and we're in like what I would call a hybrid configuration where we're kind of both hands on keyboard working together in a light way. Our strategy is to maximize the opportunity across the biggest part of the market, and that sits right now in the managed segment and to optimize like put the customer in the right service channel that maximizes their experience and their ability to spend on Reddit. So we're not religious about self-serve. I think we're really focused on the right service model for the right advertiser to be successful on the platform and get what they need. But I think self-serve is something that we're interested in as we build more automation. The second one was about optimizing for, I guess, LLMs. And look, I think Reddit's corpus of information is clearly incredibly valuable and helpful to LLMs because it's human conversation that's fresh, it's authentic. It's just distinctive. There's nothing like it. And we know that LLMs appreciate Reddit's conversation. But when marketers come to us, they're coming to us because that conversation is on Reddit and for the opportunity to find customers and engage those customers in an environment where that conversation is happening because when they're in that environment on Reddit, they're getting the engagement converting to outcomes that help them grow their business. So I don't think it's about the influence in LLM. That's a secondary product of our core amazing platform, the conversations and communities. What the marketers are getting is real value from the Reddit platform itself in terms of converting that engagement to real business outcomes for them. It just so happens that, that environment of that conversation is also appreciated by LLMs. But that environment is on Reddit. Operator: Our next question comes from Rohit Kulkarni from ROTH Capital Partners. Rohit Kulkarni: A couple of questions. One on user mix as engagement has risen and number of users have risen. Can you talk about how the mix has evolved over time over the last couple of years, maybe in terms of people who actively contribute versus we just come in there to consume or then there are those in between people who kind of amplify through voting and sharing content? And then the second is on ARPU. Any drivers on underlying ARPU growth? How much is ad load contributing to ARPU growth versus other factors? Steven Huffman: Thanks for the questions. On user mix, yes, there's been some movement there. I'd say it's in a fairly consistent range. It's something we think a lot about. We haven't talked about it much on this call. Well, we did a little bit. So our strategy around contribution is -- when we say that, we're really referring to helping new users post successfully on Reddit and eliminating like roadblocks there, one of which we're working very hard on, which is when a user shows up to Reddit and they want to contribute, but they may not be aware that there's a bunch of rules in the community they're writing to. And so we try to catch that early in the journey to give them feedback or find them other places to submit. So that's been testing very well and improving kind of the contributor mix there. And then Reddit does have multiple ways of contributing. You described a cohort of users that we colloquially call the lurkers. These are people who don't write comments, but they vote. And the voting is very important for ranking. And today on Reddit, you can't leave a comment or vote unless you're logged in. And so getting more people logged in, so this brings us back, of course, to onboarding and those flows, getting people through logged in more successfully, relevant communities more successfully, removing barriers to contribute and finding content they like to increase the voting and engagement are all things that kind of push us in the -- I think, in the healthy direction. I think there's a lot of opportunity here because there's friction at each of those steps. And then the second question, Jen, was ARPU and ad load. Jennifer Wong: Yes, sure. I can take that one on ARPU. So just a reminder, our strategy is to make every impression more valuable by delivering hard outcomes, more clicks, more conversions. In Q3, we saw eCPM grow, but the quarter had impressions grow was a bigger contributor. There are 3 components that drove the impressions. One is user engagement and then also ads and comments and then also a temporary operating point that we hadn't when we had a balancing supply and demand in ad load. Just to be -- just to address ad load directly. So our ad load overall, if you look at the fee compared to peers, is much lower than our peers. And it is not a core part of our strategy to increase ad load. Our strategy is to make every impression more valuable and to design ad units for spaces where we don't have ads like ads and comments. It is an operating point that we do use when we have supply-demand tightness to make sure that the marketplace is consistent for our advertisers. And so we did use that lever temporarily in Q3, but we turned it back. So that's kind of the contributors of impressions in the ad load. Operator: Our next question comes from Youssef Squali from Truist Securities. Robert Zeller: This is Robert on for Youssef Squali. Just one for me. It seems like new types of AI content are rising and users are also consuming more video. So just curious what Reddit's strategy is in this environment. And if you're focused on building out answers and integrating publishers, does that imply that the focus of content is still going to be predominantly text-based? Steven Huffman: Great question. So there's a couple of dimensions to this. So our very high-level positioning for Reddit in the AI era is that Reddit is for humans by humans. And so yes, there's plenty of AI content on the Internet. And -- but we want Reddit to be a place where humans talk to other humans or people talk to people about the stuff that they're interested in. Now every post on Reddit, which they can be a link, text, image, video, meme, GIF is really a prompt for conversation. So in terms of what the post is, we don't have a strong feeling there. We just want more posts, and we want to continue to expand the post types that Reddit support, so kind of evolving with the time. And developer platform, which we haven't talked much about today, is one of our big ways of doing that. So we're seeing all sorts of new posts on Reddit. Users have rebuild polls. We've got lots of games. There's stock charts, all sorts of things. But really, all of these things serve as prompts for conversation. Video on Reddit is and has been for a while, our fastest-growing content type. Even though we don't think of Reddit as a video platform, I think there's a lot of headroom for video on Reddit, both as post, which is what we see today, but also using video and then potentially down the road audio just as a means of communication. I think there is a kind of very uniquely Reddit way of doing video. One of the things that I'm very excited about is we did our first video AMA just a couple of weeks ago. So this was done by NASA, so you can find it. And in this case, NASA hosted the AMA, but all of their astronauts answered in video within the Reddit comments. I think this is a really nice way of letting people kind of like really bring their charisma to these moments. And video comment replies is kind of this interesting marriage of video to the modern content format, but in the context of a conversation as opposed to kind of the long-form, short-form influencer stuff you might see on other platforms. So we always try to think like what's the Reddit version of this content format. And I think there might be some opportunity there. And then in terms of publishers, yes, look, text isn't going anywhere. Text, you can read quietly. Again, it serves as good as anything as a prompt for conversation. Now with AI, you can turn text into audio for background listening. And so I don't think video or AI video replaces text any more than movies replaced books. Really, what happens is the content pie just keeps getting bigger and bigger, and we want to make sure everything works on Reddit. Jesse Rose: Julianne, this is Jesse. I think we're kind of bumping up in time here. So I just want to thank everyone for joining. We appreciate it. Look forward to speaking again soon. Steven Huffman: Thanks all. Jennifer Wong: Thanks, everyone. Operator: This concludes Reddit's Q3 2025 Earnings Call. You may now disconnect.
Operator: " Daniel Carlson: " David Moss: " Mark Lowdell: " CJ Barnum: " Cory Ellspermann: " Denis Reznik: " Raymond James Ltd., Research Division Jason Mccarthy: " Maxim Group LLC, Research Division Unknown Analyst: " Operator: Greetings, and welcome to the INmune Bio Third Quarter 2025 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. A transcript will follow within 24 hours of this conference call. At this time, it is my pleasure to introduce Mr. Daniel Carlson, Head of Investor Relations of INmune Bio. Daniel? Daniel Carlson: Thank you, operator, and good afternoon, everyone. We thank you for joining us for the call for INmune Bio's Third Quarter 2025 Financial Results. Presenting on today's call are David Moss, CEO and Co-Founder of INmune Bio; Dr. Mark Lowdell, Chief Scientific Officer and Co-Founder of INmune Bio; Dr. CJ Barnum, Head of Neuroscience; and Cory Ellspermann, INmune Bio's CFO. Before we begin, I remind everyone that except for statements of historical fact, the statements made by management and responses to questions on this conference call are forward-looking statements under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements involve risks and uncertainties that can cause actual results to differ materially from those such as forward-looking statements. Please see the forward-looking statements disclaimer on the company's earnings press release as well as risk factors in the company's SEC filings, including our most recent quarterly filings with the SEC. There is no assurance of any specific outcome. Undue reliance should not be placed on forward-looking statements, which speak only as of the date they are made as the facts and circumstances underlying these forward-looking statements may change. Except as required by law, INmune Bio disclaims any obligation to update these forward-looking statements to reflect future information, events or circumstances. It's now my pleasure to turn the call over to INmune Bio's CEO, David Moss. David? David Moss: Thank you, Dan, and good afternoon, everyone. For our third quarter 2025 call, today, I will review key takeaways and provide an update on our platform programs. Following my review of the recent developments at INmune Bio, I will pass the microphone to Dr. Lowdell, INmune Bio's Chief Scientific Officer and inventor of CORDStrom, who will provide an update on our CORDStrom MSC platform and particularly our RDEB program, along with INKmune. Next, Dr. CJ Barnum, who leads our CNS drug development efforts, will provide an update on the Alzheimer's program; and then Cory Ellspermann, our CFO, will present our financial results, after which I'll conclude our prepared remarks with a review of our upcoming catalysts, and then we'll be happy to take your questions. Since taking over the role of CEO at INmune Bio in July, it's been a time of transition for the company. Having spent the last 2 years with our main focus on Alzheimer's trial, which ended in late June, we're now able to direct our attention to the next stage of development for our platform drug programs. And we're highly optimistic that the next couple of years will demonstrate the success of our efforts as we take our programs through key development milestones, which we expect could lead to benefits not only for investors, but for patients suffering from diseases with limited therapeutic options available at this time. CORDStrom is our most advanced program as we are now in the process of preparing for submission for marketing approval to the regulatory bodies in both the U.K. and the U.S. We believe CORDStrom has demonstrated a clear and safe benefit to patients suffering from recessive dystrophic epidermolysis bullosa, also referred to as RDEB, a very debilitating disease. Patients on the drug had a significantly reduced itch, which not only affects wound healing in these young sufferers, but also reduces the itch-scratch wound cycle. While RDEB primarily manifests as a genetic condition causing skin fragility, blistering and scarring due to mutations of the collagen VII gene, it also involves mucus membrane and internal organs leading to multisystem complications. While RDEB has traditionally been treated topically, RDEB is a systemic disease that has blisters and scarring in the mouth, esophagus, eyes, urethra and anal area causing nutritional deficiencies, emotional stress and other problems. We believe CORDStrom is potentially one of the first systemic treatments for RDEB and made an improvement in the quality of life of the patients treated in our trial. Looking beyond our initial indications of RDEB, we believe CORDStrom is a platform opportunity for INmune Bio as it has the potential to accomplish all sorts of things in many different diseases. For example, we can genetically modify it to treat cancer cells, which is what it was originally developed for, and there are many other modifications you will hear about in the near future. So there's a lot of things that we can do with CORDStrom to improve its targeting in a variety of rare diseases and indeed, less rare or more common diseases. We'll be excited to share these modifications in the future as well as expansions towards other indications. Turning to the XPro platform. We remain confident in its potential to treat neuroinflammation in Alzheimer's disease. In September, we submitted a manuscript detailing the results of the Phase II MINDFuL trial for peer-review publication. As we analyze the complete data set, we're gaining deeper insight into the drug's activity. Dr. Barnum will -- will elaborate, but our findings indicate positive results in patients with higher baseline inflammation. We're actively pursuing an accelerated regulatory pathway and preparing for our end of Phase II meeting with the FDA. Defining a clear path forward for XPro is a primary objective and may be crucial for strategic funding and partnership discussions. 2025 also saw us complete the Phase II trial of INKmune in prostate cancer ahead of schedule. With the primary endpoint and 2 of the 3 secondary endpoints met, I'm excited to have Mark share more on INKmune later. To conclude my remarks before I turn the call over to the team to discuss the individual programs, I'd like to thank the patients that participated in our trials, the clinical trial sites and our dedicated team for helping us execute these very complex trials. I also want to thank our investors for their continued belief in our novel platforms and support. Our decision to develop 3 very different drug platforms in parallel to provide strength and opportunity has borne fruit. INmune now has 2 later-stage platform therapeutics that have demonstrated success in clinical trials and are ready to advance to the next stage of development and a third which completed a Phase II trial successfully. Our value proposition to shareholders and patients is clear. First is to get CORDStrom from to MAA in the U.K., followed by a BLA in the U.S. Meanwhile, for XPro, we await regulatory alignment with the end of Phase II study to determine next steps. We anticipate all of this will happen in '26, an exciting year for the company. Now I'll turn the call over to Mark Lowdell for more color on CORDStrom and INKmune. Mark? Mark Lowdell: Good afternoon, everybody, and thank you, David, for the introduction. As you've heard, we're progressing towards drug registration, firstly in the U.K. and then the U.S. with CORDStrom in RDEB as our initial indication, whilst developing other indications for the platform at the same time. This is a truly debilitating disease, which presents itself in the first months of life and for which there is no cure currently. The median survival for those with severe disease is fewer than 30 years. And although skin wounds are the most apparent manifestations of the disease, the lesions, as David has told you, are present throughout the gastrointestinal tract inside the nose and behind the eyes. The disease is driven by inflammation and CORDStrom provides systemic suppression of inflammation. Most importantly, CORDStrom is most effective when activated by the inflammatory cytokines at the sites, so its effect is somewhat targeted. During the MissionEB randomized placebo-controlled trial in the U.K., over 120 infusions of CORDStrom were administered to over 30 children without any severe adverse reactions or adverse events. As David has said, reduction in systemic itch was a major reported benefit by patients some as young as 2 years old who used a cartoon depiction of whole body itch to demonstrate their experience severity. Itch control is important because the resulting scratch initiates new skin wounds and increases risk of infection, which is part of the disease cycle. And I can't emphasize how much important -- how very important itch is to these children as it drives a vicious itch scratch wound cycle but impairs wound healing by separating skin layers and forming new blisters. These rupture easily creating open wounds or exacerbating existing wounds, delaying healing and creating this terrible feedback loop. It's painful for these children with intense itch causing a poor quality of life with distress, sleep loss and emotional burden. Breaking this itch-scratch wound habit is difficult and highlights one of the special aspects of CORDStrom. MissionEB was an investigator-led trial. It wasn't sponsored or funded by INmune. We secured access to the entire trial data pack in August and have appointed an independent group of clinical statisticians to analyze all of the data in depth. This is critical for our submission to regulatory agencies and is well underway. In the trial, all patients received both CORDStrom and placebo, separated by 6 months, some treated first with placebo and then CORDStrom and the other half treated with CORDStrom first and then placebo. These in-depth analysis of these data show improvements in disease activity scores in all patient subgroups after CORDStrom compared to their previous placebo treatment. In preparation for registration filing, INmune in the U.K. has now relocated into rented CGMP manufacturing space, which is compliant with commercial production as a licensed medicine. We successfully completed the technology transfer earlier this month, and we're on track to be ready for U.K. filing at the end of Q2 next year. But alongside the CGMP work, we're confirming the complex mechanisms of action of CORDStrom in RDEB and validating assays to test drug batches at the end of manufacture. This work is very critical since FDA and other agencies require robust tests of drug potency and failures to get these right with cellular drugs have delayed other drug approvals for many years. This year also saw the completion of the Phase II aspect of our trial of INKmune in patients with castration-resistant prostate cancer. As David said, we met the primary endpoint of the trial in Q1 of this year, and analysis of the first 9 patients showed evidence of NK cell proliferation in vivo and generation of the functional memory-like NK cells that we understand INKmune generates in 4 of the 6 patients treated at the lowest and intermediate dose levels. The data from the patients in the highest dose cohort are awaiting analysis, but the team is tied up with CORDStrom at the moment. Thus 2 of the secondary endpoints were met. The final secondary endpoint was reduction in tumor load, and our primary measure was PSMA PET scans. But it was obvious from the analysis of the first 6 subjects that the patients being enrolled had very high disease burden beyond that, which would respond to immunotherapy. We thus decided that since we've met the primary and 2 of the secondary endpoints at both low and intermediate doses, we had identified the dose to take forward to a randomized Phase II trial and so we could close the current trial to recruitment. We're analyzing the blood samples and the PET scans from the final 3 patients at present, and we'll report them to you as soon as they become available. Now we plan to work on the design of the randomized trial during 2026 as resources become available. So 2025 has been incredibly busy for the U.K. team in supporting both INKmune and CORDStrom, but all the staff remain fully dedicated to delivering the goals we've set, and we look forward to providing more good news as the data become available. Now I'll hand over to CJ to report on the company's progress with XPro and look forward to any questions later in the call. CJ? CJ Barnum: Thank you, Mark, and good afternoon, everyone. We have established 4 strategic priorities for XPro. First, to secure regulatory alignment with the FDA at our forthcoming end of Phase II meeting; second, to pursue an accelerated approval pathway. third, to publish comprehensive insights from our Phase II MINDFuL trial; and fourth, to advance discussions with potential partners to support late-stage clinical development. During the third quarter, we achieved an important milestone by submitting the Phase II MINDFuL trial results for peer-reviewed publication. A preprint manuscript is now available on MedRx, providing the scientific community and our stakeholders with expanded insights. While much of the data has been previously presented, this manuscript introduces new analyses from the dose-compliant patient set. These are patients who received at least 21 of the 23 scheduled doses. This population reflects the impact of sustained therapy and has been recognized by the FDA as a potential indicator of disease modifications. The findings demonstrate that longer treatment durations with XPro are associated with greater improvements in neuropsychiatric symptoms and biomarkers, including pTau217 and GFAP. We continue to build a robust evidence base to advanced analysis of neuroimaging endpoints. These focus on white matter integrity, an indicator of myelin preservation and gray matter metrics related to neurodegeneration. Emerging results are expected to further substantiate XPro's potential as a differentiated disease-modifying therapy, and we plan to share these findings as they become available. There remains substantial unmet need beyond existing anti-amyloid treatments, particularly for patients with a strong inflammatory profile or those unable to receive anti-amyloid therapies due to safety concerns such as ARIA. XPro is uniquely positioned to address this gap as no ARIA-related safety signals were observed even among high-risk individuals. Despite the challenges inherent in Alzheimer's drug development, XPro continues to distinguish itself through its targeted patient selection, compelling safety profile and growing body of evidence. Our disciplined data-driven approach, which prioritizes scientific rigor, regulatory engagement and financial responsibility supports the long-term goal of establishing XPro as a transformative therapy and delivering sustained value to patients, partners and shareholders. We look forward to providing ongoing updates as we advance toward key clinical and regulatory milestones. I will now turn it over to Cory for the financial update. Cory Ellspermann: Thank you, CJ. At this time, I'll provide a brief overview of our financial results. Net loss attributable to common stockholders for the quarter ended September 30, 2025, was approximately $6.5 million compared with approximately $12.1 million for the comparable period in 2024. Research and development expenses totaled approximately $4.9 million for the quarter ended September 30, 2025, compared with approximately $10.1 million for the comparable period in 2024. General and administrative expenses were approximately $2.5 million for the quarter ended September 30, 2025, compared with approximately $2.2 million for the comparable period in 2024. At September 30, 2025, the company had cash and cash equivalents of approximately $27.7 million. And based on our current operating plan, we believe our cash is sufficient to fund our operations into Q4 2026. As of October 30, 2025, the company had approximately 26.6 million shares of common stock outstanding. Now I'll pass it back to David. David Moss: Thank you, Corey. Now I'd like to present upcoming milestones for the company, and then we can start the Q&A session. For our CORDStrom program, we have a number of significant events in front of us. In Q4, we'll present additional data from the trial. In mid-'26, we expect to file a marketing authorization application in the U.K. A few months after filing the marketing authorization application, we expect to file a BLA, biologics licensing application with the FDA. We'd expect to hear back from the FDA sometime by the middle of '27 or later. For XPro, we expect to accomplish a lot in the next few quarters. In Q4, we anticipate getting more MRI data conducted during the MINDFuL trial. With this data, we hope to show improvements in myelin, gray matter and white matter, which would support the cognitive and biomarker findings of XPro's benefits that CJ spoke about earlier. We expect to hear from the FDA on accelerated pathway sometime in Q1 of '26, and we anticipate having the minutes from the end of the Phase II meeting sometime in Q1 of '26. So a lot happening in '26. At this point, I'd like to hand the call back to the operator to poll for questions. Operator: [Operator Instructions] We'll take our first question from Gary Nachman with Raymond James. Denis Reznik: This is Denis Reznik on for Gary Nachman. So just a couple from us. So on XPro, as you're preparing for this end of Phase II meeting with the FDA, can you just walk us through what some of the biggest questions or discussion topics that you're hoping to get more clarity on? And then I believe you were previously saying that the meeting could occur before the year-end, and now you're guiding to the meeting occurring in 1Q. So could you just speak as to why the slight delay occurred? And I've got one follow-up. David Moss: Yes. No, I appreciate it, Denis. Let me start with the second part of your question, and then I'll let CJ jump to the first part. We anticipated getting everything together, but we weren't able to get enough of the data in time to really get it to the FDA to have the meeting at the end of Q4. I will say, though, that we're very close. It still could happen. We're going by the end of the date that the FDA puts forward. I don't know what that's going to look like. And then keep in mind that you don't get the minutes for the meeting until approximately 30 days after. Our experience with the FDA in the past has been that we usually get it on day 30 or very close to day 30. So we're being relatively conservative saying in Q1, which is the -- not only the period of time you have the response from the FDA, but the 30 minutes -- the 30 days to get the written minutes. CJ, I'll let you respond to the type of questions. I'm not sure we're going to publicly disclose them, but I'll tell you that they relate around setting up a registration study. CJ? CJ Barnum: Yes. I mean I think there's a few obvious ones out there. One of them is that we talked about quite a bit is EMACC, right? We want to understand the agency's view on EMACC. Another one of the key questions is the enrichment biomarkers. It's clear from our data that the patients that had greater inflammation were the ones that are more likely to respond. And this is somewhat novel in this space, enriching for these biomarkers. So these are the sorts of questions that we need to ask. And as David said, because our goal is to really get alignment on how we move this into a registration trial, another key question is the safety database, right? The agency usually requires a certain number of patients to be treated prior to -- before the drug could be commercialized. So I think those are sort of the obvious ones. There's some obvious or some other nuanced ones as well, but those are sort of the big questions that I think that we're -- that we can discuss at this point. Denis Reznik: That's super helpful. And then sticking with XPro on the partnership conversations, can you provide some color as to how those are progressing or at least maybe compare the tone of the conversations as to where they were at the end of last quarter? And then separately, on INKmune, can you just talk a little bit more about how you view the future of that asset? Is this something that you're going to take through development yourself? Or would you consider partnering with? David Moss: Appreciate it, Denis. So I'll let Mark jump in on INKmune. Let me just jump in a little bit further. I think that before we really have aggressive partnering discussions, there's been very top-level discussions with a handful of groups. I think like our investors, they want to see what the regulatory feedback and alignment looks like. And on top of that, they want to see more of the dataset. I think if we're able to provide imaging data, white and gray matter that aligns with what we saw in our highly inflamed patient group, I mean, that's going to be, I think, very compelling. So we're still gathering all the package together. We want to deliver a complete package where we have really serious discussions. Mark, do you want to comment about INKmune? Mark Lowdell: Yes. Thanks for the question. So as you know, we've published data on INKmune potentiating NK responses to a number of different tumors, both hematological and solid. So there are plenty of opportunities to take INKmune into Phase II trials now that we've completed one Phase II trial in other disorders and indeed going now into prostate and looking at patients with better risk disease. I'm always very keen to talk to potential partners and others that would want to invest in or buy the asset. But I think from our perspective at the moment is to get more Phase II data in randomized trials in at least prostate and then maybe other diseases as funds become available. And then, yes, indeed, look for partnership opportunities in the first instance and potentially keeping it within the company depending upon funding and taking it through to commercial in the way that we're hoping to do with or expecting to do with CORDStrom. David Moss: Next question please. Operator: We will move next with Jason McCarthy with Maxim Group. Jason Mccarthy: I'm going to concentrate them on the CORDStrom activity. First, has there been any feedback from European regulators with any specifics you could provide us for potential MAA filing? And do you think if you could file the MAA, that will be further supportive with regulators here in the States? Mark Lowdell: So another good question. So we are waiting for our scientific meeting with the MHRA. I sit on the British Pharmacopoeia, which is part of the MHRA. So I do get unofficial conversations with colleagues at the agency. And they have been very supportive of us taking this through for scientific advice before the end of the year. So we're putting that package together, and we will submit it as soon as we've got the data from the enhanced statistical analyses that are being done at the moment. So I'm expecting early next month to submit the data to the agency for a scientific advice meeting, which we may well get before the end of the year, but it's probably going to be early next year and then move ahead with our program. We have contracted a specialist advisory group that work or advisory company called TMC Pharma that works with rare diseases and has taken a lot of these through the agency. And so they're giving us a lot of daily feedback really. They're doing all of our paperwork for that filing to the MHRA and then for the MAA. So as David said, we are still on track to deliver the MAA submission to the MHRA by the end -- by Q2 next year or in Q2 next year. And then the regulatory agencies talk to each other a lot, as I'm sure you know, and none likes to gain say another. So I'm confident that if we address the subtle differences for U.S. use compared to European use and get those data ready in the months after our MAA filing, we'll be in a good position to file a BLA by the end of the year, by which time the MHRA will have had their first opportunity, they have their 80-day line to come back to us with comments, and we can -- any improvements that they come up with, we can put into the FDA document. So I think if we have got an MAA being considered by the U.K. agency that will feed into the FDA's opinion of the same data. But obviously, these are agencies, so we can't really comment on what they -- on their activities and the way in which they review other people's data. Jason Mccarthy: It's part of that discussion -- thank you, Mark. It's part of that discussion to include at least conversation or anecdotal thoughts around limitations of gene therapy, given that they are topical, there's now 2 that are on the market, as you know, and potential use in the setting of some of these gene therapies because you'd imagine many of these kids going forward are going to probably try this. Mark Lowdell: Yes, absolutely. But the -- neither of those provide a systemic solution. So this is what we believe makes CORDStrom unique. But also the side effects associated with those therapies, one of the major side effects that was reported is itch. So even if it was an additional therapy to address the itch that isn't addressed by these topical therapies, there's a rationale there for CORDStrom's use in patients who are potentially being treated with the gene therapies. But as I say, the data we're getting at the moment, which once we've got them audited and good enough to share or secure enough to share, are already demonstrating changes in systemic cytokines associated with CORDStrom treatment. So we believe that the strength of this drug will be its ability to have a systemic effect on inflammatory cytokines and therefore, downstream as the patients get treated for longer. in terms of the overall disease pathway. Jason Mccarthy: And just one mechanistic question, sort of a 2-part question. First, you had mentioned, can you talk a little bit about the uniqueness of cytokine-based activation for CORDStrom once it is given systemically, at least in a setting of inflammation like in RDEB and also the ability to use the CORDStrom platform and tailor it to specific disease types. Obviously, that would be beyond RDEB and how that separates itself from other MSC therapies that are out there. Mark Lowdell: Absolutely. I could talk for hours on that. But the first question was about inflammation. And we know that for some functions of some MSCs, they require what's called licensing. So they need to be activated by inflammatory cytokines. And indeed, we have evidence in vitro that cause there's a ton of things that CORDStrom cells do without being activated by inflammatory cytokines. And then there are additional cytokines and functions that they perform in the presence of inflammatory cytokines. Now as I'm sure you know, cytokines don't work -- don't really work systemically in vivo. They are signaling molecules between cells, and they normally operate over sort of nano distances. But -- so what we know is that these patients have inflammatory cytokines being generated at the site of itch actually and then the wound. And the itch response is driven by a particular T cell called Th2 releasing a cytokine called IL-31. And we know that the CORDStrom suppresses those Th2 cells and suppresses the myeloid cells that are also producing inflammatory cytokines, and they are induced by the inflammatory cytokines that are there. So yes, we think that these cells have a targeted effect in vivo. But your second question was about CORDStrom being used in other indications. And what makes CORDStrom truly unique? There are, as you say, many MSCs have been put into trial and there are at least 3 products, which are now licensed around the world. But all of -- none of those use MSCs from 4 pooled donors. So what we do is we take our [ molecical ]cords, we get them from cord blood banks in the U.K. And we isolate the MSCs from those individual cords and then we test them for their various different potencies. So if we know the mechanism of action we want in a particular disease, we choose 4 cords that have that particular strength in their mechanism of action, and we pool them. So CORDStrom for EB is from 4 pooled donors that we have characterized very well, and we have other donors with the same characteristics, which we've also pooled and shown we make the same product. So CORDStrom is one -- CORDStrom EB is one derivation of CORDStrom, but we can select donors cords with different characteristics that might -- some of them are specific to chondrocyte interactions and anti-inflammatory responses that could be targeted to osteoarthritis, for example. We've used another pool to treat SLE patients in in a trial in France, which is published. So we can -- the reason it's a platform is because by selecting different cords, it becomes a different drug because the potency data, the potency selection are different, and therefore, the potency assays and release assays are different. So that's why we're really excited about it as a platform for multiple different indications. Jason Mccarthy: Sorry, David, a quick one for you. Just we discussed this, you and I at length a couple of weeks back, but just some high-level thoughts of the regulatory environment here in the States, particularly around MSCs and cell therapy in general because as you guys both know, there is one approved -- the first one in the United States was approved last year for GVHD. It could be another filing for heart failure soon, and you know where Capricor is in DMD. And then here, you guys are coming with Well, that's not an MSC, but Capricor cell therapy potentially for RDEB next year? David Moss: Sure. I think the beauty of Mark and his team and when Mark comes up with an idea, he wouldn't pursue it if he knew that he couldn't manufacture it consistently in large scale to deliver not dozens of doses or hundreds of doses, but tens of thousands of doses at a commercial scale cost for a drug. Whereas a lot of companies, they get in love with the science and they develop a drug and then they go back if they get approval to figure out how to manufacture it and the manufacturing cost ends up being so high. A lot of it has to do with staff and facilities and time. And CORDStrom and INKmune both solve that problem, right? I mean we can get the cost down dramatically. We can provide a repeatable batch and so on. So I think that what Mark has done is exactly what the agencies want to see. They want to see a product that batch to batch consistency. It's the same. They know that if Mark produces a batch today or produces it 10 years from now, it's not a different product. And then from an end user standpoint, an insurance standpoint and a payment standpoint, yes, these are ultra-rare diseases, so the prices are high because the volume is low, but still the margins are there. Typically, cell therapies, oftentimes, the margins are a little bit tight. We've seen some companies that have some approvals with some cell therapies, and they charge very high prices for it. But what they're making net is a challenge. They've got a lot of work to streamline their manufacturing. Those are not things we have to worry too much about with CORDStrom because that's the way Mark has built it. Truly kind of this process engineering mindset from the start. big advantage. So from a regulatory standpoint, it's nice to see that they're approving products like this. We've -- I like to think that CORDStrom is the most advanced mesenchymal stromal cell program out there, at least as far as I have seen. And I think it's designed with the regulators in mind from the very beginning. Operator: We will move next with James Molloy with AGP Alliance Global Partners. Unknown Analyst: Matt on for Jim today. First, on CORDStrom, I wanted to ask about the treatment paradigm, the current treatment paradigm for RDEB in the U.K. and how that looks and where CORDStrom might slot in there? I understand Krystal VYJUVEK is approved there, but not Abeona's EB? Mark Lowdell: Yes. So it is approved. It's not approved by NICE for reimbursement through the NHS. So there is no RDEB-specific treatment available to be prescribed and paid for by the U.K. government for -- in our health care system. So it's only available for self-payers in the U.K. and I'm not aware of it being widely used, if at all. Certainly, the largest center for pediatric RDEB in the U.K. is Great Ormond Street, where the trial was led from. And they are weekly calling me up and saying, how can we open the next phase of the trial for the patients who were treated. So there is a big demand for this. I think alluding to what David was saying, the challenge here with the therapies that are available in RDEB is the price, the price point, and we have a drug here that can come in well below those current price points and have a systemic effect. So we already have -- this trial was driven by NIHR. It was a publicly funded trial, and we were paid to supply the drug. We didn't run the trial, as I said. And that -- the NIHR, which is part of NHS England, specifically said they wanted this drug to be developed as a commercial product if the trials were successful. So we have a lot of push in the U.K. to make this drug available to patients as soon as possible. And I don't see a problem in terms of competing drugs at the moment. What will happen in the U.S., I'm uncertain because obviously, those drugs are already licensed and are being used in the U.S. But it going to come down to efficacy and cost at the end of the day in terms of which ones survive and which ones and where CORDStrom comes within that. David Moss: No, sorry to interrupt. I just want to add, if you don't mind. We cheer on all the competitor products. When you see this disease, it's a huge unmet need in these children, it's just heartbreaking to see -- and so we cheer them on. But I think that the one thing to really keep in mind is that it's typically looked at as a dermatologic disease from a topical nature, but the systemic system is overlooked. But a byproduct of all of the 3 approved products in the United States is an increase in itch. If you look at the label, it will say itch. And that's really part of the process of healing, right? So the more healing you have the itch. And again, if you're going to itch, you're going to itch this cream off, you've got to cover it up, tremendously painful. And if you look at the list of the top complaints from RDEB EB patients, usually #1 is itch, even before pain. It's been described to us as like being bitten by mosquito 1,000 times a day. It's just chronic itch. And so it should slot nicely with the competitors. And again, keep in mind, we're conscious on the margins of the product from day 0 before we even started the trial. Unknown Analyst: Got it. And in terms of data points suggesting CORDStrom has a systemic effect, I know you mentioned the cytokines, but do you have any anecdotal or quantitative data suggesting symptomatic relief for patients in terms of systemic like wounds behind the eyelid and stuff like that? Mark Lowdell: Yes. So the data that are published from the trial by Great Ormond Street that were published a few months ago demonstrated the systemic effects that are associated with itch is a systemic disease effectively. But yes, there are systemic data reports from that. What we're looking at now are getting into those data much more acutely, and that's being done independently and blinded from us to guarantee that when we have the data to take to the agencies, there's no question that we have manipulated it. So we'll be getting those data, but I haven't seen them, so I'm unable to comment on them. But when they come through, we will be sharing them. David Moss: Yes. And I'll just add from an anecdotal standpoint, because a very good question. The patients on the trial could pretty much identify whether they're on drug or placebo. And one of the patients to us ended up speaking to the BBC and the BBC published an article about it, and he talked about his massive improvement in quality of life, being able to do things he wasn't able to do before. And this is something that we heard from some of the PIs as well. And visually, they saw an improvement in the quality of life of these children and their wounds look different to them as well. But if you type in BBC and RDEB into Google, I think it's the first thing that pops up, but that is a child that describes his experience on the MissionEB trial from CORDStrom. Unknown Analyst: Got it. And then just lastly, on cash runway. Where does your current cash position get you out to in terms of milestones with CORDStrom and also with XPro as well? David Moss: Yes. So Q1 is a big timing period for us for XPro. We should have very clear clarity on an accelerated pathway, end of Phase II meeting and certainly the imaging data by then. Our cash runway, as we've reported in the quarter is really to the end of next year in Q4. And then obviously, we've got -- we're getting close to the MAA, which will be around the middle of next year. On top of that, as Mark had alluded earlier, we'll have -- we should have some of the cytokine data and additional data around the MissionEB program towards the end of this year as well. So a number of milestones before we run out of cash. Operator: And this does conclude our Q&A session. I will now turn the call back to David for closing remarks. David Moss: Appreciate it. I'd like to wrap up our prepared remarks by saying that we're as excited as ever about the future of INmune Bio. Despite the setbacks of missing the top line on the MINDFuL trial, we're convinced in the prospects for XPro in the Alzheimer's disease and in other diseases. Meanwhile, we're very optimistic about filing an MAA and BLA in course from next year, and we believe that platform has far greater potential than the market is giving it credit for. We've had a number of attainable goals in front of us, and we appreciate your support as we go about achieving them. As always, we thank our stakeholders for your continued support and look forward to updating you on our progress on the discussion milestones. Thank you, everybody. Operator: Thank you. And this does conclude today's program. Thank you for your participation. You may disconnect at any time.
Operator: Good day, and thank you for standing by. Welcome to the Twilio Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Bryan Vaniman, Senior Vice President of Investor Relations and Corporate Development. Please go ahead. Bryan Vaniman: Good afternoon, everyone, and thank you for joining us for Twilio's Third Quarter 2025 Earnings Conference Call. Joining me today are Khozema Shipchandler, Chief Executive Officer; Aidan Viggiano, Chief Financial Officer; and Thomas Wyatt, Chief Revenue Officer. As a reminder, we will disclose non-GAAP financial measures on this call. Definitions and reconciliations between our GAAP and non-GAAP results can be found in our earnings presentation posted on our IR website at investors.twilio.com. We will also make forward-looking statements on this call, including statements about our future outlook and goals. Such statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those described. Many of those risks and uncertainties are described in our SEC filings, including our most recent Form 10-K and our forthcoming Form 10-Q. Forward-looking statements represent our beliefs and assumptions only as of the date such statements are made. We disclaim any obligation to update any forward-looking statements, except as required by law. And with that, I'll hand it over to Khozema and Aidan, who will discuss our Q3 results, and we'll then open the call for Q&A. Khozema Shipchandler: Thank you, Bryan. Good afternoon, everyone, and thank you for joining us today. Twilio had a great Q3, reaching $1.3 billion in revenue and $235 million in non-GAAP income from operations, another record for both. The team's operational rigor and discipline is paying off as we executed across the board and exceeded our quarterly guidance. As a result, we've raised our revenue, profitability and free cash flow targets for the full year, which Aidan will discuss in more detail. We saw broad-based strength across customer segments from innovative and high-growth start-ups to the world's largest global enterprises, all choosing Twilio to power their customer engagement. This momentum and the continued revenue growth across products like messaging, voice and software add-ons are a testament to the growing trust in the Twilio platform to help brands create amazing experiences. Our progress was repeatedly underscored by my conversations with customers this quarter who consistently expressed excitement and validation for the direction we're taking. During the quarter, Twilio's ISV and self-serve customers continued to be excellent growth drivers with both growing revenue more than 20% year-over-year. Importantly, our innovation bets on new trusted capabilities like conversational AI and branded communications are also paying off. In September, we hosted our annual Exec Connect event, where we spent a few days with our most strategic accounts, giving them a preview of the Twilio platform and road map. I witnessed customers ranging from global banks, AI startups and Fortune 500 software companies having multiple aha moments as they watched our demos and understood what is possible when you have a lifelong two-way omnichannel conversation with your customers over time. I believe Twilio's potential is to be the customer experience layer of the Internet. Our customers are eager to build on a platform that brings together three essential capabilities: multichannel communications, contextual data that creates a persistent customer memory, an AI-driven orchestration that turns every interaction into an intelligent two-way conversation. With these seamlessly integrated across the entire customer journey, Twilio empowers businesses to build relationships that grow stronger and more meaningful with every engagement. Go-to-market execution continues to be a key driver of our results. In Q3, we had several notable customer wins, including a nine-figure renewal spanning multiple products with a leading cloud provider, the largest deal in our company's history. Other wins included Genspark AI, GoGoGrandparent, Inhabit and Paychex, among others. Self-serve, a foundational growth lever for us and an important entry path for our customers to build and grow their usage on Twilio grew 20% plus year-over-year. As an example, last December, a leading AI model company started as a self-serve customer using e-mail for account creation notifications. In under a year, they've scaled into a 6-figure multiproduct customer, now using our voice stack to power their AI agent for outbound and inbound calling at scale. We're also seeing traction in cross-sell and our solution selling, in which we bundle multiple Twilio products together to help solve more complex customer use cases. Q3 marked the first quarter with our agent productivity solution in market, which is a new bundled offering that makes it easier for customers to purchase multiple products across the Twilio platform to transform their customer experience. More specifically, the solution helps businesses boost both human and virtual agent productivity, increase speed to resolution and provide better call deflection and containment. During the quarter, we signed our first set of agent productivity solution deals. A standout example is Inhabit, a leading property management software company who chose Twilio as the partner for its multiyear hybrid agentic transformation. This is powered in part by Twilio's Flex as the modern omnichannel contact center, integrating voice, SMS, e-mail and chat and ConversationRelay as the layer that powers Inhabit's virtual agents intelligent handling of inbound leasing inquiries. While it's still early with our solution selling motion, we're seeing encouraging traction in financial services, retail, travel and health care and have a healthy pipeline of new business with a strong mix of high-margin products. And finally, our efforts to target ISVs are continuing to deliver strong results as revenue from ISV customers grew 20% plus year-over-year. One notable win we saw with ISVs was a leading enterprise management platform who signed a seven-figure deal to use SMS, WhatsApp and RCS in their platform, in addition to Engagement suite running over the top. The incremental investments we made last quarter are paying off as we're continuing to see strong customer demand for voice, conversational AI and RCS. Our voice business accelerated to mid-teens revenue growth year-over-year, its fastest rate in over three years, aided by growth in the AI ecosystem. ConversationRelay call volume more than tripled quarter-over-quarter as customers are increasingly relying on Twilio's technology to power context-aware voice AI agents. For example, a long-time messaging customer turned to voice and ConversationRelay to create AI-enabled voice mail agents that helped redirect phone calls and send follow-up texts for customers' appointments. The customer chose to integrate the Twilio solution rather than trying to build or source this technology from multiple providers. We're also seeing a growing wave of AI start-ups choose Twilio as the foundation for their intelligent voice capabilities. Genspark AI, one of our top 10 voice AI start-up customers, signed a voice deal and launched within a week to power their automated call for me function, which allows their super agent platform to make phone calls to businesses, services or individuals on the user's behalf. Additionally, Genspark signed an e-mail deal for marketing communications. This rapid time to value remains a key differentiator across our platform. In Q3, RCS became generally available around the world, and we saw RCS messaging volume more than double quarter-over-quarter. These branded experiences are able to help consumers trust the brands they're communicating with, which is especially important as the holiday season is upon us. In fact, Partiful, the social events platform, onboarded with RCS this year and sent millions of messages in Q3 across multiple countries, powering a branded experience for event invitations and reminders. We also saw continued adoption of software add-on products, including Twilio Verify, which helps customers with authentication use cases while protecting them from fraud and abuse with AI-powered features such as Fraud Guard. Verify has been one of our fastest-growing products and grew more than 25% year-over-year, a clear signal of the rising demand for trusted verified communication in an increasingly digital and security-conscious world. Finally, today, we announced that we entered into a definitive agreement to acquire Stytch, an identity platform for AI agents that's built for developers. This is a small tech and talent tuck-in that will augment our ability to enable amazing digital interactions by delivering next-generation authentication capabilities built for the era of generative AI. In summary, our Q3 results showcase the continued hard work of our team as we execute on our strategy. I was pleased that Twilio made the list of Best Workplaces for Innovators by Fast Company, a recognition that highlights our strong culture of creativity and employee-led innovation. We remain focused on ending the year strong and helping our customers realize the power and possibilities of the Twilio platform. And now I'd like to turn it over to Aidan, who will walk you through our financial results. Aidan Viggiano: Thank you, Khozema, and good afternoon, everyone. Twilio had a record-breaking third quarter. We generated record revenue of $1.3 billion, up 15% year-over-year on a reported basis and 13% year-over-year on an organic basis. We also generated record non-GAAP income from operations of $235 million. Free cash flow was $248 million. We're continuing to drive top line performance through broad-based go-to-market execution. Messaging revenue grew in the high teens for the second consecutive quarter. Voice revenue growth accelerated to the mid-teens, its fastest growth rate in over three years. This was aided by strong growth from voice AI customers, which accelerated to nearly 60% year-over-year. In addition, revenue from our 10 largest voice AI start-up customers increased more than 10x year-over-year. Software add-on revenue growth also accelerated, led by Verify, which grew more than 25% year-over-year. Finally, from a sales channel perspective, we saw continued strength from both ISVs and self-serve customers, evidenced by 20% plus year-over-year revenue growth from both. Our Q3 dollar-based net expansion rate was 109%, reflecting the improving growth trends we've seen in our business over the last several quarters. We delivered non-GAAP gross profit of $652 million, up 9% year-over-year. This represented a non-GAAP gross margin of 50.1%, down 280 basis points year-over-year and 60 basis points quarter-over-quarter. As we called out in our expectations for Q3, we incurred carrier pass-through fees of $20 million associated with increased Verizon A2P fees, which drove the sequential decline in gross margin. As mentioned last quarter, we continue to take actions to stabilize and improve gross margins. We are taking price actions across our business while investing in initiatives to drive platform efficiency. We're encouraged by the acceleration in high-margin products such as voice and software add-ons, and we believe these actions will drive durable revenue and gross profit dollar growth over time. Non-GAAP income from operations came in ahead of expectations at a record $235 million, up 29% year-over-year, driven by strong revenue growth and continued cost discipline. Non-GAAP operating margin was 18%, up 190 basis points year-over-year and 10 basis points quarter-over-quarter. This included a sequential 20 basis point headwind from incremental carrier fees. In addition, we generated $41 million in GAAP income from operations. Stock-based compensation as a percentage of revenue was 12.2%, down 150 basis points year-over-year and flat quarter-over-quarter. We generated free cash flow of $248 million in the quarter. Additionally, we completed $350 million in share repurchases, up roughly 100% quarter-over-quarter. This brings our year-to-date share repurchases to $657 million through the end of Q3, representing approximately 95% of year-to-date free cash flow. Moving to guidance. For Q4, we're initiating a revenue target of $1.31 billion to $1.32 billion, representing 9.5% to 10.5% reported growth and 8% to 9% organic growth. Our revenue guidance assumes $22 million in pass-through revenue from incremental U.S. carrier fees in Q4. That compares to $20 million in Q3. Based on our year-to-date performance and our Q4 guidance, we're raising our full year 2025 organic revenue growth guidance to 11.3% to 11.5%, up from 9% to 10% previously and raising our reported revenue growth to 12.4% to 12.6%, up from 10% to 11% previously. As a reminder, our reported revenue includes the contribution from incremental increases to U.S. carrier fees, whereas our organic revenue excludes those contributions. Turning to our profit outlook. For Q4, we expect non-GAAP income from operations of $230 million to $240 million. We are raising our full year non-GAAP income from operations range to $900 million to $910 million, up from $850 million to $875 million previously. Based on our strong cash generation year-to-date, we are raising our full year free cash flow guidance to a range of $920 million to $930 million, up from $875 million to $900 million previously. I'm very pleased with the strong revenue growth we delivered in the quarter as well as our ongoing cost discipline that is driving robust profitability and free cash flow. We remain focused on executing against our product and go-to-market initiatives as we close out 2025 and build on our momentum into 2026. With that, we'll now open it up to questions. Operator: [Operator Instructions] Our first question comes from the line of James Fish of Piper Sandler. James Fish: Great quarter here. Appreciate the questions. Maybe just on Stytch, how should we think about what functions or features it really complements Verify with? Why couldn't you do it organically here? And Aidan, for you, is there any way to think about the numbers impact financially to sort of purchase price and whatnot? Khozema Shipchandler: Yes. Jim, thanks for the question. This is Khozema. Maybe I'll start. I would say just to maybe go back to our vision for a second, like our vision as we've articulated it, is to really ensure a world in which every digital interaction is amazing. And as part of that, what Stytch helps us do is to expand our capabilities to ensure that there's trust between businesses and consumers. And what we're finding is that for brands, that authentication piece is both a critical and foundational step in the customer journey in terms of creating that customer engagement. And so that was kind of the primary reason. It's an accelerant as far as that goes. And just I'll maybe take a part of it that you asked aid just since I'm talking. The revenue and the P&L altogether is pretty immaterial in the scheme of things. We don't think it's going to have a material impact on our financials going forward. In fact, it won't. And it's a small kind of tech and talent acquisition that we ultimately did for less than $100 million. James Fish: Got it. That's great. Maybe not to let Aidan off the hook here. I'm going to get asked this all day tomorrow. But any sense to -- obviously, a very, very strong net customer addition number here. Any sense to what's causing that? And if you saw any churn related to the price increase and the overall price increase impact on the quarter? Aidan Viggiano: Yes, I'll jump in here, but Thomas can add anything that he'd like. So just in terms of the net customer adds, you're right, Jim, it was a big quarter for us. Just as a reminder, last quarter, we announced that we were ending our free tiers for our e-mail and marketing campaign APIs. So we did that. Some fairly small accounts, I would say, ended up becoming active accounts, and that drove a big part of the add quarter-over-quarter. Now that being said, we still had solid customer account growth even adjusting for that. But that drove a big part of that number. And then as it relates to the price increase, we haven't seen churn associated with that over the last quarter or so. Thomas Wyatt: And just to add a little bit more to that. We saw a particular strength in our self-service business, which generates a lot of our new customer logo acquisition and some of the voice AI capabilities was really attractive, and that business grew well over 20%. And then our enterprise new business team had a really strong quarter as well. So encouraging signs overall on customer adds. Operator: Thank you. We'll move to next question. Our next question comes from the line of Siti Panigrahi of Mizuho. Sitikantha Panigrahi: That's great. Congrats on a great quarter. In fact, 13% growth against a tough comp, very impressive. And on the voice side, you said mid-teens growth specifically, I wanted to understand the voice AI adoption trends. And how should we think about this voice trends, especially with voice AI? What kind of trajectory we can expect versus messaging from here? Aidan Viggiano: Yes. As it relates to some of the numbers in the quarter, so you mentioned messaging there at the end. So that grew kind of high teens. That's our second consecutive quarter of high teens growth on the messaging side. And voice grew mid-teens, which is our fastest growth rate in over three years. A big part of that, we gave some of the voice AI stats, but let me repeat them. So the cohort of voice AI customers that we kind of look at, they grew nearly 60% year-over-year. our top 10 largest kind of voice AI start-ups were up 10x. So this continues to be an area for us where we see accelerated growth. We're really excited about it. Thomas just talked about how that's impacting kind of our self-serve business as well, and that kind of sales channel in total was up 20% plus. So we're pretty happy with the performance from a voice perspective, and it's something that we continue to be excited about going forward. Khozema Shipchandler: Siti, I'll add one thing, which is just generally in terms of voice AI. I mean it's still a relatively small portion of the overall business and the overall voice business at that. And so I think what we're seeing is like pretty healthy performance across the entirety of the voice business. It spans a wide variety of customers, industries and use cases. And so I think given all that, like we're kind of encouraged about where it could potentially go, just given the fact that we sit at the center of the AI value chain -- the results have been good. We obviously don't guide by product, but I'll just kind of leave it at that, that we're encouraged by the trends, and we have seen very good product adoption, especially as you start to think about the ongoing trends around voice AI and then some of our products like ConversationRelay, for example. Operator: Thank you. We'll move to next question. Our next question comes from the line of Alex Zukin of Wolfe Research. Aleksandr Zukin: Maybe just the strength that you're seeing in the non-messaging business, the sequential adds up a lot this quarter, I think almost double last quarter. So a two-parter. Maybe what drove that? Is that primarily voice? And if it is voice, why not -- when do you expect to see some of the positive gross margin benefits of that attach? And I have a quick follow-up. Aidan Viggiano: Yes, why don't I jump in here. So the net adds in terms of customers kind of quarter-over-quarter was largely e-mail actually. So we did away with our kind of free tier, and we saw, we saw a number of smaller customers kind of convert onto the platform as active accounts. But excluding that, even adjusting for that, we were up kind of quarter-over-quarter. As it relates to gross margins, I think maybe a couple of things. So, first, sequentially, we saw gross margins flat adjusting for the carrier fees. As we think about voice and how that impacts gross margins going forward, as kind of Khozema said, a lot of the AI start-up revenue is still pretty small. But as a company, we're driving a mentality of cross-sell, upsell, adoption of our software add-on products. And I think, as you know, Alex, most of our non-messaging products are very high margin. So as that continues to progress and as we make progress on that from a go-to-market perspective, that should help buoy gross margins going forward. Thomas Wyatt: And if I could just add one point on the growth we're seeing, in particular in self-service, a lot of those customer additions, 40% of those customers -- that was 40% growth was in voice in particular. So that's the strongest part of our self-service business as well. Aleksandr Zukin: And then maybe an embarrassing of good news -- embarrassment of good news this quarter between the large cloud service provider deal, nine figures that you signed, maybe kind of double-click on that. What drove that? Is that related to the partnership we saw with a named service provider earlier in the year? And also, to your point, the ISV relationships seem like they're inflecting the growth opportunity. Kind of what's -- is that [ ISA ], your lead agent driving so many leads so efficiently? Or what's driving some of these elements? Khozema Shipchandler: Yes. Alex, this is Khozema. I'll take that. So a couple of questions there. I'd say ISV relationships generally, we've done well there, like we've been able to grow that cohort particularly well. As Thomas said a number of times, like a lot of those customers actually start in self-serve and they grow from there. And then they, in many cases, grow to be very large accounts over time that grow with us over extended periods of time. And so I think that combination of self-serve then feeding over to ISV and then those ISV relationships growing, that's what you're kind of seeing play out there. In terms of the larger deal that you referenced, we're not going to provide necessarily additional financial details there. It's a customer that we had a relationship with for some period of time, and we're excited about signing a really material renewal. Operator: Thank you. We'll move to next question. Our next question comes from the line of Taylor McGinnis of UBS. Taylor McGinnis: Congrats on the quarter. When we look at the 4Q guide, so the 8% to 9% organic revs growth guide is solid. So maybe just two questions on that. One, I know 4Q volumes tend to be tied to the performance of the holiday season. So any early signs on what you guys are expecting there and maybe the puts and the takes of some of these emerging or other areas outside of messaging growing faster and how that could contribute to the guide and how you guys are thinking about the messaging holiday piece? And then second question would just be the performance in 3Q was really strong and greater than what we've seen historically. So just curious if anything surprised you guys or if there was any areas that performed better than expected? Aidan Viggiano: Yes. Why don't I start with the second one, and then I'll hit on the holiday season. I wouldn't say anything surprised us. What I'll say is it was pretty broad-based, which I think is encouraging. So we've kind of talked about the different pieces, right? But from a sales channel perspective, ISVs, self-serve, right, both were up 20% plus. Our software add-on product, which is something we've been driving with the go-to-market team, the sales team, we saw that accelerate, in particular with products like Verify. Then from a product perspective, our two biggest products in messaging and voice, both grew kind of mid- to high teens, which is great. A lot of the voice stuff driven by the voice AI start-up customer volume that we just talked about. And then from an industry perspective, I'd say consistent with kind of Q2 and Q1 is it was pretty broad-based, right? We saw healthy volumes in tech, health care, professional services, retail e-commerce. So I think that's kind of how I think about Q3. And then as it relates to the holiday season, I guess what I'd say is as we kind of called out last year, we had a very strong holiday season, which does create a little bit more of a challenging comparison for us this year. Obviously, the usage-based nature of our business, and I'd say maybe a bit more of a mixed macro does make it a little bit harder to kind of predict the holiday season, but we're pleased with the guidance that we're providing right today on Q4. And we're encouraged by the strength that we've seen across the product portfolio, across the sales channels and across the industry verticals. Operator: Thank you. We'll move to next question. Our next question comes from the line of Elizabeth Porter of Morgan Stanley. Elizabeth Elliott: I wanted to follow up on some of the comments around demand for voice, and you've really highlighted some great adoption with AI start-ups. So my question is, how are you seeing adoption trends for some of the newer products like Conversational Intelligence and ConversationRelay among some of the more traditional non-AI parts of the customer base? And how are you thinking about the traditional enterprise customers engaging with these products? And any sort of pathway you see for broader adoption outside of the early AI company? Thomas Wyatt: Yes. Thanks, Elizabeth, for the question. This is Thomas. I think just broadly, we saw a really solid traction of our enterprise and ISV customers with multiproduct growth. In particular, add-ons, as Aidan said, grew 20%, but also multiproduct customers count grew north of 20% as well. And to give you some examples of that, ISVs in particular, we saw a lot of early traction with our agent productivity solution, which really brings together a lot of core capabilities of voice, SMS, e-mail and chat all into a unified experience and ConversationRelay is really what powers that to create these virtual agents that can allow customers to power customer care use cases or presales use cases. And there's a number of examples that we've already talked about. One in particular that we're excited about is Inhabit, which is a company that does leading property management, but a great example of how you can use a number of Twilio technologies in an integrated way to deliver a new experience. So we're seeing it in enterprise. We're seeing it in ISV as well as the voice AI start-ups. Elizabeth Elliott: And then just as a quick follow-up on the net dollar-based retention saw a nice uptick again, particularly against a harder comp. So could you just unpack that a bit? How much of the uplift was pricing related, if any, versus underlying expansion? And as you continue to see success with these larger customers and deals, how should we think about the durability of that NRR trend? Aidan Viggiano: Yes. I'd say it's mostly expansion. I don't think the price increase that we did in June around U.S. messaging. I don't think that had a material impact in the quarter. What I would say is contraction and churn remained stable. So it really was an expansion story this quarter. The one other tidbit I'd give is we did have an impact from the carrier fees. They were $20 million in Q3, $6 million in Q2. So that did have a 180 basis point impact quarter-over-quarter. But even adjusting for that in both periods, DBNE or dollar-based net expansion was up slightly. Operator: Thank you. We'll move to next question. Our next question comes from the line of Joshua Reilly of Needham. Joshua Reilly: I just wanted to hit on the AI voice start-ups as well in terms of their usage and growth trajectory. Is there an inflection in the last couple of quarters in terms of volumes here, whereas before it was more of an experimentation phase by these kind of hundreds of thousands of AI voice start-ups? And if so, what would you say is driving that? Khozema Shipchandler: Yes. I wouldn't say an inflection per se. I mean I think it's part of the overall trend that we're seeing around AI a little bit more generally. And obviously, we're a beneficiary of it as it relates to voice AI. I mean I think from our perspective, we're seeing more voice AI agents go into production. But as I mentioned earlier, like for us, it's still a relatively small contributor. I mean we're seeing an impact with those companies. They're accelerating. We talked about the growth characteristics, about 60% in the quarter, but both for the business and then actually as well as even for voice, it's still a relatively small proportion. So I think we're kind of encouraged by the trends that we're seeing, just given that it is still relatively small. We do feel like we sit in the center of the AI value chain. You heard Thomas talk a moment ago about the way in which that's getting adopted into some of our more multiproduct and perhaps more even complex offerings like a ConversationRelay, like an agent productivity solution. And so I think all of these different things are coming together at the right time to be able to drive some additional growth for us. But again, still relatively small in the scheme of things. Joshua Reilly: Got you. And then is it fair to say that the momentum continued for international messaging in Q3 as well. And curious, what are you seeing in the competitive landscape for international messaging that may be helping you win more? And thoughts around -- that was historically a price-sensitive market, but it seems like you're taking market share with international messaging and what may be driving that? Thomas Wyatt: Yes. Thanks for the message, Pat. In general, we had a really strong quarter in international as well. It's one of our key growth levers and overall growth was at 18%. So we like that. The -- if you think about it competitively, what we're just seeing more broadly on a global basis is that the multiproduct capabilities that Twilio offers has really helped us differentiate from specific point players in messaging only, for example. And some of the solutions that we've wrapped around our core channel capability has really allowed us to become a more strategic player for some of these customers and helped us win a lot of competitive bids that maybe we wouldn't have won in the past. So we're encouraged with the traction that we're seeing there. I think Genspark AI is a great example. We talked about earlier in the call, but the ability to bring e-mail messaging, voice all together in an integrated experience is a powerful value proposition. Operator: Thank you. We'll move to next question. Our next question comes from the line of Patrick Walravens of Citizens. Patrick Walravens: So maybe for Khozema and Thomas, I'm curious what areas you guys feel like you want to invest in the most to help continue driving growth next year and beyond? And then maybe, Aidan, I'll just give you my question upfront. I mean, so on the A2P fees, Verizon raised them. I mean, realistically, shouldn't we expect T-Mobile and AT&T to do it at some point, too? And how do we think about that? Aidan Viggiano: Why don't I start with the last question, and then I'll hand it back to Khozema. Yes, they may. I mean, listen, what we've factored in is what we know, which is the Verizon impact. We don't know of anything else. We haven't forecasted anything else in our guidance yet, but there could be a day when those AT&T and T-Mob follow the Verizon action. And that would present an additional pressure to kind of our gross margins. But as a reminder, the way this works is it's kind of a gross up of revenue and a gross up of cost of goods sold, but it has no impact on our ability to generate gross profit dollars, profit dollars or free cash flow dollars. Khozema Shipchandler: Yes. On the first question, Pat, in terms of priorities for investment, like I wouldn't call out anything really different than the things that we've been talking about previously. we feel like we've got kind of the right OpEx envelope for the company. We alluded to some investments in Q2 that we thought were ephemeral in terms of their timing and the impact on the P&L. They've obviously paid off in terms of some of the results that we've seen, in particular, voice AI and RCS adoption, still pretty early days, I would say, on that latter one. And then we made an inorganic investment that we announced today with Stytch. That's an identity company. We think that, that's an important space as we continue to build out our platform. And so I wouldn't call out anything like radically different than things that we've articulated in the past. I think even identity for us is much more about like how do we deliver platform value and a true authentication experience through the platform in a world that's more agent going forward. Operator: Thank you. We'll move to next question. Our next question comes from the line of Samad Samana of Jefferies. Samad Samana: First, maybe just if you think about the voice AI customers, I know it's been asked about enterprise versus AI start-ups. But maybe within that enterprise cohort that you're signing up, is it more customers that you have existing relationships with on the messaging side that are exploring voice AI with you? Or is it actually bringing in new customers that are completely new to Twilio because of the voice AI use case? And then I have one follow-up question. Thomas Wyatt: Yes, I'll take that first one. It really is a balance. A lot of our enterprise customers, again, we do have strategic relationships with and maybe they were a messaging customer initially with just a little bit of voice, and this has accelerated -- Voice AI has accelerated their usage of voice. So that's been a trend for us. But the other is our self-service business is just growing well over 20%. It's -- voice is a big chunk of that growth, as I said, grew 40% this quarter. So that's largely coming from new customers that are doing more with voice. So, in general, it is a pretty good balance across the customer base. Samad Samana: And then maybe as I just think about the context of a lot of parts of the business firing really well right now, it's been quite impressive, just like sales and marketing has been very consistent in dollar terms. And so I'm just trying to think how do you feel about current capacity, especially as you think about more -- selling more of the products and capturing the opportunity that's ahead of you right now? How should we think about maybe sales and marketing going forward and maybe a sneak peek at 2026 and how you're thinking about that? Thomas Wyatt: I could start just talk a little bit about how we're running the go-to-market organization more efficiently, and I think that's helped us a lot. But we've been a big user of our own technology. We've got AI assistants that power a lot of our presales motion. In fact, [ ISA ] is what we've mentioned before is our AI assistant for our self-service business. And the AI assistant handles the vast majority of inbound leads for us and helps customers not only get acquainted with Twilio, but also onboard and get activated and upgraded as part of the process. That's allowed us to scale our go-to-market motion there. And the same is true on post sales, where we handle a lot of our typical customer cases and service tickets powered by AI, and that's given us a lot of productivity gains as well. So we'll continue to invest in capacity as we need to, but we've been able to grow through an efficient manner using our own technology. Operator: Thank you. We'll move to next question. Our next question comes from the line of Ryan MacWilliams of Wells Fargo Securities. Ryan MacWilliams: Just a high level to start on macro in the quarter. Anything worth calling out that deviated from your expectations either from a seasonality standpoint or a linearity standpoint in the quarter? Unknown Executive: In short, no. Ryan MacWilliams: Perfect. And then just on RCS, the existing customers are able to upgrade with no code changes. So will customers immediately begin sending RCS as part of their traditional messaging? And how is interest so far for net new RCS use cases? It's early and you can have different use cases like two-way messaging, but how are folks approaching that at this point? Khozema Shipchandler: I think it's still pretty early, honestly. Like I think what we are seeing is -- so we're seeing growth, right? So that's encouraging. But I think we're seeing growth off of a relatively low basis. I think what we're finding is that there's a lot of experimentation happening. I think we're finding a lot of that is happening kind of going into this holiday season. I'm not sure that, that's going to manifest itself in terms of like kind of the broad variety of different kinds of RCS use cases that you've seen kind of described. So I think it's still a little bit slow going as far as that goes. But I do think customers that have tried it are excited about the potential for the technology. Obviously, it's very, very strong for marketing, for promotional activities. I think some of the other use cases, especially around notifications, obviously, 2FA, like a more traditional SMS is still kind of hanging in there. And so I'd say it's still early days in terms of what we're seeing. But I think the thing that we're most encouraged by in terms of RCS in terms of like kind of a longer-term view is it is branded. And I think anything that's branded in this world where there's a lot of communication coming at us as consumers is just higher efficacy and more trusted. And so we like those characteristics about RCS, but again, early days. Operator: Thank you. We'll move to next question. Our next question comes from the line of Rishi Jaluria of RBC. Rishi Jaluria: Nice to see continued underlying strength in the business. Look, I think we've been talking about some of the margin expansion, capital returns, gross margins. Maybe taking a step back, if we think about the key drivers here where you have durable top line growth and a mix shift story and an AI story, you've got margin expansion and cost discipline, and you've been doing a good job of returning capital to shareholders via buyback. Just how should we be thinking maybe about what is the steady-state free cash flow per share growth profile for this business look like? And I'm not asking for a specific number, but just as you think about aligning the business towards that, how should we be thinking about what that sort of profile on a durable kind of steady-state basis looks like? And then I've got a quick follow-up. Khozema Shipchandler: Yes, Rishi, this is Khozema. I'll try. I mean it's -- we're obviously not going to provide guidance on it, right? So I think that it's kind of hard to answer the question in that context. But what I would say is that, look, when we kind of went into Investor Day and we kind of tackled this as a newer management team, we are very intent on just driving more financial discipline, more operating rigor in the way that we ran the place. And then in terms of the innovation bets that we were placing to just be a lot more focused about those, right? So I'd say it really starts just in terms of the way that we run the company with those three things. Now as a result of those three things, we've been able to do many of the things that you've been describing, right? So you heard Thomas talk a moment ago about the way in which he's running the go-to-market team. That's been done well. But on top of that, that's also been able to be done efficiently based on some of the investments that he and his team have made into productivity in terms of running that team. As it relates to R&D, I would say there are a handful of bets that we've really put wood behind the arrow on. We're excited about identity, but there, again, relatively small investment in terms of doing a tech and talent tuck-in to augment some of our existing capabilities. As it relates to kind of leverage and then cash flow going forward, you've heard Aidan in the past talk about that it's still relatively early for us. I mean we have undergone some mix shift as it relates to the geographic characteristics of our workforce. I think that's played out pretty well. I think we've been able to keep our employment relatively steady state. And so by definition, we're getting some volume leverage there. I think on top of it all, we still are making investments behind AI, behind automation. I think that drives ongoing leverage and free cash flow. And then look, we're not kind of prescriptive about it per se, but we've said that there's sort of a framework for which we're going to do stock buybacks. When we think that the stock is a good value, we're going to step on the gas a little bit, and we've got a grid that otherwise kind of dictates that. So you put all that together, we feel pretty good about where we've been certainly. But as we look forward, we're pretty optimistic about the trajectory of the company. Rishi Jaluria: Got it. That's super helpful. And then maybe as we think about some of the AI adoption that you're starting to see, obviously, very impressive. How are we thinking about the opportunity now internationally? I think it's been clear from prior technological ways a lot of the adoption maybe outside of the U.S. takes a little bit longer or happens a little bit of a lag. Maybe how do you think about investing for that opportunity? What are you seeing? And maybe where are there opportunities for you to take advantage and out-innovate maybe some of your competitors outside the U.S.? Khozema Shipchandler: Yes. It's a good question, Rishi. I guess what I would say is you heard Thomas talk a moment ago about the strength in self-service. And so I think, honestly, like we're doing a lot of what we're already kind of investing in our OpEx window is how do we make that self-serve experience like easier and easier and easier with every turn of the crank. And I think what you're going to see from us going forward is that, that experience is made even simpler. The compliance hurdles are even easier to kind of get over. The AI capabilities that are embedded so that when a customer attaches themselves to our console, it's just like a much simpler, more fluid experience. And I think that will benefit all customers, obviously. But I think with respect to international customers who want to get up and running, I think that will make us even more sort of the vendor of choice. And so I wouldn't say there's something like idiosyncratic that's international versus domestic that we're investing in there. And then as it relates to kind of the go-to-market engine, we pretty selectively invest in Australia, in Japan and Singapore in terms of like having boots on the ground. But obviously, you do have a number of countries in that part of the world that are participating in this. We just held our SIGNAL event in Australia just a few weeks ago. And I would say just based on the conversations that we had there, the excitement that customers have around AI with and without Twilio, frankly, we're pretty encouraged about the trends that we're seeing there, and I think it's going to take off fast. Operator: Thank you. We'll move to next question. [Operator Instructions] Our next question comes from the line of Andrew King of Rosenblatt Securities. Andrew King: Really good detail on the cross-sell motion. If you could just give us a little color into the initiatives that you've put in to really help fuel that growth. And then just off of that, if you could give us a little bit of an update as to your current penetration to your customer base, as I know, the majority still hold just one product. Thomas Wyatt: All right. Great. I'll start with just the sales motion that we're driving, and it's largely powered by the innovation that we're building in the products. And the products are working better together in terms of the various primitives and channels that we have and the ability for our go-to-market team to put together a compelling set of solutions and business outcomes that our enterprise customers and our ISVs can take advantage of. And it's about driving the enablement. Our marketing programs are tied to it. Our compensation plans have been tying to it. So there's a variety of go-to-market initiatives that we've been doing to drive this type of performance. And I think it's still early days. We have a lot more upside when it comes to getting a broader set of customers to consume more and more Twilio services, but we're pretty encouraged with the start that we've had since the beginning of the year. Andrew King: Great. And if I can just sneak one more in there. It's obviously seemingly, you've been landing more products with new customers at a more rapid pace. Can you just give us any color as to those trends that you're seeing amongst initial purchases? Thomas Wyatt: Yes. I think a lot of it comes to the self-service business that's really been a great accelerant for new customer additions. And part of that is just we're getting more efficient in managing our funnel, leveraging AI to help us onboard customers faster and upgrade customers faster. And when we do that, that the value and the ROI becomes quicker and customers realize it and then eventually, they expand faster. So it's just been this flywheel of little tighter marketing, leveraging AI a bit better, better integrations across the products to make it simpler and reduce friction. And all of that's helping the flywheel of customer additions that ultimately helps us scale into the enterprise as these customers get larger and larger, our strategic relationships with them grow and it gives us a lot more white space opportunity within those accounts over time. Operator: Thank you. I'm showing no further questions at this time. Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Operator: Thank you for standing by, and welcome to the Merit Medical Systems Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note that this conference call is being recorded and that the recording will be available on the company's website for replay shortly. I would now like to turn the call over to Martha Aronson, Merit Medical Systems' President and Chief Executive Officer. Please go ahead. Martha Aronson: Thank you, operator, and welcome, everyone. I am joined on the call today by Raul Parra, our Chief Financial Officer and Treasurer; and Brian Lloyd, our Chief Legal Officer and Corporate Secretary. Brian, can you please take us through the safe harbor statements? Brian Lloyd: Thank you, Martha. This presentation contains forward-looking statements that receive safe harbor protection under the federal securities laws. Although we believe these forward-looking statements are based upon reasonable assumptions, they are subject to risks and uncertainties. The realization of any of these risks or uncertainties as well as extraordinary events or transactions impacting our company could cause actual results to differ materially from the expectations and projections expressed or implied by our forward-looking statements. In addition, any forward-looking statements represent our views only as of today, October 30, 2025, and should not be relied upon as representing our views as of any other date. We specifically disclaim any obligation to update such statements, except as required by applicable law. Please refer to the sections entitled Cautionary Statement regarding forward-looking Statements in today's press release and presentation for important information regarding such statements. For a discussion of factors that could cause actual results to differ from these forward-looking statements, please also refer to our most recent filings with the SEC, which are available on our website. Our financial statements are prepared in accordance with accounting principles, which are generally accepted in the United States. However, we believe certain non-GAAP financial measures provide investors with useful information regarding the underlying business trends and performance of our ongoing operations and can be useful for period-over-period comparisons of such operations. This presentation also contains certain non-GAAP financial measures. A reconciliation of non-GAAP financial measures to the most directly comparable U.S. GAAP measures is included in today's press release and presentation furnished to the SEC under Form 8-K. Please refer to the sections of our press release and presentation entitled non-GAAP Financial Measures for important information regarding our non-GAAP financial measures discussed on this call. Readers should consider non-GAAP financial measures in addition to, not as a substitute for financial reporting measures prepared in accordance with GAAP. Please note that these calculations may not be comparable with similarly titled measures of other companies. Both today's press release and our presentation are available on the Investors page of our website. I'll now turn the call back to Martha. Martha Aronson: Thank you, Brian. Let me start with a brief agenda of what we will cover during our prepared remarks. As the recently appointed President and CEO of Merit, I'll begin my remarks with a brief introduction, thoughts on what attracted me to this opportunity and where I have been focused since joining the team. I will then provide a brief summary of the third quarter 2025 financial results, followed by a review of the team's progress in recent months in a few key operating areas. Then Raul will provide a more in-depth review of the quarterly financial results and the financial guidance for 2025, which we updated in today's press release. We will then open the call for your questions. Before delving into our third quarter results, I would like to take a moment to introduce myself and provide a few summary points on my background and where I have focused my time since joining the team. I joined Merit on October 3 with over 28 years of experience in the global health care industry. My experience includes multiple general management and functional leadership roles at several global companies following a short time in management consulting. I spent almost 2 decades at Medtronic, including several years living and working overseas. After Medtronic, I led global health care businesses with notable scale, including serving as Senior Vice President and President of North America for Hill-Rom Holdings and Executive Vice President and President of Global Healthcare for Ecolab. I've also served as a Board member at a number of companies, including CONMED, Methode Electronics, Clinical Innovations, Cardiovascular Systems, Beta Bionics, Hutchinson Technology, Bright Uro and Home Care. And in one instance, I served as Interim CEO. I believe my experience leading global businesses in the health care industry and advising companies across multiple sectors gives me the requisite background to lead Merit. I have admired the consistent track record of strong top line growth and profitability improvements that the employees and executive team here have achieved, particularly over the last 5 years. As I learned more about the company and in particular, the company's values, which we call the Merit way, these values resonated with me entirely. I've been heartened by the fact that these are not just words, rather the organization truly lives these guiding principles. We focus on the health of our employees so they can better serve our customers and in turn, our health care professionals are better positioned to care for their patients. We focus on excellence. We focus on agility or being responsive to customer needs. We take responsibility for our actions, and we work as a team. An organization that is committed to the Merit way and aligned on a mission to understand, innovate, deliver represents a powerful combination. I appreciate that the mission includes a significant focus on innovation given the importance of R&D and new technology in our industry. Suffice it to say, I'm excited to join Merit and truly honored to take on this role. While my official start date was just a few weeks ago, I have been actively engaging with external stakeholders, directors and members of Merit's executive and senior management teams since my appointment as the new President and CEO was announced on July 7. Since my official start, I've been spending time with our global leaders and their teams as I continue to learn the business. I'm inspired by their optimism about the future, and I'm impressed with the talent and passion of the employees that I've had the chance to meet. I see strong alignment in the shared purpose that this organization has in saving and improving lives each and every day. I've been fortunate to spend a lot of time with Fred Lampropoulos in recent months. We have visited a number of sites together, including Richmond, Dallas, Perland, Tijuana and Minneapolis, and I have spent time at our headquarters in South Jordan. I've also visited with each member of our Board of Directors individually to gather their thoughts and views on Merit, so I can better understand the things that we're doing well and what we can work to improve in the future. Fred and I have also spent time developing our transition plan with a keen focus on ensuring minimal disruption while establishing a process that enabled me to take over the day-to-day leadership of the company. I am confident we have a solid plan in place and importantly, alignment across the team as to key roles and responsibilities. To that end, it is important to understand that as part of this succession plan, Fred is now serving as the Executive Chairman of the Board through the remainder of this year. As we begin 2026, he will transition to non-Executive Chairman. Fred will continue to play a role in our evaluation of potential organic and inorganic opportunities. I appreciate Fred's willingness to continue to partner with me and the team on such an important part of the company's growth strategy. We need to continue to leverage his knowledge, experience and substantial relationships with physicians and customers around the world to ensure Merit remains focused on the right product opportunities and investment areas to support our long-term growth and profitability. With respect to where I'll be spending my time over the balance of my first 100 days, simply stated, I'll be continuing on my listening tour. I look forward to visiting our global sites, meeting the teams, seeing the operations at our manufacturing facilities and spending time with our global research and development team. I have a lot more to learn about our products, our people and our processes. But so far, all that I've learned gives me great optimism. I look forward to attending several key medical congresses, physician advisory boards and meeting as many of our key opinion leaders as possible. I also intend to dedicate a portion of my time in the coming months engaging with the investment community. All of these activities are centered around gathering as much feedback as possible and learning as much as I can, a tall task, but one that I'm extremely excited about. I feel very privileged to have this opportunity. I'm grateful to Fred and the entire Board of Directors for the trust, support and confidence in me as the right leader for the company's next stage of growth and development. Now turning to a review of our third quarter results. We reported total revenue of $384.2 million, up 13% year-over-year on a GAAP basis and up 12.5% year-over-year on a constant currency basis. The constant currency revenue growth delivered in the third quarter exceeded the high end of the range of the growth expectations that were outlined on the Q2 2025 earnings call. The better-than-expected constant currency revenue results were driven by 7.8% constant currency organic growth, which exceeded the 6% high end of the range, which was outlined on the second quarter call. With respect to the profitability performance in the third quarter, the company delivered financial results that significantly exceeded expectations. It was another quarter of notable year-over-year improvement in non-GAAP operating margin, which increased 51 basis points year-over-year to 19.7%. The team delivered nearly 7% growth in non-GAAP EPS, which exceeded the high end of expectations. And the company generated $53 million of free cash flow, an increase of 38% year-over-year. The third quarter results reflect continued strong momentum in the business this year. Despite the continued challenges related to the dynamic and uncertain global macro environment, the team is executing well. Over the first 9 months of 2025, the team has delivered total constant currency revenue growth of 12%, a non-GAAP operating margin of 20%, representing a 129 basis point increase year-over-year, and the team generated more than $140 million of free cash flow. These are impressive financial results to say the least. We have updated our financial guidance for 2025 in today's press release to reflect the strong financial results in the third quarter and our updated expectations for Q4. We remain focused on delivering continued strong execution, solid constant currency growth and strong free cash flow generation in 2025 as well as progress in our continued growth initiatives program and related financial targets for the 3-year period ending December 31, 2026. Turning now to a review of the company's progress in recent months in a few key operating areas. Let me begin with new product development, clearance and commercialization. In August, the company announced the U.S. commercial release of the Prelude Wave hydrophilic sheath introducer with SnapFix securement technology. The Prelude Wave is the latest innovation in Merit's comprehensive access portfolio, which includes a wide range of dilators, micro access systems, sheath introducers and guide sheath. Merit innovated the Prelude Wave, a next-generation sheath with a unique securement feature. Compared to the leading competitor, the Prelude Wave offers twice the lubricity, twice the resistance to buckling and kinking and requires 40% less insertion force. A first of-its-kind SnapFix technology provides twice the adhesive strength with a number of physicians rating its performance and ease of use superior to the leading competitor. This new product introduction represents another advancement in Merit's access portfolio, built to improve radio procedures and to aid in minimizing common vascular challenges. In September, the company announced that Embosphere Microspheres received CE Mark and are indicated in the European Union for use in genicular artery embolization or GAE, to treat patients with knee osteoarthritis. GAE is a nonsurgical option that provides fast and lasting pain relief in patients with mild to moderate knee OA. Data show that over 75% of patients treated with Embosphere for GAE achieved clinical success with significant reductions in knee pain sustained through 24 months. In addition to durable pain relief over time, Embosphere was associated with a decrease in pain medication use and improvements in quality of life measures. Compared to corticosteroid injections, GAE with Embosphere achieved consistently higher clinical success with greater improvements at 3 months in pain and quality of life. CE Mark of Embosphere for GAE presents an exciting opportunity to advance this treatment option and further interventionalists ability to offer the positive results they expect from the procedure. On October 1, the company announced that our Scout Radar localization technology has been used to treat 750,000 patients worldwide, a significant milestone for breast cancer treatment. As a market leader in wire-free non-radioactive localization technology, Merit's mission every month, but especially this month, is to reduce the burden that cancer places on patients and their loved ones. Radar localization helps physicians surgically remove abnormal breast tissue while reducing trauma to surrounding healthy tissue. A trusted solution for breast cancer care, Scout has been mentioned in more than 100 clinical publications with nearly 8,500 patients referenced throughout. As it is being used in 50 countries, more than 500 cases are performed each day, totaling 10,000 cases per month. Over 1,100 facilities worldwide choose Scout as their preferred method of wire-free localization. Every day, through products like Scout, we're able to help more patients become cancer-free, and we're proud to be a part of that. I would now like to provide an update on our recent progress towards our commercial and reimbursement strategies for the WRAPSODY CIE in the United States. Our Renal Therapies group has been impressively executing the U.S. commercial strategy for WRAPSODY CIE during the third quarter, and they continue to exceed our expectations with respect to leveraging the new access to customers from the early commercialization of WRAPSODY CIE to identify opportunities to drive adoption and utilization across the rest of our dialysis product portfolio. The team remains focused on engaging with new and existing customers to work through the VAC approval processes as well as working with the largest GPOs and some of the largest IDNs across the country. Physician training events are being held at centers of excellence with physician partners who are passionate about the product and educating their peers on the benefits of the WRAPSODY CIE. The team has also worked to ensure we were prepared to maximize the opportunity presented by WRAPSODY CIE's new technology add-on payment, or NTAP, effective October 1, 2025. By way of reminder, this add-on payment applies to WRAPSODY CIE procedures conducted in the hospital inpatient setting. We have conducted sales force trainings and prepared reference materials to support discussions with customers and prospects. Our RTG team is focused on ensuring hospitals have the requisite information and understand the process for submitting claims for hospital inpatient use when the WRAPSODY CIE procedure is provided to a patient. We have been pleased by the initial market response in terms of access, adoption and utilization for customers using WRAPSODY CIE in the hospital inpatient setting following the NTAP effective date. With respect to our progress towards securing incremental payment for procedures in the outpatient and ASC settings, as projected on the last earnings call, Merit completed the application for TPT incremental payment under Medicare's OPPS system and submitted the application by the September 1, 2025 deadline. We continue to anticipate preliminary approval with an earliest effective date of January 1, 2026, and finalization in next year's rule cycle. Finally, we have made notable progress in expanding the body of clinical evidence for our WRAPSODY CIE in recent months. In August, we announced the successful enrollment of the first patient in the RAP North America registry study. Dr. Omar Davis, President and Medical Director at Bluff City Vascular, an investigator in the RAP North America Registry enrolled the first patient. The RAP North America Registry is designed to enroll up to 250 U.S. and Canadian patients on hemodialysis who experience obstructions such as stenosis or occlusion in the veins required for dialysis access. The RAP North America registry is intended to add to Merit's growing portfolio of clinical evidence supporting the WRAPSODY CIE. If completed as designed, it would represent the largest cohort of patients treated with an implantable device to restore vascular access for hemodialysis. On October 15, we completed enrollment in our RAP global registry study. This study was designed to enroll up to 500 patients outside of North America to evaluate real-world outcomes associated with the use of the WRAPSODY CIE. The primary endpoint of the study is 6-month patency, and we anticipate having data available in mid-2026. We look forward to one of the lead investigators in the study sharing the results at a medical meeting next year. Two other notable items I wanted to preview in the area of WRAPSODY-CIE clinical evidence and awareness. Tomorrow, October 31, Merit will be hosting an industry-sponsored breakfast symposium at the Controversies in Dialysis Access, or CiDA, Annual Meeting in Boston. CiDA is a high-priority conference for our unique dialysis access portfolio. The meeting is solely focused on dialysis access across all specialties. We are expecting 75 to 100 attendees and are very excited about the faculty selected to lead the session. We are also excited to participate in this year's Vascular Interventional Advances or VIVA meeting in Las Vegas, November 2 through 5. VIVA is the premier multidisciplinary educational event for specialists treating patients with vascular disease. We plan to release 24-month data for both AVG and AVF from our WAVE study at the VIVA meetings. We completed the last patient visits in the third quarter, and we look forward to having this long-term data presented at VIVA next week. Before I turn the call over to Raul, I want to discuss a strategic announcement we made subsequent to quarter end. On October 15, 2025, we announced that we had entered into an agreement to acquire the C2 CryoBalloon and related technology from Pentax of America, a subsidiary of Pentax Medical Inc., for a total purchase consideration of $22 million, $19 million of which would be paid in cash at closing. The C2 CryoBalloon delivers controlled freezing treatments to drive targeted ablation and precise destruction of unwanted soft tissue. The C2 CryoBalloon treats Barrett's esophagus as well as a less common disorder, GAVE or Gastric Antral Vascular Ectasia. The device freezes and eliminates abnormal cells while still maintaining the integrity of surrounding tissue structures. This proposed acquisition is intended to strengthen our position in the multibillion-dollar gastroenterology market and to provide opportunities to treat more patients from the effects of chronic gastroesophageal reflux disease or GERD and other gastrointestinal tissue disorders. While the total transaction size is relatively small, we believe this will be an important strategic acquisition as it is expected to expand the portfolio of solutions our endoscopy sales team has to offer customers. We have invested in this part of our business, both organically and inorganically over the last few years and are nearing an inflection point in terms of completing our integration and sales force alignment activities. We believe we are well positioned to accelerate growth and market share gain in the coming years. With that, I'll turn the call over to Raul for an in-depth review of our quarterly financial results and our updated financial guidance for 2025. Raul? Raul Parra: Thank you, Martha. I will start with a detailed review of our revenue results in the third quarter, beginning with the sales performance in each of our primary reportable product categories. Note, unless otherwise stated, all growth rates are approximated and presented on both a year-over-year and constant currency basis. Third quarter total revenue growth was driven primarily by 13% growth in our Cardiovascular segment and to a lesser extent, 4% growth in our Endoscopy segment. Cardiovascular segment sales exceeded the high end of the expectations we outlined on our second quarter call and endoscopy sales came in at the low end of our expectations. Our total revenue results included approximately $16 million of revenue from our acquisition of products from Cook Medical and BioLife of approximately $10.7 million and $5.3 million, respectively. Excluding sales of acquired products, our total revenue growth on an organic constant currency basis was 7.8% in the third quarter. Turning to a review of our third quarter revenue results by product category. Peripheral Intervention product sales increased 8% and represented the largest driver of organic Cardiovascular segment growth in the period. PI sales modestly exceeded the high end of our growth expectations in Q3. Growth in our PI business was driven by strong sales in our [ Ebola ] therapy, access and delivery systems categories, which together represented more than 75% of our total PI growth year-over-year. Demand of our Embosphere and QuadraSphere Microsphere products was notable in Q3. Access category growth was driven by demand for our WRAPSODY CIE and delivery system category growth was driven by demand for our SwiftNinja steerable microcatheter. Cardiac Intervention product sales increased 29% and 10.9%, excluding the contribution from the sales of acquired products representing the second largest driver of Cardiovascular segment organic growth in the period. This performance was well above the high-end organic growth expectations we assumed for Q3. Organic growth in our CI business was driven by strong sales in our EP, CRM and intervention categories, which together represented more than 2/3 of our total CI growth year-over-year. Demand for our Prelude SNAP, HeartSpan steerable sheath and our Ventrax delivery system were the largest contributors to EP CRM organic growth in Q3. Demand for our mean arterial pressure products, our PHD hemostasis valves and our basic inflation devices were the largest contributors to organic growth in the intervention category in Q3. Rounding out the Q3 performance across the rest of our Cardio segment, sales of our custom procedure solutions products increased 6%, above the high end of our expectations and sales of our OEM products increased 3%, modestly lower than our expectations. The softer-than-expected OEM performance in Q3 was entirely related to sales to OEM customers outside the U.S., which continues to see demand trends impacted by the macro environment. Sales to OEM U.S. customers increased in the high single digits year-over-year in Q3. Turning to a brief summary of our sales performance on a geographic basis. Our third quarter sales in the U.S. increased 12% on a constant currency basis and 7.6% on an organic constant currency basis, exceeding the high end of our organic growth expectations by 310 basis points. We were pleased to see continued strong demand from our U.S. customers in the third quarter. International sales increased 13% year-over-year and increased 8% on an organic constant currency basis. Sales results in APAC, EMEA and the rest of the world regions each modestly exceeded the expectations supporting our Q3 guidance range. With respect to China specifically, sales decreased 1%, which was softer than expected. We attribute the softness to broader macro environment as the VBP impact was better than expected in Q3. Excluding the VBP impacts in both periods, China sales increased 2% year-over-year in Q3. Turning to a review of our P&L performance. For the avoidance of doubt, unless otherwise noted, my commentary will focus on the company's non-GAAP results during the third quarter of 2025, and all growth rates are approximated and presented on a year-over-year basis. We have included reconciliations from our GAAP reported results to the related non-GAAP items in our press release and presentation available on our website. Gross profit increased approximately 19% in the third quarter. Our gross margin was 53.6%, up 267 basis points year-over-year and representing the highest gross margin in the company's history. The year-over-year improvement in gross margin was driven primarily by mix by product and by geography as well as improvements in pricing and freight and distribution expenses compared to the prior year period. As expected, tariffs were a material headwind to the year-over-year improvement in gross margin in Q3, representing a nearly 90 basis point incremental impact year-over-year to third quarter gross margins. Operating expenses increased 21%. The increase in operating expenses was driven by a 21% increase in SG&A expense and a 20% increase in R&D expense compared to the prior year period. Total operating income in the third quarter increased $10.4 million or 16% to $75.6 million. Our operating margin was 19.7% compared to 19.2% in the prior year period, an increase of 51 basis points year-over-year. Third quarter other expense net was $2.4 million compared to income of $0.9 million last year. The change in other expense net was driven by lower interest income associated with lower cash balances, offset partially by lower interest expense compared to the prior year period. Third quarter net income was $54.9 million or $0.92 per share compared to $51.2 million or $0.86 per share in the prior year period. Third quarter net income and EPS exceeded the high end of our guidance range by $3.2 million and $0.07, respectively. Turning to a review of our balance sheet and financial condition. We generated $52.5 million of free cash flow in the third quarter of 2025, up 38% year-over-year. As of September 30, 2025, Merit had cash and cash equivalents of $392.5 million, total debt obligations of $747.5 million and outstanding letter of credit guarantees of $3 million, with additional available borrowing capacity of approximately $697 million compared to cash and cash equivalents of $376.7 million, total debt obligations of $747.5 million and outstanding letter of credit guarantees of $2.9 million, with additional available borrowing capacity of approximately $697 million as of December 31, 2024. Our net leverage ratio as of September 30 was 1.7x on an adjusted basis. Turning to a review of our fiscal year 2025 financial guidance, which we updated in today's press release. For reference, we have included a table in our earnings press release, which details each of our formal financial guide ranges and how those ranges compared to our updated guidance ranges issued as part of our second quarter earnings press release on July 30, 2025. Our updated 2025 guidance assumes the following: GAAP net revenue growth of 11% to 12% year-over-year, which we expect to result from net revenue growth of approximately 10% to 11% in our Cardiovascular segment and net revenue growth of approximately 32% to 34% in our Endoscopy segment and a tailwind from changes in foreign currency exchange rates of approximately $6 million or approximately 45 basis points to growth year-over-year. Excluding the impact of changes in foreign currency exchange rates, we expect total net revenue growth on a constant currency basis in the range of 10.3% to 11.2% compared to 9.7% to 10.6% previously. Among other factors to consider when evaluating our projected constant currency revenue growth range for 2025 are the following items: First, the midpoint of our total constant currency growth range now assumes 13% growth in the U.S. compared to 12% previously and 8% growth outside the U.S., unchanged versus prior guidance. The 8% constant currency growth we expect outside the U.S. continues to assume low double-digit growth in EMEA, mid-teen growth in the rest of the world region and approximately 2% growth in the APAC region. Second, our total net revenue guidance for fiscal year 2025 also assumes inorganic revenue contributions from the business and assets acquired from EndoGastric Solutions on July 1, 2024, Cook Medical on November 1, 2024, BioLife on May 20, 2025, and proposed to be acquired from Pentax on November 1, 2025. Together, we expect inorganic revenue in the range of $59.9 million to $60.5 million in 2025. Excluding this inorganic revenue, our updated 2025 guidance reflects total net revenue growth on a constant currency organic basis in the range of approximately 5.9% to 6.8% year-over-year compared to 5.6% to 6.4% previously. Third, for the full year 2025 period, we continue to forecast U.S. revenue from the sales of WRAPSODY CIE in the range of $2 million to $4 million. By way of reminder, this range is driven by the initial ramp in WRAPSODY CIE sales for procedures in the hospital setting following the NTAP add-on reimbursement, which went into effect on October 1, 2025. With respect to profitability guidance for 2025, we now expect non-GAAP diluted earnings per share in the range of $3.66 to $3.79 compared to our prior guidance range of $3.52 to $3.72. The change in our non-GAAP EPS expectations for the 2025 year reflects the flow-through of the better-than-expected financial performance in the third quarter at both the low and high end of the non-GAAP EPS range, specifically $0.16 and $0.07, respectively. The low and high end of the updated non-GAAP EPS range also reflect the impact of a higher non-GAAP tax rate assumption and the previously announced expected dilution from the proposed acquisition of the C2 CryoBalloon, offset partially by lower expected dilution from our convertible debt. The high end of the non-GAAP EPS range also includes our updated projected impact of tariffs, trade policies and related actions recently implemented by the U.S. and other countries. Specifically, the high end of our updated guidance range now assumes tariff-related manufacturing costs in our cost of goods line of approximately $7.6 million compared to $7 million previously. This updated assumption is driven by a higher tariff impact realized in Q3, while our assumption for tariff impact in Q4 remains unchanged versus our prior guidance assumption. Importantly, the $7.6 million figure is based on available information as of October 30, 2025, and does not include any impact from new and/or additional tariffs or retaliatory actions or changes to currently announced tariffs, which could change the anticipated impact to our non-GAAP EPS in 2025. The ultimate impact from new and/or additional tariffs or retaliatory actions or changes to currently announced tariffs on our business will depend on the timing, amount, scope and nature of such tariffs, among other factors, most of which are currently unknown. The tariff situation and potential retaliatory measures by other countries remains highly uncertain and dynamic. As such, the low end of our guidance range continues to reflect additional tariff-related impact in 2025. Specifically, the low end of our EPS range now reflects a tariff-related impact on our 2025 cost of goods of $16 million compared to $26.3 million previously. This updated assumption for the low end of our guidance range reflects the actual tariff impact realized in Q2 and Q3 compared to the assumptions originally outlined on our Q1 earnings call in April. Our Q4 tariff expectation remains unchanged. Returning to a discussion of our updated 2025 financial guidance assumptions for modeling purposes. Our fiscal year 2025 financial guidance now assumes non-GAAP operating margins in the range of approximately 19.7% to 25% compared to 19% to 20% previously. Note, the change in our 2025 non-GAAP operating margin expectations is primarily attributable to the flow-through of stronger-than-expected financial performance in the third quarter of 2025. Non-GAAP interest and other expense net of approximately $8.3 million compared to $8 million previously, non-GAAP tax rate of approximately 23% compared to 22.5% previously and diluted shares outstanding of approximately 60.5 million. Note, our weighted average share count now assumes incremental dilution of approximately 0.6 million shares related to our convertible debt facility compared to 0.9 million shares previously. We now estimate incremental share dilution related to our convertible debt facility represents an impact of approximately $0.04 to our non-GAAP EPS in 2025 compared to $0.05 previously. Finally, we now expect to generate free cash flow of at least $175 million in 2025, inclusive of the expectation that we will invest approximately $90 million to $100 million in capital expenditures this year. We would also like to provide additional transparency related to our growth and profitability expectations for the fourth quarter of 2025. Specifically, we expect our total revenue to increase in the range of approximately 7% to 10.6% on a GAAP basis and up approximately 5.5% to 9.1% on a constant currency basis. The midpoint of our fourth quarter constant currency sales growth expectation assumes approximately 9% growth in the U.S. and 4% growth in international markets. Note, our fourth quarter constant currency sales growth expectations include inorganic revenue in the range of $8.5 million to $9.1 million. Excluding inorganic contributions, our fourth quarter total revenue is expected to increase in the range of approximately 3% to 7% on an organic constant currency basis. With respect to our profitability expectations for the fourth quarter of 2025, we expect non-GAAP operating margins in the range of approximately 18.8% to 20.8% compared to 19.6% last year and non-GAAP EPS in the range of $0.87 to $1.01 compared to $0.93 last year. That wraps up our prepared remarks. Operator, we would now like to open up the line for questions. Operator: [Operator Instructions] Our first question comes from the line of Jason Bednar with Piper Sandler. Jason Bednar: Congrats, everyone, here on the strong results. And Martha, welcome and looking forward to working with you. I feel like got to start talking here about WRAPSODY to kick it off. You said you're pleased with the response so far on the inpatient side. You called it out as a notable contributor to PI growth. Can you give a bit more color here? It sounds like you're already tracking pretty well in that inpatient setting in the early days. And then maybe I'll just ask an open-ended question, if you could respond to questions that exist out there with respect to clearing the necessary criteria into secure TPT, particularly the cost criteria that requires a different price point than that [ 5,800 ] ASP that you've publicly discussed in past calls and which was used in the submission to secure NTAP. Martha Aronson: Jason, thanks very much. Appreciate the question and look forward to working with you as well. Yes, let me make a few comments on this. First of all, let me just say, I think we're all really pleased with the initial market response as it pertains to WRAPSODY CIE, right? If we look at access, adoption and utilization in the in-hospital setting, right? And so in that setting, in the hospital setting, effective October 1 was the new add-on payment. So we're certainly excited about that and a big shout out, frankly, to our team who's done a great job training physicians. I think you may have heard on a previous call, the goal was to train and have about 250 physician advocates. At the end of the quarter, we're at 200, and that has actually led to a total of over 500 physicians who have been trained in WRAPSODY. So we're very excited about that, and there continues to be even more work being done around building awareness for WRAPSODY-CIE. And you heard a little bit, there's going to be a symposium in Boston at the CETA meeting this week as well as next week at the VIVA meeting in Las Vegas, which I'm personally excited to attend. There will also be 24-month data shared. So I would just say stay tuned on that because you may see a press release or 2 coming out on some of that data next week. So I think it's also fair to say that I'm well aware there's been a considerable amount of discussion, if you will, out in the community about whether or not -- now I'm shifting gears, okay, from that -- we were just talking about the hospital setting, just so I'm really clear, right? We're talking about the hospital setting and the NTAP add-on payment that went into effect October 1. So now I'm going to switch gears to your second question, which I believe was about TPT, which pertains to the nonhospital outpatient and ASC settings, right? So as I said, I understand there's been a great deal of discussion on this. Let me try to be very clear and state quite simply, we believe we meet the required cost criteria. So our application for TPT included WRAPSODY’s list price of $8,000. Jason Bednar: Okay. All right. That's helpful. And I'll let others follow up on that. But I wanted to switch over to -- we had a lot of impressive pieces in the quarter here. Hard to pick what was most impressive, but I'll settle on gross margin to ask here. I think you beat the Street by almost 300 basis points. You referenced it's a record for the company. Maybe, Raul, if you can unpack a bit more the source of that upside, whether there's durability there. And then bigger picture, and sorry, I'm packing a couple in here, but we're officially in mid-50s gross margins. I'm doing some generous rounding, but you're drifting into the margin range where some peers currently operate. Do you still see gross margin headroom beyond the mid-50s? Or when we think about the margin opportunity for Merit going forward, it's going to require more SG&A leverage? Raul Parra: Yes. Great question, Jason. And thank you for highlighting the gross margin, right, and asking the question. I mean I think we're really proud of that. As you know, since Foundations for Growth and now CGI, we've really focused on expanding that gross margin and our approach of kind of throwing the kitchen sink at it has really worked. And so when we look at the compounding efforts from our sales force and our operations team to get to where we're at, we're really proud of those guys for all the hard work that they're doing. It's a tough job, but they've been able to really move the needle there. And so kudos to them. As far as the gross margin for Q3, it was really driven kind of, again, by the kitchen sink approach, right? So our sales force did a really good job on focusing on mix. not only by product but also by geography. And also the focus on improvements in pricing has really helped us out. Our operations group has been doing everything they can to hold the line on what's a really tough environment. Freight and distribution expense compared to the prior year also helped us out. And I also kind of want to highlight that they overcame kind of a 90 basis point incremental impact year-over-year on the gross margin, which could have been better, right, had it not been for those tariffs. As far as kind of the long-term vision, I'm not going to get ahead of myself on CGI. When we launched CGI, we were pretty clear that most of the improvement in operating margin would come from gross margin. And on the higher end, it would be more gross margin with some OpEx leverage. So I think that's the goal is to continue to drive gross margin to hit our CGI goals. And we're just -- we're focused on that. And we're not going to get beyond that. You've heard me say this before, we don't want to drop the football on the one yard line. So we're laser-focused on making sure that we stay within the CGI goals and focused on those. Operator: Our next question comes from the line of Robbie Marcus with JP. Lilia-Celine Lozada: This is Lilly on for Robbie. Martha, congrats on the new role. I know it's still early, but I'm going to try my hand at a question on 2026. There's clearly a lot of momentum in the business, new product rollouts, a lot of nice tuck-ins recently. Could you share some high-level thoughts on how you're thinking about next year? And if not quantitative, then any qualitative color on headwinds and tailwinds we should be keeping in mind would be helpful. Martha Aronson: Yes. Lilly, thanks for the question. And I think you're right. We're not going to really go into 2026 at this point, right? I mean, suffice to say, as you know, we've got CGI goals that are in place that go through the end of 2026. So my message here in month #1 has been really clear to the team that we want to just stay really focused on that. We want to stay focused on closing out a strong 2025. We've got CGI goals for 2026. And then frankly, as I'm just kind of getting in the seat here, I will then spend a lot of time with our newly structured executive leadership team and a newly structured operating committee, global operating committee to really do the work to start to think about our strategic goals beyond CGI. So that's really where our focus is at this time. Lilia-Celine Lozada: Got it. And then just as a follow-up, you've done a number of small tuck-ins over the last few quarters. So could you share your updated thoughts on M&A and cap allocation? Is this the cadence of deals that we should be expecting moving forward? And are there any areas that stand out to you as particularly interesting that you'll be focusing on? Martha Aronson: Yes. Look, I mean, here's what I would say, right? I mean Merit has really focused historically on both organic and inorganic growth, right? They really have used both very effectively, I think, to grow the business. So again, really early for me to say a whole lot on this topic other than I think we'll continue to look at the opportunities that come our way. We'll continue to think more about each kind of platform that we're in and where the strategic opportunities might be, again, to focus our R&D efforts, again, both internally and externally. So I don't see a major shift in terms of capital allocation strategy. I think this has been a company that's invested in R&D to grow the business. And again, I anticipate continuing to do that. Raul Parra: Yes. One thing I'll add is, obviously, free cash flow continues to be very strong. which helps us as part of these acquisitions and investments internally, like the distribution center and our R&D projects, as Martha was talking about. So we've generated almost $142 million in free cash flow this year with $57 million coming in Q3. So we're definitely driving free cash flow. That will help with the investments, capital allocation that we want to do, and we just got to stay focused on it. And we're -- we've got a minimum of $400 million of free cash flow to hit for CGI. We're well on our way to do that and excited about how strong our free cash flow continues to be. Operator: Our next question comes from the line of Jayson Bedford with Raymond James & Associates. Jayson Bedford: Welcome, Martha congrats to both of you on the progress here. Maybe a product line question. Cardiac Intervention has seen a real acceleration here in the last couple of quarters. I think you've called out EP and CRM as a driver. Are you just riding what is a faster growing end market? Or is there a unique kind of share capture dynamic going on? Raul Parra: Well, there's a couple of things going on. I think one of the things that's really helped is the focused sales groups. So having a more focused approach to our bags has really driven a lot of growth. You look at the Cook acquisition, part of the reason we did that was to allow more focus on our EP and CRM products. And we're clearly seeing those guys do a really good job of driving growth. So when you look at the performance in Q3, our Cardiac Therapies group did -- is just doing really good from an integration standpoint, not only selling the Cook products that we acquired, but also the products that Merit had, which is what we were hoping for. And then you look at our Vascular Therapies group, now that they don't have those products in their bag, they're allowed to focus more on the PI side of things, specifically kind of the biopsy drainage and embolic portfolio, which are -- some of those high-margin products that we really want our groups kind of pushing. And then lastly, you look at our Renal Therapies group, again, I know they're kind of tasked with selling reps through CIE, but they're also really focused on the rest of the portfolio that we have for them. And again, I think it's a team effort, and they've all been executing at a really good high level to deliver the growth rate that we've seen. I mean to look at our U.S. organic growth at 7.6% in Q3, and that's outstanding. Jayson Bedford: Okay. Fair enough. Maybe just a different type of margin question. SG&A was a bit higher than it's been in the past or at least higher than our model. Anything notable there in terms of either new reps? Is it integration or just simply a function of the gross margin is stronger, which allows you to invest a bit more in the business? Raul Parra: Yes, there's definitely some of that going on, Jason, right? I think we've talked about that. But there was a couple of kind of what I'll call kind of one-timers that we were obviously looking at. Obviously, with the higher sales than expected, we [ had ] commissions. So also, if you look at the performance of the company, a majority of -- a big chunk of the increase, I'll say, was the variable bonus accrual, truing that up to kind of the year-to-date performance of where the team is at. And then we also had a distributor buyout in Europe that came in earlier than anticipated. So rest assured, we're keeping an eye on the operating expenses and the amount we're investing. But we have been kind of candid and clear, I would say, and transparent about making sure that you guys understand that as the gross margin come in, there is a level of investment that we're making, but we're also very conscious about making sure that we're keeping an eye on it. Operator: Our next question is going to come from the line of Mike Matson with Needham & Company. Michael Matson: So I know it's still kind of early days with WRAPSODY, but I was wondering if you were seeing any of the expected benefit to the other dialysis products, kind of that portfolio strategy that you have there in that business? Martha Aronson: Yes. I mean I'd say we are, yes. I mean I think as Raul was just sharing, I mean, having these slightly more focused sales organizations, right, does enable the group to not only be focusing on WRAPSODY, but all the wraparound -- no pun intended, right, but all the wraparound products, all the additional products that we have in that bag. So I think we're really encouraged by that in the early days here. Michael Matson: Okay. And then just on the CryoBalloon, the C2 product, I'm familiar with Barrett's esophagus and the ablation procedure. But wondering if you could tell us how big that market is or the TAM there? Yes. I don't have that handy here, but I can get it for you. Obviously excited what the product can do. Yes. But just at a higher level, obviously excited that we continue to find products that we can drop in our endoscopy bag. This is the second acquisition here within the year. We've been looking for things to add to the endoscopy bag, quite frankly, for a long time and just finding assets that we can drop into that sales force is really exciting. I know they're excited about it. This product was really driven by our sales force. They really wanted this. They're really excited about what it can do for the rest of the portfolio. So we'll get to that TAM, but continue to be excited about the opportunity there. Operator: Our next question will come from the line of John Young with Canaccord. John Young: Martha, [indiscernible] sentiment and look forward to working with you. And maybe just starting on that, too, just what have you identified so far in terms of company excellence versus possible areas of improvement? Martha Aronson: Yes. Thanks, John, and I look forward to working with you as well. The first thing I have to say is having spent some time both leading up to my official start date and since then, I just have to say the passion that I've seen out of the employees here, everybody I've had the chance to visit with amongst the various sites and here in Salt Lake City, there's just so much dedication to taking care of our customers who we know are then helping patients. And I mean, we all -- when you're in this industry, right, everybody kind of says, "Oh, this is a great industry. We're helping people. But I have to say, you really feel it here. It's very genuine. I think the Merit way, which is the values of this company, it comes through loud and clear. And as I think I said in my prepared remarks, these aren't just words on a page. This is really how people feel. It is. It's health, it's excellence, it's agility, it's responsibility, it's teamwork. So I think I'm super excited about that. As I said, I'm also excited to really kind of dig in and get going with, as I said, a newly structured executive leadership team and kind of a newly formed global operations committee, right, which is sort of our top leaders all around the globe. And I do think we do have an opportunity as we continue to grow and scale globally, right, to really think about how are we ensuring really tight cross-functional collaboration and I would say, cross geographic collaboration. So those are kind of the things I'm looking at so far. And as I said, really excited to kind of dig in and we'll have 2026 while we're staying focused on CGI to really think about kind of what's next beyond '26. John Young: Great. And then just as a follow-up to Endoscopy, the softness in Q3 that you called out, I didn't hear any reasoning behind that, Raul. Was that seasonality? Or is there another factor going on there? Raul Parra: Yes. I mean there's always a level of seasonality. But honestly, the way we forecasted for our Endotek division, they're integrating an acquisition. We expected kind of -- it always -- when you're trying to combine 2 portfolios, there's always a level of distraction as you're learning to sell the new products. And so we really anticipated that to happen. And essentially, the Q3 sales trend was improved as expected. It was better than the first half of the year. And I think it will continue to accelerate from here as the sales force kind of starts to understand how to combine and sell these products. But they're hanging in there. Every month seems to get a little bit better, and that's kind of what our expectation was. Operator: Our next question is going to come from the line of David Rescott with Baird. David Rescott: Congrats on a good quarter here. A few questions from us, and I'll ask them both upfront. First, on China. I heard the call out around softer growth than expected, only down 1%, though not too terrible. But I'm just curious on what some of the dynamics are in that market that have played out so far in the second half of the year relative to what your expectations were heading into the second half, how you're feeling about the dynamics in that market over the next 12 to 18 months? That's the first question. And then second one on WRAPSODY. I know we'll probably find out around the TPT update in the coming days or weeks. So just curious if you could walk us through what the next day steps are, meaning that once you find out what the update is on reimbursement, where you go from there as you start to progress through or into, I guess, 2026? Raul Parra: I'll take China and then Martha, I think, is going to take the WRAPSODY question. So look, I think, first of all, I'll start with the highlight, right? I mean I think China has been a market that hasn't grown like we wanted to kind of from a reported or organic basis. I think the encouraging thing is that volume continues to be strong. I'll highlight that I'll point out, VBP was better than expected in Q3. I think we've seen that happen routinely in China. I think that's a positive sign for us. But really, it's -- the softness is coming just from the broader macro environment. And when we say that, we're really kind of talking about kind of OEM in China specifically being softer than anticipated. So I think as we look at the core business, which is China, excluding OEM, I think they're doing really well given the environment. And it's really just kind of the OEM component that kind of continues to drag it down a little bit. But overall, I think we -- just the China market overall, I think we're excited about what we can do there in the future. Other than that, I think it's no other things to kind of point out. Martha Aronson: Yes. And let me comment then on -- again, on WRAPSODY. So I think as I mentioned earlier, we are very confident we meet the required cost criteria. As I said, our application for TPT included our list price at $8,000. So as you said, we do expect to hear sometime in December with the earliest than possible effective date of January 1, 2026, and then a finalization during next year's [indiscernible]. Now I mean we know the U.S. government is in shutdown. So far, we haven't heard anything there that changes our expectations. Obviously, if we hear something, we'll let you know. But otherwise, we'll proceed from there. Operator: Our next question will come from the line of Michael Petusky with Barrington Research. Michael Petusky: I just wanted to real quickly drill down both on endoscopy and China, which have been sort of called out as maybe areas of relative weakness. Raul, have there been any key customer losses in either business, say, over the last 6 to 12 months? Raul Parra: Like I said, endoscopy, it's really just driven of the integration of the sales forces, Mike. So again, I wouldn't -- I've got nothing else to say other than the performance of endoscopy kind of continues to improve as they learn how to sell these products. So I think on a go-forward basis, we're excited about what they can do. And like I highlighted earlier, they're really excited about C2 and what it can do for not only our newly acquired products, but also kind of our legacy portfolio. So I think that will be a something that can hopefully generate additional growth to the core business and obviously deliver some additional growth on the noncore stuff. As far as China, I mean, it really -- there isn't anything that -- any red flags that I would call out. Again, I think when you kind of strip out the OEM piece, which, as you guys all know, I have been pretty adamant about OEM, just being a business that's very variable, right? I know when we were growing at 20%, 15%, I kind of told everybody, hey, don't get excited, right? I think a high single-digit business is kind of what we expect from OEM. You will have some quarter-to-quarter variability, some year-to-year variability. That's just the nature of OEM. So we don't have any concerns. I think when you look at the OEM business, year-to-date, they've grown at 9%, which is right in that high single digit. And when you look at China business, kind of the core business itself, again, I'll highlight that VBP was better than expected. Volume continues to be strong. So yes, I wouldn't call anything else out. I mean I think we're doing just fine. Michael Petusky: Okay. Great. And then a quick one for Martha. In terms of this next, I guess, at this point, roughly 60 days where Fred is the Executive Chair versus next year when he'll be nonexecutive Chair. I mean, what are the primary ways you're sort of utilizing them? Is it mostly just introductions to team and customers? Or are there other areas where you hope to utilize Fred over the next 60 days? Martha Aronson: Yes. So yes, Fred and I are, of course, in pretty regular communication. And I think one of the primary areas, as you all know, because you know him well, Fred is very, very knowledgeable in what technologies are around, right? And so he's really helpful as we think about, again, whether it's organic or inorganic technology opportunities. So that's really one of the primary areas where we are leveraging his expertise and experience. Operator: Our next question comes from the line of Jim Sidoti with Sidoti & Company. James Sidoti: Another question on the Pentax acquisition. How does that product differ from the product you acquired last year from EndoGastric Solutions? Is it the same treatment? Is it complementary? And is it approved in Europe as well as in the U.S.? Raul Parra: Well, I mean, it is a different -- it's in the same call point, Jim, which is why the sales force is excited about it. I think it allows the sales force to highlight the C2 Balloon while also talking about EGS, right? And so as you -- as they think about the full portfolio of products, now it allows them to be talking about multiple devices within the same call point that they're in. And so it really is a different product, but it's within the same call points. Martha Aronson: So Jim, it really -- yes, it really is different, right, in terms of, it's cryo, right? So it's using very, very cold. If you will, think of it, it's almost making ice, right? So you're delivering a frozen treatment, if you will, to drive a targeted ablation. So it is different. It destructs unwanted soft tissue. So I think the other thing that's exciting that could be some possibilities for us in the future is to see whether or not there are other applications of soft tissue beyond the current one that it's got approval for, right, which is in the gastroenterology space. James Sidoti: And in terms of approvals, is it just a U.S. product? Or do you expect it to be sold overseas as well? Raul Parra: It's sold overseas, too. Not materially, but it is. James Sidoti: Okay. Is that something that you think you could expand? Or do you think you'll focus on the U.S. market? Raul Parra: Jim, I think our approach is that we think we can take products just given our global footprint, our sales force, obviously, that's an opportunity that we think we can exploit. Obviously, it takes time now with MDR and all the regulatory kind of hurdles. We'll make the assessment as to what markets make sense. But we're always looking to take things internationally when we can. James Sidoti: And speaking of MDR, that expense has come down the past few quarters. Is there a light at the end of the tunnel for that? Or do you think it kind of levels out where it is spending right now? Raul Parra: I hope there is. I mean I think it's a long process. As you guys know, you guys have heard us complain about it, right? I mean I think to reregister products that have been in those countries for 10-plus years with no serious impact. As a matter of fact, helping patients has been really frustrating. But I think there is a light at the end of the tunnel. I think there's rumors of positive changes to MDR, how those play out is yet to be decided. But I think that the regulatory burden for Medtech devices is really hard. And I think Europe has seen the impact of those changes. And so hopefully, they come to some common sense there and they make some changes. But for now, the Merit way is just to be prepared and play by the rules. And so that's what we'll do. James Sidoti: All right. And then the last one for me, $140 million of free cash flow in the year-to-date, I assume you'll generate another chunk in the fourth quarter. Is that all going to go to debt pay down? Or do you have any other plans right now? Raul Parra: Yes. Well, we've got to convert, right? So there's really no debt to pay down, right? I mean I think for now, we'll continue to hang the cash on the balance sheet and look for acquisitions or investments here within Merit to deploy that capital. But we are calling for a minimum of $175 million of free cash flow for the year. So there is additional free cash flow that we think we can get. But yes, super excited about how strong it's been, given that we're also building the distribution center across the street, so. Operator: Thank you. And I would now like to hand the conference back over to Martha Aronson for closing remarks. Martha Aronson: Thanks very much. And just a huge thank you to all of our employees for all their hard work, and thank you all for joining us today on the call and for your interest in Merit Medical. Operator: This concludes today's conference call. Thank you for your participation. You may now disconnect. Everyone, have a great day.
Operator: Good afternoon, and welcome to WEC Energy Group's Conference Call for Third Quarter 2025 Results. This call is being recorded for rebroadcast. [Operator Instructions] In conjunction with this call, a package of detailed financial information is posted at wecenergygroup.com. A replay will be available approximately 2 hours after the conclusion of this call. Before the conference call begins, please note that all statements in the presentation, other than historical facts, are forward-looking statements that involve risks and uncertainties that are subject to change at any time. Such statements are based on management's expectations at the time they are made. In addition to the assumptions and other factors referred to in connection with the statements, factors described in WEC Energy Group latest Form 10-K and subsequent reports filed with the Securities and Exchange Commission could cause actual results to differ materially from those contemplated. During the discussions, referenced earnings per share will be based on diluted earnings per share, unless otherwise noted. This call also will include non-GAAP financial information. The company has provided reconciliations to the most directly comparable GAAP measures in the materials posted on its website for this conference call. And now it's my pleasure to introduce Scott Lauber, President and Chief Executive Officer of WEC Energy Group. Please go ahead. Scott Lauber: Good afternoon, everyone, and thank you for joining us today as we review our results for the third quarter of 2025. Here with me are Xia Liu, our Chief Financial Officer; and Beth Straka, Senior Vice President of Corporate Communications and Investor Relations. As you saw from our news release this morning, we reported third quarter 2025 earnings of $0.83 per share. With this solid quarter, we remain on track for strong 2025 results. Our focus on executing the fundamentals of the business is creating real value for our customers and stockholders. Today, we are reaffirming our earnings guidance for the year at a range of $5.17 to $5.27 a share. Of course, this assumes normal weather through the remainder of 2025. In addition, I'm excited to share our new 5-year capital plan. Let's start by talking about the economic growth that's driving the plan. We continue to see major business building a future in our region. Overall, our electric demand is expected to grow 3.4 gigawatts between 2026 and 2030, an increase of 1.6 gigawatts compared to the prior plan. Microsoft is making good progress on its large data center complex in Mount Pleasant, Wisconsin. The company has stated that the first phase of that project is on track to go online next year. In addition, Microsoft also recently announced plans for a second phase in Mount Pleasant that will be similar in size and power. Its projected investment is an incremental $4 billion on top of the original $3.3 billion investment. The economic development south of Milwaukee is supporting approximately 2.1 gigawatts of our overall 3.4 gigawatt demand growth. And as you recall, Vantage Data Centers has signed on to develop data center facilities on approximately 1,900 acres north of Milwaukee in Port Washington. Just last week, Vantage has announced that this campus named Lighthouse will be part of open AI and Oracle's partnership on the Stargate expansion. Vantage has reported that the site has the potential to reach 3.5 gigawatts of demand over time. Right now, we're focused on providing generation for an estimated 1.3 gigawatts of demand at the site in the next 5 years. The city of Port Washington approved Vantage is planned in August for the initial development on 670 acres. Vantage has stated that it expects to invest $15 billion in the project. The campus will feature 4 data centers and construction is planned to start this year. Vantage has announced that the facility could go online in late 2027 with this first phase of the project scheduled for completion in 2028. Of course, the growth of large customers is also fostering small commercial and residential development throughout our service territory. And Wisconsin's unemployment rate stands at 3.1% continuing a long-running trend below the national average. This significant economic development is driving our capital plan. As you may have seen from our announcement this morning, we expect to invest $36.5 billion in capital projects between 2026 and 2030, an increase of $8.5 billion above our previous 5-year plan. That's more than a 30% increase. With this updated capital plan, we expect asset-based growth at an average rate of just over 11% a year. We expect that strong asset base growth to support our updated long-term projected earnings per share growth of 7% to 8% a year on a compound annual basis between 2026 and 2030, This is based on the midpoint of our 2025 guidance. For the next two years, however, we expect to maintain our existing EPS growth rate of 6.5% to 7% on a compound basis and then accelerate starting in 2028 to the upper half of the new guidance range on a compound basis. As you are well aware, we're in the early stages of deploying the capital required to support the robust growth in our region, and it takes time to fully put the projects in service. The increase in our plan is driven by investments in regulated electric generation, transmission and distribution in Wisconsin and the pipe retirement program in Illinois. Let me give you a few more details. Over the next 5 years, we'll utilize an all-of-the-above approach for generation to support the economic growth and reliability by investing in new natural gas, batteries and renewables. The key for reliability is dispatchable resources. Between 2026 and 2030, we expect to invest an incremental $3.4 billion in modern, efficient natural gas generation versus the prior plan. This includes combustion turbines, reciprocating internal combustion engines or race units and upgrades to existing facilities. We also will continue to invest in renewable generation and battery storage increasing our projected investment by $2.5 billion over our prior plan. In addition, American Transmission Company plans to continue to invest in our transmission capabilities to serve our region's economic growth, connect new generation and strengthen the system. Part of that new transmission is planned to serve customers and new data center needs. Our plan calls for us to invest approximately $4.1 billion in ATC projects between 2026 and 2030. This represents a $900 million increase from the previous plan. And to help assure reliability and support economic growth, we're continuing to invest in our electric and natural gas distribution networks with an additional $2 billion in the plan. This includes significant investment in our pipe retirement program in Chicago. Recall that the Illinois Commerce Commission directed us to review -- directed us to focus on retiring all cast iron and ductile iron pipe with a diameter under 36 inches by January 1, 2035. We expect that over 1,000 miles of older pipe will need to be replaced. Turning to the regulatory front. I have just a few updates across our service areas. In Wisconsin, our proposed very large -- or BLC tariff remains with the Public Service Commission for a review. As we discussed earlier this year, this tariff is designed to meet the needs of our very large customers while protecting all of our other customers and investors. As currently proposed, and in our testimony filed earlier this month, the tariff would provide for a fixed return on equity in an updated range of 10.48% to 10.98% and an equity ratio of 57%. These financial terms have been agreed upon with the customers. The proposed terms of the agreements are 20 years for wind and solar and the depreciable lives for natural gas and battery storage assets. We worked with a very large customer in designing the tariff, including the financial parameters, and we believe the tariff is a key component to making Wisconsin a prime spot for data center investment. We have a procedural schedule and provided our direct testimony earlier this month. A commission order is expected by early May of next year for customers to take service in June. And in Illinois, we are continuing to coordinate with the City of Chicago under Pipe retirement program. As we are ramping up these efforts, we will continue to have regulatory reviews of the process. This includes the forecast in the general rate case proceeding, which we are planning to file in early 2026 for test year 2027. Of course, we'll keep you updated on any further developments. Now I'll turn it to Xia to provide you more details on the financial results and our financial plans. Liu Xia: Thank you, Scott. Our third quarter 2025 earnings were $0.83 per share $0.01 over third quarter 2024 adjusted earnings. Our earnings package includes a comparison of third quarter results on Page 16. I'll walk through the significant drivers. Starting with our utility operations, earnings were $0.12 higher when compared to third quarter '24 adjusted earnings. Weather positively impacted earnings by about $0.01 relative to last year. Compared to normal conditions, we estimate that weather had a $0.03 favorable impact in the third quarter of 2025 compared to a $0.02 favorable impact in 2024. Rate-based growth contributed $0.15 more to earnings and timing of fuel expense, tax and other items added another $0.07. These positive drivers were partially offset by $0.06 from higher depreciation and amortization expense and $0.05 from higher day-to-day O&M. In terms of our weather-normal retail electric deliveries, excluding the iron ore mine, we saw a 1.8% increase compared to the third quarter of 2024. This was led by the large commercial and industrial segment, which grew 2.9%. The residential and small commercial and industrial segments grew 1.3% and 1.4%, respectively. Overall, we are slightly ahead of our annual electric sales growth forecast. Looking ahead, with the updated load growth, we now expect our annual electric sales growth to be between 6% and 7% for the period 2028 through 2030, that's up from the 4.5% to 5% we previously forecasted. Turning to American Transmission Company. Capital investment growth contributed an incremental $0.02 to Q3 earnings versus 2024. And at our Energy Infrastructure segment, earnings increased $0.01 in the third quarter of 25% from higher production tax credits. 0next, you'll see that earnings from the Corporate and Other segment increased $0.11. This was largely driven by tax timing and higher interest expense. In terms of common equity, we issued about $800 million through the first 9 months via our ATM program as well as the dividend reinvestment and employee benefit plans. This largely satisfied our common equity needs for this year. As Scott noted, we're reaffirming our 2025 earnings guidance of $5.17 to $5.27 per share. This includes October weather and assumes normal weather for the remainder of the year. Going forward, with the updated capital plan, we expect our EPS growth to accelerate post 2027. Overall, based off the midpoint of the 25% guidance range, our long-term growth rate CAGR is expected to be 7% to 8% through 2030. Now let me comment on the financing plan that supports this growth and the new capital plan. As we have consistently guided you, we expect any incremental capital will be funded with 50% equity content. When compared to the prior plan, we added $8.5 billion of capital and about $4 billion of incremental equity content equally split between incremental common equity and hybrid or like-kind securities. So here are the details of the funding sources. Over the next 5 years, we expect cash from operations to be approximately $21 billion, funding more than half of our cash needs. Approximately $14 billion of the funding is expected to come from incremental debt, and the remaining cash is expected to be funded by approximately $5 billion of common equity. As a reminder, the cadence of common equity is a function of capital expenditures. For 2026, we expect common equity issuances to be between $900 million to $1.1 billion. In closing, as Scott discussed previously, the strong economic development and low growth in Wisconsin is the foundation of our new 5-year plan. With the asset base forecasted to grow at 11.3% a year on average, we expect to nearly double our asset base over the next 5 years. It's important to note that the bespoke assets allocated to our very large customers, are projected to represent 14% of our total asset base by 2030. As a reminder, the tariff is designed so these customers pay their fair share and are not being subsidized by other customers. We're very excited about our company's future and the investment opportunities ahead of us. With that, I'll turn it back to Scott. Scott Lauber: Thank you, Xia. Finally, a quick reminder about the dividend. As usual, I expect we'll provide our 2026 dividend plan and earnings guidance in December. We continue to target a payout ratio of 65% to 70% of earnings, and we're currently positioned well within that range. We expect to grow the dividend at a rate of 6.5% to 7%, consistent with our past practice. Overall, we're optimistic about our 5-year plan and the longer-term outlook. I think we're in the early stages of the growth cycle as we continue to see opportunities in economic development in our region, including data centers. We look forward to providing additional details on our plan in just over a week at the EEI conference. Operator, we are now ready for questions-and-answer portion of the call. Operator: [Operator Instructions] We'll take our first question from Shahriar Pourreza at Wells Fargo. Shahriar Pourreza: Just on the -- obviously, just on the updated growth outlook, I mean there is that inflection post 27. I guess some would be surprised it's more back-end loaded. Can you maybe just walk us through how the CAGR shapes kind of in that back half of the plan? Can it be accelerated? -- other incrementals? Is there an opportunity to smooth this out a little bit? Scott Lauber: Sure, sure. Great question. And remember, as we historically have done, we've always taken the midpoint of the current year's guidance, the 2025 guidance and looked at a compound annual growth rate I think it will help if I give you a little color of what we're seeing year by year and think about it as you look at our capital plan. So in the first year in '26, we're seeing $6.5 billion to $7 billion. I think as you start looking in '27 then, you can see our capital plans are ramping up to a little almost $7 billion and over $7.7 billion. When you have that, you're going to see part of those earnings coming in. So in 2027, we're seeing 7% to 8% probably on that annual basis year-over-year growth versus looking at it on a compound basis. And then when you look at those outer years, '28 through '30, I'm seeing closer to 8%. That's kind of where we're seeing. It just takes a while to ramp up really lines up well with what our capital plan is -- and that's how you get that compound growth rate that 7% to 8% at the upper end of our plan here. Does that add a little color? Shahriar Pourreza: No, it does. And is there any opportunity, Scott, to smooth it out a little bit? Or is this the plan is the plan. Scott Lauber: Well I think there's some opportunities that we could see as things potentially accelerate. There's a lot of stuff that we're asking for approvals for and the commission is doing a great job getting us approvals. There's just a lot of activity and we want to be very prudent -- what it takes to get approvals, what it takes to actually get everything to start building those plans. So I think there's opportunity there. We're just -- we don't like to have any white space, we want to make sure we can execute and we want to make sure we can deliver. And we feel this is very, very executable. Shahriar Pourreza: Perfect. I appreciate that. And then just my perennial question for you is just around the Point Beach conversations just with NextEra. I guess any sort of sense of timing around an announcement? Are you still to have an Analyst Day coming up in early December. Are you still thinking about year-end? Or are the conversations kind of shifting a little bit further out? Scott Lauber: Yes, that's a great question. And the conversations are still going on. They're maybe shifting a little bit further out. I just wanted you to know in this plan, we haven't assumed 1 way or the other. So we have no capital in here if we had to replace that capacity. In the end, we're really looking at what's the best for our end-use customers and what value we have for the customers. We just got to be very prudent. We have a lot of opportunities, we think, in fact, -- if we don't renew something, I think there's potentially capital upside. We're just going to really look at it from the perspective of the customer and what makes sense overall. Operator: We'll take our next from Julien Dumoulin-Smith at Jefferies. Julien Dumoulin-Smith: I am wearing the rally cap for you guys here today on this one. Scott Lauber: I appreciate that. Julien Dumoulin-Smith: Of course. With that said, there's a lot to take on here. Let me come back to the question on this Microsoft expansion in the second phase. Obviously, they made some headlines recently. How should we interpret that as being incremental or not to the plan if eventually there's something folds in there? I mean, to what extent is it or isn't it fully reflected here? Scott Lauber: So -- and we work with Microsoft, along with all the other customers in Southeast Wisconsin that we came up to that 2.1 gigawatts for Southeastern Wisconsin. And I can't really divulge individual customer information -- but let's just say I'm very confident in the growth we have in Southeastern Wisconsin, and I think there's more growth in the remaining 5 years when you think about the next 5 years of our plan. And I don't know if you had a chance to listen to the Microsoft conference call, they actually called out the growth in Southeastern Wisconsin. They call the data center Fairwater. It's the world -- expected to go online next quarter or this quarter, they announced it expects to go online next year. And they say it could scale up to 2 gigawatts alone. So I think -- and I can't speak for them, but when you look at the overall picture, I think there's a lot of opportunities as you think about the next 5 years also. Julien Dumoulin-Smith: Got it. Excellent. If I can needle you on a couple of details here. One thing that stood out here, you raised the transmission CapEx by slightly less than $1 billion. But I think the Port Washington transmission project itself with ATC was 1.3%. Is that fully in there? Again, I know it's a partial ownership for you guys, et cetera, but -- just wanted to clarify that here. Scott Lauber: Sure. And we're a 60% owner of American Transmission Company. So it's all kind of factored in here. I think there's maybe a little bit more upside as we see other data centers in there. I think it's probably the basic is factored in our plan. So there's probably a little more upside at that $1.4 billion. I think that even came out after the original ATC forecast was pulled together. So I think there's a little bit more runway there. Remember, there's only so much transmission you kind of do on the system at a time. So it's maybe limited a little bit by that. Julien Dumoulin-Smith: Got it. And sorry to one more here. The ramp in Illinois seems a little bit more than perhaps some were expecting. Again, it's a pretty healthy number here with the $1.5 billion. Can you speak a little bit to what's taking place there? And also, if you have any latest thoughts about what could happen with this Illinois legislation, if it has any meaningful impact for you guys? Scott Lauber: Sure, sure. It's very consistent with what we've been laying out that it's going to ramp up some in 2026, then in 27, and we expect we'll be up to about that $500 million in 2028 and going forward. Remember, we had about $90 million a year on the plan. So it falls in line between that $1.4 billion and $1.6 billion. We have $1.5 billion in here. So that all is kind of consistent with what we've been saying. The Illinois legislation, we'll see where that goes, is a little bit on the efficiencies in there. I don't think you'll have a significant effect on us, but we, of course, are watching it. Operator: We'll move next to Michael Sullivan at Wolfe Research. Michael Sullivan: Scott, I wanted to start with Slide 22. If you could just help on the just bridging the asset base growth to earnings growth? Is the delta there from 11% to 7%-8%? Is it all just equity dilution? Or is there anything else we should be thinking about it? And then on that same slide, of asset base with the bespoke customer? Is that like a proxy for like earnings attached to those projects as well? Scott Lauber: So a couple of items, and we'll let Xia address it, too. At a high level, the bespoke portion there that's to identify people had asked how much of the potential rate base in those outer years will be tied to that very large customer tariff. And that's the current projection. And it's about 14% of our asset base up in 2030, dealing with that, the renewables and other stuff that the VLC payer will cover. And then the 11.3% to our growth rate, a large of it is just dealing with choice. I think it looks like what we do with the financing and the dilution from the equity issuance. Liu Xia: Yes. I think roughly 3% is from the equity and the rest is the little bit holding company, Terry, Michael? . Michael Sullivan: Okay. That's very helpful. And then sticking with the financing plan, any sense of where you are in terms of capacity for junior subs and hybrids? Like are there any thresholds that eventually you run into at some point or still a lot of runway? Liu Xia: Still a lot of runway. And as you know, the agencies have a slightly different definition for the capacity, S&P uses percentage of the total capitalization and Moody's uses a percentage of the total debt capacity. The 5-year plan with the planned juniors sub, we still have billions of dollars of capacity left. So we're good. Operator: We'll take our next question from Nicholas Campanella at Barclays. Nicholas Campanella: I wanted to ask just a very large increase in the capital plan and the rate base growth following that. That's obviously coming with a financing need. And you are in a lot of different states and jurisdictions. I noticed that you also, as part of this plan, put some capital out of WEC infrastructure. Just wondering what the appetite is to recycle capital to replace common equity needs or other financing needs in the plan? Scott Lauber: Sure. That's a great question. And if there was an opportunity that came along, we, of course, would look at it. We just want to make sure that it fits our financial parameters. It will be good for investors. But we really like the performance of our -- of some of our smaller companies. They perform very well. They don't take a lot of work, and we continue to execute on them. We've got a great team there. So it's not like we're looking to sell them at all. But if an opportunity would exist, we would always look at that opportunity. We just want to make sure it's good for our investors. Nicholas Campanella: Okay. Great. And then I guess just as we think about the ability for current customers to gross up commitments in your territory or potential new customers? I guess one thing we've heard through this earnings season from some other companies, they talked about just available turbine capacity, what their advantage in the supply chain would be to kind of deliver on those incremental deals. How do you kind of think about that from the WEC side if Vantage was to come and do an increased commitment or Microsoft was to come or other large load customers. Do you have the turbines or maybe the renewable agreements to kind of execute on that? Scott Lauber: Sure. Great question. And we have a team that works with our very large customers and potential additional customers on how we could supply either an accelerated load on their basis or additional load or new growth. So we are working with them every day. We have a robust supply chain and working with developers to have a path to be able to serve that. So very -- feel very confident that the load will increase, and we could work with them. So we have been working with them behind the scenes for several years on this to stay ahead of it. What you're seeing in the plan, though, is what they have firm commitments to. Nicholas Campanella: Maybe if I could just sneak one more in quickly, just on Point Beach. Just recognizing the license extension there just recently happened in the last few months, what's just the state of urgency from state stakeholders to kind of further lock up this capacity through the end of the decade or the end of 2030 now? And is that something that you think we could see by year-end? Scott Lauber: So I mean, we've got the capacity, I think it's to 2030 and 2033. So we have a lot of time. We've been working with NextEra. We just got to make sure that we have the right agreement for our customers. But as I said, we do have access to other abilities if we need to replace that capacity. So we're working with them. We just got to get to a right position. And if we get there, great. If we don't get there, there's a lot of opportunities for us, too. Operator: Next, we'll move to Andrew Weisel at Scotiabank. Andrew Weisel: First question -- sorry, if I'm getting 2 Qs here, but for '28 to '30, are you implying 8% or like 7.5% to 8%? And if it is the latter, doesn't the math suggest that the overall 5-year period would be below the midpoint? Scott Lauber: Well, I don't think it will be below the midpoint. I think we're going to look at probably in that 8% area that will get us to the midpoint on a compound basis. Liu Xia: I think there's a little confusion, Andrew, in terms of the upper half on the slide. I think that's a compound number of the midpoint of 2025. What Scott is talking about is on an annual basis, if you look at from '27 to '28, '28 to '29, we're seeing that 8% range. And if you compound it back, that's the 7% to 8% of the midpoint of 2025. Andrew Weisel: Okay. Great. Just wanted to clarify. So it's about 8% for the later years, right? Liu Xia: On an annual basis. Andrew Weisel: Okay. Great. Just wanted to clarify that. Next question, on the CapEx update, first of all, very impressive numbers, a huge increase. What I want to understand, though, is it's an $8.5 billion increase. But when I add up the pieces on Page 18, I'm calculating a total of $8.1 billion. So I don't know if it's rounding or if there's some pieces missing, but can you help me bridge that gap? Where is the extra $400 million coming from? Scott Lauber: Yes. That's -- I mean we just kind of picked out a couple of the highlights there. I guess if you do the specific reconciliation with the bar chart, you have a little bit more gas distribution of a couple of hundred million. And then I think it's kind of cats and dogs and generation and everything else. We just called out the significant ones. Andrew Weisel: Okay. That's what I thought. I just wanted to be sure. Then lastly, in terms of demand, again, a big increase. You're forecasting 3.4 gigawatts by 2030, up from 1.8 gigawatts in '29 previously. Is that increase related to data center projects you've been talking about ramping up? Or is it some of the other manufacturing activity you've discussed in the past? I know there's a lot going on along the I-94 corridor. How much of that is like existing projects ramping versus new incremental projects coming online? Scott Lauber: Yes, great question. So when you look at it, it's about 1.6 gigawatt growth, 1.3 is the Vantage data center in Port Washington. And then in Southeastern Wisconsin, as you can imagine, a significant part is from the data center in Southeastern Wisconsin, but it really is all the customers in that area. We have Eli Lilly expanding. We've got Amazon. We've got other companies coming to the region. And then that's not even counting all the residential load we're starting to see in new construction starting in the area. So I think it's all of the above, but definitely significantly related to database or data center growth. Operator: We'll take our next question from Sophie Karp of KeyBanc. Sophie Karp: Comprehensive update today. So if I may just dig in a little bit on the data center announcements, right? There's been a slew of announcements lately, some assets traded hands. So I think there's some confusion, what's incremental, what's in the plan. So could you make it very clear to us what's actually in the plan of the recent gigawatts of announcements and what yet is not in the plan, I guess? Scott Lauber: Sure, sure. So what's in the plan, and we have Southeastern Wisconsin. So there's 2.1 gigawatts down there that includes the Microsoft, what they have told us to factor into this 5-year plan. And then in Northern in that Port Washington site, it's really -- I would look at it as being Vantage and Vantage has worked with Oracle. So those are the same megawatts at 1.3 gigawatts, okay? So Vantage/Oracle is 1.3 gigawatts. That's what's in the plan. What's not in the plan is there's additional land of about 1,200 acres in Port Washington that potentially could house another, what, 2 gigawatts plus of additional capacity. And then in Southeastern Wisconsin, when you think about the Microsoft site, there's additional 700-plus acres that they have there that I think could be for future development that also could add into the overall gigawatt usage. So I think there's a lot of opportunity for future growth here. I hope that help clarifies it. Sophie Karp: Yes. So it sounds like the plan as it stands right now is just like super conservative. Is this a fair way to say? Scott Lauber: Yes. We only put what the other -- what the customers are announced and provide us the information on. Sophie Karp: Got it. Okay. And my other question was this like when you -- it's very helpful color when you talk about 14% of your rate base being under the large load customer tariff by the end of 2030 or by 2030. What do you, I guess, expect -- and the economics are never pretty clear, right, is the premium economics on that chunk of rate base. What do you expect the economics to be for the rest of the rate base? Like when you formulate your plan, do you expect that, I guess, they will -- the overall average will be similar to what you have today, the trajectory of what you have today or for the lack of a better word, some deterioration in the economics of the rest of the rate base? Or do you expect the -- take the rest to be unaffected by the presence of this like new premium part of rate base? Scott Lauber: Right? So we assume the rest of the rate base earns the current authorized return that we currently have in all the -- each of the jurisdictions when you look at them separately. And then when you look at Wisconsin, the Wisconsin right now, we're at that 9.8% ROE and depending upon the utility, like a 57.5%, 58% regulated ratio on Wisconsin Electric that each of those earn their separate return. Remember, the foundation of our tariffs is that the large customers don't get subsidized or subsidize the other customers they -- each pay their fair share. So we keep them as separate. Operator: We'll take our next question from Ryan Levine at Citigroup. Ryan Levine: Two quick questions. Just in terms of the execution or state of conversations for some of the Vantage expansion beyond the 1.3, any color you could share around maybe the engagement level or the time line that conversations are progressing through? Scott Lauber: Sure. So we're always in our discussions with Vantage, Microsoft and potential others -- but right now, Vantage, as we said in the prepared remarks, are really concentrating on that first 1.3 gigawatts. I think they had a press release out there. They're going to have construction of about 4,000 construction workers out there when they're able to start construction. So I think everyone is concentrating on that. We'll have more discussions over the next -- probably next year. But I think everyone is just concentrated on the first part of the load, which is what we want to make sure we can achieve too. Ryan Levine: Okay. And then there was a lot of mention about Microsoft and Oracle. But beyond those 2 customers, the engagement level fairly broad? Or is it really focused on a more narrow group of potential customers for expansion? Scott Lauber: We have other customers that we're talking to, but those are the 2 main ones that are already in the area and made public announcements. We're talking to others. I don't want to jump that like -- I try to play it pretty close to let them make the announcements or them sign purchase cancellation agreements before we get ahead of our skis on potential. But we are talking to others. Ryan Levine: Okay. And then unrelated, just to clarify around your plan, is the assumption embedded in the plan conservative and that doesn't assume an outcome or doesn't assume the higher very large load tariff ROE and to the extent that you were to be successful in that application that, that would be additive to the plan or help provide additional buffer? Scott Lauber: No. I mean, we're assuming the very large tariff is implemented. What we talked about on the call, there is a range of ROEs, 10.48% to 10.98%, which we really stay with the fundamentals of making sure we don't have a secondary effect that hurts our other customers. And those are more on -- we're working individually, and we can't give more details, but on a higher return on some of it to that 10.98%. But more to come on that as we continue to work with our customers on it. Operator: We'll move next to Paul Fremont at Ladenburg. Paul Fremont: First question has to do with the Microsoft announcement where they canceled the Caledonia site. But what they said, I think, was that they would continue to look for alternative sites in Southeastern Wisconsin in your service territory. What other locations do they have land? Or do you potentially have land that you would be able to sell to them? Scott Lauber: Yes. Good question. So you are correct. They're looking for a different site than what was the original plan. We really don't have that significant type of land available elsewhere, but I don't know their specific plans. So I know they said they're looking at other places in Southeastern Wisconsin, probably more to come in that area. It's just good that they're -- this is really great for the area when you think about property taxes and good paying jobs. So I know they're early in their look, so we'll see where that goes. But once again, that's a potential for more upside on our load. Paul Fremont: Great. And the timing of how long it would take for them to find sort of a replacement type scenario, would it be like 12 months? Or what would you -- what would be sort of a reasonable assumption? Scott Lauber: Yes. And I can't talk for Microsoft, but they move pretty fast. I think a year is may be reasonable, but we'll see where it goes. Paul Fremont: Okay. My next question on Point Beach would be, if you're unable to reach an accommodation with NextEra, what type of generation would you build? And when would you have to start building it? Scott Lauber: Yes. That's a good question. And we'll look at it, but it would have to be something that would be dispatchable that we could cover the dispatch on. So it would have to be some type of gas. We'll see what the EPA rules. Do we eventually look at a combined cycle maybe and maybe some renewables in there. So we like the all-the-above approach. And I know some people don't like renewables, but when you think the gas prices at times when they're high, renewables are very popular when gas prices are high. And also, we look at all of the above mix. So if you think about it, the contracts are 2030 and 2033. So there's still plenty of time. And like we said, we work with all our large customers and our planning team is looking at how do we replace this, and I'm sure we have several options available. Paul Fremont: And then last question for me. When we look at the $4.8 billion to $5.2 billion of common equity, would some of that be junior subordinated debt? Or would any junior subordinated debt issuances be incremental? Liu Xia: It's the latter. The $4.8 billion to $5.2 billion would be common equity. Paul Fremont: And then is there junior subordinated debt contemplated then as part of your incremental debt? Liu Xia: Correct. As I said in the prepared remarks, we added $4 billion of equity content. So 2 more of common and the other 2 would come from the junior subordinated debt or like-kind securities. Operator: We'll take our next question from Anthony Crowdell at Mizuho. Anthony Crowdell: Just one quick one. I'm curious with all the load and growth that we haven't seen for years in this sector, I'm curious if this is making earnings forecasting and rate base growth forecasting easier or harder? Like is it chunkier with these large loads coming in, and it's becoming more of a challenge of forecasting out? Or is this all this load just such a tailwind and it's making life a lot easier on the forecasting? Scott Lauber: Well, it's sure nice to have load to drive the capital plan, which makes it a lot nicer. But there's a lot of stuff that we have to keep into account, including the timing of in-service, the timing of the load, and we have a whole team working at staying ahead to make sure we have the turbines and the renewable sites located. So we always like growth. We'll take on that challenge. It just takes a lot of people, a lot of bodies monitoring and keeping on top of everything. And the key is execution. So we have a whole group executing on the capital projects as we're -- as we got commission approval this summer, we're working on those projects right now. So it's just different. Let's put it that way. Operator: Next, we'll go to Steve D'Ambrisi at RBC Capital Markets. Stephen D’Ambrisi: I just had a quick one just about -- a lot of the questions today have been about 2 existing hyperscale sites expanding and when. But I think what's interesting to me is realistically, you guys are relatively unique in the fact that you don't really talk about a sales funnel of other customers. And so I guess what I would most be interested in is, do you think that getting the VLC tariff through the Public Service Commission will help potentially broaden the customer base? Like clearly, you've had success citing some of the biggest data centers in your service territories that we've seen across the country. And so just interested to hear about potential other people. Scott Lauber: Yes. That's a good question. I think the very large customer tariff, in fact, we attract some of our -- the first customer before we even had a tariff. So I think if you think about location, the ability for WEC and American Transmission Company to be able to deliver and provide the generation and renewables and transmission to help energize their sites and move fastly in the Wisconsin environment and in the MISO footprint, I think that is a great advantage. I think also being in Wisconsin, you got a cooler environment for air storage cooling. So I think that's -- it's an advantage, and we don't have the natural disasters that other parts of the country have. So I think all of those are positive. Our customers, our very large customers, we worked with them as we filed the very large customer tariff. So I think they considered and I've heard several times how it's fair. I think that's also a plus. Once it gets approved, I think that will definitely be helpful. I think the key is and all our large customers make sure that we do not affect any other customers' rates. So that was good as a foundation for it. So having it approved, I think, can only help, but we're really excited about the pipeline we are talking to now and the potential growth at the significant sites that we have already going in Wisconsin. Operator: We'll go next to Bill Appicelli at UBS. William Appicelli: Most of the questions have been asked. Just one question clarifying. Just on the step-up in the asset base growth. Was there any additional offsets there or anything that came out? Just thinking because the back of envelope math maybe would have supported given the $8.5 billion of CapEx, something maybe a little bit closer to 12%. So I'm just curious if there's anything else different in the bridge there. Scott Lauber: No. I think the only thing we took out is we don't have any investments in [ WECE ] for the most part. But overall, I don't think there's much other changes there. It's just more back-end loaded starting more in '27, I guess. William Appicelli: Okay. And then just what -- from an affordability perspective, what's embedded in this plan in terms of the -- on the electric side in terms of average annual rate increases for residential customers? Scott Lauber: So we will be filing a rate case in Wisconsin for our biannual process. So we're pulling those numbers together now that we'll file sometime in the end of the first quarter, most likely beginning of the second quarter. We're looking at inflation type increases, but it's early in the process now. The key is none of it is going to be costs that are coming in from any of the hyperscalers. They're paying their fair share. Operator: And our final question today comes from Carly Davenport with Goldman Sachs. Carly Davenport: I just had one clarification. Just on some of the other growth opportunities. As you think about the next 5 years, do you see incremental capacity and potential on the system for more load to be added in the course of the current plan? Or would that be largely beyond the 2030 time frame as you think about those opportunities? Scott Lauber: So I think as we work with these very large customers, I think at the end of our current 5-year plan, we potentially could see additional growth come in depending upon how they look at their individual development. So I think there's a potential for both on the current plan plus in the next 5 years. Carly Davenport: Great. I'll leave it there. Scott Lauber: Sounds good. Thank you. All right. That concludes our conference call for today. Thank you for participating. If you have more questions, feel free to contact Beth Straka at (414) 221-4639. Operator: And this concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Greetings, and welcome to the Algoma Steel Group, Inc. Third Quarter 2025 Earnings Call. [Operator Instructions] [Technical Difficulty] being recorded. It is now my pleasure to introduce Michael Moraca, Vice President and Corporate Development and Treasurer. Please go ahead, sir. Michael Moraca: Good morning, everyone, and welcome to Algoma Steel Group, Inc.'s Third Quarter 2025 Earnings Conference Call. Leading today's call are Michael Garcia, our Chief Executive [Technical Difficulty] is being recorded and will be made available for replay later today in the Investors section of Algoma Steel's corporate website at www.algoma.com. I'd like to remind everyone that comments made on today's call may contain forward-looking statements within the meaning of applicable securities laws, which involve assumptions and inherent risks and uncertainties. Actual results may differ materially from statements made today. In addition, our financial statements are prepared in accordance with IFRS, which differs from U.S. GAAP, and our discussion today includes references to certain non-IFRS financial measures. Last evening, we posted an earnings presentation to accompany today's prepared remarks. The slides for today's call can be found in the Investors section of our corporate website. With that in mind, I would ask everyone on today's call to read the legal disclaimers on Slide 2 of the accompanying earnings presentation and to also refer to the risks and assumptions outlined in Algoma's third quarter 2025 management's discussion and analysis. Our financial statements are prepared using the U.S. dollar as our functional currency and the Canadian dollar as our presentation currency. All amounts referred to on today's call are in Canadian dollars unless otherwise noted. Following our prepared remarks, we will conduct a Q&A session. I will now turn the call over to Chief Executive Officer, Michael Garcia. Mike? Michael Garcia: Good morning, everyone, and thank you for joining us today. As we do each quarter, I'll begin with safety. Our commitment to workplace safety remains at the core of everything we do. I'm pleased to report that we maintained our strong safety performance this quarter, building on the improvements we achieved throughout 2024. With EAF Unit 1 ramping up and our accelerated transition to electric arc furnace steelmaking underway, we continue to prioritize the health and well-being of our workforce during this pivotal transformation. Before diving into the details, I want to highlight 3 important themes. First, the U.S. 50% tariffs have effectively closed that market to us, driving lower shipments and higher production costs as we've pivoted our entire go-to-market strategy. Second, we've secured the capital to strengthen our liquidity through $500 million in government support and an expanded USD 375 million ABL facility, extending our liquidity runway so that we can develop opportunities to diversify the business. Third, we have embarked on an operational pivot, accelerating our EAF transformation and focusing on products for the domestic market with the goal of significantly reducing our cash burn. The steel industry is experiencing significant disruption. The 50% U.S. tariffs implemented in June have effectively made that market no longer viable for Canadian steel producers, completely undermining our historically successful cross-border business model. These trade disruptions are reverberating globally, forcing producers worldwide to seek alternative markets, while macroeconomic uncertainty compounds the headwinds facing our industry. Our third quarter performance was in line with our previously disclosed guidance across both shipment volumes and adjusted EBITDA metrics. As expected, we experienced lower shipment volumes and realized pricing as well as elevated cost pressures, resulting in year-over-year declines in both revenues and adjusted EBITDA. A bright spot continues to be our fully modernized plate mill. Plate shipments totaled approximately 97,000 tons, roughly in line with the 103,000 tons in the prior quarter despite taking a planned 2-week outage during the quarter. We expect Q4 plate production to increase sequentially as we capitalize on our position as Canada's only discrete plate producer. Turning to our electric arc furnace project, the foundation of our future. I'm pleased to report continued progress. Since achieving first arc and first steel production in early July, commissioning and ramp-up activities for Unit 1 have progressed in line with expectations. The furnace and associated melt shop assets have demonstrated stable and reliable performance, achieving quality metrics across a broad range of plate and hot-rolled coil product grades. The Q1 power system and other critical process components continue to perform as designed, supporting consistent metallurgical quality and process control. As of September 30th, 2025, cumulative investment for the EAF project was $910 million, including $30 million during the third quarter. All material aspects of the project have been contracted, and we continue to expect final aggregate cost of completion will be approximately $987 million. We have announced a number of decisive actions to strengthen our balance sheet and liquidity, including $500 million of federal and provincial loan facilities. Rather than covering each in detail, I'll ask Rajat to take you through the specific steps and their impact on our financial flexibility later in the call. This government support directly addresses the sustained tariff environment that has forced us to reimagine our operating strategy. We are accelerating retirement of our blast furnace and coke oven operations as we ramp up EAF production through 2025 and 2026. We're strategically refocusing production on as-rolled and heat-treated plate products, along with select coil products primarily for sale in the Canadian market. We are uniquely positioned as Canada's only discrete plate producer, and this strategy aligns our production with domestic demand, while reducing exposure to volatile and oversupplied coil markets. Our focus aligns with infrastructure, construction and renewable energy growth sectors, preserving Algoma's relevance by supporting national industrial priorities. We remain focused on extending our liquidity runway to develop new opportunities, including advancing our energy strategy and pursuing product diversification initiatives. Rather than competing as a commodity producer in a tariff-distorted global market, we are positioning Algoma as a premium Canadian supplier of essential steel products. This repositioning achieves 3 outcomes. We supply Canadian industries with high-quality plate products needed for infrastructure, manufacturing and defense. We create operational stability that supports continued investment aligned with Canada's industrial needs. And we reinforce our role as a critical partner in Canada's industrial and defense capabilities. By concentrating on higher-value specialized products, we can strengthen customer partnerships and optimize margins. Combined with government support, this strategy positions Algoma not just to withstand current conditions, but to emerge as a stronger, more focused company. In short, we are evolving from a cross-border commodity producer to a Canadian-focused steel supplier with lower cost, lower emissions and greater resiliency. This transformation strengthens both Algoma and Canada's industrial future. Now I'd like to take a moment on a more personal note. As announced last evening, I will be retiring at the end of this year from Algoma Steel, concluding what has been an extraordinary journey with Algoma. I want to congratulate Rajat Marwah on his appointment as CEO effective January 1st, 2026, and Michael Moraca on his promotion to Chief Financial Officer. Rajat has been a trusted partner throughout our transformation. His leadership in finance, strategy and stakeholder engagement has been instrumental in securing the foundation we've built together. And I know Michael will bring the same discipline and strategic insight to the CFO role as he has demonstrated leading our integrated business planning and capital markets efforts. I'm proud of how far this company has come and confident that the management team under Rajat's leadership will continue to strengthen Algoma's position as a Canadian leader in sustainable steelmaking. I would like to pass it over to you, Rajat, to cover the financials and for closing remarks. Rajat Marwah: Thanks, Mike. Good morning, everyone. First, I want to express my deep appreciation for Mike's leadership. His vision and discipline have guided Algoma through one of the most significant transformations in our history. The foundation he built strategically, operationally and culturally positions us for long-term success. Talking about the results for the third quarter, adjusted EBITDA was a loss of $87.1 million. For the quarter, tariffs expense totaled $90 million, and we estimate Canadian sales prices were approximately 40% lower on account of tariffs, resulting in lower revenue of approximately $32 million. Cash used in operating activities was $117.3 million. We finished the quarter with $337 million of liquidity. We shipped 419,000 net tons in the quarter, a decline of 12.7% versus the prior year quarter. Lower steel shipment was the result of weakening market conditions, particularly due to Section 232 tariffs, which impacted the company's export sales and resulted in oversupply of the Canadian market at reduced transactional pricing. Net sales realization averaged $1,129 per ton compared to $1,036 per ton in the prior year period. The increase versus the prior year level reflects improvements in value-added product mix as a proportion of sales, which more than offset weaker market conditions. Plate prices continues to enjoy a premium relative to hot-rolled coils during the quarter. This resulted in steel revenue of $473 million in the quarter, down 12.2% versus the prior year period. On the cost side, Algoma's cost per ton of steel products sold averaged $1,282 in the quarter, up 24.2% versus the prior year period. Starting March 12, the company was subject to 25% tariff on outbound steel shipments to the United States, which increased to 50% in June. For the third quarter, tariffs costs were $90 million or $214 per ton, which was included in cost of sales. Excluding the impact of tariff cost of sales was only 3.6% higher versus the prior year period despite a 20% lower shipping volume and a higher mix of plate sales for the period. We will continue to focus and drive down the cost of sales as we make our strategic pivot to focus primarily on plate and selected coil products. Net loss in the third quarter was $485.1 million compared to a net loss of $106.6 million in the prior year quarter. The increase in net loss was driven primarily by the $503 million noncash impairment loss. As of September 30th, 2025, the company identified 2 impairment indicators, its market capitalization falling below the carrying value of its net assets and the impact of U.S. Section 232 tariffs. Accordingly, an impairment test was performed to assess whether the recoverable amount of the cash-generating unit exceeded its carrying value, which resulted in the noncash impairment loss. Cash used in operations totaled $117 million for the quarter compared to cash generated by operations of $26 million in the prior year period. Inventories ended the quarter at $790 million, up approximately $54 million from the second quarter, reflecting a physical build in raw materials and finished goods, partially offset by a $14.8 million noncash write-down of inventories to net realizable value. Looking ahead, we expect a significant inventory drawdown beginning in the fourth quarter and accelerating through 2026 as we exit the blast furnace and coke oven operations and transition to a far more efficient EAF-based supply chain. As Mike mentioned, we have announced a number of decisive actions to strengthen our balance sheet and liquidity. We increased our ABL credit facility from USD 300 million to USD 375 million with Export Development Canada joining as a new lender. More significantly, late last month, we announced binding term sheets securing $500 million in liquidity support from the governments of Canada and Ontario. We want to thank the government for their efforts in supporting Canadian industry, and we feel this package reflects their confidence in Algoma's strategic importance to Canada's industrial base. The financing includes $400 million from the federal large enterprise tariff loan facility and $100 million from the province of Ontario, consisting of a $100 million third lien secured tranche and a $400 million unsecured tranche with 6.77 million share purchase warrants at $11.08 per share. The facility carries a 7-year term at CORRA plus 200 basis points, stepping up after year 3 by 200 basis points annually. A combination of our strategic operational pivot, liquidity support, working capital efficiency improvements and continued effort on driving down cost is expected to extend our liquidity runway well into the future as we look to capture opportunities and diversify the business. In closing, as we look ahead, our direction is clear: complete the EAF ramp-up, pursue diversification opportunities and continue building on the strength of our exceptional team. The past several months have brought unprecedented trade disruption. But through it all, our people have maintained exemplary safety performance and advanced the commissioning of EAF Unit 1. We have taken decisive action to secure our future. The $500 million in government liquidity facilities, together with our expanded USD 375 million ABL facility, provide the resources and flexibility to complete this transformation with confidence. These arrangements reflect a shared commitment between Algoma and our government partners to preserve critical domestic steel capacity and industry resilience. By pivoting to become a domestically focused high-value steel producer anchored in plate and specialty products, we are creating a stronger, more resilient enterprise aligned with Canada's long-term economic and defense priorities. Our accelerated EAF transition is central to that vision, positioning Algoma as one of the North America's lowest cost and most sustainable producers. While near-term trade uncertainty will remain, we are building a company that is leaner, more focused and more competitive. When markets normalize, we expect to emerge stronger with improved margins and advanced cost structure and deeper alignment with national priorities. To our employees, thank you for your dedication and adaptability. To our government and financial partners, thank you for your confidence. And to our shareholders and customers, thank you for your continued support as we execute this pivotal transformation. The work we are doing today is preserving and modernizing a strategic national asset and laying the foundation for enduring value creation. We remain focused, disciplined and confident in the path ahead. Thank you very much for your continued interest in Algoma Steel. At this point, we would be happy to take your questions. Operator, please give the instructions for Q&A. Operator: [Operator Instructions] And our first question we will hear from Ian Gillies with Stifel. Ian Gillies: In the event we remain in this tariff environment, i.e., 50%, could you maybe just outline where you think the production profile ends up in 2026 and whether you think you can be at EBITDA breakeven in that scenario? And I think that would be helpful. Michael Garcia: Sure. This is Mike. I'll start and then hand it over to Rajat. Obviously, our original intention was to get to full production on the EAFs at the end of 2026, initial part of 2027. Because of what's happened to our business model with the 50% tariffs and the market dynamics, we've seen clearly that the right choice in front of us now is to execute a transition to full EAF production basically a year early. That's going to give us the best ability to deal with the current environment. So we are accelerating and pushing on that transition as we speak, and we need to execute it in the coming months and ramp up EAF as quick as possible because that will put us at the lowest cost, most flexible cost position, and it matches the available business we have right now. So as far as the specifics to your question of the ramp-up and where we would reach EBITDA positive or EBITDA neutral, I'll let Rajat address that. Rajat Marwah: Thanks, Mike. So as Mike mentioned, now we are looking at accelerating it. Our market in the U.S. is practically close to us closed. And what remains is in Canada, we have our plate mill being the only plate producer in Canada, we are taking advantage of that and trying to ship as much plate as we can in Canada. The market on the plate side itself is weaker with all the projects being announced, that definitely will help the market to get stronger. So from the way we look at it for next year, we will not be selling our 50% portion into the U.S., and we'll be maintaining our share in Canada for plate and coil. So that from a numbers perspective, could be as close as 1 million to 1.2 million tons for the year, if situation remains the way it is without taking any upside on investments coming into Canada on the plate side, defense side, infrastructure side. So that's where we see it going. And from an EBITDA perspective, once all the -- once the transition is fully complete, which probably will take 3 to 6 months after the shutdown of the blast furnace with all the cost moving into the P&L, we see that we start getting pretty close to EBITDA breakeven in those volumes. We will be making money on the plate side. Coil is still stretched with 50% tariff and the market in Canada is broken from that perspective because coil is being sold at 40% lower than the CRU, which is not making money for anybody. So that's how we see it, Ian, at a very high level. Ian Gillies: That's helpful. And just one quick one on the plate before I follow on to one other separate question. The plate production was down a little bit sequentially from Q2 to Q3. Is that just a function of reorienting demand and you expect that to maybe start rising, whether it be in Q4 or Q1 next year? Rajat Marwah: I think that's a big part of it, Ian. Another part of it is we did have more maintenance days in the outage I mean, in the quarter. So taking the maintenance -- the difference in the amount of maintenance days in the 2 quarters, they were roughly the same. But practically speaking, we're running our plate mill at full production other than the days we need to take for maintenance and the actual mix of the different type of plate products, how much heat treat is in there will affect the total volume numbers. Ian Gillies: Understood. And -- next question. I'm just curious what, I guess, capital infusions you'd expect to get in the next year or so as it pertains to insurance proceeds, where I believe there's still a bit left to come, government grants. And then I'm just curious if there's anything that could potentially come in on the tax side as well, just given losses incurred. Rajat Marwah: Sure. I'll ask Mike Moraca to take that question. Michael Moraca: Ian, look, on the insurance side, we do expect to somewhere between $30 million and $50 million more to come as we adjudicate through the claim. And then there is some other related cash flow items that you hit on. We will have a significant working capital release over the next 12 months, as we move to the EAF supply chain. It will be quite significant. I think we'll see something north of $100 million, $150 million, some in that range on the working capital side. And then as you alluded to, we will see some tax refunds as we really start to collect on the taxes that we paid in 2022 and have had obviously some net operating losses through the last little bit. So those are the big movers on the cash flow front. Rajat Marwah: Yes. And that's -- we see most of it coming next year, some of it in the first half, some in the second half depending upon timing. But there will be a big amount of inflow that will happen both on all 3 fronts, but big coming from working capital release as well as taxes coming in. And from a working capital perspective, we did mention earlier that there will be $100 million release happening this next year as we transition to EAF, we expect that to happen and more than that because we'll be running at lower levels. So we should see, as Mike mentioned, $150-odd million of reduction from the working capital and over $100 million or so coming from taxes. Operator: And our next question we will hear from James McGarragle with RBC Capital Markets. James McGarragle: Wish you all the best going forward. And then Rajat and Mike, congrats on the new roles. I just wanted to follow up on the -- some of the commentary you made on cash flow. So those numbers were into 2026, I believe. But then can you just give us an updated CapEx number and an updated net working capital number for what we can expect into Q4? Rajat Marwah: Sure. So on the working capital side, we normally build working capital in the last quarter, and it's primarily on the inventory side. So we will not see any build happening on the inventory side in the last quarter. We'll probably see some release coming on the inventories. And there will be other movements happening between receivables and others. But the big part of our change normally quarter-over-quarter in the last quarter, calendar quarter is inventories. So the release that we are saying of $100 million, $150 million will include some release coming in the last quarter. And on the CapEx side, we will see the CapEx coming down as we go into next year as the blast furnace and coke batteries shut down. We normally spend around $40-odd million in those facilities. So that in the maintenance CapEx will come down and will get further optimized during next year and year after. James McGarragle: And then I just wanted to follow up on one of the initial comments and the initial questions that were asked. You've given previously some targets, cost -- scrap plus targets on the cost side with regards to the new furnace that you're bringing on. So can you kind of give us an updated view on how you're thinking about that scrap plus cost targets given the impact from tariffs and that you might not be running that furnace at full capacity initially. So just how we can expect that to evolve into 2026 and then how you're thinking about those targets longer term? Rajat Marwah: So on the cost side, what we said is that it's scrap plus USD 220 roughly for sheet products and that will be slightly higher. It will be in the range of [ 220 to 250 ] for the initial period as we will be running the EAF at lower capacity than 1 EAF at full capacity. So we'll see that slightly higher. And then it won't be double, but it will be slightly higher. And then we see that coming down to around [ 220-odd ] once we have -- once we are running at least 2 million, 2.5 million tonnes. So that's how we see the change on the cost side. On the plate will be -- plate from a conversion perspective will be very similar, just that the variable cost will be higher. You have alloys and there is a little bit more processing that comes through. James McGarragle: And then I guess, in the current environment, do you think the Canadian market can support that 2.5 million tonnes that you think is necessary in order to achieve that cost-plus target? Or do you think something would have to change in terms of tariffs for the Canadian market to be able to support that 2.5 million tonnes? Michael Garcia: James, this is Mike. I think critical, part of this, the future of Algoma Steel is to be the foundation steel company for the future of the Canadian nation building agenda, if you will. We have the lowest cost, most flexible liquid steel base in the industry in Canada or we will soon be there once the transition to EAF is complete and we've ramped up in the next year. But I would say that, that market has not -- is not yet fully developed as we sit here in November -- almost November of 2025. So the market continues and will continue to develop. The nation building agenda that the new government has laid out is pretty clear in terms of everything that wants to be pursued around defense projects, infrastructure projects, shipbuilding, energy, manufacturing, reshoring, and this is all without kind of a return to a somewhat normal trade relationship with the U.S. This is all kind of future development and evolution of the Canadian market. So my answer is if all that comes to fruition and even just a portion of it comes to fruition, Algoma Steel will be far and away the most advantageous and the best position to take advantage of it. So I think the market is going to be there for us. If in the meantime or as part of that, there's a return to an improved trade relationship to the U.S., which gives us more access to the historical U.S. market, that will put wind in the sails of everything that we've talked about. It will open up the ability to get -- to take advantage of U.S. business. It will lift the margin across all of our business on both sides of the border. We still believe and are committed to being a strategic part of Canada's nation building agenda. So I don't think it would immediately mean and certainly not for Algoma Steel, it wouldn't mean a return of business as usual where we're just a commodity steel supplier looking for the best business, whether it's in the U.S. or Canada, we would be mindful of the strategic risk of just going back to the old business model. I know it's a little bit long-winded answer to your question. But yes, we believe in the future of the Canadian market built on the nation-building agenda that the government of Canada has laid out and our unique position as Algoma Steel to take advantage of that. Operator: And next, we'll hear from Ian Gillies with Stifel. Ian Gillies: Just in the Canadian market, are you seeing any positive implications yet from some of the trade barriers that have been instituted by the Canadian government? Or do they need to -- I guess, do the walls need to be taken up a bit higher? Michael Garcia: Yes. I think we've shared our frank views around -- with the government around opportunities we see for them to put those walls higher and put more teeth into moves that would strengthen the health of the Canadian market. Obviously, the government has a lot to think through when they hear feedback from the steel industry in terms of are there any other consequences to doing something like that, which they may not see as positive. But certainly, from a steel perspective, we think that there's more that they could do, and we've been very vocal about that with them. I will say what we are seeing is a tremendous amount of interest in understanding Algoma Steel's capabilities, both current and potential future capabilities. From every sector of the country, every sector of the economy, we've gotten phone calls, visits, inquiries in terms of what do you make? How can you make something for my steel uses? And if you can't make it today, what type of investment or how soon could you make it? And that's all very positive. Some of it is for business that's actually being made right now. Some of it is for future business that may be still a few years away. But the visibility, the intention and the interest in Algoma Steel and what role we can and will play in the future of Canada's nation building is definitely there, and we've already seen that for the last several months. Ian Gillies: I suspect this question is unanswerable, but do you have any sense of what you think the incremental plate demand could be or broader steel demand could be from these initiatives, maybe even just on projects announced or potential projects? Michael Garcia: You're right. That's hard to -- it's hard to give you a big number. I know that a lot of these -- for instance, the shipbuilding, we've had visits from major shipbuilders who are looking at the -- just the defense shipbuilding agenda over the next several years. And we can make all the ship needed in 10 -- Canadian war ships we could make the amount of plate needed for those 10 ships in 2 days. So it's not going to be one major program, which moves the needle. It's going to be a lot of demand throughout the entire economy and all types of projects. Certainly, the defense spending and ice breakers and pipelines will get a lot of visibility, but we need multiple projects. The plate market in Canada is roughly 600,000 tonnes to 700,000 tonnes right now. We're easily capturing 50% of that. And so it's a relatively small market, and it doesn't take hundreds of projects to start building that market up north of 1 million tonnes. It takes more than a handful, but it doesn't take hundreds. So we feel pretty bullish about the future prospects in plate, but it's hard to give you a specific number. Ian Gillies: And then last one for me, and this is probably for Rajat. Could you maybe provide a view on how you intend to start using the credit facilities as you start moving into a bit more cash burn given the implications, some could be picked, some of dilution, some carry interest. It's just -- I think that would be useful. Rajat Marwah: Yes, sure. So the way the facilities have been put together, we have a secured line that doesn't have any warrants attached to it. So the intention will be to draw that line first and then go into the unsecured line, where warrants are there. So that helps us to manage that. Most of it is [ spec ] for 2 years, and we will pick it, which makes sense, and then it goes to cash payments. The -- and from a use perspective, we have the ABL, which we want to keep as much as possible from working capital and other perspective and start using the other line. So we will be looking at it as we draw on what's the most and the best optimum use of cash is and which cash and based on our plan for next year and keep drawing. So we'll be quite mindful of how we are drawing it from that perspective. Operator: There are no further questions at this time. I would like to turn the floor back to Michael Moraca for closing remarks. Michael Moraca: Thank you, again for your participation in our third quarter 2025 earnings conference call and your continued interest in Algoma Steel. We look forward to updating you on our results and progress when we report our fourth quarter and full year results early next year. Thank you. Operator: And that does conclude today's teleconference. We thank you for your participation. You may now disconnect your lines at this time.
Operator: Good afternoon, ladies and gentlemen. Welcome to Savers Value Village's conference call to discuss financial results for the third quarter ending September 27, 2025. [Operator Instructions] Please note that this call is being recorded, and a replay of this call and related materials will be available on the company's Investor Relations website. The comments made during this call and the Q&A that follows are copyrighted by the company and cannot be reproduced without written authorization from the company. Certain comments made during this call may constitute forward-looking statements, which are subject to significant risks and uncertainties that could cause the company's actual results to differ materially from expectations and historical performance. Please review the disclosures on forward-looking statements included in the company's earnings release and filings with the SEC for a discussion of these risks and uncertainties. Please be advised that statements are current only as of the date of this call, and while the company may choose to update these statements in the future, it is under no obligation to do so unless required by applicable law or regulation. The company may also discuss certain non-GAAP financial measures. A reconciliation of each of these non-GAAP measures to the most directly comparable GAAP financial measure can be found in today's earnings release and SEC filings. Joining from management on today's call are: Mark Walsh, Chief Executive Officer; Jubran Tanious, President and Chief Operating Officer; Michael Maher, Chief Financial Officer; and Ed Yruma, Vice President of Investor Relations and Treasury. Mr. Walsh, you may go ahead, sir. Mark Walsh: Thank you, and good afternoon, everyone. We appreciate you joining us today. We are pleased with our third quarter results, particularly in the U.S., where our momentum remains strong. Comps continue to strengthen in Canada, but challenging macroeconomic conditions remain a headwind there. Let me start with a few highlights from the quarter. Sales in our U.S. business grew 10.5% with comp sales up 7.1%, driven by both transactions and average basket. These results underscore our strong operational performance as well as an accelerating secular thrift trend. Powerful results like these reinforce our enthusiasm for the long-term growth opportunity in the U.S. In Canada, our business made further progress, delivering 3.9% comp sales growth, an acceleration of 130 basis points from the prior quarter, marking the fourth consecutive quarter of sequential improvement. The Canadian macro environment remains very challenging, and we continue to lean into selection during the quarter while taking steps to better align production with demand trends going forward, which Michael will go over in more detail. We opened 10 new stores in the quarter and still expect to open 25 new stores in 2025. As a class, our new stores continue to perform in line with our expectations delivering strong unit economics. We remain confident in our long-term store growth opportunity and a targeted 20% store-level contribution margin. Turning to our loyalty program. We reached approximately 6.1 million total active members. Financially, we generated $70 million of adjusted EBITDA in the quarter or approximately 16.4% of sales. Additionally, our strong cash flow generation and an attractive debt market allowed us to opportunistically refinance our debt, which will significantly reduce our interest expense and give us a more flexible capital structure. Just as a reminder, we do not have any direct impact from tariffs. We continue to monitor pricing trends closely, and I feel very good about our competitive positioning and value gaps as new clothing and footwear pricing begins to increase in the U.S. Finally, based on our results year-to-date, we are tightening our revenue and earnings outlook for 2025. Michael will provide additional details on our outlook in his remarks. Parsing our results by geography, let's start in the U.S. where momentum is especially strong. We are thrilled to post a 7.1% comp, which I will point out is coming from a mature store base as the majority of our 2024 class will not begin to enter the comp base until the fourth quarter. This speaks to our compelling assortment at great value and the consumer-friendly shopping experience that we offer as well as the accelerating secular adoption of Thrift. As we've noted in previous calls, we continue to see growth in our younger and more affluent customer cohorts. In Canada, the economy remains challenging, but it has not impacted everyone the same. For example, tariffs and trade tensions have disproportionately impacted certain regions such as Southwest Ontario, a key market of ours where the automotive industry is a large portion of the local economy. Meanwhile, unemployment is above 7%, and the lower income consumers have seen little or no disposable income growth plus higher-than-average inflationary pressure in nondiscretionary categories like food, shelter and transportation. Against this backdrop, we are leading with a compelling selection, which helped drive positive comps over the past year, although we do think that the near-term Canadian comp upside will be limited by macro pressure. Throughout the third quarter, we actively worked to calibrate production and meet demand, making careful and targeted adjustments in response to sales trends. Exiting the quarter, Canadian comps leveled off at the lower end of our expected range, and we continue to drive improved gross margins also at the lower end of our expected range. We remain laser-focused on giving our Canadian consumer great value through sharp pricing and compelling selection. We are controlling what we can control, and we will manage the Canadian business with the expectation that macro conditions may limit our growth in the near term. Moving on to new stores. We continue to be pleased with the results we are seeing. And as a whole, they are performing in line with our expectations. As new stores continue to mature as expected, they are beginning to contribute to an inflection in our profitability. We are especially pleased that our U.S. and Canadian segments had year-over-year profit growth this quarter for the first time since 2023, and we expect to return to profit growth at the enterprise level in the fourth quarter, putting us on track for our previously stated goal of annual profit improvement in 2026. We opened 10 new stores during the quarter and are on track to open 25 new stores in 2025. As the 2026 lease pipeline has started to round out, we're expecting a roughly similar number of openings next year, but the focus of our new store growth going forward will even be more U.S.-centric as we believe the secular adoption of Thrift remains in the early innings, and we still have a significant amount of geographic white space. To this end, we're excited to enter new markets in 2026, including North Carolina and Tennessee. Store growth remains the highest return and most important use of our capital, and we could not be more pleased to bring our compelling value proposition to more consumers throughout the U.S. Finally, we recently released our 2025 Impact and Sustainability report, which can be found on our Investor Relations website. We are a mission-driven business, championing reuse and looking to inspire a future where secondhand is second nature. This report highlights the impact and circularity ingrained in our model, and I am proud that over the past 5 years, we have kept 3.2 billion pounds of usable items out of landfills and paid our charitable partners over $490 million. We hope you will take the time to review the report and our commitment to community impact, sustainability and sound corporate governance. I would like to conclude my remarks by thanking our more than 22,000 team members for their hard work and commitment. As a team, we are more energized than ever as we see the fruits of our labor with more people choosing us every day, whether it'd be due to our treasure hunting experience, exceptional assortment at sharp value or to contribute to the circular economy. 2025 continues to be a success. While macro pressures persist, I believe that our value proposition positions us well. Now I'll hand the call over to Michael to discuss our third quarter financial performance and the updated outlook for the remainder of 2025. Michael Maher: Thank you, Mark, and good afternoon, everyone. As Mark indicated, we had a strong third quarter. Total net sales increased 8.1% to $427 million. On a constant currency basis, net sales increased 8.6% and comparable store sales increased 5.8%. We are especially pleased with our double-digit growth in the U.S., where net sales increased 10.5% to $235 million. Comparable store sales increased 7.1%, driven by both transactions and average basket. We also saw our fourth consecutive quarter of sequential improvement in Canada, where net sales increased 5.1%. On a constant currency basis, Canadian net sales increased 6.1% to $161 million and comparable store sales increased 3.9%, fueled by an increase in transactions and average basket. While we are pleased with another quarter of positive comps, we believe that ongoing macro pressure places a near-term ceiling on Canadian comp store sales. Given the sluggish Canadian economy, we do not assume that conditions will change materially in the near term. Cost of merchandise sold as a percentage of net sales increased 80 basis points to 44.1% due to the impact of new stores and deleverage due to higher processing in Canada, partially offset by growth in on-site donations. Gross margins improved by roughly 100 basis points over the first half of the year, and we materially narrowed the gap versus last year as we lapped new store growth. We expect this trend to carry into the fourth quarter as new stores continue to ramp. As Mark previously indicated, Canadian comp sales trends have leveled off at the lower end of our expected range with a corresponding impact on gross margins as we work to balance production levels throughout the quarter. Salaries, wages and benefits expense was $85 million. Excluding IPO-related stock-based compensation, salaries, wages and benefits as a percentage of net sales increased 220 basis points to 18.8%. The increase was driven primarily by new store growth, an increase in annual incentive plan expense and higher wage rates. Selling, general and administrative expenses increased 19% to $100 million and as a percentage of net sales increased 200 basis points to 23.3%, primarily due to growth in our store base. SG&A expenses also included a $4 million impairment charge for the planned closure of 6 underperforming stores during the fourth quarter. This includes 3 of the 2 Peaches stores that we converted during the second quarter, whose post-conversion results were not meeting our expectations, along with other store in the U.S., and 2 in Canada. We concluded the closure of these 6 stores would be EBITDA-accretive in 2026, and we expect nearby stores to absorb much of the sales volume from the closed locations. Our store fleet remains healthy with almost all comp stores generating positive EBITDA. In addition to the impairment charge, SG&A also included $2.1 million of debt refinance costs and the year-over-year change in fair value of acquisition-related contingent consideration. Depreciation and amortization increased 6% to $18 million, reflecting investments in new stores. Net interest expense increased 12% to $17 million, primarily due to the impact of unwinding our interest rate swaps last year, partially offset by reduced debt and lower average interest rates. As we disclosed during the quarter, we took advantage of a strong market and refinanced our debt. As a result of the refinancing, we expect interest expense savings of approximately $17 million on an annualized basis. For modeling purposes, this translates to an estimated interest expense of $14 million for the fourth quarter and $52 million for fiscal 2026. We incurred a $33 million loss on extinguishment of debt as part of the refinancing. GAAP net loss for the quarter was $14 million or $0.09 per diluted share. Adjusted net income was $22 million or $0.14 per diluted share. Third quarter adjusted EBITDA was $70 million and adjusted EBITDA margin was 16.4%. U.S. segment profit was $48 million, up $3 million versus the prior year period, primarily due to increased profit from our comparable stores, partially offset by the impact of new stores. Canada segment profit was $45 million, up $0.4 million versus the prior year period due to improved comparable store performance, partially offset by deleveraging of cost of merchandise sold as a percentage of net sales, primarily associated with our efforts with Canadian production levels to maintain demand as well as a weaker Canadian dollar. This marks our first year-over-year increase in both U.S. and Canadian segment operating profit since 2023, highlighting our imminent inflection in total company profitability as new stores continue to mature. Our balance sheet remains strong with $64 million in cash and cash equivalents, and a net leverage ratio of 2.7x at the end of the quarter. Our updated capital structure gives us increased liquidity through a $55 million expansion in our revolver capacity, extended debt maturities through 2032 and significant flexibility to pay down debt in the future. Our strong cash flow generation will enable us to further deleverage our business as we target a net leverage ratio of under 2x within the next couple of years. We are also pleased to announce that our Board of Directors approved a new $50 million share repurchase authorization. We will continue to take a balanced approach to capital allocation as our strong financial model allows us to fund organic store growth, reduce debt and opportunistically repurchase shares. Finally, I'd like to discuss our updated outlook for the remainder of fiscal 2025. Our U.S. business remained strong entering the fourth quarter, while in Canada, macro pressures continue to weigh on results. We've made strides in better calibrating sales and production and are planning for Canadian macro conditions to remain challenging for the near term, with roughly flat Canadian comps in the fourth quarter. Our updated full year outlook for 2025 now includes the following: net sales of $1.67 billion to $1.68 billion, reflecting a weakening of the Canadian dollar since last quarter; comparable store sales growth of 4.0% to 4.5%; net income of $17 million to $21 million or $0.10 to $0.13 per diluted share; adjusted net income of $71 million to $75 million or $0.44 to $0.46 per diluted share; adjusted EBITDA of $252 million to $257 million; capital expenditures of $105 million to $120 million; and 25 new store openings. Our outlook for net income assumes net interest expense of approximately $62 million and an effective tax rate of approximately 41%. For adjusted net income, we are assuming an effective tax rate of approximately 26%. This concludes our prepared remarks. We would now like to open the call for questions. Operator? Operator: [Operator Instructions] First, we will hear from Randy Konik at Jefferies. Randal Konik: I guess, first, why don't we just kind of unpack Canada a little bit further. You gave us some good color on the -- in the script around the top line continuing to improve. You talked about the macro, so maybe unpack that a little more. And then you talked about some processing impacting, I guess, the margins a bit. That sounds like something that can be corrected, obviously, and fixed and improved from an efficiency standpoint going forward. Maybe give us a little more color there working on the processing side. Mark Walsh: Randy, thanks. Look, from our perspective, a little recap. From our perspective, the third quarter was definitely another step forward in Canada. We'd like to highlight the fourth quarter of sequential comp improvement and more significantly, the first quarter of profit growth since 2023. Look, that said, the macro challenges do persist. There's stubborn unemployment and inflationary pressures on consumables we're not planning for that to change. I mean we see from an unemployment perspective in the Greater Toronto market, probably it's just around -- just below 9%. And in Windsor, it's over 10%. It's an important market for us, just to give you some context. So as we think about the third quarter, more progress, but a lot more to do, and we landed Canada at the lower end of our expectations. But tactically, we remain focused on delivering sharp value, that AUR of USD 5 and measuring our price gaps to protect and gain share where we can. And I think in an environment of limited growth and higher wages, we've got to improve productivity through process improvements, resulting in cost reductions while not impacting the consumer proposition. Rest assured, Michael and Jubran's team are all over this challenge. And lastly, just from a -- the impact from a corporate perspective because I think it's important. From a strategic enterprise perspective, we're going to deploy 75% to 80% of our growth capital in '26 and beyond to the U.S. where we do have tremendous white space and momentum. It's very important to note. So I'll let, Jubran, sort of dive into a little more around selection and some of the other questions you asked. Jubran Tanious: Yes. Hi, Randy, and thanks, Mark. Well, it really comes down to the 3 or 4 things that we can control. And to be clear, and I think Michael mentioned this earlier, as we sit today, we are balanced between sales and production and feel very good about that going forward. But again, around controlling the controllables. I mean the first thing is providing the selection and value that our customers expect. And we believe we're doing that. In fact, our own internal surveys tell us that customer perception of both price and selection has increased year-over-year as we look to put out the right items in the right amount at the right price. The second thing that we can control, and Mark alluded to this, is being as efficient as we possibly can be in delivering that selection to our customers. Again, ours is a labor-intensive model, but our teams do an excellent job at executing as efficiently as possible. And frankly, we'll continue to do that through the remainder of the year. And we are relentless about looking for tactical and innovative ways to improve labor efficiency. So we've got a few things in the hopper that we're looking forward to as we get into 2026. And then finally, growing on-site donations. We've talked about this in the past. It's really about how you show up to the donor in terms of being reliably fast, friendly and convenient. That is something that we control entirely. And we measure it not just in terms of on-site donation growth, but also donor sentiment and satisfaction. And our own internal voice of the donor surveys tell us, that overall satisfaction is north of 90%. So we feel good about that. So yes, overall, in terms of controlling the controllables, I think we're doing that amidst an otherwise challenging macro. Randal Konik: Yes. Super helpful. I guess last question. Obviously, this U.S. business feels really good. Any color you can give us on the traffic or the transactions that are being done with existing customers versus new to file. I'm sure that you're getting a healthy amount of new customers entering the business. It'd just be helpful to get some perspective there. And any kind of feel for what the awareness level is for the banner in the United States right now? Obviously, again, it seems like we're still very early innings in this U.S. story going forward. Mark Walsh: Yes, Randy, great question. Look, transactions and basket definitely drove comps, and we have seen a nice increase in our loyalty platform in the U.S. That momentum is continuing. Beyond that, we love what we're seeing from a consumer and who's entering the mix. High household income cohort continues to become a larger portion of our consumer mix. It's trade down for sure. And our younger cohort also continues to grow in numbers. We couldn't ask for a better outcome. And I think it's largely driven by a great store experience, merchandise mix that's unusual and powerful and great value. And that all drives -- that all feeds into the secular momentum. Consumers are liking what they see. And needless to say, we're very pleased with that trajectory. Operator: Next question will be from Matthew Boss at JPMorgan. Matthew Boss: So Mark, could you elaborate on the cadence of same-store sales over the course of the third quarter in the U.S.? Maybe just comment on what you're seeing in October? And then you mentioned the value gap. So how you see your value proposition positioned in the U.S. maybe against the broader marketplace? Mark Walsh: Yes. Thanks, Matt. So I'll start with the value gap. I'll let Michael do the October cadence and what we're seeing. We're very -- we spend a lot of energy and time understanding where we are relative to our competitive set. And we define our competitive set in 2 ways. One is obviously thrift competitors and the other is discount retail. And we gather a ton of information, as I've said in previous calls, we can tell you in our [indiscernible] store, what's happening down the street at TJX or other discount retailers, we try to get between 40% and 70%, maintain that gap, continue to give our thrifters value that is brings them back and is compelling. And I think we're doing that both in the U.S. and in Canada. We look at these metrics in both countries. We're really driven by these metrics, and we want to make sure that we're always delivering that price-value gap to our customers everywhere they shop in the Value Village Savers chains. Michael Maher: Matt, it's Michael. So your question about the cadence of our comps. So as we expected, the comps were strongest in July, eased slightly in August and September as we expected because we are starting to go up against tougher compares last year. As we've kicked off the fourth quarter, what we're seeing thus far is continued strength in the U.S. We continue to be really pleased with the momentum there and continued moderation in Canada. Now we have had a warmer-than-usual start to the fall that weighed on our results a little bit in late September and early October. Over the last week or so, as the weather is cooled, we're starting to see that improve. But as I mentioned in my remarks, we're assuming roughly flat low growth in Canada for Q4 and planning conservatively given what we see in terms of the macro. Matthew Boss: Great. And then, Michael, on gross margin, maybe could you help break down the drivers of the 80 basis point contraction in the third quarter? Maybe just some gross margin puts and takes that we should consider for the fourth quarter, anything to be mindful of for next year at this point? Michael Maher: Yes, you got it. So as we mentioned on the last call, we expected to narrow that gap from the first half, and we did. The biggest driver of the gap year-over-year continues to be new store growth. That gap is shrinking and progressed -- as the new stores are progressing in line with our expectations. The other driver in this quarter was the Canadian processing. As we've mentioned, comps being at the lower end of our expected range. We were very careful, very deliberate about reducing processing to ensure we didn't repeat the mistakes of last year and prematurely choke off demand. And so that did weigh on our margins in the quarter. But as Jubran mentioned a little bit ago, we exited the quarter essentially at equilibrium with processing demand -- processing and demand lined up well. And then to a lesser extent, the 2 Peaches. I mentioned the underperformance of those 3 stores that we've elected to close. So -- those were the big factors. I expect the gap to last year to continue to narrow, Matt, in Q4. We are continuing to move through the new store pipeline. Those new stores continue to mature and ramp very nicely, and that's helping to drive and lead us toward that inflection that we talked about. And being a better equilibrium in Canadian processing, both of those should contribute to a further narrowing of the gap in the fourth quarter. Operator: Next question will be from Brooke Roach at Goldman Sachs. Brooke Roach: Mark, I was hoping to get your thoughts on new market expansion for the Savers brand given the announcement to enter Tennessee and North Carolina. What did you learn from the 2 Peaches stores that you're closing that can help you ensure that new market expansions will be successful? Jubran Tanious: I can jump in. Mark Walsh: Sure Jubran, why don't you in jump in. Jubran Tanious: Yes, sure. Brooke, this is Jubran. I can help provide some color. Yes, we converted the 2 Peaches stores per plan, and it's really pretty straightforward. I mean we had 3 of them that we converted, and frankly, didn't like the performance on them. So we acted quickly to close them. But I think your broader question is in kind of higher level, our strategic goal was always to enter the U.S. Southeast, where we previously had no presence and we wanted to take advantage of all that white space. So while we're closing these 3 acquisition locations, the local supply that we now have in our mix will help us feed those new organic stores in 2026, where I think Mark mentioned that we will be opening our first store in Tennessee, our first stores in North Carolina and an additional store in the Atlanta market. Very excited about these locations. These are, again, exciting centers that we think are going to show strong -- of our first stores in those states. So we continue to stay enthusiastic about our expansion opportunities in the Southeast. Brooke Roach: Great. And then maybe a follow-up for Michael. As you contemplate the modestly lighter EBITDA margin guide that you've provided for the back half of this year, how should we be thinking about the path back to EBITDA margin expansion into 2026? Do the recent pressures in the Canadian business impact your view on the cadence and magnitude of improvement that you could see into next year? Michael Maher: Yes. Thanks, Brooke. This really doesn't -- nothing has changed our view of the near or longer-term financial algorithm. So just as a reminder for everyone, we see over the long term, high single-digit total revenue growth, which will be driven primarily by new stores. Now next year, and I'm not guiding to next year, but do remember that next year, we go back to a 52-week year after a 53-week year this year. So that 2 points we picked up this year, we're going to give that back next year. But that aside, continue to see over the long term low single-digit comps. And I think what we're seeing now is probably reasonably representative of how that's going to shake out by country with Canada in the low-single digits and the U.S. somewhere in the mid-single digits, averaging out to roughly low single. So we still see high-teens EBITDA margins in the long-term algorithm. That's not going to be a step change. We've been saying that for a while. I don't expect to see that happen next year. We've got to continue building out the new store pipeline and letting that mature. But we continue to believe, as we said before, that EBITDA margins are at their trough this year. And so we would expect to see some modest growth in 2026. Operator: Next question will be from Mark Altschwager at Baird. Mark Altschwager: Just following up on the U.S. momentum. Can you talk about the opportunity in pricing given the quality of supply you're seeing and the inflation you're beginning to see within the U.S. apparel market? Mark Walsh: Yes, look -- Mark, this is Mark. So we are starting to see new apparel and footwear price increase. And we're -- how we're approaching that is if the gap widens significantly beyond that 40% to 70% range that I articulated, it gives us an advantageous optionality, whether we choose to just gain share or some modest price -- strategic price increases or both. It's just going to highlight our well-positioned price value equation within that market. So we see that as a big opportunity for us moving forward. Mark Altschwager: And just on Canada, you've made a handful of comments here as we think about Q4 and into 2026. But I guess, guiding flattish Q4, I think you just said low-single digit is kind of your baseline expectation for next year. I mean I know you're not guiding, but comparisons do begin to get tougher next year as you cycle the recovery or the improvement you delivered this year. So maybe just help us understand the factors that could drive sort of a stable low single in Canada given the macro headwinds you outlined. Michael Maher: Yes, Mark. So I think the assumption is that we're going to continue to focus on the things Mark talked about earlier in terms of sharp value, great execution, we are seeing sort of stability there. The macro is growing, albeit slowly. And so we do think that we can sustain low, and we're going to plan for conservatively low single-digit comps in Canada and hopefully outperform that, but we'll stay cautious in terms of the planning. And like I said, we continue to see really strong momentum in the U.S. And so we're more in the mid-single-digit range there, comfortably in the mid-single-digit range in Q3, obviously. And so we remain confident that we can average that out and something around a low single-digit overall comp. Operator: Next question will be from Bob Drbul at BTIG. Robert Drbul: Just a couple of follow-up questions. On the 2 Peaches, the stores that you updated and then closed, I guess, what have you guys learned from -- like why do you think that didn't work for those stores? And I guess the other question I have is just on the new markets, Tennessee, North Carolina and the other store in Atlanta. Can you just talk about the entry and how you're approaching the market and any marketing around those stores and that initiative? Mark Walsh: So Bob, it's Mark. On the Tennessee and North Carolina stores, we'll take the same approach that we have in all of our new store openings. We've got great real estate, great traffic patterns around it. putting that community donation center, first and foremost, as part of that facility critical for us in the long term. And then you start with -- we typically start with an event and then we do paid search around it. And that's been very successful for us throughout our last 3 years of openings in the U.S. So we feel confident about our approach, and we don't see why it would be any different or the success rate of that approach would be any different in North Carolina and Tennessee. On the issue around 2 Peaches, look, as Jubran mentioned, we converted those stores 3 months ago. I think we looked at them out of the chute. We did not like the way they were performing. We wanted to get to a better place from a 2026 perspective on EBITDA and it being accretive. And we decided to close them, and we made a quick decision based on what we thought was the base case in terms of potential growth within those 3 environments. So we decided to move on. We feel good about that decision, and we like the fact that we're setting ourselves up for 2026 accretion versus continuing to fight a fight that we didn't think was going to be that fruitful. Jubran Tanious: And the only -- Bob, the only other thing I would add to Mark's comments is we've got our first stores in Tennessee, North Carolina, a new one in Atlanta. What we didn't mention is sitting behind that is a pretty growing robust pipeline of other attractive locations that are sitting a little bit behind those stores but are equally attractive in terms of site quality, demographics, trade area that we would be operating in. So like Mark said, pretty excited about the future for us in the Southeast. Operator: Next question will be from Michael Lasser at UBS. Michael Lasser: So the macro is getting worse in Canada, why are you not seeing the trade down? And if the macro remains challenged in 2026, how far are you willing to sacrifice the profitability of the U.S. business to support the Canadian segment? Mark Walsh: I'll answer that first part of the question. I think Michael will tackle the second part. We are actually seeing trade down in Canada. Similar to the U.S., I just didn't mention it because we were -- the original answer was focused on the U.S. But like the U.S., our key cohorts, U.S. -- I mean, the high household incomes and younger consumers, they're both growing in Canada as well. So we're actually really pleased about how the loyalty base is morphing in Canada as well, and we are, in fact, seeing trade down. Probably not to the same degree as we are in the U.S., but we are certainly seeing it. Michael Maher: Yes, Michael, this is Michael. Can you -- I didn't quite follow the second part of your question about Canadian versus U.S. profit in '26. Can you repeat that? Michael Lasser: Yes, you took down the guide because of a slowdown in the Canadian business for the fourth quarter. If we assume that continues into next year, do you have to sacrifice some of the improving profitability in the U.S. business to support the Canadian business? Or alternatively, if you experience deleverage on the Canadian business, to what degree is that going to eat into the profitability of the U.S. business? Michael Maher: I see. Yes. Well, we're not ready to guide for '26 specifically yet. I guess what I would say though is, and Mark mentioned this earlier in his remarks that in -- or in response to the first question, we're planning for in the near term, at least a slow growth business. And that means really tight execution, but also a really aggressive posture on costs in Canada. And so we believe that at a low single-digit growth rate, which we think is sustainable into next year, in Canada that we can be disciplined enough on costs to still achieve our bottom line objectives as well. And then, of course, in the U.S., really happy with the top line momentum there. That is also our investment, our growth market. And so we're investing -- our new store growth is going to be disproportionately in the U.S. going forward. But nothing we see at this point changes our view in the near or longer term about financial algorithm. Operator: Next question will be from Peter Keith at Piper Sandler. Alexia Morgan: This is Alexia Morgan on for Peter. My first question is a clarification on guidance. Could you elaborate on the key drivers behind the narrowing of your EBITDA guidance and lowering the range at the high end? Was that primarily due to Canada? Or are there other factors that went into that recalibration as well? Michael Maher: Yes. Canada is the largest factor. So that was really the biggest variable going into the back half of the year for us. We were going up against some really challenging business from a year ago. As we mentioned, we saw the comp settle out at the lower end of our expectations there. And processing had to follow, but it did follow. And so we had some additional pressure on margin in the third quarter. And so that is the biggest driver of sort of the narrowing of the guide toward the lower end on EBITDA. To a lesser extent, it's the 2 Peaches performance that we talked about earlier. Alexia Morgan: Okay. And then one more on tariffs. I know you're not exposed to tariffs, but considering just the price increases being seen broadly across the industry, have you noticed any interesting mix shift in your sales? Or are there certain categories of yours that you think might be outperforming and indirectly benefiting from prices raising across the industry? Mark Walsh: We have not seen that phenomenon in our sales metrics. Operator: [Operator Instructions] Next, we will hear from Owen Rickert at Northland Capital Markets. Owen Rickert: Just quickly on the automation front, have you started to see any tangible benefits from the new centralized processing centers and automated book systems? And maybe secondly, what's the latest thinking around CapEx as you continue to roll those out? Jubran Tanious: Why don't I take the CPC, you can talk CapEx. Owen, this is Jubran. Yes, the CPCs, the automated book processing -- we have made progress in terms of efficiency and effectiveness on those quarter after quarter after quarter. So pleased with the progress. What I will say is I don't think that we will ever get to a place where we say we've arrived. There's still a tremendous amount of opportunity that we see. And I don't mind sharing, I spend quite a bit of my own time and focus on this topic where as we think about 2026, the opportunities that we have to become more efficient, more effective in those facilities, we think that there's a lot of opportunity there. I can't get into at this -- I don't have the liberty of getting into the specifics on that, but we got quite a few different tactics in the hopper that we think are going to play well for us in the future. Michael Maher: Yes, Owen, this is Michael. Owen, on your second question about CapEx. So again, we'll give more specifics when we guide for next year. But we have said that the current level at roughly a high single-digit percentage of revenue is probably pretty indicative of where we'll be as long as we are in this growth mode. And most of that investment is going to be in growth and in new stores. It may include amounts for additional enablers like off-site processing facilities or other technology investments as well. But overall, that's probably a reasonable envelope. Operator: At this time, Mr. Walsh, it appears we have no other questions, sir. Please proceed. Mark Walsh: We'd like to thank everyone for their time today and their interest in Savers Value Village, and we look forward to connecting with you after our fourth quarter. Thanks again. Operator: Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your line.
Operator: Ladies and gentlemen, welcome to AIXTRON's analyst conference call Q3 2025. Please note that today's call is being recorded. [Operator Instructions] Let me now hand you over to Mr. Christian Ludwig, Vice President, Investor Relations and Corporate Communications at AIXTRON for opening remarks and introductions. Christian Ludwig: Thank you very much, Gunner. A warm welcome also from my side to AIXTRON's Q3 2025 Results Call. My name is Christian Ludwig. I'm the Head of Investor Relation and Corporate Communications AIXTRON. With me in the room today are our CEO, Dr. Felix Grawert; and our CFO, Dr. Christian Danninger, who will guide you through today's presentation and then take your questions. This call is being recorded by AIXTRON and is considered copyright material. As such, it cannot be recorded or rebroadcast without permission. Your participation in this call implies your consent to this recording. Please take note of the disclaimer that you find on Page 1 of the presentation document as it applies throughout the conference call. This call is not being immediately presented via webcast or any other media. However, we will place a transcript on our website at some point after the call. I would now like to hand you over to our CEO for his opening remarks. Felix, the floor is yours. Felix Grawert: Thank you, Christian. Let me also welcome you to our Q3 '25 results call. I will start with an overview of the highlights of the quarter and then hand over to our CFO, Christian, for more details on our financial figures. Finally, I will give you an update on the development of our business and our guidance. Let me start by giving you an update on the key business developments of the second quarter on Slide 2. The important messages for Q3 '25 are our free cash flow in the quarter was EUR 39 million, totaling EUR 110 million in the first 9 months '25, while inventories are down to EUR 316 million, coming from EUR 369 million at the year-end '24. This shows we are well on track with our strategy to rebuild our cash position after we had depleted that with the construction of our 300-millimeter cleanroom, the innovation center in the years '23 and '24. In Q3, we recognized new orders of EUR 124 million, which lead to an equipment order backlog of EUR 287 million, where we have achieved a book-to-bill of 1.04. We concluded the quarter with revenues of EUR 120 million. With that, we were in our guided range of EUR 110 million to EUR 140 million. The gross margin reached 39% in Q3 and averaged 37% in the first 9 months. This figure includes a one-off expense related to our implemented personnel reduction earlier in the year. Adjusted for this effect, the gross margin after 9 months came out at 38%, slightly below previous year's 39%, mainly due to volume shifts and FX headwinds. As the market remains soft, we had to adjust our fiscal '25 guidance 2 weeks ago. We are now expecting revenues in the range between EUR 530 million and EUR 565 million, which corresponds to the lower half of the initial guidance of EUR 530 million to EUR 600 million, and a gross margin of now 40% to 41%, down from previously 41% to 42%, and an EBIT margin of now around 17% to 19% from previously 18% to 22%. AI continues to be the main end market driver, especially for our Optoelectronics segment. Automotive-driven power electronics demand, on the other hand, remains soft. Christian will now provide a detailed look into our financials on the following pages before I take over with an update. Christian? Christian Danninger: Thanks, Felix, and hello to everyone. Let me start with the key points of our revenue development on Slide 3. In a soft market environment, we achieved revenues of EUR 120 million, down versus the EUR 156 million last year, but well in the guided range of EUR 110 million to EUR 140 million. For the first 9 months, revenues came in at EUR 370 million, down about 9% year-over-year. A breakdown per application shows that 66% of equipment revenues after 9 months come from GaN and SiC power, 14% from LED, 16% from Optoelectronics and a 5% contribution from R&D tools. The aftersales business contributed to total revenues with EUR 80 million. The aftersales share of revenues after 9 months was up by 2 percentage points year-over-year to about 22%. Now let's take a closer look at the financial KPIs of the income statement on Slide 4. I already talked about the revenue line. Gross profit decreased year-over-year in Q3 '25 to EUR 246 million. Gross profit in the quarter was negatively affected by approximately EUR 8 million due to volume shifts from Q3 into Q4 and around EUR 2 million due to FX effects. Subsequently, the gross margin in the quarter came in at 39%, down 4 percentage points versus the prior year. After 9 months, gross profit was at EUR 136 million, 15% below last year's figure. At 37%, our gross margin after 9 months was 2 percentage points lower than after the same period last year. But please recall, as stated in our Q1 release, this includes a one-off expense of a mid-single-digit million euro amount in connection with the implemented personnel reduction in the operations area. Adjusted for these effects, the gross margin after 9 months would be around -- at around 38%. For the remainder of the year, we calculate with an average U.S. dollar-euro exchange rate of 1.15 and the continued weakness of the Japanese euro rate. Due to high expected revenues in foreign currency in Q4, we expect an additional around EUR 3 million negative impact in revenues and gross margin with the larger part resulting from the U.S. dollar and the smaller part from the Japanese yen. Together with the above-mentioned EUR 2 million effect realized in Q3, this totals to approximately EUR 5 million negative FX impact, which corresponds with the 1 percentage point gross margin adjustment of our guidance. OpEx in the quarter were slightly up by 4% year-over-year to EUR 31 million, primarily driven by higher R&D spending compared to the previous year. For the first 9 months, OpEx came in at EUR 94 million, a reduction of minus 6%, driven primarily by around 13% lower R&D expenses. R&D expenses were down mainly due to reduced external contract work and consumables costs. As stated before and visible in Q3 numbers, R&D costs in H2 will be higher than the H1 number. So for the full year, we expect R&D costs to be slightly lower than in 2024. EBIT for the quarter is EUR 15 million, a significant drop versus Q3 2024. The main drivers besides the already mentioned negative factors impacting gross profit is a negative operating leverage effect resulting from lower revenues. The weaker performance in Q3 led to an EBIT of EUR 42 million for the first 9 months, a decrease of 30% year-over-year. This translates into an EBIT margin of 11%. Again, please record the one-off expense in connection with the personnel reduction I've mentioned before. Adjusted for this effect, the 9-month EBIT margin would be around -- at around 12%. Now to our key balance sheet indicators on Slide 5. On a more positive note, working capital has continued to come down -- has come down by around EUR 100 million since end of fiscal year '24. Several balance sheet items contributed here. We continued to decrease inventories to EUR 316 million compared to EUR 369 million at the end of 2024. Year-over-year, inventories have been reduced by EUR 111 million as we continue to work through the surplus accumulated last year. And as stated before, we expect further inventory reductions to materialize throughout 2025 and into 2026. Trade receivables at the end of September were at EUR 129 million compared to EUR 193 million at the end of 2024. The reduction versus year-end is mainly the result of the collection of the payments related to the large shipments end of 2024. Advanced payments received from customers at quarter end were at EUR 73 million, a nice recovery of about EUR 20 million versus end of last quarter, but still down about EUR 9 million from end of 2024. This is primarily driven by some cutoff date effects and some regional shifts in the order book. Advanced payments now represent about 25% of order backlog. The fourth key element of working capital, trade payables, has now come down to EUR 24 million from EUR 34 million at the end of 2024. This reflects a now fully adjusted supply chain situation with significantly reduced purchasing levels. Adding it all up, our operating cash flow after 9 months improved to EUR 128 million, a strong improvement of EUR 100 million versus last year's EUR 28 million. On the back of the improvement in operating cash flow, free cash flow improved even more. It came in at EUR 110 million after 3 quarters compared to negative EUR 58 million last year. This was supported by a strong reduction in our CapEx. With EUR 18 million after 9 months, our CapEx was significantly lower than last year's number of EUR 86 million. This is primarily due to the now completed investment in the innovation center. As of September 2025, our cash balance, including other current financial assets improved to EUR 153 million. This equals an increase of EUR 88 million compared to EUR 65 million at the end of fiscal year 2024, despite the dividend payment of about EUR 17 million in Q2. As stated before, a key priority remains the rebuilding of a strong cash position. Our financial decisions continue to be guided by this objective to ensure a robust liquidity foundation for the future. This has served us well in the past, and we see ourselves well on track towards this target. With that, let me hand you back over to Felix. Felix Grawert: Thank you, Christian. Let me continue with an update on key trends in our different markets, starting with optoelectronics and lasers. In optoelectronics, AIXTRON has seen a continued recovery in demand for datacom applications, which began earlier this year and has been reaffirmed in Q3. This trend is expected to continue into '26 and beyond. Our customers are increasingly transitioning to 150-millimeter indium phosphide substrates and photonic integrated devices, PIC devices requiring advanced epitaxial performance. This segment is technology-wise very demanding. It requires excellence in the uniformity, doping control and defect management, areas where our G10-AsP platform excels. Historically, AIXTRON has held a market share of over 90% in this domain served by our G3 and G4 planetary reactors. The G10-AsP is now establishing itself as the tool of record to the laser market, replacing legacy systems at leading customers. Q3 shipments and scheduled Q4 deliveries underscore our strong market position with repeat orders from key customers such as Nokia. Additionally, VCSEL demand is recovering, driven by LiDAR modules and automotive applications. We, therefore, expect that tools for the various laser applications will contribute significantly to our full year order intake and also into next year '26. Now let me move on to our LED business. We are seeing first encouraging signs of reinvestment in red, orange, yellow -- ROY LED applications. Utilization rates for red, orange, yellow LEDs have been high throughout the year with double-digit system shipments for mini LED applications driven by demand for RGB fine pitch displays. Notably, some TV manufacturers such as Samsung are shifting to full RGB backlighting, boosting micro LED demand. While overall micro LED demand remains moderate, medium-term drivers are positive. We've received multiple orders for our G10-AsP platform, primarily for red pixel production in next-generation AR devices. The recent announcement of Meta's AR glasses based on micro LED technology signals a broader trend with more OEM products expected in '27 and '28. Our G5+ and G10-AsP platforms are ideally suited for these applications, which require ultra small pixels and defect-free epitaxial die. The launch of Garmin's first micro LED watch is likely to further stimulate demand across blue, green and red micro LED segments. In solar, after years of moderate investment, we are now seeing renewed interest, including multiple orders for low earth orbit -- LEO satellite applications in constellation projects. LEO satellites are those that orbit the earth at altitudes of about 2,000 kilometers. They enable both fast communication as well as high-resolution earth observation by operating in a zone just above the earth's atmosphere, where they can maintain strong signal connections with ground stations. These satellites work in interconnected constellations of hundreds of thousands of satellites of hundreds or thousands of satellites to provide global coverage, examples are Starlink or OneWeb. We anticipate this trend to continue in the years '26, '27 and '28. Let me now come to gallium nitride power. AIXTRON continues to lead GaN power segment with over 85% market share across all wafer sizes and power ranges. Although demand is softer compared to last year, we are seeing solid volume orders for both 150- and 200-millimeter solutions, particularly from Asian customers with ramp-up plans extending into '26 and '27. We've also strengthened our partnership with imec. Together, we are accelerating innovation at both the architecture and device level. imec has been using both our G5+ as well as the G10-GaN platform for its 150- and 200-millimeter partner programs for quite a while. And we have now shipped a 300-millimeter gallium nitride platform to enable broader access to imec's recipes. We see first power semiconductor manufacturers adopting 300-millimeter GaN technology such as Infineon Technologies. Regarding the overall GaN market, we are still dealing with a moderately oversaturated installed base, requiring some more time to absorb existing capacities. This digestion phase is expected to continue for some quarters before a broader recovery sets in. With that, let me come to silicon carbide. While end-user demand remained soft, we observed moderately increased utilization rates at some of our customers. On the one hand, this is due to new EV models being launched, which drive demand. On the other hand, SiC is starting to enter the AI data center value chain, especially in voltage classes of 1,200 volts and above. You have seen the new NVIDIA power architecture, which relies exclusively on wide band gap power devices. At the International Conference for Silicon Carbide and Related Materials -- in short, ICSCRM in Busan, Korea early in Q3, various industry players confirmed midterm adoption of super junction silicon carbide technology. This technology basically means that instead of one thick silicon carbide epi layer deposited today, we will see in the future multiple thinner silicon carbide epi deposition steps. These thinner epitaxial layers require enhanced uniformity and shortened process time. Our G10 silicon carbide platform is well positioned to meet these needs, offering superior productivity due to the benefit of the batch concept, especially for thinner layers. We are proud to have shipped our 100 G10-SiC CVD system, marking a major milestone and reinforcing our leadership in the silicon carbide power segment in this quarter. The silicon carbide market is still undergoing a longer digestion period, particularly in western-oriented regions. As a result, there are no major decisions for new fab investments on the agenda these days. In summary, we can say that the soft market period still continues in almost all markets, apart from the laser market, driven by the hunger for data from AI applications. A demand pickup will not materialize in '25, and visibility in '26 is still limited. With that, let me now move to our guidance. Due to the market situation just described, we had to adjust our guidance for 2025, 2 weeks ago. Based on the current soft market environment and assuming an exchange rate of USD 1.15 per euro for the remainder of the year, we now expect the following outlook for '25. We expect to generate revenues in the range between EUR 530 million and EUR 565 million, which corresponds to the lower half of the initial guidance, which was initially EUR 530 million to EUR 600 million. FX effects led to an approximately 1 percentage point reduction of gross margin and EBIT margin. As a result, we expect now a gross margin of around 40% to 41% and an EBIT margin of around 17% to 19%. The guidance for the gross margin and EBIT margin includes a one-off expense of a mid-single-digit million euro amount in the relation to the implemented personnel reduction in the operations area earlier this year. The measure will lead to annualized savings in the mid-single-digit million euro range in the future, which corresponds to an improvement in the gross margin and EBIT margin of around 1 percentage point. As previously stated, we expect our tools to remain exempt from U.S. tariffs. However, we continue to closely monitor the impact of U.S. trade policies on the global economy and stand ready to implement any necessary measures to ensure the best possible outcomes for our customers and stakeholders. Let me, at this place, also give you a first outlook for the next year 2026. We clearly see that the medium and long-term drivers for AIXTRON's growth such as demand for GaN and SiC power devices, LED and micro LED applications, lasers and LEO solar applications remain intact. However, visibility for the fiscal year '26 remains low. And as of today, we do not see signs of a demand recovery yet. Therefore, our view today is that 2026 revenues are likely to be slightly below those of '25, maybe flat. Furthermore, assuming an exchange rate of USD 1.15 per euro, we expect the EBIT margin not to come out below the range of the current year, maybe better. As always, we will give you a firm guidance with the release of our financial year results end of February 26. With that, I'll pass it back to Christian before we take questions. Christian Ludwig: Thank you very much, Felix. Thank you very much, Christian. Operator, we will now take the questions. Operator: [Operator Instructions] The first question comes from Janardan Menon from Jefferies. Janardan Menon: I just wanted to touch upon your final comments on 2026 to start off with. You said that 2026 is likely to be flat or down, but it sounded like you expect Opto to be up, and your trend -- when I look at your Q3, GaN seems to be doing quite well, while SiC is down quite sharply. So would it be fair to say that at current visibility, you would expect Opto to be up, SiC to be down and GaN to be somewhat flattish. Is that a view that -- which would be sort of a preliminary view for next year? Felix Grawert: It's a good -- I think you got a perfect read on this one. Let me try even to quantify it for you. I think roughly in terms of percentage of revenues, we expect as a percentage of total revenues next year, we're expecting to gain about 10 percentage points for Opto, 10 percentage points gain for GaN and minus 20 percentage points in silicon carbide. So a pretty weak year for SiC, but very strong year for the Opto segment. It used to be a smaller segment. So adding 10 percentage points of the total is quite a significant one. This also helps on the margin. You have seen my comment related to margin quality. And GaN also as a percentage gaining a bit. Janardan Menon: Just a follow-up. On the SiC side, yes, I understand that demand is quite weak right now. There's quite a bit of supply out there and automotive is still sluggish. But listening to companies like STMicro and all who are under quite severe margin pressure on the silicon carbide side, they seem to be accelerating their 6-inch to 8-inch transition because they see that as a way to improve their profitability. And ST specifically said that they'll do it within -- through the course of '26 and by early '27. I would assume that that would be true for other parts of the installed base as well given the price pressure on silicon carbide. Do you not see this as a driver at all for your silicon carbide revenue? And do you really need the end demand to recover before any improvement happens? Felix Grawert: I think you catch it very well. Yes, the 6- to 8-inch transition is going very fast, especially at outside of China players. I think worldwide outside of China, we see the 6- to 8-inch transition progressing at rapid speed, as you have indicated with one company name, and we see the same in other players. In fact, we do hear from some of our customers that while end customer revenue is flat or down, the unit numbers are going up and unit numbers is, of course, what we as an equipment maker like, because in the end, it's about wafers and increasing numbers of wafers. So in fact, we expect that by the end of '26, the transition in the Western world, as I may call it now, including Japan, is probably concluded '27, '28, I would expect the volume to be completely going on 8-inch. We do see on 8-inch also much better quality wafers, which helps the customers in terms of yield. That's one of the cost reduction drivers. Also 8-inch substrates are getting good pricing now. Initially, they used to be very expensive. Now the pricing for 8-inch substrates is going well. And that, at some point, means the excessive overcapacity that I was speaking about at some point will be digested. I would not dare at this point to give an exact prediction because there's multiple variables that we are just discussing. But I think we can clearly see at some point, the overcapacity will be digested and then there will be new demand. Janardan Menon: But that transition doesn't mean buying new 8-inch machines from you, is it to generate revenue for you? Felix Grawert: At some point, it will mean buying new demand and new tools when the existing overcapacity is consumed. Right now, we talk about existing overcapacity, which is just being converted. Operator: Next up is Martin Marandon-Carlhian from ODDO BHF. Martin Marandon-Carlhian: The first one is on something that you put on the press release on gallium nitride. You talked about utilization rate rising in data center. And I was wondering what does it mean exactly? I mean, does it mean that you already anticipate orders in the near term linked to the new 800-volt architecture from NVIDIA? Does that mean something else? Felix Grawert: Let me explain what we mean by that. Thanks for the question. What we have seen is we have seen in the years, especially '23 and '24, we have seen quite a number of gallium nitride orders, which were happening a bit ahead of the wave, such that, I would say, early '25 at the existing volume customers, we have seen quite a significant overcapacity of installed base also in gallium nitride. That was the reason why in '25, compared to '24, our gallium nitride shipments have been slowed down quite a bit, because our existing and established volume customers literally had also in GaN, not only in SiC, but also in GaN, some overcapacity to be digested. So as we started into '25 at some of our customers, also in gallium nitride, we have seen installed base utilization to be quite low. Now towards the end of '25 and looking into '26, we see that a much larger fraction of the installed capacity is being utilized at the existing GaN customers, while those who newly entered the GaN market in '24 and '25 in previous earnings calls, you may have recalled that we said -- well, there's still new players entering the market to gallium nitride. And those new entrants at this point in time are still in the qualification or in the device and the sampling phase of their technologies to their end customers. You have seen the numbers that I was just commenting towards the question that Janardan was asking. We expect the GaN segment for us to be slightly up next year. Again, it's an indication, qualitative indication. as we see that utilization is increasing, and we expect due to the increasing utilization, some expanding orders from some customers kicking in. The broad market recovery, as I've indicated, with the real volume pull, we don't expect in '26. We rather expect that in '27, '28, but some increasing orders in '26. Does that answer the question? Martin Marandon-Carlhian: Yes, that's very clear. But just a follow-up on this. I mean, why would you anticipate more of that volume in '27 and '28? Because we read that this new architecture from NVIDIA is supposed to be for Rubin Ultra, which is launched in H2 '27. So I was expecting capacity maybe to come a bit earlier than this. So does this mean that maybe it will not be 100% GaN for some steps at the beginning, the 50 and 12-volt steps and it will go gradually. I mean just can you explain a bit why it should come more gradually, let's say? Felix Grawert: So this is based on our current view, what we have and the signals we get from our customers. I share the view that the new 800-volt architecture will lead to significant volumes around '27, '28. This is also our view, I share that. Now for us, it's always very difficult to predict the exact timing when customers will place the orders for new equipment because we do see certain trends, but we cannot look into the exact budgets and plans of our customers. Therefore, at this point in time, we can only comment on what we are currently seeing. If later on in the year, volume kicks in and orders accelerate, we are very happy to it. We don't see signs to that yet. Martin Marandon-Carlhian: Great. And maybe a last question on GaN. I mean, you all is saying that the GaN market will be close to $500 million this year with that data centers really being really a contributor. What would you guess would be the size of the data center market for GaN compared to the overall size of the market this year, like $500 million? Felix Grawert: So I do not have the exact timing for my message in mind. We have looked at a midterm perspective, I think somewhere triangulating '28, '29, '30, something a little further out. And in this triangulation that we've done, the data center opportunity with an upside of about 50% on top of the market without the data center opportunity. You may recall that we have a slide out there in the investor deck, which on the X-axis has 3 time horizons. I think '20 to '23, I think '24 to '26 and whatever '28 to '30, something like this. And on the Y-axis, the different voltage levels, low voltage, medium voltage and then very high voltage. And there, we have put the AI data center opportunity, and this is the market that I'm referring to. Martin Marandon-Carlhian: Maybe last question for me on the gross margin. I mean the current guidance implies record gross margin in Q4. Just can you help us maybe see the main drivers of this? Christian Danninger: Yes. Martin, Christian here. I'll take that one. I mean, like in the last years, the Q4 will be the strongest quarter just by volume, purely shipments. Beyond that, we expect an improved product mix, especially a higher share of final acceptance revenues coming with high margins and also some fixed cost degression effects. A little bit of color on the product mix. We expect a big share of G10 family products, around 50% of Q4 revenue so that you get an idea. So also looking at the -- comparing this with the last year, these margin ranges appear achievable for us. Operator: Next up is Didier Scemama from the Bank of America. Didier Scemama: I've got a couple of questions maybe clarification on the comments you made earlier on '26. And perhaps my math is not right, so please don't shout at me if I'm wrong. I think you said the SiC part of the business would be down 20 percentage points in terms of group sales. I mean, by my calculation, that would imply a pretty minor revenue contribution in '26. So is that correct? And then equally, Optos up, I think you said 10 percentage points within the group, that's going to put it at something like EUR 150 million next year. Is that the right ballpark? Felix Grawert: I would say right ballpark, right indications, Yes. As far as we can say. I mean, it's very early, but we really want to give you some… Didier Scemama: Yes, of course. Felix Grawert: Yes, exactly, yes. Didier Scemama: No, that's incredibly helpful to me perfectly honest. So I guess the question, when I look at the comments you put on the 9-month report, you said about 50% of the bookings came from power electronics. So I have to assume that the rest mostly come from Optos because LEDs, et cetera, is fairly de minimis, which if you compare to what you said last year, means that the bookings in Optos are probably up meaningfully, which is again consistent with what you said. So perhaps when you look at history, Optos, like all the other segments have tended to be incredibly cyclical. So would you think that there is duration in that growth in optoelectronics beyond '26? Or do you think that the big CapEx cycle we see currently for silicon photonics and lasers is going to be as we've seen in the past, a big year and then it falls off a cliff. Felix Grawert: I think you asked the trillion, the multitrillion dollar question, how long the AI bubble will last. I do not have the crystal ball for you, right? If I would, I might not be sitting in this place right now. Didier Scemama: Okay. Well, yes, I mean, honestly, I wish you good luck. Felix Grawert: I think it fully relates given the serious note, yes. Some joking aside, a big part of the laser part is, in fact, coming from the datacom, right? And the datacom, again, is driven by the AI and the AI data center build-out. So it's really hinges on that one, to a very big part, probably 50%, 60%. So it really depends on how exactly that's progressing. But we can only see what we have now in our visibility. But a longer-term view 2, 3 years out, I think it's as difficult as for everybody predicting the AI trend. Didier Scemama: No, for sure. And if I may, as a follow-up, I mean, you mentioned Nokia/Infinera as a customer for your G10 platform for their peak products. Can you give us a few more examples of key customers for that division so that we understand the underlying dynamics, please? Felix Grawert: Unfortunately, I cannot, because we keep customer names always strictly -- very strictly confidential as under NDA. We stick to that. We are extremely sensitive to that. I can give you a qualitative indication. Imagine you think who may be the top 10 providers for data communications devices for AI, you can assume that at least 80%, 90%, maybe 100% of those guys are our customers currently placing order with us and 90% of those are placing orders for the G10-AsP. Maybe I can give you that indication. And I really mean it as I say it. Operator: Now we're coming to the next question. It comes from Madeleine Jenkins from UBS. Madeleine Jenkins: I just had one on utilization rates. You mentioned that the GaN power were increasing. Could you quantify that at all? And also, I guess, get a sense of what your silicon carbide utilization rates are at kind of Chinese and then Western customers? Felix Grawert: So I understand your question about detailed utilization rates. We don't have those. And we could also not share them if we would have them. But what we can say is that based on spare part orders, based on service orders, we see a trend here, which is a good utilization increase for the GaN power, which leads us to expect some volume expansion orders in '26 at a moderate level as we have indicated. At the same time, in silicon carbide for the overall market, I think towards the beginning of the year, we have seen very low utilizations with very low -- I mean, clearly far below 50% means far more than 50% of the capacity installed in the market was standing idle early in the market. And maybe we are now approaching a 50%, 60%, 70% utilization in silicon carbide. So we do see it increasing, but we are still far from a level on a market level where customers are really going into reorders and expansion orders. I think that's not yet on the agenda. Madeleine Jenkins: Then I guess all your kind of new orders in silicon carbide specifically, are those kind of new customers in China? Is that the right way to look at it? Felix Grawert: Yes. We did have significant orders and shipments in '25 in silicon carbide into China, quite a diverse set of customers, highlighting the success of our G10 silicon carbide platform. So I think we've managed to establish that platform very well in the China market. That was all relating to the earlier question by Janardan. That was all for 8-inch or having 8-inch in mind. However, we are all aware of the large overcapacity in silicon carbide in China. Also the China silicon carbide business at this point in time has slowed down. I think the market overall is digesting the existing overcapacity. However, I think we all see the very nice success of Chinese electric vehicles. At some point, the overcapacity will be digested and there will also be new orders. Madeleine Jenkins: Then just a quick final question. Do you have a sense of kind of how much of your current gallium nitride revenues this year, let's say, are for data center applications? Felix Grawert: That's honestly very difficult to predict. Sorry for having only a vague answer, because our gallium nitride customers, I think we all have a couple of very big names, leading power electronics makers in mind, right? They use our platform essentially our tools, essentially for all the applications across the board. On our tool in the same configuration, you can produce a 20-volt, 100 volt, a 650 volt and even if you want a 1,200-volt device without any change in configuration. And therefore, we, as a maker, just send the tool as it is and the customer can do whatever the customer wants with it without a modification in those power ranges. Therefore, it's for us very difficult to predict. If there would be a different configuration by voltage range, then at least we would have an indication. But therefore, it's difficult for us to say. Sorry for that one. Silicon carbide is different, right? 6- to 8-inch, right? It's always the customer needs a configuration and we see spare parts orders or parts orders, and we can at least give you here in the call a qualitative indication for the GaN, it's really one size fits all. And yes, customer takes it and then we don't know. Operator: Next up is Ruben Devos from Kepler Cheuvreux. Ruben Devos: I just had a follow-up on silicon carbide. I think you touched upon it already, but it was around your comments on benefiting over proportionally when the cycle would return. I think you talked about a more diverse set of customers. So that might be an explanation, right? But just curious around what degree of confidence you have, right, to make that statement of outgrowing the market. And even outside like automotive, how does the pipeline shape up thinking about industrial as well in silicon carbide? Felix Grawert: Thanks a lot. I think your question hints very well towards the future direction of silicon carbide. Let me go a little deeper to expand on it, maybe some of the backgrounds, the technical backgrounds are interesting. So the first generation of silicon carbide devices, which we have seen, I would say, in the last 5 years with a very simple MOSFET consisting essentially of just one thick layer, one thick epi layer. Now what I mentioned, the next generation of devices, which to the expectation of all market participants will be the main volume in the next wave. Everybody expects the next wave of growth, '27, '28, exact timing to be TDD to be super junction MOSFETs. So this is a device where this thick layer is split into 3 or 4 thinner layers. So each of them about 1/5 or 1/4 thick of the initial one. And it's not just one big epi, but the wafer would be put into a tool 4 times. So you make 1 thin layer, then you do some device processing and then the wafer returns to the silicon carbide epi tool comes the next thin layer and so on multiple times. And this super junction technology shifts the operating point from one thick layer, which, let's say, has in the past been deposited, let's say, in about 1 hour to 2 hour processing time, now into multiple thinner layers and depending on which type of equipment, let's say, it now takes 15, 20, 30 minutes instead of 1 or 2 hours. So the wafer gets into the equipment multiple times. And with that, the complete dynamics about the productivity of the tool, the key KPIs and so on is shifting because essentially, it's a very different operating point. You can buy -- in an analogy, you can buy a car which is perfect as a city car, small and nice and fits into parking lots, but doesn't drive very fast, you don't care. And a perfect travel car for long-distance travel or a nice sports car for going up the mountain pathways or driving races, right? And each of the operating points has a different optimum. And this new operating point about thin layers to our calculations and also to the feedback we receive from customers is very beneficial for the batch tool which we are offering. This is the reason why we've made these positive earlier statements. With that, let me come to the second part of your question. The other part of the market, which may provide further growth, I think it's still a little further out than '27, '28 is the market for industrial applications. That market could probably towards the end of the decade grow very big. What we are talking here is about the following. Today, we use the silicon carbide devices mainly in switch mode power supplies or like power devices for the car in the main inverter and in voltages, 650 to 1,200 volts. We can also make silicon carbide devices, which have 3,000 volt or 6,000 volt or 10,000 volts, much, much higher voltage classes. And the industry is working on. That was, for example, one of the elements in the NVIDIA power architecture. I think everybody here in this call has the chart of the architecture. If you look at the chart of NVIDIA, on the very front end, you come from the grid and you enter the grid into the data center at voltages around 14 kilovolts, and that's 14,000 volts. And this down conversion from over 10,000 volts eventually down to 1,000, this is done by silicon carbide and then from 1,000 to 1 is done by gallium nitride. Now you cannot only use the silicon carbide in the data center for these high voltages, but in the entire grid. And we all know as more and more renewables are being used worldwide, I think China leads the pack with driving down the cost of solar and wind, but the whole world is following. And we need much more active grid stabilization, load management, active management and so on and so forth. So the grid, the worldwide power grid will experience over the next 2 decades, massive investments into switching infrastructure. Today, this is all being done by transformers. I think everybody knows next to the highway like these transformer stations standing. In the future, many of those will be done by active switching, and this will all be done by silicon carbide power devices. So all the leading grid suppliers, whether this is Siemens and ABB, Schneider Electric, General Electric in the U.S. are working on such devices. And it's a nice end segment for silicon carbide to come. However, I think this is a longer-term trend. I would not put the years '27, '28 on it. I would rather put '29 onwards as a nice trend for the turning of the decades on this trend. Ruben Devos: Just my second question related to optoelectronics, basically. I think you've called co-packaged optics as a key driver for indium phosphide adoption. How quickly would you expect the market to move there from pilot into volume co-packaged optic deployment? And you've very helpfully framed the tool market size for silicon carbide and gallium nitride in your slide deck. So may I opportunistically ask whether you've done a similar exercise for the G10 arsenide phosphide platform. Felix Grawert: Thanks a lot. I take the suggestion. It's a good one. Let's take that on our action item list that he smiles around me here in the room, yes. It's a good one. We don't have it yet for today, so I cannot give it to you maybe in the next earnings call. Now to your question about the sizing and what we see. For the optoelectronics market, unfortunately, it is much more difficult to predict than for the GaN and for the silicon carbide market. Let me try to illustrate to you why. In GaN and SiC, we talk at least for the low volume segment for pretty standardized segments and types of devices, right? For GaN, we talk 20 volt, 100 volt, 650 and then exotic 1,200. Silicon carbide, 650, 1,200 and now I was talking a bit about the very high voltages. So you can put it into 2 or 3 classes. Unfortunately, the optoelectronic market is extremely fragmented. We both see that in the number of players. I don't know there may be a couple of hundred optoelectronics producers and companies, while in power electronics, we talk probably about like maybe a dozen or 2 dozen, 3 dozen maybe at most, yes. So it's extremely fragmented. And such are the different technologies, which is competing with each other. The good thing is this is physics. They all have in common. As of today, they need a wide band gap semiconductor, gallium arsenide or indium phosphide for generating the light. But then the way the light is being processed, whether this is on an indium phosphide or gallium arsenide-based photonic integrated circuit or whether the light coming on is put into a silicon photonics. You can use silicon -- silicon dioxide waveguides and switching devices. This is extremely diverse and therefore, very difficult to predict. I wouldn't dare at this point to make a prediction where it goes. We are aware that all the guys who are working on the leading-edge CMOS nodes and also doing heterogeneous integration, all of them work on multiple technologies because even for the big guys in the industry, things at TSMC, it's difficult to really say, well, this technology is winning out against the others. Operator: Next up is Andrew Gardiner from Citi. Andrew Gardiner: I just had one on the margin outlook into next year that you provided us, Felix, saying that you thought EBIT margin next year would be in line, perhaps better year-on-year. Can you just sort of give us some of the drivers there in terms of gross margin? I mean, obviously, you've given us the mix in terms of Opto and GaN up and SiC down. How would you sort of quantify that in terms of magnitude of gross margin change next year? And also, you've done a sort of a workforce reduction earlier this year. Given the still slow market in SiC, do you see any need to continue to reduce OpEx? Or are we far enough through this down cycle now where you just sort of have to -- you weather it because you can see the long-term opportunity. So really there's not much change -- incremental change in terms of OpEx into next year? Felix Grawert: Yes. Thanks a lot for the question. I think part of the answer you've given, let me try to give an end-to-end consistent picture. So we were referring to EBIT margins really to bottom line. I have not given indication on the gross margin, no quantitative, right? So I was really mean EBIT margin. And I think there's three drivers behind our indication towards. So we wanted to give you a very clear indication that the margins is not getting worse despite the top line suffering probably a bit. And I think there's three drivers behind it. On the one hand, we see margin-wise, a bit stronger product mix. I indicated the gain of Opto, that helps a lot. And secondly, we will see the full year effects of the headcount reduction, which we conducted early in '25. '25, there's also cost and restructuring costs. In '26, we get the benefits of that. And the third topic is we use the slow period of the cycle right now for some operational improvements, be it working on our storage topics, be it working on logistics topics, be it currently working on our operational efficiency. So we have quite a bunch of these things ongoing, which are just making our operations more fluent, which reduce the external spend that's going out the door all the time. And we expect some of those effects to kick in. And based on those 3 effects altogether, we expect, yes, in terms of absolute terms and a stable bottom line or percentage-wise, stable or even improved bottom line despite the probably slightly weaker top line. But I think that's important in the end for you guys also then to everybody here in this call to give an indication where does it lead on the profitability. Operator: The next question comes from Adithya Metuku from HSBC. Adithya Metuku: Firstly, I just wondered if you could give us some clarity on what drove the push out this year, which end market drove the reduction in outlook for the year? Felix Grawert: Sorry, I didn't -- acoustically, the line was very bad. I didn't get the question. Could you repeat it, please? Adithya Metuku: Sorry, apologies. I was just wondering if you could give us any color on what drove the reduction in guide in 2025? Where did you see this push out, which end market? Felix Grawert: Okay. Sorry, I get it. Honestly, this was all across the board, except for the laser market. I think the laser market we've indicated is strong and continues to be strong and this is growing into next year, as we have just discussed. We have seen a weaker-than-expected GaN in silicon carbide. Initially, as we started into the year, it's always very difficult, right, to predict the full range. And we have put the full guidance range accounting early in February '25. So looking now 7 months back. In our full guidance range, we have accounted for both a slow market scenario, which now is unfolding. So therefore, we now look at the lower half of the guidance. And early in '25 with the upper end of the guidance, we have also taken into account a more positive market environment. As we all see, the more positive market environment for power semis for electric vehicles is not yet unfolding. So the upper half, therefore, had to be corrected now down to the lower half. We are narrowing down at the lower half of the guidance. Adithya Metuku: Then just on the LED and the micro LED market, you talked about seeing signals of improvement. I just wondered if you could give us a bit more color on what exactly you're seeing, especially on the LED side? Is it driven by China? Is it anything construction related? Just any color you can give us on these two end markets in terms of the signals of improvement. Felix Grawert: Yes. Thanks a lot. So on the LED market, this is typically almost exclusively China-only market. I think we can say, because of cost and volume effects. We all know, right, China is very, very strong these days on the display making. It used to be, as you have indicated in your question, historically, there used to be a lot of the LEDs going into construction, right? In China, they put these big, big walls on the skyscrapers. But as we all know, the China housing bubble has collapsed, right? That was also the reason why the segment was bad for us for 2 years. Now we are seeing the classical LED market coming back with, we call it fine pitch displays means and especially display backlighting. Local dimming, local backlighting of display, you can achieve magnificent effect by either having white LEDs behind your LED display, you can create a beautiful black or you can produce quite some nice bright colors on it with that one, and that's even going now into -- turning into RGB. The good news is it is revenue already today. The bad news is it makes it much more difficult for micro LED to gain ground in the televisions because the normal displays are already getting much improved quality. So let's see what it means for the micro LEDs. The other point, which I was indicating, we still see that on micro LED, research work is ongoing. We've seen some first devices. I was relating in my prepared notes to the Garmin watches, which is the first micro LED watch coming out at quite high prices and unfortunately, with low battery lifetime. So we are seeing that coming. And we see a lot of companies currently doing work on AR glasses and VR glasses. You may have seen the glasses launched by Meta. There's much more stuff in the preparation. I think this is a new device category, which will really come into the market quite soon. And yes, we see some moderate demand for that also next year, as I've indicated in my prepared notes. But again, it's far away, to be clear, it's far away from the micro LED massive investment wave that all of us 2, 3 years we were expecting where we would expect that micro LEDs are penetrating everything from smart watches to notebook displays and televisions, right? That one we are not seeing yet. We still see the research ongoing. So some -- many companies are still working on it, but we don't have a clear in our view when exactly that's coming. Adithya Metuku: Just one last question. With TSMC getting out of the GaN market, I just wondered, do you see a market for secondhand tools for your GaN epitaxy tools? And would that affect demand maybe next year or the year after? How do you see the implications of TSMC getting out of the GaN market? Felix Grawert: Honestly, I see it as a bit of a reshuffle, which happens normally in all the markets where there's a bit of a slowdown in the market. I think we see the same in silicon carbide, some players are exiting, some others use the opportunity to buy some used tools to get a hold of in or to get used tool and then newly to enter the market, I think it's a normal play that happens in a softer market environment. For the overall market and for us, this has essentially no implication because whether a used tool is installed or whether a tool is installed at company A or changes the ownership and is later on installed within the factory of company B, it doesn't change the overall installed capacity in the market or doesn't change the market dynamics. So for us as an equipment maker, we are -- we support customers when they need help in either way, sometimes for moving tools, for reinstalling tools, but it doesn't change or doesn't impact the market. Operator: The next question comes from Michael Kuhn from Deutsche Bank. Michael Kuhn: I'll start with, let's say, the usual update on 300-millimeter GaN. I think it's quite well known that Infineon is quite advanced in that context. And obviously, no big surprise there, cooperating closely with you in that regard. So when should we expect tool orders to arrive and, let's say, outside Infineon, what's your view? How many companies are currently working on the transition and preparing orders? Felix Grawert: So I think with 300-millimeter GaN, the market unfolds pretty much as we have expected. If you recall, we stated earlier that we see the 300-millimeter GaN as a subsegment of the overall GaN market, initially targeting the lower voltage classes means 100 volt, 20 volt, maybe 200 volt. Maybe at a later time, also 650, but really starting at the lower voltage classes. And we get confirmation from many customers what we had expected early on that customers are really targeting to switch and to reuse existing silicon MOSFET or silicon IGBT capacities and to rededicate existing fabs for gallium nitride. Of course, customers need to buy new epi tool because the silicon epi tool is a completely different tool from a gallium nitride epi tool. So in any case, there's a new tool demand for gallium nitride tools. However, the market adoption and the customer decision to the largest part depends on the installed base of factories. So customers who have today their silicon MOSFETs running in a 200-millimeter silicon fab are likely to switch to a 200-millimeter GaN tool. Customers who today are running their silicon MOSFETs in a 300-millimeter fab will want to switch and rededicate their 300-millimeter fab to a 300-millimeter GaN fab. So that is the market dynamic. And I think based on that dynamic, we never comment on customers unless we have a joint press release with customers. So allow me to describe the trend without names as we always try to do. So we really see customers who have installed 300-millimeter silicon capacity are switching now and starting to switch and have plans. There are many, many, many other customers who have 200-millimeter silicon fabs continue to work on gallium nitride 200-millimeter. And as a result of that, our strategy going forward is that we will support both groups of customers. So GaN 300 is not displacing GaN 200. We have our GaN 300-millimeter road map. We are very happy with the results that the 300-millimeter tool is giving. But at the same time, we also maintain an active 200-millimeter GaN road map where we also work on improvements. We have multiple very close customer collaborations on 200-millimeter tool improvements or even next-generation tools for 200 millimeters. Michael Kuhn: Then on cash flow and working capital, given that you don't expect top line growth next year, how much more would you think you can further optimize working capital? Because I think you mentioned you see further potential also into 2026. Christian Danninger: Let's focus maybe on the inventories because the rest of the working capital is always a little bit arbitrary, the receivables and the down payments. But on the inventories, our key ambition is to drive them down further. It's a little bit difficult yet to predict, not knowing the exact product mix and so on, but like at first, like high level expectation would be another 20% down. Felix Grawert: I would be more ambitious. Let's check. So I would say by the end of this year, I would expect inventory EUR 275 million, plus/minus EUR 15 million. To give you a number, let's see how close we come. Maybe next year, EUR 200 million. Let's see, something like this. Christian Danninger: Let's see. Michael Kuhn: Looking forward to it. Maybe you can do a little bet between the 2 of you who comes closer. Operator: There are no further questions. Felix Grawert: Good. Perfect. And I think we had a lively discussion. We very much appreciate as you see. And yes, stay tuned. I think this is a good exchange. And I think we all see each other latest in the February call for the full year results. Christian Danninger: Exactly. We will be on the road at various conferences. So I guess a lot of you at one of the conferences. And for those we don't catch before end of the year already in Merry Christmas. Felix Grawert: In October. Okay. Cheers, guys. Christian Danninger: Thank you. Bye-bye.
Operator: Good afternoon, and welcome to the Travere Therapeutics' Third Quarter 2025 Financial Results Conference Call. Today's call is being recorded. At this time, I would like to turn the conference call over to Nivi Nehra, Vice President, Corporate Communications and Investor Relations. Please go ahead, Nivi. Nivi Nehra: Thank you, operator. Good afternoon, and welcome to Travere Therapeutics' Third Quarter 2025 Financial Results and Corporate Update Call. Thank you, all, for joining. Today's call will be led by Dr. Eric Dube, our President and Chief Executive Officer. Eric joined in the prepared remarks by Dr. Jula Inrig, our Chief Medical Officer; Peter Heerma, our Chief Commercial Officer; and Chris Cline, our Chief Financial Officer. Dr. Bill Rote, our Chief Research Officer, will join us for the Q&A. Before we begin, I'd like to remind everyone that statements made during this call regarding matters that are not historical facts are forward-looking statements within the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not guarantees of performance. They involve known and unknown risks, uncertainties and assumptions that may cause actual results, performance and achievements to differ materially from those expressed or implied by the statement. Please see the forward-looking statement disclaimer on the company's press release issued earlier today, as well as the Risk Factors section in our Forms 10-Q and 10-K, filed with the SEC. In addition, any forward-looking statements represent our views only as of the date such statements are made, October 30, 2025, and Travere specifically disclaims any obligation to update such statements to reflect future information, events or circumstances. With that, let me now turn the call over to Eric. Eric Dube: Thank you, Nivi, and good afternoon, everyone. The third quarter marked exceptional progress across our three key priorities: delivering strong commercial execution in IgA nephropathy, preparing for a potential FDA approval in FSGS, and successfully advancing the manufacturing scale-up of pegtibatinase to support restarting enrollment in the pivotal HARMONY study in 2026. The core driver of our performance is FILSPARI's continued growth in IgA nephropathy, where we delivered sustained commercial excellence in the third quarter. Physicians continue to confidently adopt FILSPARI as a foundational nephroprotective therapy for their patients. This confidence reflects consistent real-world outcomes, robust long-term data reinforcing FILSPARI's differentiated profile and its recent inclusion in the KDIGO guidelines for earlier first-line use to optimize nephroprotection in IgAN. Additionally, in August, the FDA approved a modification to the FILSPARI REMS program, removing the embryo-fetal toxicity REMS and reducing the liver monitoring frequency to quarterly, which aligns with routine clinical practice and our clinical trial experience. This change not only simplifies care for physicians and patients, but also reinforces FILSPARI's long-term safety profile. Our U.S. performance continues to be complemented by strong progress from our partners globally. In Europe and the U.K., CSL Vifor is expanding access, following full regulatory approvals and the progress has been culminated in the recent achievement of a meaningful market access milestone. In Japan, Renalys completed enrollment in its registrational trial in IgAN and remains on track to deliver top line data in quarter 4. The company also reached an agreement with the PMDA of Japan to initiate 2 Phase III trials for sparsentan in FSGS and Alport syndrome and recently announced its planned acquisition by Chugai, a leading innovator in renal and rare disease research in Japan. Together, these milestones underscore FILSPARI's expanding global footprint and the growing excitement around its long-term potential to transform care for renal rare kidney diseases. Beyond our progress in IgAN, addressing the urgent need for an approved medication in FSGS is both central to our mission and represents the next pillar of growth for Travere. Today, there are no FDA-approved medicines for this disease. Patients often experience rapid disease progression with many reaching kidney failure within just a few years of diagnosis, often requiring a transplant. Even then, the disease recurs in approximately half of transplant recipients. The consequences are devastating for patients and their families. Earlier and more effective treatment is desperately needed, which is why the opportunity to bring FILSPARI forward in FSGS is so meaningful for this community who have waited far too long. In September, the FDA communicated that an advisory committee is no longer needed for our sNDA in FSGS. We have been pleased with the progress of our review and our ongoing engagement with the agency to date. Pending approval, FILSPARI will become the first and only approved medication for FSGS, representing a landmark moment for this community, and given the urgent need for an effective approved medication, a transformational opportunity for Travere. Our teams are fully prepared to execute a rapid launch upon approval, building upon the commercial foundation we've established in IgA nephropathy. Beyond FILSPARI, we have successfully manufactured the first commercial scale batches of pegtibatinase and are looking forward to an expected restart of the pivotal HARMONY study of pegtibatinase in classical HCU next year. PEG-t remains a promising potentially disease-modifying investigational therapy that could address a substantial gap for patients living with this rare metabolic disorder. I'll now turn the call over to Jula for a clinical update. Jula? Jula Inrig: Thank you, Eric. One of the most significant milestones this quarter was the inclusion of dual endothelin angiotensin receptor antagonism in the updated KDIGO guidelines for IgA nephropathy, a strong external validation of FILSPARI's role as foundational treatment. KDIGO includes FILSPARI as a first-line option for patients who are at risk of IgA nephropathy progression, recognizing it as the only therapy with proven efficacy versus optimized RAS inhibition. The guidelines also recommend simultaneous treatment of the 2 drivers of IgA nephropathy progression, targeting both the upstream immune activation that causes pathogenic IgA deposition and the downstream glomerular injury that leads to nephron loss. This holistic framing of disease management aligns with FILSPARI's mechanism of action as the only fully approved non-immunosuppressive nephroprotective treatment, which can be combined with immune-targeted medications to optimize long-term outcomes for patients living with IgA nephropathy. Across our KOL engagements following the publication of the guidelines, nephrologists have described the new KDIGO framework as a true paradigm shift that validates early and comprehensive intervention. We believe this recognition cements FILSPARI's position as foundational care in IgA nephropathy, guiding a new era of evidence-based treatment sequencing. A further testament to our leadership in rare kidney disease is our focus on data generation and dissemination, as exemplified by numerous scientific presentations and engagements at recent congresses, including our 11 upcoming presentations at ASN Kidney Week. A few highlights of this data include the Phase II SPARTAN trial in RAS inhibitor naive patients with IgA nephropathy, demonstrating that irrespective of baseline proteinuria levels. FILSPARI consistently reduced proteinuria and led to significant reductions in urinary biomarkers of disease activity, including reductions in immune system and complement activation markers, indicating potential disease-modifying qualities of FILSPARI. We also have two new presentations from the Phase III PROTECT trial in IgA nephropathy. One, evaluating efficacy across historical histopathology from kidney biopsies and another assessing outcomes based on time from IgA nephropathy diagnosis. Both presentations reinforce the SPARTAN findings and align with the KDIGO recommendations, showing that earlier treatment of patients with FILSPARI can lead to greater nephroprotection. We also continue to generate and present real-world and long-term data across a broad spectrum of IgA nephropathy disease severity, demonstrating FILSPARI's consistent benefit in reducing proteinuria and preserving kidney function. In FSGS, as Eric highlighted in his opening remarks, we are pleased with the progress of our review. The agency remains engaged on our submission. And from our perspective, the process continues to be similar to our experience during the IgAN NDA review. Ahead of a potential approval in January 2026, our Medical Affairs teams are deeply engaged, expanding disease education, strengthening nephrologist awareness around the importance of proteinuria in FSGS disease progression and responding to queries regarding how the DUPLEX data could translate into real-world benefit for this underserved patient population. At ASN, we are presenting several new analyses from the DUPLEX study, including a late-breaking analysis that demonstrates that patients treated with FILSPARI achieved proteinuria levels of less than 0.7 grams per gram more frequently versus maximum labeled dose irbesartan. And patients who achieved this threshold had a lower risk of kidney failure, irrespective of treatment arm. This analysis demonstrates further alignment and supports the conclusions of the PARASOL working group that lower levels of proteinuria translate into meaningful improvements in kidney outcomes. We also have data that extrapolates the antiproteinuric treatment effect of FILSPARI versus irbesartan seen in the 2-year DUPLEX trial into longer term kidney failure outcomes from the U.K. Rare Disease Renal Registry or RaDaR. And we also have subgroup analyses of pediatric patients and patients with collagen 4 genetic mutations, demonstrating a consistent antiproteinuric treatment effect with FILSPARI versus irbesartan in these 2 high-risk difficult-to-treat patient populations. With no approved medicine for patients with FSGS today, the opportunity to bring FILSPARI forward is both urgent and transformative. The supportive data from DUPLEX and our regulatory momentum give us confidence in the path ahead. With our goal to provide FILSPARI as a foundational treatment for patients with IgA nephropathy and ultimately those with FSGS, we are pleased that the FDA approved modifications to our REMS program, removing the embryo fetal REMS and reducing the frequency of liver monitoring to quarterly. The feedback we have heard from nephrologists is that these changes are welcomed. The monitoring frequency aligns with how they care for their patients in clinical practice. And these changes can help increase access for the subset of patients for whom monthly testing was an impediment. Turning to our pegtibatinase development program for the treatment of classical HCU. We recently presented long-term data at the ICIEM Congress from Cohort 6 in our Phase I/II COMPOSE open-label extension. At the 2.5 milligrams per kilogram twice weekly target dose, patients treated with pegtibatinase achieved sustained and clinically meaningful reductions in total homocysteine and methionine over an additional year of follow-up, remarkable results in the context of an open-label study. Importantly, we have successfully manufactured the first commercial scale batches of pegtibatinase and have generated data to support FDA interactions. This progress positions us for an expected restart of enrollment in the pivotal Phase III HARMONY study next year, reinforcing our commitment to advancing the only investigational therapy with disease-modifying potential for patients with classical HCU. I will now turn the call over to Peter for a commercial update. Peter? Peter Heerma: Thank you, Jula. I am very pleased to share that the third quarter marked another period of strong commercial performance and continued momentum for FILSPARI in IgA nephropathy, reinforcing its position as a foundational therapy. FILSPARI net product sales reached approximately $91 million in the third quarter, representing another quarter of strong growth, driven by consistent demand and deepening engagement among new and experienced prescribers. Demand for FILSPARI remains robust with 731 new patient start forms received during the quarter despite experiencing summer seasonality as is typical in the summer months. In fact, in September, we recorded our highest daily patient start form rate since launch and we are seeing that trend continue into October. Throughout the quarter, we saw durable utilization among existing nephrologists and a continuation of new prescribers. Importantly, we are seeing a steady increase in the number of practices treating multiple patients with FILSPARI, which highlights growing confidence in the therapy's profile and real-world performance. As the IgA nephropathy treatment landscape evolves, we continue to hear consistent feedback from the nephrology community, reinforcing that physicians view FILSPARI as the preferred novel therapy, not only because of its proteinuria efficacy. But because it delivers a meaningful long-term improvement in kidney outcomes while allowing patients to maintain a normal lifestyle through a once-daily oral regimen. And we are encouraged by the response of the nephrology community to the modification of our REMS program. This simplification makes FILSPARI treatment even more convenient, particularly for newly diagnosed or lower-risk patients as quarterly monitoring is consistent to nephrology clinical practice. We are pleased to see continued uptake of FILSPARI among patients with lower proteinuria levels, reflecting growing recognition that patients above 0.5 gram per gram remain at risk of progression in alignment with our broader label and the KDIGO guidelines. Patient satisfaction is strong as evidenced by consistently high compliance and persistence. As we continue to expand FILSPARI's reach, our patient services and fulfillment programs remain an important contributor. We have maintained broad payer coverage with easing of prior authorization requirements to reflect FILSPARI's broader label, long-term evidence and positioning in the guidelines. Turning to FSGS. If approved, FILSPARI will become the first approved medicine for FSGS, a leading cause of kidney failure. Given the high degree of overlap between the FSGS and the IgA nephropathy prescriber base, we will be able to build upon strong brand awareness and familiarity of FILSPARI with many physicians that have already had experience with the product. Given the high unmet need for an approved medication and the progressive nature of FSGS, we believe this could be an even bigger opportunity with a more rapid uptake versus our launch in IgA nephropathy. We know the FSGS community is eagerly awaiting an effective medicine. And we will be ready to launch in January, if approved. In summary, the third quarter represents another quarter of exquisite execution and continued growth for FILSPARI in IgA nephropathy. The combination of clinical product differentiation, early intervention, strong prescriber confidence and a consistent patient experience continues to drive momentum and position FILSPARI as a foundational and nephroprotective choice among IgA nephropathy therapies. With our strong commercial foundation and expanding real-world experience, we remain confident in FILSPARI's ability to deliver sustainable growth and long-term leadership in rare kidney disease care. I am sincerely proud of the continued performance of our commercial teams and the dedication they bring every day to support patients and physicians. Their success in establishing FILSPARI in IgA nephropathy gives us great confidence in our ability to execute effectively in FSGS, and we will be ready if approved. Let me now turn the call over to Chris for the financial update. Chris? Chris Cline: Thank you, Peter, and good afternoon. This quarter, we delivered another strong set of financial results with continued significant revenue growth and disciplined financial investments. As Peter mentioned, our top line expansion reflects the strength of our underlying FILSPARI business and the consistent execution across our key commercial initiatives, momentum that we believe sets us up for durable growth ahead. We also further strengthened our financial foundation by repaying our remaining 2025 convertible notes and significant value was generated from our partnerships, including the recently achieved $40 million market access milestone from CSL Vifor and the announced acquisition of Renalys by Chugai, both great examples of how our collaborations continue to create value and validate the potential of FILSPARI globally. Starting with revenue. In the third quarter, we generated U.S. net product sales of $113.2 million. FILSPARI continued to grow significantly in the third quarter, generating $90.9 million in U.S. net product sales, which represents an increase of more than 155% year-over-year. From a gross to net perspective, FILSPARI had a onetime benefit of less than $2 million during the quarter. And we continue to anticipate higher discounts in the fourth quarter. Elsewhere, DILI contributed $22.3 million in U.S. net product sales. And we also recognized $51.7 million of license and collaboration revenue, which results in total revenue of $164.9 million for the quarter. Included in the license and collaboration revenue line this quarter is a $40 million market access milestone that was achieved by CSL Vifor. We recently received payment, which will be reflected in our cash balance in the fourth quarter. Also included in the license and collaboration this quarter is $9.3 million in noncash revenue that resulted from the relinquishment of our option to acquire Renalys in anticipation of their agreement to be acquired by Chugai. Moving to operating expenses. Our research and development expenses for the third quarter of 2025 were $51.9 million compared to $51.7 million for the same period in 2024. On a non-GAAP adjusted basis, R&D expenses were $47.8 million compared to $48.4 million for the same period in 2024. Selling, general and administrative expenses for the third quarter were $86.5 million compared to $65.6 million for the same period in 2024. On a non-GAAP adjusted basis, SG&A expenses were $63.5 million for the third quarter compared to $49.7 million for the same period in 2024. The increase in SG&A is primarily attributable to investments in preparations for a potential launch in FSGS in January, increased amortization expense related to FILSPARI royalties as well as an increased investment in supporting commercial efforts for FILSPARI in IgA nephropathy following full approval. Total other income net for the third quarter of 2025 was less than $1 million compared to $1.3 million for the same period in 2024. Net income for the third quarter of 2025 was $25.7 million or $0.29 per basic share compared to a net loss of $54.8 million or $0.70 per basic share for the same period in 2024. On a non-GAAP adjusted basis, net income for the third quarter of 2025 was $52.8 million or $0.59 per basic share compared to a net loss of $35.6 million or $0.46 per basic share for the same period 2024. As of September 30, 2025, we had cash, cash equivalents and marketable securities totaling approximately $254.5 million. This balance reflects our repayment of the remaining $69 million in 2025 convertible notes. And as I highlighted earlier, it does not yet reflect the proceeds of the $40 million milestone payment from Vifor and it also does not yet include any proceeds from the recently announced acquisition of Renalys by Chugai. As we move forward, we are well positioned to sustain our momentum in IgA nephropathy, execute a successful launch in FSGS if approved and advance the reinitiation of enrollment in our pegtibatinase Phase III study next year. Importantly, we're doing all of this from a position of financial strength with no near-term need for additional capital to execute on our core objectives. This foundation gives us confidence in our ability to execute on our key priorities and continue advancing our mission for patients. I'll now turn it over to Eric for his closing comments. Eric? Eric Dube: Thank you, Chris. In Q3, we made tremendous strides across all of our programs. And I am proud of how every employee shows up with passion and focus to advance our mission. One great example is our pegtibatinase team, who has diligently solved scale-up challenges so that we are positioned to restart the HARMONY trial next year. October is HCU awareness month. And it is a fitting reminder of how much work is still needed to allow families affected by HCU to live with a little less worry and a bit more hope. We've entered the final months of 2025 confident in our ability to sustain FILSPARI's growth in IgAN to successfully execute on a potential approval and launch in FSGS and to advance our pipeline with focus. We have the right people, a strong financial foundation and the momentum to bring incredible innovation to the rare disease communities that have been waiting far too long. I'll now turn the call over to Nivi for Q&A. Nivi? Nivi Nehra: Thank you, Eric. Operator, we can now open up the line for Q&A. Operator: [Operator Instructions] We will now take the first question from the line of Joe Schwartz from Leerink Partners. Joseph Schwartz: Congrats on another strong quarter of execution. With the new label approved in August, can you quantify either qualitatively or quantitatively the early impact of the REMS adjustment? Are you seeing new prescribers or a new patient base that might have been more reluctant previously. It seems like with such a strong beat this quarter, you might not be seeing any competitive impacts? Or are you seeing any at all and it was just offset by the updated label? Any color you could provide would be great. Eric Dube: Thanks, Joe. Peter, why don't you take that question? Peter Heerma: Yes. Thanks, Joe. It's a good question. I think you're asking two questions. One is what is the impact of the REMS modification so far? And two, are you seeing any impact of competitive dynamics? I think overall, I would say we see very consistent demand since we had our full approval last year. And that consistency have not been impacted by launches of new products that came into the marketplace. So I think very robust continuation of growth. I think to your first question with regards to the REMS modification, I think that is certainly a tailwind that we are having and that has been very positively received by the nephrology community. What we are seeing is that we have a continuation of new prescribers, while we also continue to expand within experienced prescribers. And I think especially the REMS modification from a monthly base to a quarterly base in the first year really helps for those patients that are not as sick at the higher proteinuria levels, but still are at significant risk of progression of disease. Those patients may not see the physician on a monthly base or may not do traditional testing on a monthly base, but certainly do it at a quarterly base. So I think the timing of the REMS modification fits very nicely in the expansion of the patient population that we are seeing. Joseph Schwartz: Any insight into any competitive pressures at all? Or have you not detected any? Peter Heerma: Yes. As I mentioned, we have seen very consistent demand. I would say Q3, we saw less of an impact of seasonality than we saw last year and that in a more competitive landscape. So I would say that gives you a color of our execution and performance in Q3. Eric Dube: Yes. That's great, Peter. And the only thing that I would offer in addition, Joe, is that not only did we see the modification of REMS, as you alluded to, which makes it just that much easier for physicians and patients. But we also saw the publication of the KDIGO guidelines that further reinforce the positioning of FILSPARI. And I think both of those in combination, of course, with the phenomenal execution of Peter's team continues to reinforce our strong position within this market. Operator: Laura Chico from Wedbush. Laura Chico: Just two quick ones for me. First, with respect to FILSPARI at this point, do you have a sense as to what the typical baseline proteinuria level is at start of prescribing? I think Peter made a comment about perhaps some patients coming in now with a lower level. Second, are you detecting any off-label use in the FSGS setting at this point? Eric Dube: Thanks, Laura, for those questions. I'll take the second one regarding FSGS. We do see some limited prescribing and use in FSGS. We, of course, do nothing to promote that. But we are seeing some physicians make that choice. I will turn it over to Peter to ask your question or answer your question about baseline UPC. Peter Heerma: Yes. Thanks, Laura. So what we have seen since we had a full approval last year in September is that we have seen consistently the baseline proteinuria levels are well below 1.5 gram per gram. And it's what you would expect. I mean, the larger patient population, about 65% of the patient population have proteinuria levels below 1.5. And we're making good inroads in penetrating that market segment. And what you would expect is that you will see a continuation of lower proteinuria levels at initiation. Operator: Anupam Rama from JPMorgan. Anupam Rama: Congrats on the quarter. Just in the context of the beat that you guys had here with FILSPARI, how do we think about sort of the quarter-over-quarter declines in patient start forms? I know you mentioned some summer seasonality, but there were those tailwinds from guidelines and REMS. What are the considerations there? Anything to note on gross to net or inventory? Eric Dube: Yes. Maybe I can frame this and then have Peter and Chris offer anything further. I think the strong performance in demand in Q3 really reflects that underlying expectation. And I'll have Peter talk about some of the trends within the quarter that we saw. But it really is about the seasonality. While we didn't see as much impact this year as we did last year, we certainly did see some of that in terms of the slower months. Peter, maybe you can allude to that. And Chris, you can talk about the gross to net impact in Q3. Peter Heerma: Yes. Happy to comment on that, Anupam, and thanks for that question. I'm actually really pleased with the performance and the demand we saw in Q3. In particular, what I outlined during the call, September, we had the strongest daily patient start form generation and that trend has continued in October. So I think very strong demand. And as I mentioned earlier, we have seen less of an impact of seasonality in a more competitive environment. So I think the performance is really strong. And yes, I couldn't be more proud of the team to continue to execute in the way they do. Chris Cline: Anupam, on the gross to net factor for this quarter, we did highlight that there was less than $2 million benefit. And really, that's just working through the first year here in Part D and having the true-ups as we go throughout the year. Looking ahead, we've guided to throughout the year that the back half may have higher gross to net. That remains the same for the fourth quarter. But we're still right around that guidance of around 20% for the year. And the fundamentals, as Eric and Peter highlighted, very strong. So we're looking forward to the end of the year here. Operator: Tyler Van Buren from TD Cowen. Unknown Analyst: This is Francis on for Tyler. What can we expect in terms of communication leading up to the FSGS PDUFA date in January? Is it possible that you'll disclose if and when you're in labeling discussions? Eric Dube: Francis, thanks for the question. It's been our practice not to comment on ongoing FDA interactions. And like we did during our IgAN review, we'll be entering a quiet period as we approach the PDUFA date. So you wouldn't expect any updates from us during that time. But we will provide and look forward to providing updates on January 13. Operator: Yigal Nochomovitz from Citigroup. Yigal Nochomovitz: So I wanted to ask about REMS and KDIGO. I'm just curious, when you're in the field now with the new message around the reduced REMS and the better KDIGO guidelines, how many of the practitioners are sort of aware of these changes or were informed outside of the channels through Travere? Or is it really that the information is coming from Travere in terms of learning about the better REMS and the KDIGO? Just how is that information flowing? It would be interesting to understand a little better. Eric Dube: Yes, Peter, do you want to take that? And then, Jula, do you have anything further from your engagement with KOLs? Peter? Peter Heerma: Happy to take that one. I mean it was a year ago that KDIGO disclosed the draft guidelines. And I think familiar, the key opinion leaders and the thought leaders, they were well familiar with the KDIGO guidelines. But what we are seeing now is the full publication that it really trickles down to the community nephrologists as well. And so that publication really helps there. And our team is certainly -- it fits nicely in our educational efforts with physicians. With regards to the REMS modification, that is really up to us to communicate to physicians. And like I said in the prepared remarks, I'm really pleased with the reaction and the response we got from physicians of that modification in the first year and how this fits very nicely with their clinical practice, not having to have that monthly monitoring, but doing it at a quarterly base from the get-go. And like I said -- I mean, this is something that they are doing on a quarterly basis anyway. So there is no additional burden for the physician, neither for the patient. Yigal Nochomovitz: Then on pegtibatinase, just very quickly, is the scale-up basically a completed project now? Or is there any more work to do to make sure you have enough supply for the whole HCU market? Eric Dube: Thanks, Yigal. Bill, why don't you take that one? William Rote: Certainly. Well, we're very pleased to have completed our first commercial batches. This enables us to engage with the FDA as was planned, which enables the restart of the study in the next year. We will continue additional manufacturing campaigns in parallel with the study running to do the further characterization work that's required for the BLA and to build stock for launch. But the key milestone is getting to this scale of manufacture, so that we can restart enrollment in the Phase III study. Operator: Gavin Clark-Gartner from Evercore. Gavin Clark-Gartner: I'm sorry to go back to kind of the net price discussion. But even if I take a couple of million out there for the onetime net price boost, I think the revenue was still a little bit higher than some investors were anticipating based on the PSS trajectory. I'm just curious like is this volume of PSS trajectory that you got, like this quarter and last quarter, which is fairly consistent. Is the revenue growth you're seeing based on that something we should be extrapolating going forward? And like how much is the Q4 gross to net impact? Eric Dube: Thanks, Gavin. Chris, why don't you take that? Chris Cline: Sure. So I think one of the things that Peter has mentioned along the way is that we've continued to refine our pull-through process and we've really made good progress there. So I think that's part of what's driving the revenue growth that has been able to outpace the PSS growth over time. We've also seen very strong compliance and persistence. I think, again, that's another testament to the overall profile for FILSPARI. On the gross to net front, we haven't broken it down specifically by quarter. But the third quarter was similar to the second quarter, slightly lower. We would expect that to increase in the fourth quarter. And overall for the year, we're expecting to come out right around the 20% mark. So that's about as much of the guidance as we can provide at this point. But hopefully, that gives you a better sense for how to model that out, Gavin. Operator: Mohit Bansal from Wells Fargo. Mohit Bansal: Congrats on the progress. So in FSGS, I think we might see some data from Novartis soon with atrasentan from their basket trial. Can you talk about advantages you see with a dual ERA mechanism in this indication compared with an agent like atrasentan, which doesn't have the RAS inhibitor component, especially this being an indication where there is not as high background use of RAS inhibitors compared with IgAN? Eric Dube: Thanks for the question. Jula, why don't we have you answer that? Jula Inrig: Certainly, it is quite important in FSGS, which is a true podocytopathy that's at the heart of the disease to target it with both endothelin and angiotensin II together to have the greatest nephroprotective potential. And we also see that with the magnitude of proteinuria reduction we see in this patient population of FILSPARI being used. We see about a 50% reduction in proteinuria that's durable out to 2 years. And that's where we have the confidence that this is the right way to target these patients to provide them long-term kidney protection. I understand there might be some use of single agents. I won't comment on the lack of data that we have regarding atrasentan. We really haven't seen anything to date. So I can't comment on what that gap might leave behind when you don't target both mechanisms. We know when we target both mechanisms, we have -- we get more patients into complete remission as well as greater reductions in proteinuria and FSGS, and that's what really matters. Operator: Prakhar Agrawal from Cantor. Prakhar Agrawal: So Novartis during their earnings said that they have 20% NBRx share, 10% of that is coming from Venrefa and the rest is from Fibralta. So maybe if you can expand on where you are seeing Venrefa and Fibralta as gaining share? And then another follow-up on IgAN. You said September was the strongest month, and October you're also seeing good consistent demand. So should we expect the new patient start forms to increase sequentially in 4Q? Eric Dube: Thank you for the questions. Peter, why don't you take those? Peter Heerma: Yes, I'm happy to take that question. I mean what we have seen -- and I mentioned that before, is that we see very consistent and steadily growing demand since we had our full approval in September last year. And the launch of atrasentan or iptacopan has not really changed that. I mean, iptacopan was launched basically at the same time as we have full approval. Atrasentan was launched like 6 months ago. But it hasn't really changed our trajectory and our continuation of the momentum. So I couldn't be more pleased with the execution and what we are seeing. And I think now with the REMS modification as well as the KDIGO guidelines, I think those are additional momentum builders for us. And so I remain very confident in a more competitive landscape. Eric Dube: Yes. And just to add with regard to whether you can expect sequential increase we've not provided guidance. What Peter shared in the past is, I think, two really important components of that. One is we expect that demand to be above 700 in terms of that quarterly demand. We certainly have seen that as he talked about. But also we think about the large opportunity to be able to have these patients move from RAS inhibition to dual inhibition with something like FILSPARI or the addition of ERA. Most of these patients still are on only RAS. So there is a tremendous opportunity for growth. We're clearly making that progress. We're seeing those occur. And I don't want to speak about other companies' performance. They're clearly helping to be able to increase the shift from RAS inhibition. But as you can see, we've not really seen an impact from their launches. Operator: Maurice Raycroft from Jefferies. Maurice Raycroft: Congrats on the quarter. You mentioned that your increased SG&A for the third quarter includes additional investment in preparation for a potential FSGS launch. Can you talk more about how you're prepping for the launch and how we should think about SG&A expectations going forward? Eric Dube: Sure. Peter, why don't you take the question with regard to how your team is preparing for the approval? And Chris, you can talk about SG&A. Peter Heerma: Yes, Maurice, first of all, I think it's good to realize that this is basically the same prescriber base in FSGS as what we have seen for IgA nephropathy. Basically, the only nephrology segment that we haven't called upon is the pediatric nephrologists. But overall, there's a high level of overlap. So we build upon strength and high brand familiarity. We will have an incremental increase in our commercial footprint to really continue that momentum in IgA nephropathy while also enabling the early uptake that we are envisioning for FILSPARI. So we are building upon strength. And like I said, we have that incremental increase of our commercial footprint. Chris Cline: Maurice, as you can take from Peter's comments, with bringing on some additional sales team members and some other support services here, we do expect to see an incremental increase in SG&A. We started to onboard a number of those people this quarter. But really, you'll see more of that effect in 4Q and going forward. And then around the time of launch, you would also anticipate that we'll have an increase in investment level as we're really making sure that we're providing the right resources to have a very strong start out of the gate early next year. So incremental increases as we go, but we are building from a very strong base. And we're going to be able to leverage a lot of synergies from Peter's team that's performing quite well right now. Operator: Jason Zemansky from Bank of America. Jason Zemansky: Congrats on the great progress. I wanted to revisit the efforts to now completely remove the REMS. I guess, first, given the acceleration in patient starts here and therefore, overall exposure to FILSPARI, have your time lines changed at all? And then I guess, any other updates on this front now that the original REMS modification has occurred? Eric Dube: Thanks, Jason. Bill, why don't you take that question? William Rote: Sure. And we're excited about the REMS modification that was granted in August. And I think we've seen the tailwinds that that provides and the positive feedback from physicians and patients. Our strategy has always been for ultimate removal of the REMS. And with our prior interactions with the agency, we've approached it with a 2-step process with seeing the frequency change first and then removal second. As we've noted in the past, the FDA has been anchored on our PMR study, which requires exposure across about 3,000 patients for 2 years. So our process really hasn't changed. Consistent with our approach, we'll continue to engage with the agency and align with them on our next steps. Operator: Alex Thompson from Stifel. Alexander Thompson: Maybe a follow-up on the commentary on some off-label FSGS use. I wonder if you could comment as to whether those patients are coming in at about 2x the IgAN dose or if they're still early in their treatment course and maybe not titrate up fully yet. Eric Dube: Alex, thanks for the question. So we do have limited insight into some of that information. And I would not want to generalize around the dosing at this point. I think what's important is that upon an approval, we would make sure that physicians are appropriately educated on the label, on the target dose. And of course, as we have with IgAN, we've got strong patient services support for the patients and their offices to ensure that they're at the appropriate dose. Operator: Joe Pantginis from H.C. Wainwright. Joseph Pantginis: So first, I want to talk more about the expenses that you mentioned earlier, but to the totality of the expenses going forward. I won't ask you to project profitability timing. But I guess, can you directionally speak to especially R&D going forward as you're going to bringing PEG back into the clinic and how we should sort of view that offset by FILSPARI revenues? Secondly, I'm just curious with regard to Renalys and Chugai, any change in time lines for development of sparsentan in Japan, South Korea and Taiwan? Eric Dube: Joe, thanks for the questions. I'll quickly address the last one and then turn it over to Chris to answer the questions on expenses. No change in time lines. We've been incredibly impressed with the speed and quality of work from Renalys and we have a high regard for Chugai Pharmaceuticals. We would expect that they would be just as focused when they initiate the FSGS and Alport syndrome programs. We can't speak for them. But what I can say is what we've seen thus far has been very impressive. Chris? Chris Cline: Joe, on the R&D front for operating expenses, we're in the midst of the budgeting process now. So I'll be able to come back with a little bit more clarity on that post 4Q. But you are right that we do expect to have additional investments for pegtibatinase as that clinical operation really ramps up once we restart. And we're looking at investments there to have that be the fastest enrollment and time line to top line data while maintaining quality that we can. For sparsentan, there are -- as you might imagine, with DUPLEX and PROTECT, we do see a ramp down in activity in that. But there are also other evidence generation efforts that could potentially be helpful both in IgA nephropathy, but then also in FSGS pending approval here where we believe we can help generate even more value. The last thing I'll highlight with FILSPARI that's still going to be an investment is going to be the transplant studies that recently kicked off and are in the recruiting phase now. So there are still investments that we need to make on the R&D front. But to your point or question around the context of the revenue, we expect revenue to continue to grow very nicely and be able to support our efforts here. Operator: Ladies and gentlemen, this concludes the question-and-answer session of today's conference call. I'll hand the call back over to Nivi. Nivi Nehra: Thank you, everyone, for joining today's call. Have a great rest of your day. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: " Adhir Kadve: " Louis Tetu: " Laurent Simoneau: " Brandon Nussey: " Richard Tse: " National Bank Financial, Inc., Research Division Thanos Moschopoulos: " BMO Capital Markets Equity Research Paul Treiber: " RBC Capital Markets, Research Division David Kwan: " TD Cowen, Research Division Suthan Sukumar: " Stifel Nicolaus Canada Inc., Research Division Operator: Good afternoon, ladies and gentlemen, and welcome to the Coveo Second Quarter Fiscal 2026 Financial Results Conference Call. [Operator Instructions] This call is being recorded on October 30, 2025. I would now like to turn the conference over to Adhir Kadve, Head of Investor Relations. Please go ahead. Adhir Kadve: Good afternoon, everyone, and thank you for joining us. With me to discuss Coveo's Fiscal second quarter 2026 results are Laurent Simoneau, Coveo's Co-Founder and Chief Executive Officer; Louis Têtu, Coveo's Executive Chairman; and Brandon Nussey, Coveo's Chief Financial Officer. A reminder that some remarks made today will be forward-looking statements within the meaning of applicable securities laws, including those regarding our plans, objectives, expected performance and our outlook for the third fiscal quarter and full year fiscal 2026. These are forward-looking statements given as of October 30, 2025. And while we believe any statements we make are reasonable, they are based on current expectations and assumptions, which are subject to risks and uncertainties. Actual results could differ materially from those expressed or implied. Coveo disclaims any intent or obligation to update our forward-looking statements, whether as a result of new information, future events or otherwise. Further information on factors that could affect the company's financial results is included in filings we make with Canadian securities regulators, including in the Risk Factors section of the company's most recently filed annual information form as well as the key factors affecting our performance section of the company's most recently filed MD&A, both of which are available on our SEDAR+ profile at sedarplus.ca and on ir.coveo.com. Additionally, some of the financial measures and ratios discussed on this call are either non-IFRS measures, ratios or operating metrics used in our industry. A discussion on why we use these metrics and where applicable, reconciliation schedules showing IFRS versus non-IFRS results are available in our press release and our MD&A issued today. Finally, please note that unless otherwise stated, all references and financial figures made today are in U.S. dollars. Our presentation slides accompanying this conference call can be accessed on our IR website under the News and Events section. I will now turn the call over to Louis to review our platform and strategy, followed by Laurent, taking us through our operational and strategic highlights of our second quarter, and we'll end off with Brandon, taking you through the financial details and provide our outlook for Q3 and fiscal 2026. We will then open the line to your questions. With that, over to you, Louis. Louis Tetu: Thanks, Adhir, and thanks to everyone joining us this evening. I'm pleased with our results this quarter. Our SaaS revenue, total revenue and adjusted EBITDA all came ahead of our guidance, and we delivered another quarter of revenue growth acceleration. Generative AI, agent AI and AI-powered experiences represent the most significant opportunities of our time. And while most enterprises are still chasing tangible results, Coveo's customers and partners are already realizing meaningful ROI from our platform, and our results this quarter really show that. Laurent and Brandon will comment on these results. I want to focus on helping investors understand our views on the fast-evolving dynamics of the AI, Gen AI and agent tech market backdrop, in particular, why we believe that this continues to build an important opportunity ahead of us and why we believe Coveo will continue to stand out, thanks to unique technology and real results. First, a reminder of the fundamental thesis around which Coveo is built. powering every point of experience with AI grounded in enterprise data. The importance of AI and digital cannot be understated. It changes everything because it enables digital experiences to become hyper-personalized, prescriptive and now thanks to generative AI, conversational, insightful and advisory. Think of it this way. When buyers, customers, employees or citizens can go online, express their detailed context and then obtain powerful recommendations and advice that is relevant to them. They buy more, they learn faster, they solve issues on their own and become more proficient and productive. In addition, on the business side, when AI models can deliver these experiences while at the same time optimizing business metrics such as revenue, cost or margins, you get quantum leap in business performance. If online, my brand can sell you something that delights you while simultaneously getting rid of my excess inventory, pushing my campaign or maximizing my margin. And then if I can do this for 1 million other consumers on that same day, I'm redefining my business. If I can answer your very intricate customer question, even the most complex one and do this for 1 million other customers on that same day, I'm redefining my business. This is what the Coveo AI platform can do grounded in your secure enterprise data. For our customers, most of which are leading brands and enterprises across the world, the debate is not whether they want to adopt AI in their digital experiences. Their debate is that they're convinced they never want to compete against any business who does. And so it really becomes a question of what it takes and who can deliver now. We've seen many such stories recently where our customers have been able to quantify significant improvements in revenue, self-service or cost reductions and fast. In particular, I want to highlight a story published in Forbes just 3 weeks ago on October 5 about the deployment of Coveo at SAP Worldwide. SAP reports measuring a reduction of 1.6 million cases annually in their global support organization, thanks to Coveo's ability to make generative AI work at high precision on their secure data. The data Coveo stitches in context for millions of users comes from dozens of secure internal sources at SAP and more than 10 million documents across the world. Coveo grounded generative AI provides direct responses to questions while showing exactly which SAP document sources the information came from, similar to how GPT works, but trained on SAP's specific knowledge. According to their calculations, this accounts to more than EUR 100 million in annual savings. And SAP isn't stopping a cost reduction. The company is now using behavioral analytics to intervene before customers encounter problems. Such results are not only impressive, but more importantly, few companies such as Coveo can deploy and measure. And this kind of capability is what will fuel our growth. What we're seeing in the market is extremely encouraging. First, enterprises are awash in AI talk. They are drowning experiments. They're parsed for results. Boards are now asking harder questions about AI, looking for measured outcomes on the P&L. And at the same time, every company fears not being at the forefront of AI innovation. In such an environment, showing results in a practical easy platform to deploy has become immensely valuable. We've said it before. The launch of ChatGPT almost 3 years ago was more than the launch of generative AI. It was the true catalyst that woke up the world on the power of AI, but both the nature of it and the hype confused the business world. What our customers have realized after trusting their own IT to figure out how and where to deploy AI is that the intuitiveness of ChatGPT in particular, masks the complexity of deploying it successfully on their own secure enterprise data. That's precisely the plumbing and intelligence that Coveo provides. For most companies, it's been a journey of experimentation with innovation and also a journey of education. Today, we're talking to market more proficient about the necessary capabilities much more appreciative of the importance of a platform such as Coveo that can connect to any data, not confined to a specific data platform, an AI stack that can deliver the highest levels of relevance precision enterprises need into any application, whether it's website, commerce, contact center, Internet, portals and now into any agency framework, but also an ability to deliver using your own trained LLM. While this may sound perhaps quite technical, making AI models work at high relevance precision on enterprise data is the primary differentiation that Coveo brings, a decade-long cumulative innovation that is tough to replicate at maturity and the difference between delivering results versus claiming you will or failing to deploy in production. This is the reason why today, several of the leading global technology companies use Coveo and why some of the largest commerce brands use our platform. And Laurent will discuss transactions with some of these leading brands. The other good news is that this same need around data grounding precision and relevance is unfolding in agent tech. I want to refer you to our recent announcement of how Coveo unlocks custom actions for AI agents and how, for example, Coveo for Salesforce Agentforce sends queries to the Coveo AI platform to return higher precision results but from all connected content sources. We basically enable any AI agent to operate within the guardrails of all secure and governed enterprise content shaped by the user's reality. This announcement is important and was personally endorsed by the President and GM of Applications and Industries at Salesforce. We believe that the market will continue to move towards us as we chase real-world results, that it's only a matter of time and that maturing buyer knowledge plays in our favor. We've said many times on previous earnings calls that we believe Coveo will be a market taker in this industry. We started applying AI to large-scale search relevance and personalization problems in 2012, building on our history of leadership in enterprise search. And we have built arguably the industry's deepest technology platform to ground AI models and broad enterprise data. And that's why we can deliver on the extreme relevance, precision and scale that enterprises require, something others have underestimated and can't deliver on. With that, Laurent, take it away. Laurent Simoneau: Thanks, Louis, and hello, everyone. To quickly summarize our key results. Subscription revenue for the Coveo Core Platform was ahead of guidance, accelerated to 17% and represented the highest growth rate we have seen in nearly 5 quarters. Adjusted EBITDA was also above our guidance range at $0.6 million. The results we delivered this quarter, along with the accelerated growth we have achieved, underscore Coveo's pivotal role in the era of agentic and generative AI. They reaffirm that our platform and solutions are not only highly relevant, but foundational for this new wave of innovation. Throughout the quarter, my discussions with customers, partners and the demand signals we're seeing from some of the world's most forward-thinking organizations have reconfirmed that search remains a fundamental enabler of any reliable ROI-generating agentic or generative experience. As a platform that powers search with the most relevant content, Coveo continues to be mission-critical to our customers' ability to deploy agentic and generative AI solutions that deliver tangible business outcomes and solve real-world problems like we highlighted earlier on with SAP and the impact we're driving with many others. That said, I'd like to address upfront why our Coveo Core net expansion rate was 105% this quarter compared to 108% last quarter. The difference is primarily due to a renegotiated customer contract with Salesforce, representing approximately 3% of our ARR. This onetime renewal adjustment by Salesforce simply reflected their internal mandate to run Salesforce on Salesforce and Data Cloud. We view this as a unique situation, and I want to emphasize that this does not reflect the solid underlying momentum we're seeing with our customers. Our customers are large global enterprises that operate with content across a diverse technology stack. And while it may be feasible for Salesforce to run at Salesforce, this is not the case for the vast majority of our customers. So net-net, we view this as an isolated event. Salesforce does remain a customer and a strategic partner for Coveo. This was highlighted in our October 14 press release featuring Illumio, an early adopter of Coveo for Agentforce. By leveraging the strengths of Coveo, Illumio has improved content retrieval accuracy, enabling more relevant answers, better agent actions and ultimately a stronger self-service outcome. Illumio measured 95% success rate with Coveo in their formal evaluation, resulting in an accelerated go-live. Illumio is just one example. Others, including Xero Software, Palo Alto Networks, CrowdStrike, Workday and Intel have not only extended their engagement with us, but are also leveraging Coveo to drive generative search and support their agentic road maps. These customer stories give me confidence that we're on the right path and have a great future ahead. Commerce remains our fastest-growing segment and drove nearly 50% of new business bookings this quarter. Within commerce, our SAP partnership continues to show momentum, influencing 50% of commerce bookings. Customer wins in commerce included the European DIY retailer, HORNBACH, Solar, Carlton One and several others. We're quite excited about commerce moving forward, and we continue to anticipate this will be our fastest-growing use case, where we see significant opportunity ahead. This segment is benefiting from multiple tailwinds, including our leadership position in B2B commerce and the accelerating convergence of commerce and knowledge into a single integrated capability. Let me expand with a customer example. Today's commerce platforms simply are not optimized to handle the inherent complexities of B2B commerce. They struggle to index the countless combinations and permutations that arise from a B2B merchants unique pricing models, customer entitlements and real-time inventory data query time. What starts as a modest SKU catalog can quickly multiply in size and complexity. The Coveo platform is designed to operate at this scale. Good example is Cardinal Health, a global leader in health care services and products. Cardinal Health manages a vast portfolio with several hundred thousand SKUs and more than 100,000 different pricing structures. This dynamic environment results in an effective record count in the tens of billions and a level of complexity that few, if any, platforms can manage efficiently. Cardinal Health chose Coveo platform for its ability to deliver fast, personalized and relevant results at scale. Another tailwind is one where Coveo's deep knowledge expertise is now unlocking powerful new value in commerce as the line between commerce and service queries blurs. A good example of this would be Bunnings Warehouse, a leading Australia-based home improvement retailer where Coveo powers both product discovery and support experiences through one unified AI platform. This convergence creates a major opportunity for enterprises, and Coveo is uniquely equipped to lead the way. Our generative AI solutions, which represented more than 35% of new business bookings this quarter reflected continued strong momentum. I am encouraged by the progress we are making. This was one of our best quarters for customer adoption and revenue growth since launching the product. We welcomed several new customers, including Halliburton, one of the world's largest oil and gas equipment manufacturers as well as Deckers Outdoors, Intermountain Healthcare and the BMR Group. We also saw meaningful expansions from existing customers such as NVIDIA, Intel, GE, UKG, HP Enterprise, and Freedom Furniture who continue to increase their investments in our generative AI solutions. We're especially proud of these expansions. They come from customers who have experienced the value of Coveo's generative AI firsthand and continue to deepen their adoption, clearly validating the ROI our solution deliver. On the innovation front, we've been testing, validating our agentic RAG and conversational capability with some of our closest customers and continue to make excellent progress. Within our commerce use case, we're moving forward with key capabilities such as conversational commerce, content intelligence and more. These areas will help drive next wave of differentiation for Coveo. Finally, at an operational level, as we regularly do, we're making sure our investments are directed at the best areas of return. We're moving quickly to optimize our go-to-market investments in light of some of the recent dynamics to ensure we continue to build momentum. In this respect, we're pleased to welcome Pranshu Tewari, who will be joining Coveo as Chief Marketing Officer, effective November 10. Pranshu brings extensive experience in enterprise SaaS, having held senior executive positions at Mendix and Dell Software Group. Improving Coveo's market awareness and presence is an important objective of the company, and I welcome Pranshu’s expertise in helping in this area, among others. Lastly, John Grosshans will be departing from Coveo effective November 1. We thank John for his contributions, and we wish him continued success in his future endeavors. To wrap up, our market is dynamic, and I continue to be confident in our path ahead. Based on our innovation, the strong results we are delivering to our customers and partners and a healthy pipeline of future business. With that, I will pass it to Brandon, who will discuss our financial performance. Brandon? Brandon Nussey: Thanks, Laurent. I'm pleased to report that our Core Coveo Platform grew 17% year-over-year, driven by continued momentum of our generative AI solutions, commerce use cases and expansion within our base. Before we get into details, I will quickly summarize our Q2 fiscal '26 results. SaaS subscription revenue was $35.9 million and grew 15%. Within this, revenue for our Coveo Core Platform was $35.0 million and was up 17%. Revenue from the Qubit Platform was $0.9 million in the quarter and was down 24% year-over-year. We continue to expect that this revenue will fully churn by the end of our fiscal year. Total revenue was $37.3 million, up 14% over last year. And our NER for the quarter on the Coveo Core was 105% -- up from 104% a year ago, but down sequentially for reasons discussed shortly. Gross margin and product gross margin were 79% and 82%, respectively, similar to the prior period. Adjusted EBITDA was slightly ahead of our guidance range at $0.6 million versus $1.5 million a year ago. Cash flow from operating activities were negative $10.8 million versus a positive $1.4 million last year due mainly to the timing of working capital. We ended the quarter with $108 million in cash and no debt. Digging into the quarter in further detail, we saw success in our long-term growth drivers again this quarter. Generative AI solutions saw another record quarter with both customer and revenue growth of approximately 150% compared to the prior year. Importantly, we continue to maintain near perfect retention rates with NER from these solutions at more than 150%. This means customers are adopting, getting value and expanding their usage, which is a great long-term signal for us. In commerce, which once again was our fastest-growing use case, we delivered one of our best quarters ever for new business bookings. Commerce momentum continues to accelerate, driven in part from our ongoing successful partnership with SAP, and we remain confident it will be a key driver of our growth going forward. We continue to see encouraging signs from our existing customers and capturing the white space in our customer base remains an important growth driver for us. Our investments in our account management function continue to show a positive impact, and the results are generally tracking to our plans. This is also having a positive impact to our revenue retention rates, broadly speaking. While the quarter contained many positives, we navigated a couple of near-term dynamics as well. The renegotiated contract with Salesforce that Laurent spoke to will serve to reduce our NER and ARR growth rates by approximately 3% with the effect on recognized revenue spread over the next 4 quarters. This is an isolated customer-specific item and importantly, excluding this customer, churn was the lowest we've seen in the past 7 quarters. Additionally, after several quarters of record new business, in Q2, we saw some deals that were forecasted to close move to our Q3 and beyond. The good news is that some of these deals have already closed in October, getting Q3 off to a good start. With others, however, we observed that additional stakeholder approvals were required as our solutions become more strategic for these customers. I'd like to emphasize, we haven't seen these go to competitors. They simply require more time. In light of this, we're taking a prudent approach to our second half bookings assumptions. So bringing this together, we now expect to land at the low end of our previously issued guidance range for revenue for the fiscal year and are bringing down the top end of the guidance range accordingly. In Q3, we expect SaaS subscription revenue of between $35.7 million to $36.2 million and total revenue of between $37.1 million and $37.6 million. For the full year of fiscal '26, we expect SaaS subscription revenue of $141.5 million to $142.5 million, adjusted from $141.5 million to $144.5 million. And total revenue of $147.5 million to $148.5 million, adjusted from $147.5 million to $150.5 million. With roughly 3% impact from the renegotiated customer contract, along with measured second half bookings expectations in mind, we now expect to exit the year with roughly mid-teens ARR growth. Improving our rule of metrics remains a top priority, and we're committed to doing so. As you've seen from us historically, we will remain disciplined operators, and we'll continue to be diligent about deploying our capital. To that end, we're making proactive targeted investment adjustments within our go-to-market organization to ensure resources are aligned with our highest return opportunities and to quickly adapt to the dynamics we saw in the quarter. We continue to see strong performance in several of our key growth drivers, and we're focused on giving those the investment they need to scale efficiently. Consequently, despite lower revenue expectations, we're maintaining our adjusted EBITDA guidance of approximately breakeven for both the third quarter and the full fiscal year. We still expect to deliver positive operating cash flow for the full year, adjusted from approximately $10 million as we incorporate the impact of the renegotiated customer contract, assumptions around second half bookings and some onetime costs associated with the go-to-market adjustments we discussed above. In summary, our reported revenue growth rate of 17%, which was improved from 11% a year ago, was driven by the building momentum we're seeing in our long-term growth drivers. We continue to see many positive signs surrounding those growth drivers, and we have many things to be proud of this quarter. Despite the short-term challenges encountered in the quarter, we continue to see many opportunities ahead. And with that, operator, you may open the line to questions. Operator: [Operator Instructions] We'll take our first question at this time from Richard Tse with National Bank Capital Markets. Richard Tse: I was wondering if you could update us on any plans to shift to a sort of consumption-based pricing model that would potentially create a revenue lift. And I ask that because Louis, when you talked about SAP, it sounds like it's a substantial kind of savings that they're getting from your sort of Coveo. And are you kind of harvesting sort of full value from these relationships? Louis Tetu: Richard, so here's what's happening. In our business, those are obviously massive customers. And so we're very proud that we're now -- we have multiple examples where we're completing the cycle of essentially selling to the customer, deploying on a global basis. I mean, SAP is a massive deployment on a worldwide basis. And then completing the cycle of measuring. As we said about the SAP announcement, SAP measured, and it's -- you can find it in the Forbes article, measured a reduction of 1.6 million cases annually. And the number they measured was more than $100 million of savings. So I understand the gist of your question that when you think about this, the value that we provide is, in a way, for now, still somewhat in commensurate with the price we charge. We view that as a positive tailwind moving in the future. The more we bring and measure those proof points, Richard, the more we gain price power for our solutions. Our solutions today are consumption-based pricing. You can see that, obviously, as we said, they generate much more value. And as we accumulate these proof points, and we have many more that you can -- some of which you can see on our website, I think that bodes well for, again, price power progression. Richard Tse: I just have one other question. So in your MD&A on Page 8, you sort of talked about incorporating AI into some of your products. So can you maybe help me understand the divide in terms of where your IP is versus the use of external IP when it comes to AI with respect to that comment in the MD&A? Laurent Simoneau: Yes, Richard, this is Laurent here. So, we are an AI platform company here. We have multiple models that we build ourselves, that we manage, that we maintain, that are targeted towards relevance. We also include large language models when required in multiple use cases. And -- because we're built with interoperability in mind, we have the ability to either use our own models or leverage something that is best-of-breed or that in certain use cases that is that run at lower cost, and that may be what's used here. So we have a wide variety of AI usage. A lot of this is based on our IP. But as always said, we're pragmatic and we're leveraging what's the best for our customers. Operator: Our next question comes from Thanos Moschopoulos with BMO Capital Markets. Thanos Moschopoulos: Regarding the commentary on some deals that have been delayed, are there any common themes there, be it with respect to the verticals where you're seeing that, the geographies, the type of use case? Is it driven by budgetary scrutiny initiatives? Or is it more about the client deciding strategic approach of whether to custom build internally versus a platform like yours? And any common themes you'd call out in that regard? Louis Tetu: Yes. Great question, Thanos. I don't think there's any vertical themes or anything like that that was common. What we are finding, and maybe it relates a bit to Louis's comments earlier that as we deploy and -- initially deploy and start to measure what ends up happening is customers will come back and look to buy more from us. And that will tend to be then a transaction size that's above what we historically have been doing on average. And as it gets further and further deployed, it's -- we found in some cases that we're bumping into additional stakeholder groups inside of these customers that increasingly where we need those approvals. So, it's really a function of us becoming a little more strategic at our customers is what we're seeing in many of these instances. And with that comes a few more steps in the sales process. So, as I said on the prepared comments, these are deals we continue to work. They're still in our pipeline. They're just taking us a little bit more time to get them done. Thanos Moschopoulos: Just to clarify, so is this primarily impacting then expansion deals? Or in some cases, you brought in to do proof of concept, but then when people see the savings and how that expands, it goes to a bigger deal than initially contemplated for new logo? Louis Tetu: Yes. I mean, not to say we don't see it on some of the new opportunities as well. I do think we've always taken a proof-of-concept type approach to winning new logos. And so, we do see just the stuff we do is strategic to these folks. So, we might see a little bit of it there, but yes, definitely on the expansion side as well. Thanos Moschopoulos: Last one for me. Do you have plans to backfill the COO role? Or will the responsibilities be reallocated amongst existing executives? Laurent Simoneau: Yes. So, first of all, we have a great team of leaders today that are running the operations with a lot of maturity and stability. And yes, we expect to fill a CRO role in the coming months. Operator: [Operator Instructions] Our next question comes from Paul Treiber with RBC. Paul Treiber: I was just hoping you could elaborate a bit further on the change in the relationship with the contract with Salesforce. What drove the change in terms of -- like is it specific use cases that they felt they could use internally developed software versus using Coveo? Or is it something else that drove the change? Laurent Simoneau: Thank you, Paul, for the question. So look, it's really a commercial imperative from their side to run as much as they can Salesforce on Salesforce. We are disappointed, but we believe it's isolated. We have not heard that from other prospects or customers because, quite frankly, it's hard to consolidate everything on one single platform, right? It's very hard. So Salesforce remains a customer of Coveo. Our partnership remains unaffected by this. You've seen PR and endorsement from the President of Applications at Salesforce. So we expect this to be an isolated event. Paul Treiber: Just another question, the AWS outage, did that have an impact on your business in October when that happened? Do you expect any impact? Or were you resilient to it? Laurent Simoneau: So thank you for this question. So, the short answer is we have 0 downtime on what matters, which is search and queries because we built a resilient platform understanding that while rare, these events may happen once in a while. Our customers select us for a long period of time. They love the fact that we are resilient to a lot of these events that may happen and that may have a big impact, especially our commerce customers. So yes, thank you for your question. We were proud of the team and the architecture to support this situation. Operator: Our next question comes from David Kwan with TD Cowen. David Kwan: I was wondering just more on the Salesforce, I guess, renegotiation. Can you comment when, I guess, the renewal hit? I assume it was -- it sounds like -- I'm guessing the second half of the quarter. And then of the $2 million reduction in the high end of the guidance range, how much of that was related to Salesforce versus the adjustment in terms of your booking’s assumptions? Brandon Nussey: David, yes, look, it was a September 30 renewal. And as you can probably appreciate, there's lots of discussions in the back half of the month that got us to that point. So, it was a late in the quarter renewal. And as it pertains to the guidance, look, it's -- you can do the math, 3% of the ARR. The good news is we're still within our guided range. I think that speaks to some of the underlying momentum we have had that we can absorb this. But at the same time, second half revenues are impacted primarily by this event. David Kwan: That's helpful. And as it related to the, I guess, the EBITDA guidance, you guys have talked about, I guess, trying to make up for some of that lost revenue just on better cost optimization. I just wanted to clarify, I guess, it sounds like -- it doesn't sound like there's much of an impact as some of the growth investments that you're planning to make this year to help drive an acceleration in growth. Is that correct? Brandon Nussey: Yes. Look, that's a constant exercise to optimize your spend, especially as we've been building our go-to-market function up to increase presence and coverage and so on. So that's a constant exercise of making sure we've got the chips on the right spot on the table. And so, there's a little bit of that happening. But to your point, it's not going to impact the big picture. We have been building on that line. We're in a good spot now. It's just making some tweaks here and there to make sure that we are optimizing that investment and getting the unit economics we expect out of it. David Kwan: Just one last question. Just wanted to get a sense for the commerce business, just trying to compare the opportunity in the B2B market versus the B2C. Laurent Simoneau: Yes, David, Laurent here. So, what's very interesting in the B2B market first of all, is the scale of a lot of our customers from a combination of catalog size and entitlements, think about pricing and think about availability of products and so on. So, you start with that foundational -- so that's a foundational challenge that we address at a scale that is quite unique in the market. And then what is -- was quite exciting for us is that now these customers are starting to experiment with convergence between classic commerce and also some knowledge functions. So we're seeing their own customers, their own shoppers starting to ask queries that maybe commerce, maybe support and having the convergence of those 2 together opens up a lot of possibility from an experience standpoint. And we believe that we're uniquely positioned to address both sides at the same time. Operator: [Operator Instructions] Our next question comes from Suthan Sukumar with Stifel. Suthan Sukumar: For first question, I want to touch on the sales front. What would you call out as having changed the most sequentially with respect to your customer conversations for new deals with respect to initial scope, use case adoption? And can you provide an update on the ongoing ramp-up and efficiency of your recent sales hires? Laurent Simoneau: So thank you for your question, Suthan. I think that we're seeing -- one of the things that we're seeing is that deals are becoming larger and therefore, sometimes more complex. And as Brandon said, now happens that they take a little bit more time in some cases. So that's something that overall, I think it's positive, but has changed a little bit the texture of the deals that we're seeing. And of course, commerce is quite robust, and we are seeing these -- again, this convergence of commerce and knowledge as a next step of initial commerce deal potentially that is something that we are seeing as something that is evolving. Brandon Nussey: Yes. Susanne, on the efficiency question, look, as you can probably guess, pleased with some areas, work to do in others. I think that's natural as on the journey we are on. And so we're reacting to the data as we see it and making the adjustments you'd expect us to. But overall, headed in the right direction and pleased with the progress. Suthan Sukumar: Great. For second question, I wanted to touch on the SAP relationship. This -- to me, it sounds like this is humming quite well. Can you provide an update on sort of their broader agentic AI strategy with Joule? And what's your level of exposure there and how you expect to be working with them on that? I'm just kind of curious if the model here will be similar to what you guys have in place with Agentforce? Or could this be a different model altogether? Laurent Simoneau: Yes. So, we have a relationship -- multiple relationships with SAP. SAP is a very important customer of Coveo. As you saw with the with the Forbes article and the amazing case study on their SAP for Me portal. So, there's SAP the customer. There's SAP to partner with I would say, a focus on e-commerce, but it's now expanding into the other dimensions of CX starting with customer service. So, we have a partnership also with them on that. So, SAP's strategy is to bring Joule as the front end from a copilot/agentic perspective on top of those different properties that they have from a product portfolio perspective, but they also want their own customers to use Joule on top of their own customer-facing assets such as SAP for Me. It is planned that Coveo will play a pivotal role into this Joule version on top of SAP for Me of the agentic version. Coveo will bring the consistent relevant content that we're bringing on the SAP for Me classic portal available also into this Joule interaction point, so customers will be able to ask a question on Joule that is consistent with what they saw on the SAP for Me portal. So that's something that is happening right now that is being built and optimized. And we expect that once we have that, it will be hopefully an amazing example for SAP customers to adopt in the future. Operator: That appears to be our last question. I'll turn the conference back to Laurent Simoneau, Co-Founder and Chief Executive Officer, for any additional remarks. Laurent Simoneau: All right. So, thank you again, everyone, for joining and to our shareholders for your continued support. We look forward to updating you at our next earnings call after our Q3 results. Thank you. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Thank you for standing by, and welcome to Westwood Holdings Group's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] I would now like to hand the call over to Jill Meyer, Chief Legal Counsel. Please go ahead. Jill Meyer: Thank you, and welcome to our third quarter 2025 earnings conference call. The following discussion will include forward-looking statements that are subject to known and unknown risks, uncertainties and other factors, which may cause actual results to be materially different from those contemplated by the forward-looking statements. Additional information concerning the factors that could cause such a difference is included in our press release issued earlier today as well as in our Form 10-Q for the quarter ended September 30, 2025, that will be filed with the Securities and Exchange Commission. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. You are cautioned not to place undue reliance on forward-looking statements. In addition, in accordance with SEC rules concerning non-GAAP financial measures, the reconciliation of our economic earnings and economic earnings per share to the most comparable GAAP measures is included at the end of our press release issued earlier today. On the call today, we have Brian Casey, our Chief Executive Officer; and Terry Forbes, our Chief Financial Officer. I will now turn the call over to Brian Casey. Brian Casey: Good afternoon, and thank you for joining us for Westwood's Third Quarter 2025 Earnings Call. I'm pleased to share this quarter's results and key developments as well as our outlook for the remainder of the year. Before we dive into the details, I'd like to highlight several key points from the quarter. Our enhanced midstream income ETF, MDST, surpassed $150 million in AUM. We recorded positive net flows in energy and real assets. Our private fundraising continues to exceed our annual goal by a significant margin. WEBs launched 11 new sector ETFs. Income Opportunity maintained its top decile since inception ranking and earned a Morningstar Ratings upgrade to four-stars. We've all witnessed a broad market rally this quarter, driven by sustained enthusiasm for artificial intelligence, strong corporate earnings and a pivotal interest rate cut by the Federal Reserve. Strength in cyclical areas like industrials and consumer discretionary all pointed to widespread confidence in economic growth. However, large cap gains remain highly concentrated in a handful of mega cap stocks. For small caps, the long-awaited rotation of leadership from large-cap giants to smaller companies finally showed up. And once the Fed cuts rates in September, the bond market responded by sending treasury yields lower. High-yield and corporate credit outperformed government bonds as recession fears eased and gold broke through $4,000 given the prospect of lower real yields and global U.S. dollar weakness. Turning to our long-term performance. Our investment professionals delivered solid results across multiple strategies and asset classes. In our U.S. value strategies, our SMidCap strategy continues to post strong rankings and is firmly positioned in the top third over trailing 3-year periods. Our multi-asset strategies continue to deliver compelling results. Our income opportunity and multi-asset income funds achieved top third rankings for the trailing 3-year period and top half over the trailing 5-year period in the Morningstar universe. Our Income Opportunity Fund, WHGIX, also recently received a Morningstar Ratings upgrade to four stars. Within our salient strategies, our energy products continue to perform very well. Our MLP SMA strategy remains ahead of the Alerian Midstream Index across trailing 3-year and 5-year periods. Enhanced Midstream Income, MDST and Enhanced Energy Income, WEEI, have delivered solid yields to income-focused investors with MDST maintaining an annualized indicated dividend yield exceeding 10%, while WEEI has an indicated dividend yield of over 13%. As seasoned value investors, we seek to unlock opportunities in mispriced, misunderstood and often less popular names. In times like these, fundamentals are often brushed aside, allowing for emotion and momentum to dominate. But as students of market history know, this stage of the current market cycle typically precedes periods when quality and value regain momentum. On balance, we remain cautiously optimistic with below-trend growth, sticky inflation and elevated market valuations concentrated in a handful of mega cap tech stocks. We believe that investment opportunities are shifting. Undervalued segments, especially small-cap stocks and the broader value style are beginning to look more attractive. As markets evolve and investors rotate away from the most expensive segments, our focus on high-quality businesses with attractive relative valuations positions us well. Quality and attractive relative value have consistently outperformed across market cycles, and we fully expect this dynamic to reassert itself as the market environment matures. Our distribution channels delivered impressive results in the third quarter, building on the momentum we've established throughout the year. Year-to-date net sales through September 30 improved versus last year by 17% and by 57% versus 2023. Our intermediary and institutional channels have contributed equally to this performance. Our institutional channel had negative net flows this quarter, primarily driven by sub-advisory business rebalancing. Our pipeline remains robust across value and energy strategies with several new opportunities added during the quarter. Looking ahead in the institutional space, we anticipate winning more mandates in SMidCap for defined contribution plans, supported by the largest national consultants. We continue to have constructive meetings regarding our managed investment solutions capability, and there's continued interest in our energy offerings for both public and private strategies. We anticipate continued stability with our existing clients as we expand our presence with public plans, OCIOs and single multifamily offices. The intermediary channel had particular success with our private fundraising initiative, which has so far exceeded our 2025 annual goal by 1.5x through September 30. And our private funds have earned approval on several broker-dealer platforms, further expanding our distribution capabilities. Our energy and real asset strategies continue to lead Westwood in both gross and net sales in 2025, and our enhanced midstream income ETF, MDST continues to gain approvals from major national platforms. Putting it all together, the tailwinds in energy, combined with the breadth of Westwood offerings are appealing to intermediary clients, particularly in the family office and RIA space. Our well-rounded offerings within the multi-asset and tactical suite of products are well positioned to ride out equity market volatility. Our Wealth Management business is on track to meet our client retention goals for the calendar year. We've reduced costs versus last year, and this trend will continue throughout the rest of the year. The operational efficiencies we're building will underpin early wins in 2026, and we're continuing to evaluate the best path to enhance our services as we move into 2026. Beyond our core business performance, several transformative initiatives and milestones demonstrate our continued commitment to innovation and strategic growth. Our ETF platform expansion. Our MDST ETF reached a significant milestone, surpassing $150 million in assets under management. MDST was the second best-selling fund compared to peer midstream funds in September, accounting for approximately 30% of midstream product ETF flows. Since inception, MDST has consistently delivered on its objective to provide a steady stream of monthly income with an annualized distribution rate exceeding 10%. The fund's rapid growth and enthusiastic investor engagement underscore the increasing demand for innovative income-generating strategies in today's evolving market environment. WEBs innovation, Westwood and WEBs Investments launched 11 new sector funds during the quarter. The new WEBs defined volatility sector ETFs, a suite of 11 funds, which apply the defined volatility strategy to individual sectors within the S&P 500. By expanding this suite, we can offer investors more precise control over risk and sector exposure using a transparent framework that adjusts portfolio exposure based on real-time market volatility. Each fund tracks a defined volatility index created by Syntax with each index providing investment exposure to an underlying select sector SPDR ETF. The WEBs flagship ETFs, DVSP and DVQQ, which launched late last year, demonstrated the effectiveness of a volatility managed approach this past quarter. These ETFs also implement a rules-based strategy of volatility-adjusted exposure, adding market exposure when volatility is low and reducing market exposure when volatility is high. After underperforming their underlying ETFs, SPY and QQQ during a very choppy first half that experienced elevated market volatility, our defined volatility approach really proved its worth this quarter. As volatility calmed down, DVSP outperformed SPY by 636 basis points and DVQQ outperformed the QQQ by 726 basis points. In summary, we remain confident in our strategic positioning and the value we provide to our clients. Our year-to-date performance demonstrates meaningful progress with net sales improving. Our diversified platform spanning traditional value strategies, innovative ETF products, energy and real asset solutions, custom index solutions, private investments and wealth management services positions us to take advantage quickly of evolving market dynamics. With strong long-term performance rankings across our multi-asset and energy strategies, growing momentum in both institutional and intermediary channels and innovative new products gaining marketplace traction, we believe Westwood is well positioned to deliver value to our clients and shareholders. Thank you for your continued support and confidence in Westwood. I will now turn the call over to CFO, Terry Forbes. Terry Forbes: Thanks, Brian, and good afternoon, everyone. Today, we reported total revenues of $24.3 million for the third quarter of 2025 compared to $23.1 million in the second quarter and $23.7 million in the prior year's third quarter. Revenues were higher than both periods due to higher average assets under management. Our third quarter income of $3.7 million or $0.41 per share compared with $1 million or $0.12 per share in the second quarter on higher revenues and unrealized depreciation on private investments, partially offset by higher income taxes. Non-GAAP economic earnings were $5.7 million or $0.64 per share in the current quarter versus $2.8 million or $0.32 per share in the second quarter. Our third quarter income of $3.7 million or $0.41 per share compared favorably to last year's third quarter income of $0.1 million due to 2025's higher revenues and unrealized depreciation on private investments and changes in the fair value of contingent consideration in 2024, all partially offset by higher income taxes in 2025. Economic earnings for the quarter were $5.7 million or $0.64 per share compared with $1.1 million or $0.13 per share in the third quarter of 2024. Firm-wide assets under management and advisement totaled $18.3 billion at quarter end, consisting of assets under management of $17.3 billion and assets under advisement of $1 billion. Assets under management consisted of institutional assets of $9 billion or 52% of the total, wealth management assets of $4.3 billion or 25% of the total and mutual fund and ETF assets of $4 billion or 23% of the total. Over the quarter, our assets under management experienced net outflows of $0.7 billion and market appreciation of $0.7 billion, and our assets under advisement experienced market appreciation of $30 million and net outflows of $3 million. Our financial position continues to be solid with cash and liquid investments at quarter end totaling $39.2 million and a debt-free balance sheet. Happy to announce that our Board of Directors approved a regular cash dividend of $0.15 per common share payable on January 2, 2026, to stockholders of record on December 1, 2025. That brings our prepared comments to a close. We encourage you to review our investor presentation we have posted on our website, reflecting quarterly highlights as well as a discussion of our business, product development and longer-term trends in revenues and earnings. We thank you for your interest in our company, and we'll open the line to questions. Operator: [Operator Instructions] Our first question comes from the line of Macrae Sykes of GAMCO. Macrae Sykes: Congratulations on the ETF success. That was where my question is. If you could just talk about how you're leaning into the success to leverage it further at this point. It seems like you're accelerating your inflows. So what are you doing to make that even more fruitful? And is there any capacity constraint with respect to the capital coming in and investing it? Brian Casey: Mac, thanks for your question. Yes, so we have worked really hard to grow our ETF business, and we've done it through a lot of the traditional channels. And as you know, each of the various platforms have different thresholds that you have to meet in order to get your ETF onto the platform. And some of them have fairly low bars where you need $25 million in assets and a certain number of shares traded per day. And some have very high bars with a high level of assets and a lot of shares traded per day. So we've been doing it that way. And we've got, of course, our distribution team is out calling on both RIAs and the platforms. So we've had some success there, and I'm really pleased to report that we are very close to gaining access to one of the largest wirehouse platforms in the world. And we've worked really hard to get there, and we feel confident that, that will happen over the next month or 2. Operator: Thank you. I would now like to turn the conference back to Brian Casey for closing remarks. Sir? Brian Casey: All right. Well, thanks, everyone, for listening to our call today. Certainly, the outflows this quarter were disappointing, but fortunately concentrated in our large cap area, which is our lowest fee product. Our pipeline for new business remains very strong at $1.6 billion. We have a one but not yet funded mandate of close to $450 million for our SMidCap product. Our private fundraising is going exceptionally well, and we'll have more to report to you early next year. And we continue to look for opportunities to launch ETFs that are income focused and leverage our broad investment capabilities. And performance for our MIS client in real assets and infrastructure product has been excellent, and our prospect list has really grown, and we feel really close to landing our first institutional client. And then in closing, I do want to acknowledge the passing of our dear friend and colleague, Rolanda Williams. Rolanda joined Westwood 26 years ago as our receptionist. And through her unwavering dedication, sharp intellect and warm spirit, she rose to lead support for our sub-advisory client business and her journey was a testament to her strength, resilience and commitment to excellence, and Rolanda was really more than a colleague. She was a force. Her presence lit up every room, her laughter was contagious and her kindness touched everyone who had the privilege of knowing her. She was deeply loved and her legacy will live on in the hearts of all of us at Westwood, and we extend our heartfelt condolences to her family and loved ones. Rolanda will be profoundly missed but never forgotten. Thanks for listening to our call today. Please reach out to me or Terry, if you need anything. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Øyvind Paaske: Good afternoon, and welcome to the presentation of Akastor's third quarter results. My name is Oyvind Paaske, CFO, and I'm joined today by our CEO, Mr. Karl Erik Kjelstad. We are also pleased to have HMH with us from Houston, represented today by Eirik Bergsvik, CEO; and David Bratton, SVP Finance. As usual, Karl will begin with some key highlights, followed by Eirik and team, who will present the HMH update. I will then take you through Akastor's consolidated financials before handing it back to Karl. Toward the end, we'll open for questions through the web-based Q&A solution where you can post questions at any time. With that, I'll turn it over to Karl. Karl Kjelstad: Thank you, Oyvind, and good afternoon and good morning to our U.S. participants, and thank you so much for joining us for this earnings call. Let us start on Slide 2 with the key highlights for the third quarter. Akastor continued to be in a solid financial state. We have a positive net cash position and no draw on our corporate RCF. With this, we are very pleased to announce another cash distribution to our shareholders, this time, NOK 0.4 per share, supported by the realization of our holding in Odfjell Drilling. This is aligned with our strategy to return excess capital to shareholders while maintaining a sound capital structure. Turning to HMH. The company continues to deliver robust financial performance and demonstrate resilience even in a challenging offshore drilling market. Despite headwinds affecting service activity and spare part sales, HMH achieved adjusted EBITDA of USD 42 million, a solid quarter with a margin of 19%. Importantly, the company also delivered a strong cash flow, underscoring the quality of its operation and its ability to generate value also in a demanding environment. The value of our shareholding in HMH now represents 77% of our total net capital employed with a book value of NOK 3.4 billion at the end of this quarter -- of the third quarter or NOK 12.5 per Akastor share, somewhat higher than last quarter due to positive earnings in the period. Then AKOFS Offshore. AKOFS Santos vessel was formally awarded the 4-year MPSV contract in the quarter, expected to commence in January 2027, safeguarding long-term earnings for AKOFS. AKOFS' earnings for the quarter were impacted by the planned 45-day yard stay required to complete the 5-year classing of the AKOFS Seafarer vessel. Except for this scheduled yard stay, all vessels, including Seafarer, delivered strong operational performance. It's again worth noting that our current book value of AKOFS, where the value related to our equity holding in the third quarter was reduced in nil, reflects a conservative measure driven by historic cost and the company's negative earnings to date. This does not, in any way, fully capture the underlying asset value of AKOFS. We continue to see significant upside potential and remain focused on ensuring this value is increasingly recognized and understood. DDW Offshore, all vessels recorded 100% revenue utilization through the quarter, delivering an EBITDA of NOK 43 million. The book value of our investment in DDW Offshore stood at NOK 1.2 per Akastor share based on an average book value per vessel of $11 million. Finally, the third quarter, we completed the sale of our remaining shares in Odfjell Drilling in line with Akastor strategy of realizing assets to enable capital distribution to shareholders. This transaction generated proceeds of NOK 118 million in September bringing the total proceeds from the sale of Odfjell shares during 2025 to NOK 222 million. Slide 2. I would like to have a few more comments on the Odfjell investment. Back in 2018, we in Akastor made initial investment of USD 75 million in Odfjell Drilling through a preference shares and warrant agreement structure, supporting the acquisition of Stena MidMax that today is called Deepsea Nordkapp. In November 2022, we sold the preference shares back to Odfjell Drilling for $95 million, while we retained the warrants. In May 2024, we exercised these warrants and received just over 3 million ordinary shares and during the second and third quarter '25, we realized these shares generating, as mentioned, NOK 222 million. All in all, these investments have delivered a total return of about NOK 750 million, corresponding to 2.2x multiple or an IRR of about 19% in Norwegian kroner terms. Needless to say, we are pleased with the outcome of this investment and also a bit sad to sell the shares as we see -- as we have great belief in Odfjell Drilling going forward, but we are pleased to be have been able to yet another distribution to our shareholders following the realization. With that, I'm pleased to introduce HMH's CEO, Eirik Bergsvik, that will take us through HMH's third quarter results. So Eirik, the word is yours. Eirik Bergsvik: Thank you, Karl Erik. Good day, everyone, and thank you for joining us on the call. I'll begin by sharing a summary of our third quarter highlights and then provide some perspective on our current market conditions. After that, David will take us through the financials in greater detail. Starting with our results for the third quarter. We reported revenue of $217 million, which is up 3% year-on-year. Our EBITDA for the quarter came in at $42 million, representing a decrease of 8% compared to the same period last year, but up 16% versus prior quarter. This resulted in an EBITDA margin of 19.3%. Our performance this quarter on cash was strong. We generated $35 million in unlevered free cash flow this quarter, primarily driven by improvements in working capital management and the collection of project milestone payments. Order intake for the quarter totaled $171 million, down versus last year as expected as offshore activity works through the current white space. I want to take a moment to thank the global HMH team. Our team continues to work hard to advance our strategic initiatives focused on strengthening margins and driving operational efficiency. This is positioning us well for the continued growth in the future. Now turning to current market conditions. We are seeing continued signs of stabilization and improvement in broader contracting and utilization trends with deepwater offshore markets, benefiting both our customers and HMH. Speaking with our customers, despite the pipeline for early 2026 jobs still being limited, they are seeing significant opportunities for contract activity in mid-2026 and early 2027. Provided oil prices remain reasonably stable, our customers are anticipating a gradual move toward a tighter market with improved backlog as we approach the inflection point sometime in 2026. With that, I'll hand it over to David to walk through the financials in more detail. David Bratton: Thanks, Eirik. I'll begin with the total company results and then move into the segment details. Revenue for the quarter was $217 million, up 3% year-on-year and up 7% quarter-on-quarter, primarily due to aftermarket services, partly offset by a decrease in projects and products. Adjusted EBITDA in the quarter was $42 million, down 8% year-on-year, primarily due to spares and product volume, partly offset by an increase in contract services and increased 16% quarter-on-quarter, driven by contract services and a rebound in spares from prior quarter, partially offset by a decrease in projects. The adjusted EBITDA rate was 19.3% in the quarter. Orders for the quarter were $171 million, down 12% year-on-year and down 1% quarter-on-quarter, driven by a reduction in projects and spare parts due to the continued white space in the offshore market. This was partially offset by an increase in service orders. Finally, on cash flow, unlevered free cash flow in the quarter was positive $35 million in the quarter, driven by project milestone collections and strong working capital management. We ended the quarter with $57 million in cash and cash equivalents on hand. Next, I'll walk you through the product line results in more detail. In aftermarket services, revenue was $105 million in the quarter, up 26% year-on-year and up 14% quarter-on-quarter, driven by contract services. Aftermarket service order intake was $99 million in the quarter, up 42% year-on-year, mainly driven by contract services, partially offset by lower field service and repair activity. Quarter-on-quarter order intake increased 25%, supported by digital technology orders and contract services with some offset from field service and repair activity. Spares revenue was $58 million in the quarter, down 6% year-on-year, driven by softer global offshore activity, but up 12% quarter-on-quarter due to higher output of our topside spares volume compared with the prior quarter. Spares order intake was $56 million, down 18% year-on-year and down 13% quarter-on-quarter, driven again by the lower offshore spares order volume partially offset by an increase in international land spares activity. In Projects, Product and Other, revenue in the quarter was $54 million, down 16% year-on-year, driven by lower product volume and down 8% quarter-on-quarter, driven by a decrease in projects, partially offset by increased product volume. Lastly, moving to net interest-bearing debt. We ended the quarter with $57 million in cash and cash equivalents and a net debt of $144 million. Overall, as Erik said, we're proud of the team's performance this quarter and continue to advance strategic initiatives to strengthen our margins and improve operational efficiency. And with that, I'll turn the call back over to the team in Oslo. Øyvind Paaske: Thank you, David. I will then take you through the Akastor's financials, starting on this Slide 10 with our net capital employed. The carrying value of HMH, where Akastor's net capital employed corresponds then to 50% of the book equity value in the company increased by NOK 54 million compared to Q2, driven by positive net profit in the period. The net capital employed related to NES remained stable, while [ DDW ] declined somewhat in the period, driven by lower net working capital, which was turned to cash in the period. The net capital employed of AKOFS was reduced to 0 in Q3, as Karl mentioned, down from NOK 79 million in Q2, reflecting our share of the net loss for the third quarter. As Karl noted, continued losses have gradually reduced our book value, which by the end of Q3 then stood at 0. This means we now carry no value of our equity holding in AKOFS in our books. Again, we emphasize that this outcome is driven by accounting principles based on our historical cost and does not reflect the underlying asset values. We do carry the shareholder loans provided to AKOFS Offshore totaling NOK 418 million at the end of the period. These loans are included in our reported net interest-bearing debt. The value of our listed holdings, which per end of Q3 included ABL and Maha Capital decreased by a total of NOK 134 million in the period related then to the sale of Odfjell Drilling, partly mitigated by increased share price in Maha. The negative value of other, which includes smaller financial investments, pension accruals and other provisions was reduced by NOK 20 million in the quarter, and the balance here mainly relates to pension obligations. In total, our net capital employed decreased by NOK 209 million in Q3, primarily driven by the sale of Odfjell as well as the net losses in AKOFS Offshore. Then over to our net cash position and an overview of development in the period. In Q3, our total net cash increased by NOK 134 million, reaching NOK 279 million at the end of the period. This improvement was primarily driven by the divestment of Odfjell Drilling shares and positive operational cash flow in DDW, partly offset by the dividend of NOK 0.35 per share, which we paid out in July. The Q3 net cash position includes a net debt position of NOK 169 million in DDW Offshore, improved from NOK 228 million last quarter due to positive cash flow during the period. Total net interest-bearing debt at quarter end stood at a net cash position of NOK 970 million, which includes interest-bearing positions towards AKOFS Offshore and HMH as well as the remaining seller credit to Mitsui of NOK 39 million, which are to be settled in Q4. Looking ahead, the cash balance in Q4 will be impacted by the seller credit payment as well as the approved dividend payment totaling about NOK 110 million scheduled for payment in November. Our external financing facilities remained largely unchanged from last quarter, except for a cancellation of an undrawn NOK 70 million share financing facility following the divestment of Odfjell Drilling. The DDW term loan was reduced to approximately $24 million after scheduled installment during the period. We are in discussion to refinance this term loan and expect completion of this in Q4. Our corporate RCF remained fully available and undrawn at the end of Q3, and we have agreed with our banks to extend this facility to June 2027 with only final documentations remaining. At quarter end, total available liquidity was NOK 816 million, including NOK 69 million of cash held through DDW. That then includes the undrawn RCF with NOK 300 million. Then our consolidated P&L. As a reminder, most of our holdings are not consolidated in our group financials. Therefore, the consolidated revenue and EBITDA represent a small portion of our total investments. DDW Offshore delivered revenues of NOK 128 million for the quarter with all vessels on contract throughout the period. EBITDA was NOK 43 million, up year-on-year and quarter-on-quarter, driven by higher fleet utilization. EBITDA was, however, impacted by some FX effects and certain nonrecurring vessel costs. Other revenues were NOK 2 million, while other EBITDA was negative NOK 16 million. As a result, consolidated revenue and EBITDA for the quarter ended at NOK 130 million and NOK 27 million, respectively. Our net financials contributed positively by NOK 54 million, driven by value increases across most holding, including the Odfjell Drilling and Maha Capital. FX accounting effects were negative NOK 23 million, reflecting a smaller weakening of the U.S. dollar versus the Norwegian kroner. Net interest and other financial income added NOK 4 million, bringing total net financial items to a positive NOK 38 million for the quarter. Share of net profit from equity accounted investments was neutral overall with AKOFS contributing negatively by NOK 81 million, while HMH contributed positively by the same amount. And with that, I'll pass the word back to Karl for the last section. Karl Kjelstad: Thanks, Oyvind. Let me round off this presentation with some ownership agenda reflections. Firstly, on Slide 16, our investment portfolio was in the quarter reduced from 9 investments to 8 following the mentioned exit from Odfjell Drilling. Let us then move to Slide 17, covering HMH, been already covered by Eirik to some extent, but let me anyhow add some few reflections as HMH owner. First of all, our ownership agenda for HMH remains firm. It is to expand the business through organic growth and also do value-adding acquisitions. It is to maintain a leading market position and also continue to target to make HMH investment liquid at some point in time. We remain somewhat cautious regarding the short-term outlook for the drilling market. That said, and also, as Eirik stated, we do see encouraging signs when looking further ahead. 2026, 2027 show signs of becoming a start of a new offshore rigs up cycle, driven by the deepwater offshore development. Regarding the listing process, there is no concrete news at this point, but HMH is steadily keeping its S-1 registration filing updated and is as such, continuing to prepare for a listing. Timing of possible public offering is subject to a variety of factors and difficult to comment at this time. Let us move to Slide 18 and covering NES Fircroft. NES Fircroft continues to deliver solid results with both revenue and EBITDA increasing by 5% compared to the third fiscal quarter of 2024, despite a continued somewhat challenging environment for recruitment. As mentioned earlier, the company is exit ready. And together with the main owner, AEA Investors, we have, for some time, been exploring several alternatives for an exit. There is nothing specific to report at this stage, and we will revert with an update when there is more clarity on this. In addition to our focus on making this investment liquid, a key priority is to continue growing the company, both organically and also through M&A to enhance value for all shareholders. Slide 19, covering AKOFS Offshore. As mentioned, all AKOFS vessels remain on contract through the quarter. Aker Wayfarer achieved a revenue utilization of 97%, while AKOFS Santos delivered 94% revenue utilization in the quarter. As noted last quarter, AKOFS Seafarer earnings was impacted by its scheduled 5-year class renewal survey, resulting in a 45 days off hire. We are pleased to see that the survey was completed in line with budget and on planned time, but it led to a revenue utilization of 49% for the period due to this. The total revenues for AKOFS [indiscernible] were USD 28 million with an EBITDA of USD 3 million. Looking ahead, Seafarer will transition to a new contract terms late in the fourth quarter. This will increase the running rate earnings. We were also pleased to see that AKOFS formally awarded the new 4-year MPSV contract with Petrobras commencing in January 2027. And this contract value, as previously disclosed, will further strengthen AKOFS' earnings and cash flow once it commenced. During the third quarter, we also reached an agreement with our co-owner MOL to restructure Santos financing, addressing historical, what I would call, misalignment from the shareholder loan structure and fully aligning ownership interest. As a part of this, Santos senior debt will be extended by 1 year to first quarter 2027 with commitments in place. Then DDW Offshore. All 3 vessels remain on contract in Australia throughout the third quarter, delivering 100% revenue utilization. EBITDA for the quarter was NOK 43 million, impacted by certain nonrecurring vessel costs. Scandi Emerald's contract with Petrofac ended in late October and the vessel has since demobilized to Singapore, where it's currently on a short-term contract before entering to the spot market ahead of its scheduled classing -- 5-year classing early next year. Looking ahead, our focus remains on maximizing fleet utilization, supported by solid contract backlog that provides operational and financial visibility. Our ultimate target is unchanged, and we continue to actively assess secondhand market opportunities for potential sale of all 3 vessels. Then finally, let's look at Slide 21 regarding some key priorities for Akastor going forward. Our strategy remains firm in place. Our core objective is to develop the companies in our portfolio and when timing and values are right to execute value-enhancing exits. With a strong net cash position and no drawn on corporate facilities, we are well positioned to maximize values when opportunities arise at the right time. Today, we are pleased to announce our second ever dividend of NOK 0.40 per share, marking another important milestone in our commitment to return value to our shareholders. So I believe that concludes the formal part of this presentation, and we will move over to a Q&A session and take a brief pause to allow you to submit questions. There are already some questions on the screen here. So Oyvind, can you please facilitate that session. Øyvind Paaske: Yes. Thank you, Karl. I guess we can go right to the questions. So first, a question for you, Karl. With the current liquidity position of Akastor, would you be able to pay a Q4 dividend from existing resources? Or do you attempt to maintain the policy of distributing proceeds from asset realizations only? I'll hand that over to you. Karl Kjelstad: Yes. Thank you. No, as I said, we are committed to distribute the value to shareholders, but the future distributions will be when we do transactions when we -- because we also want to maintain a solid financial state with flexibility to act in the most optimal way when it comes to realize our assets. Øyvind Paaske: Thank you. Then we have a few questions on the same topic. So I'll take one of them regarding HMH, so I'll pass that over to Eirik. So Eirik, this is a question from the audience. Do you see potential for increased revenues related to reactivations of some of the rigs that are now experiencing white space? And it's commented that you might have the BOP for a few of the Noble and Valaris rigs currently idle with contracts commencing in late 2026. So I'll pass that question to you, Eirik. Eirik Bergsvik: Yes, thanks. Well, limited what I can say about that. But if you look at what we've been hearing from our clients, from the drillers, what we've been seeing and have been presenting on the various events this autumn, it looks very clear that we could expect some reactivations because of utilization becoming as high as, I would say, never been before, according to what the driller says. So yes, we look positive on that -- those possibilities. And yes, that I think is what I can say about that right now. Øyvind Paaske: Thank you, Eirik. Then I guess lastly, there's also a few questions on the same topic, but I'll pass that to you, Karl, even though you commented on it briefly. But given the appetite for IPOs, do you see an opportunity to list NES Fircroft? And is the company ready for an IPO? Karl Kjelstad: The company is ready for an IPO. So that's, of course, an option to make the investment liquid or any other alternative is to do a trade sale of the company. So all options are on the table is what I can say. Øyvind Paaske: Thank you. And with that, I think we are actually through the questions. And we'll just then like to thank you all for your attention and welcome you back for our presentation of the fourth quarter results on February 12 next year. Thank you very much.
Operator: Good afternoon. My name is Natasha, and I will be your conference operator today. At this time, I would like to welcome everyone to the Amerigo Resources Q3 2025 Earnings Call. [Operator Instructions] Mr. Graham Farrell of North Star Investor Relations, you may begin your conference. Graham Farrell: Thank you, operator. Good afternoon, and welcome, everyone, to Amerigo's quarterly conference call to discuss the company's financial results for the third quarter of 2025. We appreciate you joining us today. This call will cover Amerigo's financial and operating results for the third quarter ended September 30, 2025. Following our prepared remarks, we will open the conference call to a question-and-answer session. Our call today will be led by Amerigo's President and Chief Executive Officer, Aurora Davidson; along with the company's Chief Financial Officer, Carmen Amezquita. Before we begin with our formal remarks, I would like to remind everyone that some of the statements on this conference call may be forward-looking statements. Forward-looking statements may include, but are not necessarily limited to, financial projections or other statements of the company's plans, objectives, expectations or intentions. These matters involve certain risks and uncertainties. The company's actual results may differ significantly from those projected or suggested by any forward-looking statements due to a variety of factors, which are discussed in detail in our SEDAR filings. I will now hand the call over to Aurora Davidson. Please go ahead, Aurora. Aurora Davidson: Welcome to Amerigo's earnings call for the third quarter of 2025. Q3 2025 was a quarter of strong execution and resilience for Amerigo and our MVC operation in Chile. On July 31, El Teniente faced a tragic accident resulting in MVC ceasing to receive fresh tailings for 10 days. Since the accident, MVC has received lower throughput from fresh tailings than normal under the original annual budget. This condition led to a decline in monthly production in August, followed by a production recovery in September. The timely adjustments made by MVC to reduce the impact of lower fresh tailings throughput included increased historic tailings processing and fine-tuning of the concentrator plant. The lower August production forced us to adjust our copper production guidance from 62.9 million pounds to a range of 60 million to 61.5 million pounds. Our production results in October have been strong, and we remain confident in the revised guidance. Despite the impact of El Teniente's accident, during the third quarter, MVC maintained a high plant availability of 98% and continued to operate without lost time accidents or environmental incidents. These metrics reflect the strength of our operational planning and the dedication of our underground team. Stable copper prices and strong moly contributions supported total revenue of $52.5 million in the third quarter. The LME copper prices rose from an average of $4.32 per pound in the second quarter to an average price of $4.44 per pound in Q3, peaking at a monthly average price of $4.51 per pound in September. I will provide my comments on the copper market later in the call. Net income for the quarter was $6.7 million with earnings per share of $0.04. The company generated operating cash flow of $12.4 million, excluding changes in working capital and free cash flow to equity of $11.1 million. In line with the company's capital return strategy, or CRS, a quarterly dividend of CAD 0.03 per share of $3.5 million was paid. Amerigo's quarter end position was $28 million. Moly production was 350,000 pounds and moly prices averaged $24.11 per pound during the quarter. When looking at the cash cost metric, this resulted in a credit of $0.57 per pound, enabling MVC to post a cash cost of $1.80 per pound, which was lower than the $1.82 per pound of the second quarter and the $2.22 per pound of the first quarter. Based on the strong cash cost results, we have maintained our original annual cash cost guidance of $1.93 per pound. This guidance excludes MVC's collective bargaining costs. Amerigo's financial performance continues to reflect the strength of our business model and the resilience of our operations. Carmen will walk you through the detailed financials shortly. I want to discuss 3 important events that occurred in October subsequent to the end of the third quarter. On October 27, MVC fully repaid its outstanding debt. At the end of September, this debt totaled $7.5 million. Eliminating outstanding debt was one of the objectives for this year and marks the conclusion of a transformational 10-year period for Amerigo. When the company took on $100 million in debt, it was part of a strategic decision to invest in Chile and MVC's growth. This decision laid the foundation for a long-term copper producing operation that could navigate market cycles without diluting shareholder ownership. But from the beginning, we were clear, debt should not be a permanent fixture. It was a tool and like any good tool, it had a purpose and time line. Every debt repayment was a step towards greater financial strength and flexibility. Our final debt repayment affirmed the correctness of that strategic decision. It also reflects the company's resilience and commitment to shareholders. Also on October 27, Amerigo's Board of Directors increased the quarterly dividend paid to shareholders to CAD 0.04 per share. This is a 33% increase from the prior dividend and double the initial dividend under the current CRS. This dividend increase will allocate roughly 50% of the annual additional free cash flow that will become available from not carrying debt. It is an important signal of the Board's vision for the future because, as we mentioned from day 1 of the CRS, the quarterly dividend is set at a rate that is sustainable in the foreseeable future, irrespective of short-term copper price cyclicality. This is a new floor for shareholders. And as has been the case in the last 4 years, additional distributions will continue to be made through share buybacks and performance dividends. The final significant event I want to comment on occurred on October 22. On that day, MVC signed a 3-year collective agreement with its main union, the operators' union, which has 210 members. Collective agreements play a crucial role in Chile's mining industry. These agreements maintain labor peace and provide a structured framework for negotiating wages, working hours, benefits and bonuses. The agreements must balance the strength or weakness of copper prices at the time of negotiation while ensuring access to a skilled workforce and the specific economics of the operation. We had a constructive negotiation with our workers and reached a fair agreement for both parties. Now I will move on to our commentary on the copper market. The long-term themes of surging demand and supply constraints remain significant. A third important element that cannot be ignored is geopolitical interference in the marketplace. Let's start with the obvious supply constraints and disruptions. A copper supply deficit between 300,000 and 500,000 tonnes is now forecast for this year. This has already pushed copper prices upwards as evidenced by October's average LME price over $4.84 per pound. In addition to the trend of declining ore grades, specific mine disruptions at Grasberg, Kamoa-Kakula and El Teniente have resulted in the loss of around [ 518,000 ] tonnes of copper this year. Looking beyond 2025, companies such as Antofagasta Minerals and Teck have already downgraded their 2026 copper guidance. Freeport and Ivanhoe mines will likely do the same following physical inspections of their impacted mines. As I mentioned a minute ago, the current global copper supply has tightened, resulting in a deficit. This bottleneck is driven by copper concentrate availability, which has been affected by production shortfalls at the mines. At the same time, due to overinvestment, the world now has too many smelters to refine copper concentrates. The situation is reflected by the size and the movement of treatment and refinery charges or TCRCs. These are the fees that smelters charge miners to process copper concentrates into refined copper. Treatment charge or TC is the cost to process the concentrate at the smelter. Refining charge or RC is the cost to refine the metal from the concentrate. TCRCs are subtracted from the copper price to determine how much miners actually earn per tonne of concentrate. When TCRCs are low, miners earn more and when they're high, smelters take a larger share. Until 2025, TCRCs were negotiated annually between major copper miners and smelters. The agreed terms known as the TCRC annual benchmark governed long-term contracts. There is also a spot TCRC market for short-term or one-off deals, which reflects real-time market conditions and is volatile. Smelters are currently struggling to secure feedstock, which has pushed spot TCRCs into negative territory. Despite the negative spot TCRCs, smelters have been able to survive, thanks to byproduct credits from other metals in the concentrates they process such as gold or silver. However, negative TCRCs clearly put significant financial pressure on smelters whose business models depend on virtually continuous operation. In recognition of the financial stress imposed on smelters, Freeport, which is one of the traditional benchmark sellers has just abandoned the global TCRC benchmark model and has proposed a new floor cap contract model to protect the smelter margins. This model sets minimum and maximum TCRC levels, providing greater stability in volatile market conditions such as the recent negative TCRC spot terms. So in 2026, we may see a different landscape moving from the traditional stable benchmark-based system to floor cap models. However, we could also continue to see negative TCRCs under which instead of miners paying smelters, smelters will pay miners. We may also see multi-year contracts instead of annual or shorter-term contracts and a shift from TCRCs being the primary revenue source for smelters to a reliance on byproducts. In other words, one of the longest-term features of the copper market is currently under review. And this is all because of long-term stresses in copper supply, which we do not anticipate will change anytime soon. On the demand side, the global need for copper is expected to rise year-on-year, at least until 2035. Demand may be shifting regionally, but global total demand is not slowing. The main drivers of growth fall into 2 big buckets: electrification and digitalization. A few years ago, digitalization was not even discussed seriously, it announces the future copper demand. Tariffs such as a 50% U.S. tariff on most finished and semi-finished copper products are also affecting trade flows and regional inventory balances. Speculative trading continues, and we know it was very pronounced earlier this year as shown by the differences between LME and Comex copper prices. Geopolitical conflicts or the resolutions can also strengthen or weaken the U.S. dollar, which affects copper prices. Governments are now actively investing in mining companies and in some cases, prioritizing certain projects. Political intervention, resource nationalism and regulatory shifts will impact market behavior. All of these factors could lead to a copper market in 2026 that remains volatile but elevated. To end my macro comments, I will mention that Chile will now -- will hold general elections shortly. The first round will be on November 16, followed by a runoff, which is usually the case on December 14, 2025. The presidential inauguration will be on March 11, 2026. Current polls suggest that none of the candidates will get 50% or more of the votes on the first round, and that will be the contenders to our runoff with Jeannette Jara of the center-left coalition Unidad por Chile and Jose Antonio Kast of the Republican Party, who have a part right stance being the most likely candidates. In this run-off scenario, Jose Antonio Kast, a pro-business, pro-mining candidate would likely win the election. I will conclude my remarks with a few comments about the continued success of our capital return strategy. Only a month ago, we reached the fourth anniversary of the CRS, which, as you know, comprises quarterly dividends, performance dividends and share buybacks. Over the past 4 years, we have used the 3 components to return $93.7 million to shareholders. 60% of the return has come from dividends, paying a cumulative dividend of CAD 0.51 per share and 33% from buybacks, retiring 25.6 million shares or 14% of the shares outstanding at the start of the CRS. We recently published a video that illustrates the benefits of the CRS for shareholders. The video is on our website and in it, we noted that on a total return to shareholders basis, Amerigo has outperformed mid-tier copper producers, copper ETFs and copper futures since October of 2021. Total returns measure share appreciation and dividends, but they cannot capture the benefit of share buybacks, which ultimately benefits shareholders by reducing the number of shares in which dividends are paid. To better capture the effect of buybacks, we undertook another analysis. That analysis identified another powerful aspect of investing in Amerigo. Buying Amerigo shares is a very cost-effective way to own copper. We have shown that over the last 4 years, it has been cheaper to buy a pound of copper by buying Amerigo shares than to buy it at the LME. In relation to a pound of copper produced by Amerigo in each CRS year, we have shown that it was extremely inexpensive to purchase a pound of copper through owning Amerigo shares. In other words, in relation to the underlying commodity, there was a clear undervaluation of Amerigo's share price, especially before the CRS was introduced. The other avenues of return provided by Amerigo, share appreciation, dividends and buybacks were all magnified by the positive impact of that discount on a per pound of copper produced basis. Since the CRS was launched, Amerigo's share price and therefore, the cost of its shares per pound of copper produced has increased. This is what we wanted, and that is what investors wanted as well. Consequently, that original discount to LME copper has become smaller over time. However, even if the discount has decreased, buying Amerigo shares still remains the most cost-effective way to own a pound of copper compared to a basket of benchmarks. Our analysis also showed that in all cases except Amerigo, investors in the benchmark companies have been purchasing 1 pound of copper at a premium to LME copper prices. In other words, controlling a pound of copper through holding other shares in the benchmark has a higher cost than the LME copper price. For investors seeking maximum exposure to copper per investment dollar, this outcome is crucial. It shows that Amerigo is a here and now copper play. In Amerigo, you are not paying for future growth or for investing in other metals. When buying shares of Amerigo, you have not been paying the high earnings multiple that is expected for growth stocks. You are controlling amount of copper as cheaply as possible and more effectively than peers in copper itself. So to conclude, Amerigo's returns over the 4 years of the CRS have come in 4 flavors: share appreciation, dividends, buybacks and the discount to the LME copper price. As share appreciation has increased, the discount has decreased. Dividends and buybacks have fueled this performance. Amerigo CRS has been a game changer for shareholders, outperforming other copper investments. This has occurred on a total return per share and on a per pound of copper basis. Amerigo rewards shareholders with predictable, consistent dividends, performance dividends when copper prices rise, no dilution and the most efficient way to control a pound of copper. And now we are debt-free. We look forward to many more years of success for the company and its shareholders. Amerigo's CFO, Carmen Amezquita, will now discuss the company's financial results. Carmen, please go ahead. Carmen Amezquita Hernandez: Thanks, Aurora. I'm pleased to present the financial report for the third quarter of 2025 from Amerigo and its MVC operation in Chile. During the 3 months ended September 30, 2025, the company posted a net income of $6.7 million, earnings per share of CAD 0.04 or CAD 0.06 and EBITDA of $18.7 million. The increase in net income to $6.7 million compared to $2.8 million in Q3 2024 was a result of stronger fair value adjustments to copper revenue receivables and lower smelting and refining charges in response to the 2025 annual benchmark terms. Specifically, in the third quarter, there were $1.3 million in positive fair value adjustments compared to $2.7 million in negative fair value adjustments in Q3 2024 and smelting and refining charges decreased by $3 million. Revenue in Q3 was $52.5 million compared to $45.4 million in Q3 2024. This included copper tolling revenue of $44.1 million and molybdenum revenue of $8.3 million. In Q3 2025, the gross value of copper sold on behalf of DET was $67.2 million. From this gross revenue, we deducted notional items, including DET royalties of $20.6 million, smelting and refining of $3.4 million and transportation of $0.4 million and then added positive fair value adjustments to settlement receivables of $1.3 million. Revenue also included molybdenum revenue of $8.3 million. We reported a provisional copper price of $4.54 per pound on our Q3 2025 sales. This provisional price includes mark-to-market adjustments based on the LME price curve as of September 30. The final settlement prices for July, August and September 2025 sales will be the average LME prices for October, November and December 2025, respectively. A 10% increase or decrease from the $4.54 per pound provisional price used on September 30, 2025, would result in a $6.8 million change in revenue in Q4 2025 regarding Q3 2025 production. Tolling and production costs increased 4% from $38.1 million in Q3 2024 to $39.5 million in Q3 2025. The most significant cost variances between the 2 quarters included an increase in lime costs of $0.8 million as more lime consumption is in line with more historic tailing processing, increased inventory adjustments of $0.5 million for more copper delivered than produced during the quarter and an increase in DET moly royalties of $1.3 million as the result of stronger prices and production during the quarter. The gross profit after revenue and production costs was $13 million compared to $7.4 million in Q3 2024, a $5.6 million increase. General and administrative expenses were $1.2 million compared to $0.9 million in the prior year quarter. These expenses include salaries, management and professional fees of $0.6 million, office and general expenses of $0.4 million and share-based payments of $0.2 million. Other losses were $0.6 million compared to other gains of $0.6 million in the third quarter of 2024, which were driven mainly by foreign exchange fluctuations. And finance expense was $0.3 million, down from $0.9 million with the difference driven by lower interest expense from a lower loan balance in Q3 2025 as well as a $0.3 million expense in Q3 2024 related to the fair value of interest rate swaps. Income tax expense was $4.5 million compared to $3.3 million in Q3 2024. Included in the income tax expense in Q3 2025 is $4.9 million in current tax expense and $0.4 million in deferred income tax recovery. Deferred income tax is an accounting figure used to reconcile timing differences and in Amerigo's case, primarily arises from the differences in timing of financial and tax depreciation. Current tax expense in Q3 2025 was $4.9 million compared to $4.4 million in Q3 2024. Before moving on to the statement of financial position, I want to mention some non-IFRS measures used by the company, cash costs, total costs and all-in sustaining costs. In Q3 2025, Amerigo's cash cost was $1.80 per pound, decreasing from $1.93 per pound in Q3 2024, with the reduction primarily coming from a $0.16 per pound decrease in smelting and refining charges and an increase of $0.25 per pound in moly byproduct credits, offset by increases of $0.07 per pound in power costs, $0.07 per pound in lime costs, $0.04 per pound in maintenance and $0.03 per pound in other direct costs. Total costs increased to $3.71 per pound, up $0.17 from Q3 2024's $3.54 per pound. This was the result of an increase of $0.27 per pound in DET notional royalties as a result of higher copper prices and $0.03 per pound in depreciation, offset by a decrease of $0.13 per pound in cash costs. All-in sustaining costs increased to $3.85 per pound from $3.72 per pound in Q3 2024 due to increases of $0.17 per pound in total costs and $0.02 per pound in corporate G&A expenses, offset by a decrease of $0.06 in sustaining CapEx. Moving on to the statement of financial position. On September 30, 2025, the company held cash and cash equivalents of $28 million and restricted cash of $3.1 million with a working capital of $0.9 million, up from a working capital deficiency of $6.5 million on December 31, 2024. Trade and accounts payable decreased from $24.6 million as of December 31, 2024, to $20.2 million at the end of September 2025. Current income tax liabilities decreased from $8.5 million at the end of December to $0.1 million at September 30, 2025, due mostly to the $8 million in taxes related to 2024 that were paid at the end of April when MVC's annual tax declaration was filed in Chile. For 2025, MVC's income tax at the end of September is almost fully offset by the $5.1 million in monthly tax installment payments made by MVC during the year. You will notice that the company's debt was shown as $7.3 million net of transaction fees. This debt was fully paid in October. This puts Amerigo in a 0 debt position, providing additional free cash flow capacity. Regarding cash flows during the quarter, Amerigo generated $12.4 million in cash flow from operations. Net operating cash flow, which includes the changes in noncash working capital was $11.8 million. In terms of cash during the quarter, $1.3 million was used for investing activities, in other words, for CapEx payments and $5.7 million was used in financing activities. These financing activities included Amerigo's quarterly dividend payment of $3.5 million and a transfer of $2.2 million to restricted cash, which was used to pay the debt in October, leaving the company with a no balance in restricted cash going forward. Briefly touching on the results for the first 3 quarters of the year. Our cash cost for the 9 months ended September 30, 2025, was $1.93 per pound and was in line with guidance. Our forecast indicates that we're on track to meet the company's 2025 guidance of an annual normalized cash cost of $1.93 per pound. Our normalized cash cost guidance excludes the signing bonus paid in Q4 in connection with MVC's 3-year collective labor agreement with the operators' union. The agreement will be effective until October 29, 2028, and MVC will pay $4 million to its operators in Q4 2025 as a signing bonus. In 2025, MVC is expected to incur CapEx of $13 million, of which $4.4 million is optimization CapEx, $4.4 million is sustaining CapEx and $4.2 million is CapEx associated with the annual plant maintenance shutdown and strategic spares. In the first 3 quarters of 2025, CapEx additions were $7.8 million and CapEx payments were $9.5 million. We currently expect actual CapEx to trend slightly below our annual CapEx guidance. We will report Amerigo's full year 2025 financial results in February 2026 and want to thank you for your continued interest in the company. We will now take questions from call participants. Aurora Davidson: Operator, can you start on the Q&A? Operator: Sorry. I must have been on mute. Sorry about that. [Operator Instructions] And your first question will be coming from Dale Miller, an investor. Unknown Analyst: Aurora, I think you and your team have done an outstanding job, both from the miners all the way through your organization. However, I do have one minor question. I am surprised that the Board of Directors has been selling actively stocks as opposed to buying stocks. Now I know you can't explain why they're selling in particular, but the picture ahead seems very rosy with the debt being paid down to 0, a 3-year agreement and copper prices on a trend upward. I don't understand the lack of interest in buying your stock from the Board of Directors. Thank you. Again, thank you for your total organization and your efforts. Aurora Davidson: Dale, thank you for your question. It is a good question. There -- you mentioned that there are directors selling. There we have indications of 2 of 7 directors with sale transactions this year. So just to complete the picture here, 5 directors have not sold anything. And in fact, most of the directors when we exercise -- acquire additional options through the exercise of in-the-money -- excuse me, when we acquire additional shares through the exercise of in-the-money options, we are holders of those shares, and we keep them. If there are individual sale events from independent directors, they have their own personal reasons to do so. And you would be -- it would be probably fair to see them in the context of their total holdings and the time that they have held shares of the company. There was one significant transaction by a long-time director that has been a thorough supporter of the company to do a [indiscernible], and he had some sales to make for personal reasons. And in the process of being a decade or longer director, there may be times when you have to sell shares. So I wouldn't take it out of context. I wouldn't misinterpret it as a sign of a misalignment or lack of interest in the company. There are personal requirements for either tax planning or estate planning or diversification that come through from time to time, and we have to acknowledge them. But in overall terms, when you're looking at the overall picture, there is obviously a keen interest in directors, including myself and including the founder of a company, Dr. Zeitler, to hold on to our shares for the long term. We are happy recipients of the CRS benefits as well. I hope that answers the question. Operator: Your next question comes from Terry Fisher with CIBC. Terry Fisher: Yes. Well, congratulations again, another terrific quarter, particularly given the problems at El Teniente. But I guess we're getting used to that now. It's almost boring these wonderful quarters that keep coming out. I hope you're not building expectations too high, but we're very happy. Anyway, I only have 2 quick ones for you. Number one, moly is becoming even more important these days, and it's been notoriously volatile over the years. I'm wondering if you could give us a little bit of color on the moly -- outlook for the moly market. And my other question, I'm just going to table both questions, is that -- I heard, and I can't remember the source that Codelco is looking at maybe under some pressure perhaps from the government or to get a bit more active with CapEx and adopting more modern technology in order to expand production and also to reduce the risk of accidents and so on. And I'm wondering if that is true. And if so, would it open up any further opportunities for Amerigo? Aurora Davidson: Terry, on the moly market commentary, it has been quite stable for the last years. We saw a price spike in moly prices 2.5 years ago around the range of $30 per pound. If you look at our numbers for the Q3, it was -- we had an average price of $24 per pound, which is really good. we had budgeted a lower number than that. So we're happy with the results. The moly market has -- it's a volatile market. No one seems to understand it a bit of a black box. We don't consider ourselves experts on moly. You will see that I don't waste any of the shareholders' time with my commentary in the moly market because there is really nothing I can contribute to it. We try to dig for as much information as we can. And even from our clients, we don't get very clear responses. So we'll take it as positive when we see the -- sorry, the price appreciation that we saw in Q3. It's a good additional layer to have in the business. But that's about it. I think that we have to remain focused on the copper operation on the copper outlook and consider moly a good addition that we really don't have a lot of control on. With respect to your second question, the only thing I can comment on was a recent press article where the Chair of Codelco was explaining different initiatives that they're following up in terms of automation, specifically for more -- for the deeper levels of their underground mines, which, of course, is making a reference to El Teniente. That's good. That's good news. The fact that they are looking actively and investing as they have done in the past. This is not something new. I think they're just expanding or magnifying their efforts, but they're not initiating their efforts in terms of automation. So that's all good news that the strength of Codelco could represent additional opportunities for us in the future. So that's all I can say about it. Operator: [Operator Instructions] Your next question comes from Ben Pirie with Atrium Research. Ben Pirie: Congrats on another strong quarter considering the shutdown and certainly great to see the debt being fully paid down and the dividend increase. Just on the shutdown quickly, and I think I can speak for most investors that we're pleased with how you managed and minimize the production loss or at least the loss in tailings flow. So can you actually just touch on what initiatives the company took to minimize that impact and just where we're at in terms of that fresh tailings flow coming back online? Aurora Davidson: Yes. Thanks for the question, Ben. It was a challenge that the team at MVC faced quite well. So our production impact was twofold. One was the immediate one for 10 days of not receiving fresh tailings at MVC. Immediately, we ramped up on the ground the processing of historic tailings to minimize the impact. So to the extent that, that was done quickly and continues in place to that to date, that is one of the significant aspects that we did. In addition to that, we have taken advantage of having more plant capacity. The most volume-centric part of our operation are the fresh tailings, and that's where we get most of the volume. And it is the feed that takes up most of the real estate in our concentrator plant. So to the extent that we have had some of that freed up, we've been able to tweak part of the operation in terms of improving classification. We have less material to classify. We have a very good dilution at the moment that further increases the classification. We are redirecting some of the flows within the concentrator, and that has also allowed for increased residency times during the -- which have a positive impact on recovery. We also have 2 projects that have come online, which were part of our optimization projects for this year, which included improvements to the cascade operation, and that has also contributed to increased recovery. So we have lower volume of fresh. We are compensating for that with more processing of historic tailings, but we have been able to increase recoveries of fresh, and that is one of the drivers that has helped us mitigate production losses in fact. The only -- I think it's fair to state that we only had a production impact during the month of August. September was back to normal, and we have strong results as well for October. Ben Pirie: Great. And certainly impressive considering the small drop in your guidance for the annual guidance there. Just sort of reflecting on Q1 and Q2 in terms of share buybacks, we saw a lot of action on the NCIB in the first half of the year, but little to none in Q3. Was this primarily because of the shutdown and you just wanted to sort of hold back a little cash in the till? Or can you provide a little bit of color into that Q3 drop on the buybacks? Aurora Davidson: I think it's difficult to try to revise the activity on buybacks on a quarter-on-quarter basis. There are a series of factors that go into play as to how to allocate the surplus cash to additional distributions. So as you know, one of our key commitments, the minimal commitment we have with respect to buying back shares is not to have dilution for shareholders year-on-year. So it makes sense to get your commitments out of the way as soon as you can in the year. And so there was significantly more activity. In fact, in the second quarter, we had completed our sort of weaker quarter of the year in terms of production associated with maintenance shutdowns. Copper prices were doing good. We were committed to buying back at least the amount of shares that were being issued on exercise of options. And we still had 6 months ahead of us to continue with the key objective of reducing debt. So we were not in a hurry to repay the debt in the second quarter. Come the third quarter, we had this interruption in the month of August, which always makes us more careful about managing the capital. We're always careful but even more careful. And we also saw the opportunity as copper prices started to strengthen in September of basically taking care of the debt first in the third quarter. So there are a series of annual objectives. How you organize them throughout the year depends on a number of circumstances. A lot of management judgment and Board decisions get -- also have to be considered in terms of the intra-quarter allocation of the funds. But I think what's important to consider here is not so much the comparison of activity of one quarter to the preceding one, but just a general annual path of continuing to return cash to shareholders. We know our timing. So we have a good view on what's happening around us and ahead of us. So we try to organize it as best as we can. But the general objective is the important one, that is do what you said you're going to do, produce what you said you were going to produce and keep returning that additional cash to shareholders. Ben Pirie: Absolutely. I think you made the right call with paying down the debt as shareholders clearly liked that news yesterday with the stock being up so much. Just staying on this line of question, and I'll be quick here, so other people can get in the mix. Just around the conservative approach you just mentioned with allocating some of your cash flow. Obviously, with paying down this debt, now you have additional cash flow. And in the press release yesterday, you mentioned roughly 50% of that new cash flow will go to the increased dividend. Can you just touch on what you guys plan to do with that remaining 50% and that sort of goes with the conservative approach, I think you're taking your time with that decision. Aurora Davidson: Yes. Thanks for the question, Ben. So just to give some numbers and provide the context here, we were amortizing our debt at the tune of $7 million in principal payments per year. And last year, our debt expense was $2 million. So we have in front of us a figure of $9 million that is being freed up. And the decision of allocating essentially 50% of that, the additional CAD 0.04 in dividends will have a cost of $4.7 million this year -- not this year on an annual basis. So give or take, 50% of the cash that has been freed up now has a placeholder and that placeholder is the increased quarterly dividend. And the cash that remains as cash that is available to the company. The company does not have intensive capital requirements. That has been the stable position and one of the premises of having the CRS. So the obvious avenue of allocation would be additional distributions, which, as you know, are performance dividends and buybacks. So I hope that answers the question. We wanted to have a clear path of showing the shareholders how that cash was going to be allocated. And now 50% of it has been already committed in what we think is a structural change through the quarterly dividend increase and the rest remains to be allocated in the normal course of business, let's call it that. Operator: Your next question comes from John Polcari with Mutual of America Capital Management. John Polcari: Congratulations on achieving key strategic objectives. And I really only have one question, and that is what are your thoughts regarding royalty payments as the price escalates -- price of copper escalates perhaps into the mid- to [ high-$50 ] $5 a pound range or maybe even higher. I think the agreement on the royalties when it was originally constructed had limits on the upside. Can you just address that or give your thoughts on where that would go and maybe any changes to the agreement as prices escalate? Aurora Davidson: John, that's a good question. Let me pack up a little bit here to give you a well-rounded answer. So the royalty is essentially the compensation that we give El Teniente for letting us work with our tailings. And it is a significant driver of the success of the long-term relationship between MVC and El Teniente because it basically provides a mechanism for sharing of the economic benefits of the business between the purveyor of the tailings and the processor of the tailings. Our agreement has both lower and higher copper limits, which are separate for the fresh tailings and for the historic tailings. The limit for the fresh tailings is $4.80 per pound and the limit for the historic tailings is $5.50 per pound. So -- when we are outside of these ranges for 2 consecutive months, and there is also an indication that these prices will continue, then we basically have to do one thing and one thing only, and that is to discuss the continuation of the royalty scale. It is a sliding scale. So the higher the copper price, the higher the royalty factor with El Teniente. So it is not a full renegotiation of anything else other than the royalty scale. And we expect that should these conditions arise, in fact, we have -- we're almost completing October, and October is the first time in history where we've seen an average LME copper price over $4.80. So if this condition were to continue in November, then starting in December, but not before then, we have to discuss with El Teniente the continuation of the royalty factor only. I hope that answers your question. John Polcari: Yes. And just once again, I'm sure I speak for everyone on [ my job. ] Operator: There are no further questions at this time. I will now turn the call over to Aurora Davidson for closing remarks. Please continue. Aurora Davidson: Thank you, and thank you for attending today's call. The recording and the script will be available on the Amerigo website in the next few days. This is our last earnings call of the year. So we wish you all the best as we wrap up 2025 and look forward to our next earnings call in February of 2026. Please visit our website regularly for updates and feel free to contact us with any questions at our convenience, Graham, Carmen and myself, we're always there on the other side of the e-mail or the phone to answer any questions. Thank you for your continued interest in Amerigo. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Welcome to the Third Quarter 2025 Stryker Earnings Call. My name is Robbie, and I'll be your operator for today's call. [Operator Instructions] This conference call is being recorded for replay purposes. Before we begin, I would like to remind you that the discussions during this conference call will include forward-looking statements. Factors that could cause actual results to differ materially are discussed in the company's most recent filings with the SEC. Also, the discussions will include certain non-GAAP financial measures. Reconciliations to the most directly comparable GAAP financial measures can be found in today's press release that is an exhibit to Stryker's current report on Form 8-K filed today with the SEC. I will now turn the call over to Mr. Kevin Lobo, Chair and Chief Executive Officer. You may proceed, sir. Kevin Lobo: Welcome to Stryker's third quarter earnings call. Joining me today are Preston Wells, Stryker's CFO; and Jason Beach, Vice President of Finance and Investor Relations. For today's call, I will provide opening comments, followed by Jason with the trends we saw during the quarter and some product updates. Preston will then provide additional details regarding quarterly results and guidance before opening the call to Q&A. Our third quarter results demonstrate our broad business strength and ongoing commitment to margin expansion. We delivered strong organic sales growth of 9.5% against last year's high 11.5% comparable. We also delivered double-digit adjusted EPS growth of 11.1% despite tariff headwinds, which picked up meaningfully versus Q2. Our organic sales growth was driven by widespread demand across our businesses and included high single-digit growth for MedSurg and Neurotechnology and double-digit growth from Orthopedics. Geographically, our U.S. organic sales growth of 10.6% included double-digit organic growth from our Vascular, Trauma and Extremities, Neuro Cranial and Instruments businesses and high single-digit organic growth in Hips, Knees and Endoscopy. We delivered 6.3% organic international sales growth with notable contributions from South Korea, Japan and emerging markets. We continue to view international markets as a significant opportunity for long-term growth and look forward to launching many products that have already demonstrated success in the United States. We completed 2 small acquisitions during the quarter. The first, Guard Medical's NPseal products brings simplified solution for negative pressure wound treatment that strengthens our orthopedic instrument offerings. The second, advanced medical balloons brings novel patient care products to our Sage business. These acquisitions demonstrate our commitment to deals that deepen our portfolio and enhance growth. Backed by a healthy deal pipeline and strong balance sheet, we plan to stay active on the M&A front. We have good momentum exiting Q3 and expect a strong finish to the year. As a result, we are raising our full year 2025 outlook. We are firmly on track to deliver a second consecutive year of 100 basis points of adjusted operating margin expansion backed by strong execution and conviction in the sustained growth and earnings power of our businesses. I would like to thank our teams for their dedication and passion and living our mission each and every day. With that, I will now turn the call over to Jason. Jason Beach: Thanks, Kevin. My comments today will focus on providing updates on the current environment, the integration of Inari and a preview of Investor Day. Procedural volumes remained healthy in the third quarter, in line with our expectations. We anticipate continued strength in procedural volumes through the end of the year. Demand for our capital products was strong once again in the quarter, and we exited Q3 with an elevated backlog. With a steady hospital CapEx environment, we expect continued strength in our order book. We delivered our best ever Q3 for Mako installations, both in the U.S. and worldwide. Mako continues to see high utilization rates, further bolstering our #1 position in U.S. hips and knees. In addition to Mako 4, our numerous recent product innovations continue to drive growth and interest in the marketplace. Notably, LIFEPAK 35 launched in Europe at the end of the quarter. Next, the Inari integration continues to progress well. We continue to convert the business to our Stryker offense with the successful onboarding of our sales professionals. The Inari business delivered double-digit pro forma organic sales growth in the quarter, highlighting robust procedural growth in the teens, partially offset by destocking, which we continue to work through. Inari remains on track to deliver double-digit pro forma sales growth in 2025, and approximately $590 million in sales for the 10 months this year as a part of Stryker. Lastly, we look forward to hosting our upcoming Investor Day on November 13, which will be webcast live on the Investor Relations page at stryker.com. During the event, various leaders from across our businesses will discuss our long-term strategy and illustrate how we are built for growth. For our in-person attendees, we will conclude with a product fair that will showcase exciting products and innovations across our MedSurg and Neurotechnology and Orthopedic businesses. Also, you will be able to interact with many of our leaders. With that, I will now turn the call over to Preston. Preston Wells: Thanks, Jason. Today, I will focus my comments on our third quarter financial results and related drivers. Our detailed financial results have been provided in today's press release. Organic sales growth was 9.5% for the quarter compared to the third quarter of 2024, with the same number of selling days in both periods. Pricing had a 0.4% favorable impact as we continue to see positive trends from our pricing initiatives across many of our businesses. Additionally, foreign currency had a 0.7% favorable impact on sales. Our adjusted earnings per share of $3.19 was up 11.1% from the same quarter last year, driven by our strong sales growth and margin expansion, partially offset by higher interest expense. Foreign currency translation had a favorable impact of $0.03 on adjusted earnings per share for the quarter. Now I will provide some highlights around our quarterly segment performance. In the quarter, MedSurg and Neurotechnology had an organic sales growth of 8.4%, which included 9.4% of U.S. organic growth and 5.1% of international organic growth. Instruments had U.S. organic sales growth of 11.5%, led by a double-digit performance from the Surgical Technologies business, which includes our Neptune waste management, SurgiCount and smoke evacuation products. Endoscopy had U.S. organic sales growth of 7.9%, led by a robust double-digit performance from our Sports Medicine business and near double-digit growth from our core endoscopy portfolio, somewhat offset by lower sales in the Communications operating room business due to the timing of infrastructure installations. Medical had U.S. organic sales growth of 6.5% that included a double-digit performance in the Acute Care business, which was driven by ProCuity and Vocera. We continue to expect Medical to achieve 10% organic sales growth this year, while we manage the previously discussed supply chain disruptions affecting our emergency care business. Vascular had U.S. organic sales growth of 13.4%, led by the recent launches of our Surpass Elite flow diverting stent and Broadway aspiration system. As a reminder, organic sales growth figures do not include Inari. And finally, Neuro Cranial had U.S. organic sales growth of 12.9%, led by strong double-digit growth in our IBS, Craniomaxillofacial and Neurosurgical businesses. Internationally, MedSurg and Neurotechnology's organic sales growth was 5.1% despite the ongoing supply disruptions affecting our medical business and against a very strong prior year comparable growth rate of over 11%, which was driven by our Medical, Endoscopy and Neuro Cranial businesses. The growth this quarter was led by our Neuro Cranial and Instrument businesses. Geographically, this included healthy performances in South Korea and Japan. Orthopedics had organic sales growth of 11.4%, which included organic growth of 12.9% in the U.S. and 7.8% internationally. Our U.S. Knee business grew 8.4% organically, reflecting our market-leading position in robotic-assisted knee procedures and continued momentum from new Mako installations. Our U.S. Hip business grew 8.7% organically, highlighted by the ongoing success of our Insignia Hip Stem and the continued adoption of our Mako robotic hip platform that now has the expanded ability to address more difficult primary hip cases as well as hip revisions. Our U.S. Trauma and Extremities business grew 13.2% organically with robust double-digit sales growth in our Upper Extremities and Core Trauma businesses. Our multiyear strong Shoulder growth continues while our Core Trauma performance continues to be driven by Pangea, our differentiated plating portfolio. Our U.S. Other Ortho business grew 38.5% organically, driven by robust installations in the quarter and amplified by Mako deal mix and a strong performance in navigational technology products. Internationally, Orthopedics organic growth of 7.8% included a strong performance from our emerging markets. Our international results also include a nominal amount of Spinal implant revenue because of previously accepted tenders that we are fulfilling before exiting those markets. Now I will focus on certain operating and nonoperating highlights in the third quarter. Our adjusted gross margin of 65% was favorable by 50 basis points over the third quarter of 2024 despite tariff headwinds, which we now estimate will have a net impact of approximately $200 million for the full year 2025. The adjusted gross margin improvement was primarily driven by business mix and cost improvements as we continue to optimize our supply chain and manufacturing processes. Our adjusted operating margin was 25.6% of sales, which was 90 basis points favorable to the third quarter of 2024, driven by the gross margin favorability I just discussed as well as lower adjusted SG&A as a percentage of sales due to ongoing spend discipline as part of our long-term focus on continued margin expansion. Adjusted other income and expense of $116 million for the quarter was $74 million higher than 2024 due to increased interest expense from the most recent debt issuances and lower interest income. We now expect our full year 2025 adjusted other income and expense to be approximately $415 million. The third quarter had an adjusted effective tax rate of 14%, reflecting the impact of geographic mix and certain discrete tax items. For 2025, we now expect our full year effective tax rate to be at the lower end of our previously guided range of 15% to 16%. Turning to cash flow. Our year-to-date cash from operations was $2.9 billion, driven by year-over-year working capital improvements. And now I will update our full year 2025 guidance. Considering our year-to-date results, continued strong demand for our products and our operational momentum, we are raising our full year guidance and now expect organic net sales growth of 9.8% to 10.2%, and adjusted earnings per share to be in the range of $13.50 to $13.60. Our updated sales guidance includes a modestly favorable pricing impact. In addition, foreign exchange is expected to have a slightly positive impact on both sales and earnings per share should rates hold near current levels. With that, I will now open the call for Q&A. Operator: [Operator Instructions] Our first question will come from Robbie Marcus with JPMorgan. Robert Marcus: Congrats on a nice quarter. Two for me. First, Kevin, you always have great insight into procedure volumes and the equipment market. You clearly had a great quarter on the ortho side, some bright spots on the CapEx side, also a little bit of softness, particularly in medical. I was hoping you could just walk us through what you're seeing globally in terms of procedure volume market and the health of it as well as some of the puts and takes on the capital equipment side globally? Kevin Lobo: Yes, sure. Thanks for the question. I would tell you that nothing has really changed if you think about what we've said in the past couple of quarters. Procedure volumes are very healthy, which affects, obviously, our implants as well as our small capital. And the capital markets are really strong. The balance sheets are strong with hospitals. You saw this quarter, in fact, a lot of Mako purchases, which helped -- obviously, we had strong installations, but a lot of those were cash purchases. And a year ago, those were being more leased. So balance sheets are strong. Procedure growth is strong. As it relates to our business mix, sometimes you see in the Communications area, there was a bit of timing. A lot of these installations of ORs are going to be delayed a little bit, but we have a very healthy order book in Communications. Medical, as you described, sometimes goes up and down. We had a big quarter last year in the third quarter. We're going to have a very strong fourth quarter, off to a fast start in October, and it will be a very strong fourth quarter. And as you've seen in the past, Medical does kind of move from quarter-to-quarter. There can be variability. But over the full year, very strong and healthy business. Obviously, we've had some supply chain disruptions in emergency care. That's continued all year. But in spite of that, still going to be a double-digit growth year. It would have been even higher if not for the supply chain challenges. But I would say across the board, the markets that we play in are very healthy. Robert Marcus: Great. Maybe one for Preston. Your business every year has a big step-up third quarter to fourth quarter, both on sales and margins. Obviously, we can back into what's implied in guidance. But just help us walk through some of the things to consider, particularly on the margin side and the levers that you pull to get to the step up there? Appreciate it. Preston Wells: Absolutely, Robbie. I appreciate it. So I think the thing to keep in mind as you think about the guidance range, particularly as we talk about margins, obviously, we do have a larger sales number that we'll be building on. We're going to continue with our focus around margin improvement that's driving upside on our gross margins as well as in the SG&A lines. The big offset this year is tariffs. So we look at the tariff impact, it's more second half weighted. And so that is going to certainly be the offsetting piece of what we would normally see as much bigger margin expansion in the fourth quarter. So we're still expecting operationally to drive better margins, but then that will be partially offset by tariffs in the fourth quarter to get to where we've guided to. Operator: Our next question is from Larry Biegelsen with Wells Fargo. Larry Biegelsen: Congrats on another nice quarter here. So Kevin, you're guiding to 10% organic growth at the midpoint in 2025. How are you thinking about maintaining this momentum next year? What are some of the puts and takes we should consider? And can you expand margins next year with the tariff impact increasing on a year-over-year basis? And I had one follow-up. Kevin Lobo: Yes. Sure, Larry. We have an Investor Day coming up pretty soon, and we'll share kind of our longer-term outlook at that time. What I would tell you is this is our fourth consecutive year of growing roughly 10% organically. Of course, last year was a little bit higher than that, over 11%. But this is a sustainable, durable high-growth business. So you're going to see more of the same for years to come. Larry Biegelsen: That's helpful. And Kevin, I'm sure everybody listening picked up on your M&A comments. So maybe just refresh us on areas of interest, if anything has changed, deal size, et cetera. Anything new? Kevin Lobo: No change, Larry. All of our businesses are lining up their targets that would help enhance their businesses. And as you know, there are adjacencies that we're going to continue to explore. I've been pretty clear about what those are. As you know, peripheral was one of those adjacencies that we pulled the trigger on in the first quarter of this year. And so there's no new ones. The same ones I've been talking about. We do have a strong balance sheet. We can do larger deals if they are going to be value creating for the company. It's always hard to predict the exact timing on deals. And so we do plan to be active. It is the #1 use of capital. That is our first priority is to use it for acquisitions. And so we remain on the hunt. Operator: Our next question is from Ryan Zimmerman with BTIG. Ryan Zimmerman: Let me echo the congratulations on the quarter. Kevin and Jason, your Knee number in the U.S. stands out pretty in stark contrast to your other competitor that has announced the spin out of its Orthopedic business. And I'm just wondering kind of Kevin, how do you think about the health of the orthopedics market, how you're preparing to maybe capitalize on any disruption that may come of that and just kind of your outlook on orthopedic. One thing I did notice was price pressure. We did see a little bit of price pressure in this quarter. We haven't seen that for a few quarters. So maybe you could comment on maybe what was driving that as well. Kevin Lobo: Yes. Sure. I'll take the first part, and I'll let Preston comment on the price pressure. Listen, we're in a great position with our Knee business. It's not new. This has been building over a number of years with our lead in cementless, the tremendous adoption of Mako for knees. We also have a new hinge, which is the revision system for knees. So this momentum has just been building. And with every Mako that gets installed, we know there's going to be a high adoption of our products. And so we've been growing above the market for quite some time. It was a terrific quarter, especially if you consider last year, we had a very big Q3 and so the Knee business is performing extremely well. We're very excited about additional changes that are coming, more software changes for Mako to make it even better to use, actually some new product innovations that we'll talk about on the investor call in a couple of weeks. And so the Knee business is really poised to continue this high growth. And then on price, Preston? Preston Wells: Yes, as far as pricing is concerned. When we think about where we are, we're pleased with the fact that we've been able to drive positive price for the overall organization over the last several quarters. That's really come out of the work that happened a few years ago. And so we're still driving that. The other thing to consider is now we're anniversarying some of that price improvement year-over-year-over-year. So now we're driving compounded price that we're seeing. And so when you think about the split between the multiple business on the MedSurg side, we're certainly seeing continued price improvement on that business. And with Orthopedics, we're not back to where we were historically. So we're still performing above historic levels on a pricing standpoint, and we expect that we're going to continue to try to work through the pricing muscle that we've learned to develop and that we have developed to continue to drive positive prices in the future. Ryan Zimmerman: Okay. And then second one for me. Thank you for both those answers, appreciate that. On Inari, Kevin, as you like to say, the U.S. business is humming. But maybe if I could ask about the OUS side and when you think you can kind of really take Inari to a bigger international presence maybe than prior -- when it was a stand-alone company. Kevin Lobo: Yes. Thanks. Look, our focus really has been on the U.S. I mean we've really been all hands on deck. We went through some real challenges in the second quarter, enforcing people's noncompetes, going through a lot of churn in the sales force, bringing on new Stryker leaders. That's been -- we've been laser-focused and I love the recovery and the bounce back in Q3. It was really terrific. And the outlook for Q4 is very good. We launched the first arterial product that's getting really favorable feedback. We have started to expand internationally, but I don't really -- hasn't really taken off yet. That will start to, I really think, have a big impact in the second half of next year. It's going to take a bit of time, but we do have infrastructure in Stryker that Inari did not have. And that clearly is one of the thesis for us in doing the deal is that international will be very exciting. But I really think it will start to take hold in the second half of next year. Operator: The next question comes from Travis Steed with Bank of America. Travis Steed: I will start with a follow-up on Inari. Just curious if maybe you can elaborate on some of the integration process in the sales force. And like is this quarter, you think kind of a low point in the growth and so we should kind of be sustaining this kind of double-digit growth going forward? And any comment on some of the P/E data that came out. Curious if you had any comments on that. Kevin Lobo: Yes. Look, we put our own Stryker sales leader in charge of the sales force, and we've been hiring pretty rapidly given the churn that we went through in the second quarter. It takes time for those sales reps to be fully productive. They had a really good Q3. I'm pleased with that. I'm not sure that I call this a low point. We do expect double-digit growth in Q4 and then again in Q1. However, we are still burning through some of that stocking that had occurred. The stocking will be completed, the burn-through will be completed by the end of the first quarter. So we still have some more of that in Q4 as well as Q1, and then that will be something we don't talk about any more after that. But we are excited about getting sort of the teens level of growth in procedures. That translated to double-digit growth. We do expect a strong Q4 as well as Q1 next year, and then it will really start to take off after that without having that drag of the stocking. Travis Steed: That's helpful. And maybe a question on the Siemens partnership that happened over the quarter in Neurovascular and if there's any more you can kind of say on kind of the goals and timing and kind of what you're trying to do with Siemens and Neurovascular robotics. Jason Beach: Travis, this is Jason. I would say, when appropriate, we'll certainly disclose more. But at this point, really nothing else to add in as far as that. Operator: The next question comes from Matthew O'Brien with Piper Sandler. Samantha Munoz: This is Samantha on for Matt today. We'd like to start off with asking about the Ortho other category that was -- had really nice performance this quarter. Can you just talk a little bit about what all is driving the strength there? And how durable do you see that growth? Jason Beach: Yes, this is Jason. I'll take this one. I would say a couple of different things, and it goes back to some of the prepared remarks. I mean if you just look at again another quarter of record installation of Mako, that certainly fuels that category and then there is a bit of, I'll call it, business mix. And I think Kevin touched on this, where outright purchases will drive revenue in that. So really, really strong strength. Is it going to grow at that level every quarter, I would say no, but certainly pleased with the performance in the quarter. Samantha Munoz: Great. And then also, just could you provide a little bit more commentary on the supply chain disruption in the Medical business? It was a little bit weaker than we were expecting. And does imply a steep rebound in Q4. So just any more commentary you could provide there would be great. Jason Beach: Sure. It's Jason again. So I would say, look, even if you go back to last quarter, we said some of these supply issues would kind of linger throughout the year. Certainly not going to quantify. But as you think about Medical performance in the fourth quarter, in order to get to this 10% growth on the year that we're talking about, you can imagine there's going to be an acceleration in the fourth quarter. October was off to a good start. And so we certainly expect that we'll have positive performance as we go throughout the quarter. Operator: Our next question comes from Vijay Kumar with Evercore ISI. Nicholas Amicucci: This is Nick on for Vijay. Would you break down the drivers of that 10% sales growth for Medical for the year? What's driving that? Jason Beach: Yes. I mean when you think about Medical, this is Jason, I mean we don't really get into product level drivers or even business unit level drivers. But when you think about products like LP 35 just launching in Europe, I mean, you'll see an -- start to see an acceleration there. Well, we would say across the lines of business in Medical, very good performance. If you look at Vocera as an example, that accelerated in the third quarter. That will continue to accelerate in the fourth quarter. So it's a big diverse business, frankly, that we expect to perform well in the fourth quarter. Kevin Lobo: And frankly, it's been a business that's performed double-digit for years. Year after year, it tends to report double-digit growth. They have a very strong order book as well. And in spite of the supply chain challenges, still on track to deliver double digits. Operator: Our next question comes from Matt Miksic with Barclays. Matthew Miksic: I wanted to just get a sense of the competitive dynamics in the ASC. It's been a place where you've been leading and it's been a place where you've had great success in knees, opportunities for bringing other businesses in there and leveraging your position across some of the other business lines. Any kind of color would be great. Kevin Lobo: Yes. Thanks, Matt. Listen, we love the ASC and the trend in procedures moving to the ASC because we can leverage our full portfolio, and our growth continues to be very high in the ASC. The additional products are really -- that are starting to emerge at a higher level, our torn shoulder, where we're the market leader and you're seeing more shoulders being done in the ASC, even some total ankles potentially moving to the ASC. So some of the higher acuity cases, I wouldn't say revisions, but certainly, many other procedures are starting to move to ASC, where we have a very strong position. So the more that procedures move to the ASC in the orthopedic world, the better it is for Stryker because we can then leverage an even broader portfolio than we're already leveraging, including our capital, our disposables and our inputs. Operator: Our next question comes from David Roman with Goldman Sachs. Jennifer Reena Rabinowitz: This is Jenny Rabinowitz on for David. Just a quick one for me. You mentioned briefly at the beginning of the call that you did 2 smaller product acquisitions in the quarter. I was just curious, can you go into any detail about what those products actually are or the markets they participate in? And are these smaller product acquisitions something we should expect going forward? Kevin Lobo: Yes. Small tuck-in acquisitions are clearly a part of our offense. The NPseal product is a negative pressure wound treatment that does not require capital equipment. So today, the other options on the market have a pump that's required. This is a really elegant solution, easy to use for the customer and then lower cost solution that drops right into the sales bag of our orthopedic instrument sales reps. They're already there in the procedure. So it's a beautiful tuck-in. The other product, the balloon is for fecal incontinence and that's part of the Sage business, which works in the intensive care units of hospitals and a very good product solution for a really troubling condition that patients have to go through, provides them with dignity and provides really good care. So we're really excited about that solution, and that's new for us. We have not been in the fecal incontinence space thus far. Operator: Next question comes from Philip Chickering with Deutsche Bank. Pito Chickering: One more question on Ortho. There's been an investor debate around the pull forward of demand of some neglected procedures due to the uncertainties around health care exchanges. Just curious if you view 3Q as just the core growth you're seeing due to market share or pull forward of demand? Kevin Lobo: We see it as core growth market. As we enter fourth quarter, we're seeing a continued strong demand. So we don't really foresee any pull forward. And obviously, osteoarthritis, when you have the pain, you want to get your procedures done. And so I think that's a much bigger driver. And I think it's more about the fact that we're growing at a robust rate. If you look at our growth rate, obviously, other people -- not everyone's reported yet, but we believe that we're growing considerably faster than the market. But we're seeing order -- like if you look at the surgery schedules and talk to surgeons, they don't really have any anxiety whatsoever about a falloff in procedures. At least we're not hearing that. Pito Chickering: All right. Perfect. And then I think you talked about the elevated backlog and CapEx is pretty good. Can you share that the feedback that you're hearing with hospitals as they're talking about the uncertainties around health care changes next year and the views of CapEx depending upon what will happen? Jason Beach: Yes. Peter, it's Jason. I'll take this. I mean, when you think about feedback from a hospital perspective and you think about the categories that we play, we play in categories that are moneymakers for the hospitals and they need our capital equipment, right? And so I would say, I think even Kevin said this earlier, environment for us really hasn't changed. If you think about the mix of our capital where the majority of our capital is the smaller capital that is closely tied to procedures. We continue to believe in the feedback that we continue to get is that as long as procedures remain strong, we're positioned well in the fourth quarter and well into 2026 as well. Kevin Lobo: And if you look at this quarter in particular, even the large capital, Mako was very strong with a lot of outright purchases and then you look at ProCuity, it was extremely strong, which beds are obviously large capital and expensive and the orders are very strong. So those orders are very rarely canceled. And so our hospitals have the budgets. They have the plans. They are planning to go ahead and purchase our capital in spite of what's happening around them. Operator: Next question comes from Joanne Wuensch with Citibank. Joanne Wuensch: Can you hear me okay? Kevin Lobo: Yes, I can. Joanne Wuensch: Excellent. I remember to maybe 2 years ago that we were talking about sprinting back to pre-pandemic levels and margins and 200 basis points of expansion. And you've hit it. The 25.6% you just did in the third quarter went to 2020, 2021. Where do you go from here? And how do we think about continued margin expansion? And I'm sorry if I'm sort of stealing some of the thunder from the Analyst Day. Kevin Lobo: Well, we're going to just defer this question to the Analyst Day, Joanne. So I apologize. We're going to duck the question because that, for sure, is going to be one of the topics that we discuss in a couple of weeks. Joanne Wuensch: Okay. Can I get a second question then? Kevin Lobo: Sure, you can. Yes, because we didn't answer your first one. Joanne Wuensch: I guess I'm going to go to Trauma and get a feel from you of what you're seeing in that particular industry or that particular segment of your business? Kevin Lobo: Yes. You've seen for quite some time, our Trauma and Extremities business is absolutely on fire. We have great leadership in that business. We have -- the Shoulder business had a phenomenal quarter again in Q3, really tremendous market-leading growth. And this is really without much an impact at all from Mako. So we are still in limited launch with Mako Shoulder. It's being very well received. We're not going to move until full launch until sometime in the first half of next year. So that's still a ways out, but we're very excited about that. It's just the core underlying portfolio of products with Blueprint software, really good, strong leadership. And then core Trauma has been amazing with Pangea. We've also launched volar plates for distal radius. Just a series of great product innovations and a tremendous commercial offense has core Trauma really growing at very robust rates. If you look at Foot and Ankle, it's actually a bit soft for us. So we see upside in Foot and Ankle going into next year. Our Total Ankle performs well. Our Augment performs well. But if you think about the core plates and nails, not quite as good as we would like that performance. We're getting after it, and we think that will be better going forward. But tremendous momentum overall and great business for us, and we're very excited about it. Operator: Our next question is Michael Matson with Needham & Company, Inc. Michael Matson: So guess I just a couple more on Inari. So the PEERLESS II trial, just can you give us an update on where things stand with that and when we could potentially see the results? And then the Artix product, I think that's been launched. Can you maybe comment on how that's doing? Kevin Lobo: Yes. I'll take the second question on Artix. It's our first arterial thrombus product that Inari has launched, everything else was venous. It's been extremely well received. It's doing well in the marketplace, performing really as good or if not better than we expected in the market. So off to a very good start. Jason Beach: It's Jason. In terms of the trial, it will be sometime next year before we start to see results. So you'll hear us talk about that as we get into next year, for sure. Michael Matson: Okay. And then just with the Guard Medical acquisition, looking at the website, it looks like it's more for surgical incisions, but is this a sign that Stryker has interest in kind of the broader advanced wound care market? Kevin Lobo: Yes. Listen, I wouldn't read too much into this. If you think about Zipline, that was a product for skin closure that we dropped right into the bag of the orthopedic instruments reps. This, of course, is -- its wound treatment with negative pressure, but it drops right into the back of that existing sales rep. Think about it more as a call point sale that drops right into the bag versus the creation of some new business. That's not how we're thinking about it today. That may change in the future. But for today, we're not thinking about a broader wound strategy. It's really more about optimizing the call point, dropping it into the bag and really providing an elegant solution for the customers. Operator: Next question is from Danielle Antalffy with UBS. Danielle Antalffy: Just [indiscernible] question. And I guess this goes to margins going towards guidance here. But we're seeing positive price in MedSurg. You mentioned you anniversaried some price upticks in Q3 in Orthopedics. So how do we think about go forward from here? You still have a pretty positive product cycle, but specifically in Ortho, do you think it's more like flat going forward from here? Or do you still have pricing power there, too? Jason Beach: Dan, thanks for the question. So from a pricing standpoint, yes, I mean, we do believe that based on our overall execution of our business from a contracting perspective with new products and innovation across our portfolio, we will have opportunities from a pricing standpoint as we go forward. And that will be in all businesses. It won't be exactly the same across the different business lines. But across all of our businesses, we do believe we have certain levels of pricing power that we will be able to continue as we go forward. Operator: Our next question is Shagun Singh with RBC. Kendall Au: This is Kendall on for Shagun. I just had one question on the upcoming Investor Day. I know last time you gave some targets on organic growth, operating margin, EPS growth and free cash flow conversion. I was wondering if those kind of targets will be laid out again? And if you could add any other color on that? And also, if you had any update on the current tariff environment and any impact on 2026? Jason Beach: Yes, this is Jason. I don't want to spoil any surprises that you'll hear in a couple of weeks. But yes, you're absolutely right. We will update our long-term financial goals, including, I think Kevin mentioned earlier, kind of our current view on margins as well. So expect to see that for sure. As it relates to the tariff environment, Preston, feel free to add on here, but I think Preston said in his script, we're now forecasting roughly a $200 million impact for the year. As you know, this is a fluid environment that we continue to monitor, but that's our latest outlook right now. Operator: There are no further questions. I will now turn the call over to Kevin Lobo for any closing remarks. Kevin Lobo: Thank you for joining today's call. We look forward to sharing updates on our business and strategy with you at our Investor Day on November 13 and our fourth quarter results with you in January. Thank you. Operator: This concludes the third quarter 2025 Stryker earnings call. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by. My name is Colby, and I'll be your conference operator today. At this time, I would like to welcome you to the SkyWest, Inc. Third Quarter 2025 Results Call. [Operator Instructions] I will now turn the call over to Rob Simmons, Chief Financial Officer. Robert Simmons: Thanks, Colby, and thanks, everyone, for joining us on the call today. As the operator indicated, this is Rob Simmons, SkyWest's Chief Financial Officer. On the call with me today are Chip Childs, President and Chief Executive Officer; Wade Steele, Chief Commercial Officer; and Eric Woodward, Chief Accounting Officer. I'd like to start today by asking Eric to read the safe harbor, then I will turn the time over to Chip for some comments. Following Chip, I will take us through the financial results, then Wade will discuss the fleet and related flying arrangements. Following Wade, we will have the customary Q&A session with our sell-side analysts. Eric? Eric Woodward: Today's discussion contains forward-looking statements that represent our current beliefs, expectations and assumptions regarding future events and are subject to risks and uncertainties. We assume no obligation to update any forward-looking statement, whether as a result of new information, future events or otherwise. Actual results will likely vary and may vary materially from those anticipated, estimated or projected for a number of reasons. Some of the factors that may cause such differences are included in our most recent Form 10-K and other reports and filings with the Securities and Exchange Commission. And now I'll turn the call over to Chip. Russell A. Childs: Thank you, Rob and Eric. Good afternoon, everyone. Thank you for joining us on the call today. Today, SkyWest reported net income of $116 million or $2.81 per diluted share for the third quarter of 2025. These results reflect a seasonally strong third quarter and ongoing strong demand for our products. Year-to-date through the third quarter, SkyWest has achieved more than 185 days of 100% controllable completion, a significant accomplishment with over 2,500 daily scheduled departures. Our people continue working with focus and teamwork to plan, execute and deliver an exceptional and consistent product. I want to thank our team of nearly 15,000 aviation professionals for their continued teamwork and dedication to excellence. Our teams have delivered well despite the ongoing federal government shutdown in navigating the challenges of a strained ATC system with professionalism and vigilance. We're working with each community we serve and evaluating our capabilities in the event of a longer-term government shutdown. It is our intent to honor our service commitments, including those under the Federal EAS program who rely on SkyWest reliable air service as an essential economic lifeline. Also during the third quarter, the Department of Transportation finalized SkyWest Charter or SWC's commuter authorization. This approval comes after a lengthy review process that took over 3 years, and we look forward to the future opportunities this authorization will provide. SWC is in the midst of busy sports charter season and we are evaluating additional opportunities this commuter authority will provide. You'll recall last quarter, we announced an agreement to purchase and operate 16 new E175s under a multiyear contract with Delta, with deliveries expected to begin in 2027. We also secured firm delivery positions with Embraer for 44 more E175s from 2028 to 2032. As we shared previously, it is our intent to deliver those aircraft. These agreements continue to deliver unparalleled fleet flexibility for the future, and that flexibility has never been more important. With today's announcement to extend CRJ200s with United and our continued deployment of additional CRJ550s for our partners, we expect our existing CRJ fleet to produce accretively well into the next decade. In the near term, we anticipate our remaining Embraer deliveries scheduled for this year will be delivered in fourth quarter or early 2026. Demand for our product is very strong, and SkyWest continues to lead our segment in the industry in service and in the value of our diverse assets. We remain disciplined and steady as we execute on our growth opportunities to: one, restore or bring new service to underserved communities; two, redeploy and fully use our existing fleet; and three, prepare to receive our deliveries in the coming years for a total of nearly 300 E175s by the end of 2028. We have spent several years strengthening our balance sheet and fleet flexibility as well as reinvesting in our future growth. Overall, with our well-positioned fleet operation and our strong partnerships and demand, we remain optimistic about 2026. We continue to play the long game and to invest in our fleet and future to ensure we are in the best possible situation to respond to market demands. Rob will now take us through the financial data. Robert Simmons: Today, we reported a third quarter GAAP net income of $116 million or $2.81 earnings per share. Q3 pretax income was $157 million. Our weighted average share count for Q3 was 41.4 million, and our effective tax rate was 26%. Let's start today with revenue. Total Q3 revenue of $1.1 billion is up from $1 billion in Q2 2025 and up 15% from $913 million in Q3 2024. Q3 revenue includes the contract revenue of $844 million, up from $842 million in Q2 2025 and up from $761 million in Q3 2024. Prorate and charter revenue was $167 million in Q3, up from $145 million in Q2 and up from $123 million in Q3 2024. Leasing and other revenue was $39 million in Q3, down from $48 million in Q2 and up from $29 million in Q3 2024. These Q3 GAAP results include the effect of recognizing $17 million of previously deferred revenue this quarter, down from the $23 million recognized in Q2 2025. As of the end of Q3, we have $269 million of cumulative deferred revenue that will be recognized in future periods. We anticipate recognizing approximately $5 million to $15 million of previously deferred revenue in Q4, subject to production levels and other factors. Now let's discuss the balance sheet. We ended the quarter with cash of $753 million, up from $727 million last quarter and down from $836 million at Q3 2024. The ending cash balance for the quarter included the effects from: one, repaying $112 million in debt; two, buying back 244,000 shares of SkyWest stock in Q3 for $27 million. With the volatility in the equity markets in Q3, we opportunistically repurchased 25% more shares than we bought in Q2. As of September 30, we had $240 million remaining under our current share repurchase authorization. And three, investing $122 million in CapEx, including the purchase of used CRJ aircraft spare engines and other fixed assets. We ended Q3 with debt of $2.4 billion, down from $2.7 billion as of 12/31/2024. Cash flow is obviously an important component of our capital deployment strategy. We generated approximately $500 million in free cash flow in 2024 and deployed it primarily to delever and derisk the balance sheet to the benefit of our partners, our employees and our shareholders. We generated nearly $400 million in free cash flow in the first 3 quarters of 2025, including $144 million in Q3. Our balance sheet and strong liquidity are powerful tools as we pursue a variety of growth and capital deployment opportunities, including acquiring and financing 30 additional E175s to be placed under our flying agreements by the end of 2028 and repaying approximately $500 million in debt in 2025. As we remain focused on improving our return on invested capital, we'd like to highlight the following: both our debt net of cash and leverage ratios continue at favorable levels at their lowest point in over a decade. Our total debt level is $1 billion lower today than it was at the end of 2022 in spite of acquiring and debt financing 9 E175s during that time. We anticipate that total 2025 capital expenditures funding our growth initiatives will be approximately $550 million, including the purchase of 5 new E175s, CRJ900 airframes and aircraft and engines supporting our CRJ550 opportunity. This implies approximately $190 million in CapEx in Q4. We are scheduled to take delivery of 3 E175s in Q4 2025 and 11 E175s during 2026. We expect approximately $575 million to $625 million in CapEx in 2026. Consistent with our policy and practice, we're not giving any specific EPS guidance today, but let me give you some updated color on Q4 and some commentary on 2026. We now anticipate our 2025 block hours to be up approximately 15% over 2024. We now expect our 2025 GAAP EPS could be in the mid-$10 per share area for the year. This implies Q4 EPS in the $2.30 area. For 2026, we expect to see low-single-digit percentage growth in block hours translate into mid-to-high single-digit percentage growth in EPS in the area of $11. For modeling purposes, we anticipate our maintenance activity in 2026 will continue approximately at current rates as we invest in bringing more aircraft back into service. We also anticipate our effective tax rate will be approximately 26% to 27% for Q4 and in the area of 24% for 2026. We are optimistic about our growth possibilities going into 2026, including the following 3 focus areas: First, growth in our ability to increase service to underserved communities, driven partially by the redeployment of approximately 20 parked dual-class CRJ aircraft; second, good demand for our prorate product; and third, placing 14 new E175s into service for United and Alaska by the end of 2026 and 16 new E175s for Delta in 2027 and 2028. We believe that our strong balance sheet, operating leverage, free cash flow and liquidity and the actions we will be taking to deploy our capital against a variety of accretive opportunities will position us well to drive total shareholder returns. Wade? Wade Steel: Thank you, Rob. Last quarter, we announced a new flying agreement with Delta for 16 new E175s under a multiyear flying contract. The 16 new E175s are expected to replace 11 SkyWest-owned CRJ900s and 5 CRJ700s that we are currently operating. We expect the 16 new E175s will be delivered in 2027 and 2028. We expect to redeploy the 16 SkyWest-owned CRJ aircraft with our major partners. We also currently operate 24 Delta-owned CRJ900s. We anticipate most of these aircraft will be returned to Delta over the next couple of years and are preparing to return 4 of them during the fourth quarter of this year. Today, we announced an agreement with United to extend up to 40 CRJ200s into the 2030s. These aircraft were set to expire at the end of this year, and we are pleased that the continued -- we are pleased with the continued strength of our United agreement. As we previously announced, we have a multiyear flying agreement for a total of 50 CRJ550s with United. As of September 30, we had 21 CRJ550s under contract and expect to operate 30 by the end of this year, with the last 20 entering into service during 2026. We also have 20 E175s coming up for contract extension in 2026 with United. We are currently in discussions to extend these aircraft and look forward to enhancing our partnership with United. We also began a prorate agreement with American during the second quarter. We are currently operating 4 aircraft under this agreement with up to 9 anticipated by the middle of next year. We are very excited to expand our relationship with American. We currently have 74 E175 on firm order with Embraer, including 16 for Delta, 13 for United and 1 for Alaska. We expect delivery of 3 aircraft during the fourth quarter and 11 next year. We did not receive any E175s during the third quarter. And as we continue experiencing delivery delays with Embraer, we expect that some of the aircraft previously planned for this year will push into 2026. Let me talk a little bit more about our firm order of 74. Of the 74, 30 are allocated to major partners and 44 have not been assigned yet. Our long-term fleet plan has positioned us well and re-fleeting continues to be an important part of that strategy. This order locks in delivery slots starting in 2027 through 2032. However, the order is structured with good flexibility to defer or terminate the aircraft in the event we don't arrange for a partner to take them. After we finish the Delta deliveries expected in 2028, our E175 fleet total will be nearly 300, continuing to enhance SkyWest's position as the largest Embraer operator in the world. Let me review our production. Q3 block hours were up 2% compared to Q2 2025. Based on our current Q4 schedules from our major partners, we anticipate a 4% decrease in Q4 as compared to Q3. This decrease is due to the normal seasonality we see in our business. For the full year, we anticipate an increase of approximately 15% in 2025 compared to 2024, similar to our 2019 levels. We anticipate that our 2026 block hours will be up low-single-digits compared to 2025. For 2026, we anticipate taking delivery of 11 new E175, placing 20 CRJ550s into service and capitalizing on strong prorate demand. These increases are offset by the return of approximately 24 Delta-owned CRJ900s over the next couple of years. Our revenue seasonality has returned to the model as utilization improves during the strong summer months. We still have approximately 20 parked dual-class CRJ aircraft that will be returned to service. Many of these aircraft are currently under flying agreements and will begin operating in late 2025 and 2026. We also have over 40 parked CRJ200s, further enhancing our overall fleet flexibility. Under a previously announced agreement with another regional carrier, we expect to purchase 30 used CRJ900 airframes for $29 million. We expect to utilize many of these airframes for parts to mitigate any supply chain challenges we may face over the next few years. We do anticipate operating 6 of these aircraft in the future. As of September 30, we had closed on 18 of these aircraft. As far as our prorate business, demand remains extremely strong with great community support. We are seeing opportunities to return SkyWest service to several communities and we will continue to work with the airports we serve in the best way to expand our service. As we discussed last quarter, the increase in our prorate business will reintroduce more seasonality into our model. Consistent with the airline industry, we expect Q2 and Q3 to be strong revenue quarters and Q1 and Q4 are softer. We feel good about our ongoing efforts to reduce risk and enhance fleet flexibility and remain committed to continuing our work with each of our major partners to provide strong solutions to the continued demand for our products. Robert Simmons: Okay. Operator, we're now ready for our Q&A session. Operator: [Operator Instructions] Your first question comes from Tom Fitzgerald from TD Cowen. Thomas Fitzgerald: It seems like a really constructive outlook for 2026. I was just wondering if you'd mind walking us through some of the puts and takes on the fleet and the mix benefit you guys get as you bring on more E175s and then some of the CRJs come out. Wade Steel: Yes. Tom, this is Wade. I can give you a little bit more color on that. As we talked about, we still have CRJ550s that are parked or being transitioned. So we still have -- by the end of the year, we think there'll be additional 20 that we'll put into service during 2026. We have 14 more E175s that need to go in. 3 of them, we believe, will go in, in the third -- or in the fourth quarter of 2025 and then 11 more in 2026. And then we also have strong prorate demand. As we said, we believe there'll be some increase in our prorate flying during 2026. Some of those will be offset -- some of those increases will be offset by some of the Delta-owned CRJ900s that we have that will be going back to Delta, and we've already started returning a few of those, and we think 4 of those will go back by the end of this year. So I hope that helps, Tom. Thomas Fitzgerald: Yes, yes. That's very helpful. And then I guess maybe just on prorate, where -- as a percentage of like where you were pre-pandemic, I just wonder if you'd mind updating us on where prorate stands today? And then I guess maybe unpacking a little bit more like the opportunities you see next year. Wade Steel: Yes. So we're about at 70% of where we were at in 2019 pre-pandemic. We're seeing strong demand throughout the whole country on prorate. There's still a lot of opportunities with small community service, both enhancing frequency and then also restoring dots on the map. And so we are working with each of our major partners on prorate agreements. As I said, we do a lot of that for United. We also have started an agreement with American. We also do that with Delta as well. So all of our major partners, we're working with them on additional dots on the map. And so we're excited about the opportunities that are in front of us and we'll continue to execute on those. Operator: Your next question comes from the line of Mike Linenberg from Deutsche Bank. Michael Linenberg: Chip, can you just update us on the EAS funding? I think the last I heard was that they had found money that would get you into November. Where -- what's the latest on that? They seem to be finding pockets of money from various activities, whether it's the military or whatever. Where do we hit the wall on that? And then what's the mechanism if you continue to fly and serve but not receive a subsidy? What's the recourse for like SkyWest to get -- to ultimately get repaid or maybe not? Russell A. Childs: Yes, Mike, those are outstanding questions and something that's very pertinent to today. The latest that we've heard is that we believe that there's funding for the program through the 18th of November. So that gives us a lot of good leeway for the government to continue to deal with this shutdown. We've said early on since when it started, like we really value the communities that we serve. We know that through the captain shortages and that type of stuff, it's a difficult process to make sure we're executing on our commitments, but we are committed to the communities as much as we possibly can, not knowing how long this is going to go on. And after the 18, I think the message has been pretty clear. It's unsure if we will get reimbursed or not, but it is clearly our intention to continue to fly and execute on some of the commitments that we've made with these communities. And if it continues to go on without funding after November 18, we'll see what we can do to best serve those communities. But it's going to take a conversation likely, because clearly, the essential air service communities do need the subsidies to make it viable. We're trying to develop them to where they can continue to be stronger and stronger, but we still definitely need those subsidies, and we'll work with the communities depending on how long this shutdown goes. So from that perspective, I hope it's clarifying. We're all over working with our partners and the communities and the associated government agencies that we can do under the circumstances. But as of now, we feel pretty good about at least the current short-term time line. Michael Linenberg: Okay. Just my second question to Wade. The multiyear agreement with United on the CRJ200s into -- I heard -- I think I heard the 2030s. So obviously, a much longer time frame than I think anybody has anticipated about these airplanes. You currently have 80 with United, 50 under contract, 30 under prorate. Presumably, the 40 that are extended, are those all contract or is that a mix of contract and prorate? Wade Steel: Yes, Mike, that's a great question. So the 40 that were extended are all contract airplanes. So we'll continue to fly the prorate, expand the prorate. But the 40 contract, as you said, they're extended into the 2030s and we're excited about continuing to enhance our partnership with United on all of that. Michael Linenberg: Okay. I just to follow-up on that, though, you said expand the prorate. So it sounds like you're going to go from maybe a mix of 50-30 potentially to 40-40. Is that a reasonable potential? Wade Steel: Yes. Directionally, I think we'll continue to -- as we said, we have 40 parked CRJ200s still available to us. There's still great opportunities. Small communities need air service. So we will continue to find opportunities. But yes, I like your breakdown. I think it's directionally correct. Michael Linenberg: Okay. And then just my last one. I hate to ask all these questions, but the nuances, there are just so many from this call. The prorates going into American, it looks like they're all CRJ900s, at least, and I want to confirm that. But when I think about your prorate business historically, it was single class with CRJ200s. It now seems like we're moving into a prorate world of dual-class CRJ900s. And as we think about just the upgauging across the industry among all the carriers, it seems like it may be opening up a whole bunch of opportunities in small and medium-sized markets to go in with dual-class on a prorate business. That seems like that's kind of a new angle for you. Can you just clarify or confirm what... Wade Steel: No, Mike, you're -- once again, you're spot on. You're very good at this. So the American agreement, yes, we are flying CRJ900s and prorate for American. As you know, their scope is a little bit unique. They also have the large RJ scope that could fly in 65 seats. And so if they hit their scope caps in their large RJ, we could obviously transition those still into a 65-seat dual-class fleet. We are also flying CRJ550s, as you said, for Delta under prorate. And so there's great opportunities there as well. So we do like it. We like the model. We like the opportunities and it does expand the opportunity into some different markets with the larger gauge airplanes for sure. So we're excited about what's going on. Russell A. Childs: Mike, this is Chip. I'll add on to that just real quick. I think you've heard some conversation from our partners about their premium service. Clearly, there's a strong element of what their models are evaluating and within their network of having good premium service throughout their networks. And I think it's being reflected in some of the deals that we're trying to do even in small communities. So your assessment -- is the momentum there is good. Operator: Your next question comes from the line of Savi Syth from Raymond James. Savanthi Syth: Actually, just following up a little bit on Mike's question. You addressed the EAS side of the government shutdown. I was curious if there's any other impacts that you're seeing or you're watching because you do fly into smaller communities. And just a little bit tied to that, too, just with the -- I think Brazil is still at a 10% tariff and just if there's any kind of meaningful impact on that or that's just something you're observing? Wade Steel: Yes, Savi, good question. Thank you so much. To start with, when it comes to TSA and ATC, we really hats off to the work being done with those groups to continue to show up and work and do the things we need to, to keep the NAS system operational. From our perspective on the small community [ stepping ], I mean, like I think we've said before, we fly to a lot of untowered airports. So from our perspective, a lot of our small community flying is actually not affected. But when you go back into the hub, it's every bit as affected as everything else. So look, we monitor all of the things that we do with our major partners along the same lines. We're in constant conversation with the authorities as well as with our partners to manage these operational challenges with the shutdown. And hats off to our people as well. They're doing a fantastic job. The team is doing a great job. And so far, things are really, really well. Relative to the 10% tariff, Brazil, I think the last time we were talking on the call, it was at 50%, and that was a no-go absolutely for us. We do not like 10%. But nonetheless, we have an environment where we've got to continue to execute on some of the commitments that we have, but also be strategic in how we're continuing to deploy our capital. And so far, we're going to continue to give our opinion about what the tariff is doing to small community service as well as us as a company. But at some point, you still have to continue to move forward and do the best that you can. And so it's not that we've accepted the 10% tariff, but in our strategy as of today, we are dealing with it. And I think that's what we would say is that we're dealing with it. But from our perspective, we do believe that this does have an impact on small community service in the long run. But our job is to be the best in the industry evolving, and we'll continue to evolve with some of these issues. Savanthi Syth: That's helpful. And just actually another follow-up on Mike's question as well. Just on the CRJ200 front, they are getting long in the tooth, but you're also having these opportunities, whether it's SkyWest Charter or continuing to operate them on the kind of the 50-seat side. Could you talk about like just if you look out to like '27, '28 or particular year -- a couple of years down the road, just where could we see that fleet size be considering that some probably have to get retired or maybe they don't. But just curious across the network, like how big do you see the CRJ fleet being or a range for it? Wade Steel: Savi, that's a great question. This is Wade. We just announced today, we extended 40 of those through the early 2030s. The prorate demand is still very strong that we have today in SkyWest Charter, the demand is very strong in all of that. So between all of that, we do anticipate flying somewhere around 100 CRJ200s well into early 2030s. We're investing in maintenance. We've invested in these engines. A few quarters ago, we were talking about 5 million cycles that we have on those engines that we still have. We've obviously reduced that number as we continue to fly, but we have definitely made a lot of investments in that airframe to continue to make that work and continue to have it go. We're also investing in the customer experience and other things on that. So we're -- we think that airplane, the CRJ200, is going to go for well into the 2030s. Operator: Your next question comes from the line of Duane Pfennigwerth with Evercore ISI. Duane Pfennigwerth: Just focus on the contractual capacity purchase business. I wonder if you could speak more comprehensively about net fleet additions for 2026. You noted the 11 E175 deliveries in the table. You talked about 20 additional 550s. I understand there can be movement between now and next year. But based on what you know today, what else will be added? And what will likely be rolling off? How do we think about that net fleet change? Wade Steel: Yes. No, that's a great question. We talked about it a little bit in my prepared remarks. Like you said, we have 20 CRJ550s that are on the books that are coming in next year. We have the 11 E175s. And then we have the 24 Delta-owned airplanes that are coming off over the next couple of years. So net-net, it's flattish to small increases in our capacity purchase flying next year just when you net it all up. So small -- like we said in my prepared remarks, it's low-single-digit growth next year in the block hours. Duane Pfennigwerth: Got it. Got it. And then in the table, I wonder for the deliveries, do those numbers -- like are there options embedded in that 40 or are there options over above the numbers in that table? Wade Steel: You're talking about the CRJ200s, the 40? Duane Pfennigwerth: Sorry, the E175s. Are those firm orders or are there options embedded in the future? This 40 and the 10 for 2028 and the 40 thereafter, do those include options? Wade Steel: Those do not include options. Those are firm orders. Those will be very helpful in fleet replacements and continuing to enhance the fleet. So those are all firm orders. We do have flexibility. They are not allocated to our partners yet. There -- I said in my prepared remarks that there are 44 of those that have not been allocated at this point. And so we'll continue to work with our partners to allocate those, but we do have flexibility if we do not get them allocated to a partner to defer or cancel those. But they are firm orders going through 2032. Duane Pfennigwerth: Great. And then just one last one. Does the mid-to-high single-digit EPS growth guidance for '26, what does that assume around about incremental buyback, if anything? Robert Simmons: Yes, Duane, this is Rob here. So in terms of the EPS denominator, we'll continue to be opportunistic as we have been in the past. As you've seen, this quarter, we bought -- in a fairly volatile market, we bought another 25% more shares than we did the quarter before. So it will depend on the markets, but we'll continue to be opportunistic in how we look at deploying capital against share repurchase. Operator: And with no further questions in queue, I would like to turn the conference back over to Chip Childs, CEO, for closing comments. Russell A. Childs: Thank you, Colby. I appreciate really everybody's interest in the call today in the quarter. We obviously had a very good quarter. We've got some good challenges ahead of us. I want to reiterate that we continue to play the long game and make sure that some of the current effects that are happening to the industry do not affect our long-term strategy. We know that we can evolve with the best aviation professionals in the world, continue to do the things in which we need to, to provide good shareholder value as well to that as our partners. And with that, we will end the call and see you next quarter. Thank you. Operator: This concludes today's conference call. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by. At this time, I would like to welcome everyone to the Independence Realty Trust Q3 2025 Earnings Call. [Operator Instructions] I would now like to turn the conference over to Stephanie Krewson. You may begin. Stephanie Krewson-Kelly: Good morning, and thank you for joining us to review Independence Realty Trust's Third Quarter 2025 Financial Results. On the call with me today are Scott Schaeffer, Chief Executive Officer; Jim Sebra, President and CFO; and Janice Richards, Executive Vice President of Operations. Today's call is being recorded and webcast through the Investors section of our website at irtliving.com, and a replay will be available shortly after this call ends. Before we begin our prepared remarks, I'll remind everyone, we may make forward-looking statements based on our current expectations and beliefs as to future events and financial performance. These statements are not guarantees of future performance and involve risks and uncertainties that could cause actual results to differ materially. Such statements are made in good faith pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, and IRT does not undertake to update them, except as may be required by law. Please refer to IRT's press release, supplemental information, and filings with the SEC for further information about these risks. A copy of IRT's earnings press release and supplemental information is attached to IRT's current report on the Form 8-K that is available in the Investors section of our website. They contain reconciliations of non-GAAP financial measures referenced on this call to the most direct comparable GAAP financial measure. With that, it's my pleasure to turn the call over to Scott Schaeffer. Scott Schaeffer: Thanks, Stephanie, and thank you all for joining us this morning. Third quarter results were in line with expectations due to our continued focus on managing revenues and expenses. During the third quarter, our average occupancy remained stable as we continue to prioritize occupancy over rental rate in this competitive leasing environment. We finished the quarter at 95.6% occupancy, a 20 basis point improvement from the end of the second quarter. Our resident retention of 60.4% helped support this stable occupancy. Same-store revenue also increased in the quarter, driven by higher average rents per unit and improved bad debt versus a year ago. We outperformed expectations on bad debt in the quarter, which now represents less than 1% of same-store revenues and demonstrates the effectiveness of the improved processes and technology we have implemented since early 2024. Our value-add renovations contributed to revenue growth as well. We completed 788 units during the quarter, achieving an average monthly rent increase of approximately $250 over unrenovated market comps, which equates to a weighted average return on investment of 15%. During the quarter, same-store operating expenses decreased over the prior year, driven primarily by lower property insurance and turnover costs. In terms of transactions, during the quarter, we acquired 2 communities in Orlando for an aggregate purchase price of $155 million. These acquisitions more than double our number of apartment units in Orlando, improving our market presence and our ability to realize meaningful operating synergies. We currently have 3 communities held for sale, one of which is expected to close later this year, the other 2 early next year. While we maintain an active pipeline of acquisition opportunities, we recognize the current disconnect between our implied cap rate and market cap rates. We will continue to evaluate all investment opportunities, including value-add renovations, acquisitions, deleveraging, and share buybacks as we allocate capital to drive long-term shareholder value. Market dynamics remain competitive, but green shoots are emerging in several of our markets as supply pressures ease. Signs of market recovery are most evident in Atlanta, where occupancy has increased 60 basis points since January 1, all while our asking rents have increased 5%. Jim will provide more detail on other markets, but the point here is that we are seeing early and encouraging signs of recovery. New deliveries in IRT submarkets have declined 56% from the 2023, 2024 quarterly averages and supply is forecasted to grow by less than 2% per year for the next several years, which would be meaningfully below the trailing 10-year average of 3.5% per year. Against these improving supply fundamentals, we expect apartment demand to remain steady in our markets, driven by employment opportunities, quality of life dynamics, and a rent versus buy economics that will continue to favor renting. We have seen positive net absorption in our markets for 2 consecutive quarters. During the third quarter, over half of our markets, encompassing 60% of our NOI exposure registered positive net absorption. Atlanta, which is our largest market, moved into positive net absorption for the 9 months ended September 30, with occupancy increasing 50 basis points. Other markets like Coastal Carolina and Charleston are also seeing positive net absorption, while markets like Tampa, Denver, and Dallas are still working through their supply challenges. Before I turn the call over to Jim, I just wanted to reiterate a few things. Market fundamentals are improving. And while it's taking longer than we all expected, there is light at the end of the tunnel, and we see pricing power increasing. We will remain focused on optimizing near-term performance through stable occupancy, managing expenses, and investing in our value-add program with its consistent outsized returns. Over the long term, the 3 factors that underpin our cash performance will drive our future outperformance. First is our differentiated portfolio of Class B apartment communities in markets that will continue to outperform the national average for employment and population growth. Second is the efficiency of our management platform, which has a proven track record of optimizing revenues while also diligently managing expenses. And third is our disciplined approach to allocating capital. We will continue to be deliberate, patient, and nimble in deploying capital to the highest best uses, including our value-add program, capital recycling, deleveraging, and share buybacks. And with that, I'll turn the call over to Jim. James Sebra: Thanks, Scott, and good morning, everyone. Third quarter 2025 core FFO per share of $0.29 was in line with our expectation. Same-store NOI grew 2.7% in the quarter, driven by a 1.4% increase in same-store revenue and a 70 basis point decrease in operating expenses over the prior year. During the third quarter, our point-to-point occupancy increased 20 basis points against the slower-than-normal leasing season, while our new lease trade-outs were lower than we anticipated at negative 3.5%. We've been clear about our desire to maintain stable high occupancy to position us well as we head into 2026. Our renewal rate increases of 2.6% came in line with our general expectations as we expected lower renewal increases to support retention and help maintain and grow occupancy during the third and fourth quarter. That strategy is working as expected with retention at 60.4% in the third quarter. We're beginning to see signs of stabilization across several of our markets through improvement in asking rents, along with the ability to maintain occupancy. Let's look at a few of our markets that are experiencing these green shoots since the beginning of this year through the end of September. As Scott mentioned, Atlanta's occupancy has increased 60 basis points since January, new lease trade-outs were 410 basis points better, and asking rents are up 5% this year. Indianapolis asking rents are up 3.5%, while maintaining stable occupancy at 95.3%. Oklahoma City's asking rents are up 80 basis points and new lease trade-outs have improved 260 basis points, all while maintaining stable occupancy of 95.5%. Nashville asking rents have improved 240 basis points this year with stable occupancy of 96%. Cincinnati's asking rents have increased 11 percentage points with occupancy increasing 100 basis points to 97.5%. The Coastal Carolina market has seen asking rents improving 5.7% and occupancy has grown 2.1% to 95.9%. And lastly, Lexington, Kentucky asking rents are up 22% this year with occupancy growing 70 basis points to 97%. These markets highlight that fundamentals are firming and pricing power is beginning to return in key regions of our portfolio. For the third quarter, bad debt was 93 basis points of same-store revenue, which represents a 76 basis point improvement over Q3 of last year, as well as a 46 basis point improvement sequentially from second quarter. Our team's efforts and the technology enhancements we implemented since early 2024 are the drivers behind this improvement as underlying collection fundamentals have improved such that overall charge-offs as a percentage of revenue were down 40 basis points compared to third quarter 2024. In addition, accounts receivable balances were 40% lower at September 30 as compared to Q3 of last year and recoveries from our third-party collection firm were also higher. All in all, the improved performance on our bad debt is exciting to see, and we expect to see continued progress in the coming quarters as we focus on stabilizing our bad debt sustainably below 1% of revenues. Same-store operating expenses decreased 70 basis points over the prior year quarter, reflecting our continued focus on managing expenses. Within controllable expenses, which were flat year-over-year, higher advertising spend was offset by lower repairs and maintenance expenses. Our strong resident retention contributed to lower repairs and maintenance expenses in the quarter. Within noncontrollable expenses, the 2.3% decrease over the prior year quarter reflected our favorable renewals on our insurance premiums from earlier this year. During the quarter, we further enhanced the long-term growth prospects of our portfolio by acquiring 2 communities in Orlando for an aggregate purchase price of $155 million at an average economic cap rate of 5.8%. One of these properties is Phase 2 of an existing IRT community and the other is in close proximity to another IRT community, such that we expect to realize meaningful operating synergies. We used $101 million of our forward equity proceeds to fund these acquisitions and now have $61 million of forward equity remaining. On our assets held for sale, we now expect 1 asset to transact in 2025 and the 2 remaining assets will be sold in 2026. On our asset held for sale in Denver, we recorded a $12.8 million impairment in the third quarter due to the recent pressures observed in the Aurora submarket and its impact on the performance of this community. The third quarter was also busier than normal with respect to our joint venture investments. In July, our JV partner enrichment completed the sale of Metropolis at Innsbrook. We received $31 million in cash, which included a $10.4 million gain in our income from unconsolidated real estate investments line item. This gain was excluded from core FFO since it is associated with a property sale. In October, our partner in Nashville redeemed our preferred investment, which resulted in the return of our initial investment and the receipt of $3.3 million in preferred return, which we will recognize in the fourth quarter. This preferred return will be included in core FFO consistent with historical treatment as it is not associated with an asset sale. From a capital allocation perspective, we will continue to prioritize our value-add program as it represents the best use of capital given the steady mid-teen returns and the margin expansion renovated units create from increased rents and reduced turn costs. We will continue to evaluate other capital allocation decisions between buying back shares, pursuing acquisitions, and/or deleveraging. Our balance sheet remains flexible with strong liquidity. As of September 30, our net debt to adjusted EBITDA ratio was 6x, and we are on track to further improve this ratio in the fourth quarter to the mid-5s as expenses decline seasonally. We continue to have very manageable debt maturities with only $335 million or 15% of our total debt maturing between now and year-end 2027. And nearly all of our debt is either fixed rate or hedged. With respect to our full year 2025 guidance, we are narrowing our ranges on same-store revenue and expense growth while keeping the midpoint unchanged. With respect to transactions, we are reducing our acquisition and disposition guidance ranges due to timing. Our updated acquisition guidance of $215 million reflects only the acquisitions that have closed to date. Our updated disposition guidance of $161 million reflects the disposition that closed earlier this year and the sale of one asset expected to close in November. These reduced volumes are the primary driver behind our lower expected interest expense and the lower weighted average shares for 2025. And lastly, from a core FFO per share perspective, we have narrowed our guidance range and our midpoint of $1.175 is unchanged. Scott, back to you. Scott Schaeffer: Thanks, Jim. For the past few years, the residential sector has navigated historic levels of apartment deliveries. While supply pressures are receding, it's too early to call a broad market recovery, but we are cautiously optimistic that 2026 will be a better operating environment than 2025. With our differentiated portfolio of Class B assets in highly desirable markets, our efficient management platform, proven value-add program, and strong balance sheet, we are well positioned to generate attractive core FFO per share growth. We thank you for joining us today. And operator, you can now open the call for questions. Operator: [Operator Instructions] Your first question comes from the line of Brad Heffern with RBC Capital Markets. Brad Heffern: You talked about the green shoots in the prepared remarks. Can you just talk through how the pressure of supply today feels different than it did last quarter or earlier in the year? And when do you expect things to get back to something resembling normal? Janice Richards: Well, we have some markets that were a little softer than anticipated, such as Raleigh, Dallas, Denver and Huntsville. Raleigh was more of a lingering effect of the supply that was produced. And so we're seeing stable occupancy. Asking rents are a little bit lower than anticipated, feeling the pressure of supply and concessions. We feel that this one is rather short-lived, and we'll start to see some movement early next year. Dallas, obviously has had some pretty heavy supply entering in the market. Occupancy has been stable above that 95.5% that we're looking for, but still feeling some supply from -- or pressure from supply and competitive market with concessions entering in and making a major play. Denver, Denver is challenging occupancy decline of about 200 basis points as well as asking rents feeling the pressure from supply. There's 7.5% delivered in '25. So we'll work through that and make sure that we are definitely being patient as well as disciplined within all of our strategies in Denver to maximize. And then Huntsville, one of our smaller markets, has seen an occupancy decline year-over-year, but holding stable above that 95%. Asking rents are feeling pressure from the supply, and we're working through that 5.7% that was released. We feel that each one of these markets has potential to start movement on the asking rents and work through the supply. We do see 2026 supply decreasing in all of these markets, which is the light at the end of the tunnel that we're going to be working through. And I think we'll start to see some benefit in the second half of 2026. Scott Schaeffer: Yes. And Brad, just to kind of bring it all full circle, I think the supply pressures we definitely feel are waning. We definitely see a light at the end of the tunnel coming. If you look at some of the most recent CoStar forecast for fourth quarter now of 2026, the forecast now in 2026 are much lower than what they were earlier this year because as we've been all highlighting, it does seem like supply was delivered earlier this year than what was supposed to be delivered next year. So again, really great positive opportunity here in 2026. The one thing we do watch in terms of, obviously, each day and each quarter and each month is just this kind of the conversion, right, from leads to leases, and that has been improving for us, right, from month to month to month throughout the third quarter. So that tells us that the pressure of new supply is certainly waning and we're being able to see more throughput into the leasing. Brad Heffern: And then, Jim, on the forward equity, you obviously need to settle that by the end of the year, but there's no additional acquisitions contemplated in the guide. Are you planning to extend that? Or is there a chance that you'll let that expire? James Sebra: So we can obviously always extend it. We do have 2 forward equities, one from September that got closed out, and that will be kind of closed out this quarter. And then the one that we did in the first quarter of 2025, we actually have until the end of the first quarter of 2026. So the $61 million that's left remaining is primarily that, and that we have until March 31 to close that one out. Operator: Your next question comes from the line of James Feldman with Wells Fargo. James Feldman: Given the sequential moderation in blends, especially on the renewal side, can you talk about what your latest thoughts are on earn-in for '26 and your current loss to lease? James Sebra: Jamie, that was a good one. Great to see you. Loss to lease today is actually a gain to lease of about 1.5% and that our earn-in right now for 2026 looks to be about 20 basis points. Obviously, we have to finish the year before the earn-in is actually locked in, but it's about 20 basis points. James Feldman: And then I guess just thinking about renewals down so much sequentially. I think if you look across the peer group, it's at the lower end. I know you said you wanted to keep occupancy at the expense of rate. Are there certain markets where you're really kind of surprised at how hard you have to fight to keep people? Just maybe talk us through the different regions, if it's any -- or different markets? Or is it pretty similar to what you said before on the renewals? James Sebra: Yes. I would say similar to the markets that Janice went through before in terms of the more supply-heavy markets certainly have a little more competition that we have to work harder to keep people at blend. I would say, generally, the retention rate that 60% has been a focus of ours. And we baked into our original guidance early this year, a steady decline in that renewal rate because we knew that we wanted to keep occupancy high heading into the slower seasonal periods of the fourth quarter. So I would say, even though it's sequentially lower, we've been pretty clear about we've expected this all throughout the year. What we see right now so far for fourth quarter, that renewal rate is actually about 40 basis points higher. So we see a little bit of strength redeveloping. But the difficulties in terms of really we're having to "work hard", we're working hard every day, right? But no, it's definitely in those markets that Janice mentioned. James Feldman: You're saying renewals are up 40 basis points already in the fourth quarter off of the '26? James Sebra: The spread, yes. James Feldman: Okay. And what about new leases and blends? James Sebra: New leases are pretty much in line with what you saw in the third quarter and blends are about, call it, 50 to 60 basis points. And about 90% of our expectations for renewals for the fourth quarter have already been signed. Operator: Next question comes from the line of Austin Wurschmidt with KeyBanc Capital Markets. Austin Wurschmidt: So going back to some of the green shoots that you referenced in your prepared remarks, coupled with, I guess, the softness in the back half of this year and just broader uncertainty, I mean, how do you approach the 2025 outlook and kind of the sequential improvement in fundamentals and think about sort of that ramp in the first part of next year? Scott Schaeffer: Be a little more specific in terms of ramping because obviously, we're staying away from really talking about any kind of 2026 guidance. I would say that our expectation is to continue to drive occupancy here in the fourth quarter. As I just mentioned, we're definitely seeing some improvements on the renewal spreads and just continue to manage the business for the long-term value creation of our shareholders. Austin Wurschmidt: I guess there was this expectation for lease rate growth to inflect in many of the Sunbelt markets late this year. So is that more likely a first half of '26? Do you see new lease rate growth, which I think you referenced are kind of in line with where they've been trending. Does that begin to improve over the several months ahead? What's sort of the thought on how that trajectory looks from here? Scott Schaeffer: Yes. So as we've mentioned, the desire that we have is to continue to keep occupancy at a nice stable high level for us as we end the year and get ready for 2026. That's always been our goal, and we've been talking and been pretty vocal about trading rate, especially on new leases to accomplish that goal. So as a result, right, new leases have kind of flattened out, right, where they are today in the third quarter when we were expecting them to continue to get better. We do see some progress in future months. They are getting better, but we're obviously being cautious because, again, we want to continue to maintain this high stable occupancy. If you look at our expiration schedule, you look at what leases are expiring month by month for next year, and again, without kind of prognosticating on market rent growth and so on and so forth, yes, we do expect that new leases should begin to kind of hit that breakeven point in the first half of next year. Austin Wurschmidt: And then can you just talk about how concessions have trended in some of the markets where you're seeing sort of some of that competition, Janice, you highlighted some details in the market. But I mean, are concessions getting worse? Are they stable, getting better? Just trying to get a sense high level of that competition that you're facing from the new lease-ups. James Sebra: Yes. So I don't have -- Janice will in a moment, talk about maybe individual markets. I would say, generally speaking, if you look at all of our leasing activity, so renewals, new leases, everything, in the third quarter of this year, 23% of all of our leases had some type of concession associated with it. That is down from 30% in Q3 of last year. The average concession is up slightly to $735 per, call it, lease, and that's up from $710 in Q3 of last year. As you look at it kind of looking from sequentially from quarter-to-quarter, that 23% is slightly higher from second quarter. But if I look at in October, we're down from where we were in the third quarter in terms of overall volume. So hopefully, that helps. Janice Richards: And as we monitor our competition very closely in the 4 softer markets that we talked about, we are seeing some ebbs and flows in concession, obviously, based on the lingering supply and/or what we would consider stalled lease-up. Nothing that has been outlandish or very surprising. However, we've seen a slight increase of concession usage in what I would say Dallas and possibly in Raleigh in specific pockets. Denver is definitely a concessionary market and will probably continue to be so as we work through that 7.5% of supply that was released in '25 and doesn't anticipate to add as fast as some of the other markets that we are in. Operator: Next question comes from the line of Eric Wolfe with Citi. Eric Wolfe: It looks like your net acquisition guidance came down and you got some assets that teed up for early next year. So can you just talk about your appetite for buybacks and how you think about the spread between where your stock is trading today versus where you can sell assets? Scott Schaeffer: Thanks. This is Scott. So the acquisition guidance came down because we had a small portfolio under contract. And in due diligence, we became aware of some significant structural issues, and it was an all or nothing. So we walked away from it. And at this point, we clearly recognize the disconnect between where markets are trading and where properties are trading relative to our implied cap rate at our share price. So we have a strong appetite for buybacks. We want to be disciplined, obviously. Clearly, it's a very good use of capital at this point. But we also continue to work down our leverage. So we're going to do it with retained earnings and other capital that won't impact our EBITDA. Eric Wolfe: Yes, I guess I was trying to think through like to what extent you could sell additional assets and try to take advantage of that spread if you thought it was material. I know there's sometimes tax implications from that. There's also sort of a descaling of the enterprise that you have to be sort of careful about. But I was just curious to what extent we could see you sort of ramp up the dispositions next year and then try to use those proceeds to be a bit more aggressive on the buyback in a leverage-neutral manner. Scott Schaeffer: Well, I think it's a balance, and it's a balance with the deleveraging strategy. And we still want our leverage to come down, which it has been doing, and we want it to continue to come down. So the thought of selling assets and giving up the EBITDA of that asset and then using the capital to buy back stock, while it might be a great return, it's going to increase our leverage, and I'm not sure anyone wants to see that. So we have the $60-some million on the forward available to us, and we also have some of the JV programs that are not EBITDA producing during the construction. So as those funds come back to us, that's available for us to use as capital for share buybacks. James Sebra: And just to clarify, the $61 million on the forward, we can net share settle that today. So we don't actually issue a bunch of shares and have to buy back a bunch of shares. But to Scott's point, that forward was issued at, I think, an average price of $20.60, and we're trading well below that. So there's an opportunity there to take some of that "gain" and buy back incremental shares. Operator: Next question comes from the line of John Kim with BMO Capital Markets. John Kim: I wanted to go back to your renewals you signed this quarter. Back in September, in your presentation, you talked about the renewal trade-out being in line or tracking expectations. So I'm wondering if something happened in September where it decelerated quicker than you had thought? Or was this the 2 what you anticipated? James Sebra: No, I think the point I was trying to make earlier is that we actually anticipated the renewals to go down in the third quarter. So when we kind of talked about them tracking in line with our expectations, that was clear that, that was our expectations. Certainly, as we've mentioned earlier, we are obviously working in a very competitive environment, and we are obviously looking to renew and retain as much of our residents as possible because not only are you saving a negative lease trade out, but you're also saving the vacancy costs, turn costs and all the other stuff that goes along with it. So no, I would say that the 2.6% was very much in line with our expectations. John Kim: And just to clarify, that 40 basis point improvement, is that what you're sending out sending renewals out today or what you're signing… James Sebra: What we signed. John Kim: My second question is the cap rate on the Aurora sale. I'm wondering if you could disclose that. And I think you said in the prior call that this was related to the Steadfast portfolio. But I'm wondering if you're looking at Denver as a market that you're looking to potentially sell more assets out of just given the supply pressures. James Sebra: Yes. I don't have the cap rate on the Aurora Denver held-for-sale asset. That is not closed yet, obviously. It's not even under contract. So I would say it would be a cap rate based on our internal view of valuation, but I can get back to you on that specifically. John Kim: And then Denver as a market? Scott Schaeffer: We're not looking to exit the Denver market. The property in Aurora was a steadfast property. It's an older property, expensive to run, high CapEx, and that's why it was identified as up for sale. Operator: Next question comes from the line of Wes Golladay with Baird. Wesley Golladay: I just want to look at your #2 market, Dallas. It looks like your same-store revenue growth is accelerating. But I believe I heard you in the commentary talking about more concessions in the market. So I'm just trying to see what's going on there. Janice Richards: Yes. I think in Dallas, what we're seeing is targeted markets and submarkets that have had high supply are becoming more concessionary as we go into the slower seasonal months in order to maintain that occupancy. And so we're just making sure that we're staying competitive within the market. Concessions are increasing as we've kind of seen a lingering effect of that supply. We're still able to maintain our occupancy. So the demand factor is still stable. It's just making sure that we can work through that supply and a timing factor. James Sebra: Yes. And I think yes, specifically with Dallas, I think you saw the average occupancy this quarter, up 40 basis points over the third quarter of last year. So that's a contributor to the acceleration. Wesley Golladay: And then looking at this year, you talked about your tech contributions being a bit of a tailwind. Do you think that momentum continues into next year? And then will the bad debt expense coming down lower be a tailwind again next year? Scott Schaeffer: I'll start with the last one, bad debt. Yes, we expect that the bad debt will continue to be, as I mentioned in the prepared remarks, we're working to keep that sustainably below 1%. So that should be a nice tailwind or support to 2026 and beyond. I would say that on the technology side, yes, obviously, we've implemented a series of pieces of technology, both on the kind of front of house leasing and sales and tours and as well as back of the house, so payables processing, other things that we are definitely working on, and we're going to continue to expand that to continue to drive lower expenses and better property improvements throughout the chain. Operator: Next question comes from the line of Ami Probandt with UBS. Ami Probandt: I'm wondering, were there any moving pieces within the same-store revenue guide such as blended rent assumptions, occupancy changes, bad debt? Scott Schaeffer: Ami? Ami, are you there? Ami Probandt: Can you hear me now? Scott Schaeffer: Yes. Okay. Great. Would you mind restating that? You broke up there. Ami Probandt: Yes. Sorry about that. I was wondering if there were any moving pieces within the same-store revenue guidance such as changes in blended rent occupancy or bad debt? Scott Schaeffer: For what, fourth quarter? Ami Probandt: Yes, within the guidance. If you had maybe, yes, increased your assumptions on occupancy and decreased on rent, any moving pieces to get you to that the guidance midpoint? James Sebra: Yes, sure. So the assumptions in guidance for occupancy was 95.5% in the fourth quarter, blended rent growth of 20 basis points, other income growth of about 3%. And then we've assumed a similar improvement in bad debt as we saw in the third quarter. Bad debt in fourth quarter last year was about 2%. So if you kind of reduce that by that roughly 70, 80 basis point improvement we saw this quarter, that's kind of what's factored into Q4. Ami Probandt: And then you mentioned materially lower supply delivery levels, but I'm wondering if you think that we may see extended lease-up periods and if you're factoring that into your thought process at all? James Sebra: We are thinking about that. We are -- as you can imagine, we have not put out 2026 guidance yet. So we are evaluating that with respect to what those -- what that budget will look like for next year and how significant it will be. The deliveries have come down quite significantly even throughout 2025. Even though the deliveries are higher than we all anticipated, the level of deliveries in '25 are still significantly under 2024. So we are expecting to see a lot of the lease-ups if not done. But if there is some extension, it should be a very small effect in the kind of early to mid part of 2026. Operator: Next question comes from the line of Omotayo Okusanya with Deutsche Bank. Omotayo Okusanya: Really good color in regards to kind of supply and what's happening in your markets. Curious if you could just talk a little bit on the demand side. I mean is some of the pressure on blended rates really more because there's just a lot of supply and people have options? Or is there like an actual demand issue where whether it's because of slowing job growth or things like that, you're getting a little bit more pushback as well in terms of asking rents and renewals. James Sebra: Sure. I mean I think that you've heard us previously as well as a lot of our partner peers, the leasing season kind of started a little earlier, ended a little earlier. I would say, just generally speaking, on the demand side, if you look at just our submarkets and you look at absorption levels and demand levels, it's -- in second quarter and third quarter, their peaks, right, over historical recent history in terms of what they were. Obviously, that's because of lease-ups, everything else. So I would say the demand is still quite healthy for apartments. A lot of our resident base that we cater to in our differentiated Class B product is not the white collar jobs that might be experiencing job losses that it's hospital workers, it's nursing home workers, it's retail workers, it's, again, not the typical white collar, including we have factory workers and blue collar workers. So it's a much -- what we think more defensive in the AI era than what folks appreciate or think might be affecting apartments down the road. We do track reasons for move-outs because of job losses. And I would say there's really no elevation there over the past 6 to 9 months. So it's not something we are watching. It's not something that we're overly concerned about at the moment, but we are watching and paying attention to it. Omotayo Okusanya: And then last one for me, just this election season at this point. Anything on any ballots in any of your key markets that you're kind of watching that could potentially impact your business? James Sebra: Well, the school district in my local town, I like very much, but that's a different story. No, we're not aware of anything in our markets where we should be concerned. Operator: Our final question comes from the line of Ann Chan with Green Street. Ann Chan: So are you seeing any labor availability issues we service for any type of employees or geographic markets? James Sebra: You mean inability for us to hire employees? Ann Chan: Yes. James Sebra: Yes. No, I would say, generally speaking, from our renovations team to our on-site teams to our corporate teams, jobs are filling kind of in the expected time frame. So there's no real concern or issue there with availability. Scott Schaeffer: We've also seen a marked reduction in the turnover within our on-site teams, which is encouraging going forward. Ann Chan: And second question for me. I know you mentioned earlier that you haven't seen any larger demand shift with the tenants. I'm just wondering if you've observed in 3Q and over 2025, any kind of emerging shifts in just general tenant behavior that might influence rent growth different between the markets, such as like shorter lease terms or higher concessions move-in timing, shifts towards the Class B product type or anything like that. And from that perspective, which markets appear more resilient versus more vulnerable to these types of tenant behaviors? James Sebra: Yes. We haven't seen, I would say, tenant behaviors in terms of payment patterns or work order developments that would cause us any level of concerns. I would say that the one thing that continues to shift, and we continue to try to be on the leading edge of it is the whole -- how does the prospect find us, right? The whole marketing engine, the advertising engine. You see us spending more money on advertising dollars between iOS services, paid search as well as just pure organic SEO and then also getting deeper into kind of how the AI tools are working where you can type into ChatGPT, show me an apartment for whatever in Atlanta and how do we show up in that list of each and every time. Today, we're ranking on page 1 of some of the Google searches, just organic searches on -- for many, many keywords. We still have more room to go, and we're going to keep pushing on that, but it's -- that's an area that we're spending a lot of time and energy on. Operator: Seeing no further questions, I would now like to turn the call back over to Scott Shaffer for closing remarks. Scott Schaeffer: Thank you all for joining us this morning, and we look forward to speaking to you again next quarter. Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.