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Operator: Ladies and gentlemen, thank you for standing by. Welcome to NFI 2025 Third Quarter Financial Results Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to turn the conference over to Stephen King, Vice President, Strategy and Investor Relations. Please go ahead. Stephen King: Thank you, Michelle. Good morning, everyone, and welcome to our conference call. Joining me today are Paul Soubry, President and Chief Executive Officer; and Brian Dewsnup, Chief Financial Officer. On today's call, we will give an update on our quarterly results, highlighting the continued improvement in our overall margins and unit economics, as we convert our strong backlog. We'll also provide an update on the nonrecurring battery warranties that impacted the quarter and recap our outlook. This call is being recorded, and a replay will be made available shortly. We will be referring to a presentation that can be found in the Financials and Filings section of the NFI Group website. As we move through the slides via the webcast link, we will call out the slide number. On Slide 2, we provide our cautionary or forward-looking statements and note that certain financial measures referenced today are not recognized earnings measures and do not have standardized meanings prescribed by International Financial Reporting Standards, or IFRS. We advise listeners to view our press releases and other public filings on SEDAR for more details. In the appendix of this presentation, we have provided a list of key terms and definitions that will be used on today's call. A reminder that NFI statements are presented in U.S. dollars, the company's reporting currency, and all amounts referred to are in U.S. dollars unless otherwise noted. Slides 3 and 4 provide a brief overview of our company. NFI is a global independent bus and motor coach mobility solutions provider. We offer a wide range of propulsion-agnostic buses and coaches on proven platforms, and we hold leading market share positions in transit and coach markets. More detailed information is available on our website. Slide 5 provides a brief insight into NFI's product and geographic mix and other major milestones. I will now pass it over to Paul to provide an overview of NFI's results for the third quarter. Paul Soubry: Thank you, Stephen. Good morning, everyone, and thank you for joining us this morning. I'll dive right into the Q3 results on Slide 7, starting with demand. Despite the third quarter being seasonally slower, we secured 644 equivalent units in new orders, generating 108.5% LTM book-to-bill ratio and a strong 71.8% option conversion rate. The highlights -- this highlights the continued strength in market demand supported by government funding in both Canada and the United States. Our total backlog, which includes both the firm and option orders, now totals 15,606 equivalent units worth USD 13.2 billion. In Q3, we delivered a 52% year-over-year increase in adjusted EBITDA and a $12.8 million improvement in free cash flow. Liquidity increased by $240.2 million, reaching $386 million at the end of the quarter. Total leverage, inclusive of all debt, improved to 4.28x, an improvement of 1 full turn since the end of 2024. These improvements were largely driven by the continued conversion of our strong backlog into operating results with increases in the average revenue and margin per delivered unit. While there were numerous positives, the quarter was negatively impacted by a warranty provision for an ongoing battery recall. On Slide 8, we provide details of this provision. In September, we announced a recall affecting approximately 700 buses and coaches, primarily New Flyer buses. The recall relates to batteries provided by our U.S.-based supplier, XALT E that was initiated due to the potential of to sell short circuit or cell fault primarily during charging or at full state of charge. For context, we provided an overview of the components of the battery system on this slide, starting with the cell all the way through to the battery enclosure. As safety is our top priority, immediately after issuing the recall, we implemented operational guidelines and software updates to limit the state of charge and the speed of charging on the affected buses and motor coaches. This allows customers to continue operating their vehicles with the affected batteries still in use. We've now determined that ultimately, we need to replace the batteries on these buses. The campaign is expected to take 18 to 24 months in total, beginning in the first half or the early part of 2026, and we will use a different battery supplier to replace those batteries. Our plan is for the replacement to be completed in the field, and we intend to leverage our service center network for this work. While we are still finalizing our approach, we do expect this work not to disrupt our production in 2026. Reflecting the expected replacement along with future potential costs to support other legacy XALT batteries in the field, we booked a $229.9 million warranty provision in the third quarter. This reflects our best and conservative estimate of the total cost of the battery recall and related support. We are comfortable with the tentative term sheet that we entered into with XALT and expect to finalize a definitive agreement for costs associated with the recall as we move into the -- through the fourth quarter. XALT recently announced its decision to wind down their U.S. battery operations. This announcement does not change our expectation that we will achieve a satisfactory agreement on the recall cost that meets our needs and those of our customers. We do also not expect this wind down to have any impact on New Flyer's production. We had previously moved most of our electric bus battery supply to an alternate U.S.-based supplier. We will use those different batteries on the buses going forward. We are currently -- we currently use the XALT battery on our fuel cell electric buses, and we expect all of the batteries needed for our 2026 production will be provided by XALT before they wind down operations. The batteries on the fuel cell buses are different than the batteries on the electric buses. Long-term, we'll be moving our fuel cell bus battery supply to an alternate provider. Recognition of the warranty provision for the battery recall impacted numerous financial metrics in the quarter. And given the nonrecurring nature of this event and the ongoing negotiations on an agreement for related costs, we have normalized adjusted EBITDA and adjusted net earnings calculations. This morning, we will call out a few other areas where the recall had a meaningful impact. And on Slide 9, we outlined some of these impacts. Without the battery recall, manufacturing segment gross margin would have been 10.2% with a gross profit per equivalent unit of $66,300, a 58% improvement from the third quarter in 2024. Manufacturing net earnings would have been $26.7 million. Reported working capital of $248 million was positively impacted by the provision and would have been $464 million without it. The graph on the right bridges net loss to adjusted net earnings with the battery recall and the associated tax impact being the largest bridging items. This is our third straight quarter of positive adjusted net earnings. I'll now turn the call over to Brian Dewsnup, our Chief Financial Officer, to provide a supply chain update and discuss our financial results in more detail. Over to you, Brian. Brian Dewsnup: Thanks, Paul. Picking up on Slide 10, we provide an update on our supplier risk profile. We currently have just 3 companies that we consider high risk/high impact, down from 50 in the peak of 2022. This improvement reflects the ongoing work of our sourcing, procurement and supplier development teams are actively working directly with suppliers to improve delivery performance. While there's been recent disruption in automotive supply chains, we largely have not seen any significant impact. It's a situation we'll continue to monitor. We don't have much of an overlap with automotive, but there could be cascading effects that may impact our supply base. Slide 11 highlights our recent strategic investment to strengthen our supply chain through our joint venture assumption of American Seating assets with GILLIG. We expect this partnership will drive financial stability and operational performance at American Seating. This will benefit improved performance for NFI, also the broader industry. Financial terms were not disclosed, but the transaction is not considered material. While we are now investors in American Seating, it's critical that we maintain a diversified supply base for seats and are continuing to work with other seat suppliers. The number of new Flyer buses built, but yet -- built, but they're still missing seats remained relatively flat since our last update. We did see an increase in August and September, followed by a reduction in October to 50 equivalent units. This impacted Q3 deliveries, and we remain focused on bringing this number down prior to the end of the year. We have lower production with American Seating in the fourth quarter, which should free up capacity for them to prioritize deliveries for seats on these essentially complete buses. On Slide 12, we recap quarterly deliveries. Transit deliveries were up 14% year-over-year, driven primarily by the North American business. This increase was achieved despite some zero-emission bus customer acceptance delays and seat-related disruption. Coach deliveries were down in the quarter due to lower private sector deliveries, although we anticipate a strong recovery in the fourth quarter, consistent with the seasonal nature of the business. Reflecting the strength of our backlog, we achieved 19% year-over-year increase in the average selling price for both heavy-duty transit buses and motor coaches. We also delivered a record 217 low-floor cutaway buses in the quarter. This is up 36% year-over-year, and the average selling price was up by 21%, reflecting continued strong demand. Turning to Slide 13. Aftermarket gross margin was essentially flat quarter-over-quarter and down year-over-year. This reflects sales mix, reduced program revenue from large midlife projects in North America and the impact of tariffs. In the Manufacturing segment, gross margin, excluding the impact of the battery recall was 10.2%, consistent with the second quarter. This reflects timing-related impacts in the third quarter and sales mix. The year-over-year improvement in gross margins highlights our improving backlog profile flowing through quarterly results. Slide 14 walks through year-over-year changes in adjusted EBITDA within our reporting segments. Manufacturing EBITDA was up by $36.1 million, driven by higher deliveries, favorable sales mix and improved pricing. Corporate adjusted EBITDA declined by $2.2 million, primarily due to negative impacts of foreign exchange, including a lower U.S. dollar. Slide 15 shows LTM adjusted EBITDA performance for both Manufacturing and Aftermarket segments from 2022 to 2025. Our Manufacturing segment continued its strong upward trajectory, achieving $174 million on an LTM basis, which is an increase of $114 million year-over-year. Slide 16, quarterly free cash flow was positive with a strong increase driven by the higher adjusted EBITDA and lower interest expenses. There was a significant positive impact from working capital in the quarter, but this was largely due to the battery recall increasing provision balances. Excluding those impacts, free cash flow, combined with changes in working capital would have been $35 million. This represents a $68.9 million improvement from the prior third quarter of 2024, reflecting lower inventory balances and our milestone payment structures. On Slide 17, we look at our total leverage, liquidity and return on invested capital. We continue to execute our deleveraging strategy and reduced total leverage to 4.28x on an LTM basis. Note that this calculation includes first lien, second lien convertible debentures and lease obligations. For banking purposes, which exclude convertible debentures and leases, total leverage was 3.37x. Liquidity was up approximately $241 million year-over-year and up by $59.3 million from the second quarter. This reflects our positive cash generation and debt repayment. ROIC has continued to trend positively supported by improved adjusted EBITDA and lower total invested cost base. I'll now turn the call back over to Paul to discuss the outlook. Paul Soubry: Thank you, Brian. As you look into the fourth quarter and our plans for 2026, we expect that NFI will continue to grow revenue, gross profit, adjusted EBITDA, free cash flow, return on invested capital and net earnings. I'll walk through the drivers behind this continued momentum and comment on the key risk factors in our operating environment. So I'm now on Slide 19. You can see the makeup of our backlog over 15,606 equivalent units, 37% of which are firm and 63% are options. Our firm orders provide significant visibility for the fourth quarter of 2025 and have also helped us fill the majority of our 2026 public market production slots. The options offer runway and visibility for our production schedules over the long-term. The black line represents the total dollar value of the backlog, which is now $13.2 billion, having grown $8.3 billion just over the last 3 years. In the third quarter, we saw higher new orders for internal combustion buses, which is consistent with our experience in the first half of 2025. As a result, the ZEB percentage of our total backlog remained relatively flat. Our improving total backlog and firm auction profile is displayed on Slide 20. The chart demonstrates the improvement in average sales price or ASP per equivalent unit across our total backlog, including both firm and option orders. Average selling price have increased for both heavy-duty transit buses in the dark blue and motor coaches in the light blue. Year-over-year, ASP for heavy-duty buses was up 1.5% and up a whopping 64% since Q3 of 2021. ASP for motor coaches was up 20% and 52% over that same time period. Now these pricing improvements are expected to continue flowing through our income statement. We saw this in the first 3 quarters of 2025, and we expect even more improvement going forward. We anticipate further gains in the fourth quarter, supporting our outlook for the highest quarterly adjusted EBITDA quarter in the company's history. The North American bidding environment remains strong as shown in our bid universe on Slide 21. We ended the quarter with active bids of 7,503 equivalent units. This includes 6,217 EUs and bids submitted, which is up 50% from the second quarter of 2025 alone. This reflects recent submissions on a large multiyear bid related to upcoming major sporting events that are being hosted over the next couple of years in the United States. The black line in the chart shows new awards. We saw some decrease from the previous quarter, primarily due to timing delays on new orders. The chart illustrates the typical correlation between bids submitted in light blue and contract awards in black with a lag of a few quarters from submission to award. Over our 5-year expected bid universe, which is compiled from customer fleet replacement plans, remains very strong at nearly 23,000 equivalent units. This sustained demand is driven by increasing fleet age with nearly half of the North American public transit fleet now over 12 years of age and continued strong government funding. On Slide 22, we show our book-to-bill and option conversion ratios. NFI's option conversion ratio has improved significantly, reaching 71.8% on an LTM basis. This improvement reflects increased order activity, a higher number of exercise options and the improved competitive landscape and our competitiveness. The slight decline in our book-to-bill from the second quarter reflects slower new orders and higher deliveries in Q3. On Slide 23, it reflects our guidance ranges for key metrics for 2025. Based on our year-to-date performance and our expectations for the remainder of the year, we've tightened up a few certain ranges. We now expect revenues to be between $3.5 billion and $3.7 billion and driving adjusted EBITDA ranging from $320 million to $340 million. In the fourth quarter, we expect higher deliveries, particularly in private markets and improved sales mix drive and should deliver our highest quarterly adjusted EBITDA ever. This reflects continued improvement in our per unit economics and a strong contribution from the aftermarket business. Cash CapEx are projected to be lower than initial expectations, even as we have invested into several new facilities, including our all-Canadian New Flyer build project in Winnipeg and the Alexander Dennis plant set up in Las Vegas, Nevada. For clarity, our guidance includes year-to-date impact of tariffs and some of the smaller potential tariff impacts on fourth quarter results. It does not reflect any material changes that tariff environment could have on demand, pricing or cost going forward. This risk is somewhat offset by the fact that the majority of our remaining 2025 vehicle sales are already produced or will be finalized in November. On Slide 24, we provide our latest views on the macro tariff environment. We observed some stability in the tariff environment during the third quarter, and we relatively consistent direct tariffs on goods that we import and suppliers that have started to provide additional details on suppliers, sorry, that have started to provide additional details on tariff surcharges that have been included in their pricing. Those are indirect tariffs, ones we pay to suppliers for parts and components used and installed on our vehicles. On November 1, a new U.S. Section 232 tariff of 10% was applied to all buses and coaches imported into the United States from any jurisdiction. This is expected to lead to increased pricing and tariff surcharges to end users as there is no domestic U.S. production of motor coaches. Prior to November 1, we have moved the majority of our finished goods inventory from Canada into the United States physically. We continue to view tariffs as a pass-through to cost to customers through contractual obligations and through general price increases and negotiation. This does require negotiation with customers, and we may not be able to cover all of our costs. We have generally had success in being able to find solutions with customers so far. Longer term, we will continue to assess our geographic production schedules to try and minimize tariff exposure. We've made significant investments in the United States operations, increasing our staffing in the U.S. by 7% since the beginning of 2025. And during the last 10 months, we've opened the Las Vegas, Nevada production facility for Alexander double-deck buses, opened a new service center for MCI in California, and we acquired the Michigan-based seat supplier. We also recently put our first bus into our all-Canadian build production line that has been commissioned in Winnipeg, Manitoba. Tariff-related costs have been accrued in work in process inventory as we complete customer negotiations. Within the Aftermarket segment, we have experienced some margin pressure, primarily due to the timing between tariff incurrence and the pricing updates. Our ability to adjust pricing models quickly has helped mitigate longer-term impacts. I'm now on Slide 25, so a few closing comments. The first 3 quarters of 2025 laid a very strong foundation for continued momentum. We increased deliveries, we converted backlog into results, and we've had solid cash generation supporting debt repayment and the deleveraging plan that we set out. Our total backlog of $13.2 billion, combined with option conversion rates and strong book-to-bill ratios reinforces our confidence in our near-term and our longer-term outlooks. In the U.K., we were pleased to see active engagement and very strong support from the Scottish government and several active procurements have supported growth that we project now for 2026 deliveries by Alexander Dennis. NFI's aftermarket business is a foundational business unit with steady and recurring revenue streams, a solid margin profile and significant free cash flow generation. Calculating and enforcing tariffs are becoming more established in our operation and as part of our industry. We continue to actively track trade developments, and we will take all actions possible to ensure an appropriate response where required. While there will be some headwinds and volatility, especially with private motor coach markets, our domestic production, our nimble aftermarket pricing, our extremely strong backlog and contractual provisions lead us feeling well positioned to respond as needed to the dynamic environment. So despite headwinds related to seat supply, tariffs and now battery replacement programs, we have not changed our overall view that NFI is a very strong trajectory of growth that should see significant investments in operating and financial metrics. We are confident in the strength of our markets, our business, our product offering and our people to deliver outperformance as we head into 2026. With that, we'll now open the line for questions. Michelle, please provide instructions to our callers. Thank you. Operator: [Operator Instructions] The first question will come from Chris Murray with ATB Capital Markets. Chris Murray: If we can go back to just talk about the battery reserve and maybe some extra color on that. So I guess the first piece of that, can you maybe walk us through your confidence level on what the actual cash cost might look like to NFI and the proportions that might be covered by the suppliers and how to think about that evolution over the next couple of years? And then if you can also talk about supply chain around batteries because I know at one point, I guess, XALT had been a bit of an issue about even getting batteries, which has led you to look for a second supplier. Now that XALT is exiting the market, do we still have a supply chain issue in batteries? And how do we think about that on a go-forward basis? Paul Soubry: Great questions. Thanks, Chris. So let me start with the second one first. We've been dealing with XALT for a decade, and XALT had gone from a private ownership in the United States to being acquired by a very, very large multi-international business who invested dearly in them. Yes, there's been volatility of supply dynamics over time. And as the percentage of zero-emission buses increased in our backlog, we did it out of not a concern of supply, but of surety and competitive dynamics. So we actively went out and set up a second battery supplier, which took us about 2 years to validate and commission onto our buses, and we've now been delivering buses with those alternate batteries for about 2.5 years now. So we go to a situation now where, yes, we have a recall we have to deal with, but XALT is leaving the U.S. market and leading the battery business. We have signed a term sheet. Of course, it's nonbinding, but it recognizes both how we would do the recall, the economics associated with it as well as how product support, technical support, field support, warranty support would work going forward. So that is the process we're in the middle. We signed the term sheet about, I don't know, 3 weeks ago, and we are actively negotiating with XALT and its parent on the economics associated with that. We do not have a definitive agreement, and therefore, we can't provide the details associated with it. We are confident that the batteries we're going to put on in replace of the XALT batteries are proven and the supplier has assured us that they can handle not only our ongoing manufacturing requirements for the manufacturing demand, but also the surge demand over the next 1.5 years or 2 years, whatever it takes to finish the actual recall. So I wish I could give you more color on actual dollar cash, the economics, the timing and so forth. We don't have that completed. Therefore, it's not prudent to be able to provide any details or insight into that at this point. Brian, do you want to add some color? Brian Dewsnup: Yes. Paul Soubry: Let Brian give you a little bit more color on some of the economics associated. Brian Dewsnup: Yes. Just as we mentioned in the call, we would expect the campaign to be executed over the next 18 to 24 months. So just from a cash flow perspective, we'll start that campaign in the first half of 2026. And so we would expect there to be an effect -- round figures, half of that done in 2026 and half in 2027. And then the warranty piece of what we put in there, we would expect to be disbursed over the next kind of 1 to 4 years. So while it's a big number, that will be done over kind of 2 to 4 years in terms of the cash effect of that. Chris Murray: Okay. That's helpful. And then I guess going back and thinking about the outlook. So a big quarter coming up. And I guess, even going to the bottom of the range still of guidance still implies that there's a lot of buses that have to move out the door. Can you talk a little bit about how you're feeling about that? But also I think more broadly, how you're feeling about the manufacturing platform, where you're at as we go into 2026. And as we move beyond, I guess, some of the, call it, the problems of COVID and the echoes of COVID and supply chain, '26 feels like it's setting up to be maybe the first normal year in almost a decade. But how do we think about this as a year kind of a normal operations with good backlogs supply chain kind of, for the most part, fixed and working. What do you think the business can actually do with this? Paul Soubry: Great question, Chris. So let's start with the fourth quarter. So the guidance that we've maintained on the low end, and we've just dropped the top end a little bit to reflect that we're almost -- we're 10 months into this business for this year. The guidance range suggests the fourth quarter of 2025 would deliver an adjusted EBITDA in the neighborhood of $105 million to $125 million. While we have always expected fourth quarter to be the biggest period, it has been further supported by some deliveries that were originally planned for Q3 '25 that moved into Q4. The exit rate does provide us with increased confidence in our ability to deliver growth in 2026. We've not yet provided guidance for '26. But as we've discussed previously, as we look into '26, we expect improvement in overall deliveries for a couple of reasons. First, we increased the Canadian build. So we've got 4 to potentially 5 units a week of additional deliveries. We freed up capacity that we would have taken for in Crimson, Minnesota to build a shell in Canada, send down to the U.S. for completion, now adds more capacity in the U.S. for builds. We should be finally past the seat supply disruption, 2 issues. We're now in control of our own destiny of American seating after a very long and protracted and painful process. And number two, as you know, we've diversified the supply to effectively 2 other suppliers. Our reliance on American Seating, for example, in the third quarter is somewhere in the range of 22% or 24% of the deliveries, not 60% like it was this time last year. The U.K. market has gone through quite a bit of challenges this year. Paul Davis has done an amazing job of idling its facilities where it made sense, working with the government of Scotland on furlough schemes, but more importantly, has been able to already solicit or solidify a reasonably serious increase in volume in the U.K. and in the ABL markets for 2026. And then, of course, the other thing that is often under the radar is that our ARBOC business continues to perform extremely well. They are by far the market leader in low floor cutaways in North America. They are also now deep into the reintroduction of a medium-class vehicle that we already have sales for book for 2026. Add to that, the underlying contribution that continues from the aftermarket business. Now if you look at some of the graphs, you may see a bit of a tail off on margin. You may see the EBITDA slightly less than last year. However, that part of that business is highly volatile associated with programs. So where customers will do midlives or upgrades to their fleets, something we can't really control. That core business of aftermarket continues to grow. And John Proven, who started well over a year ago now to run that business when Brian moved to CFO, has done a really good job at focusing on growth opportunities in that space. All that stuff adds up to what we believe will be a record quarter for us in 2024 -- sorry, in the fourth quarter of '25 and a very strong performance opportunity for 2026. Sorry a long answer, but I thought all those things are appropriate. Operator: And the next question will come from Krista Friesen with CIBC. Krista Friesen: I just wanted to go back to your slide on the high and moderate risk suppliers and just comparing it to what you put out for Q2 and the numbers for July 2025. It looks like there's been an uptick in the moderate risk from 9 to 12 and high risk from 1 to 3. I was just wondering if you can give a little bit more color on those suppliers and what's changed there? Brian Dewsnup: Yes. Good question. So obviously, there's a subjectivity here in terms of how we rate things. And so we've seen kind of a nominal movement there in our medium risk. I don't -- I don't think you should really read anything into that beyond the fact that we're actively managing this, and we're sensitive to any types of disruption that we're seeing there. So I wouldn't say that things have materially changed from earlier this summer. Krista Friesen: Okay. Great. And then I also just wanted to confirm on the guidance front. Did you say that at this point in time, the guidance for the remainder of the year includes all tariffs that are in effect? Brian Dewsnup: Yes. That's -- everything we know as of right now, yes. And the November -- the early November tariffs, we don't think they'll have a significant effect in 2025. We think that will be more of a 2026 issue that we'll need to deal with. Operator: And the next question will come from Daryl Young with Stifel. Daryl Young: With regards to the replacement of the batteries that needs to be done, which personnel, I guess, are going to be doing that? Is it New Flyer people that you're going to have to pull from your current facilities? And is that going to result in a bunch of overtime and added costs and disruption to your existing supply chains or really no impact there? Paul Soubry: Really good question, and we spent a lot of time. So when we started the thinking of a recall, we had kind of 3 options. One was pull the buses back to the factory, not really practical. You also have border dynamics and so forth. Number two was to set up a third party or engage third parties maybe on the East Coast or the West Coast. And then the third option, which is the one we selected is to run those buses on a battery exchange type program in a service center. So we have service centers in New Jersey, in Montreal, Chicago, Dallas, San Francisco, Los Angeles. So what we will do is effectively because they're battery electric buses, we will have trucks, if you will, driving a battery electric bus into the service center. We will dedicate a bay or 2. We've done a heat map of all the location of all the battery buses that will need to recall. There's a high propensity of the population was in Southern California and in Northern California. We will dedicate 2 or 3 bays or whatever is appropriate at each of those service centers and run them through an exchange program. Each bus in terms of taking off the batteries, putting on new batteries, there's some cabling and some small equipment that needs to be changed and then there's software upgrades and then testing. It's not massive. Each -- we think we'll be able to do a number of buses a week at each service center. None of the people from the factory will be involved. So there will be no impact on the manufacturing operations. We may need to add a couple of extra people in each of those service centers depend on each of their individual needs. The service center will forego a little bit of third-party work that they do today to be able to assign the space and the people to do this program. So as Brian alluded to, at this point, the scheduling, the preliminary scheduling says somewhere between 18 and 24 months to be able to complete the entire campaign. The very first replacement will be done in Winnipeg at our new product development center, where we'll have all the engineers and new product development people, the supply people validating the bills materials and so forth. That will start in probably January. And then in earnest, we'll start the recall most likely right after the first quarter. So we've got to make sure the supply is right, the people are skilled and trained and then we work with the customers to allow them to get the vehicles to us. Just some color as well, Daryl, as you probably heard in the notes, we have disposed -- disposed. We have distributed software on all of those battery electric buses. We're well into that process right now to be able to allow the operators to use the buses. Yes, there's a slight degradation in the pace of charge and there's a slight reduction in the total battery capacity. But again, just the safety and caution, we've deployed that and are well into that process now. Daryl Young: Got it. Okay. And then when you flip to the sole battery supplier in 2026 for your new orders, and I know you mentioned you've been working with them since 2023, I think. Is the batteries they're going to be supplying, is that a new technology? Or is that the same old proven one that they've been building and you're going to add it to the buses and there's no design spec changes or anything like that, that need to come through? And do they have the capacity to kind of hit the ground running in terms of volume? Paul Soubry: So the cells themselves are an LG cell. They are packaged by a company called American Battery Systems that's located in Michigan. The cell -- these LG cells are cylindrical cells as opposed to the ones that are currently on there, which are pouch cells. Those batteries are in use in many applications, including vehicles, trucks, buses around the world and by some of our competitors today. So there is not a new chemistry or a new application or type cert or anything associated with those batteries. Now we have validated with that supplier that can handle both our normal production requirements, which we have for 2026, and the slots sold as well as the surge capacity to deliver the pace at which we need these recall batteries. As you can imagine, we're going to be taking off almost 700 buses worth of batteries. So we're also actively working on the recycling of those batteries, the appropriate tear down, the disassembly and working with providers to do the right thing from both an environmental, but also from a cost and a safety perspective. So we're pretty comfortable with this, which then leads into our engineering teams have already started looking for yet another battery type that would be an alternate to what we have. So what we want to be able to have is always 2 sources of batteries. Should anything like this ever come up again, we will have multiple sources. Stephen King: Yes. So -- sorry, Daryl, yes, as Paul mentioned, we largely view the replacement of batteries as plug-and-play to make it simple of the new supplier versus the XALT battery. And I just want to reiterate, as we've discussed on the call and numerous times, we continue to discuss costs associated with the recall with XALT, and we have that term sheet in place, and we're looking to get that definitive agreement in the fourth quarter. So I just really want to reiterate that as people are thinking about costs and the costs associated with this campaign. Operator: And the next question comes from Abe Landa with Bank of America. Abraham Landa: So from my understanding and going back to the battery recall question, that $230 million that you took essentially is your -- what you currently expect, your portion of the battery replacement plus the warranty cost. And correct me if that's wrong. Paul Soubry: I guess maybe -- it is. Let me just clarify that. It is the total cost of the recall plus with XALT leaving the business, it is our estimate of future warranty exposure associated with any installed buses that are not associated with the recall. So what is being negotiated and what is reflected in our term sheet is the portion or the recovery from XALT as a supplier. Abraham Landa: Okay. So that $230 million is like a gross cost, let's call it. Paul Soubry: Correct. Abraham Landa: And if you reach some sort of agreement with XALT, it could decrease from here? Paul Soubry: Absolutely. We would expect it to dramatically decrease. Abraham Landa: Now of that $230 million, I guess, can you maybe -- like what's the cadence? I mean I could do divide it by 8 quarters, and you get -- or 6 quarters, you can do, call it, $30 million to $40 million per quarter. But I guess is it going to be more front-end loaded? I guess, how does the cash layout of that, let's say, on a gross amount before any sort of recovery look like into '26 and beyond. Brian Dewsnup: So the gross number comprises 2 pieces, as Paul mentioned, it's the campaign money to go out and literally take the batteries off and put the new batteries on vehicles. That's the bulk of that accrual. And we would expect that to commence in the first half of 2026, and it will take 18 to 24 months. So round figures, that would be half of the cash flow would be in 2026 and the other half in 2027. And then the balance from a warranty standpoint would be spread, I would say, fairly evenly over the next 4 years. So the cash impact would have that kind of a profile. And obviously, as we talk about any sort of settlement, that would be highly dependent upon the terms and conditions of that settlement. Paul Soubry: And to all our listeners, we're not trying to be purposely acute or evasive. We have a term sheet. It is still not binding. We're in deep negotiations with XALT. And so it's imprudent to give any indication. We're comfortable at what the term sheet reflects in terms of the economics. The minute we get that done, we will issue a press release to clarify to the market our portion, if any, of that recall. Abraham Landa: And have you provided a split between of that $230 million, the warranty portion and the replacement portion? Brian Dewsnup: We haven't provided that. But like I said, the majority of the accrual would be the battery replacement. Abraham Landa: Okay. And then maybe going back to this is all -- that was all super helpful color. And then just going to the tariff question. Obviously, quite a few ones out there, Section 232, the 10% imported buses. I guess if we kind of think about 2026, what would be the unmitigated tariff impact if you want to give a quarterly number or annualized number before any sort of price negotiation with customers? Brian Dewsnup: Yes. So we're -- it's a little bit too early to comment on that. So I think we can give a little bit more color on that as we move forward. We're still digesting all the implications of the November 1 changes because it brought some new stuff, and it also did away with some other stuff. So we're still kind of working through that math. And we'll be more prepared to comment on kind of the high-level nature of that as we get closer to the end of the year and certainly as we talk about the full year results. Paul Soubry: Just a comment on '25. The vast, vast majority of units that we'll sell in '25 are already physically in the United States. So the real tariff dynamic that Brian just alluded to is the country tariffs, the tariffs on our suppliers as they input parts in, what we bring into Canada as opposed to what goes straight to a U.S. supplier. And now, of course, the Section 232, 10% on buses and coaches. And your question is a good one in terms of the unmitigated. We also have an awful lot of mitigation opportunities, which might mean migration of more of our work or of our supply chain physically to the United States. Abraham Landa: Okay. And my last question is, like I've read a lot of articles, maybe there's just newspapers or local kind of warning about local transit budgets, service cuts. But I guess I kind of want to know what you're hearing. I guess, when you speak to your transit customers, what are they saying regarding their budgets, their busing needs? Any sort of comments on timing or changing of timing of bus deliveries? Just that would be some helpful color. Paul Soubry: Well, it's a good one. And of course, it's not a simple answer because we have multiple business units. So let's just kind of dissect each of them very quickly for color. So Alexander Dennis, of course, sells a small amount of buses in North America. The schedule is sold out in our mind for the vast majority of '26. There's a few slots we still have to fill, but there hasn't been any changes, reductions, cancellations, anything associated with that. It will see an increase in volume in the U.K. and internationally. So we're pretty excited about after a pretty rough year for Alexander about them next year. The ARBOC business, just like when we entered into 2025, has almost all of their slots sold out for next year on the cutaways and a very healthy portion as we reintroduce the medium-class business -- medium-class buses into the United States. New Flyer, the vast majority of the schedule is sold for 2026. And if you go back to our -- you look at our backlog, both -- well, the firm portion as well as some expected auctions to conversion. We've seen some customers change an order from a zero emission to a hybrid or a diesel or natural gas. We've seen some people push out. We have not seen the option conversion drop as we showed you in the charts. We also have not seen a drop-off in any of the RFPs hitting the street or the bid universe. And so in our deck on slide -- I think it was Slide 21, we showed both a very healthy portion of active submitted and received bids, but also the continued expected buy over the next 5 years. So we haven't seen that drop off. The other area of our business is MCI. And of course, MCI is roughly 65% or 70% private customers and 35% public customers. There are only, I don't know, 7, 9 real operators in the public domain, and that's blocky in terms of they buy in certain years, they don't buy in other years. They'll buy at high volumes or recur mode. There is some risk on the MCI side associated with filling all the 2026 slots, although it's not a big, big portion of our overall business. The private market has recovered fairly well. in terms of the private operators and the overall market demand continues to be, let's call it, in recovery mode. These new Section 232 tariffs of 10% apply to us just like they apply to all of our competitors, whether it's another competitor that's in Canada or international competitors. So an extra 10% tariff, we all try and pass on to some of those private operators, it could have an impact on that demand. But when you roll all that stuff up and look at our business going into 2026 from a market perspective, from the portion of our business that is sold or secured slots, we're still, in our views, in very much an operational and execution-focused mode as opposed to about worrying where we're going to get business from. Stephen King: Yes, the only thing I'll add there, obviously, been encouraged by comments from the administration around getting America building again and investments in Surface Transportation Act. We saw the 2025 allocation for the Infrastructure Investment Jobs Act was the same as 2024, and there is another year of that funding act that goes until September 2026. And also, the FTA is still active and still actively funding projects that have been approved even during this kind of current shutdown. So our customers are still getting funding for their capital projects that have been previously approved. So all that to say to Paul's point, still feeling very confident in the government funding environment in the United States. Abraham Landa: So it sounds like the majority of your buses for public use or the build slots are essentially filled for next year? So no current change. Paul Soubry: Absolutely. Operator: And the next question will come from Cameron Doerksen with National Bank Capital. Cameron Doerksen: I just want to come back, I guess, to the bus recall and battery issue. It sounds like you've got, I guess, productive talks and some sort of agreement with XALT. I guess maybe you can sort of give us your assessment of the risk around this potentially leading to some sort of lengthy legal dispute. I guess, how do you protect yourself over the long-term if the owner of XALT, given that they're shutting the business down, decides to put that business in bankruptcy and somehow get out of the liability that they have. I'm just wondering, how you sort of assess those risks and how you can protect yourself? Paul Soubry: Well, Cam, look, there's always the risk of something turning sideways. But I have been personally and actively involved along with David White, our EVP of Supply, directly with XALT and with the owners of XALT. The owner of XALT is a very, very large global international privately held business that has a very strong reputation for responsible customer support, responsible products and so on and so forth. We signed a term sheet, which would be a normal process. I would suggest it was a very constructive and healthy negotiation. We independently hired technical experts to try and assess the cause, the root causes, the ability to operate them safely during the process of that stuff. I would characterize the negotiation as constructive, as healthy, the outlook being very positive. The economics that are in our term sheet are acceptable to us. We just got to convert that into an agreement. We believe very definitively in our technical position and assessment of the cells and the cause of -- and risk associated with the short circuits. We have done our work from a legal perspective and have worked with outside external counsel to defend and prepare our position if and when we ever had to get there, which I don't believe we will do. So -- and we've had unbelievably strong support from the Board, a, to do the right thing for the customer; and b, to prepare all avenues associated with both our negotiation and litigation if it got to that. Cameron Doerksen: Okay. No, that's helpful. Just second question, I guess, on the investment in American Seating, the JV with GILLIG. Anything you can sort of disclose as to how much capital you might have to put into that business? I think you sort of indicated that maybe there's some investment required for them. And I guess what's the intention kind of long-term. Is this, I guess, a supply that you want to have long-term in-house? Or is this something that at some point in the future, you don't think you need to necessarily have? Paul Soubry: So look, and we've talked to you and all the other analysts about how hard is this? Why don't we just change suppliers or why don't you just put pressure on. This has been a year-long or deal or nightmare for us and for GILLIG for that matter and some of the other customers of American Seating. We finally came to a scenario and given the status of their debt and the debt holders' decision and desire to get out where we could acquire the debt and then proceed with that. So job one is stability. We have changed the leadership team. We have put a turnaround firm in place to fix the business. We are actively recruiting for long-term employees to run the place and executives to operate the business. We have a joint Board of 2 from GILLIG and 2 from us. And so it's all about stabilization of operations. The investment is not material in our overall business. The pain we suffered over the last year has been ridiculous relative to just one supplier. The amount of seats that are behind is still a notable number. It got better, notably better as we got through the summer of this year and then started to return, which is why we jumped at the opportunity to take control. Seating is not a strategic element of a supply chain that we want for the long-term. And we'll deal with that in due course once this place is stable. And quite frankly, if we can have 3 suppliers in the U.S. competing and buying for that business, the quality of what we all get, the pricing effectiveness and so forth is critical. Typically, our strategy for in-sourcing, and Cam, you've been to our plants is where we own or control the drawings associated critical parts on the bus, the frame, the structure, certain electro components, fiberglass, those kind of things. We've in-sourced that. And about 10 -- more than that, about 15% of our cost of sales, we control. This is, I would say, a targeted strategic investment to ensure surety of supply for the next couple of years, and then we'll decide whether this is a long-term. It's awkward. We're doing it in a joint venture with a competitor. I will tell you they are standup people. We work cooperatively. We've put all the controls in place from an antitrust perspective. I'm comfortable we'll get this place back on track, and then we'll deal with this future as we move through '26. Stephen King: And Cameron, obviously, as Paul mentioned just there, a little different than our usual acquisitions where it's a joint venture. So you'll see it on our Q4 results as an investment in the joint venture on the balance sheet. So we'll have a bit more detail with Q4 results in March on the accounting treatment. Cameron Doerksen: Okay. No, that's super helpful. Operator: And the next question comes from Jonathan Goldman with Scotiabank. Jonathan Goldman: If we think about just the battery replacement in isolation for a layman, who doesn't know much about the industry, if you strip out the cost of the actual battery itself and all the materials, what would be the approximate cost per battery for labor, freight and overhead to change out a battery? Paul Soubry: Good question, Jonathan. It's nominal. I'm going to give you an estimate that's context, right? We're going to ship a bus from one location on a flatbed to our facility, a grad or 2. We're going to ship it back grad or 2. We're going to put 30, 40 hours of labor into each to take the old battery packs off, put the new ones on. So that part of it is not the major part of it. The vast majority is the actual battery pack replacement itself. Jonathan Goldman: That's really helpful color. I appreciate that. In the quarter itself, the sequential decline rather in transit bus ASPs, is that mostly just a mix issue? Or is there something else going on there? And then how should we think about the trajectory of ASP for Q4 and into '26? Paul Soubry: So the ASP, first of all, your intuition on that one is exactly right, mix. What we bid on that window, what we deliver in any quarter has a massive impact on the average selling price. What we put into our backlog is the bid price. So -- and between bidding, going through the final build materials reconciliation, any changes the customer makes, any additional electronics and so forth they put on there could be a material -- not material, but a notable change from what the average selling price into the backlog is compared to what the actual average selling price is when it is delivered. The other dynamic that happens, and as you can imagine, almost all of the stuff that goes into the backlog are multiyear contracts. And so we put it into the backlog at current year selling price. As those options convert, we have purchase price indices that get applied to those in the out years. So it will depend on any changes to make to the bill of materials, but also what the PPI is in those out years. And that's what drives up the ASP between point of installation into the backlog compared to what happens when we actually delivered the unit. Jonathan Goldman: Okay. That's good color. And then thinking about the repricing, time of manufacture, would that include outside of the PPI, any increases on account of tariffs or I guess, like force majeure type of events? Paul Soubry: No. Think of tariffs, if you and I were building a house, almost like an engineering change order. So we are going back to the customers. Now every customer is different, every contract is different. For the most part, here's your bus for $500,000. Here is an added charge for the tariff. And of course, the math associated with the tariff. For a while, we were able to use an average tariff application per unit. Now given some of the changes in the regs and the counts, most customers want a specific tariff calc based on what's actually in their bus. So that is an add bill or an engineering change order type dynamic as opposed to an embedded part of the PPI or any other part of the pricing. Jonathan Goldman: Okay. That makes a lot of sense. And I guess last one for me, and I guess Cam asked this earlier about the capital investment required in American Seating. But from an OpEx perspective, what level of OpEx would be required on your part to support American Seating into next year? Paul Soubry: None. I mean, at the end of the day, this is an investment we've made. We have bought the debt. We are helping with investing in the business to operate the cash flow. They are still in 2 facilities. There will be a couple of million dollar spend to rationalize those facilities into one. It is not a notable amount. And of course, the operating costs will be managed by the business itself. Operator: I would now like to turn the call back over to Steven. Stephen King: Thanks, Michelle. So we have one question from our webcast. So I'll just read it aloud, and it references similar to what we had this morning in other cases. Is the warranty provision a worst-case scenario? And does finalizing the agreement with the XALT lead to a scenario where the provisions will be reduced materially? Brian Dewsnup: Yes. So I'll take that question. So the -- what we booked is the liability side, which is our best guess today at what all the costs will be to retrofit all the batteries and support the warranty obligations on those batteries. So that's what's sitting in our financial statements right now. Stephen King: And the second part, Brian, the finalizing the agreement with XALT lead to a situation where the provisions will be reduced. Paul Soubry: Yes. So we are both motivated us at XALT to complete this agreement before the end of the year. And so we have meetings every day and every week in this negotiation. As part of us assuming some warranty obligations going forward, there's diligence on certain people and equipment and IP and software and so forth that is actively going on. So the ultimate agreement and the economics associated with it would -- if it goes the way the term sheet would be a significant reduction in the provision. And so again, we'll press release that as soon as we know. Stephen King: All right. Okay. Well, that was it. That was all of our questions. So thanks, everyone, for attending today and for listening in. As always, please don't hesitate to reach out to us with any further questions and all of the information you need is on our website, including today's presentation. Thanks so much, and have a great weekend. Operator: This does conclude today's conference call. Thank you for participating, and you may now disconnect.
Operator: Hello, and thank you for standing by. My name is Mark, and I will be your conference operator today. At this time, I would like to welcome everyone to the DXP Enterprises, Inc. Third Quarter 2025 Earnings Release. [Operator Instructions] Now I would like to turn the call over to our CFO, Kent Yee. Please go ahead. Kent Yee: Thank you, Mark, and thank you, everyone, for joining us today. This is Kent Yee, and welcome to DXP's Q3 2025 Conference Call to discuss our results for the third quarter ending September 30, 2025. Joining me today is our Chairman and CEO, David Little. Before we get started, I want to remind you that today's call is being webcast and recorded and includes forward-looking statements. Actual results may differ materially from those contemplated by these forward-looking statements. A detailed discussion of the many factors that we believe may have a material effect on our business on an ongoing basis are contained in our SEC filings. DXP assumes no obligation to update that information as a result of new information or future events. During this call, we may present both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in our earnings press release. The press release and an accompanying investor presentation are now available on our website at ir.dxpe.com. I will now turn the call over to David Little, our Chairman and CEO, to provide his thoughts and a summary of our third quarter performance and financial results. David? David Little: Thanks, Kent, and thanks to everyone on our 2025 third quarter conference call. Kent will take you through the key financial details after my remarks. After our prepared comments, we will open for Q&A. It is my privilege to share DXP's third quarter results with you on behalf of over 3,234 DXPeople. Congratulations to all our stakeholders and a special thank you to our DXPeople you can trust. We are pleased to see end market demand and DXP's performance continue through Q3 and remain at record levels as we move into the last quarter of 2025. This allows us to achieve another quarter of both solid sales growth and 11% adjusted EBITDA margins. We are pleased to announce strong third quarter results with sales, operating income and earnings per share all up over the prior year. This is a great way to start the second half of fiscal 2025. We remain focused on serving our customers, providing products and services that help them save money, consolidate their MRO spend, manage inventory and provide solutions to solve their ever evolving needs. Being customer-driven and growing sales profitably is our goal. We continue to focus on driving organic and acquisition growth, increasing gross profit margins and increasing productivity. Our execution has resulted in fiscal 2024 and 2025 top line and bottom line growth, both organically and through acquisitions. That said, our growth strategies are working, and our acquisition pipeline should add to our results as we close out the fiscal year 2025 and go into the fiscal year 2026. We continue to be excited about the future, delivering a differentiated customer experience, creating an engaging winning culture for DXPeople, and investing in our business to strengthen our core capabilities and drive long-term growth. Year-to-date through September 30, total sales are up 11.8% and adjusted EBITDA is up 17.6%. Last 12 month sales and adjusted EBITDA were $1.6 billion and $217.1 million, respectively, with adjusted EBITDA margins of 11.1%. Moving to our third quarter results. Total DXP revenue was $513.7 million, an 8.6% increase year-over-year with adjusted EBITDA of $56.5 million. In terms of Q3 financial results from segment perspective, Innovative Pumping Solutions led the way, growing sales 11.9% year-over-year to $100.6 million, followed by our Service Centers growing sales 10.5% year-over-year to $350.2 million. Supply Chain Services declined 5% year-over-year to $63 million. In terms of IPS, our Innovative Pumping solution, it bears repeating that we have 2 broad businesses tied to capital budgets or project work, DXP's heritage energy-related project work and DXP Water. Year-to-date, DXP Water is 54% of IPS' sales versus last year at this time, it was 47%. As we grow -- have grown our DXP Water platform, we have increased both gross margins and operating income margins for the IPS segment and for DXP. Our energy-related bookings and backlog continues to show resilience and perform above our long-term averages, albeit not an all-time high. Additionally, our year-to-date average remains above our long-term average energy IPS backlog going back to 2015. What this indicates is that we continue to feel good at this point in the cycle on energy and water and wastewater-related project work. As we have been discussing on previous earnings calls, we have booked a few large projects in both energy and water that have been recognized some of the revenues in 2025 and will continue in 2026. We are quoting a lot of opportunities and working hard to convert quotes to bookings. That said, DXP's focus within IPS will be to continue to manage the demand levels we have plus finding opportunities in all markets such as energy, biofuels, food and beverage and water and wastewater and manage pricing and delivery while improving and maintaining margins. In terms of Service Centers, the diversity of end markets, multiple product division approach, service and repair and our MRO nature within Service Centers allows us to continue to remain resilient and to continue to experience consistent top line year-over-year growth. A few growth initiatives that are helping DXP grow percentages at over the last several years is technical products like automation, vacuum pumps, new pump brands for water and industrial markets, process equipment and filtration. New markets like water, air compression and data centers need pumps. They need water, power, cooling and filtration. We have added an e-commerce channel for the generation that wants to buy pumps and parts electronically. The service nature within Service Centers allows us to continue to remain resilient and continue to experience consistent sales performance and continue to find ways to add value for our customers. From a regional perspective, regions that continue to experience year-over-year growth includes South Central, California, Southeast, South Rockies, Texas Gulf Coast and Northern Rockies. We have also seen strength in our air compressor, metalworking and U.S. Safety Services division, which is also great to see. Supply Chain Services sales decreased 3.7% sequentially and year-over-year declined to $63 million. In the Supply Chain Services, all pricing is electronics, so flow to improve processes and price increases and inflation and tariffs take longer to implement. That said, SCS is adding several new customers and are currently -- they are being implemented. Historically, the latter half of the year is impacted by the holiday season and there being fewer billing days with SCS and also being subject to the customers' facility closures and holiday hours, thus, we expect mild Q4 and stronger outlook as we close out Q1 of 2026. Demand for SCS services is increasing because of the proven technology, efficiency they perform for all of their industrial customers, and we expect a strong year in 2026. DXP's overall gross profit margins for the third quarter were 31.4%, a 50 basis point improvement over 2024. Overall, I am pleased with our gross margins and our steady improvement over the last 2 years. SG&A for the third quarter increased $11 million versus Q3 of 2024. SG&A as a percent of sales increased going from 22.5% in Q3 of 2024 to 22.9% in Q3 of 2025. SG&A continues to reflect our investment in our people, increasing insurance renewals, technology investments, acquisition support and other growth strategies. As always, it is our privilege to share DXP's financial results on behalf of all our DXPeople. DXP's overall operating income margin was 8.5% or $43.7 million, which includes corporate expenses and amortization. This reflects a 14 basis point increase in margins versus Q3 of '24. We still feel there is opportunity in our operations to be more efficient, but we have chosen to invest in the business via people and our operations, and we have been focused on growth. Overall, DXP produced adjusted EBITDA of $65.5 million in the third quarter of 2025 versus $52.6 million in the same period of 2024. Adjusted EBITDA as a percent of sales was 11% for the third quarter. I am pleased with our performance in the third quarter. DXPeople continue to make great efforts and adapt as we grow and evolve DXP into a more diversified and less cyclical business. We call that the next chapter. We still have substantial work to do to achieve our efficiency goals, but I am confident that the team will continue to execute and drive sales and profitability. We are growing sales more than the market and expect that into the near future. We continue to make progress on our growth strategies and our commitments to our customers is strong. We are driving growth and improvements at DXP, and we look forward to navigating and working through the remainder of fiscal 2025. To continue to build our capabilities to provide a technical set of products and services in all of our markets, which makes DXP very unique in our industry and gives us more ways to help our customers win. Finally, I would like to thank our DXPeople for continuing to maintain 11% plus EBITDA margins, hitting a new quarter sales high in Q3. Q3 was another great quarter as we continue to have a successful year in 2025. We remain excited about the next chapter. And with that, I'm going to turn it over to Ken. Kent Yee: Thank you, David, and thank you to everyone for joining us for our review of our third quarter 2025 financial results. Q3 financial performance reflects DXP's ability to continue to successfully navigate through the market and execute and create value for all our stakeholders. Our third quarter results also reflect another new record sales watermark. As it pertains specifically to our third quarter, DXP's third quarter financial results reflect solid sales growth within IPS along with an accelerating contribution from DXP Water, record Service Center performance marked by gross margin strength and stability and a pickup in sales performance from Q2 to Q3 2025, consistent consolidated gross margin performance with year-to-date margins up 89 basis points versus last year, continued contribution from acquisitions with sales year-to-date of $74.1 million and consistent operating leverage leading to sustained 11% plus adjusted EBITDA margins. Total sales for the third quarter increased 8.6% year-over-year to a record $513.7 million and 3% compared to Q2. Acquisitions that have been with DXP for less than a year contributed $18.4 million in sales during the quarter. Average daily sales for the third quarter were $8 million per day versus $7.92 million per day in Q2 and $7.39 million per day in Q3 of 2024. Adjusting for acquisitions, average daily organic sales were $7.74 million per day for the third quarter of 2025 versus $6.95 million per day during the third quarter of 2024. That said, the average daily sales trends during the quarter went from $7.26 million per day in July to $8.9 million per day in September, reflecting a normal push in the last month of the quarter. In terms of our business segments, Innovative Pumping Solutions sales grew 11.9% year-over-year and 7.5% sequentially. This was followed by Service Center sales growing 10.5% year-over-year and 3.1% sequentially. Supply Chain Services sales declined 3.7% sequentially and 5% year-over-year. In terms of Innovative Pumping Solutions, we continue to experience strong backlogs in both our energy and water and wastewater businesses. Our Q3 energy-related average backlog declined 3.3%. This is our first decline in the backlog in 10 quarters, but continues to be ahead of all our averages. As David mentioned, and as we have been discussing on previous earnings calls, we have booked a few large projects in both energy and water that we have recognized some revenue in 2025 and will continue into 2026. We will be looking to see what happens to our Q4 2025 and Q1 2026 average backlog. The conclusion continues to remain that we are trending meaningfully above all notable sales levels based upon where our backlog stands today. To provide a broader perspective, on a 9-month comparative basis, our native energy IPS backlog is up 56.2% year-over-year. We expect this to continue throughout 2025. We also see strength in our IPS water backlog as it continues to grow due to a combination of organic and acquisition additions. DXP Water's average backlog is up 7% compared to Q2. In terms of our Service Centers, our Service Center performance reflects our internal growth initiatives along with our diversified and evolving end market dynamics. On a comparative basis, our third quarter of 2025 is now our strongest quarter within Service Centers over the last 10 quarters and sets a new sales high watermark. Regions within our Service Center business segment, which experienced year-over-year sales growth in South Central, California, Southeast, North and South Rockies and the Texas Gulf Coast. From a product perspective, we also experienced strength in our air compressors and U.S. Safety Services divisions. Supply Chain Services sales performance reflects a 3.7% decrease sequentially and 5% decline year-over-year. Supply Chain Services third quarter sales performance reflects pullback in activity at oil and gas and our diversified chemical customer sites. Overall, we experienced reduced spending from existing customers by continuing to drive efficiencies and streamline purchasing that we bring to our new customers. Going into Q4, we expect the next quarter to be impacted by seasonality with there being fewer billing days as SCS customers have facility closures and holiday hours. Thus, we expect a mild Q4 and stronger outlook as we close out Q1 of 2026. However, interest and demand for SCS services is increasing because of the proven technology and efficiencies they perform for all their industrial customers, and we expect a stronger 2026. Turning to our gross margins. DXP's total gross margins were 31.39%, a 50 basis point improvement over Q3 of 2024. This improvement is attributed to strength in gross profit margins within Service Centers with a 117 basis point improvement from Q3 of last year. Additionally, the accretive contribution from acquisitions at a higher overall relative gross margin versus our base DXP business helped drive consistent gross margins within consolidated DXPE. Acquisitions continue to be accretive to both our gross and operating margins. That said, from a segment mix sales contribution, Service Centers contributed 68.16%; Innovative Pumping Solutions, 19.57%; and Supply Chain Services was 12.26%. This sales mix positively impacts our gross margins as we see an uptick in contribution from IPS. In terms of operating income, Service Centers, IPS and Supply Chain Services each had 14.6%, 18.3% and 8.4% operating income margins, respectively. The consistency in Innovative Pumping Solutions reflects the impact of our water and wastewater acquisitions at a higher relative operating income margin and a growing percentage of revenue in our sales mix. DXP Water has gone from 28% of year-to-date sales in Q1 of 2023 to over 54% of year-to-date sales of IPS at the end of the third quarter of 2025. Total DXP operating income was $43.7 million in the third quarter or 8.5% of sales versus $39.6 million or 8.37% of sales in the third quarter of 2024. Our SG&A for the quarter increased $11 million from Q3 2024 and $5.7 million from Q2 of this year to $117.6 million. The increase reflects the growth in the business and associated incentive compensation and DXP investing in its people through merit and pay raises. Additionally, this also reflects an increase in our insurance premiums, which we changed our renewal from a calendar year to midyear renewal, continued investments in technology and our facilities as well as acquisition costs and growth initiatives. SG&A as a percentage of sales increased 36 basis points year-over-year to 22.88% of sales and was up slightly or 46 basis points sequentially from Q2 of this year. Turning to EBITDA. Q3 2025 adjusted EBITDA was $56.5 million. Adjusted EBITDA margins were 11%. We continue to benefit from the fixed cost SG&A leverage we experienced as we grow sales. This translated into 1.5x operating leverage. In terms of EPS, our net income for Q3 was $21.6 million. Our earnings per diluted share for Q3 2025 was $1.31 per share versus $1.27 per share last year. Adjusting for onetime items, adjusted earnings per diluted share for Q3 2025 was $1.34 per share. Turning to the balance sheet and cash flow. In terms of working capital, our working capital increased $15.6 million from June and $73.6 million from December to $364.5 million. As a percentage of last 12 months sales, this amounted to 18.6%. This is an uptick from where we have been and reflects the impact of acquisitions and an increase in DXP's capital project work. As we move into fiscal 2026, we will continue to grow into the working capital as a percentage of sales, and particularly the impact from recent acquisitions. In terms of cash, we had $123.8 million in cash on the balance sheet as of September 30. This is an increase of $9.5 million compared to the end of Q1 and reflects our ability to produce free cash flow while managing growth capital expenditures and remaining acquisitive. In terms of CapEx, CapEx in the third quarter was $6.8 million or a decrease of $3.6 million compared to Q2 and a $2.8 million increase versus Q3 of last year. We are continuing to make investments in our business, software, our facilities and operations for our employees. As we move forward, we will continue to invest in the business as we focus on growth. That said, as mentioned during the second quarter, over the short to medium term over the next 1 to 2 quarters, we should see CapEx lessen and we look for it to be less in 2026. Turning to free cash flow. Free cash flow for the third quarter was $28.2 million versus $24.4 million in Q3 of 2024. This does reflect improvements in profitability along with elevated CapEx, which is primarily growth-oriented and highly controllable. Additionally, we continue to focus on tightly managing our capital projects, which we see as an opportunity to further generate and optimize cash flow. We have highlighted this in the past as requiring investments in inventory, product and costs in excess of billings. That said, we continue to focus on tightly managing this aspect of our business from a cash flow perspective and look to align billings with the investments. Return on invested capital, or ROIC at the end of the third quarter was 33% and continues to be measurably above our cost of capital and reflects the improvements in EBITDA and the operating leverage inherent within the business. Additionally, also, it points to our recent acquisitions performance and their positive contribution and accretive impact to both gross profit and EBITDA. As of September 30, our fixed charge coverage ratio was 2.2:1, and our secured leverage ratio was 2.3:1 with a covenant EBITDA for the last 12 months of $225.1 million. Total debt outstanding on September 30 was $644 million. In terms of liquidity, as of the third quarter, we were undrawn on our ABL with $31.6 million in letters of credit with $153.4 million of availability and liquidity of $277.3 million, including $123.8 million in cash. In terms of acquisitions, we have closed 5 acquisitions year-to-date, including 2 subsequent to the quarter end, and we will look to close a minimum another 3 before the end of the first quarter. DXP's acquisition pipeline continues to remain active and robust, and the market continues to present compelling opportunities. That said, we remain comfortable with our ability to execute on our pipeline and valuations continue to remain reasonable. In summary, we are excited about the future and building the next chapter. We will keep our eyes focused on those things we can control and what is ahead of us. We are excited because there is still substantial value embedded in DXP. Now I will turn the call over for questions. Operator: And your first question comes from the line of Zach Marriott with Stephens. Zachary Marriott: So sorry, I missed the daily sales number for June. If you could just quickly walk through Q3 again? And then any color you could share on Q4 thus far? Kent Yee: Yes. No, absolutely. I'll just walk through each month in Q3 and then kind of give you our flash look at October for Q4. July was $7.26 million per day, August, $7.95 million per day, September $8.9 million per day and October was $7.59 million per day. Zachary Marriott: Much appreciated. Looking at EBITDA margins, the last 2 years, there was a little compression in the margin percentage from 3Q to 4Q. Is it fair to expect something similar this year in 4Q '25? Kent Yee: Yes. Zach, actually, I think last year, which may have been the first time, we started going above 10% EBITDA margins really, really in Q2, Q3 and in Q4 of last year. So point being is I think, big picture, we've said it on the last couple of earnings calls, but that we feel plenty comfortable with 11%. Yes, there may be quarters where it's 11.2%, 11.4%. But really, we're trending now, I'll call it, at a sustainable 11% plus for now. As we move into 2026 and we continue to get more acquisitions and particularly in the water space, we may adjust that. But right now, the 11% is sustainable. So hopefully, that answers your question around Q4. Q4 is a lighter, though, I think that's your point, is lighter from the number of days in the quarter due to holidays, Thanksgiving and Christmas here in the U.S. and Boxing Day, if you will, in Canada. But we still expect from a profitability perspective to be our mix to kind of get us to that 11%. Zachary Marriott: Understood. That's responsive. And then corporate expenses aren't something we talk about too much, but there has been some variability just worth asking about today. The Q3 number you just reported was just under $26 million. Is that a fair proxy for what we should assume going forward? And what might bias that number higher or lower as you move through the coming quarters? Kent Yee: Yes. So there was a couple of unique things in there that I think David and I both called out in our scripts. One, we just -- and this is the first year, we flipped our insurance renewal from a calendar year to a midyear. And so that created July as when you're paying all the premiums, a little bit of an elevated level. On top of that, from an insurance perspective, no different than any other company, our insurance overall premiums have gone up slightly. So that's what you're seeing from July going forward, if you will. And so in Q4, I think you will see from a percentage basis, very similar. The other thing we experienced was just higher -- we're self-insured and we play on a claims basis from a health insurance perspective, and we had some unique claims come through, if you will, in Q3. That I can't forecast right now whether that will happen in Q4 or not, but that created an elevated level of cost, if you will, that's flowing through that corporate SG&A number. And then once again, we're acquisitive, as everyone knows. And so just more so timing than anything else, but we've been busy here, if you will, in Q3 from an acquisition standpoint. So our professional fees, if you will, and costs kind of were elevated here in Q3. That will continue. We have a very robust pipeline, but that will continue in Q4 and into Q1 for sure, just given our pipeline from an acquisition standpoint. So hopefully, that gives you additional color there on that SG&A line. Zachary Marriott: Last one for me. Can you please touch on any data center exposure or opportunities you guys may have? David Little: Sure. I'll take that. We're looking at a lot of different avenues based on the products that we represent. So we represent pumps, we represent water, represent filtration. And so all these data centers are -- and we also represent power and equipment that handles gas and other things. So we have an opportunity there. We're trying to do best we can to figure out how to tap into that market. We are getting a little bit here and there, but it's not been a big market for us. We feel like it can be from -- and so we're attacking it pretty hard. It's pretty diversified across the country. So trying to get on top of all the projects and trying to get some credibility, I guess, with the fact that we can do a lot of things is what we're doing. But really, at this point, I'm going to tell you that it's not been a big win for us. And yet, I think it's a great opportunity. Operator: There is no further questions at this time. I will now turn the call back over to David Little for closing remarks. David? David Little: Yes. First, let me thank all our DXPeople for certainly setting record sales. I think that's awesome. I think as we manage the company, the hardest thing we do is satisfy customers and get bookings and sales. So expenses, they were a little surprising, but they were really for all the right reasons and for the things that are necessary for us to be a growth-oriented company. So I'm not concerned about that. There's nothing really broken about DXP where we add acquisitions, expenses and the dollars are certainly going up, but it was a little concerning that the expense percentage went up. So -- so we're not crazy about that, but it's certainly a lot easier to fix than sales. I also want to thank our suppliers. It seems like they're doing a much better job with deliveries, and they're trying to manage their costs the best they can and keep us competitive in the marketplace. And we pass on those increases, but -- and that seems to be working all right. I'm pretty proud of the fact that we've got our gross profit margins up slightly and maybe a better statement is they're certainly holding. So I feel good about that. Of course, thanks to our shareholders and thanks for everybody supporting DXP. In summary, I think you can just say, well, we just had record sales. Gross profit margins are good and holding. Expenses were a little higher than expected, but they were for all the right reasons. Free cash flow improved at $28.2 million, which is great. We continue to hit adjusted EBITDA margins of 11%. We're excited about that. If we have any negatives, it would be a little bit in the booking side and that we trace that back to kind of our smaller piece of oil and gas that we have today. That market is still struggling as far as growth is concerned. And -- but they tell me even there that quoting activity is up and doing well, and we just got to get from the quote to the bookings. But anyway, so we're not concerned about any particular markets. We're not concerned about tariffs. We're not concerned about our government as it affects DXP. And so we feel good about our future. And so thank you for joining our call today, and we look forward to talking to you next quarter. Thanks. Operator: That concludes today's call. You may now disconnect.
Operator: Good afternoon, everyone, and thank you for joining today's Century Aluminum Company Third Quarter 2025 Earnings Conference Call. My name is Regan, and I'll be your moderator today. [Operator Instructions] I would now like to pass the conference over to our host, Ryan Crawford with Century Aluminum. Please proceed. Ryan Crawford: Thank you, operator. Good afternoon, everyone, and welcome to the third quarter conference call. I'm joined here today by Jesse Gary, Century's President and Chief Executive Officer; and Peter Trpkovski, Executive Vice President, Chief Financial Officer and Treasurer. After our prepared comments, we will take your questions. As a reminder, today's presentation is available on our website at www.centuryaluminum.com. We use our website as a means of disclosing material information about the company and for complying with Regulation FD. Turning to Slide 1. Please take a moment to review the cautionary statements with respect to forward-looking statements and non-GAAP financial measures in today's discussion. And with that, I'll hand the call to Jesse. Jesse Gary: Thanks, Ryan, and thanks to everyone for joining. I'll start today with a note on safety before turning to our Q3 operational performance, including our time line for resuming full production at Grundartangi. I'll then update you on some of our key strategic initiatives, including progress on the Mt. Holly expansion project, our Hawesville strategic review and our new U.S. smelter project before concluding with a discussion of the outstanding global market conditions that we are operating in today. Pete will then walk you through our Q3 results and our Q4 guide and provide an update on the receipt of our fiscal year 2024 45X payment from the government, which occurred shortly after quarter end. I'll then end the call with an update on our capital allocation plans. Safety is core to everything we do here at Century. Every so often, the company is faced with extraordinary events frequently outside of our control that give us an opportunity to live up to our words and demonstrate our commitment to these core safety values. As everyone knows, on October 28, Hurricane Melissa made landfall in Jamaica as one of the strongest hurricanes to ever make landfall in the Atlantic Basin. I'm proud to say that through the dedicated planning, hard work and readiness of our Jamaican team members, Jamalco weathered this catastrophic storm, protecting the refinery from any significant damage and most importantly, without suffering a single injury. Not only did the team secure the well-being of the facility and our employees, but then immediately began to provide assistance to the surrounding communities, providing potable water to local towns, villages and hospitals following the storm. We will continue to work with the government of Jamaica and our partners at Claredon Alumina Partners to identify areas of need and provide support where we can. So we are very proud of the team at Jamalco. I'm pleased to say that production has already restarted at the refinery, and we expect to resume full production over the next couple of weeks. We do not believe that the storm or its aftermath will have any material impact on our financial results. Turning to Page 3 and operations. As we announced on October 21, the Grundartangi smelter was forced to temporarily stop production in potline 2 following the failure of 2 of its electrical transformers over a 7-week period in September and October. Fortunately, the team at Grundartangi was able to execute a safe and orderly shutdown of the potline despite these failures, tapping down the pots without injuries and leaving the line in as good a shape as possible for restart. These transformer failures were very disappointing as both were well within their expected life. We are working with the designers and manufacturers of the transformers to better understand what caused these failures. The team at Grundartangi is wasting no time and has already begun preliminary preparations to restart production in Line 2. The time line for restart is dependent on how quickly replacement transformers can be manufactured, shipped and installed. Based on current estimates, we expect that it will take 11 to 12 months for this work to be completed. Of course, we are working hard to optimize and reduce the time line for restart on several fronts, including the potential to repair and reuse the failed transformers for some time period before the replacement transformers arrive. Although we are not yet certain this approach will be possible, we are working with the designer and manufacturer of these transformers to assess this path. If successful, the repair path could reduce the time line for restart by several months. We will continue to provide you with updates on restart timing on our next earnings call. Finally, we have submitted initial claims to our insurers and continue to expect that the losses arising from these events will be covered under our property and business interruption insurance policies. Turning to Mt. Holly. We are pleased to announce last month that we signed an extension to the Mt. Holly power agreement through 2031. In addition to supporting the current operations, the new agreement provides all of the necessary power for our previously announced restart of more than 50,000 metric tons per year of incremental production at Mt. Holly, which will return the plant to full production. The Mt. Holly restart project is making great progress with hiring and capital work already underway at the site. We continue to expect that we will begin to produce incremental units at the beginning of Q2 2026 and complete the restart by the end of June. Production of the additional units will gradually increase throughout the second quarter. Unrelated to the restart, we did suffer some instability in Mt. Holly production in Q3 that resulted in production from the plant falling below expectations by approximately 4,000 tonnes in Q3. Pete will provide you with more color on the impact on our Q3 results. This instability was fully resolved by mid-October, and the plant has been operating at normal production levels ever since. We do not expect any further production impact after October. Finally, at Sebree, we had another quarter of near record performance across a suite of operational and financial KPIs. The plant, our management team and our employees there are really performing at the top of their game, and it's great to see. Turning to our other strategic initiatives, starting with Hawesville. After our last call, we received a significant amount of additional interest in the site, including from new parties, which led us to extend the strategic review process. We are now proceeding with the final stages of those discussions with new and existing parties now. Suffice to say, there's been lots of excitement around the potential of the site. At the same time, rising aluminum prices and continued global shortages continue to bolster restart economics at the Hawesville site and for our new greenfield aluminum smelter project. Once built, the new smelter project will be amongst the most modern and efficient smelters in the world. It will double the size of the existing U.S. industry, creating over 1,000 full-time direct jobs and over 5,500 construction jobs. During the quarter, we advanced negotiations with potential power providers. Good progress in this regard means we are now focused on a single site and power provider for the new smelter. We have also had lots of interest from potential joint venture partners for the smelter and have started discussions with select high-quality counterparties. While these conversations are still at the early stages, we are encouraged with the interest levels we have had to date and now see some form of partnership as the most likely path forward with the project. Altogether, President Trump's policies have enabled a future where we could see U.S. production triple by the end of the decade. We here at Century are proud to do our part to make this future a reality and bring industrial jobs back to America. I'd like to thank President Trump for the significant actions that he and his administration have taken to restore American manufacturing and stand up for American workers. The Section 232 tariffs have truly enabled a new future for the U.S. aluminum industry. Just before I turn things over to Pete, I'd like to review the very strong market conditions that we are operating in today and that we see persisting well into 2026. As you can see on Page 4, Q3 saw aluminum prices rise across the complex as continued global demand growth paired with a persistently challenged supply side drove realized LME prices of $2,508 in the quarter and continue to drive spot aluminum prices to approximately $2,850 today. As you can see on Page 5, the world has a shortage of aluminum units today, driving further contraction of global inventories to new post-financial crisis lows and leaving the market sensitive to even the slightest supply disruptions or increase in demand. This is especially true in our 2 core markets in the U.S. and Europe. Regional premiums in the U.S. and Europe both strengthened in Q3 as the fundamentally strong U.S. economy and improving European industrial activity drove demand and caused premiums in both markets to rise, while raw demand in both markets was especially notable driven by the well-publicized power infrastructure build-out. Power and data infrastructure build-out should continue to drive additional aluminum demand as we move forward into 2026. Realized Midwest and European premiums averaged $1,425 and $193 per ton, respectively, in the quarter and have risen further in Q4 with Midwest premium spot prices at $1,950 and European duty paid premium spot prices at $320 today. As we start to conclude the 2026 sales season, we are seeing increased demand across our customer base for all of our U.S. billet products. As the largest producer of primary aluminum in the United States, Century stands ready to meet this demand. We now expect that we will see an approximately $0.05 year-over-year increase across our 2026 billet sales, which should generate an additional $30 million of 2026 EBITDA. Pete will now take you through our financial performance in more detail. Peter Trpkovski: Thank you, Jesse. Let's turn to Slide 7 and review our Q3 performance. On a consolidated basis, third quarter shipments totaled approximately 162,000 tonnes, a decrease from the prior quarter due to brief operational instability at Mt. Holly and the Grundartangi transformer failure. Net sales for the quarter were $632 million, a $4 million increase primarily due to higher realized Midwest premium, partially offset by lower shipments. For the quarter, we reported net income of $15 million or $0.15 per share. Our adjusted net income was $58 million or $0.56 per share, excluding exceptional items. Adjusted EBITDA was $101 million for the quarter, mainly driven by the increased Midwest premium price, partially offset by lower volumes and product premiums at Mt. Holly in the quarter. Moving on, we continue to make progress on improving our balance sheet during the quarter. Liquidity increased to $488 million, up $125 million quarter-over-quarter, and our cash balance stood at $151 million. The significant increase in liquidity and cash metrics reflects receipt of the proceeds from refinancing our senior notes, which was finalized in July. We recently used the proceeds to pay off the remainder of the Icelandic castthouse facility as intended. Net debt was $475 million, a slight increase from prior quarter due to a normal working capital build I will discuss later. As Jesse mentioned, we were pleased to receive our fiscal year 2024 45X payment of approximately $75 million from the IRS in October, which will help to significantly lower our net debt amount in Q4. Despite some lower-than-anticipated production output this quarter, our core financial performance remains strong and demonstrates the underlying strength of our business. Now let's turn to Page 8, and I'll provide a breakdown of adjusted EBITDA results from Q2 to Q3. Adjusted EBITDA for the third quarter increased $27 million to $101 million. Realized LME of $2,508 per ton was down $32 versus prior quarter, while realized U.S. Midwest premium of $1,425 per ton was up $575. The benefit from higher Midwest premium was slightly offset by lower realized European duty paid premium down $26 per ton to $193. Taken together, LME and regional premium pricing contributed an incremental $48 million compared with the prior quarter. Energy costs were higher, driven by a warmer-than-average end of summer in the U.S. and higher LME prices impacting our Icelandic power contracts that are linked to the spot metal price. Energy prices have returned to more normalized levels in October, but the Q3 headwind reduced adjusted EBITDA by $9 million. Alumina and our other key raw materials were approximately flat in the quarter, in line with our previously provided outlook. Continued pressure on the U.S. dollar compared to the Icelandic krona resulted in a quarter-over-quarter headwind that was offset by lower operating costs. However, our operating costs were slightly elevated compared to expectations as additional maintenance costs were required following the brief potline instability at Mt. Holly that Jesse mentioned earlier. Mt. Holly is back to full and stable production, but this event resulted in lower Q3 production, translating into approximately a $10 million headwind compared to our expectations. Now let's turn to Slide 9 for a look at cash flow. We began the quarter with $41 million in cash. In July, we successfully completed the refinancing of our $250 million senior secured 7.5% notes with new $400 million senior secured notes at an improved coupon. As we explained at the last call, the proceeds from this transaction were used to pay down the outstanding debt on the new Icelandic casthouse. This debt repayment occurred early in Q4 and will be reflected in our Q4 financials next call. Our priority to lower debt and achieve the $300 million net debt target remains unchanged. We funded $16 million of CapEx in the quarter that went towards ongoing investments at Jamalco as well as sustaining CapEx at the smelters. We paid $12 million in interest during the quarter that will decrease going forward as the recent refinancing transaction was completed at an improved coupon of 6.875%. We also paid down various credit facilities to end the period with minimal borrowings on our revolvers. We continue to accrue 45X tax credits in Q3. As of September 30, we had a receivable of $220 million related to full year 2023, 2024 and 2025 year-to-date U.S. production. As I noted earlier, in October, we were pleased to receive $75 million from the IRS from our Section 45X filing for fiscal year 2024. We continue to expect to receive the fiscal year 2023 credit in the coming months. Finally, we had a working capital build this quarter as timing of alumina shipments increased inventory levels and the higher price environment for LME and Midwest premium increased accounts receivable balances. We expect to improve our working capital as we approach year-end. We ended Q3 with $151 million in cash and strong liquidity in place to support our Mt. Holly expansion. The Restart project is on schedule and progressing well. We will begin to call out the cash outlays in future quarters as capital and operating expense dollars from the Mt. Holly project become more material. Now let's turn to Page 10 and look ahead to the next 90 days. At current realized prices, we expect Q4 adjusted EBITDA in the range of $170 million to $180 million. For Q4, the lagged LME of $2,705 per ton is expected to be up about $197 versus Q3 realized prices. The Q4 lagged U.S. Midwest premium of $1,775 per ton is up $350 versus Q3. The realized European duty paid premium is expected to be $275 per ton in Q4 or up about $82. Taken together, the lagged LME and delivery premium changes are expected to have an approximately $65 million increase to Q4 adjusted EBITDA when compared with Q3 levels. We expect similar energy price levels in Q4 as U.S. energy costs are forecasted flat to previous quarter and are expected to have no impact on quarter-over-quarter adjusted EBITDA. Coke, pitch and caustic prices have modest increases, but are partially offset by carbon emission allowances, resulting in a potential headwind of $0 to $5 million quarter-over-quarter impact. We expect our Q4 operating expense costs to improve by $0 to $5 million. Volume and mix should also improve by $10 million as Mt. Holly has returned to full pot complement following the brief instability in Q3. At Grundartangi, the Line 2 outage is expected to negatively impact shipments by 37,000 tons and EBITDA by $30 million in the fourth quarter. As Jesse said, we expect the financial impact of the Line 2 outage to be covered by our insurance policies. Of course, the insurance proceeds could lag the actual loss by a couple of quarters. We will normalize the timing of the insurance payments by adjusting EBITDA in the period where the financial impact occurred and adjusting out the receipt of the insurance proceeds in future quarters. We'll continue to call out the adjustments as exceptional items in the coming quarters, and we have already included this adjustment in our Q4 adjusted EBITDA outlook. We also include the estimated hedge and tax impacts to help model our business. We expect a $10 million to $15 million headwind from realized hedge settlements and $5 million tax expense, both flowing through our Q4 P&L and impacting adjusted net income and adjusted earnings per share. As a reminder, our appendix details the full hedge book and continues to show the vast majority of LME and regional premium volumes are exposed to market prices. Now I'll hand the call back to Jesse. Jesse Gary: Thanks, Pete. As we begin to look forward to 2026, the business is well positioned to generate significant cash flows over the balance of this year and throughout 2026. For instance, if you were to take our Q4 outlook and just update for spot metal prices, our expected adjusted EBITDA generation would increase by approximately $45 million to $220 million. The incremental Mt. Holly restart tonnes should further increase profitability starting in Q2 2026. In addition to strong EBITDA generation, we had $220 million in Section 45X receivables at the end of Q3, and we received our 2024 45X refund amount of $75 million in October. At these levels of EBITDA generation and the anticipated receipt of cash against our 45X receivables over the coming months, we are well positioned to reach our net debt target of $300 million early in 2026. We are already well above our liquidity targets. Per our capital allocation framework included in the appendix, once we meet our capital allocation targets, we will continue to first allocate capital to our sustaining capital projects and identified organic growth projects. A good example here is our Mt. Holly expansion project that should be complete by the end of Q2 2026. In line with our standard practice, we will provide updated guidance on sustaining and investment capital spending for 2026 on our February call. As we have cash flows beyond our capital needs, we will continue to be opportunistic but disciplined with M&A opportunities like our acquisition of Jamalco in 2023 and otherwise look to begin to return excess cash to our shareholders. As we approach our net debt target, we thought it would be useful to provide some further guidance on the types of capital returns that we would anticipate once we have met our targets. While we are not announcing any actions today, we have started to assess our options, including listening to shareholder feedback that we receive from time to time. This feedback has been overwhelmingly in favor of the share buyback program as a means of returning capital to shareholders. We expect to come back to you all with further details and announcements as we move into 2026, including the amount and timing of any potential share repurchase programs. Thanks to everyone for joining us today, and we look forward to taking your questions. Operator: [Operator Instructions] Our first question comes from the line of Nick Giles of B. Riley Securities. Fedor Shabalin: This is Fedor Shabalin Selin on Nick Giles. And thanks for detailed report. I wanted to start with Mt. Holly. So if we were to isolate the Mt. Holly restart, which is roughly 50,000-plus tonnes, is it kind of safe to assume that this could generate in excess of $60 million in EBITDA at spot prices? And on the CapEx side, how much of CapEx has been already spent to date? And when would we expect you to achieve full run rate? You mentioned it starting Q2 and finish restart by June, if I correct, 2026, does it assume 100% utilization at this time? Jesse Gary: Sure. Thanks for joining the call. This is Jesse. Yes. So we're, as I said, well on track with the Mt. Holly restart, and we started the initial hiring and started some of the initial capital spending. But CapEx spending to date has been relatively minimal. You'll see more of that come in, in Q1 and Q2. In total, as we said before, the total project should be somewhere in the neighborhood of $50 million project spend. In terms of the additional EBITDA that we generated from the project, so you'll start to have units coming on in Q2 and then should be at full run rate starting in Q3. Once it reaches full run rate at spot prices today, the additional volume should generate about $25 million in additional EBITDA per quarter. Fedor Shabalin: This is helpful. And it would be great to get some additional perspective on how you're thinking about capital allocation. You already mentioned this. So your liquidity and net debt are roughly even amounts above your stated targets. So you're kind of indirectly at your target in some sense. And at what point will we consider high capital returns? And would you prefer buybacks or dividends? And then on the M&A side, would downstream opportunities be on the table? Jesse Gary: Sure. So yes, as I mentioned, we have been -- given the significant cash flow that we have today and that we see generating going forward, especially when you consider the lagged payments of those 45X payments that are on our books, and just to note again, we did receive the first tranche of those 45X payments from 2024 fiscal year of $75 million in October. So you'll see that come through in our Q4 results. We do think that we will be in a position to reach those net debt targets in 2026. Once we do, we've spent a lot of time thinking about this, and we spent a lot of time talking with our shareholders, and there is a clear stated preference for buybacks. And so as we think about it today, that's the most likely form of capital return once we do reach those targets. Operator: Our next question comes from the line of Katja Jancic of BMO Capital Markets. Katja Jancic: Maybe starting on Iceland. Did you say the repairs will take 11 to 12 months, but there is potential for you to accelerate the restart of the potline? Jesse Gary: That's right, Katja. So we're proceeding on 2 paths. The first path is the full replacement of those transformers. And there, we'll have to wait for the new transformers to be manufactured and then shipped to Iceland and then installed and then restart, and that's in that 11- to 12-month time line that I gave. At the same time, we're investigating whether the damaged transformers can be repaired. And we're hopeful that, that will be the case, but we have additional work to do to prove that out. If we are able to follow repair path, we would still order the new transformers, but the repair transformers would allow us to bring production back online several months in advance of that 11- to 12-month time line for replacement. Katja Jancic: Okay. And then on the insurance side, so would insurance cover for if the potline stays down for 11, 12 months, will insurance cover fully those 11 to 12 months? Or are there any restrictions? Jesse Gary: Yes. Our expectations today is that our policy limits are high enough that they will cover both the property and business interruption costs of the outage up to and including that 11- to 12-month time line that I gave. Of course, we have deductibles, the deductibles on the policy of $15 million. But above that, we will -- we expect to fully recover the losses. Katja Jancic: Okay. Maybe shifting to Hawesville. When do you think given the extension of the review process, are you think -- is there any time line when you think we could get a final decision? Jesse Gary: No time line. As I said, we've had a really good process from the beginning. But over the course of Q3, we did have a new surge of interest. And so we decided to then extend that time line to allow that new interest to come in and do some due diligence on the site. It's very positive interest, I'll say. And so we want to give them time, and we're working with them to proceed sort of as quickly as possible, but it's difficult to give an exact time line at this point. Katja Jancic: And does the review still include a potential restart? Jesse Gary: Yes. As we've always said, our goal here as part of the strategic review process is to see what the interest is in the site and what the potential value of the site is. And then we'll compare that versus the economics of a restart, and we'll make the best decision for our stakeholders. Operator: Our next question comes from the line of John Tumazos from Independent Research. John Tumazos: Of course, it's always hard to predict costs and there's uncertainties in hedging. But given how good things are right now, can you lock in the $110 larger billet premium with contracts, so it's certain next year? Are you able to hedge the Midwest premium that was $0.87 the other day. There are futures. And would you increase your LME metal hedging? Jesse Gary: Thanks, John. No change to our overall hedging policy. So as we've said all along, the main portion of our hedging program, and you can see the details on Slide 17 of the presentation, is to offset market power price risk that we have at Sebree. And so as you see from that slide, we've got about 22% of the megawatts for Sebree hedged for fiscal year 2026. And then we'll generally sell a little bit of metal, both Midwest premium and LME against those power price hedges to lock in some margin for Sebree. And the amounts that you see in the appendix are about normal for that program going forward. Aside from this, we did enter into a little bit of Midwest premium hedging when we made the decision to do the Mt. Holly expansion project and to lock in those returns that we've laid out for you where we expect the cost of that project to be fully repaid by the end of 2026. But other than that, our expectation is to remain exposed to the metal price and to offer that exposure to our shareholders. Now John, you did mention billet. In the U.S., we operate on an annual contract for our billet sales. And so most -- the vast majority of our billet sales in 2026 will be locked in at those prices that I quoted earlier for full year 2026. We do tend to leave a little bit of billet exposed to market prices throughout the year to pick up some spot exposure, but the vast majority of that will be locked in at those premiums that I gave earlier. John Tumazos: Jesse, the different news networks were suggesting yesterday that some of the Supreme Court justices might rule against Trump's tariffs. And of course, the 50% aluminum is very helpful to Century. And then 9 of the 23 presidential elections, off-year elections, the President's party has lost 40 to the House of Representative seats since 1934 is playing with political statistics noodling. So there's a chance that things don't stay this well from a regulatory standpoint. Do you think this is a good time to sell the company? Jesse Gary: John, this one is pretty clear. The Supreme Court case relates to what are called the IEEPA tariffs or sometimes known as the Reciprocal tariffs only. They do not relate to the Section 232 tariffs, which are where the steel and aluminum tariffs are under. The Section 232 tariffs have already been upheld in court and will not be impacted by the Supreme Court case pending on the IEEPA tariffs. John Tumazos: So let's just say my thesis is wrong. Do you think this is a good time to sell the company anyway? Jesse Gary: No, John, the company is not for sale. We are very excited about our prospects. We're excited about the cash flow generation that were available to show our shareholders. We're excited about our growth opportunities at Mt. Holly with the positive strategic review process, with the greenfield project as well as the increasing demand we're seeing across the United States. So our focus is really we're going to continue to try to produce aluminum as profitably as possible, supply units into the U.S. and European markets and continue to execute on our strategic plan. Operator: We have a follow-up question from Nick Giles of B. Riley Securities. Fedor Shabalin: This is Fedor again. My question is kind of a continuation of John's topic. So the [indiscernible] have been indicating very, very tight domestic inventories, which has supported stronger Midwest pricing. So -- and if prices continue to strengthen, do you think that could influence the administration's decision to keep 232 in place with no exclusions? And then on the other side, if we saw a Canadian exclusion, for instance, how do you think about Midwest premium? I know that Canada is not a marginal [indiscernible] into the U.S., but I have to imagine there would be some downside risk. Jesse Gary: Fedor, I think it's important to step back and look at the purpose of the Section 232 tariffs, which was to increase U.S. domestic aluminum production to meet national security needs. And when we look at the program and the response of industry, it's really doing just that, and Century is proud to be doing its part. So just to name a few of those projects that are coming online, the Mt. Holly restart project that we're implementing and will be up by mid next year will, by itself, increase U.S. production by 10% from levels today. So that's a significant increase. And then we've announced our own greenfield project and one of our competitors has announced their own greenfield project and together, along with the Mt. Holly restart, that would triple U.S. aluminum production by 2030. So I think that the tariffs are working as intended. They're driving industry to reinvest in adding production here in the United States and adding American aluminum jobs here in the United States. So the program seems to be working. And I think the administration has been quite clear that they'll continue to do their part and keep the tariffs in place with no exemptions and no exceptions going forward. Fedor Shabalin: And promise, if you allow me to squeeze the last one. It was great to see new power agreement with Santee Cooper for Mt. Holly, where you have cost of service-based rates. And I wanted to ask about Sebree, where you're exposed to Indy Hub. What is the appetite to book incremental hedges for '26 and '27, especially given the expectations for increased electricity demand from data centers in this region? Jesse Gary: Yes, we also were very excited about the Mt. Holly contract. That's a very long extension for us, gives us very good line of sight into next decade and was one of the keys in enabling us to restart production there. So we're really excited about what's to come at Mt. Holly, very good smelter, very profitable in today's environment. At Sebree, likewise, the plant is operating excellent. We continue to invest in that plant. And we've been operating now under this market-based power contract for over a decade. And we've become very comfortable with the way it works. And we think over time, it's been the most cost-effective power contract actually that we have in our entire system. Now as I mentioned earlier, we do some risk mitigation with that, and we've generally been hedging those power prices about 20% to 30% of our exposure on an annual basis. And we think that's a pretty good percentage of the overall power risk for us to lay off and puts the smelter in a good place to continue to be profitable and operate well through the cycles. So we're comfortable with that hedging program at that level. Of course, we'll always be looking and opportunistic, but we expect to continue our hedging programs as we have in the past as we move forward. Operator: There are currently no questions at this time. So I'll pass it back over to management for any closing or further remarks. Jesse Gary: Thanks, everyone, for joining the call. At Century, we're really excited about the end to 2025 and what's to come in 2026, and we'll continue to execute to the best of our abilities. Thanks all. Look forward to talking to everyone in February. Operator: Thank you. That will conclude today's conference call. Thank you for your participation. You may now disconnect your lines.
Operator: Good afternoon, and thank you for attending the Alta Equipment Group Third Quarter 2025 Earnings Conference Call. My name is Harry, and I'll be your moderator for today's call. I will now turn the call over to Jason Dammeyer, Vice President of Accounting and Reporting with Alta Equipment Group. Please go ahead. Jason Dammeyer: Thank you, Harry. Good afternoon, everyone, and thank you for joining us today. A press release detailing Alta's third quarter 2025 financial results was issued this afternoon and is posted on our website, along with the presentation designed to assist you in understanding the company's results. On the call with me today are Ryan Greenawalt, our Chairman and CEO; and Tony Colucci, our Chief Financial Officer. For today's call, management will first provide a review of our third quarter 2025 financial results. We will begin with some prepared remarks before we open the call for your questions. Please proceed to Slide 2. Before we get started, I'd like to remind everyone that this conference call may contain certain forward-looking statements, including statements about future financial results, our business strategy and financial outlook, achievements of the company and other nonhistorical statements as described in our press release. These forward-looking statements are subject to both known and unknown risks, uncertainties and assumptions, including those related to Alta's growth, market opportunities and general economic and business conditions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. Although we believe these expectations are reasonable, we undertake no obligation to revise any statement to reflect changes that occur after this call. Descriptions of these and other risks that could cause actual results to differ materially from these forward-looking statements are discussed in our reports filed with the SEC, including our press release that was issued today. During this call, we may present both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in today's press release and can be found on our website at investors.altaequipment.com. I will now turn the call over to Ryan. Ryan Greenawalt: Thank you, Jason, and good afternoon, everyone. I appreciate you joining us to review Alta Equipment Group's third quarter 2025 results. I'll begin with an overview of our performance, highlight trends across our business segments and share why we're optimistic headed into Q4 and 2026. Our team once again demonstrated focus and discipline through what remains a turbulent macro environment. Despite persistent headwinds related to tariffs, manufacturing softness and customer caution, Alta employees continue to perform exceptionally well, demonstrating our culture of accountability, customer focus and operational excellence. While equipment sales were challenged this quarter, the underlying tone of demand improved steadily through September and into October, which turned out to be our strongest month of the year for new equipment sales, predominantly within our Construction Equipment segment. Our Construction Equipment sales in October alone topped $75 million, which is nearly 60% of our entire equipment sales in Q3. With that, we believe the pattern witnessed in the third quarter reflected a shift rather than an indication of softness as customers seemingly elected to push purchases from Q3 into Q4 as they awaited more definite signals on interest rate direction and year-end tax benefits under the One Big Beautiful Bill Act. That timing dynamic, coupled with greater confidence in backlogs and financing sets the stage for what we believe is the beginning of a fleet replenishment cycle. As we sit here today, our backlog in Material Handling remains over the $100 million mark, helping to provide visibility for the next several quarters. Even with muted volumes during the quarter, productivity and cash flow remained resilient. SG&A is down roughly $25 million year-to-date, driven by structural cost savings, improved efficiency and a disciplined execution. Those efficiencies are now embedded in our run rate and provide for operating leverage as the market rebounds. Turning the focus now to our Construction segment. Our Construction Equipment segment performed admirably given continued tightness in private capital spending. Demand from customers tied to long-term fully funded infrastructure work remains strong. In Florida, permitting activity on large DOT and Corps of Engineers projects has accelerated, translating to greater deliveries early in Q4. In Michigan, the legislature's record $2 billion road and bridge funding package is already driving new bid activity and multiyear visibility. These are durable tailwinds that reinforce our position as a key equipment partner on essential public works projects. Taken together with rate relief and the tax incentives of the Big Beautiful Bill, we see construction entering a healthier demand phase. Industry data suggests we're bottomed -- we've bottomed in the general purpose construction markets throughout our various APRs, positioning Alta for growth as replenishment gains momentum in 2026. In this regard, we've prepared a new slide this quarter, Slide 7, which shows the industry volume disconnect we've experienced from our regional norms, specifically in the last few years. We believe a reversion to normal industry levels in our APR can quickly return some of the volume losses we've experienced. And given some of the tailwinds we see, the environment is prepared for a rebound. Turning over to our Material Handling segment. Industry volumes have also exhibited multiyear softness as illustrated on Slide 7. Material Handling revenue was essentially flat year-over-year. The Midwest and Canadian markets remain soft, primarily due to automotive and general manufacturing weakness. In contrast, our food and beverage and distribution customers continue to perform well. We're seeing early signs of recovery in automotive demand, the ongoing -- sorry, automotive demand, the ongoing reindustrialization of U.S. key regions, particularly the Great Lakes Mega region is creating powerful long-duration demand tailwinds across Alta's end markets. As manufacturers, logistics, operators and infrastructure investors expand capacity in these high-growth corridors, the need for reliable material handling, construction and power solutions continue to rise. Nowhere is this more evident than in the power and utility sector where investment in grid modernization, renewable integration and data center infrastructure is accelerating. Alta is uniquely positioned to capitalize on this trend, combining our deep regional footprint, OEM partnerships and product support capabilities to serve the expanding industrial base and the critical infrastructure that underpins it. During the quarter, we completed the divestiture of our Dock and Door division, another deliberate step in sharpening our portfolio and focusing resources on our core dealership operations. This transaction reflects our commitment to capital discipline and reinvestment in higher return areas of the business. Alta's business optimization efforts are centered on strengthening the company's flywheel, delivering the right product to the right customer executed by the right people, while deepening the resilience and profitability of our core operations. Through disciplined execution, we are streamlining workflows, sharpening accountability and improving customer cost to serve across every business line. Product Support remains the engine of Alta's value creation model, driving reoccurring revenue and lifetime customer relationships through best-in-class parts, service and rental solutions. At the same time, we are refining our product portfolio to concentrate capital and talent around the brands, segments and geographies that align most directly with Alta's long-term strategy and OEM partnerships. Together, these actions form a cohesive approach to business optimization, reinforcing operational excellence, advancing our unified strategy and accelerating the virtuous cycle of customer intimacy and sustainable growth. In closing, as we enter the fourth quarter, we're seeing tangible signs of recovery across our business. Deferred demand from the third quarter is now flowing into the pipeline, supported by a steady acceleration in infrastructure and public works funding across our key markets. At the same time, recent interest rate reductions and the incentives introduced under the One Big Beautiful Bill are beginning to restore contractor confidence, creating a more constructive environment for capital investment and sustained customer activity heading into year-end. In short, we believe this -- the industry is turning the corner, and Alta is exceptionally well positioned to capture that upswing. Before turning it over to Tony, I want to thank all 2,800 members of team Alta for their focus, execution and commitment to our purpose of delivering trust that makes a difference. Your resilience and customer dedication continue to define who we are and how we win. With that, I'll hand it over to Tony Colucci to walk through the financials in more detail. Anthony Colucci: Thanks, Ryan. Good evening, everyone, and thank you for your interest in Alta Equipment Group and our third quarter 2025 financial results. Before getting into the quarter, I want to begin by recognizing our employees, customers and partners for their support in Q3. Our business model is resilient, but it takes commitment, collaboration and trusting partnerships to execute on that resiliency day-to-day. Thank you to all. My remarks today will focus on 3 key areas. First, I'll present our third quarter financial results, which reflect a challenged equipment sales and rental environment overall, although we believe some of these challenges may be dissipating. As part of that discussion, I'll give a brief financial overview of the quarter for each of our 3 segments. Lastly, I'll touch on the balance sheet and cash flows for the quarter. Second, I'll be presenting what we believe to be the company's bridge back to $200 million of EBITDA and the factors impacting that bridge. Lastly, I'll discuss our expectations for the remainder of the year on both adjusted EBITDA and free cash flow before rent-to-sell decisioning. Throughout my remarks, I'll be referencing information presented on Slides 10 through 21 in our earnings deck. I encourage everyone to follow along with the presentation and review our 10-Q, both available on our Investor Relations website at altg.com. First, for the quarter, the company recorded revenue of $422.6 million, a 5.8% organic reduction versus last year. Revenues retreated sequentially in the quarter, mainly on equipment sales. However, Product Support remained steady and was up sequentially versus Q2 as I'll remind investors that our parts and service departments continue to act as an annuitized and stable cash flow stream in what is clearly a volatile equipment sales environment. As it relates to equipment sales, as mentioned, we believe that similar to last year, customers pushed off capital spending in Q3 for more clarity on interest rates and their own business' annual performance relative to the tax incentives available in the Big Beautiful Bill. Both of those factors, we believe, helped drive our highest equipment sales number of the year in October and provides a tailwind for Q4 equipment sales overall. Lastly, rental revenues are down $5.3 million year-over-year, but up $2.1 million sequentially, with the year-over-year decrease largely related to our strategic decision to reduce the size of our rent-to-sell fleet as we focus on better utilization and ultimately enhance returns on investment in rental fleet. Now focusing in on the segments for the quarter. First, Material Handling. As mentioned previously and as presented on Slide 11, new and used equipment in our Material Handling segment were down a modest $1.6 million year-over-year. But notably, the line was up on a sequential basis. As despite industry bookings for new forklifts continuing to run below historic norms, we have been able to keep pace with the prior year through selling allied lines and tariff-free used equipment to our customer base. Also important to note, and as Ryan mentioned, that despite demand challenges for the industry, Alta continues to carry a healthy backlog of equipment, over $100 million worth of new allied and used equipment into Q4. In terms of Product Support revenues, while we continue to run behind last year's pace in parts and service, most predominantly in our Midwest and Canadian geographies, I mentioned on our Q2 call that we believe that we have found a bottom in these departments, and that dynamic played out in Q3 as Product Support revenues in material handling outpaced the second quarter by nearly 4%. As noted on Slide 11, adjusted EBITDA was up year-over-year and sequentially versus Q2, coming in at $17.5 million in Q3 for the segment. On to our Construction segment and as highlighted on Slide 12. As a precursor to my comments, I would reset for investors that equipment sales in our CE segment can be and have historically been volatile, especially when compared to equipment sales in our Material Handling segment and certainly when compared to our other revenue streams. This volatility has certainly been evident in both 2024 and 2025 as macro factors such as interest rates, tax laws, election fears, tariff and trade policy uncertainty and customer backlog and local funding can all impact the CE customers -- CE segment customers' decisioning on when to purchase a piece of equipment. With that as a backdrop, we saw equipment sales in our CE segment drop $18.7 million versus last year Q3. That said, based on what we saw in October, we believe Q3 will be an anomaly as customers pushed ahead decisioning in Q4 given the expectations for interest rate reductions and year-end tax plan. Lastly, on equipment sales from a new and used equipment gross margin perspective, while we continue to run below historic level gross margins on new and used equipment, gross margins on new and used equipment were up slightly on a sequential basis, a hopeful sign that supply and demand dynamics in the marketplace are normalizing and that we may have found a bottom on this metric. On to Product Support, which grew roughly 3% year-over-year in the Construction segment and where we continue to outperform internal profitability metrics. Further to that point, as presented on Slide 14, while the segment stand-alone EBITDA is down $2.4 million year-to-date, the mix of the $75 million of EBITDA in 2025 is of a higher quality versus '24. Specifically, while 2024's EBITDA was more heavily weighted to opportunistic rental equipment sales and related gains, 2025's EBITDA is more -- been more heavily weighted to perpetual profitability gains in the form of increased gross margins and product support as well as a reduced SG&A load. This realignment from less consistent equipment sales to more reliable recurring product support profitability creates a more resilient and capital-efficient business going forward. Lastly, from a segment perspective, Master Distribution, which houses our Ecoverse business. The story for the quarter continues to be tariff related as nearly all of the segment's key metrics have been negatively impacted year-over-year. That said, a stabilizing trade environment between the U.S. and the EU and mitigating measures in the form of pricing actions and OEM risk sharing to best maneuver through this situation have been largely implemented, and we expect will take further hold and bear fruit in Q4. Overall, we are cautiously optimistic that the worst of the trade-related impacts on the segment in 2025 are now behind us. In summary, for the quarter, the company generated $41.7 million of adjusted EBITDA, a slight reduction versus last year on a pro forma basis and mainly driven by reduced episodic equipment sales in our CE segment. Lastly and notably, as we focus on driving ROIC, the company was able to realize nearly the same level of EBITDA year-over-year on a leaner balance sheet as the gross book value of our rental fleet is down nearly $30 million year-over-year. In terms of cash flows, and I'm referencing Slide 16, for the quarter, free cash flow before rent to sell decisioning was approximately $25 million for the quarter and stands at roughly $80 million year-to-date. To quickly check in on the balance sheet as of September 30 and as depicted on Slide 17, we ended the quarter with approximately $265 million of cash and availability on our revolving line of credit facility, plenty of capacity in term to navigate the business in this climate. Before closing my comments on the quarter, I'd like to quickly address the impact of Big Beautiful Bill had on the company's income statement in Q3. First, holistically, the company views the enactment of the Big Beautiful Bill as a net positive for both the company and for our customers. From the company's perspective, the effective removal of the interest rate -- the interest expense limitation in the Big Beautiful Bill will save the company cash taxes in the future and over time, will enhance our liquidity position. That said, given the reduction in the interest limitation, we had to take a notable onetime noncash income tax expense to establish a valuation allowance against our net operating loss assets. For clarity, this onetime expense has no impact on the company's operations, its cash liquidity position or its financing capacity. We welcome the benefits of the Big Beautiful Bill for both us and our customers going forward. Moving on to the second portion of my prepared remarks. The company's view on the potential bridge back to $200 million of EBITDA and the factors impacting that bridge. As presented on Slide 7 and as discussed earlier by Ryan, equipment values in our regions in each of our major segments have been depressed in recent years when compared to industry norms and in the case of our CE segment in the face of increased state and federal DOT spending in recent years. To illustrate the financial impact of Slide 7 and the reversion to the norm on equipment volumes and a few other elements, we present the EBITDA bridge on Slide 20. First, the starting point of the EBITDA bridge is our current midpoint of the FY 2025 adjusted EBITDA guidance. Next, the first step in the bridge is the incremental EBITDA created given Alta's current market share if equipment volumes simply revert back to historic norms. Note that this element represents $17 million in EBITDA in the bridge. Next, the second step of the bridge is related to a reversion of the norm on gross profit margins on equipment sales. As we've discussed on many calls recently, there has been an oversupply of equipment in the market -- in the equipment markets for nearly 2 year now -- 2 years now, which has led to an unprecedented competitive pricing environment that ultimately depressed equipment sales margins. The $10 million of EBITDA in this step represents a reversion to the norm on gross margins associated with the normalized level of equipment sales. Next, the third level of the bridge is related to Ecoverse, a business unit that in 2025 has experienced an outside level of impact from tariffs given its business model. The abrupt and blunt impact of the tariffs on this business can't be overstated. As a master distributor of environmental processing equipment that is sourced from Europe, Ecoverse relies on a constant flow of equipment and parts from that region and historically has not held a lot of stock inventory. Thus, the quick implementation of the tariffs was difficult to navigate and the time line on mitigation efforts had a longer tenor than keeping up with the marketplace. Thus, sales were impacted and margins quickly eroded. That said, since the outset of the tariffs, our team at Ecoverse has been effectively and actively working on mitigation efforts, which included supply chain resourcing, target pricing increases and supplier cost sharing. We believe these mitigation efforts are largely in place and the road back to Ecoverse contributing to the enterprise from an EBITDA perspective is ahead of us. Thus, the $7 million EBITDA step here. Next, we believe strongly that PeakLogix, our systems integration and warehouse automation business will revert to historic norms as interest rates come off their highs and CapEx projects get greenlighted for automation projects at customers within our material handling footprint. Thus, the $3 million reversion to the norm for PeakLogix in this column. Lastly, the $7 million negative EBITDA in the last step of the bridge is simply the incremental costs associated with the steps -- with steps 1 and 2 in the bridge. Overall, we believe the $30 million bridge on Slide 20 presents a simplistic -- presents simplistic hard evidence that a reversion to the norm in terms of industry equipment sales volumes and margins and a normal operating environment for both the Ecoverse and Peak provide for a logical path back to the company's target of $200 million of EBITDA. Moving on to the final portion of my prepared remarks, adjusted EBITDA and free cash flow before rent-to-sell decisioning for 2025. First, in terms of our adjusted EBITDA guidance for the year, we now expect to report between $168 million to $172 million of adjusted EBITDA for the fiscal year 2020 (sic) [ 2025 ] . Notably, the updated range implies a better sequential Q4 versus Q3. Lastly, despite the reduction in the guidance on adjusted EBITDA, we are effectively holding our guidance on free cash flow before rent-to-sell decisioning, which is again presented on Slide 21. As a reminder, free cash flow before rent to sell is a metric that we believe appropriately measures the true free cash flow generation capacity of the business in a steady state and removes the impact of the decisions we make with our rent-to-sell fleet. Overall, we expect free cash flow before rent-to-sell decisioning to be between $105 million and $110 million for the fiscal year 2025. In closing, I would say that we remain bullish about our partnerships, our employees and the long-term prospects at Alta and are confident in our enduring business model. Ryan and I would like to wish all of our 2,800 teammates and all of you listening tonight a healthy and happy holiday season. Thank you for your time and attention, and I will turn it back over to the operator for Q&A. Operator: [Operator Instructions] The first question today will be from the line of Liam Burke with B. Riley Securities. Liam Burke: Can we talk about Construction Equipment? It sounds like based on equipment sales for October that, that business, some of the roadblocks that have been slowing the business like funding of projects, availability of labor seems to have moved to the side and you'd anticipate at least an early upswing in that business, both from a sales and a margin perspective. Is that the right way to look at it? Anthony Colucci: I think, Liam, you said it well. From a sales perspective, I think we're -- as I mentioned, on the margin thing, we're cautiously optimistic. But from a sales perspective, certainly, we think exactly along the lines of how you described that October could be a harbinger of things to come. Liam Burke: Okay. But what would be the gating factor? I'm looking at your gross margins year-over-year were flat. I think Tony called out that they were up sequentially. What's to stop that movement to sort of move it back to their historic levels? Anthony Colucci: Liam, I think this is the first time we've been up sequentially. And so the messaging here is, hopefully, we've -- in several quarters, if not years. So hopefully, maybe we found a bottom. We continue to see some flattening in used equipment prices. But overall, we still think that the marketplace in construction equipment is still generally oversupplied. And until that oversupply or that overhang kind of fully mitigates itself, I think we'll continue to see gross margins at these levels. Now it has been dissipating in terms of the overhang. We have seen pricing kind of firm. And so it would follow that, we could see an upswing there in the coming year or so. Liam Burke: Okay. And then just quickly on Materials Handling. You highlighted some of the stronger pockets of the business, particularly food and beverage. And are you seeing any kind of movement on the manufacturing front? I know inshoring is going to be a long-term cycle, but are you seeing any lift on the traditional manufacturing side? Anthony Colucci: Go ahead, Ryan. Ryan Greenawalt: I'll take that one. This is Ryan. I think the lift we're seeing is more related to the replenishment cycle getting extended out than it is, the market demand being driven by -- the demand side of the equation is still -- has some pressure. And it's -- we think it's a near-term issue related to the tariff impact, in particular, on autos and the implications for the portfolio, the shift to EVs that was happening largely in the Michigan APR and in the northern part of our territory. There's some rationalization happening right now that's taking product out of the market in pockets. But what we're seeing is the fleet replenishments are back on track. Things that were delayed are back on track. We saw one of our biggest POs in that sector ever come through last quarter. So it's helping build the backlog and keep it what we're calling stable. But the longer-term trend, we think, is very bullish for our regions that -- we have a workforce that knows how to build things, and we have now policy that's going to encourage more to happen in our geographic footprint. Operator: [Operator Instructions] And the next question today will be from the line of Steven Ramsey with Thompson Research Group. Steven Ramsey: I wanted to continue that line of thought on Material Handling, the backlog being over $100 million. Maybe I heard you say you described it as stable. Maybe can you put that in context of the first half of the year, the backlog size where it was a year ago. But part of my thought process is sales have been increasing sequentially off of the Q1 levels. You talked about a great order in the prior quarter. Is this reducing the backlog? Or are there more orders filling it back up? Anthony Colucci: Yes. Steven, I'll take a shot at that. This is Tony. Just to clarify Ryan's comment there, the PO that he referenced is not going to be impactful for '25 here. It's more of a long-term kind of opportunity. Anyway, I believe we started in Material Handling, we started the year with $125 million of backlog. We're in the low $100s million here, as we mentioned. And so we have had some burn off of the backlog. As we mentioned last quarter, when we think of backlog, we're not just thinking of our Hyster-Yale new lift trucks, part-of-the-line lift trucks. We've got allied lines that we do very well with. And then used equipment, which given tariffs, there's an opportunity to really move used equipment from a pricing and competitive perspective. And so I think the burn off is, for us, less about maybe demand, which has been tepid and more about lead times from the factory coming down in terms of Hyster-Yale just being able to deliver more quickly given their production levels. So I would just say that the backlog is not down necessarily at Alta because of a massive decrease, although it's down, but more so just the lead times impacting it. Steven Ramsey: Okay. That's good. That's helpful context. And one more on material handling, parts and service gross margin very strong despite the flattish revenue. Can you talk about what drove that and how you think about the gross margin for the aftermarket and material handling going forward? Anthony Colucci: Yes. I think, Steven, in some of our regions, we have midyear increases from a pricing perspective. Certainly, some of the things we've talked about in terms of focusing on the right products and reducing non-billable labor can impact that as well. So those are some of the things that would impact service margins here in the third quarter. The way that we think about it over the long term in terms of modeling is taking a longer-term kind of view on margins. And if you look at it over the long term, the margins remain pretty stable. Steven Ramsey: Okay. Helpful. And then in Construction Equipment, I wanted to hear some of the nuance where parts sales were barely up while services grew mid-single digit. Can you talk about the delta between those lines and if that had -- or how that impacted the strong margin of that revenue line in the segment? Anthony Colucci: You know, Steve, that is probably just -- sometimes they don't move necessarily in conjunction with one another, depending on over-the-counter sales at the branches and how they move versus field service as an example. I don't know that I would draw any correlation or story that service was up relative to parts. Steven Ramsey: Okay. That's helpful. And then last one for me. On the divestiture of Docks and Doors unit, I guess, kind of why now at this point, given still keeping PeakLogix, maybe there wasn't synergy between the businesses necessarily. But why now? And then secondly, I may have missed it in the prepared comments, if that was an impact to the 2025 EBITDA guide? Anthony Colucci: Sure, Steve. I'll take the -- I'll go in reverse. Very minimal impact on the EBITDA guide. That business probably less than $1 million of EBITDA on an annual basis. I think on the Dock and Door strategically, and Ryan can weigh in, too. But overall -- recall, we did one acquisition several years ago of a Dock and Door business in Boston. The rest of that business or the majority of that business was inherited through an acquisition of the Hyster-Yale dealer in New York City. And so as we have kind of done a strategic review on all of the different business lines that we're in and trying to drive synergies between those, what our core business is with the Hyster-Yale products and what is the Dock and Door business, the more we looked at it, the more we thought that this would be better off in somebody else's hands, that was just focused on it. The other thing I would add is don't draw any parallels between what PeakLogix does and what Dock and Door does, very different kind of offerings, if you will, and go-to-market strategies, customers, et cetera. So anything else to add there? Ryan Greenawalt: I think that's well said. It's around -- the moat around the business, we prefer the exclusive rights, and there's more aftermarket yield on selling vehicles than selling [indiscernible] Operator: With no further questions on the line at this time, this will conclude the Alta Equipment Group Third Quarter Earnings Conference Call. Thank you to everyone who is able to join us today. You may now disconnect your lines.
Operator: Good morning, and welcome to Intercorp Financial Services Third Quarter 2025 Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] It is now my pleasure to turn the call over to Ivan Peill from InspIR Group. Sir, you may begin. Ivan Peill: Thank you, and good morning, everyone. On today's call, Intercorp Financial Services will discuss its third quarter 2025 earnings. We are very pleased to have with us Mr. Luis Felipe Castellanos, Chief Executive Officer, Intercorp Financial Services; Ms. Michela Casassa, Chief Financial Officer, Intercorp Financial Services; Mr. Carlos Tori, Chief Executive Officer, Interbank; Mr. Gonzalo Basadre, Chief Executive Officer, Interseguro; Mr. Bruno Ferreccio, Chief Executive Officer, Inteligo. They will be discussing the results that were distributed by the company yesterday. There is also a webcast video presentation to accompany the discussion during this call. If you didn't receive a copy of the presentation or the earnings report, they are now available on the company's website, ifs.com.pe. Otherwise, if you need any assistance today, please call InspIR Group in New York on (646) 940-8843. I would like to remind you that today's call is for investors and analysts only. Therefore, questions from the media will not be taken. Please be advised that forward-looking statements may be made during this conference call. These do not account for future economic circumstances, industry conditions, the company's financial performance or financial results. As such, statements made are based on several assumptions and factors that could change causing actual results to materially differ from the current expectations. For a complete note on forward-looking statements, please refer to the earnings presentation and report issued yesterday. It is now my pleasure to turn the call over to Mr. Luis Felipe Castellanos, Chief Executive Officer of Intercorp Financial Services, for his opening remarks. Mr. Castellanos, please go ahead, sir. Luis Castellanos López-Torres: Thank you. Good morning, and thank you all for joining our third quarter 2025 earnings call. Thank you all for your interest and trust in IFS. We appreciate your continued support. We have continued to observe positive performance in Peru's economy with cumulative growth of 3.3% as of August. This momentum has been driven by increased activity in consumption-related sectors and sustained private investment, which is projected to grow by 6.5% by year-end. While we are maintaining a cautious outlook, given the international context and the pre-election period, Peru continues to benefit from a low inflation environment and a solid exchange rate which has appreciated close to 10% this year. The country risk remains low. Even with the latest presidential transition, we haven't seen additional volatility. These factors reinforce Peru's position as one of the most dynamic and stable economies in the region. The political transition expected in 2026 does not suggest any major changes in financial stability. Prudent monetary management and strong institutions allow us to forecast continued growth supported by the resilience of the local market and investors' confidence. This quarter, IFS has sustained strong core results and profitability with an ROE of around 16%, even after a specific investment impact related to Rutas de Lima with a provision of PEN 78 million this quarter. As you may be aware, the Rutas de Lima concession has become an ongoing issue between the municipality of Lima and the concessioner. What is currently reflected in our books corresponds to information available as of the reporting date. We're closely monitoring the situation as new developments unfold. Local and international legal proceedings will continue in the following months with final resolution not expected in the short term. Our total remaining exposure after in payments today amounts to approximately $60 million in soles equivalent, which represents less than 1% of our investment book at IFS. These results confirm our ability to adapt quickly and keep generating value in a challenging environment, reaffirming our commitment to long-term sustainability and profitability. Interbank continues to grow in higher yielding loans, particularly in consumer and small business segments, now representing 22% of our loan portfolio. Stronger net interest margin and better-than-expected cost of risk have driven a solid improvement in risk-adjusted NIM, highlighting our discipline in effective risk and profitability management. Izipay and Interbank continue to capture joint business opportunities, while PLIN deepens user engagement, fostering more primary banking relationships and driving growth. Interseguro continues to grow its core business with solid performance in private annuities and life insurance, even after the negative impact from Rutas de Lima this quarter. In addition, Interseguro continues to leverage synergies with Inteligo to expand private annuity sales and collaborating with Interbank to advance integrated bancassurance solutions that deliver greater value for our customers. Inteligo, our Wealth Management segment also continues to grow in double digit, achieving new record high in assets under management, thanks to our client, trust and consistent engagement. IFS remains committed to our strategy of focused and profitable growth, keeping our clients at the center of every decision. Our priority is to achieve digital excellence and deepen primary client relationships through comprehensive data-driven services and a differentiated experience, powered by our innovation and advanced analytic capabilities as our competitive advantage. Looking ahead, we remain optimistic about IFS' and Peru's outlook. The company has demonstrated resilience in downturns and is well positioned to continue executing its growth strategy, maintaining profitability and reinforcing our leadership in the Peruvian market. Now let me pass it on to Michela for further explanation of this quarter's results. Thank you. Michela Ramat: Thank you, Luis Felipe. Good morning, and welcome, everyone, to Intercorp Financial Services Third Quarter Earnings Call. We would like to start with our key messages for the quarter. We had a very good third quarter as business momentum remains strong. Our accumulated net income is up by 81% compared to the same period last year, accumulating 17.4% ROE, which would have been 18.3%, excluding the one-off from Rutas de Lima. Net income from the quarter was PEN 456 million with an ROE of around 16%. Second key message, higher-yielding loans accelerated, showing a 7% growth in a year-over-year basis and 3% in the last quarter. Third, risk-adjusted NIM continues with a positive strength, increasing 40 basis points in the last quarter, now at 3.8%, still with a low cost of risk of 2.1% and with some positive signs in the NIM recovering 10 basis points in the quarter. Fourth, we continue to strengthen primary banking relationships. And as a result, our retail primary banking customers grew 6% last year. Fifth, we had double-digit growth in our core business in wealth management and insurance with written premiums growing by 58% year-over-year due to the growth in private annuities and life insurance, and wealth management assets under management are at new record highs with continued double-digit growth quarter-to-quarter. Let's start with our first key message. Let me share an overview of the macroeconomic environment. Peru's GDP growth accelerated in the third quarter with the Central Bank revising its 2025 estimate upward to 3.2%, supported by strong nonprimary sector activity such as agriculture and mining. August growth reached 3.2%, bringing the year-to-date expansion to 3.3%. Agriculture grew by 6.4%, fueled by high international demand and mining remains strong. Construction services and commerce also saw growth above 5%, demonstrating solid domestic momentum. Private spending has been a key factor behind the economic growth throughout the year. Macroeconomic fundamentals remain stable with inflation contained near 1.7% for 2025. The Peruvian sol has strengthened around 10% this year and the reference rate lowered to 4.25%, maintaining favorable financial conditions for ongoing growth. Overall, with a GDP growth projection of 2.9% for 2026 by the Central Bank, Peru is establishing itself as one of the fastest-growing economies in the region despite internal and external challenges. The Peruvian economy holds positive prospects for the coming years as it is well positioned to meet the global demand for commodities. Nevertheless, risks remain, particularly those related to political uncertainty and global market volatility. On Slide 5, high prices for copper and gold continue to be one of the key drivers of Peru's economic growth, boosting export revenues, encouraging investment in mining and related sectors and supporting job creation. As a result, Peru's stance of trade are expected to remain at historic highs. In line with the positive economic environment, business expectations remain stable with seeing optimistic ranges and consumer confidence continues to improve, supporting domestic demand. The general demand projection for 2025 has been revised upward by the Central Bank to 5.1%, driven mainly by solid growth in private investment and consumption. In the first 6 months of the year, internal demand expanded by 6.2%, with private investments up 9% led by double-digit growth in non-mining investments and private consumption rising by 3.7%. Looking ahead to 2026, internal demand is expected to moderate to 2.9%, with private consumption stabilizing at 2.9% and private investment reaching 3.5%. Additionally, there is an extensive pipeline of projects in mining and infrastructure scheduled for the coming years. In this environment, while we observed an acceleration in retail lending during the third quarter, we anticipate that this pace will likely moderate during the last quarter of the year, given the expected outflows from the private pension funds. On Slide 6, during the third quarter, we achieved a 17% year-over-year increase in earnings, reaching an ROE close to 16%. That said, this ROE marked a slight decrease from the previous quarter, mainly due to 2 factors. First, the last quarter, Inteligo delivered results related to investment portfolio that surpass expectations. And second, this quarter, Interseguro registered the impact of the Rutas de Lima provision of PEN 78 million, as previously mentioned. On the positive note, the bank saw a reversal of provisions related to Integratel, previously Telefonica for PEN 20 million. If we exclude Rutas de Lima and Integratel, IFS ROE would stand at 17.5%, which brings us closer to our medium-term target. I want to particularly highlight the bank's strong performance this quarter, which is not only attributed to a lower cost of risk, but also to an improved net interest margin in line with growth of higher-yielding loans, fee income and positive results from the investment portfolio. Excluding the effect from Integratel, the bank's ROE would have been 16%, which represents an improvement both year-over-year and compared to the previous quarter. Furthermore, the core business of Interseguro and Inteligo continued to post double-digit growth. On Slide 7, I would like to highlight the positive strength of our ROE throughout the year. For the first 9 months of 2025, our ROE stands at 17.4%. And excluding the Rutas de Lima effect, ROE would have reached 18.3%. This has been a solid quarter across all IFS business lines with our core operations as the main drivers of profitability. This performance positions us well to continue advancing towards our medium-term goals. On Slide 8, our accumulated earnings are up 81% compared to the same period last year with an accumulated ROE at 17.4%. Both Interbank and Interseguro have achieved relevant growth, each posting increases of more than 60% year-over-year. Inteligo, in particular, has seen its earning more than triple, which speaks to the strength and resilience of our diversified portfolio. Another positive highlight is the growing diversification of IFS earnings. In the first 9 months of the year, the bank contributed around 70% of total earnings, showing the increasing relevance of our other segments. Now let's turn to Slide 9, where we take a closer look at IFS revenues, which grew 9% year-over-year. At the bank level, top line is growing 4% in the quarter as we are beginning to see a recovery in our net interest margin on top of good results in fee income. This is driven primarily by accelerated growth in the higher-yielding loans, which starts to positively impact our average yield. Interseguro continued to demonstrate strong revenue trends in line with high investment valuations while insurance results improved, thanks to growth in annuities. Finally, at Inteligo, fee income continues to grow and the portfolio results have returned to more normalized levels. On Slide 10, we wanted to double click on the fee income evolution, which continues to demonstrate good dynamics with a cumulative 8% increase year-over-year. At the bank level, this growth is supported by retail on one hand, given the increased debit and credit card activity and by commercial banking on the other, reflecting results from our strategy of deepening client relationships and strengthening our ecosystem. Wealth management also posted notable growth with fee income increasing 17% year-over-year as a result of the ongoing expansion in assets under management. In line with our strategy, the transformation for acquiring business model continues, positioning Izipay as a key complementary component within our commercial banking product suite. This has enabled us to strengthen client relationships and increase float balances, although it has resulted in a compression of merchant margins impacting fee income. These developments are taking place and the growing competition in the market and the fast adoption of QR codes with no fees. On Slide 11, IFS expenses increased by 6% year-over-year as we continue to make strategic investments to support our long-term growth ambitions. This includes accelerated investments in technology to strengthen resilience, enhance user experience, improve cybersecurity, expand our capacity and develop AI capabilities alongside ongoing efforts to strengthen leadership within key teams, reflecting a recognition of the pivotal role talent plays in delivering our strategy. Consequently, the cost-to-income ratio at IFS level stands at 37.7%. Now let's move on to the second key message. On Slide 13, we see a positive trend in higher-yielding loans. Our total loan portfolio expanded by over 5% year-over-year, outperforming the market. This positive momentum was driven by the acceleration in higher-yielding loans, which grew 7% over the past year and 3% in the last quarter. The robust macroeconomic activity is reflected in increased disbursement by 34% in cash loans and by 56% in small businesses. In this last case, most of our current disbursements are now traditional loans, which include sales financing, collateralized loans and unsecured loans, which have higher rates compared to last year's [indiscernible] loans. This segment continues to expand with average rates increasing by over 150 basis points in the past year. Overall, in retail banking, the affluent segment was the one which started the recovery in growth with an 8% growth year-over-year and 2% in the last quarter. But now the mass market segment has now grown for 2 straight quarters, increasing 3% in the last quarter and beginning to regain scale. On the commercial side, the decline in the quarter is mainly attributable to the corporate segment, impacted by loan maturities and by some companies turning to the capital markets. However, midsized companies continue to perform well up 5% year-over-year, and small businesses up 33% year-over-year now representing almost 4% of our total portfolio. On Slide 14, we wanted to double click on the consumer portfolio, which accelerated in the last quarter. In personal loans, we've seen a significant uplift in digital channel performance, driven by enhanced personalization of communication journeys and continuous improvements to our website. Disbursement rose 51% supported by increased lead generation and additional loans to existing customers. We also redesigned our pricing strategy with a customer-centric approach, enhancing our value proposition and driving higher conversion rates. The current mix starts to shift towards higher-yielding segments, supported by growth in the mass market clients with good risk profile. Still, the retail cost of risk is at very low levels. In credit cards, transactional activity continues to grow as turnover rose 9% year-over-year. Looking ahead, we remain optimistic about our growth prospects, although we recognize that challenges persist. In particular, pension fund withdrawals would likely affect consumer loan disbursements in the coming quarters. Nevertheless, our continuous focus on higher-yielding segments and prudent portfolio management position us well to navigate these market conditions. As part of our strategy, we continue to strengthen our payments ecosystem with PLIN and Izipay. On Slide 15, we have continued working to generate further synergies as we drive the growth of our payment ecosystem, focusing on increasing transactional volumes, offering value-added services and leveraging Izipay as both a distribution network for Interbank products and a source to increase growth. In particular, the commercial teams from both Izipay and the bank are collaborating more efficiently, allowing us to deliver integrated solutions and maximize the value we bring to our clients. PLIN transactions grew 38% over the last year, and our digital retail customers reached 83%. We introduced PLIN Corredores, extending our digital payment services to the transport sector through Metropolitano Corredores, and we recently launched PLIN WhatsApp offering a new digital experience for our clients, which allows them to pay without using the app directly from WhatsApp, both by typing the instructions and through voice, boosted by AI. This is our first example of conversational banking, and we will continue to evolve this offering with new features in the near future. Continuing with our strategy, Izipay continues to show strong momentum in the small business segment with flows from Izipay up 60% over the past year. This growth has contributed to the 20% increase in deposits which now accounts for 10% of wholesale deposits or 26% of wholesale low-cost deposits. The flow from Izipay expanded by 31% in the same period as interim share of Izipay flow is around 39%. Following with the third message, we see improvement in risk-adjusted NIM. On Slide 17, let me share a quick update on asset quality. Our quarterly cost of risk continues on a low level at 2.1% in the quarter or 2.3%, including the one-off impact related to the Integratel provision reversal, previously Telefonica. On the retail segment, the cost of risk continues to decrease, now standing at 4% representing a decline of 130 basis points compared to the prior year, still below our risk appetite. Our consumer lending portfolio is performing well with cost of risk dropping from around 9% to 7% year-over-year, supported by healthier customers with new loans, while new loans are showing a good performance in the new vintages. On the commercial side, asset quality remains robust. The cost of risk stands at approximately 0.4% excluding Integratel and performance has been stable throughout the year. Looking ahead, as our consumer and small business portfolios keep expanding, now representing 22% of our total portfolio, we should expect the cost of risk to gradually increase. Still, our nonperforming loan ratios are holding steady, and our coverage levels are solid above 140%. All in all, these results underscore an improving operating environment and demonstrate that our prudent approach to portfolio management is enabling us to deliver sustainable growth. On Slide 18, there are some good news to highlight in terms of yields and risk-adjusted NIM. Over the past quarter, our risk-adjusted NIM improved by 60 basis points with a notable 40 basis points increase in the last quarter, in line with the lower cost of risk as previously mentioned. The good news is that yields started to recover last quarter, rising by 10 basis points. This recovery was driven by higher rates in both retail and commercial banking, especially with the higher yielding loans where we observed more than a 30 basis points improvement in the average year. Additionally, part of the improvement in yield can also be attributed to the acceleration in growth of our mass market segment, which continues to gain momentum and contribute positively to our results. As a result, NIM saw a 10 basis point increase quarter-over-quarter. On Slide 19, the cost of deposits declined by 40 basis points year-over-year and 10 additional basis points in the quarter, supported by lower market rates and a health care funding mix with a focus on low-cost funds. Deposits have also become a more relevant part of our funding structure, representing around 81%. Although there is a seasonal decrease in total deposits we are expecting a recovery towards year-end as we expect to capture a nice part of the pension funds withdrawals similar with what we achieved in the previous withdrawals. Cost of deposits continues to show a clearly positive trend as we see further potential for reduction going forward as the portion of efficient funding now at 36% continues to improve. As a result, our overall cost of funds fell by 50 basis points compared to last year and 10 basis points during the quarter with a loan to deposit ratio of 96%, in line with the industry average. Moving on to our digital strategy. We continue to drive meaningful value and strengthen primary banking relationships through our digital initiatives, particularly with PLIN. Over the past year, we have grown our retail primary banking customer base by 6%, now representing more than 34% of our total retail clients. Monthly active PLIN users reached 2.5 million, each completing an average of 27 transactions for a total of 38% more transactions versus last year. P2M payments remains a core driver of engagement now accounting for 71% of all transactions. Within this segment, QR POS payments expanded to 2.6 million monthly transactions, up 44% year-over-year. Finally, we believe we have solid key performance indicators that continue to improve. For example, our inflow payroll accounts hold around 13% market share, retail deposits are at approximately 15%, and credit cards account for about 26%. All of these metrics are supported by an NPS of 56, reflecting our commitment to customer satisfaction and loyalty. On Slide 22, we continue to see good trends in our digital indicators compared to last year as we remain focused on developing solutions that meet our customers' evolving needs. As a result, we've seen steady growth in digital adoption. Our retail digital customer base increased from 80% to 83%, while commercial digital clients now stand at 73%. We've also made progress in self-service and digital sales. Our self-service indicator reached 82% and digital sales climbed to 68%. While the latest NPS reading, we have shown an improvement to 56 and our internal data reflects a clear recovery all year. This progress was reinforced by contextual and automated communications. Also, we developed predictive models with personalized outreach. Finally, we introduced a fully digital onboarding flow through interbank.pe, empowering seamless user and password creation for the app. Finally, solid results with double-digit growth in the core businesses of Wealth Management and Insurance. On Slide 24, we highlight the strong performance in our wealth management business this quarter. Inteligo continues to show solid momentum. Assets under management have grown at a double-digit pace, reaching new highs and now totaling $8.1 billion. Fee income continues to improve, up 16% year-over-year adding to the positive trend in results, and there is a slight improvement in fees over assets under management. Additionally, we would like to highlight the progress we are making in synergies with the bank. We have now launched a dedicated mine investment sections within the Interbank app, enabling clients to conveniently manage their investments directly from the same platform. This integration marks another step forward in delivering a unified experience for our customers with offerings converging within business segments. On the digital front, we continue to enhance our Interfondos app with the goal of shifting its role from a transactional platform to a true digital adviser for our mutual bank clients. As a result, we have seen a sustained increase in both the app adoption with a 5-point year-over-year increase and digital transactions, which grew by 2 points annually and represents more than half of all client transactions. Now moving to insurance on Slide 26. We continue to see good results in the contractual service margin, which grew 19% year-over-year, mainly driven by individual life. In the third quarter, reserves for individual life and annuities increased by 36% and 15%, respectively, supported by strong new business generation that more than offset the monthly amortization of the CSM. Individual life remains a key focus for us given its low market penetration. Although traditional channels keep growing at high rates, we've been also diversifying our distribution strategy to include digital ones and simplifying the product to reach new segments and keep supporting growth. Additionally, short-term insurance premiums grew by over 110% driven by disability and survivorship premiums acquired through a 2-year bidding process from the Peruvian private pension system. On the investment side, as mentioned before, results were impacted by PEN 78 million impairment from Rutas de Lima. The return on the investment portfolio decreased to 4.1%. It would have been 6.1% without this effect. There is still uncertainty around the timing and amount of recovery as legal proceedings continue to develop. As of today, we have provisioned around 40%. Hence, our exposure net of impairment is around PEN 200 million or $60 million. In insurance, we continue to focus on enhancing the digital experience as well and expanding ourselves from digital channels. The development of internal capability has allowed us to increase digital self-service to 71% from 65% of the previous year and the direct sales to grow 19% in the last year. Now let me move to the final part of the presentation where we provide some takeaways. Before we move on to our operating trends, we'd like to summarize where we are focusing our growth efforts. In commercial banking, we have seen important growth in small business, which increased by 33% year-over-year, now with a market share of around 4%. The commercial portfolio as a whole grew 7% year-over-year, gaining 30 basis points of market share. This strong performance is supported by 3 main strategies: first, deepening relationships with key midsized company clients, where we continue to gain share of wallet and unlock additional cross-sell opportunities. Second, expanding our position in sales financing where we have become the second largest player in the system. And third, leveraging synergies with Izipay to enhance our value proposition, especially in the small business segment where our digital payment capabilities set us apart. In this quarter, the consumer portfolio began to show signs of growth. At the same time, the mortgage segment continues its positive trajectory, achieving a market share of 16%. In insurance, we are maintaining our focus on long-term products as individual life has shown encouraging growth this past quarter. Finally, in wealth management, assets under management continued to grow at a healthy pace, up 13%, reaching new record levels and reflection on both market performance and continued client engagement. On Slide 30, let me give a review of the operating trends of the accumulated numbers as of September. Capital ratios remain at sound levels, with a total capital ratio of around 15% and core equity Tier 1 ratio above 12%. Our ROE for the first 9 months of the year was 17.4%, above our guidance for 2025. As mentioned before, we expect the last quarter to go back to more normal levels and year-end ROE could be closer to 17%, although it remains dependent on the impact of Rutas de Lima and its potential impact on the fourth quarter, if any. For loan growth, we grew 5% year-over-year, a bit below our guidance but still above the system. Year-end growth will likely remain at similar levels. We expect a slight recovery in NIM over the remainder of the year. On the positive side, cost of risk is expected to remain well below guidance, helping to offset lower margins. As a result, we anticipate a slight improvement in our risk-adjusted NIM for the full year. Finally, we continue to focus on efficiency at IFS as our cost income was around 37% within guidance. On Slide 31, we highlight our strong sustainability performance for the third quarter of 2025. On the environmental front, we have made significant progress. Our sustainable loan portfolio now exceeds or is around $350 million, supporting projects with a measurable positive impact, especially in the industrial and agricultural sectors. We enhanced internal capabilities by providing climate technology training to 30 executives, boosting green finance across agriculture, fishing, energy and mining. For the first time, we measure financed emissions in Interbank's commercial portfolio following the PCAF standard focusing on agriculture, fishing and energy, which represent 18% of the portfolio. On the social side, we keep promoting inclusive growth in workplace diversity. Interbank was ranked #5 in the Great Place to Work Sustainable Management ranking with Interseguro, Inteligo Group and Izipay, also among the best workplaces. Interbank's antiharassment program Voices was recognized by the UN Global Compact as a best practice. In governance, Interseguro Inteligo Group published their 2024 sustainability reports, and we strengthened our participation in key ESG assessments. Let me finalize the presentation with some key takeaways. First, the business momentum remains strong. Second, we see higher yielding loans accelerating. Third, we have an improving risk-adjusted NIM. Fourth, we continue to strengthen primary banking relationships. Fifth, wealth management and insurance, both core businesses growing double digit. Thank you very much. Now we welcome any questions you may have. Operator: [Operator Instructions] And your first question comes from Yuri Fernandes from JPMorgan. Yuri Fernandes: Hi, Michela, Luis, everybody. I have a question regarding Rutas de Lima, I think this is a broader process, right, Brookfield's total collections, concession. It's a broad topic. I would like to understand a little bit the level of impairment you did on your exposure in the insurance company. Because I think Michela mentioned in the end that this could or could not be a problem in the fourth quarter. So I'd like to understand how much of the impairment reflects your exposure already or not? And what is your outlook for that case? And then a second question regarding the growth for retail in light of the pension withdraw. How much the pension withdraw may impact the growth? What is your growth expectations for maybe like -- especially I think in retail, but if you can comment a little bit more broadly, how much that can impact your growth outlook for the year, near term? Luis Castellanos López-Torres: Okay, Yuri. Well, thanks very much for your 2 questions. I'm going to give a part of the answers, and then I'm going to pass it on to the team to complement. As Michela mentioned, our exposure right now considers around 40% of impairment already. It's tough to give you an outlook, given that this -- as you mentioned, this is broader thing between Brookfield and municipality. There's legal procedures going around. That 40% I mentioned was booked with all the information we have at the moment of the closing of the quarter, then things have evolved since then. So I think it's early to really give you an expectation. However, we are closely monitoring that situation. And regarding the retail growth, it's -- the pension has a couple of effects. It's -- not only that improved sales growth, but it has short-term positive impacts regarding funding and people bringing money from those funds to Interbank. So it has an offset, a positive offset in the cost of funds and the activity, but for number one, I'm going to pass it on to Gonzalo to see if he wants to complement anything. And then for number two, I'm going to pass it on to Carlos so he can give you a little bit more on his view on the potential specific growth impact of the pension fund release. Gonzalo? Gonzalo Basadre: Sure. Thanks, Felipe. As Felipe mentioned, we have already reduced the value of our holdings in Rutas de Lima in 40%. We're still waiting on what happens with the [Foreign Language] that Rutas de Lima has placed. We'll have more information before the end of the fourth quarter, where we'll be able to give a more precise value of those holdings. Still, the total position of Rutas de Lima represents less than 1% of the whole IFS investment holdings. Even though we take a lot of -- we take a lot of time to sort this out, its impact will be -- will not be -- it's not important in the total IFS. Luis Castellanos López-Torres: And Carlos, can you help us in the growth question? Carlos Tori Grande: As Felipe mentioned, the AFP withdrawals have several impacts. But to answer your question, and then I'll go a little bit deeper. The last few withdrawals have flattened growth or even made their consumer loans in the market decrease 1% or 2%. That has been the effect in the past. This one might be a little bit different because there's other factors going on. The first one is, in Peru, all salary workers get a double salary in December. So December traditionally is very liquid, and that helps, obviously, consumption reduces a little bit of outstandings but helps with collections. So this year, in December, we will have that, and we will have a portion -- a large portion of the AFP. So it will be a very liquid, we expect a lot of transactions. We don't know exactly if the amount of loans will increase or stay flat. But for sure, it will have a good impact in collections and cost of risk in December. The AFP withdrawals have 4 parts, right? You get it in 4 different months. But the first month is the largest in terms of the system because the people that don't have the full amount to withdraw get it in the first one. So the first one is the largest one. And in addition to all of that, in November, salaried workers in Peru also get long-term compensation, let's call it, and that has also been released. So there will be liquidity in November and December. So there's a lot of moving parts. But again, it will be liquid. That is good for collections and for funding. There will be a lot of consumption and transactions and then the effect on the amount of loans probably is flat or negative for 1 or 2 months and then we will resume growth. Yuri Fernandes: So basically, marginally negative, with asset quality, good for deposits maybe 1%, 2% down, and then we should see a recovery in retail, right? That's basically the message. Luis Castellanos López-Torres: Yes. I don't know if it's 1% or 2% or flat. So to tell you truth, we'll see. It depends on the amount of consumption. But yes, that's one part now. It's a short-term effect, though. Operator: [Operator Instructions] And at this time, we will take the webcast questions. I would like to turn the floor over to Mr. Ivan Peill from InspIR Group. Ivan Peill: Thank you, operator. The first question comes from Daniel Mora of CrediCorp Capital. Daniel Mora: Can you provide more details about the expected loan growth for 2025 and 2026? Specifically, I want to understand whether the acceleration of credit card loans this quarter should be maintained throughout 2026. What is the expected growth of credit cards for the next year and the effects on the net interest margin? Luis Castellanos López-Torres: Okay. Great. Thank you, Daniel, for your question. Let me pass straight to Carlos. Actually, he's working budget right now. I don't know if he is going to be able to answer all the questions, but probably he has more deep sense on that front right now. Carlos Tori Grande: Exactly. We're working on our budget. So bottom line is in the third quarter, we accelerated growth in credit cards and consumer finance, and we expect to continue accelerating having -- I mean having the impact of the AFPs in the short term, but in 2026, we expect to continue to accelerate. The way we look at it or the way we look at this is usually, the system grows at 2x -- 2.5x, 2x GDP. So consumer loans grow at 2x GDP, as a multiplier, and we want to gain market share. So we will probably grow a little bit ahead of that. Our risk appetite has also increased slightly due to the good performance of our portfolio over the last few quarters, but also due to the expectations of the macro environment in Peru. So that's kind of what we expect. This will not be linear as I just explained, the AFPs will have a short-term effect, probably the end of November a little bit, definitely in December and some in January but then growth should resume. And then NIM will be -- will grow in line with our growth in credit cards and SMEs, and also will be positively affected marginally by lower cost of funds. So that's kind of the expectation. Operator: The next question comes from [ Elan Colibri ]. Unknown Analyst: What is your expectation for corporate level disbursements in Peru regarding 2026 as a presidential election year? Luis Castellanos López-Torres: Okay. So if I understand correctly, the expectation is the corporate level disbursements, I'm trying to understand that corporate banking activity. Again, it's an election year activity depending on how the situation evolves, should continue to pick up, if the continued investment perspective materialize. So I guess, loan book growth and corporate activity should continue on the milestone. We don't see any big project coming in line in the coming months. So it's going to be probably more replenishment of working capital or it's more CapEx and some refinancings. So probably growth is not going to be great in that front. But let me pass it on to Carlos so he can complement to see what he's seeing. Carlos Tori Grande: No, I agree. I agree. There's no large projects coming in line. There has been some bond offerings over the last couple of weeks of Peruvian corporate. So that obviously becomes prepayment for the banks. Interest rates are more attractive for corporate, and they have been. They've evolved downwards. So there's a lot of refinancing of short-term loans to longer. We don't foresee a high growth in that segment for the next few quarters. Ivan Peill: At this time, there are no further questions from the webcast. I would like to turn the call over to the operator. Operator: And there appear to be no further audio questions at this time. I'd like to turn the floor over to management for closing remarks. Michela Ramat: Okay. Thank you very much, and thanks again, everybody, for joining the call, and we'll see each other back again to discuss our year-end results for 2025. Thanks, again. Operator: This concludes today's conference call. You may now disconnect your lines.
Operator: Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Lassonde Industries 2025 Third Quarter Earnings Conference Call. The corporation's press release reporting its financial results was published yesterday after market close. It can be found on its website at lassonde.com, along with the MD&A and financial statements. These documents are available on SEDAR+ as well. A presentation supporting this conference call was also posted on the website. [Operator Instructions] Before turning to management's prerecorded remarks, please be advised that this conference call will contain forward statements that are forward-looking and subject to a number of risks and uncertainties that could cause actual results to differ materially from those anticipated. Please refer to the forward-looking statements section of the MD&A for further information. Also note that all figures expressed on today's call are in Canadian dollars unless otherwise stated and that most amounts have been rounded to ease the presentation. Finally, be advised that the presentation will refer to non-IFRS measures or ratios mostly to ease comparability between periods. Reconciliations to IFRS measures are provided in the appendix to the presentation and in the corporation's MD&A. I would like to remind everyone that this conference call is being recorded on Friday, November 7, 2025. I will now turn the conference over to Vincent Timpano, Chief Executive Officer. Vincent Timpano: Good morning, ladies and gentlemen. I'm here with Eric Gemme, Chief Financial Officer of Lassonde Industries. Thank you for joining us for this discussion of the financial and operating results for our third quarter ended September 27, 2025. Now please turn to Slide 4. Lassonde delivered another solid performance in the third quarter, which is a testament to its ability to meet customer and consumer needs through its broad and diverse product portfolio and through a continued commitment to service excellence. Sales increased 8.3% to $724 million. As anticipated, sales growth was less than in previous periods as we lap the Summer Garden acquisition and the commissioning of the North Carolina single-serve line partway through the quarter and as we face some industry-wide demand-related headwinds. Still, we grew our sales in each business unit and generated an increase of nearly 23% in operating profit. These achievements mainly reflect strong execution on pricing as well as a better sales mix within our private label offering. Now let's turn to Slide 5 for a closer look at operations, beginning with U.S. Beverage activities. Lassonde maintained its market position in the third quarter. While the overall category was down low single digits as consumer spending reflects weaker confidence given the current macroeconomic context, volume for U.S. brands remained relatively steady and our private label volume contracted slightly. Our performance was also consistent with what we've seen in the market with competitor brands outperforming private label due to a temporary price gap contraction earlier this year as we led with pricing in response to apple and other commodity inflation and tariffs. With this said, we are now seeing branded competitors implement pricing actions, which we believe should restore normal price gaps and support private label category performance. Our business is well positioned to benefit from a shift back to private label as consumers increasingly seek value in these uncertain economic times. In the quarter, we also successfully completed the installation of production assets being relocated from a U.S. co-packer to our North Carolina facility, and we're in the process of ramping up operations. These assets represent our first ever in-house juice box production in the United States, which should improve reliability and reduce cost in servicing U.S. customers. We also expect to unlock additional volume for both U.S. branded and private label products by improving capacity and throughput on the assets. As for the construction of a new facility in New Jersey, I am pleased to report that we have broken ground following the reception of permitting during the quarter. The project remains on schedule and on budget with a phased transfer of the existing production activities from the current facility beginning in late 2026 and to be completed in 2027. Turning to Slide 6. Our Canadian beverage activities continued to gain market share, outpacing the category with overall market contraction remaining consistent with prior quarters in the mid-single-digit range. Our performance was driven by solid promotional support for our national brands, new distribution gains, mainly in the chilled category and a continued buy Canadian sentiment, which we continue to support with our Canadian to the core campaign through in-store merchandising. We also benefited from a favorable shift in the composition of our private label sales mix. Our focus on innovation to reduce commodity exposure also continues to generate positive results, mainly with Nectars and drinks as well as through new distribution in the chilled category. Moving on to Food Service on Slide 7. Our Food service activities had a solid quarter with once again double-digit sales increase over last year. Growth was driven by volume gains with broadline distributors in the U.S. and by improved penetration of national accounts in Canada. As for our new bag-in-a-box aseptic packaging line, our focus is on developing customized formulas for new accounts. Following positive response, we are now making solid progress in our discussions with customers and are engaging in bids. We see strong potential in this market given the uniqueness and value add of our offering with convenient dispensing and bulk aseptic packaging. As we've noted in past remarks, food service is a significant growth opportunity as we estimate it represents roughly half of consumer spending on food and beverages, whereas our split between retail and food service has historically been around 90-10. Now let's turn to Specialty Food on Slide 8. In the third quarter, we sustained our integration efforts within our North American Specialty Food network with the objective of capturing additional efficiencies and synergies. As an example, after reviewing our manufacturing processes and installing new equipment at our Ohio plant to eliminate a bottleneck, we achieved increased throughput. Summer Garden contributed sales of $48.1 million for the full quarter versus $26.7 million over 7 weeks last year. Its EBITDA margin reached 16%, reflecting seasonal volume fluctuations and the timing of promotional activities. EBITDA margin for the first 9 months of 2025 remained robust, approaching 21%. Summer Garden's focus also remains on finalizing its consumer-focused brand strategy, addressing opportunities to expand brand distribution and launch new innovation. As for legacy operations, overall volume held relatively steady and profitability continued to grow with sustained momentum in the glass jar sauce category. Finally, we continue to refine our strategy to drive sustainable and profitable growth within the specialty food market while enhancing service for our U.S. customers. We remain excited about the long-term growth potential of this segment, supported by ongoing initiatives to fortify our capabilities across both operations. I now turn the call over to Eric for a review of quarter 2 results. Eric? Eric Gemme: Thank you, Vince. Good morning, everyone. Let's turn to Slide 9 for our third quarter sales, which amounted to $724 million, up 8.3% versus last year. Excluding Summer Garden and a favorable foreign exchange impact, sales increased 5%, reflecting the favorable impact of pricing adjustments and a positive shift in the private label sales mix in Canada. Moving to Slide 10. Gross profit reached $198 million or 27.3% of sales, up 10% versus $180 million a year ago or 26.9% of sales. Excluding Summer Garden, gross profit dollars increased 4% year-over-year for a gross profit margin of 26.8%, reflecting the favorable impact of selling price adjustment and a positive shift in the sales mix. These factors were partially offset by higher costs for certain inputs such as orange, apple, pineapple concentrates, an increase in certain conversion costs in the U.S., mostly related to the deployment of new assets in North Carolina and to reduce absorption due to lower production volume and the accelerated depreciation expense of certain U.S. assets. SG&A expenses were $140 million, up from $133 million last year. Excluding expenses from Summer Garden, SG&A held steady as increases in certain administrative and selling and marketing expenses, finished goods warehousing costs, mainly in Canada and amortization expenses resulted from the commissioning of the new Canadian ERP were offset by lower transportation costs to deliver products to clients and a decrease in performance-related compensation. Excluding items that impact comparability, adjusted EBITDA increased 25% to $86 million or 11.9% of sales from $69 million or 10.4% of sales last year. Adjusted profit attributable to the corporation shareholder reached $40 million or $5.84 per share, a record level quarterly adjusted EPS, increasing 29% from $31 million or $4.53 per share last year. Turning to working capital on Slide 11. The days of operating working capital ratio stood at 55 days, down from 59 days in quarter 2. This decline was mainly due to an increase in days payable outstanding as we return to normal purchasing patterns. Meanwhile, days of inventory outstanding remained stable at 85 days, which is slightly elevated for third quarter. While the ratio stands above historical range levels of approximately 46 days at the end of the third quarter, our objective is to bring it near the upper limit of the historical range by the end of 2025, given current inventory holding strategies. As a reminder, we may temporarily elect to strategically leverage our balance sheet to secure certain inventory availability and/or lock in costs ahead of anticipated supplier price increases. Now on Slide 12. Operating activities generated $118 million in Q3 of 2025, up from $87 million last year. This improvement is mainly due to higher EBITDA and higher cash generated from working capital, notably through a lower accounts receivable, which normalized following a temporary effect on timing of invoicing due to the earlier rollout of the new Canadian ERP and to lower inventory as significant volume acquired earlier this year are gradually being depleted. These factors were partly offset by a $14.2 million combined increase in interest and income taxes paid. CapEx totaled $35 million in Q3 2025 and $142 million since the beginning of the year. We still expect CapEx to reach up to 7% of sales in 2025, including approximately now USD 57 million for the construction of the New Jersey facility and up to USD 20 million for the redeployment of our juice box lines in North Carolina. Turning to our balance sheet on Slide 13. Lassonde's net debt totaled $550 million at the end of the third quarter, down from $618 million 3 months earlier. The decrease mainly reflects cash flow generated by working capital. As a result, the net debt to adjusted EBITDA ratio improved to 1.7:1 at the end of Q3 2025, compared to 2:1 at the end of the previous quarter. All things being equal, the leverage ratio should range between 2 and 2.5:1 until the end of 2026, but we anticipate being near the lower end of the range. This remains well within our comfort zone of less than 3.25:1. I now turn the call back to Vince for the outlook. Vince? Vincent Timpano: Thank you, Eric. Now please turn to Slide 14 for our sales outlook. As we close out 2025 and despite persistent economic uncertainty, we reiterate our expectations of a sales increase slightly above 10%, excluding currency fluctuations, reflecting a full year contribution from Summer Garden, increased volume, in part supported by our latest marketing campaign, Oasis Supply, intended to build awareness and brand preference for our new chilled distribution, targeted promotional spend and the buy Canadian sentiment. The run rate effect of existing and planned selling price adjustments and volume improvement related to the pace of our U.S. Build Back plan and additional volume available from our single-serve line in North Carolina. Moving to Slide 15. We remain focused on executing our strategic priorities while remaining disciplined and agile in a volatile environment. For U.S. beverage activities, our priorities include continuing our private label volume build back plan, notably by increasing our penetration of existing customers with new products, executing on pricing to offset cost volatility induced by commodities and tariffs while balancing pricing impact on demand elasticity and competitive position versus brands and forging ahead on our new facility construction project to improve capacity and lower cost. For Canadian beverage activities, fortifying our leadership remains our priority through innovation to reduce commodity exposure and ensure active participation in on-trend and growing beverage segments, targeted promotion spending and marketing investments and constant efforts to improve productivity. Our North America Food Service team will continue its push for further expansion in this key market, including through our bag-in-a-box initiative. In Specialty Food, our priorities are continuing to integrate our North American Specialty Food network, expanding core brand distribution through improved positioning, fortifying our commercial capabilities and continuing to refine our strategy to support growth and improve service for our U.S. customers. Turning to Slide 16. The cost of orange juice and concentrates as well as apple and pineapple concentrates are expected to remain volatile through the fourth quarter as are other inputs affected by tariffs. The cost of orange concentrate has remained highly volatile with a sudden and significant decline in the spot price to less than USD 2 per pound solid in recent days on use of lower consumption, combined with a stronger upcoming crop in Brazil. To mitigate volatility, Lassonde follows a hedging policy for a portion of its commodity needs. While this approach provides stability, it can temporarily reduce the benefit of sharp declines in spot prices, particularly when the drop is sudden as seen in the current market. As for apple juice concentrate, inflationary pressures have moderated following a spike in early 2025. Additional pricing adjustments were deployed late in the second quarter, but the delay between cost increases and price adjustments temporarily affected our margins. Availability of pineapple concentrate, an important commodity for Lassonde remains constrained, creating challenges and resulting in lost opportunities this past quarter. This shortage may continue for several months with elevated prices, and we are closely monitoring this impact on input costs and juice blend formulations. In this volatile commodity pricing environment, we remain vigilant in monitoring changes in consumer food habits and demand elasticity for our products. To alleviate these effects, we will continue to bring innovation to market. As for the trade environment, the situation remains uncertain, which is affecting consumer sentiment and spending in both Canada and the United States as seen by ongoing category declines. We continue to actively monitor ongoing developments while ensuring our mitigation measures allow us to maintain a strong competitive position and an optimal cost structure, although the timing, duration and evolution of tariffs may affect these measures. In closing, as shown on Slide 17, we expect our momentum to continue, enabling us to achieve our 2025 financial objectives. We remain focused on executing our strategy, delivering our important investment projects and staying agile in this dynamic environment. Above all, Lassonde's diversified product portfolio, supported by an exceptional team of committed employees represents a key factor in maintaining a strong competitive position in the North America food and beverage market. This concludes our prepared remarks. We are now pleased to answer your questions. Operator: [Operator Instructions] The first question comes from Luke Hannan from Canaccord Genuity. Luke Hannan: My questions are going to be mostly focused on the commodity complex here. You touched on, Vince, that pineapple, there's shortages in the quarter that sounds like it led to lost sales. I don't know if it's possible for you guys to quantify that or dimensionalize that for us, but that would be helpful. And then secondly, I know in the past, and I believe in your MD&A, it still, you talked about apples, apple concentrates, oranges representing 25% of COGS. How material is pineapple relative to your overall cost of sales? Eric Gemme: So look, it's going to be, Eric, taking the answer on this one. So you are correct I pointed out that the key commodities for us are apple and orange representing 25% of sales. We're also a significant player in [indiscernible], but pineapple is not very far. And pineapple is used either as a straight or also part of our blend. And pineapple is also a premium element from a blend perspective. So it affects volume, not dramatically like an orange or an apple could do, but the mix, the quality of the mix of our product is affected, and it was really a question of price of the commodity and availability. So basically, we were not able to ship as many of those juices or juice blends that we would have hoped during the quarter. Luke Hannan: Got it. And then secondly, I mean, it was mentioned, and I know that you guys have talked about this in the past that you typically hedge. So that means the volatility in spot doesn't always flow through your P&L right away. But there has been a relatively sharp decline in orange concentrate specifically more recently. And if I reconcile that with what you guys have talked about with working capital as well, that's declining. But have you given any thought to maybe being a little bit more strategic in hedging more at these lower levels from a spot perspective just to ensure that perhaps you can lock in a relatively healthy margin on at least part of your assortment going into 2026? Eric Gemme: So Luke, again, we are using hedging not as a gamble. So we will remain within our hedging policies and procedure. However, still lot of policy and procedure allow us to be strategic a little bit. So we will hedge. And again, we have our view in terms of where the market is and where it could go. And of course, we're going to -- within the boundary because, again, it's not gambling within the boundary of what we -- our policies, we will take -- try to take advantage of what we believe is favorable cost. But you are correct, and you read as well. We have at the moment because of the sharp and sudden decline in this commodity from a spot price perspective, our hedge positions are, of course, higher. However, from a strategic perspective, we believe that we are very much aligned with our competitor who also hedge because we are not a significant player in the hedge market. We have many other strategic player in there. So I think all of us are pretty much in the same spot. Luke Hannan: Got it. And then I wanted to shift over to -- there was mention about there being a sales mix shift in private label. I believe it was in Canada. Just wanted to know what exactly is driving that? Eric Gemme: Yes. So yes, it's in Canada, it's in private label. So when we talk about mix, it's about the type of cases that we're selling. So we had an elevated level of chilled sales in Canada. So whatever is in the chilled area, so orange or orange brand mainly. Luke Hannan: Okay. Last one for me, and then I'll pass the line as well. You touched on the gaps -- the price gaps between private label and branded now widening. There have been some other competitors, their national brands taking more price of late as well. Can you give us a sense, are those price gaps sort of what you expect? Are they at levels that you would expect to see normally? Is there still more to come on that front? Just give us a sense of where those price gaps stand today. Vincent Timpano: Yes. Luke, let me jump in. It's Vince. What we're seeing is price gaps restore more to normalized levels. So not all the way entirely there, but there was a lag in terms of pricing to the shelf, but we are seeing gaps between brand and private label be restored. The only other thing that I want to reinforce is that we led pricing in the market. That created a temporary gap as brands either followed, but there was a lag in terms of what we saw at the shelf price or there was increased promotional spend. But to answer your question, we are starting to see gaps restore back to normalized levels in the United States. Luke Hannan: Yes. And it sounds like... Eric Gemme: Well, Luke, to be clear, right, this concept is really in the U.S. market, not in Canada. Operator: [Operator Instructions] Our next question is from Martin Landry of Stifel. Martin Landry: My first question is just a follow-up to the last discussion in the U.S. market. So just to understand better, orange concentrate is down significantly on a year-over-year basis, but you're talking about pricing -- putting price increases and you've led with price increases. So are those price increases reflecting the tariff dynamic that is ongoing in the U.S.? Just a bit of clarity there would be helpful. Vincent Timpano: Yes. So there are commodity increases that are built into the price increases. But in addition, and you're accurate in saying that there's also a tariff component there as well. And recall, Martin, that when you're looking at commodities and you're purchasing on a global level, we anticipate that our competitors are in a very similar position, and that's why they're also responding with pricing. Martin Landry: Okay. And can you just remind us what was the magnitude of the prices that you've implemented in the U.S.? And what was the timing of that increase? Eric Gemme: Magnitude, I don't think we are providing that externally. From a timing perspective, it's really second quarter and third quarter. I think now we pretty much were done with these increases. Martin Landry: Okay. All right. And then looking at Q4, in Q3, organically, your sales were up 5% when we exclude the contribution from Summer Garden. So looking at Q4, you will be lapping the Summer Garden acquisition. So is it fair to say that, 5% growth rate organically for Q4, is it a good assumption to use? Could that be replicated? Eric Gemme: So Martin, I will refer you back to our outlook for the full year, where we say it's slightly above 10%. So I'll let you do the math, but you would see that last year, what we reported $738 million on a consolidated basis. If you run the math, I think if you believe that we can make whatever, 10% flat, you would see that's probably a decline versus last year. But if you stretch a little bit your 10%, I think as you get to 12%, you see that it's a slight growth versus last year, but not at the 5% June. Martin Landry: Okay. So then can you help me a little bit understand why you expect your organic growth to decelerate in Q3 versus Q4? Eric Gemme: So Q3, we had the full half of a quarter worth of Summer Garden. We had our Line 5, which is our single-serve line in the U.S. only starting. And right there from a volume and an additional organic growth, you had that those effect in Q3 helping versus Q4, where both elements were there for the [ third ] quarter. Operator: Our next question is from Etienne Larochelle from Desjardins. Etienne Larochelle: First off, I was just wondering if the Buy Canada movement, is it still a tailwind for your Canadian business? Because I feel like it's less -- it gets less topical in the media than a few months ago. So I'm just curious to know if it's still a positive impact on your business or if it's still -- is it slowly fading away? Vincent Timpano: Our views are that the Canadian sentiment remains robust. And there's a component of the performance that we continue to see in the Canadian business that reflects that. I think the important factor, though, is not that it comes at any price, consumers have their limit. And they recognize that at some point, they've got to manage their pocket book. So we're mindful of ensuring that we understand that we've got to continue to do more and not just rely on the Canadian sentiment. But the reality is we've got this as a core competitive advantage within Canada. We are a Quebec-based Canadian company that produces Canadian brands for Canadian consumers. And we're spending a fair bit of time reinforcing and continuing to educate consumers about that very fast. So we had a campaign that we executed early on in the year to reinforce that. We continue to execute it through effective in-store merchandising just to ensure that we're doing what we need to do to remind consumers of the Canadian heritage that it's less on. Etienne Larochelle: Yes, makes sense. And also you completed the relocation of production lines to your North Carolina plant during the quarter. I was just wondering if you could comment on how the ramp-up is going generally, when you expect to reach full production? And maybe any relevant updates on that front would be helpful. Eric Gemme: That project is on scope on budget. So yes, those lines are now starting to produce at the level we were anticipating. So -- but of course, it came in late in the third quarter. So there's absolutely no volume at the moment in there. But remember, it's not new volume, those lines. It's we were moving lines that were existing, and we had to rely. So basically, they had volume in there. So we had to rely in the meantime on co-packers. So don't expect a volume effect from the deployment of those lines. What you should expect is a reinsourcing of those volume and of course, now start benefiting from our cost versus having to use co-packers and not necessarily in the right place in the network. Operator: This concludes the question-and-answer session. I would like to turn the conference back over to Vincent Timpano for any closing remarks. Vincent Timpano: Thank you for joining us this morning. We look forward to speaking with you again at our year-end call. Have a great day and a great weekend, everyone. Operator: This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.
Operator: Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Third Quarter 2025 BlackLine Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. At this time, I would like to turn the conference over to Mr. Matt Humphries, Senior Vice President, Investor Relations. Sir, please begin. Matt Humphries: Good afternoon, and thank you for joining us today. With me on the call are Owen Ryan, Chief Executive Officer of BlackLine as well as Patrick Villanova, Chief Financial Officer. For the Q&A portion of today's call, we'll also have Jeremy Ung, BlackLine's Chief Technology Officer joining us. Before we get started, I'd like to note that certain statements made during this conference call that are not historical facts, including those regarding our future plans, objectives and expected performance, in particular, our guidance for Q4 and full year 2025, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements represent our outlook only as of the date of this call. While we believe any forward-looking statements made during the call are reasonable, actual results could differ materially, as these statements are based on our current expectations as of today and are subject to risks and uncertainties, including those stated in our periodic reports filed with the Securities and Exchange Commission, in particular, our Form 10-K and Form 10-Q. We do not undertake and expressly disclaim any obligation to update or alter our forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law. All comparisons we make on the call today relate to the corresponding period of last year, unless otherwise noted. Finally, unless otherwise stated, our financial measures disclosed on this call will be non-GAAP. A discussion of these non-GAAP financial measures and information regarding reconciliations of our historical GAAP versus non-GAAP results is available in our earnings release and presentation, which may be found on our Investor Relations website at investors.blackline.com or on our Form 8-K filed with the SEC today. Now I'll turn the call over to BlackLine's Chief Executive Officer, Owen Ryan. Owen? Owen Ryan: Thank you, Matt. Good afternoon, everyone. Today, I will detail the changes we have made across our business that are beginning to deliver tangible results. Over the past 2-plus years, we have methodically rearchitected our leadership team, our go-to-market engine and our technology and operational structures. That foundational work is now largely complete. These changes give us greater confidence that we can deliver accelerating revenue growth and margin expansion as we exit this year and move into 2026. But first, let's start with this quarter's performance. We delivered another solid quarter of improving execution. Revenue growth increased to 7.5%. We achieved a non-GAAP operating margin of 21.4% and a free cash flow margin of 32%. Patrick will provide a more detailed discussion on the financials shortly. The strength this quarter was from new customer acquisition. New customer bookings were up 45% and the quality of these wins is evident with the average new deal size more than doubling by 111% and the median new deal size up by approximately 50%. New customer bookings mix accounted for 41% of overall bookings. This is not just about closing more deals, is about winning larger, more strategic platform deals often against our biggest competitors. Let me put this into perspective with some examples. Through our direct sales efforts, we secured our largest ever total contract value deal with a leading global commercial real estate services company. This deal took 2 years to close and was multifaceted, with intercompany serving as an entry point and includes a multiyear expansion across our financial close suite, leveraging Studio360 and our new platform pricing. We directly landed another new logo with a Fortune 20 company who chose our entire financial close suite, Studio360 and our platform pricing model, replacing existing tools and solutions. This was a great example of perseverance and leveraging past success as the CFO's previous experience with BlackLine translated into a meaningful new win. And in the insurance industry, we won a multi-solution deal with Accelerate, a leading middle-market specialty insurance exchange, looking for a scalable platform across both invoice-to-cash and financial close, the customer move forward with BlackLine recognizing that a platform approach with Studio360 was the optimal solution to support their future revenue growth versus remaining with multiple legacy vendors. On the partner side, our SolEx channel performance is improving. We closed mega company deals this quarter with Coca-Cola Europe Pacific Partners and with Boots U.K. Limited, proving the strength of our golden architecture with SAP. A key driver in many of these wins was our new platform-based pricing model, which accounted for nearly 3/4 of new customer bookings and is seeing solid international adoption after only 2 quarters. Our strategy is not just about winning in established markets, it is also important to unlock new growth opportunities. We have continued to make progress within the public sector. Despite the federal government shutdown, our pipeline continues to grow and we successfully delivered the production instance for our sponsoring agency in October. We anticipate completing final testing by mid-December and are on track to receive final FedRAMP approval in early 2026. Now turning to our existing account base. The interest in our Studio360 platform, new pricing model and our Verity AI offerings created some noise this quarter. We are seeing 2 dynamics play out as we see more customers evaluate or adopt platform pricing. First, as we succeed in delivering higher levels of automation, customers can achieve their outcomes with the need for fewer licenses, which is leading to user attrition. Second, we saw several large customers pause user ads to instead engage in deeper, more strategic discussions about moving to Studio360, platform-based pricing and our Verity AI offerings. Our platform pricing model is designed to decouple our growth from a simple seat count and align our revenue directly with the value we deliver. While this strategic transition will take time to work through our installed base, we believe the outcome is clear and more committed customer base providing more predictable value-aligned revenue. Although these dynamics created a slight headwind to net revenue retention, we view it as a leading indicator of a positive transition. In fact, the most telling indicator of long-term customer confidence came for our renewal activity, along with our solid platform pricing adoption. Importantly, the mix of multiyear renewals has increased to represent over half of all renewal bookings this quarter, demonstrating that customers are buying into our long-term vision and locking in their partnership, which increases the predictability and durability of our revenue. Finally, the planned churn from our strategic deemphasis of the lower end of the market is nearing its conclusion. We expect this headwind to be largely complete in the first half of next year. These outcomes are not an accident, they are the direct output of the foundational transformation I mentioned earlier. With much of this foundational work now complete, I want to detail the 3 pillars driving these outcomes. First is our go-to-market engine. Much of our success this quarter comes directly from the methodical work we have done to re-architect our go-to-market engine for scalable, efficient growth, focusing on 3 key areas. We have invested heavily in the tools and the processes our teams need to win. Our entire sales motion is now powered by modern billing, prospecting, contracting and CRM systems that remove friction and provide better insight. For example, our experience with a new AI-powered prospecting tool has shown that a BDR can nearly triple their pipeline generation. All of our BDRs will now use this tool to more quickly create and qualify opportunities. We've also transformed our marketing efficiency. Our teams are leveraging new digital campaigns and tools to drive a significantly higher ROI on our spend. In fact, despite a decrease in aggregate marketing spend since 2023, we have seen strong growth in pipeline generation through the end of Q3, which is up approximately 50%. And while it's important to leverage new technologies and reengineered processes, it comes down to people. With new leadership has now established across the globe, we've actioned a more rigorous performance management program, elevating the bar and adding seasoned sales professionals. This focus is already paying off. Rep productivity is improving. And by the end of 2025, we expect it to improve by nearly 30% versus last year. These coordinated efforts are delivering clear results. As I mentioned, rep productivity is up and importantly, our competitive win rates, especially in takeaways approved again in Q3. We believe this is direct evidence that our Studio360, platform pricing and improving go-to-market execution are enabling us to win more in the market. The ultimate outcome is clear. We are building a more productive growth engine that costs less to operate. We expect these changes will drive a 10% improvement in our customer acquisition costs in 2025 and even greater improvements next year. Second is our progress in product and technology. We have modernized our technology stack to support a future scale, efficiency and AI-powered innovation. It starts with infrastructure. A critical milestone is the near completion of our multiyear GCP migration. I'm pleased to report we only have a few customers remaining before we can fully decommission our private data centers. Finishing this project will unlock significant operating leverage and provides a modern, scalable foundation for our future innovation. This serves as the foundation for our Studio360 platform, as the central nervous system for modern finance, its power begins with a unified data layer. Powered by our partnership with Snowflake, this layer is now leveraged by 90% of our customer base for advanced reporting in less than 1 year. This helped us achieve an approximately 80% cost reduction in data storage. The real game changer for Studio360 is our progress in open connectivity. Our platform was architected from the ground up to be ERP-agnostic and our Studio 360 integrated capability extends this vision far beyond ERPs to third-party financial systems. This ability to rapidly connect to any data source can allow customers to realize financial transformation much more quickly. We're also seeing good momentum with our ERP connectors. Our Oracle Fusion Connector is already live with over 50 customers and our Workday and D365 connectors are already being used by paying early adopter clients. This success is now unlocking the full potential of Studio360 for our large portfolio of Oracle, Workday and Microsoft customers. This powerful platform infrastructure is enhancing our entire solution portfolio from our newest technology for our most established products. The performance improvements are dramatic. For example, our new big data matching solution built on this modern stack delivers a 98% reduction in match times and handles nearly 30x the data volume our previous solution, which we see as tangible proof of our ability to deliver at any scale. We are also accelerating the delivery of new innovation. Our high-frequency reconciliation solution was adopted by 10 customers shortly after its general availability in Q3 and is already helping build a multimillion-dollar pipeline. And this just isn't about new products, we are also driving product-led growth within our core. For established solutions like Journals, we've introduced new self-service capabilities for several common use cases, allowing customers to realize value faster and at a lower cost. And importantly, this unified trusted data ecosystem is the essential fuel for our Agentic AI capabilities named Verity. Now I want to spend a moment on this because in a world of intense AI hype and uncertainty, it is critical to understand why we see AI as a significant opportunity that deepens our competitive advantage. Our moat is not built on a single attribute on a powerful combination of our proprietary data and our deep expertise in delivering trusted, auditable solutions to the office of the CFO. First is our expertise and trust and auditability. In the office of the CFO, Black Box AI is a nonstarter, trust, transparency and auditability are paramount. Our entire platform was built from the ground up to be a system of record with a complete unbroken audit trial. Our approach is validated by our recent ISO 42001 certification for responsible AI which formalizes our commitment to governance, risk management and human oversight. In a world of increasing regulation, we view our deep, culturally ingrained expertise in building auditable enterprise-grade systems that finance leaders and their auditors trust is a massive competitive advantage. And second is data, AI models are only as good as the data they are trained on, and we believe our data is unique. It is not just that we have data from over 4,000 customers of all sizes across all industries and all geographies, is that we have the historical financial and operational data set for our customers going back to the day they started with BlackLine. This proprietary data set represents the accumulated knowledge of what thousands of companies have done to close their books and manage their financial operations. We believe we are sitting on a wealth of process-specific data, which we are only at the early stages of utilizing. This can allow us to deliver unparalleled value. We can provide industry-specific benchmarking that shows the customer how their processes compare to their peers and where they can improve. We are able to train our AI models on the most intricate cases by industry in a secure, auditable way because we have the real world historical data to do so. This combination of proprietary data and our leadership in trusted auditable systems is precisely why we believe we are positioned to win with AI in the office of the CFO. And this is just not a theoretical advantage. We are translating this directly into product reality. We began deploying Vera, our conversational AI to our customer base in October, just one month after its debut at BeyondTheBlack. With Vera as the supervisor of our agentic workforce, we are launching a suite of powerful agents to execute high-value tasks. For example, we already prepare our agent for account reconciliations has shown they can deliver even higher levels of automation for customers in a trusted and auditable manner. Soon, we will deploy Verity Collect to deliver agentic capabilities to our invoice to cash customers, automating customer outreach and accelerated cash collection cycles. These initial agents are the first step in our broader strategy to address the full spectrum of financial operations. Future releases will target other complex areas across record-to-report and invoice-to-cash, including agents focused on high-volume transaction matching, variance analysis, remittance automation and on-demand financial analysis. In parallel, we are executing a proof of concept with SAP to ensure the seamless technical and commercial integration of our AI-powered solutions into their ecosystem. This is a critical step in aligning our platforms and preparing to monetize our joint offering to our shared customer base. And finally, our focus on innovation and AI also extends to the implementation process. Our efforts to reinvent the implementation process are already delivering significant results. In Q3, the number of customer go lives increased by nearly 70% year-over-year and 17% sequentially. This is a powerful proof point of our team's improved execution and directly contributed to our services revenue this quarter. More importantly, it means our customers are realizing the value of their investments faster. We are also applying our AI strategy to go to the next level. We are preparing to launch implementation agents designed to automate and standardize the most common phases of deployment. We will begin piloting these agents with customers later this month before scaling them globally in the first quarter of 2026. Our focus on efficiency extends across the entire business and is organized around 2 key initiatives, creating a more efficient operational structure and leveraging AI to drive internal productivity. We have further adjusted our cost base for greater operating leverage. We have aggressively optimized our global footprint by moving headcount from high-cost to lower-cost locations. When I joined as co-CEO, our workforce was overly concentrated in high-cost locations. As we exit this year, approximately 25% of our BlackLine professionals are delivering for customers in lower-cost geographies. This strategic shift provides a significant and durable structural advantage on margin as we move forward. In parallel, we closed offices in high-cost areas while opening or expanding talent hubs in lower cost centers like India, Poland, Romania and Mexico. Our confidence in AI comes from firsthand experience, we are not just selling this transformation, we are living it. Internally, we have aggressively created and deployed AI tools to become a more efficient and innovative company. Today, BlackLiners are leveraging our internal AI platform or third-party AI tools in their daily work. The results in our product organization are promising. Nearly all of our engineers are leveraging AI tools today and our most active developers are completing over 100% more poll requests than less active users. This is not just about coding faster. It is about delivering value to customers faster. Our innovation cycle time, the time from an initial idea to that feature being in a customer's hands, has improved by 23% year-over-year, with over 160 features and products being released this year. We have also created our own AI tools to drive efficiency, reduce costs and better serve our customers globally. Our recent example is our own internal AI translation services for our solutions that can rapidly create and provide documentation and training for customers in multiple languages, allowing us to not only reduce costs but ensure we provide consistent and high-quality experiences for our customers. This internal adoption is a powerful efficiency engine. We view it as an opportunity to bend the curve on future costs and accelerate revenue growth through innovation. In summary, while operational improvements are never done, we have made real strides in how we run the business. Our strategy is clear and our execution is showing tangible results. While I am pleased with this progress, our team remains intensely focused on the execution that lies ahead. The leading indicators we have seen this year all point to a business that is accelerating. These factors give us great confidence in our ability to deliver sustained profitable growth consistent with what we have previously shared at our past 2 Investor Days. With that, I will turn the call over to Patrick to provide more detail on the financials and our outlook. Patrick Villanova: Thank you, Owen. Our third quarter financial results reflect the execution Owen has laid out. Disciplined operational management, combined with steady progress across key indicators that point to continued acceleration through the end of this year and into next. I'll walk through the details of the quarter and our guidance for the remainder of this year as well as a preliminary view into 2026. Total revenue grew to over $178 million, up 7.5%. Subscription revenue grew 7%, with services revenue growth of 13% due to accelerated project delivery in the quarter. Annual recurring revenue, or ARR, was $685 million, up 7.3%. We continue to see tangible evidence of deepening customer commitment in our forward-looking metrics. Total RPO growth was 12.4% and current RPO was up 8%. For reference, our average contract length was 27 months this quarter, up versus last year and sequentially. And more importantly, new customer contract length was up nearly 10 months versus the prior year. Calculated billings grew 4% in the quarter. This figure has an embedded 4-point headwind, which is largely timing related. As we continue to win larger, more complex enterprise deals, we have seen some customers move forward with quarterly versus annual billing terms. Our trailing 12-month billings growth, which helps normalize for these effects was 7%. Our customer count of 4,424 this quarter reflects our strategic resegmentation of the market moving away from lower-end customers. We project this transition to be substantially complete in the first half of next year. Our revenue renewal rate in the third quarter was 93%, up versus the prior year and the prior quarter driven by healthy enterprise performance in the upper 90s with middle market in the mid-80s. Net retention rate for the quarter was 103%, which includes a full point of headwind from FX. On NRR, we also saw net user adds slow in advance of customers adopting our platform pricing model and evaluating our AI road map. We continue to see a positive shift in our sales mix towards higher-value solutions. Our strategic products accounted for 36% of sales this quarter, up from 32% last year. This growth is a direct result of our go-to-market teams leveraging our unified platform to drive larger multi-solution deals. Demand was particularly strong for our market-leading intercompany and invoice to cash solutions. SolEx was seasonally steady in Q3, accounting for 26% of total revenue. Looking ahead, our Q4 SolEx pipeline is solid, and we are executing against it with several deals already closed in October, positioning us for a solid finish to the year. Turning to margin. Our non-GAAP subscription gross margin remained strong at 82%. Our aggregate non-GAAP gross margin was approximately 79%, reflecting a higher mix of services revenue this quarter due to the strong performance at accelerated project delivery from our teams. Non-GAAP operating margin was 21.4%, driven by better productivity across our GTN teams this quarter and reflects costs from our BeyondTheBlack event, which took place in September. Non-GAAP net income attributable to BlackLine was $38 million, representing a 21% non-GAAP net income margin. We delivered a record quarter for cash flow. Operating cash flow was $64 million and free cash flow was $57 million. This performance was driven by the combination of strong collections execution from our team and the timing of certain payments within the quarter. Regarding our balance sheet and capital allocation, we have approximately $804 million in cash, cash equivalents and marketable securities versus $895 million in debt. Finally, we continue to execute on our capital allocation strategy this quarter. We returned approximately $113 million to shareholders through the repurchase of 2.1 million shares. This brings our year-to-date total to over $200 million and underscores our confidence in the long-term value of our business. Now turning to guidance for the fourth quarter of 2025. We expect total GAAP revenue to be in the range of $182 million to $184 million, representing approximately 7.4% to 8.6% growth. We expect non-GAAP operating margin to be in the range of 24% to 25%. And we expect non-GAAP net income attributable to BlackLine to be in a range of $42 million to $44 million or $0.58 to $0.61 on a per share basis. Our share count is expected to be about 75.1 million diluted weighted average shares. And for the full year 2025, our updated guidance is as follows: We expect total GAAP revenue to be in the range of $699 million to $701 million, representing approximately 7% to 7.3% growth. We expect non-GAAP operating margin to be in the range of 22% to 22.5%. And finally, we expect our non-GAAP net income attributable to BlackLine to be $153 million to $157 million or $2.08 to $2.13 on a per share basis. Our share count is expected to be about 76.6 million diluted weighted average shares. While we still have 2 months left in the year, the trends we see across the business give us increasing confidence in our preliminary outlook for 2026. Based on our strong pipeline, the adoption of our platform pricing model and operational improvements, we expect to deliver a combination of accelerating revenue growth and continued margin expansion next year, assuming a stable macro environment. The balanced approach to growth and profitability gives us increasing confidence on our path to achieving the Rule of 40 targets we outlined at our Investor session recently. Owen? Owen Ryan: Thank you, Patrick. And before we go to Q&A, let me just say that we are obviously aware of the recent market commentary about BlackLine. As a matter of policy, we do not comment on market rumors or speculation. The Board and management team engaged with shareholders routinely as well as constructively, and we will continue to do so, and that is all we intend to say on this topic. Operator, could you please now open up the line for questions. Operator? Operator: [Operator Instructions] Our first question comes from the line of Patrick O'Neill from Wolfe Research. John O'Neill: Just kind of wanted to touch on the commentary around some large customers pausing user adds as they weigh options around Studio360 platform pricing in some of your AI offerings, is sort of the right way to read that? Is that maybe some fields or some net new ARR slipped in the quarter as a result? And maybe -- can you just help us quantify in terms of net new ARR, the impact on these dynamics? And is that something you expect to continue into 4Q? Or is that just sort of idiosyncratic to the quarter? Patrick Walravens: Yes. No. So I think it's a good question. And we did see some deals slip at the end of the quarter. Obviously, with the Verity announcement, in particular, a lot of interest in AI. And so -- and we have seen that continuing uptick in conversations right through today. And so a lot of, as you can imagine, interested in what BlackLine has to offer, did cost us probably a couple of million dollars of delayed deals at the end of the third quarter that are now in the fourth quarter. Some of them have closed during the month of October, others will close, we think over the balance of the next couple of quarters. I do think that what we're seeing in the pipeline certainly is showing a real increase on the larger end of deals for mega enterprise and the enterprise space. Those deals tend to take a bit longer but they are much more important for what we're trying to do as an organization as we move customers onto our platform and take a full advantage of all of the capabilities that underline the Studio360 platform. Operator: [Operator Instructions] Owen Ryan: Operator, do you have more questions? Operator? Operator: Just a second, sir. Matt Humphries: For all the listeners, apologies, it seems the operator is having some technical difficulties that he's trying to get sorted out, so please just bear with us again, apologies. Operator: We have Patrick O'Neill from Wolfe Research in the queue. Owen Ryan: Operator, we just completed that one. The next person in the queue should be Rob Oliver from Baird. Can you please let him then to ask his question. Thank you. Operator: [Operator Instructions] Our next question comes from the line of Rob Oliver from Baird. Robert Oliver: Can you guys hear me okay? Patrick Walravens: Yes. And I'm very sorry about what's going on here. Robert Oliver: Awesome. No problem, as well. So I guess I wanted to go back to flesh out the previous question just a little bit. So as you guys -- I guess something this quarter took you guys by surprise. And as you move through this transition, I just wanted to ask philosophically about this issue of automation and customers and seat versus platform? Because what it seems to me is what you guys laid out last year was a strategic shift, which enables customers to capture value without necessarily needing to commit on the seat side. So is it a logo churn that you guys are seeing of size as well as seat count internally around the model transition and the new platform? And then I had a quick follow-up for Patrick. Just wanted to better understand that. Owen Ryan: Yes. Thanks, Rob. I think that here's what we're seeing in the business and what gives the team and me confidence that makes us really increasingly confident that we can deliver on the commitments that we said we would do for the business. We have laid out, as you know, guidance to return to our growth rates to the mid-teens as well as improve operating margin and return capital through share repurchases. When you think about all of this together, right, there's obviously 4 pieces. There's gross bookings, there's churn, there's what we're doing on the expense side and then obviously, attrition management. From a gross bookings perspective, what you should understand is our performance this year is showing the ability to land larger, more transformational deals with customers. New customer bookings, as we said, were up over 40% this quarter, and our net average deal sizes have doubled since last year. The pipeline has continued to grow, and it is really beginning to ripen, a continuation of the trend that we see. Now obviously, the bigger deals we do, particularly the mega enterprise, the enterprise space, take 10, 12 months to happen. For us, what we're seeing now is on a year-to-date basis through the third quarter, our gross bookings growth was about 15%, and we expect to go through the fourth quarter with growth in gross bookings at about approximately 20%. And we expect that growth rate to continue throughout next year on the gross bookings side. So what that is showing and improving is that we can win in the market. We're taking market share. We know all about that. The second piece of this then you talked about is churn. On churn, the headwind for us has been and will be for a couple more quarters, is that strategic deemphasis of the lower-end customer base that is really beginning to near its conclusion. We expect the abatement to take place by the midyear of next year. And what's really driving that is the rigorous qualification and customer selection processes that we put in place in the middle of '23 when Therese and I stepped into the role. So remember, most of our deals are 3 years back then, they are now sort of rolling off the books. The other key thing besides the change in customer selection is we have radically revamped how we do implementations with our partners and our own team, focusing much more on just go lives. We're really focused on the outcomes for our customers and all indications of all new customers that have now come in, in the last couple of years, they're very well adopted as we move forward. We talked a little bit in message about expenses as well. So we've made a lot of changes to the organization to strengthen the foundation. This work really focused on operational efficiency. I know I get a lot of questions about effectiveness of go-to-market. But what this now allows us to do is scale very efficiently with a very modern platform stack of things that we're trying to do to optimize the cost base and importantly, we've been able -- beginning to be able to decouple revenue growth from operating costs. So we expect that to drive further expansion -- margin expansion and greater levels of free cash flow next year. That's what's sort of giving us confidence on the margin side. Now let me turn to the last piece, which was part of your question, Rob, and that relates to attrition. This is an area of intense focus for us around the leadership team, something we expect to work through this year and into next. And we really are experiencing 2 types of attrition that we're working our way through. The first, for lack of a better term, is success-based attrition, where customers have really been achieving very high levels of efficiency and effectiveness with BlackLine that are actually requiring fewer user licenses. It's what the core value of the proposition is the value proposition what BlackLine delivers, but it's suboptimal for us for long term. It's the reason we've been trying to drive towards platform pricing because we recognize we have to decouple our growth from seat count and align that with the values and outcomes we're driving on behalf of our customers. With the release of Verity AI, along with the accelerated innovation across our core product and Studio360 platform, it allows us to go deeper and broader with customers leveraging the trust and brand permission that we've built. So we view that as a positive trade-off for the medium to long term, even if it's impacted us a little bit on attrition this year. Now the other piece that's really critical is attrition that relates to underadoption of our solutions. We have been dealing with that really through 2 parts of what we're trying to accomplish. One is we've been aggressively leveraging the data that we now have to better understand our customers' usage and engage with these less adopted customers to get them back on a path via our Studio360 platform and the underlying solutions. We're using this information in a way that allows us to have very meaningful and candidly, sometimes very difficult conversations amongst and between our customers, the ERP providers, the implementation partners and BlackLiners. The second piece of this really relates to our multiyear renewal efforts, which have been coupled also with the changes we've made around implementations to the processes, what we're doing with our partners, with our customers as well as the optimization of what work we're doing. This combination has really allowed us to reengage with customers and deepen and broaden the relationships that we have with them. If you remember when Therese and I stepped into the roles, we talked about elevating in the office of the CFO. That is happening now. And the positive of that, again, is it allows us to have these deeper, broader conversations. But in the short term, we've still been dealing with some attrition. But as I mentioned before, we expect to see gross bookings grow about 20% next year. And we expect to see based on the actions we're taking on churn and attrition, at least a reduction of 10%, if not 15% in C&A for 2026. So when you put all that together, as we think about where we're going, the increase the stronger gross bookings growth, the declining churn, the greater expense management and a very clear plan on reducing attrition is giving us the confidence that we're sort of communicating to deliver the top line and the bottom line results we have committed at Investor Day, and we expect to deliver that in 2027 compared to the range where we gave you from 2027 through 2029 in the long-range plan. So I know, Rob, that was a long question. I think you -- or a long answer, you said you had a follow-up question, so what's the next part of your question, please? Robert Oliver: Yes. I appreciate it. It was going to be for Patrick. Patrick, just on I guess, catching up with you guys kind of over the last couple of quarters, there's been some positive indications around customers that do adopt the new pricing model and kind of what the kind of like-for-like pricing is. So I know that you guys have had -- you broke out some nice numbers on the bookings side of customers taking the new platform? And any early indications there of kind of on the pricing side, if you're still seeing -- I mean, obviously, notwithstanding the fact that you're seeing some seat-based churn, are there customers where you're still seeing the kind of uplifts you expected to see? Patrick Villanova: Thanks, Rob. Yes, we are. So when we started I guess, introducing this platform pricing, which we started domestically here in the United States in Q1 and then internationally in Q2, we had a plan. And we continue to be ahead of that plan in terms of the amount of bookings or conversions what we've had to that. We are well ahead of that plan from a new logo standpoint. As you heard in the prepared remarks, we landed a large deal, our largest deal ever in terms of TCV, and that was on platform pricing. So from a new logo perspective, we are well ahead of our plan. We have seen an uptick in Q3 in our installed base, our existing customers adopting this. And in combination, we still continue to be ahead of our plan that we laid out earlier this year from a platform pricing perspective. Operator: [Operator Instructions] And I see our next question comes from the line of Chris Quintero from Morgan Stanley. Christopher Quintero: Really great to hear about the expected acceleration into next year. I guess as you kind of just mentioned bookings growth of about 20% expected next year. If you would kind of distill that into maybe the top 3 factors, what's really driving that booking strength and improvement here as you go into next year? Owen Ryan: Yes. Thanks, Chris. I would say the biggest thing, again, has been us changing the conversations and having them at higher levels in organizations, and seeing and being able to talk to our customers truly about digital finance transformation. So we've been sort of working our way through being viewed as a point solution to more of a platform. Those conversations, the capabilities, the innovation that we've been able to bring to the market in the last 2 years is resonating very well. One of the things that Jeremy and the team have done has listened very closely to our customers. And so you look at the amount of new product and innovation we rolled out last year, that same thing this year, and then the road map we have, our customers are really starting to see us in a way that says we are going to be a true partner for them as they go through digital finance transformation. I think the other thing is the work we do with our partners. If you remember, one of the strategic choices we made a couple of years ago was to call out a lot of partners, and we have deepened the relationships with the blue chip firms that are out there in the world. And they also are part of those conversations we're having with customers about digital financial transformation. Many of those folks are working with CFOs and Chief Accounting Officers, Corporate Controllers every day. And so that is certainly a piece of it. It's the access and the conversations at a higher level. Our guys have really raised their game in the conversations when they're out there talking with customers. And then candidly, so much of it is about the product-led growth that we've been trying to drive. I mean, again, one of the things that we've gotten back to doing really well is listening to the voice of our customer and building solutions that work for what they're trying to accomplish, but now doing that through the lens of a platform versus just a point solution. So those are the things, Chris, that are showing up. And again, when you look at our pipeline and how it's maturing, so much of that is on the higher end of the market, which is really where we see we can deliver a lot of value for our customers. Christopher Quintero: Awesome. And then I wanted to follow up on the competition angle. It seems like on this call in your prepared remarks, you were talking more about kind of competitive takeaways than you have in the past. Is that kind of the right takeaway here? And I guess, like what's really working well for you to take some deals away from the competitors here? Owen Ryan: Yes. Yes. So we are seeing a nice uptick in competitive wins. I think, again, a lot of this talks about -- I think at one level, BlackLine is viewed as a very safe choice in the office CFO. We've got a proven track record. The quality of our implementations continues to get better with our partners, the optimization, the trust and brand that we built, the products that we're bringing to bear, the scale with which we can operate. It was talked about some of the new things we can do in the marketplace. And so all of that is sort of just giving our customers that much more confidence that we can deliver on our promises. I think one of the things that I like to tell our team all the time, we're not necessarily in the business of selling software or in the business of delivering outcomes for our customers and doing that with our partners and our clients, that's really starting to show very, very nicely, and that's helping us in our win rates and obviously being able to rely on existing customers to serve as references to other customers. It's very compelling. And then the last piece of that, that we are seeing is we are really deep in a lot of different industries and the ability to sort of connect those experiences. So when we're going in, we're not just talking about accounting and finance. We're talking about accounting and finance specific to that industry. And then, by the way, when we can show where we've done it elsewhere for a peer set, it gives our customer base, which tends to be a little bit risk-averse, that much more confident on what we can deliver because we've proven we can do it elsewhere already. Operator: Our next question comes from the line of Alex Sklar from Raymond James. Alexander Sklar: Owen, maybe for you on SAP, a lot of optimism on building pipeline throughout the year with some of the changes there. I think the comments where you've got a good start to the Q4 selling season, but what else from the BlackLine side, are you still focused on to really inflect that opportunity? Owen Ryan: Yes. Look, I think the health of the SAP relationship overall is really solid. And I think we mentioned in the prepared remarks, the joint proof of concept that we're working with them from an AI perspective, we continue to put the innovation that we're creating here through their PQ process. Obviously, having Stuart Van Houten and a number of other people that have joined from SAP be part of the go-to-market framework, has all worked very, very well. I think we mentioned in one of the earlier calls, the point that we were now sharing customer success or customer usage between BlackLine and SAP, which was something brand new. We now have sort of dedicated customer success people on both sides of the SAP BlackLine relationship that will really help us to reduce some of the attrition we sometimes see in that partnership because now we're focusing in a way that, quite frankly, we hadn't been able to do in the past and again, gives us that confidence we're going to see the attrition rate drop in 2026 and beyond. So those are all the things that are going on. There's lots of activity taking place in each of the markets. I just came back from a couple of weeks in Asia Pac. Some of my other colleagues also went over to Asia Pac, where we met with the leaders in the different countries over there. So obviously, it's nice to hear things coming out of L.A. and Waldorf, but what's more important is what's the boots on the ground, I think those are where the relationships are getting better and deeper. And so we're seeing nice progress there across the board. Alexander Sklar: Okay. Great. And maybe a follow-up for Patrick. Just in terms of kind of the 2026 outlook. You think you said kind of factoring consistent macro. I know it's something that's been tougher to project this year. How would you kind of -- how are you characterizing the macro? So we've talked about some of the things your customers are facing with kind of platform pricing and Studio360 adoption. But from a macro standpoint, like how has that progressed since Q1 when we kind of started talking about the different scenarios through third quarter November here? And what are you exactly factoring for next year? Patrick Villanova: Yes. Thank you. So with regard to the macro environment that would lead to the 20% growth rate that Owen indicated, it would be the environment that we're in today. So when we were thinking about back in April and evaluating the potential impact of tariffs, we found that, that largely did not have an impact on the business this year. So when we talk about a macro environment going forward, if we maintain the current state that we're in today, that is the basis for the projection that we were casting upon 2026. Owen Ryan: Look, I think the one thing that we're all trying to work with our customers on here is you've probably seen there's about 1 million corporate job layoffs, I think, over the last couple of months. A lot of that necessarily -- or not necessarily, but it's in the back office, and that's certainly creating some opportunities for us to talk with our customers about how they can use BlackLine because of the efficiency that we're driving for our customers and you power that with what the -- what we're demonstrating to them around AI, and so it could become a little bit of a tailwind versus a headwind depending on how these companies choose to move forward. Fascinating to me in my trips around the world in the last month, and I've spent a lot of time on the road in markets that I would have thought would have been slower or more resistant to adopting the kinds of change that you sort of sometimes see in North America, that is accelerating throughout the rest of the world. And so I think again, that sort of is a bit of a positive tailwind from where I sit today. Operator: And I show our next question comes from the line of Patrick Walravens from Citizens. Patrick Walravens: Great. And it's nice to see that the -- you're starting to see the signs of what you've been working on for so long, Owen. Owen Ryan: Yes, I'm right, Patrick. Patrick Walravens: We're well impatient over here. I'm sure you are, too. Owen Ryan: I hadn't noticed. Patrick Walravens: My question for you is, you made an interesting comment. You said that the conversations between the ERP providers, the customers and the implementation partners can be very difficult, why is that? Owen Ryan: Well, because you wind up with customers sort of have sometimes these views of how quick their transformation is going to go, how easy it's going to be. You replaced an ERP system. That's a complicated project. People change, priorities change, things get emphasized, deemphasized and everybody wants to think it's, well, just slam in the technology, and it will be nirvana. And it's not -- that's not the answer. It's about not only changing the technology, it's making sure you change all the processes that go with that and then also helping people through the change management of what all this takes. And so it's very easy for somebody to say, well, it's only because of X, but it often is because of X, Y, Z and A, B, C. And so what we're trying to do more of now is engage and lean into those conversations. And what we're seeing is positive, it's showing up in the multiyear renewals because we're forcing things that maybe we had in the past wouldn't have done is getting these customers back on that journey and showing them what the art of the possible is. It's so critical from my vantage point around Studio360 to have the blueprints that are part of that. It's so critical that we can now talk about the ability to integrate, the ability to sort of orchestrate what they're doing to visualize it and then have the control and compliance that's on top of all that, those are things that we're forcing into a conversation that, candidly, it isn't always the easiest thing to do, but sitting there are not engaging doesn't do anybody any good. And again, where we're seeing, I think, the uptick is our customers signing up for multiple years because they know they got to get back on this journey. And I think the other thing that's interesting about this a little bit, Patrick, I'm not sure it's scientific, I also think now that people are getting back in offices, face-to-face conversations are a good thing to have and are sort of driving some of the changes in how things are beginning to unfold. Patrick Walravens: Yes. I agree with that. Okay. And then Patrick, 2 quick ones for you. So first of all, I mean, why does -- you're in line on EPS this quarter. So you took the EPS for the year down by $0.05 to $0.11 bottom top of the range, so for Q4. Why is that? Patrick Villanova: There's 2 factors there, Patrick. The first one is you're talking about non-GAAP net income is the interest that we earn on our cash balance. And as we indicated earlier, we have purchased $200 million plus in stock this year as part of our share buyback program, which is driving down the interest that we earn on that. The second driver is the big beautiful bill. While that has provided an infusion of cash flow for us and many other businesses, it does not change our non-GAAP tax expense. So the expense remains constant from a provision standpoint, but we do have a cash flow benefit from that bill. Patrick Walravens: Okay. And then the second question is just so we understand clearly what you guys are saying about the -- about next year. So at your financial analyst session, you presented 2 slides. One was the target model framework. I'm sure you know it by heart, right, which starts with total revenue growth of 13% to 16%, and goes all the way down to your operating margin. And then you had another slide which showed your commitment to the Rule of 40, which had you at 38% in '27 and 40% in '28. So what exactly is it that we're going to see in '26 now? Patrick Villanova: In 2026, you will see at least a Rule of 33 as we committed to in Las Vegas. Patrick Walravens: Okay. So is there any acceleration of this framework? Owen Ryan: For 2027, yes, Patrick. That's where, again, we talked about what we're seeing from a gross bookings perspective, what we're doing on the churn and what we're seeing on the expense side. So as we think about the revenue growth, that's really when we get to that teen growth number in '27, we'll see an acceleration of revenue throughout the year. We think we'll see an acceleration on the bottom line. But the real impact of that will work its way throughout the financial statements throughout the course of the year and again, then show up pretty clearly starting in 2027. Patrick Walravens: Okay. So target model framework slide now, that's now through '27? Owen Ryan: Yes. Yes. Operator: And I show our next question comes from the line of Steve Enders from Citi. Steven Enders: Okay. Great. I guess I want to go back to just the 20% kind of bookings commentary and I guess the view of that kind of accelerating from where we're at today. Just I guess, what is it that you're seeing like gives the confidence around that picking up going into Q4 and then going into next year? And then I guess, on the other side of that, also the commentary around this kind of transition going from the headcount impacts to kind of driving that platform model? I'm just trying to understand, I guess, the kind of like puts and takes to kind of make that 20% happen there? Owen Ryan: Yes. So on the gross bookings side, if you remember, starting in September of last year, we started to communicate that the pipeline was starting to grow. And that has grown even right through the month of October. Every month, we continue to see progress on the size of the opportunities and the brands that we want to be doing business with. That's what's driving that growth is the conversations that our people are engaging within customers as well as a great work that our marketing team is doing in the marketplace. So you watch that and you can see how it's progressing through the stages of sales. And so that's what gives us the confidence of what we expect to see in the fourth quarter and then what we're seeing heading into next year. Remember, it takes a good 10, 12 months for stuff in the mega enterprise space, the enterprise space to make its way to what we do in the pipeline compared to the mid-markets, maybe 4 to 6 months. And so everything we would have expected -- or we're trying to drive, excuse me, not expected, from the quality of that pipeline, from the customers we're engaging with, the partners that we're pursuing those opportunities with and the level of engagement from those customers all give us a much higher degree of confidence as we work our way through, and we've seen the acceleration of gross bookings throughout the course of the year and now beginning to really see that pick up in the fourth quarter. And when you start to then look at the beginning, or into next year, you can see the pipeline that started in January, working its way right up through the end of October continuing to mature its way through. And so that is what gives us confidence because we have enough pipeline to deliver what we've just said around an increase in the gross bookings. So that's the first piece. And hopefully, that's responsive to your question. The second piece is there was a lot of work that we had to do to reposition BlackLine to get to become a $1 billion company. I would say that when I look back with where the infrastructure was, it was probably better suited for a $250 million company than somebody trying to get to $1 billion. And so all the things that have taken place in go-to-market in the G&A part of the business and the product and tech, that has been being worked on through multiple angles, really culminating for where we are today and the ability to move forward with much more operating leverage in the business going forward. And so it's just the investments you would make that accelerate, make it easier for our people to conduct their jobs and we are seeing the increases in productivity. I'm thrilled to see a 30% increase in productivity from a quota-carrying rep. And I think Stuart and his team are just getting started on that as we move forward. The things that Jeremy Ung and his team are doing about productivity from our engineers is phenomenal. And so we're seeing us taking advantage of revamping our processes, using technology as well as the change management we need to drive in the organization. So we feel pretty comfortable that we're going to be able to decouple revenue growth by adding heads all the time to drive that revenue. If we don't need to do that as we scale out the business. It doesn't mean we won't add quota-carrying wraps, doesn't mean that we won't add product and tech professionals as appropriate, but it's not going to be that high correlation that you would have seen from BlackLine previously. And I think that's where we see, again, the opportunity to both accelerate top line growth as well as accelerate bottom line performance. Steven Enders: Okay. That's great to hear. And then maybe to follow up on Pat's question on just the next year kind of view. I guess appreciate saying that 33% number. I guess maybe asked a little bit differently, like if I'm looking at where consensus numbers are for next year, I think it's at high 8%, almost 9% growth. Is that the right ballpark in terms of how you're thinking about now? Or how should we maybe think about the mix of growth and margin to get to that 33% number? Owen Ryan: I think you're largely thinking about it correctly. But obviously, we're -- our target of a Rule of 33 for 2026 is our minimum expectation in terms of what we're going to achieve next year. So yes, we're aware that the consensus number is 8.8%. We do have confidence in our growth profile for next year and our ability to achieve at least the Rule of 33. Operator: And I show our next question comes from the line of Jake Roberge from William Blair. Jacob Roberge: Great to hear about the pipeline strength, but can you give us some more color on what you're seeing with close rates and win rates, just given the divergence between pipeline, gross bookings and then also ARR growth would just be helpful to understand what you're seeing on that front. Owen Ryan: Yes. Look, I think our win rate is probably up about 10 percentage points from where it was. So if -- and I'm just going to use a number, if it was 20%, now you could look at it maybe 22%, right? Those are lower than they actually are, but just using it that way. So we see that uptick and close in win rates and we can tell we're taking share from somebody out in the marketplace. And so that has been very encouraging. And we expect that, that is going to continue, if not accelerate even a little bit more, just again, given all the things that the responsiveness we're getting from our customers around the platform pricing, understanding better what Studio360 really is all about and then all the work that the team has done around Verity AI. It's sometimes hard for me to process the amount of change that we've driven into the company last year and this year, just on the product and tech side. It's one thing to sell that into the marketplace, deliver to the marketplace, a whole other thing to get your own people enabled on it, to understand it, buy into it, get comfortable with it and go out and tell that story. And again, we're seeing that our team is getting better and better at articulating that value proposition and engaging in conversations at a higher level in a broader as well as deeper way. And so that's what we're seeing. I don't know, Patrick, anything you want to add on particular numbers, but that's what's going on in the business right now. Operator: And I show our next question comes from the line of Koji Ikeda from Bank of America. Koji Ikeda: Sorry about that, I was on mute. So I totally appreciate right before the Q&A that you don't comment on media speculation. And I really do appreciate that level setting. And so -- but I do think it's important to ask, and I wanted to ask about how you're thinking about driving shareholder value from here. Whatever you can talk about from that lens would be really helpful, because I look at the third quarter growth, I look at the profitability, but balance against the duration adjusted billings growth of 7%. But then really, it sounds like bookings is having some good momentum, too. So whatever you could share on how you're thinking about driving shareholder value would be really helpful. Owen Ryan: Look, Koji, I think we're all fixated and focused on that every day, and I appreciate that you're not going to ask me about the market rumors. I think we meet with the Board on a regular basis. The Board is well aware of our responsibilities, fiduciary responsibilities to drive shareholder value and that's what we're trying to do by reaccelerating growth the way we've talked about it, driving bottom line performance, returning cash to shareholders. Those are the things that are within our control that we are executing every day and we feel really good about that. And no one's asked me yet about AI, so hopefully, somebody will and why that's -- we don't view that as a threat to our business because I think that's the other thing that's held the share price down a little bit. I know certainly, when I talk to investors and analysts, they're always saying, "Well, isn't AI going to put you out of business?" And so Koji, as I answer, so I'm going to try to do it in 2 parts. I think we're doing everything we can. We're doing it even quicker now because things are finally converged on getting the bookings machine going, really dealing with the C&A challenge and managing expenses. On the AI side, where we seem to have been lumped in with everybody else and taking our lumps from that, we said in the prepared remarks, we believe we have 2 strong parts that reinforce and widen the moat as we operate around AI. First, we are viewed by our customers, but also by the world's leading accounting and auditing firms as well as the implementation partners as a very safe, reliable, trustworthy pair of hands. As Patrick says all the time, 95% right in accounting is 100% wrong. So we understand that responsibility clearly and has been in our DNA since the founding of the company. Actually, even earlier today, I had a meeting with the leadership of one of the most critical bodies that works with companies, auditing firms and regulators, and the topic was about the role of AI in accounting and auditing because we want to make sure we're staying very closely aligned with the latest thinking and even shaping the thinking of what policies and guidance will be as AI makes its way forward. The second piece that we talked about was the data that we have. And we are sitting on a trove of information that we are really just beginning to use and our customers are beginning to see the power of that information. Interestingly, as we talk with finance teams and IT teams, 2 things are generally cropping up: First is these companies seem to be interested in buying proven solutions rather than taking a chance on less established brands as it relates to the financial close and consolidation; and second, and this is important is the IT team and their initiatives -- AI initiatives seem focused more on their bigger business opportunities that could have an impact for their companies, and it is not centered on financial close and reporting as a priority. In fact, we're aware of a paper that's going to come out next week that's sort of just going to emphasize that, and it wasn't a paper, by the way, created by us. So the key for us as we move forward with AI is going to be able to provide AI solutions that remain reliable, transparent, auditable as well as cost effective for our customers. Now one other data point that I would just share with you that is worth noting. Our roster of customers includes the world's leading technology companies. We have a who's who, it's incredible. And these companies are engaging with us on what we can do for them with AI. Even though they're selling AI out in the marketplace, the place they are not -- they don't seem to be interested in selling AI is in financial close and reporting. And so while there's no guarantee that they're going to use BlackLine AI, it does seem to support the statements I made above that their priorities are elsewhere, and they have an interest in what we're doing. And I think if we can convince the market that there is different pockets of who are going to be the winners and losers in the AI war, then we feel like we're going to be a winner in that. And hopefully, we'll get some pop out of that for our share price. And again, on these conversations that I'm having with the various bodies that oversee public companies, auditors and the like, the regulation is going to take a really long time to get going. And so if anybody thinks that publicly traded companies and no matter what market they're operating in, are going to go do something really crazy around the financial close and consolidation and what they're willing to sign off on for a rep letter and everything else and in what they're communicating to the capital markets, we just don't see it happening anytime soon. And we see that we are really well positioned for the conversations that the customers who trust us and understand what we're doing. And so I think for us, we look at this as a real positive, but we have to obviously show that to the market. Operator: And I show our next question comes from the line of Terry Tillman with Truist Securities. Dominique Manansala: This is Dominique Manansala on for Terry. So just considering the federal motion of early and FedRAMP unlocks future opportunity, how does adoption typically sequence here? Do you expect it to expand horizontally into additional agencies or more so vertically within a single agency into workloads like intercompany or invoiced to cash? And then on top of that, are there specific things that shorten time to live once FedRAMP has achieved like maybe a shared service model or preexisting SAP footprint? Owen Ryan: Yes. It's a really good question, Dominique. And I think the answer to the first part of the question is both. What we're seeing is, like, for example, with the DOJ win that we had, I mean, that is now available to multiple agencies where they can -- within the DOJ, I forgot how many there are, but there are quite a few that have access and a number of them are now looking at what we have to offer. But I think the other thing that's been interesting is being able now to have more conversations across different federal agencies where there's a keen interest in what a BlackLine can offer. And I think some of the very interesting conversations earlier on for what I would have argued were sort of our more traditional financial close capabilities around REX and matching and journals but I never think of the federal government as an intercompany opportunity. But interestingly, it has proven to be an intercompany opportunity because of all the interagency billing and activity that goes on. So we're seeing plenty of opportunities very quickly across the federal space and even picking up now in the state space as well. So I think we sit here we're very confident that based on the feedback, BlackLine is a really terrific fit for the federal government space. The ability for to deliver automation, control, auditability for these agencies is really incredibly important to them. And given the pressure on the federal workforce, the opportunity for what BlackLine can do seems to be resonating very, very well as we're pursuing that marketplace. Dominique Manansala: Great. That's helpful. And then just as a follow-up, in building an elite partner group and then being selective in where you invest or invest enablement dollars, how do you determine which partners get priority here? Is it -- does it influence on transformational deal formation, industry specialization or maybe contribution to source pipeline? Owen Ryan: It's a couple of different things. So obviously, if you think about many of the partners that we work with, they often have dedicated teams that are almost sitting in the office of the CFO and Controller. So we try to work with those that have the strongest brand permission in those customers. We try not to sole source things. We tend to -- if a customer asks us for recommendation, we try to provide them at least 3 names, typically 3 names of partners that we work with, and we try to match that up with the organization's preference for their own customers. But again, we work with a sort of a who's who list, but it's their permission in the space, it's their industry capabilities. If they've made the investments to really deepen their capabilities around certain products within BlackLine. So we've seen a real uptick in our critical partners trying to learn and understand even more about intercompany, our invoice to cash solution. And so the better equipped they are for those, the higher the likelihood that we are to make a recommendation of them as at least one potential player in any opportunity. So that's sort of how it's worked so far. I will say it's a lot easier with a smaller list of partners to navigate than the dog's breakfast of partners we had previously. And I think that those deeper relationships are certainly opening up where those partners are that much more confident to recommend BlackLine. I think we have seen a real breaking apart of the partners sort of saying, well, you could pick this provider or you could pick that one with a more firm BlackLine is the best at this and here's why we would recommend you go with them versus someone else? Operator: And I'm sure our last question in the queue comes from the line of Adam Hotchkiss from Goldman Sachs. Adam Hotchkiss: I'll keep it to one quick one. I just wanted to ask on the 10- to 12-month sales cycles you mentioned, Owen. Obviously, that makes sense given the size of some of these opportunities. But what are you doing from the perspective of trying to automate some of the implementation work in order to lower sales cycles? And do you have any sense for how quickly and by what magnitude do you think you can reduce time and cost of implementation for customers would be really helpful to get some context. Owen Ryan: Yes. Adam, that's a great question because, look, the CFO has a project and he's got 2 that can deliver 20% return just making it up, and one is in the office of CFO and one's on sales, they're going to pick sales all the time. So we have to find ways to deliver greater value even more quickly. So over the last sort of -- when Therese and I stepped into the role, we changed out pretty much all of the leadership team of -- on our professional services side. We've changed a lot of our customer success leadership, all with the idea of trying to drive greater implementation, greater optimization, and that was sort of just revamping the way we do things, right? Just being crisper, cleaner of how you go about it. In the last 6, 8 months, 9 months, whatever it is at this point in time. The next phase of that was then how do you take all the lessons and experiences from all these implementations we've done, all these optimizations we've done by industry, by size of company, by workflow to then say, "Hey, here is a quicker, better way we can help you do this." We will be making that available to our partners to use. We'll be making that available to our customers to use because, again, what we want to do is drive that value for our customers that much faster. So you heard us talk about how many more go-lives we've had sequentially as well as just year-over-year, but critically, the time to get those implementations is continuing to drop. And I'll have a better answer for you in February by how much we think that's going to drop, but it will not be an insignificant cutoff of time that goes from sort of when the customer signs the contract to when they go live, so they begin to really optimize what we're doing with them. Operator: That concludes our Q&A session. At this time, I'd like to turn the call back over to Owen Ryan, CEO, for closing remarks. Owen Ryan: So thank you all for joining the call tonight. Sorry about the little bit of technology glitches at the beginning, but we really do appreciate your interest in following BlackLine. Look forward to continuing to talk with you, share more about our journey and how we're going to make the plans that we've committed to you. Everybody, have a great night. Take care. Operator: Thank you. Thank you for attending today's conference call. This concludes the program. You may all disconnect.
Operator: Good morning, and welcome to the earnings conference call for the period ended September 30, 2025, for MidCap Financial Investment Corporation. I will now turn the call over to Elizabeth Besen, Investor Relations Manager for MidCap Financial Investment Corporation. Elizabeth Besen: Thank you, operator, and thank you, everyone, for joining us today. We appreciate your interest in MidCap Financial Investment Corporation. Speaking on today's call are Tanner Powell, Chief Executive Officer; Ted McNulty, President; and Kenny Seifert, Chief Financial Officer. Howard Widra, Executive Chairman; and Greg Hunt, our former CFO, who currently serves as a senior adviser, are on the call and available for the Q&A portion of today's call. I'd like to advise everyone that today's call and webcast are being recorded. Please note that they are the property of MidCap Financial Investment Corporation and that any unauthorized broadcast in any form is strictly prohibited. Information about the audio replay of this call is available in our press release. I'd also like to call your attention to the customary safe harbor disclosure in our press release regarding forward-looking information. Today's conference call and webcast may include forward-looking statements. You should refer to our most recent filings with the SEC for risks that apply to our business and that may adversely affect any forward-looking statements we make. We do not undertake to update our forward-looking statements or projections unless required by law. To obtain copies of our SEC filings, please visit either the SEC's website at www.sec.gov or our website at www.midcapfinancialic.com. I'd also like to remind everyone that we've posted a supplemental financial information package on our website, which contains information about the portfolio as well as the company's financial performance. Throughout today's call, we will refer to MidCap Financial Investment Corporation as either MFIC or the BDC, and we will use MidCap Financial to refer to the lender headquartered in Bethesda, Maryland. At this time, I'd like to turn the call over to Tanner Powell, MFIC's Chief Executive Officer. Tanner Powell: Thank you, Elizabeth. Good morning, everyone, and thank you for joining us for MidCap Financial Investment Corporation's Third Quarter Earnings Conference Call. To begin today's call, I'll provide an overview of MFIC's third quarter results and the significant repayment from our investment in Merx, our aircraft leasing portfolio company that we highlighted on our call last quarter. I'll also share some thoughts on the outlook for our dividend. Following that, I'll hand the call over to Ted, who will share our perspective on the current market environment, walk through our investment activity for the quarter and provide a portfolio update. Kenny will then review our financial results in detail and recent financing-related activities. Yesterday after market closed, we reported results for the third quarter. Net investment income or NII per share was $0.38 for the September quarter, which corresponds to an annualized return on equity or ROE of 10.3%. GAAP net income per share was $0.29 for the quarter, which corresponds to an annualized ROE of 8%. As discussed last quarter's call, we're pleased to report portfolio company repaid approximately $97 million to MFIC during the quarter. NAV per share was $14.66 at the end of September, down 0.6% compared to the prior quarter. The decline in NAV was primarily due to a handful of positions that were added to non-accrual status, partially offset by a gain on our investment in Merx. The increase in non-accruals reflects company-specific issues, and we believe is not representative of a broader deterioration in credit quality. During the September quarter, MFIC made $138 million of new commitments across 21 transactions. We believe MidCap Financial's strong incumbent position continues to be a significant competitive advantage as evidenced by the fact that slightly more than half of our new commitments by number were made to existing portfolio companies. In a muted M&A environment, incremental commitments are an important source of deal flow. While sourcing assets is generally considered to be among the biggest challenges for many market participants in the market environment, MFIC benefits from access to assets sourced by MidCap Financial, one of the largest and most experienced lenders in the middle market, which is consistently ranked near at the top of the league tables. Our affiliation with MidCap Financial provides a significant deal sourcing advantage for MFIC. We are fortunate to have the access to significant volume of commitments originated by MidCap Financial, which allows MFIC to select assets, which we believe to have the most attractive risk-reward characteristics. During the September quarter, MidCap Financial closed approximately $5.8 billion of commitments. MidCap Financial has what we believe one of the largest direct lending teams in the U.S. with over 200 investment professionals. MidCap Financial was founded in 2009 and has a long track record, includes closing on approximately $150 billion of lending commitments since 2013. This origination track record provides us with a vast data set of middle market company financial information across all industries, and we believe that this makes MidCap Financial one of the most informed and experienced middle market lenders in the market. Key members of MidCap Financial's management team have been working together for more than 25 years, resulting in strong collaboration and an enhanced ability to navigate challenging market conditions, leading to improved credit quality and risk management. We believe the core middle market offers attractive investment opportunities across cycles and does not compete directly with either the broadly syndicated loan market or the high-yield market. MFIC's affiliation with MidCap Financial has enabled us to successfully build a portfolio of predominantly first lien loans to sponsor-backed companies. Moving on to Merx, our aircraft leasing company. As discussed on last quarter's call, during the September quarter, Merx completed a sale transaction covering the majority of its owned aircraft. In addition, Merx received additional payments from insurers related to 3 aircraft detained in Russia. Both the sale transaction and the insurance proceeds exceeded the assumptions in Merx's June valuation, resulting in a $16.6 million gain recorded during the September quarter. Merx repaid approximately $97 million to MFIC on a net basis during the September quarter. Approximately $72 million of the paydown was applied to equity and the remaining $25 million was applied to the revolver. At the end of September, MFIC's investment in Merx totaled $105 million at fair value, representing 3.3% of the portfolio, down from 5.6% at the end of June, which reflects the $97 million paydown and a net gain recorded during the quarter. As part of the sale transaction, Merx expects to receive approximately $25 million of additional consideration by the end of 2025 or in early 2026, which will be paid to MFIC and further reduce our exposure. Let me remind you about what remains at Merx. MFIC's remaining investment in Merx consists of 4 aircraft, plus the value associated with Merx's servicing platform. Merx earns income through its servicing activities from Navigator, Apollo's dedicated aircraft leasing fund, which currently owns 39 aircraft. Having fully deployed its equity commitments, Navigator is in the harvest period, and as such, the fund is opportunistically monetizing assets to optimize fund level returns. Merx receives a remarketing fee on each aircraft sale. At the end of September, the servicing business represented approximately 25% of the total value of Merx. The servicing component of Merx will naturally decline as servicing income is received. Turning to our dividend. On November 4, 2025, our Board of Directors declared a quarterly dividend of $0.38 per share for stockholders of record as of December 9, 2025, payable on December 23, 2025. Before I turn the call over to Ted, I would like to take a moment and make a few comments about our dividend, given increasing investor focus in light of the recent Fed cuts and market expectation for additional cuts and the resulting decline in the SOFR forward curve. Due to the asset-sensitive nature of our balance sheet, all else equal, declines in base rates will put pressure on net investment income. For context, the current SOFR forward curve is projected to trough around mid- to late 2026 at around 3%, which is roughly 80 to 90 basis points below current levels. As shown on Page 16 in the earnings supplement, a 100 basis point reduction in base rates would reduce MFIC's annual net investment income by approximately $9.4 million or $0.10 per share, which includes the impact of incentive fees. We are actively working on a couple of initiatives to help offset some of the impact from declining base rates. These initiatives, including pursuing additional paydowns from Merx and resolving certain non-accrual and earning assets. Post quarter end, we made a couple of enhancements to our capital structure, which will also improve MFIC's earnings power, which Kenny will discuss. With that, I will now turn the call over to Ted. Ted McNulty: Thank you, Tanner. Good morning, everyone. Starting with the market backdrop. U.S. economy has remained resilient, which has helped ease concerns about a recession. Inflation remains elevated. Consumer spending and business spending have been strong, although consumer sentiment is worsening. In response to rising unemployment risk, the Federal Reserve cut interest rates by 25 basis points in September. The Fed cut another 25 basis points in October. Torsten Slok, Apollo's Chief Economist, says private labor data suggests that the labor market is doing okay. He also sees growing upside risk to inflation driven by tariffs, a weakening U.S. dollar, a strong economy and wage pressures in certain sectors. As the significant tariff-driven volatility has eased and there's more clarity with respect to the trajectory of rates, we're seeing an increase in sponsor M&A activity. That said, given the significant capital raise for direct lending, we continue to see pressure on both spreads and OID. We believe the core middle market where we are focused, does not compete directly with either the broadly syndicated loan market or the high-yield bond market. Regardless of recent M&A activity levels, we see that many of our borrowers continue to have add-on financing needs, which is an important source of deal flow. Next, I'm going to spend a few minutes reviewing our third quarter investment activity and then provide some detail on our investment portfolio. In the September quarter, we continued to deploy capital into assets with what we believe to be strong credit attributes. As mentioned, MFIC's new commitments in the September quarter totaled $138 million with a weighted average spread of 521 basis points across 21 different companies. Despite the competitive environment, MidCap Financial has remained disciplined in its underwriting. The weighted average net leverage on new commitments was 3.8x in the September quarter, down from 4x in the prior quarter. Our fee structure, which is one of the lowest among listed BDCs, allows us to generate what we believe to be attractive ROEs even at current spreads. Gross fundings, excluding revolvers and Merx totaled $142 million. Sales and repayments, excluding revolvers and Merx totaled $197 million. Net revolver fundings were approximately $3 million. As previously mentioned, we received a $97 million net paydown for Merx. In aggregate, net repayments for the September quarter were $148 million. Excluding the $97 million net repayment from Merx, net repayments for the quarter totaled $51 million. Shifting now to our investment portfolio. At the end of September, our portfolio had a fair value of $3.18 billion and was invested across 246 companies across 48 different industries. Direct origination and other represented 95% of the total portfolio, up from 92% at the end of June, primarily driven by the Merx paydown. Merx accounted for 3.3% of the total portfolio at the end of September, down from 5.8% at the end of June. At the end of September, the non-directly originated loans acquired from the closed-end funds represented approximately 2% of the portfolio. All of these figures are on a fair value basis. With respect to recent headlines, we have no exposure to either First Brands or Tricolor. Specific to the direct origination portfolio, at the end of September, 98% was first lien and 91% was backed by financial sponsors, both on a fair value basis. The average funded position was $12.9 million. The median EBITDA was approximately $51 million. Approximately, 95% had one or more financial covenants on a cost basis. Covenant quality is a key point of differentiation for the core middle market as substantially all of our deals have at least one covenant. The weighted average yield at cost of our direct origination portfolio was 10.3% on average for the September quarter, down from 10.5% for the June quarter. At the end of September, the weighted average spread on the directly originated corporate lending portfolio was 559 basis points, down 9 basis points compared to the end of June. Underlying portfolio company credit metrics showed a slight improvement quarter-over-quarter, although we saw an uptick in investments on non-accrual status. We observed a modest decrease in borrower net leverage or debt to EBITDA, with the weighted average leverage decreasing to 5.29x at the end of September, down from 5.32x at the end of June. This trend reflects the lower leverage on new commitments, which helped offset increases in certain existing investments. Additionally, the weighted average interest coverage ratio improved slightly to 2.2x, up from 2.1x last quarter. Looking ahead, all else equal, if base rates decline as currently expected, we anticipate a positive impact on portfolio company credit quality through even higher interest coverage ratios. These metrics are generally based on financial information as of the end of June 2025. We believe the steady revolver utilization rate we see from our borrowers is an indicator of greater financial stability and provides us with incremental and more frequent financial information. Revolving facilities provide insight into a company's liquidity position through draw behavior. At the end of September, the percentage of our leverage lending revolver commitments that were drawn was essentially flat compared to the prior quarter. During the quarter, we reinstated a portion of our investment in Nuera to accrual status following a restructuring, which converted our first lien debt position into a combination of first lien debt and preferred equity. Conversely, we placed 5 investments on non-accrual status due to company-specific challenges, noting that one of these investments was acquired in last year's mergers. A portion of our investment in LendingPoint was moved to non-accrual status in anticipation of a forthcoming restructuring. In total, investments on non-accrual status represented 3.1% of the portfolio at fair value, up from 2% at the end of the prior quarter. Subsequent to quarter end, we were repaid on our position in Global Eagle, a position acquired in the mergers, which was on non-accrual. Toward the end of October, we became aware that one of our portfolio companies, Renovo, would be filing for bankruptcy. The company filed in early November. As of September 30, MFIC had a $7.9 million exposure to the company. PIK income declined to 5.1% of total investment income for the September quarter and 5.8% over the LTM period. Our PIK income remains relatively low compared to other BDCs, which we view as a positive indicator of portfolio health and reflects our focus on cash pay investments. With that, I will now turn the call over to Kenny to discuss our financial results in detail. Kenneth Seifert: Thank you, Ted, and good morning, everyone. Total investment income for the September quarter was approximately $82.6 million, up $1.3 million or 1.6% compared to the prior quarter. The increase in fee income, partially offset by a decline in recurring interest income, which is due to a tightening of base rates, a modest uptick in non-accruals and a slightly lower average portfolio size. Prepayment income was approximately $3.2 million, up from $1.2 million last quarter. Our fee income was $458,000, up from $220,000 last quarter. Dividend income was $200,000, flat quarter-over-quarter. The weighted average yield at cost of our directly originated lending portfolio was 10.3% on average for the September quarter. This is down from 10.5% last quarter due to the aforementioned tightening in rates. Net expenses for the quarter were $47.3 million, up from $44.9 million in the prior quarter. This increase was primarily driven by higher incentive fees. MFIC stated incentive fee rate is 17.5% and is subject to a total return hurdle with a rolling 12-quarter look back. Given the total return hurdle feature and the net loss incurred during the look-back period, MFIC's incentive fee for the September quarter was $5.8 million or 14.1% of pre-incentive fee net investment income. Other G&A expenses totaled $1.6 million for the quarter and administrative service expenses totaled $1 million. Both figures are essentially unchanged from the prior quarter and in line with our previously communicated expectations of $1.6 million and $1 million, respectively. For the September quarter, net investment income per share was $0.38, and GAAP earnings per share or net income per share was $0.29. These results correspond to an annualized ROE based net investment income of 10.3% and an annualized return on equity based on net income of 8%. Results for the quarter included a net loss of approximately $7.9 million or $0.08 per share, primarily due to losses on a handful of investments, as previously mentioned. Turning to the balance sheet. At the end of September, the portfolio had a fair value of $3.18 billion. Total principal debt outstanding of $1.92 billion and total net assets stood at $1.37 billion or $0.1466 per share. Company ended the quarter at net leverage of 1.35x with average net leverage, excluding the impact of Merx equating to 1.37x. This was up slightly from the prior quarter's average of 1.35x. Gross fundings for the quarter, excluding revolvers totaled $142 million. Debt repayments for the quarter were $148 million. Excluding the $97 million repayment from Merx, net repayments for the quarter would have been $51 million. Turning to the liability side of the balance sheet. We have been focused on extending our debt maturities and reducing our financing costs. On October 1, we amended our revolving credit facility and extended the final maturity to October 2030. Part of this amendment, the funded spread on the facility was reduced by 10 basis points from 197.5 basis points to 187.5 basis points. Just a reminder, this includes the 10 basis points of credit spread adjustment. The unused fee was reduced from 37.5 basis points to 32.5 basis points. Size of the facility was reduced by $50 million to $1.61 billion. The remaining material terms of the facility were unchanged. As a result of this amendment, we expect to recognize a one-time expense of approximately $1.5 million in the December quarter due to the acceleration of unamortized debt issuance costs associated with one lender whose commitment was reduced. In addition, in October, we upsized and repriced MFIC Bethesda 1 CLO, which originally priced in September 2023. We increased the size of the CLO collateral from $400 million to $600 million. As part of this reset, we sold through the single A tranche generating approximately $456 million of relatively low-cost secured debt, which equates to a blended advance rate of 76%. The blended cost of the notes sold was 161 basis points. Spreads on middle market CLO debt tranches have tightened considerably since the CLO originally priced. Spread on the senior AAA tranche on the CLO reset was 149 basis points compared to 240 basis points when the CLO originally priced, tightening of 91 basis points. CLO has a reinvestment period of 4 years and the net proceeds from the CLO transaction were used to repay borrowings under our revolving credit facility. As discussed on prior calls, we continue to view CLOs as an attractive source of term financing. We will recognize a one-time expense of approximately $1.8 million in the December quarter related to the reset, which reflects the acceleration of unamortized debt issuance costs for the original CLO. As always, MFIC benefited from MidCap Financial and Apollo's experience and expertise in CLO management and structuring this transaction. While these financing transactions will result in approximately $3.3 million of one-time expenses in the December quarter, the expected reduction in financing costs is expected to lead to a rapid payback period. Weighted average cost of debt for the September quarter was 6.37%. Weighted average spread on our floating rate liabilities will decline from 195 basis points as of September 30 to 176 basis points, a 19 basis point reduction. This decrease is driven by both the amendment of the revolving credit facility and the CLO reset. This concludes our prepared remarks. Operator, please open the call to questions. Operator: [Operator Instructions] We will take our first question from Arren Cyganovich with Truist Securities. Arren Cyganovich: I'd just like to discuss the increases in non-accrual. It wasn't a lot, maybe 1% or so on cost, but there were several companies. Maybe you could just talk a little bit about what is driving this? Is there any kind of theme between them? Are they tariff related? Maybe just a little bit more detail around the issues that were affecting those companies? Ted McNulty: Yes. Sure, Aaron. This is Ted. Thanks for the question. If you look at the companies that went on non-accrual, there's not really a theme that ties them all together. We have one that was impacted by tariffs. We have one that does have some pressure from weakened consumer sentiment. Overall, not a real theme, very idiosyncratic across each one. Arren Cyganovich: In terms of the increase in M&A activity that you're seeing in the marketplace, is this something that you feel like will be sustainable through 2026? Maybe just a little more of your thoughts on the outlook for investing environment. Ted McNulty: Yes. I mean, Arren, I think there's a couple of factors at play. One, you have some private equity companies or held companies that have been in the portfolio for a long time. You also have dry powder, and so you need a combination of putting money to work as well as returning capital back to the LPs. From that perspective, there should be ongoing demand. You also have with kind of tariffs not going away, but at least some of that volatility being muted as we talked about, a little more certainty, which can narrow the bid-ask spread between buyer and seller. Then with rates starting to come down and kind of some consensus around where the curve is going to shake out. I think Tanner mentioned troughing mid next year around 3%, you start to see the financing costs come down and the financing -- the cost, the certainty of that financing and the cost starts to stabilize. All those factors should lead to ongoing activity. Operator: We will take our next question from Melissa Wedel with JPMorgan. Melissa Wedel: I wanted to revisit the comment you made about some of the mitigating actions that you're taking to help offset the impact of lower base rates. I realize that those things can take a while to ramp up and it can take some time to rotate assets. I'm curious how your team is evaluating the timing difference there and how that could impact dividend decisions? Essentially, how long might you wait to give those efforts time to kick in? Tanner Powell: Yes, sure. Thanks, Melissa. When we look at deployment, as we've alluded to quite a bit, we're very lucky to be roughly $3 billion of a sourcing engine for $50 billion and so have a lot of opportunities for deployment in an improving M&A market. Importantly, when we look at deployment, and I think this rhymes with our approach with respect to the proceeds we generated from the sales of the broadly syndicated and high-yield loans, we want to do it in a deliberate manner. Importantly, instead of just getting right back to target leverage from the Merx proceeds immediately, we want to continue to, one, not over-indexed in any one market and then also take the opportunity, which we're afforded by virtue of that really wide origination funnel to be very granular in what we're doing. Importantly, all things being equal, you'd love to get right back up to target leverage. In the case of Merx, we've gotten $97 million back, and we anticipate another $25 million, which was otherwise only earning 2.5% on our balance sheet, so clearly, a nice accretion opportunity. When we go to deploy, it's got to be balanced by -- and even if it does take a little bit of time. We want to err on the side of creating a really, really granular portfolio. Importantly, the other aspect of that is, of course, now as Kenny alluded to, having reset our first CLO down 90 basis points and upsized our all-in secured cost of capital, which is our financing strategy to become more secured heavy in our liability side is roughly 1.75% and putting us in a good position to be able to still generate nice NIM in what is very clearly a tightening spread environment or a tight spread environment. The conclusion is we can do it quickly. We want to be measured, and we want to do it consistent with how we've deployed across a really diverse pool of 244 obligors in our portfolio. Melissa Wedel: Appreciate that detail. You mentioned portfolio leverage as part of your answer. Can you give us an update on how you're thinking about portfolio leverage in the context of this environment given where spreads are right now? Tanner Powell: Yes. Our target for leverage is unchanged, and we would endeavor over the next period of time to get back to the 1.4 level. We do think, as we've said in the past, that the execution through very, very attractive levels of investment grade within the CLO is indicative of our confidence in being able to run at a little bit higher leverage level. We would endeavor to get back to that 1.4 level, again, drawing on the comment to your previous question, again, but doing it in a measured way. Operator: [Operator Instructions] We will take our next question from Paul Johnson with KBW. Paul Johnson: I only have just one. I mean with the recent liability amendments and I guess, addressing kind of -- it looks like you're making room to kind of address the upcoming bond maturity, but kind of getting your ducks in a row, I guess, on the liability side, does that change anything around your interest in potentially repurchasing shares? Tanner Powell: Yes. Thanks, Paul. I think when we look at share repurchases, which are obviously very topical now in light of where BDCs have traded as of recently. We have been an active repurchaser historically. It is a very compelling tool for driving shareholder value, which, of course, needs to be weighed against liquidity and where we stand in terms of leverage and outlook, importantly, of course, weighed against the opportunity to deploy into new loans. That said, we do believe, as we have in the past, that it is a compelling tool. Would note also on share repurchases, Paul. Historically, it has been our view that instead of implementing the 10b5, we would prefer to utilize share repurchases when the windows open and thus, we can have the latest and greatest information, which obviously limits the amount of time you can be repurchasing. Notwithstanding, we do believe it's compelling, and we have a nice room under our current authorization. Operator: [Operator Instructions] We will take our next question from Kenneth Leon with RBC Capital Markets. Kenneth Leon: This may have been already covered, unfortunately, I'm indulging a few calls. What's the latest and any updated thoughts around dividend coverage just given the current rate outlook there? Tanner Powell: Yes, sure. When we look at the dividend, Ken, we were able to meet $0.38, benefiting from a slightly lower incentive fee in the current quarter. Then as we mentioned in the prepared remarks, we do have considerable proceeds from Merx that were yielding on our books a significantly lower yield. That's a nice accretion opportunity for us. Then we've also undertaken an opportunity in the current market environment, which is as those spreads on our assets have come down, we've been able to remark our liabilities. As that plays through our numbers between those dynamics and then in addition to the fact that there is an opportunity to work through our non-accrual positions, those 3 drivers give us an opportunity to mitigate the effects of lower base rates. The Board has made a decision at the current moment to leave the dividend intact. Then as we see those 3 levers that we have playing through and we assess importantly, the actual trajectory of rates versus what's anticipated, we will continue to reevaluate. We also did call out a 100 basis point decline in rates would be about $0.10 of annual NII and thus, taking into account what the actual trajectory of rates is against those 3 levers will enable us to make kind of a more informed decision as we move forward over the coming quarters. Operator: At this time, there are no further questions in queue. I will now turn the meeting back to Tanner Powell for any closing remarks. Tanner Powell: Thank you, operator. Thank you, everyone, for listening to today's call. On behalf of the entire team, we thank you for your time today. Please feel free to reach out to us with any other questions, and have a good day. Operator: Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.
Operator: Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Cipher Pharmaceuticals Quarterly Conference Call for the company's Q3 2025 results. [Operator Instructions] As a reminder, this conference is being recorded today, Friday, November 7, 2025. On behalf of the speakers that follow, listeners are cautioned that today's presentation and the responses to questions may contain forward-looking statements within the meaning of the safe harbor provisions of the Canadian provincial securities laws. Forward-looking statements involve risks and uncertainties, and undue reliance should not be placed on such statements. Certain material factors or assumptions are implied in making forward-looking statements, and actual results may differ materially from those expressed or implied in such statements. For additional information about factors that could cause results to vary, please refer to the risks identified in the company's annual information form and other filings with Canadian regulatory authorities. Except as required by Canadian securities laws, the company does not undertake to update any forward-looking statements. Such statements speak only as of the date made. I would now like to turn the call over to Mr. Craig Mull, Interim Chief Executive Officer of the company. Please go ahead, Mr. Mull. Craig Mull: Good morning, everyone, and thank you for joining us today. Before I begin, I would like to remind everyone that all figures discussed on today's call are expressed in U.S. dollars, unless otherwise specified. Cipher demonstrating meaningful growth during the third quarter of 2025, which was largely attributed to the addition and performance of our U.S.-based Natroba business. Sales from Natroba and its authorized generic Spinosad were $8.1 million during the third quarter of 2025, a 4% sequential increase over the last quarter's revenues of $7.8 million, consistent with the product seasonality, whereby head lice and scabies infections are generally more prevalent in the warmer months of the year. Additionally, the Natroba business continues to have strong profitability with gross profit of $7 million and a gross margin percentage of 86% during the third quarter of 2025. Adjusted EBITDA from the Natroba business was a strong result of $5 million, which contributed to our total combined business adjusted EBITDA of $7.3 million during the third quarter of 2025. Consistent with our past track record, our earnings translate directly to free cash flow, which has allowed us to continue to deleverage the business. During the third quarter and after the quarter-end, we repaid a total of $17 million on our revolving credit facility, which has now been reduced to a balance of $8 million at the present time. This is an incredible feat given that we drew $40 million on the revolving facility to acquire the Natroba business just at the end of July 2024. Our CFO, Ryan Mailling, will provide a detailed overview of our financial results following my commentary. I would like to spend the balance of my remaining remarks to discuss our business development activities, which we are very active in and where I am focusing the majority of my time. We have 4 distinct strategies ongoing at the moment to drive shareholder value and grow our business. Firstly, it is critical we continue to invest and build upon the Natroba business and the U.S. operations to position it to further grow heading into 2023. To supplement our existing sales approach, we will be launching a direct-to-consumer sales model early in 2023, which is a strategy many pharmaceutical manufacturers are taking as a direct and modern sales approach to the U.S. market. We believe Natroba is right suited for a direct-to-consumer sales model, whereby permethrin and related OTC products are no longer an effective solution to the needs of individual consumers and families suffering from head lice and scabies. They simply need a better solution and an ability to get it fast when it is needed. Our platform will streamline the process to obtain a prescription, efficiently adjudicate a claim and provide a convenient local pickup or delivery option to consumers. The strategy also includes partnerships with retailers to ensure that Natroba and Spinosad is adequately stocked in states and city centers across the U.S., so it is available through this platform. We are excited about our new DTC strategy, and we'll provide more details on the rollout in the coming months. A second area of our business development strategy is we are actively pursuing complementary products, which can be directly commercialized through our existing U.S. sales force. We are currently active in discussions with various parties, and we'll continue to provide updates. However, as with all business development opportunities, the activities take time and the opportunities may or may not come to realization. A third strategy we are pursuing is launching Natroba in Canada, and we are on track to submit our new drug submission to Health Canada during the fourth quarter of 2025. We believe Natroba will fill an unmet need in Canada for a highly effective treatment for head lice and scabies, and we will continue to provide updates as developments occur with Health Canada's review and the submission process. The fourth strategy I would like to discuss with you is we are actively pursuing out-licensing opportunities for Natroba globally. We continue to believe there is an unmet need for a highly effective product like Natroba to address head lice and scabies indications in other territories globally. However, we believe it is important to find the right fit with our out-licensing partner for Natroba. Product pricing in territories outside of the U.S. is an important element we must consider when finding the right fit for the out-licensing. With that being said, we are in discussions with various organizations at the present time and hope to provide exciting updates as developments occur in this area. Thank you for joining us here today, and I look forward to answering any of your questions after our prepared remarks. I will now pass the call over to our CFO, Ryan Mailling. Please go ahead, Ryan. Ryan Mailling: Thanks, Craig, and good morning, everyone. As Craig mentioned at the beginning of today's call, all amounts provided are expressed in U.S. dollars, unless otherwise noted. Today, Cipher Pharmaceuticals is reporting results from the company's third quarter and 9-month period ended September 30, 2025. Total net revenue for the 3- and 9-month period ended September 30, 2025, was $12.8 million and $38.2 million, respectively. Net revenue for the third quarter of 2025 increased by $2.4 million or 24% compared to the same quarter in the prior year. Net revenue for the 9-month period ended September 30, 2025, increased by $16.7 million or 78% over the same period in 2024. Increases were attributable to the addition of the U.S.-based Natroba business on July 29, 2024, for which only 2 months of revenue were included in our prior year results for both the 3- and 9-month periods ended September 30, 2024. Product revenue from the U.S.-based Natroba business comprised of the brand Natroba and authorized generic Spinosad was $8.1 million and $22.5 million, respectively, for the 3- and 9-month periods ended September 30, 2025. Product revenue from the U.S.-based Natroba business for the 3 and 9 months ended September 30, 2024, was $5.5 million. Product revenue from the Canadian product portfolio for the third quarter and 9 months ended September 30, 2025, was $4 million and $12.7 million, respectively. Canadian product portfolio revenue of $4 million increased by $0.2 million or 5% for the third quarter of 2025 compared to the $3.8 million in the third quarter of 2024. For the 9 months ended September 30, 2025, product revenue from the Canadian product portfolio of $12.7 million represented an increase of $1.9 million or 18% compared to $10.8 million in the same period of the prior year. Additionally, as the sales for our Canadian product portfolio are denominated in Canadian dollars, when translated on a constant currency basis, Canadian product portfolio revenue for the 9 months ended September 30, 2025, was impacted by changes in the U.S. dollar relative to the Canadian dollar. The impact was nominal for the third quarter. However, when translated on a constant currency basis for the 9 months ended September 30, 2025, Canadian product portfolio revenue increased by $2.2 million, representing an increase of 21% over the 9 months ended September 30, 2024. The products comprising our Canadian product portfolio benefited from a combination of increased sales volumes and favorable changes in product mix for certain products for the 3 and 9 months ended September 30, 2025, compared to the same periods in the prior year, which contributed to the overall increase in revenue. Moving on to our U.S. licensing revenue. Total licensing revenue for the 3 and 9 months ended September 30, 2025, was $0.8 million and $3 million, respectively. Licensing revenue decreased by $0.3 million and $2.3 million, respectively, for the third quarter and 9 months ended September 30, 2025, compared to the same periods in the prior year. The overall licensing revenue of $0.8 million for the third quarter of 2025 represented a 28% decrease compared to $1.1 million in the same quarter of the prior year. The decrease is due to the Absorica portfolio in the U.S., which contributed $0.4 million of licensing revenue in the third quarter of 2024, a decrease of $0.2 million when compared to the $0.6 million of revenue for the same quarter in the prior year. The decline in the Absorica portfolio licensing revenue resulted from lower royalty revenue contributed to by reduced sales volumes and net sales realized by our distribution partner on which Cipher earns a net sales royalty. This was combined with Cipher no longer earning a royalty on Absorica LD in the U.S. market effective January 1, 2025. We also earned revenue from supplying product to our distribution partner, however, revenue from this remained consistent year-over-year in the third quarter. Overall licensing revenue for the 9 months ended September 30, 2025, was $3 million compared to $5.3 million for the same period in the prior year, representing a 44% decrease. The decrease for the 9 months ended September 30, 2025, was contributed to by the Absorica portfolio and Lipofen, including its authorized generic. Licensing revenue from Absorica was $1.7 million for the 9 months ended September 30, 2025, a decrease of $2 million or 54% when compared to the same period in 2024. Revenue from Absorica for the 9-month period was impacted by year-over-year declines in product shipments on which we earn revenue from supplying product to our distribution partner. The decline in the Absorica portfolio licensing revenue for the 9 months ended September 30, 2025, was also impacted by lower royalty revenue contributed to by lower sales volumes and net sales realized by our distribution partner on which Cipher earns a net sales royalty. This was further contributed to by lower contractual royalty rates year-over-year. Market share for Absorica in the authorized generic of Absorica was 2.9% at September 30, 2025, according to Symphony Health market data, representing a decrease of 2.7% compared to 5.6% at September 30, 2024. The products continue to face increasing generic competition and related market dynamics within the U.S. market. Licensing revenue from Lipofen and the authorized generic of Lipofen was $1.1 million for the 9 months ended September 30, 2025, representing a decrease of $0.4 million compared to the same period in the prior year, attributable to lower sales volumes and net sales realized by our distribution partner on these products, on which Cipher earns a net sales royalty. Selling, general and administrative expenses for the 3 and 9 months ended September 30, 2025, were $3.7 million and $12.8 million, respectively. Selling, general and administrative expenses for the third quarter of 2025 of $3.7 million represented a decrease of $2.5 million or 40% compared to the same quarter in the prior year. The decrease was primarily attributable to the nonrecurring acquisition-related costs of $1.6 million in connection with the acquisition of the U.S.-based Natroba business, combined with $0.7 million in legal costs with respect to an arbitration process, which were incurred during the third quarter of 2024. However, these costs were not recurring in the third quarter of 2025. Selling, general and administrative expenses for the 9 months ended September 30, 2025, of $12.8 million increased by $3.5 million compared to the same period in the prior year. This increase is attributable to a full 9 months of selling, general and administrative expenses for the acquired U.S.-based Natroba business in 2025 to date compared to only 2 months of selling, general and administrative expenses for this business post-acquisition in the same period in prior year. Additionally, legal costs associated with the arbitration process were $0.5 million higher for the 9 months ended September 30, 2025, compared to the same period in the prior year. These increases in selling, general and administrative expenses were partially offset by $1.9 million of nonrecurring acquisition-related costs in connection with the acquisition of the U.S.-based Natroba business, which were incurred during the 9 months ended September 30, 2024. However, these costs did not reoccur in the same period in the current year. Net income for the 3 months ended September 30, 2025, was $5.5 million or $0.21 per diluted common share compared to $0.3 million or $0.01 per diluted common share for the same period in prior year. Prior year net income for the 3 months ended September 30, 2024, was adversely impacted by $1.6 million of nonrecurring acquisition-related costs in connection with the Natroba acquisition and $0.7 million of legal costs with respect to the arbitration. Net income for the 9 months ended September 30, 2025, was $14 million or $0.54 per diluted common share compared to $8.2 million or $0.33 per diluted common share for the same period in prior year. Net income for the 9 months ended September 30, 2025, benefited from the inclusion of the U.S.-based Natroba business for the full 9 months of the period compared to the inclusion of this business for only 2 months post-acquisition during the same 9-month period in the prior year. However, net income for the 9-month period ended September 30, 2025, was also adversely impacted by $0.8 million of noncash fair value adjustments associated with the inventory acquired in the Natroba acquisition, which were recognized in cost of products sold during the period. $5.8 million increase in net income year-over-year was further contributed to by the $1.9 million of nonrecurring acquisition-related costs incurred in connection with the Natroba acquisition during the 9 months ended September 30, 2024, which did not recur during the same period in the current year. Adjusted EBITDA for the 3- and 9-month period ended September 30, 2025, was $7.3 million and $21.1 million, respectively, compared to $4.1 million and $10.7 million, respectively, for the same period ended September 30, 2024. This represents an increase of 79% and 97%, respectively, for the third quarter and 9 months ended September 30, 2025, when compared to the same periods in the prior year. The increase in adjusted EBITDA was mainly driven by the addition of the U.S.-based Natroba business for the full period in 2025, partially offset by declines experienced in U.S. licensing revenue. Company had $8.4 million in cash and $13 million in debt outstanding as of the end of the third quarter of 2025. Cipher continues to generate meaningful free cash flow from operations with $10.8 million in operating cash flow during the third quarter of 2025 and $21 million generated from operations for the 9 months ended September 30, 2025. During the third quarter of 2025, Cipher allocated $12 million of its accumulated cash to make repayments on its revolving credit facility and utilized an additional $1.6 million of accumulated cash for repurchases of common shares under its normal course issuer bid. Subsequent to the third quarter of 2025, on October 31, 2025, Cipher further allocated a portion of its cash that had accumulated from free cash flows to make an additional repayment of $5 million on the outstanding balance of its revolving credit facility. Accordingly, after making this payment, the company now has a reduced debt balance of $8 million outstanding on its revolving credit facility and having completed $32 million in total debt repayments during the fiscal year-to-date, we have made substantial progress towards becoming net debt free. Due to the revolving nature of Cipher's credit facility, after making these repayments, we continue to have $82 million of potential financing available to us, comprising $57 million of remaining availability on our revolving credit facility, plus an additional $25 million accordion option. Cipher's continued strong cash flows from operations continued with access to capital, put Cipher on excellent footing to execute on our business strategy, pursuing growth opportunities. which Craig highlighted during his remarks. We'll now open the call for questions. Operator: [Operator Instructions] Your first question comes from Andre Uddin of Research Capital. Andre Uddin: Besides looking at your sales force and DTC advertising, can you maybe discuss if there's an opportunity for any potential contracts with the military for state prisons for Natroba? Craig Mull: Very good question. Right now, we do have a kind of a strategy pillar where we're working through government contracting, as you just said. An example of a recent activity, which is just some initial discussions as I participated just the other week in a discussion with the VA and to expand the product through VA and get access there. So, that was kind of our first step into that, and then we wanted to then move into other government agencies. So, there's some traction there. But obviously, we don't highlight it because it's at an early stage, but we're certainly moving on it. Ryan Mailling: And Andre, just to add to that, there are other groups of similar interest to us, including nursing home and retirement associations, school nursing associations. The military, obviously, is an area that we think that there's a great demand for this type of product. So, we're starting to reshape our sales force more to go after these, what we call them pillars of business where we are focused on associations and groups where we can get our message out much more efficiently and much more cost efficiently as well. Andre Uddin: And just maybe you could also just going along the same lines, can you discuss how the preferred drug listings for Medicaid is proceeding in some of the other states? I know you have Illinois, but still moving forward for Natroba? Craig Mull: It is. So, some of this is -- some of it is kind of ongoing. So, I'm not able to call it greatly disclose the status of those. But what I can say is at the present time, there are a number of states of similar size to Illinois that are in the -- have our bid, which is submitted to do exactly what you said, which is remove permethrin 5% from the preferred listing and to favor Natroba or Spinosad as preferred. So, there are a number of states right now with bids in their hands that they're considering. And how that works on an ongoing basis is the bids come up for renewal annually. In the most part, some of them go by a different tempo. But as we do that, some of the things are, one, we're adding both Natroba and Spinosad onto state formularies, which just ensures product gets dispensed as well as provide them an option and a financially beneficial option to have our product as preferred. So, states are states like that option, and we hope to have some announcements coming forward as states decide on those bids. Andre Uddin: And I like how you're paying down your debt. I was just wondering if you could just elaborate a little bit more in terms of in-licensing for your business development pipeline, like what does that look like and where prices are? And that's sort of my last question. Craig Mull: On the in-licensing or acquisition side, there are lots of opportunities out there. We're really focused on those opportunities that fit best with our current U.S. operations. And we're in discussions with a number of different opportunities or targets at the moment. Again, as we go through due diligence and the process, obviously, some fall off the table, but we're encouraged recently by some discussions and meetings that we have with what we consider to be products that fit well with our structure in the U.S. Operator: Your next question comes from Max Czmielewski of Stifel. Unknown Analyst: I'm on here for Justin today. But it's exciting to hear you are joining the farm to table trends. And I guess on that, if you could give a little bit more detail on how you think about balancing pricing. I know it's not an expensive product at baseline. So balancing pricing with volume expectations from the DTC approach and how you're thinking about marrying that with your digital marketing plans. Bryan Jacobs: Max, it's Bryan Jacobs here. So, kind of your first question is on pricing. What we've always found is it's difficult when you have a far superior and when I say superior, efficacious product versus the alternatives to really want to compete on price. And if I take our business aside is I think that that's a losing strategy for anyone. If we have the best product, you're going to command a bit of a premium price. But compete -- on the flip side of that is our product is heavily covered on Medicaid and through other -- and on commercial plans. So, really what it is, is it's an educational item to a family because if you think about it, an alternative is you're frantic like you may have something like head lice or scabies. But for head lice, you go to a pharmacy and you try and grab something off the shelf and you may use it and you run out of it, you may need multiple boxes of that, and it doesn't work. So, you're battling with head lice for many weeks. So, the cost of that and the cost of the time of that is kind of a problem for families. Whereas our product, once you pay your co-pay on insurance and get a prescription, you wouldn't be worse off, and you would use the product once and it kills all lice and eggs and your kid goes back to school the next day completely lice-free. So, part of it is ensuring that when people search for the product that works, bringing them into our platform and saying, okay, wow, this is what I want and then being able to get the product in their hands. And that's why we're working through ensuring that the product is available at different retail outlets and giving them a delivery option, so it can show up at their door. We think that's going to be a very compelling business model. And like you said, that's the stable type approach that we're working towards. And this is a supplement to our existing plan. So, we're going to launch this, and we believe it's going to be kind of the next phase of growth for the Natroba franchise and then kind of scale around it from there. Unknown Analyst: And I guess my second question is based around one of your pillars of growth and how you're thinking about your overall strategy and out-licensing Natroba in global markets. Where do you think you see the most opportunity? Is it on -- to say this with diplomacy, more of the emerging market side or developed markets? Are there areas in which permethrin doesn't have the same issue of resistance that wouldn't make sense for a marketplace? Can you just give some color on that? Craig Mull: Sure. Craig here, Max. First of all, let me kind of see if I can address your questions in reverse order. The issue with the resistance of permethrin 5% and 1% is a global issue. And most jurisdictions, if not all, have this resistance problem for permethrin. So, our product is going to shine against other products in other jurisdictions as well. The issue that we're finding is that in a lot of these underdeveloped countries or less developed countries, the pricing isn't where it should be for our product. And so, we're working with different outfits in perhaps less populated countries or less affluent countries. to try to find the best kind of cost/pricing structure. Europe is a good market for this product, particularly the Southern European countries, Spain, for example. And they have reasonably high reimbursement of drugs in general, and this would fall into that. Some Asian markets as well, including specifically Japan, has a relatively lucrative drug payment plans. So, our focus is going to be in Europe, particularly Southern Europe and Japan and a few other Asian countries. Does that address your question, Max? Unknown Analyst: That's perfect. Operator: The next question comes from Doug Loe of Lead Financial. Douglas W. Loe: Congratulations on a solid cash flow quarter again. So maybe just a housekeeping question. So, as you previously announced, your debt levels are down to $13 million in the quarter. Your debt-based financial ratios are well into safe territory. Just wondering, are you comfortable with current debt levels? Or do you expect to deploy any supplemental operating cash to bring debt levels down to even lower levels? Ryan Mailling: Doug, I think, obviously, we need to balance our priorities and cash availability and deployment. But I think, yes, we're going to continue to look to repay our debt. There's no reason not to at this point. Craig Mull: We don't have far to go really, I mean, I'm thinking that we're going to start accumulating cash for our next acquisition. And that's really the plan there. We will be debt-free very close to the end of the year. And then from there, we're going to be accumulating cash if we find the right deal. Douglas W. Loe: Well, I infer from that answer then that no product and licensing opportunities that would require new cash would be imminent before debt repayment would be the priority. I assume that's what you're implying with your answer. Craig Mull: Yes, we're waiting for the right deal to come. And in the meantime, we'll pay off our debt, and we'll stockpile our cash in anticipation. Ryan Mailling: Just to add on, Doug, it's a revolving facility, so we have access to it if we need it. Douglas W. Loe: Of course. Understood. And then yes, just a sort of a competitive landscape question. So, one of the key drivers that was originally identified when you acquired Natroba and ParaPRO was the emergence of resistant strains to permethrin. And we certainly see that dynamic percolating through the medical literature as well. I was just wondering, is that reality broadly known within the medical communities where the head lice is conventionally treated? Or do you think it would make sense to conduct a small study showing that Natroba is more effective than permethrin in resistant strains that -- or treating resistant strains to which permethrin is no longer effective. I'm not sure whether that would be a prudent deployment of R&D capital, but just wondering if you'd considered that and if that might be something on the horizon. And I'll leave it there. Bryan Jacobs: Doug, it's Bryan. We do have a study that's been out there for a while, dates back to 2015 that just talks about the resistance profile across the U.S. It was conducted across literally north, south, east, west states. So covered, I believe, in the high 40s number of states where they collected lights and demonstrated the fact that their resistance and the resistance profile was 98%. And this was done many years ago. So, the one thing that you know about resistance over time, it only gets greater. So, we use that as part of our communications tool when we're reaching out to physicians. It's one of the tools that we have in the toolkit. There is no doubt that part of what we need to do is to get it more ingrained into the medical community. So, ensuring -- we're now getting the attention of a lot of physicians, a lot of KOLs that are attuned to this. And an example of that, as Craig said, we're working after different verticals because that's the way to really kind of go about it, tackle things at the school board level at the long-term care home consortium level. So, we have a KOL at the moment who's working through writing a new protocol associated with if there's an outbreak, this is the product to use, not only because permethrin, you have to do multiple doses over a period of time while people are infectious, but just the fact that it also may no longer work. The 2 dosing -- when permethrin 5% first came out, it was a 1 dose. And then it was broadly known as you need to do one dose and you need to be -- you need to wait 10 days and then dose again. What's not broadcasted right now is it's probably getting into third or fourth until if you pour the permethrin on anything, it will die, but that it's absorbing into your skin during that time. So, it's certainly the best product out there. So, ensuring we use the data that we have and attacking it at the right verticals as opposed to a door-to-door approach is -- as Craig was describing, that's going to be part of our strategy in 2026. Operator: [Operator Instructions] Your next question comes from Tania Armstrong of Canaccord Genuity. Tania Gonsalves: Just a couple from me. So, first on Natroba, I think, Craig, you mentioned earlier in your remarks that seasonality plays a role here and sales tend to be higher in warmer months. I would have thought that sales are also quite high in that like September time frame when kids return to school. Do you guys see that? And should we expect then a downtick in revenue into Q4? Bryan Jacobs: It's Bryan Jacobs here. Nice to meet you. I don't know if we've talked before. Your last part of your question there, do we expect Q4 to be lower than Q3 and Q2? Generally, yes. And even though Q3 is, call it, the hottest, warmest season and you have back-to-school, as you indicated, what we did see this year was that both -- as opposed to having a huge spike in Q3, we feel Q2 and Q3 were more balanced because the stocking and getting ready for it at the wholesale and retail channels happened earlier. Tania Gonsalves: That's good color. And with respect to -- this came up in an earlier question, but just getting on some of these bids that you've made to states outside of Illinois to get on their formularies and displace permethrin. Have there been any states that you have submitted a bid and not won that? Bryan Jacobs: No, there haven't. At the present time, we have a number of states that have the bids that are contemplating it. It's typically what happens there is they give you -- the process works as you approach the renewal of the bid, you submit it and the states just work where they make the decision towards the very end, you kind of hear about it. So, we're hoping in the coming months as we look at some of them renew kind of right on the calendar year that we'll hear back on those. But no, we haven't had anyone turn down that as of late. Tania Gonsalves: And then just lastly, and apologies if I missed this in your remarks, but the compensatory damages and reimbursement for legal fees as part of that Sun Pharma litigation, how should we think about that being accounted for in Q4? Will there just be a contingent consideration line item on your balance sheet? Or have they actually paid you the cash yet? Or are they withholding a portion as they appeal to the outcome? Craig Mull: Tania, it's Craig Mull here. Most of that arbitration award now is public information, and you probably are aware that Sun has decided to try to vacate the order of the arbitrator, and that's going through New York courts at the moment. We don't know how that will go. I certainly like our position a lot better than theirs. But we haven't received any payment, and I don't think that we will be recording any until we hear what the New York courts say. Ryan Mailling: Yes, I can tell you Tania, it's really dependent on timing of this outcome and what the outcome is. So, at this point, it's a contingent asset or gain, which you don't recognize until you have certainty on. Tania Gonsalves: And how long do those appeals processes? I know it varies, but for something like this, how long would you anticipate this taking? Craig Mull: I was told by our litigators that it's likely a few months. Operator: There are no further questions at this time. I will now turn the call back over to Craig Mull. Please continue. Craig Mull: I want to thank everybody for your time today, and I appreciate that you joined our call. We look forward to reporting positive news on the coming quarters as we progress with our plans. Again, thank you very much for your time, and we appreciate your support and interest. Operator: Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect.
Jason Lettmann: Thanks, everyone, and welcome to our Q3 2025 results. I appreciate everybody spending some time with us this morning, and I'm looking forward to this update. On Slide 2 here before we start our presentation of housekeeping here are our forward-looking statements for your review. So on the next slide, Slide 3 here, here is the agenda and our plan for today. We're going to be providing an update on our key accomplishments in the third quarter of 2025. Most notably, we are very excited to share with you the data set that will be presented at SITC this weekend from a preplanned analysis of our ASPEN-06 trial that showed CD47 expression as a key predictive biomarker for increasing durable clinical response with evorpacept in HER2-positive gastric cancer patients. So our goals for today are most importantly to share these detailed results with you as we believe this data set now clearly validates the role of CD47 in HER2-positive cancers. We will then give you a sense of how this data now impacts our development strategy for evorpacept going forward. We will also be providing an update on our novel ALX2004 EGFR-targeted ADC, which is now in the clinic. Today, we are also excited to be joined by Dr. Peter Schmidt from Barts Cancer Institute in the U.K., who is a key opinion leader in breast cancer and investigator in our evorpacept Phase II breast cancer study. He will be presenting his views on evorpacept data and its potential within the current treatment paradigm for HER2-positive metastatic breast cancer. Then our CMO, Barb Klencke, will provide an update on our novel EGFR-targeted ADC, ALX-2004, which is currently dosing patients in our Phase I trial. Now on Slide 4. In the third quarter, we made significant advances in both evorpacept and ALX2004 clinical programs. We again are excited to present the full data at SITC that is demonstrating the potential of CD47 expression as a predictive biomarker and highlight a clear opportunity to now identify patients who are most likely to achieve the greatest benefit from evo. As Barb will present in detail in our clinical section in this analysis, we saw that patients with high CD47 expression derived the greatest benefit across all key efficacy markers, response rates, duration of response, median PFS and overall survival from evorpacept versus those with low expression. The data is very clear as the magnitude of benefit across many of these metrics was double or even triple those observed in the control arm and also clearly compare very favorably with the large benchmark studies in second-line gastric cancer. Most importantly, these results support the potential to pursue targeted oncology approach to additional tumor types with evo. And given the broad overexpression of CD47 in both solid tumors and heme malignancies, it gives us a real opportunity to really focus evo now as a targeted IL therapy. Our Phase II clinical trial in breast cancer, which is designed to pursue a CD47 and HER2 biomarker-driven strategy based on this strong data is on track to dose its first patient this quarter. And as we've discussed, evo has the potential to represent the first and only option for metastatic breast cancer patients who overexpress CD47, which we know can lead to worse outcomes and a poor prognosis for these patients. And with our second pipeline product, our novel EGFR-targeted antibody, ALX-2004, which is a highly differentiated ADC, we presented preclinical data and design of our Phase I trial at the Triple Conference a few weeks ago. So we're excited to announce today that we are currently enrolling patients in the second dose cohort. We're rapidly clearing the first dose cohort in this Phase I trial. Turning to our financials quickly. We reported a total cash balance of $67 million, and that cash is expected to provide us runway into the first quarter of 2027, which positions us to achieve the value-enhancing data milestones for both ALX2004 and evorpacept that we have coming next year. Now turning to Slide 5. It has been very well established that CD47 is widely overexpressed across almost every type of cancer. And it is also clear that CD47 overexpression matters as it is clearly a negative biomarker for patients. So when you look at research in CD47 over the last decade plus, it is a very strong foundation that CD47 is clearly a negative prognostic biomarker. And what you can see here is a meta-analysis of 38 cohorts across 17 publications, which includes over 7,000 patients. And there really is no question that CD47 is clearly associated with shorter survival and worse outcomes. And you can see on the right, the wide range of tumor types where this has been established. Now turning to Slide 6. And as a reminder that during our Q2 call just a few months ago in August, we presented the top line data, which support that CD47 overexpression is a clear predictive biomarker for response with evorpacept in HER2-positive gastric patients. In this analysis, patients with both confirmed HER2 positivity and CD47 high expression had a dramatic response to evorpacept as compared to those in the control group who did not have vivo. And as you can see here on the ITT population, we saw a strong response of a 41% ORR in the evo arm versus 27% ORR in the control arm. And if you look at the data now in patients that clearly have CD47 high expression, there is a magnitude of benefit for those patients where we had an ORR of 65% in the treatment arm versus 26% in control with a nominal p-value of less than 0.05. Now as you can see on Slide 7 and what we're very excited to share with you now and at SITC later today, this strong ORR benefit with evorpacept in combination with TRP and CD47 high patients was also reflected and translated well to DOR, PFS as well as survival as it's clear that patients who overexpress CD47 and retain HER2 expression is driving the effect here. This is very important as this clearly validates EVO's dual mechanism of action. And again, this is a second-line plus gastric population, which has historically been a very tough cancer to treat. So in addition to the ORR benefit, which had a delta of almost 40% versus control, the median duration of response here for those patients is over 2 years, which is more than triple the control. The median PFS was over 18 months in the evorpacept arm versus just 7 months in control with an impressive hazard ratio of 0.39. And then we were also pleased to see these gains further translate to a benefit to overall survival where we saw a median OS of 17 months with evo versus about 10 months in control and also a strong hazard ratio of 0.63. Barb will walk through this data in more detail and the full data set will be shared at SITC here soon. What is clear is that this data shows the potential for evorpacept to drive really substantial benefit for these patients with high CD47 expression. On the next slide, this just shows the focus set of milestones that we're driving to now. In summary, we're laser-focused on these 2 programs. First, driving evorpacept into ASPEN-Breast, which is our study investigating patients post in HER2 and again, focused on CD47 high and understanding the impact of that biomarker. We continue to execute well against the milestones that we've communicated in the past and are anticipating first patient in Q4 of 2025, with interim data expected Q3 2026. ALX2004 also remains on track and continues to proceed very well. We dosed our first patient in August of 2025, and we continue to expect initial safety data first half of 2026. Turning to the next slide, and in summary, before I hand the call over to Barb, we had a strong quarter, both in terms of execution, continued tight discipline around our capital and are excited about the key value catalysts for ALX in 2026. And as you can see here on Slide 9, this is a snapshot of our current clinical pipeline. As we have communicated previously, we are pursuing a focused development strategy for evo in combination with anticancer antibodies, given the consistent proof of concept that we have seen in various clinical studies with different monoclonal antibodies, and this data here today further builds on that. In addition to our HER2-positive breast cancer program with a CD47 biomarker-driven approach, ALX2004, again, our EGFR-targeted ADC continues to progress well, and we are also very excited about our partner program with Sanofi Sarclisa in multiple myeloma, which is now in dose optimization phase. So next, we'll turn this over to Barb, who will take over and provide more details on the evorpacept CD47 biomarker data presentation coming here at SITC. Barb? Barbara Klencke: Thank you, Jason. I will start by describing evorpacept's mechanism of action. CD47 has broadly overexpressed on cancer cells as a means of abating the immune detection. And it does so by sending a don't eat me signal. Evorpacept is a fusion protein, and it's designed to block that signal. Evorpacept's Fc region is engineered to be inactive and since it's particularly effective when given in combination with an anticancer antibody such as Herceptin. The active Fc domain on the anticancer antibody can then trigger very effective phagocytosis, which otherwise would have been suppressed by the CD47 signal. Slide 12 shows that the evorpacept's approach to blocking CD47 is different from the conventional approach pursued by other CD47 targeted agents. While CD47 is overexpressed in cancer cells, it is also expressed in healthy cells, such as red blood cells. The conventional approach to block CD47 with an antibody that then also binds to macrophages through an active Fc has caused significant toxicities in some patients, and thus, this approach has largely failed. In contrast, the evorpacept approach using an inactive Fc spares normal cells and our safety database in more than 750 evorpacept-treated patients confirms the safety of this approach. Slide 13 shows the design of the ASPEN-06 gastric study that Jason has introduced earlier. We enrolled 127 second-line or third-line HER2-positive gastric cancer patients, all of whom had received prior HER2-directed therapy. Patients were randomized to evorpacept, trastuzumab, ramucirumab and paclitaxel or the TRP alone. The primary endpoint was objective response. Importantly, because there can be loss of HER2 expression following prior HER2-directed therapy, we wanted to look beyond the HER2 status as diagnosed on archival tissue. Based on the known mechanism of action for evorpacept, our drug is not going to work as effectively if HER2 is not overexpressed on the cancer cell surface. To this end, ctDNA was obtained at baseline in all patients. And in addition, 48 patients underwent a biopsy, either at study entry or at some point following their prior HER2-directed therapy. In total, 95 patients or 75% of the enrolled population were confirmed as having retained HER2 positivity by either the ctDNA or on fresh biopsy. 90 of these 95 patients were evaluable for CD47 expression in tumor cells using either archival tissue or where available, a fresh biopsy sample. High CD47 expression based on a cut point of IHC3+ staining in at least 10% of the tumor cells was present in 48% of these 90 patients. The expanded results of this preplanned exploratory analysis of efficacy by CD47 expression level in patients who retained HER2 positivity is the focus of the data that I will review with you today. Slide 14 shows the objective response rate in key subsets. As we've previously reported, in the 95 patients who retained HER2 positivity, we see a robust response rate of 48.9% for the avorpacept CRP arm versus 25% in the control arm. And in the subgroup by CD47 expression level, evvorpacept produced a response rate of 65% compared to 26% in the control arm amongst patients with the high CD47 expression levels. The response rate in the control arm was consistent across CD47 expression levels and lower than that in the avorpacept arm in both the CD47 and CD47 -- in the CD47 high and CD47 low groups. Moving to Slide 15. I'm now displaying the duration of response in these same subgroups. Again, we see the potential of CD47 expression as a powerful predictive biomarker for evorpacept benefit. The duration of response in all HER2-positive patients, irrespective of CD47 expression was 15.7 months for evorpacept plus TRP compared to 9.1 months for responders in the control arm. In the CD47 high group, the duration of response was 3x longer for patients in the evorpacept trastuzumab RP arm compared to the control with a median duration of response of 25.5 months versus 8.4 months. In the CD47 low group, evorpacept TRP had a median duration of response of 11.2 months compared to 12 months for TRP. In Slide 16, we are now showing the progression-free survival in patients with confirmed HER2 positivity and high CD47 expression. The hazard ratio is 0.39 with a median PFS of 18.4 months for the evorpacept trastuzumab RP arm, which is more than double the 7 months seen in the TRP alone arm, again, suggesting the potential for CD47 expression as a powerful predictive biomarker for evorpacept benefit. Slide 17 shows a similar pattern of longer survival observed in the HER2-positive CD47 high evorpacept arm. Median overall survival was 17 months compared to 9.9 months for the control arm with a hazard ratio of 0.63. All of these data being presented at the SITC conference this week are based on mature follow-up. The median follow-up for survival, for example, was 25 months. Slide 18 shows some of the various cut points that we examined for CD47 expression based on the range and strength of IHC testing. As shown here, we look at the median -- we looked at medium or high intensity staining defined as IHC 2+ and 3+ in at least 10% and in at least 25% of tumor cells. And we also looked at high-intensity staining or IHC 3+ in tumor samples with 5% or more or 10% or more of cancer cells expressing that high-intensity staining. The prevalence of CD47 high across these ranges from 40% to nearly 60% of HER2-positive patients depending on the cut point. The key takeaway from this slide is that we see consistent improvements in response rates, PFS and OS in the evorpacept treatment arm, irrespective of the cut point for CD47 expression. On Slide 19, I'm showing a cross-trial comparison of our evorpacept efficacy data in patients with retained HER2 positivity and high CD47 expression relative to benchmark trial data in HER2-positive gastric cancer. With the usual cross-trial comparison caveats in mind, evorpacept data directionally compares very favorably to recent ENHERTU data from the DESTINY gastric04 study in the second-line setting. In that trial of nearly 500 patients published earlier this year in the New England Journal of Medicine, those patients required confirmation of HER2 status by fresh biopsy following a trastuzumab-containing regimen, and they randomized these patients to ENHERTU or to RP as a control arm. As effective as ENHERTU was in the second-line setting in that trial, our second and third line evorpacept data generated in patients with high CD47 expression, a known negative prognostic biomarker appear much better. Turning our attention now from gastric cancer to HER2-positive breast cancer. Slide 20 introduces a Phase Ib/II trial in HER2-positive breast cancer patients conducted by Jazz that evaluated the safety and efficacy of evorpacept plus zanidatamab in patients who progressed on prior HER2-directed therapy. These patients were heavily pretreated with a median of 6 prior lines of therapy. In 9 patients confirmed to retain HER2 status by central assessment, the response rate was 56%. The median duration of response for that group ranged from 5 months, 5.5 months to nearly 26 months with the median not reached and the median PFS being 7.4 months. These data compare favorably to benchmark data, including, for example, the SOPHIA trial, a predominantly second and third-line HER2-positive breast cancer trial, which produced a response rate of 22% for MARI2'etuximab. Moving to Slide 21. We've now demonstrated in these 2 studies, the potential of evorpacept to engage the innate immune response, validating the mechanism of action of evorpacept given in combination with anticancer directed antibodies in both HER2-positive breast cancer and in HER2-positive gastric cancer. This gives us strong conviction of evorpacept's potential and its path forward in the HER2-positive breast cancer setting, which we'll talk about next. Slide 22 describes briefly the opportunity that we see for evorpacept in breast cancer, which now has a high probability of success, having been derisked by the 2 positive data sets in 2 different HER2-positive settings. A CD47 HER2-positive biomarker-driven approach with evorpacept enables a highly targeted strategy, potentially addressing the high unmet medical need in the evolving breast cancer landscape, which includes patients who have now progressed on ENHERTU. It is now my distinct pleasure to introduce Dr. Peter Schmidt, a Professor of Cancer Medicine and Center lead at the Center of Experimental Cancer Medicine at Barts Cancer Institute. He's a well-known global lead investigator on multiple ongoing Phase III trials in metastatic and localized breast cancer. Just 2 examples of trials with immunotherapy agents he is a global lead investigator on the pembrolizumab KEYNOTE-522 study and the atezolizumab IMpassion130 study. With that, I turn this over to you, Peter. John Mills: Thank you, Bob. The treatment options for patients with metastatic HER2-positive breast cancer are currently undergoing. I would also say, a dramatic change. We obviously have seen a very active drug moving initially into second and third line treatment with trastuzumab deruxticam, but everyone is aware of the data that now placing T-DXd increasingly in the first-line setting. And I think that's where the drug will ultimately end up. That is fantastic from a patient perspective. We have a very powerful new first-line treatment option. But the challenge that comes out of this is there is no standard of care for patients who have been treated with trastuzumab, the sequence we had previously that patients would get a treatment called TPH, first line with trastuzumab, pertuzumab and second-line T-DXd and then third line other options has just been turned upside down. So at the moment, there's a number of options we can choose from, but none of those options have actually been specifically approved and tested in patients with prior T-DXd therapy. So the options we have to choose from is tucatinib trastuzumab in combination with capecitabine. PD-1 is still an option. Some investigators and clinicians may give chemotherapy and trastuzumab HER2 TKIs play a smaller role and increasingly are less and less being used. But of course, we're also hoping to have other HER2-targeted therapies. So there is a significant unmet need for patients with HER2-positive breast cancer who have progressed on or after T-DXd. And I can see that well percept has a possibly exciting role to play that has demonstrated activity in patients post trastuzumab deruxtecan in combination with other HER2-targeted agents. Now if you look at what we would hope to see in such a situation, our challenge is to bring in new agents that can overcome the resistance to T-DXd. The need for agents in the HER2-positive breast cancer space at this point is to find novel agents ideally bring a different mechanistic approach to target HER2. And we can see for evorpacept that it has a different mode of action by killing cells via enhanced ADCP versus the classic payload-based ADCs or other drugs we are currently using. The second thing we want to achieve is we want to have a drug that obviously has demonstrated activity post HER2-directed treatment after ADCs and after monoclonal antibodies. And at the out of the room here is always trastuzumab deruxtecan. Now we've seen from the data in the gastric study, but also in some of the HER2 pretreated breast cancer studies that evorpacept has shown activity post trastuzumab in gastric cancer and following up to 4 more lines of patients with HER2 breast cancer with prior HER2 treatment. We would like to have a treatment that can supplement and enhance the current standard of care rather than replace the backbone treatment. And again, if you look at the way how evorpacept works, it is really designed to work synergistically alongside the key therapies and the key backbone, obviously, for HER2-targeted therapy is trastuzumab or similar antibodies. We are keen to have a drug that's safe and safer than ADCs. We have to learn over the years ADCs have quite substantial possible toxicity, which is obviously driven by the payload as it is ultimately targeted chemotherapy. And the safety profile of evorpacept is very different to what we know and seems to be much more favorable compared to some of the ADCs. Finally, having immunotherapy agents that can really drive what we see sometimes in HER2-positive breast cancer, this long tail we as clinicians often go on about that is what ultimately patients need to have a long-term benefit in survival. And we feel that there's an immune component to that. We know already that there's a small percentage of patients who have very, very long survival on HER2 target therapy. But enhancing that immune effect by giving a CD47 targeted drug can possibly increase the tail for patients, that is at least my hope. If you look at CD47 as a selection strategy, and again, I think that is really important for this program is that we're not going into this blindfolded. We actually have a very powerful biomarker. And as you have seen from the gastric data, it's a very clearly better signal for this concept in patients with high CD47 expression. Now as you can see, there's a number of breast cancer studies that have looked into this, and I'm not going to go into each of those trials and the scoring methods in too much detail. The bottom line is about 1,000 patients, and they're relatively consistently showing a CD47 high expression rate of around 50%. So 54% is the average if you go through those trials. And that's a substantial proportion of patients and actually allows us to drive that program forward without having a target group that is ultimately too small to select for clinical trials. Now a couple of preclinical data, I think, are really interesting. Now preclinical data, you may say it's a little bit nerdy, but I think it's really helpful for us to understand the biology. So if you look at this slide on the left side, you see the CD47 expression in HER2-positive breast cancer cells compared to HER2-negative cells. Green means low expression, red means high expression, this black or blue color is moderate expression. And it's very obvious to see that we have a higher percentage of CD47 expression in HER2 high disease. If you move to the right side of the slide, again, probably even more important for what we're aiming for is this is -- this compares the CD47 expression in primary disease on the right side and in recurrent disease, of pretreated disease on the left side. And again, it's very obvious that we have more positivity, CD47 positivity in tumors and therefore, in patients who have prior HER2 treatment and have recurrent HER2-positive breast scans. And this is exactly the target population we are aiming for. If you then look at emerging data and again, cell line-based data for cell lines that were treated with trastuzumab deruxtecan. And as I said earlier, this is the new standard of care in the first-line setting. So our prediction for the future is all patients will have T-DXd pretreatment. And we have to focus on patients who have persistent to T-DXd. As you can see here, in orange, these are cells that have been T-DXd pretreated in purple DM1 and then in white is ultimately controlled. And it shows the percentage or the number of CD47 positive cells. And as you can see very, I think, impressively is that we have a markedly higher expression of CD47 in cell lines that were prior exposed to trastuzumab deruxtecan, and that is the target group we are aiming for. So the target population is very clearly a substantial population of patients with HER2-positive breast cancer. The population is probably even bigger in patients who have prior CD47 pretreatment. But it also may be one of the ways these tumor cells evade the ADC treatment effect and therefore, may be a really fantastic opportunity for us to target this clinically. Now the clinical trial that is ongoing, the ASPEN trial you're very much aware of is, in my opinion, serves one key focus. So as a clinician, I have asked that question before, I'm keen to see this move forward into a Phase III as quickly as possible because we know it works. We know what the target population is, and we know there's a huge need post T-DXd. But what we don't know exactly is how to do the statistics for a Phase III trial by having the exact response rate at PFS and other endpoints, which we obviously need to do to size up and design the Phase III trial properly. So this trial, therefore, is a nonrandomized Phase II trial in patients with HER2-positive metastatic breast cancer with measurable disease with prior treatment with trastuzumab deruxtecan and are then offered treatment with evorpacept in combination with trastuzumab and patients of physician's choice chemotherapy. Very pragmatic design. This is the real world out there. But what we want to learn from this trial is really how -- what the response rates are in patients who are ctDNA positive for IL-2, but also what the duration of PFS overall survival is and in patients with CD47 high, but also CD47 low tumors to get further confirmation from the biomarker data we have already obtained from gastric cancer, which ultimately allows us to fine-tune the Phase III design going forward. Thanks, everyone. I would like to pass back to Barb, please. Barbara Klencke: Thank you, Peter. Well, let me wrap up this section with a brief breakdown of the addressable patient numbers in the core markets. As you can see, there are roughly 48,000 breast cancer patients in the second plus line setting who are HER2-positive. Of that, we believe that at least 60% to 80% of these patients will retain HER2 positivity following prior therapy. Of that group, 50% to 70% will have high CD47 expression. As Peter highlighted, there are a number of publications to support that CD47 overexpression in HER2-positive breast cancer patients will be upregulated post ENHERTU treatment. We believe that this represents approximately 20,000 addressable patients who are both HER2-positive and CD47 high. If you boil this down and use conventional estimates on pricing, we get to roughly a $2 billion to $4 billion market opportunity, again, just in patients that are CD47 high and HER2-positive, representing a significant opportunity for evorpacept. On Slide 31, I now want to provide a quick update on ALX2004, our EGFR antibody drug conjugate program. As shown on Slide 32, our company's first ADC, the ALX2004 molecule was a result of rigorous internal drug design process. Our goal is to create a best and potentially first-in-class drug designed to maximize the therapeutic window and to overcome the historic toxicity challenges that others have encountered in targeting EGFR with an ADC. With ALX2004, we have optimized all 3 components to do this, including the payload, the linker antibody to create a truly novel molecule against a very well-validated target. ALX2004 uses matuzumab-derived EGFR antibody selected to minimize skin toxicity and to maximize the therapeutic window. Its binding epitope is distinct from the U.S. FDA-approved EGFR antibodies such as cetuximab and panitumumab. Additionally, ALX-2004 has a proprietary linker payload and TPO 1 inhibitor payload engineered to offer improved linker stability for on-target delivery of payload and enhanced bystander effect. At the recently concluded Triple Meeting in Boston in October, we presented preclinical data highlighting these elements in greater detail. Moving to Slide 33. Here are the preclinical data highlights. Both in vitro and in vivo animal models support impressive dose-dependent activity and a differentiated safety profile. Importantly, nonhuman primate toxicology studies did not demonstrate EGFR-related skin toxicities at clinically relevant doses, and there was no evidence of payload-related ILD in the animals. This overall profile supports our conviction that this molecule could potentially demonstrate efficacy with a manageable safety profile in patients. Slide 34 shows a snapshot of the efficacy data from our in vivo models. ALX2004 showed regression and tumor suppression across a panel of xenograft models, representing a broad spectrum of cancer types and EGFR expression levels. Notably, ALX2004 was effective in models harboring KRAS, BRAS and p53 mutations. ALX2004 shows excellent tumor suppression activity at doses as low as 1 milligram per kilogram given either once or once weekly times 3, leading to complete tumor eradication in several of the models. These results confirm the broad applicability of ALX2004 in targeting EGFR-positive cancers. Slide 35 shows the key findings from our 6-week repeat dose with 6-week recovery period in the GLP nonhuman primate tox study. All findings were minimal to moderate and fully recoverable. Thus, these data support the design of the ALX2004 study and the likely safety margin for clinical use. Slide 36 highlights our clinical development plan. We are targeting EGFR-expressing tumor types, namely lung, colon, head and neck and esophageal squamous cell carcinoma in this dose escalation and dose expansion trial. We dosed our first patient in August, and we have completed our first dose cohort at 1 milligram per kilogram without any DLT. We are currently dosing patients in our second dose cohort at 2 milligrams per kilogram. We are on track to provide initial safety data from the Phase Ia portion of the study in the first half of 2026. Our goal in this Phase Ia, Phase Ib trial is to identify the dose that optimizes safety and activity in tumor types, which we believe have the highest potential for success. These data will then set up the program well to advance into a future registration study. With that, I turn the call back over to Jason. Jason Lettmann: Thanks, Barb, and thanks again to Dr. Schmidt for sharing his perspectives on the program as a KOL in the field. Again, Q3 was a strong quarter, both in terms of execution and new data. What we're most excited about now is driving a targeted IL breakthrough in a first-in-class drug with evo as well as are very encouraged by AOX2004's fast start in the clinic and building momentum. In sum, our CD47 blocker has been successful where no other has, both in terms of its manageable toxicity profile as well as activity as we've now demonstrated efficacy in a randomized study, and we've identified an actionable and predictive biomarker for response to evo in our gastric cancer study. This further reinforces the benefit we have seen in terms of DOR, PFS and OS. And again, this biomarker is on mechanism. Going forward, we're developing a CD47 biomarker, and therefore, it is really of no surprise to see that CD47 overexpression shows such a strong impact on our data. So what this allows us to use is CD47 to select for patients in both current and future trials with the goal of replicating the results we have seen here with gastric cancer and demonstrating the same significant and transformational benefit for patients in our HER2-positive breast study. Again, there are no approved therapies for patients overexpressing CD47 and no options in late development to address this known path of evasion. So we remain focused on delivering for them. In 2004, there are also no approved EGFR-targeted ADCs. And although clearly a validated target, there remains a substantial unmet need for these patients as well. ALX2004 is off to a very strong start in the clinic, and we believe also has the potential to redefine standard of care across a range of EGFR-expressing cancers. So with that, I'll open up the floor to Q&A. Again, thank you for the time this morning.[ id="-1" name="Operator" /> [Operator Instructions] And our first question will come from Lee Watsek with Cantor Fitzgerald. Daniel Bronder: This is Daniel Bronder on for Lee. This is an exciting update, and we're curious to hear your thoughts on how to correlate the CD47 positivity that you showed on Slide 30 with the kind of CD47 expression cutoffs that you showed in the gastric data on Slide 18. What would you say is CD47 high in this context? And how should we think about the patient population that would be matching that in your trial? Jason Lettmann: Thanks, Daniel. Appreciate the question. So 30, just thinking about what we saw in breast or what we've observed in the literature versus gastric, is that the question? Daniel Bronder: Yes, basically, yes. Jason Lettmann: Okay. Yes. Well, yes, it's a great question. I think it's one we've looked into. I think what's really -- what we're really fortunate to have is a strong scientific basis behind CD47. And so what we see is really promising concordance across the 2 indications. So if you look at gastric, it was roughly 50-50 in terms of the CD47 high group. And I think then if you turn to the benchmarks, and again, this is where the strength of the science comes in, it's -- we see we have 5 different publications looking at the question of CD47 in specifically HER2-positive cancer. And again, what we see is strong concordance there, too. And if you add those numbers up, it's roughly half again. So 5 different studies supporting that around 50% of the patients will be CD47 high. And interestingly, those different publications use different clones, different methodologies, et cetera. And so yes, I think that's what gives us such conviction that this is translatable not only to breast, but frankly, a broad range of tumor types. Daniel Bronder: And if I may, can I ask a follow-up question? Jason Lettmann: Yes, sure. Daniel Bronder: How should we think about your companion diagnostic development? Are you doing that yourself in-house? Are you using the same kind of evorpacept construct? Or are you using an independent antibody? Can you shed any light on that? Jason Lettmann: Yes, sure. I mean I'll take it at a high level and then maybe ask Barb to weigh in on the path to a CDx. We've done the testing with a partner for the gastric study, plan to do the same in breast. And then, of course, as this data builds and I think as we continue to understand the right cutoff and how this translates, we'll pursue further work. But Barb, do you want to add to that? Barbara Klencke: I would just say that the assay is an IHC. It's a research use assay that was applied to the gastric data. our ongoing or our soon-to-be enrolling trial in breast cancer, the 80-patient single-arm trial will use the same research-based assay. And then we are working already with partners to think about the operationalization of the process prior to the initiation of a Phase III trial so that we will be ready for a companion diagnostic, but again, via a partner. [ id="-1" name="Operator" /> And our next question comes from Roger Song with Jefferies. Jiale Song: Very interesting data. Maybe related to the efficacy in the CD47 high population, do you have any data in your breast cancer trials with Jazz and any new data you can maybe give some comments on the CD47 high versus low? And then in terms of historical breast cancer, do we have any evidence for the CD47 high population, the traditional or the standard of care is performing less than the CD47 low population? Have you done any retrospective study as well? Because I know the benchmark is using the SOPHIA or any other HER2 chemo combo, but that's in the broad HER2 positive, not the CD47 cutoff. Jason Lettmann: Yes. No, that's -- those are both great questions, Roger. So number one, in terms of the high versus low comparisons in the zani study and frankly, broadly, I think those are great questions. So this data and the way in which it's rippling through our development plan is relatively new, as you know, Roger. So I think we're really excited about what we're seeing. It's incredibly strong in terms of CD47 high in gastric. There's no question it's driving the effect in that study. And so the natural question is where else is this working? And I think whether it's the study with Jazz or our work with Sanofi or the other studies we have going with anticancer antibodies, we're very keen to understand that. So I'd say what we know is we're seeing a 56% overall response rate in patients post ENHERTU that have seen a whole lot of HER2-directed therapy. And to your point around the margetuximab comparator, it's well north of what you'd expect. And actually, there was recent data at ESMO that supports, again, a relatively low response rate. There was a real-world study that was sub-20% in patients in terms of ORR post ENHERTU. So to see 56% is very strong. And I think your question on CD47 high versus low is one we're in the process of understanding. And then your second question on just benchmarking the data and what we see Barb had laid out the comparator with ENHERTU in the DESTINY-Gastric04 study. Certainly, if we were to line up the RAINBOW studies, to the best of our knowledge, the control arm is performing at par with benchmarks across a number of different studies. And to your question, which again is a good one, those benchmarks, we think are the best they're going to be, right? Because we know CD47 high is a negative prognostic and we know that those patients should do more poorly. And so to clear those benchmarks and compare well and then also be armed with the knowledge that those patients probably -- if we were to select from those studies, the CD47 high only patients, they would do even worse, certainly, I think, builds our conviction. [ id="-1" name="Operator" /> [Operator Instructions] And we'll go next to Sam Slutsky with LifeSci Capital. Samuel Slutsky: Just on the interims next year, both the EGFR ADC and the breast cancer program with evorpacept, curious on how many patients you're hoping to have in each of those data sets? And then just how you view a win as you think about safety on the EGFR side and then just delta efficacy on the evorpacept side? Jason Lettmann: Yes, both great questions. Thanks, Sam. I'll take 2004, and I'll ask Barb to weigh in on the breast front. I think 2004, as you know, targeting EGFR, one of the most well-validated Trode targets in oncology, there's just no question that EGFR is effective. So I think it's led to a natural question from investors and partners, and that's can you target this target with an ADC when you have a payload involved. And as a reminder, again, I think we're very encouraged by what we see in the primate work. That tends to translate very well. And so far, so good, right, to clear 1 mg per kg quickly, I think, is a strong start at already a relatively high dose and now on to the next cohort, which, again, I think is moving fast is what you want to see. So as we go into the next year, early next year in terms of what we'll share, I think it's it depends, right, which is the reality of a dose escalation study. I think our goal is to answer the safety question as best we can in a Phase I and then put up data that will answer that. And again, the study is marching very well here. And I think we feel real confident that if this continues, of course, we'll be able to share something going into early next year. And then on the breast front, in terms of benchmarks, Barb, do you want to weigh in on that one? Barbara Klencke: Yes. I think, Sam, thank you. I think you were asking what might our expectations be both for number of patients as well as the bar. The bar I'll start with. There's a lot of data with trastuzumab and chemotherapy, which really is the backbone upon which we add evorpacept in our trial. Chemotherapy, trastuzumab at best will have about a 20% response rate. Interestingly, there was new data coming out of ESMO looking at the post-ENHERTU setting and response rates continue to drop, not unexpectedly. And as we noted, our trial will enroll all patients post ENHERTU, where we do anticipate that CD47 overexpression becomes part of the mechanism of resistance, we attack that directly, and we anticipate having good outcome data in our evorpacept trial. So I think the benchmark is going to be in the range of 15% response rates. Again, 20% might be the upper bound, but with the combination of the 2 things, the poor prognostic effect of CD47 as well as the evolving standard of care and the fact that there really isn't anything that has shown up well post ENHERTU really bodes well for us. What do we expect in our bar? I think doubling that would be nice, 35% to 40%. We certainly in our gastric data that I showed you in the gastric setting did even better, and we anticipate that the opportunity is there to do quite well, but I think we would be very happy with a 35% to 40% response rate in our breast trial. [ id="-1" name="Operator" /> And this now concludes our question-and-answer session. I would like to turn the floor back over to Jason Lettmann for closing comments. Jason Lettmann: Great. Thanks, everybody. Really excited to share this data with you and continued good progress across both evo and 2004. So a real positive update today. And again, I appreciate the engagement and support and look forward to future updates. Thanks so much. [ id="-1" name="Operator" /> Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines, and have a wonderful day.
Operator: Hello all, and thank you for joining us on today's Royal Gold 2025 Third Quarter Conference Call. My name is Drew, and I'll be your operator on the call today. [Operator Instructions] With that, it's my pleasure to hand over to Alistair Baker to begin. Please go ahead when you're ready. Alistair Baker: Thank you, operator. Good morning, and welcome to our discussion of Royal Gold's Third Quarter 2025 results. This event is being webcast live, and a replay of this call will be available on our website. Speaking on the call today are Bill Heissenbuttel, President and CEO; Paul Libner, Senior Vice President and CFO; and Martin Raffield, Senior Vice President of Operations. Other members of the management team are also available for questions. During today's call, we will make forward-looking statements, including statements about our projections and expectations for the future. These statements are subject to risks and uncertainties that could cause actual results to differ materially from these statements. These risks and uncertainties are discussed in yesterday's press release and our filings with the SEC. We will also refer to certain non-GAAP financial measures, including adjusted net income, adjusted net income per share, adjusted EBITDA and cash G&A. Reconciliations of these measures to the most directly comparable GAAP measures are available in yesterday's press release, which can be found on our website. Bill will start with an overview of the quarter and recent events. Martin will provide portfolio commentary, and Paul will give a financial update. After the formal remarks, we'll open the lines for a Q&A session. I'll now turn the call over to Bill. William Heissenbuttel: Good morning, and thank you for joining the call. I'll begin on Slide 4. We had another quarter of very strong results, and we set new records for revenue and cash flow. Our portfolio performed well and allowed us to benefit directly from materially stronger gold and silver prices. Earnings for the quarter were $127 million or $1.92 per share and after adjusting for nonrecurring costs related to the Sandstorm and Horizon transactions were a record $136 million or $2.06 per share. Gold remained the largest contributor to revenue for the quarter at about 78% of the total and a strong gold price, combined with our low and stable cash G&A allowed us to maintain an adjusted EBITDA margin of over 80% for the quarter. We continued our focus on shareholder returns and paid our quarterly dividend of $0.45 per share. We added a strong operator to our portfolio in First Quantum with the $1 billion gold stream transaction on [ concession ]. And post quarter end, we received our first gold delivery in early October. We are pleased to add yet another large, long-life and cash flowing asset to the portfolio. Also post quarter end, we completed the acquisition of Sandstorm Gold and Horizon Copper on October 20. The strategic rationale for the combination of these companies clearly resonated with our shareholders, and we were pleased with the overwhelming shareholder support for the transactions. Not only have we added a series of quality producing and development assets to the portfolio in recent months, but we also saw very positive news within the pre-existing portfolio with the life of mine extension at Mount Milligan and the Fourmile exploration update, both of which will be covered by Martin later in our presentation. And finally, in October, we received the first tranche of gold as partial consideration for the Mount Milligan cost support agreement. This agreement from early 2024 was a key step for Centerra to begin work on the mine life extension project, and we are pleased to see the initial results of that project study. This is a win-win for both Royal Gold and Centerra shareholders. I'll now turn the call over to Martin to provide a portfolio update. Martin Raffield: Thanks, Bill. Turning to Slide 5. Overall revenue for the third quarter was a record $252 million with volume of 72,900 GEOs. Royalty revenue was up about 41% from the prior year quarter to $86 million. We saw very strong revenue from Peñasquito, the Cortez CC Zone, LaRonde Zone 5 and Voisey's Bay, which was partially offset by weaker revenue from the Cortez Legacy Zone. Revenue from our stream segment was $166 million, up about 25% from last year, with increased sales from Andacollo, Rainy River, Mount Milligan, Khoemacau and Wassa, partially offset by lower sales from Xavantina. Turning to Slide 6. We saw some material news at Mount Milligan and Cortez in the quarter. At Mount Milligan, Centerra reported the results of the mine life extension project. They are expecting an increase in the mine life from 2036 to 2045, and there is potential to extend that further with expansion of the current mineral resource, future raises on the planned new tailings facility and other mine life extension opportunities. Centerra has reported encouraging support from the government, and Mount Milligan was given fast track status by the province of BC in line with its commitments to streamlining permitting and regulatory processes for critical mineral projects. Mount Milligan is Royal Gold's largest contributor in terms of revenue and the mine life extension adds significant value to our largest asset. At Cortez, Barrick provided an update on exploration and development plans for Fourmile, which is described as a multigenerational project. Barrick has completed a preliminary economic assessment that indicates the potential to produce 600,000 to 750,000 ounces annually over a 25-year mine life. Barrick is undertaking a multiyear exploration program and they expect to set the mine up for initial test stoping shortly after underground development has been put in place by 2029. Barrick believes there is potential to increase the production rates further as confidence in the ore body and geotechnical modeling progresses. The royalties we acquired in 2022 at Cortez provide full coverage of Fourmile at a rate equivalent to an approximate 1.6% gross royalty. At Kansanshi, First Quantum announced last week that the S3 expansion is complete and is transitioning to operations. First Quantum reported that throughput and recoveries at the S3 expansion are ramping up faster than expected and copper production in the fourth quarter of 2025 is expected to exceed third quarter levels. We received the first gold delivery under our new stream in early October. We've now reached the regular cadence for monthly deliveries, and we're expecting total deliveries and sales of approximately 7,500 ounces in 2025. This is about 5,000 ounces less in 2025 than our estimate when we announced the transaction, and this difference is related to timing of the initial delivery and is not related to production shortfalls. We also had some notable updates at a handful of our smaller assets. At Rainy River, New Gold reported strong production for the quarter due to processing of higher-grade ore in the open pit. Underground development is also advancing well, and they are expecting 2025 gold production to be above the midpoint of the 265,000 to 295,000 ounce guidance range. At Back River, B2Gold announced that commercial production was achieved on October 2 and reiterated near- and long-term gold production estimates. At Khoemacau, MMG confirmed the timing for the expansion project, and we expect to complete the feasibility study by the end of 2025 and produce first concentrate in 2028. At Cactus, Arizona Sonoran reported PFS results, which indicate a 22-year mine life with average copper production of 198 million pounds per year and 226 million pounds per year in the first 10 years. Arizona Sonoran expects to complete a feasibility study in the second half of next year, leading to a final investment decision as early as the fourth quarter of 2026 and first production of copper cathodes in the second half of 2029. At Red Chris, Newmont reported that it aims to deliver a development proposal for the block cave expansion to its Board towards the middle of 2026. In September, the government of Canada recognized the Red Chris expansion as a project of national importance, granting a priority status under the Major Projects Office Fast Track initiative. And at Xavantina, Ero reported an increase in reserves and resources driven by plans to market a high-grade gold concentrate over the next 12 to 18 months as well as exploration efforts that continue to extend the known limits of mineralization. And finally, while Sandstorm assets weren't part of our portfolio until quarter end, there were a couple of developments at the larger assets that are worth noting. At MARA, Glencore submitted the RIGI application to the government of Argentina in August, which Glencore describes as a significant step towards development. And at Platreef, Ivanhoe announced the first feed of ore into the Phase 1 concentrator last week, and the first concentrate is expected in mid- to late November. We visited the site in October, and we're impressed with how Ivanhoe has advanced the project and is preparing to transition to operations. I'll now turn the call over to Paul. Paul Libner: Thanks, Martin. I will turn to Slide 7 and give an overview of the financial results for the quarter. For the discussion of Slide 7 and 8, I'll be comparing the quarter ended September 30, 2025, to the prior year quarter. Revenue for the quarter was up strongly by 30% to $252 million, which was another record for the company. Metal prices were a primary driver of the revenue increase with gold up 40%, silver up 34% and copper up 6% over the prior year. Gold remains our dominant revenue driver, making up 78% of our total revenue for the quarter, followed by silver at 12% and copper at 7%. Royal Gold has the highest gold revenue percentage when compared to our large cap peers in the royalty and streaming sector. Turning to Slide 8. I'll provide more detail on certain financial items for the quarter. G&A expense was $10.2 million and was relatively unchanged. Excluding noncash stock compensation expense, our cash G&A has dropped to less than 3% of revenue for the quarter, which shows the efficiency of our business model. Our DD&A expense decreased to $33 million from $36 million. The lower overall depletion expense was primarily due to lower depletion rates in our stream segment as a result of reserve increases. The largest reserve increase was at Mount Milligan following the life of mine extension, which dropped the DD&A rate to $220 per ounce from $340 per ounce. The decreases in stream depletion rates were partially offset by higher production at Voisey's Bay compared to the prior year. On a unit basis, this expense was $451 per GEO for the quarter compared to $462 per GEO. We incurred $13 million of acquisition-related costs this quarter related to the Sandstorm and Horizon acquisitions. Acquisition-related costs are attributable to financial advisory, legal, accounting, tax and consulting services. I'll provide some additional accounting and financial commentary on the Sandstorm and Horizon acquisitions in a moment. Interest and other expense increased during the quarter to $8.6 million due primarily to higher average amounts outstanding under the revolving credit facility compared to the previous year. Tax expense for the quarter was $29 million compared to $22 million, and our effective tax rate for the quarter was 17.9% Net income for the quarter increased significantly over the prior year to $127 million or $1.92 per share. The increase in net income was primarily due to higher revenue, offset by the Sandstorm Horizon acquisition-related costs and higher income tax and interest expense. After adjusting for the acquisition-related costs, adjusted net income was a record $136 million or $2.06 per share. Our operating cash flow this quarter was also a record at $174 million, up significantly from $137 million in the prior period. The increase in the current quarter was primarily due to higher net cash proceeds received from our stream and royalty interest. With respect to the outlook for the rest of the year, we are maintaining our 2025 guidance ranges for metal sales, DD&A and the effective tax rate. Note that these guidance ranges were provided in March of 2025. And when we refer to our expectations for the remainder of the year, we are excluding any contributions or impacts from the Kansanshi Stream acquisition, deferred gold consideration from the Mount Milligan cost support agreement and the Sandstorm and Horizon acquisitions. I'll now provide a few additional comments on the Sandstorm and Horizon accounting treatment and financial results. First, we currently are in the process of finalizing the accounting treatment for both transactions. However, we anticipate both transactions to qualify as business combinations under U.S. GAAP. As a result, approximately $13 million in acquisition-related costs were expensed during the third quarter. We also expect additional deal-related closing costs to be expensed during the fourth quarter. And second, Sandstorm and Horizon will not be publishing third quarter results given the timing of the transaction closing. However, for the third quarter, Sandstorm recognized nearly $58 million of revenue and $37 million of operating cash flow, while Horizon recognized $6 million of revenue and $3 million of operating cash flow. I will point out that these figures are unaudited and were prepared in accordance with IFRS accounting standards. So they are not directly comparable to Royal Gold's financial information prepared in accordance with U.S. GAAP, but they should help the market understand the relative contributions of each company in the quarter. We will provide consolidated results from the transaction closing date within our next quarterly release and audited financial results. I will end on Slide 9 and summarize our financial position. As disclosed in August, we drew $825 million on our $1.4 billion revolving credit facility to help fund the Kansanshi acquisition. We repaid $50 million of that borrowing in September and ended the quarter with $775 million drawn. That left us with approximately $813 million of liquidity between the undrawn and available amounts on the revolver and $188 million of working capital as of September 30. We drew an additional $450 million on the credit facility on October 10 for the closing of the Sandstorm and Horizon transactions, and we currently have $1.225 billion drawn, leaving $175 million undrawn and available. Further, we anticipate making a $75 million repayment towards the revolver balance on November 10. The current all-in borrowing rate on the credit facility is approximately 5.3%. In keeping with our long-standing practice, we intend to pay down our outstanding debt from future cash flows, and we expect to repay the outstanding balance around mid-2027 based on current metal prices and absent further acquisitions. In terms of additional liquidity, after the quarter end, we received the first tranche of gold as part of the deferred gold consideration for the Mount Milligan cost support agreement. In keeping with our previous commentary, we sold those ounces shortly after receipt and realized proceeds of $44 million. Recall that the delivery and sale of these ounces are not revenue and will not be reflected in our calculation of GEOs. The next two tranches of gold to be delivered by Centerra are also tied to production at the Greenstone mine. They are payable upon production of 500,000 ounces and 700,000 ounces of gold. And based on projections by Equinox Gold, these hurdles are expected to be met in the second half of 2026 and the first half of 2027, respectively. With respect to further financial commitments, we have $100 million of funding outstanding for the warrants acquisition. We expect to fund the remaining commitment in two $50 million tranches with the first tranche expected in the fourth quarter of 2025 and the second in May of 2026. That concludes my comments on our financial performance for the quarter, and I will now turn the call back to Bill for closing comments. William Heissenbuttel: Thanks, Paul. I'd like to welcome several new colleagues to Royal Gold, including those who have recently joined us from Sandstorm. These transactions significantly increased the size of our business, and we are pleased to add some very capable individuals to our team with institutional knowledge of the Sandstorm and Horizon assets, which will help us as we manage this much larger portfolio. And finally, I would like to address the transformative quarter we just completed at Royal Gold. Over the past few years, we have heard criticisms about our revenue and NAV concentration, our limited growth profile and the shorter duration of our portfolio. I believe we have answered these questions with the transactions we have closed this year and the developments in the portfolio, and I would like to highlight these three areas. We have one of, if not the most, diversified portfolios by revenue and net asset value in our sector. We have added Mara, Hod Maden, Platreef and Oyu Tolgoi growth potential to our previous growth prospects at Great Bear, Red Chris, [indiscernible] and Khoemacau. And we have increased the duration of our portfolio with the Mount Milligan mine life extension, the 4-mile upside potential, Kansanshi and the longer-dated growth from Sandstorm and Horizon. These events combined to position Royal Gold as a premier company in our sector with a well-diversified gold-focused portfolio with organic growth potential. We'll be working over the next few months to make sure the market understands the potential value that exists in the expanded Royal Gold portfolio. Operator, that concludes our prepared remarks. I'll now open the line for questions. Operator: [Operator Instructions] Our first question comes from Cosmos Chiu from CIBC. Cosmos Chiu: Maybe my first question is on the Kansanshi stream, the new stream you have. As you mentioned, 5,000 ounces is deferred, I guess, if that's a word for it, given the need to initiate delivery mechanisms for the new contract. I guess my question is two parts. Number one, could you maybe talk a little bit more about what that means in terms of setting up or initiating these delivery mechanisms? Is it computer systems? Is it the way you report? Or is it actual delivery? And then number two, in terms of the 5,000 ounces that you thought you might get in 2025, is that going to come in, in 2026 then? And is that going to be sort of in addition to what you would expect it in 2026 anyway? William Heissenbuttel: Yes. Cosmos, it's Bill. Thanks for the question. I may try to handle this one and then the other guys can jump in. Really, there's nothing real complicated about the system or setting it. To be honest, I think we had just announced Kansanshi and we had our earnings call within, I don't know, a week or so of that. And when you look at a model, you look at it and say, okay, that's production. We'll get so many ounces. But what we didn't do at the time of this overlay, the delivery mechanism, which was you're going to start getting them in October. So it was just really -- it was just a mistake on our part in terms of when do we expect the ounces to come? It is not a reflection of the production shortfall. There's nothing wrong with the agreement as the way it is structured. We just pushed ounces that in just a basic model said, you're going to get some of the ounces. Just some of those ounces are going to come in next year. Cosmos Chiu: I guess mathematically, if I were to take your 12,500 ounces that you had expected, that would have been from August to December in 2025. If I were to gross it up for full year in 2026, that would be 30,000 ounces. And then if that's the case, can I just add the additional 5,000 ounces to it in 2026? Like is that the type of how I should think about it? Or is that not the case? William Heissenbuttel: Well, no, what would happen is when you get to the end of 2026, the ounces that are derived from production in December, for example, are going to be delivered in 2027. So it's not as though you take 30,000 ounces and add a bunch of some new ounces. There's just a delay like there is our other concentrate operations like Andacollo and Milligan. Cosmos Chiu: Understood. Okay. Great. Maybe switching gears a little bit. Bill, I see that you now have $1.225 billion of debt on your balance sheet. I guess my question is, how comfortable are you with that level of debt? I know you do say that under current metal prices, you can actually repay everything by mid-2027, absent any further acquisitions. But how realistic is it to assume there won't be any other acquisitions? William Heissenbuttel: I mean you never know in this business, right? I mean if you had told me on January 1 of this year that we were going to make about $5 billion of investments during 2025, I wouldn't have believed you. Certainly, we have gone years where there haven't been many investments. And I think 2024 is probably an example of it. So it is possible that we don't find anything we like, and we just continue to pay down the debt. As to the first part of your question, the debt level, I'm very comfortable with. And I think what we need to show as we move forward through 2026 is what is the running trailing 12-month EBITDA of all these combined companies. and with Kansanshi. And your pro forma leverage is going to be, I don't know, between 1 and 1.5 on a net debt-to-EBITDA basis. And that's extremely comfortable. I'm not concerned at all. Cosmos Chiu: Great. And then maybe one last question. Congratulations on closing of the deal with Sandstorm Gold and Horizon Copper. And with that -- and despite the simplification of the structure, you still will hold a 30% joint venture interest in Hamadan. Historically, Royal Gold was never in the business of really holding on to joint venture partnerships for the long term. I don't know if this is a question I ask SSR Mining, but how do you look at that 30% joint venture interest gain kind of like potentially convert into more of a conventional royalty interest? William Heissenbuttel: Yes, Cosmos, I think we've been pretty consistent saying that our goal is to not be a joint venture partner. It's not what we do. And it is probably very high on our priority list of trying to find a way to convert it into something that is more traditional for our business. Cosmos Chiu: What are some of the key sort of not hurdles, but discussion points then? And when could we expect that to consummate? William Heissenbuttel: I can give you a time line. You can't I can't give you a time line. But as you go through this, when you're taking exposure to cost overruns and operating expenses and you want to convert it into something that doesn't have that exposure, there's a value discussion to have with whomever you sell it to and then what gold price do you use. There's a big difference between current gold prices and what you would call long-term consensus prices. So those are all the typical topics that will come up when it comes down to negotiating something. Operator: Our next question today comes from Josh Wolfson from RBC. Joshua Wolfson: I noticed in the text and also in some of Bill's commentary, there was some disclosure about working over the next couple of months to ensure the market understands the business following the deals that were completed. I'm just wondering if you can provide some more insights on what this means given both of these transactions were press released and the information is out there in terms of some of the details. William Heissenbuttel: Yes. I mean when I talk about working hard to make sure people understand what all these -- the companies together with Kansanshi mean, I'm really -- what I'm saying is spending as much time as I can in front of investors and analysts. Look, there's a lot that's happened in our company in the last 6 months. And I think we need to be able to focus people a little bit on saying, okay, this is what it looks like. These are the growth prospects and just sending that message over and over again because I truly believe there is a valuation gap. And I want to be in front of people telling our story, telling people again why we think the Samsung Horizon deal made sense, why Kansanshi makes sense, but at the same time, being in front of them to listen to, are there any other concerns out there? Because as I said in my prepared remarks, I think we addressed the major ones we heard over and over again, but maybe there's something out there. So when I talk about working hard to make sure the market understands it, I'm just talking about physically being in front of people, telling the story and listening. Joshua Wolfson: When it comes to disclosures, the company historically issued and thinking about guidance, both near term and long term, I understand the company's historical views on this. I'm just wondering if there's any refreshed perspectives. And then also when we think about 2026, when will the company look to provide that insight? Is it still going to be in April? Or can we expect something more prompt earlier in the year? William Heissenbuttel: Yes. So I think I can say that we are planning an Investor Day. I think it's in late March. And I think that at that point in time is when we expect to talk about 2026 guidance. As far as long-term guidance, 3-year, 5-year, the position is still what it's been. Josh, you've heard me over and over again, say, we don't own these properties. We're not close enough to them to tell you what's going to happen in 3 years. So there is still that reluctance. What we have done in the past is go asset by asset to some extent and say, this is what the operator thinks. -- here's our interest and then help people from the operators' forecast what it might look like on an asset-by-asset basis. But I don't think you'll see us go to sort of a consolidated 3- or 5-year. But again, look out for that Investor Day early next year. Joshua Wolfson: Got it. And then there was a couple of financial items that I just wanted to drill down on. Specifically, at least on the income statement for cost items, minority interest kind of jumped up this quarter and then LZ 5 on the asset list was quite high in terms of revenues. Is there any insight you can provide there as well as the fourth quarter expenses for the Sandstorm deal? William Heissenbuttel: Paul, can I turn the minority interest question to you? Paul Libner: Yes. So the minority interest was -- you saw was a little bit higher or unusual this quarter. To give you a little bit of background, and this isn't really unique to us. We are a general partner of a partnership that holds a very small royalty interest on the pipeline and Crossroads deposit at Cortez. And we actually administer some of the custodial functions on behalf of some of those partners. And some of those partners as part of that royalty left to receive some of their royalty proceeds actually in kind or in gold. Well, during the quarter, we actually sold some of those ounces for one of those partners, and they actually had a pretty small book value, if you will, compared to spot when we sold those ounces. So the sales proceeds that we recognized were actually included in interest and other income. But then given that partnership is fully consolidated under U.S. GAAP, that gain was actually backed out in other comprehensive income or that minority interest that you call before arriving at EPS. So really, at the end of the day, there was no effect on our results. Joshua Wolfson: And then, sorry, just the deal expenses for the fourth quarter, if there's any insight and then also LaRonde and 5. Paul Libner: Yes, I'm happy to take the deal expenses. Obviously, yes, we're still going through the accounting of those expenses, you can appreciate. But certainly, from the period October 1 through closing, additional, again, legal advisory service type fees, still accounting for all those, but we will have some of those charges come through in Q4 as well. And again, those will be a nonrecurring kind of onetime in nature. Martin Raffield: And I can take the Zone 5 question, if you like, Bill. So Josh, Agnico identified a mining area in Q3 that was mistakenly excluded from our partial royalty area, and that exclusion goes back to November 2022. It's quite easy to see why it happened. The various blocks outside of zone that are plunging into the royalty area. And the area in question was actually accessed from one of the LaRonde mine shafts rather than the Zone 5 decline. They've made that payment up in Q3 and completely covered the November 2022 through June 2025 shortfall. Joshua Wolfson: Okay. So sort of a true-up, I guess, you could say, for historical production. Unknown Executive: Exactly right. Operator: Our next question comes from Brian MacArthur from Raymond James. Brian MacArthur: A lot of them have dealt with. But can I just ask on Fourmile. You've been very kind and give us the 1.6% equivalent. But is that a combination of GSR1, GSR2, GSR3, NVR 1? Like is this going to be variable? I just can't remember where all the different pieces cover it? Or is that 1.6% a pretty good thing to use on an annual basis? Or are there going to be years it's 1% and years it's 3%. William Heissenbuttel: No, that's a pretty good number to use. The $1.6 billion is the Rio royalty, and it's the bit of the Idaho royalty that -- and we bought those two towards the end of 2022. So it's completely separate from all the legacy stuff that you've known for years. Brian MacArthur: Perfect. So it's that simple $1.6 royalty? William Heissenbuttel: Yes. Brian MacArthur: Excellent. And just so I can clarify my own mind back to Cosmos' question on Kansanshi. So this 5,000 ounces, it's just an NPV problem, if I want to put it that way, of being delayed a quarter. It's not like those ounces are gone forever just because of the true-up date of the transaction or something. It's just purely a concentrate delivery and all the ounces are the same in the end. Is that right? William Heissenbuttel: All the ounces are the same. It's just a timing issue. Operator: Our next question comes from Lawson Winder from Bank of America Securities. Lawson Winder: And I would like to ask just a couple of things. So first of all, on capital returns, we're approaching the time of year where Royal Gold typically considers the next dividend increase. When you think about everything that's happened this year, do you think about there being an opportunity for a bigger-than-usual increase because of the larger portfolio? Or could it just be a smaller increase given the heavy capital spending so far this year? And then sort of related to that, what are your thoughts on share buybacks? And I just kind of occurred to me when you were speaking, Bill, in response to one of the other questions about the valuation gap. I mean, do you see an opportunity to utilize a share buyback to help close that? William Heissenbuttel: Yes. Thanks, Lawson. Look, on the dividend, you're absolutely right. Our Board looks at it in November. I'm not going to lead high or low in terms of what we might do there. But the thing we have been saying to folks is when we were going through Sandstorm and Horizon and Kansanshi, one of the things the Board said to us was you're going to be issuing 18 million, 19 million shares, you'll be taking on debt. We have an almost 25-year record of increasing dividends. We want to know what's going to happen to that. That was part of their analysis and increasing it every year is sort of near and dear to our heart. This is a Board decision. I'm not going to say anything. We'll be back to the market in a couple of weeks. But it's really important to us, notwithstanding that we have $1.225 billion in debt. I can tell you when we went through 2015, we had the exact same thing. We spent over $1 billion in CapEx, continue to increase the dividend. So that on the dividend. On the share buybacks, I want to give this some time. Again, talking about going to work in front of the market, telling the story, I want to see what happens to our valuation. I mean, we still trade at a premium, and it still might be hard to justify share buybacks. But right now, I want to see what the messaging can do. And at the same time, we do want to repay that debt. So there is a use for the capital -- for the cash flow that is being generated over the course of the next year. And that's a priority as well as to pay that down. Lawson Winder: Great. Thinking about 2026, very helpful to have that Investor Day kind of in the back of my mind. But then just thinking about the portfolio, so the Kansanshi Stream and Sandstorm, it's changed very substantially. As you look to 2026, conceptually, would you expect a material increase in GEOs next year versus 2025? And then also thinking about when we can get real numbers on those, would we expect the 2026 guidance to then come out with that Investor Day in March? Or could we possibly get something a little earlier here, just given all the moving parts? William Heissenbuttel: No, I think the Investor Day is when you're going to hear about what we expect for 2026. I mean you have to understand that assets, the producing assets, they've been in our portfolio for 2.5 weeks. So even thinking about making an estimate for next year right now would not be the smartest thing in the world. So Investor Day, we'll be talking about guidance and talking about all the -- this new portfolio, as you say, and what it means for next year. Lawson Winder: Very helpful. And then just finally, there was an update from Arrow yesterday on Xavantina, this concept of processing stockpiles. Would Royal Gold benefit from that in any way? William Heissenbuttel: Yes. I mean it's gold production. We expect it will flow through to our interest. Operator: Our next question comes from Tanya Jakusconek from Scotiabank. Tanya Jakusconek: Just wanted to finish up just on the Sandstorm transaction. Bill, you mentioned that we'll take another charge in Q4. You've integrating assets people at this point. Is it fair to assume that as we look at '26 besides looking at obviously the depreciation and what the guidance on that basis, all of the noise will be out. So all of the unusual items are going to be closed in 2025, have the people and everything is finalized so 2026 will be to look at. William Heissenbuttel: Yes. Tanya, that is the one thing I've sort of said to the team is I want everything done by the end of this year that is nonrecurring with respect to this transaction because as I said, we need to start building this record of quarter-over-quarter of sort of recurring business where we can show the revenue, we can show the cash flow that we're generating. And what I don't want to have is a bunch of expenses leaking into the first quarter. Now we may not -- depending on the invoicing that we get, we may not be able to do that, but I'm highly confident that we're going to be able to isolate the rest of the transaction expenses in the fourth quarter of this year. Tanya Jakusconek: Okay. So that would be good. So like 2026 will be what this would look like with all of these pieces in place. William Heissenbuttel: Yes. Tanya Jakusconek: Okay. that's good. And maybe I could go on to Paul. This is an accounting question from a non-accountant. So maybe I just want to make sure that I count correctly the Mount Milligan cost support agreement of that 11,000 ounces, that $44 million that came in on October 3. So nothing through the income statement. Where will it show up in the cash flow? Where is that going to be put exactly? So I have it in the exact place. Paul Libner: Tanya, thanks for the question. Yes, so we've talked on a few calls and had some commentary even today just on that treatment. But yes, the Milligan cost per agreement certainly was a unique transaction for us. But as even Bill mentioned today, certainly, it's a win-win for both companies. But you may recall that the consideration that we received for that additional support that we're going to provide was in the form of cash and then that deferred gold and then the free cash flow interest at Milligan as well. And so I think the easiest way to think about this on how it will impact the financials is all that consideration that we received as part of the agreement will eventually all be recognized as that deferred support liability that's on the balance sheet currently at $25 million, because we have that obligation to provide additional cash payments under the agreement in exchange for that consideration that Milligan or Centerra provided. So with the gold that we received in early October, that deferred support liability is going to increase by the fair value of those ounces that we received and sold. Again, we sell those ounces immediately or shortly after we receive them. So you're not going to see much, if any, likely not much in the form of a P&L impact. But again, as a reminder, when we receive and sell those ounces, they're not part of our sales guidance here in 2025. But even as I mentioned in the prepared remarks that we do anticipate receiving the next delivery in 2026. So you won't see those ounces show up in some of that guidance that we provide in 2026 as well. Tanya Jakusconek: I know it's not part of your revenue. I know it's not part of your GEO ounces. Does it go anywhere through the cash flow statement? Or just the balance sheet that I think about. Paul Libner: Just balance sheet. Tanya Jakusconek: Just balance sheet. Okay. That's all I just wanted to clarify. And then maybe I can have maybe Bill or someone in the team just talk to us about you've done 2 big deals. I just quickly looked at your available liquidity after you adjust for the Sandstorm deal and your $100 million payment that needs to go out plus the -- just -- you have maybe $300 million, $400 million of available liquidity. Are you still looking at transactions in this market opportunities? Or have we put a pause on that? William Heissenbuttel: No, we're still looking. I don't think we'll ever stop looking. There are still opportunities in the market. There -- I think the ones we're seeing are not of the scale that the ones we just did like Kansanshi. I think one of the interesting dynamics on the BD side is with where the gold price has gone, I've always said that BD is harder to do when the gold price is volatile because it's hard to land on a gold price that both the seller and the purchaser can agree on. And if no one -- I don't think anybody in our sector is using $4,000 an ounce to value things. But at the same time, I'm not sure the seller is going to be accepting of a long-term consensus price of $3,000. So that may slow the processes down a little bit. But we're not closed. We're not going to sit on our hands until we repay that debt. We're still active. Tanya Jakusconek: And what would you be comfortable size-wise? Would it be that $100 million to $300 million range? William Heissenbuttel: Yes. I mean that's what we normally see in the market. I think at this point, I would say if we did do something, it would have to be something we really loved like because you have a choice, we can continue to pay down the debt or we can make new investments, and I'm happy doing both. But the investment that we might make, I think, would have to be something we found so attractive. We just could not pass it on. Tanya Jakusconek: So would it be fair to assume, Bill, then it would be like -- so if anything in your existing portfolio came available, let's say, in parts of projects that you already have an interest and something comes available, that would be kind of viewed as a bolt-on. Would that be what you're saying versus like going into new jurisdictions? William Heissenbuttel: No, I mean not just bolt-on acquisitions. If it comes within the portfolio, great, we'll look at it. And if it's a completely new company, new project, we'll look at that as well. If it's attractive, we may decide that we do want to make that investment. We just have to manage -- I think people want to see the debt come down, even though I'm comfortable with it. But we just have to balance it. Tanya Jakusconek: Yes. Fair enough. It's nice to see the $4,000 gold price. We just don't know how long it stays, right? Operator: Our next question comes from Derick Ma from TD Cowen. Derick Ma: I just had a quick accounting question. Is there going to be a bump in the cost base of some of these former Sandstorm assets, i.e., will depreciation for the assets be higher than they were when they were in standalone and Sandstorm? Paul Libner: Yes. Derick, yes, as we -- as I mentioned in our prepared remarks, I mean, we're still going through that accounting at the moment as far as the allocation of the purchase price there, which obviously will include the allocation among the different interests at Sandstorm and impacting the depletion rate. So we're still going through all that at the moment. I do think that we'll be able to provide a bit more information on that within our next update call. Operator: Our final question comes from Carey MacRury from Canaccord. Carey MacRury: So based on Barrick's 4-mile update, it looks like the mineralization potentially trending maybe off your royalty ground. Is that the case? Or do you see it as all being on your royalty ground? William Heissenbuttel: Martin, can I push that one to you? Martin Raffield: Yes. On our royalty ground, Carey, we don't see any of the material that they're identifying at the moment as being off our ground. Carey MacRury: Okay. Great. And then I know inclusion in the S&P 500 has always been an elusive target. Do you see with these transactions that that's more likely now? Or have the goalposts moved on that? William Heissenbuttel: I think we're still a bit of ways. Last time we checked, I think that the minimum was like $20.5 billion, and we would still have a ways to go to achieve that one. Operator: That concludes the Q&A portion of today's call. I'll now hand back over to Bill for some closing comments. William Heissenbuttel: Well, thanks, everyone, for taking the time to join us today and for all the good questions. We appreciate your interest in Royal Gold. We look forward to updating you on our progress in the new year. Take care. Operator: Thank you all for joining. That concludes today's call. You may now disconnect your lines.
Operator: Good day, ladies and gentlemen, and welcome to the Galiano Gold, Inc. Third Quarter 2025 Financial Results Conference Call. [Operator Instructions] This call is being recorded on Friday, November 7, 2025. I would now like to turn the conference over to Matt Badylak, President and CEO of Galiano Gold. Please go ahead. Matt Badylak: Thank you, operator, and good morning, everyone. We appreciate you taking time to join us on the call today to review Galiano Gold's third quarter results that we released yesterday after market close. On Slide 2, we'll be making forward-looking statements and referring to non-IFRS measures during the call. Please refer to the cautionary notes and risk disclosures in our most recent MD&A as well as this slide of the webcast presentation. Yesterday's release details our third quarter financial and operating results. They should be read in conjunction with our third quarter financial statements and MD&A available on our website and filed on SEDAR+ and EDGAR. Also, please bear in mind that all dollar amounts mentioned in the conference call are in U.S. dollars unless otherwise noted. On Slide 4, with me on the call today, I have Michael Cardinaels, our Chief Operating Officer; Matt Freeman, our Chief Financial Officer; and Chris Pettman, our Vice President, Exploration. For this presentation, I will initially provide a brief overview of the quarter, Michael will give an operations update. Matt will discuss the financials, and then Chris will review the ongoing exploration success his team is having at Abore. I'll then provide some closing remarks and open the call for Q&A. Here on Slide 5, we can see the team continued the momentum during the third quarter towards an improved overall operational outlook. Let me walk you through the highlights on this slide. Safety remains a top priority. I am proud to report that, again, no lost time injuries were reported for Q3, maintaining a strong safety record and demonstrating our unwavering commitment to our workforce. Turning to production. We produced just over 32,000 ounces of gold in Q3, up 7% from 30,000 ounces produced in Q2. This increase was driven by higher grades and increased throughput quarter-on-quarter following the commissioning of the secondary crusher in late July. From a financial perspective, Revenue came in at $114 million, up 17% quarter-over-quarter from $97 million. This was driven by higher production and improved gold prices. Our balance sheet remains solid. We ended the quarter with $116 million in cash and cash equivalents, a slight improvement on Q2 despite stripping at Nkran increasing during the period. This strong cash position provides us with the financial flexibility to continue to invest in our operations, particularly as we accelerate stripping at Nkran in 2026. Exploration remains a key focus area. At Abore, we drilled just over 11,000 meters during the third quarter focused on infill and step-out drilling around the high-grade zones identified earlier this year. Moving to Slide 6, please. Here on this slide, I'll provide a few words about the events that occurred at Esaase during the quarter. As previously disclosed, on September 9, an incident occurred when a group of illegal miners attacked military camp, housing members of the Ghana Armed Forces and damaging our contractors' mining equipment at the Esaase deposit. Regrettably, the incident also resulted in the death of a community member. Due to the scale of damage sustained to the fleet, mining operations at Esaase were paused. However, haulage from low-grade stockpiles resumed shortly after the incident. Since early September, we have worked closely with our mining contractor to remobilize the fleet to Esaase. This process continued into early November, and I'm pleased to report that mining operations at Esaase now recommenced and will continue to ramp up over the balance of the year. With that, I'll turn it over to Michael and Matt to discuss production and financial performance in more details in the coming slides. Over to you, Michael, and Slide 7, please. Michael Cardinaels: Thank you, Matt, and good morning, everyone. As Matt just highlighted, we continue to see an upward trend in performance during the third quarter of the year. We had a significant increase in personnel hours worked on site during Q3 with the ramp-up of Nkran mining staff and contractors involved in the secondary crusher project and the TSF Stage 8 construction. Our safety statistics continue to improve, with over 4.2 million man hours worked since the last lost time injury. On a 12-month rolling basis, our lost time injury and total recordable injury frequency rates up 0.39 and 0.9, respectively per million hours worked at the end of September. In terms of mining production, Esaase mining was impacted by the incident mentioned earlier by Matt. But production from Abore increased significantly, including a 57% increase in ore mined compared to the previous quarter. As Abore development has progressed with increasing depth and the pit is opened up to a steady state. We now have a better understanding of the ore body and our ability to recover the resource. We find ourselves mining more ore tonnes at lower grade, resulting in approximately the same number of ounces. And Abore currently provides the majority of the mill feed and will continue to do so for the balance of the year. Despite the Esaase mining interruption, production from both Abore and Nkran pits increased, and the total material mined increased 26% in Q3 compared with Q2. On to Slide 8, please. As you can see from the images on this slide, Cut 3 of Nkran pit is progressing well, including the development to support infrastructure in the form of an overhead power line extension and relocation and the drilling of additional deepwatering bars around the perimeter of the pit. Nkran stripping also increased 111% compared to Q2, primarily as a result of an additional excavator being mobilized to site as part of our ramp-up plan. Development capital costs for pre-stripping at Nkran totaled $12 million in Q3 and $22.1 million year-to-date. The contractor is on track to deliver additional equipment in Q4 2025 and the remainder of the planned fleet to ramp up to full capacity in 2026, putting us in good stead to continue stripping as per our schedule with steady-state ore production still due in the early 2029. On to Slide 9, please. On the processing performance, with the successful commissioning of the secondary crusher circuit at the end of July, we saw an increase in the plant performance for Q3. Milling rates since commissioning of the secondary crusher have increased approximately 13% compared to Q2. There remains some modifications in the circuit to fully optimize the performance, and as such, we expect to see further increases in production in Q4. Mill feed grade also improved compared to Q2 as we are getting deeper into the Abore pit and have access to better grade at depth, which in turn helped increase the recovery. On the back of the improved plant throughput and grade, we increased gold production to 32,533 ounces for the quarter compared to just over 30,000 ounces in Q2. The incident and subsequent interruption at Esaase have unfortunately had an impact on our plan for 2025. Despite having now restarted mining in Esaase, we will continue to see an impact as we ramp back up production over the balance of the quarter. Our forecast takes this into consideration, along with our improved understanding of the Abore deposit and the recent performance of the plant following the commissioning of the secondary crushing circuit. We estimate a revised production guidance of between 120,000 and 125,000 ounces for the year. And with that, I would like to turn over to Matt Freeman to discuss the company's financial results. Matthew Freeman: Thanks, Michael. Good morning, everyone. Here on Slide 10, we've outlined some of the key financial metrics for the quarter. We recognized revenues of $114 million, at a record average price of just over $3,500 per ounce for the impact of hedges. We earned income from mine operations of $48.2 million, while net earnings continue to be negatively affected by the fair value adjustments to our hedge book, following the continued run-up in gold prices such that we recorded a net loss before taxes of $5 million. This quarter, we also recognized a tax expense for the first time now that we have exhausted previous tax losses and a forecast to be taxable this year. Indeed, we've already paid $12 million in tax installments to the Ghanaian government. We generated $40 million of cash flows from operations in the quarter and ended the period with a strong cash balance of approximately $116 million. This included, as mentioned before, payments of additional $6 million in income taxes. In addition, as previously advised, given these strong operating cash flows, we have continued to allocate capital to accelerating the waste to the Nkran, incurring $12 million in the quarter as Michael noted, we expect the Nkran mining volumes ramp up further as more equipment is mobilized. All-in sustaining costs were consistent with the second quarter at $2,283 per ounce, we expect AISC to start to reduce in Q4 as production volumes increase compared with Q3. Despite our expectation that all-in sustaining costs will be lower in Q4 than Q3, given the overall shortfall in production ounces that Michael mentioned, we have increased our all-in sustaining cost guidance for the year to between $2,200 million and $2,300 per ounce. And this includes all the impacts of the royalties under the higher gold prices that we previously mentioned. On to Slide 11. Despite the headline increase in AISC that really is primarily production-driven. We continue to focus on the cost structure of the mine and are pleased that fixed operating costs such as processing and G&A in aggregate remain consistent with previous quarters. Of note, pricing costs per tonne have continued to reduce quarter-on-quarter, seeing a 13% decline in unit costs since Q1, and we expect further decreases on a unit basis as the full impact of the secondary crusher is realized in the fourth quarter. Mining costs at our producing deposits, namely Abore and Esaase declined on a per tonne mined basis by approximately 8% as mining volumes increased. Additionally, Nkran mining costs are also subject to a fixed unit mining contract, and we expect to see those unit costs continue to decrease as volumes increase over the next 12 months as management costs, which affects a shared over more tonnes. We also remain disciplined with capital allocation with regards to capital. The largest project ongoing currently is the Raise 8 at the tailings facility, which is expected to be completed in 2026. So overall, costs are being well managed, and we should see an improvement in unit rates as the year progresses. Now that the secondary crusher is online, and we expect to produce more tonnes and subsequently produce more ounces. This will generate higher operating margins and cash flows for the business. On to the next slide, please. Our cash margins have improved with the run-up in gold prices, which has meant that despite investments in the development capital for the secondary crusher project and stripping Nkran, we continue to maintain a very strong balance sheet with approximately $116 million of cash and no debt. We're also pleased to have progressed discussions to implement a $75 million revolving credit facility to further enhance the balance sheet to be earmarked for general working capital. And with that, I'll turn it over to Chris to discuss the exploration progress we've seen at Abore. Chris Pettman: Thanks, Matt. Q3 was another excellent quarter for us in exploration and was highlighted by exceptional results from drilling at Abore. Our press release dated August 20 detailed the first results from the Abore Phase 2 drilling program, which commenced in Q2 and led to the discovery of multiple new high-grade ore shoots across the Abore South and main zones as well as a significant new high-grade discovery at the northern end of the deposit. Some of the highlighted intercepts from this stage of drilling are shown here on Slide 13. Following these results, drilling at Abore remained the focus of exploration activities at the AGM through Q3 as we began infill drilling to prove continuity of these new high-grade zones while also continuing to test for further extensions of mineralization below the mineral resource. Drilling activity was ramped up through the quarter from a total of 5,040 meters drilled at Abore in Q2 to an additional 11,554 meters drilled in Q3. Based on the continued success of Abore drilling, the program has been further expanded with an additional 10,000 meters now planned for completion by the end of this year. This drilling is currently underway and the next round of results is expected to be released shortly. In addition to our work at Abore, we continue to advance our regional greenfield portfolio targets through the quarter. Most notably, the ground IP survey at the Nsoroma target area, which is located approximately 8 kilometers southwest of the processing plant was completed on schedule in Q3. The survey was successful in identifying chargeability and resistivity targets coincident with previously identified gold and soil anomalies along the interpreted extension of the Nkran shear zone. Drilling is now underway, and approximately 2,000 meters of RC drilling is planned for completion in Q4. The Nsoroma target area lies within a 5-kilometer long gold and soil anomaly located on the Nkran shear southwest of the Nkran deposit and is one of the several high-priority regional targets being evaluated by the AGM exploration team. Next slide. This image on Slide 14 is a long section through Abore showing the location of highlighted assay results received in Q3. Drilling has identified 2 primary ore shoots plunging to the north at low angles under the south and main pits. Additionally, high-grade mineralization has been intercepted below the saddle zone between the 2 pits along the conjugate south plunging structure as well as in the new high-grade zone under the North pit. We are particularly encouraged to see wide intercepts of mineralization at significantly higher grade than the current Abore reserve grade of 1.27 grams a tonne over long strike length as we continue to evaluate the potential for an eventual transition to underground mining. Next slide. Slide 15 shows the locations of the drilling I've been discussing in plan view to further illustrate the fact that mineralization intercepted in this round of drilling spans the entire 1.8-kilometer strike length of the Abore deposit. Next slide. This cross-section here shows one of the holes drilled below the south pit hole 368 which intercepted 45 meters at 2 grams a tonne, including 17 meters at 3.3 grams a ton. This image is reflective of how strong mineralization is being intercepted below the mineral resource across the deposits and the potential growth upside as the system remains open. Next slide. As mentioned earlier, based on the success of Q2 results and what we've been seeing through Q3, the Abore drill program has been further expanded with an additional 10,000 meters now scheduled for completion in Q4. Drilling will continue to focus on conversion of mineral resources and testing for further continuations of mineralization down plunge and beneath the current drilling. We're very pleased with the Q3 results and are very optimistic about continued exploration success at Abore and across the AGM portfolio targets. With the support of Matt and the Board, we have been giving access to additional resources to capitalize quickly on these positive results and have secured our drills through 2026 to ensure we can continue the Abore program unabated. And with that, I'll hand it back to you, Matt. Matt Badylak: Thank you, Chris. In closing, I'd like to highlight that although the quarter fell slightly below expectations and the incident at Esaase necessitated a review of full year guidance Q3 showed continued positive momentum. We saw quarter-over-quarter improvements across key operation metrics, including total ore tonnes mined, mill grades, mill throughput, gold production and cash balances, all moving in the right direction. As we continue to optimize the secondary crushing circuit, we expect further throughput enhancements in the quarters ahead. On the exploration front, I'm particularly pleased with our progress. The upside we are seeing at Abore reinforces my confidence in the organic growth potential of the AGM, and I remain excited about what lies ahead. This quarter also marked an important shift in our shareholder base. Following Goldfield's divestiture of the 19.5% stake, we have strengthened our register and improved our trading liquidity. I want to remind everyone that Galiano is well positioned as Ghana's largest single-asset gold producer with compelling fundamentals across many key areas. We maintain a robust production outlook supported by strong financial discipline, including a solid $116 million cash position, which provides flexibility to execute our mine plans. With that, I'll turn it back to the operator and open the line up for any questions. Thank you. Operator: [Operator Instructions] Your first question comes from Heiko Ihle from H.C. Wainwright. Heiko Ihle: Decent quarter overall, I guess, even given the guidance. You obviously had great recoveries in the period, and that really matters given the current pricing environment. And it seems like additional improvements are made to the circuit. Walk us through what you see as the longer-term impact of all of this? And if you were in my shoes, how would you model this out? I mean these were the best recoveries in over 4 -- I think, 4 quarters it was. Matt Badylak: Yes. Thank you, Heiko. I appreciate the question. I think best if I just pass it across to Mick for an initial adds up, and then I can add anything if needed. Michael Cardinaels: Yes. I think we've benefited from the increasing grade that was seen quarter-on-quarter over the year. And with that improved grade comes an improvement in our recoveries as well. And we expect those to be maintained into next year. And obviously, hopeful that the grades improve further with depth as well. We do have a number of things that we are finalizing in the secondary crushing circuit, as I mentioned, we're upgrading a number of conveyor drives. We're trying different configurations with our screen panels and a few other things to further optimize that circuit. We think that there's additional throughput enhancements that we can achieve. So we expect to trend upwards and obviously targeting that 5.8 million tonnes per annum. if that answers. Heiko Ihle: It does. Matthew, do you want to add anything or do you want to move on? Matt Badylak: No, no. I think mix answered your question, ultimately, there's only one other thing, I guess, that we didn't touch on is that the SAG mill discharge grades are also going to be reduced in size as well, and we feel that that's going to improve our throughput and also potentially recoveries as well. So yes. Heiko Ihle: So yes. Fair enough. On Slide 13 in the presentation, you talked about some of those high-grade ore shoots. You also discussed this in the press release with the earnings and then also back in August. These intercepts, some of which you see 3 grams per tonne are obviously very economic, especially right now. With this transition to underground mining, I mean, I know it's quite early to ask this question, but I assume at least some thinking has been done on this. What exactly would be needed to start underground mining related to costs, permitting, duration to get a decline, all that good stuff? Matt Badylak: Yes. Good question, Heiko. Well, obviously, we're really, really excited about the grades that we're seeing just below our current reserve pit, right, as highlighted in the slide that you mentioned. I think the first step that we need to tick off, and this is quite imminent for us at the moment, too, is to define what the underground resource looks like there at Abore. And as I said, I mean, that's not too far away, and there will be some work internally and also with external consultants that is currently going on. We do expect to have a view on that in the early next year, Heiko. So that's the first stage. And on the back of that resource or the maiden resource, we will be able to provide a little bit more color in terms of what we're seeing with regards to the cost time lines, permitting, et cetera, on that front as well. But again, I will highlight that the upside for underground at the Asanko Gold Mine is not within the next 12 months, right? It's probably a year or 2 away. We have to continue to mine through the bottom of Abore at the moment. And then once we do that, it will come on the back of the depletion of this under open pit resource. That doesn't mean that we can't start the work concurrently, but the ounces delivered to the mill are some time away at this stage. Operator: Your next question comes from Raj Ray from BMO Capital Markets. Raj Ray: The first one is more a clarification on, I think, Michael's prepared remarks, and my apologies if I got it wrong. Michael, you're saying that with Abore, you're getting more tonnage at the lower grade and then the overall ounces is still the same? Is that correct? Michael Cardinaels: Yes, that's correct. A function of basically being deeper into the pit has allowed us to open up and we're mining full width across the granite ore body now. And with the reduction in material that has come out of Esaase, we're basically relying heavily on Abore to feed the mill. So we -- we're seeing with our mining methodology to keep tonnes to that mill, we can basically mine such that we're limiting how much material is being stockpiled. So we're less selective in terms of high grading that material, knowing that it's all going to the process plant to keep ourselves fed at the moment. Matt Badylak: Yes. Maybe I'll just add to that. This is kind of quite specific to the last quarter, as Mick was saying, and we do know that the mineralization at Abore, you don't want to lose any of the high grade that may be lost if you tighten up your [indiscernible] too much, right? So we had the opportunity in Q3 to maybe step out a little bit and accept a little bit more dilution in Q3, and that's kind of driving the commentary as well. Raj Ray: Okay. Got it. And the second question I had was, I noticed that part of the CapEx has been -- the development CapEx has been deferred into next year and you've lowered your number. Is there any potential for any impact early in '26 as a result of Esaase being out for 2 months? And then if you can comment on what your stockpile levels were at the end of Q3 in terms of tonnage and grade? Matt Badylak: Yes, sure. Listen, in terms of guidance and outlook for 2026, obviously, that will come in due time. We're working through that at the moment internally. And once we have clarity on where the numbers lie on '26, we'll obviously provide the market with an update in early 2026 on that. But at this stage, as we were saying, we do expect that the material movement from Esaase will ramp up and be in a position where this impact of the shutdown that we had that we saw in Q3 and early into Q4 is probably going to be addressed by that stage as well. So we don't expect it to be extending into the new year. And then in terms of stockpile grades and balances, guys, do we have that at hand? Or should we get back to Raj on that one? Matthew Freeman: I think we can get back with specifics. So I don't have the actual numbers to hand. I think we obviously don't have a particularly big stockpile at this point. I think, as Mick alluded to, given the pause in mining at Esaase we won't be able to mine excess material. So we build up maybe 0.5 million tonnes or a bit less than that, but no more on keeping it fairly small. And the grades of that will be similar to what we've been seeing going through the mill. So maybe slightly lower where we could have got some slightly better grades through the mill, but pretty consistent with what you've seen from the mining... Raj Ray: And if I may, one last question. On the Ghana audit, is it possible for you to give any color in terms of what they are specifically asking from the companies? Matt Badylak: Yes. I think you're referring to the MinCOM audit. This was not that was received by all large-scale mining companies earlier in the quarter. So it's not specific to Galiano. We are of the understanding that our site audit will take place in January next year. It's been staggered monthly between all the large-scale mining companies. There's been no additional information provided to us at this point in time in terms of what's being specifically audited or any request for pre-documentation before that. So -- that's all I can provide on that at the moment, Raj. Operator: Your next question comes from Fred Schmutzer from Equinox Partners. Alfredo Schmutzer: Matt, first, I just wanted to have maybe an update on the community relations. How has that evolved since the incident? Matt Badylak: Yes. I mean, again, it's a very good question. Like we worked hard Alfredo to ensure that the community relations across all of our tenements, which are quite large, are maintained. I'm pleased to report that shortly after that incident the relationships there were brought back into check and we've been able to haul, as I mentioned earlier, we've restarted haulage operations from Esaase stockpiles very shortly after that incident occurred. So from that point until now, everything has remain calm and has returned to normal. But these kind of things do flare up. And we're keeping close relationships with all of our community members across all our tenements. So nothing to be concerned about at this point in time on that front, Alfredo. Alfredo Schmutzer: Okay. That's great. And then on unit costs. So you mentioned that they're going to keep decreasing as you increase the volumes. But how can we maybe model that reduction of unit cost in terms of dollar per tonne? Like how much can it go down? Matthew Freeman: Alfredo, it's Matt Freeman here. I think from a sort of a G&A and processing standpoint, the easiest way to model it is to see that our absolute costs are pretty fixed on a month-by-month, quarter-by-quarter basis. So therefore, as we increase those in the milling and increase the throughput, that will actually bring your unit cost down. So if you make some assumptions, as Mick said, hopefully getting back towards the 5.8 million tonne run rate through -- an annual basis throughput, fixed costs will therefore come down on a unit cost basis. Mining cost is a little bit harder. I think the reduction is modest as we increase the mining volumes because really, that the mining contracts are largely variable cost, but we do have a management -- a fixed monthly management cost component, and that's a bit where you start to benefit in those unit rates. So as we move forward, certainly through Q4, we're seeing those rates come down a little bit. But then again, as we move into future years as you get deeper in some of the pits, then you start to maybe as things start to creep back up again a little bit or get back to where they are now as you have longer haul cycles and you're in deeper parts of the pit. So it's a little bit hard for me to guide you exactly on that, but I think the mining costs are sort of where we are now is a good point and it's not going to get higher in the short term, and it should drive down a little bit in Q4, if that makes sense. Alfredo Schmutzer: Yes, yes, very helpful. And then my last question is on taxes. So you mentioned you have already paid $12 million this year. And I know this year is especially more difficult to model because you just finished, I guess, using all those losses. So do you have a kind of a range of how much you're going to pay for this year? Let's assume spot prices until the end of the year, like just to have a range of how much would you pay? And then going forward, how should we calculate that? It's just like a 35% effective tax rate? Matthew Freeman: Yes, you're right. It is a bit complicated and it's a little bit hard to guide clearly. But yes, I think we're -- this year, we're probably in the -- depending on if prices stay where they are now, we could be in that $20 million to $30 million range, hopefully, more towards the low end, but we'll see. We certainly paid more than -- we probably paid a good half of it in installments so far for the year. And there's a few nuances in the final tax returns that we're looking at where we can maximize and optimize our positions. And then from a go-forward basis, yes, I think the Ghanaian tax rate is 35%, we will start seeing a bit of noise with deferred taxes coming through. But on a base sort of current income tax expense basis, 35% would be a good number for you to use. Alfredo Schmutzer: Okay. Okay. And if I may, very quickly, sorry, maybe the revolver credit facility, any specific reason why you decided to take that this year or I mean this quarter? Matthew Freeman: No. Obviously, this is a process that takes a period of time. We're very much looking at it. It's just prudent balance sheet management. We've got an opportunity to put it in place just to reinforce things and get ourselves flexibility. But that's the reason we felt it's prudent at this point to do that for risk management. Operator: [Operator Instructions] Your next question comes from Vitaly Kononov from Freedom broker. Vitaly Kononov: First one relates to Esaase. So as it was paused temporarily in September, those bottleneck, let's say, lasted for 2 months. Can you elaborate on the measures taken to prevent any further disruptions that could take place in the operations? Matt Badylak: Yes. Sure. I mean, I think our first defense in all of this is making sure that we've got strong relationships with the host communities in which we operate. And we do that on a day-to-day basis, right? So that's our first priority. I mean, the fact is that with gold prices doing what they're doing at record levels. And if you have any knowledge of West Africa as a region, illegal mining is prevalent in those parts of the world. And with those factors considered, there is an acceleration or an increase of illegal mining in our tenement. So the first thing that we need to do is make sure that the communities and the key community leaders that we have good relationships with as those relationships are maintained. And then the other thing that I will say is that we do mention about the military presence on site. I will point out that -- Asanko is the only the second large-scale mining company in the country that has access to military full-time 24-hour military presence on site. And with that as well, we feel that we're in a strong position to ensure that something like this doesn't occur in the future. Vitaly Kononov: That covers my question. Perfect. And then second one relates to the secondary crushing unit that was recently installed. Can you elaborate on what would be the nameplate capacity going forward with this new equipment on hand, would you expect to raise full year guidance from the 5.8 million tonnes of... Matt Badylak: No. I mean, listen, we've stated before that the purpose of the installation of that secondary crusher is to get us back up to the 5.8 million tonnes per annum. We were obviously a little bit shy of that because of the hardness of the ore that we were processing during the course of this year. We'll continue to process into 2026. So that's the target. The nameplate target will be 5.8 million tonnes per annum. Vitaly Kononov: Wonderful. And the last quick one. So you've had a lot of exploration results that you're probably longing to share. Shall we expect to see a mineral resource update provided with the end year results? Matt Badylak: Yes, we're expecting to provide an update to the mineral reserves and resources early in 2026 and most likely accompanying our full year financial and operating results at that time point. Operator: There are no further questions at this time. I will now turn the call over to Mr. Matt Badylak for closing remarks. Please go ahead. Matt Badylak: Yes. Thank you, operator. And I just want to say that I appreciate everyone's time who dialed into the call and asked questions. And as a management team, we're looking forward to execute to our revised guidance for the balance of the year and continue to provide the market with some exploration results as we continue drilling at Abore. So thank you very much and have a good day. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you all for your participation. You may now disconnect.
Operator: Good morning, and welcome to the CNH 2025 Third Quarter Results Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I will now turn the call over to Jason Omerza, Vice President of Investor Relations. Jason Omerza: Thank you, Julianne, and hello, everyone. We would like to welcome you to CNH's third quarter earnings presentation for the period ending September 30, 2025. This live webcast is copyrighted by CNH and any recording, transmission or other use of any portion of it without the written consent of CNH is strictly prohibited. Hosting today's call are CNH CEO, Gerrit Marx; and CFO, Jim Nickolas. They will reference the material available for download from our website. Please note that any forward-looking statements that we make during today's call are subject to risks and uncertainties mentioned in the safe harbor statement included in the presentation material. Additional information pertaining to factors that could cause actual results to differ materially is contained in the company's most recent annual report on Form 10-K as well as other periodic reports and filings with the U.S. Securities and Exchange Commission. Our presentation includes certain non-GAAP financial measures. Additional information, including reconciliations to the most directly comparable U.S. GAAP financial measures is included in the presentation material. I will now turn the call over to Gerrit. Gerrit Marx: Thank you, Jason, and welcome to everyone joining the call. Our third quarter ended in an evolving world of global trade, but with progress along our articulated priorities, to lighten channel inventory, reduce our quality and product costs, break new grounds across our lineup of iron and technology and build a solid foundation for our recently announced 2030 mid-cycle margin commitment. Since the very early days of our industry, farmers have seen many cycles and shifts in global trade, some even larger and more disruptive than this one. As we look forward beyond the current cycle, it is certain that most arable lands around the world will be used for technology-led crop production and livestock farming to feed the growing population even if it requires growing different crops. As the only other truly global full-line agriculture machinery provider, CNH is going to play an even larger role in helping feed the world as we will showcase next week during our Tech Day at the Agritechnica Fair in Hannover, Germany. We are thoughtfully transforming our global supply chain footprint and dealer network to mitigate the risks of further volatility that may emerge in the -- in our industry. With this clear direction in mind, we have maintained the overall low levels of production that we initiated in the third quarter of 2024 to help reduce CNH steel inventories and clear aged products while still defending and in some cases, growing market shares. Both ag and construction production was flattish year-over-year, but large ag production was down 10%, while small ag was mostly up. Our ag dealers' new inventory levels saw another sequential decline of over $200 million, putting them on track to achieve our targeted levels over the next 3 to 4 months. Our North American dealers' used inventory also saw another sequential decline in the quarter. While it's all good news for CNH, market fundamentals remain uncertain and challenging for our farmers. And it is difficult to say if we would enter 2026 with more visibility or even more momentum. Conditions in South America and Brazil, in particular, continue to be a headwind for our farmers. While we had expected to see this region as the first to emerge from the downturn, difficult geopolitical and market circumstances have persisted. Similarly, conditions in North America have been difficult for farmers as they see the global trade shifts impact their very own operating bottom line. Even with the recent announcements around the trade deal with China, material subsidies for farmers in their different forms are needed while the leveling of the global trade playing field is progressing. So in the meantime, we use all these shifts, changes and drags on global framework conditions as an opportunity to invest our resources in building a better and higher performing CNH during these slow quarters. We can prepare for upcoming product launches and define new ways of working more efficiently. This business has always been very cyclical and maintaining a through cycle perspective on what matters accompanied with consistently delivering profits and cash flows make all the difference. We're advancing our investments in iron and technology all the way to Agentic AI applications for our digital farm management system, FieldOps. We continue to take obsolete costs out of the operations to improve our underlying margin profile outside of the near-term tariff impacts. And we continue to make progress on our new go-to-market network development strategy with regionally important steps to emerge over the next year. So while we thoughtfully navigate near-term challenges, our focus remains on investing in the business to secure leading positions across all our major markets. In full alignment with our Board of Directors, we are pursuing the path we laid out on May 8 with determination and a healthy dose of flexibility as we navigate near-term challenges. We are CNH and we will deliver. With that, let's turn to the results. As expected and projected, our Q3 results now reflect the delayed impact of tariffs on our costs, which did not yet have a material impact in Q2. As a reminder, we introduced additional pricing adjustments effective with new orders received after May 1, and we also started to see some of that benefit in Q3. It is our intention that we will eventually offset all the tariff cost impact through cost mitigation, structure realignment and pricing actions. In 2025, however, we are absorbing some of the impact alongside our suppliers, network partners, farmers and builders as we navigate these new trade realities. The changed conditions for purchase components and ship machines impact the entire industry and relative differences in exposure and footprint will impact near-term results differently. 2026 will be a year of alignment and adjustments for our industry, and we expect those to play out fully for the 2027 season. Consolidated revenues for the quarter were down 5% at $4.4 billion. Our Global Ag segment sales were down 11%, with North America down 29%, but EMEA up 16%. While the geographic mix shift has a negative effect on our margins, it is encouraging to see some bright spots in EMEA sales, particularly tractors, especially in Eastern Europe and in the Middle East and to some extent also in Germany. Some of our product launches to be revealed next week in Hannover are precisely targeted to fill gaps and gain more ground in those markets for CNH. We will explain these step changes in greater detail next week. Industrial EBIT -- industrial adjusted EBIT was $104 million, down 69% compared to last year, mainly reflecting the impact of lower industry demand, tariffs and geographic mix. Adjusted net income was $109 million with adjusted EPS for the quarter at $0.08. While the markets are not helpful to our farmers, growers and builders these days, we remain more committed than ever to strengthening the company and prioritizing long-term value creation. Our company strategy is centered around 5 key strategic pillars. Expanding product leadership, advancing our iron and tech integration, driving commercial excellence, operational excellence and quality as a mindset. These pillars remain front and center to ensure we stay aligned with our long-term strategic objectives. And our team remains focused and united in our shared purpose to feed and build the world we all live in. Today, I would like to focus on a few of these items that demonstrate our commitment to the future. While we turn the challenges of the present into opportunities for the future. First, in the area of expanding product leadership, I'm revisiting a chart that we showed at our Investor Day in May. It shows a sample of our extensive product offering across many different farming applications. At the 2025 Agritechnica show next week, we will be unveiling several new products highlighted here with key launches across our tractor and hay and forage lineup. Furthermore, we will be launching significant upgrades across our full product portfolio in terms of both iron and technology. Stay tuned as more news will be revealed about these products next week, but we are very excited about the advancements that we are making here. Speaking of Agritechnica, in advance of the show, we received 2 innovation awards -- Silver medals for our corn header automation and ForageCam. The corn header automation system uses advanced AI and automation to enhance corn harvesting, which ultimately results in more high-quality grain in the tank. ForageCam uses a camera to instantly analyze crop flow and kernel fragments delivering real-time kernel processing scores and helping to boost livestock nutrition. These technologies, which deliver significant agronomic advantages demonstrate how CNH continues to deliver the tools and innovations that create the most value and the greatest impact for farmers. We have transformed how we think about quality within CNH. We are taking a 360-degree view of quality, spanning product development, supply chain, manufacturing and our dealer network. Let me give you a few examples. We have embedded quality into everything we do, and our suppliers are a big part of that. Through our strategic sourcing program, we are selecting suppliers who meet our stringent quality standards. These collaborative partnerships yield more reliable, durable parts that directly enhance our machines performance. In an industry downturn, it's tempting to focus only on the purchase price of our components, but we are maintaining a holistic view of quality throughout the sourcing process, while we still take cost out from our purchase goods. Programs that we piloted at our Racine plant, such as no fault forward and dynamic vehicle validation testing are now being deployed at other facilities. I'm happy to report that, as measured by our dealers, we are now achieving the highest delivered quality scores for our large tractors that we have seen in over a decade. Our dealers recognize the difference and our customers are seeing it too. We never want to have machine downtime. But when problems do occur, our motto is fix right first time. Our diagnostic AI tech assistant tool is providing dealer technicians with the real-time insights at their fingertips. It has significantly reduced the time it takes to identify solutions, and we see that in our dealer help desk efficiency. We already see the benefits in our bottom line. Year-to-date, we have reduced our quality costs by over $60 million, and there's a lot more to go as we discussed during the Investor Day. But perhaps more importantly, this commitment to a quality mindset reinforces the trust our customers have in our brand and lays the foundation for achieving a higher net price realization for new and used machines over time. With that, I will now turn the call over to Jim to take us through the details of our financial results. James A. Nickolas: Thank you, Gerrit. Third quarter industrial net sales were $3.7 billion, down 7% year-over-year, mainly driven by decreased agricultural shipment volumes on lower industry demand, compounded by reduced ag dealer inventory requirements. Adjusted net income decreased by nearly 2/3 with adjusted diluted earnings per share down from $0.24 to $0.08. The decrease was mainly due to lower sales levels, tariff impacts, unfavorable geographic mix and increased risk costs in financial services. Q3 free cash flow from industrial activities was an outflow of $188 million, roughly in line with Q3 last year, as the lower year-over-year EBIT was offset by better net working capital and cash taxes. Agriculture Q3 net sales were just under $3 billion, down 10% year-over-year, driven by the 29% decrease in our higher-margin North American market, where we are experiencing both a weak retail demand coupled with dealer inventory destocking. The year-over-year net sales increase in the EMEA region was mostly driven by higher demand in Eastern Europe and in Middle East, Africa. Pricing was favorable overall with North America positive 3%, and which starts to include some tariff-related price adjustments. This was partially offset by some negative pricing in South America, where we have seen aggressive competitive incentives. Third quarter adjusted gross margin was 20.6%, down from 22.7% in Q3 2024, affected by the lower volumes, tariff costs and unfavorable geographic mix, partially offset by purchasing efficiencies and lower warranty expenses. Product costs were favorable, $33 million year-over-year despite including $45 million of unfavorable tariff costs after FIFO inventory offsets. Manufacturing and warranty quality costs were lower by $44 million in the quarter. The supply chain efficiency is making up the remainder of the favorable year-over-year results. So despite the tariff headwind, we are making good progress on our underlying margin improvement initiatives, and this remains central to our path to 2030 strategy. We'll provide a more thorough progress report on our long-term goals during our Q4 call. SG&A expenses were $36 million higher than in the third quarter last year mainly due to higher variable compensation accruals in 2025 and labor inflation. As a reminder, we took out over 10% of our white collar head count in late 2023 and early 2024. And since then, the levels have been essentially flat while we work on improving our organizational effectiveness. Adjusted EBIT margin for agriculture was 4.6%, a sequential decline from Q2 2025 levels as a result of the increase in tariffs and our normal quarterly business seasonality. CNH enjoys the distinction of being the most geographically balanced of all the ag OEMs in terms of our sales mix, and we've been profitable in every reach of the world so far this year despite the consistently depressed markets. We expect that trend to continue in the fourth quarter. The EMEA region is weaker than North and South America in terms of margins, but we know what needs to be done to raise its profitability profile. Many of the improvements discussed at our Investor Day such as improving dealer network presence and improving operating performance, along with the private launches mentioned by Gerrit earlier, are designed to improve the fortunes of the EMEA region with our focus on this critical area that will yield benefits for the entire agricultural segment. Construction third quarter net sales were $739 million, up 8% year-over-year, driven by higher sales in North America and EMEA. The increase is mainly due to the low sales level last year as we had cut production aggressively in 2024. Gross margin for the quarter was 14.5%, down from 16.6% in Q3 2024, mainly as a result of the tariffs. Purchasing and manufacturing efficiencies of $12 million favorable were more than offset by $26 million of tariff costs. It's important to point out that we seem to have been a bit more aggressive on price increases as a result of the tariffs that we have seen from our competitors. Like in agriculture, construction SG&A was unfavorable due to variable compensation accruals and labor inflation. We closed the third quarter with an adjusted EBIT margin of 1.9%. I would also like to note that earlier this week, we finalized our previously announced plan to stop production at our construction plant in Burlington, Iowa by the second quarter of 2026 due to declining demand and underutilization. Production will be moved to other existing CNH facilities, including our plant in Wichita, Kansas. This is part of construction's manufacturing optimization effort that was discussed at the Investor Day. Moving to Financial Services. Third quarter net income was $47 million, the $31 million year-over-year decrease was driven by higher risk costs in Brazil, partially offset by better margins in all regions. Retail originations in the third quarter were $2.7 billion, down 6% year-over-year, reflecting the lower equipment sales environment. The managed portfolio ended the quarter at $28.5 billion. The wholesale portfolio was down nearly $1.5 billion since 12 months ago on a constant currency basis, mainly driven by the lower dealer inventory levels. While credit collection rates have been relatively steady in most regions, despite the market downturn, we, along with others in the industry, are experiencing persistent delinquencies in Brazil. Accordingly, we increased our credit reserves again in the quarter. We believe that our reserves are adequate, and we work with farmers in the region so they can continue to operate their farms and pay for their equipment. Our experience from past cycles is that most farmers in delinquent status will eventually catch up on their commitments, but this increase in risk reserves is a needed measure while observing how the market environment unfolds. Our capital allocation priorities remain unchanged. We will continue to reinvest in our business while maintaining a healthy balance sheet. During the third quarter, we repurchased $50 million worth of CNH stock at an average price of $11.25 per share. Before I turn the call back to Gerrit, I want to give you an update on our net tariff assumptions for this year as well as a view of the gross run rate impact of the tariffs. The numbers on this page reflect the expanded Section 232 steel and aluminum tariffs, which were not factored into our previous guidance and reflect that China tariffs will be lowered by 10 percentage points on Monday. For 2025, we estimate the net impact of agriculture at around $100 million at the midpoint and construction at $40 million at the midpoint. In the fourth quarter, that will be around $60 million for ag and $20 million for construction. In the short term, we are working diligently to offset as much of the tariff impact as we can. This includes collaborating with our suppliers to identify alternative sourcing options and consuming pre-tariff inventories. The price adjustments implemented to date do not fully offset the gross tariff impact, as we have chosen to share the burden alongside our suppliers, network partners, farmers and builders, while the trade environment is in flux. The 2025 impact is only a partial year impact as the ramp-up in tariff levels and our FIFO accounting pushed most of the impact into the second half. If we annualize the gross impacts still at 2025 volumes, we estimate approximately $250 million of impact in agriculture and $125 million impact in construction. That is approximately 200 basis points of agriculture margin headwind and 425 basis points of construction margin headwind. I'm only showing the gross cost run rate impact here because as Gerrit said, we do intend to be able to fully offset the tariff impact over the long run. We will take advantage of our ongoing strategic sourcing program to identify the right suppliers with a global footprint to help us identify the most favorable countries of origin. Likewise, we will leverage our global manufacturing footprint to identify the ideal production locations. And ultimately, we will pass through the remaining incremental costs through our pricing and has been done across the industry in the past. Our 2030 margin targets will not be jeopardized by the tariffs. With that update, I will turn it back to Gerrit. Gerrit Marx: Thank you, Jim. And now let's review our latest outlook for agriculture in 2025. Global industry retail demand is expected to be down around 10% from 2024. We have narrowed our net sales guidance as we approach the end of the year. Full year pricing will be positive about 1%, and there is no expected currency translation impact. We've also updated our margin guidance. As you recall, last quarter, we said that margins would likely fall somewhere below the midpoint and the guidance. However, since our last call, additional Section 232 tariffs on steel and aluminum were introduced. As such, our revised guidance now reflects those tariffs as well as the geographic mix shift between North America and EMEA and product mix between large ag and small ag. The Section 232 tariffs will impact all players in the industry, whether they are components imported or locally sourced as domestic steel and aluminum prices will rise as well. We expect to recover those impacts through pricing of our products. In Construction, overall industry retail volumes are expected to be down about 5% from 2024. As with ag, we have also narrowed our net sales outlook for the year and lowered our margin expectations. We are still working on our 2026 industry estimates, and we'll need to see how some of the larger market players react on pricing before we are able to finalize an opinion here. With the narrowed sales estimates in ag and construction, we are guiding total industry net sales to down 10% to 12% year-over-year with margins reflective of the net tariff exposure between 3.4% to 3.9%. Free cash flow is now expected in the $200 million to $500 million range. EPS is now forecasted to be between $0.44 and $0.50, again, reflecting the latest net tariff impact. I will end our prepared remarks by looking at our priorities for the remainder of the year as we close out 2025 and position ourselves for success in a likely transition year in 2026. We are carefully observing the different leading demand indicators. At the same time, while we are dealing with a rapidly changing trade environment, we are working very closely with our network partners and suppliers to ensure that we are responsive to ongoing shifts in the market. We are taking orders for model year 2026 products now at new prices, reflecting another round of cost recovery. Each region has their own cadence for order collection, typically North America ahead of the other regions. Production order slots are full for the remainder of 2025, and we are about half full for the first quarter of 2026. Some products in some regions are a bit further out than that. North America's Q1 slots are already full. For example, we are monitoring order collection closely to understand overall industry retail demand in 2026 and to make the appropriate shift in our production cadence when needed. Besides our order collection, other factors that we are evaluating include commodity prices, stocks-to-use ratios, progress on trade deals, especially a finalization of the recently announced agreement between the United States and China, clarity on renewable fuel standards in the U.S., used inventory levels and their values and competitive pricing dynamics. As of right now, we would expect global industry retail demand to be flat to possibly slightly down in 2026 when compared to 2025, that likely includes EMEA being slightly up, North America, slightly down in large ag and South America and Asia Pacific somewhere in between. As year-end approaches, we'll assess market developments to refine our industry forecast with greater precision. As I discussed earlier, we will continue to produce at our current low levels through the end of 2025 and likely into the beginning of 2026, given continued soft demand. Our North American dealers are on pace to achieve our inventory targets for new equipment within the next few months, whereas improving sentiment in Europe will allow dealers to increase their stock somewhat. Like our continued dedication to investing in the future through iron and tech R&D, we are not taking our eyes off our margin improvement initiatives regardless of the market environment. We are maintaining our relentless focus on our homework and executing the cost management strategy that we presented to you in May. We are pursuing productivity improvement and the strategic sourcing program to drive further cost reductions with a particular focus on delivering the highest quality products to our customers. I want to reiterate what Jim said, our 2030 targets are not jeopardized by the current trade environment or status of the ag cycle. Things are very positive for CNH. And during times like these, continuity through dedication and consistent execution are more than ever important. At our Tech Days next week, we will exhibit our latest products, technology applications and solutions. We are excited to show you how our technology evolves to serve farmers on their field and to preserve their soil health. Our solutions help them rise to everyday challenges, particularly the unexpected ones. We hope to see you in person in Hannover or connected to the webcast. That concludes our prepared remarks, and we are ready for the Q&A. Operator: [Operator Instructions] We will take our first question from Kristen Owen from Oppenheimer. Kristen Owen: A lot of discussion this morning on the ag margin bridge, and you hit on some of the points, but I'll ask you to articulate on 3 particular items that stood out to us. First, can I ask you on the decremental margin on the volume mix? How much of that was the decline in North America as the total percent? And how should we think about that decremental going forward? The second item here is on the SG&A and the $37 million drag? And then finally, I'll just ask you to unpack some of the product cost puts and takes, tariffs versus some of that underlying quality work that you addressed. I realize there's a lot there, but I appreciate you addressing that bridge. James A. Nickolas: Okay. Kristen, happy to answer those questions. The decremental in ag was really driven by the declining sales in North America, 29% decline in North America, EMEA, up 16%. So you've got a fairly sizable geographic mix element in there. SG&A did grow. To answer both parts of your question with here, the ag EBIT margin decline -- 12% of that decline was from higher SG&A due to the variable compensation. So last year, very low bonus accruals. This year normalized, rate of bonus accruals is being accrued. So you've got the SG&A growth. Tariffs were a meaningful portion of that as well, than geographic mix I mentioned. And then to a lesser extent, our ag JVs are delivering lower profits this quarter than it did a year ago. So those are the 4 primary buckets. If you take those out, you are back to the normalized 25%, 30% decremental. So that answers the ag question. Gerrit? Gerrit Marx: Yes, I just would like to -- on the first one on the mix point, Kristen, I would like to add that in EMEA, particularly the tractor segment was up while harvesting segment was still behind in the overall mix. And I think as you might recall, we -- while strong on tractors, we are particularly pronounced on harvesting equipment and I mean large combines. So that was in another -- it's not a regional mix. It's like an in-region product mix to some extent. And as Jim and I alluded to is Europe is -- or EMEA is for us from a marginality, a trailing region is actually at the bottom. And we have launched quite some substantial turnaround and restructuring actions across the region starting as well from the product side that you will see next week in order to regain momentum and share in a region that shall be no weaker than any of our margins in North or South America. So this is very much in focus, and we are going to talk you through those things next week when we stand in front of our local new product lineup with tractors that we -- and the serve segments that we never had, okay? So high horsepower midrange tractors, we never had and now we have, and we'll show that next week as another measure to turn around Europe. James A. Nickolas: Yes. And then continuing to answer your question, so the product cost unpacking, that really is $33 million of favorable product costs, excluding $44 million of tariff costs. So without the tariffs, that number would have been $77 million of favorability. That breaks down as $44 million in quality improvements, $17 million in purchasing and manufacturing improvements and $60 million of other improvements. So that sort of, I think, shows the good work we've been doing on our path to 2030 from an operational perspective. The tariff supports our headwind that weren't there previously. And tariffs are growing a bit in Q4. Q4, we expect tariff costs to be $60 million in ag and $20 million in CE, but we'll give you a more detailed breakdown of the full year cost improvements toward our Investor Day targets when we report out in Q4. So I think that addressed all 3 of your questions. Operator: Our next question comes from Angel Castillo from Morgan Stanley. Angel Castillo Malpica: Just 2 factors impacting fiscal year '26, I was hoping to get a little bit more color on. First, in terms of the annualized tariff gross headwind that you laid out, I just want to triple check, I guess, it seems to me a rough math that, that implies maybe a 2% to 3% kind of incremental headwind in terms of your North America sales next year. So just one, is that correct? And kind of second, based on pricing you're putting out through your orders right now for next year and the preliminary kind of cost inflation you see. I guess how much of that 2% to 3%, do you think you can offset your pricing versus other kind of cost initiatives that you laid out? And how much do you -- basically you already have covered versus you still need to go out and get a kind of enact initiatives? And then the second piece of fiscal year '26, just under production, what gives you confidence in being able to achieve desired dealer levels in 3 to 4 months? And basically, how much more inventory do you need to kind of work down and how much of a tailwind that could be next year? That would be helpful. James A. Nickolas: Yes. Let me tackle the first one, Angel. So the -- I think you're about right on the headwind effect of the tariffs -- the basis point headwind. And the pricing that we put out, if you couple the tariff costs with normal inflation costs, the list price growth that we put out is not adequate to cover 100% of the tariff costs. However, we're working to -- over the course of 2026, we'll be working to cover that through various means, further cost cutting. And there's also -- we can adjust our discounting to some degree as well to maybe help offset. So from a list price perspective, not there, but through other actions we'll be endeavoring to get through throughout the course of 2026. And as it relates to the production question. Gerrit Marx: Yes. And relating -- related to the production question. When we look at 2026, and it's consistent with what we, I think, we said also during the last 1 or 2 calls is we expect that the production pace equals retail pace. And in next year, we expect in terms of production hours versus a 2026 production hours over '25 production hours to be up around mid-single-digit percentages basically across all regions, across all products because we do see, as we mentioned, that we will achieve the target of about $1 billion inventory reduction in 2025 that gets us to a much better place by this year-end. So we plan to increase production hours next year. And that might entail even a further inventory reduction at the same time, if needed. And that is not a general statement across the world because, as I mentioned earlier. I mean EMEA show signs of momentum in some markets, which means depending on where we are in the season that we are going to stock up some machines in those markets. Again, depending on the season, why we have here and there still some pockets of machines where we might continue to see a further destocking next year. But in large, we have achieved the target of $1 billion destocking this year over the next couple of months. And with that, we see space now to restart production in the mid-single digit up. Operator: Our next question comes from Tami Zakaria from JPMorgan. Tami Zakaria: I wanted to touch on tariffs a little more. Is there a way to think about how much of the total tariff costs you quantified, I think, $205 million to $225 million. How much of that is tied to AEPA versus Section 232 versus the baseline? Should the industry get some relief from any Supreme Court ruling in the coming weeks, months? Just wanted to get some sense what could be the opportunity there? James A. Nickolas: Yes. About 20% of the tariff costs are from Section 232. So any release is granted, that would be wonderful. We're not counting on that or taking that into our plans at this point, but we'll wait and see where that goes. Operator: Our next question comes from Kyle Menges from Citi. Kyle Menges: I wanted to follow up on some of the pricing comments on the comments that maybe you've been a little bit more aggressive on price increases versus competitors this year. And just how that's influencing how your pricing model your '26 machines as your opening order books for next year. Curious what the customer feedback has been on pricing as you start to price model your '26 machines and feedback on maybe where you're priced versus competitors in some of your different markets as you're opening order books for next year? James A. Nickolas: Yes, just to clarify, Kyle, the -- where we are more quick to raise prices was on the construction side, where we didn't see really much else happening with our competitors. So we were probably out in front on that one. As it relates to ag, I would say we're 3% to 4% list price you put out there for the early order program that's -- that's translating well. We think that's where the market is, and we're -- it seems to be working as planned. And you can see it from our production slots being filled. That's encouraging. It's tracking as we would have expected. So that's lined up, I'd say. So construction pricing, we're a little bit more aggressive on increases. Ag, I think we're in line with the market, and that seems to have been well received by the market. Operator: Our next question comes from Jamie Cook from Truist Securities. Jamie Cook: I mean, if you look at your guide, your fourth quarter sales implies we're finally up year-over-year versus decline. So I'm just trying to think about that and the backdrop for 2026. It sounds like you broadly think industry demand is sort of flattish in ag, different pockets, obviously, and construction is probably up. Just trying to think of the company-specific items that you can control. And to what degree do you think your earnings could grow next year in a flat market as like next year, you would produce in line with retail demand or potentially better, quality should be an incremental savings potentially supply chain, I guess, tariffs a headwind. But just the big puts and takes there, the things that you can control to hopefully get us comfortable or maybe not that that 2025 would represent the trough of earnings? James A. Nickolas: Yes. Great question, Jamie. So the production increases that Gerrit outlined in 2026 are not because of the industry is rebounding, it's because we're producing closer to the retail. So under producing less than we did in 2025. So we will get some absorption benefit from that, from the higher production rates. We will, of course, continue and amplify our ID2025 targets that we put out around quality, around supply chain efficiencies. Those areas are sort of working. We're seeing it, strategic sourcing. These are all things that are coming through, as we talked about in Q3. We expect those to keep growing and building. So those are the sources of tailwinds that we're looking towards. And the headwind that you'd point out is the one that we have less control over in the short term, and that's the tariffs. So as I mentioned on my question we answered Angel, we'll be looking for ways to help offset those tariff costs, but those right now are probably the most significant headwind we've got to grapple with. Operator: Our next question comes from Steven Fisher from UBS. Steven Fisher: Just maybe to follow up on that. I'm just curious what the drivers are of the smaller declines in revenue guidance for 2025 and maybe some of the regional color on what you have embedded for Q4 because it seems like ag overall looks like it's implying around 4% growth and construction in the -- and perhaps in the mid-teens. So just a little color on those changes and what's implied? James A. Nickolas: Yes. So in ag, EMEA will continue to be more strongly performing versus other regions. And construction industries also -- equipment is also to be the one that's driving it forward. The end markets there have been improving. And so those are the 2 areas where we see the sales growth coming from. Part of it also is the -- we're producing -- we're underproducing retail less in Q4 on the ag side, that would also help above and beyond sort of the EMEA improvement. So hopefully, that answers your question, Steven. Operator: Our next question comes from Tim Thein from Raymond James. Timothy Thein: Maybe just coming back to the concept of production versus retail in '26. And we covered a lot of ground there earlier, but I just want to make sure I heard correctly with respect to large ag in North America, as I think back in recent months and the commentary for '25 has suggested that in many cases where inventory was a bit heavier, it was more on the small ag side. So I would assume that that gives you more of a production tailwind as we're thinking about into '26, i.e., if there's more upside pressure to production, it would be on the large side versus small, just given the fact that more of the inventory issue has been on the small ag in North America. So again, kind of bouncing around ideas here, but is that a fair kind of characterization as we think about the outlook -- potential outlook for production in North America split between large versus small? Gerrit Marx: Yes. I think you're directionally correct, will be a few percentage points -- in the current planning will be a few percentage points higher in large ag than in small ag, when we look at production hours, '26 over '25. Operator: Our next question comes from Daniela Costa from Goldman Sachs. Daniela Costa: I have a follow-up on the -- what's implied for Q4 in the guidance because most years, we have a negative seasonality into Q4. I understand you have a little bit of delivery growth here. But even when we have delivery growth, we tend to have negative and you mentioned you don't offset the tariffs entirely. They're higher in Q4, and there's sort of all the other headwinds. So can you walk us a little bit through the tailwinds that drive you to a better than usual seasonality in Q4? James A. Nickolas: Yes. Yes. Good question. From a margin perspective, the improvement versus history is we've got, again, a line of sight improvement in quality costs and our manufacturing cost. So we're looking for good product cost improvement in Q4. And of course, those are growing. So that's something we're -- we're expecting when you compare it versus 2024 levels. So everything we talked about before, the ID2025 targets you put out, those initiatives are underway, they're delivering. We expect that to continue in Q4. Operator: Our next question comes from Mig Dobre from Baird. Mircea Dobre: Just a clarification, if I may. I'm a little bit confused about moving pieces to the guidance here. So I'm looking at Slide 17, right? So if I look there on an 11% revenue decline you used to expect 6.5% margin. Now on an 11% revenue decline, we're looking at something more like 3.7% margin. So just the rough math would be we're cutting EBIT here by $430 million, give or take. And this is all second half of 2025. What are the moving pieces here? Because as I understand the tariff assumptions, that alone does not account for this move. So maybe specifically, within this, how -- what dollar figure is associated with tariffs? And what are some of the other elements here? James A. Nickolas: Yes. It's a good question. So Page 17 is corporate, right, the entire enterprise. What's not broken out there is the mix effect. So we've got construction -- the CE business sales growing. Those are incredibly low margins. So I'm happy with where those are at, but that's not delivering the margin with those earnings or that revenue. And the ag business is not growing at the same pace. So you're seeing a sort of within a segment -- between segment mix happening there. So that also explains why the industrial activities decrementals were so poor in this quarter. CE sales were up. Ag sales were down. And that has that same dynamic. So that's what you're seeing. Part of what you're seeing on Page 17 is what we experienced in Q3, and that will continue in Q4. Operator: Our next question comes from Mike Shlisky from D.A. Davidson. Michael Shlisky: It sounds like, as you've been saying you're a few months away from getting to the right level of new inventories in the channel. Are you also a few months away on the used inventory side. Just update us on what's happening there? And is that the point where both new and used are at decent levels at optimal levels, we'll start to see your wholesale sales to be above your retail sales and some kind of restocking again happening at the dealership level? James A. Nickolas: Yes, great question, Mike. So I think we've seen good success on dealer -- on the used inventory side. I think there's been 3 quarters in a row for CNH Ag dealers declines in the used inventory. So we're pleased with that trend. I wouldn't say it's done at the end of this year, though. It's still higher than historical norms would imply. And so I think there's more work to be done there. That's always been less of a concern for us though. I think it's more of a -- I think your broader industry concern, a bigger concern for CNH and CNH dealers, but it's higher than we'd like. We're making progress over the last few quarters. We think it will continue, but we won't be done. That effort won't be done into Q4. Operator: Our next question comes from Joel Jackson from BMO Capital Markets. Joel Jackson: Definitely a couple of months ago, there was some optimism, I know expressed by the management team around South America maybe turning, wasn't clear, but there was optimism a couple of months out later now as you mentioned earlier, the optimism is sort of died down a bit. Can you talk about what you're thinking then and what you're thinking now, what you've seen in the last couple of months? Gerrit Marx: Well, look, the South American market experienced a higher attention from China when it comes to not only soy, sorghum and other commodities. And we had the sentiment there that overall, when trade clarity comes up that this region would react first to this increased level of certainty when it comes to global trade. As we are still in a moment of uncertainty, I mean, there is a deal announced between the U.S. and China, about 25 million metric tons of soy over the next couple of years, 3 years. We still await the exact numbers, and we will still need to see as an industry, not as only CNH, what are the actual purchase volumes of China when it comes to South American soybeans and other commodities. That will then refuel farmer sentiment in the region when it comes to 2026 planting season, and related equipment sale or purchase consideration. So it's really around continued ambiguity of global trade and a still existing lack of certainty because I mean you have heard many trade deals being announced, but then the details are not yet disclosed and are not there yet until our farmers are and so are we, we are curious to see those details coming through, which will then lead to more certainty, and that will also then lead to a higher level of predictability when it comes to purchase equipment sales, I mean, equipment purchases. So that is the difference. We haven't really improved on certainty as it comes to global trade conditions. That's the main driver. Jim alluded also to an increase in -- Latin American increase in delinquencies. Our farmers were expecting a payout from the -- from the local Brazilian farm bill as it comes to purchase of seeds and fertilizer. That was delayed. And so farmers preferenced or basically prioritized purchase of seed fertilizer and imports that purchased rather those instead of, let's say, giving priority to our equipment or the industry's equipment rates. And so that is another drag in the market that is another indicator for uncertainty that has very much unfolded in the third quarter. And we are taking a very cautious view here and so do the farmer. So more uncertainty and wait and see mentality in Brazil, that's really what has changed. And we need to see what China really buys in the end. One thing is a deal, the other thing is the actual purchase and the consistency of such purchases month after month. Operator: Our next question comes from Ted Jackson from Northland. Edward Jackson: Two questions for you. One, with regards to the tariff guidance and what is it -- is it $80 million, I think you said you were going to have in the fourth quarter. What was -- when you -- at the second quarter, what was the view for the tariff impact for the remainder of the year? Honestly, I don't recall what it was when I looked at the past presentation, I didn't see anything in [indiscernible] -- is this -- are the costs that you're putting forth there, is that incremental relative to what your view was, exiting the second quarter going into third? James A. Nickolas: Yes. Good question. The Section 232 costs were not part of our guidance at Q2. I think we indicated $110 million to $120 million of full year net tariff costs, and then we bumped that up to the current view. So that's -- the biggest reduction in guidance is not from tariffs. Tariffs were a small piece of that. The bigger reduction was more of the items we've gone through were the SG&A increases and the mix effects. Geographic mix came in tougher than we thought. Edward Jackson: My next and last question obviously is, even with all the stuff and you look at the change in guidance, you did take your sales number up. At the midpoint, it would be up $650 million to $700 million. In your third quarter, at least relative to consensus was a bit higher this year ongoing. So even if we just say, okay, well, third quarter was better and just use consensus as a proxy, you can back that out. There's another $200 million of sales in the fourth quarter relative to kind of what would have been expected to do something like this with prior guidance. It sounds like it's construction in EMEA that's driving that. And then how much of that increase is, am I right with that, and then is there -- how much of that pickup in revenue is from you being able to push along pricing as you're compensating for things like tariffs and such? James A. Nickolas: Yes. Yes. So pricing remains a positive driver of revenue in Q4. So that's definitely a favorable item that we've got baked in. The second half change in the guidance that you're seeing though was, again, mostly driven by higher volume sales with -- in sales areas with sort of lagging margins. So the margin that you would associate with any given dollar of sale, just wasn't there given where the sales occurred. So higher sales without the margin delivery coming through it. That's what's really affecting the -- what appear to be a bad incremental or decremental. It's really just the sales mix. Operator: Our final question today will come from David Raso from Evercore ISI. David Raso: When you speak to global industry retail next year being flat to slightly down, the order books as they sit today, where are the order books right now versus a year ago? An ideal if you can help us between the North American large ag commentary for next year in EMEA. If you can give us some sense of the order patterns in those 2 regions would be great. Gerrit Marx: Yes. I think the order coverage we see right now is basically, as I said, Q4 is basically covered everywhere. Q1 largely, let's say, very well on track. We have a bit more order coverage on the North American side than in other regions, but this is pretty comparable, I would say, to prior years. I think there's not a particular pattern here. We are working through, obviously, the other programs, and we're working through, which will be quite exciting for us to showcase the machines next week at the Agritechnica. We have a full lineup of renewed tractors on offer and similar upgrades also on the combines side. So I think the Agritechnica as well will be another stimulating moment when our farmers will see what great machines we are putting out there. And so we're pretty excited to walk you around and show you what we have on offer, but the order books are very much in line with expectations. James A. Nickolas: David, one more data point that we're excited about, and it's very comforting and validating our flagship combines in North America. The production slots are sold out for the entire year. I think that's evidence of how well that machine is performing, how well it's been received and the value proposition. So that's another good sign about building the right products and markets receiving them quite well. Operator: That concludes today's conference call. You may now disconnect.
Operator: Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Wheaton Precious Metals 2025 Third Quarter Results Conference Call. [Operator Instructions] I would like to remind everyone that this conference call is being recorded on Friday, November 7, 2025, at 11:00 a.m. Eastern Time. I will now turn the conference over to Emma Murray, Vice President of Investor Relations. Please go ahead. Emma Murray: Thank you, operator. Good morning, ladies and gentlemen, and thank you for participating in today's call. I'm joined today by Randy Smallwood, Wheaton's Chief Executive Officer; Haytham Hodaly, President; Curt Bernardi, EVP Strategy and General Counsel; Vincent Lau, Chief Financial Officer; Wes Carson, VP Mining Operations; and Neil Burns, VP, Corporate Development. For those not currently viewing the webcast, please note that a PDF version of the slide presentation is available on the Presentations page of our website. Some of the comments on today's call may include forward-looking statements. Please refer to Slide 2 for important cautionary information and disclosures. It should be noted that all figures referred to on today's call are in U.S. dollars, unless otherwise noted. With that, I'll turn the call over to Randy Smallwood. Randy Smallwood: Thank you, Emma, and good morning, everyone. Thank you for joining us today to discuss Wheaton's third quarter results of 2025. We are pleased to announce that our portfolio of long-life, low-cost assets has once again delivered strong results this quarter, enabling us to achieve record revenue, earnings and operating cash flow for the first 9 months of 2025. This performance underscores the streaming model's unique ability to generate predictable levered cash flows while maintaining a deferred payment schedule, an advantage not offered by the traditional royalty model, which requires full upfront payments and lacks embedded leverage. And of course, 100% of Wheaton's revenue comes from streams, providing a competitive advantage amongst others in the space. As a result of strong performances by key assets, including Salobo and Antamina, coupled with the ramp-up of production at Blackwater and Goose, we recorded production of 173,000 gold equivalent ounces this quarter and are firmly on track to achieve our 2025 production guidance of 600,000 to 670,000 gold equivalent ounces. And with over $1.2 billion in cash and undrawn $2.5 billion revolving credit facility in Accordion and strong growing projected cash flows, the company remains well positioned to meet all funding commitments and pursue new accretive opportunities continuing to grow our -- and continuing to grow our competitive dividend. Based on this strong financial foundation, Wheaton also continues to invest in innovation across the mining sector as well as community initiatives alongside our mining partners. During the quarter, Wheaton launched its second annual Future of Mining Challenge, which this year focuses on advancing sustainable water management technologies. Following the close of expressions of interest phase, 17 proposals have been selected to advance with the winner to be announced at the PDAC conference in March of 2026. And with that, it is my pleasure to now turn the call over to our President, Haytham Hodaly. Haytham Hodaly: Thanks, Randy, and good morning, everyone. Alongside strong performances from our producing assets, Wheaton's growth profile was further derisked through continued progress across 6 key development projects scheduled to come online over the next 24 months. Notably, several of these projects have announced accelerated time lines or expansions, reinforcing confidence in our previously forecasted 40% production growth by 2029. Furthermore, recent joint venture announcements marked significant progress for Copper World and Santo Domingo, further derisking both projects. We are pleased to have announced 2 new streaming transactions over the past 2 months, one with Carcetti on the Hemlo mine and another with Waterton Gold on the Spring Valley project, for which Neil Burns will share more details later in this call. These announcements reinforce our disciplined approach to capital deployment as we remain focused on identifying accretive opportunities that are thoughtfully structured to deliver meaningful and lasting value for all stakeholders. With a solid foundation of organic growth that continues to strengthen, the company is well positioned to pursue opportunities that align with our long-term strategy and uphold our commitment to quality as we have demonstrated with our most recent transactions. And with that, I would like to now turn the call over to Wes Carson, who will provide more details on our operating results. Wes? Wesley Carson: Thanks, Haytham. Good morning, everyone. Overall production in the third quarter was 173,000 ounces, a 22% increase from the prior year, primarily due to strong production at Salobo and Antamina, coupled with commencement of production at Blackwater. In Q3, Salobo produced 67,000 ounces of attributable gold, a 7% increase from the last year, driven by higher throughput grades and recovery. Vale reported that by the end of July, Salobo III had fully ramped up and the entire complex is now operating at full capacity, consistently delivering strong operational performance. Vale continues to advance a series of growth-focused initiatives to enhance efficiencies and support long- and medium-term production growth across the Salobo complex. Constancia produced 19,500 ounces of attributable GEOs in Q3, a 9% improvement from last year, primarily driven by 19% higher gold production resulting from higher grades, partially offset by an 11% decline in silver output due to lower throughput. On September 23, 2025, Hudbay Minerals commented on the ongoing social unrest in Peru, where Constancia was impacted by local protests and illegal blockades. The mill was temporarily shut down as safety precaution, while authorities addressed the situation. On October 7, 2025, Hudbay announced that operations had resumed and throughput has since returned to normal levels. Penasquito produced 2.1 million ounces of attributable silver in Q3, up 17% from last year, primarily driven by higher throughput and partially offset by lower grades as mining transitioned back into the Penasco pit, which contains lower silver grades relative to Chile Colorado. In the third quarter, Blackwater produced 6,400 ounces of attributable GEOs supported by higher-than-expected throughput and grades. Production for the year is expected to be weighted to the fourth quarter with higher mill throughput rates and feed grades expected compared to Q3 2025. Artemis has also announced a 33% increase to Phase 1 processing plant capacity, raising the nameplate from 6 million tonnes per annum to 8 million tonnes per annum with a targeted completion date by the end of 2026. In addition, Artemis is nearing completion of front-end engineering and design work for an optimized and accelerated Phase 2 expansion with an investment decision expected before year-end. In Q3, Almina restarted production of the zinc and lead concentrates at the Aljustrel mine, resulting in the resumption of attributable silver production to the company. During the quarter, Goose transitioned from commissioning to commercial production, which was announced on October 6. As reported by B2Gold, open pit and underground mining rates at the Umwelt deposit have continued to meet or exceed expectations during the 30-day commercial production period. B2Gold has also reported that gold recoveries have been in line with expectations and are expected to average higher than 90% through Q4 of 2025. Wheaton's production outlook for 2025 remains unchanged with -- and we continue to believe that we are well on track to achieve our annual production guidance of 600,000 to 670,000 GEOs. At Salobo, attributable production is expected to remain steady through the remainder of the year, supported by solid mining rates and consistent plant performance through Salobo I, II and III. At Penasquito, attributable production is forecast to be in line with budget and slightly down from Q3 due to steady mill performance and planned mine sequencing within the Penasco pit. At Antamina, attributable production is anticipated to strengthen in Q4 as the mine continues processing a higher portion of copper zinc ore. As mentioned by Randy, we remain confident that our catalyst-rich year is progressing as expected, with initial contributions from Mineral Park, Platreef and Hemlo still forecast by the end of 2025. That concludes the operations overview. And with that, I will turn the call over to Vincent. Vincent Lau: Thank you. As detailed by Wes, production in Q3 was 173,000 GEOs, a 22% increase from last year due mainly to strong production from Salobo and Antamina, coupled with the commencement of production at Blackwater. Sales volumes were 138,000 GEOs, an increase of 13% from last year, driven by strong production from the second quarter, partially offset by a buildup of produced but not yet delivered or PBND, due to timing differences between production and sales. At the end of Q3, the PBND balance was approximately 152,000 GEOs, which is about 2.9 months of payable production. We expect PBND levels to stay at the higher end of our forecasted range of 2 to 3 months for the remainder of 2025, partly due to the ramp-up of new mines forecast in Q4. Strong commodity prices, coupled with solid production led to record quarterly revenue of $476 million, an increase of 55% compared to last year. This increase was driven mainly by a 37% increase in commodity prices and a 13% increase in sales volumes. 58% of this revenue came from gold, 39% from silver and the rest from palladium and cobalt. With silver recently outpacing gold and reaching record highs, our substantial silver exposure sets us apart from our peers and positions us well to benefit from the current pricing momentum. Net earnings increased by 138% from the prior year to $367 million, while adjusted net earnings increased by 84% to $281 million. Operating cash flow increased to $383 million, a 51% increase from last year. These gains outpaced the increase in gold and silver prices during the same period, highlighting the leverage from fixed per ounce production payments, which made up 76% of our revenue. During the quarter, we made total upfront cash payments for streams of $250 million, including $156 million for Koné, $50 million for Fenix and $44 million for Kurmuk as our portfolio of development assets continued to advance toward production. During the quarter, CMOC exercised its 1/3 buyback option under the Cangrejos PMPA in exchange for a $102 million cash payment, resulting in a gain of $86 million and delivering an impressive pretax IRR of 185% to Wheaton. Overall, net cash inflows amounted to $151 million in the quarter, resulting in a cash balance of approximately $1.2 billion at September 30. For the Hemlo stream, we expect to make the entire $300 million upfront payment at deal close in Q4 2025 and begin recording production immediately thereafter. For the Spring Valley stream, the total upfront payment of $670 million will be paid in installments as various conditions are satisfied. This structure reflects our disciplined approach to providing funding throughout construction while ensuring the project remains adequately financed and on track at each stage. When these 2 streams are added to our existing stream funding commitments, we expect to disburse approximately $2.5 billion in upfront payments by the end of 2029. This reflects growth that we have seeded but not yet funded and demonstrates a highly efficient use of our capital. With $1.2 billion in cash and expected annual operating cash flows of $2.5 billion over the next 5 years, we currently expect to fund these commitments without using debt. In addition, our fully undrawn $2 billion revolving credit facility, together with a $500 million accordion provides exceptional financial flexibility and positions us with the strongest liquidity profile amongst our peers to pursue additional accretive opportunities. This concludes the financial summary. I'll now hand things over to Neil to walk through the details of Hemlo and Spring Valley streams. Neil Burns: Thanks, Vincent. It's been a very busy few months for the corporate development team, and I'm delighted to provide an overview of our 2 most recent deal announcements, which further reinforce Wheaton's already sector-leading growth profile. On September 10, Wheaton entered into a financing commitment with Carcetti Capital Corporation to support its proposed acquisition of the Hemlo mine. Upon deal close, which is anticipated in the fourth quarter, Carcetti intends to change its name to Hemlo Mining Corporation or HMC. Wheaton's initial financing commitments included a gold stream of up to $400 million. However, following the strong success of its recent equity raise, which Wheaton supported with a lead order of $30 million, HMC has indicated its intention to proceed with a $300 million amount. In this scenario, Wheaton expects to receive 10.13% of payable gold until a total of 136,000 ounces have been delivered, after which Wheaton will receive 6.75% of the payable gold until an additional 118,000 ounces have been delivered, after which Wheaton will receive 4.5% of payable gold for the remaining life of the mine. These amounts would be adjusted proportionally if HMC were to elect a different stream amount. In return, Wheaton will make ongoing payments with gold ounces delivered equal to 20% of the spot price. Each of these drop-down thresholds will be subject to an adjustment if there are delays in deliveries relative to an agreed schedule commencing in 2033. If deliveries fall behind an agreed schedule by 10,000 ounces or more, the stream percentage will be increased by 5% until deliveries catch up in a mechanism that's aimed to mitigate timing risk. Assuming that HMC elects an upfront payment amount of $300 million, attributable gold production is forecast to average over 14,000 ounces of gold per year for the first 10 years of production and over 10,000 ounces per year for the life of the mine. Hemlo presents an opportunity -- a unique opportunity to add immediate [ attributable ] gold ounces from a politically stable jurisdiction backed by a long history of production and a very capable operating team. We are proud to support HMC in its acquisition of a mine that has long been considered a cornerstone in Canada's mining industry while also continuing to contribute to the momentum across the sector. Just yesterday, you will have seen Wheaton announced gold stream on the Spring Valley project located in Nevada and owned by Waterton Gold for cash consideration of $670 million. This represents a compelling opportunity to secure a significant gold stream while supporting an existing partner in the development of a high-quality, low-cost gold mine located in a prolific mining jurisdiction. Under the agreement, Wheaton will receive 8% of the payable gold until 300,000 ounces have been delivered, after which Wheaton will receive 6% of the payable gold for the remaining life of mine. In return, Wheaton will make ongoing payments for the ounces delivered equal to 20% of the spot price until the uncredited deposit has been fully reduced and 22% of the spot thereafter. Wheaton will also provide a $150 million cost overrun facility to provide further capacity to a project with an already conservative capital estimate. Attributable gold production is forecast to average 29,000 ounces of gold per year for the first 5 years of production and over 25,000 ounces of gold per year for the first 10 years, first production expected in 2028. This production profile reflects an optimized scenario that incorporates updated mineral reserves and resource estimates beyond the feasibility, which was published earlier this year. Located in a proven mining district, Spring Valley comprises an extensive land package of over 30,000 acres, very little of which has been explored. In fact, mining activities will occur on concessions, representing less than 5% of the total land package, leaving an opportunity for mine life extension with future exploration success. With its strong exploration potential, strategic location, proven leadership team, we believe Spring Valley aligns perfectly with our commitment to investing into high-quality assets in stable jurisdictions. We're excited to deepen our relationship with Waterton as they look to unlock the full potential of this asset. With that, I'll now hand the call back over to Randy. Randy Smallwood: Thank you, Neil. In summary, Wheaton delivered another strong quarter marked by several key achievements. We delivered solid revenue, earnings and cash flow, resulting in record year-to-date performance. We made notable progress on our near-term growth strategy with Aljustrel resuming production of its zinc lead concentrates and the ramp-up of production at both Blackwater and Goose, reflecting the continued momentum of our catalyst-rich year. Our growth profile was further derisked as construction progressed across key development projects, including Mineral Park, Platreef, Fenix, El Domo, Kurmuk and Koné. In addition, joint venture agreements were announced for both Copper World and Santo Domingo, further derisking these projects. We also announced 2 accretive precious metal streaming transactions located in low-risk jurisdictions. First, on the currently operating Hemlo mine located in Ontario and just yesterday on Waterton Spring Valley project in Nevada. We believe our 100% streaming revenue model provides significantly greater leverage to rising commodity prices, while keeping us insulated from inflationary cost pressures, resulting in some of the highest margins in the precious metal space. We take pride in being the founders of the streaming model, an optimal alternative to traditional equity financing. Streaming provides upfront capital at a fair valuation without further share dilution, resulting in a dramatically improved return on invested capital and superior long-term value creation for the shareholders of our mining partners. Our balance sheet remains robust, providing ample flexibility to pursue well-structured, accretive and high-quality streaming opportunities. And finally, we take pride in our community investment leadership amongst precious metal streamers and have always and will always support both our partners and the communities where we live and operate. With that, I would like to open up the call for questions. Operator? Operator: [Operator Instructions] Your first question is from Will Dalby from Berenberg. William Dalby: Yes. I have 2 questions. Firstly, on future growth. You've got a really compelling growth profile, but I'm just sort of wondering how you think your volume growth stacks up versus peers, both on an absolute and a risk-adjusted basis, sort of thinking in particular about some peers whose growth relies on restarts or on higher-risk jurisdictions. I'd be very interested to hear how you see your position in that context. Haytham Hodaly: Thank you. It's Haytham. Will, thank you for the question. From an absolute perspective and a relative perspective, I'll tell you, we've got growth close to 250,000 ounces a year between now and 2029. And that is certain growth, that's growth that's actually been permitted and a majority of that, I would say, almost more than 90% of that's actually in construction and heading towards development towards production. In the next 2 to 3 years, there's 2 projects starting this year, a couple starting next year and another 1 or 2 starting over the next couple of years after that. So it's a very, very strong growth profile. In terms of the actual number of ounces, we're generating close to an additional 250,000 ounces, which is probably almost double what our next closest peer is actually generating in terms of growth over the same period. So we're very excited about that. And that excludes a lot of the growth that you're seeing here with these latest transactions as well, where with the Hemlo transaction, with the Waterton transaction, but not to mention a significant number of our peers have also announced expansions, optimizations, et cetera, between now and then, which are also not included in that number. So we're very optimistic and very excited about going forward. William Dalby: Very clear. And then just a second question. If we rewind a bit, say, 10 years ago, your capital was largely going into repairing balance sheets. 5 years ago, it was mostly sort of funding gold projects. Looking ahead, do you see the next 5 years is more about deploying capital into larger-scale copper projects given the current supply shortage there and the need for new mines to come online? Haytham Hodaly: Yes, definitely. I mean the large porphyry copper gold systems that we're seeing in the high sulfidation epithermal systems that we're seeing through some of the diversified base metal producers, those are definitely an area of future growth as they require billions of capital, not millions or hundreds of millions, but actually billions of capital. So streaming naturally should play and likely will play a part in the overall financing packages. There are still lots of opportunities we're seeing outside of that space as well, though, Will, I would say, with commodity prices where they're at, specifically, you look at silver as an example. Silver has had a nice run that is prompting many to consider what their silver is worth within their existing portfolio. So for the first time in a long time, we're seeing more -- not more silver, but are we see more silver opportunities, not more than gold, but we're seeing additional silver opportunities that we previously hadn't come to the market. So we're very excited about that as well. Operator: Your next question is from Josh Wolfson from RBC Capital Markets. Joshua Wolfson: I had a question first on Spring Valley. Some of the technical information out there is a bit light. I know there's a 2014 43-101 and then a feasibility study earlier this year, at least a summary of which I noticed that Wheaton provided some of its own interpretations of what the mine will look like. I guess just maybe drilling down on some of the assumptions, would Wheaton be able to provide some perspective on how it sees the asset in terms of what the underlying assumptions or changes in its perspective was versus the updated feasibility study? And also what we should think about recoveries? I noticed there's a big difference between the original 2014 report and what's -- what was issued earlier this year. Neil Burns: Sure, Josh. It's Neil Burns here. Waterton did put out a feasibility study earlier this year, which was done not surprisingly with much lower gold prices. I believe the reserve pit was [ done ] at $1,700 gold. If you look on Salobo's website, they've updated their R&R. And I believe the reserves are at $1,800 and the resources perhaps at $2,200. They do model the recoveries, and they have updated those. Those are detailed in the footnotes of those R&R tables, and they do them separately by the Redox state of oxide transition and sulfide naturally with decreasing recoveries as you get into the sulfides. And they split it between the ROM and the crush. So I think that's a spot where you can get some additional color. And that was just updated, I believe, earlier this week. Randy Smallwood: Josh, I mean, Spring Valley is so similar to hundreds of different operations down in Nevada, right? You're looking at a heap leach operation that's going to have crushed components. It's always going to be focused on the highest grade portion of whatever is coming out of the pit and then run of mine. And one of the areas of upside that I see in this -- that we see in this asset is the fact that, as Neil mentioned, the pricing for the reserves and even the resources are about half of what the spot price is right now. And the waste dump is about the same distance away from the pit as the heat pad. And so the ROM processing capacity, the decisions as to where that truck dumps that ore as it has lower grade material, but it's still economic because the spot price is of $4,000. I think there's incredible upside on this asset to even see more production than what's being forecast by Waterton. Just in terms of operational flexibility, it's a simple project. It's -- the highest grade of the day will go through the crusher and everything else. It will be a choice as to whether you put it into a waste dump or put it into a ROM heap leach pad and push it forward. So I just -- they're pretty simple Nevada. There's lots of capacity for heap. It's a big flat area just to the east of the ore body that has all sorts of expansion capacity. And so it's a classic Nevada operation that we see as it's going to be going for [indiscernible]. Just we're excited about what the real potential is here. And then the expiration over and above it, as Neil highlighted during the talk, so little of this property has actually been poked at. It's right north of the Rochester operation, which continues to shine for core. And of course, Florida Canyon is to the north. And so it's right in a corridor that's got a lot of mining history. And we do think that this asset is well set up to deliver. Joshua Wolfson: Got it. One more question. I know we've talked about some of the Nevada premiums that are out there. This might apply in that situation. When you look at the value opportunity here in the valuation paid, how would you assess this in comparison to some of the public consolidation opportunities that could be out there depending on prices, obviously? Randy Smallwood: Yes. I mean, consolidation, when I look at -- I mean the biggest comment I'd have on the consolidation side is that what we found is that a lot of the smaller companies have had to give up structural weaknesses, structural flaws in their agreements to try and get scale. And we've seen some pretty large-sized examples of that recently with deals scale of $1 billion with 0 security backing it. And so we just see issues with the value of some of those assets within the M&A side. And so as we like to say, we're -- we think there's no stream as good as a Wheaton stream. We invented the model and we continue to try and perfect it. I think Hemlo was a real step up in terms of how to actually deliver value not only to our shareholders, but to our partners in terms of support and strength all the way across and trying to find that great balance of satisfying both sides of the spectrum. And so the acquisition side, most of those companies do trade at a bit of a premium to NAV. And we -- whereas when it comes to going out and looking at new assets, we can find leasings at NAV or less, slightly less than that. It's still attractive compared to an equity financing or to other alternative forms of financing for these companies that are looking for capital. So as Haytham and now Neil, the team has done a great job of continuing to put the capital back to work, looking at opportunities like this. And I think Spring Valley is a great example of that. It's a lower-risk jurisdiction. It's our first real footprint into Nevada, which is a jurisdiction we've looked at for a long time, but we have seen some incredibly expensive transactions in our eyes -- take place in Nevada. This one we feel is attractively priced, especially when we go over the upside that we -- that I just finished describing to you. And so we're pretty excited about having this one. And we like this path. We're always looking at the M&A side. And if we do see some opportunities in that space that make sense, we would act. But to date, we're doing -- we find better value in just sourcing new opportunities. We are blessed with an industry that always needs capital. So that's our business, supplying capital. Operator: Your next question is from Tanya Jakusconek from Scotiabank. Tanya Jakusconek: Some of them have been answered already. Maybe, Haytham, for you, as I think about the environment, the opportunities out there, one of my questions was on silver. I just -- I think you touched it a little bit, you're seeing more on the silver side than previously. Are we seeing some big silver opportunities? Haytham Hodaly: That's interesting, Tanya. It's funny you asked that question. There are some larger silver opportunities that are out there, but we're being very proactive to go out and find those. With that, I'm going to turn the mic over to Neil to just tell you a little bit about the current environment for growth. Neil Burns: Thanks, Haytham. Tanya, in terms of volume, we continue to be as active as we've ever been. We have literally over a dozen active opportunities in the pipeline. From a stage perspective, it's interesting because we've seen an increase in operating opportunities, which is great to see. It's something we hadn't seen for a number of years. And it's also been driven by an increase in M&A activities with the major selling off some noncore assets. Metal mix, which you already touched on, is probably 60-40 gold, silver, I would say, at the time -- at this time. In terms of size, the majority are in the $200 million to $300 million range. But we also have a couple of exciting $1 billion-plus opportunities, but those are a bit longer lead time. Randy Smallwood: The one thing, Tanya, that I would add on the silver side, your question is specifically on silver. Keep in mind that most silver is produced as a byproduct, actually from base metal operations. And the one thing that we're hopeful is that with the strength that we've seen in silver prices of late that perhaps some of those base metal operators would like to crystallize some of that value and help strengthen their own balance sheets and fund their own growth. And so that does fall into an opportunity set with this strength that we've seen where we may be able to pick up some, as Neil said, some operating access to silver streams on operating assets. So we're out there pounding the pavement. And with these kind of silver prices, there's definitely an interest in terms of learning more. So stay tuned. Tanya Jakusconek: Yes. It's just I've been hearing more on the silver side. And so I just wondered if -- and I've heard of some of the big ones like $1 billion silver deals, and I just wondered if those were something that you were focused on. Randy Smallwood: Yes. You know me well enough, Tanya, that I've always liked silver a little bit more than gold. So if there's opportunities in the space, we're definitely trying to track that down. Neil and the team are doing a great job on that front. Tanya Jakusconek: And when you mentioned the $200 million to $300 million range, were those mainly on the gold opportunities? Neil Burns: A mixture, actually. There is -- I would say, probably an even mixture between gold and silver within those $200 million to $300 million opportunities. Tanya Jakusconek: Okay. And are you also seeing because I am hearing, and I don't know if that's the same, that's there's probably more assets for sale within the senior gold companies than the market expects. Like yes, we've seen Newmont sell out their Newcrest assets and Barrick's cleaned up their portfolio somewhat. But I'm hearing that there's also more coming out of the senior space than expected. Is that what you're seeing as well? Haytham Hodaly: Maybe I'll answer that, Tanya, just with regards to divestitures from -- of noncore assets from senior producers. I will say that we did see a lot of that over the last 12 to 18 months, for sure. Right now, it has declined quite a bit. But obviously, with changing management teams, changing focus of various companies, we do expect that to start again. We haven't seen a lot of it yet. Tanya Jakusconek: Okay. So you're expecting more of that to come? Haytham Hodaly: We hope so. We'd love to be able to support another acquirer of some of these high-quality assets. Keep in mind, a lot of these assets when they were within these senior companies, they're being valued at a reserve base of, call it, Neil mentioned one $1,700, Barrick was doing theirs at $1,400 previously. You start using numbers of $2,100, $2,500, you go from a 6-year reserve life to a 20-year reserve life. So I think a lot of that is probably something we're going to see here in the near term. Tanya Jakusconek: And just your Spring Valley acquisition, if you assume that all of the resources get converted and you can mine out 4 million ounces mineable, let's say, would it be fair to say at spot that you'd be in that sort of 4%, 5% internal rate of return, like in line with the cost of capital? Haytham Hodaly: Well, based on our analysis, I can tell you our numbers are higher than that based on exploration upside that we've seen, based on expansions in the existing pit dimensions, based on the higher/lower cutoff grades, we are getting a higher rate than what you're quoting there. I will leave it to you to figure out what your actual rate is based on how many years of additional exploration upside you want to add on top of that, but we're pretty optimistic that eventually this will get to double digit. Randy Smallwood: I will add, Tanya, that the resource is still limited. It's -- there's plenty of exploration potential, wide open mineralization. And so it's the drill data that's actually the limiting factor on the resource, not the economics. Tanya Jakusconek: Yes. No, no. I mean I just looked at it on a 4 million-ounce mineable scenario. Okay... Randy Smallwood: I've seen enough of it down there to think that there's probably even more than that. Tanya Jakusconek: Yes. As I said, it's in the good camp. So those camps go on for a while. Maybe if I could ask just a modeling question. I saw the updated DD&A in the portfolio. Can someone just remind or reguide us on your depreciation and guidance for what you expect for 2025 and maybe 2026 with the new portfolio updates? Vincent Lau: Sure. Tanya, it's Vince here. We did update our depletion on a normal course. Not a big change. Antamina, we saw a bit of a drop because they had some tailings lift there. Stillwater, a little bit higher just because of the change in mine plan. But all the detailed depletion rates, we've now put into the financials and in the MD&A. So you can see exactly what has happened there and help you out on the modeling front. Tanya Jakusconek: All right. I forget what the guidance was corporately beginning of the year. But yes, I'll go back and... Vincent Lau: I think net-net, it's not going to change materially going forward. So I would roughly say it's at the same levels going forward. Tanya Jakusconek: Okay. And then my final question is maybe a reminder. I've seen a lot of the other companies sell out investment portfolios of equity interest. Can you just remind me what's left within yours? Haytham Hodaly: Yes. There's -- we've got -- I don't have the list in front of me, Tanya. I can tell you, and it's listed on -- I think, on our -- at least some of it's broken down some of the larger positions, but we have about a USD 260 million equity book right now. I can tell you, we're not looking to divest any of those positions. Those positions are all with our existing partners that are ramping up operations. And we are going to continue to be strong supporters. Eventually, there may be some liquidity events where we can actually get off our positions. But at this point in time, we're -- if nothing else, we'd be helping our partners as they need it going forward to continue to strengthen their balance sheets. Operator: Your next question is from Martin Pradier from Veritas Investment Research. Martin Pradier: In terms of Antamina, I noticed that the depreciation dropped in half almost. What happened there... Neil Burns: On depletion drop, yes. So... Martin Pradier: Yes, the depletion... Neil Burns: Thanks, Martin. Yes. So that really is, as Vincent mentioned, it's because of the tailings expansion. So right now, Antamina marks their reserves with tailings capacity. And in Q1 this year, Antamina managed to secure the permits for further expansion of the current tailings facility, and that increased the reserves dramatically, which then drops that depletion rate down. So that's the reasoning behind that. Randy Smallwood: Essentially, what happened was the tailings capacity doubled, which meant that the -- with that much -- the depletion -- that much more -- the reserve doubled because of that excess capacity because with that tailings capacity, then you could class it as a reserve. And so it's -- the resource there is very, very high geological confidence, but Antamina's approach is that it's not a reserve until it actually has permitted tailings capacity. And so the fact that it went up just meant that we had a substantive increase in reserves, which means the depletion rate drops. Martin Pradier: Okay. Perfect. I understand. And in terms of Salobo, should we expect a strong Q4? I thought that there was like a little bit higher grade in Q4. Haytham Hodaly: Salobo is reasonably flat in Q4. So we're expecting -- we've seen very strong performance through the year this year. And we were just on site at the end of September there. And really, they are planning to continue on as they have for the rest of the year here. So reasonably flat for Q4. Randy Smallwood: I think they moved forward a little bit of preventative maintenance that was scheduled in Q4 into Q3. So that should help a little bit on the Q4 side. There was a short stint in Q3. So... Operator: Your next question is from George [ Ity ] from UBS. Unknown Analyst: Nice update here again. Can I ask about the Spring Valley stream? And sorry, I joined a little bit late, so I may have missed this, but the payment profile can you remind me of the various conditions for the payment and the profile of time line, please? Haytham Hodaly: Yes, you bet. I mean, still, I would say, of the $670 million, the majority of that will go in during development. There'll be a small amount that goes in upfront, approximately, I would say, $310 million over the next -- well, close to $310 million over the next 6 to 12 months, I would say. And then the remainder will go in alongside the company's equity investment. So we put in $120 million, they put in $120 million, and we do that a couple of times until we get to the $670 million number. Randy Smallwood: It's strip fed over the construction other than a small amount ahead of construction starting just to get some equipment orders in and stuff like that, but it's trip fed over the construction, which is expected to start shortly. Unknown Analyst: Yes. Okay. No, that's great. And then just talking before about all these asset opportunities coming up, some large ones, like that $900,000 per ounce -- sorry, the [ $870,000 ] rather GEO profile by 2029. Is it fair to assume there's potentially a bit of upside here with new streams like Spring Valley given the environment is so strong right now? Do you think that [indiscernible] is a bit of... Randy Smallwood: Yes. Not only that, a lot of our existing operations and start-ups have announced accelerated plans for start-up and for expansions. We've got Blackwater moving forward with expansions. Platreef has accelerated their ramp-up in production over that 5-year period. Salobo itself also is fine-tuning in terms of trying to improve throughputs and recoveries. And so we -- even the existing portfolio without the new acquisitions has made that forecast look very conservative and gets us even closer to that 1 million ounce number sooner than later. Thank you, George, and thank you, everyone, for your time today dialing in. Our record-breaking performance over the first 9 months of this year underscores Wheaton's position as a premier low-risk choice for investors seeking exposure to gold and silver. Recent transactions in low-risk jurisdictions underscore the quality of opportunities we're pursuing. Our corporate development team continues to see strong demand for streaming as a source of capital, and we are excited about the pipeline of opportunities that lie in front of us. With our high-quality operating portfolio, 100% streaming revenue, sector-leading growth profile and unwavering commitment to sustainability, we offer shareholders with one of the most effective vehicles for investing in precious metals. We thank all of our stakeholders for their continued support as we enter this exciting period of sustained organic growth. We look forward to speaking with you all again soon. Thank you. Operator: Thank you. Ladies and gentlemen, this concludes the conference call for today. Thank you for participating. Please disconnect your lines.
Operator: Good day, everyone, and welcome to the SANUWAVE earnings call. [Operator Instructions] Please note, this call may be recorded. [Operator Instructions]. It is now my pleasure to turn the conference over to Morgan Frank, Chairman and CEO of SANUWAVE. Please go ahead. Morgan Frank: Thank you. Good morning, and welcome to the SANUWAVE's Third Quarter 2025 Earnings Call. Our Form 10-Q was filed with the SEC last night. Our earnings release was issued this morning, and our updated presentation was made available on the website in the Investors section. Please refer to that during the presentation, we really try to make it useful. Thanks. So joining in the call today is Peter Sorensen, our CFO. And after the presentation, we will open the call up to Q&A. So let me begin with the forward-looking statements and other disclosures. This call may contain forward-looking statements such as statements relating to future financial results, production expectations and plans future business development activities. Investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, many of which are beyond the company's ability to control. Description of these risks and uncertainties and other factors that could affect our financial results is included in our SEC filings. Actual results may differ materially from those projected in the forward-looking statements. The company undertakes no obligation to update any forward-looking statements. Certain percentages discussed in this call are calculated for the underlying whole dollar amounts and therefore, may not recalculate from rounded numbers used for disclosure purposes. As a reminder, our discussion today will include non-GAAP numbers. Reconciliation between our GAAP and non-GAAP results can be found in our recently filed 10-Q for the period ended September 30, 2025. All right. So now we have that out of the way, let's dig into other part. Our Q3 was an all-time record revenue quarter for SANUWAVE, up 22% versus the challenging Pigtail Python quarter last year, when a large order drove 89% year-on-year growth. The quarter was also up 13% sequentially from Q2. This brings the year-on-year growth for the first 9 months of 2025 to 39% versus the same period last year. We sold 155 UlTraMIST systems in Q3, also an all-time record and up from 124 last year, again, the Pigtail Python quarter and 116 last quarter. This took us to 1,416 units in the field, 504 of which that's 36% have been sold in the trailing 12 months. Applicator revenue was $6.8 million in the quarter, also an all-time record, up 26% year-on-year and 6% sequentially from Q2. At 59% of revenues for the quarter, this was in line with the 55% to 65% target range we have discussed on previous calls. We had 2 customers of about 5% in the quarter and 1 customer, a reseller that slightly exceeded that. No other customers exceeded 3% for the quarter. Gross margins were healthy 77.9% in the quarter, slightly down from 78.2% last quarter, but up from 75.5% a year ago. This was primarily as a result of slightly lower overall ASP for UltraMIST systems as a result of beginning to work with some larger resellers with whom we deal on a wholesale basis, where we sell systems at lower prices and allow them to mark the systems up when resold as opposed to selling at full price and paying commission. This works out about the same, maybe slightly better for us on the operating line, but it does impact gross margins a bit. This was offset by slightly higher prices on applicators and some ongoing cost reductions to the production of the UltraMIST system. The qualification of our new four-cavity mold for applicators and the new more manufacturable applicator process continues. We expect to have that process up and running for commercial production in January, though if we do really well, it could be as soon as December. But I think at this point, January is probably a better bet. The clean room and equipment are in and qualified. We just need to get through the design verification performance and shelf life testing stages. And unfortunately, things like shelf life testing are inherently time-based. We use a blended cost basis for calculating our cost of goods sold. So it will take a few quarters for this new process to show through fully. But we expect it to ultimately drive a few extra points of applicator margin as it reaches scale in the back half of 2026. So Q3 has been a productive time for SANUWAVE. We received $5 million payment for the exercise of IP licensing related to our intravascular Shockwave patent portfolio, and we refinanced our debt, reducing $27.5 million of debt, closer to $29 million with closing costs to $24 million and our interest rate from 19.5% to SOFR plus 350, which is currently about 7.63%. This placed the company on excellent financial footing and positions it well to pay down this debt from cash flow as the facility contains no prepayment penalties or fees. We also moved to our new larger headquarters back in August. And one last piece of good news based on the refi and our ongoing financial performance, I'm pleased to announce that SANUWAVE has alleviated its substantial doubt to continuous concern for at least 12 months as of this 10-Q. So moving on to the part I'm sure everybody wants to get to. The wound care market was a bit unsettled in Q3 as many practitioners seem to be taking the sort of wait-and-see attitude to what turned out to be some pretty substantial changes in the skin sub and allograft reimbursement market. These have been long mooted by CMS, and this seems to lead to a widespread taking the foot off the gas in the industry due to the uncertainty. While these changes, which were made final on Friday 31 did not affect any of our reimbursement for the 97610 code remains essentially unchanged, perhaps slightly up for 2026. It does affect many of our users and this in combination and perhaps particularly because of heightened fears about CMS audits and clawbacks in wound care led many providers to simply sort of back off a little and to use advanced wound care treatments on fewer patients at the margin. This uptick in audit and price sensitivity seems to be part and parcel to the broader CMS strategy of driving toward more on the lines of evidence-based medicine requiring more data on efficacy, product differentiation and value for money in treatment regardless of any near-term disruption, we think this is an overall positive trend for SANUWAVE and for UltraMIST, and we suspect that this is a paradigm in which our products can really thrive. It's only been a week since the final rule came out. And so it is perhaps a little early in making too many strong pronouncements about exactly how this all is going to play out. But in our experience, any certainty is better than huge uncertainty. And with the market having really no idea if reimbursement was going to be $2,500 or $500 or $127 per square centimeter in skin subs, this is simply too much variance for people to make decisions around. So now that answer is known, we expect people will rapidly adapt to this new reality and get moving. But we've had a flurry of calls this week from distributors, partners, prospective salespeople, and we believe that the weeks and months ahead will represent a profound opportunity to make some moves to improve our marketing and our sales positions. I mean you really sort of feel the market starting to crack back open again as soon as everybody knew that to which they were planning. During our September all-hands call, like I literally threw a picture of little finger from Game of Thrones and told the team, chaos is not a pit, it's a latter. And so we're in a climate. I mean while perhaps the hope that MAX disruption was behind us in the last call was a little bit optimistic, this seems like one of those moments in a market where the ones who figure out how to climb fastest can gain a lot of ground. And we are engaged currently with the most qualitatively and quantitatively promising sales funnel, I've ever seen in my tenure here. It's been a little bit frustratingly slow to move, but it feels like that may be rapidly starting to change. So this is an exciting time here and one that should be very good for SANUWAVE. With that, I'll now turn you over to Peter Sorensen, our CFO, who can walk you through the rest of our financials. Peter Sorensen: Thank you, Morgan. We had a strong third quarter at SANUWAVE with revenue reaching a new all-time quarterly record and up 22% year-over-year. This performance reflects the continued momentum of our commercial strategy and the growing demand for UltraMIST. Gross margins expanded meaningfully year-over-year, reflecting both the inherent leverage in our model and our disciplined approach to managing costs. Looking ahead, our focus remains on driving sustainable profitable growth. So with that, let's take a closer look at the financial results of the quarter. Revenue for the 3 months ended September 30, 2025, totaled $11.5 million, an increase of 22% as compared to $9.4 million for the same period of 2024. This growth was below our guidance for the quarter, but right in the midpoint of the preliminary range of results we disclosed on October 6 of $11.4 million to $11.6 million. Gross margin as a percentage of revenue for the 3 months ended September 30, 2025, came in at 77.9%, up over 240 basis points year-over-year, driven by lower UltraMIST system production costs and our strategic pricing initiatives across systems and applicators. For the 3 months ended September 30, 2025, operating income totaled $1.5 million, which is down by $0.5 million compared to the same period last year. However, operating expenses for the 3 months ended September 30, 2025, amounted to $7.5 million compared to $5.1 million for the same period last year, an increase of $2.4 million. This change was largely driven by an increase in noncash stock-based compensation expense of $1.4 million versus Q3 2024, in which there was no stock comp expense. Increased headcount expenses of $0.8 million, increased marketing expenses of $0.2 million, increased legal expenses of $0.2 million and R&D increased expenses of $0.1 million, partially offset by decreased commission expense of $0.8 million. Net income for the 3 months ended September 30, 2025, was $10.3 million compared to net loss of $20.7 million for the same period in 2024, an increase of $31 million. The increase in net income was primarily driven by the change in fair value of derivative liabilities, which resulted in a noncash gain of $6.1 million in Q3 2025 versus $18.8 million loss in Q3 2024, representing a $25 million year-over-year variance. In addition, we had a $5 million gain related to a patent sale as noted on our previous 8-K and in our most recent 10-Q. We also had lower interest expense of $1.6 million in Q3 2025, primarily due to the conversion of our previous outstanding notes into common stock in Q4 2024 as part of the note and warrant exchange. These impacts were partially offset by nonrecurring costs of $0.5 million related to the repayment of our senior secured debt. EBITDA for the 3 months ended September 30, 2025, was $12.4 million. Adjusted EBITDA was $3.5 million versus $2.1 million for the same period last year, an improvement of $1.3 million year-over-year. Total current assets amounted to $22.6 million as of September 30, 2025, versus $18.4 million as of December 31, 2024. Cash totaled $9.6 million as of September 30, 2025. We're grateful for the continued trust and support of our stakeholders. Q3 2025 was another excellent quarter for SANUWAVE, and we're pleased with the progress we've achieved across our business. As we head into the final quarter of the year, we remain committed to executing with discipline, driving growth and creating long-term value for our stockholders. With that, I'll turn the call back over to Morgan. Morgan Frank: Thanks, Peter. So moving on to guidance. As we stated in our press release, we are guiding to $13 million to $14 million in Q3 revenues, up 26% to 36% year-on-year and also representing -- which would represent another all-time high revenue quarter for SANUWAVE. We're starting to see significant cause for optimism now that the market concern around reimbursement in wound is alleviating because we now finally have some certainty rather than vast uncertainty. Obviously, it's only been a few days since the final rule was announced. But as I said earlier, we already feel some movement beginning and some of the log jams breaking free. So as ever, I want to express my gratitude to the SANUWAVE team for all the hard work and their commitment and trust. I'd also like to thank them for routinely following for my the highest reward for good work is more work, stick and pretending that, that's insightful and motivational. Well done, guys, and thank you. So with that, thanks, everyone, and we will open the call up to questions. Operator: [Operator Instructions] We'll take our first question from Ian Cassel with IFCM. Ian Cassel: I just had a couple of questions, mainly around the reseller model that seems to be picking up some steam. Maybe the first question, though, is due to the disruption in skin substitutes, I was curious if the resellers or distributors of those skin substitutes -- now the revenues are probably down 90% versus last year. And I'm curious if you're seeing any inbound interest from those resellers who are now kind of scrambling to pick up additional products to fill that revenue gap in their businesses. Morgan Frank: Okay. So I mean the short answer to that question is, yes. It feels like there is a substantial realignment beginning in the space. And obviously, this is a very significant change to a large product category. We've definitely seen some inbound interest. I think a bunch of it started even well before the rule came out and was sort of -- and some were sort of predicating the -- well, maybe we'd be interested in picking this up depending on what happens. I think it's a little bit premature to say, well, okay, this is going to result in a ton of new deals. But what I will say is distribution is an important part of this space. A lot of -- some of these distributors are very sophisticated. They have good account control. They do good work with the providers to help them even down to the level of selecting patients and determining care. It's something that we've been sort of stripping down and rebuilding this year. Our average sales through distributors and resellers was about 36% in 2024. In this quarter, it was about 25%. So that's up a little from last quarter, but still kind of not to levels where it used to be. And so we're kind of assessing what the right level of -- we're sort of assessing what the right mix for us is going to be. Ian Cassel: And how do you kind of blend that distributor channel with your direct sales force? How do you think about that? Morgan Frank: Yes. It's always -- that's always sort of the tricky bit. And we're doing it through sort of a deconflicting structure where if our reps are chasing something, it's theirs. And we don't -- what we want to avoid is are the 2 channels stepping on each other. And so it's sort of -- if a distributor wants to go after a customer, they'll come to us and say, "Hey, we think this is an interesting prospect. And we'll deconflict it through our internal -- we'll deconflict it through our internal list and say, yes, we don't have anybody who's working on that. Go ahead. Ian Cassel: And maybe last question on the reseller and distributor model, how do you handle inventory management? Are they kind of want to be stuffing the channel, so to speak, where they're buying 9 months' worth of inventory? How do you think about those inventory turns? Morgan Frank: Yes. Yes, yes. That's a great question. And that's something we've given a lot of thought to and something we worry about a lot. When you're dealing with stocking distributors, you always sort of run this risk of -- do you have too much inventory in the channel and will you wind up kind of choking on it? We've been trying to be sort of measured with this and not putting too much inventory into the channel to really avoid that problem. I think the first major distributor we dealt with on a stocking basis this year was back kind of towards the end of Q2. They took about 15 systems from us into inventory. And at the time, I was actually pretty worried about that. They came back 6 weeks later and said, yes, we've sold them. Can we have 10 more. Took 10 more and then went out and sold those again in another 8 weeks. And so I think if we can kind of keep those turns in the sort of 8 to -- if we can keep the inventory turns there in the sort of 8 to 12 weeks range, I think that's healthy. I think once we start seeing it bump up against that kind of like 10 to 12 area, we're going to start to get nervous for any given distributor. And then to look at them overall, obviously, I think we'd like to keep it more towards the sort of range. Operator: Our next question comes from Kyle Bauser with ROTH Capital Partners. Kyle Bauser: Maybe just following up a little bit on that. What's the latest rep headcount? Morgan Frank: Rep headcount is still 13, same as it was last quarter. We've rejiggered it a little bit. We changed the shape of a couple of territories, moved it to 12 national territories. And now have 2 full-time kind of national key account managers, but overall count is the same. Kyle Bauser: Got it. And how are you feeling about that heading into '26, you had a pretty good number in addition to having the distributors, as you mentioned? Morgan Frank: Yes. I think, obviously, given a lot of what's happening in the industry right now, as you can imagine, there are resumes. So I think we're going to kind of do this on a -- we're doing this on sort of a -- let's see what we see basis. I mean, obviously, we plan to grow this rep headcount as we go forward. Exactly how we do it right now is something that we are -- doing a lot of work to assess internally. Do we want to start bringing in some reps to just manage distributors? Do we want more key account reps? Do we want more national territories? Do we want to bring in a set of more kind of inside sales folks to either just handle customers or to just set appointments, right? So that we're having -- we can get our closers more time closing. Like that's really -- those are really the discussions we're having internally at the moment. I think we'll be continuing to add to the sales force on kind of a measured basis. Kyle Bauser: Got it. Yes. Makes sense. And just curious what sort of annual revenue some of your more productive reps are doing and maybe also kind of what's the reasonable run rate for reps to achieve? Morgan Frank: Yes. I mean it's -- to some extent, that's always going to be a little bit territory specific, right? So -- and a function of how well developed a territory is. I mean we had a rep exceed $2 million of sales in Q3. We had a couple of others over $1 million. And so as these ramp up, getting to this kind of $4 million to $6 million annual sales rate, I mean, it doesn't -- it's certainly not impossible. I think given the difference -- we have a couple of markets that are more developed than others. And so it's a question of kind of how long does it take to get an undeveloped market to look more like a developed market. But ultimately, I mean, rep productivity here can be very high. Kyle Bauser: Got it. And internationally, were any of the 155 systems sold were any of those into international markets in the quarter? Morgan Frank: No. Kyle Bauser: Okay. And maybe just lastly, on that point, how are you thinking about the international opportunity for UltraMIST? Would you ever I know you've got a lot to focus on in the U.S., but just curious if you'd be interested in looking to take on distribution partners in OES market. Morgan Frank: I mean it's certainly something we'd look at. It's always -- I mean, we sort of refer to this internally as the Golden retriever and a tennis ball factory problem, where you like what are you going to chase. And I think at the moment, there's so much domestic opportunity that it just -- this hasn't really gotten top of the pile. I mean if there were a really compelling distributor who could basically handle all of this without a whole lot of intervention from us in a market where there was where there was an easy regulatory pathway, I mean, I suppose we'd look at it, but it just isn't something we've spent a lot of cycle time on yet. Operator: Our next question comes from Carl Byrnes with Northland Capital Markets. Carl Byrnes: Again, considering the CMS fixed rate 127, 28 per square centimeter, would you expect that the private physician practices would look to UltraMIST as an additional line of revenue? And on that, I mean, how long do you think that takes to play out? And then I have a follow-up as well. Morgan Frank: I mean short answer is yes, right? I mean I think physicians are often maximizing 2 things, right? They're maximizing their desire to provide good patient care and for the patients to get better. And obviously, they're running business. And so to the extent that they find both revenue and care gaps, this becomes a very interesting option. I mean by -- on a relative basis, the attractiveness of UltraMIST seems to have increased a great deal, particularly from a -- if your goal is revenue maximization. Exactly how long that takes to play through is an interesting question. I'm not really sure how to answer it with any like rigor. It seems to vary a great deal by folks. I mean people just -- people respond to new realities with differing time frames. We've certainly seen a change in inbound. And we've certainly seen -- I mean there were -- we've certainly seen people who are sort of like on the fence saying, well, maybe let's see suddenly get more interested. And so I think there's definitely going to be some of that. Exactly how it plays out is complex. Carl Byrnes: Got it. And then just one follow-up question. Looking at mobile wound care, what do you think happens there given the CMS change? And kind of how does that affect your business? What percent of your business is tied into the mobile space? Morgan Frank: I think -- I mean, the mobile is experiencing a lot of the same issues as others. And they are widely divergent practices within mobile. And we've been doing some looking at this and kind of tearing into the CMS data just to get a look at what we think the interrelationships are between skin subs and UltraMIST. One of the things we discovered is that 55% of the practitioners who bill UltraMIST don't build any -- haven't built any skin sub at all in the last 4 years. So of the 45% of do, most are -- a lot of times, it's not the same patient or it's -- you can't build the 2 in the same visit. So from a standpoint of like what's mobile going to do, I think some of the folks who were most aggressively using skin subs may see their practices either change dramatically or terminate. But I think -- I mean, just speaking hypothetically, if my goal as a provider were to do the maximum number of skin sub applications, I wouldn't be using UltraMIST, right, because the wound would heal more quickly and you would wind up doing fewer applications. And so I think there's been sort of an inherent sorting here where the folks most interested in doing the most skin sub have also tended to be the folks who were not using a lot of UltraMIST. Operator: Our next question comes from Alex Silverman with AWM Investments. Alex Silverman: Two questions. One, can you give us a sense of what kind of toeholds or trialing you're doing in some of the very, very large wound centers? And then I'll ask my second question after. Morgan Frank: Well, certainly an interesting question. I mean we've -- we're starting to get -- I mean, we're starting to spread through a couple of hospital networks in particular or at least these are things that have been going on us, I think we could talk about them. One in particular is one of the larger hospital networks in the U.S. We've been in at a couple of their flagship facilities now for several months. It's gone really well. I think they are using the product in a similar fashion to some other large hospital chains, predominantly around treating half eyes and incipient half eyes -- sorry, that's hospital-acquired pressure injury. Essentially, you lay on your hip for your back too long, it turns into a pressure ulcer in a patient with suppressed immune system or health, those can be very, very serious, even life-threatening. And so we're starting to spread there. We're starting to work on how do we become a -- we were added to their approved vendor list. And so they're kind of 150-ish hospitals and 2,200 facilities are now free to buy. We're definitely working on some other large opportunities. Nothing I can really talk about by name here right now, but give you a little time on that, and I may have something for you. Alex Silverman: Okay. Great. And then second question, have you guys thought about how to get around the capital approval process, which can be so painful at some of these bigger buyers, the hospitals and the large wound care centers that have just painful processes? Morgan Frank: We have. In fact, it's something we've been giving a lot of thought to. And obviously, starting to have a bit of a balance sheet helps. The -- as we look at a -- hospitals, in particular, tend to have very difficult capital cycles and their capital budgets are highly segregated from their operating budgets. And so I mean, you walk into a hospital, you'll see tracking codes like even on computer monitors because those are leased, right? Like that's how aggressive the -- like the cap budgets are protected there. And so I think moving to something along the lines of a rental model at prices that make sense for both sides, particularly if you could tie it to some sort of usage minimums makes a lot of sense. Some hospitals don't seem to care. I mean we've seen a number that are just like great, let us buy the thing. But there are many others for whom the cap budgets are tight. So it seems to vary a lot hospital to hospital. But yes, we're definitely starting to consider the -- can we rent these to hospitals that we believe will be sort of high-use environments, like that can be a great model for us. Alex Silverman: I assume with a, I don't know, $5,000-ish cost for a system -- the payback of placing one of these is -- could be a pretty quick payback for you. Morgan Frank: Obviously, depending on -- I'm sure you can do the math, right, if we price it at various points. But the real -- I mean, obviously, the real fun for us is if you're selling -- if you're getting people to use 3, 4 cases of applicators a month, the value of the consumables rapidly exceeds the price of the capital sale. Operator: [Operator Instructions] We'll take a question from Andrew Rem with Odinson Partners. Andrew Rem: I just wanted to go back to this -- the reseller. And is there a way that you guys can kind of bifurcate the market where maybe direct you go to large accounts, heavy users and use resellers to get to kind of the fragmented small customers that would be less efficient to service on a direct basis? Morgan Frank: Yes. So you're speaking very much to an internal discussion we have frequently. We refer to them internally as Bunnies, Dear, Elephants and Wales. And the -- it's hard to have high-priced reps chasing bunnies. And so -- and a lot of the distributors know a lot of the smaller customers really well. So it's certainly something we're looking at and whether that ultimate -- whether that ultimately turns out to be the solution, it's certainly possible. It's an idea we're exploring. I think we're just trying to get some experience with it and see how it works. I mean we made a lot of changes in our distribution network and sort of tried to do -- try to move to a more engaged, more hands-on, more value-add channel. And so we're still getting some experience with it and seeing how it works and what it's good at and how to how to integrate it with our sales force most productively. But yes, I mean, the idea you discussed is certainly one we've been looking at. Andrew Rem: And would applicator sales also run through the reseller? Or would you just use them to sell systems? Morgan Frank: It's going to be -- I mean, ultimately, it depends on the distributor or reseller. Like from -- many of the folks we're starting to talk to now have much more sophisticated ERP systems and systems that can integrate with our own. So what we're really looking for is to make sure we understand exactly how many applicators would be in the channel and exactly what the flow through to end customers winds up being, we're very sensitive to that attach rate, like how many cases of applicators per week is a given user consuming. And so to the extent that we can sustain adequate visibility to that, we can allow sort of applicators into the channel. I mean, predominantly, what we've done with these distributors is at least in the past, is to -- they'll set up the customer. That customer will then come and order applicators from our portal. So we have a direct relationship with them. We're directly drop shipping to them. And then we'll pay commission to a distributor based on those applicators. But we're starting to look more at the -- many of these folks just want to do stocking entirely themselves. The question just becomes, can we sufficiently integrate it that it makes sense for both sides. Andrew Rem: And then maybe lastly, I'm not sure if this is a competitive, if it is, you don't need to answer. But it does seem like the current environment lends itself to leverage from -- for you guys in terms of negotiating with resellers. So -- and maybe that speaks a little bit to your increased sense of urgency, but maybe can you comment on that at all? Morgan Frank: I don't know that I really want to speak to something like leverage. We're -- this is one of those moments where there's kind of a sorting hat going on. And I think like some of the key salience in this market just changed and people are adapting to this new situation. And I think that provides a lot of opportunity. I think it's made a lot of people more interested in engaging with SANUWAVE. We've had a lot of inbound interest. And it feels like this is a great time to -- it feels like this is a great time to kind of make some new friends. Operator: It appears we have no further questions at this time. I'll turn the program back to the speakers for any additional or closing remarks. Morgan Frank: Well, thanks, everyone. I appreciate your making the time, first thing on a Friday morning, and we look forward to updating you further in the future. Thanks again. Operator: This does conclude today's program. Thank you for your participation, and you may disconnect at anytime.
Operator: Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Koppers' Third Quarter 2025 Earnings Conference Call and Webcast. [Operator Instructions] Please note that this event is being recorded. I will now turn the call over to Quynh McGuire. Please go ahead. Quynh McGuire: Thanks, and good morning. I'm Quynh McGuire, Vice President of Investor Relations. Welcome to our third quarter 2025 earnings conference call. We issued our press release earlier today. You can access it via our website at www.koppers.com. As indicated in our announcement, we have also posted materials to the Investor Relations page of our website that will be referenced in today's call. Consistent with our practice in prior quarterly conference calls, this is being broadcast live on our website, and a recording of this call will be available on our website for replay through February 7, 2026. At this time, I would like to direct your attention to our forward-looking disclosure statement seen on Slide 2. Certain comments made on this conference call may be characterized as forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve a number of assumptions, risks and uncertainties, including risks described in the cautionary statement included in our press release and in the company's filings with the Securities and Exchange Commission. In light of the significant uncertainties inherent in the forward-looking statements included in the company's comments, you should not regard the inclusion of such information as a representation that its objectives, plans and projected results will be achieved. The company's actual results, performance or achievements may differ materially from those expressed in or implied by such forward-looking statements. The company assumes no obligation to update any forward-looking statements made during this call. Also, references may be made today to certain non-GAAP financial measures. The press release, which is available on our website, also contains reconciliations of non-GAAP financial measures to those most directly comparable GAAP financial measures. Joining me for our call today are Leroy Ball, Chief Executive Officer of Koppers; and Jimmi Sue Smith, Chief Financial Officer. At this time, I will turn the discussion over to Leroy. Leroy M. Ball: Thank you, Quynh. Good morning, everyone. I'm pleased to join you this morning to provide more insight on Kopper's third quarter operating performance. Our results largely fell within our expectations despite market forces continuing to exert headwinds on top line performance. Sales for the quarter were down by 12% compared to Q3 2024, continuing the trend we've seen throughout 2025. Our team's diligent control spending once again continued to offset much of the impact of lower sales volumes, and we were able to deliver adjusted EBITDA for the quarter of $70.9 million compared to last year's Q3 adjusted EBITDA of $77.4 million. Adjusted EPS for Q3 2025 was $1.21 per share compared to $1.37 last year as the impact of our lower top line more than offset our cost containment for the quarter. At the same time, benefits from reducing our interest costs through lower average borrowings and lower average interest rates were essentially offset by a higher effective tax rate in Q3, driven by a geographic earnings mix more heavily tilted to outside the United States. Moving to Page 4. I'd like to provide a little more high-level color by summarizing just a few key takeaways from our third quarter. As mentioned, we focused intently on controlling costs to weather the cyclical softness we're experiencing currently. Through 3 quarters, our SG&A was down 14% on an adjusted basis compared to prior year, which equates to over $19 million in savings on top of the millions of dollars in operating savings that we are also generating. Through Catalyst, we're developing a blueprint to make those savings permanent by further simplifying our business, upgrading our technology and advancing the skill sets of our team members. Because of what we've been able to accomplish on the cost side of the equation for the second straight quarter, we were able to post adjusted EBITDA margins not seen in a number of years. As we capture more profit from every dollar of sales, we're also improving our rate of converting those profits to free cash flow and deploying that cash to reduce debt and return capital to shareholders through our dividend and a steady stream of share repurchases. During Q3, we continued to simplify our portfolio by completing the sale of our Railroad Structures business, which came as part of the Performance Chemicals transaction in 2014. The Structures business had been a steady contributor for a number of years, but struggled leading up to and through the pandemic. It had begun to regain its footing recently and through the day of the sale was having one of its better years in a long time, but still was margin dilutive for the past 9 years. Other than selling to the same customers as our crosstie business, it did not have any strong synergistic aspects. Once again, we wish that team well and thank them for their contributions over the past 11 years. Further simplification of our business occurred in April 2025 through the closure of our phthalic anhydride plant in our CM&C segment. And next up, we're also finalizing our assessment of shifting our North American CM&C business to a single column operation. In doing so, we will further lessen our exposure to the volatility of the CM&C business, while also reducing the future capital requirements from running a 2-column operation. Later in the presentation, I'll speak further to Catalyst and what is going on in our various end markets. For now, I'd like to provide a quick snapshot of how we're progressing on the Zero Harm front. On Page 5, you can see that we've made significant progress on safety thus far this year with leading activities up by 29%. This serves as a strong contributor to our lagging metrics of recordable injury rate and serious safety incidents showing declines of 23% and 72%, respectively. During the quarter, we had 23 of our 41 sites work accident-free with our European businesses and our Australasian Performance Chemicals standing out with 0 recordables thus far in 2025. We can never let up on safety because exposure is all around us and one mental lapse or shortcut could lead to catastrophic consequences. I continue to be heartened by our global team being on pace for another record-setting safety year. A great big thanks to all of our team members for your efforts thus far. Keep up the great work. Finally, turning to Page 6. I'd like to welcome our newest Board member, Laura Posadas, who was elected to our Board 2 days ago. Laura is the current CEO of Canlak Coatings, Inc., a leading formulator and manufacturer of high-quality wood coating systems. Laura's experience in innovation and strategy, in addition to our track record of leading high-performance teams is a welcome addition to our Board's broad range of experience and skill sets. Laura represents the third Board member added over the past 3 years as we continue an orderly succession process for directors reaching the Board's mandatory retirement age. We look forward to tapping into Laura's experience on a number of matters relevant to our business, and I'm enthusiastic to have her as a member of our Board. I'll now turn things over to Jimmi Sue to speak in more detail to our quarterly financial performance. Jimmi Smith: Thanks, Leroy. Earlier today, we issued a press release detailing our third quarter 2025 results. My remarks today are based on that information. As seen on Slide 8, we reported consolidated third quarter sales of $485 million, down $69 million or 12% from the prior year. By segment, RUPS sales decreased by $15 million or 6%. PC sales were down $32 million 18%, and CM&C sales decreased by $21 million or 16% compared with the prior year quarter. On Slide 9, adjusted EBITDA for the third quarter was $71 million with a 14.6% margin. By segment, RUPS generated adjusted EBITDA of $29 million with a 12.5% margin. PC delivered adjusted EBITDA of $26 million with an 18.1% margin, while CM&C reported adjusted EBITDA of $16 million with a 14.4% margin. On Slide 10, our RUPS business generated third quarter sales of $233 million compared with $248 million in the prior year. The decrease in sales was driven primarily by $15.8 million of lower volumes of Class I crossties and lower activity in the maintenance-of-way business, including the sale of our railroad bridge services business. These were partly offset by higher commercial crosstie volumes, a 6.5% volume increase in domestic utility poles and $1.9 million of price increases related primarily to crossties. Untreated crosstie market remained stable. Year-to-year, crosstie procurement was down 18%, while crosstie treatment was down 5%. RUPS delivered adjusted EBITDA of $29 million compared with $25 million in the prior year. Profitability improved despite lower sales due primarily to $7.7 million in lower SG&A and operating expenses, along with net sales price increases, partly offset by the lower sales volumes. On Slide 11, our Performance Chemicals business reported third quarter sales of $144 million compared to $177 million in the prior year. The decline in sales was primarily the result of volumes decreasing by 19%, mostly as a result of market share shifts in the United States, but also combined with a slight net decrease in sales volume for other customers. Adjusted EBITDA for PC came in at $26 million compared to $40 million in the prior year. Profitability was impacted by the lower sales volumes as well as $7.3 million in higher raw material and operating costs, partly offset by $1.6 million of lower logistics costs and SG&A expenses as well as higher royalty income. Slide 12 shows third quarter CM&C sales of $108 million compared to $130 million in the prior year. This decrease was primarily driven by $19.6 million of lower volumes for phthalic anhydride as we discontinued that product in April 2025. Adjusted EBITDA for CM&C in the third quarter was $16 million compared with $13 million in the prior year. This increase in profitability was due to lower operating costs, increasing production of phthalic anhydride and $2.9 million of lower raw material costs, partly offset by lower sales prices. Sequentially, the average pricing of major products decreased by 2% and average coal tar costs were higher by 3% compared to the second quarter. Compared to the prior year quarter, the average pricing of major products was lower by 8%, while average coal tar costs increased by 7%. Now moving to capital allocation. As shown on Slide 14, we continue to pursue a balanced approach to capital allocation. Net of cash received from insurance proceeds and asset sales, we invested $33.7 million into our business through September 30th. We are now expecting 2025 CapEx to be approximately $52 million to $55 million, a significant reduction from $74 million last year, reflecting our focus on increasing free cash flow. Year-to-date, we've repurchased $33.3 million of stock through share buybacks, including tax withholdings. We have approximately $71.5 million remaining on our $100 million repurchase authorization. We also returned capital to shareholders through our quarterly dividend of $0.08 per share. At September 30th, we had $885 million of net debt comparable to where we ended 2024 and approximately $45 million lower than June 30th, reflecting our commitment to putting a significant portion of our free cash flow toward debt reduction this year as well as progress toward our continued long-term target of 2 to 3x net leverage ratio. We ended the quarter with a net leverage ratio of 3.4x and $379 million in available liquidity. On Slide 15, total capital expenditures for the third quarter were $38.4 million gross or $33.7 million net. We spent $31 million on maintenance, $3.2 million on Zero Harm and $4.2 million on growth and productivity projects. By business segment, we spent $13.6 million in RUP, $9.6 million in PC, $13.8 million in CM&C and $1.4 million in corporate projects. And finally, on Slide 17, our Board of Directors declared a quarterly cash dividend of $0.08 per share of Koppers common stock on November 6th. This dividend will be paid on December 16th to shareholders of record as of the close of trading on November 28th. At this quarterly dividend rate, the annual dividend is $0.32 per share for 2025, a 14% increase over the 2024 dividend. And with that, I'll turn it back over to Leroy. Leroy M. Ball: Thanks, Jimmi Sue. Now I'll do a quick review of each of the businesses, starting with our Performance Chemicals or PC business on Page 19. The third quarter saw a continuation of softer demand in North America, our largest market, as residential units pulled back even further, while industrial demand turned positive. And while both categories are down by about 3% year-to-date through September, excluding our known market share loss, residential was down by about 5% for the quarter compared to last year, while industrial was 2.5 points higher, consistent with the stronger demand we experienced in our own industrial business. External markers such as the leading indicator of remodeling activity, existing home sales and mortgage rates are all starting to move in a positive -- more positive direction. However, customer sentiment remains muted with most looking forward to putting 2025 behind them and starting fresh in 2026. Outside of tariff impacts, we managed to keep costs in check for the most part, which enabled us to deliver a solid 18% adjusted EBITDA margin on a sales line that was 18% lower than 2024's third quarter. On the tariff front, we did absorb a couple of million dollars of direct impact as well as a few million dollars of impact from hedged copper rates disconnecting from the U.S. futures market. With flat pricing for the quarter and absorbing the direct and indirect impacts of tariffs, our ability to still generate margins of 18% demonstrate the success we've had in reducing our other controllable costs and the overall resiliency of the business. Moving on to our Utility and Industrial Products business shown on Page 20. We're seeing volumes continue to move in the right direction as each successive quarter this year has seen a greater year-over-year improvement. Q3 saw volumes up over prior year by 6% as the optimism we were hearing earlier in the year is beginning to manifest itself into sales. Unfortunately, the impact of those higher volumes were offset by the damage from a fire at one of our facilities that impacted results by over $1 million. Now that we're more than 1 year out from the Brown acquisition, we're getting an even greater feel for the critical role played in our network by the Kennedy, Alabama facility that came with that acquisition. We've allocated volume to Kennedy where it logistically makes sense and are using it as a primary site for treating the Douglas fir species that we began adding to our product portfolio at the beginning of this year. Getting into that market is opening doors for us that were previously closed in certain accounts where customers didn't want to split their Southern Yellow Pine and Doug fir business. Now we're early in the game, but adding that species as well as adding sales talent and upgrading our CRM technology is positioning Koppers to be a stronger competitive force in our existing markets, and I believe we are starting to bear the fruit from those investments. We continue to feel good about the longer term demand outlook for the utility pole market and believe that we can participate meaningfully in meeting its pole infrastructure needs. Our Railroad Products and Services business is summarized on Page 21. The third quarter saw another solid quarter of performance from our RPS business despite treated tie sales units being down by 7% compared to prior year. Class I units were down almost across the board, while commercial units saw a 9% increase. Aggressive cost actions and a slight improvement from pricing helped to offset the volume decline and drove a year-over-year 18% improvement in profitability for the RUPS segment. If we adjust for the sale of the KRS business, profitability was actually up over 20% compared to Q3 prior year, with an even higher increase when looking at just RPS. Again, excluding the sale of KRS, RPS has reduced its employee base by 147 people or 19%. Within the crossties business, that number is 14%, and that's on a volume base only 2% lower than last year through September. While we expect some comparative volume improvement in Q4, our updated projection of flat year-over-year sales volumes is another drop from previously communicated customer expectations. I spoke a few times over the past 2 years of customers providing forecasts that have subsequently been pulled back, and that trend has not abated. The railroad companies are feeling more pressure than ever to reduce costs everywhere they can, including [ tie ] installations. It's difficult to forecast how long the current trend can sustainably continue, but we expect to adjust our forecast down from whatever we are told as we head into 2026 now that we've dealt with 2 straight years of actual purchases coming in lower than customer forecasts. The bigger message I hope everyone takes away is that we have adjusted our cost structure to fit a pullback in the market to the extent it turns out to not be temporary. That also puts plant consolidation back on the table, if necessary. But as always, we would view that as a last resort depending upon our long-term outlook with each customer. Next on to the CMC business summarized on Page 22. Despite minimal positive movement on carbon product end markets, we still delivered a solid quarter of performance, finishing $2.9 million better than Q3 2024. Excluding the exit of our phthalic anhydride business, volumes were slightly positive compared to prior year, while average pricing was down by about 4%, consistent with what it is down year-to-date. There continues to be a lot influx in our CMC markets. On the plus side, in early August, Century Aluminum announced that the company will be restarting idle capacity, which should result in a positive impact on our pitch sales in North America beginning in 2026. On the downside, more coal tar will be coming out of the market as one of our North American suppliers notified us that they've successfully converted to electric arc production sooner than anticipated and that we would be receiving our last shipments of raw material from this supplier by the end of the year. Now that action further justifies our intent to simplify our U.S. distillation capacity to a single column from the 2-column operation that we run today. Doing so, we will further shrink our CMC footprint, reducing our cost structure and our required future capital outlay. Unfortunately, it is yet another step back that will put the only major U.S. producer of critical projects for the U.S. aluminum and railroad markets in further jeopardy. We're exploring various scenarios as to how to improve the supply situation, which could be simply resolved by more domestic coal tar production staying in the U.S. to support the long-term health of the industry. As shown on Slide 23, I'd like to move on to something more positive, which is the work we're doing in Catalyst and its expected impact. Now let's start with the why. Is it why we feel we need to transform? The short answer is that in spite of our many accomplishments and the progress we've made, we still have solid potential to perform at an even higher level. As an organization, we have no shortage of good ideas. Capturing, quantifying, prioritizing, planning, resourcing, implementing and then tracking these ideas through to completion is a different story. Frankly, it's where all but the very best organizations fall down. You need a well-developed process, the right technology and a workforce that's more financially astute to improve your chances of reaching success in a reasonable time frame. And that's what we're building with Catalyst. So when I look at our full potential, I see an organization that should be able to deliver 15-plus percent margins on a consistent basis, an organization that should be able to drive earnings improvement of greater than 10% on average over the next 3 years, an organization that should be able to reduce leverage to the low end of our stated range below 2.5x, driven by significantly greater free cash flow generation, what we believe to be over $300 million over the next 3 years. Part of the path to get there is a continued evolution of our portfolio that would make PC and RUPS a larger share of our top and bottom line as we focus on our more structurally sound businesses that have opportunity for growth and have proven to consistently generate higher margins with lower capital requirements. What does that mean in tangible terms in terms of expected benefits from Catalyst? It means that we expect that Catalyst will deliver approximately $80 million of ongoing benefits by the time we exit 2028. In 2025, we're estimating our capture rate at over $40 million based on our expectation to finish this year at a similar EBITDA level as prior year, in spite of a 10% lower sales line. That means we believe we can deliver another $40 million of benefits in the next 3 years coming from all areas of the organization. Less certain are the headwinds we may experience or any potential bolstering tailwinds, which we certainly haven't had for the past 18 months. There are still a lot of parts moving around as we try to nail down our expectations for next year. And as such, I'm going to hold off on speaking to how much of that additional $40 million benefit we expect to see in 2026 and how much of that could be potentially delivered to the bottom line until we have a more complete picture regarding all other aspects of our business. I'll speak to more detail about all this in February 2026 when we announce our year-end earnings. Moving on to our outlook for 2025. As shown on Slide 25, we're now revising our consolidated sales guidance to $1.9 billion in 2025 compared with $2.1 billion in 2024. This reflects our sales expectation at the low end of our previously communicated range due to the soft demand environment across all markets, other than utility. On Slide 26, we're revising our adjusted EBITDA forecast to $255 million to $260 million compared with $262 million in 2024. Both CM&C and PC are expected to be solidly within our previous range, while RUPS is being adjusted to slightly below the low point of its previous range. This is to account for lower than previously forecast crosstie demand and higher operating costs in our UIP business. Slide 27 shows our 2025 adjusted earnings per share bridge, reflecting a range of $4 to $4.15 per share, with interest savings and benefits from a lower share count being offset by higher depreciation and amortization, a higher tax rate and lower operating contribution. That said, our range still puts us on par with 2024 EPS even with a 10% lower top line, which is not a bad outcome, all things being considered. On Slide 28, we're now projecting capital spending for the year to fall between $52 million and $55 million compared with $74 million in 2024. While 2025 has been more challenging than we first thought, I'm encouraged by our team's resilience to step up to the challenge and fight their way through it. I find it quite remarkable that we could be looking at profitability in line with prior year in spite of the softer economic backdrop and tariff disruption we've endured throughout this year. We set the organization up for significant improvement once economic conditions improve. We don't consider our work done, however, as we're ingraining the Catalyst mindset into the way we work every day and continuing to mine for opportunities beyond what is already in the current implementation phase. Similar to what we're hearing from many of our customers, I'm also looking forward to putting 2025 behind us and focusing on what we expect to be a brighter 2026 and beyond. Now I'd like to open it up to questions. Operator: [Operator Instructions] Our first question today is from Gary Prestopino with Barrington Research. Gary Prestopino: Question here, Leroy, is -- I'm looking at Slide 23, okay? You've taken some good expenses out of CMC, some out of RUPS, yet PC is the lowest expense capture there. But I mean, that's the only business that showed a down quarter really in adjusted EBITDA and down EBITDA margins. I mean, is there something inherent there that you can't take costs out or you just feel you shouldn't be taking costs out because the markets are going to eventually rebound? Leroy M. Ball: Yes. Gary, it's a good question. I mean, there are costs being taken out of there. And when we look across the board, you can't view all those numbers as necessarily being only cost takeout, right? Because there's actually things that we've been able to do to improve within our operations, particularly in CM&C, which is why that's a larger overall number. But for PC, we have taken out costs, and we've certainly taken out corporate allocations, corporate overhead costs as well, which is helping them. But look, that is the business that we are continuing to see as our future here, and we want to make sure that we're not cutting too far back in that area when we're trying to go out and win back some business, expand into some different product categories and look at continuing to build around that business. So we don't -- that's one we want to be a little more careful about in terms of how hard we cut back. It's not in the same, if you will, commodity category as some of our other businesses where I think inherently, we just have to be really, really tight on our cost, both operating as well as overhead. So that's why you don't see it quite as much there. The opportunities that are going to come on PC as it relates to Catalyst, they're really going to be on the commercial and less so probably on the cost end. Gary Prestopino: Okay. And then just looking at your objectives with PC and RUPS being greater than 85% of sales, and I realize you're going to be focusing on that for growth. But does that entail further shrinking of CMC? Leroy M. Ball: Yes, I think it's a combination of things. I think certainly, we're focused on growing UIP. We're focused on growing PC and growing around PC. And I've been pretty open about the fact that we're not going to be investing into CM&C. And I think it's on a -- it has been for a number of years on a secular downturn, right? So I think it's certainly to be expected that, that business will continue to shrink and be a smaller part of the overall organization. So we're evaluating all kinds of different scenarios around CM&C and how it fits into the future of the company. But I would expect it will be a smaller part going forward that could play into both sides of it with maybe changes being made there as well as certainly additions being made in some of our other businesses. Operator: The final question today is from Liam Burke with B. Riley. Liam Burke: Leroy, could you give us some color on -- or if there is any, on your strategy of growing the utility pole business either organically or through acquisition? Leroy M. Ball: Yes. So look, we've talked about the fact that we have a pretty strong business in the traditional markets that, that business served when we acquired the Cox utility business back in 2018. So very strong in the Southwest, pretty strong in the Northeast. Not a lot of coverage in the Midwest, basically nothing done in the Southwest and nothing out West. And so, there's a lot of market opportunity for us to go after, again, in markets that we certainly serve in different geographies and know well. So, we obviously bring to bear the wood preservative technology, the treating technology, we've been treating in industrial products for most of the company's history. And so, all of that, we think, translates pretty well to being able to expand that business model. Part of it is you need to be in species beyond just Southern Yellow Pine, which is why we're -- we've been building out a supply chain there. The Brown acquisition and the facility that was added there with its capabilities, really also opens up the door for us in a way that we couldn't do with our existing asset base. And so, yes, we're -- we think we have great opportunity to go after share in underserved markets that, quite frankly, only one or maybe even 2 major suppliers have been able to serve. And now we can provide another option. As I've mentioned time and time again, it is not our intent to go out and try and start a race to the bottom. We think that there's enough share to be won by just being able to provide a second source of stable supply. And so, in conversations we've had, we certainly have been encouraged to go down that route. So we'll continue to build out our sales capabilities. We'll continue to add to our technology and supply chain. And we view UIP as an important part of our growth story. Liam Burke: Great. Thank you. The next question is, if I'm looking at existing homes as a rough benchmark for demand -- for derived demand for PC. They've obviously come off from a very high level, but are starting to stabilize at a certain unit volume, we'll call it, $4 million. If I think about anniversarying your market share loss, do you have a sort of a baseline revenue for PC now where you could see growing off that reset base? Leroy M. Ball: Yes. I mean I think that, the way we think about the business overall is this setback that we're experiencing this year, and to your point, it's beyond losing a little bit of business. It includes an overall market that has dropped by, again, 3% or so year-over-year, which is something we've not seen actually, I think, since -- well, I don't know -- actually we've seen it since we've owned the business. So we don't think it's anything that is systemic or indicative of the start of any longer term trend. So we think it provides a base moving forward that we can expect to see more regular growth coming from, most of -- the growth that's more in line with kind of what we have seen over time, which is, again, more in that 3% to 4% year-over-year range. All that being said, again, whether our customer base is scarred by what they're going through right now or whether they truly have visibility longer term, they're basically giving signals that they don't expect to -- they're not building in growth for next year, organic growth. I think they're setting expectations of kind of holding flat. And maybe, again, part of that is to prepare for another year of tepid demand. And if it gets better than that, then great, but not setting expectations too high and then being disappointed as the year goes on. So I think they're expecting a better year because, again, this year is right now down about 3% overall, but they're not right now factoring in or at least telling us that they're factoring in any real growth in the market. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to CEO, Leroy Ball, for any closing remarks. Leroy M. Ball: Thank you. I just want to thank everybody for taking the time to listen in today. Again, I think we have a great story to tell. And despite the challenges that we faced so far in 2025, I really do think we've set ourselves up for greater success going forward. The Catalyst is actually bearing fruit. We see it in the numbers, and we expect to see more benefits coming from that, that will basically move us in the direction of being a higher margin, higher cash flow yielding, higher earnings business out over the next number of years. So, appreciate your support and patience, and thank you for joining today. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good morning. My name is Sylvie, and I will be your conference operator today. At this time, I would like to welcome everyone to the Interfor analyst conference call. [Operator Instructions]. Thank you. Mr. Fillinger, you may begin your conference. Ian Fillinger: Thanks, operator, and hello, everyone. With me on the call today are Rick Pozzebon, Executive Vice President and Chief Financial Officer; and Bart Bender, Senior Vice President of Sales and Marketing. Thank you for joining us. Before commenting on the quarter, I want to step back and provide some perspective on how Interfor is positioned and how we're addressing the near-term challenges while setting up for long-term success. As you're all aware, we're in the midst of a prolonged down market with several factors creating significant challenges for our industry. These include economic uncertainty and housing affordability concerns, which are weighing directly on building products demand as well as cross-border trade tensions. Combined effect has been a persistently weak price environment. Against that backdrop, our leadership team remains focused on what we can control, driving out costs, reducing risks and positioning our business for success when the market turns. The top of our list is supply discipline. We've led the industry in taking proactive steps to preserve our position today and to prepare for improving conditions ahead. For Q4, we announced reductions of approximately 250 million board feet of lumber, representing about 26% when compared to Q2 volumes. We've consistently acted early from curtailment announcements this year to the divestiture of our Quebec assets and the indefinite curtailment of 2 U.S. sawmills. These decisions reflect our fundamental commitment to maintaining a responsible operating posture across the portfolio. Interfor has a top-performing platform in North American lumber industry, optimized for both tough times like today, but also for better markets when they return. Our second priority is cost discipline. We already delivered top quartile EBITDA margins and that performance continues to drive our team. Our Canadian platform has remained resilient despite difficult markets and punitive duties. We continue to optimize our portfolio for operations that support industry-leading margins and position us to capitalize what markets recover. Fundamentals exist for strengthening lumber markets, particularly owing to the pent-up housing demand. Economic indicators suggest improvements starting in 2026 with continued upward trends in 2027. While that recovery will take time, we believe we're as well positioned as anyone to benefit once it comes. We're moving forward with a solid foundation. We've significantly strengthened our balance sheet through a recent equity raise that was well supported by long-term shareholders. Combined with the renewal of our credit facility, this gives us flexibility to weather the downturn for several years, if necessary. With that backdrop, I will turn to the most recent quarter, where our results reflect the challenging operating environment that I've been speaking about with pricing down across all regions, particularly in the U.S. South. These conditions and our philosophy of adjusting quickly were the catalyst for lumber production adjustments last month. While prices are fine in ground, we've seen similar curtailment announcements across the industry. The market remains in balance. We'll continue to align our production with market realities in a disciplined and proactive way. Looking ahead, these are undeniably tough times. And like others in our industry, our numbers reflect that, but we're confident in our portfolio, balance sheet and our clear plan to manage through the uncertainty and position Interfor to thrive as conditions recover. With that broader perspective, we see considerable opportunity and long-term value in our company, and we're committed to delivering that to our shareholders. With that, I'll turn it over to Rick for a closer look at this quarter's financial results. Over to you, Rick. Richard Pozzebon: Thank you, Ian, and good morning all. Please refer to cautionary language regarding forward-looking information in our Q3 MD&A. Overall, our financial results for the quarter reflected significant lumber price weakness, especially in Southern Yellow Pine and significantly higher duty rates imposed by the U.S. As Ian alluded to, earnings continued to be constrained by a general oversupply of lumber in the market despite significant production curtailments across the industry since the beginning of 2024. Interfor contributed further to these supply curtailments with recent announcement indicating plans to significantly reduce production across all regions through the end of this year. In August, the U.S. more than doubled the combined rate of antidumping and countervailing duties imposed on lumber shipments from Canada from 14.4% to over 35%. This increased duty rate directly impacts approximately 25% of Interfor's total lumber shipments. With respect to earnings, Interfor generated an adjusted EBITDA loss of $36 million, excluding noncash duty-related adjustments on total revenue of $689 million. Total revenue dropped 12% quarter-over-quarter, driven by a 6% increase in the volume of lumber shipped, a 10% decrease in the average realized lumber price and a slightly weaker U.S. dollar. Decrease in volume reflects production curtailments and lower demand, a portion of which is seasonal. Lumber price declines were led by Southern Yellow Pine, whose benchmark composite average price fell nearly 20% quarter-over-quarter. On the cost side, reported production costs per unit of lumber increased 2% quarter-over-quarter, reflective of the lower shipment volume, partially offset by a slightly weaker U.S. dollar. From an operating cash flow standpoint, $26 million was consumed in the quarter driven by negative cash margins on lumber sales, partially offset by an $18 million reduction in working capital. Beyond operations, we invested $32 million in capital projects and generated $1 million from the sale of assets. Over the remainder of this year and next, we anticipate generating net cash flow from ongoing sale of B.C. Coast forest tenders in the ballpark of $30 million to $35 million. This following quarter end on October 1, Interfor completed a bought deal equity offering, which generated $144 million of gross proceeds. Including this, financial leverage as measured by net debt to invested capital would have been 35.2% at the end of Q3 with available liquidity of $386 million. This equity raise, combined with the credit facility renewal in July have provided Interfor with enhanced financial flexibility to navigate through the ongoing downturn. To wrap up, Interfor's financial results for the third quarter reflect significant lumber price weakness and higher duty rates imposed by the U.S. We anticipate continued lumber market volatility going forward as supply continues to rebalance with demand and trade actions by the U.S., including the Section 232 tariff of 10% implemented in October. Therefore, we'll continue taking actions that position its high-quality and geographically diverse operations to succeed through this volatility and capture the upside when the market returns to strength. That concludes my remarks. I'll now turn the call over to Bart. Barton Bender: Thanks, Rick. Lumber markets remain challenged given the uncertainty we're seeing at both the macroeconomic and geopolitical level, multiyear lows on consumer sentiment, low U.S. home building confidence and elevated mortgage rates all represent headwinds. And that's impacting new home construction, industrial activity and repair and remodel demand. This uncertainty continues to put downward pressure on the demand for lumber, which we expect to see for the balance of this year. Looking ahead to 2026, we anticipate that affordability will begin to improve which should lead to better market conditions. On the supply side, production curtailments are increasing in response to unsustainable pricing in all markets. We expect this to continue until a balance is achieved. Although difficult to be exact, it's our position that end market inventories remain very low, less demand and low lead times have allowed distributors to run comfortably with much lower inventories than normal. The strategy works until it doesn't. Interfor specifically, our diversification of species producing regions and product mix allows for a targeted market approach and access to a broader range of the lumber market, beneficial in times of oversupply. Lastly, Interfor will continue to monitor our customers' needs and adjust our production levels accordingly. With that, back to you, Ian. Ian Fillinger: Thanks, Bart. Operator, we're ready to take any questions at this point. Operator: [Operator Instructions]. Thank you. Your first question will be from Hamir Patel at CIBC Capital Markets. Hamir Patel: And we've seen some more industry capacity closures announced yesterday in British Columbia. How are you feeling about your cost position in the province? And how much additional industry capacity do you think needs to come out? Ian Fillinger: Thanks, Hamir. Yes, our B.C. operations in Adams Lake, Grand Forks and Castlegar as you know, have been modernized over the last number of years and are very competitive on a cost basis and also on a product mix basis, with being much different where some of our competitors are in the North or central interior. So a lot more species variability, product mix that aren't on random length pricing. So in addition to that, all 3 of those operations have extremely high percentage of secure fiber through licenses, et cetera, probably, I would say, in province. So very good opportunity to log from our tenures or if we have to go to an open market, we can be very strategic about that. So very competitive operations in B.C., Hamir. As far as volume goes out, I think the way out of where we're at now is supply. It's the adjustments that industry needs to make to be able to get out of this situation we're in and it's part of our responsibility to do that, and we've been doing that, as you know, usually first and leading in the industry on some of those difficult decisions. Hamir Patel: Great. Thanks, Ian. And Rick, a question for you. I know the company has close to, I believe, $550 million of goodwill on the balance sheet. How should we think about risks of further impairments there? Richard Pozzebon: Our goodwill on our balance sheet is about $500 million today. and that's within the total assets on the balance sheet of about $3.1 billion and a book value per share of about $21 today. So when we think about goodwill testing, it typically happens for us every Q4, it's an annual testing requirement required by IFRS. So the testing, Hamir, involves multiyear discounted cash flow model -- so we're in the process of doing that right now. It would be too early for me to speculate on what the results are. However, I think it's worth noting that the testing uses long-term lumber prices, so long-term trend lumber prices, which haven't really changed year-over-year. And we've made improvements in terms of the quality of our portfolio over the last year, just given some of the asset sales we've made. So I'm feeling good about where we're at with the testing, but it's too early to speculate at this stage. Operator: Next question will be from Matthew McKellar at RBC. Matthew McKellar: In your opening remarks, you talked about continued efforts to drive out cost, are there any recent initiatives you'd highlight or any items on the docket for 2026 that we should be considering? Ian Fillinger: Yes, Matt, kind of in this type of format, we're a little bit reluctant to share the internal plans that we have. We've been running a targeted initiative through the down market each year and readjusting depending upon our outlooks in current conditions. So I would say we're as an executive team, pleased with both the cost side and the product mix side, internal initiatives that we're doing in and I think that's reflective in our benchmarking of our margins compared to our public peers. But yes, it's significant, but would be hesitant to kind of share it in this forum with you, Matt. But I can say that the entire organization whether it's in offices or mills or Woodlands or sales all have very good targets set in place and they're making good progress on all of them. Matthew McKellar: That's very helpful. Last for me, we've seen pretty substantial changes in duties on Canadian lumber new tariffs and significant changes in FX rates this year. With the changes we've seen and I guess reflecting on some of the challenges the European producers are facing as well. How do you expect imports from Europe into North America to trend from here? Ian Fillinger: Yes. Well, we -- as you know, we don't really have operations in Europe to really completely understand that picture. But obviously, with 10% being put on European imports into the U.S. should help North American producers compete against that volume. But yes, we don't really have much more of an insight than you do on that front. Operator: Next question will be from Ketan Mamtora at BMO Capital Markets. Ketan Mamtora: Maybe first question. If I'm looking at this correctly, it looks to me that your lumber production was actually up 1% on a year-over-year basis in Q3. Can you provide some perspective on what is driving that? Richard Pozzebon: Ketan, it's Rick speaking. I think looking at Q3 last year, we had taken significant curtailments a little bit more than we had taken in Q3 this year. And I think that's the main reason. We will expect an increase in curtailments and production reductions in Q4 here based on our announcement that we made in October, Ian referenced in his remarks. Ian Fillinger: Yes. And further supporting what Rick is saying is curtailments, we were winding up a couple of operations in the U.S. South, plus the Quebec mills from last year too where they were at. So -- and we were in that process. So yes, lots of moving parts from last year to this year, Ketan. Ketan Mamtora: Okay. I see. And then recognize that you've announced curtailments for Q4. I'm just curious, given sort of how prolonged this downturn has been and given sort of where lumber prices have been. Can you provide some perspective on how you are thinking about temporary curtailments versus kind of more indefinite or permanent curtailments and sort of what -- how are you all thinking about those 2? Ian Fillinger: Yes, Ketan, we have a model internally where we put in a bunch of obviously factors market being one of them, demand being one of them, inventory levels, pull-throughs on what have you, input costs for logs and conversion costs in that model, which we review on a weekly basis. So we make some of those decisions, which are -- we don't take lightly, obviously, impacts many people, but yes, we do have a robust model that's been built and refined over the last 5 or 6 years. And so to answer your question, we're looking at it every week, we'll make adjustments. We're not shy about doing that. We believe that as difficult as they are, they're needed in these environments. So yes, we're continuing looking at those and ready to make the decision when needed and be proactive about it. Ketan Mamtora: Yes. And Ian, I recognize these are kind of very difficult decisions and to everyone who is affected, I appreciate that. What do you need to see to either kind of make the decision or kind of not make that decision? What factors are we looking at? And recognize it's not just like 1 month or 1 quarter, right? You need to think kind of ahead. But outside of the fact that we've all looked at data around pent-up demand. But outside of that, what are the things that you're looking at to sort of decide this? Ian Fillinger: Yes. Basically, Ketan, the main driver is the lumber demand and lumber price. And so it's a mathematical model on that. But when we do see demand there to support either a shift coming up or a shift or a mill going down. That's a fairly easy decision for us to see with our model. And then on the pricing side, does pricing support at cash breakeven and above? Or does it support cash breakeven and below? And then where those costs inflection points are would drive whether we reduce and curtail or whether we add volume back in. And so we need to see sustained improvement to bring back any kind of production. And on the other side, when it doesn't look great, and we really kind of look out 2 to 3 weeks because that's the best sort of insight and after that, it gets a little bit cloudy. We will make decisions to curtail and it's a real-time model. Operator: [Operator Instructions]. Next, we will hear from Sean Steuart at TD Cowen. Sean Steuart: Ian, another question on the supply response and the thought process that goes into it. And maybe I'm thinking too far ahead here, but is a part of the thinking on the rolling downtime versus permanent or indefinite shuts at this point? We're 3 years plus into an extended trough, which is abnormal. We're probably closer to the end of this than the start, hopefully, at this point. Does the duration of this downturn factor into the decision or the decision against permanent closures at this point, i.e., when things get better, you want to be able to respond. Is that a part of the thought process for the company at all? Ian Fillinger: Well, it is, Sean. I mean these are big decisions when we're talking permanent, and I think that's what your question is driving towards. And so when you look at operations and you kind of see where they're at on the cost curve, product mix and then you look at a trend price. I mean, you kind of got to have that in the back of your mind. But at the same time, the factor for us is our goal has always been to be in the top quartile in any operation we're at. So from the time that you kind of look at a permanent or nonpermanent decision, it also has to factor in what's the time line to move that operation even in a trend market to where we want to be. And so those are the factors that we look at and we got to get comfortable around and then make the appropriate decisions, which, as you've seen, we've done multiple times in the past. Sean Steuart: Yes. Understood on that front. And Ian, can you give us some updated perspective on if it's EBITDA per 1,000 board feet or relative margin metric? I'm not asking for the specifics region by region, but can you give us an idea of how wide the spread is at this point across your platform region to region? Ian Fillinger: Not really, Sean. I think that would be kind of difficult for us to share in this environment. But the one uniqueness and you know this, being in New Brunswick and Ontario and B.C., it really diversifies our Canadian mix. We have an engineered wood product division also, which is helpful and strong and then being in the Pacific Northwest and the U.S. South, as these trade actions against the Canadian lumber continue, we feel that being in Washington and Oregon, is an advantage to maybe some interior BC operations in the Central and North, given our stud production in the Pacific Northwest. So each one of our regions actually is from a product mix, specie and geographical log cost differences really gives us a balanced portfolio, and that's part of our growth strategy over the last 5 years and when the market turns. I think we're in exceptional shape to capitalize. Operator: At this time, I would like to turn the conference back over to Mr. Fillinger. Ian Fillinger: Okay. Thank you, operator, and thank you, everybody, for attending and your questions, and have a great day, and we'll talk to you next quarter. Thank you. Operator: Thank you sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. At this time, we ask that you please disconnect your lines. Have a good weekend.
Operator: Good day, and welcome to the GigaCloud Technology Third Quarter 2025 Earnings Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Mr. Larry Wu, CEO. Please go ahead. Lei Wu: Thank you, operator, and welcome, everybody, to today's call. This quarter's performance is a strong testament to GigaCloud's resilience and adaptability. Despite the challenges brought by global trade uncertainties, a cooling housing market and wavering consumer confidence, we delivered a robust 10% year-over-year growth, returning to 2-digit increase and setting new records of $333 million in quarterly revenue and $0.99 in quarterly EPS. These results reflect our ability to move fast, stay lean and execute with precision even in the face of macroeconomic headwinds. We're navigating today's environment with confidence, guided by the disciplined execution to our long-term strategy, staying agile, continuing to diversify for resiliency. Our Nova House optimization is delivering fantastic results. strategically adding new products and phasing out underperformers has fueled our first year-over-year revenue growth, since we completed the acquisition. We are excited for the future value that we expect this portfolio to unlock as we continue our optimization effort. As we have discussed many times before, we view our M&A as a part of our long-term growth strategy. Noble House is a powerful validation of the strategy by combining product, channel, vendor resources from Noble House with operational efficiency and transformative marketplace of GigaCloud. We have not only been able to turn a bankrupt company losing nearly $40 million in 2023 to a profitable growing assets in less than 2 years, but also expanded our product line and the channel outreach. This result is exactly why we view M&A as a cornerstone of our long-term growth. As we look forward, this successful playbook gives us tremendous confidence in our strategy to continue unlocking new value for the future. With that said, I'm very excited to share our plan to acquire New Classic Home Furnishing scheduled to close on January 1, 2026. As a traditional brick-and-mortar focused wholesaler, New Classic is a perfect strategic fit for GigaCloud to further diversify our business and reach beyond e-commerce. As many of you know, GigaCloud ecosystem has historically been more concentrated towards e-commerce of big and bulky. This acquisition represents our strategic move to recalibrate our focus, making brick-and-mortar wholesale a more significant and complementary part to our ecosystem, an area we see tremendous opportunities in. We have already proven the viability of our marketplace. The next step of evolution naturally is to bridge the digital and the physical world. For truly channel, agnostic ecosystem that empower buyers and sellers to trade seamlessly with unparalleled reach and flexibility. Executing this next phase of evolution in the current economic climate is a deliberate choice. While no company is immune to macro pressures, our focused execution, strong balance sheet and use of diversification as a hedging strategy allows us to navigate this turbulence more effectively than most, securing competitive advantages today that will fuel our next chapter of growth. To that end, I will now turn the call over to Iman, who will provide more detailed update on the progress we continue to make against our key operational goals. Iman Schrock: Thank you, Larry. Hello, everybody. Our marketplace continues to gain momentum, delivering another strong quarter of growth. For the trailing 12 months ending September 30, 2025, marketplace GMV rose approximately 21%, reaching nearly $1.5 billion, underscoring the scalability and resilience of our platform. Our active 3P seller base continues to expand, up 17% year-over-year to 1,232 with GMV for this cohort climbing more than 24% on a trailing 12-month basis to over $790 million. Buyer growth also accelerated, increasing 34% to 11,419 as more businesses looked for new efficiencies and risk optimization in a challenging environment. Our global revenues increased by 10% in the third quarter on a year-over-year basis. While the domestic U.S. market faced headwinds, our international markets acted as a powerful hedge, driving growth and offsetting domestic softness. Diversification and having a balanced portfolio is a core tenet of our strategy, ensuring we are not overly reliant on any single market. Europe continues to be a powerful growth engine with year-over-year revenues up 70% to a record $100 million, making a major milestone in our global expansion. Our diversification efforts, however, is not limited to geographical expansion. We're also looking to create a more dynamic marketplace supported by a broader range of product offerings and distribution channels. To accelerate this strategy, we leverage M&A to acquire key capabilities. Our playbook has a two-pronged approach, deepening our core capabilities through acquisitions and leveraging our ecosystem to make the acquired assets more efficient, competitive and profitable. Our 2023 acquisition of Noble House is a prime example. It's not just an addition, but a strategic integration that deepens our product catalog and capabilities. We have made substantial progress with our Noble House portfolio optimization. Since last quarter, we have introduced another 2,300 new SKUs and retired 1,100 underperforming SKUs, shaping a more streamlined, high-performing portfolio built to scale. As shared earlier this year, our SKU rationalization efforts have successfully returned the portfolio to profitability, while temporarily impacting our top line. I am pleased to report that in Q3, this disciplined approach has paid off with the portfolio not only maintaining its profitability, but also returning to growth. We have effectively reset our foundation and now reigniting growth from a much healthier foundation. Looking ahead, we plan to build on this momentum. Our strong balance sheet positions us to be highly active and disciplined in pursuing inorganic opportunities that align with our long-term strategic goals, and our pending acquisition of New Classic is a great example of the type of value-creating asset we are looking for. New Classic is a well-respected, long-standing U.S. wholesaler with deep roots in the brick-and-mortar furniture space. The company has over 1,000 primarily brick-and-mortar retailer relationships, over 2,000 active SKUs, a high-performing team and a wide network of vendors that specialize in products tailored for this specific channel. The acquisition is strategically targeted to dramatically widen our distribution and channel reach. By pairing New Classic's network with GigaCloud's marketplace ecosystem and logistics capabilities, we can accelerate growth and unlock new efficiencies. We expect to close the transaction early in the first quarter of 2026 and expect 4 to 6 quarters of strategic initiatives to be reflected in our financial performance. Now I'll turn things over to Erica for a discussion of third quarter financials. Erica Wei: Thank you, Iman, and hello, everybody. A quick note before we get into our results. All figures I cover today are rounded and unless otherwise noted, comparisons are against the same period last year. Now let's take a look at this quarter's results. We delivered a great quarter, including double-digit growth revenue of 10% to $333 million, a new quarterly high. Now let's break this down by revenue streams. Our service revenues declined 2% year-over-year, primarily driven by reduced U.S. ocean shipping and drayage revenues. The uncertainties seen in recent months has resulted in significant declines in the demand for ocean shipping services to the U.S. for many industries. Lower demand has suppressed ocean spot rates, which translates to lowered ocean service revenues for us. U.S. revenue pressures were partially offset by strong year-over-year growth in similar services delivered to our European market sellers. Service margin came in at 9.1%, down 2.3% sequentially, primarily driven by higher last-mile delivery costs in the U.S. following pricing adjustments implemented by some of our ground transportation fulfillment partners. In response, we are actively recalibrating client pricing to reflect these updated cost structures. Total product revenue grew 16% year-over-year, driven by our strong performance of 69% growth in Europe. Growth was partially offset by a 5% decline in the U.S., which is reflective of the challenging macroeconomic pressures in the region. But more importantly, it is a direct outcome of our disciplined strategy. As communicated last quarter, we have implemented targeted price increases to address rising tariff costs. Our strategy is to prioritize margin integrity over pure volume, ensuring the growth we deliver is sustainable and valuable. Our commitment to margin integrity was put to the test this quarter and proved effective. We faced a significant margin headwind from the sale of products sourced in Q2 under tariffs exceeding 100%, which we successfully navigated with strategic price increases, protecting our baseline profitability. Beyond this mitigation, we delivered a sequential product margin expansion of 70 basis points to 29.9% as we grew our higher product margin channels and benefited from lowered ocean shipping costs. For GigaCloud as a whole, gross margin was 23.2% for the third quarter, a 70 basis point sequential decline from the second quarter of 2025. Operating expenses declined 1.7% sequentially to 11%, primarily driven by lower G&A expenses. This is a reflection of lower stock-based compensation this quarter as most stock-based comp is granted and vested in the second quarter of each year. Selling and marketing expenses remained flat sequentially at 8% of sales. This brings net income to $37 million or 11.2% of revenue, an expansion of 50 basis points sequentially. I am also pleased to report a new record for quarterly EPS of $0.99 per share, driven by our team's focused execution and amplified by our ongoing share repurchase efforts. For the third quarter, we generated operating cash flows of $78 million, ending the quarter with total liquidity, which includes cash, cash equivalents, restricted cash and short-term investments of $367 million. We remain debt-free and continue to execute on our capital allocation strategy of pursuing strategic acquisitions such as New Classic, while simultaneously returning capital to shareholders through buybacks. Since the announcement of our $111 million share buyback plan in August, we have executed approximately $16 million in buybacks to date or 15% of our latest plan limit. This brings our cumulative buyback total to $87 million as of date, since our IPO in 2022, and we plan on continuing to execute opportunistically using buybacks as a flexible tool to return value to our shareholders. Finishing with our fourth quarter outlook, revenue is expected to be between $328 million and $344 million. Operator, we are now ready to begin the Q&A session. Operator: [Operator Instructions] Your first question today comes from Tom Forte from Maxim Group. Thomas Forte: Congratulations on the quarter. I have 1 question and 1 follow-up. So you talked about a new M&A acquisition. Can you talk about your thoughts on additional M&A acquisitions? Recently, you've talked about looking for opportunities to expand in Europe and then also looking for opportunities, I think, to add technology, perhaps on the software side, things of that nature. So that's my first question. Lei Wu: Yes. We'll keep looking on different opportunity by focusing on any opportunity that can bring us more product or the fulfillment capability. But right now, I think we're more focusing on concluding -- the closing of New Classic. But our team is definitely concurrently looking for new opportunity, but it's unlikely that this can happen in the coming few months because we'll be focusing on new classes at this moment. Thomas Forte: Okay. And then for my second question, thank you, Larry, for the answer on that one. The good news for the housing market is that the Fed has now had multiple rate cuts. I recognize that the housing market is still very challenged. Do you think any of these rate cuts are starting to translate into greater interest in home merchandise and then the possibility for some sort of sales catalyst over the next 12 months? Lei Wu: Yes. That's -- obviously, this is Larry. We were hopeful about the bouncing back of the housing market, but we're trying to keep ourselves more focused on the execution on a micro level, because we do have the toolbox of more diversified revenue avenue that we can really enjoy the [indiscernible] ability to avoid any kind of reliance on any of the macro positive other factor to happen to really provide the opportunity to grow that we are trying to deliver the growth regardless of what the macroeconomic is doing. Operator: Your next question comes from Joseph Gonzalez from ROTH Capital Partners. Joseph Gonzalez: It's great to see you guys kind of transform Noble Health. I want to see, if you guys can unpack that here a little bit. Is there any chance you can just give us a cadence of how the quarter went and kind of the drivers for that growth there in 3Q? Erica Wei: Thanks, Joseph. Yes, Q3, I think, overall went really well. The main drivers here are Noble Health outperforming in the U.S. and also Europe, it's nothing new, continuing to perform very strongly. Joseph Gonzalez: Got it. And as it pertains to your core business -- like excluding Noble House, any drivers there you'd like to unpack for us as you come out with about double-digit growth in the fourth quarter through your guidance. Just kind of what you guys are seeing in your early innings of 4Q and the confidence there? Erica Wei: I think as of today, we're seeing kind of Q4 going well kind of as expected, and this is reflected in the guidance that we gave just now. And this is, of course, inclusive of the expectation of Europe, which is mostly -- it is entirely organic, continuing to perform strongly, Noble House and then, of course, our original non-acquired parts of the business, all 3 combined. Joseph Gonzalez: It's good to hear you guys are able to navigate during a dynamic environment. We'll go ahead and leave it there. Operator: Thank you. There are no further questions at this time. And with that, that does conclude our question-and-answer session. This conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Greetings, and welcome to the Graham Corporation Second Quarter 2026 Financial Results Conference Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, Tom Cook. Please go ahead. Tom Cook: Thank you, Carrie, and good morning, everyone. Welcome to Graham's Fiscal Second Quarter 2026 Earnings Call. With me on the call today are Matt Malone, President and CEO; and Chris Thome, Chief Financial Officer. This morning, we released our financial results. Our earnings release and accompanying presentation to today's call are available on our website at ir.grahamcorp.com. You should be aware that we may make forward-looking statements during the formal discussion as well as during the Q&A session. These statements apply to future events that are subject to risks and uncertainties as well as other factors that could cause actual results to differ materially from what is stated here today. These risks and uncertainties and other factors are provided in the earnings release as well as with other documents that are filed by the company with the Securities and Exchange Commission. You can find these documents on our website or at sec.gov. During today's call, we will also discuss non-GAAP financial measures. We believe these will be useful in evaluating our performance. However, you should not consider the presentation of this additional information in isolation or as a substitute for results prepared in accordance with GAAP. We have provided reconciliations of non-GAAP measures with complete -- with comparable GAAP measures in the table that accompany today's release and slides. We also use key performance indicators to help gauge the progress and performance of the company. These key performance metrics are ROIC, orders, backlog and book-to-bill ratio. These are operational measures and a quantitative reconciliation of each is not required or provided. You can find a disclaimer regarding our use of KPIs at the back of today's presentation. So with that, if you'll please advance to Slide 3, I'll turn it over to Matt to begin. Matt? Matthew Malone: Thank you, Tom, and good morning, everyone. We appreciate you joining us to review our second quarter fiscal 2026 results. We delivered another strong quarter, continuing to execute our communicated strategy and demonstrating the resiliency and diversification of our business. Revenue grew 23% to $66 million, driven by solid performance across all of our end markets. The timing of these key project milestones, particularly material receipts in our defense business as well as contributions from new programs and growth in existing platforms. Adjusted EBITDA increased 12% to $6.3 million. On a year-to-year basis, adjusted EBITDA margin expanded 40 basis points to 10.8%, underscoring our continued focus on operational execution and profitable growth. Bookings remained strong, resulting in a book-to-bill ratio of 1.3x and driving backlog to a record $500.1 million, up 23% year-over-year. Our backlog provides excellent visibility with roughly 35% to 40% expected to convert to revenue over the next 12 months. On the defense side, we continue to see strong momentum with our U.S. Navy programs. As a reminder, in July, we announced a $25.5 million follow-on order to produce mission-critical hardware for the MK48 Mod 7 Heavyweight Torpedo program. More recently, I want to highlight an important milestone for our defense business and our long-standing partnership with the U.S. Navy. In October, we commemorated our new 30,000 square foot advanced manufacturing facility in Batavia, New York, which represents a major investment in our capacity and capabilities to support key Navy programs. This purpose-built site is designed for efficiency, precision and scale and incorporates advanced technologies, including automated welding, optimized product flow and state-of-the-art machining. We expect the facility to be fully operational by the end of fiscal 2026. And once online, it will be -- it will meaningfully expand our throughput, enhance quality and strengthen our ability to meet rising demand across multiple Navy programs. As part of this, we were honored to host Captain Heath Johnmeyer, Commanding Officer of the Future [ USSS ] District of Columbia, along with several strategic partners and customers during the event. Their participation underscores the Navy's confidence in Graham and a critical role of our team and capabilities play in supporting fleet readiness as the Navy celebrated its 250th anniversary. This engagement reflects our position as a trusted supplier to some of the most important defense platforms in the world. In addition to expanding capacity, we continue to invest in advanced inspection and manufacturing technologies, including our enhanced x-ray testing and automated welding systems that are beginning to come online. These investments will further increase throughput, improve inspection precision and support production scale as we execute the Navy's long-term modernization initiatives. Moving to Energy and Process. During the quarter, we saw increased sales of $2.0 million or 11%, driven by the timing of large capital projects and continued strong aftermarket sales. Further, we are seeing meaningful momentum in small modular nuclear reactors and cryogenic applications, where customers' interest in our mission-critical equipment continues to expand as those markets slowly transition into commercial deploy. Defense -- demand fundamentals across all of our end markets remains healthy, though we are observing extended decision cycles on certain large global capital projects. Overall, our position remains strong, and we continue to execute well against opportunities in both mature and emerging applications. In space, as we have announced earlier this morning, we continue to see meaningful momentum. In the second quarter and first month of our fiscal 2026 third quarter, our Barber-Nichols subsidiary booked a series of new orders from 6 industry-leading customers in the commercial space launch market. These awards were for advanced turbomachinery and precision engineered components supporting next-generation commercial launch and in Space systems and totaled $22 million. These orders are expected to convert into revenue over the next 12 to 24 months, further strengthening our visibility and reinforcing the value we bring to these mission-critical space applications. We're encouraged by the breadth of programs we are involved in and the growing activity across customers who are scaling production to meet increased launch cadence and orbital infrastructure needs. To support this demand, we are continuing to invest in capacity and capabilities at Barber-Nichols, including additional CNC machining centers, expanded testing infrastructure and our new liquid nitrogen test stand. These investments build on our previously announced cryogenic test facility in Florida, which remains on track to come online later this year. Together, these enhancements strengthen our ability to deliver with speed and precision as our customers move from development into higher rate production. The momentum we are seeing in our space end markets reflects the strength of our technology, engineering expertise and decades-long reputation for performance in high-speed rotating equipment. As the commercial and government space markets continue to expand, we believe Graham is well positioned to support the industry's long-term growth and advance our strategy of building a diversified portfolio across high-growth, innovation-driven end markets. Finally, I want to touch on the recent acquisition announcement of Xdot Bearing Technologies, an engineering-led firm with patented foil bearing technology and deep expertise in high-speed rotating machinery. This is a highly strategic technology acquisition that strengthens our competitive position in an area where performance, reliability and efficiency are becoming increasingly critical across aerospace, defense, energy transition and industrial applications. Xdot's proprietary foil-bearing designs deliver superior performance while reducing development and production costs. And when combined with Barber-Nichols turbomachinery capabilities, significantly expand our ability to engineer and deliver advanced high-speed pumps, compressors and rotating systems. This acquisition not only broadens our product portfolio, but also positions us to move into adjacent applications and emerging high-performance markets, where we are seeing growing customer interest. Importantly, this is a disciplined, strategically aligned investment that fits squarely within our capital allocation framework. Xdot brings proven technology, a respected technical founder and team and complementary customer relationships. We expect the acquisition to be slightly accretive to our fiscal 2026 results. Overall, this acquisition underscores our commitment to investing in differentiated technology, expanding our engineered solution offerings and creating durable competitive advantages across our growth platforms. More broadly, on the M&A front, we continue to see a strong pipeline of acquisition opportunities that align with our strategic objectives and remain focused on pursuing opportunities that offer risk-adjusted returns and can help us accelerate our product life cycle strategy. In closing, our fiscal second quarter results demonstrate continued business momentum across our diversified portfolio. With our record backlog, strong market positioning and progress on key growth initiatives, we're well positioned to capitalize on the opportunities ahead. With that, I'll turn the call over to Chris for a detailed review of our financial results. Chris? Christopher Thome: Thanks, Matt, and good morning, everyone. I will begin my review of results on Slide 6. For the second quarter of fiscal 2026, sales were $66 million, an increase of 23% compared to the prior year period, reflecting broad-based strength across all our end markets. This performance demonstrates continued execution and healthy demand across defense, energy and process and space and is consistent with our full year expectations. Sales to the defense market increased by $9.9 million or 32%, primarily reflecting timing of project milestones and particularly material receipts as well as growth across new and existing programs. Sales to the energy and process market increased by $2 million, primarily driven by the timing on larger capital projects. Aftermarket sales to the energy and process and defense markets were $9.8 million for the quarter, slightly above the prior year period, but when combined with our first fiscal quarter are up 15% year-to-date and continue to reflect resilient demand for aftermarket support across our global installed base. As a reminder, our fiscal third quarter is typically our seasonally lowest revenue period due to normal holiday-related production schedules. Turning to Slide 7. Gross profit increased 12% to $14.3 million, and gross margin was 21.7% for the quarter. The lower margin in the quarter reflects the sales mix in the period, including an unusually high level of material receipts that carry lower margins. We estimate that this higher-than-normal level of material receipts impacted our gross margin by approximately 180 basis points in the quarter. As a reminder, the prior year period benefited from approximately $400,000 from the BlueForge Alliance grant income that did not repeat this year. Finally, for the first 6 months of fiscal 2026, we estimate the impact of tariffs to be approximately $1 million compared to the prior year. As we look at the full year, we have narrowed our expected tariff impact range to $2 million to $4 million, reflecting continued sourcing discipline and contract language that protects us. On Slide 8, you can see how this operating performance translated to the bottom line. Net income for the quarter was $0.28 per diluted share and adjusted net income was $0.31 per diluted share. Adjusted EBITDA was $6.3 million, up 12% from the prior year, and adjusted EBITDA margin was 9.5%. On a year-to-date basis, our adjusted EBITDA margin is 10.8%, up 40 basis points over the prior year and in line with our full year guidance. As a reminder, the Barber-Nichols earnout bonus will phase out by the end of fiscal 2026. Excluding this item, we remain confident in our ability to achieve our fiscal 2027 goal of low to mid-teen adjusted EBITDA margin. Moving to Slide 9. It was another very strong quarter for orders, which totaled $83.2 million, driven by strong demand across defense, space and energy and process. This included a $25.5 million follow-on contract for the MK48 Mod 7 Heavyweight Torpedo program as well as new orders from leading space and aerospace companies that Matt discussed and that we announced in our press release this morning. Aftermarket orders were $9.6 million, moderating from the record levels of last year, but remaining strong on a historical basis. The resulting book-to-bill ratio was 1.3x. driving backlog to a record $500.1 million, up 23% year-over-year. Approximately 35% to 40% of this backlog is expected to convert to revenue over the next 12 months and roughly 85% of the total backlog is attributable to the defense market. As a reminder, orders remain inherently lumpy given the multiyear nature of our defense programs and our large commercial contracts. To illustrate this point, since fiscal 2020, our annual book-to-bill ratio has ranged from 0.9x to 1.4x revenue. However, our quarterly book-to-bill ratio over the same time period has ranged from 0.5 to 2.8x revenue. Over the long term, we target a book-to-bill ratio of 1.1x each year in order to support our long-term growth goals of 8% to 10% per year. For the fiscal 2026 year-to-date period, our book-to-bill ratio is 1.7x. Turning to Slide 10. We remain in a strong liquidity position. We ended the quarter with $20.6 million in cash and no debt and $44.7 million available on our revolver, providing significant flexibility to support future growth investments. Operating cash flow was $13.6 million for the quarter, reflecting strong working capital conversion tied to milestone receipts and advanced payments as well as strong cash profitability. Capital expenditures were $4.1 million in the quarter, focused on capacity expansion, automation, next-generation X-ray technology and our new cryogenic testing facility in Florida, all of which Matt discussed earlier. All major projects remain on schedule and are expected to deliver returns above 20% ROIC. Turning to guidance on Slide 11. Based on our performance through the first half of fiscal 2026 and our outlook for the balance of the year, we are reaffirming our full year guidance for all key financial metrics. The recently announced Xdot technology acquisition does not materially affect our guidance for the year as our annual revenue is only about $1 million per year. Again, we would like to remind everyone that our fiscal third quarter is typically our seasonally lowest revenue period due to normal holiday-related production schedules. Overall, with strong execution, robust end market demand and a record backlog, we remain confident in our full year outlook and our ability to continue delivering consistent performance. The 20% plus ROIC investments coming online in the next 2 quarters, along with the continued momentum that is building within our company gives us confidence we are on track to achieving our fiscal 2027 targets of 8% to 10% organic revenue growth and low to mid-teen adjusted EBITDA margin. With that, we can now open the call for questions. Operator: [Operator Instructions] And our first question comes from Bobby Brooks with Northland Capital Markets. Robert Brooks: Just wanted to get a little bit more clarity. It seems like the $22 million in space and aerospace orders announced this morning, it seems like some of that was recognized in 2Q results and some of it will be recognized in 3Q results. Just is that -- am I thinking about it right? And could you parse that out for how much was in 2Q versus 3Q? Christopher Thome: Yes. No, you're spot on there, Bobby. As you saw from the release today, we had $15 million of orders in Q2 and the other $7 million came in after quarter end. So they'll be in Q3. Robert Brooks: Got it. And then so excellent results for revenue in the quarter, but guidance is maintained. So I was just curious, could you discuss why maintaining the guidance made more sense in raising? Is it just simply some stuff was scheduled to go out maybe in the back half and got pulled forward and occurred in the second quarter? Or maybe it's tied to some dynamic with the manufacturing footprint? Just hoping to get more insight there. Christopher Thome: Yes. It's just all timing, Bobby. The results for the first half of the year are consistent with our expectations. We're tracking right on plan. So we just maintain the guidance. Robert Brooks: Got it. And then it's great to hear that the cryogenic facility is on track. I saw some updates from the Barber-Nichols [indiscernible] intra-quarter. And I think I've read somewhere that you're starting to book slots there. So just curious to maybe hear an update there and how things are going. Matthew Malone: Yes. So I'll answer 2 things. The first is we did successfully commission and execute testing at the Barber-Nichols location in Colorado with the liquid nitrogen stand, which is a smaller stand that supports a critical space program. In addition is the propellant test facility, which is obviously on a much larger basis down in Florida, which is what you're alluding to. We actually expect to get the occupancy here any day, at which point we'll be commissioning with our product. So we'll be testing an internal product. Simultaneously, we do expect within this calendar year to start testing customer product. With that being said, yes, I'd say that the backlog and customer conversations are healthy. And as we pivot from actually getting the test fan operational, we are shifting full focus to booking the customers into the backlog. So it's coming along just as we expected. Operator: And moving on to Russell Stanley with Beacon Securities. Russell Stanley: Congrats on the quarter. Maybe just on orders, surprisingly strong in the quarter, given how strong Q1 was, understanding the lumpiness going forward. But can you talk to, I guess, how much of the Q2 defense orders were Navy related or specifically related to the [indiscernible] carrier programs. Just wondering what kind of opportunities you're seeing outside of those core programs you're already on. Matthew Malone: Yes. Ross, it's a great point. And I think it's worth a little bit of expansion. Actually, the bookings primarily this last quarter weren't in connection to the actual strategic platforms themselves, but in some way are connected to the larger defense scope. So as mentioned, we saw the torpedo side. We saw the -- some of the aftermarket pickup on the defense side. We saw the space bookings that were announced this morning. So it was really a host of opportunities that we've been nurturing sort of in the background connected to the strategic programs without providing too much additional color that I really can't go into. So yes, it was a nice diversified bookings, but very strong, as you alluded to. Russell Stanley: Great. Congrats on that. Maybe I can ask, obviously, excellent order numbers. The customer advances look strong, but just heard from the major shipbuilders a few weeks back. Wondering if you could talk to any sort of impacts you're seeing in your business around the government shutdown, be it in customer conversations or order flow looking a little further out. Matthew Malone: Yes. So fortunately, for us, as you followed us closely, the programs that we're involved with are extremely long-standing and have great confidence long term. So what we're seeing is in terms of impact it is pretty minimal, both in the near term and long term. What we do feel, just to break it down to a very narrow window is we obviously have quite a bit of components working their way through the factory. And so the support from government reviews and reviewing deviations and other things that are much more tactical we are taking some additional time. Fortunately, a unit like this takes years. And so days doesn't end up disrupting the outcome. So I think we're really well positioned despite the shutdown. The other area that we're feeling some impact is just appropriations and then actually sending out the sort of defined POs for what are more development-like programs. So we have gotten all indications that everything is moving forward, but just some delay in actually issuing the work. Russell Stanley: That's great. Maybe one last question just around the Xdot transaction. I understand I think you're already doing business with them. But can you talk to, I guess, what kind of customer feedback you've received around the transaction, what they've said to you? And secondarily, I guess, the tech has applications, I think, across your main business lines, but wondering where the most significant impact might be. Matthew Malone: Yes. It's another great question. So yes, we've been working with at Barber-Nichols, specifically foil-bearing technology for decades at this point on what I'll say is very focused applications. We've also been working with Xdot for extended periods of time. With that being said, we've developed a great relationship and they have analytical capability that ourselves and others do not. So in addition to this, the product portfolio, we get some additional capability. The customer conversations, our customers don't necessarily know that we're using Xdot technology up to this point, but it's an enabling technology. So I'll just say it has allowed us to enter into areas like small modular nuclear, which we're using foil-bearing technology in some other areas like, for example, fuel cell blowers and such, but our customers don't necessarily know that connection and link. What we are seeing is their bearing end user, which is essentially buying spare bearings today or production bearings are now looking to have conversations with Barber-Nichols about potentially machine upgrades or future opportunities. So I guess, Russ, that's the color I'd provide, but it really is around technology excellence. Operator: And our next question comes from Joe Gomes with NOBLE Capital. Joseph Gomes: Congrats on the quarter. On the announcement today on the space market, you did mention that orders that you're making some investments. Maybe you could just give us a little more color on the size and timing of those investments. Christopher Thome: Yes. No, you got that right on, Joe. We are going to need to buy some additional [indiscernible]. That's factored into the CapEx guidance for the year. So as you saw, there was no change to our guidance and we'll spill over a little bit into fiscal year '27. But as we've always said, we're not going to make big capital investments unless we have the orders to support them, and they all have to have a greater than 20% ROIC that we've discussed as well. So -- and we won't make those investments until we have that in hand. Matthew Malone: Yes. And one quick add, Joe, just for some additional insight. The orders really secure the investments that we've already been making. And so these orders really reaffirm a lot of our ROIC calculations that have been made in the past. So it's just really nice that it's sort of reaffirming our commitments in our budgeting process. So strategic direction, the assets like down in Florida, some of these orders impact that facility. The liquid nitrogen stand also has impacted the assembly and test area at Barber-Nichols that just came online last quarter, where this product is going through that facility. And so it's just a great [ marry ] of the current capability that we've already invested in as well. Christopher Thome: That's a great point, Matt. And said a little bit differently as well, the investments we made enable us to win these orders to a great extent. Joseph Gomes: Okay. And maybe the same -- you talked about some momentum in the small modular reactors. Maybe you could just give us a little bit more color on what you're talking about there and momentum and timing for that also. Matthew Malone: Yes. Yes. So small modular reactors is a very interesting -- we've seen ups and downs with nuclear over decades. We're clearly in a bullish position right now. Barber-Nichols is well positioned with background on rotating machine that support both cryogenics that directly applies to thermal regulation of a nuclear reactor. In this case, Joe, we're in the early phases of development on a number of, I'll say, scaling programs or the potential to scale. And so we've already disclosed, but you can sort of see that the ramp is not going to happen overnight. So we are in the development phase. We're seeing some products that will go into the Idaho National Lab dome in the next coming months/year and then have long-term potential for scale. So I'll just -- I'll state it as simple as we're in the early phases of that growth trajectory as almost aligned with what the industry is feeling. Joseph Gomes: Okay. And then just on the defense, the increase, the $9.9 million growth in defense revenues. And you mentioned there was -- one was the timing of some project milestones, new programs, growth in existing programs. I don't know if you could kind of size those for us as to what percent of that $10 million growth came from the milestones versus the new programs versus the growth in existing programs? Christopher Thome: Yes. So Joe, as you know, our revenue tends to be very lumpy. And part of what creates that lumpiness is when we receive materials on some of these programs, we're allowed to recognize revenue since we're on a percentage completion basis. We had -- in our prepared remarks, we had an unusually high level of material receipts this past quarter, which was expected in this fiscal year. And that range from about $8 million to $10 million. So the biggest -- a large chunk of that increase was because of these material receipts, which also, as stated in the comments today, do carry with it a lower margin. As we stated, it impacted our gross margin by about 180 basis points. So that's the bulk of what you're seeing there. But we have material receipts every quarter. It's just not to this high level usually. Operator: [Operator Instructions] And we'll go next to Tony Bancroft with Gabelli. George Bancroft: Great job on the quarter. As I'm looking at all your numbers here in your backlog and your balance sheet, it seems like you guys -- everything is going high and right, a lot of orders, very sticky stuff, long-term secular stuff. In 5 years, you sort of have -- it seems like sort of 3 strong markets that you're in. And as far as growth, how do you -- in 5 years, how are you going to see yourself positioned? Are you going to be focusing on the sort of the naval defense? You've got this sort of a nice space business that's growing nicely. And then you obviously have the commercial SMR business. Your funnel, what are you seeing as the best opportunities? And maybe talk about the demand there, the pricing there and sort of walk through that for me? Matthew Malone: Yes. Tony, great question. I'm going to answer this a little bit higher level, and then we can go deeper if needed. We love the 50-50 target split between sort of the commercial segment and the defense segment. And what that allows us to do is be speedy and nimble, I'll say, attuned to pricing and specifically optimizing pricing on the commercial side and then bringing commerciality where possible in technology and speed to the defense market. So we really act as that long-term provider, but also that sort of technology disruptor in the defense space. So I'll just say, fundamentally, that is our focus, is to keep that velocity from the -- in competitiveness from the commercial side and bring that to the defense side. And 5 years out, we see that same dynamic moving forward. What I will also say is, yes, there will probably be ebbs and flows to what that split looks like based on opportunities that come in the door. Operator: And we'll go next to Gary Schwab with Valley Forge Capital Management. Unknown Analyst: Yes. Great quarter, guys. I just want to go a little further into the last caller's question on -- but I want to go into a different direction. You have a proven success record so far for the MK48 Torpedo program. This is for Matt. I've got a 2-part question for you. Looking ahead for opportunities into 2027 on new torpedo programs, it has to do with the [ SCEPS ], the solid chemical torpedo propulsion system being developed for 2 new torpedo platforms. And it looks like those 2 new torpedoes will serve 2 distinctly different roles from the MK48 program. I know we're already supplying a limited production run on this propulsion system. My first question is, can you add some insight into how the Navy plans to deploy these 2 new torpedo platforms and what gaps they're trying to fill? And then secondly, given Xdot's superiority in its foil-bearing technology, do you see an opportunity that would give us a key advantage possibly of winning a role on either the propulsion side or the guidance system side of either of these torpedo platforms? Matthew Malone: Yes, Gary, and yes, there's a lot of momentum building. First, I'll start off with the torpedo topic. I'm going to decouple Xdot, and I'll cover that sort of after. Independent of bearing technology, we're well positioned to be a key supplier on the platforms that you referenced. So I'll just keep it high level and say we don't need that technology to be a key supplier. We're already engaged in doing work in that arena. Once again, I can't sort of speculate on the Navy's plans for these products. And certainly, it could be Army and other areas. But what I will say is the gaps that they cover, all the gaps that you would expect with such capability, and that's sort of range, longevity, reuse, all the things that would add additional value to the defense portfolio. So yes, we are well positioned on those new technologies in the torpedo space, and we're working with primes and the government to develop those technologies. Unknown Analyst: Can I just ask, is that going to be a much bigger program? Because I know that the problem with going after drones now, one of the programs is for multiple torpedoes, small torpedoes to go after drones. Matthew Malone: So once again, you'll have to sort of read in depth because I can't disclose too many details. But I'll just say that there's a lot of practical uses for both the MK48 Torpedo as well as the new technologies. So yes, I think they're looking to sort of deploy such similar technology to adjacent capability within the naval platform. Operator: And this now concludes our question-and-answer session. I would like to turn the floor back over to CEO, Matt Malone, for closing comments. Matthew Malone: Thank you. We are pleased with our results through the first half of the fiscal year, which were in line with our expectations and guidance. We look forward to keeping you updated on our progress. As always, please reach out with any questions. Thank you, everyone, for joining us today and your interest in Graham. Operator: And ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines, and have a wonderful day.
Operator: Good morning. My name is Nick, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the American Axle & Manufacturing Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, today's call is being recorded. I would now like to turn the call over to Mr. David LI'm, Head of Investor Relations. Please go ahead, Mr. David Lim. David Lim: Thank you, and good morning. I'd like to welcome everyone who is joining us on AAM's third quarter earnings call. Earlier this morning, we released our third quarter of 2025 earnings announcement. You can access that announcement on the Investor Relations page on our website, www.aam.com, and through the PR Newswire services. You can also find supplemental slides for this conference call on the Investor page of our website as well. Now to listen to a replay of this call, you can dial (877) 344-7529, replay access code 4346240. This replay will be available through November 14. As for upcoming investor conferences, we will be at the Barclays 16th Annual Global Automotive and Mobility Tech conference later this month. We will also attend Bank of America Leveraged Finance Conference and the UBS Global Industrials & Transportation Conference in December. We look forward to seeing you there. Now before we begin, I would like to remind everyone that the matters discussed in this call may contain comments and forward-looking statements that are subject to risks and uncertainties, which cannot be predicted or quantified and which may cause future activities and results of operations to differ materially from those discussed. For additional information, please reference Slide 2 of our investor presentation or the press release that was issued today. Also, during this call, we may refer to certain non-GAAP financial measures. Information regarding these non-GAAP measures as well as a reconciliation of the non-GAAP measures to GAAP financial information is available in the presentation. With that, let me turn things over to AAM's Chairman and CEO, David Dauch. David Dauch: Thank you, David, and good morning, everyone. Thank you for joining us today to discuss AAM's financial results for the third quarter of 2025. Joining me on the call today is Chris May, AAM's Execute Vice President and Chief Financial Officer. To begin, I'll review the highlights of our third quarter financial performance. Then I will touch on some commentary about AAM's recent business developments. After Chris covers the details of our financial results, we will open up the call for any questions that you all may have. So let's begin. AAM's third quarter 2025 sales were $1.51 billion. AAM's adjusted earnings per share was $0.16 per share. Operating cash flow was $143.3 million and adjusted free cash flow was approximately $98.1 million. From a profitability perspective, AAM delivered strong year-over-year margin growth, driven by performance. AAM's adjusted EBITDA in the third quarter was $195 million or 12.9% of sales. a robust 130 basis point improvement versus last year on flat sales. This was led by our driveline business unit, which achieved adjusted EBITDA margins of 14.9%, the highest third quarter margin since 2020. The performance was supported by a focus on operational efficiency, continuous improvement, quality and managing factors under our control. On the metal forming side, we still have additional work to do to reach our full margin potential. Let's talk about the operating environment. In the near term, we are seeing onshoring opportunities within our metal forming group, and we continue to assess our footprint to optimize, to support our customers' needs as we're all dealing with the tariff environment. With the discontinuation of the EV tax credit in the U.S., changes to emission regulations and trade policies, OEMs are assessing their long-range product plans and the market, especially trying to determine electric vehicle natural demand. Currently, bidding activity leans more towards ICE than EV and an extended ICE tail is good for AAM as we can further leverage our installed asset base with our core products. We continue to believe that large truck and SUV demand appear to be very healthy both sweet spots for AAM. With that said, we also have a strong foundational technology in electrification with our components, electric drive units and electric beam axles. Our portfolio will only strengthen and expand as we complete the Dowlais acquisition. As we have communicated earlier, our goal is to have a propulsion-agnostic product portfolio that adjusts with the market demands. Let me talk about some business updates on Slide 4. From a deal transaction standpoint, both shareholder approvals were completed in July. In October, we completed the permanent financing for the transaction by securing $850 million of senior secured notes, $1.25 billion of senior unsecured notes and $835 million of term loans. Additionally, we redeemed all of our 2027 senior notes and a portion of our 2028 senior notes with the financing mentioned. On the regulatory front, we continue to make great progress. The European Commission clearance decision was issued on October 1, meaning that the EU antitrust condition has been completely satisfied. We also recently cleared regulatory approval in Brazil this Thursday on November 6. The combination now been cleared and the related conditions to the combination satisfied under the antitrust laws and 8 of the 10 required jurisdictions or antitrust filings were made, namely in the United States, India, the U.K., Korea, Taiwan, Turkey, the EU and most recently, Brazil. The clearances that remain outstanding under antitrust laws are Mexico and China. We expect Mexico to be cleared here in the fourth quarter of 2025. In China, the parties are actively engaged with the state administration for market regulation otherwise known as SAMR with respect to its review of the combination, and AAM remains highly confident on obtaining antitrust clearance in late 2025 or early 2026. Regarding the deal closing timing, we now expect the deal to close in the first quarter of next year as we communicated in our press release on October 27. As such, we are very excited to close on this transformational combination. From a product win perspective, AAM's won new and replacement programs as well as volume extensions in both business units. One win in particular is a meaningful volume uplift for a popular heavy-duty truck program. We supply critical transmission products for that platform. These wins in general support a broad spectrum of powertrains, signifying AAM's agnostic approach. Transitioning to our guidance. We've updated our 2025 guidance ranges on the strength of our results through the first 3 quarters of the year. AAM is now targeting sales in the range of $5.8 billion to $5.9 billion, adjusted EBITDA of approximately $710 million to $745 million and adjusted free cash flow of approximately $180 million to $210 million. Our guidance ranges are supported by an assumed North American production volume of approximately 15.1 million units and assumptions on certain platforms that we support. Chris will provide additional details on the assumptions underpinning our guidance. In summary, AAM continues to deliver solid performance while successfully navigating market volatility and policy uncertainties. We remain extremely focused on managing our business and driving efficiency regardless of the operating environment. Meanwhile, we continue to make excellent progress with the regulatory bodies to close our combination with Dowlais. We are excited about the combination's potential and the long-term vision of the new company. This deal is truly transformational, benefiting our customers, suppliers, employees and most importantly, our shareholders. Let me now turn the call over to our Executive Vice President and Chief Financial Officer, Chris May, for the third quarter financial details. Chris? Chris May: Thank you, David, and good morning, everyone. I will cover the financial details of our third quarter 2025 results and our updated guidance with you today. I will also refer to the earnings slide deck as part of my prepared comments. So let's go ahead and begin with sales. In the third quarter of 2025, AAM sales were $1.5 billion, flat versus the third quarter of 2024. Slide 7 shows a walk of third quarter 2024 sales to third quarter 2025 sales. Volume mix and other was favorable by $8 million. Metal market pass-throughs and FX translation increased sales by approximately $25 million. And these gains were offset by $30 million of lower sales due to the successful sale of our commercial vehicle axle business in India that took place earlier in the year. Now let's move on to profitability. Gross profit was $189 million in the third quarter of 2025 as compared to $171 million in the third quarter of 2024. For the third quarter of 2025, adjusted EBITDA was $194.7 million, and adjusted EBITDA margin was 12.9% versus $174.4 million and 11.6% last year. You can see the year-over-year walk down of adjusted EBITDA on Slide 8. In the quarter, adjusted EBITDA was higher due to volume, mix and other by $9 million versus the prior year. This unusual contribution margin rate this quarter was driven by mix. Sales of certain higher-margin programs increased while sales of lower-margin programs declined. Ram heavy-duty production, which is a significant program for us increased year-over-year. R&D was lower by $3 million versus last year as we continue to optimize our engineering spend. And lastly, performance and Other was favorable by $16 million. The year-over-year favorability was driven by a combination of factors, including operational performance and other productivity, partially offset by tariffs and SG&A expense timing. AAM remains focused on productivity, efficiency and cost optimization in all areas of our business. Let me now cover SG&A. SG&A expense, including R&D, in the third quarter of 2025 was $98.8 million or 6.6% of sales. This compares to $94.6 million or 6.3% of sales in the third quarter of 2024. AAM's R&D spending in the third quarter of 2025 was approximately $37 million, down from approximately $40 million. For the full year, we continue to anticipate R&D expense to be down on a year-over-year basis by nearly $20 million, driven by current market requirements and continued focus on engineering efficiency. Let's move now on to interest and taxes. Net interest expense was $35.7 million in the third quarter of 2025 compared to $38.1 million in the third quarter of 2024. The improvement was due to a lower weighted-average interest rate of our outstanding long-term debt and lower year-over-year debt balances. In the third quarter of 2025, we recorded income tax benefit of $10.9 million compared to a benefit of $12.1 million in the third quarter of 2024. The third quarter of 2025 includes a discrete benefit of $22 million related to the impact of the accounting for the 1 big beautiful bill. For the fourth quarter of 2025, we expect an adjusted tax rate of approximately 10% to 15%. As for cash taxes, we expect approximately $60 million to $75 million this year. Taking all these sales and cost drivers into account, our GAAP net income was $9.2 million or $0.07 per share in the third quarter of 2025 compared to net income of $10 million or $0.08 per share in the third quarter of 2024. Adjusted earnings per share, which excludes the impact of items noted in our earnings press release, was $0.16 per share in the third quarter of 2025 compared to $0.20 per share for the third quarter of 2024. Let's now move on to cash flow and the balance sheet. Net cash provided by operating activities for the third quarter of 2025 was $143 million, compared to $144 million in the third quarter of 2024. Capital expenditures, net of proceeds from the sale of property, plant and equipment for the third quarter of 2025 were $64 million. Cash payments for restructuring and acquisition-related activity for the third quarter of 2025 were $18.6 million. Reflecting the impact of these activities, AAM's adjusted free cash flow was $98 million in the third quarter of 2025. From a debt leverage perspective, we ended the quarter with net debt of $1.9 billion and LTM adjusted EBITDA of $735 million, calculating a net leverage ratio of 2.6x at September 31 -- through September 30, 2025. We also maintained a strong cash position of over $700 million. AAM ended the quarter with total available liquidity of approximately $1.7 billion, consisting of available cash and borrowing capacity on AAM's global credit facilities. With that background in place, let's talk about our guidance on Slide 5. Our outlook has been updated from our previous targets. Our updated targets are as follows: for sales, our new range is $5.8 billion to $5.9 billion versus $5.75 billion to $5.95 billion previously. This new sales target is based upon a North America production assumption of approximately 15.1 million units and certain assumptions for our key programs. We now anticipate GM's full-size pickup truck and SUV production in the range of 1.35 million to 1.39 million units. From an EBITDA perspective, AAM anticipates a range of $710 million to $745 million versus $695 million to $745 million previously. We now anticipate adjusted free cash flow in the range of $180 million to $210 million. Our CapEx assumption is unchanged at approximately 5% of sales as we ready the organization for important upcoming launches especially for 1 of our new truck programs. In addition, while not included in our adjusted free cash flow figures, we estimate our restructuring-related cash payments for AAM as a stand-alone entity to be approximately $20 million for 2025 as we look to further optimize our business and further reduce fixed costs. With the updated guidance in mind, let me provide some additional color on the fourth quarter operating environment that we see. From a production standpoint, we expect normal seasonality plus some additional production volatility. We anticipate AAM's project expense to be overweight in the fourth quarter as we prepare for some significant upcoming launches that I mentioned previously. We continue to be excited about the new Ram heavy-duty launch cycle that has gained momentum throughout the course of the year and we will continue to manage other costs such as R&D. We underscore that the guidance figures that we are providing today are on an AAM stand-alone basis, pre-combination basis and excludes any costs or expenses related to our announced Dowlais transaction. As it relates to the Dowlais acquisition, as David mentioned earlier, we completed the permanent financing for the transaction. This includes a nice balance of term loans, secured notes and unsecured notes. As part of this positive financing activity, we're able to opportunistically refinance all of our existing 2027 senior notes and a portion of our 2028 senior notes. As a result, we extended the weighted-average maturity of AAM senior debt to well over 6 years. The revised debt maturity profile provides AAM with flexibility, and we will have no significant maturities until 2028. This is very good news from multiple perspectives as we ready for the closing on the Dowlais acquisition. And for 2026, we expect to provide formal guidance early next year. However, let me give you some of our thoughts as we head into next year. While the industry faces various challenges, we remain excited about our product and markets. We anticipate large SUV and pickup truck markets to remain healthy. As you know, our primary driveline truck platforms are the GM T1XX and the Ram heavy-duty platforms. We also have very good content on the Ford Super Duty. We believe ICE and ICE hybrid powertrains will continue to have meaningful longevity and consumer demand. Tariff and world trade dynamics should create opportunities for global suppliers with strong capabilities and scale such as AAM And also a soon-to-be much larger AAM with the completion of the Dowlais acquisition. And lastly, we will continue to focus on our core cost efficiencies and aggressively drive towards realizing our $300 million synergy goal. So in conclusion, AAM delivered good results through the first 3 quarters of the year and has successfully navigated both production and tariff volatility. Fundamentally, we will continue to manage factors under our control and course correct through market, supply chain and policy changes that we may face. Furthermore, our aim is for continuous improvement and operational excellence, and they should manifest in future results. Thank you for your time and participation on the call today. I'm going to stop here and turn the call back over to David, so we can start the Q&A. David? David Lim: Thank you, Chris and David. We have reserved some time to take questions. I would ask that you please limit your questions to no more than 2. So at this time, please feel free to proceed with any questions you may have. Operator: [Operator Instructions] Your first question comes from Joe Spak with UBS. Joseph Spak: Chris, maybe just a first quick one, some housekeeping, I guess. Could you just remind us sort of what's in the bucket or what was driving it, like the $9 million volume mix other in EBITDA on $8 million sales. What just stands out a little bit what's going on in those buckets? David Dauch: Yes, yes. That's a great question. With the -- of course, with the low change in revenue, obviously, you get a little bit of dynamics in a percentage ratio here. But we experienced in the quarter was a continued, I would say, year-over-year strong performance on the Ram platform. So we saw elevated sales from our full-size truck franchise from that standpoint. We had some clients in some of our other business, I think some passenger car and crossover vehicle and component business. So that mix sort of caused dynamic of sort of a ratio of some higher-margin business coming in, in terms of -- versus prior year. And then some lower margin business sort of lower to give that sort of odd ratio between volume mix and other from a contribution margin mix to the revenue that you see. You do have some tariff recoveries flowing through that line as well that kind of accentuates that issue a little bit, but that's principally what's going on. All normal activities, it's just an odd mix. Joseph Spak: Okay. David, just the second question and bigger picture. I was wondering if you could just sort of update us on your conversations with customers and -- in terms of sort of where [ you're at ] in reshoring activities and other sort of investments in the U.S. And what type of conversations you've had with some of your customers there and opportunities? And I guess, are you also able to start to go to those customers with some of the potential benefits from the Dowlais acquisition? Or is that not yet feasible or part of those conversations? David Dauch: Yes. Let me start with the last question first, Joe, is we're not able to have any discussions with customers regarding Dowlais directly because it will be considered gun jumping as far as the 2 of us working together. So we're very distinct in regards of only talking about what AAM can do today versus what Dowlais might be able to do in the future. So -- but that will enhance our opportunity clearly, once that becomes part of the AAM family. As I indicated in my comments, and Chris did as well is that we are seeing a lot of opportunities from various customers, both the OEM level and the tier level on our metal forming business for localization, especially in forgings, in castings and powdered metal parts. So that's increasing some of our sales opportunities and nothing to announce at this time, but we're working actively with multiple customers right now. Regarding plant footprints, you know our policy is always to try to buy and build local in the local markets that we serve. That's mitigated a lot of tariff exposure to us. We're clearly watching the USMCA negotiations anticipating that there'll be a higher U.S. content requirement in the future. We have had conversations with various customers about what their intentions are, knowing that we ship big products, we like to be in closer proximity to our customers. So once they can make their final decisions, then we'll make appropriate footprint adjustments in concert and in alignment and in agreement with those customers on a go-forward basis. So I'd say, yes, there's ongoing discussions taking place. Nothing that we can announce at this time. It's going to be largely dependent on when the customers finalize their plant loading plans. Operator: And your next question today will come from Tom Narayan with RBC. Gautam Narayan: The first 1 is just on the regulatory antitrust clearing. Just seeing if -- I mean, you guys are confident China late '25 or early '26. Just curious if that was like a surprise at all? Or was that always contemplated. Is there any -- is there a specific risk there? Or is there like a over there? Is that what's causing that where that might lead to divestitures or something? Just -- or is it just kind of just course, regular course of action? And then I have a follow-up. David Dauch: Yes, Tom, this is David. We're highly confident in regards to we'll get all the jurisdictions approved. We clearly anticipated that Brazil, Mexico and China would be the long poles in the tent. Brazil, as I mentioned, we got verbal acknowledgment earlier in the month but we got final formal approval just yesterday. We expect Mexico here yet this month. In China, we're in discussions with them. But I don't expect us to have to do anything from a large remedy standpoint in that area. We're just going through the normal discussions in their inquiries and questions. Just like we've done with other countries. Their process is just taking a little bit longer. We did anticipate that geopolitical issues could potentially impact this. But quite honestly, it hasn't. At this point in time, and we hope that it doesn't. But we're getting a full operation from SAMR at this time. Gautam Narayan: Okay. Got it. And then my follow-up, just on the kind of production that you guys are assuming for North America 15.1. It does it does feel like it implies kind of a downshift in Q4, a pretty significant one. Just curious, maybe, is that baking in some conservatism? Maybe in [ Xperia ] seems to be -- there's some positive indications there on resolution there. I know that that's a market number, but just curious if that's just conservatism or something specific you're seeing? Chris May: Tom, this is Chris. Of course, we anchor this a little bit around, as you mentioned, a market number. But at this point in the year too, we are also really kind of calibrating and locking into our specific customer schedules. And as you may be aware, we've experienced a little bit of downtime in the fourth quarter early in the quarter, meaning October, early part of that. We had 1 of our customer assembly plants at Wentzville down, that impacted some of our production. We've seen a little bit of extra holiday downtime, we anticipate near the end of the year. And also, as you mentioned, the other issues in terms of supply chain. We've had a little bit around the edges in terms of some volatility there. But we're trying to calibrate into what we see in the current market environment and that's sort of our best estimate right now at the time. Operator: And your next question today will come from Itay Michaeli with TD Cowen. Itay Michaeli: Just going back to the onshoring opportunity. As you think about that opportunity as well as your recent business wins and ICE extensions. I'm curious how you're thinking, at least at a high level of the kind of growth over market potential over the next 2 years or so. David Dauch: What I would say, Itay, this is David. I think we have an opportunity to benefit strongly in our metal forming side of the business. With respect to the onshoring activity that we mentioned earlier, once we're able to pull Dowlais together, we also think there's in-sourcing opportunities because they buy a lot of their forging and some of their powder metal on the outside. So -- and casting. So we think there's some opportunity there. I don't have off the top of my head, our position in regards to this growth over market, but I think we can keep up with the market with respect to what's going on. We do have some products that will be transitioning off some older transmission-related products. So clearly, we're going to have to offset that in order to show incremental growth aligned with the marketplace. But I would say, overall, we should be able to hopefully hold on to where the market is at. Chris May: Yes. And I would say, Itay, this is Chris. In addition to with some of that with these extensions that we're seeing, obviously, some conversion into hybrid creates some opportunity for us. And you may recall from our last earnings call, we announced a great award with Scout.So these are examples where our next-gen technologies into electrification will also drive some of that uplift in terms of growth over market opportunities for us. Itay Michaeli: Terrific. That's very helpful. And as my follow-up, just on the kind of Q4 outlook, do you have any kind of bias within the EBITDA range. And maybe just talk about the different factors from here through year-end that may cause you to come in at the lower or maybe higher end of that range? Chris May: Yes. In terms of that range, I can obviously, the first and foremost, it does, it pins around our absolute revenue for the quarter, and our contribution margin generally somewhere between 25% to 35% range. So that is the key -- probably the primary factors as I think, about our EBITDA range inside of the fourth quarter. As I mentioned in my prepared remarks, we do have some, I would say, heavy load of project expenses, we're getting ready for some next-gen product launches also aligned with some of our heavier capital spend that we're anticipating here in the fourth quarter. But you do get a little timing movement associated with that. As I mentioned, also some of our production volatility caused a little bit, but we're also focused on some cost optimization side on our engineering spend as well as some productivity improvements in several of our facilities. So those are kind of the key factors that had plus or minus to it, but the largest piece is volume at the moment. Operator: The next Question will come from James Picariello with BNP. Thomas Scholl: This is Jake on for James. You saw a pretty healthy step-up in driveline margins this quarter. Could you just share if there were any one-timers in there? Or is this a number you guys think you can do going forward? Chris May: Yes. Look, each quarter obviously has a unique story, whether it's mix of volume of products, but we -- on the driveline side, if you look consistently now over the last 4 to 6 quarters has been very strong and stable in its ability to generate margins on its product mix. As we talked a little bit about Ram earlier on a year-over-year basis continues to be very strong for us. That's obviously one of our full-size truck franchise products that we supply. And then quite frankly, they doing a nice job of managing their cost environment. So each quarter is a little bit different in terms of its margin, but holistically, the trend is for them to continue to perform very strong. Thomas Scholl: And then you guys have pretty significant exposure on these heavy-duty heavier duty pickup trucks. So can you talk about the impact you're seeing from the expansion of the 232 tariffs to the medium and heavy duty truck space? Have you seen any kind of shifts from your patterns or you're potentially having easier time in discussions about [ recoveries ]? Chris May: Yes, Mike. Great question. Yes. No, we obviously have a lot of exposure on that -- those platforms for all 3 of the North American OEMs. And as you know, that's a very strong demand product and built all throughout North America in different locations. Right now, at the moment, no, we've not seen any negative impact associated with that. Our customers to build those very well in terms of capacity, in terms of meeting their end market demand as well. But currently, we're not seeing any significant impact associated with that. Operator: And your next question today will come from Edison Yu with Deutsche Bank. Xin Yu: This is Winnie on for Edison. So I guess I want to go back to the quarter for a little bit, especially the performance in other Markets category, which is very strong. I just wanted to see if you can break that down, the composition of it? And then what's sustainable, what's not on a go-forward basis? Chris May: Winnie, this is Chris. I'll take that one. If you look at our performance bucket on our year-over-year walks, about 2/3 of that performance is associated with our driveline business unit sort of in response to the question that was just answered previously. And I would expect them to continue to have very strong normal operating performance. The remainder of this bucket was a net of a few things. We've seen some positive momentum in our, I would call it, material costs as a company. It was offset slightly by tariffs, a couple of million dollar net negative impact inside the quarter related to tariffs and then some timing of our SG&A expense also offset some of that gain. But structurally, again, I would expect the driveline to continue to perform very well. And metal form, I would expect to improve over the next couple of quarters as it relates to performance. Xin Yu: That's very helpful. And then maybe just looking ahead to 2026. You've mentioned that mix in your quarter was a strong contribution to the strong incrementals that you guys have been seeing. Can you help us maybe think about how that could potentially roll forward to 2026? As we look at volume and mix heading into next year? And then maybe on the profit cost side, what are some of the good guys or bad guys, that you guys -- high level color, that would be great. Chris May: Yes. As it relates to our contribution margin on our product mix, we've been pretty consistent. We see it flow through almost every quarter. Our range would be, 25% to 35% is our margin. So use that midpoint of 30%. It does depend a little bit on mix of products, but that's pretty constant. I would expect that to continue in that range going forward. Look, as we think into 2026, we're going to be very focused on optimizing our cost structure, keeping our product engineering spend in line with market trends. But really, we're going to start to pivot here in addition to our core productivity but pivot towards the acquisition with Dowlais and the synergy realization and really sort of growing our margin and cash flow opportunity from that perspective. Operator: And the next question will come from Nathan Jones with Stifel. Nathan Jones: Just 1 follow-up on your mix equation in the third quarter and how to think about that going forward? Obviously, you can have some different impacts during any given quarter. But is that something more structural in the mix where these more profitable programs that you are on should structurally grow faster than some of these less profitable programs that It are may be rolling off and we should continue to see not necessarily from 1 quarter to the next, but a more structural improvement in that mix? Chris May: I would expect, as I mentioned, Nathan, our standard contribution margin is around 25% to 35%. Our North America trucks generally are Towards the higher end of that range. Passenger cars are a little bit towards the lower end and crossover vehicles are sort of in the middle. I do not see that fundamentally changing going forward. Nathan Jones: Okay. Maybe a question on the metals business. Maybe you could just talk about the restructuring actions that you have taken in that, what's left to do and the levers that you're currently pulling and the levers you need to pull in the future to get the margins back to a more acceptable level in that business? David Dauch: Yes. This is David Dauch. We're clearly looking and acting on restructuring efforts with some activity that we've got ongoing in Europe right now. We're executing that plan. We hope to have that completed into next year. So that would be positive. The other part is addressing just some utilization matters and throughput matters within a couple of our existing plants that have struggled a little bit. One, first on labor availability and just technical skill sets. So we're addressing those matters. We're highly confident that we can get the margins back up into a double-digit type category. I don't know historically, if we can get them to those levels next year, but we'll continue to work in that direction. But obviously, we've had some challenges there that have been lingering on a little bit longer than we would like, but we're very focused on what we need to do to fix those matters going forward here. So I'll leave it at that. Operator: The next question will come from Doug Karson with Bank of America. Douglas Karson: I want to focus on the balance sheet just for a moment. So it looks like net leverage is in good shape at 2.6x. I just wanted to kind of double click on the Dowlais acquisition and being kind of conservatively set. Am I right in saying that pro forma net leverage is about flat following the acquisition? Chris May: Yes, We -- when the announced the -- this is Chris. When we announced the transaction earlier in the year, our leverage we closed last year was around 2.8x. First quarter, we were around 2.9x. And we said at that point in time, we would expect the leverage of the company once at close to be somewhat around neutral to that time spot and location. We still expect that to be true based upon what we stated earlier in the year. What you are seeing going on this year inside of AAM stand-alone as we had several initiatives to monetize some of our assets, exiting our joint venture in China, our sale of India commercial vehicle and pool cash towards that close. And this is tracking exactly along the line of the plan we anticipated and able to make that statement earlier in the year that we expect to be around leverage neutral at close from our numbers that we had when we made the announcement. So we're still expecting that to be true. Douglas Karson: That's great. that update. If I could just look at maybe at the long-term leverage framework. So since the Metaldyne acquisition, I remember in maybe 2016, lowering leverage and focus on the balance sheet was pretty much a priority for almost 10 years. How do you kind of look at the future framework for leverage now that the company's revenue is almost going to be double and you've got, I guess, more diversity. Just kind of curious of where leverage is going to go over the intermediate term? Chris May: Yes. In the -- well, first of all, in the short term, our priority will continue to be to delever the company. We will deploy as an -- on an overweight perspective, our cash generation to paying down debt. That is our anticipation. That was our commitment when we announced the transaction with Dowlais earlier in the year. And I would expect that in the near term and transitioning towards the medium term. Through that announcement earlier in the year, we did indicate once we cross the 2.5x net leverage threshold, we would have, I would call it a little more balanced capital allocation playbook. We'll continue to focus on paying down debt. We'll continue to focus on reducing the leverage of the company. That is a priority for us, but we would open up our playbook to maybe consider some other actions from a shareholder perspective. But reducing the leverage, continuing to pay down debt in the near term will be our top priority and will continue to be a priority in the medium and longer term. Operator: Your last question is a follow-up from Tom Narayan with RBC. Gautam Narayan: Just a quick 1 on the press release you guys issued on October 27 that discusses some of the some of the management folks you guys invited from the Dowlais side. Just curious how you see that playing out? Is it like kind of a plug-and-play where those folks continue to lead their respective kind of organizations? Yes, just again a high level after seeing that press release, curious how you think about integrating executives from Dowlais. David Dauch: Yes. Tom, this is David. Clearly, we are hopeful that Roberto Fioroni would join the executive team. Initial indications, we're headed down that path. At the same time, he made a personal and family decision. We have and will respect those decisions. At the same time, we'll make the necessary adjustments from a management team standpoint. Roberto's current capacity is the CFO at Dowlais. Chris is clearly the CFO at American Axle. So we'll continue with Chris in the capacity where we are. And then we'll make some slight adjustments in regards to other things that we are planning. So again, we're disappointed that Roberto can't join us. But at the same time, we've got an outstanding executive team today, and we'll continue to lead the organization going forward, and we're going to work collectively together to blend the teams at all the different levels, including the Board of Directors so that we can pick the best athletes and have the best talent to support the strategic combination of the 2 companies. David Lim: We thank all of you who have participated on this call and appreciate your interest in AAM. We certainly look forward to talking with you in the future. Thank you. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.