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Operator: Hello, ladies and gentlemen. Thank you for standing by, and welcome to Zai Lab's Third Quarter 2025 Financial Results Conference Call. [Operator Instructions]. As a reminder, today's call is being recorded. It is now my pleasure to turn the floor over to Christine Chiou, Senior Vice President of Investor Relations. Please go ahead. Christine Chiou: Thank you, operator. Hello, and welcome, everyone. Today's earnings call will be led by Dr. Samantha Du, Zai Lab's Founder, CEO and Chairperson. She will be joined by Josh Smiley, President and Chief Operating Officer; Dr. Rafael Amado, President and Head of Global Research and Development; and Dr. Yajing Chen, Chief Financial Officer. As a reminder, during today's call, we will be making certain forward-looking statements based on our current expectations. These statements are subject to numerous risks and uncertainties that may cause actual results to differ materially from what we expect due to a variety of factors, including those discussed in our SEC filings. We also refer to adjusted loss from operations, which is a non-GAAP financial measure. Please refer to our earnings release furnished with the SEC on November 6, 2025, for additional information on this non-GAAP financial measure. At this time, it is my pleasure to turn the call over to Dr. Samantha Du. Ying Du: Thank you, Christine. Good morning, and good evening, everyone. Thank you for joining us today. Before we discuss the quarter, I want to take a moment to reflect on who we are, where we are headed. Zai Lab was built on a clear vision to bring the best global innovation to patients in China and to discover and develop new innovations that can compete on the world stage. That vision remains unchanged. Today, our global pipeline is stepping to the forefront, becoming the next key chapter in Zai's growth story. Zoci or ZL-1310 has now entered the pivotal stage less than 2 years from Phase 1/1b, an extraordinary pace at any standard in our industry. And we're on the path for our first global approval by 2027 or early 2028. Beyond Zoci, we're expanding our global portfolio with other highly differentiated programs, including our IL-13xIL-31R bispecific atopic dermatitis, IL-12 PD-1 bispecific and LRRC15 ADC for solid tumors. More importantly, we have built a global R&D organization that combines speed, scientific rigor and quality expected of a global biopharma. On our commercial business in China, we are commercially profitable today and on a steady, profitable growth path. However, the pace has been slower than we expected. The environment is complex and dynamic. But at the same time, there are encouraging signs of progress. Regulatory reviews are faster and NRDL negotiations are more transparent. We have one of the strongest commercial teams in the industry, backed by a portfolio of differentiated, high potential assets, and we remain confident in the long-term potential of this business. This next chapter will take focus and persistence, but we have the right science, the right team and the right vision. Together, we are building a company that will make a lasting difference for patients and create long-term value for our shareholders. With that, I'll now hand the call over to Rafael, who will walk you through the progress of our R&D pipeline. Rafael? Rafael Amado: Thank you, Samantha. I will begin with a few highlights from our global pipeline, starting with ZL-1310 or Zoci. Two weeks ago, at the triple meeting conference, we presented updated Phase I data in previously treated extensive stage small cell lung cancer. This global study enrolled 115 patients across the U.S., Europe and China. At baseline, 90% of patients had received a PD-1 or PD-L1 therapy, nearly 1/3 had brain metastases and several had progressed on a prior DLL3 targeted therapy, including tarlatamab, making this a very difficult to treat heavily pretreated patient population. At the 1.6 milligrams per kilogram dose, we observed an overall response rate of 68% and a disease control rate of 94%, among the strongest efficacy signals reported in the second line setting. Importantly, we also saw robust activity in patients with brain metastases, including an 80% overall response rate in lesions, which had received no prior treatment of any kind, suggesting that Zoci may offer a new way to control both systemic as well as intracranial disease without interrupting therapy, a potential game changer in terms of speed to treatment for these patients whose tumors tend to be growing very fast. Across all doses and lines, the median duration of response was 6.1 months, and the median progression-free survival was 5.4 months, which is highly encouraging for a monotherapy in this refractory population across doses and lines of therapy. Data from the 1.2 and 1.6 milligrams per kilogram cohort continue to mature as enrollment continues and patients remain on treatment. Zoci also continues to demonstrate a best-in-class safety profile. At the 1.6 milligrams per kilogram dose, grade 3 or higher treatment-related adverse events were observed in only 13% of patients, far below the 35% to 50% rate seen with other ADCs in this setting. There were no drug-related discontinuations or deaths and only 2 Grade 1 interstitial lung disease cases across both expansion doses of 1.2 and 1.6 milligrams per kilogram. This combination of deep efficacy and favorable tolerability positions Zoci as an ideal candidate for the first-line combination where safety is paramount. We've now begun enrollment in our registrational Phase III trial in extensive stage small cell lung cancer with the potential for an accelerated approval submission. We're also advancing our first-line strategy with plans to initiate a Phase III study next year following results of our ongoing combination study evaluating Zoci plus PD-L1 with and without chemotherapy. In addition, we see significant opportunity for Zoci as a backbone therapy in novel mechanism combinations. We plan to initiate studies with agents with ethanol and complementary mechanisms of action, and we will share details once the studies are posted on clinicaltrials.gov. Beyond small cell lung cancer, Zoci is being evaluated in Neuroendocrine Carcinomas or NAC, which have poor prognosis and no targeted therapy despite high DLL3 expression. Early data with ZL-1310 are encouraging, and we plan to present results in the first half of next year and to move into a registrational study thereafter. Beyond Zoci, our next wave of innovative global assets continue to advance rapidly. ZL-1503, our internally discovered IL-13/IL-31 bispecific antibody for atopic dermatitis recently entered Phase I. Its dual mechanism targets both itch and inflammation and its extended half-life offers potential for less frequent dosing. A subcutaneous formulation is being developed. Preclinical results support its use in other inflammatory diseases. First-in-human data are expected in 2026. ZL-6201 is an internally discovered LRRC15 targeted antibody with a next-generation payload linker. It remains on track for a U.S. IND submission by year-end and a global Phase I study initiation early next year for patients with cancer that have tumor cell or tumor stroma expressing this target. ZL-1222 is another internally discovered asset. It is a next-generation PD-1 IL-12 immunocytokine designed to deliver cytokine signaling directly into the tumor microenvironment while preserving PD-1 checkpoint blockade. IND-enabling work is underway, and we expect to move quickly towards an IND once data are available. Now turning to our key late-stage regional programs in immunology and neuroscience. The Efgartigimod continues to expand across multiple autoimmune indications. The ADAPT SERON study in seronegative gMG was positive, the first global Phase III trial to show clinically meaningful improvements across all 3 gMG subtypes, MuSK+, LRP4+, and triple seronegative. Three additional Phase III readouts in Ocular myasthenia gravis, Myositis and Thyroid eye disease are expected next year with China contributing to global enrollment. For Povetacicept, our partner, Vertex recently received FDA breakthrough therapy designation for IgAN. Enrollment of the global RAINIER Phase 3 is complete with an interim analysis planned for the first half of 2026, where patients from China are included and potentially supporting an accelerated approval submission next year. The global pivotal Phase II/III study in primary membranous nephropathy was initiated in October, and we're on track to enroll patients in China this quarter. Together, these achievements reflect the depth and quality of our pipeline, one that is advancing with speed and efficiency and with a clear focus on novel mechanisms and clinical differentiation. In summary, over the next 12 months, we expect to reach several important milestones across our global portfolio. For Zoci, we expect a catalyst-rich year with updated intracranial data, first-line small cell lung cancer combination data and results in neuroendocrine carcinoma in the first half. In parallel, we plan to initiate registrational studies in first-line small cell lung cancer and other neuroendocrine carcinomas as well as starting studies with novel combinations across line of therapy. Beyond Zoci, we expect first-in-human data for ZL-1503 or IL-1331 and to advance ZL-6201 or LRRC15 into global Phase I development. We're also progressing ZL-1222 or anti-PD-1/ IL-12 agonist and look forward to sharing additional data in the coming year. And with that, I'll hand it over to Josh. Joshua Smiley: Thank you, Rafael, and hello, everyone. Before we turn to our third quarter results, I'd like to start by welcoming Dr. Yajing Chen, he as our new Chief Business Officer. Chen brings both deep scientific expertise and investment experience and will play a central role in expanding our portfolio and unlocking value through partnerships and out-licensing. I'd also like to sincerely thank Jonathan Wang for his many contributions over the past decade in helping build the strong foundation that now supports our next phase of growth. Now turning to our commercial performance. Total revenues were $116 million, representing 14% growth year-over-year. VYVGART and VYVGART Hytrulo contributed $27.7 million, which includes a $2.4 million reduction following a voluntary price adjustment on Hytrulo to align with NRDL guidelines ahead of national pricing negotiations. While this adjustment affected reported sales, the underlying fundamentals of the launch remain very strong. VYVGART continues to be one of the most successful immunology launches ever in China, ranking as the #1 innovative drug by sales among all new launches in the past 2 years. More importantly, the trends beneath the headline numbers point to durable long-term growth. There are 2 key growth drivers underpinning the trajectory of VYVGART in gMG, patient demand and treatment duration, the latter of which is particularly important given the chronic nature of the disease. First, on demand. We continue to see steady new patient additions each month with nearly 21,000 patients treated to date. VYVGART penetration in gMG remains only around 12%, meaning we are still in the early stages of market development with significant room for expansion. Second, on treatment duration. The updated MG guidelines published in July have been a meaningful catalyst to emphasize both the importance of rapid symptom control, where VYVGART has demonstrated strong efficacy and a minimum of 3 treatment cycles to reduce the risk of relapse and maintain durable disease control. Since publication, we have seen clear signs of positive impact in real-world practice. Physicians are becoming receptive to maintaining patients on therapy even after achieving symptom control, signaling a shift from episodic to maintenance use. As a result of our efforts, the average vials per patient have increased over 30% year-to-date versus last year, with a notable acceleration in Q3. And VYVGART volumes have grown sequentially in the mid-teens. We see this level of growth as realistic and sustainable as we head into 2026. Now admittedly, the pace of market build for this first-in-class therapy for chronic disease has been more measured than we initially anticipated. With VYVGART, we are shaping this new market thoughtfully, focusing not only on driving adoption, but also on redefining how gMG is managed over the long term. Through physician education and real-world experience, we aim to change long-standing treatment patterns. While the ramp is slower than expected, the long-term potential of VYVGART in gMG is substantial. Beyond gMG, we're making progress in CIDP, expanding access across both supplemental and commercial health insurance plans. We will continue to add new layers of growth with new indications and formulations with the most immediate being seronegative gMG and the prefilled syringe. Looking ahead, our next major launch opportunity is KarXT, currently under regulatory review. KarXT has the potential to redefine schizophrenia treatment in China, introducing the first new mechanism of action in more than 70 years. Notably, it has already been included in the China Schizophrenia Prevention and Treatment Guidelines 2025 Edition, the first national guideline globally to do so, underscoring its strong differentiation and anticipated clinical impact. Across the company, we remain disciplined in our operations, scaling efficiently while investing strategically in commercial execution and pipeline innovation. And with that, I will now pass the call over to Yajing to take us through our financial results. Yajing? Yajing Chen: Thank you, Josh. Now I will review highlights from our third quarter 2025 financial results compared to the prior year period. Total revenue grew 14% year-over-year to $116.1 million in the third quarter, primarily driven by higher sales of NUZYRA supported by increasing market coverage and penetration. Demand for XACDURO remains robust, and we aim to normalize supply by year-end. ZEJULA grew sequentially but declined year-over-year amid evolving competitive dynamics within the PARP class. Given this trend as well as VYVGART dynamics discussed earlier, we are updating our full year total revenue guidance to at least $460 million. Our continued focus on financial discipline and efficiency was evident in our cost structure with both R&D and SG&A as a percentage of revenue declining significantly year-over-year. R&D expenses for the third quarter decreased 27% year-over-year, mainly due to a decrease in licensing fees in connection with upfront and milestone payments. SG&A expenses for the third quarter increased 4% year-over-year, mainly due to higher general selling expenses to support the growth of NUZYRA and VYVGART, partially offset by lower selling expenses for ZEJULA. As a result, loss from operations improved 28% in the third quarter to $48.8 million and adjusted loss from operations, which excludes certain noncash items, depreciation, amortization and share-based compensation, was $28 million in the third quarter, a 42% improvement from the prior year. While we expect meaningful quarter-over-quarter improvement in adjusted operating loss, we now expect profitability to shift beyond the fourth quarter, reflecting the lower revenue base this year. Importantly, our fundamentals remain strong. Our China business is already commercially profitable and growing, and we are executing strong financial discipline and investing strategically in R&D. We are on a path to profitability, and we'll provide updated 2026 financial guidance when we report our full year 2025 earnings. Zai Lab is at a major value inflection point with a rapidly advancing global pipeline, a commercially profitable China business and a path to profitability. We also maintain a strong financial foundation, ending the quarter with $817 million in cash, which provides us with the flexibility to invest in both innovation and disciplined execution. And with that, I would now like to turn the call back over to the operator to open up the line for questions. Operator? Operator: [Operator Instructions] We will now take our first question from the line of Jonathan Chang from Leerink Partners. Jonathan Chang: First question, on the revised revenue guidance, how should we be thinking about the key drivers for growth and the path to profitability? And then second question on ZL-1503. Can you help set expectations for the initial data readout expected in 2026? And how are you guys seeing the opportunity in atopic dermatitis? Joshua Smiley: Thanks, Jonathan. It's Josh Smiley. Thanks for the questions. I'll take the first one on revenue drivers, and then Rafael will talk about 1503. I think as we think about revenue headed into the fourth quarter here, drivers will continue to be VYVGART, we expect continued good sequential growth driven by new patient additions and continued growth and durability in terms of the number of doses patients get. We are seeing, as I mentioned in the opening remarks, we're seeing good progress as a result of the national guidelines that were issued in July, which focus on getting patients into at least 3 courses of therapy. So, we'll see, we expect to see continued growth there. ZEJULA, we are seeing a return to growth. As we've mentioned throughout the year, the quarterly numbers, I think, will be a little bit choppy because of the generic entries for Lynparza, but we do expect VBP to kick in, in the fourth quarter here, and that gives us a chance to gain share in this class, and we're confident we will. So, we'd expect to see some growth there. rest of the portfolio continues to do well. We are excited about the progress we're seeing with XACDURO, but still face supply constraints. So, we'll be somewhat limited as we come into the fourth quarter here or there. But overall, good momentum in the portfolio and good growth drivers. We'll give more specific guidance for 2026 as we get into next year. But obviously, we're looking forward to the launch of KarXT, the potential approval of TIVDAK and continued growth in these, in the core part of the portfolio. As it relates to profitability, again, our profitability will be driven by growth in the business in China. The China business, of course, is profitable today. And as we continue to drive top line growth, that profitability will be enough to cover the R&D and corporate costs that we have. So, we're still on that path. It's just, we just need the growth to continue in the portfolio. With that, I'll turn it to Rafael to talk about 1503. Rafael Amado: Thanks, Josh. Thanks, Jonathan. So, 1503, we're really excited about this molecule. As you know, it's both dual IL-13/31 inhibitors. It traps IL-13, and we know that, that is a proven pathway. And 31 is a very potent pathway in initiating pruritus. So, we think the combination plus the long half-life is going to translate into a really brisk effect, which is very fast and sustained. We have initiated the IND already. We plan to do a multi-country study. And obviously, it's a first-in-human study. We will do single ascending dose in normal volunteers and then multiple doses in patients with atopic dermatitis. In the lab, we've been looking at other models of TH2 diseases, and we are very encouraged with what we're seeing on asthma, rhinitis and other disorders that affect [TH2]. So, in addition to this, we're going to be looking at efficacy endpoints given the half-life that is long, we think that we will be able to see effects on EASI scores as well as IgA/ID [Audio Gap] and so this is going to be measured very frequently. We hope to have the data available by the middle of next year, but it will obviously accumulate throughout next year, and we will present when we have sufficient data. It's a placebo-controlled trial. So, we'll be able to have comparisons. And obviously, we know what the landmarks are here with other products. So again, a very large opportunity. This is a very common disease, even a fraction percentage of capturing in AD would be a large opportunity. And also, the possibility of expanding into other TH2 diseases, I think make this a very promising product. Operator: We will now take our next question from the line of Anupam Rama from JPMorgan. Anupam Rama: This is Joyce on for Anupam. The press release today really led with progress on your own internal global development programs. Is this a shift in how you're thinking about the resource allocation in terms of your prior focus on external BD versus now the internal pipeline? Joshua Smiley: Thanks. It's Josh. I'll start. First, we are very excited about the pipeline that we have today with the global emphasis. And of course, that will be a priority to invest in and Rafael outlined our near-term focus in terms of 1310 and getting the registration trial up and running and expanding into first line and into neuroendocrine tumors. So that's going to be a focus. We've got a really exciting global portfolio behind that. We think we have the capacity here to fully invest in those programs. We have a strong balance sheet with plenty of cash to continue to pursue on a targeted basis, the right kind of external opportunities to bring in, both on a global and regional basis. And we have the capacity within the income statement on the R&D side to, I think, fully invest behind these exciting opportunities and still manage, I think, an R&D budget that's within the range of what we've seen the last few years. So, priorities are advance the pipeline, continue to build the pipeline and continue to drive the commercial business in China, which is profitable today and will be increasingly profitable over time. Operator: We will now take our next question from the line of Yigal Nochomovitz from Citi. Yigal Nochomovitz: This is Caroline on for Yigal. We were wondering where you're seeing the greatest opportunity and greatest likelihood for success for your internal global pipeline among LRRC and PD-1, IL-2 and others. I have a second question, if okay. Joshua Smiley: Rafael, jump in on this one, please. Rafael Amado: Sure. Obviously, the most immediate one is 1310. I mean, it clearly is quite active. It is well tolerated, very few related grade 3 and above treatment effects. treatment side effects, strong brisk effect on brain metastases in untreated brain metastases. And again, very high percent of patients responding. We are starting up the Phase III study for second line. We've had recent discussions with FDA, and we're sharpening the design to the point that it's already started. We will continue to do some work on the dose, but I think that is going to finish pretty quickly. With regards to the rest of the products, obviously, 1503, I mean, these are proven pathways. So, the bar for activity is pretty low. And also, the characteristics of the product with FC modification for long half-life makes it very ideal for patients with these chronic diseases. And then with regards to some of the other ones, LRRC15 is particularly interesting because it will be the first time where a tumor is being targeted where the target is not necessarily in the tumor. So, there will be these 2 groups of patients like sarcoma patients where the tumor does express LRRC15, but others in which the tumor only expresses the target in fibroblasts. And if that is the case, if we can actually abrogate tumors where the tumor is negative, but the tumor microenvironment is positive, then it opens a whole host of tumor types. So pretty excited about this. And I think we are with others leading in ADC, which is one of our focus in oncology. And then I'll finish with PD-1 IL-12. It's been very hard to target IL-12 because it's toxic. So, we've been able to engineer an IL-12 stimulated moiety, which actually is attenuated. So, it doesn't really cause side effects of T cell activation. And at the same time, with full blockade of PD-1. So, in animal models, we can see that we can actually restore PD-1 resistant tumors, which would be pretty exciting to see. And we are seeing, as you know, more enhancements on PD-1 as a checkpoint with other molecules. And we think that an IL-12 would be one of them. So, I'll just finish by saying that we can move these things pretty quickly. We'll have 2 INDs this year. One of them will enroll this year. The other one will start enrolling in January. And PD-1 IL-12 is a candidate that will have an IND next year and hopefully, the first patient as well in the second half. So yes, we're excited about all of them. But obviously, our strongest focus right now is making sure that we cover the lives on 1310. Yigal Nochomovitz: Got it. And on my second question, we're wondering what you're doing to set yourself up for a strong KarXT launch? And what more have you learned about the schizophrenia market in China to best position KarXT in the marketplace? Joshua Smiley: It's Josh. Yes, we're quite excited about the opportunity with KarXT. Regulatory reviews are going well. So, we are hopeful for an approval sometime in the near term here. First, I think if you look in China, there's a huge opportunity. Of course, there haven't been any new mechanisms approved in severe melan illness or schizophrenia in more than 70 years. So, the opportunity for a mechanism like KarXT that provides both efficacy on positive symptoms, negative symptoms and cognition is, I think, well anticipated and thought leaders are anxious for this drug to come. So, we'll launch with a targeted sales force. I think the difference in China versus what we see in some of the Western markets, certainly in the U.S. is it's a more concentrated approach. Patients tend to be in bigger institutions. So, with a relatively targeted sales force and education program, we should be able to touch a significant portion of the market at launch. And again, just to remind people that the opportunity here is quite significant with millions of patients today suffering from schizophrenia. Obviously, it's a lifelong disease. So, we're anxious to get the approval first to get up and running in 2026 and then move toward NRDL listing in 2027. Operator: Our next question comes from the line of Li Watsek from Cantor Fitzgerald. Li Wang Watsek: I have one commercial, one pipeline question. I guess just given some of the complex commercial dynamics in China and your revised guidance, can you provide your updated views on the $2 billion revenue target by 2028? And then second is for ZL1310, sounds like you're expanding to neuroendocrine tumors next year. I wonder if you can just talk a little bit about the pathway to approval and what would be the bar? Joshua Smiley: Thanks, Li. It's Josh. I think first on the $2 billion 2028 goal, we will look at all the moves that we had in the portfolio, and we'll provide a more fulsome update next year, maybe starting at JPMorgan. But to comment, we feel really good about the portfolio we have today. As Samantha mentioned upfront, I think the most exciting piece is the opportunity for sales outside of China in 2028. We mentioned that 1310, we see a path for an approval as early as late 2027. So, to have some significant sales in 2028 coming from the U.S. in small cell lung cancer, I think, quite exciting and certainly represents a new inflection point and phase of growth for us. The portfolio in China continues to grow. And we've talked about the dynamics with VYVGART, which we expect over the course of the next number of years to continue to grow at a good and steady rate, supplemented by additional indications. since we have talked about that revenue goal, we've added Pove and Veli, both of which can launch in the 2028-time frame. So, we're quite excited about the long-term growth potential of the portfolio and most excited this year about the progress on 1310 and what it means for sales, not just in China, but outside of China within this time frame. Yes, Rafael, if you can jump in, please. Rafael Amado: Yes. Thanks, Caroline. So, I'll talk a bit about NEC. So, the study that we have has 2 cohorts of carcinoma. So, these are highly proliferative tumors that have a poor prognosis. One is gastroenteropancreatic tumors or GEP, and the others are other NECs that can arise from other sites, other organs. We are seeing responses in both groups. It's still early days, obviously, and we're accumulating more and more evidence of activity. These are patients that have had more than one line of therapy, which tends to be platinum-based therapy. And there really isn't any standard for these patients. The tumors tend to grow fast and actually mortality is quite high. So, in terms of how we want to proceed with this, the idea would be to sort of circumscribe the tumors that have similar natural history like GEP, large cell non-small cell lung cancer and also tumors of a non-primary and do a study, a single-arm trial and try to characterize the response rate. I think anything above 30% to 40% would be of great interest because there really isn't any therapy. Many of these patients go to clinical trials with reasonable durability. So, we would plan to have discussions with regulatory authorities to see whether given the unmet need single-arm trial with these kinds of results could result in an accelerated approval. The alternative is to do a physician choice comparator, which also we will be prepared to launch. And given the activity that we are seeing, if it continues, it wouldn't be a very large study, particularly given the large unmet need and the fact that this is an orphan indication. So pretty excited about what the agency will see and opine once we have sufficient follow-up and sufficient patients to characterize the activity. Operator: Our next question comes from the line of Lai Chen from Goldman Sachs. Ziyi Chen: Two questions. The first one is regarding the guidance. We try to understand a bit more about compared to the expectations set in any guidance previously, in which areas has the company encountered deeper than anticipated challenges in China environment, particularly for VYVGART and ZEJULA. Could you elaborate a bit more? And also, I think beginning of the year, in terms of the guidance, not only about the top line, but also you mentioned about fourth quarter cash breakeven target. Is that still intact? That's my first one. Second is regarding the R&D because Zai Lab is really pivoting towards a global R&D company. So, in terms of the pipeline buildup, particularly for the early-stage pipeline buildup, now we got oncology ADCs, we have 2 different ADCs. We have PD-1, IL-12, and we also have immunology. So we're trying to understand a bit more about the strategy, the portfolio strategy when you're deciding what to go after and what not to do. So, could you provide a bit more color on that? Joshua Smiley: Sure. Thanks. First, on the performance this year, I would say, relative to our initial expectations, VYVGART, while growing well, and we're pleased with the underlying dynamics, as we've mentioned throughout the call, it's just taking longer to get to the rate that we, of treatment that we see in the U.S. market, for example. So, we're focused now on getting patients up to at least 3 cycles of treatment, and we're seeing progress there. It's just slow. So, I would say that's our sort of on the VYVGART piece, that's the piece that has been the slowest relative to our expectations. Again, I think this is what we're realizing is it's a long-term build the market opportunity. We have the long term with this product, and we're seeing good response to things like the national guidelines and our continued promotional and educational efforts. So just a slower ramp to get to the kind of treatment duration that we see in the Western markets. On ZEJULA, we expect to gain share as a function of Lynparza going generic, and we saw some delays there in terms of, relative to our initial expectations relative to VBP. Again, we expect that to kick in beginning in the fourth quarter and set us up well for next year. Certainly, again, there are dynamics related to affordability and hospital purchasing and otherwise that may make that a bit choppy. But I think the underlying opportunity for ZEJULA is to gain share from what had been Lynparza as it goes to generic. The third piece for us is then just we've talked about this through the year. It's a great product and our partner, Pfizer, is seeing really great response and demand in the hospital setting for this drug. And we've had more supply constraints than we anticipated at the beginning of the year. We're working through those, and we're hopeful that as we come into 2026, those will be resolved, and we'll be able to fully meet the demand that we're seeing in the marketplace. Those things together, of course, will help and drive profitability. I think if you look at our path to profitability and focus on the noncash, I mean, on the cash sort of earnings, which is our non-GAAP number, you see continued good progress in that regard. And that progress should continue. We'll give you an update for 2026. But really, it's just going to be a function of continued growth on the top line. And I think at the numbers that we're suggesting here for the fourth quarter, we probably won't quite get there, but we'll still show good improvement, and we'll be on that path as we head into 2026. Rafael, if you can talk about how we think about the portfolio and the next opportunities. Rafael Amado: Sure. So, the portfolio will continue to grow as a blend of both internal as well as external opportunities. I'm really proud of the fact that many of the products that are now in development came from our protein science laboratories, which have been very productive. But in terms of strategy in oncology, we will continue with antibody drug conjugates, and we will continue to innovate there. There are other antibodies that we haven't mentioned that are in the pipeline at the moment, and we spend a lot of time trying to characterize the antibody vis-a-vis the target. and then use the right payload linker. So that's going to continue to grow. We also have an interest in immunocytokines, which I mentioned before. We have other immunocytokines that will come after the PD-1 IL-12. And then T cell engagers, we've made an effort in T cell engagers, and we will be reporting with time some of these candidates entering the clinic. Outside of oncology, you are right. I mean, we have been focusing on autoimmunity, neuroscience and immunology. In autoimmunity, we are focusing on cytokines, both antibodies or bispecifics perhaps cell depletion as well and then signal transduction of some of these cytokine pathways, which involve small molecules as well. And so overall, we will remain opportunistic, obviously, for either regional or global opportunities that have novel mechanisms of action, have differentiation and really make a big difference for patients. But the guardrails, if you will, are the ones that I just described to you. So, thanks for the question. Ying Du: Yes. I think, Joe, just like Rafael was saying, we, even though our pipeline in China, regional pipeline has oncology, autoimmune and neuro and anti-infectious. But for our global pipeline, we are focusing on oncology and autoimmune and anti-inflammatory specifically that Rafael was saying. So internally for global development pipelines, we are only focused on those 2 areas. Operator: Our last question today comes from the line of Clara Dong from Jefferies. Yuxi Dong: This is Jenna on for Clara. We have 2 questions, if we may. First, on VYVGART. I think previously, we were under the impression that sales will be back half loaded. So, I was just curious what kind of visibility or leading indicators you may have for Q4 and 2026? And more specifically, can you comment on, for example, pace, number of cycles on average patients are getting today? What does the pace look like over the next few years to reach the 3 average doses? And then our second question is on Bema in the context of the Amgen announcement. I was just curious if it's still possible to have a path forward for just China based on the trials you're running or the data you have in hand? Joshua Smiley: I'll start with VYVGART and then Rafael can talk about Bema. I think on VYVGART, what we're seeing is good underlying growth in terms of duration or number of vials or cycles patients get. I think as we started the year, on average, we were probably close to 1 cycle per year or per patient per year, and that represented the fact that at launch, we were getting lots of the acute patients and VYVGART, of course, works really well in an acute setting, but to get the full benefit for patients with gMG that allows them to work and live their lives fully, you need to get the maintenance benefits, which kick in at least 3 cycles. Through this year, we're seeing progress towards an average of 2 cycles per year. And as you mentioned in your question, the goal is to get to at least 3 and over time, aspirations toward 5, where we see the full benefits in clinical trial and real-world setting, so I think as we look into next year, we'd expect the underlying growth to continue probably at this, what we're seeing in terms of volume, so sort of number of vials in total is sequential quarterly growth in the sort of low teens. And I think that's reasonable to expect as we head into next year and continue to sort of climb towards that on average, 3 cycles of use; again, supplemented by, or accelerated by the national guidelines that were issued in July and our efforts to educate physicians in that regard. So, we're looking forward to the continued underlying growth here, and I think expect that to continue on a good basis as we head into 2026. Rafael, do you want to talk about Bema? Rafael Amado: Sure. So, we're still digesting the data. You saw the data at ESMO that was presented with the primary analysis of 096 and then the final analysis with this attenuated treatment effect. And then Amgen announced that 098 was a negative study in terms of not meeting statistical significance. So, we're looking at with Amgen and our partner at translational markers and subgroups, and we will be doing this in the upcoming weeks and make a decision. But our opinion is that it will be very challenging to get an approval in China with this data set. So as such, we're thinking about how to deploy these resources to the rich pipeline that we've been discussing today and try to capitalize on the fact that we will have this opportunity of time, people, resources and effort to advance the current pipeline. Operator: Thank you, we have come to the end of the question-and-answer session. Thank you all very much for your questions. I'll now turn the conference back to Dr. Samantha Du for her closing comments. Ying Du: Thank you, operator. I want to thank everyone for taking the time to join us on the call today. We appreciate your support and look forward to updating you again after the fourth quarter of 2025. Operator, you may now disconnect this call. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect your lines.
Operator: Hello, everyone, and welcome to today's TBC Third Quarter and 9 Months 2025 IFRS Results Conference Call. My name is Sam, and I'll be the call moderator today. [Operator Instructions] I'd now like to hand you over to today's host, Andrew Keeley, Director of Investor Relations, to begin. So Andrew, please go ahead. Andrew Keeley: Thank you very much, Sam. And welcome, everybody, to our third quarter results call. I'm joined on today's call by Vakhtang Butskhrikidze, our CEO; by Giorgi Megrelishvili, our CFO; and by Oliver Hughes, our Head of International. As usual, we'll have a presentation, and then we'll run through and have a Q&A session afterwards. And with that, I'll hand over to Vakhtang. Thank you. Vakhtang Butskhrikidze: Thank you, Andrew. Hello, everyone, and thank you for joining us today. I am pleased to present another highly profitable quarter with record quarterly earnings. As you can see, our group's net profit in the third quarter reached GEL 368 million, up by 6% year-on-year, while return on equity was 24.4%. Our revenue growth was very respectable, 7% year-on-year growth. In Georgia, we had a strong and stable quarter with 24% plus return on equity, 9% growth in our loan book and net interest margin reaching 6%. Over the same period, Uzbekistan’s, net profit was GEL 41 million, up by 30% year-on-year with return of equity exceeding 23%, while the loan book has almost doubled year-on-year to close to $1 billion. Our digital ecosystem continued to expand its reach with registered users totaling almost reached 22 million, up by 28% year-on-year. As a result of our strong operating performance and a solid capital base, the Board has declared a quarterly dividend of GEL 1.75 per share, bringing the total 9 months of 2025 dividend to GEL 5. Now turning to Georgia. Georgia's economy continued to perform strongly. Real GDP growth stood at 6.5% in the third quarter, bringing 9 months growth to 7.7%, while our macro team has revised its 2025 GDP growth forecast upwards to 7.3%. The inflation rate reached 4.8% in September, surpassing the National Bank of Georgia's 3% target, but we expect this to ease slightly over the next few months. Next slide highlights the highly consistent performance of our Georgian Financial Services business as we continue to deliver close to mid-20s return on equity. The reason for this consistency, as you can see that we continue to be a leading player across most of the key banking segments in Georgia. In the third quarter, our gross loans were up by 9% year-on-year. And I'd like to highlight particularly strong performance in fast consumer lending, a key focus for us where our loan book portfolio grew by 42%, and we have gained 3 percentage points of market share over the past year. Meanwhile, our Georgian customer deposit increased by 11% over the same period. We continue to maintain a strong position in both lending and deposits while constantly improving how we serve our retail and business clients. Next slide illustrates the growing digital engagement among our retail customers in Georgia. By the end of September, our digital monthly users reached 1.2 million, accounting for 2/3 of our active customers. And our digital MAU continues to increase by around 50,000 users per quarter. What's also important is that our digital users are highly engaged with us on a daily basis as it reflected in a very impressive 46% DAU to MAU ratio. The increasing take-up of digital banking by our customers is also reflected in the very high levels of digital loans and deposit issuance. Now let's turn to our Uzbekistan business. Starting with the economy, much like Georgia, the Uzbek economy also remains highly dynamic with real GDP growth of 8.2% in the third quarter, bringing 9 months 2025 growth to 7.6%. What is very encouraging is that inflation is also easing dropping to 8% in September and even lower in seasonality adjusted terms, supported by tight monetary policy, and we have also seen local currency strengthening this year. Next slide provides an overview of the progress that we have made over the past 2 years across all major metrics. We have almost 22 million unique registered users, out of which almost 6 million are monthly active users. Our loan book continues to almost double year-on-year and now tops $970 million, while our deposits increased by 71%, reaching over $540 million. Our operating income reached a record $70 million in this quarter and increased by 69% year-over-year. In the third quarter, net profit of our Uzbekistan business reached $15 million, up by 30% year-on-yea. Now let's turn to some of our recent business updates in Uzbekistan. We continue to expand our digital banking in the third quarter. We -- in the third quarter, we announced our planned acquisition of majority stake in OLX, the country's largest online classified platform. This will unlock powerful synergies with our financial services platform and help increase our share of customer retention. We also saw a great progress in the uptake of Salom card. By the end of September, we issued 700,000 cards, of which 500,000 have been funded as customers are increasingly choosing TBC for their daily banking needs. In addition, we have been deepening customer engagement in Payme with Payme Plus subscriptions reaching 300,000 MAU. We keep scaling the use of AI throughout our business. As a result, we have reached 90% automation in early-stage delinquency cos, and we have conducted over 100,000 sales per month with our AI voice chatbots. Evidence of the popularity of our ecosystem can be seen in it being the top of mind brand in Tashkent and #3 in Uzbekistan as a whole, a great achievement in just a few years of operating. Next slide shows our increasing market share and contribution to the group. By the end of the third quarter, market share of our retail loans and deposits stood at 4.9% and 4.2%, respectively. In the third quarter, Uzbekistan contributed 11% of the group's net profit, while the contribution in operating income was 21% . Next slide provides an update on the targets we set ourselves for Uzbekistan business. I think it is worth stepping back for a moment and considering what we have achieved in Uzbekistan over the past 6 years. During this time, we have built one of the fastest-growing digital banking ecosystems globally. Our registered users have increased tenfold to 22 million, and we have built a $1 billion loan portfolio. Our digital bank broke even in the just 2 years and is already generating 20% return of equity despite being a early stage business. This year, we have scaled up launch new products and announced highly value accretive M&A with BILLZ and OLX, and we are a top 10 player in retail banking and even the top of mind bank in Tashkent. But of course, there has been some challenges this year. As you know, we had issues around fraud and asset quality in the first half, while in the second half, we had pivoted our business from micro loans to SME lending more quickly than we had anticipated, in line with the changing regulatory agenda. As a result, we expect to below our 2025 net profit guidance. I firmly believe that we have a flexible and resilient business model and an excellent team that will enable us to adapt quickly to the evolving environment, and we remain highly positive on the long-term growth opportunities in the country. Finally, I'd like to provide an update regarding group's targets. First of all, I'd like to stress that the group's overall performance remains strong and resilient. Our return of equity has consistently been running ahead of the challenging 23% target. And since the start of 2023, we have almost doubled our digital MAU to close to 7 million as our customers choose TBC. Over the past 3 years, we have increased gross profit annually by 10% despite investing heavily in building out Uzbekistan. However, given that we are running below our profit targets in Uzbekistan, group's net profit was slightly below our GEL 1.5 billion target. As a group, we are well positioned for the future. We combine consistently and proven leadership in Georgia with a dynamic digital ecosystem in Uzbekistan that is well placed to capture the huge opportunity available and remain highly positive on the long-term growth opportunities in both markets. With that, I pass over to Giorgi. Giorgi Megrelishvili: Thanks, Vakhtang, and thanks all for joining our quarterly call. Now I will go into more details for our financial performance, and we'll start with Slide 18. So it has been a strong quarter with a record profit, as Vakhtang mentioned, with GEL 368 million. That is up 6% both quarter-on-quarter and year-on-year basis. Our 9-month profit surpassed GEL 1 billion threshold, and that's actually again 6% up compared to the same period last year. So that translated into a very nice and strong 24.4% ROE. So if you go to next slide, Slide 19, I would like to discuss the drivers of this performance. As you can see, our top line growth has been very strong, 17% year-on-year. That was mainly driven by our net interest income growth, [ 24% ], really solid growth. Our noninterest income also grew by 6% on quarter-on-quarter and 3% year-on-year. This, I would say, slowdown in growth driven mainly by 2 factors, fee and commission income in Georgia because of the increased card network fees. And also, we do invest a lot into our TBC card, cash backs, loyalty that becoming a go card, and we do expect this trend to continue. The second reason is that Lari has been very stable this year, a good sign. However, the margins compressed significantly compared to last year. But despite that, we still delivered and we were flat as last year for the 9 months. So Andrew, if you go to next slide, Slide 20. So and if we look now our NIM dynamics, we are very pleased to see that we retained 7% level and we expect to stay at this level for a while. And actually, another nice development is that in Georgia, we are back to 6% handle from 5.9% last quarter. And also, we do expect to retain around this level in Georgia, maybe high 5s, low 6%, but more or less the level we are in Q3. So let's move to Slide 21. Our cost dynamics. Our OpEx was up by 18%, probably the trend we have seen nothing unexpected because we do continue to invest into our businesses in both countries, particularly into Uzbekistan. However, our cost/income ratio remains broadly very stable. So it was 37.7% more or less the same as in Q2 last year and also 9 months trend is kind of more or less the same and in line. Now if we go to Slide 22, turning there, our credit quality. Cost of risk remains the same for the group and for Georgia as well. For group, it was 1.6%, for Georgia, 80 basis points. So that's the level we have seen for the last few quarters, a very good level. We are very comfortable with this level with our credit quality. Uzbekistan cost of risk ticked down slightly, 20 basis points to 9.7%. However, we still do see the less impact of our thin file consumer segment and long tail post merchant. So we do expect this trend to remain for a quarter or 2 going forward. Now going to Slide 23. Our balance sheet growth, it was very healthy, 13% for the group, both for customer funding and loans. However, I would also like to comment on Georgian growth that was a bit subdued this quarter. That was driven by one-off, a large repayment in our corporate business. In Q4, we do expect to go back to our normal growth mode, and we do expect this year to be double-digit growth. Now turning to Slide 24. I mean our capital positions, they remain very strong in both countries. We are well above our regulatory limits in both countries. And exactly the strong capital levels, if you go to Slide 25, turn to that, will allow us to continue returning capital to our shareholders. We repaid GEL 1.75 in Q3. That brings our overall distribution to GEL 5 this year. and that combined with GEL 75 million buybacks that's still ongoing, we are more than halfway through. So on this note, I would like to thank you, and now we can deep dive more into our TBC Uzbekistan business. Oliver, please go ahead. Oliver Hughes: Thanks, Giorgi. Yes. So I'm going to give you a bit more color on what's happening in Uzbekistan and what's been happening over the last 3 quarters. As you know, it's been a mixed year for TBC Uzbekistan in 2025 with lots of positive developments happening operationally, but a fair number of challenges as well. This sometimes happens in business and the important thing is how the team reacts to these situations when they arise. I'll start with the positives. We've scaled our business considerably and launched new products. Our loan book has grown by over 90% year-on-year and isn't far off $1 billion. We are now a top 10 retail bank in Uzbekistan in both lending and deposits. We've made great progress in building one of the best consumer daily banking offerings in the market. We already have over 700,000 issued and 0.5 million funded Salom cards, which is our flagman debit card. We've launched business lending, which already accounts for above 10% of our loan book and digital insurance with over 300,000 policies issued. We've announced 2 great M&A deals, as Vakhtang mentioned, a partnership with BILLZ, which gives us access to a huge network of retailers and the acquisition of a majority stake in OLX, the country's largest online classifieds, which will unlock powerful synergies with our own financial services platform. These deals help us deepen our relationships with our B2B and B2C customers. We've made great progress in building an AI-powered bank with our proprietary AI stack and our own AI voice assistant coming soon. We more than doubled our gross revenue year-on-year in 9 months to $350 million. And despite investing heavily in all aspects of the business, we've also increased earnings by almost 30% year-on-year with close to 20% ROE, which isn't bad for a digital bank that has just celebrated its fifth birthday. We've also had several challenges, which I will describe in brief here. In quarter 1, we were hit by an external market-wide fraud. The P&L impact was $9 million. We owned it, dealt with it in quarter 1 by provisioning the loss and moved on. In quarter 2, our cost of risk increased mainly from tests that we've been conducting to find new segments and channels in which to grow our business going forward. There were also some scaling-related issues in collections. We made adjustments to our operations, took a more conservative approach to underwriting, and we believe that our credit risks have now more or less topped out. The loans that we booked were overwhelmingly NPV positive, but we understand that optics are also important. Also in quarter 2, the regulator tightened the KYC requirements for payments platforms, meaning that in effect, we had to reregister all of our 3.9 million Payme MAU. Not only did this cause a dip in MAU, which is now recovering, it also led to a slowdown in payments volumes and fee and commissions income. In quarter 3, in line with the regulator's agenda of pivoting the national loan book towards SME, we had to slow down our disbursement of micro loans or unsecured personal loans. This, in turn, has had an impact on cost of risk because the front book is not growing as planned, which means that the risk in the back book is not being diluted as quickly as anticipated. This also hit our revenue and in turn, our bottom line. As we have been highlighting, retail lending and particularly unsecured consumer lending is at a very early stage of development in Uzbekistan. Total retail loans to GDP are just 12%, while unsecured consumer loans to GDP are just 4%, albeit this has been the fastest-growing segment over the last past couple of years. Back at the end of last year, we were working under the assumption that consumer-facing products, including unsecured consumer loans of different types, will be a key driver of our portfolio growth for the next few years. However, since the beginning of this year, there has been a major change in the regulatory agenda in favor of promoting SME lending whilst becoming increasingly negative towards consumer loans, in particular, micro loans, which are perceived as inflationary and something that the population is not yet ready to adopt widely. After the shift in the Central Bank's agenda, a fairly rapid but nonetheless staged market rebalancing from consumer lending to SME lending was implemented through the announcement of market-wide portfolio caps to be introduced by the 1st of January 2029, as we discussed on our first quarter call. Over the past couple of months, the regulators requested that we accelerate our disbursement of business loans. In addition, the CBU has recently proposed new risk weights on unsecured consumer loans. These risk weights are based on the portfolio share of unsecured consumer loans, micro loans, credit cards and overdrafts and will be introduced from the 1st of July 2026. According to the CBU letter, which could still be subject to change. If a bank's share of micro loans or credit cards is higher than 25%, the risk weights applied to that part of the unsecured consumer loan book will vary from 150% to 250% depending on the share of these unsecured loans in the total loan book. As things stand, we expect to have 50% to 75% share of micro loans in the loan portfolio. It now stands at 79%, which would imply 200% risk weighting for the micro loan book. If introduced in the current form, this would, a, have a negative impact on our capital ratios and b, worsen the economics of micro loans. So this is the regulatory environment in which we are working. As you know, in response to the CBU's introduction of portfolio caps and strong desire for the market to recalibrate, we accelerated the launch of SME lending in April. This now accounts for around 15% of our total loan book, and we are ramping up this business. However, it is now clear that we will have to further pivot away from unsecured consumer lending to business lending and secured lending. As Vakhtang covered earlier on this call, this all means that while we are on track to hit our 5 million MAU guidance and 80% loan CAGR targets, we're going to be below the highly ambitious net profit guidance we set ourselves back in 2023, for which I apologize. As you know, we will be holding a Strategy Day in late February, on which we will update the market on our longer-term outlook, but it feels appropriate to outline some of our very initial thinking on 2026. First of all, we still see massive long-term potential in Uzbekistan as we continue to build out the largest digital banking ecosystem in Central Asia. As previously communicated, the SME banking opportunity is huge in Uzbekistan. This will be a key business priority in 2026 and beyond, providing us with new sources of growth as well as aligning us with the priorities of the government and the regulator. We will look to move into new business lines in secured lending in 2026. We have the expertise and platforms to do this, and it provides another large opportunity in the country. We will continue to grow our loan book in segments of unsecured lending, such as credit cards and BNPL or installment loans. We have already issued 85,000 Osmon credit cards, accounting for 5% of our loan book. In 2026 and beyond, we hope that Salom card will become the go-to product for affluent and mass affluent customers to conduct their daily banking. We will further integrate our 2-sided ecosystem, connecting our 22 million registered users on the one side with our exposure to tens of thousands of enterprises on the other. In 2026, we will integrate our CRM and loyalty platforms and start leveraging the opportunities created by our acquisitions of BILLZ and OLX. We have a strong, largely proprietary tech platform, including our speech tech platform on the base of which we're launching a range of interesting AI-driven services over the coming months, including first and foremost, our own in-app voice assistant called Lola. Last but not least, we have an amazing experienced and ideas-driven team that has been through many different situations in many different markets. We know how to build good product and [ CX ], which is exactly what we will continue to do. So thank you. And now over to Q&A. Andrew Keeley: Thanks very much all of you for the presentation. Okay. So we can start with questions. I think first up is Piers Brown from Investec. Piers Brown: Can you hear me okay? Andrew Keeley: Yes, we can. Piers Brown: Yes. So I have one on Uzbekistan and one on Georgia. So this is probably one for Oliver. Thanks for all of the background information on the risk rating changes, Oliver. That was very helpful. I'm just thinking in terms of the -- I mean, you mentioned this increase up to, I think you said 200% on the micro loans. How impactful is that for your capital ratio in Uzbekistan? And I guess the question is, do you have sufficient capital in place currently to absorb that level of risk weighting increase? And then allied to that, how likely is it these caps may be amended or the risk rating proposals may be amended -- and are you still covering your cost of capital at that level of risk rating? So those are my questions on Uzbekistan. I don't know should I ask the question on Georgia? Would you like to address that first and then. Oliver Hughes: Let me answer the Uzbek piece first, yes. So thanks for the question Piers. So the first question was on the impact on the capital ratio of the proposed risk weights, which we have been notified will come into effect from the 1st of July next year. And the answer is we have capital to cover it. So the way this works is that it's based on the share in the loan portfolio, in the loan book. So our share of micro loans, which is obviously -- so these are unsecured personal loans or cash loans is going down because our share of other products is going up, first and foremost, SME, which is growing at a clip. And we will be accelerating that. We're gathering data, we're getting better at it. We're learning how to do the job, which will bring our share of micro loans as they call in Uzbekistan, down below 75%. And depending on how it goes, maybe below 50%, maybe not by the 1st of July because that's only in 7, 8 months, but certainly not long thereafter. So there will be a reduction in our capital adequacy ratio for a period of time. But as our share of micro loans goes down, then it will reset. So there will be a period of time from the 1st of July, let's say, for a few months, while we're still above 50%. But then micro loans will go below 50% and our capital adequacy ratio will go up organically as the risk weights run off. So that's how you should think about this. We don't need to inject additional capital. So that is on the risk weights. And just maybe another piece of relevant information is that 1.5 years or so ago, the risk weights were 200%. They were reduced down to the current level, which is around 100% based on PTI. But now the Central Bank with its revised agenda in terms of driving SME and reducing consumer lending or slowing the pace of consumer lending growth across the system has now put them basically back up to where they were. But if we have a very high share, i.e. 75% or more than it's up to 250%. So that's the [ live of land ]. Could these be amended further? I think it's unlikely because these have been communicated, but you can see that the Central Bank in Uzbekistan is -- has a very firm stance on where it wants to see consumer lending and what it wants to see happening with SME lending. So I can't rule it out completely, but I think it's unlikely. Andrew Keeley: Piers, do you want to ask on Georgia? Piers Brown: No thanks Oliver, that's very helpful. Yes. So on Georgia, I guess this is for Giorgi. I think you mentioned a NIM sort of guidance level or realistic level of somewhere in the 5 highs or maybe 6%. I'd just be interested in the components of that because I guess if I look at the Georgia business, the portfolio growth is coming mostly now in the very strong growth in the fast consumer loans. So I guess structurally, that's shifting the margin higher. But just if you could give some insights on to the components of NIM over the next year or so, that would be very helpful. Giorgi Megrelishvili: Yes. Thanks Piers. Good question. So there are different dynamics from currency [indiscernible] from Lari and FX. If you consider Lari over time, we are still in quantity easing cycle, we do expect the [ FX ]rate to come down. Maybe it's paused a bit. So that probably will put additional pressure. However, it's more than compensated, as you rightly mentioned, like the change of our portfolio structure. That's number one. Also change of our FX composition. Now our Lari is going up. We have more focus on Lari loans that also have higher yields. On FX side, we do also see the benchmark rates coming down. That's maybe marginally negative. However, we also -- like on the FX, we have our wholesale funding more on a floating basis. Therefore, we are more hedged on that side. So overall, that's what I saying that taking into consideration all these components, growth and our plus, we do expect to remain high, as I said, high 5s, like around 6% level. Andrew Keeley: Okay. Next up, we have Stuart from Peel Hunt. Stuart Duncan: Hopefully, you can hear me. I've got 2 questions as well, actually almost similar to Piers. The first one on Georgia. Giorgi, you sort of mentioned about some of the pressures on the fee and commission income. I'd just be interested to know whether these trends continue and persist or whether at some point you start to see some sort of reversal and you start to see growth in that line again? And then the second question is on Uzbekistan for Oliver. And you've obviously spent quite a bit of time talking about some of the regulatory interventions, a fairly detailed regulatory agenda. I'd just be interested if there's any sort of other potential implications you see over the next 12 months or so from a regulator, which feels like it's doing quite a detailed work around the sector. Giorgi Megrelishvili: Probably fee and commission income is the outcome of our strategy, and I hand back to Vakhtang to kind of elaborate more wider. But generally, what I can say, our focus on top line growth given, we do expect our top line like gross NII and net fee and commission income combined to grow at healthy levels, maybe mid-teens, but there will be a composition change for which I'll pass to Vakhtang to elaborate more. Vakhtang Butskhrikidze: Yes. As you understand, main drivers of our fee and commission income, Georgia, is the debit cards and after that coming other type of income. So on that side, you know that at the end of the last year, we began to issue new type of the TBC card, and we are doing very well. So until today, we already issued more than 800,000 TBC cards and this is a very good tool for us to attract and to bring new customers on the one hand, new customers to TBC or passive customers who did not use historically our debit cards. So on that side, we are looking that it's a good tool for us to bring them and this TBC card is mainly has a free of charge on some of the operations. But indirectly, it's very valuable for us because a lot of consumer loans or the credit cards -- by the way, we are doing very well for the mortgages, other type of the loans. It's a very tool just to bring it up to us to offer different kind of the products. And to summarize my answer, so we will continue to issue more and more TBC cards, which is very important to bring new customers. And we want to build on that to sell more different kind of the products, especially where we have a high profitability such as credit cards or consumer loans to these new customers. And to summarize, so probably we could not see growth in fee and commission income during 2026, but indirectly, it will influence our high growth in most profitable segments such as credit cards, consumer lands -- loans. And indirectly, it means that we will increase materially our net interest income in 2026. Oliver Hughes: And taking your question on Uzbekistan, could there be more regulatory changes, Stuart? So the answer is obviously, yes. So I would preface my answer by saying that the regulatory framework in Uzbekistan is pretty well formed as we've been saying a lot over the years. So on the consumer lending side, they have risk weights, PTI regulation, rate caps, ban on FX lending to consumer. So I think it's unlikely that major new changes to the regulatory framework are going to be introduced. But it's clear that the regulator has particular objectives that it's following that it's trying to achieve in the near to medium term. So it's trying to change the shape of the national loan book and push SME lending, get banks to focus their efforts on pushing SME lending as opposed to unsecured consumer lending. And part of this is inflation targets. Part of it is making sure that the national loan book is balanced in the way that the Central Bank wants to see. So if they see the consumer lending growth and SME lending growth are not in the proportions that they want, then it's possible they will do more. But right now, we can't tell you what else they might do given that there's already quite a lot being done. So we'll keep you informed, obviously. Andrew Keeley: So we have next up from Simon at Citi. Simon Nellis: Maybe just one more for Oliver. I mean the risk cost has remained elevated. How much of this is kind of testing your kind of micro loan client segments? And how much of it is testing the SME? And I guess going forward, if you have to accelerate faster in SME, is it fair to assume that continued testing is going to lead to continued high risk costs for quite some time? Oliver Hughes: So our loan book is predominantly unsecured consumer loans. It's mainly what they call micro loans, which is unsecured personal loans. And there that's as a result of the tests predominantly, as we said earlier. Obviously, there's the fraud hit that we took in quarter 1, but it's mainly tests, which matured a little bit of operational stuff in quarter 2 and quarter 3. Our SME loan book is growing from 0 fairly quickly. And there is definitely elevated cost of risk, but that's not what you see coming through the numbers there because it has very little effect because it's a small share of the loan book. As we change the proportions going forward, obviously, we have to do a lot more testing to understand what lies where in micro business, small business and let's say, the larger end of SMEs who will be tackling predominantly through bills. We will obviously try and manage risk in a way that doesn't affect the numbers. We think that we'll remain -- in the corridor that we communicated earlier, 7% to 10%. Certainly, the consumer lending book has topped out, and we think that will start coming down as we go into the beginning of next year. But in SME, depending on the pace of growth, obviously, you'll see some risk coming through that. So I can't guide you in any numerical way at the moment, but we will have to keep on top of that. Andrew Keeley: Thank you, Simon. There's a couple of questions that come through on the chat. One is about coming back to Uzbekistan, I think you've more or less answered on the kind of cost of risk about kind of normalized cost of risk, but also should we expect revisions to longer-term targets after the challenges that the bank has faced in Uzbekistan? And then a question on Georgia was just why was Q-on-Q growth -- loan growth in Georgia so muted. We've kind of covered that already, but you may want to add some more. Giorgi Megrelishvili: Maybe I'll answer the third question about the growth. So in Georgian operation in our CIB business in corporate business, we have 2 big one-offs and that influenced our growth. Others, if we extract the one-offs from the corporate business, we are following the growth of the total bank, especially for us, very important that we are winning market share in the consumer loans and credit. Oliver Hughes: And on the Uzbekistan question about longer-term outlook. So we reiterate our confidence in the potential in Uzbekistan and our ability to capture that potential medium to long term. But as you can see, right now, we've got a lot of moving parts. And so it's very difficult to give any meaningful guidance until things settle down into some kind of more predictable pattern, which we hope will happen in the next few months. So by the time we get to February next year on the Strategy Day, we hope the dust will have settled, and we'll be able to give some more meaningful longer-term projections. But right now, it's moving around. Andrew Keeley: And Oliver, maybe just another one for you about the micro loans and whether we can classify micro loans sort of maybe to very small businesses as SME kind of loans to help kind of grow the share of the SME loan book that way? Oliver Hughes: Sure. And it's a great question, absolutely the right question. So we have so far 2 lines, let's call them, business lines in SME. So there's, if you like, a true origination of SMEs who are new to bank. And that's a business we're learning. It's at the moment, it's working capital loans. We want to try and test secured loans to SMEs, and we'll start doing other stuff as well as we go through the year next year. And then there's what you can maybe term as kind of business consumer or consumer business loans, which is your question, where generally in an unsecured mass market consumer loan book, you'll have 25% to 30% of those customers wearing a consumer hat but actually borrowing for business purposes. And that will be a big driver of our SME lending growth next year. So basically, we're hiving off some of the cash loan or the ICL business and reclassifying it as SME because these are either individual entrepreneurs or self-employed customers who indicate that the loan they're taking for business purposes, which means that they will be classified as SME from Central Bank reporting purposes. Andrew Keeley: Thanks, Oliver. Simon has his hand raised. I don't know if that was -- Simon, do you have another question? Simon Nellis: Yes, I do actually. Just I was hoping you could elaborate a bit on the insurance business in Uzbekistan. You've booked some revenue there this quarter. Is that expected to grow nicely going forward? I assume it is. And then maybe just on the Georgian business, I think the FX revenues went up quite nicely in the quarter. If you could comment on that and how sustainable that is? Oliver Hughes: Would you like to take Georgia first? Giorgi Megrelishvili: Okay. I was [indiscernible] but I can take. So business, as I mentioned, like generally, margins this year went down significantly. The Lari has been very stable. It's just seasonality. So if you look how the flows are. So it has been higher flows during Q3, also a bit higher margins. Generally, what we can say is that 9 months is like truly conservative run rate for us on FX because with the subdued margins, we still delivered that level that as I mentioned during my call was flat compared to 9 months last year. Vakhtang Butskhrikidze: But in addition to that, what is Giorgi saying, we have very comfortable level of growth of the transactions in FX. But as Giorgi said, margins went down dramatically compared to 2024. And as you know, we have a very stable exchange rate during this year. So that influenced the FX. Otherwise, the transactions in the number and the volumes of transactions we are doing very well. Oliver Hughes: And very briefly on insurance, TVC, [indiscernible], which is the word for insurance. It's new. So we launched it basically in March, April this year. It's captive insurance. So basically, these are products which we are selling to our existing customer base, credit linked, but we have ideas, obviously, to add new insurance products and sell them to our existing customer base, which is obviously very large in Uzbekistan and growing. And then at some point, we will get around to selling insurance products into the market, which are not captive insurance products. But at the moment, that's where we're starting. Simon Nellis: So that's credit protection primarily. Yes. Great. And who's your partner there? Oliver Hughes: So it's our in group. Simon Nellis: In-house. Okay. Andrew Keeley: Thanks very much, Simon. Sam, are there any calls on the phone lines? Operator: There are not, no. Andrew Keeley: No. Okay. We don't have any other questions at this time. Yes, nothing coming through. So I'd just say thank you all very much for joining this call. As always, we are around and available to answer any follow-up questions that you have. And I'm sure we'll be meeting and catching up over the coming months, and we'll be publishing our full year numbers in February next year. So thank you very much, and goodbye. Giorgi Megrelishvili: Thank you very much. Operator: This concludes today's webinar. Thank you all for joining. You will now be disconnected. Have a great day.
Operator: Thank you very much. Good morning. This is the Chorus Call conference operator. Welcome, and thank you for joining the MPS Group Third Quarter and 9 Months 2025 Results Presentation. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Luigi Lovaglio, Chief Executive Officer and General Manager. Please go ahead, sir. Luigi Lovaglio: Good morning, everyone. Thank you for joining us today for the presentation of our third quarter and 9 months 2025 financial results. This is a landmark moment for Monte Paschi. At the end of September, we successfully completed the acquisition of Mediobanca, a strategic move we have always believed in. And 86.3% of Mediobanca shareholders confirm that belief by tendering their shares. That's a clear endorsement of the industrial strength and the long-term value of this combination from both core shareholders and from Italian and international institutional investors. So first, let me thank all of our shareholders for their trust and confidence in our vision and in our ability to execute. I also want to thank our people. Our teams at Monte Paschi have stayed laser-focused through intense months, and they continue to serve clients, deliver strong commercial momentum and produce another solid quarter. They showed what that commitment to performance and integrity looks like. I also want to acknowledge our colleagues at Mediobanca as well. Their results this quarter demonstrate the resilience of their business model and the strength of their client relationship. That is exactly the kind of excellence we want to build with. Finally, thanks to our clients. Your continued trust is the foundation of everything we do. Together, shareholders, employees, clients, we made this possible. With Mediobanca, we have created a new competitive force in Italian banking. This combination brings together strong brands with deep client loyalty, exceptional professionals across both organizations, complementary business strength across Commercial Banking, Wealth Management, Corporate & Investment Banking, Consumer Finance and cutting-edge and scalable technology. This is an accretive combination financially, strategically and commercially. It accelerates growth and value creation. Our combination process with Mediobanca with more than 20 ongoing work streams is structured on track and is going smoothly with discipline. And I'm pleased to start working closely with Vittorio Grilli and Alessandro Melzi d'Eril, who will be key in ensuring that together, we reach new heights as an integral part of this project. We will present our group business plan in the first quarter of next year, that will be the moment to outline the full strategic and financial road map and potential power of the combined group. In the meantime, as you can see from the third quarter results, Monte Paschi continues to perform very well, thanks to the strength of our franchise and disciplined cost management. I am especially pleased to note that our people were not distracted by the Mediobanca transaction. Across the organization, they were able to stay focused and deliver on their business target to achieve profitable growth. We reached net profit at about EUR 1.4 billion, up by 17.5%, excluding net taxes. Our balance sheet as a consequence of the combination with Mediobanca continues to be stronger and stronger. We maintain a very solid level of core Tier 1 at 16.9%, including the preliminary impact of Mediobanca. This is higher than we expected when we announced the transaction in January. For the 2025 full year, we are setting new guidance on pretax profit. We now expect to well exceed EUR 1.6 billion. Let's move on to the 9-month results, which testify our capability to build sustainable value and deliver high returns to our shareholders. We closed the first 9 months with a net profit of EUR 1.366 billion, up by 17.5% year-on-year, excluding the positive net taxes in both periods, sustained by the solid growth fees, thanks to the clear focus on commercial activity. Third quarter net profit was EUR 474 million, up by 16.5% compared to the third quarter last year, confirming the solid progression while the quarterly comparison quarter-on-quarter was affected by the typical third quarter seasonality on revenues, while confirming a high level of profitability. Net operating profit increased by 3.7% year-on-year, reaching about EUR 1.4 billion in 9 months, thanks to resilient revenue sustained by fees, offsetting rate impact on net interest income almost totally, operating costs under control and improved cost of risk. Third quarter net operating profit at EUR 453 million, up by 2.4% year-on-year and decreasing by 7.3% quarter-on-quarter due to the seasonality. After 9 months, gross operating profit reached EUR 1.643 billion, almost stable year-on-year, thanks to the resilient revenues in a declining interest rate scenario sustained by fee income and cost well under control. Third quarter gross operating profit at EUR 532 million. 9-month cost-income ratio at 46%, stable year-on-year. Strong progression on bank's commercial performance in 9 months driven by the clear focus of Monte Paschi's franchise on key strategic areas. Wealth Management with gross inflow close to EUR 13 billion, up by 18% year-on-year. We granted mortgages to families worth EUR 4.8 billion, more than doubling last year volumes. New consumer loan showed a 17% increase compared to the same period of last year. These are tangible signs of bank deeply connected to its client and to the real economy. Our cost of risk dropped to 42 basis points in 9 months from 53 basis points last year. Gross NPE ratio 3.7% and net NPE ratio at 2% and NPE coverage at 48.7%. The combination with Mediobanca will lead to a further enforcement of the balance sheet structure of the new group. With a sound liquidity position with counterbalancing capacity above EUR 53 billion. Core Tier 1 fully loaded at a solid level of 16.9% including the preliminary impact of Mediobanca transaction, confirming best-in-class capital buffer and providing strategic flexibility. With the successful completion of Mediobanca tender offer, we are opening a new chapter in 553 years history of Monte Paschi. The 86.3% acceptance gives us clear governance from day 1 and the strategic flexibility to move quickly in implementing the combined industrial project. The new Mediobanca Board appointed on October 28 marks the start of the new phase of development for the combined group. But before we move forward, a warm welcome to our Mediobanca colleagues as we begin this new journey together. We are now one team, building the future. Now on third quarter and 9 months results. As I mentioned, net profit for the first 9 months reached EUR 1.366 billion, up by 17% year-on-year, excluding the positive net tax in both periods. We reported as well a solid quarter contribution for EUR 474 million, up by 16.5% year-on-year. Net operating profit after 9 months amounted to EUR 1.389 billion, showing a positive trend, growing 3.7% year-on-year, with resilient revenues, sustained by fee income. The net operating profit in the third quarter amounted to EUR 453 million, showing a 2.4% increase versus a year ago. Now let's move on to gross operating profit. We reached EUR 532 million in this quarter, showing resilience year-on-year. And cost/income ratio at 47%, basically stable year-on-year. Gross operating profit after 9 months reached EUR 1.643 billion, almost stable year-on-year, thanks to resilient revenues, again, driven by net fee income. All this confirms our disciplined approach to both costs and revenue generation, ensuring steady performance. For the first 9 months of 2025, we maintained the cost/income at 46%. Now I think it's important to underline the strong commercial performance, as you can see, after 9 months in this slide. Total commercial savings crossed EUR 174 billion and were higher by almost EUR 10 billion since September 2024. And Wealth Management gross inflows amounted to almost EUR 13 billion in 9 months, up by 18% year-on-year. new retail mortgages granted in 9 months reached EUR 4.8 billion, 2.2x compared to 9 months of 2024. As well, new Consumer Finance flows amounted to almost EUR 1 billion with a 17% year-on-year increase. I believe these are a confirmation of capability and effectiveness of our commercial network. And I would like once again to thank you, my colleagues, for the excellent results achieved. Now let's move on to the net interest income evolution. In the third quarter, it amounted to EUR 544 million, down by 1.3% quarter-on-quarter, confirming a certain resilience also in terms of overall spread. In the first 9 month of 2025, net interest income reached EUR 1.638 billion with an early trend in line with the guidance given to the market at the beginning of the year. Net loans dynamic in 2025 has been strong with the growth in retail and small business component by almost EUR 4 billion with a positive trend also quarter-on-quarter despite seasonality. The same performance we are observing in total savings with total commercial savings in September crossing the level of EUR 174 billion and are up by more than EUR 3 billion quarter-on-quarter, supporting an increase year-on-year, exceeding EUR 10 billion, with EUR 7 billion from the beginning of the year. Now on portfolio govies. As usual, this is stable, almost stable with a small decrease in fair value through OCI and with credit spread and sensitivity confirmed a very low level and slightly longer duration, reflecting reinvestment of maturities. Now let's move on to fees and commission income. If we look at the quarter, we reported an amount of EUR 382 million with a solid 7.4% increase versus third quarter 2024, with an excellent performance on the Wealth Management component, up by 10.6% year-on-year. And the positive dynamic also on the Commercial Banking component, up by 4.5% year-on-year. The quarterly evolution is affected, as I was already mentioning, by the typical third quarter seasonality on both Wealth Management and Commercial Banking Fees. If you look at the performance after 9 months, you can see that thanks to the excellent work of our commercial network, the total fees reached the level of EUR 1.185 billion, up by 8.5% year-on-year, with Wealth Management and Advisory Fees up by almost 13% year-on-year. And the positive dynamic also in Commercial Banking Fees increased by 4.4%. In the third quarter, operating costs amounted to EUR 468 million and were marginally lower quarter-on-quarter, driven by non-HR component decrease. Costs were flat year-on-year with the increase in HR costs related to labor contract renewal and increase in variable remuneration pool was completely offset by the effective management of non-HR costs. After 9 months, total operating costs amounted to EUR 1.411 billion and were higher by 1.4% year-on-year. As I mentioned, again, the growth was driven by the HR component due to the labor contract renewal and the variable part of the remuneration. And part of this increase was offset by effective cost management of non-HR costs. Now let's move to asset quality. The stock of nonperforming decreased to EUR 3.1 billion, reflecting a reduction of EUR 400 million in the quarter, mainly due to the sale of NPE portfolio completed in August. The gross NPE ratio is 3.7%, and the net NPE ratio at 2%, in line with the business plan targets. Cost of risk for 9 months was 42 bps, down versus 53 bps of full year 2024, confirming the good status of our asset quality. The breakdown on NPE stock shows a low incidence of bad loans on total NPE at about 30% (sic) [36%], and that's why this portion -- this proportion should be considered in analyzing the coverage that anyway is a very good level of 48.7%. You can see from the slide the solid liquidity position of Monte Paschi, leading to a more diversified funding structure and a lower ECB funding weight on total liabilities. Moving on capital. I believe that this is a very interesting set of figures. The strong capital position of the bank is confirmed also in this quarter. We have common equity Tier 1 ratio fully loaded at 16.9%, already reflecting the preliminary impact of the Mediobanca transaction. This ratio incorporates the net profit of the period and is calculated net of dividend, assuming 100% payout ratio on net profit. As you can see, the Mediobanca transaction is impacting around 2 percentage points, in line with our preliminary estimates. It is worth mentioning that we are not fully incorporating the purchase price allocation. As for example, we have not yet factored the valuation of financial asset and liability fair value. The capital ratio are, therefore, very strong with a large capital buffer compared to regulatory requirements and also our management target that we were indicating at the level of 13%, and that gives us strategic flexibility going forward. Now I would like to spend just a few words on the results that were already published of Mediobanca. I think it's important to underline the positive trend and the potential that is deriving from the combination. The commercial momentum remains solid with EUR 2.5 billion on net new money, robust merger acquisition activity in Corporate & Investment Bank division and EUR 2.3 billion of New Consumer Finance volumes, very remarkable results. The diversification of the business has supported resilient revenues even in a challenging macroeconomic environment. Now let's again go through some key important message regarding our combination. So we have really transformed into a new leader in Italian banking with the scale and credibility to compete at the European level. This transaction was driven by a clear conviction that Italy deserves a stronger, more innovative, more diversified financial institution, one capable of supporting families, SMEs, and large corporates across the country. On this slide, you see some of the key financial metrics of the combined group, EUR 8 billion in pro forma revenues and around EUR 3 billion in adjusted net profit. I would like again to underline the strong industrial rationale of our project. From the get-go, the industrial rationale has been clear and consistent. Monte Paschi and Mediobanca are different and therefore, complementary. Together, we combine leading capabilities in Retail & Commercial Banking, Consumer Finance, Asset Gathering and Wealth Management, Private Banking, Corporate & Investment Banking. The result is a more resilient, diversified and innovative group with a balanced source of profitability and multiple engines to invest, to grow and to better serve clients. On this slide, you can see an overview of our combined operating model and the strong industrial merits of the transaction in each business line. In Retail & Consumer Finance, we bring together Monte Paschi nationwide network encompass best-in-class product and risk expertise. In wealth and Private Banking, we now operate with greater scale and higher advisory capability, spanning Monte Paschi Premium, Banca Widiba, Mediobanca Premier, Mediobanca Private Banking Company, Compagnie Monégasque de Banque, Monte Paschi Family Office. This will allow the group to deliver more sophisticated solutions and attract high-value clients. And in Corporate and Investment Banking, our clients benefit from a stronger balance sheet, a deep adviser expertise in Italy and abroad through Messier Maris and Arma Partners. Insurance and Asset Management and stability -- add stability and optionality, diversifying our revenue base and supporting loan lifetime value creation. The combination creates a more resilient, diversified and innovative group. Then on the slide, the figures that you see represent a preliminary illustration of the pro forma business line on the basis of historical numbers and not including synergies. From revenues mix composition, asset gathering and Wealth Management represent almost 30% of the total revenues. Retail & Commercial Banking stands around 31%. Consumer Finance, 17%. And Corporate, Investment Banking, including the lending business for Mediobanca and Monte Paschi, large corporates represent almost 15%. While the Generali insurance contribution represents 7%. This is a first snapshot of what the combined entity will look once that we have complete our project. And we are working with our colleagues at Mediobanca to further optimize the target business model. Clearly, we will provide additional information and all details in the new business plan. We began the combination process immediately. We structured work streams and join teams across both organizations coordinated through regular cross-functional governance. The plan covers all key business and support functions with clear accountability, senior leadership oversight and the focus on maintaining business continuity and exceptional client service throughout. As a part of our integration strategy, a dedicated HR work stream has been established, focused on retaining key managerial talent. This initiative reflects our deep commitment to preserving and enhancing brand value during this transformative phase. We want to ensure continuity, safeguard institutional knowledge and support long-term leadership stability. Our objective is to build a solid, efficient operating model step-by-step, with disciplined project management and transparent communication. A detailed analysis, for example, is already completed on IT architectures, operating models and development priority, aiming at enhancing, the best solution for each area and planned IT investment for digitalization to ensure resilience and efficiency. And this is just an example of how the work is progressing at full speed. The EUR 700 million industrial synergies target we communicated is now in this preliminary assessment, reconfirmed on the basis of this work we are performing. Mediobanca remains a distinctive and highly valuable franchise within the group with its brand, client relationship and professional capability preserved and strengthened. The ambition is to unlock new opportunities for our growth across both organizations. The group will increase productivity, expand its product and service offering, invest in technology and digitalization and continue to attract and retain top talent. So Mediobanca is an accretive combination from all perspectives. Return on tangible is expected around 14%. We expected to confirm our payout ratio of 100%, and the capital position remain best-in-class in Europe, providing strategic flexibility. Now a short update about the process and indicative timeline. I have to say that our approach is quite methodical, step-by-step and transparent. All key milestones have been met, demonstrating disciplined execution and strong project management. In the first quarter of next year, we will present a combined business plan that reflects the full potential of our group. We will hold the Capital Market Day to present it to the market. Now going back to Monte Paschi stand-alone. Again, we reported another solid quarter with almost EUR 1.4 billion after 9 months, strong commercial performance, strong capital position with core Tier 1 at 16.9%. We are further improving our 2025 full year guidance with the pretax profit expected to be well above EUR 1.6 billion. The capital position is expected to be about 16% at the end of the year, a very sound level, which provides confidence in ensuring a 100% payout for the coming years. Monte Paschi plus Mediobanca creates a third competitive force in the Italian bank industry with potential to increase its European scale. We have organized teams with people from Monte Paschi and Mediobanca working together with a common strategic vision and spirit of collaboration, each bringing their skills, know-how and sense of responsibility to bear. The values are aligned around integrity, respect, customer focus and accountability. Now it is clear that together, we are capable of making things happen. Our goal is clear and within reach, to play a leading role in Italian and European banking with vision and the desire to create sustainable value for all our stakeholders. Thank you very much, and we are ready to answer to your question. Operator: [Operator Instructions] The first question comes from Antonio Reale of Bank of America. Antonio Reale: It's Antonio from Bank of America. Just a couple of questions from my side, please. The first one on distribution. Your capital ratio at 16.9%, as you said, incorporates the new dividend policy of up to 100% on net profit, which is a big change, I think, for you and as you were not previously paying the tax reassessment out. Now does this mean that you're now looking to pay out on a reported net profit basis, so including potential DTA write-ups and similar? Just trying to get a sense and better understand what this means for your dividend per share going forward. I remember during the tender offer, I think you mentioned that you wanted to try not to deviate too much from the DPS of last year. And related to that, if I may, pretty much if I look at all your peers, they pay dividends on an interim basis. I think it was the case also for Mediobanca. Do you think it's something you would look to consider for 2026 fiscal year? That's my first question. And then my second one is really trying to get a sense of how you're thinking about the reorganization of the new businesses that you plan to sort of reorganize following the deal with Mediobanca, both from a divisional and a legal entity standpoint, if I may. Your Slides 27 and 28, I think, show very clearly how -- well, in one go, you bought back all the product factories that Monte Paschi had lost over the years and more. So the question is, how do you plan to integrate all these businesses and at the same time, monetize Mediobanca's strong brand and achieve the synergies that you targeted? Luigi Lovaglio: Okay. I will try to be very clear. So yes, we confirmed that we expect to distribute for this year a dividend with the dividend per share, broadly in line with the one of previous year, ensuring to our shareholders yield among the highest in Europe. And afterwards, we are committed to deliver a growing DPS while preserving our strong capital position on which we want to leverage for industrial projects and additional remuneration for our shareholders. As far as interim dividend, it's clear that is one of the options we are -- we will consider, and we will be very precise once that -- we are going to present the business plan in the first quarter next year. Now as I was mentioning regarding the integration, yes, in our project, we were quite clear saying that we would like Mediobanca to be focused on Corporate & Investment Banking and high-level Private Banking. Let's simplify, as we believe there is a strong competency there, excellent capability in dealing with customer and a huge potential on which we can leverage in order to enrich our total level of profitability. And I have to say that from these few days where we are already working together, I feel even more comfortable that this is the right direction because we can create and build up a really unique potential additional powerful institution that will support the Italian economy with the competencies in terms of advisory capability to which we are going to add the balance sheet of Monte Paschi. On Private Banking, Mediobanca is a top player. Strong and excellent professional team is over there. And I strongly believe we have room for significantly increasing our total asset and our penetration in the overall Italian landscape. Now it's clear that the approach we want to use in order to be very effective is already from the day 1, a sort of divisional approach. And already, we are setting our overall way in managing this opportunity in this way. Then we are going to consider, again, once that we have a clear view about the business plan, how we can optimize in terms of also legal structure, this exercise. Clearly, Mediobanca will be a legal entity with its brand because it's too important to preserve the value and the peculiarities that Mediobanca has that are, in some way, different necessarily from Commercial Banking. And we want to leverage on this diversity in order to increase the value and to be a player that is unique in the Italian landscape for the balanced approach we can have on the market compared to other big players. Antonio Reale: Very clear. Just maybe on the interim dividend, if I may, just follow up on that as part of the question. I don't know if you have any early thoughts on that. Andrea Maffezzoni: Antonio, Andrea speaking. Can you share again the follow-up question because we missed it? Antonio Reale: It was just, if you had any early thoughts on your interim dividend and observations.. Operator: Mr. Reale, we cannot hear you. Can you please speak closer to the phone? Luigi Lovaglio: I think I mentioned, right, that is an optionality we are going to consider with the business plan. When we are going to present, we will be clear on that. But clearly, we have a positive attitude towards the opportunity to have an interim dividend. Operator: The next question is from Marco Nicolai of Jefferies. Marco Nicolai: First question on -- again, on the DPS. Your comments about this year DPS broadly in line with last year, and growing DPS from this level. I'm just trying to understand the moving parts for the 2026 DPS because clearly, this year with the big positive one-off you will have at the end of the year in terms of DTA write-up, you can pay pretty much -- if I look at the amount of net income that will bring, you will be able to pay pretty much the DPS you want. But for 2026, I'm just trying to understand the moving parts there because the DPS you had in 2024 seems relatively high. So I was just trying to understand in terms of synergies, what do you expect, already coming through in '26, if any? And also how you plan to split the restructuring costs between this year and next year and in general, all the moving parts that can bring us to DPS in '26 above -- broadly above the one of 2024? So this is the first question. And the second question is if you can update us on your Asset Management partnerships. So my interpretation of Banco BPM management comments yesterday is that they are relatively open to a merger and/or any way to do something with you. And obviously -- so these comments were kind of at the crossroad with the -- with Anima as well as with the stake that they have into BMPS. So I was just trying to understand what's your view on this topic? And if you can help us understand what are the future plans in terms of M&A. So these are my two questions. Luigi Lovaglio: Okay. So thank you. We will provide clearly quite detailed information once we are going to present the business plan. Now we wouldn't like to go too much too deep in providing early drivers now in order to get this growing dividend, right? What -- we are confident that our level of synergies is even conservative starting from the first outcome from these work streams that we are practically developing together with the Mediobanca team. And so at least the level we already plan are, in our understanding, ensured, and then we will be, as I said, more precise one that we are going to finalize the business plan as well as on the integration costs on which we are now analyzing how to split them. But anyway, we believe that what has been planned from the very beginning when we launched the deal, is confirmed. And as I said, we are even more confident that we can get our goal. And also at the time, we will be speaking about growing DPS per share. Now Anima is for us an important partner. We are keeping growing in offering this product. And I believe this is also reinforcing our relationship with Banco for this common pattern that we work with and, clear for us, has an important value and also strategically is important to keep reinforcing this cooperation. Now anyway, we are completely focused in delivering this combination -- industrial combination. I'm not using the word integration because this is not an integration. It's a combination of two excellent institutions. And we believe that the more we are focused on this implementation, and the sooner we will get the results that we committed by launching the tender offer. So full speed on making all what we plan, implemented and effective. Operator: The next question comes from Ignacio Ulargui of BNP Paribas Exane. Ignacio Ulargui: I have two questions. One is coming back a bit to Antonio's question on the integration and your comments, Luigi, about Mediobanca being a legal company. I wanted just understand a bit better how do you think the listing is going to go, whether you will plan to further integrate by taking over the minorities and integrating that? And what would be the impact if you don't do that in synergies? Because I think it will be a bit more difficult to go ahead with all the planned cost savings. The second question is on the commercial activity of Monte Paschi in the quarter, has been super strong in lending and deposits. Just wanted to get a bit of a sense of where you're gaining market share in lending. And in terms of deposits, you mentioned in 2Q results that you were focusing on transactional deposits. And I think that -- I just wanted to get a bit of color on how do you think about your NII implications after the good quarter into coming quarters? Luigi Lovaglio: So let's start by saying that the success of the tender offer at the level of 86% acceptance rate is ensuring us effective governance from the very beginning. In the presentation, in some way, we already provided the first glance how we see this combination. We are working, as I said, with our Mediobanca colleagues, and the deep dive on the target business model we will provide, as I said, in the context of Capital Market Day in first quarter, next year. What is important to underline is that we will maintain and leverage the two strong brands, Monte Paschi and Mediobanca, with the respective entities focused on what we say the core business. On the current listing of Mediobanca, let me say that with the 14% free float, we see reduced volumes and liquidity on the stock. However, it's too early to take any decision of a potential delisting. That is part of the assessment in the context of the new business plan, as I was mentioning. As far as net interest income dynamic, I think that we expect in the fourth quarter to keep almost the level of the third quarter and then to have, again, a level of 2026, almost in line with the one of this year. We can have some positive upside, if you will, capable as we are now aiming to increase the level of our lending, thanks to the combination of -- with Mediobanca capability in advisory and the balance sheet of us. Clearly, the expectations are as well to keep under control the cost of deposits that are growing. But as we were mentioning, we are really intensifying our commercial efforts, leveraging on the very positive attitude that we have now observing in the network, that are very well motivated, we reinforce our capability in managing. We are getting continuous feedback, very positive, in new meetings with customers. So this will enable us also to keep growing in deposits without compromising the spread. So that's why we are very positive that we can continue. Clearly, we have to think that part of this deposit are collected with the scope then to convert in Asset Management product. So we can have some fluctuation just depending on the capability to make this kind of conversion, at the same time to replace what we are converting in Asset Management product or Bancassurance product with regular deposit. But anyway, we are, really, at this point, enjoying a very positive moment of all our network, our franchise. And so it's not only deposit that we see a good pace without compromising the spread, but also, as you saw in the presentation, inflows of Asset Management product, Bancassurance product. Overall, it's a very positive momentum for Monte Paschi. Operator: The next question is from Giovanni Razzoli of Deutsche Bank. Giovanni Razzoli: I have just one question. Sorry for asking you this detail, but in the broader context of your capital position and dividend policy is important in my view. So you have reported a 17.9% CET1 ratio, which includes a part of the PPA. I was wondering whether you can share with us what was the impact of the PPA. You've mentioned that there could be more in the coming quarter due to the fair value of assets and liability of Mediobanca. So if you can help us understanding what was the impact of the PPA in this quarter, and what could be the impact in the next quarter? I'm wondering, for example, whether the PPA this quarter includes or not the revaluation of Mediobanca real estate assets. Andrea Maffezzoni: Giovanni, Andrea speaking. Good morning to everybody. So as mentioned, the PPA as of 30th September '25 was partial and preliminary. So not including, for example, as mentioned by the CEO before, the valuation fair value of financial assets and liabilities. It includes mainly the revaluation of Generali that is anyway not impacting the capital position and a few hundred million regarding what you mentioned, the real estate, which is in line with the projections that have consistently been delivered throughout the public offer. Operator: The next question is from Hugo Cruz of KBW. Hugo Moniz Marques Da Cruz: I have a few questions, if I may. So first on, can you be a bit more clear on the CET1 ratio impact? So the impact coming in Q4. Do you expect that to be positive or negative? So that's my first question. Second, on -- related to this, so the DTAs, I thought all the DTAs would be fully brought on balance sheet on day 1. You still have EUR 1.1 billion off balance sheet. So why is that still off balance sheet? When do you expect that to come on balance sheet? It will be Q4 or not? Then a third question on clarification on your comments about the dividend for 2026, so out of 2026 earnings. So you still have a lot of DTAs, very strong capital ratio. So is there any possibility that you can manage the DPS to show that growth versus 2025 DPS? Or will it be just mechanical DPS out of 100% of payout? And then a final question on the bank tax. Some of your peers, BPER and BAMI have given a bit of an indication of the potential impact. Can you comment what could be the impact for you? Andrea Maffezzoni: Okay. So thank you for your questions. So on the first question, i.e., capital ratio -- common equity Tier 1 ratio end of the year. This will depend on the final impact of the PPA, that it is under assessment. What we can, let's say, confirm now is that we expect that it would be higher than 60% anyway. So that's the answer. Then about the DPS in '26, is what was mentioned by the CEO, so it's too early to give a guidance on net profit. What we can already confirm is that we expect to achieve a good chunk of synergies already in '26. Then on the tax law, the impact is definitely manageable in '26. '28, we expect based on the current draft of the law, an impact on the combined perimeter. So let me reiterate, on the combined perimeter, of around EUR 100 million per year. And then on top of this, this year, there might be the impact of the taxation of the so-called profit reserve that we expect would be accounted anyway directly into equity. The fourth question I missed. Hugo Moniz Marques Da Cruz: It was on the DTA. Andrea Maffezzoni: Sorry, the DTA. Sorry, the DTA. The DTA. No, actually, we have still EUR 1.1 billion of DTA of balance sheet when we update the new business plan. So end of the year, we expect that this amount will be basically written up. We expect in full. Hugo Moniz Marques Da Cruz: And sorry, if I may, a clarification, the EUR 100 million impact on the tax, that would be through P&L? Andrea Maffezzoni: The yearly one in '26, in '27 and '28, yes. It's additional tax, so yes. Operator: The next question is from Luis Manuel Grillo Pratas of Autonomous. Luis Pratas: My first one -- I have essentially a bunch of clarifications. The first one is on the -- so you essentially mentioned that you didn't include any fair value adjustments on the Mediobanca balance sheet. And if I'm not mistaken, the 2025 annual report of Mediobanca included a large positive effect there. So I wanted to hear any comments whether we should expect a positive in Q4 coming from this. And then you just mentioned to Hugo that maybe in Q4, we shouldn't expect any meaningful DTA capitalizations. Can you confirm that? So essentially, the large one, the EUR 1.1 billion will only happen when the business plan is released next year? And then I also wanted to ask you about the -- your comments on the combined entity. So it seems that you are not going to the approach of doing a merger buying corporation, if I read that correctly. I wanted to confirm if this has any impact on your synergies execution. I'm thinking, for instance, on the funding side, if there could be any MREL dis-synergies for maintaining both entities separate? And yes. Luigi Lovaglio: Okay. So I think I'm just confirming that we were very, very much conservative on this preliminary assessment of PPA. And as Andrea was mentioning, overall, at the current stage, being very much conservative and wanting to go deeper in making the analysis, we are hopefully expecting to complete this process for the main item within the end of the year. At the current stage, we are also confident that we can have a positive impact. But let's complete the work before being much more -- giving much more detail on that, right? Then regarding the reorganization and the combination, I want just to underline that we will implement actions in order to get all the synergies, and I was mentioning, even at the level that we expect now to be even higher than what we plan. The fact that we are speaking about legal entity doesn't mean that we cannot exploit all the potential we can have from the combination. But as I said, it is a work in progress and hopefully, will be soon completed. And as I said, in the first quarter, we'll be very precise about the option that we are going -- the target model we are going to implement. What should be clear that in our preliminary estimation, we see only positive upside in whatever we are going to implement in terms of synergies. Andrea Maffezzoni: And then there was a clarification requested on the DTA write-up since I mentioned the approval of the new business plan. Anyway, we expect to be able to write up the DTA already in Q4? That was your question, potentially also based on preliminary projections. So the expectation is that the write-up to the best of our current knowledge happens in Q4. As regards to MREL, we do not expect the synergies. We're expecting such synergies because the new entity will be a single point of entry. Operator: The next question is from Lorenzo Giacometti at Intermonte. Lorenzo Giacometti: So the first one is on your excess capital, which is seen growing year-by-year due to DTA's compensation and potentially even more with the merger or with the Danish compromise treatment. And so do you intend to distribute it to your shareholders? And if yes, do you see distribution via dividends or buybacks as more likely? And the second one is a more strategic one. And are you planning to expand abroad with some of your businesses? I was mainly thinking about Consumer Finance, but also Wealth Management and Investment Banking. Luigi Lovaglio: Okay. So let's start from, what is for me even more exciting that is the expansion of the business? So we strongly believe that Compass with this merger has the full potential to expand the business outside Italy. They have expertise. They have a very good technology, and they have a proven track record in terms of scoring. So I believe that this is an option that we are going to explore very quickly. And my personal view is also that for some part of the business as well Private Banking, investment bank already is there. We have a strong opportunity because once the Mediobanca will be completely focused on Corporate, Investment Banking and Private Banking, there will be additional opportunity to expand business not only in Italy, but also abroad. So that's why it's a nice project, because we are opening a new market and new potential revenue generation for the benefit of all the stakeholders. Yes, we have a nice excess of capital. And as you were mentioning, starting from this year, we will have also the EUR 500 million of DTAs that we are going to contribute to the increase to the overall capital level. As I was already mentioning, for us to have an important buffer of capital is an opportunity, and we would like to use in the best way or getting opportunity to expand additionally, our business, or we can say, and eventually further reward our shareholders with even high level of remuneration. Then, if it's through buyback or if through extraordinary dividend, whatever, is something that we evaluate time to time. What is important that this is a strong opportunity. And I believe, today, by showing the revenue stream with almost 1/3 of revenues coming from asset gathering and Wealth Management, it's clear that this part of business deserve a significant rerating as well the other component. And this is an additional evidence that our valuation deserve to be much more in line with our fundamentals and the potential of value that we can generate. And this kind of approach in exploring all the opportunity for better extract value from the combination will materialize. I believe, even earlier than what we plan. I think we have a strong expectation and again, confirmation that we are really representing an attractive case of investment. Operator: The next question is from Andrea Lisi of Equita. Andrea Lisi: The first one is on, if you can provide us a bit more update on the integration charges. If -- from your preliminary analysis, clearly pending the business plan presentation, you are still confident with what you have initially indicated. And if you can provide us some preliminary indication at least of how many years these integration charges will be split? If it is reasonable to see already a big portion in the last quarter of this year and then the rest through 2026 and maybe some portion also in 2027? And the other question is on capital. If you can confirm that your preliminary indication of kind of 50 bps additional contribution in case of obtainment -- in case of regulatory treatment of the insurance component like in Mediobanca? And last question is regarding, if you can provide us a further update on the management of the stake in Generali? Luigi Lovaglio: Okay. So integration charge is something that we are assessing, clearly, looking at what now -- we are considering. We are going to invest money clearly in retention package. And then it depends how we complete the assessment, particularly on IT. That is one of the main area where practically we are going to have some cost. But overall, we are confident first that we can -- the estimation we fixed when we launch a transaction is absolutely actual. And the second is that given the work of the teams that are now analyzing the combined business, we believe that we are going to have even room for having even a positive outcome from the overall cost we plan. The impact on core Tier 1 regarding the potential Danish compromise is 50 plus. And on Generali, we are focused on Mediobanca. And as I was mentioning, the Generali is for us, a nice, correlated bulk of revenues. And for the time being, we are, as I said, completely involved and committed to deliver what we were mentioning earlier regarding the combination of the two entities. Operator: [Operator Instructions] Mr. Lovaglio this time, there are no questions registered, sir -- excuse me, we do have a follow-up question from Luis Manuel Grillo Pratas, the Autonomous. Luis Pratas: Sorry, just a quick clarification on the Generali treatment. When do you expect to receive those more than 50 basis points impact? Luigi Lovaglio: No. As I was saying, we like to be very conservative. All the figures we were mentioning are without this benefit. So we are working in order to have this kind of benefit. Honestly, it's difficult to predict when this can be completed. But I believe we deserve it. So we will do our best in order to get as quick as possible, but it depends not exclusively on us. For the time being, we manage everything without considering this benefit. That should be obvious and should come to us. Operator: Gentlemen, there is a final question from Ignacio Ulargui of BNP Paribas Exane. Ignacio Ulargui: I just was wondering whether you could consider entering a total return swap as BPER has done on their own shares given the confidence that you have about integration and the strength of the franchise and the combined franchise. Could that be a possibility or is something that you don't explore at this stage? Andrea Maffezzoni: Sorry, Ignacio, I have not understood what do you suggest we can consider. Ignacio Ulargui: So whether you could consider doing equity derivative buying your own shares like BPER did on the 9.9% of the capital. If that could happen? Luigi Lovaglio: We are focused on what we know better, that is doing banking, honestly. So we -- for the time being, we are not considering any kind of transaction like that. And we want to be really focused in getting the best from the two entities. Operator: Gentlemen, at this time, there are no questions registered. Back to you for any closing remarks. Luigi Lovaglio: No other questions, right? So thank you very much. And see you in next presentation. Operator: Ladies and gentlemen, thank you for joining. The conference is now over, and you may disconnect your telephones.
Operator: Good morning, ladies and gentlemen, and welcome to Murphy Oil Corporation Third Quarter 2025 Earnings Conference Call and Webcast. [Operator Instructions] I would now like to turn the conference over to Atif Riaz, Vice President, Investor Relations and Treasurer. Please go ahead. Atif Riaz: Thank you, Lucy. Good morning, and welcome to our third quarter 2025 earnings conference call. Joining me today are Eric Hambly, President and CEO; Tom Mireles, Executive Vice President and CFO; and Chris Lorino, Senior Vice President, Operations. Yesterday after market close, we issued our third quarter earnings release, a slide presentation and a stockholder update. These documents can be found on Murphy's website and we will reference them today throughout our call. As a reminder, today's call contains forward-looking statements as defined under U.S. securities laws. No assurances can be given that these events will occur or that the projections will be attained. A variety of factors exist that may cause actual results to differ. For further discussion of risk factors, please refer to our most recent annual report filed with the SEC. Murphy takes no duty to publicly update or revise any forward-looking statements, except as required by law. Throughout today's call, production numbers, reserves and financial amounts are adjusted to exclude noncontrolling interest in the Gulf of America. I will now turn the call over to Eric for opening remarks. Eric Hambly: Thank you, Atif, and thank you, everyone, for joining us this morning. Consistent with our approach last quarter, we released our quarterly stockholder update last night alongside our earnings release. This morning, I will share a few high-level insights and perspectives on our business before we move into Q&A. I'd like to start by thanking our employees for delivering strong operational performance in the third quarter, exceeding the high end of our production guidance for the second quarter in a row. We achieved total production of 200,000 barrels of oil equivalents per day and oil production of 94,000 barrels per day, underscoring the strength and potential of our assets. It's always good to have a quarter where we deliver strong operational performance, both on the production and cost fronts, and we did exactly that in the third quarter. Operating costs in the quarter averaged $9.39 per BOE, 20% less than in the prior quarter. In the third quarter, capital expenditures totaled $164 million, which was below our guidance. While a large part of that lower CapEx was due to timing, it also reflects our ongoing efforts to drive capital efficiencies across our business. On the international development and exploration front, we made significant progress in the third quarter. Our Lac Da Vang (Golden Camel) field development is progressing on track. And in fact, we started drilling our first development well earlier this week. This is a major milestone marking our first development in Vietnam. I commend the team for continuing to execute this project safely and ahead of schedule in collaboration with our multiple local and international partners. Our Hai Su Vang 2X Appraisal Well was spud in line with our plan and Civette, the first of our 3-well exploration program in Cote d'Ivoire is also on track to be spud before year-end. This quarter, our exploration teams are working very hard at exploring and appraising prospects across 3 continents, testing gross resource potential of over 1 billion barrels of oil equivalent. These projects showcase Murphy's international expertise, reputation and partnerships, key differentiators that position us as a partner of choice for global exploration and development. We look forward to sharing the results from our exploration and appraisal program with you in the coming months. As we assess our operational plans for 2026, we are closely monitoring the commodity markets. We remain confident that our strong balance sheet and flexible multi-basin portfolio will allow us to manage near-term volatility while staying on track to achieve our long-term goals. Looking ahead, exploration continues to play a significant part in the Murphy story and we're encouraged to see a renewed focus in the industry on the need for exploration and conventional resources to meet global energy demand. With a robust portfolio of assets and decades of expertise, we are well positioned to capitalize on the opportunities ahead. That's a very brief summary of our quarter and key catalysts for our business and we will now open the lines up for questions. Operator: [Operator Instructions] With that, our first question comes from the line of Arun Jayaram with JPMorgan. Arun Jayaram: Eric, I was wondering if you could start a little bit around your exploration program in West Africa. Maybe some details on the Civette well, which you mentioned should spud by year-end. And it looks like you've re-sequenced the program to include a different prospect for your third exploration approach. I was wondering if you could just give us some more color around that program. Eric Hambly: Sure, Arun. We're really excited about our Cote d'Ivoire exploration program, which will start drilling before the end of the year, likely spud Civette in December and that should put us in a position to have some results to discuss at our January fourth quarter earnings call. The following 2 wells in the program likely not have results to report until later in the first quarter or possibly into the second quarter of 2026. The Civette prospect is very similar in terms of the geology to the Calao discovery from the Murene-1X well Eni announced in the second quarter of 2024. It's the same type of geology, just a slightly shallower interval testing highly prospective to us, Santonian-Turonian interval which we're really excited about. We think as we released in our slide decks in the past, the potential is significant. And the reason that we are really excited about it is it has the potential to be quite large with a mean of over 400 million barrels, upside of 1 billion barrel range and we're able to test the wells. Our program of wells are going to be kind of in the $50 million to $60 million gross range. So really excited about it. It's definitely in the right neighborhood. There's been a lot of recent success from Eni in the area and it's similar looking geology and we're pretty excited about it. [Indiscernible]. So as we've kind of continued to work through our reprocess seismic data set and kind of mature our assessment of the prospectivity, we decided to pivot from drilling Kobus to Bubale. And the reason we did that is we think that it offers a lower cost to test and lower risk or a higher chance of a discovery and also a very large resource range. So we're pretty excited about that. The Kobus discovery is definitely still something that's out there and it might be the subject of follow-on exploration. Obviously, with some success, it would encourage us even more. It is a different play type than Kobus, one that we think has a higher chance of being successful and that's why we made the switch. So there's nothing wrong with Kobus, just that we think that Bubale is a slightly better and we're prioritizing sort of our top 3 exploration tests in the blocks. Those are the ones that we think are the most compelling near term. Arun Jayaram: Makes total sense. And just maybe a follow-up. Obviously, you're drilling one of the more important appraisal wells at a very long time in terms of Murphy. Can you give us some of your key objectives? And I know you've shared with us the location of the appraisal well in Vietnam, but maybe give us some thoughts on what you're looking to test at the HSV field. Eric Hambly: Sure. Yes, it's a good question. The main purpose of the HSV-2X well is to determine what the lateral continuity of the reservoir is. So away from the discovery location, what is the makeup and content of the sand in the major discovered reservoirs to potentially test for a thick in the pay section and really critically determine if we can, where the oil water contact is. So we believe the location that we're testing has the potential to prove a thickened section in the primary reservoir of the discovery and also prove the known oil column deeper. And that's the main objective of the appraisal well, which the whole point is to determine what is the -- tighten the range of resources and figure out how large is the field and help us start to plan field development. We need to know where the oil is so we know where to put the development wells. And this is the first of what may be more than one appraisal well to determine how large the field is and how to optimally develop it. But this one has a significant impact in that the major discovered reservoir that we flow tested that we announced earlier this year, we're hoping to prove a deeper oil column with that and potentially expanded thicker section. Arun Jayaram: Great, Eric. We'll enjoy well watching because you have a lot of interesting things that you're testing over the next 3 to 6 months. Appreciate it. Operator: And the next question comes from the line of Neil Mehta with Goldman Sachs. Neil Mehta: We're obviously working through a choppier macro right now and there's a lot of reasons for long-term optimism, but of course, there's some reasons for near-term caution. So just talk about your down cycle playbook and how you ultimately use a period of potential commodity weakness to make the business better a couple of years out. Eric Hambly: Great question. Obviously, we're paying very close attention to what's going on with commodity markets, watching both oil and gas. We're still working to put together a plan for our 2026 budget, which we'll discuss like normal in our fourth quarter call in January. We're factoring in things like what do we think will happen with oil price in the first part of the year versus potentially the later part of '26 heading into '27. We're trying to develop a plan, not just for the year, but a multiyear plan that supports our strategy that balances near-term production and free cash flow with investing for longer-term resource additions, primarily for our offshore business. We do have significant flexibility in our capital program. We could run quite a bit smaller onshore program for sure. In our offshore business, there are a few things that I think we're likely to do in almost all oil price scenarios. There are things that we have a lot of flexibility to have an altered program. I think the things that are likely to be a little more sticky for us and that we probably choose to do, our Vietnam appraisal program that we're doing now and our Cote d'Ivoire 3-well program, I think you could see us doing those in most cases. You would have to probably have a very, very low oil price where we decide to alter those plans. The other one is our Lac Da Vang (Golden Camel) field development. It's something that we likely see through to conclusion of the first phase in most oil price scenarios. As we talked about last quarter, I'll kind of reiterate, we're very comfortable with our sort of base plan in line with our communicated multiyear range of CapEx. If oil price is $60 or so the longer that we think we'll see a sustained oil price that might be lower like, say, $55 or lower for a long time, we might start to get more aggressive in altering and lowering our capital plan. And again, we have quite a bit of flexibility. Obviously, the sooner we start making changes, the more we could affect next year CapEx. But we feel like we're well positioned. We also feel like we have a very strong balance sheet. So we're able to kind of -- if we wanted to, we could lean into a little bit of invest through the cycle. But like I said earlier, we're going to be pretty cautious around protecting a strong balance sheet, investing with kind of a balance of short term, medium term, long term. And I think we've acted in the past with quite a bit of discipline and you can expect to see that from us going forward. Neil Mehta: Yes, very clear, Eric. And then that brings up the follow-up, which is as we think about the '26 CapEx, the midpoint of your guide this year is $1.21 billion, of which offshore is 36% of the balance is outside of it. And so just how do you think about the buckets of CapEx as you go into '26, recognizing we'll get more color early next year, but what are some of the moving pieces as we anchor 6 versus 5? Eric Hambly: Very good question. Again, we're still working the details. I'll give you kind of directionally that is kind of provisional. I think with our active program exploring in Cote d'Ivoire, you might see a little more spending from us in exploration than this year or past years just by a little bit. In terms of onshore spending, we'll probably have a slightly lower capital program in Tupper and Eagle Ford than we had in 2025. In offshore, we have a really compelling set of investments to pursue with strong returns and very low breakevens. One of which we've highlighted is the Chinook 8 well, which is a development well in our currently producing Chinook field that we expect to bring online in the second half of the year. And we think it will have a gross oil production rate somewhere in the 15,000 barrel a day range. So those are very compelling investments that we're likely to do. The rest of the details around exactly what the rest of our offshore program and do we fine-tune our Eagle Ford program with potentially lower commodity price, that's something that we're going to be looking at and paying attention to and kind of thinking about as we head into next year. I would say, overall, it would be reasonable to expect us to have a capital program next year of a similar scale as we've communicated in the past, which is a $1.1 billion to $1.3 billion range. Operator: And the next question comes from the line of Carlos Escalante with Wolfe Research. Carlos Andres E. Escalante: First of all, congratulations, quite the turnaround on sequential quarters. So congrats on that. If I may, I'd like to ask my first question on your operational improvements thus far this year. So maybe you can perhaps frame and quantify how the improvements in both your Eagle Ford and Montney, how that success has translated in terms of corporate breakeven. And I know and I realize it's a small piece of your portfolio, but just wonder how that is manifesting in your underlying breakeven. Eric Hambly: Great question. Just high level, I'm very impressed with and very happy with our team's ability with a fairly limited onshore program to be able to continue to make improvements in our capital efficiency, both Eagle Ford and Montney, particularly, where in the second quarter and third quarter wells, we saw some of our strongest performance ever. Initial rates, 90-day cum oils, 90-day cum gas for Tupper, all been amongst some of the best wells we brought online. That's been through a combination of various things. In many places, we're drilling longer laterals, which we're able to improve our drilling targeting, our completion styles, we adjust kind of the completion design for each specific area to try to optimize what's going on there. Our flowback strategies have been really enhanced. And it's just driving a really strong outperformance. I think we've highlighted that in some cases, we're seeing production rates in terms of the first few month production that are 50% to 100% above what historical performance is. So really strong. In our Tupper asset, we -- in 2025, we've used a completion design that had significantly higher proppant loading and we think that's working for us and will likely feature that going forward. What I'm also really proud about is that we were able to pump better fracs with CapEx neutral or, in fact, some CapEx savings across our program. So we're doing things that are not just spending more money to get more performance. We're actually getting better performance with equal or lower investment, which is really good for generating cash flow and to your point, what our breakevens are. In the stockholder update, we highlight just how low some of the breakevens are for the Catarina program we delivered. Obviously, when you can have breakevens that are $35 or less and sometimes even in the $20s, that's awfully strong. So really happy with how all that's going and it's led to significant performance -- outperformance and I think it's durable in the sense that the remaining inventory we have to drill, we're going to keep doing the same sort of stuff and we should continue to see that kind of outperformance as we progress the rest of our onshore program. In offshore, I'm really happy with the turnaround. We had a tough year, 1.5 years with wells offline in the Gulf requiring workovers. We progressed through that. I think we're in a good spot. We did have a production beat for the quarter even when you adjust for no storm downtime in the Gulf, we still exceeded even beyond what the storm downtime provision was with really impressive work by our team to have very low downtime in our operated major facilities, really top world-class performance in terms of our operating performance there. Carlos Andres E. Escalante: That's very, very helpful color, Eric. And then for my follow-up, if I may follow up on Arun's question on West Africa. It looks like most of the historical exploration effort in the region has been done along the Upper Cretaceous with some success, but it was really Eni's Baleine and Calao discoveries, at least in our view, that have enlightened this new wave of excitement in the emerging deeper Albian Santonian intervals. Would you guys concur with that in terms of is your seismic effort consistent with exploring that deeper potential as well as the Santonian-Turonian interval that you mentioned, Eric? Eric Hambly: Yes, it's a very good question, Carlos. So what has happened in this Greater Tano Basin area is after the success of Jubilee going back a decade, pretty much everybody drilled the same look-alike prospects as Jubilee until Eni did something different. And I would say it's a fair characterization that we see potential in the largely untested slightly deeper intervals. And that's what we're pursuing in most of our prospects here that we're testing. Operator: And the next question comes from the line of Paul Cheng with Scotiabank. Paul Cheng: Two questions. One, I want to go back into the 2X appraisal well that you're going to drill in Vietnam. If it is successful, Eric, can you tell us that is that going to be sufficient for you to set the development plan or that you think you actually would be better off because it's a large discovery? So you're better off that to drill an additional appraisal well that to really get a confirm and whether that you will go with a -- given the size that do you think that a early production system will work better and then that you will have a full development? Or that you will just go ahead with a full development? And trying to see that, I mean, what's the next step in 2026 after this -- after the completion of this well is going to look like? This is the first question. The second question is on the impairment charge. You're saying that just because of a unfavorable disproportion expense allocation so that you write down the value in there, is that have any implication for your other well or other fields in the area? Eric Hambly: Okay. Paul, on your first question, we're drilling the Hai Su Vang-2X well. And I mentioned earlier on the call kind of the purpose of what we're trying to accomplish. So the potential for future appraisal beyond this is somewhat dependent on what we find in the 2X well. If we find a deeper oil column than proven in the discovery well, we're likely to have other appraisal wells to kind of determine where -- how much oil there is. If we drill just below the currently low proven oil in the Hai Su Vang-1X discovery well and find water level, then we may be less likely to pursue another appraisal well. So it somewhat depends on what we find. What we will do, what we typically do is sort of learn as we go and on a kind of point-forward basis, determine what do we need to know about the field to move forward to have confidence that we have it described appropriately with an ability to commit the capital to go develop it. So I think it's likely that we will have an additional appraisal well beyond the 2X, but it will be somewhat dependent on the results that we have and what we still have unknown about the field as we go forward. If we find only oil in the 2X well, it could imply that there is a deeper oil water contact than we test in the 2X and we'll likely go find it or try to find it with additional appraisal wells. One of the thing, our appraisal program is pretty efficient here. These wells are not too expensive to drill to find out. So we're able to do that quite efficiently. Just briefly on the impairment [indiscernible]... Paul Cheng: Impairment. Can you tell us what is you guys leaning to us into the development concept at this point? Eric Hambly: Sure. Yes, Paul. So -- and I didn't fully answer part of your question, I guess. We will try to do what we can to appraise the field kind of in the coming months and understand what we think the size of the reservoir is and how to optimally develop it. We will try to move forward to planning a field development plan and working with our partners and the government on that. And I would say we don't know yet because we don't know what we haven't yet determined, but we'd probably be looking at targeting final investment decision in 2027 and looking in a kind of a standard mode to producing Hai Su Vang in, say, around 2030, possibly earlier with an early production system. We're looking at all opportunities we can to efficiently develop the field. A conventional development of the field would be similar to our (Golden Camel) Lac Da Vang would be an FSO and a series of platforms, a main processing platform and wellhead platforms. There's also a possibility of redeploying an existing FPSO and doing some wellhead platform or subsea tieback type of opportunities. Those are all things that we're thinking about, looking out and we'll be trying to move as aggressively as we can to see first production with potentially early production system, but that's not something that's been particularly common in Vietnam. So that would be something we'd be sort of newly bringing to bear there. Before I move on to the impairment, did I address your question, Paul? Paul Cheng: Yes. Very good. Eric Hambly: Okay. On the impairment, we periodically review the projects in our portfolio and kind of reevaluate our plans of investment. In the Dalmatian field, we had planned to do 2 wells. And as we continue to study those and think about them, we saw that the operating expenses that those wells would be burdened with from the host facility that we do not operate started to look like they were really high costs. And that high cost made it look like they may not be the best investments to make. So with the current cost estimates, those investments in new wells would definitely clear our cost of capital, but they start to become less attractive investments compared to other things we would choose to invest in. So we decided in our 5-year plan in front of us to not invest in those 2 wells that were in our prior plan. When we remove that assumed revenue and reserves from our plan, it led to an impairment. The producing wells are doing fine. The impact of producing wells is really nothing. We just -- when you take the revenue and the reserves away from that plan, the future cash flow didn't compare favorably to the undepreciated book value, which led to an impairment. So there's no significant read-through to the currently producing assets or any other fields in the area. It's just we're choosing in our 5-year plan to invest in better investments. Paul Cheng: Right. I think that's my question because you're saying that is related to a unoperated facility that the allocation of cost is higher. Do you have other assets that will have a potential impact or potential risk to that that will change your development outlook? Eric Hambly: That's a good question, Paul. So we are fortunate to be in a position where we operate the host facilities for most of our production and the host facilities other than the one that Dalmatian uses that we do not operate have very low operating expenses. So the main nonoperated ones would be St. Malo and Lucius, which are very strong performing assets with very low operating expenses. The rest of our Gulf of America portfolio, effectively, we operate almost all of it and we're happy with our expenses there. It's really just this one Petronas facility that's late in life and experiencing escalating costs and the operator hasn't been too willing to do much to make the cost structure go lower, which is really the only sore point from escalating third-party operated cost issue. Operator: And the next question comes from the line of Charles Meade with Johnson Rice. Charles Meade: I wanted to ask a question about your U.S. onshore guide for 4Q. And this might be down in the weeds a bit, but -- and specific to the Eagle Ford. And so that asset has really outperformed in 2Q and again in 3Q. And I understand you're not bringing any new wells on in 4Q. But even just for the PDP decline for that, your guide calls for that dropped by roughly 30% quarter-over-quarter. And I think you mentioned earlier in your prepared remarks that those recent wells that you brought online, I think I wrote down, you said those have been 50% to even 100% above type curve. And so I'm curious, is this -- that decline you're projecting for 4Q, is that the case where just internally, people don't want to underwrite the idea that these wells are going to continue to outperform the type curve? Or alternatively, is this something where you've already seen here in October, maybe early November, that those wells that had been 50%, 100% over the type curve have reverted to the type curve? Where do we fall on that spectrum there? Eric Hambly: That's a good question. What I'll do is I'll give you my thoughts and then if it's insufficiently answered, I'll have Chris jump in and help me out here. What we have seen in Eagle Ford is really strong early production performance from our second quarter and third quarter wells. In the third quarter, more than half of our Eagle Ford production was from wells that we brought online in 2025 in the second and third quarter. So you're seeing more than half of our production come from essentially brand-new wells, which, as we know, shale wells, once they come off peak, they do have early kind of in the first quarter or so, a steep decline and they sort of shallow out over time. So what we are including in our guidance is an assumption that we will see significant decline in line with our kind of typical shale well performance that we see in Eagle Ford. Having said that, the early decline performance from our Eagle Ford wells is either in line or shallower than our historical decline performance from prior years. Even though our initial rates are higher, the decline rates early on so far have been in line or in some cases, shallower. So there's no big issue [indiscernible]. We are just modeling what we think will be a reasonable decline from what are really high initial rates. I'm really happy with the team performance. If you look at our Eagle Ford asset, roughly our fourth quarter guide is something like 5,000 barrels a day above our fourth quarter of '24. So that performance is continuing to be strong heading into the fourth quarter. It's just that the wells are -- the last of our new wells came online in July and we expect them to decline. Chris Lorino: Hey Charles, just to add to that, when you're thinking about Q3 production, this is -- Eric mentioned, it's the highest new well production that we've had since 2019. So it is a little -- it is a big -- because we've outperformed so well, that's why you have more steep decline with the new wells versus the base. But looking forward, we've got such a bright outlook on the Eagle Ford wells and just continue to improve our long runway of Tier 1 inventory that just keeps getting better and better with lower breakevens. Charles Meade: Right, right. That's helpful. So success can bring its own different issues. Eric, I want to go back to Vietnam, but ask about your Lac Da Vang development. And appropriately, there's a lot of attention on the HSV. But can you remind us what the -- I know that there was already discovery that you guys came into, but can you give us -- remind us of the kind of the history of this field? And what I'm really curious about is if there -- when you're drilling your development wells there, is everything already very well characterized and there's no chance of a surprise? Or are there things that you're attuned to possible surprises or upside with this development drilling that's going to deliver more near-term volumes? Eric Hambly: That's a great question. The Lac Da Vang (Golden Camel) field is one that has been significantly appraised up to the point prior to our investment decision. The initial phase development is targeting what is sort of the most appraised part of the reservoir. The second phase is sort of targeting, which will be wells online in probably '28, '29 -- sorry, drilling in '28 and online in '29. That part of the development has about half fairly well appraised and half kind of reaching out into the less appraised parts of the field. So near term, we're really comfortable that we're going to be developing something that we understand pretty well. Having said that, I think that there's always a little bit of uncertainty in terms of new field, how you expect wells to perform. So far, we continue as we learn more about the field to think it looks better and better versus worse and worse. And we'll certainly learn a lot from the initial development wells that we drill and we'll be trying to optimize our development as we move forward. But yes, it's -- I would characterize it as quite reasonably appraised, especially for what we're going to bring online for first oil. Operator: And the next question comes from the line of Leo Mariani with ROTH Capital. Leo Mariani: Wanted to ask a little bit about operating expenses. So very, very low here in 3Q, kind of certainly below the guidance range you guys had given. And now you guys are sort of kind of maybe guiding back up a little bit on OpEx in 4Q. So can you just provide some color there? Was it just like a total absence of workover spend in 3Q or something? Why did the number come out just a lot lower than it sort of has been? And is that sort of repeatable? Eric Hambly: Yes. Great question. We did have some offshore workover spend in the third quarter. We talked about our onlines of kind of wrapping up our program. So we did have workover spend offshore, but it was of a little bit lesser amount than in prior quarters. The lack of large-scale offshore workovers helped improve our costs. We had significantly higher production across our onshore business and we lowered costs. In our Eagle Ford business, particularly, we're really focused on reducing the dollars being spent. That's mostly driven by field labor, maintenance costs, rental equipment, water handling, some work from our supply chain team to kind of renegotiate contracts and a real serious focus on optimizing the work that we do in the field through our remote operations center working with the guys out there in the field. Really happy with that. Those reductions in costs, which we kind of highlight in our stockholder update, those Eagle Ford reductions are durable and that really helped. What also really helped for the quarter was our record Tupper Montney production, has extremely low operating expenses. So when you blend in the sub-$4 operating expenses from Tupper, it really helps you have a total company fairly low operating expense. In the fourth quarter, we're guiding a $10 to $12 per barrel OpEx across the whole company. And the reason it's going up is that not because costs in terms of dollars are going up, but we are modeling a little bit less production. So the cost per barrel will likely creep up into that kind of range, which really is sort of a typical range for us on the long haul. Leo Mariani: Okay. Very thorough answer. Appreciate that. And then just kind of on the sort of operational side. Obviously, gas prices have been quite low in Alberta in terms of AECO. Are you guys factoring in any kind of shut-ins that may have occurred in the guide for 4Q? Certainly, your Tupper volumes are down a decent amount. I know we haven't had really drilled a well in a while and you're getting some declines. But just what's the story with any kind of Montney shut-ins? How are you thinking about that? Is there some price level where it's kind of saved some of the gas? Or is it more just kind of keep the plant full? Eric Hambly: Yes. What we're modeling in our fourth quarter production for our Tupper Montney is just typical decline from our base and new wells. And also, we're estimating a higher royalty paid in the fourth quarter compared to prior couple of quarters, driven by what we expect to be higher gas prices, pretty significantly higher. I won't get the numbers exactly right, but rough math I think AECO in the second quarter was like $0.64 an Mcf, and we're expecting a fourth quarter to be a little over $2, like $2.05, something like that. That may not be the exact numbers, but they're awfully close. Leo Mariani: Okay. That's helpful. And then just real quick on the buyback. In this type of oil market, call it, $60 hasn't been obviously great for anybody. Are you guys basically kind of saying that probably don't expect much of the way the buyback if this kind of price sort of holds as you really kind of prioritize capital spend and the dividend? Eric Hambly: I think it's fair to say with the free cash flow we have available with current commodity prices, we're less likely to be particularly active in share repurchase. Having said that, if we think there's a big dislocation in terms of our valuation and what our stock trades at, then we're not opposed to leaning into it as we've done in the past. Tom, if you want to add any color to that or that. Thomas Mireles: I think you covered it. It's something that we think of on an annual basis. We did in the first quarter start off with $100 million of share repurchases. But as Eric said, we're kind of keeping an eye on the price and oil price and likely not going to go too heavy on that in the remainder of the year. Operator: And the next question comes from the line of Geoff Jay with Daniel Energy Partners. Geoff Jay: I guess I was just going to follow up on Neil and Charles' questions from earlier. But when you talk about how there could be a smaller onshore program next year, is that potentially in response to a lower kind of macro or lower oil price environment? Or is it kind of a confirmation that you think that the outperformance that you've seen onshore is repeatable? Eric Hambly: Good question. In our base plan, it's mostly the latter that, for example, our Tupper Montney, we kept that plant full for 5 months. The activity level we think it takes to refill and keep full from Tupper is less than this year because we are already coming in at a higher production level. In Eagle Ford, we've been guiding for many years that we anticipate using the asset to produce it in a 30,000 to 35,000 barrel a day range. And this year, we should be significantly higher than that, like around 37,000 for the year. And we think that the repeatability of our strong well performance of our new investments will be there. And so we think it will take a little bit less capital to deliver the same or higher kind of performance from our onshore assets. That's what's really driving it. My other comment earlier in the response to the call was if we see significantly low commodity prices, we do have flexibility and even pulling the capital spend in those assets down below what our kind of base plan might look like, which would have production impacts, obviously. Operator: And we currently have no further questions at this time. I would like to turn it back to Eric Hambly for closing remarks. Eric Hambly: I'd like to close by again thanking our employees for their hard work and dedication and our shareholders for their ongoing trust. Thank you, and this concludes our call. Operator: Thank you, presenters. And ladies and gentlemen, this now concludes today's presentation. Thank you all for joining. You may now disconnect.
Operator: Good morning, ladies and gentlemen, and welcome to the Cars Third Quarter 2025 Earnings Conference Call. [Operator Instructions] This call is being recorded on Thursday, November 6, 2025. I would now like to turn the conference over to Katherine Chen. Please go ahead. Katherine Chen: Good morning, everyone, and thank you for joining us for the Cars.com Inc. Third Quarter 2025 Conference Call. With me this morning are Alex Vetter, CEO; and Sonia Jain, CFO. Alex will start by discussing the business highlights from our third quarter. Then Sonia will discuss our financial results in greater detail, along with our outlook. We'll finish the call with Q&A. Before I turn the call over to Alex, I'd like to draw your attention to our forward-looking statements and the description and the definition of non-GAAP financial measures, which can be found in our presentation. We'll be discussing certain non-GAAP financial measures today, including adjusted EBITDA, adjusted EBITDA margin, adjusted operating expenses, adjusted net income and free cash flow. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures can be found in the financial tables included with our earnings press release and in the appendix of our presentation. Any forward-looking statements are subject to risks and uncertainties. For more information, please refer to the risk factors included in our SEC filings, including those in our most recently filed 10-K, which is available on the IR section of our website. We assume no obligation to update any forward-looking statements. Now I'll turn the call over to Alex. Alex Vetter: Thank you, Katherine. We were pleased to achieve record revenue and drive strong customer and product momentum in the third quarter on our path to reaccelerating growth. Revenue of $182 million reflected continued contribution from websites, trade and appraisal solutions and marketplace. Dealer count increased for the third consecutive quarter as we reached a new 3-year high with marketplace, in particular, outperforming expectations. Top line strength, combined with our strong operating model, enabled investments for innovation, while also producing adjusted EBITDA margin of 30%, up over 160 basis points year-over-year. And resulting cash generation supported another $19 million of share buybacks in Q3 for a total of $64 million year-to-date. It's clear that our consistent execution is delivering compounding benefits, and we feel confident there is more improvement to come. Our strong focus on 2025 growth initiatives continue to deliver measurable progress for the business in the third quarter. First, sales velocity and driving unit volume has lifted marketplace and solutions performance. Under new sales leadership and enhanced go-to-market strategy, we added 270-plus dealers year-over-year with subscriptions up across all our leading products. In total, we powered 19,526 dealers in Q3, our largest customer base since late 2022 and only a few hundred dealers away from an all-time record. New franchise dealer sign-ups also increased appreciably quarter-over-quarter in Q3, complementing the share gain amongst independent dealers that we achieved in the first half of the year. Dealers consistently cite our unique consumer audience, data insights and differentiated product suite as key factors that are motivating them to join our platform. Second, our phased marketplace repackaging exercise intended to align pricing with product value and enhance platform benefits for dealers launched in early summer. By bundling media products and features in new Premium and Premium Plus packages, we are helping dealers drive up to 14% more leads per listing versus base packages. And we anticipate adoption of Premium Plus to accelerate with growing dealer awareness of these benefits. Finally, our product team remains at the forefront of helping consumers, OEMs and dealers navigate the changing auto retail landscape. We are putting AI-powered search and recommendations in the hands of marketplace shoppers and simultaneously enhancing lead conversion for dealers through advanced analytics. Through our appraisal and wholesale capabilities, we are also directly helping dealers address used car scarcity and specifically how to profitably source attractive late model inventory. And we continue to be the only platform with integrated B2B wholesale and B2C retail capabilities, a key value proposition as dealers look for innovation and operating leverage. Our multifaceted AI-first platform makes us essential for both consumer and dealer customers. We are seeing clear signals of traction in our platform strategy. Starting with marketplace, we fired on all cylinders in Q3 with momentum carrying into October. We drew 25.4 million average monthly visitors, up 4% year-over-year, leveraging better optimization of our visitor acquisition strategy to attract strong consumer demand. Traffic year-to-date was 488 million visits through the end of Q3, setting a new record. Our leading editorial and brand expertise is evident from third-party data that shows that we were most cited public automotive marketplace across AI tools like Google AI overviews and ChatGPT with double the citations of our closest peer. And we continue to leverage our strong brand and steady stream of in-demand content as an integral part of our product and marketing strategy in this evolving landscape. AI is central to our product innovation road map as we enhance the quality of our marketplace to deliver a best-in-class personalized shopping experience for car buyers. Carson, our newly launched natural language search assistant gives users an interactive experience more akin to a conversation you have with an AI agent to complement traditional search results. Carson currently assists 15% of searches and search refinement on web and mobile today. Compared to the average shopper, AI users also save 3x more vehicles to revisit later, a sure sign that we're fueling deeper consumer engagement. Just like we were a pioneer with AI integration on the Cars.com website, our next milestone will be integrating Carson into our #1 most downloaded automotive marketplace app. Mobile apps are our highest converting channels, and we believe AI-powered targeted search results may lift conversion even further as we drive search efficacy and our marketplace flywheel. For dealers who subscribe to our marketplace, we continue to deliver high-performing tools for their sales and marketing teams, embedding into their tech stack to drive engagement, conversion and ultimately, sales. Shopper alerts, which we launched in the third quarter to fast follow our new lead intelligence reports, proactively flag shopper engagement and buying indicators to dealers. Over 50% of marketplace customers have already used this feature at least once in its first 2 months of launch. And as you can see from customer feedback, shopper alerts are quickly becoming a key part of dealership workflow, helping salespeople identify the best prospects to close more sales. With such an enthusiastic response, we're quickly iterating to provide richer data and AI-driven insights directly into dealer CRMs, both with incumbent players and through new investments in disruptive technologies as we unlock the full potential of our platform with more AI and SaaS-based solutions. Turning to our trading and sourcing solutions. AccuTrade and DealerClub continue to scale in Q3 as dealers increasingly gravitate to tech-first products that advance the industry's long-term goal of improving profitability. The recent success of digital dealers who rely heavily on acquiring vehicles directly from consumers has put an even finer point on the importance of a diversified vehicle acquisition strategy for driving up GPUs. AccuTrade and DealerClub address this gap by allowing dealers to acquire from either Service Lane or other trusted dealers backed by the most accurate vehicle values in the industry. Accu Trade grew to 1,150 subscribers in Q3 and DealerClub increased its active users by nearly 40% quarter-over-quarter. We're also pleased to share that AccuTrade surpassed 1 million quarterly appraisals, a milestone that points to enthusiastic and growing customer engagement. Importantly, over 50% of vehicles acquired via AccuTrade are between 1 and 5 years old, highlighting the attractive pool of in-demand late-mile inventory that dealers access when they expand beyond traditional and physical auctions. New this quarter, dealers can now easily analyze their AccuTrade activity via profit funnel and trade capture reports, seeing how much profit is made on AccuTrade versus non-AccuTrade cars and conversion rates on appraisals. We're excited to see these products and features further scale as we continue to innovate. Lastly, total subscribers for Dealer Inspire and D2C media websites reached nearly 7,900 in Q3. We have grown website subscriptions for 5 straight years, an impressive feat that speaks to our differentiated technical capabilities and support model. Similar to marketplace, website customers are also benefiting from our AI leadership. Our dealer websites also support discovery and data processing by popular AI search tools, and we are now proactively enabling customers to improve their own site visibility. By building more consultative relationships and innovating on behalf of customers, we're confident we can further expand our market share. Across marketplace, websites and appraisal and wholesale, we delivered triple-digit dealer count growth for the second straight quarter. We also achieved ARPD growth on a sequential basis, consistent with our expectations that repackaging and cross-selling would lift performance beginning in Q3. We're on pace to surpass all-time records for both direct dealer customers and ARPD before the end of 2026 on our way towards greater targets as we expand and enhance our product offering. While dealer revenue was at its healthiest level in several quarters, we did see some variability in OEM and national revenue, which was down 5% year-over-year in Q3. Specifically, 2 OEM partners significantly adjusted their media investments during the fall due to factors like internal agency changes that are unrelated to our performance or value. I'll also note that both of these customers remain advertisers on our platform, and we're in active talks to win a greater share of their forward spending. As we discussed in prior calls, our OEM revenue pipeline is strong. Planning discussions for 2026 have been positive and our unique ability to drive better Tier 1 to Tier 3 outcomes via our marketplace is a winning asset for automakers as they compete for consumer demand. We're confident that this segment can resume its growth trajectory in the coming quarters and continue to be a strong contributor to revenue and margin expansion. Looking at this quarter as a whole, I'm pleased that our steady execution is showing up in the P&L and in positive trends that point to more gains ahead. We're driving our business forward, growing revenue and gaining customer market share, all while continuously innovating. Q3 is the right step in the right direction, and we're focused on finishing the year with a healthy exit rate so that we can deliver even better results as we continue scaling our leading platform. And now I'll turn the call over to Sonia to discuss our third quarter financial results. Sonia? Sonia Jain: Thank you, Alex. We delivered a strong third quarter across multiple key financial metrics, producing record revenue, adjusted EBITDA expansion and robust cash generation. Consistent execution of 2025 growth initiatives has been our top priority, and our new revenue trajectory reflects the positive changes we've implemented year-to-date. We're also confident that as these improvements compound in our subscription business, both revenue and margins will accelerate in the coming quarters. Starting with our revenue discussion. Third quarter revenue was $181.6 million, up 1% year-over-year and in line with our expectation for low single-digit growth in the second half of the year. Dealer revenue was up 2% year-over-year, driven by favorability from repackaging activities and better customer count. Our ongoing repackaging work resulted in successful renegotiation of additional OEM website agreements and the phased launch of new marketplace packages in Q3. As Alex mentioned, our top 2 marketplace peers now bundle more media features for better vehicle merchandising and promotion, helping dealers attract and convert in-market shoppers. Migration of legacy preferred customers into new Premium and Premium Plus packages was 100% complete as of the end of October. I'll also note that we've seen very few cancellations attributable to this exercise, another encouraging signal of the value dealers see in our marketplace. Marketplace, our most scaled solution, is also the tip of the spear for customer acquisition and cross-selling and key to winning dealer market share over time. It's therefore encouraging to see that marketplace continues to be the biggest quarter-over-quarter contributor to dealer count growth and is the linchpin for our net gain of over 300 dealer customers since the start of the year. We have multiple levers to inflect ARPD, driving new customer growth as well as upgrading package tiers and cross-selling against our installed base. And this is amplified by our improved pricing. We saw early signs of these levers in action in Q3 with ARPD up 1% quarter-over-quarter, and we are optimistic that trends will improve as these positive changes gain further traction and annualize. Overall, dealer revenue growth more than offset near-term noise in OEM and national revenue, which was down just under $1 million or 5% year-over-year. As previously mentioned, lower spending by 2 customers accounted for almost the entirety of the OEM revenue decline in the quarter, and we're already at work rebuilding the revenue pipeline with those partners. More broadly speaking, media investments did taper in September as the industry digested large-scale changes like strong pull-forward demand from expiration of EV credits and continuing shifts in production as well as downward revisions in SAAR. Given last September was our best month of OEM revenue for 2024, we also had a challenging comp that accentuated this late quarter trend. We're observing that OEMs continue to prefer more flexibility in the current operating environment. And as such, we expect their ad spending may fluctuate through the end of this year. However, we remain confident in our audience and value delivery and in our ability to power growth in this segment. Turning to our cost discussion. Third quarter operating expenses were $165 million, down 2% year-over-year. Compared to the prior year period, cost efficiencies in headcount and lease-related expenses as well as lower depreciation and amortization fully offset new dealer club costs and slightly higher marketing and G&A spend. Adjusted operating expenses were $150 million, down 4% year-over-year for substantially similar reasons. For the following line item detail, all comparisons are on a year-over-year basis, unless otherwise noted. Product and technology expenditures decreased $1.6 million on a reported basis and $1 million on an adjusted basis, fully offsetting dealer club costs through lower compensation and third-party fees. Marketing and sales increased $1 million on both a reported and adjusted basis, reflecting marketing investments. And general and administrative expense was up $2.8 million year-over-year on a reported basis, but was roughly flat on an adjusted basis. The reported increase was primarily due to increased third-party costs that were partially offset by savings from the lease amendment completed in Q4 2024. Net income for the third quarter was $7.7 million or $0.12 per diluted share compared to net income of $18.7 million or $0.28 per diluted share a year ago. The difference in net income is primarily due to changes in the fair value of contingent consideration for prior acquisitions that were included in the prior year period. Adjusted net income for the third quarter was $30.4 million or $0.48 per diluted share compared to $27.7 million or $0.41 per diluted share a year ago. Adjusted EBITDA of $55 million in the third quarter grew 7% year-over-year, benefiting from both higher revenue and cost controls. Third quarter adjusted EBITDA margin of 30.1% demonstrated strong revenue flow-through, benefit from the cost management initiatives described earlier and timing of certain costs. Now on to key metrics. Dealer count was up in the third quarter based on strength across all of our major product brands. Websites grew sequentially by 67 subscribers with most of the growth coming in the U.S. AccuTrade grew by 82 subscribers sequentially, about half of whom came from the enterprise deal announced last quarter. Third quarter ARPD was $2,460, up 1% quarter-over-quarter and down slightly year-over-year. Recent customer and product mix shifts like faster independent dealer growth and lower media attach rates continue to have a near-term leveling effect on this metric. However, as previously discussed, we have multiple ways to inflect ARPD over time. First, new customer acquisition and continued up-tier migration will both benefit from new marketplace and website rates. A good example is Marketplace Premium Plus adoption, which grew 50% month-over-month from September to October as dealer awareness increased. Second, moving website customers up-tier remains a substantial opportunity. Recall, roughly 70% of marketplace customers are in a premium or better subscription relative to just 50% for websites. Third, cross-selling additional products like AccuTrade or media add-ons to marketplace customers can be as much as a 60% jump relative to current ARPD. The multiplier effect is especially evident when looking at customers who utilize all 4 of our brands and have an ARPD that is 3x higher than our reported average. With these levers at our disposal, we are confident in future ARPD improvement as we expand our platform's reach. Now over to cash flow and the balance sheet. Net cash provided by operating activities totaled $115 million for the first 9 months of the year compared to $123 million for the comparable period last year. Recall that the earn-out for the D2C acquisition has a contractual step-up from year 1 to year 2 and accounts for the majority of the variance in operating cash flow. Free cash flow was $94.5 million year-to-date, down slightly year-over-year from the acquisition items mentioned above. Year-to-date, share buybacks totaled 5.2 million shares for $64 million as we utilized more than 2/3 of free cash flow for our repurchase program. Last quarter, we raised our full year repurchase target to $70 million to $90 million, and we're pleased to be on pace to finish the year towards the high end of that range. We also paid down $5 million of our revolver in Q3, bringing debt outstanding to $455 million as of September 30, 2025, equivalent to a total net leverage ratio of 1.9x. Notably, this is also the first time that we have sat below the low end of our target net leverage range of 2 to 2.5x. Total liquidity was $350 million as of September 30, 2025, which provides us ample capacity for capital allocation priorities and other avenues of value creation. And now we'll conclude with outlook. We are reaffirming our expectation for low single-digit revenue growth year-over-year in the second half of 2025. We expect to achieve this target through continued execution of our growth initiatives, namely improved dealer count and product adoption and repackaging for marketplace and websites. As in the prior quarter, this outlook assumes today's macroeconomic conditions as a stable baseline for the remainder of the year. Considering third quarter trends and historical fourth quarter performance, we believe that some degree of discretionary media investment is subject to greater variability, both to the upside and the downside from factors like pull-forward consumer demand, inventory levels, new model launches and manufacturer incentives. We are also reaffirming adjusted EBITDA margin outlook for fiscal 2025 between 29% to 31%, reflecting disciplined cost management, high contribution margin from pricing initiatives and revenue growth. Looking ahead, we remain focused on execution and are confident we will deliver improved operating and financial results. And with that, I'd like to open the call for Q&A. Operator? Operator: [Operator Instructions] Your first question is from Tom White from D.A. Davidson. Thomas White: Two, if I could. I guess, first off, just on the drivers of revenue in the third quarter. It was impressive to see that you delivered a bit of kind of upside versus kind of expectations on revenues despite national kind of declining sequentially when I think we all have our fingers crossed that it might be up a little bit. So just can you help us -- I guess what I'm trying to understand is on dealer revenue, kind of the -- obviously, you guys are doing stuff on repackaging and product. But maybe first off, just like on the industry backdrop and you added dealers again for the third straight quarter. It sounds like you're going to add dealers again, and it sounds like marketplace is kind of maybe one of the main areas where you're adding dealers. I don't know, how would you kind of characterize how dealers are sort of navigating the current just kind of industry backdrop? Like are they leaning into you guys on marketplace because they're -- they need to find new sources of demand? Is it because of maybe the word is getting out that some of the new media stuff that you're adding to the higher tiers is really attractive. Sorry, it's a long-winded question, but just maybe just trying to unpack that a little bit. And then I have a quick follow-up. Alex Vetter: Tom, thanks for your question. I'll start, maybe then Sonia can give some color on the revenue mix. But I'll start. Obviously, manufacturers have got some near-term headwinds that certainly are impacting their business. We feel good about the business because overall enthusiasm for our audience, particularly the concentration of new car shoppers that we have in our marketplace, remains scaled, healthy and strong. And so the vast majority of our OEM partners are leaning in, not only this year, but also next year. We did have some pullback in the quarter from 2 OEMs that were temporary in sentiment, not performative, meaning that they had their own internal issues that delayed their investments with us in the period. That's why we feel fundamentally bullish about the business overall and our ability to continue to grow OEM revenue heading into next year and beyond. I think on the dealer side, it is a little bit of a mixed bag right now. I think dealerships are struggling with softening demand. And the vast majority of dealer investments are chasing impressions and clicks across the Internet. And I think the smart dealers are realizing tapping into in-market car shoppers who are actively in market is a much surer path to sales. And so we're pleased with dealer adoption not only in the quarter. And as you noted, that growth continued into October. And so we're feeling good about dealers realizing the strength of our scaled audience. Certainly, some of the product innovation that we're doing on the AI front has garnered some dealer interest as well. But ultimately, we feel like the market is realizing our strength and our value. Sonia, do you want to comment on the revenue buildup? Sonia Jain: Yes. Thanks for the question, Tom. Just to add a little bit more incremental color. I mean, I think we're pretty pleased to see growth across all of our dealer product lines. Repackaging was probably the most immediate benefit to the quarter as you think about revenue. We had repackaging in marketplace with upgrades into premium and then the launch of our new Premium Plus package. And also, we continue to work on optimizing our website packages. I think the new dealer customer adds we've had in kind of really since the beginning of the year with the exception of January, we've grown dealer count month-over-month is really just adding additional fuel to how we think about the opportunity to continue growth on a go-forward basis as we upgrade and cross-sell those incremental new dealers coming into the mix. Thomas White: Okay. That's really helpful. Maybe just a quick follow-up on that. I think I heard you say that in marketplace, maybe 70% of the dealers were on something other than just sort of the base tier, but it was lower in websites. So I guess as you think about -- how should we think about like what products you might maybe add to higher tiers in website to kind of get -- to get folks to upgrade? Is it more like kind of media add-ons? Or just any color you can share there and maybe a time line for how you expect that to roll out? Alex Vetter: Yes. Look, I think one of the strengths of our platform strategy, Tom, is that our innovation can take place on our marketplace, and then we can deploy that technology to our dealer partners on their website. So one of the big benefits that our website customers enjoy over the last year is the fortification of our cloud infrastructure to make sure dealer websites are meeting and beating core web vital standards because we're able to leverage our larger infrastructure to optimize speed and performance. That's sort of an underlying benefit of our platform model. I think if you look at what we've done on Cars.com with launching Carson and OpenText, generative AI search, we can now deploy that technology on dealer websites. So that's one of the utilities that we're looking ahead towards next year. But then obviously, just even indexing dealer websites into the LLM. We use Cloudfare technology to help index Cars.com listings into the AI models. And now that we have our dealer websites fortified with Cloudfare as well, we can do more for dealer websites and get their content indexed in the LLMs as well. So I think there's multiple benefits for dealers running on our backbone platform, but the product innovation is accelerating in the company, and we're excited to keep that going. Operator: Your next question is from Gary Prestopino from Barrington. Gary Prestopino: Sonia, really interesting when you're talking about the amount of entities that -- on dealers that have moved to repackaging and website that have moved to repackaging. You also gave some statistics on what the lift is in ARPD for some of these repackaging efforts, and I didn't quite get that. Sonia Jain: The lift to ARPD, I mean, I think overall, we're pretty happy to see the sequential momentum that we started to achieve in ARPD. So we saw quarter-over-quarter growth. And I think that puts us on strong footing as we look from Q3 into Q4 to continue to accelerate that. We didn't -- I don't think we gave specific color on the portion of ARPD that was driven by packages. But what may be helpful is to understand like the spread difference between a Premium and Premium Plus package. One of the key differentiators -- and those are marketplace packages, one of the key differentiators between those 2 packages is we bundled VIN Performance Media into the Premium Plus package. That's something that retails for around $1,500 a month, but obviously, for our Premium Plus customers since it's bundled, they're going to be getting a slightly better rate than that. But it will give you a sense for how we're trying to create differentiation, not just in price, but also in terms of the overall value delivery we're offering to dealers across our packages. Gary Prestopino: Okay. I thought I heard you say something about a 3x lift. So that's why I asked the question. And maybe I just typed... Sonia Jain: Yes. I did talk about that as like an example of platform value and how as we increase product penetration, we're able to really meaningfully lift ARPD. And I think the stat that I shared was that dealers who use our major product pillars will have a 3x higher ARPD than our reported average. Gary Prestopino: Okay. That's great. That's what I wanted to get to. And then Alex, in terms of both AccuTrade and DealerClub, it's good to see that these things are starting to get more traction. But in terms of appraisals versus actual sell-through to the dealer from the appraisal, can you kind of slap some metrics on that? And then in terms of DealerClub, I know it's real early, but if you could give us some indication of what kind of volume is going through DealerClub, that would be real helpful. Alex Vetter: Sure, Gary. Well, first of all, we were really pleased with the growing dealer participation in AccuTrade as well as the improving appraisal volume. It's showing what we believe is a very durable trend of dealers realizing that sourcing cars directly from customers is a far more profitable strategy than traditional or legacy auctions. And so that realization is helping every dealer recreate the advantage of creating more inventory in their own service lane, which increases our supply. And then also, it creates demand within their own dealership because now their customers need new cars. And so we think this is a very durable strategy that dealers are adopting. You're seeing dealers talk more at 20 groups about how they can source more cars directly. And we've got the tooling to enable them to do that at scale and on a very low-cost basis. When you think about the cost of an AccuTrade subscription, it dwarfs what buying cars at auctions is costing the industry. So again, very healthy trends on dealer adoption and appraisal volume. I think DealerClub obviously complements this strategy, which is enabling dealerships to trade cars amongst themselves as a collective as opposed to paying the mighty toll booth operator, the physical auction. And so dealer adoption on DealerClub, we're pleased with it. As you know, it's very early stage. We're barely getting started here with DealerClub, but we're pleased with the initial momentum that the platform is generating on a very low cost basis because it's part of our platform strategy, meaning that we're leveraging the infrastructure that we have today in-house. Dealers are pleased that now we're showing them their aged inventory from our marketplace in the club, and they can immediately launch those cars to a wholesale auction with limited to no additional data entry. And so stay tuned. We're going to continue to invest in the product platform and give dealers more tooling that makes their workflow even easier, but very pleased with the initial momentum, both with AccuTrade and DealerClub. Operator: Your next question is from Rajat Gupta from JPMorgan Chase. Rajat Gupta: I had one broader question on just the competitive landscape. One of your peers recently announced their intention to go private. We've had some tough results from some of our other public peers on the marketplace side, on the auction side, on the used car side. I'm just curious that if you're observing any changes in the competitive landscape, be it pricing, be it more adjacent players maybe participating in the market. And I'm curious if anything has taken a step change in recent months that you're seeing? And if anything, like how are you planning to navigate that? And I have a quick follow-up. Alex Vetter: Yes. Look, Rajat, thanks for the question. I think on the competitive landscape, while there could be changes in terms of public versus private, we look at the competitive landscape a little bit differently in that dealerships are trying to drive traffic to themselves directly, and they're spending inordinate amounts of capital trying to interrupt consumers, while they perform other tasks to drive them into their stores. The benefit of our platform strategy is we're the largest concentration of organic car shoppers that are spending their shopping time researching and deciding what and where to buy on our platform. And we think savvy dealers are realizing that interruptive advertising is less efficient than native marketplace traffic that we can source and drive consumers directly to their stores, particularly as average dealers are trying to compete with Carvana and larger platforms using Cars.com as a demand engine for their business, we think, is a no-brainer. And so I look at the competitive landscape more about how do we get dealers to spend less on Google or less in traditional media and do more digitally first and foremost. I've got tons of respect for my digital peer set. I know auto is a very competitive category, but we feel very confident because, again, we source the majority of our traffic organically or directly. And so we're a complement to dealers and their advertising mix. I also will say our platform strategy is differentiated. We're now powering north of 9,000 dealer websites, helping them optimize their retail presence online. We're giving them tools to operate their business more -- with more self-sufficiency, which we think we can help overall bring their profitability to new levels. And so we're excited about our innovation road map on AI and what that can do and help dealers add capabilities to their business. And again, like marketplaces are competitive, but we've got a much more differentiated and ambitious strategy. Rajat Gupta: Understood. Understood. That's helpful. And then within your dealer demographic, I mean, is it possible to provide a split across if it's a meaningful difference across like luxury, domestic or import on the franchise dealer side? I ask only because we're starting to see some of the European brands feel the brunt of tariffs. It looks like October started off a little weak for those brands. I'm just wondering if that can have any meaningful impact on churn rates, on RPD for your business. And just curious if you're hearing anything as well on that front. Alex Vetter: Well, listen, I know it's a very dynamic marketplace right now. As you know about our business that we tend to skew upmarket. The bulk of our dealers are franchise dealerships. The bulk of our audience tends to be late model, even new car shoppers. That's why we have a large OEM business, unlike our peers because manufacturers know that new car shoppers are also considering late model used. And so we tend to skew upmarket and therefore, don't feel some of the same pressures that perhaps some of the credit challenged or lower end of the market may experience. And so we feel very fortified heading into next year in that the bulk of our audience tends to be more affluent, higher household income. And then our dealer base also remains the stronger side of the market as well with franchise dealers making up the majority of our revenue mix. Rajat Gupta: Understood. Maybe just final one on capital allocation. You're starting to see like a return back to top line growth. You're seeing some good progress with like dealer additions. I'm curious if we can expect -- I'm just trying to see like how you rank order capital allocation today. Is buyback still the #1 priority? Are there other avenues that you're looking at? Sonia Jain: Yes. No, thanks for the question. I think we are still committed to share repurchases as an important portion of our overall capital allocation strategy. Pleased to see how kind of the growth in adjusted EBITDA, in particular, is helping to bring that leverage down. Our net leverage ratio continues to kind of improve. But we're tracking towards the high end of our share repurchase range based on how we've been buying back on a year-to-date basis, and we still see the upside there. Operator: Your next question is from Marvin Fong from BTIG. Marvin Fong: Very nice quarter here. I would like to start on AccuTrade a little bit deeper on that. So kind of consistent in the 70 to 80 dealer addition range in the last 3 quarters. Just like to kind of get a little more color on the pipeline there? And should we kind of think of this as a good pace of adds? Or do you think you can accelerate that? And is it going to be sort of lumpy with sort of the larger enterprise or larger dealers in there or you kind of expect [indiscernible]. And then can you just remind us on that large dealer group that added about half the adds this quarter, how many more stores are in their system that you haven't penetrated yet? Alex Vetter: Yes. Well, first of all, look, we're pleased to close an enterprise deal last quarter for AccuTrade. And that, I think, was about -- just about half the dealer count growth in the Q because we still have steady dealer adoption and growth. We're also basically continuing to see dealer group interest in standardizing their vehicle sourcing strategy, which we think is a big tailwind for AccuTrade because we can provide dealer groups consistent tooling that puts a process in place that they can manage their vehicle sourcing strategy with tools that give them enterprise leverage and consistency in how they run their operation. So we're seeing strong interest and continued dealer demonstrations and a healthy pipeline there. We're also hearing dealers asking us for more inventory syndication capabilities with AccuTrade. So that's on our innovation road map, which could be another tailwind. But we're overall pleased with the organic momentum we have in our dealer count. We think enterprise deals with larger dealer groups can continue to be a strong addition to our platform if we are able to secure more of these enterprise deals in Q4 and beyond. But this is a slow roll strategy that will scale over time, and it certainly adds meaningful ARPD and a high reoccurrence of revenue because the dealers that standardize with AccuTrade, not only does that revenue stay sticky in our platform, but it has a halo effect for our other subscription offerings as well, including DealerClub as well. So we're feeling good about the business. Marvin Fong: Got it. And second question is on AI, everyone's favorite topic. And I guess I'd ask it a couple of different ways. So first, are you seeing any meaningful traffic today that's coming from like a ChatGPT type service? And how -- if so, how is the behavior of those customers? Does it convert to leads any better than other traffic? Alex Vetter: Yes. Well, first of all, thanks for the question. On the AI front, we're very pleased. As we mentioned during the call, when you look at all the leading AI consumer engines, we are, in many cases, 2x our nearest closest publicly traded peer. And so that is a testament to the strength of the Cars.com brand and our decade-long commitment to independent expertise and editorial depth and breadth and quality. And so our strength there is being played back to us by these LLMs that recognize our authority. As you know, auto is a multi-touch omnichannel experience, meaning consumers are seeking out multiple destinations prior to purchase. Our brand strength and our authority in these engines, while it may not generate a ton of traffic today, it is amplifying our brand strength, which is why we had record traffic in Q3 and feel very strong about continued momentum of our marketplace. Consumers are going to seek out trusted independent expertise in auto and these new AI models are firming our brand strength. And so we feel very good about the advent of AI and what it can do for our business over time as well. Sonia Jain: I would just maybe add in addition to what Alex was talking about in terms of how we're showing up in the various like AI search tools, we're also really pleased with how leveraging AI and natural language search on our own marketplace is helping to drive increased consumer engagement. We see on the order of 3x more vehicles saved for consumers who use Carson. They're looking at 2x more listings. They return more frequently. So we're actually playing this as like it's a multipronged strategy, I really believe, to leverage AI to the benefit of the business, and we're seeing it translate into real engagement numbers. Marvin Fong: Right. And that was sort of my second part of the question, I guess, to Carson, are you able to see how many people who are using Carson or your other AI-related search tools, are they purchasing or more attribution can be given the Cars if they are using Carson compared to someone that's not using the AI tools? Or is it too early to say? Alex Vetter: Yes. Obviously, this is still a category where the majority of time is spent online and the purchase is offline. And we know that dealer CRMs grossly under recognize our value delivery. I mean there's only 5 million cars retailed every month in this country, and we know we're saturating the majority of car buyers on our platform. What I like about what we're seeing with Carson is that users are saving more vehicles in their search history. So they're coming back at 2x the rate of other shoppers. They're generating more leads compared to people that are using directed search as opposed to more exploratory. We also know that 70% of our users are undecided on make and model selection. So we're going back to OEMs who previously maybe haven't realized the power of our search engine that they can influence undecided shoppers on our platform. And we're seeing higher conversion rate of these users in terms of tangible leads to dealers. And so consumer engagement is critical to thrive in any marketplace, and Carson is showing us a lot more potential what we can do on the user experience front to connect brands and dealers to our audience using AI as an advantage. So I expect to see a steady quarterly stream of innovations here that both improve user experience and also drive down our operating costs. Operator: Your next question is from Khan Naved from B. Riley Securities. Naved Khan: Maybe just on the marketplace repackaging initiative, I know you've been using opt-ins for dealers to kind of migrate up to the higher tier. Are there -- is there any plan to kind of accelerate that maybe so that more of the dealers can migrate to the higher tiers? Or do you continue to see it as an opt-in move? That's my first question. And the second question I have is just around the traffic growth kind of -- can you just maybe talk about organic versus paid mix and AI overviews, if it had any impact at all, at least from the headline numbers, it looks like not, but just talk about how you're thinking about the traffic. Alex Vetter: Sure. Well, first of all, our sales -- I'll start, Sonia, and then you can maybe comment on the repackaging. I think our sales go-to-market motion is constantly showing dealers the strength of upgrading to our premium tiers. And we've got demonstrable data that shows the more dealers spend, the more value and market share they can get on our marketplace. And so that will be a rolling benefit for us to educate dealers on the strength of higher tiers. And as Sonia pointed out earlier, like we've got a lot of headroom to go there on the repackaging front. And I think we can also continue to introduce new tools and features that help dealers gravitate towards higher spending levels on our marketplace and even cross-selling other solutions. I think also on the AI front, this is early innings. We're really pleased with the initial response that we're seeing with consumers using AI in our marketplace. We also are pleased with how we're showing up, organically, in all the leading LLMs and the AEO optimization strategy, I'd say, is in the early stages here, but our brand strength and our unique content certainly give us distinct advantages to our peers. I don't know, Sonia, what else you'd add to that? Sonia Jain: No, I think, Alex, you covered it really well. I was just going to add on repackaging. We continue to be focused in on the opt-in model. It buys us better outcomes overall with the dealers when they're bought into the rationale and the expectation of why they're moving up-tier. And we've seen good traction with it, right? Like I think we cited a stat in earlier around Premium Plus and we saw a 50% increase in Premium Plus from September to October. So we'll continue to focus on the benefits of moving up-tier in terms of the value delivery creation. Operator: Your next question is from Joe Spak from UBS. Joseph Spak: Sonia, first question just on the guidance. The way you guide obviously give some decently wide ranges based on your disclosures. But if I look at sort of the past few years seasonality, it looks like 4Q EBITDA is about 10% higher quarter-over-quarter, which would mean something around $60 million, which obviously clearly falls within that implied range. I just want to make sure we're all level set. Is that sort of like a good level to calibrate upon? And what do you really think sort of drives the higher end versus the lower end here with basically 2 months left in the year? Sonia Jain: Yes. No, this is a great question. Thank you. I think in terms of adjusted EBITDA, what the benefit that we really saw in Q3, some of it came from revenue, some of the high flow-through on revenue. Some of it came from continued cost management. And then a portion of it was a little bit more timing oriented. So we feel pretty comfortable with our overall adjusted EBITDA range. But I would say getting towards the higher end of that range probably requires some -- a little bit more of that episodic revenue to come in. That tends to be a little bit higher margin. So it would require a heavier lift on, let's say, the OEM and national side of the business to get closer to the high end of the range. Joseph Spak: Okay. And the update there was there's still some pause, and I know they committed to that spend, but it could bleed into next year. Is that still a metric? Sonia Jain: Yes. We're seeing a little bit more like kind of like we talked about in September, some of that pressure has been continuing into October. Now as I mentioned, periodically, we will see as we get towards the end of the year, some of them will lean into those budgets a little bit more. And also, I think some of the overhang production numbers, where SAAR is sitting right now are probably a little bit of a drag on expectations as well. Joseph Spak: Okay. And then on Carson, and I apologize, this might be a very ignorant question, but I'm just trying to sort of understand all the AI stuff. Is it just trained on like the data you have access to, like your dealership customers? Or is it broader? And then out of curiosity, is there anything that prevents other AI agents from accessing the data you have on your site. It sounds like you actually want to feed that. But if you do, is there a way to guarantee that those other solutions almost like don't cut you out and go through your site and not around Cars.com. I don't know if that makes sense or I'm misinterpreting the technology, but if you could sort of... Alex Vetter: No. Joe, it's a great question. So thank you. So Carson, we're leveraging our data infrastructure to power and train Carson. We've got millions and millions of data signals flowing through our systems every day. And so Carson's intelligence continues to be self-thought and self-fed on all these automotive intentions and searches and behaviors. By the way, we put out a press release on Carson today, so you can read more about how consumers are interacting with Carson. Certainly, we let -- the large consumer-facing LLMs are able to train off our data as well. And so while there is risk that consumers can render answers on these other environments, what they do, do is attribute their knowledge to Cars.com. And we think that is incredible brand exposure and leverages our deep authority to make consumers aware that Cars.com has knowledge. And automotive is uniquely a multi-touch category, unlike a lot of consumer goods or low price point purchases, consumers may only seek out 1 to 2 destinations, but buying a car is the second largest transaction in people's lives. They're going to seek out multiple sources of information prior to purchase. And we certainly think the LLMs constantly referencing Cars.com as an authority is going to continue to generate traffic directly to us as consumers go to get additional information, research on which dealerships have the best reputations, what they could expect to pay, any OEM incentives that are available. There's just a lot of information consumption in this category that makes me certain that no one destination can disrupt the 20-year strength of our brand and our content expertise. Operator: [Operator Instructions] There are no further questions at this time. Please proceed with closing remarks. Katherine Chen: Thanks, everyone, for joining the call. We'll see some of you on the road very soon, and I appreciate the support, and have a good day. Thank you. Operator: Ladies and gentleman, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.
Operator: Good afternoon, everyone, and thank you for participating in today's conference call to discuss Clarus Corporation's financial results for the third quarter ended September 30, 2025. Joining us today are Clarus Corporation's Executive Chairman, Warren Kanders; CFO; Mike Yates; President of Diamond Equipment, Neil Fiske; and the company's External Director of Investor Relations, Matt Berkowitz. Following the remarks, we'll open the call for your questions. Before we go further, I would like to turn the call over to Mr. Berkowitz as he reads the company's safe harbor statement within the meaning of the Private Securities Litigation Reform Act of 1995 that provides important cautions regarding forward-looking statements. Matt, please go ahead. Matthew Berkowitz: Thank you. Before we begin, I'd like to remind everyone that during today's call, we will be making several forward-looking statements, and we will make these statements under the safe harbor provisions of the Private Securities Litigation Reform Act. These forward-looking statements reflect our best estimates and assumptions based on our understanding of information known to us today. These forward-looking statements are subject to potential risks and uncertainties that could cause the actual results of operations or financial condition of Clarus Corporation to differ materially from those expressed or implied by the forward-looking statements. More information on potential factors that could affect the company's operating and financial results is included from time to time in the company's public reports filed with the SEC. I'd like to remind everyone this call will be available for replay starting at 7:00 p.m. Eastern Time tonight. A webcast replay will also be available via the link provided in today's press release as well as on the company's website at claruscorp.com. Now I'd like to turn the call over to Clarus' Executive Chairman, Warren Kanders. Warren Kanders: Good afternoon, and thank you for joining Clarus' earnings call to review our results for the third quarter of 2025. I am joined today by our Chief Financial Officer, Mike Yates, who will cover our third quarter results, including Adventure segment performance as well as Neil Fiske, who will discuss our Outdoor segment. During the third quarter, despite a difficult global consumer market, we made progress executing against our strategic plan. Our quarterly results reflected incremental financial improvement as we continue to reshape our organizational structure, product offering and go-to-market approach while also balancing the real-time evolution of global demand trends and consumer sentiment. Clarus generated net sales of $69.3 million, in line with our expectations, which was a 3% increase over the same period last year and quarterly adjusted EBITDA increase of 15%. Mike and Neil will detail the segment figures, but at a high level, these increases were driven by strong outdoor demand in North American wholesale, our largest channel, and success with the new adventure customer in Australia and sales from RockyMounts. A key highlight in the Outdoor segment has been the success of the revamped Black Diamond apparel line, which saw sales growth of 29%. Apparel is critical to our growth strategy, and we continue to be encouraged by positive signs that our new approach to apparel and enhanced creative direction is resonating with customers in both the retail and direct-to-consumer channels. Neil and his team have done an outstanding job prioritizing our best customers and our most profitable products and styles, evident in the stronger quality of revenue. Full-price product sales increased, sales from discontinued merchandise declined significantly, and the highest margin A styles represent approximately 70% of our inventory, which is a figure that has continued to trend upward in recent quarters. Now turning to our Adventure segment. We continue to make operational progress during the third quarter and have been pleased with the direction of the business under the new leadership team. There is significant work to do, but our simplified organizational structure is a step in the right direction. Of note, Q3 SG&A was down $600,000 year-over-year, driven by the reorganizations we completed in November 2024 and July 2025 as well as other expense reduction initiatives. On an annualized basis, we have taken out $1.1 million of fixed costs from the business in our most recent reorganization. Counterbalancing these positive developments, macro trade and consumer headwinds continue to weigh on near-term financial results across both segments. While the latest trade deal should ease some of the tariff burden, Outdoor and Adventure margins and cash flows were again pressured by increased tariff costs and cash outlays in the third quarter. Our Outdoor segment also dealt with significant losses on FX contracts in 2025, which amounts to $600,000 EBITDA impact in the third quarter. When these contracts roll off in 2026, we will see a lift in product margins. At Adventure, margins came in below expectations, primarily due to a combination of tariff-related headwinds on products sold in the United States, higher freight costs to customers and aggressive pricing of slow-moving inventory as we work through SKU rationalization and overall inventory simplification. In addition, pricing in several of our markets, particularly Australia, has not kept pace with inflation or our cost base, which has contributed to margin erosion. We will continue to take proactive steps to address these issues, including price increases in our U.S. RockyMounts line and a planned pricing reset in ANZ to restore profitability. Overall, in the face of a challenging macro environment, we continue to take decisive actions to enhance margins and set the stage for sustainable growth and profitable growth over the long term. With that, thank you for being with us today, and I will turn the call over to Neil. McNeil Fiske: Thanks, Warren. Turning to Slide 6, I will review the Outdoor segment's Q3 performance and our expectations for the remainder of 2025. Overall, we delivered solid results for Q3 in the face of stiff macro trade and consumer headwinds. I'm pleased with our continued progress, the strengthening of the Black Diamond brand and reshaping of the business to be more focused, more profitable and more competitive. Revenue, gross margin and EBITDA were all up for the third quarter compared to prior year's third quarter, excluding PIEPS. Costs were down and inventories ended the period in great shape. As with my last update, I'll address tariffs and currencies at the top of my remarks. My remarks exclude the PIEPS brand, which we divested on July 11, 2025, in the year-over-year comparisons. First, tariffs. In early May, we initiated the first phase of our tariff mitigation plan, which included raising prices, negotiating vendor concessions, airfreighting products where necessary and accelerating our exit out of China. On our last call, we estimated that in 2025, we could offset roughly half of the tariffs that were in place at the time, which included 50% on steel and aluminum, 54% on China and a 10% reciprocal tariff on most other countries. Since then, reciprocal tariffs have increased from the original 10% to a range of 20% to 35% or more. We estimate the unrecovered impact of tariffs on EBITDA will be $2.5 million to $3.5 million in 2025. With the second round of tariff mitigation actions going into effect in 2026, we expect to offset about 70% of the annualized tariff impact next year or approximately $7.8 million out of the $11 million in tariffs, leaving us again with approximately $3.2 million in unrecovered tariffs. We believe that $3.2 million represents the downside as we see it today. Further reductions in the tariff burden will come over time from sourcing, product reengineering and new product introductions, but those initiatives will take time to fully materialize. Next, let me address currency. While we benefited from the translation of the higher euro to the dollar, we also incurred significant losses on FX contracts in 2025. Year-to-date, these losses, which amount to $1.3 million swing year-over-year flow through and suppressed product margins. We roll off these contracts at the end of 2025. Now let's turn to operating results. Revenue for the quarter was ahead of the prior year by 0.7%. But breaking that number down further, we showed a solid growth of 4% in our full price in-line business and a 37% reduction in sales from discontinued merchandise, again, reflecting a healthier business and stronger quality of revenue. By region and channel, North America wholesale, our largest channel, had a very strong quarter, up 15.6% from the prior year period. North America digital D2C, which represents 13.6% of the region's revenue, was down 16.5% as we continue to pull back on pro channel sales. We also saw some sales pullback from our price increases as we are generally ahead of the market in implementing tariff-impacted prices. Margins, however, lifted 820 basis points, and we were actually ahead of the prior year period on channel contribution margin dollars, reflecting a much improved profitability equation for the channel. In total, North America was up 9.1% versus prior period. Europe wholesale without the impact of FX contracts was up 2.9% in dollars and down 3% on a constant currency basis. Europe digital D2C, which is 5.8% of the region's revenue was down 16% in dollars and 21% in constant currency. Here again, we pulled back on pro sales and discounting, which resulted in a 570 basis point improvement in margin. In Europe, without the impact of FX contracts, the region was down 1.9% in revenue, 4.0% in constant currency. Our international distributor channel was down 28.9%, reflecting the timing shift discussed on our last call, wherein we have realigned our deliveries to better suit the needs of our international markets. We have now fully cycled those 2 shifts from Q1 into Q4 and from Q3 into Q2 and expect normalized comps going forward. Within our business units of apparel, mountain, climb, ski and footwear, we saw breakout growth in apparel and solid sales in mountain, offset somewhat by softness in climb, a strategic pullback in ski and narrowed focus in footwear. The decline is consistent with broader industry trends based on point-of-sales data. I want to call out, in particular, the strong momentum we are seeing in apparel across channels and regions. Apparel was 23% of our mix in Q3, up 490 basis points from a year ago. Total apparel sales were ahead by 29% versus the prior period, with in-line sales up 40.5% and discontinued merchandise down 24%. Margins meanwhile were up 650 basis points for the apparel business unit. Overall, a great story upon which we expect to build. Turning to gross margin. Our results reflect the progress we are making in building a healthier full-price premium brand. Gross margin was ahead of prior year by 320 basis points. Excluding the impact of FX contracts, comparable gross margins were up by 410 basis points. Operating expenses, excluding restructuring and legal costs from both periods, were down 4.6%. Adjusted EBITDA came in at $4.7 million for the quarter, up 9% to prior year period. Inventories ended the quarter in great shape. We were up 2.1% compared to the prior period at $62.8 million, largely due to increases in capitalized duties from higher tariffs. Inventories of discontinued merchandise is down $2.1 million or 25% at quarter end. We are now near our target of having 70% of our inventory against our best-selling A styles. Operationally, we've made great strides in rebalancing our supply chain in response to the current tariff environment and expect to see new country of origin production up and running in 2026 for headlamps, climbing helmets and other categories historically sourced from China. We have also deployed a new state-of-the-art sales and operation planning capability, which is expected to better match supply and demand globally and within each channel. Organizationally, the company is leaner, more focused and more productive. Lastly, I want to give a big shout out to our creative teams. We have elevated the creative expression of the brand through our new website, recently launched catalog and refreshed marketing assets. While our product line exudes that rare alchemy of beautiful design and superior engineering that has always set BD apart. The brand looks better than ever, and our creative just keeps getting stronger, fresh, original, progressive and true to who we are. Looking ahead to the fourth quarter, our outlook is more cautious. Consumer sentiment remains low. Promotional activity seems to be on the rise as the broader market struggles to balance cash and working capital requirements. Macro factors continue to cause uncertainty and disruption. Tariff impacts are not yet fully understood nor manifested. Retailers are taking a conservative stance. And so against this backdrop, we'll continue to simplify, reduce costs and stay laser-focused on the fundamentals of our strategy. In closing, I'd like to thank our teams around the world for their incredible perseverance, creativity and drive in the face of this turbulent often chaotic and certainly unpredictable global environment. With that, I'll turn it back to Mike. Michael J. Yates: Thanks, Neil, and good afternoon, everyone. On today's call, I'll provide a brief comments on the Adventure segment and we'll then conclude with a summary of the third quarter financial results followed by the Q&A session. Let's take a closer look at Adventure. Our team delivered 15.9% year-over-year growth versus the third quarter of last year. Excluding the RockyMounts acquisition, organic growth was 7.4%, which is a solid step forward. Consistent with our strategic focus on expanding our customer base, a strong pipeline filled with a new Rhino-Rack customer in Australia drove much of the growth, which was partially offset by declines in the recovery product line. Adventure's adjusted EBITDA came in at $349,000, which is about $100,000 ahead of last year. Gross margin at Adventure continues to be pressured, mainly due to additional tariffs in the U.S., inventory clearouts and cost of freight to customers. We made price adjustments to the RockyMounts line in the U.S. at the end of the third quarter, which will help offset the tariff impact and protect our gross profit dollars moving forward. In Australia, we haven't done a good job capturing price on an annual basis. The lack of price capture has meaningfully contributed to margin erosion, and we are implementing an updated pricing strategy for ANZ that will be one of our near-term actions to recover profitability. With that said, we do expect gross margin percentages to stay below historical levels as these changes work through our P&L. On a more positive note, we reduced SG&A by $600,000 versus third quarter of last year. That improvement came from the reorganizations we've completed in November of 2024 and July of 2025 as well as tighter control over travel, marketing and event spending. As Warren noted, on an annualized basis, we have taken out $1.1 million of fixed costs from the business from our most recent rightsizing actions. Under the new leadership of Trip Wyckoff, there's a renewed focus on executing the next phase of the Adventure growth strategy. As detailed in prior calls, we've previously identified investment opportunities to expand Adventure's global presence. While making these investments, we have experienced declining sales and profitability trends. We are not abandoning these initiatives. However, as we balance growth objectives and operational improvements, our focus is on serving our existing customer base with better products and more fitments that should drive improved profitability. The past few months have been about getting clear on our challenges and resetting our direction, both in the short term and on the longer-term horizon. We're focused on getting leaner, more efficient and setting ourselves up to grow the right way. In August, we opened our 3PL warehouse in the Netherlands. We started conservatively with the inventory position, and we anticipate new customer orders shipping from the facility in the fourth quarter of this year. The new facility helps us serve customers more effectively in the Nordic, U.K. and European markets, and it opened doors with smaller and midsized accounts that previously couldn't import full containers from Australia. This is exactly the kind of strategic growth we want to see. On the U.S. tariff front, while the added costs are a headwind, we've determined it still makes sense to maintain production in Australia and China for now. About 75% of our total volume isn't impacted by these tariffs. So it wouldn't make sense to increase FOB costs across the board just to avoid tariffs on a smaller portion of our sales. We're constantly challenging our supply chain to move production when it's financially sound to do so. In the meantime, we've invested in sourcing some high-volume MAXTRAX traction board production in Salt Lake City, a big step towards greater control and reliance. Our Asian supply partners have also stepped up, helping offset some tariff costs with unit price reductions. We'll be adjusting Rhino-Rack pricing in the U.S. on December 1 to stay ahead of further pressure. Right now, we're in the high season of our core Australian market, and we're seeing healthy early spring sell-through. For the rest of the year, our priorities are clear: drive profitable top line growth while keeping SG&A and personnel expenses tightly managed. Looking ahead, our biggest opportunity lies in product innovation. This has been an underperforming area for a few years, and it's where we're focusing our energy. We're adding resources, expanding our vehicle fit team to move faster and bringing in experienced product developers with deep category knowledge. We've built a 3-year innovation road map that we're confident will disrupt multiple product categories and help us maintain leadership in the Australian market while breaking through with share gains in the Americas and rest of world. This has been a challenging year for Adventure. There's no doubt about that, but it's also been a pivotal one. We face the hard truths, we're taking meaningful actions, and we're positioning the Adventure business for a much stronger, more innovative future. So with that, now let me turn to the consolidated and segment financial review on Slide 8. Third quarter sales were $69.3 million compared to $67.1 million in the prior year third quarter. The 3% increase in total sales was driven by the increase in the Adventure segment of 16% and a decrease in the Outdoor segment of 1%. However, as Neil noted, Outdoor revenue was actually up 1% when you exclude PIEPS from both periods. The consolidated gross margin rate in the third quarter was 35.1% compared to 35% in the prior year quarter. Gross margin was impacted by higher sales volumes at Adventure and a favorable product mix at Outdoor. These increases were partially offset by an unfavorable product mix within Adventure, primarily driven by higher RockyMounts sales in North America, U.S. imposed tariffs impacting both segments and lower volumes at Outdoor after the sale of PIEPS in July along with the headwinds caused by losses on the foreign exchange contracts at Outdoor. Adjusted gross margin was 35.1% for the quarter compared to 37.8% in the year ago quarter. We did not adjust gross margin in the third quarter of 2025, but I want to note that actual gross margins include significant headwinds from tariff and FX, a couple of items that have been outside of our control. The significant efforts at Outdoor under Neil's leadership to improve gross margins are being realized, but were partially offset by the tariffs and FX this quarter. Gross margin at Outdoor was 36.0% for the third quarter of 2025 compared to 33.2% in the prior year. This performance is outstanding and is exactly what we were expecting to see prior to tariffs and the change in the euro rate. The results at Adventure are much more challenging due to the gross margin headwinds I just discussed. Adventure's gross margin was 33.2% for the third quarter of 2025 compared to 40.1% in the prior year. Now on to SG&A. Third quarter SG&A expenses were $26.2 million compared to $27.9 million or down 6% versus the same year ago quarter. The decrease was primarily due to lower employee-related costs, lower costs from PIEPS due to the divestiture and other expense reduction initiatives to manage costs across the segments and at corporate. Adjusted EBITDA in the third quarter was $2.8 million or an adjusted EBITDA margin of 4.0%. Our adjusted EBITDA is adjusted for restructuring charges, transaction costs, stock compensation expenses, contingent consideration benefits and other inventory reserves. Additionally, as noted in prior quarters, beginning in the first quarter of 2024, we adjusted legal costs associated with the Section 16(b) litigation and the Consumer Product Safety Commission DOJ matter known as the CPSC and DOJ matters. These legal costs were $1.0 million in the third quarter of 2025 and $3.5 million in total for the first 9 months of 2025. The third quarter adjusted EBITDA by segment was $349,000 at Adventure and $4.7 million at Outdoor. Adjusted corporate costs were $2.3 million in the third quarter. Let me shift over to talk about liquidity and the balance sheet. Free cash flow defined as net cash provided by operating activities less capital expenditures for the third quarter of 2025 was a use of cash of $7.0 million. This compares to a use of cash of $9.4 million for the 3 months ended September 30, 2024. Total debt on September 30, 2025, was $2 million. As a reminder, this debt is related to an obligation associated with the RockyMounts acquisition and will be paid in December of 2025. We have no other third-party debt outstanding. At September 30, 2025, cash and cash equivalents were $29.5 million compared to $45.4 million at December 31, 2024. We used $7 million of free cash flow in the third quarter. In early July, we closed on the sale of the PIEPS snow safety brand and realized the cash proceeds from the sale of the brand. I do expect the business to generate free cash flow during the fourth quarter consistent with our historical performance, and I expect our consolidated cash balance to be in the range of $35 million to $40 million by the end of the year. Let me spend now a brief moment on guidance. Regarding our full year outlook, we have again elected to provide -- to not provide 2025 guidance consistent with our position over the last few quarters. While we believe we have handled on the tariffs with effective countermeasures in place, ongoing uncertainty related to trade, consumer sentiment and the overall macroeconomic environment make it really difficult to confidently forecast the business. And currently, based on what we know about our order book and tariffs, we are satisfied that our actions to date are consistent with market conditions. However, due to the ongoing uncertainty, we believe it's best to remain cautious and continue to not provide guidance. In addition to my comments about our cash balance, our business historically has been seasonal with a 45%, 55% revenue split between the first half and second half of the year, and I believe we will continue to see that in the second half of 2025. Finally, I will add that revenue for the month of October exceeded our forecast for both segments. Let me move on to Legal. I'd like to provide an update on the outstanding Section 16(b) securities litigation matters that the company is pursuing as well as an update on the open matter with the CPSC and the Department of Justice. We continue to proceed in our lawsuit against HAP Trading, LLC and Mr. Harsh A. Padia. In early 2025, the court granted summary judgment in favor of the defendants. We subsequently filed a notice of appeal and are opening appellate brief. HAP has filed its opposition brief and our replied brief will be filed this Friday, November 7. Oral arguments will likely be scheduled in the first quarter of 2026. We also filed a lawsuit against Caption Management and its related entities and controlling persons. The defendants filed a motion to dismiss, which was denied. The case is in discovery phase with documents having been exchanged and depositions likely to be held during the first quarter of next year. In the meantime, a mediation is scheduled for November 25, 2025. With respect to the open matters with the CPSC and DOJ, in late 2024, the company was notified by the CPSC that the unresolved matter involving Black Diamond had been referred to the Department of Justice. In early 2025, the DOJ served the company and Black Diamond with grand jury subpoenas requesting various categories of documents related to Black Diamond's avalanche beacons. We are cooperating with the DOJ in responding to its discovery requests and have produced substantially all the documents requested. Additionally, in early 2025, the company received a letter from the CPSC requesting various categories of documents and information in connection with a new investigation into whether BDEL sold products that were subject to a recall. The company has cooperated with the investigation, responding in full to the CPSC's document request and has heard nothing further. In conclusion, turning back to our 2 core segments, we believe the actions we've taken to prioritize our best customers and our most profitable outdoor products and styles, together with a simplified organizational structure with an emphasis on product and fitment and adventure position Clarus for long-term success. Supported by a balance sheet with 0 third-party bank debt, we are committed to taking a prudent approach to capital allocation and managing our business to drive long-term market share gains while delivering sustainable value for our shareholders. At this point, operator, we're ready to take questions. Operator: [Operator Instructions] Your first question comes from the line of Laurent Vasilescu with BNP Paribas. William Dossett: This is William Dossett on for Laurent. So my first question was just parsing out the Outdoor segment sales, they were flat in the quarter, but Black Diamond apparel was up 29%. And so can you just parse out what was the offset to the Black Diamond strength? Michael J. Yates: Well, I'll let Neil expand too, but this -- PIEPS was essentially 0 in the quarter. So that's a year-over-year a headwind. The real challenge, and I think Neil covered in his remarks, was the D2C business. The North American D2C business was down 16.5% and the European D2C business was also down 16%. So the short answer is no PIEPS, D2C was weak across the globe and that offset the North American wholesale strength. And the apparel business is part of the North American wholesale, that's where we capture that as part of the wholesale business. William Dossett: Okay. I appreciate that. And congrats on the success of Black Diamond. And my other question would be on just how your retail partners are ordering for the spring of 2026 in the Outdoor segment. How much more conservative are they going to be in this backdrop? And as well while we're looking forward, just wanted to get any thoughts that you had on the holiday this year. I appreciate it. Michael J. Yates: Well, I would I can start with that. I think the holiday is always kind of a little bit of an unknown, right? The coming net... Warren Kanders: Mike, why don't you let Neil answer that question? Michael J. Yates: Yes, sure. McNeil Fiske: Yes. Let me -- on the first question, William, regarding spring, our order books look pretty good for spring and certainly reflects some caution on the part of our retail partners. But we -- our order book is up. And of course, ultimately, it comes down to how much of that sticks. But I think the indications are quite positive. And we feel like we have really good momentum in the wholesale channel, both with our big national accounts, REI and MEC as well as Amazon and real strength in specialty. So I think looking ahead to spring, we feel as good as we can in this environment about the strength of the wholesale channel. And so that's part one. Regarding the fourth quarter, I think that we're just cautious. And as Mike said, it's too early to tell. We do see the environment being more promotional. We see retailers being cautious and not wanting to take on too much inventory. But I would say 90% of the game is still to be played in the fourth quarter. So we're cautious. I think it's prudent to be cautious in this environment, but it's really hard to find a trend line at this point for Q4. Operator: [Operator Instructions] There are no further questions at this time. I will now turn the call back over to Mike Yates for closing remarks. Michael J. Yates: Okay. Great. Thank you very much. I want to thank everyone for attending the call this afternoon, and your continued support and interest in Clarus. We look forward to updating you on our results again next quarter. Thank you. Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining, and you may now disconnect. Everyone, have a great day. Bye.
Operator: Thank you all for joining us this morning. Before I turn the call over, I need to advise that certain statements made during this call today may contain forward-looking information, and actual results could differ from the conclusions or projections in that forward-looking information, which include, but not limited to, statements with respect to the estimation of mineral reserves and resources, the timing and amounts of estimated future production, cost of production, capital expenditures, future metal prices, and the cost and timing of the development of new projects. For a complete discussion of the risks, uncertainties, and factors, which may lead to the actual financial results and performance being different from the estimate contained in the forward-looking statements, please refer to Allied Gold's press release issued last night announcing quarter 3, 2025, operating and financial results. I would like to remind everyone that this conference call is being recorded and will be available for replay later on today. Replay information and the presentation slides accompanying this conference call and webcast are available on Allied Gold's website at alliedgold.com. I will now turn the call over to Peter Marrone, Chairman and CEO. Peter Marrone: Operator, thank you very much. And ladies and gentlemen, let me begin this conference call by pointing to the quote at the bottom of the first slide of our presentation, and I would like to repeat that quote. Let's not react to speculative headlines and geopolitical matters. We continue to operate normally. We refer to Mali in particular, and particularly in light of recent headlines. Let me begin by talking about the people of the country. They are industrious, entrepreneurial, and overwhelmingly in the country across the population, there is support for mining. Similar to many countries, the politics, geopolitical circumstances go on. Mostly, they are stable, sometimes changes occur. But business goes on, and this is especially true for mining. Recent disruptions in fuel supply into the capital of the country, affect only the capital, and there are signs of improvement. Regional governments and internationally support has been offered. And national efforts to counter the factors that have disrupted the fuel supply have received local, regional, and international endorsement. Prolonged fuel shortages do risk civil unrest and other challenges. But so far, this has not occurred and fuel supplies have begun to enter the capital. While there has been unexpected government change in the country before, and this is true for many countries, it has not been the result of external forces, and that seems to be true now as well. And in those times of government change, I remind everyone that mines have continued to operate normally, production and cash flows were generated. We have no reason to believe that this is not true now, and we attribute that to the industrious and entrepreneurial nature of the people, who support business as usual regardless of political affiliation or affinity and regardless of localized conflicts. So with that then, our Q3 was certainly ordinary and normal course. We had solid production of just over 87,000 ounces that sets us up for a strong Q4. We had strong cash generation, just under $110 million of adjusted EBITDA and our operating cash flow of just under $200 million. We made significant progress on the Sadiola Phase 1 expansion and the Kurmuk development. Our all-in sustaining costs of $2,092 per ounce were down 11% as compared to the second quarter. As we had indicated with our second quarter conference call, we would expect, and we expect further reductions in Q4 with higher grades at Sadiola, particularly with the Phase 1 expansion completed over the course of the next few weeks into December. Operations are performing well, we're operating normally at Sadiola, and that carries strong momentum into the fourth quarter. At Agbaou production quarter-over-quarter from Q2 to Q3 was up 43%. We expect that sustained production to continue into Q4 and into next year. And at Bonikro, we're on plan, grades are where we expect them to be, recoveries and throughput improved. And again, we expect that that will continue into this quarter and the quarters to follow. We had adjusted EBITDA to conclude of $110 million, cash flow of just under $200 million and cash balances at the end of the third quarter of just over $262 million. What to expect then in Q4 and beyond? Sadiola and Bonikro will be notably higher. We indicated up to 40% higher in Q4 over Q3. We are almost halfway through the quarter, and we can see that production ramp-up progressing very well. Our Q4 costs are expected to improve. Momentum from that is expected to continue into the first quarter of next year and throughout the year. And we stand by the guidance of a production level for 2025 that is greater than 375,000 ounces, that sets us up for a consistent 100,000 ounces per quarter at improved costs, leading to improved financial performance and then Kurmuk kicks into production by the middle of the year. With that, ladies and gentlemen, let me pass the call to Johan, our Chief Operations Officer to go through our production in more detail. Johannes Stoltz: Good morning, Peter, and good morning, everybody. Thank you very much, Peter, for the headlines. I would like to start off with the -- on Slide 3, the operations, and starting off with Sadiola. The operations were stable and on plan. I was at Sadiola last week and operations are running normally. We're not seeing any logistic disruption and consumable inventories, including fuel remains at normal levels. The operation is running normally with noticeable improvements. Production is on track to meet the full year guidance with Q4 expected to be 40% higher than previous quarters. Phase 1 expansion remains on schedule for completion in December, enabling us to treat up to 60% fresh ore in the mill feed. Bonikro was on plan with higher grades, better throughput and recoveries. The stripping and maturity of Pushback 5 and Pushback 3 will provide us access to higher grades at lower cost in Q4. Agbaou production increased 43% quarter-on-quarter, as Peter also alluded to, and driven by higher grades and throughput and operational improvements. Overall, operations were on plan, positioning us higher production and lower unit cost in Q4. If we go to the next slide regarding the Sadiola Phase 1 expansion progress. The Phase 1 expansion remains on schedule and continued to advance through Q3 and into Q4. Mechanical installation of the new mill and crushing circuit is complete. The mobile pebble crusher is on site and ready for the December commencement. Engineering and pre-leach thickener is on its way to support higher fresh ore processing with Phase 1 nearing completion. We expect new commission circuit to be ready to receive ore late in the fourth quarter. At that point, Sadiola will be able to process up to 60% fresh ore through the plant, which will materially lift throughput rates, improved recoveries, and lowering processing costs. This expansion will bring additional flexibility into the operation and pave the way for lower cost and improved predictability. So in short, Phase 1 is on plan, commissioning begins in December, and it will set up structural setup change for Sadiola production and cost base. Moving over then to the Kurmuk progress. Kurmuk continues to advance on schedule. Engineering and the substantial complete and the site extension is well underway. The plant construction, including the mechanical erection, concrete works, and the key infrastructure such as water, the water dam is advancing. Logistics are active. Long lead equipment is on site. Initial ore supply has been established from both Ashashire and Dish Mountain. The plant capacity has been approved to the 6.4 million tonnes per year, which enhances the long-term production profile. Looking ahead, priorities to complete the mechanical and electrical infrastructure works, build up to the 3-month high-grade stockpiles, connect the power line, and advance to the pre-commissioning. Upcoming priorities include the completion of the construction, build the high-grade stockpiles, as alluded earlier, provide the line connection and for -- and the pre-commissioning. We maintain on track for first gold by mid-2026. And with this, I'd like to pass over to our Chief Exploration Officer, Don Dudek. Thank you. Don Dudek: Thanks, Johan, and good morning. Hello, everybody. One thing I want to emphasize for Sadiola, and it's something we tend to forget because of time. But this deposit has produced over 8 million ounces of gold, and we have 10 million ounces of mineral resources on the books. Because of the robustness of the system, we see the potential or we have an exploration goal to add another 3.5 million ounces of resources within the next 5 years. Including within that is about 1 million ounces of oxide inventory and resources. Our exploration strategy underpins our long-term production profile for this project and supports mine life extension at attractive returns. The oxide zones are located near infrastructure, and oxide boosts flexibility and profitability within our operations. Our drilling is focused on near-mine targets. And really, we're targeting those zones, which have higher-than-average grades, which again supports the long-term plan. And they also provide an optionality for production that will again service us over the long term. We have 19 years of mineral reserves, and we see this increasing over time, just again based on the robustness of the system. When you look at these systems in West Africa, a lot of the large gold zones, they really don't -- we haven't found the limits of them, and the limits are more defined by operation cost profile versus running out of mineralization. So that's something very important to keep in mind. In this last year, we've seen significant success at 4 different zones. And again, that was touched upon in the exploration news release. And these discoveries, as noted before, validate the scale and the scope and the potential of this mineralized system. Going forward, drilling will remain active into year-end, and continue through 2026 and beyond. We are prioritizing the targets with the highest potential, and again, with a focus on oxides. We're initiating new geophysical surveys over a 2.5 kilometer stretch of productive stratigraphy, that already has produced a couple of recent near-term gold deposits. This area has never been systematically tested. And as we march ahead with the drill, we keep on finding more mineralization. Our results from this work will be summarized in an updated mineral resource estimate in Q1 2026. And this update will capture new discoveries, oxide additions, and extensions. Furthermore, we plan exploration updates for Kurmuk in Ethiopia late this month, and for our project group in Cote d'Ivoire in early '26. With that, I'll pass things off to Jason to discuss the Q3 financial performance. Jason LeBlanc: Great. Thanks, Don. Good morning, everyone. In Q3, the business delivered another solid quarter of financial results. Adjusted net earnings were $0.29 per share and adjusted EBITDA came in at almost $110 million, reflecting strong operating performance and improving costs across the portfolio. We generated $182 million in net operating cash flow during the quarter and ended with a cash balance of $262 million, giving us strong liquidity into Q4 and as we finish up the construction of Phase 1 at Sadiola and at Kurmuk in Q2 next year. All-in sustaining costs were $2,092 per ounce, an improvement of 11% quarter-over-quarter despite higher royalties from gold price. So overall, Q3 delivered strong cash flow generation, improving costs and higher margins. More importantly, we're positioned for a stronger Q4 with a combination of increased production, lower unit costs and higher gold prices that will result in a step change in cash flow generation to end the year. As just mentioned, most imminently in Q4, we have our best production quarter of the year, driven by production increases at Sadiola and Bonikro in the range of up to 40% over Q3. At Sadiola, we wrap up the Phase 1 expansion and have the benefit of new oxide zones to complement higher-grade fresh ore that can now be processed through the new mill at a higher throughput rate than before. At Bonikro, our intensive stripping campaign over the last year is finishing up and the mine starts a higher-grade mining sequence with modest waste removal in Q4. But our improving performance doesn't end there. As we look to 2026, the operating and financial performance will transition to a higher sustainable platform with the completion of our development projects. Importantly, the predictability and operational flexibility of Sadiola and our Cote d'Ivoire complex improved prospectively. In Cote d'Ivoire, we moved to more direct ore extraction at higher grades with less waste movement. At Sadiola, we're able to primarily rely on the abundant higher-grade fresh ore reserves as primary plant feed for up to 60% of throughput. Oxides fill the balance of the mill compared with being the primary feed source in this and recent years. Furthermore, new oxide discoveries represent optionality to potentially increase production levels at Sadiola up to 230 ounces per year in the medium term. And finally, at Kurmuk, first gold is fast approaching. This will be a step change for Allied, adding a new long-life, low-cost asset that significantly increases group production and cash flow. Kurmuk is expected to be transformational to our portfolio and financial profile. On the chart here, you can see the production growth we're expecting in coming years. This will correspond to impressive top line growth in today's gold environment, the more impressive will be the leverage effect we see in EBITDA and cash flow generation, because of our fixed overhead and decreasing unit operating costs or AISC. With that, I'll hand things back to Peter for his wrap-up. Peter Marrone: Thank you very much, Jason. So in terms of -- just to conclude the presentation, upcoming milestones with our Sadiola exploration update, as Don mentioned, we have demonstrated value creation short term and long term, finding more oxides and expanding the already robust inventory of fresh ore. We have updates coming for our other mines. That includes an exploration update for Kurmuk in November and for the Cote d'Ivoire complex in January. Expect that we will have completed the Sadiola Phase 1 expansion late this year, literally over the course of a few weeks now. That has a huge impact on operational flexibility because of that abundance of fresh ore. We have an analyst and investor site visit at Kurmuk, which is expected early in Q1. We have the Sadiola Phase 2 expansion update, how we intend to progress to get to that 350,000 ounces to 400,000 ounces per year, which we plan to deliver in January next year. We have had a team in Mali and in Cote d'Ivoire last week on our reserves and resources to complete their work, so that we can provide an end of year reserve and resource update, including the impact of Oume on the Cote d'Ivoire complex. And of course, including in that is Kurmuk, which we expect in February. Our Q4 results, of course, are expected soon after the completion of the quarter, in late January or early February. We will provide an update on Agbaou and its reserves and resources, which we expect in the second quarter. We start Kurmuk operations in the middle of the year. I should say with respect to Agbaou that of course, the objective there is an extension of mine-life. Ladies and gentlemen, we've committed to improving improvements in block models and mine plans, our mining efforts, our processing, creating organizational effectiveness that begins with hiring senior local persons to manage our operations. All of that is now in place. We do not identify here the results of that, but those results include improving production and costs this quarter, the quarter that we are now in and into next year. New equipment, better utilization, better mine plans, confident operators, access to higher grade ore, enhanced mining access, and flexibility. And that positions us for a strong fourth quarter and an even stronger 2026 across all measures, including production, costs, and cash flow. Operator, perhaps at this point, we can open the call to questions. Operator: [Operator Instructions] And your first question comes from Carey MacRury from Canaccord Genuity. Carey MacRury: Hello, good morning, Peter and team, and congrats on the good quarter. I guess my first question is just on Sadiola Phase 2 -- Phase 2 -- or sorry, Phase 1 is almost complete. It sounds like you're adding more oxide. When realistically -- like how should we think about the timing of when you'd actually commit to Phase 2 in terms of putting a shovel on the ground? Peter Marrone: Yes. So let's begin with first principles, Carey. As I said a few moments ago, in -- either with our year-end results or in advance of that, so that would mean in January, we will provide an update on what we intend to do with Phase 2. We have a feasibility study for a new plant up to 10 million tonnes per year, and that gets us that production platform of 350,000 ounces to 400,000 ounces. That would idle the existing plant. We would commit to expenditure by the end of 2026, and we would be in production by late '28, early 2029. As I mentioned, that would also mean that we will have decommissioned the existing plant. But over the course of the last 15 months to 18 months, we've been looking at an alternative. It's something that we were very familiar with as a management in Yamana. We're looking at how can we take the existing plant, further modify it to increase its throughput, not to 10 million tonnes per year, but something in between the current level to 10 million. How do we improve recoveries so that we get to a similar production level in the range of 350,000 ounces per year, but with 2 improvements. The first is potentially less capital. And the second is better capital efficiency. In other words, we're not committing to that capital completely upfront. We're just about complete on that technical work. And with the completion of that technical work, we have Board meetings in December, and we expect then that in January at the latest with our fourth quarter results, we will provide you with our take on what is the best course for us, taking all factors into account, what is the best capital efficiency, delivers the best results and the greatest certainty. Carey MacRury: And then maybe just reserves and resource price is pretty low compared to -- we were sitting at $4,000 an ounce. I guess within your portfolio, are there any specific assets that really have better optionality at maybe not $4,000, but higher prices than reserves and resources? Peter Marrone: Yes. Really good question. And that one really applies to Agbaou. So part of the effort on Agbaou is a 3-part program that we've undertaken to improve mine life. And one of -- the first part of that is can we look at the pit design at a higher gold price. And we're looking at a $2,000 pit design. What does that do in -- and of course, the infill that follows from that and what does that do in terms of extending mine life. The other 2 components, of course, is a possible underground and regional exploration opportunity. We'll have more to say on that into next year, as I mentioned, but you should expect that for that asset, we will be using a $2,000 gold price for reserve estimation. We're reviewing what our peers are doing more generally to see what they have already done or what they're planning to do. So we are evaluating at this point, where I'm personally leaning, but we have to have lots of discussions with management is a $2,000 gold price for reserves across the board to complement what we're already doing at Agbaou and $2,300 for resources. Operator: And your next question comes from Justin Chan from SCP Resource Finance. Justin Chan: Congrats on the quarter. I'll consolidate. I have 2 -- instead of one question, a follow-up, I'll just -- if you wouldn't mind, I'll ask 2 separate questions. Just one is on -- just on the accounting. Is the 2 prepays that were mentioned at the end of September in the documentation, were those included in cash flow from ops, just to make sure my model is accounting for everything correctly. That's my first one. Peter Marrone: Yes, that's right, Justin. There weren't much… Justin Chan: Okay. Appreciate the color. Peter Marrone: Hey, look at maybe the EBITDA, they're not… Justin Chan: And then the second one is, I mean, there's a lot of headlines over the weekend, especially just on supply chains and fuel availability in Mali. I was just curious if you guys could give some color on maybe what you're seeing on the ground. Sometimes there's obviously a difference between what media says and what the actual operators are seeing? So yes, could you give us your perspective on the current operating situation? Peter Marrone: Yes. I tried to address that at the beginning, Justin. I think it would be wrong for us to talk about what is the geopolitics of one thing or another other than to say that, look, it's business as usual. There is a fuel disruption. There are many reasons for that fuel disruption in -- that it has affected the capital. Interestingly, as that -- the first of these articles was published on Friday of last week, we understand that roughly 200, 250 trucks filled with fuel came into the capital. And that's about a week supply, and that's typically the way that the capital runs. So the best that we can say at this point is that there is no disruption to fuel supply lines or other supply lines relating to the mines. There has been some disruption as a result of some insurgency activity in and around the capital. It does appear to us as if there is some alleviation of that. And I repeat what I said before, this is a business-as-usual situation. We in the country, those who are familiar with the country, those who are familiar with countries such as this have seen this sort of thing before. But at the end of the day, the best way that I can describe it is regardless of disruptions, business must go on and does go on, and that's what we expect here. Operator: And your next question comes from Mohamed Sidibe from National Bank Capital Markets. Mohamed Sidibe: Just maybe to start with the Q4 guide that you gave with Sadiola and Bonikro being potentially up to 40% higher. What would it take to see, I guess, both operations be closer to that 40% mark? What are the key drivers that we should look for Sadiola and Bonikro? Peter Marrone: I'll turn it to Johan in a moment, but bear with us, Mohammed. We are ahead of our expectations for the quarter so far. In the case of the Cote d'Ivoire, we're more than 5% ahead. In the case of Sadiola, just a few percentages ahead. But again, on a production platform, we expect to be greater than Q3. So I think you should expect that we will be able to meet the expectations of getting close to or at that 40%. Johan, I will summarize by saying that in the case of Sadiola, it is these oxide discoveries that were made earlier this year that you're bringing into production, going through the development process and bringing into production. But of course, by the end of the year, it's the Phase 1 expansion that completes and being able to process some of a greater percentage of fresh ore. And in the case of Cote d'Ivoire, all that effort that's been undertaken to date, including, for example, at Agbaou, where we had waste removal that was very significant in the second quarter that increases production. We're going to higher grades at Bonikro as a result of that waste removal. And that's what accounts for that higher level of production. Johan, did you want to supplement that with anything more specific? Johannes Stoltz: Peter, you've summarized most of it. I want to say that the hard work from the team started in January up to now, created flexibility within Sadiola. You've alluded to the oxide deposits and also the mill start-up that will enhance the throughput in Sadiola with higher recoveries. So more predictable, more flexibility was given into the Sadiola as well as into the CDI complex that enable us to move ore to and from between the various plants that set ourselves up to where we are currently. We're ahead of the Q4 numbers. As you alluded, we're halfway through the quarter already and a positive trend. The teams are doing well. The plans are coming together nicely. Looking forward to the end result, definitely very close to the 40% mark, if not slightly higher, Peter. Mohamed Sidibe: And then just if I can move on, maybe on exploration. I think you provided a pretty good update at Sadiola with a lot of outside potential on your exploration target there. But I wanted to maybe shift to Cote d'Ivoire and the visibility at Agbaou and Bonikro. I know there's an update that is coming, but how do you currently look at those 2 assets in terms of mine life remaining? And what do you envision them to ultimately be as a potential source of production for you guys? Peter Marrone: Again, at this point, we have not completed the work, but Oume contributes comfortably to Bonikro's increase in mine life. We publicly have said we want to get to at least 180,000 ounces per year from the complex. So roughly 50% from Bonikro and 50% coming from Agbaou. Oume contributes very meaningfully to that mine life extension. It looks as if we'll be above the 10 years for Bonikro. Agbaou is a bit more complex, because it's further behind in terms of the exploration effort. But with what we're doing, looking at and doing drilling into reachable through added reachable underground, what we're doing with the pit shell with a $2,000 gold assumption and what we're doing with the broader outside of the compensated area exploration effort, we'll begin to demonstrate. We won't get with that update next year. I don't believe that we'll get to 10 years of mine life for Agbaou, but we'll begin to demonstrate that it's more than the roughly 2 years of mine life that we currently carry. And we think significantly in excess of that. I believe in our MD&A with our second quarter, we indicated that we were looking at 4 years to 5 years of extension. That was our objective. We expect that the exploration results and the other efforts that we're undertaking for with technical services will demonstrate at least that. Finally, then, what's our objective? Our objective is at least 10 years of mine life at 180,000 ounces per year. But we're refining that objective. We're trying to get to 200,000 ounces per year at least that 10 years of mine life. With that, this becomes a meaningful asset, a very meaningful asset. It will not have the prominence. It does not have the Tier 1 status of Kurmuk and Sadiola, but it does -- it is meaningful. It does contribute to the share price. By my estimation, taking the existing mine life as we show it based on reserves and resources and getting to 10 years of mine life at 200,000 ounces per year, by my estimation, it adds somewhere between $8 and $10 per share. I think that's pretty significant. Mohamed Sidibe: And then I guess, finally, with -- you've strengthened your balance sheet with the forward sales agreement, the rates post quarter as well as the good cash flow from operations there. As you're heading into the completion at Kurmuk, better 2026 on free cash flow, the sector is getting, I guess, a little bit harder in terms of M&A. Could you maybe share your thoughts on further consolidation down in West Africa or M&A opportunities that you may be looking at from the acquisition side? Or is that more of a 2027 event and Kurmuk remains a main priority alongside Sadiola? Peter Marrone: What a question. So if we gone back a year ago, Mohammed, I would have said, of course, we should be looking at acquisitions, what are the opportunities in Africa, in other developing parts of the world, that's where we still think there's the best juice, where that we think the best value. But frankly, over the course of the last several quarters, we've had a bit of an epiphany. When we look at Kurmuk, that's a real prize. It's a Tier 1 asset. I repeat what I said before, it's a Tier 1 asset. And we're now looking at how we expand its throughput to match the size that we already carry for the SAG mill to that 6.4 million tonnes per year from the 6 million tonnes per year. That gets the production platform to over 300,000 ounces per year. And with all-in sustaining costs, as we've described them, that means that we're generating some impressively robust cash flows. From a production point of view, mine life point of view and from a cash flow point of view, it is a Tier 1 asset. And the same would be true for Sadiola. I can't think of very many mid-tier companies that are underpinned by 2 Tier 1 assets. And so that epiphany to which I referred is that we're going to keep our eyes on the prize this year. Keep your eyes on the prize. We don't think that there is anything that is as compelling as engaging in the completion of these efforts that we have inside the company that get us to that roughly 800,000 ounces of production beginning next year to 600,000 ounces and then a few years after that to that 800,000 ounces. We think that that is what delivers the best value for shareholders. We've become a real catch at that point as well, and that has not escaped us. Operator: And your next question comes from Ingrid Rico from Stifel. Ingrid Rico: I have, I guess, 2 follow-ups on Sadiola. And I appreciate the comments, Peter, on the progressive expansion options and how you guys are evaluating that? But I noticed in the press release, I think it was that you will be proceeding with a pre-leach thickener and you're going to be adding that in 2026. So I guess my question would be, one, on what sort of cost budget do you have for that? And two, what would it do with the recoveries or the improvement on the circuit by adding that thickener? Gerardo Fernandez: Hello, Ingrid. Its Gerardo. Yes. It's a small CapEx ticket. It's about $7 million to $8 million. What it does is allow us to manage the density better, so we can increase the proportion of fresh rock up to 90%. And depending on the flexibility from oxides also can lead to increased throughput. So the beauty of it is it works -- it's necessary for both scenarios, the full expansion or the progressive expansion. So we decided to go ahead and start engineering and start the construction next year, so we can see the benefits as soon as possible. Ingrid Rico: And then just, I guess, more near term and sort of the grade expectation that we could start to see as the Phase 1 expansion is completed and you're able to put more of the fresh ore in. Should we think of grades picking up Q4 and into 2026? And what sort of grades should we be looking for with that Phase 1 completed? Peter Marrone: Yes, we should -- you should expect to see the grade improves. Gerardo or Johan, do you want to address where we expect the grade to be? Gerardo Fernandez: Maybe I can comment long term. Ingrid, if you look at the inventory of fresh rock in Sadiola, that is in the range of 1.8 grams per tonne. Some areas are higher than that, some areas are lower, but that's the bulk of the -- or that's the average of the -- bulk of the reserves, which is the fresh rock. So long term, that's what we should be tracking towards. And in terms of oxide, there is an upside to connect with what Don was describing with the new opportunities to add moderate grade or high-grade oxides, which allowed the plant to increase capacity and recoveries. Maybe Johan can comment on the short term. Johannes Stoltz: Great question, and Gerardo, I think your numbers are spot on around the 1.7 grams to 1.8 grams a tonne. We do find these honeypots around the Sadiola property with higher oxide grades. But if we look at the average over the life of mine, it sits around [indiscernible]. Peter Marrone: And Ingrid, we're not complete the quarter yet. But if we go over the course of the last couple of weeks, so it's a meaningful part of the short term of the quarter. We are experiencing, because of some of those honeypots, as Johan described it, we are experiencing grades that are better than what we had planned. Ingrid Rico: And if I can squeeze just one last question on Kurmuk. And I appreciate that we're going to get that update on the exploration very soon. But just how should we think -- and maybe just some comments, if you can, on the infill drilling and how that's shaping up for grade reconciliation and looking into the grades as you start sort of commissioning and ramping up next year? Peter Marrone: Don is on the line. Don, did you want -- Don is remote. So if you're available, Don, did you want -- can you answer that? Don Dudek: Yes. So we're not doing a lot of infill drilling. We're mostly focusing on extending the resources down dip, down plunge, along strike. And so really trying to bulk out the reserve pits as we see them today. We are seeing continuations of the mineralized zones, and yet have not found the limits of the system. And then we're also looking for other optionality things. We've talked about [ Sekenke ] before, which is a 7-kilometer long gold and soil trend. We've been drilling at the south end of that for a good part of the year. And we have a few other targets that we're moving up the list. We've talked about this for Sadiola in terms of optionality. And again, newer close to surface discoveries will provide more optionality for Kurmuk going forward. So the update near the end of this month should -- we'll present all of that. Peter Marrone: Maybe to complement Don's comments and addressing your question, Don was referring to what we're doing now looking into the future, but we -- what was done in the past in 2024 and into the beginning of 2025 was to do confirmation drilling, especially around Dish, not much in Ashashire, but heavily in Dish. And that information has been modeled. We have ore exposure now with the mining at both deposits, and we're confirming the interpretation of the geology and the drilling is also confirming the grades and the mineralization as we had it in the plan. So it's very positive from that perspective on risk management and setting us in a good position to the -- start our operations next year. Ingrid Rico: So looking forward to that Kurmuk update later this month. Operator: [Operator Instructions] And your next question comes from Luke Bertozzi from CIBC. Luke Bertozzi: Just to follow-up on Ingrid's question on the pre-leach thickener at Sadiola. Can you give us any indication of when that pre-leach thickener could come online? Should we be expecting that to impact 2026 production? Peter Marrone: Yes. Look, towards the end of 2026, we haven't issued our guidance, so we cannot quantify how much the impact will be or disclose it. We have an idea, but bear with us when we issue guidance, we'll reflect it there. Jason LeBlanc: Luke, we've indicated that we see Sadiola in its current form before the second Phase partial or whole expansion being in a range of 200,000 ounces to 230,000 ounces per year. This is part of the plan to get that higher level of production. We'll have more to say on it as we complete some of the work to the end of this year when we give our guidance for the next year. Luke Bertozzi: The rest of my questions have been answered. So, I'll leave it there. Peter Marrone: Operator, are there any other questions? Operator: No, there are no further questions at this time. So I would now like to turn the call back over to Peter Marrone for the closing remarks. Please go ahead. Peter Marrone: Ladies and gentlemen, thank you very much for your participation on this call. We look forward to several of the milestones that we mentioned being provided. Any questions or comments, please do reach out to any of us. And we look forward to seeing many of you on -- in-person at our site visit at Kurmuk in January. Thank you very much.
Operator: Hello, and thank you for standing by. Welcome to Allogene Therapeutics Third Quarter 2025 Conference Call. [Operator Instructions] Please be aware that today's conference call is being recorded. I would now like to turn the call over to Christine Cassiano, Chief Corporate Affairs and Brand Strategy Officer. Ms. Cassiano, please go ahead. Christine Cassiano: Thank you, operator, and welcome, everyone, to Allogene's Third Quarter 2025 Conference Call. After the market closed, Allogene issued a press release that provided a business update and financial results for the third quarter of 2025. This press release and today's webcast are available on our website. Following our prepared remarks, we will host a Q&A session. We recognize that historically, questions have been multifaceted, but note that we will endeavor to keep this call to under an hour. I'm joined today by Dr. David Chang, President and Chief Executive Officer; Dr. Zachary Roberts, Executive Vice President of Research and Development and Chief Medical Officer; and Geoff Parker, Chief Financial Officer. During today's call, we will be making certain forward-looking statements. These may include statements regarding the success and timing of our ongoing and planned clinical trials, data presentations, regulatory filings, future research and development efforts, manufacturing capabilities, the safety and efficacy of our product candidates, commercial market forecast and financial guidance, among other things. These forward-looking statements are based on current information, assumptions and expectations that are subject to change. A description of the potential risks can be found in our press release and latest SEC disclosure documents. You are cautioned not to place undue reliance on these forward-looking statements, and Allogene disclaims any obligation to update these statements. I'll now turn the call over to David. David Chang: Thank you, Christine. This quarter has been about conviction, conviction in our science in the path we have chosen and in the future we are building for patients. We are aware of the shifting conversation in the field. Every new modality brings excitement and speculation about what the future might hold. But true innovation isn't about chasing what's next. It is about delivering what patients need now. And if a platform can safely, effectively and at scale deliver curative therapies, it doesn't just shape the future. It redefines it. At Allogene, our focus has never wavered. We are advancing the platform we believe is not only essential to making cell therapies accessible and scalable, but one that could fundamentally and the current paradigm and even the one others are still imagining by making the promise of curative onetime off-the-shelf cell therapy a reality today. And that's exactly what allogeneic cell therapy represents. It's not a breach to something else. It is the foundation. Allogeneic technology delivers the scalable backbone needed to democratize access, reduce the overall cost of care and bring transformative and potentially curative treatment to far more patients than ever before. We expect allogeneic therapy to be central across oncology and autoimmune disease because it combines the precision and power of autologous with a flexible, efficient and commercially viable model, no other approach can. Its capacity for multiplex gene engineering allows the creation of future platform products within a single cell, an advance that we believe will be critical for addressing complex cancers, including solid tumors. This is an incremental progress. It's a leap forward that reshapes what's possible. We have done the hard work to make the future real. Our leadership in manufacturing, translational science and clinical development positions Allogene to endure and lead, setting the standard for how cell therapy can be delivered at scale and with impact. Each of our programs, cema-cel, ALLO-329 and ALLO-316 reflects that strategy to make cell therapy scalable, practical, successful and in some cases, curative. At Allogene, we are not waiting for the future of cell therapy. We are creating it with conviction, with data and with a platform built for lasting impact. As we move into next year, we are preparing for what we expect to be a defining moment with pivotal interim data from cema-cel in the ALPHA3 trial in first-line consolidation and proof of concept from ALLO-329 in autoimmune disease, both milestones that we believe will shape the next era of cell therapy. With that, I'll now turn it to Zach to share updates on our R&D progress. Zachary Roberts: Thanks, David. Our programs this quarter continue to demonstrate the conviction David spoke of, conviction in our science and our execution and the discipline required to advance truly innovative medicines. Across ALPHA3, Resolution and Traverse, we're driving forward a portfolio that spans earlier line lymphoma, autoimmune disease and solid tumors. Each is a distinct challenge, but together a unified demonstration of the strength and versatility of our allogeneic platform. In ALPHA3, our pivotal trial of cema-cel has now been streamlined into a 2-arm randomized study comparing treatment after standard Fc lymphodepletion versus observation. This structure balances efficacy, safety and scalability, which are critical for translating CAR-T therapy into earlier lines of treatment. We are now at more than 50 active sites across the U.S. and Canada with expansion into Australia and South Korea expected early next year. The planned futility analysis focused on MRD conversion remains on track for the first half of 2026. A positive outcome would not only demonstrate disease modification in earlier line lymphoma, it would also mark a key step toward a potential BLA submission. As we look ahead to the upcoming futility analysis and the questions we often get about what success looks like at this stage, there are 2 key benchmarks worth keeping in mind. The first is the pivotal POLARIX study, and the second is the recent IMvigGor-11 trial in bladder cancer, which is highly analogous to what we're doing with ALPHA3. The POLARIX study, which evaluated polatuzumab plus chemoimmunotherapy in frontline DLBCL demonstrated a modest 7% improvement in progression-free survival over standard treatment. That result alone underscores how much opportunity remains for meaningful progress and the transformative potential of ALPHA3. While ALPHA3 is the first study of its kind in LBCL, the concept of consolidating remission in patients at high risk of relapse has guided adjuvant trials in solid tumors for decades. Highly sensitive MRD tests are emerging as powerful tools to identify patients at greatest risk of progression. The recent data from the IMvigor 11 trial in bladder cancer is a powerful illustration of this approach. Patients with no evidence of disease after definitive frontline treatment, in this case, surgery, underwent a ctDNA-based MRD test. Those who are ctDNA positive while in remission were randomized to immunotherapy or placebo. Notably, ctDNA clearance differed by only 11% between arms at cycles 3 or 5, yet both the primary endpoint of disease-free survival and the key secondary endpoint of overall survival were statistically significant, representing a potentially practice-changing advance. While every study is different, the new IMvigor 11 data provides a valuable analog for illustrating the potential impact of this kind of approach. Achieving an approximately 30% delta between cema-cel and observation would represent the largest improvement in lymphoma outcomes since the approval of rituximab. Given these reference points, we believe our study is well positioned to deliver a highly meaningful difference and the potential for a successful trial outcome. Together, these insights reinforce our confidence in the strength of the ALPHA3 program and its potential to meaningfully advance lymphoma treatment. As we look beyond cema-cel, our Dagger technology continues to demonstrate its value across indications. In the TRAVERSE trial, the Dagger technology enabled ALLO-316 produced durable responses in nearly 1/3 of patients with metastatic kidney cancer and high CD70 expression. These responses following standard Flu/Cy and a single infusion of ALLO-316 highlight the built-in lymphodepletion advantage of the Dagger technology, enabling best-in-class CAR T cell expansion in solid tumors. The TRAVERSE trial provided important insights that helped shape the design of our dual CD19/CD70 construct in autoimmune disease. Rather than repurposing a construct from another indication, we set out to create something truly fit for purpose designed from the start with a long-term application in mind for autoimmune disease and the patients who would be treated. We were the first to engineer CAR specifically for this setting, pairing dual targeting with our Dagger technology to achieve intrinsic built-in lymphodepletion through selective immune modulation. ALLO-329 is a first-in-class allogeneic CD19, CD70 dual CAR T product designed to target both CD19-positive B cells and CD70-positive activated T cells, which are key drivers of autoimmune disease. This approach is intended to simplify administration, improve tolerability and extend the reach of CAR-T therapy to a much broader patient population. If successful, it could represent a step change in the treatment of immune-mediated diseases. That is what we aim to achieve in the resolution study, our Phase I basket trial in autoimmune disease, which is now enrolling for lupus, myositis and scleroderma. We expect to report translationally important biomarker and early proof-of-concept data in the first half of 2026. Dave and I spend a great deal of time in the field of investigators. Their enthusiasm remains strong because they see how these studies could fundamentally change the accessibility of cell therapy. By enabling treatment delivery within community networks where most patients receive care, we are aligning with how these institutions operate clinically and economically. This model reduces referral barriers, simplifies logistics and supports sustainable integration of advanced therapies into routine practice. Clinical development is complex. We compete for patients, particularly in autoimmune indications and face both scientific and operational challenges. But each challenge strengthens our understanding and sharpens our execution. That is the nature of innovation, iterative, demanding and grounded in data. Collectively, our programs underscore that allogeneic CAR T is not an iteration. We believe it is the foundation upon which the next generation of cell therapy will be built. The science continues to advance. The early signals remain strong, and our focus is on turning that progress into real-world impact for patients. With that, I'll hand the call over to Geoff. Geoffrey Parker: Thank you, Zach. The operational and scientific progress that David and Zach described is backed by a strong financial foundation and disciplined capital management. Our focus remains on advancing our clinical priorities while maintaining flexibility to capture long-term value for shareholders. As of September 30, 2025, we had $277.1 million in cash, cash equivalents and investments. Our disciplined approach to resource management continues to support a cash runway that extends into the second half of 2027. R&D expenses for the third quarter were $31.2 million, including $2.8 million of noncash stock-based compensation. G&A expenses for Q3 2025 were $13.7 million, including $5.9 million in noncash stock-based compensation. Net loss for third quarter was $41.4 million or $0.19 per share, including noncash stock-based compensation expense of $8.7 million. We continue to expect 2025 cash burn of approximately $150 million and full year GAAP operating expenses of approximately $230 million, which includes an estimated noncash stock-based compensation expense of approximately $45 million. This guidance excludes any impact from potential business development activities. The impact of our allogeneic platform extends well beyond our disciplined cost structure. By manufacturing product in advance and at scale, we lay the groundwork for a more efficient and sustainable model for the broader health care system. Allogeneic therapies have the potential to meaningfully lower the overall cost of care for cell therapy, expand access beyond specialized centers and make transformative cell therapies available to patients in a way that is both clinically practical and economically viable. With important clinical catalysts on the horizon and a solid financial foundation, we remain confident in our ability to execute and deliver on the opportunities ahead. We will now open the call for questions. Operator: [Operator Instructions] Our first question comes from the line of Salveen Richter with Goldman Sachs. Salveen Richter: For the futility analysis in the first half of next year, could you see any data beyond MRD conversion? And can you just expand on the 30% bar that you commented on? And then just remind us how enrollment is progressing for ALPHA3 and whether you've seen any changes post discontinuation of the FCA LD arm earlier in the year? Zachary Roberts: Salveen, this is Zach. I'll go ahead and answer that one. So for the first part of your question, will we be sharing anything additional besides the MRD conversion. At this time, we plan to really focus on the MRD conversion. This is not an interim analysis in which we intend to allocate alpha. So we really are looking at this MRD conversion and not any of the primary endpoints for efficacy. As far as the 30% bar that we mentioned in the prepared remarks, I think we went into some detail as to why we think that, that would be a pretty significant win for cema-cel in that trial with the benchmarks of the POLARIX data showing a 7% improvement in PFS in frontline lymphoma and then sort of looping in some recent data that was published from an analogous trial in bladder cancer, showing an 11% MRD clearance in that clinical context, yet still having a significant primary endpoint win on disease-free survival as well as an overall survival win there. So we think that 30% would be a pretty strong showing for cema-cel as it pertains to the MRD clearance rate. And then I think the third part of your question, Salveen, was around enrollment. And we'll say -- I'll reiterate here that we're on track for our -- the interim analysis, the futility analysis in the first half of next year. As far as impact of the study conduct change when we had the grade 5 event over the summer and went to a 2 arm as instead of a 3 arm, I think the general view of the investigators is that they are pleased to be working with a regimen that they consider a standard in CAR-T and not having to use an additional component with the CD52 antibody. So it appears as though that has had a slight uptick in terms of the patient screening for this trial. Operator: Our next question comes from the line of Tyler Van Buren with TD Cowen. Tyler Van Buren: This is Sam on for Tyler. Just for the over 50 U.S. and Canada active sites, what percent of these have made it through that initial internal setup period and are now able to start actively enrolling patients? Zachary Roberts: Sam, this is Zach again. We have gotten a lot better at forecasting how long that internal setup takes as well as sort of incorporating that into our time lines. So I would say that of the over 50 that are active, it's going to be close to all of them that are open to enrollment. Only the most recently activated sites might still have a few remaining things that they need to do before they switch on. But for the most part, all 50 of those 50-plus are actively screening and enrolling patients. Operator: Our next question comes from the line of Jack Allen with Baird. Jack Allen: Congrats to the team on the progress made over the course of the quarter. I guess I'll ask one on the autoimmune program with 329. It seems like that's starting to get off the ground here, and you're going to have an update in the first half of next year. I just wanted to hear any updated thoughts you have around the size and breadth of the data set we should expect next year from that program. David Chang: Chad, this is David Chang. Let me take that question, giving Zach a little bit of break. In terms of the scope of that data communication, as we have previously said, there will be a handful of patients where we can show biomarker as well as the early clinical responses. So that's the extent of it. And frankly, what we have seen with autologous programs is a handful of patients are sufficient to really understand what's going on with the CAR-T therapy. So we are hoping that the initial communication early first half of next year will be a very meaningful communication. Operator: Our next question comes from the line of Sami Corin with William Blair. Samantha Corwin: On the progress I'm curious how many patients have consented for MRD testing now in ALPHA3 and if you're seeing the expected rate of MRD positivity that you initially theorized you'd see? Zachary Roberts: Sami, it's Zach. So I don't think we have -- since we made that update earlier this year around the number of patients who had consented, we haven't really been providing kind of regular updates on that. I can say, generally speaking, that the pace of consenting has at least held steady since that early part of the year. So we're really growing numbers. And as far as the MRD positive rate goes, it is holding steady to our assumptions. Operator: Our next question comes from the line of with Asthika from Truist. Karina Rabayeva: This is Karina. So Caribou recently reported that their allogeneic CAR T product derived from younger donors demonstrated improved durability. Have you observed similar associations in your experience? David Chang: Carina, let me take that question. Yes, we follow Caribou and in terms of their recent announcement of the result looks pretty encouraging. But in terms of the material, I mean this is something that we have been following pretty closely, and we have a good way to identify the exciting materials that will result in very potent and consistent products. Operator: Our next question comes from the line of Samantha Semenkow from Citi. Samantha Lynn Semenkow: Another one on the autoimmune program. I'm wondering, there's some recent data in the autologous space in pemphigus where there was no lymphodepletion in that trial that showed some pretty encouraging results. I'm wondering if there's any read-through that you can take into your program. Obviously, you have the CD70 CAR as well. But I'm curious if this increases your optimism on showing pretty robust efficacy without lymphodepletion. David Chang: Samantha, Dave here. Thanks for that great question. I have to say that what we are seeing in both autologous CAR-T therapy, so obviously, autologous and allogeneic, there are different issues. But what we have seen just gives us even higher confidence that ALLO-329. This is CD19 dual CAR that has built-in lymphodepleting capability that ALLO-329 in the low-volume setting, such as in the autoimmune disease setting where it targets essentially the resident B cells and activated T cells, it will work well without the lymphodepletion. Obviously, we have to show that. And just as a reminder, in the ongoing study, we will be testing 2 different cohorts, one with a reduced lymphodepletion. So this is just with the cyclophosphamide alone. And the second cohort will be without any lymphodepletion. Operator: Our next question comes from the line of John Newman with Canaccord. John Newman: So David, given that 329 is pretty unique in that it targets both B cells and activated T cells, I'm wondering, in the initial data readout, will you be able to get a look at the phenotype of the remaining T cells, just to see if perhaps there's anything left after you hopefully wipe out all the CD70-positive T cells. David Chang: John, I think that's definitely something that we are looking -- we will be looking at, but I think it will be -- now that's also going into very nuanced questions about how the CD70 is working. I mean we certainly have looked at the fraction of CD70 positive versus CD70 negative T cells. And keep in mind, most plascent T cells are CD70 negative and are not affected by ALLO-329. And there's a real benefit of just eliminating activated T cells and activated T cells here potentially those that are contributing to the autoimmune disease itself as well as our reactive T cells. So in terms of how much data we will be sharing when we announce the proof-of-concept data in the first half of 2026, -- let me not go too much into that, but the question is really very relevant, and we will certainly be looking at CD70 positive and CD70 negative fractures. Operator: Our next question comes from the line of Clara Dong with Jefferies -- our next question comes from the line of Reni Benjamin with Citizens Bank. Reni Benjamin: Also for ALLO-329, -- when you talk about the biomarker data, David, are there any in particular that would alert you to achieving a B-cell reset? And when we get those results, will the results be robust enough that it can help you, help us as an analyst and decide which indications you might move forward with? David Chang: Yes. Great question. I mean there are 2 parts to your question. One is whether the biomarker data will give us a lot of insight about how AL-329 is working. Having seen most of the data that's coming out in this space from a CAR T, I do believe that the biomarker data will be very meaningful. But also, we intend to show some early clinical responses depending on how long the patient has been followed up. So when we communicate the proof-of-concept data in the first half of 2026, it will be more than just a biomarker. There will be early sort of clinical responses that may corroborate with what we see in the biomarker data. The second question to me is probably the most fascinating one. And if anything, I believe that we have probably very broad indications that we can potentially consider. The fact that 329 targets both CD19 and CD70 really allows us to not just think about those autoimmune disorders that are heavily B cell driven, but also autoimmune diseases that are very T cell dependent or has a big T cell component. So essentially from the rheumatology indications to neurology indications such as multiple sclerosis or even metabolic indications such as type 1 diabetes, and it could be considered. So stay tuned. Operator: Our next question comes from the line of Brian Chen with JP Morgan. Lut Ming Cheng: This is Ron on for Brian. Can you talk about your level of confidence in the MRD conversion to event-free survival? And then when you said around 30% MRD conversion as the bar, can you clarify a bit on the time point that is going to be meaningful for LBCL? And then how soon dosing do you think we can reach that level of conversion? Zach, do you want to take that question? Zachary Roberts: Yes, I can take that question. So Ron, I may need to have you repeat 1 or 2 of them. But I think the first question was how confident are we in the prognostic value of MRD conversion as it relates to the study endpoints, I would say we're pretty confident, high confidence actually, given everything that we know about the performance of this assay after frontline, which was recently published in JCO as well as after CAR-T has been shown at ASH a couple of years in a row. The test seems to be pretty good and actually correlating with long-term outcomes. Can you repeat the next 2 questions? I heard the second one, but I didn't hear the third one. Lut Ming Cheng: Yes, of course. Sorry. When you said the bar you said of 30% MRD conversion, can you clarify a bit on the time point that's going to be meaningful for LBCL? And then how soon after dosing do you think we can reach that level? Zachary Roberts: I see. Okay. So yes, the 30% that we've been talking about, I think we've provided some context already on this call why we picked that number. I mean another way to look at that is that's equivalent or maybe even slightly better than what rituximab brought when it was added to CHOP. So if the MRD conversion is roughly predictive of clinical endpoints, as I just described, I think it is, that would be a pretty significant win. Some might even call a home run. As far as the time point goes, we haven't gone into detail around what exactly -- what time we're drawing these MRD results. But what I can say is that is a pretty dynamic test, meaning that it goes up fast and it goes down fast. And so we are able to assess MRD relatively soon after the CAR-T is infused. Again, we haven't specified exactly what that time point is. But we are pretty confident that the time point that we selected is going to be predictive for the clinical outcomes. Operator: Our next question comes from the line of Luca Issin with RBC Capital Markets. Luca Issi: This is Catia on for Luca. Congrats on the progress this quarter. And if I can push on the last question on the timing of analysis for MRD. Is the futility study for stopping the trial as MRD is below your bar of 30%. And I think you mentioned the last time the 30% MRD bar is partially based on other autologous CAR-Ts objective response rate. And correct me here, if I'm not understanding this correctly, but that is from a potentially much longer follow-up. So is there a chance that you see insufficient MRD at your futility analysis first half next year, but we'll probably just have to give it more time. Any color there much appreciated. David Chang: Yes. Let me take that question. I think there are some questions still around what would look good for the study. And in terms of the MRD conversion, which is the primary -- the reference point that we will be looking at the futility analysis, I think we are very well grounded with the assumptions that we are making, and that assumption is supported from many different angles, the data that's coming from the autologous CAR T therapy as well as more new data coming from other MRD-based studies. So we feel very comfortable about how we will be conducting the futility analysis in the first half of next year. Operator: Our next question comes from the line of Robert Burns with H.C. Wainwright. Robert Burns: This is Katie on for Rob. My question is more about your -- if you have any more recent interactions with the FDA and if you feel like the kind of move towards greater flexibility in CAR-T oversight might give you some accelerated pathways or reduce some friction for you guys to get to market. David Chang: Yes. We have a lot of ongoing communications with FDA. And so far, it has been very timely and very productive. And the question that you are raising, it is a very interesting one. I mean, I think we will have to see when the time comes, but all the indications that we can make from what FDA has said is that a single-arm approach with CAR-T therapy, that path is still wide open. And FDA is carefully reviewing the other side of the BLA requirement, what is needed on the CMC side. So we view this to be very positive for what we are doing. Operator: Our next question comes from the line of Clara Dong with Jefferies. Unknown Analyst: [Technical Difficulty] I apologize for technical issues. And just one question from me. How are you controlling for variability in the MRD assay sensitivity, if any, across different sites? And what steps are you taking to ensure consistency in MRD conversion assessment for the futility analysis? Zachary Roberts: Claire, that's an easy one. The MRD test is all being done centrally by Foresight Diagnostics. So all the sites are doing is collecting the samples and then sending them into the central lab. So we don't expect there to be any kind of technical variability in the test performance. Operator: Ladies and gentlemen, that concludes our question-and-answer session. I would now like to turn the conference back over to David for any additional comments. David Chang: Thank you, operator. Let me close out by saying that everything we have built over the past 7.5 years has led to what's ahead in 2026. There are many ideas about where cell therapy is headed, but progress depends on staying focused on what is real and achievable. At Allogene, we kept our focus on building therapies that are scalable, reproducible and ready for patients. In the first half of 2026, we expect 2 major milestones, interim futility data from ALPHA3 with stem-cell in first-line consolidation and proof-of-concept results from ALLO-329 in autoimmune disease. These will not be theoretical advances. If successful, they will mark true clinical validation of the allogeneic platform, shaping our company's trajectory and building broader confidence in the potential of allogeneic CAR T therapy. The opportunity ahead is significant. We are entering 2026 with conviction, clarity and momentum and are excited for what the coming months may hold. Operator, you may now disconnect. Operator: Thank you. Ladies and gentlemen, thank you for your participation in today's conference. That does conclude the program, and you may now log off and disconnect.
Operator: Good day, and welcome to the United Parks & Resorts Third Quarter Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Matthew Stroud of Investor Relations. Please go ahead. Matthew Stroud: Thank you, and good morning, everyone. Welcome to United Parks & Resorts Third Quarter Earnings Conference Call. Today's call is being webcast and recorded. A press release was issued this morning and is available on our Investor Relations website at www.unitedparksinvestors.com. Replay information for this call can be found in the press release and will be available on our website following the call. Joining me this morning are Marc Swanson, Chief Executive Officer; and Jim Forrester, Incoming Interim Chief Financial Officer and Treasurer. This morning, we will review our third quarter financial results, and then we will open the call for your questions. Before we begin, I would like to remind everyone that our comments today will contain forward-looking statements within the meaning of the federal securities laws. These statements are subject to a number of risks and uncertainties that could cause actual results to be materially different from those forward-looking statements, including those identified in the Risk Factors section of our annual report on Form 10-K and quarterly reports on Form 10-Q filed with the Securities and Exchange Commission. These risk factors may be updated from time to time and will be included in our filings with the SEC that are available on our website. We undertake no obligation to update any forward-looking statements. In addition, on the call, we may reference non-GAAP financial measures and other financial metrics such as adjusted EBITDA and free cash flow. More information regarding our forward-looking statements and reconciliations of non-GAAP measures to the most comparable GAAP measure is included in our earnings release available on our website and can also be found in our filings with the SEC. Now I would like to turn the call over to our Chief Executive Officer, Marc Swanson. Marc? Marc Swanson: Thank you, Matthew. Good morning, everyone, and thank you for joining us. We're obviously not happy with the results we delivered in the quarter. Performance during the quarter was negatively impacted by an unfavorable calendar shift, poor weather during peak holiday periods, a decline in international visitation, and less than optimal execution. The consumer environment in the United States appears to be inconsistent as has been outlined by a number of other leisure and hospitality businesses. Nonetheless, we can and expect to do better. Attendance in the third quarter was negatively impacted by approximately 150,000 visits from unfavorable calendar impacts, particularly the timing of the 4th of July holiday, and was also impacted by poor weather over peak 4th of July and Labor Day weekends. We saw a decline in international visitation of approximately 90,000 guests during the quarter, which was a reversal of earlier trends we saw in the first half of the year. Adjusting for these calendar shifts and the international visitation declines, attendance would have been roughly flat for the quarter. On the positive side, we are pleased to report growth in in-park per capita spending, which has grown in 20 of the last 22 quarters. Our Halloween events just concluded last week, and we saw meaningful year-over-year growth from our separately ticketed Howl-O-Scream events, including record attendance in Orlando and San Diego for these events. Looking forward, we are encouraged by the forward booking revenue trends into 2026 for our Discovery Cove property and our group business, both of which are up over 20% compared to the same time last year. We are also happy to report that our attendance at SeaWorld Orlando is up year-to-date. We're also pleased that during the third quarter, stockholders granted authority to the Board of Directors to approve and implement additional share repurchases. The Board previously announced a $500 million share repurchase program contingent on receiving this approval, and we have already repurchased 635,020 shares for an aggregate total of $32.2 million through November 4, 2025, underscoring our strong balance sheet, significant free cash flow generation, and our strong belief that our shares are materially undervalued. Later this month, we will begin our award-winning Christmas events at our SeaWorld, Busch Gardens, and Sesame Place Langhorne Parks. This year, we believe our Christmas events will be our best ever with the popular rides, attractions, and exhibits our guests have come to expect, plus additional new and exciting events, specialty food and beverage offerings, and holiday shopping for everyone. I want to thank our ambassadors for their dedication and efforts during our busy summer season and as well during our Halloween events and upcoming Christmas events. As we move into 2026 and beyond, we firmly recognize there is significant opportunity to execute better and drive meaningfully more attendance to our parks, grow total per capita spending, and continue to reduce costs and find efficiencies. While this year has been disappointing to date, we have high confidence in our ability to deliver operational and financial improvements that will lead to meaningful increases in EBITDA, free cash flow, and shareholder value. We are focused, well-positioned, and confident in the investments we are making, the operational efficiencies we expect to achieve, and the value we plan to build for stakeholders. We have announced several of the upcoming new rides, attractions, and events and upgrades for 2026. This includes the following: SeaWorld Orlando is pushing the boundaries of family thrills once again with its new attraction, SEAQuest: Legends of the Deep. Guests will embark on a vibrant, submersible adventure through dazzling undersea ecosystems where they will encounter extraordinary life forms, breathtaking environments, and inspiring stories of the sea. This groundbreaking attraction plunges explorers into an environment of awe and mystery, guided by the SeaWorld Adventure team. SeaWorld San Diego is creating a reimagined and immersive version of the Shark Encounter, which will debut in the spring of 2026. SeaWorld San Antonio is making waves once again with an all-new thrill ride, Barracuda Strike, Texas' first inverted family coaster. The one-of-a-kind attraction invites guests of all ages to dive into the deep and experience the ocean's most agile predator like never before. With every twist, drop, and tight turn, Barracuda Strike will deliver a rush of excitement that's bold enough for thrill seekers yet built for the whole family. Suspended beneath the track, riders will glide above the park's iconic water ski lake in a high-speed pursuit that captures the speed, power, and precision of the Barracuda. Busch Gardens Tampa Bay is roaring into 2026 with an all-new Lion & Hyena Ridge, an extraordinary new addition to the park's award-winning animal care portfolio and the most ambitious new habitat in more than a decade. This reimagined area of the park expands the existing space to more than double its previous size, creating nearly 35,000 square feet of dynamic Savannah terrain where two of Africa's most iconic species will thrive, a pride of 5 young male lions and a pair of playful hyenas. Busch Gardens Williamsburg will be announcing their upcoming attraction later this week. Our balance sheet continues to be strong. On September 30, 2025, net total leverage ratio was 3.2x, and we had approximately $872 million of total available liquidity and approximately $221 million of cash on hand, including restricted cash. This strong balance sheet gives us flexibility to continue to invest in and grow our business and to opportunistically allocate capital with the goal to maximize long-term value for shareholders. I'm disappointed in our management of costs during the quarter. We have made changes to address our execution issues in this area and have implemented new processes and initiatives to address cost opportunities across the enterprise. Moving on to an update on select strategic initiatives. On the sponsorship front, we have made good progress on several partnerships that we expect to announce in the coming months. As a reminder, we have over 21 million annual visitors across our park portfolio and the average length of stay is over 6 hours. We continue to expect approximately $20 million of annual sponsorship revenue in the coming years. On our international opportunities, we are in active discussions with multiple potential partners. We signed one MOU during the quarter with an international partner and have since entered a development advisory agreement and have begun concept development work. We expect to sign at least one additional MOU in the coming months. In regards to the mobile app, we continue to make progress on functionality, adoption, usage, and financial impact. The app is being used by an increasing number of guests in our parks to improve their in-park performance. The app has now been downloaded more than 16.8 million times, up from 15.6 million at the end of Q2. Total revenue generated on the app continues to grow, and we are now seeing an approximate 37% increase in average transaction value for food and beverage purchases made through the app compared to point-of-sale orders. We're excited about the potential of the app and its ability to improve the in-park guest experience, drive increases in revenue, and decreases in costs. On real estate, we continue to discuss alternatives with potential partners and have recently received specific proposals that we are actively evaluating. As we have discussed, we own over 2,000 acres of valuable real estate in desirable locations, including approximately 400 acres of undeveloped land adjacent to our parks, including significant developable land in Orlando. We do not believe that the public markets have or are appropriately giving credit to these attractive and valuable 100% owned real estate assets. I'm excited about the significant investments we are making and the many initiatives we have underway across our business that we expect will improve the guest experience, allow us to generate more revenue, and make us a more efficient and more profitable enterprise. We are building an even stronger, more resilient business that we are confident over time will deliver improved operational and financial results and meaningful increases in value for all stakeholders. With that, Jim will discuss our financial results in more detail. Jim? James W. Forrester: Thank you, Marc, and good morning. During the third quarter, we generated total revenue of $511.9 million, a decrease of $34.1 million or 6.2% when compared to the third quarter of 2024. The decrease in total revenue was primarily a result of decreases in attendance and admissions per capita, partially offset by an increase in in-park per capita spending. Attendance for the third quarter of 2025 decreased by approximately 240,000 guests or 3.4% when compared to the prior year quarter. The decrease in attendance was primarily due to an unfavorable calendar shift, including the timing of the 4th of July holiday and a decrease in international visitation compared to the prior year quarter. In the third quarter of 2025, total revenue per capita decreased 2.9%. Admission per capita decreased 6.3% and in-park per capita spending increased 1.1%. Total revenue per capita lowered due to decreases in admissions per capita, partially offset by increases in in-park per capita spending. Operating expenses increased $7.1 million or 3.4% when compared to the third quarter of 2024. Selling, general, and administrative expenses increased $5.3 million or 9.6% compared to the third quarter of 2024. We reported net income of $89.3 million for the third quarter compared to net income of $119.7 million in the third quarter of 2024. We generated adjusted EBITDA of $216.3 million in the quarter. Looking at our results for the 3 quarters of 2025 compared to 2024, total revenue was $1.29 billion, a decrease of $51.9 million or 3.9%. Total attendance was 16.4 million guests, a decrease of approximately 252,000 guests or 1.5%. Net income for the period was $153.3 million, and adjusted EBITDA was $490 million. Now turning to our balance sheet. As Marc mentioned, our September 30, 2025, net total leverage ratio is 3.2x, and we had approximately $872 million of total available liquidity. We had approximately $221 million of cash on hand, including restricted cash. The strong balance sheet gives us flexibility to continue to invest in and grow our business and to opportunistically allocate capital with the goal to maximize long-term value for shareholders. Our deferred revenue balance as of the end of September was $145.5 million. Through October 2025, our pass base, including all pass products, was down approximately 4% compared to October 2024. We have launched our 2026 pass program, which includes our best-ever pass benefits program. We're excited about our new 2026 pass program and expect to see improvement in growth in our pass base as we progress into next year. We started our Black Friday sale earlier this week. It's one of our bigger selling periods for the year, and we are encouraged with the preliminary results so far. Finally, as of September 30, 2025, year-to-date, we have invested $167.2 million in CapEx, of which approximately $142.2 million was on core CapEx and approximately $25 million was on expansion or ROI projects. For 2025, we expect to spend approximately $175 million to $200 million on core CapEx and approximately $50 million of CapEx on growth and ROI projects. Now let me turn the call back over to Marc, who will share some final thoughts. Marc? Marc Swanson: Thank you, Jim. Before we open the call to your questions, I have some closing comments. In the third quarter of 2025, we came to the aid of 192 animals in need. Over our history, we have helped over 42,000 animals, including bottlenose dolphins, manatees, sea lions, seals, sea turtles, sharks, birds, and more. I'm really proud of the team's hard work and their continued dedication to these important rescue efforts. I'm excited about the opportunity set in front of us, both in the near term, where we see a clear path to drive meaningful progress, and over the medium term, where the growth potential is greater. We are focused, well-positioned, and confident in the investments we are making, the operational efficiencies we are realizing, and the value we are building for stakeholders. Now let's take your questions. Operator: [Operator Instructions] Our first question comes from Steve Wieczynski with Stifel. Steven Wieczynski: So Marc, if we go back to your last call, which was early August, I think you noted then that attendance was up on a day-to-day basis through early August. So I'm just wondering maybe what happened from early August through the end of the quarter because that would kind of tell me that you witnessed somewhere low to mid-single-digit declines for the rest of the quarter. And this was also off of an easier comp since the third quarter of '24, I think you had a weather headwind of somewhere around 300,000 guests or somewhere in that range. So maybe just trying to figure out what kind of happened through August and September. Marc Swanson: Yes, Steve, I can help you with that. So look, August is where we started to see -- I should say, we expected to get more of the weather recovery. We got some early in the month, early on, and then we did not get as much as we expected over Labor Day and obviously into September. You also had the international attendance impact in there as well. And that was there a little bit -- it was there in July as well, but obviously, there in August and more pronounced in September and here in the October. And I think that's been pretty well reported that we view that as more of a macro issue. And I'm sure there's things we can be doing better, too, but more of a macro issue. You also have at kind of the end of the quarter, and this is just a function of how we report our results, we report at the end of the month regardless of what day a week it is. So if you kind of go back and look at the days in the quarter, right there kind of at the end of the month, you have a negative calendar shift that happens, and that's just unique to us. Some of that, we will get some benefit of that back in Q4. But that was another pretty meaningful impact in the quarter, obviously. Steven Wieczynski: Okay. Got you. And then second question, Marc, you noted -- in your words, the consumer is inconsistent. And just maybe want to understand what that means a little bit more. And then maybe if you could kind of touch on as well the impact from -- or lack of impact from Epic through the summer and into the fall so far. Marc Swanson: Sure. So I'll take your second one first. So on Epic, I mean, you heard me say in the prepared remarks that year-to-date attendance was up at SeaWorld Orlando. I'm not going to really comment much beyond that, obviously. But the thesis hasn't changed. We still view the Epic opportunity as a very good opportunity. We welcome investment into the market. We think it benefits the market in general. And obviously, we can share in that market improvement, if you will. And that's evidenced by more than 50 years of being in Orlando and continuing to grow and adding our own additional parks and things like that. So that has not changed. Obviously, it's going to ebb and flow from quarter-to-quarter, I'm sure, and they're going to do things, and we're going to do things and others in the market are going to do things. But I think we're going to continue to optimize and learn and take advantage of what will be more people coming to the market, obviously. As far as the consumer, I said last quarter -- what I look at a lot of times is the in-park spend and our in-park spend was up in this quarter. So people are -- at least in our park, the in-park spend is growing. We recognize that there's a lot of companies talking about the consumer and the health of the consumer. So it's hard for us to pinpoint if it's having a significant impact on us, but we're not ignoring that. Obviously, a lot of people are talking about it. So I'm sure there is some impact to certain guests across our portfolio. It's just really hard for us to tell. And like I said, we see our per cap on an in-park basis up in the quarter. And I can tell you, it was up again in October. So that's kind of the commentary there around. It's just a little bit mixed. We're going to continue to move forward on our end. And like I said, the things we got to do to continue to drive our results. And we know there could be some challenges with consumers, obviously, but at least from where we sit, looking at our in-park per cap, which is the one thing I do look at, that is positive in the third quarter and positive in October as well. Steve, I'll add -- sorry, just one quick thing to add to that. I kind of mentioned it, but if you do look at our pass base, we know that's been down. And look, I'm sure when we -- some of the peak selling seasons for our passes were around when the tariff noise was happening. I said this last quarter, it's hard to know if that had an impact on us. I'm sure it didn't help us is, I think, what we're trying to say. And so we have opportunities to close that gap, and I can talk more about that I'm sure a little later. Operator: Our next question comes from Arpine Kocharyan with UBS. Arpine Kocharyan: I have a couple of quick ones. First, what do you think drove the reversal in international visitation you were seeing in the first 6 months of the year? It seems like you're saying it is not Orlando. What do you think drove that? And then I have a quick follow-up. Marc Swanson: I think the -- if you're asking specifically about international attendance, I mean, we saw it up in the second quarter and then obviously, a decline in the third quarter. And I know I think Visit Orlando has put out some projections that it's going to be -- to the market in Orlando for the year. And so I think it's more macro factors. Obviously, there's always things we can do better, but I think this one is pretty well understood on the macro side that international visitation to the United States is slowing, and we see that mentioned. I think some of you guys even mentioned that in some of your reports this morning, so... Arpine Kocharyan: Okay. And you don't see that tied to some of the immigration stuff and harder to get visas and whatnot versus macro? Marc Swanson: No. All those things you said, I'm sure, are factors. That's what I'm saying. I think there are more macro factors that aren't necessarily in our control. So whether it's visas or immigration costs, whatever it may be, that's what I'm saying. I think all those things are a drag for just the international visitation in general. Operator: Our next question comes from Thomas Yeh with Morgan Stanley. Thomas Yeh: Yes, I just wanted to follow up a little bit more on that Orlando market comment. Can you maybe just flesh out what you're seeing at the regional level a little bit more because you did cite SeaWorld Orlando attendance up year-to-date. And I would imagine most of the international visitation headwind you cited stems from that market. Is that fair? And if so, then were the other markets kind of underperforming even relative to that? Marc Swanson: Thomas, I think you can, as we've said in the past, assume that the international attendance is, as you noted, more of an impact to the Florida market and Orlando. So the fact that we're up year-to-date at SeaWorld Orlando with that headwind, I think you could view that as a positive. We'll see where we shake out, obviously. But your point is a valid one on a relative basis, there's other parks that we need to see do better that are outside of the Orlando market. Thomas Yeh: Okay. That's helpful. And then for October, you cited per caps growing. How is attendance pacing? If you can comment on that, particularly given I think you're comping the Hurricane Milton issues that you were facing in early October last year. Marc Swanson: Yes. So on October attendance, we had the hurricane recovery in Tampa, which we got a good portion of that and to some extent here in Orlando as well. There's been a couple of headwinds against that, mainly the weather in Williamsburg, which is one of our more popular Halloween parks. You guys might remember over Columbus Day, a pretty big nor'easter up the East Coast that really impacted that park and to some extent, our Sesame Park in Langhorne for a number of days. And then we did have a couple of rain weekends here in Orlando. So we did get -- and then we have the continued international decline as well. I mean when you net it all up, attendance was up in October, not as much as we'd like because the weather recovery was not as strong in part due to just poor weather in other places and the international decline. I will say, I think it's important to note, I said in-park per cap was positive for October. Admissions per cap was also positive as well for the month. No one has asked me yet about this, but the comment I'd make around that is I think we're doing a better job of managing the admissions per caps here in October, and we'll see where that goes going forward, but that's a couple of data points for you. Operator: Our next question comes from Chris Woronka with Deutsche Bank. Chris Woronka: Marc, I guess, as you guys kind of collect feedback from guests and any surveys you do, your marketing approach. I mean, do you get the sense that you need a more strategic pivot, whether it's in part of offerings or marketing approach and thinking about things like social media versus traditional. But really, the gist of the question is, as you're collecting feedback from customers, is there something more different they want to see outside of price value situation? Marc Swanson: Well, look, Chris, thanks for the question. I mean when you kind of back up in the quarter and you take out the weather and the calendar shift, those are things that just kind of happened. So I don't think that has to do with necessarily what we offer in the parks or anything. The international impact is a new emerging thing, and that's more macro related. So look, there's obviously things we can do better in our parks, and we got to execute better on some things. But I think as far as the events and the rides and the attractions we offer are compelling, and we're going to continue to do that. We saw, like I noted for our Howl-O-Scream event in San Diego and Orlando, record attendance for those events. And we have a good Christmas event ready to start this weekend in one of our parks and then the rest of the parks later on. But one of the, I think, key things, I don't know that pivot is the right word, I think we will continue -- and I think this is really important. We are going to continue to invest in our parks. We're going to continue to drive improvements in putting new attractions in, updating venues, aesthetics, all those things that have been things we've done for years. And so we're not ever going to neglect the parks or anything. We're going to make sure they're fresh and reasons to visit. So we'll continue to make that capital investment. So there's no change in that strategy. That will attract people if you give them some good reason to come and it's new and exciting and things like that. Where I think we could do a better job is obviously on the execution around that. And some of that comes down to marketing. Some of that comes down to the different ticket offers we have and whatnot. So we've got to do a better job on some of those areas. But the core of what we do to our parks, the rides, the attractions, the collection of assets still remains really strong, and we'll continue to invest in those. Chris Woronka: Okay. And then as a follow-up, I think you mentioned the MOU being signed internationally in the third quarter and one, I think you said you expect to sign soon. Can you maybe give us just a little bit of an overview of the overall size of that pipeline and knowing that things may or may not happen, but how big can that get over the next 3, 5 years? And then also on the sponsorship side, you gave us kind of a run rate number you expect I think in the next couple of years. Same question, is there a -- is the pipeline growing there as well? Marc Swanson: Sure. So on international, I think what's exciting is people continue to reach out to us. And so we talked about in our release or in my prepared comments, the two things that we're comfortable mentioning the 2 MOUs, one signed, one we expect to sign in the coming months. So I think that outreach should continue. I don't want to guide you to anything. Obviously, these things can take a while to develop. But certainly, I think having people see the potential in our product, the park in Abu Dhabi, if you've not seen it, go there or look online, it's a really well-done park. I mean it just really showcases the brand well, in my opinion. And I think people see the potential of what our kind of know-how and knowledge can bring to wherever they may be located, right? And it doesn't just have to be SeaWorld. I mean we have obviously other brands, whether it's Busch Gardens or Aquatica or even Discovery Cove. So I expect outreach will continue. And -- but I don't have anything specific to guide you to. We'll update you each quarter. On the sponsorships, similar. I mean, people recognize that we have over 20 million visitors coming to our parks on an annual basis. It's somewhat of a captive audience, and there's a lot of activation and different things we can do. And so there's a list that we're working through, and we're excited about those opportunities going forward. So I expect we'll continue to find more opportunities in that over the coming years. Operator: Our next question comes from James Hardiman with Citigroup. Sean Wagner: This is Sean Wagner on for James. I guess you've talked somewhat about the international weakness. Are you able to break down domestic visitors? Are you seeing any differences there between destination of fly-in versus local drive-in? Marc Swanson: Yes. I don't know that we'll comment a whole lot on just the nuances. I mean just a lot of our parks get visitation from closer in, right? So even here in Florida, where we're sitting today, a lot of our attendance is coming from the state of Florida. And things move around from quarter-to-quarter. I think the most pronounced thing like we saw, which is why we called it out was the international attendance changing. Sean Wagner: Okay. On the attendance per cap front, are you able to provide any more color on how that breaks down by park? Are you more aggressive in Orlando versus other markets given some of the international and competitive headwinds there? Marc Swanson: Yes. I don't think we're going to break it down by park. But I think a couple of comments since you kind of asked. I mean, obviously, you have a lot of things that impact your admissions per cap. So you kind of mentioned international decline. That's typically a higher per cap guest. So when that -- for all the reasons that were mentioned earlier, why those folks -- when that attendance goes down, that can have an impact on your per cap, obviously. The weather and the holiday shift as well, you can't wait around for weather to get better in a compressed summer. I think summer is, in my opinion, getting more compressed. So you don't have a whole lot of time. You have to react somewhat quickly. And then obviously, with our pass base down, you're looking to fill the gap, and we do -- there's different strategies for doing that, which we went after. We also -- when I talk to our revenue management team. We have a little team that manages this process. They see more competitive offers, if you will, more promotions from some of our competitors in several markets, right? So I think we're not the only ones -- or maybe said another way, we're sometimes having to react to some of those offers that other competitors are putting out in more than one of our markets. The good news, as I said, is we did see improvements in the per cap in October. And I mentioned -- or I think Jim mentioned in his prepared remarks that we just launched our 2026 passes and one of the big kind of acquisition periods is around Black Friday. And that's kind of our first kind of big time of the year where we start to acquire passes for the following year. And so that sale has just started this week. It's very early, but obviously, we're encouraged by the trends, as Jim said, that we see there. We know it's very important that we close that gap. And early on here, we're encouraged, still a long way to go and still that gap can live with you for a little while because it's a yearly pass. So that will start to cycle through as we go into next year and into the spring and summer of next year and hopefully become more of a tailwind for us. And we -- I'm not going to give you specific what we did. But obviously, we've done a few things differently with some of our pass products that we think are going to be compelling to guests. And we continue to have very good benefits as well. And I think most importantly, to give you a really long-winded answer is the key thing you need -- one of the key things you need for a strong pass program is to have reasons to visit. And I said this already, but we have another exciting lineup of new things coming to our parks next year, whether it's attractions, rides, events, refresh venues, that type of thing. That you fundamentally need to have, I think, in most years to continue to have pass members visit and continue to also give them reasons to come. The second thing would be continue to give them a compelling value proposition. Our passes are among, I think, one of the best values you can buy for entertainment, for your family and friends and things like that. If you look at the kind of the value you get in a season pass for coming to our park. So the investments in the product is there. The value proposition is there. We have to do a better job of driving the awareness around those pass products, the -- how we're marketing those products and how we're driving people to buy that product. Operator: Our next question comes from Lizzie Dove with Goldman Sachs. Elizabeth Dove: I guess just to go like bigger picture for a second, it feels like as an industry and for you guys, like attendance isn't back to 2019 levels and for you guys not back to the peak levels either that you've kind of laid out in the past. Like what do you think is the kind of gating factor to growing attendance longer term? Like is it something structural, more competition, maybe not even from other parks, but just other kind of in-home, out-of-home entertainment? Or how do you kind of think about that forward trajectory? Marc Swanson: So look, I still have a lot of confidence in the industry as a whole. It's a good industry. And there's a lot of -- I kind of mentioned on the last question about the value proposition and things of going to a theme park. And I think we line up very nicely with that. And we're continuing to make the investments in the product, which I think is really important to do that, and we'll continue to do that. In our case, we've not had the best weather over the last several years here. We know there's a lot of competition for people's time more than ever. And I think we've got to continue to kind of break through on the awareness and why you should have a ticket or a pass to our park. We sometimes talk about like if you moved into town, if you moved into Tampa and you were a new resident, like it should almost be like your neighbor should be telling you like, hey, you got to get a pass to Busch Gardens. It's a great value. Everybody has a pass. So we've got to, I think, market that better, give people reasons to buy our product. And we will -- the way to do that is to continue to invest in the parks, continue to give a strong value proposition and people reasons to visit. And so I'm still real confident in not only our business, but obviously, the industry as a whole. Elizabeth Dove: Got it. That makes sense. And then just to kind of ask one of the other cost questions in a slightly different way, but you've got these kind of cost saving targets. Your margins are still higher generally than the rest of the industry. And look, I know there's nuances with footprint and operating days and all of that. But I guess just can you maybe speak to the confidence of being able to kind of grow margins from here or whether there is some reinvestment needed, whether that's events, marketing, anything like that? Marc Swanson: Sure. Well, look, you know that we hold ourselves to a pretty high standard, and we've executed over the years, I think, reasonably well with some of the cost initiatives. Now obviously, I said I was disappointed in the quarter with the cost saves and efficiencies, and I was. And we've got some new efforts around kind of how we're processing some of that, how we're managing that. And I think we're going to do a better job of managing that going forward. There's obviously, as you noted, always new costs and new things that emerge, and we have to do a better job of managing those things as well. So I think the stuff that is in our cost plan, we're managing. It's some of the new things that emerge that we've got to address more quickly and be more able to mitigate those as much as possible. So I don't know -- I'm not going to guide you to where margins can go. Margins, we're not guiding to that. But what I can say is a core kind of piece of our strategy going forward is continuing to find cost efficiencies and managing our costs. Like you said, the margins are still strong for the industry. And if you look at the cost -- I call them the adjusted EBITDA cost, the difference between revenue and adjusted EBITDA. If you look at that growth this year, it's, I think, under 2%. So it's not like we're out of control or anything. We've managed to a fairly low level. But we know we can do more, and we got to execute better on that, and we're addressing that as we speak. Operator: Our next question comes from Patrick Scholes with Truist. Charles Scholes: I got on to the call a little bit late, so I apologize if any of these have been asked already. Any initial expectations or how should we think about CapEx spend for next year? Marc Swanson: Yes. So I can take that. I mean, I think you would expect us to be in a similar range to where we are this year. And that -- it might move around slightly, but that's been our kind of target somewhere in that range. For the most part, we haven't given you anything specific. I think the key thing for you, and I know I've said this already, but we're going to continue to make investments in the parks. We're not going to suddenly change that mindset. So we'll continue to invest in the parks with capital, with new events, with aesthetics, whatever it may be to keep our parks fresh and reasons to visit. Charles Scholes: Okay. And then -- my next question is just sort of a high-level sort of thematic question. Certainly, attendance in the last quarter was soft, but then you point out some really strong initial metrics for next year with Discovery Cove and group up 20%. When I think about especially Discovery Cove, a really high-end type of exclusive type of product, would you say that -- in your business, you're seeing these bifurcated trends where, say, Discovery Cove doing initial bookings looking really well, but then sort of last minute, more mass market attendance softer. Is that something that you also see in your business, this K-shape bifurcation? And then any other those types of trends that you see? Marc Swanson: Yes. Sure, Patrick. So look, I'm glad you called out Discovery Cove. And that park is on pace this year to have record attendance and revenue. And as I mentioned in my prepared remarks, the revenue trends for next year are up. The bookings and revenue for next year are up over 20% compared to the same time last year. So that's a good sign. It's a really good park, and it's our most expensive park, right? So that kind of feeds into the comment about we look at that park, it's solid bookings. We look at our in-park per cap growing in the quarter and again in October. So there's -- are there consumers that are being impacted as part of our kind of guest mix? I'm sure there are. So I don't want to say they're not. But we see other things, like I said, like Discovery Cove and our in-park per cap that tell us there's also consumers who are fine, right? So kind of the mixed bag there, as you noted. But I think the takeaway, Discovery Cove, which is in Orlando, pacing well this year to a record attendance and revenue and looking solid for next year as well. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Marc Swanson for any closing remarks. Marc Swanson: Yes. Thank you. On behalf of Jim and the rest of the management team here at United Parks & Resorts, I want to thank you for joining us this morning. As you heard today, we're confident in our long-term strategy, which we believe will drive improved operating and financial results and long-term value for stakeholders. So we thank you, and I look forward to speaking with you next quarter. Operator: This conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good day, everyone, and welcome to Elutia Third Quarter 2025 Financial Results Call. [Operator Instructions] Please note, this conference is being recorded. Now it's my pleasure to turn the call over to Matt Steinberg, with FIN Partners. Please proceed. Matt Steinberg: Thank you, operator, and thank you all for participating in today's call. Earlier today, Elutia released financial results for the quarter ended September 30, 2025. A copy of the press release is available on the company's website. Before we begin, I would like to remind you that management will make statements during this call that include forward-looking statements within the meaning of the federal securities laws, which are pursuant to the safe harbor provision of the Private Securities Litigation Reform Act of 1995. Any statements contained in this call that do not relate to matters of historical facts or relate to expectations or predictions of future events, results or performance, are forward-looking statements. All forward-looking statements, including, without limitation, those relating to our operating trends and future financial performance are based upon our current estimates and various assumptions. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated or implied by these forward-looking statements. Accordingly, you should not place undue reliance on these statements. For a list and descriptions of the risks and uncertainties associated with our business, please refer to the Risk Factors section of our public filings with the SEC, including Elutia's annual report on Form 10-K for the year ended December 31, 2024, accessible on the SEC's website at www.sec.gov. Such factors may be updated from time to time in Elutia's other filings with the SEC. This conference call contains time-sensitive information and is accurate only as of the live broadcast today, November 6, 2025. Elutia disclaims any intention or obligation, except as required by law, to update or revise any financial projections or forward-looking statements whether because of new information, future events or otherwise. Also during this presentation, we refer to gross margin, excluding intangible asset amortization, which is a non-GAAP financial measure. A reconciliation of this non-GAAP financial measure to the most directly comparable GAAP financial measure is available on the company's financial results release for the third quarter ended September 30, 2025, which is accessible on the SEC's website and posted on the Investor page of the Elutia website at www.elutia.com. With that, I will turn the call over to Elutia's CEO, Randy Mills. C. Mills: Thank you very much, Matt, and welcome one and all to our third quarter 2025 conference call. I'm excited to be here with you today. Matt Ferguson, our Chief Financial Officer, is also with us today on this call. We're going to be going over a couple of things. One is the basics of evolution, a couple of things that I think everyone should know about the company. We're going to talk -- I'm going to spend a lot of time talking about where we're headed and not just where we're headed, but why we're going where we're going. Matt is going to give us an update on finance and litigation status. And then lastly, we'll close and take your questions. So let's get into it with some of the basics. So Elutia, we are a mission-based company. I think that's an important thing for investors to know. And I think that's a good thing, too, because we have a great mission. Our mission at Elutia is humanizing medicine so that patients can thrive without compromise. And today, we're going to talk a lot about breast reconstruction. And I hope that you can appreciate that our work in this space is so necessary because there's a patient population right now, women experiencing and making their way through their breast cancer journey who really are faced with a lot of compromise in their care and in their treatment, and that's holding them back from thriving. And we are applying our talents, our resources, our efforts and our mission to overcome that. So these women are able to thrive without compromise. I think it's really important for a company to know what they're good at, what are their strengths. And at Elutia, we are really great at combining biological matrices with powerful antibiotics that create this sustained antibiotic release in implants that's able to prevent infectious complications from happening. We started in this with EluPro, our first antibiotic eluting product that we got on the market and really did a great job in the initial commercialization with. We sold that, as you guys know, to Boston Scientific for $88 million. And now we're taking that technology into NXT-41x, which is our next-generation matrix for breast reconstruction. So if you're new to the story, and I see there are a lot of new callers on the call today, three sort of things that are probably worth keeping in mind. One is this is a validated technology platform. What do I mean by that? Well, we've already done it. We've already developed the first FDA-approved drug-eluting bioenvelope for pacemakers, which we sold to Boston Scientific. Now there, we're talking about a much smaller market, so only a $600 million market with a much smaller unmet medical need. We're talking about infection rates on the order of about 3%. We're taking that same technology platform, and we're moving it into a much bigger market with this blockbuster 41x that we have coming. So it's the same technology platform, but applied to the $1.5 billion breast reconstruction market. And as you're going to see coming up, there, we're talking about an unmet medical need where women are facing postoperative infection rates between 15% to 20%. And then lastly, the company is now fully resourced. We have the right team in place. We have a state-of-the-art GMP manufacturing facility, and we have a commercial platform already in place with our SimpliDerm product that we already have and we're already distributing in this space. And then very importantly, we now have the cash to fund the company, not only through product development and product approval, but all the way through commercialization of this technology as well. So let's get into it and let's talk about where we're headed and more importantly, why we're headed there. So why breast reconstruction? Why is breast reconstruction such a transformational opportunity for Elutia? Well, it's really the convergence of 3 factors that make this a very special opportunity for us. One, as I've mentioned, breast reconstruction is a large market, $1.5 billion market. But two, it's an unusual opportunity in that it's this large market that still has this really significant unmet medical need, postoperative infectious complications of 15% to 20%. Despite our best efforts in this for the last 30 or 40 years, we just haven't been able to crack this. And then lastly, our technology, our proven technology platform works in this space, and we're going to be able to solve this significant problem for these patients by applying our technology to this area. So let's go through these three different parts, right? Let's start with the large market. And I get out and I talk to a lot of different investors about this. I think this is actually one of the pieces of our story that most investors already appreciate. The breast reconstruction market is a really big market. It's an addressable market of about $1.5 billion. Why? There's 162,000 breast reconstructions performed in the United States annually. These are brand-new 2024 numbers from ASPS that are out. Biological meshes are already used in 90% of these reconstruction cases. So there's not like there's a market here that has to be retrained on how to use a biological mesh. And in fact, not only are biological mesh is the dominant modality -- treatment modality in these cases, they're also incredibly expensive. So we're talking about per breast on the order of $9,000 a breast for the biological matrix alone. And if you look at that as the percentage of implant spend, right? So you take the permanent breast implant, you take the expander that has to go in there and you take the biological matrix, you put all that together, the biological mesh is 65% of the implant spend. Here's the problem. The outcomes are abysmal. Despite the high cost, the status quo here isn't addressing the problem. Now I want to be really clear. I'm not suggesting the biological matrices causing the problem. I'm not suggesting the implants are causing the problem. I'm certainly not suggesting that the surgeons are causing this problem, but they're not fixing the problem. And what we're left with here is 1 in 3 women that go through breast reconstruction suffer a serious complication after that reconstruction fully, 15% to 20% of that is driven by infectious complications. We're talking about serious postoperative infections coming out of this case. And we are probably understating this problem in this case. Ultimately, we're looking at up to 21% of the implants end up being lost. The procedure ends up being a failure and has to be abandoned. That, as you can imagine, leads to this very significant economic burden that the hospital faces. We're looking at $48,000, the average economic cost to the hospital of an infected breast reconstruction. So here's a real significant problem. So like I said, when I go out and I tell the story, I think people appreciate that the breast reconstruction market is large. I think they even appreciate that -- hey, I believe you guys are going to get this approved. You did a pretty good job with that with EluPro. You got that there. You seem like you know what you're doing. They struggle to believe that this problem could be this bad in this big of a market for so long, and they really want to know sort of why -- how could that be? Why is that? And so I want to explain to you why this is the case. So here we go. So there are some very unique challenges that are presented by mastectomy. So in mastectomy, all of the breast tissue has to be removed, and this is done by the oncologic breast surgeon that comes in and it does the removal of the breast tissue. Why is this happening? This tissue has to come out because if any of it remains, then there is still a risk for breast cancer redeveloping in that woman. And then there needs to be further monitoring. There needs to be mammograms, right? So the whole purpose of having a mastectomy sort of goes out the window. And so the breast surgeon comes in here, and they're very aggressive with this removal, right? So they need to take out all of this breast tissue all the way to the margins of the skin, all the way down to the chest wall. The problem with that is, as you can see in this diagram here, is that the vasculature for the breast runs through this very tissue that all has to come out. Again, the vasculature of the breast runs through the tissue that has to come out. And so what happens is when you remove this tissue from the breast, you have to tie off these vessels that get cut, right? And so when you tie off these vessels, then you basically create an area of hypoperfusion, right, where you don't have adequate amounts of blood flow. What's the consequence of that? Well, the consequence of that is, generally speaking, the way we deal with and the way we prevent postoperative infection is by antibiotic therapy. We can give the patient oral antibiotics or we can give the patient IV antibiotics. But the idea is that you give these patients antibiotics and they circulate all through the body. and go to the parts of the body that you're looking to protect and prevent infection. But when you remove the blood supply, you also remove the route in which systemic antibiotic therapy needs to reach the surgical pocket. So no blood supply means no antibiotic therapy can reach where it needs. And there's lots of studies that show this. The plastic surgeons refer to postoperative antibiotic therapy often as voodoo. It makes everyone feel good that they're taking these antibiotics, but it does not prevent postoperative infection. And the reason why it doesn't prevent it is this very real anatomical challenge that's created. It also, by the way, if antibiotics can't get there because there's no blood, it also makes it for a real challenge for even the patient's own immune system to get there. And our natural cellular components of our immune system have a far more difficult time. So after we've done this procedure, we've done the mastectomy, now a plastic surgeon, this is a different surgeon now, a different surgeon and a different surgical team comes into the operating room to do the reconstruction of this area where they have this really thin skin. You have this pocket of tissue that doesn't have any vasculature. And now in there, they need to put an implant of some sort, either the permanent implant or oftentimes an expander. And then the other thing they'll also put in there is they'll put in surgical drains. And these are drains, if you've never seen them, these are literally plastic tubes that port directly to the outside and they allow excess fluid that normally would accumulate there to drain out of these spaces. And so you're adding this large foreign body and you're adding these drains that communicate with the outside and create a portal for contamination to enter. Then lastly, there's a mesh, right? And this mesh then goes around this entire construct to hold the implant in place and to create a bit of a barrier between the skin and the implant. And the reason that's done is because the skin here that's left after this radical mastectomy is so thin that you need something. And so that's what -- that's what meshes are used for in these types of procedures. And this is all done in a surgical procedure that's taking somewhere on the order of 4 to 6 to 8 hours in order to do. So if you wanted to create the perfect recipe for postoperative infection, it would be difficult to come up with a better recipe than the one we have here in breast reconstruction. You have long surgical times, 4 to 6 hours, multiple different surgical teams, creating an ischemic area in the body, right, that is hypoperfuse, doesn't have as much blood flow as it would need. On top of that, you put a large foreign body and then just for good measure, you throw a drain in that ports directly to the outside. So the question isn't how do we end up with postoperative infection rates of 15% to 20%. The question is, how is it not 100%? I mean it's almost miraculous that you could do this procedure and not have more infectious complication. And I think that actually is really a testament to the surgeons and the professionalism of the surgeons and the operating teams in this case because this is just almost the perfect storm for an infectious complication. But we think about this differently. We look at this and we say, what if we flip the script here? What if we turned things over? And instead of having those antibiotics delivered systemically and hoping some trickle into this avascular necrotic space, what if instead we delivered them locally. So what would happen in that case? Well, in that case, you would have local concentrations of antibiotic that were much higher, that were at therapeutic or even super therapeutic levels. And then just to boot, you would have systemic levels of antibiotic that were essentially indetectable. So you would have antibiotic exactly where you needed it, being very effective at preventing infection and you would completely avoid side effects that can come along with prolonged antibiotic and antimicrobial use. And so this is the fundamental basis behind what we do at Elutia, this idea of drug-eluting biologics and local antibiotic delivery. And this is what we did with EluPro, and it worked very successfully there. And it's what we're doing here with 41x. And the good news is we're not alone here. It's not like we thought of this and like, hey, aren't we brilliant and I wonder and I hope this works. Really resourceful inventive, creative plastic surgeons out there who are doing the best they can for their surgeons have already been looking into this. And they've actually already demonstrated proof of concept. And what they've discovered is that local antibiotic delivery in breast reconstruction works. It effectively, it statistically significantly reduces postoperative infection. Now the problem with it is they had to borrow techniques from orthopedic surgeons in order to pull this off. And there's just 2 different examples here. This first one on the left, these are PMMA plates, polymethyl methacrylate plates. Said differently, they are a place of cement, like a bone cement, hard, big rigid disks. And basically, what they do with these plates is they're able to mix this stuff up in the operating room. And while they're mixing it up, they'll mix in a powdered antibiotic into the aggregate and make that as part of this bone cement. And they will literally put this bony plate up into the breadth. Now the problem is not permanent, it's not absorbable. -- it deforms the rib cage. It's -- but you know what it does really effectively. It prevents postoperative infection. So decreased infection, this is a study with 360 patients, right? This decreased infection of about 62% from 12.6% to 4.8% p-value less than 0.01, really beautiful statistical data that shows that if you have local delivery of these antibiotics, that they will effectively address this postoperative computation. Another version of the same thing is instead of making a big disc, what happens if you made little ease out of it and sort of sprinkle them in there. And again, the same thing. Now this was a case -- or this was a study that was -- if you're wondering why the infection rates are so high. This is actually looking at salvage cases where the patients were already being brought back to the operating room for tissue necrosis. Now normally, what would happen is that procedure, the implant procedure would just be considered a failure. Here, they wanted to see if they could salvage these cases. And so they tried with and without this local antibiotic delivery. And again, a 35% postoperative infection rate dropped to 6.3% postoperative infection rate. This is a 75-patient study, p-value 0.017. So highly statistically significant. The point of all of this is if you deliver local antibiotics, it doesn't just conceptually work, it works in practice. And so that is why we created NXT-41x. But we did it in a way that the plastic surgeons are excited about using. And so Dr. Williams and her team has made a beautiful biological matrix. It's one of the things we're really good at doing that's purpose-built for plastic and reconstructive surgery. And then on to that, they've added powerful antibiotics, rifampin and minocycline. And they've done this in a way where they formulated it so they have a greater than 30-day release of these antibiotics that's putting therapeutic levels of antibiotics into the space for greater than 30 days. Why is this 30-day number so important? Because most drains come out by day 17. And so you want to make sure that once the portal is closed to the outside, that you still have antibiotic delivery going on and they're able to address infections. So this is NXT-41x. And that's the rationale why we came up with this. That's why it was so important for us to get EluPro done and commercialized and then ultimately, in the hands of Boston Scientific, who are going to knock the cover off the ball with that product. So we can move on and bring this product to market to the women who are going through breast cancer, who are battling breast cancer and so desperately need this technology. Let's talk a little bit about the plan and how we're going to get there. Right now, we have SimpliDerm, which is our biological matrix that doesn't have any antibiotics. This is very analogous to those of you who remember, our CanGaroo product that we had on the market, before we introduced EluPro, just the biological matrix by itself. So that's our SimpliDerm product. And what it enables us to do, just like CanGaroo enabled us to do is build out our commercial infrastructure, our sales team, our contracting team, the teams that work with the value analysis or the VAC committee, build out that whole infrastructure, so it's up and functioning and ready to go when NXT-41 comes to market, right? Second step, and you'll see this in the second half of next year, you'll see the first step is approval of NXT-41. Now what we're doing here, NXT-41 is NXT without the antibiotics. So if you think about the X is Rx prescription, right? So the NXT-41 is just the base matrix. We're doing that for regulatory purposes. We want to get just the matrix cleared through the FDA before we add the combination of the drug to be able to separate a combination device drug review into its component parts. And then the last piece you'll see in the first half of '27 is the approval of NXT-41x. Then lastly, before I turn the call over to Matt, just a little bit about what's going on inside the company and when we -- when we talk next about this, what I'll be providing updates, there are already three really essential work streams going on. Obviously, the most important one is the development. And we're looking for the development and approval of a highly differentiated product that significantly improves outcomes in plastic and reconstructive surgery, that is NXT-41. But alongside all of that is our manufacturing team that are building out this robust production platform that's able to achieve really, really significantly low cost of goods through our own proprietary in-house manufacturing process. We have this manufacturing facility in Gaithersburg, Maryland. If you're ever in the area, stop by, we'd love to give you a tour about it. But we have this really great facility and this really great team there that's building out this process that will enable us to produce this at a low cost of goods. And then lastly, the commercial team. The commercial team is working on SimpliDerm and doing a great job with SimpliDerm, but also building out the clinical advocacy and the commercial infrastructure that we need to have in place so that when 41x gets approved, we're able to do as good a job, if not a better job commercializing that product as we were able to do with EluPro. So that is what we're doing. That is why we're doing it and our plan in order to get from here to there. With that, I'll turn the call over to Matt, and he'll tell you about our operations. Matthew Ferguson: Okay. Thanks, Randy. And it's a very exciting time to be at Elutia and the future that Randy just described for everyone is really built on the great work that has been done over the past several years and the work that's been done more recently to build the foundation to make this future possible that we are also excited about. And so with that, I'm going to just take us back briefly to what Randy talked about at the very beginning of the call. And the big event for the third quarter of 2025, was the transaction of the sale of the bioennvelope business within Elutia to Boston Scientific. It was a sale for $88 million in cash, sold to a Tier 1 company that really put us through our paces digging under the covers, not just for the assets that they were acquiring, but really the whole company. And we came through that process very nicely with the technology and the company validated for work that had been going on really for years. So that transaction validates the technology platform that will be transformed in the coming quarters into NXT-41 and 41x and capture this big opportunity. And it also transforms our balance sheet importantly. And so it brings in a significant amount of cash and then it also streamlines our operations. So going forward, we'll be more nimble and we'll be more efficient and will be more productive. So the assets that were sold were the EluPro and CanGaroo products, along with that, our main operational facility within Roswell, Georgia that also went with the transaction. About half of the people in the company also went with that transaction. So that is going to make a big difference in our operating expense going forward and also should lead to improved bottom lines for the company. The transaction was announced in early September, but it didn't close until Q4, but it actually closed on the first day of Q4. So while the financial results, the balance sheet that we show as of the end of the quarter doesn't yet reflect the infusion of cash and the other associated payoff of debt and that sort of thing that occurred with the transaction, that happened just the day after the end of the quarter, and we'll talk a little bit more about that in a second. So from a financial point of view, when you look at our financials going forward, the business of the Bioennvelope division, that will now be shown just as a single line in discontinued operations. So starting with Q3 this quarter, we are no longer reporting on the sales and expenses associated with that part of the business, except in that one line, which is below our operating line at this point. So just moving forward, talking a little bit about the results for the quarter of the continuing operations, really breaks down into our 2 other product lines that are commercial right now, that's SimpliDerm and cardiovascular. SimpliDerm, we saw a nice uptick from the prior quarter in revenue. We generated $2.4 million of revenue, which was up about 18% from Q2 of this year. It was down, granted from a year ago, but there are a variety of factors that caused that over time. A lot of it, we believe, had to do with the contributions from the distribution partner that we've had over time. And I can say that we've actually now ended that relationship as of October, and we now have full control over that product line, and it is unencumbered from a strategic point of view. But just as important, we now have full operational control over it. As we rebuild the commercial footprint associated with that part of the business, it will do a couple of things. One, it will lead to renewed growth of that part of the business, but we'll also very importantly, lay the groundwork, which Randy talked about a little bit for the products, NXT-41, NXT-41x, which are sold into the same customer base and into the same types of procedures that SimpliDerm is sold into. So you can think of it a little bit similar to what we did with EluPro, where we had the CanGaroo product before we had the EluPro drug-eluting version of the product. Having that sales organization and commercial footprint for CanGaroo really allowed us to hit the ground running. And by the time that we were 3 quarters into our launch, we had ramped up to about an $18 million run rate with EluPro, and we think we can likely do even better when we have NXT-41 on the market. Moving on to cardiovascular. That also had a nice quarter, again, with the theme of us regaining control over the product completely. We returned to full operational control of that product after having a distribution partner there as well in the second quarter. And in May, we started selling that directly ourselves, and we generated in the third quarter, the first full quarter where we had only direct sales, we generated just a little under $1.9 million of sales with that. And that actually compares to both the prior year and the prior quarter quite nicely. It was up 68% from the prior year, up 28% sequentially. So we're doing nicely there. That product also has very high gross margin. So the more we sell there, the more it drops to our bottom line and funds the really strategic opportunities that we have in front of us. Moving on to a few other financial highlights in our statement of operations. Overall sales were $3.3 million, comprised of those 2 product lines that I just talked through compared to $3.6 million from a year ago quarter. The GAAP gross margin was 55.8% versus about 49% a year ago. So we've seen a nice uptick in our gross margin. There, again, we're actually benefiting from the margin profile of these products that we're now selling compared to the full portfolio that we had previously. And I think we'll see continued gains there. Our adjusted gross margin, which excludes noncash amortization expense, that was even better at about 64% versus 56% in the year ago quarter. And then also, we saw improvements both from an operating expense point of view and a loss from operations perspective. So we were at $7.1 million in overall operating expense, down from $11 million a year ago, and our loss from operations was $5.2 million versus about $9 million a year ago. All of that nets out to what was probably a more important metric when you back out the noncash items and nonrecurring items, our adjusted EBITDA was $2.7 -- adjusted EBITDA loss for the quarter was $2.7 million, and I think that's a pretty good indication of where we expect to be in the near future. From a balance sheet perspective, again, as I mentioned, the transaction had not closed yet by the end of the quarter. So we ended the quarter with $4.7 million in cash. But again, 1 day later, we closed the transaction that resulted in $80 million coming in at closing, $8 million in escrow and interest-bearing escrow account that we'll receive in 2026. That $80 million was then deployed to pay off about $28 million of debt. And then after paying off deal expenses and the like, we ended up with about $49 million of actual cash that came into our account in early October. That puts us in a great position as we move forward and think about our development plans going ahead. So we believe that gives us the runway to get us completely through the development and approval of NXT-41 and NXT-41x and the actual commercial launch of those products out in 2026 and 2027. Then finally, for people who've been watching the company for some time, you know that we have been working very diligently to put behind us some legacy litigation from a part of the company that we sold off a couple of years ago. That's generally referred to as the FiberCel litigation. I can report there that we were able to resolve another 7 of those cases in the quarter. And now when we started with 110 of those cases, we're now down to only 6 remaining. So I can say we are very, very close to putting that completely in the rearview mirror for us. We're very glad to have that almost behind us. And from a financial point of view, it's a relatively small number that those remaining 6 cases account for. The estimated liability of those is less than $1 million at about $700,000. So with those highlights, just before we take your questions, I would say, if you think about it from a big picture, why as an investor, would you own Elutia? Well, it goes back to the opportunity really that we've been talking about here for the last half hour or so. We like to say that it's a biotech-like upside with the risk profile and time line of med tech. So it's something that is very unique in the marketplace. We have a validated technology platform that physicians will adopt and that strategic will value. We have a derisked path to be first-in-class in a $1.5 billion market with a significant unmet medical need. And we have the team and the capital to get there without dilution. So with that, we'll take your questions. Operator: [Operator Instructions] It's from Frank Takkinen with Lake Street Capital Markets. Unknown Analyst: This is Nelson Cox on the line for Frank. Congrats on all the progress. It's exciting to see the story developing. You walked through it during the prepared remarks, but maybe just to go a little deeper, maybe walk through some of the learnings with EluPro from a development to approval to commercial rollout perspective. Just want to give you a chance to maybe dive into that a bit more and any learnings that will translate to NXT. C. Mills: Yes. Thanks, Nelson. So first, I would say the team is everything. And that goes to development, FDA approval and commercial rollout as well. The team is really everything here. And so with EluPro, we actually had a submission of EluPro that was put in actually before my time coming back into the company. And we got some comments back from the -- we got a lot of comments back from the FDA about that. And that led actually to us getting an NSC on that. But through that nonsubstantial equivalence process, I brought in Michelle Williams, who you guys know I've worked with for 21 years now. And I would say best Chief Scientific Officer in the business for these kinds of things. And she was able to really not just respond to the NSC, but also learn from it and develop our own intellectual property around it on not just delivery methods for local antibiotic delivery, but also around testing methods and how you prove it and how you demonstrate it to the FDA. And in doing so, develop a really good relationship with the agency, giving them not just barely enough information to feel comfortable with the submission and the clearance, but actually making them feel really confident that we've made a real quality product here. So I would say that is probably the single most important thing from a development standpoint that we learned. Commercially, what we learned was it is really good to have some commercial infrastructure in place. EluPro, by the time we sold EluPro to Boston Scientific, it was running at an $18 million run rate; 9 months in, I mean, that thing shot out of a canon. And that was because we had a commercial team in place. They had a great VAC package that, again, Michelle Williams and her team had helped put together. But we also had the commercial infrastructure and the contracting in place, and we knew how to do that. And so CanGaroo helped EluPro, and we think in the same way, SimpliDerm is going to help 41x when we get out there. So I think those are 2 things that come to mind. Unknown Analyst: Then maybe just running off of that, SimpliDerm obviously gives you a big commercial presence like you're talking about ahead of NXT. Can you just frame that a bit more for us and how you plan to leverage those already existing relationships. C. Mills: Yes. So we're talking about -- when we have SimpliDerm, right, we're talking about biological mesh that's used in the same surgical procedures. It's used by exactly the same surgeons in pretty much exactly the same way we expect NXT-41x to get used, right? So we're not talking about requiring the surgeons to do anything different from their current practice. It's one of the reasons that we just -- we really love -- we love this approach. All of it's already in place. They're already doing it. The problem they have is despite their best efforts, they're left with this postoperative complication rate. And so our plans with SimpliDerm is to just keep using that product to have this direct customer interaction that we have. Nobody between us. As Matt said, we now have full control back of our SimpliDerm product line. We go out and meet directly with the plastic and reconstructive surgeons. We talk with them about how SimpliDerm is going and their problems and how we can be helpful and how we can have them get better outcomes. And then obviously, just from a commercial infrastructure standpoint, our contracting teams and our commercial teams from a customer service and distribution, all that stuff is in place and ready to go, and we'll keep building on it, right? So we think about this coming year, not in any way as an idle year for our commercial team, but it's actually one where they're going to be active as hell going out there and continuing to expand this in just the same ways that we did with CanGaroo before the launch of EluPro. Every seed we planted there ended up being very, very valuable for the launch of that product. And we learned that lesson. And so that's what we're going to do with SimpliDerm. Unknown Analyst: Maybe just sneak one more in. How are you thinking about kind of clinical evidence and data generation with NXT? Do you envision kind of needing to invest there significantly to drive education and adoption? C. Mills: So through the combination 510(k) pathway, as you know, we actually don't have a requirement for clinical data for the approval process. Now we are a science-based company. We do really exceptional quality work, and we stand behind it. When we launched EluPro, we had no requirement for clinical data. But very quickly, we were able to put together, as part of our VAC package and as part of our marketing package, a complete story that made the implanting surgeons not just comfortable but enthusiastic about putting EluPro, and that worked really, really well. Well, we're doing the same thing here. And so preclinically, there is a tremendous amount of evidence that the team is building from things like pharmacokinetics, how long the antibiotics are there, the concentrations that they hang around in surgical sites from a preclinical efficacy standpoint. One of the things you can't do with patients is you can't go back into them a month after the product has been implanted and infuse them or inject them with large amounts of pathogenic bacteria. But we can do that in the preclinical setting with animal models and demonstrate like we did with EluPro that we're able to get complete kill even at 4 weeks out. But once the product, Nelson, comes to market, one, we don't think -- we know there's strong demand for this product now from the interactions that we have from the relationships that we have now, just the same way EluPro. There is a first wave of users that are ready to be done with putting cement into breasts in order to fix this problem and have a professionally built and constructed a product that fits in with their practice and they'll adopt right away. But we're not leaving it there. We're running clinical programs on these so that we generate conclusive data. Our goal here isn't to take significant market share. Our goal here is to flip the entire market so that women have much, much better outcomes than they currently do. The current standard of practice is not okay to leave the way it is. It needs to get better. And we know we'll have to generate clinical data to get all of that done, but that is our goal, all of it. Operator: Our next question is from the line of Ross Osborn with Cantor Fitzgerald. Junwoo Park: This is Matt Park on for Ross today. So I guess starting off with 41 and 41x. Can you just go back to any manufacturing plans you need to do ahead of time to -- I guess, like are there any validation steps needed to ensure a smooth transition from SimpliDerm to 41 and then to 41x? C. Mills: Great question, Matt. So to be really clear, where we manufacture 41, 41x is a completely different facility than we manufacture SimpliDerm. SimpliDerm is a human-derived product. It has a host of regulations associated with it because human-derived products can carry human pathogens with them. And so we keep those 2 things completely separate in completely separate facilities. So the facility where we're manufacturing 41 and 41x is a GMP facility. We were really, really lucky here. You might say we were beneficiaries of the GLP-1 boon that occurred in that we were able to get a space, a great GMP space that was already built out and ready to go from a company that was acquired by Novo Nordisk. And because of that, we were able to get it at really great prices. But most importantly, it was this really high-quality facility that was ready to go looking for somebody to manufacture something in it. So we're really pleased with that facility. There's all kinds of tech transfer and process qualification, equipment qualification that goes on when you bring up a manufacturing process. We have all of -- our teams there have a schedule for all of 2026. They're running through that process right now and are underway. We don't anticipate manufacturing will hold back or be the rate limiting factor in anything that we're doing here. And by the way, facility-wise, this is all done out of our new facility in Gaithersburg, Maryland. Junwoo Park: Maybe just one more on the cardiovascular business. Now that you've transitioned it back in-house, I guess, how should we think about the current run rate and the sustainability of growth from here? C. Mills: Yes, Matt. So we've been really pleased with the bounce back that we've seen now that we've been able to devote some more attention and some direct resources to that part of the business. That is not the future of the company by any means, but it's a great little business that has a pretty significant market out there and great gross margins and some really committed physicians out there that are using the products. And so we're basically back at the $1 million a quarter revenue level. And I think there's some growth that we can achieve from there. But it's not going to be a rocket ship. It's going to be steady growth, but we're also not having to invest money upfront in order to achieve that. We've got really an exclusively contract sales organization that's out there. So it's completely variable expense. And with the high gross margins over 80% that we've been achieving there, it -- a significant amount of the revenue that we generate actually drops to the bottom line. So that's in general, how I would think about the product there -- the product and the future trajectory there. Junwoo Park: Got it. Thanks again for taking the questions and congrats on progress. Operator: As I see no further questions in the queue, I will conclude the Q&A session and conference for today. Thank you all for participating. You may now disconnect.
Operator: Welcome to Strategic Education's Third Quarter 2025 Results Conference Call. I will now turn the call over to Terese Wilke, Senior Director of Investor Relations for Strategic Education. Mrs. Wilke, please go ahead. Terese Wilke: Thank you. Hello, everyone, and welcome to Strategic Education's conference call in which we will discuss third quarter 2025 results. With us today are Robert Silberman, Chairman; Karl McDonnell, President and Chief Executive Officer; and Daniel Jackson, Executive Vice President and Chief Financial Officer. Following today's remarks, we will open the call for questions. Please note that this call may include forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The statements are based on current expectations and are subject to a number of assumptions, uncertainties and risks that Strategic Education has identified in today's press release that could cause actual results to differ materially. Further information about these and other relevant uncertainties may be found in Strategic Education's most recent annual report on Form 10-K, the 10-Q to be filed and other filings with the Securities and Exchange Commission as well as Strategic Education's future 8-Ks, 10-Qs and 10-Ks. Copies of these filings and the full press release are available for viewing on the website at strategiceducation.com. And now I'd like to turn the call over to Karl. Karl, please go ahead. Karl McDonnell: Thank you, Terese, and good morning, everyone. We are pleased with our third quarter results, especially the sustained strength in our Education Technology and Services segment, supported by strong growth at Sophia and Workforce Edge. On an adjusted constant currency basis, SEI's revenue rose 5% from the previous year. We continue to advance our efforts to leverage technology, resulting in operating expense growth of less than 1%, operating income growth of 39% and a 400 basis point margin expansion. We did incur restructuring costs in the third quarter related to our ongoing productivity initiatives, which accounted for most of the difference between our GAAP and our adjusted results in the third quarter. Adjusted earnings were $1.64 compared to $1.16 from the prior year, an increase of 41%. Turning now to our segments. Our Education Technology Services division generated continued strong growth during the quarter with revenue and operating income increasing by 46% and 48% from the prior year to $38 million and $16 million, respectively. And notwithstanding our continued strong investment in ETS, which included a 44% increase in expenses, ETS' operating margin increased slightly on a year-over-year basis to 41.7%. Sophia Learning, our direct-to-consumer portal that offers high-quality college-level courses and has increasingly become a key component of many of our strategic corporate partnerships, grew both average and total subscribers and revenue by 42%, driven by strong growth in both consumer and employer-affiliated subscribers. ETS' share of SEI's operating income continues to grow and now represents 1/3 of consolidated operating income, reflecting progress with our employer-focused strategy. U.S. Higher Education total enrollment decreased slightly from the prior year, but was more than offset by higher revenue per student driven by fewer drops, less discounting and students taking more courses on average. This resulted in revenue growth of 3% from the prior year. Employer-affiliated enrollment once again remained strong, increasing approximately 8% from the prior year and now represents 33% of all U.S. Higher Education enrollment, an increase of 290 basis points from the prior year. In addition to the strength in our employer affiliate enrollment, U.S. Higher Education's health care portfolio generated strong total enrollment growth of 7% from the prior year. Health care is a critical part of our portfolio, representing half of all U.S. Higher Education enrollments and almost 40% of enrollment from employer partners. Recently, we commissioned a survey in partnership with The Harris Poll, which highlights the ongoing burnout facing the health care workforce and the projected shortfall of clinical health care workers. This research emphasizes the importance of investing in employees' growth and making continuous education a key part of strategies to retain talent. Full survey results can be found on our website at strategiceducation.com. U.S. Higher Education operating expenses decreased by $6 million from the prior year or a reduction of 3%. As a result, U.S. Higher Education operating income almost doubled from the prior year to $23 million, and its operating margin increased 520 basis points. Turning now to our Australia and New Zealand segment. ANZ's third quarter total enrollment decreased 2% from the prior year, driven by the continued regulatory restrictions on international student enrollment. Using constant currency, revenue decreased 2% to $70 million and operating income decreased from $15 million in the prior year to $13 million this year. Notwithstanding the decline in total international enrollment, we are encouraged by the continued progress with domestic enrollment growth and recent guidance from the Australian government that our international caps will increase 3% in 2026. Finally, regarding capital allocation, in addition to our regular quarterly dividend, we repurchased approximately 429,000 shares during the quarter for a total of $34 million. As of the end of the third quarter, we have repurchased over 1.1 million shares for $94 million, leaving us with $134 million remaining on our share repurchase authorization through the end of this year. And finally, as always, I'd like to take this opportunity to thank all of my colleagues here at SEI for their ongoing commitment and support to our students and our employer partners. And with that, Shue, we'd be happy to take questions. Operator: [Operator Instructions] And our first question will come from the line of Jasper Bibb with Truist Securities. Jasper Bibb: I wanted to ask two on U.S. to start. I guess, first, what drove the healthy revenue per student gain in the quarter? And what should we expect on a revenue per student basis over the next few quarters? And then second, a lot better margin than we anticipated in the U.S., too. Just hoping to get a bit more detail on the expense reductions there. Daniel Jackson: Jasper, it's Dan. On the revenue per student, Karl mentioned lower drops and higher seats per student. It was also some lower discounts, and I think we'll see some benefit from that through the balance of the year. So there'll be some upside on revenue per student at U.S. Higher Ed. Karl McDonnell: And on margins, Jasper, we've said before, we're in the midst of a pretty aggressive productivity initiative that's designed to essentially remake our entire expense base. We've got -- through technology and artificial intelligence notably, we've got six different categories that touch all parts of the organization. Our expectation is that we'll probably be able to save upwards of $100 million in operating expenses by the end of '27. Jasper Bibb: Okay. No, that's great. Could you maybe frame where you're at on that journey to $100 million in annual operating expenses? And is that only coming out of the U.S. business or that's company-wide? Karl McDonnell: It's company-wide. In my prepared remarks, I referenced the restructuring that we completed at the end of the second quarter, beginning of the third quarter. On a run rate basis, that equated to probably $30 million of expense reduction. So I'd say there's another $70 million or so over the next 2.5 years. Some of that, we're going to reinvest as growth capital to continue to support the various businesses and some of it will show up as increased margin. Jasper Bibb: Okay. That's great. For U.S., could you maybe frame the relative growth rates for Strayer and Capella at this point? And can you talk about how you're managing each of those businesses in the context of trying to get back to mid-single-digit enrollment growth at the segment level? It sounds like you might already be at mid-single digit for Capella and Strayer is declining. Is that accurate? Karl McDonnell: I'd say that Capella has been stronger. The weakness that we've seen at Strayer is primarily attributable, as it has been in prior cycles, to a reduction in non-affiliated students, but it's also a function of just, frankly, more efficient marketing dollars at Capella. So we don't necessarily -- we're not fixated on spending a set amount at both Strayer and Capella. We tell the U.S. Higher Education management team, solve for whatever is going to result in the overall highest growth for U.S. Higher Education as a division. And over the last 18 months or so, that's been much more effective at Capella. So we've worked to grow Capella at a higher rate of growth than Strayer, and we're seeing that in the performance that's playing out. Jasper Bibb: And then I wanted to ask about Australia/New Zealand, encouraging news on the international student caps. Are you still expecting that business to return to total enrollment growth in 2026? Karl McDonnell: Total enrollment growth, I would like for it to return in 2026. Definitely new student growth in 2026 when we anniversary the caps. It generally takes 4 to 6 quarters of new student growth to overcome any declines you've had over the preceding 4 to 6 quarters. So getting to total enrollment growth by the end of '26 would be a little bit of a stretch goal, but I would definitely expect new student growth beginning in the first part of '26. Jasper Bibb: Okay. Got it. Maybe I misremembered the comment from the last call. Last one for me. As you see it today, do you think the '26 for the company level would align with the notional framework you outlined a few years ago at the Investor Day? Karl McDonnell: Yes. We are very anchored on our notional model. Nothing that I see now at either the revenue line or the expense line, which we obviously control, leads me to believe that we won't be able to hit the targets that we laid out at our Investor Day. Operator: [Operator Instructions] Our next question will come from the line of Jeff Silber with BMO Capital Markets. Jeffrey Silber: I wanted to start with Australia/New Zealand. I know many folks on the line don't necessarily follow what's going on, on a daily basis. Can you just remind us exactly what has happened, what the changes were compared to what we thought might have happened a few months ago? Karl McDonnell: Well, the change is -- the change from when we bought it is that the Australian government has put in place hard enrollment caps for international students. And in our case, that resulted in a reduction of approximately 30% from what we had when there were no caps. And international students historically at Torrens represented about half of any new student cohort that we had. The change that we didn't further anticipate that happened at the beginning of this year is the government went further and put much more tighter controls and restrictions on the ability of an international student who already has a Visa and who is already in Australia from transferring to another institution, which frankly was the source of most of the growth that we had at Torrens because it's a very common practice in Australia for universities to charge a pretty significant tuition premium for international students. And we at Torrens effectively have tuition parity between international and domestic students. So there was a strong incentive for students to enroll at Torrens because they were going to save a significant amount of money. The change is that we, Torrens, have to essentially vet any transfer student the same way you would as somebody coming in offshore when they're just applying for Visa. So you have to vet things like the amount of finances that they have onshore, you have to vet their ability to return back to their country and their willingness to return back to their country when they're done with the studies. It's a significant headwind. And the product of that headwind is that far fewer students are transferring. But regardless whether it's the offshore students coming in for the first time or the international transfer students, we're going to anniversary these caps mid-'26. We've seen pretty strong domestic new student enrollment growth throughout '25. So when I was answering Jasper's question, I expect that we'll be growing new students in 2026. And hopefully, that will translate into total enrollment growth by the end of '26. But by the time we fully anniversary these restrictions heading into '27, we expect that business to be growing. Jeffrey Silber: Okay. That's really helpful. I appreciate it. Why don't I move back to U.S. Higher Education, and I appreciate you guys calling out your health care exposure. Can you just remind us -- I know there seems to be some concern on the street between what they call pre-licensure and post-licensure programs. Can you just remind us of the exposure in those two boxes? Karl McDonnell: We are not in the pre-licensure field in nursing. We are in the post-licensure with the RN to BSN program, and that's a FlexPath program, which is the largest program at Capella. And we've seen, I'd say, a little softness in that program. They are in the BSN throughout 2025. But we further believe that we're advantaged because that's also our largest program from an employer-affiliated enrollment standpoint. And as I've said in my prepared remarks, that part of our business remains strong. Jeffrey Silber: Okay. Great. And just one more. I know also there's some concern on the government shutdown, specifically those companies that might have exposure to military and veteran students. Can you talk about any potential impact you've seen and what you think the impact might be going forward? Karl McDonnell: Yes. To my knowledge, we haven't seen any impact. And when I think about our largest clients like CVS Health or Best Buy or Dollar General, they're not really impacted by the government shutdown per se. So as of yet, Jeff, we haven't seen any adverse impact. Daniel Jackson: Jeff, this is Dan. We have very few direct military students. So the exposure there is really insignificant. Operator: I'm showing no further questions in the queue at this time. I would now like to turn the call back over to Mr. Karl McDonnell for any closing remarks. Karl McDonnell: Thank you, everyone, and we look forward to joining you in February to discuss our fourth quarter and full year results. Operator: This concludes today's program. Thank you all for participating. You may now disconnect.
Operator: Good day, and welcome to the NCR Atleos Q3 2025 Earnings Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Melanie Skijus, Head of Investor Relations. Please go ahead. Melanie Skijus: Good morning, and thank you for joining the Atleos Third Quarter 2025 Earnings Call. Joining me on the call today are Tim Oliver, Chief Executive Officer; Andy Wamser, Chief Financial Officer; and Stuart MacKinnon, Chief Operating Officer. During the call, we will reference our third quarter 2025 earnings presentation available through the webcast and on our new Investor Relations website at investor.ncratleos.com. Today's presentation will include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections. Risks and uncertainties include, but are not limited to, the factors identified in today's earnings materials and our periodic filings with the SEC, including our annual report. During the call today, we will also refer to certain non-GAAP financial measures, which the company uses to measure its performance. These non-GAAP measures are reconciled to their GAAP counterparts in the presentation materials. The webcast this morning is being recorded and will be available for replay by accessing our Investor Relations website. With that, I will turn the call over to Tim. Timothy Oliver: Thanks, Melanie, and thank you to everyone for joining us on our call this morning. I will start this morning by quickly reviewing the quarterly operational performance and strategic progress from a more forward-looking and qualitative perspective. I'll leave the quantitative review to Andy. I will then provide some context on the current business environment and its consideration in our outlook. I'll end by reiterating the compelling Atleos story and describing a capital allocation strategy that anticipates steady growth and free cash flow. And then Stuart, Andy and I will take your questions. Having now passed the second anniversary of our spin from legacy NCR, our separation process is complete. The magnitude of the effort and of the accomplishment cannot be overstated. We bifurcated or duplicated 140 years' worth of IT systems and hardware. We physically separated hundreds of global locations. We established dozens of new legal entities. We migrated over 700 critical customer connections and completed over 200 transition service agreements. I'm very pleased that the resources formerly dedicated to this effort can now be focused on growing Atleos. From the outset, we described 2 fundamental goals that we knew would be essential to the eventual valuation of our company. First, establishing a quarterly pattern of transparent and predictable financial performance; and second, deploying free cash flow to reduce leverage and then begin returning free cash to shareholders. In the third quarter, our seventh full quarter as a separate publicly traded company, Atleos extended a series of steady financial performance that has repeatedly been consistent with our expectations and our external guidance. The resiliency of both Atleos business model and its employees that drive it, augmented by prudent contingency planning have allowed us to overcome exogenous shocks like 50% import tariffs, persistently high interest rates, disrupted supply routes and dramatic shifts in immigrant work payrolls. As we enter the fourth quarter, we have also crossed the originally targeted threshold leverage level of 3x and are on path to be at about 2.8x at year-end. While we were unable to repurchase shares in Q3 due to trading window restrictions, we expect to begin repurchasing Atleos shares in the upcoming trading window and to establish a 10b5-1 plan that dictates the repurchase program thereafter. For those following along in the presentation from the Investor Relations website, I will start on Slide 5 that provides a quick visual of our vertically integrated self-service offering. As digital transaction and asset types proliferate, the translation to and from physical assets becomes increasingly complex and is accelerating the outsourcing of self-service banking and the cash ecosystem. Banks and retailers are demanding more efficient and lower friction physical transactions and more capable devices and at convenient and safe locations beyond the branch. Our service infrastructure and installed base of machines is purpose-built to solve these needs. We become essential to any transaction that requires physical authentication and the ability to dispense or accept or even safe keep valuable physical assets. NCR Atleos is uniquely positioned to benefit from either of the 2 solutions, a shared financial utility ATM estate or outsourced bank-specific fleets. Both growth vectors leverage a common Atleos infrastructure that is world-class, has unmatched global scale and delivers significant cost leverage. Turning to Chart 6, which describes our Q3 performance against our qualitative and financial goals. The third quarter was an exceptional quarter from a strategic and competitive perspective. We grew efficiently by delivering robust hardware revenue that augments our leading installed base with record production from our manufacturing facility in Chennai. We drove incremental revenue from the global service fleet by accelerating our outsourced services business. Our Service First initiative elevated service levels and is being recognized by our partners and rewarded by our customers. And we embraced simplicity, reducing inefficiencies across the company, optimizing our production and supply chain operations, redesigning the organization to speed decision-making and investing in systems and people to make us easier to do business with. Core top line growth was 6%, led atypically, but not unexpectedly by traditional hardware revenue and the conversion of services backlog. This growth was partially offset by lower payroll card transactions in the U.S. network business. Profitability ramped nicely and was at the high end of our expectations due to an advantageous hardware revenue mix, accretive outsourced ATM-as-a-Service revenue growth, fixed cost leverage and direct cost productivity in our service organization. These were all partially offset by higher cash rental costs and higher tariffs. Shifting to Chart 7, which describes the self-service banking segment. This is primarily a service business comprised of a global installed base of over 500,000 ATMs sold to financial institutions that run our subscription software and rely on Atleos servicing agreements for the duration of their deployment. Traditionally, ATM services have been centered on maintenance and repair, but increasingly, banks are opting to outsource more or even all of the services necessary to run and manage their ATMs. We now have over 120,000 machines that we support beyond traditional break/fix, including those that are fully outsourced Atleos. Segment financial performance was strong. Revenue grew an impressive 11% in the third quarter, benefiting from increased demand for our recycler product, coupled with acceleration in outsourced services. Services and software combined grew 5%. And ATM-as-a-Service was the primary source of services growth and continued to gain momentum with meaningful additions to total contract value to customer count and to backlog. This segment generated significant profit growth with margins up across each hardware, software and services. Scalable services growth and advantageous hardware mix were augmented by indirect productivity efforts, all contributed to margin expansion. Demand across the product portfolio and especially our recycler product has exceeded expectations. In early 2024, we launched an effort to strengthen our manufacturing capabilities to prioritize our engineering effort and to increase throughput for next-generation recyclers. This effort has now reduced our delivery lead times from months to weeks. Demand for our ATM outsourced services is also strong and accelerating, posting 37% growth in Q3. We have streamlined the sales process and improved conversion rates, resulting in our best quarter ever for ATM-as-a-Service bookings, approximately $195 million of total contract value, including our first as-a-service customers in Latin America and in the Middle East. Backlog remains strong in this business, and we expect the fourth quarter implementations to be the highest of the year. Our Service First initiative is working. Already industry-leading service levels continue to trend upward in the third quarter. We completed our annual customer satisfaction survey in the third quarter, and the results showed an impressive 30% improvement in our Net Promoter Score from already solid scores in the prior year. We will use the detailed data from this survey to focus on areas that need improvement, and we'll follow up with every customer comment and request. Our efforts to simplify how we operate are generating positive business outcomes. Following the successful test run of our AI-driven dispatch and service optimization model in Canada, we launched for all of North America in the second quarter. These AI tools have delivered meaningful improvement in both first-time repair and time to repair metrics through automated dispatching. We will roll these tools out in the U.K. and Europe in Q1, and we'll test a third AI tool in North America in 2026 that is focused on preventative maintenance. Turning to Chart 8, summarizing the Network segment. The Network segment is our utility banking business that consists of approximately 80,000 owned and operated ATMs in 13 countries that are placed in blue-chip retail locations where consumers can meet their regular banking needs. The network business continues to grow the number of network cardholders, the number of client financial institutions, the types of transactions resident on the machine and the geographies. Similar to Q2, positive trends in surcharge-free transactions, cash deposits and TAP were more than offset by significantly lower payroll card transactions in U.S. cities with large migrant workforces and lower dynamic currency conversion transactions due to fewer international visitors. The net result was an overall modest decline in segment revenue. These 2 effects seem to have stabilized at new levels in August and September. And that said, our rolling 12-month ARPU was up slightly, and our machine count grew to about 81,000 machines, offsetting the recurring reduction we've seen from pharmacy closures. Growth in this segment typically results from expanding the number of cardholders, extending the footprint of the network or growing the transaction capability of the machines in the network. In Q3, Allpoint executed an important branding agreement with a top 10 U.S. bank and added deposit capability with the world's largest credit union. Our emerging transaction types were equally successful. ReadyCode further expanded its presence in digital payments through an agreement with Coinme, and volumes from gig workers are recovering quickly from a contractual pause. Cash deposits were up 90%, with particular lift from cap-based deposits. Our newer fleets in Greece and Italy are outperforming expectations in these cash preferred economies. And we continue to build a pipeline of partnerships and integrations to increase transaction opportunities and volumes with a focus on fintech issuers and wallet providers. And finally, on Chart 9, I summarize our investment thesis. First, our comprehensive portfolio is unique and allows Atleos to be indifferent to the self-service solution our customers prefer, whether there's a full outsourcing of traditional infrastructure or membership and access to a shared financial utility network. Second, our scale is unmatched, enables world-class service and efficient incremental costs. Third, the outsourcing of the cash ecosystem and physical transactions by banks and retailers is accelerating, and we are the obvious choice to take on that work. Fourth, we understand the importance of a new small-cap company like Atleos to establish a track record of consistency and transparency. Seven quarters in, our financial performance in every quarter has been very similar to our guided ranges. And finally, we expect to generate predictable free cash flow at steadily improving free cash flow yields sufficient to simultaneously improve our balance sheet and repurchase shares. Before Andy walks you through the detailed results, I'd like to express my appreciation to the 20,000 strong Atleos employee base. If you subscribe to any of our social media channels, you know that our recently celebrated Atleos Brand Week highlighted a positive, dedicated and engaged global team. Our continued success is entirely due to our collaborative spirit and our collective effort. Together, let's close out a successful 2025 and carry momentum into 2026. And with that, Andy, over to you. R. Wamser: Thank you, Tim. Building on Tim's comments, the company continued to drive strong performance in the third quarter, making good progress on our plans for the year, advancing our long-term growth strategy and delivering solid financial results. The strong momentum we have built in ATM-as-a-Service, coupled with our robust hardware order book and sales pipeline, has us on track to meet our operating and financial objectives for the year. Starting on Slide 11. I will focus my comments on core results for the third quarter as the Voyix-related business continues to wind down and impact comparability with the prior year period. As a reminder, Voyix-related comps have increasingly become less meaningful as we progress throughout the year. In 2026, the Voyix-related revenue will be negligible. The key message in the quarter is that we are delivering strong financial results and successfully overcoming various macro-related impacts on our business. Results for the quarter either met or exceeded the upper end of our guidance ranges and included 6% core top line growth and a 7% increase in EBITDA, including 8% growth in the core business, strong margins and an impressive 22% earnings per share growth. We achieved 4% growth in our services and software businesses, including an acceleration in ATM-as-a-Service growth of 37% year-over-year. Hardware was up 24% year-over-year, in line with our expectations. We achieved strong results with high recurring revenue alongside a second sequential quarter of meaningfully higher hardware sales versus recent years. Strong growth in our higher-margin recurring businesses, coupled with productivity improvements, drove adjusted EBITDA in the third quarter to $219 million, an increase of 8% year-over-year in our core business. The primary source of EBITDA growth was the self-service banking segment and was partially offset by a decline in the Network segment and a slight increase in corporate costs. Adjusted EBITDA margin of 19.5% expanded approximately 40 basis points from the prior year with strong margin expansion for self-service banking, more than offsetting margin compression from the Network segment. Net interest expense decreased $12 million compared to the prior year, benefiting from a lower debt balance, lower variable rates and lower credit spreads achieved in our credit facility refinancing late last year. The other income and expense line increased by $5 million year-over-year. The non-GAAP effective tax rate was approximately 19% for the third quarter compared to 18% in the prior year. Non-GAAP fully diluted earnings per share increased an impressive 22% year-over-year to $1.09. On Slide 12, we present our third quarter 2025 free cash flow reconciliation and strong financial position at quarter end. We generated $124 million of free cash flow in the third quarter, which was in line with expectations and supportive of our full year outlook. We expect to deliver a nice step-up in free cash flow in the fourth quarter as adjusted EBITDA increases sequentially and we recover investments in working capital. Net leverage exited the third quarter at 2.99x and was an improvement of more than 0.5 turn compared to the prior year. We made $20 million of debt principal payments in the quarter and finished under $2.9 billion of debt. Our unrestricted cash balance was just over $400 million at quarter end and resulted in a net debt balance of under $2.5 billion. Based on our financial outlook and capital allocation priorities, we expect net leverage to be approximately 2.8x as we close out the year. Turning to Slide 13. The self-service banking segment delivered exceptional financial results in the third quarter. Starting in the upper left, revenue grew 11% year-over-year and reached a new quarterly high of $744 million. The primary driver of top line growth was 25% growth in hardware deliveries, which reflects continued higher demand related to the industry refresh cycle and uptake of our recycler product. Hardware demand remains robust and should drive another step-up in revenue in the fourth quarter. Our services and software businesses continued to generate healthy growth of 5% on a combined basis with banks increasingly outsourcing more services to us. Moving to the chart on the top right, SSB grew adjusted EBITDA an impressive 21% in the third quarter to $196 million, also a new quarterly high. The key takeaway here is our ability to drive significant incremental profit through efficient, profitable growth and continuous productivity improvements. Segment adjusted EBITDA margin expanded 220 basis points year-over-year to above 26%, with margins up across each line of business. This strong performance includes absorbing approximately $7 million of gross tariff impacts in the quarter. Moving to the bottom of the slide, KPIs reflect healthy fundamentals of the business. On the bottom left of the slide, the mix of recurring revenue was 57%, with recurring revenue still comprising a majority of the business, even with one of the strongest hardware quarters in recent years. Annual recurring revenue, or ARR, was up year-over-year, reflecting the continued build in recurring services and software revenue from our existing installed base. Next is Slide 14 and our ATM-as-a-Service outsourcing business. As a reminder, our Bank Outsourcing Solutions business resides within our self-service banking segment. Advancing our customers through the continuum of ATM outsourced services to full outsourcing is a key strategic priority for the company. We break out primary operational metrics separately to help investors better understand and track our progress. Starting at the top left of the slide, revenue grew 37% year-over-year to $67 million for the third quarter, led by 24% growth in unique customers and a favorable mix shift to North America, which is our highest margin geography. We also expanded to 2 new geographies in Q3, closing our first deals in Latin America and the Middle East. The chart on the top right highlights the strong profitability of our ATM outsourced services business with gross profit up an impressive 65% year-over-year and gross margin up 700 basis points to 40%, benefiting from faster growth and margin expansion in NAMER. Moving to the bottom of the slide, KPIs also demonstrate the positive trajectory of the business. On the left, ARR continues to build and was up 37% year-over-year to $268 million, and we are on track to exceed $300 million of annual recurring revenue as we close out the year. We finished the quarter with a strong backlog, up approximately 100% and the sales pipeline to deliver our growth target for the year. On the right, you can see the healthy revenue uplift we generate from our ATM-as-a-Service business with third quarter average revenue per unit or ARPU of $8,300, which is well above segment and total company averages. The modest sequential downtick in ARPU for the third quarter was influenced by a higher mix of asset-light customers onboarded in recent quarters. Such fluctuations are expected because the base is still relatively small, so variables like region, scope and timing of onboarding can impact ARPU for the quarter. Over the longer term, we expect this performance metric to trend upward from growth in higher ARPU regions like North America and Europe. Moving to the Network segment on Slide 15. Segment revenue of $328 million was down 1% year-over-year. As we exit this year, we see positive fundamentals in the business, which is demonstrated by an increase in device count, an increase in new retail customers, deposit volumes and new geographies. As we look at Q3 results, cash withdrawal transactions were approximately 4% lower than the prior year, with mid-single-digit decreases in the U.K. and North America. As mentioned in our second quarter call, North America continues to be impacted by several factors beyond our control. An acquisition of one of ReadyCode's key digital payment partners, coupled with shifts in immigration policy have affected certain consumer segments. We continue to see lower utilization of prepaid payroll cards given certain government policies. Excluding those items, we estimate North America withdrawals would have grown low to mid-single digits. In Q3, we expanded our presence in Canada with the addition of Access Cash. The asset added over 6,000 ATMs to our network fleet in one of our key markets. We have also seen an improvement in dynamic currency conversion transactions as travel to the United States began to recover and stabilize in the third quarter. Additionally, our ReadyCode platform continues to attract strong interest from leading wallet providers, fintech innovators and money service businesses. In Q3, we successfully stabilized transaction volumes by onboarding several new partners, leveraging our seamless digital-to-cash and cash-to-digital capabilities. We also deepened our strategic Allpoint relationships, expanding access through key retail partnerships. As a result, we are seeing a solid rebound in transaction volumes, driven by our commitment to delivering surcharge-free access for gig economy users, unlocking value and driving sustained growth. We generated strong top line trends from sources other than withdrawals, helping to diversify the business and support future growth. Our utility deposit network continues to gain strong traction with deposit volumes up 90% year-over-year and reaching an all-time high, clear evidence of market enthusiasm and a fundamental shift toward modern banking solutions. Moving to the upper right. Adjusted EBITDA for the third quarter was $93 million. The year-over-year decrease in EBITDA was expected and was primarily due to a $9 million increase in vault cash costs resulting from the wind down of previous hedges and macro-related transactional headwinds. Adjusted EBITDA margin was 28% in the third quarter, and we are on track to maintain this margin performance in the fourth quarter. The metrics at the bottom of the slide highlight key elements of our strategy. The chart on the left shows our last 12-month ARPU remained strong and continued to move higher by 2% year-over-year in the third quarter. On the right, you can see our ATM portfolio finished the quarter at approximately 81,000 units, which is up both year-over-year and sequentially. We anticipate ATM network units will remain relatively flat as we close out the year, while we focus on driving new transaction types and other opportunities to monetize our fleet. Turning to Slide 16 for our approach to capital allocation. Over the past 7 quarters, the company has demonstrated the ability to generate profitable growth and significant free cash flow. We continue to have a clear and compelling path to strong financial results with margin levers in the business providing outsized earnings growth potential and improved free cash flow conversion. Our capital allocation priorities are focused and disciplined, continue to reduce debt, investing in our business, pursuing strategic bolt-on acquisitions and returning capital to shareholders. Our guiding principles remain consistent, a balanced approach designed to deliver the highest long-term value for our shareholders. As we exited the third quarter, we successfully achieved our net leverage target of below 3x, reinforcing the strength of our balance sheet and our financial flexibility. We take a disciplined approach to investment opportunities, ensuring that both strategic innovation investments and bolt-on M&A meet rigorous return thresholds. Reflecting confidence in the forward outlook of our business, you will recall that our Board authorized a $200 million share repurchase program that has a 2-year duration. In the fourth quarter, we will begin to repurchase our shares in the open market and also through a 10b5-1 plan. With the capacity of our business to generate significant and improving free cash flow, we have unique flexibility to return capital to shareholders, while at the same time, strengthening our capital structure and investing for future growth. In short, we are confident in our ability to deliver predictable growth, disciplined capital deployment, improved free cash flow conversion and strong shareholder returns. Moving to Slide 17 for financial outlook. Given solid third quarter results and positive momentum heading into the fourth quarter, we have reaffirmed the full year 2025 guidance ranges presented earlier this year. We have confidence we will deliver full year 2025 free cash flow conversion in excess of our 30% target. Looking beyond 2025, we anticipate further improvement in our free cash flow conversion, approaching 35% of adjusted EBITDA over the next 12 months. This progress will be driven by continued margin expansion, particularly in recurring long-term services, monetization of our network ATMs, lower debt costs through recent and anticipated rate cuts and ongoing working capital efficiencies. Concluding my comments, Atleos had a successful third quarter and sets us up well to achieve our plan for the year. We delivered solid financial results, had great operational execution and made progress on our key strategic goals to grow efficiently, prioritize service and embrace simplicity. We are reaffirming our guidance ranges for 2025 as we effectively manage higher and uncertain tariffs and macro-related headwinds on our business. Our risk mitigation actions have been successful and are ongoing. To put a finer point on the year with 9 months behind us, we are tracking toward the high end of our guided range for revenue given stronger hardware demand trends versus our original assumptions. In line with our previously provided comments for adjusted EBITDA, we expect to deliver results at the lower end of the guided range. The adjusted EBITDA outlook reflects the impact of previously discussed tariff increases and broader macroeconomic pressures. Finally, both adjusted EPS and free cash flow performance in 2025 continue to track at the midpoint of our original guidance with internal initiatives executed to reduce interest and tax expenses and as we benefit from working capital efficiency improvements. We are moving into 2026 with confidence in our approach and our ability to drive continued profitable growth. With an unmatched platform of ATM solutions, we are focused on expanding our leadership and delivering significant value for shareholders. With that, I will turn it back to the operator. Operator: [Operator Instructions] We will take our first question from George Tong with Goldman Sachs. Keen Fai Tong: You talked about how the network business was affected by lower prepaid card transaction volumes. Can you elaborate on how prepaid volumes played out during the quarter and exiting the quarter, if there were any improvements in trends seen? Timothy Oliver: Yes. Thanks for asking that question. They got better. So they stabilized at not great levels, but they've stabilized. They stopped getting worse. So I think those who are being paid differently or have chosen not to be paid at all and gone somewhere else to work, that effect has now stabilized, which means that, that downdraft should abate, and we expect to see this business return to growth in the fourth quarter. Keen Fai Tong: Got it. That's helpful. And then can you provide an update on how you expect tariffs to impact the business in the fourth quarter and beyond? Timothy Oliver: Yes, that's a good question. We wish we get to answer that question. So here's what we've done. We scrambled to reduce costs and change where we ship some machines from to minimize the impact of tariffs this year. I think ultimately, the total impact of tariffs will be between, say, let's call it $25 million for this year. Any changes to the tariff at this point, we're already halfway through the quarter would be, I guess, helpful and set a better stage for '26. There's expectations that the tariff rate that's currently at 50%, 5-0 percent will come down to something closer to 15% to 16% when negotiations with India result in a positive outcome. We'll plan for next year at the 25% rate. Our budgeting process will presume a 25% rate, which would cause tariffs to be modestly higher year-over-year, so go from $25 million to say, $30 million. If it stays at $50 million, it's $20 million worse than that. And if it goes down to $15 million or $18 million, it's $10 million or $12 million better than this year. So there's a range of potential outcomes. I think the right place for us to be right now is presume a 25% number, which is right down the middle of what we've seen. But there's very -- we're very hopeful that we'll see something closer to 15% to 18% in the not-too-distant future. When we see that number, it will be helpful to margin rate. I don't know, Andy, if you want to add anything to that? R. Wamser: No. I mean you hit the key points. So Tim is right, the gross tariff impact will be possibly $30 million for this year. I would say, though, that if you follow the news, which we do track, probably on an hourly basis, that the expectation that something should be announced here imminently. And as Tim mentioned, it's in that 15%-ish range. So we will see, and we'll also see what the Supreme Court says. Timothy Oliver: But we presumed no change to the tariff rate in our guidance for the fourth quarter. We presume it stays at 50%. Operator: We will take our next question from Matt Summerville with D.A. Davidson. Matt Summerville: I want to ask one first on the network business. What percent of the transactional mix today is traditional withdrawals versus what it was 2 or 3 years ago? And can you talk about the relative profitability of withdrawal transaction sets versus non withdrawal as you try and expand beyond kind of that historical dependence on withdrawal? Timothy Oliver: Thanks, Matt. So remember that the transact -- withdrawal transactions in the United States have actually been a grower for us for a period of time. And the surcharge-free transaction volume has always been more than sufficient to offset the modest declines in surcharge transactions. The only thing that's changed in that dynamic because the surcharge fee continues to grow very nicely is this prepaid card. The prepaid payroll card is down about 15% to 16% year-over-year, which translates into a downdraft on the business. The other parts of the world, we see withdrawal transaction volumes that are very strong, particularly in cash-intensive economies. The U.K. is an exception to that. The U.K. has been on a downward trend for the last 4 or 5 years, really even predating the pandemic. And so we continue to -- that hasn't changed. That's been the same for some period of time. I think if you look at the Network business, approximately 75% of that business is U.S.-based. And so the phenomenon we're talking about would impact approximately 75% of the total revenue, if that's helpful. But Stuart, you want to add? Stuart MacKinnon: Yes. I want to address your second question sort of in terms of percentage of our revenue that is withdrawal-based versus the other factors we have in the network business, such as ReadyCode transactions, deposit transactions, branding and other revenue drivers. Withdrawal transactions still make up the majority of the revenue in the high 80s, I would say. And -- but we're starting to every quarter, essentially offset that with -- you've heard about the 90% increase in deposit transactions. Those are our highest margin transactions and the ones that we are seeing the most demand for as banks look for alternate locations to serve their customers depending on their branch footprint consolidation activities. Matt Summerville: Got it. And then as a follow-up to go over to self-service banking for a second. You threw a lot of numbers out there on the as-a-service stuff, and I want to make sure I kind of understand. So you're going to exit '25 with an ARR at $300 million or more. You had $195 million, I believe, of contract bookings. How does that -- what I guess would be the total as-a-service backlog? And early read, obviously, but where do you think based on all that TCV and bookings, where do you think the exit rate for '26 could look like for that business? Timothy Oliver: I think we're going to have another year of approximately 40% growth rate in that business. It's going to grow about 40% in the fourth quarter. You'll recall that we had hoped to have the machines come on a little more linearly this year than they did in 2024. They didn't. They were back-end loaded. But we'll have a really nice ARR as we exit the year, which will, let's call it, lock in a lot of the growth that we were expecting in 2026. So think about a 40% growth rate in Q4 and a 40% growth rate in 2026. And you'll remember that we hope this business -- at one point in time, we rolled this business out, we thought the growth rate might be higher than that. But what's been clear is the adoption rate has been not slower because of demand. Demand has been strong, but slower because of the time that it takes to both complete the sale and ultimately implement the solution. So we've rolled the devices onto the system, onto the as-a-service program a little bit slower than we would have liked to. So we feel very good about backlog. The $195 million, we probably should be doing something like that in most quarters. We're going to keep that 40% growth rate going, right? That number was $175 million last quarter. It's $195 million this quarter. It needs to grow with the business. That total contract value, if you divide that by 6, that's typical an average duration for a contract in there, that would give you a sense of how much that $195 million would impact the ARR going forward. R. Wamser: And Matt, maybe just one thing to emphasize is that growth of 37% is also coming with phenomenal margins. So the gross profit was up 65% in the quarter, and we saw a gross margin expansion of 700 basis points. So I think the point there is not only the backlog continuing to be strong, but it's also a very high-quality backlog in terms of what we're able to generate from a top line and then from a flow-through perspective. Matt Summerville: Got it. And if I can just sneak one more in. What does the ARPU look like as a service backlog today? And how are you thinking about maybe pivoting over to the hardware side of the business? How are you thinking about the duration of the hardware cycle? R. Wamser: Sure. Yes. So I'll take the first question. So as we look at the ARPU in the backlog today, it's effectively flat from where we are for where we were for Q3. Some of that has to do with just timing of some incremental deals that we had in the APAC region, which is a little bit lower. But I wouldn't read too much into that. The sales team is doing a phenomenal job in terms of trying -- of getting new contracts in NAMER and EMEA. And so the backlog can change in terms of that average ARPU, but we are really confident in terms of -- as Tim talked about the TCV that we signed up and the team is doing a great job building on to that. Timothy Oliver: Yes. And I'll take the second one because it's a really good story. We're going to put into service about 20% more devices this year than we did last year. We're going to sell 60% more recyclers this year than we did last year. We're -- the growth rates in our hardware business are even surprising us. That has a lot to do with terrific service levels from Len's organization that are wowing our customers has a lot to do with the really concentrated effort we made on the recycler that Stuart led, and the team pulled off nearly flawlessly. So I feel great about where we are. I look at some of our nearest competitors, they've got relatively flat performance in hardware. I don't even know how to do that math. The market is very, very good. Bookings are very strong. Demand is high, and we expect that trend to continue into next year. Now at some point, we'll hit that -- this high level, but I anticipate hardware revenue being up again next year even on some very difficult comparisons. So we couldn't be more thrilled. We don't like to talk about hardware around here too much. We obviously we're a service company. But when you can lock up these 5- to 7-year contracts on devices that are very lucrative for us beyond the hardware sale, we feel great. So the mix is right. The profitability is strong. Sometimes we get a mix that's high in hardware. We see profitability go down because it's lower margin than the services side. The productivity we generated there and the price point on the devices we ship have all caused it to be more profitable than we would have thought. So taken all together, our hardware business is killing it right now, and I think it's going to continue. Operator: [Operator Instructions] We will take our next question from Dominick Gabriele with Compass Point. Dominick Gabriele: I guess when you're -- well, first, let's just stick with the recycler because it just sounds like that is becoming a larger and larger contributor. You talked about the 60% more recyclers just now. Is there any chance that you'd be able to give us an idea of how much revenue that makes up and what the revenue story is going forward on the recycler business? I still have a follow-up, too. Timothy Oliver: I don't think I'll distinguish between the more traditional device, either the multifunction or just the dispense device. But we'll continue to give you the growth rates in the recycler, if you'd like. I think remember that our growth rate is probably somewhat self-inflicted, right? We didn't ship as many machines from a recycler perspective, we would have liked to last year. And our competitive position wasn't as good as it needed to be. And I think what you're seeing this year to a certain extent is 2 things. One, our recycler is very, very good and performing exceptionally well. We're proud to put it into service, and we've got some of the larger banks choosing to go with our solution and getting our machines into their labs. So I think that matters a lot. It's also true that larger banks are starting to buy a preponderance of their fleets as recyclers. There's just an underlying dynamic. They are fully bought into the recycler. The upside associated or the upside associated with profitability and downside -- lower costs associated with putting a recycler in place. So I think it's twofold. One is we're doing a hell of a lot better job with our recycler product than we did a year ago. And secondly, our big bank customers are choosing recyclers nearly every time when they import a new machine. Dominick Gabriele: Great. I appreciate that. I guess if maybe you could just walk through some of the puts and takes and you talked about the tariff piece, which was really helpful. But maybe even beyond that, can you talk about kind of the headwinds and the tailwinds, the puts and takes to adjusted EBITDA growth that were in 2025? Just trying to think about the trajectory of the business as we exit '25 into '26, given... Timothy Oliver: Yes. It's a very fair question, and I knew this is going to come up, right? It's time for you all to start to build models into 2026. And Andy would kill me if I started to talk about '26 guidance and rightly so. So right into our budgeting process now. I think whatever happens in tariffs, we'll figure out a way to absorb it like we did this year. We'll just -- we'll figure that out, right? We did it this year, we'll do it again. I have a hard time believing that tariffs will be much of a headwind next year, which suggests to me maybe they're a modest tailwind. We will get lower interest expense next year. It's helpful to us. We've got -- every time they reduce interest rates by 0.25 point, we pick up or we pick up annually. R. Wamser: It's about -- well, if you think about just the U.S., we're talking about just the U.S. Fed. We about $2.6 billion in cash. So if you think about today, we've had 50 basis points, so that's -- cut that in half, that's $13 million on a full year basis. We get another point, again, just add another, call it, 6.5 or so. Timothy Oliver: Yes. It's hard to rely on those. We've built more into our budget for each of the last couple of years than we've actually seen. I'm hopeful we'll see one right here at the end. They've always been a little later than we would have liked to, so you don't get the full year effect. But in general, thinking about '26, taking all that aside because it all seems to -- at least I think we've converted what were headwinds and tailwinds in each of those circumstances. I think it's going to be a year a lot like this one. You're going to see 40% growth in ATM-as-a-Service. You're going to see terrific hardware numbers, more difficult comps in the second half of the year, but it will be really terrific. You're going to see a recovery in the network business that cost to start growing again in the fourth quarter and getting back to respectable growth rates as the year plays out. And I think in aggregate, you're going to see a growth rate from us is 4% to 5%. We're going to grow profitability twice that fast. We're going to generate more cash flow with convergence going from 30% to 35% or better next year. So I think it's -- if you kind of use that as your construct to put the model together and think through kind of project forward what we're feeling this year, I don't think a lot is going to change. Dominick Gabriele: And maybe actually, if you don't mind, maybe just one last one. The hardware sales in the quarter are obviously good for the quarter, but it feels like they set up the opportunity for a long-term contract effectively, right, through the life of the machine and there's knock-on effects from that device being put in place over the next multiple years. And so maybe could you just talk about, given that the demand for your products seems to be increasing, how that could flow through the income statement and financial metrics in the kind of years to come, next 12 to 18 months? Timothy Oliver: Growing that installed base is the most important thing we're going to do this year. It is our right to sell software on a subscription basis and to service those devices for 5 to 7 years in duration, has everything to do with our ability to put them in place and a good customer who trusts us to do that for them. So despite the fact we don't tend to talk about hardware very often because we're not a device company, we are a service company. But our service business relies on the success of the hardware business and relies -- our software business relies on the success of those devices. It's been very strong. Or to say it differently, when you miss on a device, you've missed on that revenue stream for 5 to 7 years, and it's a very painful thing to do. So yes, this is really, really important, and it's going to see -- when you see growth next year in the service revenue away from ATM-as-a-Service. You've got ATM-as-a-Service that's just you're picking up more services around the same devices, you're also going to see growth in software and services associated with that fleet getting incrementally larger such that the software and service pull-through is stronger. So this is a very important year. And if this cycle of replacement continues to be strong, we believe that it will, it's a very good time to have people like your hardware because it's -- you're booking 5 to 7 years' worth of revenue. It's probably 4x the cost of the device itself. Operator: We will take our next question from Antoine Legault with Wedbush Securities. Antoine Legault: Just on the vault cash, you mentioned you have about $3.6 billion in vault cash. That obviously drives interest expense, and I appreciate that the Fed has been cutting rates and you benefit from that. But just thinking about that notional amount, do you have any ability to -- or discretion to flex that number up or down? Is that $3.6 billion sort of the right number? Could this be optimized further depending on network activity in quarters where activity is a bit lower? Just how -- is there anything to be done here? Help me understand how that can work. Stuart MacKinnon: Yes. Just a quick -- it's $2.6 billion that we have sort of out in our machines around the world. Timothy Oliver: Total USD 26... Stuart MacKinnon: USD 26. And that number has come down substantially over the last couple of years as we've implemented optimization. It's our biggest expense. So it's the area where we have the highest amount of focus in terms of optimizing efficiency. And it's one of the big drivers for ATM-as-a-Service as we take over a customer's fleet, we're able to optimize their utilization of cash and return capital back to them as well. So it's a number we're incredibly focused on, and we try to drive that number down every chance we get. So a combination of improved efficiency and lower interest rates next year will help the network as it returns to growth. Timothy Oliver: Stuart, what are the inputs of that algorithm to help us decide how much cash and how often roll trucks? Stuart MacKinnon: It's a combination of where the machine is. So some machines are harder to get to, so the drop cost is higher. Combination of the vault that's getting to and obviously, a combination of the utilization of the machine. So we make decisions around whether we refill the machine weekly, monthly, biweekly, depending on the drop cost and then a combination of whether we have a recycler or a cash dispenser in there. If we have a recycler in that unit as we have been increasing our deposit-taking network, that machine becomes increasingly more optimized and requires less visits, and thus lower cash rates. Operator: There are no further questions at this time. I will turn the conference back to Mr. Oliver for any additional or closing remarks. Timothy Oliver: Great. Well, thank you. This quarter looked a heck of a lot like the one that preceded it, and I suspect that the next one will be the same. We're making good, steady progress everywhere. We're winning more often than not. Our employees are performing exceptionally well. Our customer service levels are high and continue to get higher. It's very hard not to feel good about where this business is headed. We hope that will translate into a closing out a good year here in our fourth quarter, and then most importantly, probably give us good momentum going into 2026. We appreciate your time today. And I guess, happy holidays. We won't talk to you again until February. So an early happy holidays from the Atleos team for those on the call. Thanks a bunch. We'll talk to you again in 90 days. Operator: This concludes today's call. Thank you for your participation. You may now disconnect.
Operator: Good day, and welcome to the Velocity Financial, Inc. Third Quarter 2025 Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Chris Oltmann, Treasurer. Please go ahead. Christopher Oltmann: Thanks, Chloe. Hello, everyone, and thank you for joining us today for the discussion of Velocity's Third Quarter 2025 results. Joining me today are Chris Farrar, Velocity's President and Chief Executive Officer; and Mark Szczepaniak, Velocity's Chief Financial Officer. Earlier this afternoon, we released our third quarter results. You can find the press release and accompanying presentation that we will refer to during this call on our Investor Relations website at www.velfinance.com. I'd like to remind everyone that today's call may include forward-looking statements, which are uncertain and outside of the company's control, and actual results may differ materially. For a discussion of some of the risks and other factors that could affect results, please see the risk factors and other cautionary statements made in our communications with shareholders, including the risk factors disclosed in our filings with the Securities and Exchange Commission. Please also note that the content of this conference call contains time-sensitive information that is accurate only as of today, and we do not undertake any duty to update forward-looking statements. We may also refer to certain non-GAAP measures on this call. For reconciliations of these non-GAAP measures, you should refer to the earnings materials on our Investor Relations website. Finally, today's call is being recorded and will be available on the company's website later today. And with that, I will now turn the call over to Chris Farrar. Christopher Farrar: Thanks, Chris, and we appreciate everyone joining the call today. Our third quarter results were fantastic as we've achieved another record quarter in terms of pretax earnings, which were up 66.5%, production volumes of $739 million and new applications, which exceeded $1.4 billion for the quarter. Looking forward, the markets remain strong, and this momentum has continued into the fourth quarter as we gain market share and expand our reach. From a credit perspective, we remain disciplined as evidenced by the decline in the weighted average portfolio loan-to-value to 65.5% and our coupons remain on target at 10.5% generating attractive risk-adjusted spreads and stabilizing our attractive NIM and core pretax ROE of 24.1%. Our asset managers have done a great job of resolving NPAs consistently above par for net positive gains. Plenty of capital available for REOs that are priced properly and expect the real estate markets to continue to perform well within our niche. Most unique event in Q3 was the closing of our first ever single counterparty securitization of new production with a top-tier money manager. This strategic partnership allows us to reduce transaction costs, execute at similar levels to our regular, widely marketed deals and diversify our long-term funding options. We're proud to partner with this world-class firm and expect the transactions to continue as evidenced by a second transaction that closed in early October. Obviously, the fixed income markets are very supportive, and we intend to maximize our opportunities there. As usual, I give full credit to our outstanding team members that work so hard to deliver these results, and we will continue to create shareholder value wherever possible. With that, I'll turn over to the presentation and begin discussing Page 3. In terms of earnings, obviously, a great quarter, net income up 60% year-over-year and core diluted EPS of $0.69 a share. Portfolio NIM was very stable at 360 basis points above our target of 3.5%. Moving to Production and the Loan Portfolio. I mentioned record level of production of $739 million, 32% net increase in the portfolio year-over-year after netting out prepayments. In terms of nonperforming loans, that portfolio was pretty stable, 9.8%, down from 10.6% and within our expected range. As I mentioned earlier, we continue to see positive gains on resolved NPAs of $2.8 million, and our team has done a fantastic job there. Turning to financing and capital. I mentioned that first ever single counterparty transaction. We were approached a quarter or 2 ago by a large party and with the interest of developing a consistent outlet for our product and very pleased with the way that transaction -- both those transactions executed. And we expect it to be an additional diversification of our funding sources going forward. In terms of liquidity, we have plenty of cash and available borrowings, and you can see over $600 million of warehouse capacity at the end of the quarter. So all in all, in shape there. Turning to Page 4. I want to reemphasize our strategy of compounding earnings by taking all of our earnings and investing them back into the platform and the portfolio. As you can see, we've had outstanding results, and we think this is a great opportunity for investors to get exposure to our earnings and the compounding of capital. So very pleased with how we've transacted over the last couple of years and expect this to continue going forward. With that, I'll turn it over to Mark on Page 5. Mark Szczepaniak: Thanks, Chris, and good afternoon and evening, everyone. On Page 5. As Chris mentioned, Velocity had a new record for loan production in Q3. The loan production for the quarter was $739 million. That included $23.9 million in unfunded loan commitments. The $739 million again demonstrates our continued strong demand for our product. In Q3, the loan production broke the previous quarter's record of $725 million. There were a total of 1,778 loans originated in the third quarter. The strong production growth in Q3 included the weighted average coupon on new held for investment originations continuing to come in strong at 10.5% and the weighted average coupon on our HFI originations for the last 5-quarter average trend was at 10.6%. The growth in originations in Q3 was also very tight credit levels with the weighted average loan-to-value for the quarter being at 62.8%, which is right on top of the last 5-quarter average weighted average LTV trend of 62.8%. As a result of the continued robust growth in production, take a look at Page 6. It shows the overall growth in our Q3 for our overall loan portfolio as we retain these loans in our portfolio. Our total loan portfolio as of September 30 was just under $6.3 billion in UPB. That's a 7.1% increase from Q2. And I think as Chris mentioned, a 32% increase year-over-year, even netting out prepayments. The weighted average coupon on our total portfolio as of September 30 was 9.74%, which is 7 basis points above Q2 and 37 basis points in terms of portfolio yield over Q3 -- I'm sorry, year-over-year. The total portfolio weighted average loan-to-value remained consistently low at 65.5% as of September 30. If you go to Page 7, we maintained a strong portfolio NIM at 3.65% in Q3, and that's consistent with our last 5-quarter average portfolio NIM of 3.62%. On the right side of that page, you can see the breakout of our yield as well as the cost of funds. Our portfolio yield for the quarter was at 9.54% and the cost of funds at 6.27%. We've maintained a nice healthy spread over several periods. On Page 8, our nonperforming loan rate at the end of Q3 was 9.8%. That's down 0.5 point from Q2 and 80 basis points year-over-year. We continue to see, as Chris mentioned, the strong collection efforts by our special servicing department that have resulted in favorable resolutions of our nonperforming assets and the NPAs are comprised of our nonperforming loans as well as REOs. Page 9 shows the continued positive results of our NPA resolution efforts. Our Q3 NPA resolution gains totaled $2.8 million or 2.6% of the $108 million in UPB resolved. And on a trend basis, we've averaged 3.8% quarterly NPA resolution gains over the last 5 quarters. Turning to Page 10. The top part of the table on the right-hand side shows our CECL loan loss reserve. The bottom part shows the net loan charge-off and gain loss on REO activity. In terms of the CECL reserve at September 30 was $4.6 million, or 22 basis points, and that's on our outstanding amortized cost HFI portfolio. And that 22 basis points is consistent over the last 5 quarters, we've averaged around 20 basis points of CECL reserves. So not much of a change there. And keep in mind, the CECL reserve does not include held -- I'm sorry, fair value option loans. It's only our held for investment amortized cost. The bottom part of that table shows that for Q3, our net gain loss from loan charge-offs and REO activities. We had a net loss of $1.6 million, mainly as a result of REO valuations. Page 11 shows our durable funding and liquidity position at the end of Q3. Total liquidity at September 30 was just under $144 million, and that's comprised of about $99 million in our cash and cash equivalents and almost another $45 million in available liquidity on our unfinanced collateral. As of September 30, our available warehouse line capacity is just a little over $600 million with a maximum line capacity of $935 million. And that's a $125 million increase in max line capacity over Q2. So we went from $810 million maximum capacity at the end of Q2 to $935 million and some of our warehouse lines are increasing their capacity. That concludes my Q3. Our debt-equity ratio on a recourse basis stays consistent though it's at 1x, has been between 1.5x, 1x for the last 5 quarters. So Chris, with that, I'll turn it back to you to present an overview on our outlook and key business drivers. Christopher Farrar: Thanks, Mark. Appreciate it. Just to sum it up, we're very positive about the future. We think markets are healthy. Our credit is performing well. Our capital markets are extremely robust, especially on the fixed income side. And we believe that our earnings are going to continue to grow and expect positive results going forward. So with that, I'll open it up for questions. Operator: [Operator Instructions] The first question comes from Steve Delaney with Citizens. Steven Delaney: Gosh, excellent quarter. It sounds repetitive, but you guys put the numbers up every quarter and just whether it's production gains, everything that you've summarized on Page 3. So tip my hat to you on that for sure. A little concern on not so much REO resolutions, but just in terms of, as you show on Page 10, the charge-offs are up quarter-over-quarter for sure. And this quarter, I know REO gains can be a little fluky, but we went from a nice gain on REO in the second quarter to -- or excuse me, last year third quarter to the loss this year. And I guess the number that jumps off the page because primarily, I don't understand it. Chris, if you could help me understand the REO valuations on a net basis, the negative $6.3 million. Just explain that if that was a -- do you book the REO at where you think it should be or based on your loan balance? And then as you study the market and get feedback on property valuation, then you have to adjust. Just curious why that big number of negative $6.3 million. Christopher Farrar: Thanks for the question, Steve. In terms of the REO valuation, I'll walk you through the detail. But just from a high level, if you look, you'll see it in our Q that gets filed later today, year-to-date, our REO activity is basically on top of last year, $3.2 million gain, I think it is. So there's some noise just in timing issues here. In terms of the REO valuation expense that we recognize, that happens after we've taken a loan from -- off the books and put it into REO. And then it's -- as it sits on the balance sheet, we adjust market to market realities. I would say in this $6.3 million, you've got some cases where maybe the property has deteriorated, maybe worse than what we thought when we originally foreclosed. You have some cases where we actually end up just selling the REO a little less than where we thought we were going to -- where we had it marked. So it can be driven by a number of different things. But I would say, from our perspective, we don't see it as like a worsening trend and much more of just kind of a quarterly timing issue. I expect that number, you'll see it kind of go up and down quarter-by-quarter. Mark Szczepaniak: And I'm sorry, Steve, this is Mark. If I could just add to what Chris said, it is really a timing item. The main thing to look at is the NPL resolution table, the final resolutions. For example, I got $6.3 million. What could happen is when we first foreclose on a property and set the REO up, the REO has to go up at its fair value. We'll keep in mind, since we've got the loans at basically 63%, 60% LTV, if you have a $500,000 loan, now you're going to write off the loan and put the REO on the books for, say, $800,000 because the loans at 65% LTV. So you put the REO on your books at $800,000. So that's what's in that gain on transfer to REO, that top number. Then maybe 6 months down the road, you get an offer, it's not $800,000, it's $700,000. And you say, okay, we got an offer for it. That's the new fair value. We're going to take the offer. So you write it down from $800,000 to $700,000. Well, in that period, which might be 6 months later, 8 months later, it looks like a $100,000 REO loss. The reality that $700,000 you're writing it down to is still $200,000 more than the $500,000 loan you had. So overall, if you sell it at that $700,000, you're still going to have an overall gain on resolution. It's just a timing of when you first put the REO on and then maybe you write it down because you're going to decide to take less to sell it. But what you're selling it for is still more than the loan that you took off the books. Steven Delaney: Got it. So I think you're telling me -- you added $4.6 million as a positive number when you took it into REO. And then when you understood the property or developed the marketing plan or looked at offers or something, then you had to just -- you reverse some of that. Mark Szczepaniak: That's exactly correct. And that $6.3 million, remember, it's different periods. So the $4.5 million, that's all new REO that came on in that quarter. The $6.3 million is probably something that maybe in those quarters, it went on for $8 million or $9 million positive, and now we're taking $6.3 million of it back, if I'm saying. Steven Delaney: Got it. Got it. Okay. Understood because you have the gain, it's more of an accounting gain when you take it into REO the first time. But then once you understand valuation, it sounds like that can be a little lumpier in terms of when that valuation adjustment is made. Mark Szczepaniak: That's correct. Steven Delaney: All right. That's helpful. Well, obviously, the positives in the report far exceed the negatives, but I just wanted to bring that up. And one final thing. What is your headcount currently or at 9/30? And how has that changed over the last year? Christopher Farrar: Yes. So we're at like 347 people at 9/30, and that's up about 82 heads. Steven Delaney: Okay. Congrats on another great quarter and I guess we'll do this again in 3 or 4 months. Christopher Farrar: Thanks, Steve. Operator: [Operator Instructions] This concludes our question-and-answer session. I would like to turn the conference back over to Chris Farrar for any closing remarks. Christopher Farrar: Great. Thanks, everybody, for joining, and we'll speak to you in a few months. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Ryan Schaffer: Welcome to the Expensify Q3 2025 Earnings. I'm CFO, Ryan Schaffer. And with me, I have our Founder and CEO, David Barrett. And now I'm going to hand it over to Niki for the legal lease. Niki Wallroth: Please note that all the information presented on today's call is unaudited. And during the course of this call, management may make forward-looking statements within the meaning of the federal securities laws. These statements are based on management's current expectations and beliefs and involve risks and uncertainties that could cause actual results to differ materially from those described in forward-looking statements. Forward-looking statements in the earnings release that we issued today, along with the comments on this call, are made only as of today and will not be updated as actual events unfold. Please refer to today's press release and our filings with the SEC for a detailed discussion of the risks that could cause actual results to differ materially from those expressed or implied in any forward-looking statements made today. Please also note that on today's call, management will refer to certain non-GAAP financial measures. While we believe these non-GAAP financial measures provide useful information for investors, the presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP. Please refer to today's press release or the investor presentation for a reconciliation of these non-GAAP financial measures to their most comparable GAAP measures. Ryan Schaffer: Thanks, Niki. Now let's dive into the Q3 financials. Revenue was $35.1 million. Average paid members were 642,000 and total interchange was $5.4 million. Our operating cash flow was $4.2 million. Our free cash flow was $1.2 million. Net loss was $2.3 million. Our non-GAAP net income was $4.3 million, and our adjusted EBITDA was $6.5 million. Q3 free cash flow was a little less than in prior quarters. That's mostly due to seasonal timing of some annual payments. We also reiterate our fiscal year 2025 free cash flow guidance of $19 million to $23 million. As always, here's our Q4 flash numbers for our paid members in October, up from the Q3 average, which we always like to see, 653,000. And now to jump to some business highlights for Q3. We had some great marquee customer wins. We are now the Official Travel and Expense partner of the Brooklyn Nets, who is a long-time customer of our expense product, and they have adopted Expensify Travel that shows just the power of the platform and the fact that customers are really excited about this. So we're very happy to have the Brooklyn Nets as a new Expensify Travel customer. On the topic of travel, bookings continue to climb, growing 36% from Q2 and 95% since Q1. So Expensify Travel continues to be a bright spot in the business and something both us internally and our customers are very excited about. We also repurchased 1.5 million in [ change ] shares of our Class A common stock, and that totaled approximately $3 million. And now I will hand it over to David for a product update. David Barrett: Great. It has been an extremely exciting quarter when it comes to the product side. First off, talking about migration. As you know, everything hinges upon our ability to move existing customers over to New Expensify. That's what triggers and we think everything in the business is recovery and growth and so forth. And so we've made incredible progress on that. At this point, we would say we're targeting what we call 90% feature parity [ beating ]. We want to support essentially 90% of the functionality of Classic on New Expensify. We're very close to that right now. We, of course, will always maintain Classic for existing customers as long as they need it. But the main thing right now is that New Expensify is largely complete when it comes to the functionality of Classic. We've also migrated basically the data of nearly all customers to New Expensify, meaning that customers can switch back and forth between New and Classic as they like, which is a huge accomplishment. So we're to the point where essentially New Expensify is essentially done from a feature perspective. And now we're just carefully what we call nudging customers over, meaning that we will make them sign into New Expensify the next time they sign in, but then they can optionally switch back to Classic. We've nudged all of our collect customers over. Now to be clear, we have basically 2 plans, Collect and Control. And so our Collect customers are smaller, simpler customers. We've migrated nearly all of them over to New Expensify, and the vast majority choose to stay on New Expensify rather than going back to Classic. And so this is a huge testament to the power of New Expensify. Additionally, and I'd say this is one of the most exciting things, now we're closing all new customers on New Expensify, meaning that we will start every sales conversation on New Expensify, and we'll still switch back to Classic if there's some long-tail features, some esoteric integration or something like this that they might need. But we start every new conversation on New Expensify. And so that's been really, really powerful, especially at the conferences, especially as we roll out the new leads. So it's been great, great progress when it talks about migrating existing customers from Classic to New. Additionally, it's been very exciting on the Concierge side. So we've been talking about this for a while. If you've been paying attention, AI is kind of a big deal. And so we've been talking about AI for a long time because new Expensify's entire design anticipates basically modern AI. And the way that we view it is AI is incredible, but it's also not foolproof. And so whereas some sort of -- some people really focus on AI [ in absolute ]. We view AI as a great feature for certain levels of functionality, and we would take the AI as far as it can and then have humans take it the rest of the way. And so our design, which is very unique is a hybrid system. When you talk to Concierge, if it's a simple, common question or even just something very detailed about the product and sort of like from a help page, whatever it might be, the AI is really great at handling that question. It can do it better than the human, honestly. But if you get to a super complicated topic for diagnosis or if you have more kind of an emotional issue, that's where we bring in our human agents. Now we can seamlessly switch back and forth between AI and humans sort of imperceptibly to the customer. And so to the customer, all they get is just an incredible chat support experience. But on our side, it's handled using AI or human seamlessly depending on who's best for the job. Likewise, this is a contextual AI, meaning that it's built into the product rather than sort of on top of the product. I think you've seen a lot of AI solutions, which are kind of like Windows 95 Clippy where basically it's just something kind of stuck on top. It's very clearly not designed around the product. Ours is different. With Concierge, it's built into the product in every place. And so wherever it's natural for you to talk about -- talk to the AI, whether -- either you're talking directly to concierge or maybe you're inside of an expense report or even commenting on a particular expense. Our AI appears everywhere, so you can basically talk to it naturally in the context of that. Additionally, we're building more, what I would call a general intelligence. I think there's a lot of different approaches towards this. And the most straightforward approach that people start with is they'll have kind of a collection of very purpose-built agents. And so maybe a specific agent will reach out to you in a particular narrow context and talk about one topic. It makes sense. That's a very easy place to start, and I think that's kind of where everyone starts. Our design is going for more of a general intelligence, meaning that we've built a singular AI that can operate in a multimodal fashion. So you can talk to the same AI and you can ask it to scan receipt, categorize an expense. You can ask it very complex questions about how to configure Expensify. And so the same AI can do all of these different functions. What's nice about that is it really supports our contextual design. So it's not like you have to have 10 different AIs hanging out in every single context and then you have to choose the right one based upon the question that you have. Rather, you can send any question to Concierge and it will always be able to answer it. This works especially well across platforms. So you can talk to our Concierge sort of like single general intelligence over chat, obviously, but you can just e-mail it at concierge@expensify.com or just text it at 47777. And because it's a single general intelligence, you can ask it any questions in any of those. And so you can ask it to create expenses, ask it about your expenses, about your workspace, whatever it might be. This is a really powerful platform that we think is unique and novel in the market. We don't think anyone else has this level of sort of general purpose financial AI out there. And so -- and this is just a start. To give some examples of kind of how this works in practice. So there's some basic stuff, of course, obviously, detecting not just whether the expense from like the merchant and amount is out of policy, but looking into the receipt itself, making assessments about what type of merchant it is and so forth. And so we can do a more detailed prohibitive expense detection. Likewise, it's all the raise these days, AI is a big deal for not just the admins, but also for the employees. And so we detect AI-generated receipts and flag them. We have a feature that they call conversational corrections, meaning, of course, whenever you swipe the card or scan a receipt, we will categorize to the best of our ability based upon the information just on the receipt and merchant itself. But every company is different and sometimes it's ambiguity as to the correct way to categorize it. So we'll narrow it down to a short list of the most likely options and just ask you which one is it? If you're in the app, you can just do it in one tap. If you're responding via text or e-mail, you can just respond with a number or whatever. And you don't have to pick some these options. You can also just say something else entirely. This is the advantage of a general AI, where if it asks you a question, you're not trapped into whatever conversation it wants you to do. You could actually just switch the script and ask me like, well, what are all the categories available or what's the last time that I did this, whatever it might be. And so this general intelligence allows for a much more natural ability to correct and sort of categorize information. And as mentioned, this is a truly universal agent. You can have the same conversation in a wide variety of context, whether it's chat, e-mail, SMS and so forth. So this is a major release for Concierge AI, but it's really just the start. We think this is an incredibly powerful foundation that we've ironed out the kinks for, and you're going to see more and more incredibly powerful functionality being built across it over the quarters to come. So just to kind of summarize everything at a high level, we've increasingly and continued selling in a very successful fashion travel and card to existing customers, which has been great. We've been putting our free cash flow to work, which is great. And despite all of this, beside all the chaos of everything, we've really stayed focused on investing in an AI-first design. And I think this is a big deal because obviously, everyone thinks a lot about AI. But I think that everyone's kind of gotten through the first wave, a lot of the easy stuff. Here's where it starts to get much harder going on now. And so we think that chat is -- it's the UI for AI. If you can't talk to it, how smart can it really be? And so our design is to bring a chat-first design everywhere into the product such that it makes our entire product into an AI-first design. It's a very, very different design. I'd encourage you to check it out. And I think you'll see a glimpse of the future because we think everyone is going to be designing something like this over time. Likewise, our New Expensify migration is on track, and we've got really great customer reception. This puts everyone into a position to talk with their AI in a much better way than they could with their previous product. And at the end of the day, it's really about anything that you can do via the UI, you should be able to do via AI. And so building a truly AI-first product where you can talk to the AI in a primary mechanism as opposed to just as a sort of secondary flow. Anyway, we're going to have lots more to talk about in the quarters to come. But for now, let's take any questions we can. Niki Wallroth: Perfect. Let's get started with Citi. I believe, George, you're on the line. George Michael Kurosawa: I'm on for Steve Enders. Maybe just on this point about chat as the UI for AI. This is something that you guys have been early to -- it's interesting from our perspective to watch other people kind of catch up to where you guys are in terms of building in natural language-driven UI into other software apps. I'm just curious from that head start that you've had, what have been some of the big like learnings or capabilities you've incorporated into the platform that when you watch others, you can see maybe them making missteps or where you feel like you have an advantage there? David Barrett: That's a great question. And I think it really comes back to this idea of being built in versus built on to the product in that expense of that design is that you can go into any context and inside that context, you can talk with AI about that particular thing. That is kind of a nuanced point. But Imagine, for example, you're texting with an AI in a general context and you want to change yesterday's expense. You want to basically categorize it or you want to highlight that actually that was an accident. They didn't mean to submit that, whatever it might be. Referencing that outside of the context is actually quite hard. You have to remember the merchant to date, the amount or some key indication of how to do it. And it's a really impractical thing that's going to drive you back to the UI. Now if you're talking to your assistant, you would just say, hey, that thing that I did yesterday or whatever it might be, and you give a kind of a relative reference, and it would be able to figure it out based upon the contextual clues of the conversation. And so I think that our UI is about trying to infuse the AI throughout the entire product such that you can use it in whatever context you're already in. You don't have to leave your context to use the AI. It's already there. This makes a very different UI design. You can see it's a very chat-centric design. In many ways, it looks like a kind of ChatGPT interface. I mean I think that it's hard to argue your business is an AI-first product if it looks like Concur. I think that it has to look a lot more like ChatGPT to really credibly say that this is an AI-based thing. It's kind of like what makes an AI intelligent isn't that it just has a bunch of kind of like AI branding on a bunch of algorithms. I think you need to be able to talk to it. You have to be able to ask questions, whatever you want. You have to explain why it did what it did, and it has to be able to learn from mistakes. I think that the idea that you can have automation in place and that you can't talk to it and figure it out, it doesn't seem very smart. Like let's say, you had -- you hired some sort of an accountant and they said that they approved a report, and you asked them, why did you approve the report? And it's like, I don't know, you wouldn't be like this is a genius. You'd be like this is pretty stupid. I think a lot of sort of algorithmic automation is very powerful, but it's not intelligent in an AI sense. I think intelligence is about getting into a place where you can ask questions, get answers and make changes all through natural language, and I think our design is really optimized for that. Ryan Schaffer: I also think it's important that you're unlocking a new use case. Making charts with AI is not interesting, but that's a very common use case. People have been making charts for a long time and doesn't require AI. That's not a good use of AI. So I think the fact that we're able to do new things, new functionality, offer new value to the user because we're using AI is what sets us apart versus replacing code with AI that the customer doesn't care about that. David Barrett: Yes, yes, I get that. George Michael Kurosawa: Super interesting. I appreciate the detailed answer there. Maybe something more tactical. The government shutdowns in the news, it seems like maybe there might be some impact on travel, I can appreciate that probably if there is any impact to you guys, it would basically be a timing risk. But just any thoughts there from shutdowns in the past or just general scenario analysis you guys maybe have thought through there? Ryan Schaffer: So I think it's -- I guess it depends on -- to the extent it impacts travelers, right? If you're stuck somewhere, you're probably going to actually end up spending more because you have extra hotel nights because you're stuck in New York or something. But in terms of -- is it going to keep people from using Expensify Travel less or something because they're worried of being stuck. I think that's probably a realistic risk. It depends on whether people are going to change their travel plans or just risk it basically, I think. David Barrett: Yes, I don't think uncertainty is good for anyone's business. Ryan Schaffer: Yes. Niki Wallroth: Great. Let's see. JMP, I believe Aaron, you're on the line. Aaron Kimson: I want to dig in on migrations from Expensify Classic to New Expensify, including what percentage of revenue today is on New Expensify after migrating your Collect customers and the time frame over which you expect to get your Control customers that I think are a substantial majority of your revenue on New Expensify. Ryan Schaffer: That's a good question. I don't think we know the -- it's less than 50% of revenue. So we're not over the 50% hump in terms of revenue yet, but that's the huge priority right now is moving people over. David Barrett: Yes. I mean we're -- as I mentioned earlier, we're aiming to have New Expensify match Classic from a functionality perspective by end of the year. And I think we're very good on that target. Now the real question is how fast can we migrate everyone over. We control the time line here. There's no sense migrating them over faster than they're comfortable with. And so we're going at the fastest rate that they're comfortable with. I think we're really hoping to have a significant progress on that, if not completion or near completion by the end of the year, but I don't think we can control -- we don't know exactly yet because we don't know what we don't know. Ryan Schaffer: Yes. I think it's -- we're also listening to the feedback of customers nudged and iterating very quickly because it's people who are new to Expensify and they come in, they love it, right, because they -- it's all they know, it works great. It's very cool. Someone switching from who's used Classic for maybe 5 years, 10 years to New, it's -- that's a different audience, and they have a different reaction. It's not negative, but they have a different set of feedback than what we've gotten just from new customers coming in. So we've been a little slow moving people over and really focusing on those user sessions and getting feedback and making small changes quickly and iterating. And I think it's a flywheel where it goes faster and faster. But the existing customers are an interesting source of feedback compared to net new because they say different things. So we're just working through that. David Barrett: Actually, it's a great point. The bottom of the slide that talks about the major goal we had was to make sure every new customer conversation started on New Expensify. And so that has been the priority. That's done. And so now the priority is getting existing customers over. Aaron Kimson: That makes sense. And then the follow-up here, are you seeing any incremental monetization from the customers that have migrated to New Expensify? Or is that more TBD? And I assume the more relevant piece of this question at this time is what type of internal cost savings do you anticipate from the Concierge agent once you get everyone migrated over to New Expensify? Ryan Schaffer: That's a great question. So the support cost should be definitely less when we get everyone over because New Expensify handles everything better than Classic. A lot of the problems -- not problems. But there are some complaints with Classic that we have solved with New Expensify. So in general, it should be less of a support burden. Also, just the fact of maintaining 2 platforms at once is expensive and like a split brain problem. So it will be -- we're really looking forward to solving that. In terms of increased monetization, I think it's much easier to issue new cards, manage everything, get into travel. There's a lot of travel functionality that only exists on New Expensify. So using Expensify Travel with New Expensify is a better experience than Classic. So I do think that it's a net positive. Everyone that we move over is a net positive on the business. So that's why it's a huge focus for us right now. Niki Wallroth: All right. We were double booked with some of our other analysts, so we will talk to them offline. That's everybody for now. Ryan Schaffer: Great. All right. Thank you all, and we'll see you next quarter. David Barrett: Thanks, everyone.
Operator: Good morning. My name is Olivia, and I'll be your conference operator today. At this time, I would like to welcome everyone to TransAlta Corporation Third Quarter 2025 Conference Call. [Operator Instructions] Thank you. Ms. Paris, you may begin your conference. Stephanie Paris: Thank you, Olivia. Good morning, everyone. My name is Stephanie Paris, and I am the Vice President of Investor Relations and Corporate Strategy of TransAlta. Welcome to TransAlta's Third Quarter 2025 Conference Call. With me today are John Kousinioris, President and Chief Executive Officer; Joel Hunter, EVP, Finance and Chief Financial Officer; Blain van Melle, EVP, Commercial and Customer Relations; and Nancy Brennan, EVP, Legal and External Affairs. Today's call is being webcast, and I invite those listening on the phone lines to view the supporting slides that are posted on our website. A replay of the call will be available later today, and the transcript will be posted to our website shortly thereafter. All the information provided during this conference call is subject to the forward-looking information statement qualification set out here on Slide 2, detailed further in our MD&A, and incorporated in full for the purposes of today's call. All amounts referenced are in Canadian dollars, unless otherwise noted. The non-IFRS terminology used, including adjusted EBITDA and free cash flow are reconciled in the MD&A for your reference. On today's call, John and Joel will provide an overview of TransAlta's quarterly results. After these remarks, we will open the call for questions. With that, I will turn the call over to John. John Kousinioris: Thank you, Stephanie. Good morning, everyone, and thank you for joining our third quarter conference call for 2025. As part of our commitment towards reconciliation, I want to begin by acknowledging that our company operates on the traditional territories of indigenous peoples across Canada, Australia, and the United States. We recognize the rich and diverse histories, cultures, and contributions of the First Nations, Inuit, Metis, Aboriginal and Native American communities. And it is with gratitude and respect that we thank the peoples who have lived on these lands, for reminding us of the ongoing histories that precede us. TransAlta delivered solid performance during the third quarter, demonstrating our fleet's resilience during challenging market conditions. Our Alberta portfolio hedging strategy and active asset optimization continued to generate realized prices well above spot prices, while availability remained high across the fleet. During the quarter, we delivered adjusted EBITDA of $238 million, free cash flow of $105 million or $0.35 per share and average fleet availability of 92.7%. Based on our results to date and expectations for the fourth quarter, we remain confident in achieving our 2025 guidance range. We're tracking to the lower end of the adjusted EBITDA range and the midpoint of free cash flow, which Joel will speak to later in the call. As you all know, a key priority for our company is to progress our legacy thermal opportunities, which we continue to do during the quarter. In Alberta, our data center project will contribute to powering a new industry in the province. And in Washington, our Centralia project will support reliability for decades to come. Commercial negotiations for both projects continue to progress during the quarter. And while we remain confident in our advancement of these key priorities, we've decided to shift the timing of our Investor Day to the first quarter of 2026, following data center and Centralia announcements. We will provide you with detailed updates on both projects and their impact on our company, as well as the opportunities we see across all of our core markets at that time. Returning to the quarter, we executed agreements to extend our committed credit facilities totaling $2.1 billion with our syndicate of lenders. Our syndicated facility of $1.9 billion now has a maturity of June 30, 2029, and our bilateral credit facilities of $240 million were extended by 1 year to June 30, 2027. During the quarter, we completed the sale of a 100% interest in the 48-megawatt Poplar Hill facility, as required under the terms of the Heartland Generation acquisition. And following the quarter, on October 2, we also closed the sale of a 50% interest in the 97-megawatt Rainbow Lake facility. The proceeds from the divestitures go to Energy Capital Partners, as agreed to under the terms of the transaction. This marks the successful conclusion of the remaining regulatory requirements for the Heartland acquisition. In August, the AESO announced its final design for the restructured energy market, or REM, which I will speak to momentarily. The government of Alberta also introduced proposed amendments to the TIER regulations. The proposed changes include recognition of on-site emissions reduction investments as a compliance pathway under the TIER system. This may impact the emission credit market. However, as most of our credits are deployed internally towards our gas fleet emissions obligations, we do not anticipate this change, if implemented, to be material to our business. And finally, we continue to engage directly and collaboratively with the Government of Alberta and the AESO, on the Alberta data center strategy and their approach to large load integration. Turning more specifically to the work that we're doing in realizing the value of our legacy generation sites. At our Centralia site, we're actively engaged in commercial negotiations with our customer and expect to be in a position to execute a definitive agreement before year-end. At that time, we will be able to share our detailed development plans for the site. We also continue to progress our Alberta data center strategy and the associated commercial negotiations. Recently, we entered into a demand transmission service contract with the AESO for 230 megawatts, representing the full allocation awarded to the company through Phase 1 of the AESOs data center Large Load Integration program. In September, Parkland County unanimously approved the rezoning of over 3,000 acres of TransAlta-owned land surrounding our Keephills and Sundance facilities to support future data center development. We're grateful for this community support, which represents an important milestone to advance the opportunity for new investment, job creation, and economic growth in the region. We continue to work closely with our counterparties on their data center project and are steadily progressing towards the finalization of a memorandum of understanding. We also continue to engage directly with the provincial government and the ISO on Phase 2 of the Large Load Integration program. We're excited about the data center opportunity in Alberta and the meaningful investment it can bring to the province. In August, the AESO announced its final design for the Alberta restructured energy market or REM. The structure is consistent with our expectations, adds greater certainty to the market, and supports system reliability, something our diverse and dispatchable generating fleet in Alberta is well suited to provide. Notably, the REM will help ensure appropriate price signals are received by generators to enable reliable generation investment and ensure Alberta is competitive with other jurisdictions. The REM contemplates an increase in the provincial price cap to $1,500 per megawatt hour and eventually to $2,000 per megawatt hour, with additional administrative scarcity pricing during periods of tight system conditions. The REM also creates a new ramping product to enhance system reliability, which our dispatchable fleet is well positioned to serve and mitigates against any adverse impact from the adoption of locational marginal pricing for incumbent generators through the allocation of financial transmission lines. The REM is expected to be implemented in 2027 or 2028, and we will continue our active engagement in the AESO consultation process, which is now focused on implementation. We believe that the changes to the market provided by the REM, coupled with the anticipated load growth from the fully allocated 1.2 gigawatts of data center system access granted by the ISO will see Alberta's power supply and demand imbalance improve, and lead to a recovery in the merchant power price in the province, benefiting our diversified legacy fleet. The forward price has begun to reflect the changing supply and demand dynamic in the province, driven by electrification, data center load, and population increases, along with the slowdown in incremental new supply coming online, which makes our existing generating fleet increasingly valuable. There appears to be a reaction today to a reference to Project Greenlight's data center in-service date being pushed out to 2030. Our understanding is that that is very much an outside date and that Kineticor and their customer are still driving to have the project in service in 2027 or 2028. It remains our view, based on the information that we have, that forward prices do not yet fully factor in the impact of the REM or 1.2 gigawatts of data center load that will be coming online. The gradual increase in load we now expect will rebalance the current oversupply of generation in the province and drive opportunities for growth in the long term. TransAlta's dispatchable thermal and hydro fleet have existing capacity to provide reliability and serve the expected load growth. Before I turn the call over to Joel, I'd like to offer a few words on my upcoming retirement. As we announced today, I will be retiring from TransAlta and its Board, effective April 30, 2026. It has been an honor to lead TransAlta, and to work with such a committed and talented team. Together with our Board, we have evolved our business and built a strong foundation for the future by increasing shareholder returns, delivering strong financial results, navigating regulatory change, diversifying our business, and positioning our fleet to meet the customer needs of the future. I fully support Joel, as the next President and CEO of TransAlta. He's a proven leader and the right person to advance TransAlta's strategy. I look forward to working with him, management, and the Board, over the coming months to ensure a successful transition. I'll now pass the call over to Joel. Joel Hunter: Thanks, John, and good morning, everyone. I'd like to start by offering my congratulations to John, on his upcoming retirement, and thank him for his leadership, guidance, and strategic vision for TransAlta, as well as his active support of my leadership. I look forward to working together to ensure a smooth transition and continued execution of our strategic priorities. We will announce the CFO successor in the coming months. Turning now to our third quarter results. I'll start with an overview of the period, where our fleet demonstrated resilience in softer market conditions. During the quarter, we generated $238 million of adjusted EBITDA, which was $77 million lower than the third quarter of 2024, due to lower Alberta and Mid-C power prices, subdued market volatility impacting energy marketing and trading results, and lower contract revenue from our Centralia facility. Turning to our segmented results relative to the same period of 2024. Hydro segment adjusted EBITDA decreased to $73 million compared to $89 million last year due to lower spot power prices in Alberta, as well as lower ancillary services revenue, which was impacted by lower availability from higher planned maintenance outages. Through optimization, we're able to reallocate these services to our gas fleet, maintaining our market share of the associated ancillary revenues. Environmental and tax attribute revenue to third parties was also lower than last year. The wind and solar segment produced adjusted EBITDA of $45 million, in line with the third quarter of 2024. In the gas segment, adjusted EBITDA decreased to $110 million from $141 million in 2024, mostly due to lower realized power prices in Alberta, along with higher carbon pricing, partially offset by the addition of the Heartland assets, which increased contracted production, along with incremental ancillary services revenue due to production optimization between the gas and hydro segments. The energy transition segment delivered adjusted EBITDA of $28 million, a $6 million decrease year-over-year due to lower market prices, partially offset by lower purchase power costs and a higher volume of favorable hedge positions settled. Energy marketing adjusted EBITDA decreased by $25 million to $17 million, primarily due to comparatively subdued market volatility across North American natural gas and power markets and lower realized settled trades in the quarter compared to last year. And corporate adjusted EBITDA was in line with last year at $35 million. As a reminder, our adjusted EBITDA excludes the impact of ERP costs as the integration is not reflective of ongoing operations or the performance of our operating assets. Overall, free cash flow was $105 million in the third quarter, which was $26 million lower than the same period last year. Lower adjusted EBITDA and higher net interest expense was partially offset by lower current income tax expense and lower distributions paid to noncontrolling interests. Turning to the Alberta portfolio. The third quarter spot price averaged $51 per megawatt hour, which was lower than the average price of $55 per megawatt hour in 2024. The decline year-over-year was primarily due to incremental generation from the addition of new gas and renewable supply in the province, as well as benign weather. Throughout the quarter, we deployed hedging strategies to enhance our portfolio margins and mitigate the impact of lower merchant power prices. We realized the benefit from approximately 2,500 gigawatt hours of hedges at an average price of $66 per megawatt hour, representing a 29% premium to the average spot price. In addition, our hydro fleet delivered an average realized merchant price of $76 per megawatt hour, a 49% premium to the average spot price, while the gas fleet realized an average merchant price of $79 per megawatt hour, a 55% premium to the average spot price. Our merchant wind fleet, which cannot be used as firm power for hedging activities, realized an average price of $28 per megawatt hour. We were also able to deliver additional ancillary volumes across the Alberta fleet. In the quarter, our average realized price for hydro ancillary service pricing settled at $47 per megawatt hour, an 8% discount to the average spot price. Due to the optimization of ancillary services to the gas segment from hydro during planned outages, the gas segment realized an average ancillary service price of $41 per megawatt hour. Despite relatively benign weather in the quarter, which resulted in lower spot power prices, we captured additional margins by fulfilling a portion of our higher priced hedges with purchased power when prices were below our variable cost of production, leading to an overall realized price per megawatt hour produced of $103 compared to $90 per megawatt hour in the same period last year. For the balance of the year, we have approximately 1,900 gigawatt hours of our Alberta generation hedged at an average price of $72 per megawatt hour, well above the current forward curve of $57 per megawatt hour. Going forward, we expect to continue to optimize our fleet and reduce production in low-priced, high-supply hours by fulfilling our financial hedges and customer requirements with open market purchases. Looking at next year, our team has increased our hedge position to approximately 7,800 gigawatt hours at an average price of $66 per megawatt hour, which remains well above current forward pricing levels. Based on our year-to-date results and balance of year expectations, we remain confident in our 2025 outlook. We are currently tracking towards the lower end of our adjusted EBITDA range, largely due to the Alberta spot power price tracking to the lower end of the outlook range of $40 to $60 per megawatt hour. Currently, we expect the full year spot price to average $46 per megawatt hour. In terms of sensitivity to the Alberta spot power price, $1 per megawatt hour is expected to have a $2 million impact to our adjusted EBITDA for the balance of the year. Other factors influencing adjusted EBITDA include lower wind resource and subdued market volatility. Free cash flow is tracking to the midpoint of the outlook range and the aforementioned adjusted EBITDA impacts are partially offset by lower expected current taxes and lower expected distributions to noncontrolling interests. Consistent with the past year, we'll provide a fulsome 2026 outlook update on our fourth quarter 2025 conference call in February. I will now turn the call back over to John. John Kousinioris: Thank you, Joel. We remain focused on the following priorities for 2025. First, delivering adjusted EBITDA and free cash flow within our 2025 guidance ranges; second, improving our leading and lagging safety performance indicators while achieving strong fleet availability; third, maximizing the value of our legacy thermal energy campuses by capturing the opportunity presented by securing a data center customer at Alberta thermal as well as advancing our coal-to-gas conversion at Centralia; fourth, successfully pursuing any strategic M&A opportunities that may arise; fifth, maintaining our financial strength and flexibility; and finally, successfully implementing the upgrade to our ERP system. I believe TransAlta offers a compelling investment opportunity. We're a safe and reliable operator with strong cash flows, underpinned by our diversified hydro, wind, solar, and gas portfolio located across 3 countries and complemented by our leading asset optimization and energy marketing capabilities. There is significant and growing value in our legacy thermal sites, which our team is actively working to repurpose to meet the growing need for reliable generation in the jurisdictions in which we operate. We also remain a clean electricity leader with a focus on tangible greenhouse gas emission reductions as we remain on track to achieve our ambitious 2026 CO2 emissions reduction target. We remain disciplined in our approach to growth, focused on delivering value to our shareholders as we work to diversify our portfolio within our core jurisdictions and increase the stability and contractiveness of our cash flows, and our company has a sound financial foundation. Our balance sheet is flexible, and we have ample liquidity to pursue and deliver multiple growth opportunities, along with the ability to also return capital to our shareholders. Finally, and most importantly, we have our people. Our people are our greatest asset, and I want to thank all our employees and contractors for their commitment in setting the company up for success in the remainder of 2025, and beyond. Thank you. I'll now turn the call over to Stephanie. Stephanie Paris: Thank you, John. Olivia, would you please open the call for questions from the analysts? Operator: [Operator Instructions] Our first question coming from the line of Robert Hope with Scotiabank. Robert Hope: Congrats to John and Joel, on the announcements. John Kousinioris: Thanks, Robert. Joel Hunter: Thanks, Robert. Robert Hope: Maybe on the data center front. So it appears that discussions are going slower than anticipated regarding customers for the data centers in Alberta. Can you maybe add a little bit of color of what is driving this, as well as has your confidence in securing a project increased or decreased since the Q2 call? John Kousinioris: Robert, we remain confident in our ability to progress the data center opportunity that we have here in the province. Look, it's a big initiative, both for our prospective customers and for our company. It takes time to make sure that all of the details that we need to work with. And frankly, there's multiple parties involved in bringing it forward. It just takes time to do all of that. Phase 2 of the ISO process and the Government of Alberta process in terms of large load integration is also critically important. That's taking a little bit of time to sort out because, at least from our own perspective, it isn't just about the initial 230 megawatts that we've got. It's about how we're thinking about phasing a real data center opportunity for the province and for our company. All of this takes time, but we're tracking, and we remain in the confidence that we had last quarter and in other earlier times of the year to move it forward. It is very much a key priority for our company. Robert Hope: Aare you in discussions to serve other data center customers in Alberta in -- on a shorter-term basis? You did mention Greenlight. You do have confidence that it could be in service in '27, '28. What gives you that confidence? And could you be supplying power to them in that timeframe as well? John Kousinioris: So all of the discussions that we're having, all of the work that we're doing are really around a single opportunity. And we've taken, at least from a TransAlta perspective, an exclusive approach with those prospective customers. So that's the way we're looking at it. It's also our expectation that once we're able to announce our MOU and begin moving forward that we'll be able to start seeing load come into our sites gradually and probably a bit more earlier than probably what Kineticor is currently anticipating that they would have coming in. So hopefully, that gives you a little bit of color. Operator: Our next question coming from the line of Mark Jarvi with CIBC. Mark Jarvi: Congrats, Joel and John. Not to get too far ahead of ourselves, but once you do have the MOU in place, then what would be the sort of time line when you think you can get to a binding agreement? And given the fact it's taking a bit longer to get to the MOU, does that shorten the window from MOU to final agreement? John Kousinioris: Mark, good morning. Look, we would want to go pretty quickly, I would think, and we've already begun kind of getting our team ready and getting internally ready to kind of get to definitive documentations pretty quickly to move that forward. I can't give you sort of a specific time line on that when that would occur. But certainly, I'd be pushing our team to try to get it done as soon as possible. I think one of the key elements of the MOU is to have enough sort of specificity in that and an understanding of the arrangements between ourselves and our customers in order to permit that to kind of make the definitive documentation of it easier to proceed. But I think it's going to happen in -- like, I think it will actually be quicker than certainly it's taken to get the MOU done is what I would say. Mark Jarvi: You used the word counterparties in the plural. Can you elaborate on what that means? Is that on the funding side for the customer? Is it a sort of joint venture in the data center? Anything you can shed on that. And the fact that it is multiple customers, how has that sort of affected the time line to reach MOU? John Kousinioris: Yes. We do -- we are working with more than one customer. We're working together to see the opportunity come through. And that's been the case throughout candidly, our engagement. And given where we are in the process and how we're working through it, there isn't a lot more that I can give you, Mark. I wish I could, but I can't. Mark Jarvi: On the last call, you indicated that -- you took the view that your underutilized coal-to-gas converting units sort of are akin to incremental generation when you think about Phase 2 and you're trying to have those conversations with the AESO and the government. How have those progressed? And are you getting traction with that concept? John Kousinioris: Yes. I'm glad you asked about that. So we have had discussions on Phase 2. Joel and I, and Nancy have spent a fair bit of time, and Blain has been involved in that as well as we move forward. I mean, I'll give you a bit of a sense on our company's position, which our sense is it is being well received by the government, would be that we don't -- just to give you a bit of a sense is, one, we don't think that colocation is necessary. We think that it would be better -- there isn't a need to co-locate the data center with the generation going forward. That would be number one. We absolutely believe that underutilized generation like our coal-to-gas units would be akin to incremental supply and be able to meet the need for data centers coming into the jurisdiction as a bridge to new generation that would be built into the 2030s to be able to meet that going forward because it isn't just about reliability, sustainability and cost; speed matters. And those units are the right units that we need. And it's particularly so given the challenges associated with the supply chain. I mean, I think the practical reality is that getting a turbine, for example, or transformers is many years out. So I think they have a pretty critical role to get us from kind of where we are today to where we envision the market going. And so, that's been what we've been advocating for. And I do think the government understands that position and candidly believes it has some merit. Mark Jarvi: Just to follow up on that, John. When you talk about potentially a bridge, are you saying some of the underutilized megawatts would be something that could be viewed as -- there for a couple of 3 to 5 years until new megawatts come in or potentially as "permanent supply" in the eyes of Phase 2 process? John Kousinioris: Yes. I'm not sure that -- at least we're not thinking of it necessarily as permanent supply. So for example, if we have a unit and it has a 20% capacity factor, there is a lot of horsepower left in that particular unit to run and be able to supply incremental data center needs over a period of time. And so when we look at Keephills 2, Keephills 3, the Sheerness facilities that we have, Sun 6, and our ability to potentially bring something new to the market in the fullness of time into the 2030s, we absolutely see a bridging role during Phase 2 to get that there. Operator: Our next question coming from the line of Benjamin Pham with BMO Capital Markets. Benjamin Pham: I wanted to touch just base on the delay of your Investor Day. I can understand the reasons for it. I'm wondering, when you did set the Investor Day, you go back, was your priorities to get the MOUs on both of these projects? I vaguely recall it was more related to updating your long-term strategic capital allocation process. Or has that changed as time has progressed? John Kousinioris: No. Ben, we set the date expecting that we would have had a bit more certainty or the ability to provide a little bit more clarity around both the data center strategy that we have going, some of the other initiatives that we're working on, plus Centralia. It's taken us a little bit more time to land those things. So we could have had the Investor Day, but the way we like to think of it, it wouldn't have been the Investor Day that we would have wanted to have to permit all of our investors and the investment community generally to understand the impact of these projects on the company and be able to have all of the building blocks that are necessary to be able to understand kind of fully the go-forward strategy of the company. So it's really as simple as that. So we had picked a date we thought that prospectively -- that, that would be something that we would be comfortable to be able to meet. We're still working through everything and retain our confidence level. We just want to make sure we have a good Investor Day and one that will be helpful to our investors. So that's what we've decided. Benjamin Pham: Your comments on the connection queue and updates, I mean, those in-service dates you mentioned are always –- tend to be conservative and that they move around. Does that warrant then perhaps for your projects to look at some outside dates just given that progress is a bit slower on some of your developments? John Kousinioris: Yes. No, I think we feel pretty comfortable about where we are because what we're looking -- remember, it's going to be a grid-connected opportunity, and then we will be effectively covering the generation needs that the entity has. So we feel very comfortable about our ability, from a power perspective, to meet the needs of the supply that we have for our customers, like I think we're in good shape there. I think from our perspective, the time line is going to be driven more by the time it takes to actually build out the data centers and get that infrastructure in place. I think there's a substation we need to put in place, but that's something that we're pretty comfortable from a supply chain and from a time line perspective to get it done. So we're not -- I can tell you that TransAlta today isn't concerned about the kind of timing perspective from our data center opportunity. Benjamin Pham: Just if I may, the 3,000 acres, I mean, I think that's a massive amount of megawatts you can theoretically add on to that acreage. John Kousinioris: It is -- so I agree. It's -- like we see it as a significant opportunity. And we're grateful for the engagement that we've received from Parkland County, who also see the opportunity for the county to have a real hub for data centers just West of the City of Edmonton there. So all the work that we're doing, as I mentioned earlier in the call, isn't just for the 230. It's as we envision kind of the broader campus that we hope to develop over time. Operator: Our next question coming from the line of Maurice Choy with RBC Capital Markets. Maurice Choy: You touched on planning with your customers for phases beyond 230 megawatts. And you also spoke about [ AESO's ] Phase 2 being critically important. If you think ahead between now and sometime in Q1 when you have your Investor Day, I guess, looking at the other way, what would be the top reason that could derail your time line to be even later? John Kousinioris: Yes. Look, it's difficult to be speculating. I mean, I think all I can say is -- and look, all we can tell our investors is we continue to work, I would say, doggedly to set up our facility and the permitting around the opportunity that we have. So we don't see, how can I put it, issues that could arise from a TransAlta perspective, from a timing perspective to get there. We're working with our customers because they, in turn, have knock-on effects that they need to deal with to be able to land all of that and to be able to understand better kind of what the future pathways are. So we have confidence in Phase 2. We believe the government and the ISO is committed to the development of a data center industry here in the province of Alberta. It is a priority. Our team is now with very senior people in the government, and we -- there's nothing I have heard that would suggest that that isn't the case. So there isn't particularly a derailer that I would see in us moving through, to be honest. Maurice Choy: Maybe just a quick follow-up to that. Is there any regulation or policy, federal or provincial, that you need -- you see as absolutely necessary for clarity for this MOU and definitive agreement to go forward? John Kousinioris: It would be helpful from our perspective to kind of have a bit of a sense on where Phase 2 is going to be landing so that we can plan around that because I think we will be able to meet within that. It's just it's important to be able to get that done. The other area -- and look, we've talked about this before, is the clean electricity regulations remain a bit of a challenge for us. We're working hard to ensure that we have maximum optionality to be able to fit within those regulations as they currently exist to ensure that we can meet the promise of the opportunity that we see through the data center work. When our team is thinking about things, it's more the CER, to be honest, that we think about long term as being something that we need to manage around. Phase 2 is more of a clarity point that we think will be constructive. Hopefully, that gives you a sense, Maurice. Maurice Choy: It does. And maybe that's exactly where I'm going to finish off with on the federal policy side. So obviously, the Canadian federal budget came out earlier this week. It doesn't feel like we got much clarity on both the CER and/or the industrial carbon tax heading into 2030 or post-2030. I know that the Alberta government has frozen the carbon tax at $95 per tonne. But what can you share in terms of your expectations of both how the CER and the industrial carbon tax will be through 2030 and beyond? John Kousinioris: Look, we -- I'd be speculating. I can tell you that like when we do our internal modeling, we have a number of scenarios that we run as we assess our fleet, and it's everything from the carbon price staying at $95 to the carbon price continuing on its anticipated trajectory towards 2030. What I can't tell you is our engagement on the CER with the federal government continues. Our team was in conversations relating to that. I think it was last week in Ottawa, and I'm actually in discussions on it again later today. So it's an ongoing process of discussion that we have. Maurice Choy: Quick follow-up then. Who underwrites that risk of federal policy changes? Is that your data center customer, or would that be you? Or is that still under negotiation? John Kousinioris: So that's something that we're working through with the customers. It's not something that I can give sort of specific details on that. I think that what we try to do in mapping out the opportunity that we have is to ensure that it's robust and candidly insulated from kind of regulatory uncertainty, to be honest, Maurice. Like, that's actually what we're trying to do. And in part, when you hear the company talking about being more contracted and how we're diversifying, in part, it is driven to sort of insulate the company from any kind of regulatory shifts or repercussions that take place. And that's actually the approach our team is taking with respect to the data center file. Candidly, it's a similar approach in Centralia, I would say. Blain and his team are working on that. It's the same thing there. It's a real focus for us. Maurice Choy: Perfect. My congrats to John, Joel, all of you, and hope to connect at the Investor Day. John Kousinioris: Great. Thanks a lot, Maurice. Operator: Our next question coming from the line of John Mould with TD Cowen. John Mould: Maybe at the risk of going too in the weeds here, just trying to read the tea leaves a little more on these AESO in-service dates. So the Keephills load [indiscernible] as reported by AESO are 100 megawatts by January of 2027 and then another 115 midyear. Like how should investors view the time lines for your projects as provided by AESOs data? Are those timelines by which the load could actually be online or more of a timeline for those to be ready to connect to the grid from an AESO perspective? Just help us understand that aspect. John Kousinioris: Yes. I mean, those dates are oriented to when we think that we would begin to be -- like it's tied to when the connection to the grid would occur and when the load would start ramping up. So they're not linked, John, if you see what I'm saying. They're tied. So we do see a gradual feathering in of load over time. And we would see -- the work that we're looking at doing, I mentioned the substation earlier, it would be a complete facility to be able to kind of accommodate the full ramping up of the generation over time. And remember, the ISO requires the load, I think, to be in place, I think it's the 1st of December of '28, right? So that's what our current expectations are. John Mould: I'd just like to clarify your comments on Phase 2. Do you or your customer need clarity on any aspects of Phase 2, even if it's just like early details on bring your own power or allocations in order to finalize an agreement, in order to be able to have line of sight on some of that aspirational -- maybe it's not aspirational, just the potential multistage development that you referenced in your news release? And what time line are you hoping for more clarity to the market on the key aspects of Phase 2? John Kousinioris: On the last point, it's pretty clear to us that the AESO and the government are aware of the fact that having certainty sooner rather than later would be positive. So -- I can't give you a specific date on when we would get that, but I know that they're trying to move at an appropriate pace to be able to give us that level of clarity. I'd say the #1 thing, at least from my own perspective, on Phase 2 is just getting a better understanding of what that bringing incremental power is all about and what role our legacy facilities where we do have capacity can bring in that context. That's probably the #1 thing just from a planning perspective for us going forward. And we're working to develop optionality so we can deal with that whichever way it goes. So that's something that we continue to work on. And certainly, we'd be able to provide more clarity on at our Investor Day. John Mould: Just one last one on just your hedging and midterm pricing. I'm wondering what kind of interest you're seeing from C&I customers around signing mid- to long-term deals, just given the potential for the power pricing environment to normalize considerably over the next few years? And then from your side, how you're balancing the potential for that increased appetite with your aspirations on supplying large loads? John Kousinioris: Yes. Look, I might start and then get Blain to kind of chime in because it's his team that kind of oversees all of that work. I'd say -- and Blain, you can correct me, but I'd say it's been pretty steady. Like, I'd say the C&I demand that we have -- and I think we're actually the largest C&I player now in the province of Alberta. The C&I book that we have from a renewal perspective, an incremental business, it kind of continues as business as usual. We continue to see our customers roll over. I think the average tenure, Blain, is roughly in that 3-year kind of range. We have seen some of the re-contracting prices come down a little bit, I would say, Blain, and Blain will be able to provide more color as they rolled off because some of them were done when we had higher power prices, and it kind of takes time for that to roll off, and so we're seeing that. But those prices are still constructive from our perspective. When you're looking at kind of 2028 -- late '27, '28, which is when we would expect to see kind of the forward curve in the merchant market to tighten up, we're not -- I don't think that's impacting a lot of the 1-year, 2-year, even 3-year renewals, Blain, right now, in terms of moving the needle. I mean, I don't know what your perspectives are. Blain Van Melle: John, that's exactly right. The C&I business hasn't really faltered even through the lower prices that we have right now. The re-contracting remains very robust. We continue to extract some good premiums over the financial market. And I would expect, as we move forward here and as some of this load does start to materialize already reflected in the forward price that that contracting levels will ramp up a little bit as the customers start to meet to plan for those power needs in later 2027, 2028, and 2029. John Kousinioris: Yes. John Mould: Congratulations to both Joel and John on the announcements. Operator: Our next question coming from the line of Julien Dumoulin-Smith with Jefferies. Julien Dumoulin-Smith: John, it's been a real pleasure over the years. Joel, congrats. It's been a pleasure to get to know you more recently, and big and exciting shoes to fill here given the data center opportunity. But back to the opportunity in here, speaking of which, I just want to understand a little bit more about the Greenlight situation and what got posted by AESO here. In as much as you all articulate clear confidence that there's still an ability to have that project in service by '27 or '28, what was the purpose of this AESO update that was posted? I just want to understand what exactly transpired if there doesn't seem to be necessarily a push in time line from your perspective? Just to clarify that because clearly, the market is pretty [ perturbed ] out there about this time line issue. John Kousinioris: Yes. And look, we know that this came out, when was it, yesterday when the updated date was, I think, identified from people. I mean, I think that's a question fundamentally for Kineticor, I think, more than TransAlta. But I can tell you, look, we've been in discussions with Kineticor and certainly have a view on what's going on from a governmental perspective. Based on those discussions, they're still driving for '27, '28. Not just them, but actually their customer too, is what our understanding is. I know that they have a bit of -- in the area where -- and this is not a secret particularly. In the area where they're proposing to kind of set everything up, they're working to make sure that there are no restrictions from a transmission perspective. And I think one of the things that they're looking at from a worst-case scenario is, if they need to do a bit of debottlenecking, what does that look like. But I don't think that, that's what they're driving at and certainly not as the load would sort of be ramping in. So everything we have heard based on our engagements is we're still tracking and they're still tracking more importantly, forget about us, to that '27, '28. So hopefully, that gives you a little bit of color. Julien Dumoulin-Smith: So there is some focus on a potential for a bit of debottlenecking to use your terms, but that doesn't seem to be too substantive despite the statement technically on the website, from what you understand on the practicalities of transmission, seems like it's a fairly minor issue. John Kousinioris: Based on my understanding that, that 2030 date, and I don't know how to describe it, it was almost like a worst-case kind of scenario in terms of where they are. It's sort of an outside kind of date. And look, the idea through Phase 1 is that you would have had this thing done by the end of 2028. So like, it's pretty clear that they've had some discussions to make sure that they've had full optionality around their opportunity. And candidly, we would be doing exactly the same thing. So like, I think, I can tell you, for our company's perspective, we continue to operate and envision things being business as usual. Julien Dumoulin-Smith: Excellent. Just a quick follow-up there. Just on Centralia. I know that's been a bit of an ongoing question here, but you talked about end of the year here. What should we expect specifically by the end of the year in terms of the scope of that opportunity? And what are you tracking, as far as it stands here today, for what that should look like here, customer, scope of conversion, et cetera? John Kousinioris: We would expect, by the end of the year, based on the work that we've done and how things are progressing with our teams -- and I can tell you, our customer has been outstanding to work with. They've been a great partner to us in visioning the opportunity we have for us to provide the reliability services to them. So we would see a definitive agreement. That definitive agreement would be an omnibus agreement that would deal with the work that we would need to convert the facility from coal to natural gas. It would set out the revenue streams that we would -- revenue tenure. It doesn't contemplate that more agreements would be required. It would be the agreement. And we have done a reasonable amount of work, engineering, costing that I do expect we'd be able to share with the market on kind of what the scope of the work would be around Centralia in order to be able to get the work that we need done there, which is not just the coal-to-gas conversion, but also a little bit of life extension given that we've harvested the facility a little bit and even some controls work that we need to be able to do. So it would be -- I don't know -- I mean, Blain and his team are working on this one as well, a comprehensive arrangement, Blain, I would say. I don't know if you want to add anything. Blain Van Melle: No, I think that's right, John. You said -- in the next 6 week leading up to Christmas that we'll have something to announce -- John Kousinioris: Yes. Blain Van Melle: It would be like a true definitive agreement that spells out all the work that needs to happen over the next year as we approach bringing that facility back on line on natural gas. John Kousinioris: That's right. Operator: Our next question coming from the line of Patrick Kenny with National Bank Financial. Patrick Kenny: Congrats to John and Joel. Just maybe back on the rezoning at Sundance and Keephills just given the close proximity of the 2 sites. Wondering if you could just speak to how you might be thinking about integrating these 2 assets for a larger scale customer just in terms of sharing generation, transmission, even fiber and water licenses. And maybe how that might compare to your Sheerness site or perhaps give a competitive advantage over some other Phase 2 proponents. John Kousinioris: Yes. I would say -- thank you, Patrick, and good morning. What we did is -- so 3,000 acres is a significant amount of land, and you know this, our mine is quite comprehensive up there, and it actually ranges on both sides of the highway, and Keephills is on the south side of the highway, which goes east-west there. The Sundance facility is on the north side of the highway. And so what we did is we took kind of a comprehensive approach from a rezoning perspective to be able to flex up from a scale perspective. Our initial view is that the site from a locational perspective would be proximate to our Keephills facility. In fact, just going through my memory, located south of our -- immediately south of our Keephills facility, and that would be where we would be looking to build out the data center and the substation to deal with that. I think, over time, as we look to optionality and opportunity around Sundance, there is opportunity for us to do that as well. But right now, it's more around Keephills. We've got the water access that we need. We've got existing infrastructure that we need. The fiber is close at hand. So we're not really seeing any impediments, but getting the rezoning done was critically important. And as I mentioned earlier, it was a really great process, a lot of engagement from our side and great receptivity from the folks in Parkland County, which we're grateful to as they kind of see the vision of what this can provide. Patrick Kenny: I guess with all these irons in the fire, and Joel, I'm sure, at Investor Day, you'll be outlining a funding plan. But assuming the Centralia economics on the conversion come in as expected, perhaps you could talk to how the returns might rank here just in terms of Centralia versus supporting Phase 2 load growth in Alberta, or even compare it to M&A opportunities that you might be looking down in the U.S.? Joel Hunter: Yes. I would say, Pat, when we look at Centralia, again, typical with any kind of legacy asset that you can extend the life of with, I would say, capital spending that's a fraction of what it would cost for a new build that it would offer attractive risk-adjusted returns for us. But this is where we'll provide more detail to you and the investor community at our upcoming Investor Day once we have definitive agreements in place, so we can talk about what that would look like from, as John mentioned, the cost perspective, what kind of the build multiple would be for that. But again, consistent with our strategy, this would be really attractive risk-adjusted returns for us, underpinned by long-term contract. This is kind of how we want to position ourselves going forward to increase the contractiveness of our portfolio. And similarly, with any opportunities that we see in Phase 2, these would be underpinned, again, by long-term contracts with, hopefully, a very attractive risk-adjusted rates of return. John Kousinioris: Maybe on the M&A side, Joel, I think we've seen a bit of a -- not compression, I can't think of the right word, but kind of a realignment -- I mean, maybe talk a little bit about renewable and gas kind of opportunities we're looking at. Joel Hunter: Yes. John Kousinioris: -- because we haven't talked about it much on the call, but we are actively looking at a number of acquisition opportunities. Joel Hunter: Yes, there's -- yes, good point, John. There are a lot of opportunities out there, Pat, that we're looking at, both on the renewables side and on the thermal side. I would say that we're seeing really a convergence in multiples, if you will, where on thermal generation, depending on the location, depending on the contract profile, et cetera, that multiples are converging up toward probably the lower end of where we are seeing for renewables. So again, consistent with our strategy remain technology agnostic, remain focused on our 3 geographies for M&A opportunities, but it is very robust out there right now. For us, it's just remaining really disciplined in how we allocate our capital here going forward. John Kousinioris: Yes, very return focused, I would say. Joel Hunter: Yes. Operator: There are no further questions in the queue at this time. I would now like to turn the call back over to Stephanie for any closing remarks. Stephanie Paris: Thank you, everyone. That concludes our call for today. If you have any further questions, please contact the TransAlta Investor Relations team. Operator: This concludes today's conference call. Thank you for participating. And you may now disconnect.
Operator: Ladies and gentlemen, welcome to the Aperam Third Quarter 2025 Results Conference Call. I am George the Chorus Call operator. The conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Timoteo Di Maulo, CEO. Please go ahead. Timoteo Di Maulo: Hello, everybody, and thank you very much for joining our conference call today. All our comments were contained in the podcast that we published this morning, which you know supports our quarterly financial reporting and where applicable, our disclosure of regulatory information. We also save more time for your partner question during this call. As you know, this is my last quarterly conference call as CEO of Aperam. I'm proud of the work we have done to the stronger resilient pattern during the last 11 years. Just like in the podcast, my colleagues, Sud Sivaji and Nicolas Changeur are here, and together, we are working forward to answering your questions. Let's start straight away with the Q&A, please. Operator: [Operator Instructions] Our first question comes from Tristan Gresser with BNP Paribas. Tristan Gresser: I have two, the first one, in your outlook presentation, you mentioned some price pressure from imports in Brazil. Can you discuss a little bit the situation there. I thought that you had received recently a renewal of the antidumping duties from China and Taiwan on CRC. Is that enough? Do you need more? Usually, we talk a bit more about Europe input pressure and not so much Brazil. So has anything changed recently? Sudhakar Sivaji: Tristan, Sud here. So because it's Brazil, let me answer, and I think it's important, and your understanding is correct. There is price pressure is not on our stainless product portfolio. It's actually the non-stainless part, specifically the commodity electrical steel grades, which is the NGO part and some carbon steel part, so to speak. We just mentioned that just to be clear what are the different moving factors for your model, so to speak. It has nothing to do with stainless. And there, your understanding is correct. There is a proposed antidumping revision, and we are waiting for the results of that one on stainless. This is just the non-stainless part. And the effect is not very significant, but still the effect is there. And the reason we wanted to mention that is because, as you know, Brazil goes into a summer quarter in Q4, and it has been our most profitable contributor compared to Europe, which is positive but slightly positive. So when volumes disappear, smaller changes become visible, and that's the reason we gave that guidance. So it's no concern on the stainless market. Demand remains stable margins have not unchanged. The import pressure has not changed to post the minus in stainless in Brazil. Tristan Gresser: Okay. That's very clear and helpful. And my second question is on CBAM. So in the presentation, you mentioned that CBAM is on track. Can you mention a little bit the details of what you expect from the policy would be a good outcome, a more neutral outcome and a more negative outcome? Do you firmly believe that Scope 3 on NPI will stay? Can Scope 2 be included? And does that even matter? Do you think the commission will be able to assign a carbon intensity by company or by country? And finally, if you have a view on the benchmark, I believe there are differences depending on the grades of scale less steel you look at. So any color there would be greatly appreciated. Timoteo Di Maulo: Okay. It's a complex question, knowing that not everything is clear today and because the commission has not decided seems like the benchmark deal value, which has an impact in term of numbers. Now what is clear as of today is first the application from the first of January. The second thing that is clear is that for stainless steel, there will be the inclusion of the precursor. Precursor, meaning the raw material, the most important arrays that are in the scope of stainless steel like ferronickel, pure nickel or nickel pig iron or ferrochrome. The third point, it is clear and that you have mentioned is that Scope 2 is not considered. Okay, I will not be considered the application of the CBAM for the time being. The other point, which is clear is that CBAM will have a progressive ramp-up. This has been already disclosed many times. And so it will start in January 2026 and will have the full effect in the next 7 years. This is what is clear today. Another part that is clear is that considering the very high level of CO2 of the producer, which are the most competitive because they have a [nickel pig iron, this will have a big impact on all producers, which are used on nicely. The other part, which is also clear is that the commission is putting in place the melt report just to avoid the non-traceability or improve the traceability. All this is positive. The numbers are not yet communicated and in particular, all as you mentioned, all the management and the default values are not for the moment known. Operator: The next question comes from Maxime Kogge with ODDO. Maxime Kogge: Two questions on my side. The first is on volumes, actually and the bridge from Q3 to Q4. So reading between the lines, I understand that you expect volumes to increase in Europe in line with your seasonality, which I equities in contrast what has been guided by your two main competitors. And in Brazil, this would be lower, but in line with seasonality. Can you confirm that? And perhaps a bit more color on the trends you're seeing. Timoteo Di Maulo: No, no, I fully confirm that. The seasonal effect in Europe and in Brazil, plus months. The Europe will increase their volumes because in Europe typically in the month of August is very low because of the closure of all this out of Europe or France, et cetera. And then for Brazil, you start this summer. And so there will be a summer in Q4. So all in all, I confirm that Europe will be a increase of volumes and Brazil will be some decrease in volume, but in line with the seasonality. Maxime Kogge: Okay. Very clear. And second question is on the aerospace end market, which has actually quite soft, like your initial expectations. So perhaps can you shed more light there on your customer portfolio, your exposure between the market and new equipment or kind of information that can be useful to appreciate the potential of upside in 2026. Timoteo Di Maulo: Okay. So fundamentally, we are exposed to aerospace in universal and a little bit in some activity of recycling but these are minor compared to nines our exposed to aerospace. What has been here in aerospace, and we have discussed in previous cold is that there has been a long phase of destocking in which we are still now. What is clear also in aerospace is as a market, the market is very solid and the order book of all the producers that we are addressed producer, which are the typical Boeing, et cetera, but all the supply chain of this producer with motors with landing gears, et cetera, they have a very solid order book. Now once we'll be stocking is finished and we see that this is going to the end in the next few months, the market will go back to the performance that they have shown in 2024 and the beginning of 2025. It's clear that this market is a bit different from the commodity market that we address with the standard steel where the stock and inventory are between 2 to 3 months, 4 months. Here, we are discussing of inventories, which are along the supply chain of many, many more months and we are at 12, 15 months. And so whenever there is a disturbance in the demand, this has a very long, let's say, consequence and this is what we are experiencing. On top, we have had some maintenance during Q3. But as I repeat, we are very confident on 2026. Operator: The next question comes from Tom Zhang with Barclays. Tom Zhang: Just one for me, actually. On the CBAM, I think we discussed before, there's clearly a lot of potential loopholes and specific issues of sales, whether that's different grades, whether that's sort of default values? And is the global market these as a quite smart guys are going to try and slide ways around it. So in my mind, with CBAM, it's not just about getting the policy right. It's about being very quick to react to examples of circumvention and changing the policy, which is why I think the delays that we're going to have in even if there's something like benchmark and default values has made a bit of a concern. From your discussions in Brussels, is there anything that gives you confidence the commission is going to be more flexible and a particular to react to adjust the CBAM in the future, try and shut out circumvention? Sort of any thoughts to go around that would be interesting. Timoteo Di Maulo: For sure, they have I see you are very well informed. So for sure, they have fully understood about the benchmark and they know personally the story of the grade, and they have bonded us that this will be fully considered because not only the grades are sent end of CO2. And so typically, the highest content of CO2 is in austenetics, which represent 75% of the market. So they are fully aware and they are supportive on this point. We look also that you are referring are they well known they are on the capacity sharing and this circumvention. And all this has an answer, which is the melt and pour and the implementation of both melt and pour, the benchmark and the default values is part of what the commission is working on, knowing that it miles a very clear view on what are the loopholes and the possible measure, at least we have given them all the possibility to put in place leisure with our totally satisfactory. Tom Zhang: Okay. Maybe if I can just wish you slightly. I mean, we've had some stories of Asian producers basically melting slab and then immediately scrapping that slab and remelting it and basically just calling it scrap as one way of circumventing CBAM. Maybe this is a very small scale, but just give us an example. I guess the question is more, once bans in place, do you think the commission is going to faster going forward in the tour do you think it's still going to be quite a slow European process when we see circumvention, maybe it's going to take 1, 2, 3 years for them to go out and pick it. Timoteo Di Maulo: I don't think you can change dramatically the speed of Europe. Now what is clear is that all what is described here is very well known and it is not discovered tomorrow mony they will not start to work on all these problems from more and more, okay? On top of the question, the question is also the fact that you have let's say, refer to things which are relatively heroic. So scrapping a sub and then remelting this lab is something which has a cost the end you have a very low interest to the debt. So I'm confident that progressively, the CBAM will be a strong support for a level playing field. Then we will see. Operator: [Operator Instructions] Our next question comes from Bastian Synagowitz with Deutsche Bank. Bastian Synagowitz: My first one is also coming back on the plan policy changes. I guess as a starting point, no one at the moment is really making any money in Europe this way easily EUR 100 away from what used to be previous mid-cycle margins. would you be confident enough to say that with what is coming in, what planned, we should be going back to mid-level margin levels before demand rebound, which we've been waiting for, for some time, I guess, which we can't really think on? That would be my first question. Timoteo Di Maulo: Yes. The answer is clear, yes. Now the answer is not if we are confident or not to make this will level. The question can be in which month, we will see the effect because it's a question of months. We don't know exactly when the commission will put in place. We have asked the first of January a lot of member states are supporting the first of January. But at the end, when the level of the imports will be reduced at a sustainable level, which was the level of 2012, 2013, when the utilization rates of the plants in Europe will be let's say, much better in close to the 80%, 85%, yes, the market will be different. Then and this will be different even in a moment where the final demand is still lagging behind because as you have seen also in our podcast for the moment, the markets are not yet recovering. So we can expect a double effect. Which is on one side, the full, let's say, ramp-up of the circuit and the other side, the fact that some policy like the German plan, will enter in effect and the demand will be stimulated and go back to a more normal level. Now as I repeat and as to be clear to everybody, it's a question of months. Not a question on years, not question quarters. I think it is a question of months, can be 1 or 4, I don't know. But it will come. Bastian Synagowitz: That's been very clear. Then my next question is on alloys. Can you maybe help us understand how, I guess, the former business pre-Universal is doing? And are you still confident we'll be hitting the EUR 100 million EBITDA target this year? Or has this become out of reach. I guess you obviously have the maintenance situation here, which is constraining you a little bit. And then maybe also give us a bit more color on how much Universal is contributing relative to the, I guess, previous EUR 60 million pre-synergy earnings aspiration level is used to have. Those are my questions on alloys. Sudhakar Sivaji: So on the question, Yes. So we've given you two points, which is that we have this temporary weakness in the oil and gas market, which I'm sure the entire industry is going through, right? And based on that, on an annual run rate level, the previous alloys business would be awarded about 10% less level, so to speak. So that's an upside, and we still stick to the EUR 100 million goal for the previous alloys business. And the Universal business, if you remember, we are actually only taking this year, and that's something we kept in mind only 11 months, right? So the first one was before. Just to keep run rate in mind. We had guided close to EUR 60 million for the year in a steady-state run rate. And the weaknesses, which Tim has explained in the market and the maintenance issues between alloys before Universal will traditionally bring Universal probably to around 50%, 60% of that number this year, so to peak. So this is the broad level we expect this year. Starting next year, it should be full run rate for Universal because we'll have it 12 months in our portfolio and alloys as well and then synergies have to start kicking in Remember, we guided to 27 million synergies also. So because this is a year of ramp-up of synergies, so there should be a run rate of the first year of the ramp-up, which we promised this split across the next 4 years, should also start flowing in, just to give you alloys. Bastian Synagowitz: That's great color. Just briefly on , are you seeing any same signs that this is now starting to come back for the next year, I guess, in terms of earlier call-off rates and indications? Or is it just too early to say? Sudhakar Sivaji: It's too early to say because also there's a lot of year-end-related store loan, a lot of equipments, which get called off end of the year, as you know. It is not just simply a Brent price compared to the investments or calculation. So it's too early to say. Bastian Synagowitz: Okay. Great. My last question is on your financing line, which was slightly higher this year. Can you maybe just quickly update us on how much of the financing costs were related to things like advisory and also hedging and what would be an assumption here for, I guess, the recurring run rate. You mentioned EUR 50 million cash cost in the report, but what can we use as a P&L item for the next quarter? Nicolas Changeur: Nicolas speaking, so for the interest rate, you can use for your model, EUR 15 million basically per quarter. The rest of the cost is indeed the derivatives. We are looking here at a timing effect, and this effect would be neutral over a period of time. Bastian Synagowitz: Okay. So EUR 60 million annualized is basically the financing line in the current situation with the balance sheet and financing costs as it is? Sudhakar Sivaji: For this year, Bastian if I can jump in. But I think the broader guidance is look at our debt, and we have the 4% to 5% rate plus you add a few utilization fees and everything. So you have to understand, you've announced this time refinancing of $790 million. So that refinancing, obviously, the older lines were probably at 3% to 4% because they came in from 5 years ago, right? So that will probably have a smaller hit a very, very, let's say, high single digit or low double digit, and I'm talking now 10 million or 11 million ] to that number starting next year, if you want to look at long-term ones. Operator: Ladies and gentlemen, this was our last question. I would now like to turn the conference back over to Timoteo Di Maulo for any closing remarks. Timoteo Di Maulo: Okay. Thank you very much for attending and participating to our Q3 call today. As I opened, this is my last quarter conference call as the CEO of Aperam. However, you know that I will remain close connected to Aperam, not only as a shareholder, but also as a future member of the Board of Directors. I also intend to continue supporting Aperam and will continue as a strategic adviser on public affairs for Europe, for example, so that we can build a clean steel industry in Europe. I am confident that our open transparent dialogue with the capital market will continue, thanks to my successor. And that you will continue to have confidence on the fact that the headwinds that we have faced in the last quarters are going to be partially sold or totally sold in the next future. So thank you both on the corporation and CEO and have a fantastic start to the Christmas and holiday season. Bye-bye to all of you. Operator: Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.
Operator: Good morning, ladies and gentlemen, and welcome to the Vermilion Energy Q3 2025 Conference Call. [Operator Instructions] This call is being recorded on Thursday, November 6, 2025. I would now like to turn the conference call over to Mr. Dion Hatcher, President and CEO. Please go ahead. Anthony Hatcher: Good morning, ladies and gentlemen. I'm Dion Hatcher, President and CEO of Vermilion Energy. With me today are Lars Glemser, Vice President and CFO; Darcy Kerwin, Vice President, International and HSE; Randy McQuaig, Vice President, North America; Lara Conrad, Vice President, Business Development and Travis Thorgeirson, Director of Investor Relations and Corporate Planning. Please refer to the advisory on forward-looking statements in our Q3 release. It describes the forward-looking information, non-GAAP measures and oil and gas terms used today and outlines the risk factors and assumptions relevant to this discussion. Vermilion delivered another strong quarter in Q3, demonstrating both operational excellence and financial discipline. Our production came in at the upper end of our guidance range, and we're able to generate robust fund flows from operations in a challenging commodity price environment. Our performance this quarter reflects improvements in both capital and operating efficiencies, driven by the strategic repositioning of our asset base. These structural improvements enabled us to lower the top end of our 2025 capital guidance by $20 million without impacting our production. This speaks to the growing efficiency of our capital deployment. In addition, we lowered our full year operating cost guidance by more than $10 million due to the improvements we are realizing in the second half of 2025. This momentum will carry into the 2026 budget guidance, which includes even lower capital and unit operating costs, reflective of our larger, more cored up portfolio. When compared to 2024, the last full year before we launched our asset high-grading initiative, our production per share has increased by over 40%, where our unit cost structure is down by 30%. This reflects the strength of our repositioned portfolio where 85% of both production and capital is now concentrated in our global gas business. By focusing on these more efficient, longer duration assets, we have better positioned Vermilion for sustainable long-term success. Our Q3 results underscore the resilience and the competitive strength of our differentiated asset base. Notably, our realized gas price in the quarter, excluding hedging gains, was $4.36 per Mcf, significantly outperforming the AECO 5A pricing. In Canada, we realized a gas price that was more than double the AECO benchmark. And when combined with our direct exposure to premium priced European gas, our realized pricing is 7x the AECO benchmark. When you include hedging gains, the realized price increased to $5.62 per Mcf, 9x the AECO benchmark, highlighting the strategic advantage of being a global gas producer. During the quarter, we made a deliberate and strategic choice to temporarily shut in a portion of our Deep Basin gas production and defer the start-up of several wells, resulting in approximately 3,000 BOEs per day of production impact in the quarter. We expect to bring these volumes online in Q4, where pricing is more favorable. During the quarter, we met a portion of our volume commitments by purchasing rather than producing our own gas, demonstrating our commitment to profitable development. We continue to make progress towards key milestones with the development of our global gas assets in Germany, the Montney and the Deep Basin. In Germany, in 2026, we will bring our discovery well at Wisselshorst online and look to expand takeaway capacity over the next 2 years to maximize the economics of this prolific well. We will also advance our plans to spud the follow-up Wisselshorst structure in early 2027 and with a shorter cycle time than our initial exploration well, plan to bring these wells on production in the second half of 2028. In Canada, we will continue to invest in the Montney asset, as we progress towards a significant inflection in free cash flow in 2028. In the Deep Basin, we will run an efficient, consistent 3-rig program and generate strong free cash flow by producing volumes into our existing infrastructure. As we look out over the next 3 years, these projects will significantly improve our free cash flow outlook. I will now pass it over to Lars to discuss the Q3 results as well as our 2026 budget guidance. Lars Glemser: Thank you, Dion. Vermilion generated $254 million in fund flows from operations in Q3 with free cash flow of $108 million after E&D capital expenditures of $146 million. We continue to reduce debt during the quarter and have now reduced our net debt by over $650 million since Q1 2025, bringing net debt to under $1.4 billion as of September 30. This resulted in a net debt to 4-quarter trailing FFO ratio of 1.4x, reflecting continued progress towards strengthening Vermilion's balance sheet. In addition, Vermilion returned $26 million to shareholders through dividends and share buybacks. comprising $20 million in dividends and $6 million of share buybacks during the quarter. This resulted in the company repurchasing 600,000 shares for a total of 2.5 million shares repurchased year-to-date. In total, we have repurchased approximately 20 million shares since mid-2022. Q3 production averaged 119,062 BOE per day with a 67% gas weighting, which was at the upper end of our guidance range. In North America, production averaged 88,763 BOE per day, inclusive of the July divestments of our Saskatchewan and U.S. assets. as well as shut-in gas production and deferral of new well start-ups in Q3 in response to pricing. International operations averaged 30,299 BOE per day, up 2% from the previous quarter due to strong performance across our business units. In the Deep Basin, we ramped up to a 3-rig drilling program in Q3, targeting multiple stack zones across our 1.1 million net acre land base. We drilled 13, completed 12 and brought on production 3 gross liquids-rich gas wells in the Deep Basin. The drill program results to date are exceeding our expectations with test rates indicating deliverability well in excess of our type curves. Internationally, we executed a successful 2 gross or 1.2 net well drilling program in the Netherlands, discovering commercial gas across 2 zones, the Rotliegend and Zechstein. Both wells are expected to be completed, tied in and brought on production in Q4 of 2025. These 2 wells are the latest successes in our 2-plus decades of exploration and development in the Netherlands and combined with recent discoveries in Germany, demonstrate Vermilion's broader European gas exploration capabilities to repeatedly add European gas reserves at a cost of $1.50 per Mcf into a gas market currently in excess of $15 per Mcf. Meanwhile, Osterheide, our first German exploration well continues to produce at a restricted rate of 1,100 BOE per day, generating nearly $2 million per month of excess free cash flow. And our second well, Wisselshorst, is on track for start-up by mid-2026, with preparations underway for follow-up drilling of 2 gross or 1.3 net wells in the Wisselshorst structure. As a reminder, the first well is expected to recover 68 Bcf of gas and our P50 estimate of gross gas in place for the structure is 380 Bcf. We also released our 2026 budget yesterday, featuring an exploration and development capital budget of $600 million to $630 million with approximately 85% allocated to our global gas portfolio. Key investments include drilling and strategic infrastructure in the Montney, a continuous drilling program targeting high-return liquids-rich gas wells in the Deep Basin and drilling and infrastructure capital in Germany and the Netherlands. We expect modest production growth from second half 2025 levels on our continuing operations with annual average production between 118,000 and 122,000 BOE per day, maintaining our commitment to financial discipline and free cash flow generation. Our 2026 budget includes a significant reduction in our overall cost structure with a 30% improvement in capital and operating efficiencies, reflecting the benefits of our repositioned global gas portfolio and our focus on operational excellence. For 2026, we plan to invest approximately $415 million into liquids-rich gas assets in the Montney and Deep Basin, drilling 49 gross wells, which translates to approximately 45 net wells, reflecting our high working interest in Canada. In the Deep Basin, we plan to run a 3-rig program to drill 43 gross wells. Notably, minimal new infrastructure spending is required to support this development, which is a key advantage of our Deep Basin asset. In the Montney, we plan to drill 6 and complete and bring on production 10 wells. In addition, we will continue to expand our infrastructure in advance of total Montney throughput growing to 28,000 BOE per day by 2028, which aligns with the build-out of third-party gas infrastructure. Once we achieve target production, infrastructure and drilling capital requirements will decrease, as we expect to drill about 8 wells per year to sustain production. The combination of higher production and lower capital will pivot the Montney asset to significant excess free cash flow of approximately $125 million per year for 15-plus years, assuming commodity prices of $3 AECO and $70 WTI. Internationally, we plan to invest around $200 million in 2026, focusing on European gas exploration and development and optimizing base production. This includes drilling 1 well at a 50% working interest in the Netherlands and preparing for 2 additional follow-up wells at 64% working interest at the Wisselshorst discovery in Germany in early Q1 2027. We will bring the initial Wisselshorst well online mid-2026 and expand the supporting infrastructure to enable significantly higher production over the next 2 years. We will also invest in economic workovers and optimization projects across our international assets. Higher maintenance spending in 2026 compared to prior years is due to nonrecurring turnarounds, including a planned 32-day turnaround in Ireland, the scope of which is scheduled to occur every 5 years. Our priorities on shareholder returns remain unchanged. We will use excess free cash flow to maintain a strong balance sheet, fund a sustainable base dividend and be opportunistic with share buybacks. I'm pleased to announce our intention to increase the quarterly cash dividend by 4% to CAD 0.135 per share, effective with the Q1 2026 dividend. The dividend payout remains at a modest level even during this commodity price period, and we see the potential for higher return of capital, as free cash flow increases in the Montney, Germany and Deep Basin. I will now pass it back to Dion. Anthony Hatcher: Thank you, Lars. Looking ahead, Q4 will mark the first full quarter of our repositioned global gas portfolio, following an active year of acquisition and disposition activity. We expect fourth quarter production to average between 119,000 and 121,000 BOEs per day, inclusive of the decision to defer the start-up of multiple wells. Based on this performance, our 2025 full year production guidance is expected to be 119,500 BOEs per day. Importantly, we're able to maintain this production outlook, while reducing our E&D capital guidance to between $630 million and $640 million. The $20 million reduction at the top end of our guidance reflects continued improvement in capital efficiency. The capital reduction aligns with the improvement in operating costs, enabling a $10 million reduction in operating cost guidance. We're now entering the next phase of our strategy with a larger, more focused asset base, one that's characterized by longer duration assets, high-return drilling inventory, a more efficient cost structure and a top decile realized gas price. With proven success in exploration and development across our portfolio, the plan to increase free cash flow in our key development assets and an improving outlook for natural gas pricing, Vermilion is very well positioned for the future. In closing, I want to thank the entire Vermilion team for your efforts over the past year in creating our high-grade portfolio and realizing strong efficiencies throughout the business. It's truly been a heavy lift by all, and I'm extremely proud of your work of our team. With that, thank you. We'll now open the line for questions. Operator: [Operator Instructions] And your first question comes from Travis Wood from National Bank Capital Markets. Travis Wood: Could you provide some additional color or further color around Australia in terms of kind of where current volumes would be sitting at and how you're setting that asset up through 2026 and potentially into 2027 with incremental drills and what that capital would look like? Anthony Hatcher: Thanks, Travis. It's Dion. I'll take the call. Yes, Australia, as you know, is a premium pricing there. We get USD 10 to USD 15 premium to Brent pricing, which helps our netbacks. The last year here, we've been focused on optimizing the platform and frankly, getting ahead on some of our maintenance. We're well advanced on that. With respect to the next drilling program, we drill every 2 to 4 years. Tentatively, we planned the next drill for 2027. But frankly, we have flexibility on that depending on rig rates as well as commodity price environment. So we'll be at around 4,000 barrels per day currently, probably drift a little lower next year and then set up for that drilling program likely in kind of mid-2027. Travis Wood: Okay. Perfect. And then probably for Lars, you gave a modest dividend bump on the back of the quarter. How -- and I think you've walked through this before, but just to remind us, what -- or rather, how are you finding that balance of buying back more stock at this valuation versus kind of the base dividend growth, as you look out on the 2026 budget and flexing some optionality around commodity prices, too, I guess. Lars Glemser: Yes. For sure, Travis. Thanks for the question. I think at the end of the day, what we're really focused on is things that we can control and driving per share value. We've got a number of ways to drive per share value. I would say that share buybacks is one of those ways to do it. There are other options as well. And if you kind of look at the portfolio now, we're getting a lot of this infrastructure spend in the Montney behind us. We've got a lot of infrastructure to fill up in the Deep Basin. We've been able to derisk some of these exploration projects in Germany as well. And we want to balance that operational momentum with return of capital as well in delivering per share value over the longer term. Part of that is to continue strengthening the balance sheet as well and so we will have a chunk of our excess free cash flow reserve for debt reduction in 2026 as well. I think the dividend increase that should be viewed as confidence in a lot of these operational activities that we're executing on as well. And in addition to that, we will continue to buy back shares and be opportunistic on that front. Operator: There are no further questions at this time. I'd like to turn the conference call back over to Dion Hatcher for further questions. Anthony Hatcher: Great. I'm going to pass it back to Travis here. I know we had some questions on the Inbox from IR. So maybe we can work through a couple of those. Travis Thorgeirson: Yes, for sure. Thanks, Dion. First one, just for Lars here. So you mentioned in the release a realized gas price of about 7x the AECO price in the quarter. Can you please help me understand the drivers behind this? Lars Glemser: Yes, for sure. Thanks, Travis, for the question. Zooming out here, a lot has changed with the portfolio in terms of the repositioning that we have done. Something that has not changed is we continue to have a very diverse portfolio. And so if you start with that AECO benchmark price, which is the price a lot of our peers use as well in terms of how do we do relative to that. It's not just the European assets that are contributing to a strong corporate realized price. So here in Canada, we actually realized the price in the third quarter of $1.37 per Mcf, which was more than double the AECO benchmark. We've got an active program in terms of selling into the daily and the monthly price index as well. We also have over 26 million Mcf a day exposed to the Chicago market as well. So we're well diversified within our Canadian portfolio. We were also able to strategically shut in and defer wells without meaningfully impacting the liquids production in our Canadian business as well. So a combination of all these led to that outperformance. When you combine the strong Canadian business with our European gas business, that's where you really start to see the impact and benefits of a diversified portfolio. And so the impact of that is we end up with a realized price of $4.36 per Mcf before hedges. Say before hedges, we do have an active hedging program, both here in Canada as well as European gas. The majority of our hedge gain in the third quarter was driven by our gas hedges. When you combine that with the realized price, we get up to $5.62 per Mcf. So a really strong quarter, really shows the benefits of that diversified portfolio, and we are organically investing in both the Canadian assets as well as the European assets. Just a reminder as well, Travis, as we move into 2026 here, I think it's worth noting that a $1 increase in that AECO price, it would effectively add $100 million of excess free cash flow. So lots of exposure to that AECO price and still lots of exposure to the TTF price as well. A $1 improvement in that TTF marker would add about $24 million of excess free cash flow. So we feel that Vermilion is very well positioned to benefit from improving gas prices here to 2026. Anthony Hatcher: Yes. The only thing I can add to that, I think it's worth walking through the details because, again, it was 9x the AECO benchmark. So it's worth thinking through how we're able to deliver that with our differentiated portfolio, but back to you, Travis. Travis Thorgeirson: Thanks, Dion, Lars. Next couple here for Darcy. Could you provide more background on the next steps of the Wisselshorst prospect in Germany? What are the debottlenecking plans? And how are you thinking about drilling follow-up locations there? Darcy Kerwin: Yes. Thanks, Travis. So in Germany at Wisselshorst, as you know, we have the one discovery well, we call, Wisselshorst Z1a that tested at pretty prolific rates, so a combined test rate of slightly over 40 million cubic feet a day. Our intention is to have that well tied in and producing by Q2 of next year, so Q2 of 2026. I think we've talked before that, that initial rate kind of ties into a more local gathering system that will be restricted for some time, but we expect that those restrictions start to go away in 2027, allowing us to bring production kind of up into that 17.5 million cubic feet a day. And then there's some additional debottlenecking options that we expect to have online in 2028 that doubles that to 35 million a day. So that kind of talks about that first discovery well. So on the back of that successful discovery well, we see a number of follow-up locations. We intend to spud 2 of those, so the second and third well into the Wisselshorst structure in January 2027. Timing is partially driven by our ability to secure the rig that we want to use to drill those wells and really doesn't impact our expectation around online time. We expect to get those wells drilled kind of through the first half of 2027 and expect them tied in and producing by second half of 2028. Anthony Hatcher: So maybe I can summarize that. Like I think the takeaway, it's quite interesting. We're excited about Germany, but the simple math is the 1.6 net wells that we drilled with Osterheide and the Wisselshorst well that will come on mid next year, that's going to add about 25 million a day of gas, which is, again, about 25% of our production. The 2 wells that Darcy just walked us through, the 2 Wisselshorst follow-up wells, that will be 1.3 net wells. So once those are on in the second half of '28, that will be another 20-plus million a day of gas. So if you zoom out 3 net wells, it's going to add about 45 million a day of gas, which is almost half of all our European gas production. So again, that's why we're excited about Germany, just materiality of these wells and kudos to the team to be able to get the rig we wanted and do all the preplanning to really reduce that cycle time. So thanks for that, Darcy. Travis Thorgeirson: And then the next one here for Darcy, jumping to the Netherlands. A couple of discoveries in the quarter. Could you give a bit more background on what we're seeing there? Darcy Kerwin: Yes. So in the Netherlands, we drilled 2 successful wells in a field called Oppenhuizen. We discovered gas in 2 zones in each of those wells. We discovered gas in the Rotliegend and Zechstein formations, 2 of the primary formations that we do chase in the Netherlands. We've discovered about 16 Bcf gross of recoverable gas and the F&D costs for those wells are less than $1.50 per Mcf. We talked about tying those wells in Q4 of this year. So both wells are tied into existing facilities now. We're currently producing the first of those 2 wells at a rate of about 15 million cubic feet per day, limited by surface constraints at that location. And we intend to kind of bring the second well on as capacity opens up there. Travis Thorgeirson: Okay. And then the last one here over to Randy. You noted the Q3 drilling program in the Deep Basin has exceeded expectations so far. Can you provide a bit more color on what we're seeing to date in the results? Lee Ernest McQuaig: Sure. Yes. So yes, as Lars had mentioned, we completed 12 wells in Q3. Of these 12 wells, 6 of them tested at over 10 million a day of gas production. And then we also had some strong liquid rates from the other wells in the program. With our focus on profitability, most of these wells were deferred and will be coming on production over the next month. So we'll have a better sense of performance, but those initial test results definitely exceeded our expectations. And then when we think about it on the capital front, the program also did come in under budget, and that's really what we're starting to see is the cost benefits of running a consistent 3-rig drilling program, which we plan to, as we noted in the call, through '26 and into '27. So overall, very pleased with the results of this program. Travis Thorgeirson: Thanks, Randy. Dion, back to you. That's all we have for additional questions. Anthony Hatcher: Thanks, Travis. So with that, I'd like to thank everyone again for participating in our Q3 results conference call. Enjoy the rest of your day. Operator: Thank you. Ladies and gentlemen, this does conclude your conference call for today. We thank you very much for your participation, and you may now disconnect. Have a great day.
Operator: Good day, everyone, and welcome to Saga Communications Third Quarter 2025 Earnings Release and Conference Call. [Operator Instructions] It is now my pleasure to hand the floor over to your host, Chris Forgy. Sir, the floor is yours. Christopher Forgy: Thank you, Matt, and thank you to your dulcet tones. And thank you to everyone who has taken the time to join Saga's 2025 Q3 Earnings Call. We appreciate your continued interest and support and your participation in Saga Communications, what we believe is the best media company on the planet. I'm here with Sam Bush, and today represents 28 years of Sam doing Saga earnings call. So Sam, congratulations. And with that, I'm going to relinquish the floor to you for now, and I'll save my remarks for later in the call. Samuel D. Bush: Thank you, Chris. This call will contain forward-looking statements about our future performance and results of operations that involve risks and uncertainties that are described in the Risk Factors section of our most recent Form 10-K. This call will also contain a discussion of certain non-GAAP financial measures. Reconciliation for all the non-GAAP financial measures to the most directly comparable GAAP measure are attached in the selected financial data tables. For the quarter ended September 30, 2025, net revenue decreased $528,000 or 1.8% to $28.2 million compared to $28.7 million last year. Station operating expense increased $2 million to $24.7 million for the 3-month period. As reported in the press release, this increase was primarily the result of an industry-wide settlement with 2 of the music licensing organizations we are licensed by. In mid-August, the Radio Music License Committee, which Saga is a member of, announced separate rate-setting settlements with ASCAP and BMI. The settlements established license fees, which applied retroactively for the periods from January 1, 2022, through September 30, 2025, and on a go-forward basis through December 31, 2029. In September, we booked $1.7 million for the periods from January 1, 2022, to December 31, 2024, and another $407,000 for the 9-month period ending September 30, 2025. The fourth quarter impact of the increased rates will be approximately $135,000 over our previously projected music licensing fees. We reported an operating loss of $626,000 for the quarter, which without the settlement would have been an operating income of $1.5 million compared to $1.6 million for the same period last year. We also reported station operating income, which is a non-GAAP financial measure, of $3.5 million for the quarter. Without the settlement, station operating income would have been $5.6 million for the quarter compared to $6 million for the same period last year. It is important to note that the company would have reported net income for the quarter without the music licensing settlement. For the quarter, gross broadcast revenue included NTR, nontraditional revenue, which is mostly events we are involved in, decreased $1.8 million or 6.8%, while our gross interactive revenue increased $1.1 million or 32.6%. Gross political revenue was $73,000 for the quarter this year compared to $677,000 last year. For the third quarter this year, the increase in our interactive revenue made up almost the entire decrease in our broadcast revenue when adjusted for political. I think Chris is going to emphasize this again but we're in radio, so repetition is always a good thing. And I just want to say again, for the third quarter this year, the increase in our interactive revenue made up almost the entire decrease in our broadcast revenue when adjusted for political. For the 9-month period ended September 30, 2025, net revenue decreased $3.1 million or 3.7% to $80.6 million compared to $83.7 million last year. I won't go through the 9-month numbers that were reported in the press release other than to indicate that without the music licensing settlements, station operating expense would have decreased $1.7 million instead of the reported increase of $390,000. Without the settlement, operating income would have been $574,000 instead of an operating loss of $1.5 million and station operating income, again, a non-GAAP measure, would have been $13.8 million instead of $11.7 million. Also without the settlement on a same-station basis for the 9 months ended September 30, 2025, station operating expense would have decreased 3.9% or $2.6 million. Corporate expenses decreased $80,000 for the quarter and increased $74,000 for the 9 months ended September 30, 2025. Corporate expenses included $226,000 for the 9-month period relating to a potential proxy contest initiated earlier this year by one Saga shareholder. This has been disclosed in our previous public filings. The decrease in other operating expense for the 9 months ended September 30, 2025, compared to the same period in 2024 is primarily due to the sale of a nonproductive AM station along with 2 translators in Asheville, North Carolina, the sale of WNDN, FM in Chiefland, Florida and the shutting down of a nonproductive AM station in Bellingham, Washington in 2024. The decrease in other income is due to a onetime gain in 2024 related to the sale of Saga's equity investment in BMI when the organization was sold. In addition to what Saga and I have already said -- in addition to what I've already said, I want to emphasize that for the quarter, total interactive revenue was up 32.6% and for the 9-month period, up 17.1% with a 54% profit margin for both the quarter and the 9-month period, excluding sales commissions for the quarter and for the year. Pacing for the fourth quarter is currently tough as we are up against $2 million in political we booked in the fourth quarter of last year. This was $1.6 million in October, $389,000 in November and $10,000 in December. For the fourth quarter, we are currently pacing down approximately 11%, including political and 4.7% when political is excluded. On a positive note, our interactive pacing is strong for the fourth quarter being up 32% as of now. The company paid a quarterly dividend of $0.25 per share on September 19, 2025. The total dividend paid was approximately $1.6 million. To date, Saga has paid over $140 million in dividends to shareholders since the first special dividend was paid in 2012 as well as has bought back over $58 million in Saga stock. The company intends to pay regular quarterly cash dividends in the future. Further, as part of our overall capital allocation plan for 2025 and beyond and as stated in the press release on October 17, 2025, the company entered into an agreement to sell telecommunications towers and related property and other assets located at 22 sites for a total cash purchase price of approximately $10.7 million. Sales proceeds net of brokerage commissions and certain adjustments in the amount of approximately $8.7 million were paid to the company, with the remaining cash proceeds of $1.8 million, representing 4 sites being deposited into an escrow account pending final landlord consents to assign the ground leases where the towers are located. We also entered into long-term leases at each of the sites to allow us continued use of the towers at a nominal cost. We are continuing to work through the tax and accounting implications of this transaction, which will be disclosed in our future filings. As we have previously stated, we intend to use a portion of the proceeds from the sale to fund stock buybacks, which may include open market purchases, block trades or other forms of buybacks. All said, we believe Saga is in a strong financial position to improve profitability as our digital initiative improves both local radio and interactive revenue. The company's balance sheet reflects $26.3 million in cash and short-term investments as of September 30, 2025, and $34.2 million as of November 3, 2025. We currently expect to spend between $3.25 million to $3.75 million for capital expenditures in 2025. We currently expect that our station operating expense will be flat for the year as compared to 2024. This takes into consideration the expense reductions we have made, offset by the music license fee settlement with ASCAP and BMI as well as for our continued investment in our ongoing revenue initiatives. Without the music licensing settlement expense, we would expect station operating expense to decrease by 2% to 3%. We anticipate that the annual corporate general and administrative expense will be approximately $12 million for 2025 compared to $12.4 million in 2024. And with that, Chris, I'll turn it back over to you. Christopher Forgy: Did you say crass? That's kind of crass, Sam. Congratulations anyway on your 28 years of earnings calls. Over the past several years and we have -- past several months, I'm sorry, Saga's elite group of leaders and employees, Saga's corporate team and Saga's Board of Directors have been extremely busy in the Saga verse. Since early this year, we have been diligently installing Saga's blended digital strategy, including the comprehensive training and development of Saga's market leaders, sales managers, media advisers, on-air content creators and our directors of content creation. We've made additional strategic investments in R&D and resources to assist our team members to run faster in the Saga's blended strategy. This in order to achieve our objective of 2x gross revenue, most of it digital, in 18 to 24 months by capturing just 5% of the available search and display dollars available in our 27 Saga markets. We've added acumen and expertise to our Saga Board of Directors with expertise in digital, M&A and the financial audit and consulting space. We are committed to sell one tower and the land the tower is on to a local developer as well as some excess land we own. And we are also in the process of listing and selling the company-owned home in Sarasota, Florida following multiple hurricanes that pounded Florida's West Coast. And we have completed, as Sam said, the sale of several Saga towers, not because we needed the money but because of a larger strategic plan to return value to shareholders through stock buybacks and other capital allocation. This while continuing Saga's robust quarterly dividend strategy. As a part of the tower sale, I would like to personally thank and show our appreciation to Executive Vice President and CFO, Sam Bush; Senior Vice President and Controller, Cathy Bobinski; Vice President of Engineering, Tom Atkins; Vice President of Finance and Board Secretary, Katie Semivan; and Financial analysts, Cynthia Loerlein and [indiscernible], for their efforts to help us complete the sale of these towers. This was a Herculean effort and it's much appreciated and it's still continuing. We're not quite done yet. Finally, we have -- we finally have and continue to make strategic expense reductions at the market and the corporate levels to allow us to reinvest in our transformational digital strategy to enable us to be more nimble. We're also selectively utilizing, as we've stated earlier, in AI to help improve efficiency and performance and to cut costs and to increase margins. And over the next few months, we will continue to bring much of our digital deliverables into the house to allow us to better serve our team members and ultimately, our customers, again, to provide efficiencies, increase scalability and increase margins, all of which will require the acquisition of people to accomplish this feat. Saga has come a long way in a very short period of time, yet we are far from finished. To fully understand how far we've come and why we believe Saga's blended strategy will work, we really need to go back to the beginning to the principles of what Saga was built on in the first place when Ed Christian founded the company. Internally, we refer to this with an old Latin phrase, Finis Ab Origine Pendet, which means the end hangs on the beginning. Saga focuses on small and medium markets. Case in point, 21 of our 27 markets are smaller than Market 100. Our acquisition strategy focused on markets with state capitals, state universities, nonclosable military bases, strong ag business, large retirement communities with high net worth like we have in the villages in Ocala, Florida. And on the ground, Saga's market employees are known, liked and trusted in the local communities in which they serve. We pour ourselves into the local marketplace. Our leaders get involved in city government, raise money for important causes where money raised stays in the local community. We get belly to belly with influencers and decision-makers to move local business forward. Saga is really woven into the fabric of the communities in which we serve. But the name Saga has never mentioned. It's all about our local media groups and the name like the Columbus Media Group, for example. Finally, Saga does on average $1 million to $1.5 million more a month in local direct revenue than we do in local agency revenue. And as we stated, local direct revenue is the primary driver to Saga's blended strategy. I hope this is starting to make sense to you now. Saga was 10 years late to the digital party. We started this digital transformation way behind the curve, and we have the luxury of observing and learning from iterations and reiterations of our broadcast brethren. From a digital advertising perspective, Saga is really a cash flush start-up. And what we know is this, the local advertising market is overdue for disruption. And it just so happens that Saga Communications operates in the size markets where we can have strong impact and influence on the local communities in which we operate, and that includes the advertising community. These local advertising markets are ripe for disruption. Why? Because businesses are pouring more and more money into digital advertising every year but the rapid growth of digital budgets has outpaced the ability of advertisers to completely understand them and to use them effectively. There are too many digital providers and too many conflicting solutions. Businesses don't know who to trust. In this case, trust, simplicity, clarity with a click visit call and search approach, focused on the consumer journey, not the product-based selling that usually takes place wins. And advertisers are fed up with ineffective campaigns and empty promises. They don't really like what they are buying, know what they're buying, and they don't really like who they're buying it from. And there's a shift in consumer behavior. Advertising strategies haven't caught up with the journey people take when they buy. In other words, search and display is broken and there is a gap where tech meets human behavior. So focusing on the influence of the ads on the real consumer journey when a consumer interacts with a product or service will allow us, we believe, to not only win the market but also redefine it. And internally, we have begun seeing measurable returns on the yeoman's efforts that our team members have put into this transformation, and I want to underscore yeoman's efforts. We have found that local direct advertisers who were not pitched to blend, we lose 29% of our existing radio business that we had. And with local direct advertisers that bought a blended product, their radio spend increased by 9% and their overall radio and blended spend increased by 27%. Now we just simply need to scale it. And finally, this biggest and most encouraging news comes from Sam's report that he mentioned not once but twice, and I'm going to mention it a third time because frequency sales. And again, the biggest and most encouraging news comes from Sam's report. During today's earnings call, and to make sure you didn't miss it, I'm going to make sure you didn't miss it. This above all else, proves that there are green shoots popping up as it relates to our digital transformation. The blend is gaining momentum. Again, for the third quarter 2025, the increase in Saga's interactive revenue made up almost completely the decrease in our broadcast revenue when you adjust for political. The question has always been, can we run fast enough in the blend to outrun the downdraft in the sector? Well, hope is not a strategy, and this may be an indication that perhaps we can. But make no mistake, although we are still in the infant stages of our digital transformation, this transformation is hard, really hard. It's taxing and it's working. We have the very best, most committed and passionate team of broadcasters I have ever had the pleasure of working with and serving, and they are the engine that make the blended transformation a reality. Thank you to all of you again for your time and your interest and your support and involvement in Saga Communications what we believe to be the best media company on the planet. Sam, do we have any questions? Samuel D. Bush: We did. We got questions from 3 different shareholders and an analyst. And I'll start with Michael Kupinski's question from NOBLE Capital. The first 2, he had 3 questions but the first 2 are interrelated, so I'm going to read both of them and let you address them jointly. Can you give us some color on the tone of the market, pacings into the upcoming quarter, local spot versus digital versus national? And then the second part of that is, while Saga does not get a lot of national advertising, it had been a key revenue growth driver for the company. How is this category performing going forward? Christopher Forgy: So I'll address the last vertical first. National is weak in the fourth quarter. And it has had a little bit of a tradition in coming in later and later, which impacts our forward pacing. And Saga has 2 outstanding national sales managers and Tom Howe and Bruce Werner and a really proactive partner in Katz Radio. Unfortunately, we don't really control a lot of what happens in that vertical. As Sam mentioned, overall, total revenue pacing, excluding political, is down 4.7% for the quarter. Local pacing is consistent across the quarter, and digital pacing is still pacing plus 32% for the quarter, which is why we are running to the Saga's digital transformation in the first place. I hope that answered the question. Samuel D. Bush: I think it made a great start towards it. Historically, advertisers reacted favorably in anticipation of Fed rate cuts given the favorable influence they had on the economy. As we have seen in many radio company results, the Fed rate action has had no impact and the radio spot advertising remains weak. Any thoughts on why there is this anomaly? Christopher Forgy: Well, first of all, Sam, I don't believe it's an anomaly. And by no means, what I'm about to say is directed at the person who asked this question, and it's the economy, stupid. On Main Street, there's a delayed reaction, in my opinion, to rate cuts by the Fed. In our world, rate cuts impact our 2 largest economic indicators as to how radio will perform going forward, and they are housing starts and auto purchases. The 50 basis points reduction the Fed has dribbled out, kicking and screaming, simply has not gotten to Main Street just yet. We believe spot radio's downdraft is more a function of the macro decline in the sector and not the rate cuts or lack thereof. And as I said, not really based on the interest rate reduction. Samuel D. Bush: Very good. Thank you, Chris. We did have 2 additional questions from 2 shareholders, and I'm going to combine them because they were similar in nature or augmented each other. There was a question as to why there wasn't a concrete plan for a buyback, including timing and amounts once the tower sale closed. And I would say there was a number of complexities to the tower sale. And we, Saga had very specific expectations for the final terms and conditions as well as there were certain real estate transfer issues that had to be dealt with and are still being dealt with, shown by the fact that 4 of our towers, the sites are still in escrow, and we're working through, which we will work through but we're working through the timing and the complexities of getting the real estate aspects of those transactions, those pieces of the transactions closed. It wasn't until days before the closing that we actually felt comfortable with the final sale proceeds. As Chris stated, we didn't sell the towers because we needed the money. We sold them because it was the right thing to do from a capital allocation standpoint. So again, we didn't feel comfortable with the amount until a couple of days before the closing and as to what the final sales proceeds would be and when the closing would take place. And that's information that was necessary -- is necessary for the Board to know when considering final buyback plans. Buybacks are still a priority for a portion of these proceeds as we have previously stated. There will be more clarity to this in the near future as the Board continues to look at the amount and timing and make some final decisions. And I think that's it. We appreciate all of you joining, and I think we can turn it back over to Matt to wrap up the call. Christopher Forgy: Thank you, Matt. Operator: Thank you. Everyone, this concludes today's event. You may disconnect at this time, and have a wonderful day. Thank you for your participation.
Operator: Good day, ladies and gentlemen, and welcome to the Miller Industries Third Quarter 2025 Results Conference Call. Please note, this event is being recorded. And now at this time, I would like to turn the call over to Mike Gaudreau at FTI Consulting. Please go ahead, sir. Michael Gaudreau: Thank you, and good morning, everyone. I would like to welcome you to the Miller Industries conference call. We are here to discuss the company's 2025 third quarter results, which were released after close of the market yesterday. With us from the management team today are Bill Miller, Chairman of the Board; Will Miller, President and CEO; Debbie Whitmire, Executive Vice President and CFO; and Frank Madonia, Executive Vice President, Secretary and General Counsel. Today's call will begin with formal remarks from management, followed by a question-and-answer session. Please note in this morning's conference call, management may make forward-looking statements in accordance with the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. I'd like to call your attention to the risks related to these statements, which are more fully described in the company's annual report filed on Form 10-K and other filings with the Securities and Exchange Commission. At this time, I'd like to turn the call over to Will. Please go ahead, Will. William Miller: Thank you, Mike. Good morning, everyone, and thank you for joining us today. I would like to start with a brief statement before I hand the call over to Debbie to discuss our results in more detail. Third quarter results were in line with our expectations as we continue to navigate industry-wide demand headwinds. The retail channel continues to delay purchases of new equipment due to macroeconomic uncertainty, which has left field inventory in our distribution channel elevated. Despite this, we continue to focus on the aspects of our business that we can control. In the third quarter, we took proactive steps to support our bottom line, including prudently decreasing production to reduce field inventory, rightsizing our cost for the current environment and securing our supply chain to mitigate the effects of tariffs. We are confident that we will enter into 2026 from a position of strength, and we are excited about the opportunities ahead of us, particularly the strong interest we are seeing for our global military business. Now I'll turn the call over to Debbie to review the quarter in more detail, and I'll return later to provide some comments on the current market environment and our outlook. Deborah Whitmire: Thanks, Will, and good morning, everyone. Net sales for the third quarter of 2025 were $178.7 million, representing a 43.1% year-over-year decrease, driven primarily by a drop in chassis shipments after volumes were significantly elevated in the prior year period. Gross profit was $25.3 million or 14.2% of net sales for the third quarter of 2025 compared to $42 million or 13.4% of net sales for the prior year period. The margin improvement was driven mainly by product mix with a higher percentage of unit deliveries compared to chassis shipments. SG&A expenses were $21.2 million in the third quarter of 2025 compared to $22.3 million in the third quarter of 2024. As a percentage of net sales, SG&A was 11.9%, 480 basis points higher than the prior year period. The year-over-year decrease in overall SG&A expenses was driven primarily by our cost savings efforts and lower executive compensation expenses. This was partially offset by a $900,000 onetime cost for retirement packages offered to all U.S. employees aged 65 and above. The total cost of the program was $2.7 million, and we expect to recognize the remainder of this onetime expense in the fourth quarter. Interest expense for the quarter was $93,000 compared to $251,000 in the prior year period, a decline of around 63%, driven primarily by a reduction in debt levels and to a lesser extent, a reduction in customer floor plan financing costs. Other income for the third quarter was $312,000 compared to other income of $321,000 for the third quarter of 2024, attributable to the gain on the sale of assets and currency exchange rate fluctuations. As a result of all the factors above, net income for the third quarter of 2025 was $3.1 million or $0.27 per diluted share compared to net income of $15.4 million or $1.33 per diluted share in the prior year period. Now I'd like to shift to a discussion on our balance sheet. At the end of the third quarter, we had a cash balance of $38.4 million, up $6.6 million sequentially and up $14.1 million as of the end of last year. In addition to growing our cash balance in the quarter, we also reduced our debt balance by $10 million down to $45 million during the third quarter. We have since paid down another $10 million, bringing the current debt balance down to $35 million. We continue to see our receivables convert into cash at a faster rate as inventory at our distributors returns to more normalized levels. As a result, accounts receivable as of September 30, 2025, was $232.6 million compared to $270.4 million as of the end of last quarter and $313.4 million as of the end of last year. Inventories as of the end of Q3 were $180.7 million compared to $165.5 million in Q2 and $186.2 million as of December 31, 2024. The sequential increase in inventories is due to our decision to prepurchase some materials to mitigate the effects of tariffs and slower chassis demand. Lastly, accounts payable as of September 30, 2025, was $82.2 million compared to $98 million as of June 30, 2025, and $145.9 million as of December 31, 2024. Now I'll turn the call back to Will to discuss our markets and our outlook for the remainder of 2025 and early 2026. William Miller: Thank you, Debbie. I'd like to provide some insight into how the steps we've taken will impact our fourth quarter. First, as part of our comprehensive cost reduction, in August, we made the decision to reduce headcount by approximately 150 positions across 3 of our U.S. manufacturing facilities. While this was an extremely difficult decision to make, we made it with long-term health of the business in mind, and we thank all of those employees for their valued contributions. Next, while the tariff landscape continues to evolve, we continue to take proactive measures to mitigate potential impacts. Earlier this year, we implemented tariff surcharge on all new orders of manufactured product, along with additional price increases on accessories and parts. We are also strategically accumulating some key materials from low tariff geographies to maintain our margins and keep our cost for raw materials as low as possible. Lastly, we are encouraged that inventory in our distribution channel continues to decrease. Despite the macroeconomic environment, we have preemptively adjusted production levels during the year to accelerate the reduction of field inventory. As we said in the second quarter, we expect to see a more normalized level of field inventory in 2026, which should position us well for when the demand environment improves. Next, I'd like to provide a bit more color on the body and chassis inventory dynamic. As you can see on Slide 7 of our presentation, chassis inventory has now crossed below body inventory, which is ideal as historically, this has allowed -- has led to the best dynamic for maximum flexibility at the distribution level. Additionally, we believe that inventory is beginning to reach more optimal levels, which position us well for the year ahead. Turning to 2026. We remain incredibly confident in our outlook for a strong year. We are entering the year with a strong balance sheet and the inventory dynamic I just spoke about give us confidence that the commercial market will begin to recover. Further, we're seeing greater demand in Europe as well as notable increase in Request For Quote or RFQ activity for our military vehicles. We expect that interest will continue into 2026 as we begin to prepare for production of military orders in 2027. We believe military recovery vehicles could be a substantial tailwind for us in future years, and we are taking the steps needed to position the company to capitalize on the rising demand. In the midst of all of the proactive steps we have taken to position the business for a strong 2026, we have continued our long-standing commitment of returning capital to our shareholders. We're extremely proud that we've paid a dividend for 59 consecutive quarters, and our Board just approved a dividend payable on December 9, 2025. During the third quarter, we also repurchased approximately $1.2 million of stock, bringing our total quarterly returns to shareholders to $3.5 million. We believe that repurchasing our shares represents one of the most attractive investments we can make with our capital, which demonstrates our confidence in the company's long-term prospects. At the same time, we continue to invest in our business, prioritizing innovation, automation and human capital. We are closely monitoring our capacity of heavy-duty recovery vehicles to ensure we are prepared to capitalize on exciting future growth opportunities. Despite current demand headwinds, we remain confident in our business and our outlook, reaffirming our previously issued 2025 fiscal year guidance for revenue in the range of $750 million to $800 million. As always, we expect the fourth quarter will be impacted by the holidays and planned maintenance and downtime at our facilities, which we have factored into our guidance. Our revenue guidance also anticipates no change in the current regulations or unknown effects of the evolving tariff situation. While there continues to be uncertainty in the market, we are confident that our proactive steps we are taking position us well for a strong 2026. We are encouraged that field inventory continues to trend in the right direction. And as we look to next year, we're very excited about the opportunities ahead of us. In closing, the entire management team and I would like to thank all of our employees, suppliers, customers and shareholders for their continued support. We will be on the road later this month at the Southwest IDEAS Conference and look forward to seeing some of you in person. At this time, we'd like to open the line for any questions. Operator: It is now time for Q&A. Our first question comes from Mike Shlisky with D.A. Davidson. Michael Shlisky: Your inventory chart you just referred to, Will, it looks like things are actually below a normalized level or very, very close to normalized level at this point. I'm not sure, can you just explain to us what that means? I'm trying to figure out if 2025 has been dominated by most of your sales being without the chassis attached to them on the invoice, whether at least at 2026, there will be just a much different mix at the very least if you sell no more tow trucks in general, there will still be a higher number of attached chassis with the higher invoice. Just a sense as to if there's a mix issue -- there's a mix benefit in '26 just from that alone? William Miller: Yes. I think what you're seeing is a little bit of a mix benefit from a margin perspective in 2026 with the lower chassis revenue. I think -- or sorry, in 2025. Moving into 2026, I think you're going to see that stabilize back to more historic levels with the chassis and body mix returning to normal. The inventory, yes, the projected line that we put out there earlier this year, we're slightly below that. We are closely monitoring field inventory as well as retail -- weekly retail activity and order entry. At this time, order entry is still slightly below the weekly average of retail activity. So we're waiting to see those get a little bit more in sync before we start planning to increase production. to meet current demand. But we believe we're close probably sometime late this quarter or early in Q1. We believe that all those factors will come together. Michael Shlisky: Great. And just to clarify again, if you sell the same number of tow trucks in 2026, you would expect to see higher top line just on... William Miller: Yes. That is correct. You'll see a higher top line with the chassis revenue being a part of that, and you'll see margins go back more to historical levels with the mix. Michael Shlisky: Okay. Great. Great. And to follow up on that comment there, Will. In the fourth quarter, it sounds like it'll still be with the older mix -- with the current mix you're at or roughly the same. But is that 14% range the right space to look at for 4Q and then again, back to the 13% for 2026? William Miller: Yes. I mean I think the mix will remain the same. Don't forget that Q4 is always our shortest quarter with the holidays as well as plant shutdowns in every facility for inventory as well as maintenance. So it could have a little bit of slightly downward pressure on those margins, although the mix probably stays similar. Michael Shlisky: Okay. Great. And then maybe lastly, I wasn't sure you can go into exactly the folks that were -- took a retirement during the quarter. I wasn't sure if those were very senior folks or if they were production or they were SG&A. But just a sense of the SG&A run rate going forward. Will the fourth quarter be a clean SG&A? It sounds like there's still some severance here, but what is the clean SG&A kind of quarterly run rate here? William Miller: That will -- you'll start to see clean SG&A probably in Q1 as the retirements are taking -- they're staggered throughout the remainder of this year. It was about a 50-50 split on salaried and hourly employees. So it was offered to all employees over the age 65. It was a split between the two. So there were some senior individuals in the sales offices that took part in it as well as some senior people in our manufacturing facilities as well. Michael Shlisky: Okay. Great. If I could just also maybe ask one last one to kind of sum it up because I think I mentioned in your comments as well, but all the factors that have driven increased record demand over the last bunch of years, older vehicles, more time on the road, more cell phone use behind the wheel, unfortunately, et cetera. Are all those factors still intact at this time and into 2026? Has anything changed as to the reason to buy a tow truck 12 months ago versus today? William Miller: No, I don't believe so. I think all of those factors that drive the demand at the retail level for the use of the equipment are all still intact. Operator: That appears to be our last question. I will now turn the conference back to William Miller for any additional remarks. William Miller: Thank you. I'd like to thank you all again for joining us on the call today, and we look forward to speaking with you on the fourth quarter conference call. If you would like information on how to participate and ask questions on the call, please visit our Investor Relations website, millerind.com/investors or e-mail investor.relations@millerind.com. Thank you, and may God bless you all. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Good morning, and welcome to the Assured Guaranty Limited Third Quarter 2025 Earnings Conference Call. My name is Becky, and I'll be your operator for today's call. [Operator Instructions] Please note that this event is being recorded. I would now like to turn the conference over to our host, Robert Tucker, Senior Managing Director, Investor Relations and Corporate Communications. Please go ahead. Robert Tucker: Thank you, operator, and thank you all for joining Assured Guaranty for our third quarter 2025 financial results conference call. Today's presentation is made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The presentation may contain forward-looking statements about our new business and credit outlook, market conditions, credit spreads, financial ratings, loss reserves, financial results or other items that may affect our future results. These statements are subject to change due to new information or future events, therefore, you should not place undue reliance on them as we do not undertake any obligation to publicly update or revise them, except as required by law. If you're listening to a replay of this call or if you're reading the transcript of the call, please note that our statements made today may have been updated since this call. Please refer to the Investor Information section of our website for our most recent presentations and SEC filings, most current financial filings and for the risk factors. This presentation also includes references to non-GAAP financial measures. We present the GAAP financial measures most directly comparable to the non-GAAP financial measures referenced in this presentation, along with a reconciliation between such GAAP and non-GAAP financial measures in our current financial supplement and equity investor presentation, which are on our website at assuredguaranty.com. Turning to the presentation. Our speakers today are Dominic Frederico, President and Chief Executive Officer of Assured Guaranty Limited; Rob Bailenson, our Chief Operating Officer; and Ben Rosenblum, our Chief Financial Officer. After their remarks, we will open the call to your questions. As the webcast is not enabled for Q&A, please dial into the call if you'd like to ask a question. I will now turn the call over to Dominic. Dominic Frederico: Thank you, Robert, and welcome to everyone joining today's call. We continue to build value for Assured Guaranty shareholders and policyholders during the third quarter and first 9 months of 2025. Adjusted book value per share of $181.37 and adjusted operating shareholders' equity per share of $123.10, both reached record highs at the end of the third quarter. Year-to-date, Assured Guaranty earned adjusted operating income of $6.77 per share. This is an increase of approximately 17% compared with the same period last year. Third quarter financial guarantee production was strong. We produced $91 million of PVP in the quarter, 44% more than in the third quarter of last year and 42% more than in the second quarter of 2025, as transactions coming to market return to a more typical business mix for Assured Guaranty. Rob will provide more details on this later in the call. For the first 9 months, we generated a total of $194 million of which U.S. public finance business produced $152 million. We benefited from record U.S. municipal bond issuance and strong investor demand for our municipal bond insurance including both from institutional investors on some very large infrastructure transactions. Additionally, our U.S. public finance secondary market business flourished with $1.5 billion of insured par, representing 2.5x the amount of secondary business we insured in all of 2024. Non-U.S. public finance and global structured finance contributed $42 million of PVP collectively during the first 9 months. Production in these business lines tend to be more episodic than in U.S. public finance because their transactions are fewer, generally larger and typically have longer lead times. In structured finance, we've been building our subscription finance business which is characterized by many smaller, shorter duration and renewable transactions. Rob will provide more details on this. Our investment portfolio performance has been enhanced by the greater use of alternative investments in recent years. We continue to see excellent performance from our alternative investments, whose inception to date annualized internal rate of return, including from funds managed by Sound Point and Assured Healthcare Partners was approximately 13% through September. In terms of our share repurchase program on November 5, the Board of Directors authorized the repurchase of an additional $100 million of our common shares, bringing our current authorization to just over $330 million. I'm looking forward to a successful fourth quarter in which we have already booked some sizable transactions. We continue to look for strategic opportunities to expand our current insurance businesses into new sectors and new markets and to diversify our revenue sources further to support prudent sustainable growth. I will now turn the call over to Rob. Robert Bailenson: Thank you, Dominic. In the third quarter, the PVP across our 3 insurance business lines was $91 million. This result was led by our core business, U.S. public finance. We closed U.S. public finance transactions totaling $7.9 billion of par in the third quarter compared with $5.4 billion in the third quarter of 2024. The third quarter of this year saw a marked change from the previous 2 quarters in the business mix of U.S. municipal bonds that came to market. Many BBB issuers held back from coming to market during the first 6 months of the year. This resulted in a skew toward higher rated transactions in the available market for our insurance during the first half of the year. However, in the third quarter, issuance by BBB credits came back from its temporarily lower levels and the mix of sectors and of underlying credit ratings in the municipal bonds we insured came more in line with our typical production mix, which contributed to strong third quarter results. For the first 3 quarters of the year, U.S. municipal bond issuance increased by more than $50 billion over what was already a record issuance during the first 9 months of 2024. And total primary market insured par volume rose 18%. We continue to lead the industry, ensuring 63% of the total insured U.S. municipal market par sold in 9 months 2025, compared with 57% in 9 months 2024, ensuring approximately $21 billion of primary market par through September 30. Also year-to-date Assured Guaranty ensured some of the largest transactions that came to the municipal market, reflecting the continued institutional demand for our guarantee and the increased price stability and market liquidity our insurance can provide. For example, on a sold basis, we insured 14 transactions of $100 million or more in the third quarter. Year-to-date, we insured over 40 transactions of $100 million or more. For the third quarter, this included approximately $650 million for the Massachusetts Development Finance Agency, $600 million for the New York Transportation Development Corp., New Terminal 1 at JFK Airport. $422 million for the city of Orlando and $372 million for the Illinois Municipal Electric Agency. Additionally, AA issuers and investors have continued to derive value from our guarantee. In aggregate, during the first 9 months of 2025 we issued 132 policies on bonds with AA underlying ratings across the primary and secondary municipal markets, totaling $5.8 billion of par. Further, our secondary market U.S. public finance strategy continued to produce strong results. We generated $32 million of PVP in the first 9 months of 2025, compared with $5 million in the first 9 months of 2024. The company's $1.5 billion of par written in the secondary market represented 7% of our U.S. public finance par written in the first 9 months of 2025 compared with 2.4% in the first 9 months of 2024. With $4 trillion of municipal bonds outstanding, this business has plenty of room to grow. Non-U.S. public finance added $5 million in PVP for the quarter and has contributed $19 million in PVP year-to-date. Year-to-date contributions or from several primary infrastructure finance and regulated utility transactions throughout the U.K. and the European Union as well as secondary market transactions for U.K. subsovereign credits. Global structured finance contributed $8 million in PVP for the quarter and $23 million in PVP year-to-date. Global structured finance's year-to-date PVP contribution came primarily from subscription finance and the upside of a transaction in Australia that provided protection on a core lending portfolio for an Australian bank. As Dominic mentioned, our global structured finance business has increasingly moved towards repeatable business. which generates future premiums as we see with subscription finance. And since these are shorter duration transactions, we also benefit because we earn the premiums more rapidly and can recycle that capital. For example, the new business we insured in the first 9 months of this year will mature within 5 years, and we will earn all the premiums during that period. This time frame is 2 to 3x faster than the structured finance business we were insuring just 5 years ago. We are looking forward to a solid finish for the year. I'll now turn the call over to Ben for more details on our financial results. Benjamin Rosenblum: Thank you, Dominic and Rob, and good morning. Adjusted operating income in the third quarter of 2025 was $124 million or $2.57 per share which compares with adjusted operating income in the third quarter of last year of $130 million or $2.42 per share. In comparing third quarter 2025 to third quarter 2024, it's important to note that investment income portfolio and the scheduled premiums from the financial guaranty insured portfolio, both contributed more to adjusted operating income in the third quarter of this year than the comparable period of last year. . As of September 30, 2025, our deferred premium revenue was $3.9 billion, consistent with last quarter. Large premium transactions as well as supplemental premiums on certain existing transactions contributed to the stable warehouse of earnings that offset amortization on the existing insured portfolio and demonstrate the strength of our underwriting and new business development efforts. Earnings from the investment portfolio come in several forms with different earnings recognition methods. The majority of our investments are available for sale, fixed maturity and short-term securities that are in net investment income. This portfolio earned $11 million more in the third quarter of 2025 than it earned in the third quarter of 2024 due to several factors. First, certain CLO equity tranche investments that were previously in a CLO fund reclassified to the available-for-sale fixed maturity portfolio. Net investment income in the third quarter 2025 included $9 million related to the CLO equity tranches, whereas in the prior year, the change in the NAV of the CLO fund was $8 million and was reported in equity and earnings of investees. And second, net investment income on the externally managed fixed maturity portfolio increased by $4 million as our managers reinvested into some corporate securities that were higher yielding. Offsetting these increases was a reduction in earnings of $7 million from the short-term investment portfolio as interest rates and our average balances declined. In addition to the CLO equity tranches, we have other alternative investments whose changes in NAV are reported in adjusted operating income. Earnings from this portfolio tend to be more volatile than earnings from the fixed maturity portfolio. In the third quarter of 2025, the change in NAV from these alternative investments was a $25 million gain compared with a $28 million gain in the third quarter of 2024. On an inception-to-date basis, as of September 30, 2025, our aggregate alternative investments have generated an annualized internal rate of return of 13%, substantially greater than the returns on the fixed maturity portfolio. While adjusted operating income in the third quarter of 2025 reflects a modest decline compared with the third quarter of 2024, this was primarily attributable to the amount of benefit related to improvements in U.S. RMBS recoveries. In both periods, we increased our recovery assumptions on second lien charged-off balances, which resulted in a $26 million benefit in the third quarter of this year and a $29 million benefit in the third quarter of last year. These assumption updates are based on observed trends over the past several years. Last year, we also updated recovery assumptions on first lien transactions. However, these assumptions remain static this year. Overall, we saw positive results in our third quarter loss development with a total net economic benefit of $38 million, primarily related to legacy RMBS exposures and a non-U.S. public finance exposure. As I mentioned last quarter, the largest below investment-grade exposure in the investment portfolio, which was obtained as part of a loss mitigation strategy was paid down in the third quarter. While there was no significant impact on income associated with this final resolution on an inception-to-date basis, we received over $100 million more than we paid out. In October, a commercially leased building that was part of a loss mitigation strategy for a troubled insured exposure was sold. We expect to realize an after-tax gain associated with the sale and final resolution of this exposure in the fourth quarter of approximately $10 million to $15 million more than we paid out. These outcomes showcase our multifaceted approach to loss mitigation, combining vigorous legal defenses, enforcement of our rights under financial guarantee insurance contracts and financial flexibility as well as our ability to extract value from the underlying collateral of our workout credits. Turning to capital management. In the third quarter of 2025, we repurchased 1.4 million shares for $118 million at an average price of $83.06 per share and also returned $16 million in dividends to our shareholders. Including our Board's approval earlier this week of an additional $100 million in share repurchases, our remaining authorization is $332 million. In terms of our current holding company liquidity position, we have cash and investments of $272 million, of which $35 million resides in AGL. These liquidity balances reflect the $213 million cash component of the $250 million stock redemption approved by the Maryland Insurance Administration that was implemented in August. Share repurchases, along with adjusted operating income and new business production collectively contributed to new records for adjusted operating shareholders' equity per share of over $123 and adjusted book value per share of over $181. While adjusted operating income varies from period to period, the consistent quarterly increases in these book value metrics reflect the value of our key strategic initiatives, which build shareholder value over the long term. I'll now turn the call over to our operator to give you the instructions for the Q&A period. Operator: [Operator Instructions] Our first question comes from Marissa Lobo from UBS Group. Ameeta Lobo Nelson: So first, on the changes to the investment portfolio you outlined, including higher-yielding corporates and CLO equity. How are you thinking about the ongoing allocation to these higher-yielding sectors in light of current macro trends? Benjamin Rosenblum: Were always work with our outside investment managers, and we have an internal group that looks at our investments as well, both our treasury and functional alternative investments. And our idea is to obviously both optimize the yield on our investment as well as maintain a safe portfolio with adequate liquidity in the event we have a loss. Ameeta Lobo Nelson: Okay. And just looking at the listing of the low investment grade, could you talk a little bit about the issues with the Brightline transportation exposure and what's causing some of the pressure on those deals? Dominic Frederico: Well, Brightline, as you know, is a new operation. They're having the total growing pains of a startup. They had a problem with both the choice of the lines and the number of the cars you're able to put on the availability for service. We're very comfortable with the structure, with our exposure. You remember we're in the senior most section of the capital stack, significant equity and subordinated debt is beneath us. So in terms of our view of it, they're having the typical growing pains as they get better at their management of both availability and route structure, it will basically work itself out. Ameeta Lobo Nelson: And finally, just looking at the opportunity set. I was curious if there's a place for AGO to get involved in the current data center CapEx cycle? Dominic Frederico: I'll let Rob -- but yes, absolutely. Robert Bailenson: Yes, we are actually evaluating the data center, and we are -- we look at that opportunity every quarter as well as other opportunities we have executed in new areas like liquid natural gas, and we are actively looking at data centers as well. Dominic Frederico: It's an asset that led to [ self structure ]. Operator: [Operator Instructions] our next question comes from Tommy McJoynt from KBW. Thomas Mcjoynt-Griffith: Along the same line of that previous question. But more broadly speaking, I guess, what do you guys view as the pipeline to grow written premium into 2026. So as you guys look about the various opportunities for increased infrastructure spending, any other structured credit pieces. If you could just talk about the pipeline into 2026? Robert Bailenson: Well, we see great opportunities with all 3 of our financial guaranty lines of business. In U.S. public finance, as you've seen, we've made a big investment in secondary market both internal resources as well as modernizing our systems where we can interact much more quickly with our asset managers and investors that are looking for secondary market opportunities. As you can see, we've had great success this year, and we continue to see that as an opportunity going forward and a growth opportunity given that the market is 90% uninsured, there are a lot of credits that we can actually provide value on. It also demonstrates the trading benefit and trading value that we see in the market, and it helps us on the primary execution and also those primary executions help us in the secondary market as well. In global structured finance, we're looking at core lending portfolios of banks and also regulatory capital that's needed in -- for these Europe -- most of the European and Australian banks. And as you can see, we've executed significantly in the fund finance sector, and we see continued growth opportunities there. And in Australia, we're looking at infrastructure as well, like airports and other utilities. So we're very -- we feel very strongly going forward in the sector. Dominic Frederico: Yes, I think we're very bullish on the ability of the company to produce and what production is going to look like going forward. As you look in the current quarter, it kind of reinforces our view of the domestic public finance market that we were getting hurt by a mix of business for the early quarters and this quarter kind of returned to normal and so the activity that we're able to book through that cadence. If you look internationally, as Rob says, we've got tremendous opportunities kind of across the globe where we have the law in our favor or rule of law, and those markets are expanding in terms of both asset classes, as you somebody mentioned, in terms of data centers, it's an opportunity that we've seen coming strongly. Obviously, we're concerned about the power sources for some of those things, but that's part of the underwriting equation. As Rob said, we shifted to a different type of structured finance. It's shorter term, earnings quickly, releases capital for recycling, will provide a better ROE to the bottom line of the company. Those opportunities, as more counterparties we identify and able to get an agreement with, we'll continue to expand that market and become a significant part of a repeatable business. So we look for good revenue sources to meet our underwriting criteria, and we think that there's a great opportunity globally to the type of businesses that we write and the success we've had as I said, the quarter, I think kind of verifies that or give some validation to that premise. Robert Bailenson: I also want to just reiterate, we've been actively opening up new counterparties in both Europe and Australia, that want to trade with us for their core lending portfolios and risk-weighted assets. And as we open up these lines to these banks and trading with these banks, we help them in many areas, not just in fund finance, but other parts of the balance sheet that they need risk-weighted asset protection. Thomas Mcjoynt-Griffith: Got it. And switching over to the Puerto Rico side, there were some positive developments during the quarter with the Oversight Board and some consolidation in the creditor groups. What's the onus for you guys to get more positive on -- where you'd have to book a favorable reserve development particularly around that PREPA exposure? Like what type of events would you need to see? Dominic Frederico: Well, Tommy, 2 things. One, you just cost me money because I bet the room we would not get a PREPA question. So now I'm down some bucks, thank you very much for that. What's going to really get a recognition of the value that we placed on the reserve and the claim is a deal. And obviously, we've had 3 deals that have been rescinded on us by the government. And we think we're in a very preferred position relative to being a creditor based on the appellate decision recently in terms of the perfected of our lean and the size of the claim. Now this administrative expense for the might has been disappearing. We've been steadfast in our direction in our view that we're going to defend our legal rights. And a great example is if you look at the current year, there are 3 transactions that reflect the full recovery of any paid losses or paid losses, if any, as well as an additional return on the fact that we held to our legal rights and litigated or negotiated ultimate settlements in our favor. And if you go back to RMBS, I look at it, we're 4 for 4. I don't expect to go 4 for 5. Operator: This concludes the question-and-answer session. I would now like to turn the conference back over to our host, Robert Tucker for closing remarks. Robert Tucker: Thank you, operator. I'd like to thank everyone for joining us on today's call. If you have additional questions, please feel free to give us a call. Thank you very much. Operator: This concludes today's conference call. Thank you all for attending. You may now disconnect your lines. Have a great day.