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Operator: Good morning, ladies and gentlemen. Welcome to the Dream Office REIT Q3 2025 Conference Call for Friday, November 7, 2025. During this call, management of Dream Office REIT may make statements containing forward-looking information within the meaning of applicable securities legislation. Forward-looking information is based on a number of assumptions and is subject to a number of risks and uncertainties, many of which are beyond Dream Office REIT's control that could cause actual results to differ materially from those that are disclosed in or implied by such forward-looking information. Additional information about these assumptions and risks and uncertainties is contained in Dream Office REIT's filings with securities regulators, including its latest Annual Information Form and MD&A. These filings are also available on Dream Office REIT's website at www.dreamofficereit.ca. [Operator Instructions] Your host for today will be Mr. Michael Cooper, Chair and CEO of Dream Office REIT. Mr. Cooper, please go ahead. Michael J. Cooper: Thank you very much, operator, and good morning to everybody, and thank you for joining our call. This morning, we're here once again with Jay Jiang, the CFO; and Gord Wadley, our Chief Operating Officer. We think the third quarter was a pretty significant quarter for Dream Office. We have been able to secure high-quality tenants and are filling up a lot of vacant spaces as we turn over some of our weaker tenants. We've seen a much stronger leasing market. And we hope that over the next couple of quarters, some of the tenants that are committed and not in place will take possession and we'll continue to lease more space. I think the most interesting number is, excluding 74 Victoria, which the federal government vacated at the end of last year, the rest of our downtown Toronto portfolio is now over 90% committed. And we can identify many vacant spaces that are quite leasable, and we expect to make progress throughout the balance of this year and into 2026. So we're feeling pretty good about the shape we're in. With some of the large deals that we've done, getting long-term leases with stable tenants, we have given up some occupancy to make space for them, and Gord will go over that in more detail. But generally, we're seeing the demand for space to be increasing. We see a lot more people back to work. And the market seems to be getting a little bit stronger, and we expect to see that continue throughout the next few quarters. So with that, I'll turn it over to the team to make their prepared comments. Gordon Wadley: Well, that's great. Thanks very much, Michael. Good morning. I hope everyone is keeping well. As always, it's really nice to get a chance to connect with you all today and share some of the work that our team has been doing year-to-date. I also look forward to taking the opportunity to share some of our priorities to close out 2025, as well as key milestones regarding our asset strategies, operating performance and leasing. We remain very committed and I would say, laser-focused on leasing up and improving the quality of our assets despite operating in a challenging environment for the sector. For the last 2 years, we've continued to see very steady and measured growth across the portfolio. As a management team, we've been very consistent in the messaging where we'd say there would be incremental net absorption quarter-over-quarter, and we've been very hypersensitive in identifying and managing risks well in advance to mitigate any material drop in income or committed occupancy. This approach has yielded another consecutive quarter where we've seen committed occupancy growth directly in line with the guidance we shared throughout the year. For Dream Office, leasing continues to actually be quite resilient. We've done over 630,000 square feet of gross leasing year-to-date, and that's made up of 110 deals across the portfolio. More specifically, in Toronto, we've done 520,000 square feet completed across 92 deals. And of that, 252,000 square feet were new leases and 270,000 square feet were renewals. We are in advanced negotiations on another 60,000 square feet of deals, which would bring our annual total, just from Toronto, to 580,000 square feet. For context for everybody, the 3-year average annual leasing volume in Toronto was about 530,000 square feet. This puts us on track to exceed this level in 2025 with even fewer assets. For the 252,000 square feet of new leasing, NERs are outperforming the business plan at about $18 a square foot versus $15. This outperformance is driven by longer WALTs, which allow higher TI and LC costs to be amortized over the extended terms. The average new lease term is 8.5 years versus 5 years what we had in the budget, reducing effective cost to $11 a square foot per year versus $16 a square foot per year. While net rents remain in line with our guidance and top of the market for their respective classes in the mid-30s. For the 267,000 square feet of renewals, NERs are in line with guidance, even with a few large deals executed at lower NERs to accommodate certain blend and extends and protect occupancy. Most notably, IFDS at 30 Adelaide to accommodate a large new tenant at 30 Adelaide to backfill the space we got back. On the balance of the renewals, we've seen improved performance with the weighted average NERs kind of low to mid-20s when you exclude those big blend and extends. To quickly touch on other markets, year-to-date, we've completed 110,000 feet of leasing across 21 deals in Western Canada, including 23,000 square feet of new leasing across 10 deals and 87,000 square feet of renewals across 11 deals. We are well in line with our 3-year average annual leasing volume in other markets or Western Canada. Deal velocity and absorption and committed occupancy is honestly what I get asked the most about by investors, analysts and researchers. I want to give you all some very important context. Our best year of total leasing was 2023, where we did approximately 604,000 square feet gross. And subsequently, the best year of leasing volume, the number of deals that we did was 2024, where we did 104 deals. We're quite pleased year-to-date that we've eclipsed total square footage leased already with 630,000 square feet and total deal volume with over 110 transactions. We still have another quarter to go. We have consistently said our goal is to get incrementally better each quarter, and we have from an occupancy -- committed occupancy perspective quarter-over-quarter since 2023. A big catalyst for our absorption has been our model suite program. Since 2024, we built out 26 model modified suites across 120,000 square feet of vacancy in the portfolio. By being proactive and investing the capital and improving space to attract move-in-ready tenants, we've leased 20 of the 26 spaces for 85,000 square feet. We're also conditional on another 3 for an additional 15,000 feet, which would be 101,000 of the 121,000 or approximately 90% of the units. This summer, many of you might remember, but we had a slide at our AGM that illustrated the growth in occupancy on our Bay Street Collection assets. In Q2 2024, we are at 72% occupancy. We showed that to close out Q1 2025, we were up almost 400 basis points to 76%. And now with our model suite deals completed on Bay Street and the 2 conditional deals we have in the pipeline, we're up another 500 basis points to 81%, just on the Bay Street Collection. As such, we're pretty pleased to see some steady growth in committed occupancy since Q1 2024 in that specific note. Over the course of the year, we have consistently worked and guided our committed occupancy to be in the high 80s, the mid- to high 80s to close out 2025. We're well on pace to achieve this and feel confident to reach about 86.5%, supported by deals signed this year on vacant space with future commitments. A great example is our largest asset at Adelaide Place. Currently, it has 78.5% in-place occupancy. I'm pleased to share that we've done significant leasing in that asset the last 12 months to the tune of 220,000 square feet, bringing our committed -- not our in-place, but our committed occupancy to 95.7%. These deals, while not immediately contributing to NOI, we'll see our NOI go from $15.5 million to just over $18 million in the next year at AP alone. This derisks and anchors the portfolio by being a large fully leased asset with strong steady cash flow, great covenants, long term. Going asset by asset, when you drill down a little further, if you net out our largest single exposure being the remaining vacancy that we had at 74 Victoria, our committed occupancy for the portfolio, as Michael said, is about 90%. As a quick reminder, we had PSPC informed us just over 18 months ago that they were leaving the building in full, giving us 200,000 square feet of vacancy. Since then, we've secured 70,000 square feet direct with PSPC. We completed another deal for 44,000 square feet, and we have a very active prospect in advanced negotiations for another 25,000 square feet. That would take us to over 130,000 square feet of the vacancy that we had received just over a year ago. We had about 187,000 square feet of expiries this year, of which 91,000 square feet are renewals, and it got us to a renewal ratio over the year of about 48.7% year-to-date. What I would like everybody to know is, on top of that, we did another 40,000 square feet of new leasing on that exact same expiring space in advance of them vacating this year, which gets us to 74% coverage on units that are expiring. Ultimately, the management team feels quite good going into 2026 and carrying on the momentum as the Toronto portfolio has about 340,000 square feet of expiries next year. Of these, about 40% are addressed net of known vacates, we only have about another 110,000 square feet of unaddressed expiries. When you look at the deal velocity and absorption we've had over the years, it's quite manageable. Of this 110,000 square feet, we currently have proposals with about 76,000 square feet. So we feel like we're in good shape on addressing year-over-year rollover and more importantly, backfilling space as it comes up. And we've got a track record of doing that over the course of the past 18 months. In closing, our Q3 results reflect the strength and resilience of Dream's Office strategy and execution. Despite ongoing sector challenges, we've tried to be transparent and share with everyone our guidance and really work towards the guidance and do what we say we're going to do. Our team's proactive approach to leasing, risk management and asset quality has delivered consistent growth in occupancy and net absorption. Our Toronto and other markets are outperforming historical averages to date over the last 5 years. Our model suite program and targeted investments continue to attract high-quality tenants while our disciplined management of renewals and backfilling expiries position us to achieve our committed occupancy targets for year-end and beyond. As we look ahead to 2026, we remain very confident in our ability to sustain this momentum, drive portfolio stability and create long-term value for our stakeholders. Thank you to our team for all their efforts and continued commitment, and thanks to you all online for your continued support and interest. I'll now turn it over to my good friend and CFO, Jay Jiang. Jay Jiang: Thank you, Gord. Good morning, everyone. Today, I'll walk you through our third quarter financial results and share our outlook for the rest of the year. Please note, we'll provide formal guidance for 2026 during our fourth quarter conference call in February. This quarter, our diluted funds from operations were $0.60 per unit, matching both our internal expectations and with year-to-date FFO at $1.90 per unit, we're on track to be within the range of guidance we provided on our August conference call. Compared to last year's third quarter, FFO per unit declined $0.17 per unit. The decline was largely driven by the sale of 438 University, the sale of our vendor take-back mortgage in Calgary and 5.9 million units of Dream Industrial REIT. The cumulative impact of these asset sales reduced our FFO by approximately $0.19. These dispositions brought in approximately $180 million of cash proceeds, which we used to repay mortgages and credit facility, which improved our debt-to-gross book value by 280 basis points. At an estimated cost of debt of 5%, we saved approximately $0.11 for the quarter by reducing debt. So the net FFO dilution is approximately $0.08 in exchange for $180 million of debt reduction, improved liquidity and a safer balance sheet. Note that on a cash basis, impact is further reduced by additional $0.03 because the cash distribution forgone on the Dream Industrial REIT units sold is $0.05 versus $0.08 of FFO. Year-over-year, the weighted average interest on our total debt balance increased by approximately 23 basis points. FFO declined $0.06 due to refinancing mortgages at a higher interest rate environment and drawing on our revolver to fund some of our larger long-term lease completed this year to improve committed occupancy. Year-over-year comparative net operating income from our income portfolio was flat for the quarter despite losing $2 million of NOI at 74 Victoria from the federal government expiry. We were able to offset this decline with increased NOI at Adelaide Place, 36 Toronto and 30 Adelaide. Our year-over-year straight-line rent reduced by approximately $0.05 as in the prior year, there were 2 larger tenants that began operations in their premise prior to economic commencement of the lease. Those tenants are now paying contractual rents. We are up $0.03 on the completed development and rent commencement of 366 Bay and down $0.01 on taking 606-4th Avenue in Calgary into development and terminating some of the in-place leases. We're pleased with the progress of our 2 properties under development at 606-4th in Calgary and 67 Richmond in Toronto. Once stabilized, these 2 projects are expected to contribute over $4 million in annual NOI at our share or roughly $0.20 per unit. Other items, including the elimination of previously accrued tenant liabilities and expenses that are no longer required and higher property management expenses offset to 0. Year-over-year, our debt-to-gross book value increased 130 basis points to 53.2% as a result of fair value declines in the income portfolio. Over the past 12 months, the weighted average cap rate of our income portfolio increased from 5.72% to 6.15%. Our debt over trailing 12-month EBITDA improved to 11.4x versus 11.7x on a comparative basis. Currently, there is approximately 450 basis points of spread between our in-place and committed occupancy, which represents approximately $6.7 million of annualized EBITDA, of which $1.7 million comes online at the end of 2025, $4.2 million over the course of 2026 and the remaining $0.8 million in 2027. Once the leases take commencement and we continue to improve our occupancy, we expect our EBITDA to grow and improve our leverage ratios over time. On the financing front, we've already addressed all $741 million of our 2025 debt maturities, which represented 53% of our total debt stack. We've already actively begun to work on $166 million of debt maturities for next year and are confident in our ability to secure favorable terms and higher refinancing balances and maturity. This quarter, we repaid our $8.7 million of mortgages on 606-4th Avenue and then sold 50% of our interest in the project to Pomerleau Capital. Having Pomerleau as a partner in this project makes strategic sense for us as they are one of Canada's largest construction companies and their wholly owned subsidiary, ITC Construction Group, will be the construction manager. In addition, we were able to reduce development risk and repatriate $15.3 million of proceeds to reduce our own debt. Construction is already underway, and we anticipate completion in the fall of 2027 with stabilization by mid-2028. On stabilization, we anticipate that the asset will produce approximately $3.6 million of NOI at a development yield of approximately 5.6%, including land at 100%. We closed on the ACLP loan for $64 million for a term of 10 years at a rate of 3.3%. So the project yield provides an attractive spread of 230 basis points to the cost of borrowing. In addition, we have also worked with 9,000 square feet of tenants to relocate them into our adjacent building at 444-7th. This relocation improved occupancy at 444-7th by 340 basis points. We're overall pleased to have obtained a creative solution that helps us reduce risk, improve liquidity and enhance income and value in our remaining property in an otherwise very challenging office market in Calgary. At 12800 Foster Street, Overland Park, our existing lease with U.S. Bank concludes in November 2025, and we have listed the asset for sale earlier this year. We have received expressions of interest from prospective buyers and are negotiating with them on the sale. We are targeting a transaction in early 2026, and we will provide more information on pricing and timing as we make more progress. On our August conference call, we provided updated guidance of between $2.40 to $2.45 per unit and annual comparative property NOI to be relatively flat to slightly positive for 2025. We are still on track with that guidance to close off the year. Our business planning process is scheduled for December, and we'll provide 2026 guidance during our February call. We believe our portfolio is well positioned for growth in income and value, especially if the downtown Toronto market continues to improve. With that, thank you. And now I'll turn the call back to Michael for Q&A. Michael J. Cooper: Thanks, Jay. Thanks, Gord. And operator, at this time, we'd be happy to answer questions. Operator: [Operator Instructions] Your first question comes from Sairam Srinivas with Cormark Securities. Sairam Srinivas: Gord, this one is probably for you. When you look at the demand that's kind of come up in September across Bay Street, is that more specifically for a certain kind of flow plate? Or is that generally across-the-board where people really need space now and are willing to actually come to smaller plates? Gordon Wadley: Yes. Good question. It's a combination of both. So we're catching a lot of tenants that are in around the 3,000 to 5,000 square foot range that are looking at our Bay Street Collection. And the bulk of the tours, I mentioned are model suites. So they're really kind of coveting improved suites that are move-in ready. And we're starting to see for the first time, a few kind of start-ups dip their toe in the water, but the profile is mostly still professional services firms. Deals we're doing are with money managers, law firms, people that kind of covet having a Bay Street address, but it's in about the 3,000 to 5,000 square foot range we're seeing the most velocity of tours. Sairam Srinivas: That makes sense. And probably looking at 74 Victoria and considering the leasing you guys have done to date on that space and what's remaining out there, is there something that stands out in the space that remains that makes it may be less or more challenging to kind of lease out? And is that something which should probably meet the current requirement out there? Gordon Wadley: Yes. I'm glad you brought it up. So 74 Victoria would be, by any class considered almost a typical government building, like a low B, C class type building. We expect some capital to redo the common areas, which has attracted more tours and help the deal velocity. We just finished the lobby renovation. We've done 2 floors into high-quality model suites that really show what the potential is. But the difficulty with that building is that, it is an old building. It's a large footprint. And as such, it kind of caters to a bit of a submarket in Toronto that has less velocity than the Class AAA or the A class market. It's almost a tale of 2 buildings. Like if you look at Adelaide, for example, our committed occupancy is almost 96%. And if you look at 74 Victoria, a different class of asset, well located. It caters to a different group where you're seeing less velocity of tours and interest. Michael J. Cooper: We might a little bit more positive on 74 Victoria. It's in an incredible location. The floor plates are big, and it probably is good for larger tenants that are looking to have a decent space that is very cost friendly. And I think there's a fair amount of tenants like that. We got a lot of space back last year. We're making progress leasing it. And I think we'll continue to do fairly well leasing that building over the next 24 months. Gord, how long would you budget it to re-lease the space at the federal government left at the end of last year? Gordon Wadley: We put that just about 2 years, Michael. Michael J. Cooper: Yes. So I think like when you have such a big change to a building, it does take time to backfill. And I think we're doing pretty good. So I'm pretty impressed with how well that's going. Sairam Srinivas: That's great. Maybe just looking at the assets out here, I look at the list of assets here right here, 36 Toronto, 330 Bay and 250 Dundas. One thing that's common between all 3 is the in-place committed right now is around between 70% and 75% right there. When you think about these assets and the demand, like do we feel that in the next 12 to 24 months, we'll probably see incremental flow of leases out here? Gordon Wadley: Yes. So 330 Bay -- sorry, Michael. I was just going to go through each of the assets you asked questions on. So 330 Bay, we've seen a real velocity in tours. We've actually done quite a bit of leasing in the building that has forward commitments. So we're quite optimistic about it. 350 Bay, I think, was the other building you mentioned and 250 Dundas. 250 Dundas is a site, I'll let Jay talk about, but it's a site that's a redevelopment site for us. So we've just been holding on to in-place tenants for cash flow purposes. And then on 350 Bay, we had a low in-place occupancy there. But on that building, I don't want to give too much forward-looking information. We're getting pretty close on a deal that would take the occupancy to almost 100%. And we're hoping that deal will be done by the end of the year. Operator: [Operator Instructions] This concludes -- my apologies. We have a question from Anish Thapar with Scotiabank. Anish Thapar: So my first question is, is the impact of the return to work policies on the market vacancy consistent with the prior expectations of 6 to 12 months? Michael J. Cooper: Generally, I think so. We're pretty impressed with how many people are coming back to work and how various governments and banks have been encouraged back to work. But Gord, do you want to go in a bit more detail? Gordon Wadley: Yes. I think really the only group that is trailing back to work is the government. I think the banks that we have in our buildings, they've been communicating with us. They're in at least 4 days a week. The provincial government, they're in 5 days a week. Municipality is starting to come back, but it's just the federal government that hasn't quite landed on a return-to-work program. We're seeing a lot of our private sector tenants. I'd say the vast majority are now in 5 days a week in some capacity. So my personal observation is I feel like everybody's return to work is normalized, saving except the federal government. Anish Thapar: All right. So what's the breadth of the tenant demand right now in Toronto today by category? Is it like majority by banks? Or is it diversified with other industries as well? Gordon Wadley: Good question. So our portfolio, it's all -- the majority are kind of like low-rise buildings, smaller floor plates. So we see quite a mix of tenants through. We're seeing a lot of professional services firms come through. We're starting to see more consulting firms to our buildings. And I think if you read the budget and some of the infrastructure that's coming out with the Fed, a lot of these consulting firms are tying their interest to different provincial and federal government contracts. So we're starting to see some consulting firms come through. The provincial government is very active in space accommodations. They're out looking at vacancies as well as other buildings. And then I'd say, predominantly -- and the other thing we're seeing, too, is I mentioned it before on the first caller is, we're starting to see some more start-up interest, which we haven't seen over the last little while, a lot of tech start-ups have been touring some of our smaller units. And what's appealing to them is, we've got some growth potential in the portfolio as well. So when we speak to them, we say, look, you may be 2,000 today, but let's stay in touch, let's communicate and let's see if we can grow you organically. And then we just kind of show them examples of how we've done it. And it helped us strike a few deals, which is great. Anish Thapar: Nice. Good to know. My next question will be on the NERs. So what kind of trends are you seeing on the NERs on smaller that is like less than 10,000 square feet and the larger deals? Gordon Wadley: Yes. So for net effective rents, I mentioned on new deals, we're doing better than we had budgeted. We're seeing kind of high-teens, low-20s. We were seeing a real aversion to term lengths the last few years, but this has kind of changed. We've been able -- I think you could see in our stats, our WALTs have gone up as well, too. So that's helped net effective rents get stronger. We have more time to amortize the cost. So on new deals, we're in and around high-teens, low-20s. Our renewals were brought down a little bit this past quarter just because we did some blend and extends. And on these blend and extends, we put some costs in to attract and retain some of our largest tenants. We were successful in doing it, but it did cost us some free rent and some TIs to do so. The other thing that's contributing to NERs, and I'm not complaining about it because it's a necessary function in the market is leasing commissions for brokers have more than doubled over the last 2 years. So the whole market is susceptible to that, and that contributes to NER compression as well. Anish Thapar: All right. Makes sense. Just the last one. So do you see any incremental pickup in the Toronto office buyer sentiment? And how should we think about your disposition plans for 2026? Michael J. Cooper: That's a great question. I think that there's definitely a better mood around office. There was a recent transaction that closed at 70 York. And that was interesting because that was somebody buying an office building as an office building as most of the trades over the last few years have been buying office buildings to use this institutional quality. So we think it's marginally getting better, but it's not very deep. So I think that will take some more time, but there's definitely more people who are getting educated on it, studying the market. So we'll see what happens. Anish Thapar: All right. And any disposition plans for 2026? Can you give any color on that? Michael J. Cooper: Well, I think that in the other category, I think that Jay mentioned our Kansas City asset. If we can, we might lighten up there a little bit. In Toronto, we really like what we have. We may sell a building, but I don't think we're intending to sell much in Toronto over the foreseeable future. Operator: This concludes the question-and-answer session. I would like to turn the conference back over to Mr. Cooper for closing remarks. Michael J. Cooper: Thank you very much, operator. I just want to close with a little retrospective. For those who may not recall, at our year-end for 2015 in February 2016, we announced that we were concerned about suburban assets and some other assets, and we were going to sell a lot of assets and buy back stock. So between 2016 and 2019, we sold 38 of 40 buildings in Alberta. We sold 142 buildings in total. We reduced the size of the REIT from $7.2 billion by 60%. We bought back about 60% of the stock. And by the time we got to 2019, we were in great shape. There was like less than 3% vacancy in Toronto, rents were very high, buildings were full competition for space. And then we woke up at the beginning of this decade with COVID and people not being able to go to the buildings. And that was a total shock. Work from home was something that was really a fringe item before that. And it's basically been one thing after another with inflation going up, interest rates going up, uncertainty around policies with the U.S. and elsewhere. And we're going into 2026, which is actually the seventh year of this decade. So there's no doubt it's been a tough sector to be in office. But we're pleased with the budget. We're pleased this morning, there was just a bunch of new jobs created in Canada. The unemployment rate went down. It's a relatively mixed environment, but we think that there's becoming more confidence. So the question was, is it just banks that are expanding? Well, they definitely are expanding as they bring tenants back, but we're seeing with the budget and the incentives in it. We expect that there's going to be more and more businesses taking chances and growing. And we think things look more positive than they have for a while. But that doesn't mean that we don't -- that we're not fully aware of just how difficult it's been to be in the office sector for the last 6 or 7 years. So I think we're quite optimistic for what's going forward. I think we're through a lot of the difficult times. We've made huge adjustments, but continues the way it's been for the next couple of quarters will be good. But there's no quick fixes, but we're pleased with the progress we're making. So I guess that's my summary. It's a little bit -- it's just like what we've been doing in the last decade. And we're hoping now we're through most of the difficult times and things are getting better. With that, I'd like to thank the listeners. And please know that Gord, Jay and I are available at any time to answer any more of your questions. Operator: This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.
Operator: Good morning, and thank you for standing by. My name is Ludy, and I will be your conference operator today. At this time, I would like to welcome everyone to the Silvercorp's Second Quarter Fiscal 2026 Financial Results Conference Call. [Operator Instructions] I would now like to turn the conference over to Lon Shaver, President of Silvercorp. Please go ahead. Lon Shaver: Thank you, Ludy. On behalf of Silvercorp, I'd like to welcome everyone to this call to discuss our second quarter fiscal 2026 financial results. They were released yesterday after the market closed and a copy of our news release, MD&A and financial statements are available on our website and SEDAR+. Before we get going, please note that certain statements on today's call will contain forward-looking information within the meaning of securities laws. And also please review the cautionary statements in our news release as well as the risk factors described in our most recent regulatory filings. So let's kick off the call with our financial results. We delivered more solid performance in Q2 highlighted by our revenues of $83 million, which was up 23% from last year and marks the second highest quarter ever. Additionally, cash flow from operating activities was $39 million, and that was up 69% from last year. This performance was mainly driven by a 28% and 37% rise in the realized selling prices for silver and gold compared to last year. Also notably, the amount of gold sold in the quarter was up 64% compared to last year. Silver remains our most significant revenue contributor at approximately 67% of net Q2 revenue, followed by lead at 16% and gold at 7%. Moving down the income statement. We reported net income of negative $11.5 million for the quarter or negative $0.05 per share. This is down from positive $17.8 million or $0.09 a share in Q2 of fiscal 2025. However, this quarter had a significant $53 million noncash charge on the fair value of derivative liabilities, which was partially offset by a $22 million gain on investments. Removing noncash and onetime items such as this, our adjusted net income for the quarter was $22.6 million or $0.10 a share versus $17.7 million or $0.09 a share in the comparative quarter. Note that the average shares outstanding used to calculate EPS this quarter was 218.6 million compared to 206.5 million in the same period last year. On the capital spending side, we invested nearly $16 million at our operations in China and $11 million in Ecuador during the quarter. We generated $11 million in free cash flow for the quarter, which supported our strong closing cash position of $382 million. This cash position does not include our investments in associates and other companies, which had a total market value of $180 million on September 30. And after quarter end, we participated in New Pacific Metals equity financing and acquired an additional 3 million common shares for roughly $7.8 million. Also, subsequent to quarter end, in October, we made the first draw on our $175.5 million Wheaton Precious Metals streaming facility for the El Domo project. We drew down the first $43.9 million tranche, which will be used to fund our ongoing construction at El Domo. Now to just quickly recap our operating results. As we reported last month, in Q2, we produced approximately 1.7 million ounces of silver, just over 2,000 ounces of gold, 14 million pounds of lead and 6 million pounds of zinc. Silver production was essentially flat, but gold production was up 76%. So silver equivalent production, considering just the silver and gold was up 5%. Lead production was up 8% and zinc production was down 3%. Production at Ying was impacted by the temporary closure of certain mining areas, which have since reopened. We expect to mine approximately 346,000 tonnes of ore in this current quarter Q3 compared to the 265,000 tonnes mined in Q2. At the GC mine, production in Q2 was interrupted for about 10 days by Typhoon Ragasa. Year-to-date, we have produced 3.5 million ounces of silver, 4,135 ounces of gold, 30 million pounds of lead and 11 million pounds of zinc, which represents increases relative to last year of 3%, 78% and 4%, respectively, in silver, gold and lead production and an 11% decrease in zinc production. On the cost side, Q2 production costs averaged $83 per tonne at Ying which was down 11% from last year. The improvement reflects greater use of shrinkage stoping over the more labor-intensive cut-and-fill resuing method along with higher ore throughput. Year-to-date production costs also averaged $83 per tonne, which was below the Ying annual guidance of between $87 to $88 per tonne. Ying's cash cost per ounce of silver net of byproduct credits was $0.97 in Q2 compared to $0.62 in the prior year quarter. The increase was driven by a $4 million increase in production costs due to 26% more ore being processed, while silver production grew by only 1% as shrinkage mining tends to have higher dilution rates. This was partially offset by a $3 million increase in byproduct credits. Q2 all-in sustaining cost per ounce net of byproduct credits was $11.75 at Ying, up 30% from the prior year quarter due to a $1.4 million increase in mineral rights royalties following its implementation in China in Q3 of fiscal 2025. A $2.6 million increase in sustaining CapEx and those previously mentioned factors that impacted cash costs. Overall, for the operations, consolidated mining operating income came at $40.8 million in Q2, with Ying contributing $38 million of that or over 93% of the total. Turning to our growth projects. At Ying, we invested $6 million in the quarter for ramp and tunnel development to enhance underground access and increased material handling capabilities. This work goes hand-in-hand with our efforts to expand mining capacity across the 4 licenses at Ying. Recall that last year, the SGX mine permit was renewed for another 11 years with capacity increase to 500,000 tonnes per year. The HPG permit was also renewed and expanded to 120,000 tonnes and the DCG permit was increased to 100,000 tonnes. We're now in the process of applying to increase the TLP LM permit to 600,000 tonnes per year with approval expected later this quarter. Once all approvals are in place, Ying's total permitted annual mining capacity will rise to 1.32 million tonnes from approximately 1 million tonnes currently. At Kuanping, that's the satellite project north of Ying, mine construction continued with 831 meters of [ ramp ] development and 613 meters of exploration tunnelling completed in this quarter. Kuanping has a mining permit to produce 200,000 tonnes per year, which at a full contribution, would bring our total mining capacity at Ying up to 1.52 million tonnes per year. Switching to Ecuador. Construction at the El Domo project is moving ahead steadily. In Q2, around 1.29 million cubic meters of material work cut for site preparation. Roads and channels, and that was a roughly 250% increase over the previous quarter. A 481-bed construction camp has been completed and work on the tailings storage facility began in September. For the 6 months ended September 30, approximately 1.66 million cubic meters of material were cut or removed, and $14.6 million of expenditures were capitalized. Contracts for 4 sections of the external power line have been awarded to qualified Ecuadorian contractors, pending review by the state power distributor, CNEL. Additionally, orders for equipment with a total value of $22.2 million have been placed. Overall, since January of this year, approximately $18.9 million has been spent on capital expenditures and prepayments for equipment purchases related to El Domo. At the Condor Gold project, we kicked off the [ PEA ] for an underground gold operation and expect to complete this study before the end of the year. As a reminder, at Condor, our plan is to construct 2 exploration tunnels into the deposits, which will allow us to conduct underground detailed drilling. In order to do this, we required environmental license and water permits. The studies to support these applications have been ongoing over the year. And during the quarter, we submitted our application for the water permits. The application is now pending final approval. We have submitted our application for the environmental license, and it is under review by the relevant authorities. And with those updates, I'd like to open the call for questions. Operator: [Operator Instructions] With that, our first question comes from the line of Joseph Reagor with ROTH Capital Partners. Joseph Reagor: I guess first thing on El Domo, the guide for CapEx compared to what you spent year-to-date, is it a matter of -- there's a big lift coming here soon or some long lead items that you guys have to pay for? Or is it -- are things maybe tracking a little slower than anticipated as far as capital spending goes? Lon Shaver: I was probably tracking a little slower initially. We began construction this year focusing on earthworks, and it was clearly a wetter year than Ecuador has experienced in past rainy seasons. But I think we've ramped up significantly here in recent months as indicated by the results that we published this quarter. And going forward, we should be able to provide an update on our construction progress this quarter, particularly as we are looking to execute the contract for bid package #2 in due course. And that's obviously the contract associated with stripping of the open pit and actually mining of the deposit. And we'll be in the position here shortly to share results from the metallurgical testing program that we've undertaken this year. So we expect to have an update prior to year-end where we can bring all these items forward and provide any updates. Joseph Reagor: Okay. And also on El Domo with the Wheaton drawdown, I think initially, when you guys made the acquisition, there was some thought that there was a potential to maybe buy that stream out or not use it in some way, but now you've drawn down on it. Does that just reflect that there was no way to really negotiate out of it given gold and silver prices have moved so positively since it was signed? Lon Shaver: Well, I think your last comment really indicates what we'd be dealing with to renegotiate. There was contractually an opportunity to adjust the stream at the time of the acquisition. It didn't make sense at the time, and it still doesn't make sense based off of those numbers. What might be available to negotiate with Wheaton, I can't comment on. You'd have to speak to them as well in terms of what their expectations are based on the contract that they entered into with Adventus. Joseph Reagor: Okay. Fair enough. And then just on guidance, it sounds like you guys are expecting a pretty strong catch-up quarter at Ying in Q3 and that, that will get you back in line with guidance, whereas if you were operating at normal rates, you'd kind of be tracking a little below after the Q2, let's call it, issue for lack of a better word. Lon Shaver: Yes. I mean, clearly, Ying is a mine in transition as we look to increase mechanization, we've certainly been demonstrating other than the temporary setback in this last quarter, the ability to generate tonnes. So that has been ramping up nicely. Also, we've been able to deliver more tonnes and produce more gold. So that is a bit of a shift in the profile. But whether we're able to make up for what was missed in so far this year, a little early to tell. I think it will depend on our ability to run at those expanded rates, great profile going forward and also Q4, just -- last year, we had some excess tonnes and we had a brand-new mill with excess capacity to work through those. So it kind of remains to be seen what we can push through in Q4 to get away from what has seasonally been a slower quarter. So still a bit early to tell. But as you point out, we're in a bit of a catch-up mode here. Operator: [Operator Instructions] And we have no further questions at this time. I would like to turn it back to Lon Shaver for closing remarks. Lon Shaver: Okay. Well, great. Thanks, operator, and thanks, everyone, for joining us today. If anyone does have any further questions after the call, please feel free to reach out by calling or e-mailing us. We look forward to hearing from you, and we look forward to catching up to discuss the results of our third quarter. Thanks, everyone, and have a great day. Operator: And ladies and gentlemen, this concludes today's conference call. Thank you all for joining. You may now disconnect.
Operator: Good afternoon. I do apologize for the delay in today's start time. There was a technical issue with our dial-in phone number that has now been resolved. Once again, thank you for your patience, and we do apologize for the delay in today's start time. Welcome to the Swiss Water Decaffeinated Coffee Inc. Third Quarter 2025 Conference Call. [Operator Instructions] Before Swiss Water Decaffeinated Coffee Inc. conference call starts, they are required to remind you that certain information in today's presentation is forward-looking in nature. Any such forward-looking information or statements are based on assumptions that they are considered reasonable at the time the information was prepared. Such information involves known and unknown risks, uncertainties and other factors outside our control that could cause actual results to differ materially from those expressed in the forward-looking information. Swiss Water Decaffeinated Coffee Inc. does not assume responsibility for the accuracy and completeness of the forward-looking information. Similarly, they do not undertake any obligation to publicly revise this forward-looking information to reflect subsequent events or circumstances, except as required by law. Please refer to Swiss Water Decaffeinated Coffee Inc.'s Management Discussion and Analysis posted on SEDAR and Swiss Water's website for a full discussion regarding forward-looking statements and the risks therein. It is now my pleasure to turn the floor over to your host, Frank Dennis, President and CEO of Swiss Water Decaffeinated Coffee Inc. Frank, the floor is yours. Frank Dennis: Thanks, Tom. Good afternoon, everyone, and thank you for joining us today. I'm Frank Dennis, President and CEO of Swiss Water Decaffeinated Coffee Inc. And with me is Iain Carswell, our CFO. We are here today to discuss Swiss Water's financial results for the 3 and 9 months ended September 30, 2025. As usual, I will begin with a brief review of our performance and operating environment, then Iain will provide more details about our financial results. After that, I will share some closing thoughts before we take your questions. We delivered another solid quarter with 7% volume growth versus Q3 last year, supported by strong demand for our chemical-free decaffeinated coffee and disciplined operations. Improved profitability this quarter reflects effective pricing and cost management, some favorable foreign exchange movements and continued focus on execution across the business. Our approach to managing inventory continues to serve us well, enabling us to meet customer needs consistently in a market where importers are maintaining leaner inventory positions and customers are looking to us to provide immediate available coffee. That reliability has helped us reinforce long-standing relationships and establish new ones as more customers look for supply assurance. Overall, demand for our decaffeinated coffee remains strong. As a benchmark, grocery volume in the United States has declined markedly due to extremely elevated retail prices, while our volumes have grown. That outperformance reflects the quality of our coffee, strength of our customer relationships and our ability to respond quickly to shifting market dynamics. The coffee futures market remains extremely volatile. The NY'C' futures market softened early in the quarter before retracing all of the losses again toward quarter end. The market inversion continues to drive timing and further cost pressure across the... Operator: Please standby a moment, once again, please stand by while I reconnect the speaker's line. [Technical Difficulty] Thank you once again for standing by, passing the floor back to Frank Dennis. Frank Dennis: Sorry, folks, a couple of technical issues today. In any case, I'll pick up where I left off, where operationally, the Delta facility continues to perform well. It provides the flexibility we need to manage production efficiently through variable order timing and mix, delivering solid throughput and cost performance. As part of our risk management strategy, we continue to actively manage input cost volatility through our commodity and foreign exchange hedging programs. The NY'C' futures market remained inverted through the quarter, resulting in ongoing short-term EBITDA impacts as hedge positions were rolled forward. These timing differences are expected to continue while the inversion persists. Our approach remains structured and consistent with the rest of the industry as we continue to price for the cost of inversion and expect recovery through customer pricing actions over the coming months and into 2026. Looking ahead, we expect fourth quarter performance to be broadly consistent with the same period last year. The market remains volatile, and we expect the inversion to persist into 2026, but our underlying business fundamentals are strong. Our disciplined execution and ability to meet customer needs reliably continues to differentiate us in the complex environment. As market conditions normalize, our focus will remain on retaining new customers, maintaining price discipline and continuing to strengthen the balance sheet. Overall for the quarter, our business continued to perform well. Operations are running efficiently, and our team continue to execute with focus and discipline. Spot inventory strategy we put in place has proven effective, allowing us to capture opportunities and maintain reliable supply in a volatile market. The consistency of our performance together with ongoing efforts to strengthen the balance sheet through debt reduction demonstrates the resilience of our model and the value of our long-term customer relationships. We're confident that our approach is working and positions us well to continue delivering steady results in a complex and dynamic market. With that, I'll turn the call over to Iain to walk through the financials. Iain? Iain Carswell: Thanks, Frank. Firstly, we continue to strengthen our balance sheet in the quarter, generating cash from operations and making further progress on debt reduction. These actions, together with improved profitability have enhanced our financial flexibility. Working capital levels remain elevated, but in line with expectations, reflecting both the value of green coffee inventories and timing of customer collections. We expect this to normalize over the next few quarters as higher seasonal sales volumes grow. Our focus remains on maintaining sufficient inventory to support demand while continuing to reduce leverage in a disciplined way. Total shipped volumes increased by 7% when compared with Q3 last year and 4% year-to-date. The increase in volumes was driven primarily by our strategic approach to spot inventory availability, which continues to position us to capture demand in a market where importers are holding leaner inventory levels due to ongoing NY'C' volatility and inversion. Maintaining readily available product allowed us to respond quickly to customer needs and ensure steady supply. This approach, combined with strong demand from our established customers and steady throughput in our regular coffee business, supported overall volume growth during the quarter. Looking at volumes by customer type. Shipments to importers, those customers who resell our coffees to roasters where and when they need it, were up 16% in the quarter, 8% year-to-date. Our shipments to roasters, those customers who roast in packaged coffee to sell to consumers in their own coffee shops or for home and office consumption were down by 4% in the third quarter, 2% year-to-date. Many of our customers have moved towards a more just-in-time operating model. Looking at our customer channels another way, specialty volumes were up 24% in Q3 and 11% year-to-date. These accounts serve the out-of-home consumer primarily in cafes and restaurants in our key geographic markets. Commercial volumes were down 4% in the quarter, 2% year-to-date. Q3 revenue was up 50% to $62.7 million compared to $41.2 million in Q3 2024. The primary driver of the increase in revenue for the third quarter is higher volumes and elevated coffee prices, with the NY'C' continuing to trade well above historical averages, which flows through our green coffee revenue. The impact was further amplified by inversion and tariff cost recovery and increased contributions from our logistics subsidiary Seaforth. Looking at our costs. Q3 cost of sales was $56.3 million or 59% year-over-year. The increase primarily reflects the elevated NY'C' increased volumes, depreciation of the U.S. dollar and the ongoing impact of tariff costs associated with our sales to U.S. customers. These factors were partially offset by operating cost efficiencies. As for green coffee costs at an average of $3.37 per pound in the third quarter, the NY'C' was up 37% from $2.46 per pound in Q3 last year, while still elevated, this reflects a modest decline from the Q2 2025 average of $3.59. Customers continue to remain cautious with inventory management in response to sustained high coffee futures and ongoing tariff uncertainty. As previously noted, ordering patterns continue to vary through the quarter. Customer mix shifted with importers increasing volumes as they rebuild inventory positions, a change from prior periods when roasters represent a larger share of activity. This shift contributed to ongoing variability relative to historical ordering patterns. Exchange rates between the U.S. and Canadian dollar continue to influence our reported results and cash flow. While our revenues are primarily in U.S. dollars and a meaningful portion of our costs are incurred in Canadian dollars, we also carry U.S. dollar receivables and payables on our balance sheet. This quarter, fluctuations in exchange rate led to a foreign exchange gain, largely reflecting the revaluation of those U.S. dollar balances at period end. We continue to monitor this exposure and use hedging tools where appropriate to manage our underlying risk. In Q3, the U.S. dollar averaged CAD 1.38 up from CAD 1.36 in the same period last year and consistent with CAD 1.38 reported in Q2 of this year. This decrease of the U.S. dollar has a negative impact on our revenues when they are converted to Canadian dollars. Q3 gross profit was $6.4 million and consistent with the prior year. Turning now to operating expenses. Q3 operating expenses increased 16% year-over-year to $4.2 million. Administrative expenses were up 22%, driven by a higher noncash stock-based compensation, driven by an increase in our share price during the quarter. Q3 net income is $216,000 compared to a net loss of $791,000 in Q3 2024. Aside from the factors we discussed previously, Q3's increase in nonoperating or other income and expenses is driven by a $728,000 loss on risk management activities, primarily related the timing of rolling hedge contracts forward in a persistently inverted NY'C' market. This timing difference between recognizing the cost of rolling positions and the recovery of those costs through customer invoicing results in incremental realized losses during the quarter. As Frank mentioned, we continue to price for the cost of the inversion consistent with the industry practice and expect these costs to be covered through customer collections over the coming months and into 2026. We also recorded mark-to-market adjustments reflecting commodity price fluctuations and the U.S. dollar strength. These results are consistent with our structured approach to managing pricing volatility, mitigating risk exposure and maintaining alignment with our supply commitments. As you may recall, during Q2, we reached an agreement with Mill Road Capital to repurchase and cancel their outstanding warrants, as a result of that agreement and subsequent cancellation, we no longer recognize a gain or loss on the fair value of the embedded option during Q3. There was a $659,000 decrease in finance expense, largely attributable to the elimination of the interest related to the Mill Road debenture, which was fully repaid in Q4 2024. In addition, decrease in interest on long-term borrowings after repayments and decreasing interest rates compared to Q3 2024. Q3 adjusted EBITDA was $3.3 million, up $1.1 million or 52% year-over-year. In addition to the factors I mentioned affecting gross profit fluctuations in adjusted EBITDA were driven by the previously mentioned loss on our risk management activities, which we expect to be fully recovered through customer collections and disciplined management of operating expenses over the balance of this year and early 2026. Turning now to inventories. Our inventory balance increased slightly to $51.4 million in the third quarter, primarily reflecting higher green coffee cost due to elevated NY'C'. However, this was offset by a reduction in the hedge accounting component of inventory. Inventory management remains an essential component of our strategy. We continue to take a deliberate forward-looking approach to holding inventory in order to support anticipated customer demand to ensure delivery continuity. We continue to see renewed order activity from smaller roasters with commitments to cover previously deferred purchases due to pricing volatility. In addition, this quarter saw increased ordering from importers within our regular coffee business as the NY'C' moderated during the first half of the quarter before rising again toward quarter end, prompting some to replenish inventories ahead of further price movements. At quarter end, Swiss Water held $3.9 million in cash compared to $8.5 million at the end of 2024 and net working capital of $38.8 million compared with $4 million. The change in net working capital is driven primarily by the reclassification of our operating credit facility to noncurrent borrowings as a result of the renewal during the quarter. We made total debt repayments of $11.9 million in Q3 made up of principal repayments on our long-term borrowings, primarily related to construction of our Delta facility and on our operating credit line. This represents continued progress towards reducing interest costs and strengthening our leverage position over time. With that, I will turn the call back to Frank. Frank Dennis: Thank you, Iain. Before we turn to questions, I'd like to share a few closing thoughts. The coffee market remains very complex at the moment but our business continues to perform well. The strategy we've put in place is doing what it's designed to do, helping us manage volatility, support customers and deliver consistent results in a very challenging environment. Our inventory management approach, a key component of that strategy, continues to create value by providing flexibility reliability across the supply chain. We have also maintained strong operational execution throughout the quarter and continuing to build financial strength and flexibility through disciplined management. Looking ahead, we expect volatility in coffee markets to persist, but we're confident in our positioning and our ability to manage through it. The fundamentals of our business remains strong, our customer relationships are solid, and our team continues to execute with focus and discipline. We believe we are well positioned to continue delivering stable results and to build on the progress we've made this year. And with that, we'd be happy to take your questions. Operator: [Operator Instructions] We have a question from Richard Rudgley from Glenbrook Capital. Richard Rudgley: Yes, I read in the news release, but I'm not sure if you mentioned it in -- when you were speaking about the situation to do with the Brazilian tariffs. I just wondered if you could perhaps expand on that a bit and let us know how you think it's going to impact things overall? Frank Dennis: Yes. It's a good -- that's a great question, Richard. So the U.S. imports maybe 15% of Brazil's output annual output. And of course, Brazil is the largest coffee-producing nation in the world. What happens in Brazil is what happens in the futures market. It's -- they are intertwined perfectly. So with a 50% tariff rate on Brazilian coffees going into the U.S. many, but not all. Many roasters are essentially racing to find replacements. And these would be coffees that would come from, let's say, Uganda, maybe some from Vietnam as well as some of the Central American coffee producing nations, Nicaragua, Salvador, Honduras. So that's certainly causing some -- it's just dislocation. It's just -- it's rearranging blends, it's changing supply chains quickly, and not really supply chain is maybe suppliers or paths that coffee get to roasters very, very quickly. And so there's a large group of roasters that are basically avoiding Brazilian coffee. There are others who have blends that are very reliant on a particular profile. These would be like large direct consumer organizations that have prepared brewed coffee that they want to keep that profile exactly the same. And so they're taking that Brazilian coffee and they're pricing for it. So we're seeing those that are trying to avoid Brazilian coffees and find alternatives. There are those that are saying, boy, I mean, we've got a customer franchise here that's built on a particular profile, we're just going to have to price for it. We saw significant increases in the data that we launch for U.S. grocery in terms of overall pricing per pound, which increased very rapidly, and a lot of that was tariffs and in particular, Brazil through Q3, although it was still the NY'C' as well that's driving pricing around the world. So net, what's happening is that Brazilian coffee is now flowing off to places like China or places like Russia, and they're picking up what could be potentially cheaper Brazilian coffee. Certainly, more Brazilian coffee is coming to Canada for roasting here. But it's just yet another dynamic that's happening in marketplace. And so we're changing the coffees that we are going to put in position to supply the U.S. into next year right away, starting kind of Jan, Feb, we'll be getting probably more Central American coffees in place to supply kind of those that are avoiding Brazilian coffee. But like I said, there are others that are just saying, no, we have to take it. We're going to keep it. We have a profile that's important for the consumer, and we'll just price for it. So there's the dynamic basically, Richard. Richard Rudgley: Just a follow-up. Just wondering because sometimes, as you know, these tariffs get reversed quite swiftly, would that just cause logistical problems for you, as you say, you're rearranging the early part of the year to get coffee from elsewhere, but what if things will reverse in the interim? And then just a sort of follow-up question on the future pricing as from my understanding, and obviously, no better, it seems like the concerns about the Vietnam crop. It looks like the weather damage was minimal, and so is that -- that shouldn't be something that's going to affect the price in a negative way by pushing it higher? Frank Dennis: Yes, that's right. So we're putting on reasonably light coverage as an alternative to Brazil going into the first couple of months of the year, and we'll kind of see how that goes because you're absolutely right. The Brazil 50% number could change next week, could change over the weekend, who knows. So however, we do know that if that number does change, there will be a significant swift response in the NY'C' futures market down. So it would be a wonderful thing, really, if that tariff was to be changed. But yes, I mean, there is -- like I said, there's a lot of tariff arbitrage going on. There are those who are trying to find coffees from nontariff markets. Mexico, for example, has no tariff on its coffee. Wonder -- amazingly, of course, the crop is sold out. So I think that we're just going to continue to see a very elevated 'C' certainly with the Brazil tariffs in place and with a thing we don't talk very much about, which is certified stocks, which are at record lows, certified stocks essentially support the entire market and until we start seeing certified stocks come to about 1 million bags. We are going to remain in an inverted elevated market. So yes, complex. Operator: [Operator Instructions] And your next question is coming from Grover Wickersham from Glenbrook. Grover Wickersham: First of all, congratulations. I think there's a really great quarter. I think there was an awful lot of suspense waiting to see how you guys did under the under the tariffs, and it's a relief that you did extraordinarily well. And I think it would be congratulated from that. And I also think that getting out from underneath the commitment to the warrants on Mill Road was also -- that was also a real milestone for the quarter which we're -- obviously that something that we were trying to encourage. Just a couple of comments. As you know, we think the stock is really undervalued. We'd really like to see you do more to cultivate a market in the United States and maybe even at some point, that would open up enough capital that you could avoid tariffs completely by possibly having a facility in the Pacific Northwest or somewhere convenient to Vancouver. But discussing the company, I do get questions from time to time about the CO2 method. And I'm wondering -- I know you've talked to me about that before, but could you perhaps give some more color on what the -- what you see as being the competitive nature of CO2 processing, I know from a cost standpoint and also from a possibly from a consumer and regulatory acceptance standpoint. Frank Dennis: Sure. Yes, if you want to focus specifically on CO2, we can definitely do that Grover. The CO2 is essentially coming from 1 source only on a third-party basis out of Bremen, Germany. It's a plant that's been producing CO2 for many, many years with an expansion probably about 10 years ago. CO2 is a method that is good quality. Pricing is kind of similar to where we are at. We've seen that overall kind of chemical-free pricing is balancing in around kind of a specific band or range, which is overall, I think, good. And the product itself is essentially limited in that the capital cost of CO2 expansion is significantly higher than any other chemical-free method. And there is a more limited lifetime of the plant due to the fact that they are using supercritical or just sub of critical pressures, which is very, very high pressures. And so the pressure vessels do have a lifetime. So CO2 basically is capped out at the number that it's at right now. That plant is sold out. and kind of remains that way. They have a good base of customers that are loyal and that use the product, but we weren't really seeing growth there, we're probably seeing growth maybe in some of the other processes or methods competitors. Grover Wickersham: Right. Okay. But in terms of competition, do you see that as competition going forward? Frank Dennis: Yes, I mean, CO2 is always a competitor. I think other water processes are probably more on a growth trajectory than CO2. We've got [ caffeine ] water process out of Germany that is on the market in the past few years. And they have done well in that kind of part of the world, Europe, primarily maybe some Eastern U.S., but Europe is their focus market. And that's probably more where our attention is focused on is how we remain competitive in a market that honestly was much more methylene chloride dominated. And although methylene chloride has not left the marketplace at all. We are seeing expansion in kind of the chemical-free/natural marketplace for sure. Grover Wickersham: Yes. I mean I think, hopefully, hopefully, especially with the FDA under the current management, hopefully, in the states. And I also don't understand why it hasn't become an issue in California, but hopefully, there's going to be more awareness and maybe a regulatory intervention at least in terms of labeling so the people out in the community understand the difference. Then if I could, just like 1 other -- I don't if it's a question or an observation, but as you know, we've got probably 1 share less than 10%. And we're close to 10% of the company. I mean I don't know exactly where we are. But we buy stock when we see the opportunity to buy, we always add. But I noticed that properly, I believe they filed a notification that they're over 12%. So I don't -- I'm not sure exactly what maybe you guys know exactly what percentage there, but I seem to recall 12%. So I would just say that so between them and us, we're well into the 20%. I think if we were a group, we would be large shareholders, and frankly, with you and Frank with 2 you guys, we would probably be over -- well over 12% or 13%. But I would just suggest that it might be a good time to look at the constituency of the Board, and it might be a good time for Mill Road to continue writing off into the sunset, so to speak. And have possibly have new representation. And we would be quite happy to see somebody from properly in Calgary, we have 1 of them, Mark or 1 of the other guys involved with that, join the Board, I would think they would represent all the shareholders. I'm sure I would feel represented by them. But I just encourage that as something when you get around to thinking about the Board, something you guys should possibly throwing our two-cents worth on that subject. But no, nothing against the former Mill Road fellows on the Board, and I don't know -- I think -- I don't know it's 1 or 2. I apologize for not having all the details, but having shareholders who have some skin in the game, would -- and certainly, when you're talking to kind of those kind of percentages that would seem to be appropriate. But anyway, I don't know if you -- that may not be something you guys can comment on. I'm just saying that we would request that, that be -- it's something you consider when it comes time to nominate Board members? Frank Dennis: Yes. Fair enough, Grover, point well taken. I think that Mill Road still has an ownership position, and to be fair, the folks that have served or are serving on our Board have added value. I mean I have good input from them. However, we also understand your point. I think our Chair also understands that and absolutely will be given consideration for sure, recognizing kind of your view in terms of representation. Grover Wickersham: Yes. Yes. I don't know if you met with them, we had a chance to talk to Mark, who's part of that group and had a few conversations with them. And also, we -- as you probably are aware, we're on Salt Spring Island. And it seems like that's kind of like Baja of Canada and it attracts a lot of Calgary, Albertans that prefer the weather. And so we know of them, Mark and his investors, we know them through other friends on Salt Spring Island, and they have a really good reputation. Frank Dennis: Yes. No, they do for sure. Grover Wickersham: I mean no excursions on any of the other Board members with the exception of not being a huge amount of love loss with Mill Road, no offense, or actually moderate offense intended. Frank Dennis: All right. Thank you very much, Grover. Yes. We'll take that under consideration. Thanks very much. Are there any other questions today? Operator: There are no further questions in queue at this time, and I'd like to pass the floor back to management for closing remarks. Frank Dennis: Thanks, Tom. If there are no further questions, we will conclude today's call, and thank you very much for joining us. Have a great weekend. Operator: Thank you. This does conclude today's conference call. You may disconnect your lines at this time, and have a wonderful day. Thank you once again for your participation.
Operator: Hello, and welcome to the OUTFRONT Media Third Quarter 2025 Earnings Call. My name is Carla, and I will be coordinating your call today. [Operator Instructions] I will now hand you over to your host, Stephan Bisson, to begin. Please go ahead when you're ready. Stephan Bisson: Good afternoon and thank you for joining our 2025 third quarter earnings call. With me on the call today are OUTFRONT's CEO, Nick Brien; and CFO, Matthew Siegel. After a discussion of our financial results, we'll open the lines for a question-and-answer session. Our comments today will refer to the earnings release and slide presentation that you can find on the Investor Relations section of our website, outfront.com. After today's call has concluded, an audio archived replay will be available there as well. This conference call may include forward-looking statements. Relevant factors that could cause actual results to differ materially from these forward-looking statements are listed in our earnings materials and in our SEC filings, including our 2024 Form 10-K as well as our Q3 2025 Form 10-Q, which we expect to file tomorrow. We will refer to certain non-GAAP financial measures on this call. Any references to OIBDA made today will be on an adjusted basis. Reconciliations of OIBDA and other non-GAAP financial measures are available in the appendix of the slide presentation, the earnings release and our website, which also includes presentations with prior period reconciliations. With that, let me hand the call over to Nick. Nicolas Brien: Thanks, Stephan, and thank you, everyone, for joining us today. We're pleased to be here today reporting our third quarter results, which came in ahead of where we had anticipated when we spoke 3 months ago, given a sizable increase in demand, particularly within our transit business. As you can see on Slide 3, which summarizes our headline numbers, consolidated revenues were up 3.5%, driven by 24% growth in transit, while consolidated OIBDA was up 17% to $137 million, and AFFO was up 24% to $100 million. Slide 4 shows our more detailed revenue results. Billboard revenues were down 2.2%, primarily due to our previously announced exit of 2 large marginally profitable billboard contracts in New York and L.A. as the revenues and expenses of these contracts are still included in our reported 2024 financial statements. Excluding the results of these contracts, billboard revenues would have been up a little over 1%. Transit grew an impressive 24%, led by the New York MTA, which was up a massive 37% during the quarter, given the launch of several large campaigns, particularly within the tech, finance, CPG, pharma and health categories. Slide 5 shows our detailed billboard revenue, which, as I mentioned earlier, was impacted by the 2 large billboard contracts we've exited. On a reported basis, static and other billboard revenues were down 2.5% during the quarter and digital billboard revenues were down 1.4%. However, I believe it is important to note that excluding the results of the 2 large billboard contracts we exited from the comparable prior year period, digital revenues would have been up over 5%. Slide 6 shows our detailed transit revenue, which grew nearly 24% during the quarter. Our digital transit revenues were up over 50% to $56 million and static revenues were almost up 4%. Much of the strength of this quarter was driven by larger brands with enterprise transit revenues up over 30%. Commercial was also a significant contributor to transit growth, up high single digits during the quarter. We are immensely proud of these results, which have been driven by the strengthening of our transit growth team and a focus on distinct go-to-market sales solutions. On a consolidated revenue basis, our stronger categories during the quarter were legal, financial, tech and travel. The weaker categories during the quarter were retail, alcohol, and government political. Slide 7 shows our combined digital revenue performance, which grew over 12% in the quarter and represented 35.4% of our total revenues. Even more impressive, excluding the aforementioned New York and L.A. contracts, digital revenues would have grown by nearly 18%. Programmatic and digital direct automated sales were up nearly 30% during the period and represented 19.4% of our total digital revenues, up from 16.8% in the same period last year. While on the topic of programmatic and digital, I'd like to highlight the strategic partnership that we announced with AWS last month, which we believe will usher in a new era for the out-of-home medium. In a first for the industry, this initiative will enable the planning, buying and measurement of our inventory from end to end, creating new sales opportunities and advancing a way agencies and brands can access, interact, transact and measure their media in smarter, more efficient ways. While we are in the early days of these partnerships, we're very encouraged by the opportunities and are extremely excited about its future potential. Moving on, the breakdown of commercial and enterprise revenues can be seen on Slide 8. Enterprise grew by 7% during the third quarter with a huge 30-plus percentage point increase in transit, I previously mentioned, being offset by a mid-single-digit decline in billboard. Commercial was essentially flat year-on-year during the quarter with high single-digit transit growth, offset by slightly weaker billboard revenues. Slide 9 shows our billboard yield growth, which was up about 1.4% year-over-year to over $3,000 per month, driven primarily by our new digital inventory. Summing up, we were pleased with our quarter 3 performance. And encouragingly, we are seeing these strong top line trends continue into the fourth quarter. With that, let me now hand it over to Matt to review the rest of our financials. Matthew Siegel: Thanks, Nick, and good afternoon, everyone. Please turn to Slide 10 for a more detailed look at our billboard expenses. In total, billboard expenses were down nearly $11 million or almost 5% year-over-year. Zooming in on lease costs, these expenses were down almost $9 million or about 7.5% year-over-year. This decline includes approximately $10 million related to the large billboard contracts in New York and Los Angeles that we exited, which was partially offset by the contractual escalators on fixed leases. Excluding the impact of the portfolio exits, billboard property lease expense would have been up less than 1%, which reflects our continued portfolio management efforts. Posting, maintenance and other expenses were up just under $2 million or 4.5% due to higher production costs and compensation-related expenses from regular annual merit increases. SG&A expenses declined by about $3.6 million or 5.3% due primarily to lower credit card usage by customers, lower compensation-related expenses following our June RIF and a lower provision for doubtful accounts. This nearly $11 million improvement in total billboard expenses was partially offset by the modest decline in billboard revenues Nick described earlier and led to billboard adjusted OIBDA increasing by about $3 million or 2.1%. We are pleased to see billboard adjusted OIBDA margin increase again this time by 170 basis points year-over-year to 39.5%, helped by recent portfolio management decisions as well as the geographic mix of revenue generated in the third quarter. We continue to expect billboard margins will improve on a year-on-year basis for the remainder of 2025. Now turning to transit on Slide 11. In total, transit expenses were up about $2.9 million or a little over 3% year-over-year. Transit franchise expense was up 2% due primarily to the annual inflation adjustment to the MAG for the MTA contract. Posting, maintenance and other expenses were up about $2 million or about 13% due primarily to higher maintenance and utilities costs. SG&A expenses were down $300,000 or about 2%, primarily due to lower credit card usage by customers. The 3% increase in total transit expenses, combined with the nearly 24% transit revenue growth described earlier, led to a transit adjusted OIBDA improving by more than $18 million during the quarter to a profit of nearly $16 million. Slide 12 shows the company's combined billboard transit and corporate adjusted OIBDA in the third quarter. Corporate expense rose by about $2 million due primarily to higher professional fees, including a management consulting project that ended on August 31 and costs related to the refinancing of our senior credit facilities. Combined with the billboard and transit OIBDA I covered earlier, adjusted OIBDA totaled about $137 million, up nearly 17% compared to last year. Much of this increase is attributable to our improved performance within the New York MTA as incremental revenue growth within this important franchise is extremely high margin. Turning to capital expenditures on Slide 13. Q3 CapEx spend was about $21 million, including about $6 million of maintenance spend. We converted 29 new boards to digital in Q3 2025. For the full year, we still expect to spend approximately $85 million of CapEx with $30 million to $35 million of this total expected for maintenance. Looking at AFFO on Slide 14, you can see the bridge to our Q3 AFFO of $100 million. The improvement is principally driven by higher billboard and transit OIBDA, which was partially offset by higher corporate expense. Also, I'm pleased to tell you we are raising our AFFO guidance for the full year and now expect that our reported 2025 consolidated AFFO will grow in the high single-digit range versus our prior mid-single-digit expectation. Included in this guidance is the previously noted maintenance CapEx, interest expense of approximately $140 million to $145 million and a small amount of cash taxes. Please turn to Slide 15 for an update on our balance sheet. During the quarter, we refinanced our senior secured credit facilities, which pushed the maturity of our term loan from November 2026 to September 2032 and increased the size by $100 million to $500 million. We also extended the maturity of our revolving credit facility to 2030. Committed liquidity is over $700 million, including about $60 million of cash, around $500 million available by our revolver and $150 million available by our accounts receivable securitization facility. As of September 30, our total net leverage dropped to 4.7x within our 4 to 5x target range. Turning to our dividend. We announced today that our Board of Directors maintained a $0.30 cash dividend payable on December 31 to shareholders of record at the close of business on December 5. We spent just $2 million on acquisitions during the quarter. And looking at our current acquisition pipeline, we continue to expect our 2025 deal activity to be similar to levels reached in recent years. With that, let me turn the call back over to Nick. Nicolas Brien: Thank you, Matt. As I mentioned earlier, the top line strength we saw in the third quarter has continued into the fourth. And from where we sit today, we expect fourth quarter revenue growth to improve slightly from quarter 3's results with consolidated revenues up in the low, mid-single digits, driven by mid-teens growth in transit and low single-digit growth in billboard. These figures include the headwind created by our strategic decision to exit the 2 large marginally profitable billboard contracts in New York and Los Angeles. Excluding the $11 million of billboard revenue generated by these 2 exited contracts in the fourth quarter of 2024, we believe quarter 4 billboard revenues would be up mid-single digits and consolidated revenue would be in the mid- to high single-digit range. Just as important as the numbers themselves is what lies behind them. The media and marketing landscape continues to undergo a massive sea change, born of GenAI content capabilities and the rise of the media planning LLMs. We are witnessing major brand advertisers retrench from the bottom of the funnel digital performance advertising seeking to strengthen their brand equity while improving overall business performance. They know that creating emotional brand experiences that are remembered and shared are the most trusted forms of marketing activities. There is no better way to deliver these engaging and unskippable brand experiences than in real life. OUTFRONT is the premium out-of-home leader in the U.S. with excellent assets and IRL brand-building capabilities in the most important markets for the -- our advertisers to participate in culture and create communities of loyal fans and advocates. Our scale, coverage and breadth of services enables us to do full funnel marketing campaigns across the U.S., whether you're a Fortune 500 brand, a regional bank or a local family-owned auto dealer. We're starting to break through with many of the largest brand marketeers as they would reconsider the power and value of out-of-home and IRL in today's AI-fueled digital advertising ecosystem. And with that, operator, let's now open the lines for some questions. Operator: [Operator Instructions] And our first question comes from Daniel Osley with Wells Fargo. Daniel Osley: A question for Nick. You previously described 2025 as a year of transformation. As we exit this year and look towards '26, how do you think the company is positioned compared to your strategic objectives? Nicolas Brien: Well, thank you, Daniel. I appreciate that question. I appreciate you remembering that we were very clear in my first earnings call with the 4 strategic imperatives that we saw as absolutely critical to deliver the transformation velocity. I've been very, very impressed with the team, both some of the existing leaders in the organization as well as some of the new talented leaders we have attracted to really focus on the most important things that matter. And the results we are hoping to demonstrate they're showing themselves to you in quarter 3. We've given you an increase in our guidance for quarter 4, and the momentum continues. So everything we put in place around our culture, our sales enablement, our technology underpinning, our basic operational excellence across the board sets us up to continue the momentum that the transformation velocity agenda, the strategy we set with the Board is being executed. And executed with real focus and with impressive results starting to show. Daniel Osley: That's helpful. And a quick follow-up, if I may. On quarter 3, transit growth in the quarter was clearly very strong. Can you help to further unpack the drivers of the momentum you've seen there? And maybe touch on expectations for how you think growth shapes up into next year? Nicolas Brien: Well, we're extremely pleased with the transit focus, and it was a combination of the 3 things we set, we mentioned earlier. One was the creation of the transit velocity team, led by a dedicated growth leader across both sales and marketing, a real focus on the product marketing details to do with all aspects of transit, especially with the New York MTA. And then dedicated campaign focus with some of the most exciting brands to be able to say that the MTA is a platform for creating these brand experiences in real life as opposed to only running ads. Now we have been focused on both, but we're starting to see that kind of momentum when I look at the work that sees an existing right now today within the New York MTA between the Bath & Body Works, where they have the experience that they've created around smell. I mean the full takeover, the combination of advertising and experiences, what we did with ESPN, with E Train, we turned it into the ESPN Train. We took the leadership all the way down to Wall Street. They rang the bell. It had their mascots, it had their fans. The MTA and not just the MTA, but all of our transit assets allow us to really talk to some of the biggest brands that have very high brand awareness. They may not want more brand awareness, but they certainly want the brand experiences that can be shared, they can be amplified and they're certainly highly memorable with existing customers and with prospects. So I think the team are enjoying the success. They've worked extremely hard to deliver it. So again, that combination of focus, the combination of further research and capability setting for the sales teams and as importantly, demonstrating the results of these campaigns in terms of whatever the success metrics the clients have put in place at the beginning. So we have nothing but confidence that the momentum will continue. Operator: The next question comes from Cameron McVeigh with Morgan Stanley. Cameron McVeigh: Nick, I was hoping you could talk a little bit more about your decision to restructure the sales function and particularly in transit, maybe what you've learned? And then secondly, is someway ridership still a factor in the advertiser's decision to utilize these MTA boards? If not, curious what the most important metric there is. Nicolas Brien: Okay. Well, thank you, Cameron. Thank you for the question. Let's start with the first one. The restructuring of the sales organization was to recognize that between enterprise and commercial that we knew we had a different level of sophistication in terms of the kind of conversations we were having with the different kind of clients. And we needed to have a more specific, custom and qualified sales conversations with the strategic accounts, with the enterprise accounts. And then we recognize in the commercial side, and don't forget, this was an industry that's always been called national to local, which I always felt coming in again from the outside, not a seller, somebody who's been a strategic buyer and agency leader with some of the biggest brand marketers in the world, it was too unsophisticated. And in commercial, we have regional, and we have the small and medium businesses. And we recognize that we needed to create that focus and the unique capability set because the way you engage with a Coca-Cola or McDonald's, Procter & Gamble is very different to dealing with a Tier 4 auto dealer or a regional bank that wants to extend through acquisition. So that was the rationale between the restructuring of the sales organization despite the fact that we were going to underpin from a cultural point of view, a technology point of view, a data point of view, the capabilities would be there to support both. Now when it came to transit, that's not a dedicated sales change. That's more recognizing that the product marketing and the dedicated focus of that sale required a more -- a different approach to just saying it's a mobile billboard. This was -- this is the fabric of major cities, whether it be San Francisco, whether it be L.A., whether it be Boston, certainly in New York City. And we basically gave more dedicated organization around the growth team that was a combination of sales, marketing, product marketing and customer success. And that's why we've seen that kind of continued momentum. When I look at those clients, Capital One, Chase, the work we've done with Unilever. What's on the front cover you see there with Swiffer and what we did with them. I mean these are major brands coming to the medium, and they're recognizing that the transit medium is something that's exciting and more specific for them. So it's really about focus and about capabilities, but it falls within the same structure between enterprise sales and commercial sales. And both have as relevant an opportunity to imagine how their respective brands and marketeers would want to use the -- our transit medium. Operator: So the next question comes from David Karnovsky with JPMorgan. David Karnovsky: Nick, maybe as you look ahead to '26, I just wanted to get your view on an outlier event like the World Cup, given your footprint and how you're kind of viewing also just the entertainment vertical and the prospect for more recovery there. Nicolas Brien: Okay. Well, thank you, David. Thank you for the question. Let me start with the second one first. I think the entertainment category is clearly one that has been discussed a lot and very publicly discussed in terms of the implications. And there's certainly the highlights, there's highs and lows. I mean the lows that we've recognized in 2024 have really more to do with the network. When we think about entertainment, we think about ABC, NBC, Fox, these kind of network full launches, they're not disappearing, but they're certainly not extensive as they were. When we look at quarter 4 entertainment in summary, there is less content. There are shorter media spend windows and the budgets are smaller. However, even though we recognize that TV has been suffering in entertainment, we've got highs for 2026 that we're pretty excited about in the sense that the strike, when we think about '22, '23, a lot of that production got moved to '24. I've personally had a number of conversations with some of the most significant studios here with our -- in L.A. with our Head of our Entertainment practice. And the general feeling is really that it's going to be a healthy 2026 for both film and streaming. There's a good slate on the docket. So we're feeling positive about that. And I think when we talk about entertainment, we're talking about those are the brands that we really want to be focusing on making sure that our strength of relationship means we're extending share, obviously, from our competitors as well. So hopefully, that provides you the perspective on the entertainment sector. David Karnovsky: And on the first part of the question, about World Cup? Nicolas Brien: Well, we're very excited about the World Cup. I mean we've got a number of significant conversations going on with some very significant enterprise brands who have committed significantly to World Cup, to Olympics to generally a lot more sports sponsorship that they want to activate. We are one of our most progressive real estate leaders who had advanced some very good conversations during the Super Bowl in New Orleans to extend the opportunity with temporary permitting to allow some of the biggest NFL sponsors to really get behind extending what they could do beyond in stadium. And that was a huge success for us. I think we generated between $7 million to $8 million incremental revenue. So we're extending that practice. We've now turned that into a line of business. So when we're talking about brand experiences, and this is the thing that is one of the biggest opportunities this medium has and certainly we're seizing on, which is there will always be those advertisers who want to run ads and they want to build their brand exposure. There are many of the more sophisticated, well-known global brands that have all the awareness in the world. They're not interested in more exposure. They're interested in these brand experiences that enhance their brand equity in a really dramatic way. This team, we put together a dedicated team to really focus on those brand experiences from a real estate point of view, from a strategic point of view, from a creative point of view and from a measurement point of view. And we're having conversations with a number of the experiential agencies, the biggest ones that are out there independent and owned by the holdcos about how they can look at our medium and imagine that we can help co-create these IRL experiences. So we feel bullish about it. Too early to talk about the conversations we're having, but they're extensive. So we're feeling good about World Cup specifically. Operator: [Operator Instructions] And our next question comes from Patrick Sholl with Barrington Research. Patrick Sholl: I was just wondering if like the government shutdown has had any impact on ad trends, whether across billboard or static and just the general, if that's affected any of those planning decisions on the part of your advertisers? Matthew Siegel: Pat, it's Matt. I'll take that one. We really haven't seen any material impact from the government shutdown. Obviously, the population in D.C. isn't fully in the office at this point, but we're not seeing the impact on our transit properties there. Operator: [Operator Instructions] And as we have no further questions in the queue, I will hand back over to Nick for any final comments. Nicolas Brien: Well, thank you, everybody. And we really always appreciate you joining us today. And certainly, we hope to see and meet many of you at the various conferences and events this winter. But for those that we don't, we look forward to presenting our quarter 4 results to you in February. Thank you all very much. Operator: Thank you, everyone. This does conclude today's call. Thank you for joining. You may now disconnect. Have a great rest of your day.
Operator: Thank you for standing by. My name is Karen, and I will be your conference operator today. At this time, I would like to welcome everyone to the Peloton Interactive First Quarter Fiscal Year 2026 Earnings Call. [Operator Instructions] I will now turn the call over to James Marsh, SVP of Investor Relations. Please go ahead. James Marsh: Thank you, operator. Good afternoon, and welcome to Peloton's First Quarter Fiscal 2026 Conference Call. Joining today's call are Peloton Chief Executive Officer and President, Peter Stern; and Chief Financial Officer, Liz Coddington. Our comments and responses to your questions reflect management's views as of today only and will include forward-looking statements related to our business under federal securities law. Actual results may differ materially from those contained in or implied by these forward-looking statements due to risks and uncertainties associated with our business. Please refer to our SEC filings and today's press release, both of which can be found on our Investor Relations website, for a discussion of our material risks and other important factors that could impact our results. During this call, we will discuss both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP financial measures is provided in today's press release. I'll now turn the call over to Peter. Peter Stern: Thank you, James. Good afternoon, everyone, and thank you for joining today's call. Before I summarize our performance in Q1, I'd like to address our voluntary recall announced earlier today. As previously disclosed, we have received a small number of reports of an Original Series Bike+ seat post breaking during use. As of today, we are aware of 3 such incidents. The well-being of our members is our highest priority. And therefore, in cooperation with the U.S. Consumer Product Safety Commission and Health Canada, we are voluntarily recalling approximately 833,000 units in the U.S. and approximately 44,800 units in Canada of the Original Series Bike+ model. These units were manufactured from December 2019 to July 2022 and sold beginning in 2020 to April 2025. We are offering an updated self-installable seat post replacement, which is the CPSC approved remedy. Impacted members will receive an e-mail with order instructions and the notification will also appear on their Bike+ touchscreen. This recall does not impact any other equipment models, including our new Cross Training Series Bike and Bike+. The anticipated financial impact is reflected in our results and our guidance, including the increases to our adjusted EBITDA guidance and minimum free cash flow target. Liz will share more details about the financial impact later in this call. Turning our attention to the first quarter of the fiscal year. I am proud of Peloton. In the quarter leading up to our October 1 innovation reveal, our team once again successfully executed on our business priorities, progressed our financial results and delivered positive human impact at scale. As a result, our performance came in above the guidance range on most key financial metrics in this seasonally slower quarter for fitness equipment sales, and we continue to see year-over-year growth in average workout time per Connected Fitness subscription. Looking from the outside in during the first quarter, it may have felt like business as usual, as we continue to demonstrate financial discipline and established a strong foundation for achieving our full year financial guidance. But behind the scenes, the quarter was anything but. Throughout the quarter, the Peloton team was hard at work, setting the stage for our new chapter by innovating on every aspect of our magic formula of premium equipment, software powered by AI, world-class instructors and a deeply engaged community. In last quarter's remarks, I laid out Peloton's strategy. The first and most foundational part of that strategy is our commitment to improving member outcomes. To that end, on October 1, we simultaneously unveiled and began shipping the most significant product update in our history with an all-new equipment lineup, the Peloton Cross Training Series and the Peloton Pro series. Our understanding of human health has progressed since Peloton took the world by storm with the introduction of the original bike. And today, we know that adults need to pursue a combination of cardio, strength and more to achieve their wellness goals. To that end, all Peloton products now feature advanced swivel screens, allowing members to easily transition between cardio and strength to complete floor workouts, including strength, yoga, Pilates and stretching. Our new Plus line includes an advanced computer vision movement tracking camera that counts your reps, corrects your form and offers weight suggestions in real time, along with voice control, enabling members to adjust weights, skip moves or pause their workout without touching a thing. We've made several additional upgrades, including improvements in audio across the board and featuring sound by Sonos in our Plus line for a studio-like experience. On October 1, we also launched Peloton IQ, which gives every Peloton member a personalized coach regardless of whether they own our new Cross Training Series, our Original Series or work out with a Peloton app subscription. Peloton IQ uses AI to turn years of insights and data points, including your goals, class activity and health stats from wearable devices into personal training guidance. In so doing, Peloton IQ makes some of the benefits of personal training accessible to millions of people, providing individual insights and recommendations based on members' intentions, preferences, level of fitness and performance. Since launching the Cross Training Series and Peloton IQ, we've observed a favorable mix shift toward our more premium products, including a mix shift toward Tread sales and toward our Plus line of products, the latter of which we believe is driven by excitement around the advanced computer vision features. Beyond our work on cardio and strength, the trust we've built with our community gives us an opportunity to address an even broader array of wellness domains. In September, we acquired Breathwrk, an award-winning app specializing in breathing exercises, which have been shown to positively impact sleep, focus, blood pressure, heart rate variability, stress and anxiety. The Breathwrk subscription app makes mental fitness accessible to all, and now our members can enjoy Breathwrk as part of their All-Access or App+ subscriptions. We'll have more to share over time as we evolve in this important category. We also announced a first-of-its-kind collaboration with the Hospital for Special Surgery, the world leader in orthopedics to offer Peloton members access to expert care for joint and muscle pain, injuries and orthopedic conditions. We've co-developed class collections with HSS medical experts, recently launching the first 5 on preventing some of the most common types of injuries. We're also committed to meeting members where they are in their life stages. In response to member demand, we started with menopause, a life stage that impacts the majority of our members at some point in their lives. We're extremely proud of our partnership with Respin Health, founded by Halle Berry to revolutionize menopause care with an integrated holistic approach, and have just launched a study with over 1,000 women to measure the benefits of targeted movement strategies and other evidence-based lifestyle interventions. These findings will power our evolving evidence-based exercise programming and menopause support. The second part of our strategy is to meet members everywhere. We have made great progress on this front over the past few weeks. We now have 10 micro stores in the U.S., up from 1 prior to Q1. And we also announced a new retail partnership with Johnson Fitness & Wellness, the nation's largest independent fitness retailer with 100 locations across the U.S. We now have a physical retail presence in 46 states, while in Australia, we launched a retail presence in 11 franchise locations throughout the country. Our expanded retail footprint positions us well for the holiday season, providing opportunities for consumers to test and experience our new innovations. Our commercial business unit continues to show strong performance and is an area in which we are also innovating. The new Peloton Pro series offers a complete lineup of Peloton equipment for commercial environments such as hotel gyms and multi-residential buildings, and includes the Tread+ Pro, Peloton's first ever commercial treadmill. And Precor launched its new commercial Tread, the Breakaway. This new slat belt treadmill includes a sled-style push mode, cadence coach and a new console design. Peloton also recently became the primary fitness partner powering Utah City, a 700-acre mixed-use development outside of Salt Lake City. And now every residential building in Utah City will feature a Peloton space that includes several pieces of Peloton equipment and accessories for residents. The third part of our strategy is to make members for life. Celebrating achievement is crucial for sticking with any program. So last month, we launched Club Peloton, our first loyalty and recognition program. As members engage with our platform, they progress through levels from bronze to legend, unlocking exclusive content recognition and rewards. Already more than 500,000 members have engaged with Club Peloton. On October 1, we also introduced official Peloton teams led by Peloton instructors, including Move for Life, Menopause, HYROX and Cross Training. These teams provide a forum for members to connect, discuss goals and learn from each other and from experts, further elevating Peloton's community. Since October 1, engagement with teams is up nearly 50%. Ultimately, all these strategic initiatives, product innovation, wellness expansion and new distribution are underpinned by the fourth part of our strategy, our commitment to operational discipline and business excellence. Our full year guidance announced in August included targeted initiatives to improve monetization, such as the introduction of expert assembly fees. These were implemented within the quarter and exceeded our expectations. At the same time, our cost reduction plans remain on track. Perhaps most important, we remain confident in our ability to inflect toward revenue growth as the fiscal year progresses, building on the actions we took in Q1 and on October 1. We continue to monitor and respond to evolving tariff policies and broader changes in the macro environment and consumer spending. While those external factors are real, our focus remains on execution and being the best fitness and wellness partner to our members. We believe we offer an unmatched ecosystem of products and experiences to help our members invest in their health and well-being. As we enter this important holiday season, Peloton is exceptionally well positioned with great new equipment, Peloton IQ, new wellness partnerships, expanded distribution, a resurgent commercial business unit, new loyalty features, successful monetization changes and improvements in our financial performance. I'll now pass it over to Liz, who will share more details about our Q1 financial results and guidance for the remainder of the year. Liz Coddington: Thanks, Peter. I want to begin with our first quarter financial results in which we exceeded the high end of our guidance on most key metrics. We ended the first quarter with 2.732 million Paid Connected Fitness Subscriptions, reflecting a decrease of 6% year-over-year. Q1 is typically a seasonally lower quarter for hardware sales and seasonally higher quarter for churn. We exceeded the high end of our guidance range by 2,000, driven by higher-than-expected gross additions. Connected Fitness gross additions outperformed our expectations due to higher unit sales of our Connected Fitness products in both first-party and third-party retail channels. Average net monthly Paid Connected Fitness Subscription churn was 1.6%, an improvement of 20 basis points both year-over-year and 10 basis points quarter-over-quarter, in line with our expectations. We ended the quarter with 542,000 ending paid app subscriptions, inclusive of subscriptions from our acquisition of Breathwrk. Total revenue was $551 million in Q1, comprising $152 million of Connected Fitness products revenue and $398 million of subscription revenue, outperforming the high end of our guidance range by $6 million. Outperformance relative to guidance was primarily driven by Connected Fitness products revenue from higher-than-expected hardware sales of both Peloton and Precor products. Connected Fitness products revenue decreased $7 million or 5% year-over-year, driven by lower equipment sales and deliveries, partially offset by a mix toward higher-priced products. Subscription revenue decreased $28 million or 7% year-over-year, primarily driven by lower ending Paid Connected Fitness Subscriptions, lower content licensing revenue and lower ending paid app subscriptions, partly offset by used equipment activation fee revenue, which was introduced in late August of fiscal 2025. Total gross profit was $284 million in Q1, a decrease of $20 million or 7% year-over-year. Total gross margin was 51.5%, a decrease of 30 basis points year-over-year and 50 basis points below our guidance of 52%. Total gross margin was negatively impacted by a $13.5 million accrual for Bike+ seat post inventory costs this quarter, in addition to $3 million we accrued in the prior quarter, representing a total estimated impact of $16.5 million. Excluding this $13.5 million charge in Q1, total gross margin would have been 54% or 200 basis points above our Q1 guidance. Beginning in the first quarter of fiscal 2026, we began assigning executive compensation and other corporate overhead expenses associated with our corporate facilities as we focus on driving more accountability for costs at a functional level. Prior to fiscal 2026, these costs were all recorded in G&A, but starting in Q1 are assigned across cost of goods sold, sales and marketing, G&A and R&D. Connected Fitness products gross margin was 6.9%, a decrease of 230 basis points year-over-year, primarily driven by the Bike+ seat post inventory accrual I just noted. Excluding the inventory accrual, Connected Fitness products gross margin would have been 15.8%, an improvement of 660 basis points year-over-year, driven by a mix shift toward higher-margin products, lower warranty costs, a decrease in inventory reserves and lower warehousing and distribution costs. Subscription gross margin was 68.6%, an increase of 80 basis points year-over-year. Total operating expenses, excluding restructuring, impairment and supplier settlement expenses were $230 million in Q1, a decrease of $30 million or 12% year-over-year, reflecting the continued progress we've made in rightsizing our cost structure as well as a reduction to advertising expenses in Q1 ahead of our hardware portfolio refresh announced on October 1. We are on track to achieve our target to deliver at least $100 million of run rate cost savings by the end of fiscal 2026. Sales and marketing expenses were $67 million in Q1, a decrease of $15 million or 18% year-over-year, primarily driven by decreases in acquisition, brand and creative marketing spend as well as a decrease in retail showroom expenses. As of the end of Q1, we had 7 legacy retail showrooms remaining. Research and development expenses were $62 million in Q1, an increase of $4 million or 6% year-over-year, primarily driven by cost assignments from G&A, which were partially offset by lower product development costs from a reduction in contractor spend. General and administrative expenses were $101 million in Q1, a decrease of $19 million or 16% year-over-year, primarily driven by cost assignments to other functional areas and lower professional fees. This quarter, we recognized $13 million of impairment and restructuring expenses, of which $8 million was noncash. The noncash charges were primarily related to asset write-downs associated with accelerated retail store closures, while the remaining $5 million of cash charges were primarily related to exit and disposal costs and professional fees. Adjusted EBITDA was $118 million in Q1, which was a $2 million or 2% improvement year-over-year and $18 million above the high end of our guidance range. To note, the $13.5 million accrual for Bike+ seat post inventory costs was not added back to adjusted EBITDA. We generated $67 million of free cash flow in Q1, an increase of $57 million year-over-year, significantly outperforming our prior expectation for slightly negative cash flow in the quarter. Free cash flow benefited from tariff-related favorability associated with both lower-than-expected tariff rates and delayed timing for certain tariffs going into effect, lower operating costs associated with realizing indirect cost savings faster than anticipated, revenue favorability and other smaller impacts. Q1 free cash flow included roughly $30 million of timing favorability. We ended Q1 with $1.104 billion in unrestricted cash and cash equivalents, an increase of $64 million quarter-over-quarter. Net debt was $395 million, a decrease of $382 million or 49% year-over-year. Overall, our first quarter profitability performance has enabled us to continue deleveraging our balance sheet. Our gross leverage ratio, defined as our gross principal debt outstanding divided by trailing 12-month adjusted EBITDA was 3.8 in Q1, a substantial improvement from the 14 in Q1 of last year. Similarly, our net leverage ratio, defined as gross principal debt outstanding net of cash and cash equivalents divided by trailing 12-month adjusted EBITDA was 1.1 in Q1, down from 7.5 in Q1 of last year. We believe we have more cash on the balance sheet today than we need to run the business and are evaluating opportunities to optimize our capital structure over time. In February 2026, roughly $200 million of 0% convertible notes will come due, and we intend to pay them down at that time. It's also worth noting our $1 billion term loan has a 1% call premium through May of 2026. We are mindful of the timing of when this call premium expires as we evaluate our options. We expect a refinancing to deliver a lower cost of capital and more flexibility to our capital allocation strategy. Next, I'd like to share context for our financial outlook for Q2 and the remainder of the fiscal year. Our full year fiscal 2026 revenue outlook of $2.4 billion to $2.5 billion is unchanged from what we provided last quarter and reflects a 2% revenue decrease year-over-year at the midpoint. Our recently announced changes to subscription pricing were incorporated into our previous full year outlook. And so far, the impact of those changes has been in line with our expectations. We are pleased that our members continue to see the value in their Peloton membership and the recently added benefits like Peloton IQ, Club Peloton, Breathwrk and more. As we noted last quarter, our full year guidance anticipates an inflection toward growth during certain quarters within the fiscal year. Our Q2 revenue outlook of $665 million to $685 million reflects this expectation with a slight increase of 0.2% year-over-year at the midpoint and an increase of 23% quarter-over-quarter as a result of seasonally higher equipment sales and recent pricing changes. We are raising our full year fiscal 2026 guidance for total gross margin to 52%, which is an increase of 100 basis points from our prior guidance and an improvement of 110 basis points year-over-year, primarily driven by favorable tariff rates relative to our prior full year guidance as policy continues to evolve, a favorable mix of sales toward higher-margin products and our continued focus on driving cost efficiency to our supply chain. These tailwinds are partially offset by the accrual for the Bike+ seat post inventory impact in Q1. Q2 total gross margin is expected to be roughly 49%, down 250 basis points quarter-over-quarter due to an expected seasonally higher mix of Connected Fitness products revenue. We are raising our full year fiscal 2026 guidance for adjusted EBITDA to $425 million to $475 million, reflecting an increase of $25 million from our prior guidance and an improvement of 12% year-over-year at the midpoint, driven by favorable gross profit and operating expenses, reflecting our expectation for realizing cost savings faster than previously anticipated. To note, we are increasing our full year guidance by $25 million, notwithstanding the $13.5 million accrual for Bike+ seat post inventory costs in Q1. Our Q2 outlook for adjusted EBITDA of $55 million to $75 million reflects an increase of 11% year-over-year at the midpoint, but a decrease of 45% quarter-over-quarter due to seasonally higher marketing spend in Q2. Our Q2 guidance for ending Paid Connected Fitness Subscriptions of 2.64 million to 2.67 million reflects a decrease of 8% year-over-year at the midpoint. Average net monthly Paid Connected Fitness Subscription churn is expected to increase year-over-year and quarter-over-quarter due to an increase in subscription cancellations and pauses following our pricing changes announced on October 1. However, our guidance reflects an expectation that our net churn rate will be flat year-over-year in full year fiscal 2026. We also expect gross additions to decrease year-over-year as a result of an expected year-over-year decrease in hardware sales. Generating meaningful free cash flow remains a top priority. We are raising our full year fiscal 2026 minimum free cash flow target by $50 million to at least $250 million, reflecting the benefit of lower tariffs, both from lower rates and later-than-expected implementation timing and our progress on realizing indirect cost savings sooner. This target reflects our expectations for a roughly $45 million impact to free cash flow as a result of tariff exposure, which remains a dynamic situation that may change in the future. Overall, our guidance for Q2 and the remainder of the fiscal year reflects continued improvement in profitability and progress toward revenue growth. We still expect to achieve the important milestone of positive operating income on a full year basis in fiscal 2026. Now we'd like to open the line for Q&A. James Marsh: Thanks, Liz. We'll begin the Q&A process this evening by taking a couple of questions from investors that send in their topics in advance. The first question will come from Bill, leaderboard name Pizza is Life. Bill asked, what is the market opportunity for the new commercial business unit? How will you be approaching the new geographical markets? And will you successfully integrate Precor and Peloton for a unified B2B offering? Peter? Peter Stern: Bill, I love your leaderboard name. Strategically, our commercial business unit is set up to win. First, the market opportunity is large, and we still have very low share. And when I talk to gym operators, they all tell me that there's only one brand that consumers ask for by name, and that's Peloton. Second, the combination of Precor and Peloton just makes sense. You think about Precor's brawn coming together with Peloton's brains, and you've got something no one else can match. And let me explain what I mean by that because we've got plenty of smart people over on the Precor team. Precor builds equipment that is truly commercial grade. It's the kind of stuff that's built to be run like 12 hours a day. And they also have the installation and service capabilities for commercial establishments. Peloton has software, content, community that's absolutely unmatched. You bring those things together, and we've got every reason to be able to win. Bill, you talked also about a third point I'd raise, which is international. Peloton is only in 6 countries right now, but Precor is in over 60 countries. So that opens up opportunities for Peloton to enter these new markets in ways that build on existing distribution and relationships that we've already got, starting with B2B. So strategically, we're in a great place. It's just an execution challenge from here, and you can already see us executing on this. For example, Precor now provides all the installation and service for Peloton commercial locations, including hotels. Last month, we announced Precor's first slated tread, the Breakaway with a new smarter, more powerful screen and Peloton's first-ever commercial tread initially for hospitality and for multi-dwelling units was launched as part of the new Peloton Pro line. So you add all of this up, I feel great about where we are with our commercial business unit, and I'm confident we're going to be able to bring this together and deliver an industry-leading set of products and solutions on behalf of commercial clients. James Marsh: Great. Thanks, Peter. Our second question comes from Christopher in San Francisco, leaderboard named Create SF. Are there any plans in the next 5 years to provide for dividends? Liz, maybe you can handle this one. Liz Coddington: Sure. So while this question is specifically asking about offering dividends. It might actually be more helpful if I take a step back and update you all on our current capital structure and talk through our perspective on overall capital allocation strategy. As many of you may recall, in May of 2025, we were approaching a maturity wall, and we successfully completed a $1.35 billion refinancing of our balance sheet. Now following our refinancing, we have generated meaningful free cash flow with $380 million of free cash flow in the last 12 months. And we're really proud of the work that we've done to really strengthen and quickly deleverage our balance sheet with net debt decreasing by $382 million or 49% year-on-year. Our net leverage ratio really reflects the great work that the company has done to get healthy. And the deleveraging story really is a positive for our company, and it should open doors for us to be able to potentially lower interest expense in the future and also invest in strategic uses of our cash. We do think it's still a bit early to discuss a specific framework for capital allocation, but we do expect that it will become a focus when we pursue a refinancing at the right time. Now there are a few things that I would like to highlight. We talked about this earlier, but we believe there is more cash on our balance sheet than we need to run the business today and that we are a much better credit today than when we last refinanced. Our current priority is continuing to deleverage as we believe this will maximize the optionality for us in the future and reduce our cost of capital. Now when we think about appropriate range for our gross leverage ratio targets, we're thinking about them in terms of established framework, such as the public ratings framework. Ideally, we would want to align with companies that maintain single -- high single B to BB ratings, and we think a gross debt-to-EBITDA ratio in the range of 2x to 4x is reflective of a good sustainable structure. So with that continued deleveraging, we expect to have more capital allocation alternatives available to us, and those could include things like buying back stock, reinvesting in the business to drive organic growth, pursuing potential inorganic growth opportunities or going back to your original question, offering cash dividends. James Marsh: Great. Karen, can you open it up to Q&A at this stage? Operator: [Operator Instructions] The first question comes from Andrew Boone from Citizens Bank. Andrew Boone: I would love to just ask about the recall. Can you guys compare this to the initial recall and just help us understand why those 2 recalls weren't combined? Peter Stern: Sure, Andrew. I'll cover that. This is Peter. As I'm sure you can imagine, decisions around recalls are really complicated and depend on a lot of factors. But what I can say is that the Original Series Bike and the Original Series Bike+ are different models and they're physically different pieces of equipment. And at the time of the bike seat post recall, there were no incidents. There was 0 incidents relating to the Bike+. Andrew Boone: Okay. And then just as a follow-up, I'd love to understand if there are any derivative impacts from the recall around the business, the brand. Can you guys, again, compare this to the previous recall? Just help us to understand if there are any ripples that we should be thinking about the broader business? Liz Coddington: Sure. So I can take this one. So let me just first talk about the cost impact. We talked in our prepared remarks about the $13.5 million accrual that we booked last -- in Q1 and in addition to the $3 million that we accrued in Q4, which is a $16.5 million impact. And we do believe that, that is that we made the appropriate assessments and judgments around sizing that accrual, but estimates are forward-looking and actual results may differ. For subscriptions, which I think is one of the things that you were asking about comparing to the prior recall, based on behaviors from our prior seat post recall that was in May of 2023 and which applied only to our original bike models, our Q2 guidance incorporates a small anticipated headwind to Paid Connected Fitness net churn, and that's driven by elevated subscription pauses. We expect the majority of these incremental pauses to be on pause in Q3. And so that nets out to a small drag on subscriptions for the year. Now in terms of revenue impact, unlike our prior seat post recall, this recall affects bikes manufactured during a specific period that we no longer sell. And we already have replacement seat post inventory available to begin to fulfill anticipated replacement orders. And the overall revenue impact is expected to be immaterial and is reflected in our full year guidance. Operator: The next question comes from Arpine Kocharyan from UBS. Arpine Kocharyan: So I'm going to combine 2 questions into one, if I may. And you alluded to this in your prepared remarks, but you're raising EBITDA and your revenue guidance is unchanged, which tells me that there's no major change in your thinking as it relates to underlying churn assumptions from before you raised pricing. First, is that a correct read? And secondly, if you could talk through your thinking of how you see churn normalizing? I think you saw churn normalizing within 8, 12 months post price increase back in 2022. Could you maybe talk about how your base of subscribers is different today versus '22 kind of emerging from COVID lockdown. On the other hand, you've been targeting maybe segments of the market that have underlying churn a bit higher through your rental program and the secondary market. Just if you could talk through what you see different today would be super helpful. Peter Stern: Yes. Arpine, this is Peter. I'll get us started on this, and then Liz feel free to jump in as always. As Liz said, the impact of the price increase in terms of churn has been in line with our expectations, and we're pleased with how it's going. Just to give you a sense of kind of the timing of the thing, we saw elevated cancellations in the first week or so after the announcement. And that was, as you can imagine, mostly concentrated in the first couple of days, and it was concentrated also in members who were more inactive versus our most active members, as you'd also imagine. And some of those people were likely to cancel at some point anyway. Since then, our churn has mostly moderated back to normal. As we indicated on our remarks here, our churn was actually down in Q1. That was the second quarter in a row that, that had taken place. And so we feel pretty good about the overall churn dynamics associated with the business. We have an increasingly tenured base of loyal members at this stage. And so if we step back and look at what to expect over the course of the year, the higher cancellations and pauses as a result of the price increase will -- that will manifest as higher churn in Q2. Then we should see an improvement in Q3, especially because we'll be reactivating some of the people who paused rather than canceled in Q2. And if we look at the year overall, we're projecting to see overall flat churn on a percentage basis over the entire year despite the tick up in Q2, and that's based on our confidence in the relationship that we have with our members. Yes, we have a very -- a different composition of our members. We have more people who are on programs like rental, for example, are coming from the secondary market, which tend to have higher churn, but that's offset by the fact that we have more -- much more tenured members and that tenure effect leads to lower churn. So all of those things add up to us feeling the level of confidence we've expressed about churn. Liz, do you want to jump there? Liz Coddington: Yes, I could just -- I was just going to add a little bit about EBITDA. So our EBITDA for the year, we did -- it reflects the outperformance that we had in Q1 because we are taking it up relative to our prior guidance by about $25 million on the full year basis. And so we outperformed in Q1. And then we do expect to see continued tariff favorability associated with the timing delays and lower rates than we had anticipated when we set our prior guidance. And then we also expect that we will realize some of the cost savings related to our $100 million run rate cost savings plan sooner than we anticipated. So all of those factors are driving some of that improvement in adjusted EBITDA. Operator: The next question comes from Marni Lysaght from Macquarie Capital. Marni Lysaght: I know you've called out some of the factors driving the free cash flow result. You're talking to the full year as well. But can you -- just when we kind of go through the balance sheet and you're talking about timing benefits, like receivables has come in quite lower relative to sales. And I appreciate inventories are a touch high. You've obviously been potentially preparing new products. So just thinking about some of the working capital nuances feeding into free cash flow trends going into this quarter and how you might think about this current quarter and for the -- and how that ties into the full year? Liz Coddington: Yes. So in terms of Q1, we certainly exceeded our expectations, which we had thought would be slightly negative, and we had some outperformance, and we talked about tariffs and some of those things as well and our cost savings plan. But we did have about $30 million, which I talked about earlier of benefits from vendor payment timing. And so some of that is related to payment terms, improvements in our payment terms and things like that. So that is probably a bit of what you're seeing. And on a full year basis, I do -- we expect to see that continued favorability and then -- but the timing will reverse in there. So we're taking our free cash flow target up by $50 million, but that is a minimum free cash flow target. Also, I want to make sure that to remind you all of that, we expect to be able to outperform that over the course of the year. Marni Lysaght: Understood. And just kind of, I guess, with new products coming to market, the right way of thinking about inventory? Liz Coddington: Yes. So we are balanced in terms of how we thought about inventory for our new products. Even though it's news to everyone here that we launched them in October, obviously, we have been planning for this for quite a while. And so we had a balance of working down our inventory on our old products, and we're being pretty measured about how much we built up in advance of the holiday season. So we feel pretty good about where we are at, at this point. Marni Lysaght: Okay. That's understood. And just a quick one on -- with Repowered, the kind of like the marketplace platform. How do we think about, I guess, the early progress that had a national rollout over the summer? And would the recalls, would that impact some of the vendors on that? Liz Coddington: Yes. So on Repowered, we -- again, that's -- it still a relatively new marketplace for us. And -- but we did create it as a way to help facilitate secondary market transactions because we are pretty -- the secondary market is an important entry point for us for price-sensitive customers. Now in terms of the recall, we do have -- we will have -- either we do already or we very well have a process in place to make sure that anyone buying on our Repowered marketplace will have access to a Bike+ seat post, it will be part of kind of the flow that they go through when they purchase a Bike+ through that marketplace. Operator: The next question comes from Shweta Khajuria from Wolfe Research. Shweta Khajuria: Let me try 2, please. First is, Liz, if you could speak to just the overall demand environment. And as you think about the rest of the quarter and into calendar quarter Q1 post the holidays, how are you -- what are you seeing right now that gives you conviction on demand trends generally, especially in the U.S.? And then my follow-up question is on your commercial opportunity. You kind of talked to this earlier as part of your answer to the first question. Could you please help us frame how big that opportunity could be for you in the, call it, near to midterm? And how are you measuring progress as you tap into that opportunity? Liz Coddington: Sure. So let me talk a little bit about demand trends that we're seeing. So for the Connected Fitness market overall, our internal estimates when we use third-party sales data do indicate that, that category in the U.S. is still declining year-over-year post the surge that we saw from mid-2020 to mid-fiscal 2022, but the rate of decline has decelerated to low single digits. So we're pretty encouraged by the trajectory it is moving towards. But we do expect to see some continued softness in Connected Fitness equipment demand in the short-to-medium term, and that is incorporated into our full year guidance. It's also worth reminding everyone that we are a large player in the Connected Fitness market segment. So our actions to focus on profitability do have an impact within the segment overall, especially for hardware sales. But in the long term, we do remain bullish on our growth potential as well as growth for that -- for the Connected Fitness category and the fitness and wellness economy overall. I do want to touch on the overall economy -- fitness and wellness economy because we do see that consumers are placing just a higher value on fitness and wellness. And if you think about that, it's much broader than just Connected Fitness in the framing of cardio fitness for the most part. And while it's not a nearly defined TAM today, there is third-party research overall that sizes, if you think about the entire wellness economy in totality, just within the U.S., at over $2 trillion. And now that's a huge number. We don't plan to participate in all of those categories that fall within the wellness economy. But we are focusing on moving toward areas beyond connected cardio and toward categories that demonstrate scale and growth and proven results for our members. And you've heard Peter talk about some of these. As we redefine our strategy, our market opportunity becomes much larger than connected cardio fitness. So you can think about cardio Connected Fitness as a big piece of us today, but our intent is to go well beyond that. And some of those categories, we've mentioned them before, but I'll just mention them one more time are in addition to cardio, we've got strength. We've got mental well-being, nutrition and hydration and sleep and recovery. And we'll continue to talk about these more as we execute on our strategy. Peter Stern: And just to cover the commercial side of that equation. The overall gym market in the United States is considerably bigger than the in-home Connected Fitness market. And although our internal analysis suggests that it experienced a bit of a slowdown over the last month or 2, if we look over the last couple of years, it's been continuing to grow. And we've experienced growth from the Precor side of our business. In some ways, I think we should be able to outpace the growth rate of the others due to the strategic benefits that I talked about earlier as well as the fact that we are refocusing on the commercial business unit and on Precor itself and recommitting to our commercial partners in that space. In terms of the metrics for success there, as you, I think, at this point, know about us overall as a management team, we are focused on growth, but the growth needs to be profitable. And so we are working with the commercial business unit to ensure that the plans that we develop results both in top line growth as well as increased margins associated with that business as well. And again, we feel really good about that category and in particular, our positioning in the category. Operator: The next question comes from Douglas Anmuth from JPMorgan. Bryan Smilek: It's Bryan Smilek on for Doug. Just 2 quick questions. Just thinking about the durability of double-digit sustainable Connected Fitness gross margins, can you just help parse out the drivers between product mix shift, the cost savings, obviously, that you're enacting? And I guess, conversely, but also similarly tied, you mentioned increased marketing spend in 2Q. Can you just shed more color on just overall brand positioning, where you're leaning into in terms of target demographics or service or channels as well for marketing? Liz Coddington: Yes. So in terms of gross margins, just -- I think your question was really kind of more about like long term and thinking about where we're going with gross margins. So if you look back at Q1, our -- to get to the -- this is Connected Fitness gross margin specifically, was 6.9%. That was negatively impacted by the inventory accrual for Bike+ seat post. And if you exclude that, our gross margin would have been 15.8%, and that's up 660 basis points year-over-year. Now if you look ahead to Q2, we're anticipating Connected Fitness products margin to improve compared to Q1, and that's driven by fixed cost leveraging with seasonally higher hardware sales and favorable mix of higher-margin products. And it's also worth noting that it's our highest quarter for seasonal promotions over the holidays. So even with that, we are expecting margin improvement. We do anticipate our full year fiscal '26 product Connected Fitness product gross margins to increase year-over-year. And then in terms of a long-term target, you mentioned double digits. Our goal is eventually to be in around the 20s range, and we intend to make progress towards that in the fiscal year. I do want to point out, though, as we've talked about on many prior calls, that we will continue to make trade-offs between gross margin and marketing spend based on the LTV to CAC efficiency that we see. Now Peter, did you want to talk a little bit -- I can talk about marketing. Peter Stern: On marketing spend, so for us, Q1 was a particularly low quarter. As Liz sort of intimated, we were sort of finishing up in many cases, the inventory that we had of our products. In fact, we went out of stock on the original bike in September in anticipation of the big launch. So there was no point, for example, in blowing it out on marketing when we knew we were doing great and running out of equipment. But as we look at Q2, we have a lot of messages to convey. And I'm so excited about those messages, right? Our launch of an entirely new product lineup with the Cross Training Series is a great reason for us to talk to our members and nonmembers alike. The introduction of Peloton IQ is it's a new concept, right, what we're trying to do in this space. And there's a lot of education that needs to take place. And of course, we've got all of this additional distribution. So we want to make sure that we actually are driving people into those stores because you got to provide the air cover in order for people to see that. That being said, we are, as always, very careful about our spend and pay close attention to our LTV to CAC and ensuring that we are acquiring members profitably. So what you will see is an increase in our marketing spend in Q2. There will be a higher percentage of our spend on brand and education than you've seen historically as compared with performance marketing in the early parts of the quarter. And then as we get into the latter parts of the quarter, the holiday season itself provides quite a lot of momentum for us. And we shift over to much more efficient performance marketing, and then you should see that over the -- much of the balance of the year, where we'll basically reap the benefits of some of the investment we made in Q2. But all of that, as you can tell, is included in the guidance that we provided for Q2, which still has considerable profitability. So again, our discipline is something that we take pride in, and that is certainly the case in the marketing area. James Marsh: Thanks, Peter. Karen, maybe we have time for one more question. Operator: And the last question comes from Susan Anderson from Canaccord. Susan Anderson: I guess maybe just to follow up on all of the additional wellness offerings you guys added to the subscription. Just curious if you've seen an uptick in usage of those services yet. It still may be a little early. And then maybe also if you can give an update on how the new certified refurbished equipment program is going. Peter Stern: So let me start with the usage point. It's actually been really -- that's been really positive. So we mentioned earlier that we've had 500,000 of our members use Club Peloton already. We're also seeing more people taking workouts from our home screen, and let me explain why that matters. For a lot of our members, they kind of stay with the same old, same old. They go to the classes page, and go to their comfort zone. But when people are taking workouts from the home screen, it means that the recommendations that we're delivering with Peloton IQ are starting to hit home. We've also seen a meaningful increase in strength workouts. And that's based on both our understanding of the science and what's important to our members in terms of their overall health as well as the personalized programs that we've developed for people who started to set goals around building strength and increasing longevity. The most important point is that if we look at the month of October, every kind of usage on a per member basis is up. And what I mean by that is like whether you're talking about workouts in that month, total workouts or the total workout days or total workout time, all those things are up, whereas historically, we typically see workouts go down from September to October. So we think our investments, in particular, AI, but also the investments we're making in the community on the software side are making a difference. In terms of the -- I think, Susan, your question was about the Repowered program. When you talked about a certified refurb program. And what I'll note right now is that the Repowered program actually doesn't do certified. It is, by the way, an awesome, awesome idea and one of the things that is certainly in our consideration set to actually provide certification because I think trust in this space is one of the areas that we can help to address. But so far, what we've been doing is solving a sort of more basic set of problems. One is creating a trusted marketplace to match sellers and buyers locally, but also to be able to give them the option to have a professional come and do the pickup and the delivery so that you don't have to go into somebody else's house if you don't want to or have somebody come into your house if you don't want someone there. So that's been the focus so far for Repowered. It's still early days, but we're seeing from what we're being told, good performance from the partner that we're working with on that program, and it's scaling as we expected. But stay posted for more cool stuff, and thanks for throwing out the idea. Why don't I close this out at this point with thanks, first of all, for everyone who joined today's call and also some encouragement for you to tune into some fun class moments that we have coming up. After Thanksgiving, we will have a veritable buffet of new live and on-demand classes available, including a live Turkey Burn Ride with Robin Arzón; a live Turkey Burn Run with Kirsten Ferguson; and The Feast, a live full-body strength class with 6 of our strength instructors. And coming soon, Emma Lovewell will release her third installment of her popular Crush Your Core program. And we recently launched a podcast, Move for Life hosted by instructor Matt Wilpers and Dr. Kavita Patel that's focused on longevity and it's available on YouTube. And for the investment professionals and analysts out there, our co-developed collection with the Hospital for Special Surgery on Desk Worker Strength & Mobility was made for you. With that, we look forward to seeing you on the leaderboard and wish you a happy and healthy holiday season. James Marsh: Thank you. Operator: Ladies and gentlemen, this concludes today's call. Thank you all for joining, and you may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by, and welcome to KKR's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Craig Larson. Thank you. You may begin. Craig Larson: Thank you, operator. Good morning, everyone, and welcome to our third quarter 2025 earnings call. This morning, as usual, I'm joined by Rob Lewin, our Chief Financial Officer; and Scott Nuttall, our Co-Chief Executive Officer. We would like to remind everyone that we'll refer to non-GAAP measures on the call, which are reconciled to GAAP figures in our press release, which is available on the Investor Center section at kkr.com. And as a reminder, we report our segment numbers on an adjusted share basis. This call will also contain forward-looking statements, which do not guarantee future events or performance. Please refer to our earnings release as well as our SEC filings for cautionary factors about these statements. I'll begin this morning with our results for the third quarter. As you likely would have already seen through our press release, we had a strong Q3. We're pleased to be reporting fee related earnings of $1.15 per share, total operating earnings of $1.55 per share, and adjusted net income of $1.41 per share. All of these figures are among the highest we reported in our history as a public company. Going into the P&L in a little more detail. Management fees and management fee growth continues to be strong. For Q3, management fees were $1.1 billion, that's up 19% year-over-year, driven by both our fundraising success really across all of our asset classes, alongside continued capital deployment. Catch-up fees within the management fee line were more elevated this quarter given the strength of our fundraising. They came in at a little over $40 million. So excluding catch-up fees, management fee growth on a year-over-year basis is a healthy 16%. Total transaction and monitoring fees were $328 million in the quarter. Capital markets fees were quite strong at $276 million, driven by activity across private equity, infrastructure, core private equity as well as our work on behalf of our third-party clients. Fee-related performance revenues in the quarter were $73 million. That figure is up nearly 30% year-over-year, with a growth here driven by the performance as well as the scaling at our K-INFRA vehicle. And in terms of expenses, fee-related compensation was right at the midpoint of our guided range, which as a reminder, is 17.5%. Other operating expenses for the quarter came in at $176 million. So in total, fee-related earnings were $1 billion or $1.15 per share figure that I mentioned earlier, a record figure for us. Insurance segment operating earnings were $305 million this quarter. The run rate here is still at that $250 million level plus or minus, as there was a $41 million benefit this quarter from GA's annual actuarial assumption review process. Strategic Holdings operating earnings were $58 million for the quarter. And on a year-to-date basis here, they're meaningfully ahead of where we were a year ago. And as we head into 2026, we're tracking nicely towards our expected $350-plus million of net dividends. So in aggregate, total operating earnings, which represent the more recurring component of our earnings streams, were $1.55 per share, that's a record quarter, and 17% ahead of just last quarter. Moving on to investing earnings within our Asset Management segment. Realized performance and investment income totaled $935 million, and we had $70 million of net realized investment income within our Strategic Holdings segment. So over $1 billion of monetization activity on a combined basis, a healthy level, which, in our view, highlights both the strength as well as the maturity of our portfolio. And of note in Q3, to give a little color, almost half of realized carried interest came from our private equity business in Asia. So in total, looking on a net basis, investing earnings after compensation were $306 million in Q3. After interest expense and taxes, adjusted net income was $1.3 billion or $1.41 per share. That's up 8% year-over-year, so relative to the third quarter of 2024. And stepping back for a moment, we're pleased with the progress and the momentum you're seeing beyond just this 90-day period. Looking over the last 12 months, management fees, fee-related earnings and adjusted net income are all at record levels for KKR over any 12-month period in our history, and are up 16%, 16% and 17%, respectively, compared to the 12-month period ended 1 year ago. Turning now to some of the key operating metrics for us from the quarter, and let me start with capital raising. In the third quarter, we raised $43 billion of capital for the second highest fundraising quarter in our history, with an incremental $3 billion of capital coming in this quarter with the closing of our acquisition of HealthCare Royalty Partners. Organic new capital raised across our credit platform comprised roughly 60% of the $43 billion raised this quarter as we're seeing strong momentum in our asset-based finance business as well as our insurance business more broadly. Inflows from Global Atlantic within credit were $15 billion. That's up considerably year-over-year, with $6 billion of that related to particularly strong funding agreement issuance as well as the Japan Post Insurance strategic partnership. In addition to this activity at GA, third-party asset-based finance and private IG represented over $5 billion of new capital raised in the quarter, and this included 5 separate private IG ABF mandates, 4 of which are with clients that are new to our credit platform, and our forward pipeline here remains quite strong. Looking across the entirety of our credit platform, we raised $55 billion year-to-date, and that's compared to $56 billion over all of 2024. Suffice to say, 2025 is on track to be a record capital raising year for our credit business. Our private equity and real asset business lines together raised $16 billion of capital in the quarter across a number of strategies, and that includes additional closes in our flagship North America's private equity and our global infrastructure funds. And inflows from our private wealth efforts continue to be robust. In the third quarter, our K-Series suite of products brought in $4.1 billion, that is 20% higher compared to just last quarter, and is 80% above the new capital raised figure from 1 year ago. Turning to deployment. We invested $26 billion of capital in Q3, with activity really broad-based across geographies and asset classes. And looking over the last 12 months, we've invested $85 billion, that's up 12% compared to the prior LTM period. And with a record $126 billion of dry powder available, we remain incredibly well positioned to build our portfolio for the future. Our teams continue to find creative ways to put capital work across asset classes. Now turning to investment performance. Page 10 of the earnings release details the continued performance we're seeing across asset classes this quarter and in the LTM. Overall, our portfolios remain well positioned. And given our disciplined approach around investment pacing and linear deployment, we have roughly $17 billion of embedded gains that sit on our balance sheet across our Asset Management and Strategic Holdings, which is at or near record levels for us, and this is despite the healthy monetization activity that you've seen in the quarter. And with that, I'm pleased to turn the call over to Rob. Robert Lewin: Thanks a lot, Craig, and thank you all for joining our call this morning. We have another 4 topics that we'd like to cover today, mostly addressing some of the consistent questions that we have been receiving. They are a bit more involved this quarter. So please bear with us. The first topic relates to our insurance business. As we have discussed on prior calls, we have been focused on 4 meaningful changes to how we run insurance. Number one, we are originating longer-duration liabilities and assets. Two, we are aggressively expanding outside the U.S. to better match our global investment management footprint. Number three, GA is investing more capital across everything KKR does, including non-yielding and lower-yielding asset classes like private equity and real assets. And four, we are raising more third-party capital across our Ivy sidecar strategy and strategic partnerships to grow GA in a capital-efficient manner. In effect, we are evolving our insurance business to be able to extend the duration of our book, to use more of our asset management capabilities around the world and leverage one of our core capabilities as a firm, capital raising. We believe these changes will expand our competitive advantage and allow us to generate higher and more durable returns over the long term, and all is on track from our standpoint. We also wanted to discuss how we look at the impact of GA on our total P&L. Insurance operating earnings alone do not capture how our model works and the overall impact of our insurance-related economics. A lot of it appropriately shows up in our Asset Management segment. The last 2 quarters, we have talked about the total economics related to our insurance business, and we have received positive feedback on this topic. I think it has helped frame why the GA acquisition has been so powerful for KKR. Given this, we thought we would more clearly lay out the total economics, and we have added a new page to our earnings release that outlines this on Page 20. Let's take a quick minute to walk through that page more specifically. The total economics on this page, of course, include the segment insurance operating earnings that we report. Next, you see we layer on the economics that show up in the Asset Management segment, and you could see that in 3 places. First, as GA assets have grown $139 billion in 2022 to $212 billion today, management fees under our investment management agreement have also significantly increased. Second, we have a differentiated third-party sidecar business. Of that $212 billion of total GA AUM, approximately $50 billion is from our Ivy-related vehicles. These vehicles allow us to marry third-party capital alongside the GA balance sheet, and they often pay fee and carry similar to a drawdown credit or PE fund. These assets would not exist without GA, but all of the management fees show up in our Asset Management segment. And third, capital markets fees driven by GA are starting to contribute. Taken together, as you can see on Page 20, the total insurance economics have increased meaningfully since our initial acquisition of GA. Year-to-date, the total economics are approximately $1.4 billion net of compensation, and that is up 16% compared to the same period last year. And if anything, these figures meaningfully understate the earnings power of owning Global Atlantic. We now manage over $80 billion of capital on behalf of third-party insurance clients, that is 3x the AUM we managed when we bought GA, and that's because we are a much better partner to insurance clients. In terms of the Ivy-related capital, when you aggregate where we stand on our Ivy strategy capital raise and the Japan Post Insurance commitment, we currently have approximately $6 billion of third-party capital capacity. And once this new capital is put to work, we expect that it will ultimately translate to north of $60 billion of additional fee-paying AUM. The vast majority of this is not showing up in our P&L today. Said another way, we expect that the capital we have raised over the last 12 months alone will allow us to more than double the aggregate AUM of our Ivy-related vehicles once it is put to work. From a capital markets perspective, and you've heard us say this before, we are just getting started here. And we have said that the GA related fees can be hundreds of millions annually over time. And finally, as we add higher returning, lower-yielding investments to the investment portfolio, that includes private equity and real assets, those excess returns do not show up for a while given that we report the portfolio largely based on cash outcomes. As you can see from the color box on the top right of this slide, none of those economics are included here. Transparently, we debated whether it changed our insurance operating reporting to mark-to-market and conform to many of the industry peers, but we have concluded that it would be inconsistent with how we think about the P&L across all of KKR. We have had a focus on cash outcomes in our segment reporting since 2018 when we moved away from reporting economic net income. We think it is the easiest way to understand our business and think that is the right decision for our insurance portfolio as well. And candidly, we like our conservative approach. So we have decided to continue reporting the lower-yielding investments in our insurance segment based on cash outcomes. But to give you a sense of the embedded profitability, our insurance operating earnings would have been approximately $50 million higher in Q3 if we included the impact of marks on our investments, where a significant portion of the return is related to appreciation and not cash yield. As we continue to rotate the book, we would expect the difference between our reported earnings and the earnings on a marked basis to go up in 2026, but come down over time as the portfolio matures. However, in a growing and performing business, that number will never be 0. As you can tell from the attractive profile of our total economics, looking at the insurance segment alone only really tells part of the story. So we will be sharing with you the entire story every quarter so you can clearly understand how our management team defines success. Hopefully, that is clear and helpful in addressing many of the questions on this topic. The second topic this morning is the continued success we are seeing in private wealth. As Craig mentioned, we raised $4.1 billion in the quarter in our K-Series vehicles. Our capital inflows continue to be strong and gaining momentum. We now manage over $32 billion of assets across all of our K-Series vehicles, including activity through November 1. That $32 billion of K-Series AUM compares to $15 billion a year ago and just $6 billion 2 years ago. Our North Star for the K-Series suite continues to be focused on building vehicles that we can be proud of 10-plus years from now. As a result, recognizing we don't read too much into the month-to-month sales, our performance, deployment and capital raising activity continue to be ahead of our expectations. Elsewhere in private wealth, we remain encouraged by the progress we are seeing within our strategic partnership with Capital Group. As a reminder, we launched our first 2 public private credit solutions in April. So we are in the very earliest days of capital raising. And in July, we made an initial filing with the SEC for a public private equity solution. We also remain exciting as to what we can do together in other areas where our combined capabilities can add value to our clients, including within the retirement space. The third topic this morning relates to the monetization environment. As we have explained on prior calls, we are very pleased with the performance of our portfolio and are seeing the benefits of our focus on linear deployment and portfolio construction. You can see in our results that we've been monetizing this performance actively. As one example, our realized carry is up over 50% year-to-date. And despite all this realized carry that has been monetized so far during the year, our unrealized carry balance has actually grown 14% year-to-date. As we sit here at the end of Q3, we continue to have line of sight to more monetizations, with roughly $800 million expected over the next 2 quarters related to transactions already closed or that have been announced, but not yet closed. So things feel healthy, both in performance and exits. The one exception here relates to our second Asia private equity fund, which has underperformed. Asia II was raised 12, 13 years ago and stopped investing roughly 8 years ago. And as we have disclosed to our Asia II investors, we expect that fund will roughly return its cost. Now to be clear, our performance in Asia private equity more broadly has been a real bright spot. Our most recent funds Asia III and Asia IV are both top quartile performing funds for their vintage, with gross IRRs over 20% and differentiated DPI statistics. Asia III has already returned over 100% of its capital, and Asia IV has already returned 40%. The reason we are discussing this today is that we collected roughly $350 million of gross carry from Asia II many years ago that we now have to pay back. We will be taking a charge in the fourth quarter to do just that, and reversing the compensation that was paid out when that carry was collected. To be clear, while we are recognizing this event in Q4, our accrued unrealized performance income on the balance sheet has been net of this impact for some time. The result is that we expect net realized performance income in Q4 to be lower than it otherwise would have been, and ANI per share to be about $0.18 lower. This is really a onetime charge that we've planned and reserved for that we wanted you to be aware is coming. And as we sit here today, we do not see any other material clawback risk that exists across our portfolio. When you cut through it, the monetization pipeline is strong, our performance is strong, and we are taking a onetime charge for something that happened roughly 10 years ago. The final topic that I want to discuss this morning relates to our expectations for 2026. And do we still feel good about our guidance of $4.50 plus in FRE per share and $7 to $8 in after-tax ANI per share that we introduced in November 2023 and November 2021, respectively. On FRE, the answer is an unreserved yes. As you could tell from our fundraising this quarter, we have good momentum here and real line of sight to continued management fee growth. Turning to ANI. Given everything that we see and all of the momentum across KKR, we continue to feel confident in our ability to achieve our 2026 ANI guidance. A key component here will, of course, be monetization activity. Today, we have roughly $17 billion of embedded gains across the firm, that is gross unrealized carry and unrealized gains in our asset management investment portfolio and strategic holdings. That is the second highest level in our history, it's up 10% from a year ago and up over 50% from 2 years ago. Collectively, we've gone back with all of our business heads across all of our geographies and looked at our pipelines on a bottoms-up basis. And as a result of that exercise, we feel incredibly well positioned for future monetizations. To be clear, the monetization environment today is constructive, and we would expect that to continue into 2026. However, if the monetization environment deteriorates, we may delay some of that activity. And if that were to happen, we would be earning less in 2026, but would be in service of more earnings in 2027 and beyond. Therefore, based on what we see today and our current conviction, we feel confident that we can achieve the $7-plus per share, and that includes the impact of our cash-based reporting approach for Global Atlantic. As you know, we share with you each quarter on our call, our expectations for gains and carry, and we update that expectation ahead of quarter end so you know what we know. And we will continue this practice so that we can track our progress together and that nobody is surprised as we move through 2026. With that, let me hand the call off to Scott. Scott Nuttall: Thank you, Rob. Hi, everybody. I just wanted to share a few thoughts. Sentiment is a fickle thing. Sometimes, it seems the market is looking for everything to be good, and not asking enough questions about what isn't working or what to be worried about. Sometimes it seems to be opposite is true. The market is convinced things are bad and is so confident that something is wrong, that it can ignore good news and positive things that are happening. Most of the time, we're somewhere between these 2 ends of the spectrum. Lately, it seems we're closer to the high anxiety end of it. Virtually, every day has a media story on how difficult it is to raise private equity funds or how concerning private credit risk could be. As is typically the case, it is impossible to generalize and paint every firm with the same brush. So let me tell you how we see it. In private equity, some players in our industry likely deployed more capital than is ideal in 2021 and early 2022. In hindsight, that was a period of high private valuations before interest rate hikes and tariffs. And some firms deployed a 5-year fund in 12 to 24 months during this period. Firms like these will likely need to own assets longer to grow out of the valuation multiple they paid. And some of those deals will not perform. Investors in those funds are waiting for monetizations to come back before they recommit. And some investors are telling those firms they will not be re-upping in their next fund. They are consolidating their relationships and doing more with fewer partners. Happily for us, we learned the overdeployment lesson nearly 20 years ago. We are deployed in 2006 and 2007, ahead of the financial crisis and we were overconcentrated in our decade-plus old Asia II fund, and we changed how we invest as a result. Linear deployment, portfolio construction and macro and asset allocation expertise all came from these learnings. So we find ourselves in a great spot of not having too much exposure to 2021 and 2022, and we are generating differentiated performance and monetization. You can see that in our returns, and our fundraising results. Stepping back, the last 15 years have been interesting. We had 10 years of low rates, low inflation, and high multiples. It was during this period that we told the firm, do not confuse a bull market with brains. Cycles and disruptive events happen, but they largely didn't during that 10-year period. Sure enough, that period was followed by COVID, inflation, rate increases, tariffs and war. So the last 5 years have been a far more volatile and interesting investment environment. We have been deploying steadily throughout all of it. As a result, we find ourselves in a happy situation where it is more clear to the people we work for, what is different about us, as there's more dispersion between our results and some others that do what we do. In short, we had to wait roughly 20 years for our learnings from before the financial crisis to show up fully in our relative results. That is now happening, which is why it can be the case that some private equity LPs are pulling back from some market participants, while we are raising record size private equity funds. Second, on private credit. It is true the industry has grown a lot, in particular, direct lending. But let's put the direct lending market in context. $1.7 trillion compared to $145 trillion for the global fixed income market, a very small percentage. So any suggestion of systemic risk seems ill-informed. And that's before you get to the duration of capital and lack of deposit funding, low leverage and senior secured status in the capital structure. Our base view is a credit of all kinds. We are talking both public and private has had low default rates for a long time. And we have seen defaults across both markets tick up somewhat. But from everything we are seeing, there's nothing alarming going on, just the beginning of a return to a more normal default environment. And as in private equity, in credit, we expect more dispersion across company, investment and manager performance. When you step back, our view is that forward credit fundamentals, both liquid and private, will remain attractive. And our clients feel the same way, which is why we are having a record credit fundraising year. So that's the backdrop on those 2 topics and how we view some of the noise you may be hearing. As ever, for us, it is the signal, not the noise that matters. Our signals include record profitability over the last 12 months, over 15% annual growth in all of our key metrics, our second highest fundraising quarter ever, monetizations driving year-to-date realized carry up over 50%. And despite the monetizations, near-record unrealized carrying gains, indicating our portfolio, both equity and credit, is performing well. But the noise is bad and the facts are good. We will leave it to you to decide which to pay more attention to. With that, we're happy to take your questions. Operator: [Operator Instructions] Our first question is from Glenn Schorr with Evercore ISI. Glenn Schorr: I appreciate it. I think you answered the first 15 questions with your remarks. So that was helpful. Maybe we could -- a little like [indiscernible] but anyway. So I wonder if you get -- wrap up your international perspective, despite the comments that you came with on Asia II, like you said, III and IV PE are growing well. You're in the market for Infra III and Global IV in Asia. And then you made your comments about APAC insurance in Japan Post. So what I'm asking is, can you put that all in above, talk about investor demand for allocating outside the U.S. and at the same time, for demand inside Asia, how much can this add to the overall growth rate of KKR and differentiate your growth versus others? Scott Nuttall: Thanks for the question, Glenn. Look, I'd say investor demand for all things Asia continues to increase at a market space, especially over the course of this year, we have seen interest in Europe and Asia increased, but I'd say with a particular focus on Asia, and that's across all asset classes. I think for a while there, there was a dynamic where some investors would kind of conflate China with Asia. And I'd say the education process has proceeded quite nicely, and there's a big and broad understanding now of the opportunities in markets like Japan, India, Korea, Southeast Asia, Australia is quite broad-based. And as you know, we started our Asia platform in 2006 and now have 9 offices, over 600 people on the ground, 0 expats. So it's a very local presence. And now we've brought, in addition to private equity, infrastructure, real estate and credit. And increasingly, we're having insurance conversations as well to your comment. So we think we're extraordinarily well positioned, and we're seeing more origination opportunities on the ground and more penetration of all things private markets across Asia. And I think for us, our AUM, just to give you a sense, in Asia, is now over $80 billion. I mean to give you context, when we raised the Asia II fund, that number was $12 billion. So the business has grown incredibly rapidly over the course of the last 10, 12 years. And I think that's only gaining pace as we penetrate more of these markets. In terms of what it can mean for us as a firm, we think Asia, on average, is going to grow faster than the rest of KKR. And we've said that just given the demographic tailwinds, given what we see in terms of the development of the capital markets, a lot of these markets remind us of the U.S. and Europe 20, 30, 40 years ago. And so we've been working to get ready for these markets to continue to grow and develop. So what we do becomes more and more relevant. So we feel very well positioned, very optimistic, and we're leaning into it. Operator: Our next question comes from Bill Katz with TD Cowen. William Katz: Okay. Actually, I have 2, if I could squeeze it in. The first one on the insurance, and Rob, thank you for the expanded commentary. I think it would be interesting to see in your presentation, maybe what that mark-to-market pro forma look like so I think the investment community could sort of track that along the way. So my first question is, as you think about the ROE trajectory for the insurance business, what do you think is a normalized level, and when do you get there? And then relative to your guidance that you may or may not get to that $7 plus next year depending upon the monetization backdrop, what, if any, mitigants do you have on expense side to potentially soften the differential? Robert Lewin: Yes. Thanks a lot, Bill, for the question. Let me -- I'll take them in tandem. I'm going to bring you back to Page 20 of our earnings release, maybe as a starting point, Bill, because I really do think that's the best place to hang out as we're talking about how our insurance business is tracking. And what we're focused on is the $1.8 billion of LTM insurance economics. Our job there is to attractively scale those economics. And as we continue to lean into areas where we've got real competitive differentiation, whether that's our world-class investment platform, the global origination reach that we have and then especially our ability to really lean into third-party capital, we're excited of what that could translate to. And then you referenced it, and we absolutely will be talking about this going forward. All of the economics on Page 20 are without giving benefit to the roughly $200 million of annual run rate accrued income that is not showing up in these numbers today. But if we do our jobs right, it will start hitting the P&L when the portfolio matures, that's likely probably going to start in 2027, 2028. And so I don't want to, of course, minimize the importance of our insurance operating earnings that are a critical component. But I think we've done a bit of a disservice spending the time we have on that one number without the context of what's going on around our broader insurance business or providing much detail around that accrued income that is building up in the business. As it relates to guidance, we definitely believe we can achieve the $7-plus of ANI next year, Bill. We were just making a comment and I think an appropriate one that it is going to be somewhat dependent on the monetization environment. Today, that monetization environment is constructive. You see that as it relates to our monetization guide, what we've been able to generate. We expect it to be constructive in 2026 as well. And so that was more of a comment. But one thing as it relates to guidance and maybe even tying it back to the $200 million of annual accrued income and as we think about that topic in particular, that number is biased to go up materially in 2026 as we add more to our alts portfolio and get closer to industry average. So as we think about our '26 numbers, we've previously talked of $7-plus of total operating earnings. A couple of years ago, when we first talked about it, we did not expect a cash versus accrued impact to our numbers. And I know, of course, our investors and analysts are appropriately more focused on our FRE and ANI targets, but that's specifically why you didn't hear us refer to the '26 TOE target in our prepared remarks. It's just not a metric as relevant to '26 guidance given this dynamic. And so I don't think it's as appropriate to track on that basis. Really just want to be clear on that one point. But I'll also be clear that as we think about that $7-plus of ANI next year, that includes the impact of how we're thinking about cash versus accrued on insurance, which is a real headwind there, and still think that we can achieve the $7-plus. And over time, we still expect TOE to represent 70-plus percent of our pretax earnings. So I know that was a [indiscernible] Bill, but hopefully answer both your questions. Operator: Our next question comes from Alex Blostein with Goldman Sachs. Alexander Blostein: Just maybe building a little bit on that and sorry to make this about guidance, but just given the performance of the stock this year and investor focus on various metrics, I think it's worthwhile spending a minute on this. When you think about FRE, and you guys have a $450-plus target for 2026 as well, it might be helpful just to kind of go through the broader building blocks as you look through current fundraising dynamics, operating leverage opportunity, and anything else you feel is worthwhile addressing as you think about '26 FRE? Robert Lewin: Thanks a lot for the question, Alex. It's a good one. Certainly, we're leaning into the plus on the $450 million, and it's in large part because of the component parts you referenced. And starting with management fees, which are going to be driven by fundraising. We have put out a $300-plus billion fundraising target between 2024 and 2026. We're tracking well ahead of our target there. We are north of 70-plus percent achieved on the target only 7 quarters into a 12-quarter target. So that feels like we're in a good position. Our Capital Markets business, it's really generating significant outcomes. We think it's incredibly well positioned in an environment where deployment across our space increases, and we'd be biased to the upside in that for '26. You're starting to see our fee-related performance revenue scale in our business. We think the trajectory there in '26, but beyond can be pretty material. And I think we've, as a management team, demonstrated a real ability to hold our operating costs well below our revenue growth, even as we pursue substantial scaling across the business. So when you add up all those component parts, this is a part of our P&L, we feel really good about. Operator: Our next question comes from Steven Chubak with Wolfe Research. Steven Chubak: So I wanted to circle back to the insurance discussion and certainly appreciate the disclosure on Slide 20 and a lot of the additional contacts you offered, Rob, in your prepared remarks. As we think about the all-in ROE potential, I know you had talked about 20% plus or alluded to that in the past. As we look at the last 12 months under the new disclosure lens, ex unlocking, it implies a return of about 18% to 19%, and that's before crediting various sources of upside, even putting aside the mark-to-market just from ongoing rotation of the GA general account, higher sidecar earnings, incremental contribution from Capital Markets. So I was hoping we could maybe anchor to what would be a reasonable all-in ROE once some of those benefits are reflected in the run rate? Robert Lewin: Yes. Thanks for the question, Steve. And I think you answered a lot of the question for me in your question. So listen, no explicit target, other than we said we think over time that we should take our all-in return from that high teens to north of 20% and especially as you think about layering in all of those upsides. And if you look at our insurance business today and the way it's positioned, I would say that the 2 biggest needle movers to our ability to generate outcomes over the next couple of years is going to be our alts portfolio starting to mature and generating cash outcomes relative to the accrued outcomes today as that catches up. And I think a big contributor over time is going to be third-party capital. Again, it's an area where, as a firm, we've got some real competitive advantages in the space versus the vast majority of insurance companies that are out there. $6 billion of dry powder, we think turns into $60-plus billion of fee-paying AUM, which should convert to some meaningful additional management fees for our platform. So those to me would be the 2 biggest drivers. The third is, listen, we're in a, I would say, a competitive marketplace that is tight right now, and we all know that. There's a lot of competition for liabilities. There's a lot of competition on the asset side. Spreads are at really low rates. And we're able to generate these ROEs even in that kind of a competitive environment. But sure, as we're sitting here, that competitive environment will change over time, and the question is how are we positioned when things get more challenging. And I would bring you back to a couple of things here. One is also our third-party capital. Think about it much like a private equity fund that we could draw down to invest into dislocation in the market. We could do the same thing here with our third-party capital. Most other insurance companies don't have the benefit of that. The other benefit in a world where the spreads go up materially in our space is if the return outcome is that attractive. We've got additional free cash flow across all of KKR that we could use to lean into that return environment. So I think those are just 2 things we think about in a world where we know the competition for assets and liabilities isn't always going to be like it is today. So how do we position ourselves to make sure we take advantage of that. And I think that, over time, will lead to more ROE as well. Operator: Our next question comes from Brian Bedell with Deutsche Bank. Brian Bedell: Thanks for all the color on the slide presentation today. I think really, really good in-depth in answering a lot of questions. Maybe just to zoom back to GA and Capital Markets and looking at Slide 20, I think in the footnote there, that is a contribution for cap markets is net of FRE comp. I just wanted to confirm that. And then as you think about expanding the overall ROE past the 20% on the fee side, can you talk about that -- the expansion within the Capital Markets business from the GA side? What was that so far in '25? And how do you see that expanding in '26 and '27? Is that even a faster opportunity than the other parts of the fee-related business from the GA angle? Robert Lewin: Yes. I didn't fully pick up the second piece of that, but let me just start with the KCM side, just to be clear on Slide 20, everything you're seeing on Slide 20, that's asset management related, and so that's going to be the IMA-related fees, management fees, that's going to be the Ivy-sidecar related fees and KCM are all net of the 17.5% comp load on the fee business. And you can see that reconciliation, I think, on Page 34 of our presentation. We've talked about the opportunity here to be able to generate a very substantial Capital Markets business in tandem with Global Atlantic. We've got a peer that's done an incredibly good job and has provided a road map for what the art of the possible here is for us. And we really do think that the annual opportunity on the back of what we're doing in GA and on the origination side and the capabilities we've built out in distribution on the Capital Market side can be hundreds of millions of dollars of annual opportunity for us, and we think that's something that will materialize over the next couple of years. Operator: Our next question comes from Ben Budish with Barclays Bank. Benjamin Budish: Maybe just a few kind of modeling details we've been getting a few questions on. Obviously, the big inflows in the credit space are maybe a little bit different from kind of the historical run rate. And then on the private equity side, it looks like the management fee rate. I know there's been some catch-up fees in the past and other dynamics, but maybe just for those 2 segments, anything to call out maybe outside of catch-up fees that might be impacting the fee rate in this quarter? And how we should think about maybe the next couple of quarters? Robert Lewin: Yes, sure. Let me hit on both of those questions and Scott or Craig can jump in with additional thoughts. First, as it relates to -- I would just say, the broader point on management fees, I think it's been a real bright spot here across KKR. And some of you have probably heard me say this before, but I don't think you're going to find another asset management company in the world that has the scale of management fees we do, the diversification of management fees and the growth profile of those management fees. We're up 19% year-on-year, 7% compared to last quarter. We do have some healthy catch-up fees in the quarter, principally in our real assets business. But even if you exclude those, we're still up 16% year-on-year in management fees. So a pretty attractive number. To your specific question, or a more narrow question as it relates to PE, blended fee rate, there's always some puts and takes when you look at quarter-to-quarter fee rates. You're taking a quarter end fee-paying AUM number and also a management fee number earned over a 90-day period of time. But you're right, in Q3, we did have our Americas XII fund in private equity, have a step-down in fee rate. Now this is purely formulaic based on the age of the fund. But I think the bigger point and more important point here is that I don't think there's anything to read into as it relates to fee rates. I think the best example of that is if you look at the roughly $17.5 billion of capital we've raised so far in our North America XIV Fund, and you compare that to the roughly $18.5 billion of capital that we raised for Americas XIII, our fee rates are pretty much on top of each other. If anything, Americas XIV is a smidge ahead of XIII, and so we're not seeing any kind of fee degradation there. As it relates to credit business, we're really pleased, obviously, in the response from our clients, not just this quarter, but over the course of the year, and we would continue to expect you to see a translation from the capital that we've raised on the credit side to the P&L over the coming quarters. Craig Larson: And Ben, it's Craig. Why don't I just give a little bit of color on the credit piece. And you're right, the $43 billion in Q3, second largest quarter for us ever. The $27 billion of credit liquid strategies, that is a record quarter for us. Of that $27 billion, Global Atlantic was about $15 billion of that, so a little over half. Of that $15 billion, over $6 billion of that came from FABN activity as well as the Japan Post strategic partnership capital. And I think on the FABN front, we've become a lot more creative honestly, in accessing these markets. If you look just over the last handful of months, we've issued FABNs in the USD, sterling, euro and Canadian dollar markets. So we've been very active in individual sales and institutional flow, at about $7 billion has been pretty equally split. And so in addition to GA, I think the other piece is to note is in the private IG and third-party ABF part, again, as Rob noted in the prepared remarks, that number was at about $5 billion. Total AUM across the ABF franchise, now is $84 billion, that's up 12% just from last quarter, and it's up almost 30% on a year-over-year basis, so very strong growth. And as we've noted, on the private IG ABF mandates at 5 separate mandates in the quarter, 4 of which are with clients that are new to our credit business, and we've got a very strong pipeline on top of that. So you're correct. It was a very strong quarter for us. Operator: Our next question comes from Michael Cyprys with Morgan Stanley. Michael Cyprys: I wanted to ask about the insurance business. I was hoping you could elaborate a bit around how the changes you're making to the insurance business make you a better partner for insurance clients, how you'll be an even better partner for these clients and more clients over the next 3 to 5 years? And maybe you could elaborate on how these changes expand your competitive advantage? Scott Nuttall: Michael, it's Scott. I'll try to take that one. Look, I think we've always worked for insurance clients. If you go back even to the beginning of the firm, some of the first people that invested with KKR in the late '70s, early '80s were insurance companies. And then we spent many decades owning insurance companies and sitting on the Boards of those companies, more in the property and casualty space, primary and reinsurance. But the comment really comes from the fact that when you're an agent working for an insurance company, you think you understand the job of the people that you work for. Now that we own an insurance company ourselves and manage the book, we have a much better appreciation for the complexity of the job. And so it comes from a couple of respects. One, we're sitting down with them as principles. We're talking to them about how they're investing their book, how we're investing ours. And it's not just theory, it's practice, and we're comparing notes. So we're able to sit down as true partners and talk to them about, that would be number one. It's just a different quality of dialogue. Number two, when we're out originating transactions for our insurance business, we often like to have third parties alongside us. And so we're bringing them deal flow that is originated specifically for insurers and talking to them about how we're structuring it for our balance sheet and comparing notes on how it could work for theirs. It's a different dynamic than just taking a separate account and having some capital to manage. We do that as well. But we're finding that the engagement with insurance CIOs and CEOs is at just a different quality. And frankly, the intimacy of the discussion and the relationship is dramatically greater because we're talking all the time about deal flow and what we're seeing and how we're both navigating these markets and potential challenges. And on the back of that, one of the concerns we had candidly when we bought Global Atlantic is how would our third-party insurance clients react? We were a little worried candidly about could there be a negative synergy. They say, okay, we're in the same business now. And what we're really pleased about is it's actually the opposite. We have seen -- guys took you through the numbers, the $25 billion is somewhere between $80 billion and $85 billion of third-party insurance AUM since we announced the Global Atlantic transaction. And that number just continues to grow and the pace of growth is actually increasing. So hopefully, that helps. Operator: Our next question comes from John Barnidge with Piper Sandler. John Barnidge: My question is kind of focused on the life insurance business. We've seen a lot of life insurers with sizable asset management operations even, but some without, partnering with alternative asset managers in an increasing fashion for product creation for retirement products, evergreen or interval funds. Is this an opportunity for enhancing your relationships and broaden out the tentacles, which the organization touches within broader life insurance? Scott Nuttall: Thanks, John. No, it absolutely is an opportunity for us. And it has -- if you look at the growth that we've had in third-party insurers, life insurers has been a meaningful component of that, and it continues to scale in both life and property and casualty. And it's absolutely the case, especially now that we own 100% of Global Atlantic, and we're working across more of KKR's investing businesses. So we're talking about more infrastructure, real estate equity-type opportunities across the life insurer and P&C insurer space than we ever have before. And working with them on specific transactions, where some of these are quite sizable, that we want to partner or partners alongside of us. The only thing I would add is this is not just a U.S. opportunity, right? So we're having these conversations with insurers in Europe and Asia as well, both on the life and P&C side. So it's an astute question. It's absolutely part of the reason that you're seeing our credit business, but also our other businesses accessing so much capital, insurance continues to be a growing component. And if you look at KKR in total, if you add up the numbers that I mentioned, we have somewhere between $290 billion and $300 billion now of our AUM from insurers, both Global Atlantic plus third parties. Robert Lewin: Just one more thing to add on there, John, is that you're right, there's just so much more interconnectivity between us and our insurance clients today. We've actually formed now, one group at KKR, who just has oversight and being able to deliver the firm to our insurance clients is one example. I'd also put reinsurance as a big opportunity to be able to provide to our life and annuity clients, and that is overseen by that same team that oversees the broader client relationship with insurance companies to Scott's point, not just in the U.S., but really around the world. Operator: Our next question comes from Patrick Davitt with Autonomous Research. Patrick Davitt: A lot of chatter on the "deal dam breaking," and it certainly does seem like that's happening, at least from a deployment and IPO standpoint. The industry announced M&A data in the U.S. at least seems still show fairly low strategic buyer activity for sponsor-backed companies even before the last few weeks volatility. So maybe it's just your points earlier on the bad vintages, but I would think there'd still be more. So from your perspective, what do you think is driving that disconnect? And in that vein, do you think there's something different about how the exit channel mix will track this cycle versus history? In other words, more reliant on the IPO channel versus strategic buyers? Scott Nuttall: Thank you, Patrick. I wouldn't overreact to some of the data. I mean from our seats -- and it could be just because we're so global, and we have more, maybe mature average private equity exposures, amongst others. We're having active dialogues with strategic buyers for our assets. We're definitely having dialogue with financial sponsors who are interested. To your point, the IPO market is the back open again. And we're also seeing opportunities for recaps and refis. So it's pretty broad-based in terms of what we're seeing. In terms of the broader market, I'm not sure I can give you much color, but from a KKR seat, the dialogue is broad. Robert Lewin: Yes. I'm actually just going to add to that. I was just passed a note by the team that we expect another transaction to sign up today actually. And so I had in my prepared remarks today, I mentioned that we've got about $800 million of visibility, assuming that transaction gets signed up, that would take us from $800 million to roughly $1 billion of monetization visibility over the next couple of quarters. I don't believe we've had that type of visibility in one of these calls since Q4 of 2021. So listen, understand some of the data that's out there that has so far not been our experience. And we're expecting continued constructive environment here as firms and strategics look to put their dry powder to work. Scott Nuttall: Yes. The only thing I would add is for the prepared remarks, it is really hard to paint our whole industry with one brush. I think the 2 keywords are dispersion and bifurcation. So we -- our experience is quite a bit different than what we're reading in the headlines, I think that's the punchline. Operator: Our next question comes from Brian Mckenna with Citizens Bank. Brian Mckenna: Of the $270 billion of carried interest eligible AUM that's above cost, maybe accrued and carry, what's the average multiple on invested capital for this AUM? And then is there a way to think about when the majority of this capital was invested on average? Robert Lewin: Yes. Thanks, Brian. So we don't -- I'm sure we can pull and track down that data for you, we don't have it handy right now. But I would say, as you look across our platform is a pretty mature portfolio. So the multiple of money is going to be pretty healthy. And the way -- if you think broadly, the $17 billion of accrued gains that sit on our balance sheet and the $9 billion of unrealized carried interest, the way to think about that is it tends to expand over time, and you tend to get a little bit less of an uplift in the early years. So I think it would speak to sort of the maturity of that profile being a little longer than what you would think of sort of an average deployment period for us. But your specific questions, as it relates to multiples and maturity, we can pull those over time and be able to provide those to our analysts and shareholder community. Craig Larson: And Brian, to give you a couple of stats. I'd say, like, if I look at remaining fair value of the private equity portfolio, like the percentage of companies marked at 2-plus x is almost 30%. And like when you look broadly across the overall portfolio, back to some of the things we've talked about, linear deployment and deployment pacing, I think in our industry, we probably do benefit from a more mature portfolio and a portfolio that probably does have more embedded gains in that portfolio relative to others. Operator: Our next question comes from Craig Siegenthaler with Bank of America. Craig Siegenthaler: My question is on the Capital Markets business, and I appreciate some of the new color on the GA side and also the robust realization outlook you just provided. But it was a very strong quarter for transaction fees and some of what closed in 3Q was actually a function of 2Q activity given the delay, and Q2 was weighed down by the trade war and correction in public equities, which is why there's muted activity across the industry. So my question is, as I look at your 3Q results, $328 million a quarter for total transaction fees, $278 million for our Capital Markets segment, is that a solid baseline to grow off of into 2026, if we see M&A activity continue to be elevated? Or were there some lumpy items in there? Robert Lewin: Yes. Thanks for the question, Craig. And always tough to give specific guidance as it relates to our Capital Markets business. I'd tell you is we're really pleased with the trajectory of that business. I were actually, as a management team, really the most pleased with how that business performed in 2022 and 2023 when the Capital Markets were largely shut, and we were able to take the floor of revenue in that business up quite a bit. As you'll recall, we generated plus or minus $600 million of revenue in each of those 2 years. And as you saw the markets bounce back in 2024, we were close to $1 billion of fees. I don't think we'll quite get there. I know we won't quite get there as it relates to 2025, but another really attractive Capital Markets here. So I do think that where we are, year-to-date, where we're at forecast through year-end gives a pretty good baseline for how you could think about growth from here. But we absolutely believe our Capital Markets business remains a real growth business for us. We think it will grow alongside everything we're doing at KKR is that scales. We've got a very differentiated approach to third-party Capital Markets in an environment where mid-market PE starts to come back on the deployment side, which we believe it will. Over the course of the next 12, 18 months, we think we're incredibly well positioned to take share there. And then what we're doing alongside GA is just on top of everything else we're doing across KKR and with third-party clients. Craig Larson: And then just before -- we have no more questions in the queue, and thank you, everybody, for your time and interest in KKR. Just one additional topic. We've received a lot of inbounds over the last couple of weeks just on some of the private credit names that have been in the news. And so just recognizing the questions we've received and the fact that we haven't had a public forum to respond, just wanted to let everybody know, to be clear that as a firm, we have no exposure to first brands, we have no exposure to tricolor or the couple of telecom names that were in the news last week. We don't own them, just to be clear, nor have we ever owned those names. And again, just one other point on that, is a couple of those had reached out to our teams, one of those repeatedly, and they were turned down. And to be honest, they didn't check enough of our requirements to merit an initial screening. So just wanted to be clear on that point, recognizing the inbounds we've received. Scott Nuttall: Yes. Let me just pick up. I mean I think what's going on right now, everybody is like the market loves simple sound bites and a really tidy story. And candidly, when we read some of these headlines, it's clear many of us have PTSD from the financial crisis and are looking for what will trigger the next one. Like where is the next boogeyman. But from our standpoint, this market and economy really don't provide a simple narrative like that. You just can't generalize. And as I said, it's dispersion and bifurcation. So between pandemic, wars, inflation, rising rates, tariffs over the last 5 years, there's obviously been a lot been thrown at all of us. But from our standpoint, what we don't see talked about much is the fact that we've had kind of this rolling recession dynamic in the U.S., where some industries are already experiencing or have experienced their cycle. We've seen it in manufacturing. We're now seeing in building products, maybe parts of chemicals, parts of leisure. And the public markets are also obviously seeing dispersion, very different performance if you look by sector. And so that part of the narrative is not included when we kind of look at what's coming out in the media. But from our seats, it doesn't feel like last time. You can't paint it all with one brush. And that's not to say there isn't risk of excess and bad actors. But what we're taking comfort in is like air is periodically being led out of the balloon. And so we're just not seeing that uniform excess we saw before the GFC. So as we said, it's a return to a more normal default environment, fundamentals away from the recession, the rolling recession areas are really solid. Our numbers, revenue and EBITDA continue to look really good. And so the job has stayed proactive in portfolio and risk management and focus critically on long-term funding, and we're going to find out who's good at investing through a cycle and a more dispersion heavy economic environment. So we wanted to make sure that you understood that perspective. We didn't get asked about it, but it is something we get asked about several days a week. So with that, we really appreciate everybody having the patience to stick with us on this call. Appreciate your interest in our firm, and we'll talk to you along the way. Operator: This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.
Operator: Good morning, ladies and gentlemen, and welcome to the Pembina Pipeline Corporation Q3 2025 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 Dan Tucunel, VP of Capital Markets. Please go ahead. Dan Tucunel: Thank you, Danny. Good morning, everyone. Welcome to Pembina's conference call and webcast to review highlights from the third quarter of 2025. On the call today, we have Scott Burrows, President and CEO; and Cameron Goldade, Senior Vice President and Chief Financial Officer, along with other members of Pembina's leadership team. I would like to remind you that some of the comments made today may be forward-looking in nature and are based on Pembina's current expectations, estimates, judgments and projections. Forward-looking statements we may express or imply today are subject to risks and uncertainties, which could cause actual results to differ materially from expectations. Further, some of the information provided refers to non-GAAP measures. To learn more about these forward-looking statements and non-GAAP measures, please see the company's management's discussion and analysis dated November 6, 2025, for the period ended September 30, 2025, as well as the press release Pembina issued yesterday. All materials are available online at pembina.com and on both SEDAR+ and EDGAR. I will now turn things over to Scott. J. Burrows: Thanks, Dan. Yesterday, we reported our third quarter results, which were highlighted by quarterly adjusted EBITDA of $1.034 billion. We remain on track to deliver full year results within our original 2025 adjusted EBITDA guidance range. And as Cam will discuss in more detail and as we are 3 quarters of the way through 2025, we have updated and narrowed our guidance range to $4.25 billion to $4.35 billion. As we highlighted in the release yesterday, Pembina continues to execute its strategy through which we strive to do 2 things: one, ensure the long-term resilience of our business; and two, provide investors with visibility to attractive growth through the end of the decade and beyond. The execution of Pembina's strategy is highlighted by a number of recent developments. First, earlier this week, we were pleased to sign a 20-year agreement with PETRONAS for 1 million tonnes per annum of Pembina liquefaction capacity at the Cedar LNG facility. PETRONAS is a global LNG industry leader and one of the largest gas producers in Canada. We are very excited to expand our relationship with them and see this as an important development in Pembina's ongoing expansion of its export business. Pembina previously signed a 20-year take-or-pay liquefaction tolling service agreement for 1.5 million tonnes per annum of LNG to support the final investment decision on Cedar in June of 2024 and ultimately maintain key project timing and economic parameters within the expectation of remarketing the capacity at a later stage. By remarketing our Cedar capacity, we are fulfilling Pembina's commitment to its financial guardrails and ensuring that the company's expansion into the LNG business is done within the risk profile of its existing business, characterized by its predominantly long-term, highly contracted fee-based cash flow stream. We expect to reach definitive agreements for the remaining 0.5 million tonnes of our capacity by the end of 2025. Meanwhile, the project itself remains on time and on budget. Construction of the floating LNG vessel, including the hull and topside facilities remain on schedule. And Cedar LNG has significantly advanced the onshore construction work. Pipeline construction is ahead of schedule, including the completion of all horizontal directional drill crossings. This is a major achievement and derisk that portion of the project. Second, during the quarter, Pembina and its partner, Kineticor, had an exciting announcement on the advancement of the Greenlight Electricity Center, a proposed up to 1.8 gigawatt natural gas-fired power generation project designed to advance Alberta's innovation economy. Recent achievements include securing a 907-megawatt power grid allocation, which was subsequently assigned to a potential customer of Greenlight to enable development of the customers' innovation infrastructure development as early as 2027 prior to the start-up of Greenlight in 2030. In addition, a recently signed agreement with a reputable equipment manufacturer provides certainty of availability and delivery timing of 2 turbines to support the approximately 900-megawatt first phase of Greenlight. Pembina and Kineticor continue to progress towards a final investment decision in the first half of 2026. We see Greenlight as an on-strategy extension of Pembina's existing value chain and an opportunity to enhance growth by investing in long-term contracted infrastructure with investment-grade counterparty, while diversifying our customer base. Greenlight would create incremental demand for natural gas and associated liquids production within Western Canada, and we believe Pembina is well positioned to leverage the assets and capabilities of our current core business to further support the project and serve customer demand for gas egress and liquids handling and transportation. Most notably, the proximity of Pembina's Alliance Pipeline offers a potential accretive expansion opportunity to supply natural gas to Greenlight. Third, we continue to realize contracting successes that are strengthening the core business. In our conventional pipeline business, we now have recontracted substantially all volumes available for renewal under contracts with expiry dates in 2025 and 2026. In addition to the previous updates we have provided around various recontracting successes, we recently signed new transportation agreements on the Peace Pipeline system for the renewal and addition of volumes totaling approximately 50,000 barrels per day with a weighted average term of approximately 10 years. Approximately 80% of the volumes are currently being serviced today and 20% are new volumes taking effect in 2026. Within our transmission business unit, recent shipper elections on Alliance Pipeline has significantly strengthened its long-term contractual profile with shippers taking an average of a 10-year toll option on approximately 96% of the 1.325 Bcf per day of firm capacity available. Fourth, we continue to deliver on our capital projects on time and on or under budget. In total, Pembina and Pembina Gas Infrastructure are nearing completion on approximately $850 million of projects that are expected to enter service throughout the first half of 2026. RFS IV, the new fractionator within our Redwater Complex has progressed to approximately 75% complete. It continues to trend under budget, and we have narrowed the expected in-service date to the second quarter of 2026. PGI's Wapiti Expansion, which will increase natural gas processing capacity at the Wapiti Plant is trending on budget, and we have narrowed its in-service date to the first quarter of 2026. And PGI's K3 cogeneration facility is now trending under budget, and we have narrowed its in-service date to the first quarter of 2026. Finally, we are progressing numerous accretive investment opportunities to meet growing demand for pipeline and transportation services. Pembina is well advanced on the development of approximately $1 billion of conventional pipeline projects to enable WCSB growth and position Pembina to win new liquid transportation opportunities. These investments would be supported by a combination of long-term take-or-pay agreements, a cost of service structure and the land and facility dedications. Engineering activities are ongoing and subject to regulatory and board approval, Pembina expects to move forward with the Fox Creek-to-Namao Expansion of the Peace Pipeline system, a Taylor-to-Gordondale Project a Birch-to-Taylor Northeast BC System Expansion. As well, we continue to observe continued growth from the Clearwater area and strong customer demand for incremental services on the Nipisi Pipeline. Following successfully recontracting Nipisi over the last few years, Pembina expects it to be highly utilized in 2026 and is currently evaluating opportunities to increase egress capacity. Alliance Pipeline previously solicited nonbinding expressions of interest for a new short-haul point-to-point transportation service on the Canadian segment of its system in Northwest Alberta. The proposed expansion would provide natural gas delivery to a new meter station in Fort Saskatchewan for up to 350 million standard cubic feet per day of incremental capacity with an anticipated in-service date in the fourth quarter of 2029. Based on the results, Alliance Pipeline is planning to launch a binding open season in the first quarter of 2026 for all interested parties. Pembina continues to differentiate itself as the only Canadian energy infrastructure company with an integrated value chain that provides a full suite of midstream and transportation services across all commodities, natural gas, NGL, condensate and crude oil. Our scope, scale and access to premium North American and global markets uniquely positions us to capture incremental new volumes while unlocking new avenues for growth. I will now turn things over to Cam to discuss in more detail the financial highlights of the third quarter. Cameron Goldade: Thanks, Scott. As Scott noted, Pembina reported third quarter adjusted EBITDA of $1.034 billion. This represents a 1% increase over the same period in the prior year. In Pipelines, major factors impacting the quarter included higher demand on seasonal contracts on Alliance Pipeline, higher revenue on the Peace Pipeline system due to increased tolls mainly related to contractual inflation adjustments, higher interruptible volumes on the Peace Pipeline system, higher contracted volumes on the Nipisi Pipeline and lower firm tolls on the Cochin Pipeline due to recontracting in July 2024 and lower interruptible volumes due to narrower condensate price differentials, offset by higher contracted volumes. In facilities, factors impacting the quarter included higher contribution from PGI, primarily related to transactions with Whitecap Resources, higher capital recoveries and higher volumes at the Duvernay Complex. In Marketing & New Ventures, third quarter results reflect the net impact of lower net revenue due to a decrease in NGL margins as a result of lower NGL prices, coupled with higher input natural gas prices at Aux Sable, higher NGL marketed volumes, including no similar impact of the 9-day outage at Aux Sable in 2024 and lower realized gains on crude oil-based derivatives, partially offset by lower realized losses on NGL-based derivatives. Finally, in the Corporate segment, third quarter results were higher than the prior period due to lower incentive costs driven by the change in Pembina's share price in the period compared to the third quarter of 2024. Earnings in the third quarter were $286 million. This represents a 26% decrease over the same period in the prior year. In addition to the factors impacting adjusted EBITDA, the decrease in earnings in the third quarter was primarily due to the net impact of the recognition of a gain on sale of the North segment of the Western Pipeline, higher depreciation and amortization due to a decrease in the estimated useful life of an intangible asset, a share of loss in PGI due to an impairment on certain PGI assets and higher depreciation expense, partially offset by the recognition of a gain in net finance costs and lower losses on the interest rate derivative financial instruments and commodity-related derivatives. And finally, lower share of loss from Cedar LNG, primarily due to the impact of hedging activities on the credit facility. Total volumes in the Pipelines and Facilities divisions were 3.6 million barrels of oil equivalent per day in the third quarter. This represents an increase of 2% over the same period in the prior year, primarily driven by higher contracted volumes on the Nipisi Pipeline and the Peace Pipeline system, higher volumes at Redwater and Aux Sable due to no similar outages, which occurred in the third quarter last year. Now turning back to the full year. As Scott mentioned, we tightened our 2025 adjusted EBITDA guidance range to $4.25 billion to $4.35 billion, which reflects year-to-date results as well as the current commodity price outlook for the remainder of the year. I'll now turn things back to Scott. J. Burrows: Thanks, Cam. As we have summarized today, we have delivered solid quarterly and year-to-date results, both operationally and financially. We remain on track to deliver full year 2025 adjusted EBITDA within our original guidance range and look forward to providing our outlook for 2026 with the release of our guidance and capital budget update in mid-December. As we work successfully to close out 2025 and plan for 2026, we cannot be more excited of what is ahead for Pembina and its stakeholders. Developments within the WCSB are providing tremendous opportunities to strengthen and grow our business. Thank you for joining us this morning. Please open up the line for questions. Operator: [Operator Instructions] Our first question comes from Theresa Chen of Barclays. Theresa Chen: Given your updated guidance range and the mention of the current commodity outlook, can you share what you're seeing or hearing from your producer customers as far as the read-through to your pricing outlook as well as your volumetric expectations, not just for the remainder of this year, but also 2026? Jaret Sprott: Theresa, Jaret here. Yes, right now, obviously, commodity prices are a little lower, hovering around that $60 WTI. So what we're really doing right now is just meeting with all of our customers, really listening to what their short term, the latter half of year the end of '25 and what they need for transportation services going into '26. So we'll have a much more refined outlook with respect to 2026 when we do our guidance and capital press release in December. But right now, we're just really in listening mode and going to really try to meet our customers' needs. J. Burrows: And then maybe just adding on to that from a direct Pembina exposure. Obviously, as we look forward, we're seeing propane prices lower than we saw last year. There is some weakness in propane if you look at where inventory levels are, coupled with a strengthening AECO price, which is, obviously, the opposite of that is good for our customers, but a high price does put pressure on our frac spreads. So we are seeing a little weakness compared to, say, last year in our outlook for frac spreads for Q4, just given those dynamics. Theresa Chen: And in relation to Greenlight and your partnership with Kineticor, what are the next steps from here? And if Alliance were to be a source of supply for gas, what kind of uplift would you expect? Chris Scherman: Theresa, Chris Scherman, thanks for the question. As we shared in October, we're continuing towards the first half 2026 FID schedule. We're really continuing our commercial discussions with our customer, continuing our FEED work to get our engineering in line in hopes of that first half next year FID. As far as uplift associated with the pipe, I mean, they really are 2 separate projects, but we think each can stand alone on its own 2 feet and really support solid economics. Operator: Your next question comes from Jeremy Tonet of JPMorgan. Jeremy Tonet: I want to go to Project Greenlight a little bit more. I believe last quarter, there was talk about potential for 2029 entering service. And just want to see, I guess, latest thoughts on how you see this unfolding with all the unfolding of the interconnection queue. It seems like there might be some concern in the market. So just wondering if you could provide a little bit more color there. Chris Scherman: Sure. Again, it's Chris. So I think there has been maybe a little bit of confusion that's entered the market, right? I think it's worth taking a second to maybe separate the 2 projects and clarify what's happening there. Our customer is progressing their innovation center, and that's really where the grid connections rest and the associated DTS arrangements. I know there have been some disclosure that referenced 2030. Our understanding is that's really an outside date, and they're still pushing towards as early as 2027 for that first phase. The innovation center and the associated grid connections are really our customers' projects. And since we assigned or sold our land and secured those allocated those megawatts to our customer, that's really between them and the AESO. But as far as our project, the related project, we're progressing our 1,800-megawatt gas-fired power generation facility. The first phase of 900 megawatts is, as you referenced, planned for 2030, and all of that remains on track. Jeremy Tonet: Got it. That's very helpful. And just want to touch on the guidance tightening a little bit. It seems like the midpoint moved down just a little bit there. I was wondering if you could dive in a little bit more on the drivers there and just what trends you see coming out of '25 into '26 and how we should think about that? Cameron Goldade: Jeremy, it's Cam here. No problem. The first thing I'll mention and obviously, to step back for a second, as I think one of the things we anchor on is a very stable and resilient business. And I would say, notwithstanding a ton of variability in the market over the course of 2025, we remain squarely in the heart of our original guidance range from a year ago and continue to be anchored on that in a material sense for the year. When we looked at our outlook back in August for the balance of the year, I would say that based on where we were at that point, we likely expected some option value to come in the second half of the year and particularly the fourth quarter through the marketing business. We probably expected a little bit more than we've now expected we've seen. So on the margin, we've tightened that guidance range a little bit, obviously, to just to give the market a bit of direction in terms of what we're seeing. At the same time, what I would say is that while it's early, the results in the core business outside of marketing are continuing to trend strong. I would say that from what we're seeing in terms of early results from our October volumes, they continue to be at or exceeding plan. So we're seeing a lot of constructive signs outside of the marketing business. At the end of the day, we saw a little bit -- a little less optionality in that commodity business. So we tightened it up a bit. But materially, we don't see a lot changing in our business. Operator: Your next question comes from Saumya Jain of UBS. Saumya Jain: Could you provide more color on the brownfield opportunities you're looking at in the sour gas space? How is sour gas infrastructure currently positioned in the basin? And how would Pembina benefit from it? Jaret Sprott: Saumya, Jaret. Great question. So yes, as the demand for condensate as oil sands production grows, as oil egress pipelines get debottlenecked out of Western Canada, more and more condensate is going to be required. And a lot of that condensate is coming from the Montney, which does have associated sour gas with it. PGI through our Hythe facility, our K3 facility, Kakwa River, I'm probably leaving a couple off the list, but we have an extensive network of sour gas processing, sulfur recovery and also acid gas injection. Pembina has successfully -- we're the only entity who's actually built a sulfur recovery unit here in the last -- 25 years, and we did that on time and on budget. So I think our project execution, our understanding of operations in that space and the platform and the footprint that PGI offers, I think we're in a really good spot to enhance the customers' needs and continue to allow them to grow that sour gas production in face of condensate demand. Saumya Jain: Okay. Great. And then on the regulatory side, what progress are you seeing at the federal or provincial level? And are there any policies or changes that will especially impact Pembina in the near term? J. Burrows: Yes. I think overall, we're definitely seeing a constructive tone from the federal government. We like what we're seeing. We're seeing it, I think, on the ground in terms of our interactions as well. I think it's a little too early to comment on what new projects may or may not come out of that, but certainly a constructive and supportive tone from the federal government. Operator: Your next question comes from Aaron MacNeil of TD Cowen. Aaron MacNeil: It's great to see Pembina continue to announce contract renewals on conventional pipe. The question we always get is on pricing. I can appreciate that you're not going to get into specifics here. But given the emergence of a competitive alternative, how should we think about renewal pricing and your ability to maintain current margins on a per barrel basis? Jaret Sprott: Aaron, yes, thanks for the question. So our most recent announcement of the 50,000 barrels of recontracting is a tremendous outcome for Pembina. And why I want to say that is 100% of those volumes are within the competitive alternative transport area. 20% of those volumes flow to the alternative today. And upon reconnection, they will be -- once that project is complete, they'll be flowing on the Peace system. And essentially, all of the volumes, I can tell you, maintained current contracted toll. There's obviously a lot of things that go into a transportation agreement. A lot of different things are important to our customers. Toll is obviously one of them. But there are other factors that go into that negotiation. And in this particular instance, we were able to maintain that. Obviously, in some areas, at certain receipt points, we will discount our tolls if it's prudent to do so. But those are very calculated decisions that we make. I would point out that I know we don't externally show this information, but since the inception of the alternative pipeline, the EBITDA per barrel of our conventional business actually has been increasing. And the factors that go into that, there's a few of them that I want to outline for you. The first one is we've been extremely focused on lowering our cost structure, providing safe, reliable, cost-efficient operations through our supply chain strategies and through our continuous improvement in our operational excellence journey that we've been on here internally at Pembina. Additionally, as we move west further away from Edmonton market, obviously, that garners a higher toll just due to the proximity and the distance into the market. And then thirdly, the majority of all of our contracts on the pipe side have CPI inflators built into them. So -- and then finally, what I would leave you with on how we maintain margin is our industry-leading project execution and our ability, and I said it earlier, safe, reliable, cost-efficient operations continue to be a competitive advantage. We basically can allow our commercial teams to go out there, maintain the internal expectations of Pembina. Teams are bringing our projects on time and under budget. And that really allows them to have some flexibility with the customers to meet their needs, but also maintain our margin and our internal financial expectations. Hopefully, that answers your question. Aaron MacNeil: Yes. That was more detail than I expected. For my follow-up, I got to ask on PGI. You've previously talked about the benefits and the capital efficiency of owning 60% but 100% would also likely add benefits such as perfect alignment on incremental capital, just given that you had -- like KKR doesn't have the downstream benefits that you do. So again, to sort of get you on the record one way or another, can you speak to your potential appetite to want to consolidate that remaining 40%? J. Burrows: Yes. I think as a general concept, we generally don't comment on specific M&A situations. But what I can -- what I will say in this specific situation is the fact that we still like the partnership. We like how it was set up, and we believe it's delivering what it was originally intended to do. So we're happy with it. Operator: Your next question comes from Spiro Dounis of Citigroup. Spiro Dounis: I wanted to go back to the outlook quickly. So you've got the Alliance CER process out of the way. You've now got some Peace recontracting done. So I addressed a lot of maybe the larger unknowns headed into 2026. At the same time, you've got some tailwinds coming from M&A, headwinds from commodity. But just curious in the context of that original fee-based EBITDA you provided back in 2024 for 2026, how do you think a lot of these moving items and factors play into that original range? Cameron Goldade: Spiro, thanks for the question. And it's a really good one because I think that's one of the things we're most proud about. As we set out about 1.5 years ago and put that guidance range out at our 2024 Investor Day, we obviously had a lot of confidence in that range and frankly, a lot of confidence in being in the upper end of that range, continue to execute along the same ways that Jaret just talked about through the core base business, through the commercialization as well as some really, really accretive and attractive sort of bolt-on M&A opportunities across our business. And obviously, what we've seen is, is on one hand, a couple of headwinds, primarily related to the revised Alliance CER settlement. But what we've also done, as Jaret mentioned, is really taken a keen eye to our business and looked for opportunities to operate differently, to operate more efficiently to focus on work that is higher value add versus lower value add. And I would say that without sort of getting ahead of our 2026 guidance outlook, which will come in about a month's time, I would say we maintain a lot of confidence in obviously achieving that range and achieving a range or a spot in that range, which would reflect something consistent with our own expectations and the market's expectations. So we feel really good about that. We're working really hard on that. And I think, again, we continue to tell the resilience of our business in many ways and the benefits of the diversity of it, the exposure to multiple commodities, the place that we play in the Western Canadian Sedimentary Basin, and we think that performance even in light of headwinds, which they come in business demonstrates that. Spiro Dounis: Got it. That's helpful color, Cam. Second one, going back to Greenlight as well. Could you maybe put a finer point on when we can expect to start to see cash flows from this project to Pembina? And when it comes to the phases, I think this initial phase is about half that total capacity envisioned, but I know I think you guys have mentioned 4 potential phases in total. Just maybe remind us again how you're thinking about the remaining phase scope and then the time line? J. Burrows: So the original phasing was 4 phases of $450 million. We are now talking about 2 phases of roughly $900 million. So again, we've gone from kind of a first phase of $450 million to a first phase of $900 million, if that makes sense. We would expect, based on our current time line and current estimations that cash flow would occur in 2030. Operator: Your next question comes from A.J. O'Donnell of TPH. Andrew John O'Donnell: Maybe if I could just sneak one more in about Greenlight. As the data center innovation center conversations continue to pick up momentum, I'm curious, is there a way to bridge the gap further? Have you guys explored potential like mobile or module power solutions? Is that something that you guys have looked at before? Chris Scherman: A.J., thanks for the question. I mean we've looked at a variety of different modes and means to facilitate this business. I think from our perspective, what we have in place, the type of facilities and structure we have in place today is scalable and really, really effective for what our customers are looking for. And so that's really what we stay focused on. Cameron Goldade: A.J., it's Cam here. I would just add on top of that. I think our experience has been when we've looked at other developments as this occurs, once you get the base, the core assets in place, they do tend to cluster. And obviously, as we think about the advantages that our utilities, our access to water, all of the embedded advantages, we do see benefits, and we do see that being an advantage in our offering for the future. So we think there's opportunity beyond this. Andrew John O'Donnell: Okay. Great. Appreciate the detail there. And then maybe if I could just go to Cedar real quick. There was an amendment filed for the increase of feed gas capacity from 400 to 500 mncf -- curious what the read-throughs are there, if you could speak to some of the details and potentially, does that equate to more volumes or more marketing upside for Pembina? Stuart Taylor: It's Stu Taylor. I'll maybe try to provide some clarity. So when we originally were scoping out the project and looking at the size, we did permit the project for 3 MTPA, 400 million cubic feet per day. As we were going through engineering design, we've seen an opportunity to, for very minor dollars, increase that capacity from 3 MTPA to 3.3 MTPA. And so we undertook that spend and our current -- we are currently designing and building to the 3.3 and our announced capital actually incorporates that size. We knew we would have to go back from an amendment to the permits. And so we did that. And again, there's no change to the scope of the project or any of the capital cost estimates. Again, as you go through these projects and you continue to work with engineering, we've seen, again, engineers don't design rate to the exact capacity. They do at FAT in their facilities and infrastructure. And so we've looked at since we were going for the amendment, we believe the facility has the opportunity for -- on days, particularly cold weather days, there will be an opportunity for incremental throughput through the facility. And so as we were looking to do the amendment, we did increase that size of the amendment and increase it from 400 to 500 mncf. Obviously, we need incremental gas supply. These are potential volumes as we go forward. We will be working on that on a go-forward basis. And pardon me, these will be incremental cargoes -- sorry, beyond what we have contracted. We have only contracted the facility to the 3 MTPA size. So any incremental gas or incremental cargoes are upside for us. Operator: Your next question comes from Maurice Choy of RBC Capital Markets. Maurice Choy: If I could just start with a question about project execution. When I think about how globally resources are being directed towards supporting the AI sector, and this could obviously lead to inflationary pressures globally in the coming years. I know that you've highlighted your project execution track record and capability. So just wondering what you tend to do in these early years before those pressures arrive? What actions you tend to take to kind of get ahead of the curve? Jaret Sprott: Maurice. Yes, so I think the question was really about future pressures in certain areas. And one of the things that we're really focused on and we're really aligned with our Board and they ask us about is creating long-lasting partnerships with Tier 1 contractors and obviously, indigenous communities. So I think that's part of our overall strategy is not always going for the lowest dollar, but committing ourselves to the safest, making sure that we have the A teams. We're aligned from the top with respect to our safety messaging and our project execution and the services that we'll be providing. So I think we've made material ground with respect to that. I think internally here, I've talked about it before. I think we just have a culture of one team, one Pembina when we're approaching these projects. And I think it's something that we've been cultivating and we're really good at. Maurice Choy: And if I could finish off with a question on balance sheet in general. Again, just I just want to know philosophically, what is the comfortable or optimized cushion for you versus the 4.25 maximum debt to EBITDA? And where do you see that being by the year-end and peaking next year due to Cedar LNG CapEx? Cameron Goldade: Maurice, it's Cam here. Yes, I think good question because we've talked about that. And obviously, first thing worth reminding everyone is that is a proportionately consolidated number. So that reflects not only the debt that we carry at the Pembina level, but debt that is included in the PGI credit stack, notwithstanding the fact that it's recourse as well as at the moment, construction debt associated with Cedar LNG, which is obviously, again, nonrecourse, but carried at that level. So as we see exiting 2025, obviously, we see that in the sort of the mid-3s range because of the timing and really remember that 2026 is the peak investment year for Cedar LNG, obviously, without any of the commensurate earnings along with it. So if we go back and remind ourselves of our message from our 2024 Investor Day, we obviously talked about that 3-year outlook for capital being largely free cash flow neutral with some shape to it throughout those individual 3 years, and this would be consistent. We obviously are expecting free cash flow positivity in 2025. We saw free cash flow positivity in 2024, and we would expect to see some free cash flow negativity in 2026. However, on the long term, we feel obviously that we set our balance sheet up to be able to handle that. And obviously, as we move through 2026, we would expect that to moderate back down to the type of range that we've been comfortable with longer term. Ultimately, that comfort zone is largely 3.5x to 4x. Could we go above that? It's not where we would intend to go in the near term. So that's the way we think about the balance sheet at the moment. Operator: Our next question comes from Robert Catellier from CIBC Capital Markets. Robert Catellier: Rob Catellier from CIBC. A lot to talk about given all your contracting this quarter. Maybe I can start with the mechanics on the synthetic liquefaction agreement with PETRONAS. Maybe you can walk us through that and the circumstances you need to see to generate that incremental value enhancement. J. Burrows: Yes. I'll talk about the contract in general, and then I'll turn it over to Chris to provide some further details. I think as you can appreciate, we're still finalizing the other 0.5 million tonnes. And so given the status of that, we're going to stay away from specific details. But what I can tell you is that we were very pleased with the outcome of that negotiation. And maybe, Chris, I'll turn it over to you to talk about the contract. Chris Scherman: And then as far as contract structure, it's effectively synthetic tolling. I mean we are taking the obligations we have with Cedar and almost entirely pass those on to our customer. And then in addition to passing the terms on, we've been able to capture some participation in the upside of the market. So to the extent the [ arb ] is open and attractive between Canadian AECO gas and the part East, we'll have an opportunity to capture some of that upside and participate in that. Robert Catellier: Okay. Just generally speaking, in terms of contracting the capacity at Cedar, have you been able to leverage that into other business with PETRONAS or otherwise? And I'm thinking downstream gathering, liquids, fractionation, et cetera? Chris Scherman: Yes. I mean I don't think we can get into that right now. But what we will say is we think we have a very strong relationship with PETRONAS that we're building on with this arrangement. And our hope is to continue to build on that and do much more together. Cameron Goldade: Robert, it's Cam here. I guess I would just add on top of that, that I think, obviously, achieving a partnership with an entity of the prominence in the LNG space like PETRONAS is, I think, really important for us and essentially really validates Cedar LNG in the global scale from an LNG project in terms of both the competitiveness of it and the reality of it. I think what we would see is we already had a relationship with PETRONAS on the upstream side, dating back to the middle of the last decade in terms of servicing them on the Northeast BC side. But we would certainly love and see this as a beachhead to continue to try and expand that. We have a ton of respect for them as an organization. I would say likewise that as we think about the remaining balance of Cedar and future LNG ambitions, obviously, we've had lots of interest from customers in our core business, looking to achieve diversity of market access for their volumes and say that there is a view that Cedar is a scarce resource and can continue to drive value both for them, but for Pembina in win-win type solutions. So I would say to answer your question pointedly, yes, we are seeing that type of value accretion through the rest of the core business. Robert Catellier: Okay. That's good detail. And then just a couple of quick ones here. Just given the RFS IV revised time line, it looks like a second quarter in-service date. I'm wondering how that interplays with the upcoming NGL contract here? In other words, do you have any available capacity to market there? And will you be able to market it into the upcoming contract here given the service state seems to be tight with the start of that year? Jaret Sprott: Rob, Jaret here. Yes, you nailed it, like we're working really closely with our execution team to bring that on as close as we can to the NGL season. Frac capacity is very tight in the IV right now. And so it does give our commercial teams a lot of flexibility to work with customers and bringing them in the closer we can get to April 1. But yes, you nailed it. Robert Catellier: Okay. And finally, I'm just curious on the Alliance recontracting and the onetime option for term extension. You're now, I think, 96% of your firm capacity is contracted. I wondered if there was any contracts there with the marketing affiliates. Jaret Sprott: No. Operator: Our next call comes from Ben Pham with BMO. Benjamin Pham: Ben here. I had a couple of questions on Peace in the conventional business segment. And I'm wondering if you can characterize or comment on the volume trends in convention this year. Is it -- it looks to be more in that 2% to 3% context versus the 6% to 7% plus before I know you flagged a bit of a phased pickup in the volumes. But can you comment up us on that? And what's the thought process into 2026 with new contracts in the broader business environment? Cameron Goldade: Yes. Ben, it's Cam. I'll start and then maybe pass it over to Jaret. I think one thing I would mention is that, obviously, if you stand back for a moment and look at our volumes that we report in our conventionals, those are obviously, as we said before, always the revenue volumes, which reflect our physical volumes plus take-or-pay contracts that we have in excess of that. And as you go through and try and look at the quarterly trend, it is a bit -- it can be a bit misleading if you sort of trying to make meaning out of that on a really narrow time frame, meaning quarter-to-quarter. If I stand back for a second and look at what our conventional volumes did in Q3 versus Q2 sequentially, those physical volumes would have been up about 4% quarter-over-quarter. So we think if you sort of look at that relative to the industry, if you look at that relative to other basins, that reflects very competitive and consistent growth. I think as we sit and look at 2026, it's kind of the, I'll say, the heart of that budgeting season right now for everybody. And I think what we expect to see longer term is continued growth in that single-digit range. And that's all supported by, obviously, continuing demand growth from the oil sands. I think we continue to see other infrastructure debottlenecks by our peers. We continue to see the large operators talking about incremental debottlenecks on their projects to drive incremental supply. And we also see incremental gas demand outlet and incremental supply opportunities on the natural gas side, which, of course, drives the condensate and the NGL volumes. So longer term, we are very, very confident in the continued growth in that -- at least in that single-digit level. I think in the near term, we have to be mindful that in the new business environment that our producers operate in, where returns and value are paramount over simply volume growth. They are making decisions to optimize their longer-term profiles and taking a longer-term perspective. So in any given year, the growth may be more producer-specific versus broad-based or it may be simply timing related. But longer term, we continue to see that. And I think if you look around our major producers, many are demonstrating growth in that same level. Some are choosing to defer some, but longer term, we continue to see growth in that single-digit level. Jaret Sprott: Yes. And just to add to that, Ben, I think some of the recent announcements you would have seen, the Ovintiv, NuVista transaction, the CNRL, Chevron transaction, although we talk about some customer consolidation sometimes puts some compression on our business, it also results in an acceleration of product being produced. So when Cam talks about specific producers accelerating or staying flat, we have a great relationship with Ovintiv and with NuVista. They're both very large and dedicated customers to Pembina. And so that transaction, Ovintiv talked about accelerating production and drilling and those types of things on those lands because they have available capacity. That stuff gets us excited, seeing those consolidations. It's sad to see one of our great customers go, but it's also exciting to see them talk about filling the gas plants faster with 600 million a day of incremental gas processing -- or sorry, of 600 million a day of contracted processing. PGI, for example, has approximately services about 80% of that. So super excited to see those types of things. And really, we got to listen to our customers and kind of go through this. But overall, the macro trend is oil sands is growing, condensate demand is growing. Import pipelines are essentially getting really full. So that condensate has to come domestically, and we're in a great position to support our customers to get to Edmonton and up to the oil sands. Operator: There are no further questions at this time. I will now turn the call back over to Scott Burrows, President and CEO. Please continue. J. Burrows: Great. Thank you, everyone, for your time, and we look forward to updating you in the middle of December with our 2026 outlook. Operator: Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Good morning, and welcome to Mercer International's Third Quarter 2025 Earnings Conference Call. On this call today is Juan Carlos Bueno, Mercer's President and Chief Executive Officer; and Richard Short, Mercer's Chief Financial Officer and Secretary. I will now hand the call over to Richard. Richard Short: Thanks, Michelle. Good morning, everyone. Thanks for joining us today. I will begin by touching on the financial and operating highlights of the third quarter before turning the call to Juan Carlos to provide further color into the markets, our operations and our strategic initiatives. Also, for those of you that have joined today's call by telephone, there is presentation material that we have attached to the Investors section of our website. But before turning to our results, I would like to remind you that we will be making forward-looking statements in this morning's conference call. According to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, I'd like to call your attention to the risks related to these statements, which are more fully described in our press release and in the company's filings with the Securities and Exchange Commission. This quarter, our EBITDA was negative $28 million, including a $20 million noncash inventory impairment, a decrease from negative EBITDA of $21 million in the second quarter. One of the key drivers of our results was negative pressure on pulp pricing and demand from global economic and trade uncertainty. We had lower sales realizations for both softwood and hardwood pulp, which negatively impacted EBITDA by roughly $15 million, and was also a key factor behind our noncash inventory impairment charge. In the third quarter, our pulp segment had negative quarterly EBITDA of $13 million, while the solid wood segment had negative EBITDA of $9 million. Additional segment disclosures are available in our Form 10-Q, which can be found on our website and that of the SEC. Third quarter average published prices for NBSK and NBHK pulp decreased across all our markets compared to the second quarter. This decrease was due to weakened demand caused by a sustained uncertain global economic and trade environment. The price decline in China was further impacted by an oversupplied paper market and the increase in integrated pulp production. NBSK pulp prices faced additional pressure from the increased substitution of softwood with lower-cost hardwood. In the third quarter, the NBSK net price in China was $690 per tonne, a decrease of $44 from the second quarter. The European NBSK list price averaged $1,497 per tonne, a decrease of $56 from the prior quarter, while the North American NBSK list price decreased $120 in the second quarter, averaging $1,700 per tonne. The market price gap between NBSK and NBHK in China was about $190 per tonne this quarter, a slight decrease from the roughly $200 in the second quarter. In China, the third quarter average NBHK net price was $503 per tonne, down $30 compared to the second quarter, and the North American third quarter price was $1,203, down $107 per tonne. As mentioned previously, the third quarter included a $20 million noncash inventory impairment, primarily driven by lower pulp prices. Of this amount, approximately $15 million was attributed to hardwood inventories and the remainder was primarily against softwood inventories. Pulp sales volumes in the third quarter increased by 26,000 tonnes to 453,000 tonnes. Pulp production in the third quarter was -- of 459,000 tonnes was flat compared to the second quarter. We had 20 days of planned maintenance downtime in the third quarter compared to 23 days in the second quarter. In the fourth quarter of 2025, we had 18 days of planned maintenance downtime at our Stendal mill. For our solid wood segment, lumber pricing in the third quarter was relatively stable compared to the second quarter in both the U.S. and European markets, as reduced supply offset relatively weak demand. The Random Lengths U.S. benchmark price for Western SPF #2 and better averaged $477 per thousand board feet in the third quarter, a modest increase from $472 per thousand board feet in the second quarter. Today, that benchmark price for Western SPF #2 and better is around $460 per thousand board feet, a modest increase from the beginning of 2025. In the third quarter, lumber production decreased by about 4% to 150 million board feet from the second quarter due to planned maintenance at our Friesau mill. Lumber sales volumes also decreased to 110 million board feet, down about 9% from the second quarter, reflecting the lower production and timing of sales. Electricity sales for the quarter totaled 204 gigawatt hours, a 6% decrease from the second quarter due to planned turbine maintenance at the Rosenthal and Celgar mills. Third quarter pricing increased to about $106 per megawatt hour, up from $90 in the second quarter, driven by higher spot prices in both Canada and Germany. Fiber costs for both our pulp and solid wood segments were flat in the third quarter compared to the second quarter. Overall fiber costs remained high in Germany with strong sawlog demand and constrained supply, while in Canada, demand was stable. Our mass timber operations within the solid wood segment had stable revenues in the third quarter compared to the second quarter as the elevated interest rates in the U.S. continue to impact project timelines and overall market momentum. However, despite the headwinds, our mass timber business has developed a healthy order book as we continue to see growing interest in mass timber and expected improvement -- and we expect to improve results in 2026. We continue to make progress on our One Goal One Hundred program. As a reminder, this initiative focuses on cost reduction and operational efficiencies with a target to improve our profitability by $100 million by the end of 2026, using 2024 as a baseline. We currently expect to realize approximately $30 million in cost savings and reliability improvements by the end of 2025. Juan Carlos will provide more details on our progress on this initiative. We reported a consolidated net loss of $81 million for the third quarter or $1.21 per share compared to a net loss of $86 million or $1.29 per share in the second quarter. In the third quarter, we consumed about $48 million of cash compared to $35 million in the second quarter. This increase was primarily driven by lower EBITDA. In the third quarter, we invested a total of $30 million in capital across our facilities. These investments were primarily for maintenance, but also included upgrades to the log yards at Friesau and Torgau. The upgrades are expected to enhance efficiencies, positioning us favorably for improvements in the solid wood market. At the end of the third quarter, our strong liquidity position totaled $376 million, comprised of about $98 million of cash and $278 million of undrawn revolvers. That ends my overview of the financial results. I'll now turn the call over to Juan Carlos. Juan Bueno: Thanks, Rich. This quarter's operating results were disappointing, mainly due to trade uncertainty, which created significant industry headwinds such as China increasing its paper exports to Europe, thus negatively impacting European paper producers. The economic uncertainty created by tariffs and trade disputes is negatively impacting demand for both paper and lumber. Another factor this quarter was the $200 price gap between hardwood and softwood pulp, which incentivizes certain customers to use more hardwood in their furnish. In spite of these factors, demand for softwood pulp has been steady, but weak hardwood pricing is holding softwood prices down despite strong overall softwood fundamentals. In addition, the ongoing trade disputes are putting downward pressure on the U.S. dollar, which negatively affects our operating results. This U.S. dollar weakness increased our operating costs by almost $11 million compared to Q2. While these uncontrollable factors create significant macroeconomic headwinds for our business, we continue to focus on the things we can control. In this sense, we have made good progress on our mill reliability, and our cost control initiatives are gaining traction. As a reminder, in the second quarter, we launched a company-wide program aimed at identifying $100 million in cost savings and profitability improvement opportunities by the end of 2026 when compared with 2024. We have named this program One Goal One Hundred. Currently, we expect to achieve $30 million of cost and reliability-related savings by the end of 2025. This initiative also includes targeting working capital reductions of $20 million, as well as $20 million in CapEx reductions relative to our previous 2025 guidance. A significant part of the One Goal One Hundred program relates to reliability improvements that, combined with additional cost savings expected to be realized next year, gives us high confidence that we will reach our $100 million target by the end of 2026. In parallel, our working capital and CapEx reduction plans are tracking as planned. The trade war has created an unprecedented level of uncertainty in the markets in general. However, we are beginning to have clarity on the direct impacts of tariffs on our business. During the quarter, the U.S. Department of Commerce concluded their Section 232 review on lumber. European lumber is now subject to a 10% tariff, as is Canadian lumber. The 10% incremental tariff on Canadian lumber brings the total duty and tariff impact to about 50% on average for Canadian lumber. As a result, we have already seen Canadian lumber curtailment announcements, and we expect more to come. This will create a reduced supply of residual chips for pulp mills and will inevitably create pressure on fiber costs. We feel, however, that our Celgar mill is well positioned, given its ability to access the U.S. fiber market and our ability to harvest and process whole logs. Nonetheless, we expect to see some cost inflation. On the other hand, our Peace River mill's hardwood supply will not be impacted. Today, our pulp shipments to the U.S. from Canada are not impacted by tariffs as pulp is CUSMA compliant. As mentioned, our main import from the U.S. into Canada is wood chips for our Celgar pulp mill, which today amounts to about 45% of the fiber consumption of the mill. We have the ability to grow this percentage slightly going forward if required. Most importantly, there are no counter tariffs applied to this fiber. Our EBITDA of negative $28 million reflects 20 days of planned downtime, maintenance downtime, including 16 days at our Rosenthal mill and lower pulp prices in all markets. Overall, pulp markets weakened significantly in the third quarter. Seasonality-driven weak paper demand, combined with low fiber costs in China, contributed to this weakening. We believe these market dynamics have also encouraged opportunistic pulp substitution in some paper grades as paper producers are running their machines more slowly, given the overcapacity. In addition, we believe pulp destocking by paper producers is putting additional pressure on pulp prices. At present, we believe paper producers' pulp inventories are low, supported by the availability of prompt delivery pulp. Looking ahead, we expect to see some modest NBSK price improvements late in Q4 and into Q1 of 2026 as the impact of the announced European NBSK curtailments impact Chinese port stock and the [Technical Difficulty] Operator: Please stand by. We are experiencing a technical difficulty. Please stand by. Pardon me. This is your host. Please stand by. Your conference will resume momentarily. Thank you for your patience. Your conference will resume momentarily. Richard, I see that you have rejoined. Are you able to hear me, sir? Richard Short: Yes. Juan Bueno: Yes. Operator: Okay. Sir, you may proceed. Juan Bueno: Thank you, Michelle. Apologies for the disconnect. We don't know exactly what happened. So I'll repeat the last statement. Looking ahead, we expect to see some modest NBSK price improvements late in Q4 and into Q1 of 2026 as the impact of the announced European NBSK curtailments impact Chinese port stock and the impact of delisting of low-quality Russian pulp from Shanghai Futures Exchange is realized. Despite the recent announcement of trade deals, the global trade landscape continues to be unclear. We expect this trade uncertainty will persist at least through the near term, likely keeping commodity prices subdued. However, we remain optimistic that once trade clarity returns, markets will begin to normalize. In total, our pulp production was flat at almost 460,000 tonnes compared to Q2. As part of our objective to keep all of our pulp mills running reliably, we planned major maintenance shutdowns at all mills throughout the year. Our Q4 shut schedule has [indiscernible] down for 18 days, or about 36,000 tonnes. Our lumber production was down slightly relative to Q2 by about 4% due to maintenance that was scheduled at our Friesau mill. Overall, we are pleased with our lumber production. And even though the ramp-up of our Torgau mill incremental lumber capacity has been slower than anticipated, we do expect to realize the increased annual capacity rate of about 100,000 cubic meters of dimensional lumber, or roughly 65 million board feet, by the end of the year. Pulp fiber costs were essentially flat relative to Q2. In Germany, reduced demand for pulp logs pushed fiber prices down modestly, while in Canada, costs were up slightly due to increased logistic costs. However, on the sawlog side, reduced supply due to limited harvesting pushed our fiber costs up as expected compared to Q2. Looking ahead to Q4, we expect fiber costs to increase for both our pulp and sawmill businesses. Our pulp business will be impacted by reduced sawmill residual availability. And our German pulp mills will also face increased seasonal competition for wood chips from biofuel producers, while our German sawmilling business adapts to the impact of reduced harvesting levels. In Germany, we expect harvesting levels to improve as the lumber market improves, while in Canada, lower fiber availability will keep prices under pressure on fiber unless the demand side of the equation changes. The business environment for our solid wood segment was consistent with Q2. Our solid wood segment continues to be held back by a weak European economy and the impact of high interest rates on the construction industry and high mortgage rates despite some modest price improvements on certain grades in the U.S. lumber market. This segment is also facing the impact of higher wood costs in the short term. As a result, our solid wood segment posted a negative EBITDA of $9 million in Q3 with essentially flat lumber pricing and sustained weak demand for pallets. Given the many economic forces affecting U.S. construction activity, U.S. lumber pricing could be volatile in the short term. Currently, weak housing construction due to high mortgage rates is a headwind, but the implementation of significantly higher antidumping and countervailing duties is expected to push lumber prices up as the resulting production capacity reductions begin to materialize. However, the market has been slow to react due to large volumes of lumber being shipped prior to the implementation of the higher duties and tariffs. In contrast, we expect modest upward pricing pressure in the European market, primarily due to increasing sawlog prices. However, any meaningful long-term improvement in either the European or U.S. markets remain dependent on improved economic conditions and lower interest rates. The cost-competitive configuration we have in Friesau gives us the flexibility to maintain a strong presence in Europe and the U.S., while also serving a quality-sensitive Japanese market. In Q3, 44% of our lumber volume was sold in the U.S. as we continue to optimize our mix for products and target markets to current conditions. Looking forward, we believe the U.S. lumber market will be driven by favorable homeowner demographics. [ Additionally ], factors that we believe will improve lumber market dynamics include potential Canadian sawmill curtailments in the aftermath of higher softwood lumber duties and relatively low housing stock. Combined, we expect these factors will put sustained positive pressure on the supply-demand balance of this business in the short to midterm. European shipping pallet markets remain weak with pricing staying generally flat due to the overhang of the European economy, particularly in Germany. However, once the economy begins to recover, we expect pallet prices to recover towards more historical levels, allowing Torgau to deliver significant shareholder value. We're optimistic we will see that recovery start in 2026. As a reminder, a $1 per pallet increase or roughly 10% will put our pallet business into a clear positive cash flow position. Heating pallets prices were flat relative to Q2. We expect demand and prices to be slightly higher in Q4 due to higher seasonal demand and supply concerns as a result of higher German fiber costs. With regards to our mass timber business, we continue to see a steady volume of incoming project inquiries. In the last 2 quarters, the potential sales volumes of these inquiries have been about $400 million and equate to well over 100 projects per quarter. And as a result, our order book continues to grow. The projects we're bidding on and winning today are meant to be constructed about 9 months from now or well into 2026. We expect revenue will start picking up momentum now to the point that we're planning on ramping up one of our facilities to 2 shifts in the early part of 2026. Today, our mass timber backlog of projects sits at about $80 million. We remain confident that the environmental, economic, speed of construction and aesthetic benefits of mass timber will allow this building product to grow in popularity at a pace similar to what happened in Europe. We're also seeing increasing interest for data center construction applications in an effort to reduce the carbon footprint of these facilities. This is exciting for us because we're well positioned to capture this growth due to the location of our industry-leading North American capacity and our technical capabilities. As a result, we are highly confident in this business being a growth engine for Mercer. We have roughly 30% of North American cross-laminated timber production capacity, a broad range of product offerings, including design assist and installation services, and a large geographic footprint with manufacturing sites in the Northwest, as well as the Southeast, giving us competitive access to the entire North American market. In light of the ongoing economic uncertainties, our planned CapEx spend is about $100 million in 2025. This capital budget is heavily weighted to maintenance, environmental and safety projects that includes both Torgau's lumber expansion project and Celgar's recently completed woodroom project. While we're still early in our planning, we expect 2026 CapEx to be meaningfully lower than our 2025 spend as we prioritize our liquidity through this trough. We're in the process of conducting a FEL-2 engineering review for a potential carbon capture project at our Peace River mill. This project is a few years away from potential completion, but we're excited about the prospective economic benefits such a venture could bring to this mill. We remain committed to our 2030 carbon reduction targets and believe our products form part of the climate change solution. We also believe that products like mass timber, green energy, lumber, pulp and lignin will play important roles in displacing carbon-intensive products, products like concrete and steel for construction or plastic for packaging. In addition, the potential demand for sustainable fossil fuel substitutes is significant and has the potential to be transformative to the wood products industry. As a result, we remain bullish on the long-term value of our products and what they can bring to society and our stakeholders. Overall, our Q3 operating results were disappointing, driven by a number of industry headwinds. These headwinds are expected to persist in the fourth quarter. And as a result, we're taking further actions as liquidity remains our top priority. While we have made good progress on advancing our One Goal One Hundred program and remain committed to rebalancing our portfolio of assets, we're also implementing decisive measures to support our liquidity position. These steps include further cost reductions, capital expenditure reductions and other working capital measures that combined will improve our balance sheet. Above all, we are committed to prudent financial management. Finally, the headwinds facing our industry have proven to be both longer and more severe than many anticipated. Global trade tensions haven't helped in this regard. However, our experienced management team has navigated through previous commodity downturns, and we have strong assets in our portfolio that will allow us to weather the storm. I am also encouraged by the fact that today's weak commodity cycle is validating our long-term strategic plan, which revolves around transforming our pulp mills into biorefineries with additional revenue streams that can not only help balance our product mix but grant us further resilience during the pulp down cycles. As such, we have made very good progress on this transformation with our lignin pilot plant in Rosenthal, a carbon capture pilot plant in Peace River and the work that we're doing in Stendal on sustainable aviation fuel. We will navigate through these turbulent times and implement our strategic plan by transforming our pulp mills into biorefineries. Thanks again for listening, and I will now turn the call back to the operator for questions. Thank you. Operator: [Operator Instructions] The first question comes from Sean Steuart with TD Cowen. Sean Steuart: Juan Carlos, I appreciate all the points on cost savings initiatives, working capital reductions and lower CapEx. Wondering if you can give some perspective on thinking around potential asset sales to expedite deleveraging on the balance sheet. Anything under consideration? And can you give us a sense of the scale? Juan Bueno: Absolutely, Sean. Yes, we've been looking at this in detail for the last few months. At this point, we're not at liberty to disclose anything. We do recognize, however, that the current market environment is not ideal for us for divestitures. Sean Steuart: Okay. And on the broader softwood pulp market, it's an extended trough. Mill inventories still look really high. We're closer to the bottom [indiscernible]. Can you give perspective on how much capacity you think needs to be taken out permanently to right-size the industry to what demand will normalize to over the next few years? Juan Bueno: Yes, Sean, it's a very good question, not easy to answer with a precise number. We do see -- we have seen along the year several mills curtailing and curtailing for extended period of time. We know about a few in Finland specifically that were down for probably more than 6 months of the year. And while those are important steps, they do not end up making the impact or having the impact as an announcement of a full closure will have as they are obviously temporary situations. We do think that given how long this trough has been and even though we do believe that we're, as you said, in the bottom of the price curve, there should be closures of pulp mills. We wouldn't be surprised if either some of the Finnish mills or the Canadian mills that have bigger situations or bigger problems to deal with access to fiber would be going belly-up. The situation in Canada is obviously very complicated in the back of the additional tariffs. We've seen the announcements of several closures of sawmills, which -- as we already know and have said, that puts pressure on fiber on a market that is already tight on fiber, particularly in BC. I think that gains a significant -- very strong significance. So we see those conditions in BC at least deteriorating significantly with the introduction of these tariffs and additional countervailing duties. As we said, in the case of Celgar, because of our location and because of our strategy, the fact that we're less dependent on that BC fiber gives us that edge. But obviously, that's not the case for many others in the interior of the province. So yes, again, in Germany, we have the advantage of having a forest around us. And even though the costs are going up, it's still fiber that we can access and have assets that are very competitive and they can still make money in these conditions, different from the Finnish mills or the Swedish mills that are facing very, very high wood costs in their normal traditional fiber baskets. Operator: And the next question will come from Sandy Burns with Stifel. Sanford Burns: I'm hoping you could talk a little bit more about the substitution issues that you mentioned this quarter. I mean, it's certainly been an ongoing issue for the industry. Would you say, the increase, is it more region-specific or end user specific? And maybe tied into that also, at what differential do you think that substitution then may abate? Juan Bueno: Yes, Sandy, very good question. As you well said, substitution has been going on for several years now. This is not a new concept. This is not something that we have not seen before. That's part of the growth that we all see in hardwood is on the back of substitution. And yes, that's a reality and has been with us for several years. What is probably different this time around is that over the past few years, I think everybody has -- or paper producers of all kinds have taken their furnace to what they believe would be their limits on taking advantage of those price differentials between the 2 fibers. Now, as that differential has grown significantly and well above what we've seen in previous years, then that kind of puts it to another level and another test of, okay, we thought we've done everything. Can we do anything more? And I think that's what we've seen happening not only in Europe, we've seen that happening in China as well, where that price differential of $200 per tonne would allow them to -- would allow some of the producers to say, okay, well, now we're going to use less softwood and add more chemicals. Or now that, again, there's a lot of capacity out there with machines running slowly, then that gives them the opportunity also to reduce the amount of softwood naturally. So those additional measures of adding chemicals or doing -- or taking things beyond the limits is what we see with this $200 price. Now, it does have an impact, and we've discussed this with certain customers. It does have an impact on the end quality of the product. So there's limits to that. If you think about a paper towel that you buy, traditionally, if they were to just reduce even further the softwood, then the absorbency of the paper towel would not be the same. The properties would not be the same, and the customers would understand that the product has changed and the quality has deteriorated. So there is a limit to it. What we've seen in terms of substitution recently with this $200 gap is about 2%. That's how we've measured it. When we look at our European customers and how much has gone, as we talk to them about how much they have changed, that's the dimension of it, 2% given this $200. But again, as you said at the beginning, this is on top of the substitution that has already been taking place for several years, which is, I think, on percentages much bigger than that. So do we see that maintaining? Well, we already are starting to see the gap closing a little bit. Hardwood is gaining some traction. There is some order around how hardwood producers are being able to push prices up. Still very little, $20 here and there, but it's a trend that is obviously encouraging. If we close that gap to the $170s, $150s, then that -- the use of chemicals and the use of these things, these extreme measures, we don't see them continuing, and there could be more of a going back to where we were before the $200 gap. Sanford Burns: And I guess, related to that, whether Mercer or other NBSK producers like just further discounted NBSK to close the gap and then at least get the volume, although at much lower margins? Juan Bueno: Obviously, when hardwood prices are that low, it puts a cap on softwood. When you think about a year ago, what everybody was talking about was that the softwood market was very tight and that there was no reason for softwood prices to deteriorate because it was just very, very tight. Then we got into a situation where hardwood continued to drop -- continue to drop and it pulls softwood down naturally. So I think that's a big element of the whole equation. It doesn't pull it completely down, and that's why the gap increases so much because there's some resilience in pulp. Otherwise, it would fall just as hardwood falls. It maintains certain value in it, and that's why that gap increases to $200 precisely because there's that inherent value in the softwood fiber. So we do feel that obviously, it's independent decisions on producers, whether they want to sacrifice price for volume. We have our own policy on it, and we know that we can sell everything that we produce. We have very good relationship with customers for many, many years, and that gives us that confidence and doesn't put us in a situation where we're forced to do things that we shouldn't be doing from a price perspective. So yes, that's about that. Sanford Burns: Okay. And maybe a last one for me, shifting gears on the liquidity front, you mentioned asset sales. Any other liquidity-enhancing actions you could be considering? And I know, on the last call, in terms of minimum liquidity, you felt it was a long way from being uncomfortable. How are you feeling about it now? Have you maybe had to start discussions with banks about maintaining liquidity during this rough period for the company and industry? Juan Bueno: Yes. We've started some of those discussions. We started discussions. For example, we have revolving facilities that are due in '27 that need to be renewed. We've started those conversations, and those are going very well. There's no reason to believe that we won't be able to renew those if we decide to go for that. Also, looking at the senior notes coming in '28 and '29, there's still runway for them, but we're not necessarily waiting for all that runway to expire. We're acting upon those things. So yes, we're looking at all the things that we have to do preemptively so that we don't let time go by and take us by surprise. We know that it's a complicated market that we're dealing with. We know that asset divestitures is part of the options that are out there. As I mentioned before, anybody would say today that probably the conditions are not the best for you to go out and try to sell something. Nonetheless, obviously, we look at options and are actively working on things, looking at what can be done on that end. But in the meantime, it's all about reducing the other things that we can reduce that are significant, focusing on working capital, and there's good progress that we've made. Same thing on CapEx. There's still room for us to reduce CapEx and focus basically on maintenance and leave some of those growth projects for later. So yes, there's things that we can do other than the usual cost reductions that are obviously in full motion already since the second quarter. Operator: And the next question will come from Hamir Patel with CIBC Capital Markets. Hamir Patel: Juan Carlos, you indicated looking at reducing CapEx. What do you -- for 2026, what sort of range of CapEx outcomes that you could see? Richard Short: Hamir, it's Rich. We're sort of starting around $75 million, but we're looking to see if we can reduce that as well. So that's probably the ballpark we're going to play in for next year. Hamir Patel: Great. And then, I guess, related to that, how should we think about the planned shuts for 2026? And is there any sort of maybe room to stretch some of those out? Juan Bueno: Yes. In fact, for example, in 2026, we won't have a shut in Stendal. Stendal is under an 18-month cycle, an 18-month cycle that we're actually reviewing whether it could be a 2-year cycle. We were actually thinking about that for this particular year, but we decided to keep the 18 months. Otherwise, we wouldn't be having a shutdown right now. So, that is good news for 2026, no shutdown in Stendal. On the other mills, Celgar is on an 18-month shutdown. And Peace River, we're looking to also moving a little bit beyond the traditional 12 months that we have for that mill. So yes, we're stretching things on shutdowns for next year. Operator: And the next question will come from Matthew McKellar with RBC Capital Markets. Matthew McKellar: Just one for me. How would you describe the industry supply-demand balance in North American mass timber right now? And with recent changes in capacity and the demand inflection we're seeing, what are your expectations for how that trends into 2026? Juan Bueno: Thank you, Matthew. As I was mentioning, or we were mentioning before, we're pretty excited about how we see mass timber developing. The amount of project inquiries, the amount of biddings that we're participating that I already talked about is very encouraging. Probably the biggest element there, and I think it's of incredible significance, is the AI data centers and all the transformative AI investments that are coming through. To give you some order of magnitude, when you think about the hyperscalers, I'm talking about the Googles, the Amazons, the Metas, those companies, the Amazons, their plan for the next 4 years includes a $2.6 trillion investment in construction of data centers. So this is a massive amount of business that is going to come into North America. I don't think that right now, there is capacity installed that would be able to not even get close to serving the demand that will be coming. When we see the actions from other competitors, we see already the addition of some capacity coming next year, which will be very well absorbed with the market growing -- if you think for a minute, our own results, we were going to be moving from $50 million -- let's say, let's call it, $60 million this year to $130 million next year of sales. And we're going to be doing second shift now in one of our mills and probably in one of our other assets as well during the course of the year. It just proves that there is an incredible demand that we will need to serve, and we all would need to shape up and do our best. Keep in mind, and this is important, over the last couple of years, as Europe has been more mature and those mills in Europe are running or have been running at full capacity for now several years, they've seen opportunities to direct some of their volumes to North America. Even though they're shipping across the Atlantic at very high cost, it has been a good business for them. It keeps them running at full speed rather than slowing down. Well, now what they are seeing is that they have to pay 15% tariff, and their currency is 15% more expensive now. So, that puts them at a lower competitiveness versus where they were just a year ago. That is significant because that means there's going to be less product coming from Europe, more pressure on North American producers to cope with that demand that is -- that will continue to grow at a very good pace. Again, the way these -- we have obviously very good connections with some of these hyperscalers. We're active with some of the projects that they're bringing to the market. We have gained some of those projects already. We have secured some of those projects. Those are part of our backlog and part of our order book. So yes, it's very encouraging. That's all I can say for that. And again, AI being a very, very significant driver for this. Operator: [Operator Instructions] The next question comes from Cole Hathorn with Jefferies. Cole Hathorn: I've got 3 on my side. I'll take them one by one. The first on any items that you're expecting into the fourth quarter around kind of energy rebates and things like that from the German government for kind of energy-consuming industries. I'm just wondering if there's anything that we should be thinking about for your business for the fourth quarter, which might be positive. [Technical Difficulty] Operator: Please stand by. We are experiencing a technical difficulty. Please stand by. Pardon me. This is your host. Please stand by. Your conference will resume momentarily. Richard, I see that you have rejoined. Are you able to hear me? Richard Short: Yes. Juan Bueno: Yes. Sorry, folks. Operator: You may proceed. Juan Bueno: Apologies, Cole. I don't know what's happening today, but anyway. Cole Hathorn: No problem. Let me start again. Juan Bueno: Reflection of the markets. Cole Hathorn: Richard, maybe you could help with one on any rebates or items that we should think about on the energy side in your German business. Is there anything like that we should expect in the fourth quarter? Richard Short: No, no rebates. Cole Hathorn: Then, following on, on Germany on the lower -- well, elevated wood costs, you're referring to kind of the sawlog prices. Could you give a little bit of color on what you're seeing on the wood chips on that side? Juan Bueno: Absolutely, Cole. On the wood chips, the situation is, right now, the pallets or the biofuels are being sold at pretty good price levels. They're above EUR 300 per tonne. That means that the pallet producers are able to buy wood chips at much higher prices than what we are able to buy. And therefore, they're taking obviously a significant piece of the equation and putting a lot of pressure on us when we go to those same sawmills and ask for our chips. So, that is basically what's creating that increased volatility in prices for wood chips for pulp specifically. It's the impact of wood pallets. That's -- we'll have to wait and see how the winter plays out. If those conditions will persist or if it's a milder winter, those conditions will reverse quickly. We've seen these fluctuations before. We don't see them as structural changes. It's one business taking advantage of a very particular situation. Cole Hathorn: And then, we've seen West Fraser Timber, unfortunately, closing a sawmill in British Columbia [indiscernible] announcing it yesterday. I'm just wondering how many do you need to see close before you kind of have that tipping point where too many wood chips are removed from the British Columbia market and we see a pulp mill really under pressure? Juan Bueno: I think that situation is already there, to be honest with you. Sometimes, I'm astonished by the fact that we haven't heard of any pulp closure because the situation in chip access is incredibly tight. You remember that 2 years ago, we divested Cariboo. We had 50% on Cariboo, together with West Fraser. And the reason for our divestiture from that business was precisely because we didn't see a future there in terms of fiber supply. As I said earlier in the call, it's completely different for Celgar because we have the U.S. as a very significant source that we can play at even higher levels than what we're doing already. So we're very limited to the dependence on British Columbia itself. But that's -- we're probably 1 of maybe 2 sawmills -- 2 pulp mills that have that luxury. The rest are stuck with BC chips. And yes, there's incredible amount of pressure on them already. Cole Hathorn: And then, I've got a more challenging question, but I've been asked to ask it, around potential financing and government support from Canada, I mean, considering tariffs and industries like the paper and packaging industry in British Columbia that's under pressure. Have you investigated any opportunities to access much lower-cost financing from either the regional or kind of federal government there? Juan Bueno: We do a lot of lobbying as part of our industry associations. We are very, very active through the associations, as well as through direct contacts we have with, for example, Minister Parmar or even Premier Eby. So we do have interactions that -- where we bring to the table some of the issues that obviously are important for us. However, be reminded that since we -- most of the efforts that the BC government have put out are in favor of the lumber industry because, obviously, with all the tariff situation, that is the core of the focus. Beyond steel, beyond auto, beyond those things that we know are heavy in those conversations, lumber is the element. And then, that goes into sawmills, of which we have none. So we don't have access to particular credit lines or something that are more geared towards the lumber business, the sawmills that are in very difficult situation. Now, with the counter tariffs adding up, with countervailing duties adding up and now additional tariffs, all these measures that the government have made public, they will benefit, hopefully, some of those sawmill companies. But again, we're not privy to those as our business is not [ through sawmilling ]. Operator: I show no further questions in the queue at this time. I would now like to turn the call back to Juan Carlos for closing remarks. Juan Bueno: Okay. Thank you, Michelle, and thanks to all of you for joining our call. Rich and I are available, obviously, to talk more at any time. So don't hesitate to call one of us. Otherwise, we look forward to speaking to you again at our next earnings call in February. Bye for now. Operator: This concludes today's conference call. Thank you for participating, and you may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by. My name is Desiree, and I will be your conference operator today. At this time, I would like to welcome everyone to the DoubleVerify Third Quarter 2025 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to Tejal Engman, Senior Vice President of Investor Relations. You may begin. Tejal Engman: Good afternoon, and welcome to DoubleVerify's Third Quarter 2025 Earnings Conference Call. With us today are Mark Zagorski, CEO, and Nicola Allais, CFO. Today's press release and this call may contain forward-looking statements that are subject to inherent risks, uncertainties and changes and reflect our current expectations and the information currently available to us, and our actual results could differ materially. For more information, please refer to the Risk Factors in our recent SEC filings, including our Form 10-Q and our annual report on Form 10-K. In addition, our discussion today will include references to certain supplemental non-GAAP financial measures and should be considered in addition to and not as a substitute for GAAP results. Reconciliations to the most comparable GAAP measures are available in today's earnings press release, which is available on our Investor Relations website at ir.doubleverify.com. Also, during the call today, we will be referring to the slide deck posted on our website. With that, I'll turn it over to Mark. Mark Zagorski: Thanks, Tejal. And thank you all for joining us today. Q3 reflected disciplined execution and resilient performance across the business. Revenue grew 11% to $189 million within our guidance range and adjusted EBITDA margin reached 35%, once again above expectations, demonstrating the scalability of our model. We're leveraging automation and AI to drive structural efficiency and profitability, proving DV's ability to deliver strong margins even in a dynamic ad market. During the quarter, market dynamics led to some retail budgets being softer, while growth in our other core verticals, including CPG, remained in line with expectations. Upsell momentum stayed strong, led by early demand for our AI-powered DV Authentic AdVantage solution, which closed roughly $8 million in annual contract value after only its first few weeks in market, fueled by early adoption from global CPG leaders. We also maintained strong customer retention with 0 churn among our top 100 customers in Q3, underscoring the stability of our largest relationships. Core customer engagement and adoption rates remain healthy, and we continue to execute with discipline. At the same time, social and CTV are adding new growth and diversifying our revenue, strengthening the foundation for 2026. To frame the quarter simply, DV's growth drivers, AI-driven product innovation, margin expansion and customer success remain firmly in our control and on those levers we continue to deliver. Today, I'll focus on 3 themes shaping our progress this quarter and beyond. First, innovation, how we're harnessing AI and automation to launch new products for the AI era, advanced content classification and drive greater efficiency at scale. Second, diversification, how growth across social, streaming TV and programmatic is strengthening the durability of our model. And third, monetization, how we're translating that innovation and diversification into sustained revenue growth, operating leverage and cash flow. Each of these themes builds on the next, starting with innovation. At the center of innovation is AI, the engine behind our product development, precision and scale. AI is driving the next major transformation in digital media, fundamentally changing how content is created, distributed and consumed. Marketers, publishers and AI agents themselves are beginning to design advertising strategies around this new layer of engagement, and DV is already embedded within it, capturing proprietary data that reveals how this ecosystem is taking shape. Each month, we analyze nearly 2 billion automated agents, crawlers and bots, giving us unmatched visibility into how declared assistants like ChatGPT, Claude and Perplexity as well as undeclared or evasive bots and personal stopping agents, shape media performance. These interactions represent an untapped opportunity for a marketer to LLM engagement that DV is driving to enhance and monetize. To meet this moment, this week, we launched the DV AI Verification offering. A group of tools built to empower advertisers in an AI-driven world. The suite includes DV's Agent ID Measurement, which in its first generation, identifies, measures and classify declared and evasive AI activity. It also features DV's AI SlopStopper, which detects and blocks synthetic or manipulated media across the programmatic open web with expansion to social underway. Within Pinnacle, advertisers were able to view and act on this data in real time, quantifying AI impact and eliminating waste prebid, powering the AI SlopStopper and our broader contextual classification capabilities is our agentic classification system, which uses generative AI to automatically build and retrain thousands of models using DV's proprietary data across programmatic and walled gardens. Rolling out this technology will enable us to double our classification volume with fewer people and should achieve a fourfold gain in productivity per classification specialists by the end of 2026. It also lets us scale labeling volume by 260% and generate results 2,300x faster than human labeling, all while maintaining human-level accuracy at lower cost. Bottom line, we're leveraging AI to not only innovate but also to expand margins, doing more, faster with fewer resources while simultaneously creating new monetization opportunities as AI agents play a larger role in digital advertising. Just as DV helped define transparency during the rise of programmatic as well as the emergence of ad-supported CTV, we're now beginning to set the standard for trust and accountability in AI-powered media, positioning DV as the independent benchmark for verifying both human and AI-mediated engagement and content. Moving to our next growth engine diversification. Our progress in AI-powered innovation is driving customer adoption in social and CTV. Beginning with social activation, both DV Authentic AdVantage and our Meta pre-screen solutions are off to solid starts, underscoring the demand for transparent performance-driven solutions in walled gardens. Social within activation is growing at 20% and remains one of our fastest-growing sectors. DV Authentic AdVantage, which launched on YouTube towards the end of September is a DV-exclusive solution that unifies prebid brand suitability, Scibids AI optimization and postbid measurement into one seamless automated workflow. Early adoption has been strong, led by major CPG brands, including Kraft Heinz and Haleon. Much like our flagship authentic brand suitability product, which was one of the most successful launches in DV's history, Authentic AdVantage delivers measurable ROI right out of the gate. In early CPG test, this solution delivered 24% to 34% lower CPMs and 26% to 50% higher impression volumes while maintaining or improving brand suitability. Continuing on social activation and turning to Meta, we significantly expanded content-level avoidance on Facebook and Instagram feeds and Reels nearly doubling our ability to filter our content on behalf of an advertiser's suitability preferences across categories and markets. Revenue from Meta activation solutions continues to outpace expectations with 56 advertisers now live and in the early stages of scaling up from 26 last quarter. 20 of our top 100 customers now leverage our Meta activation solution, up from 13 in Q2 and usage is beginning to ramp. Today, our prebid solution is attached to roughly 6% of our brand suitable measurement impressions on Meta, representing an upsell opportunity we expect to rise meaningfully as adoption deepens. On TikTok, we expanded our video exclusion list by 100x, significantly enhancing advertisers' ability to proactively avoid unsuitable content and reducing their rate of unsuitable content by 1/3. Together, these advancements strengthen prescreen protection on the world's largest social and video platforms and demonstrate our partners' commitment to giving advertisers the tools they need to safeguard brand equity and improve contextual relevance at scale while still driving performance. There's been some debate about whether platform native AI optimization tools, those black box tools that automate targeting, creative and attribution could reduce the need for independent verification. The reality is while those systems optimize delivery, they don't disclose where ads run or how suitability is maintained. In a sample of AI run social campaigns, we found brand suitability rates to be roughly 2 points lower than in non-AI campaigns. As these closed algorithms scale, advertisers are relying even more on DV for the transparency control that platforms don't provide. In our sample, our prebid protection was applied more than 3x as often on AI campaigns than on standard campaigns, evidence that advertisers see higher risk in these black box solutions and a greater need for safeguards. The takeaway is clear. As platform AI engines become more sophisticated, the need for an independent trusted verification becomes even more essential to ensure performance, suitability and accountability work together. Turning to social measurement. We continue to expand postbid coverage across the world's largest social media environments, expanding our AI-powered brand suitability measurement to Meta Threads giving advertisers independent transparency on yet another fast-growing social media platform. We also extended our brand suitability measurement on Snapchat to shows and publisher stories adding to our existing coverage of creator stories and spotlight and giving advertisers greater clarity across more premium inventory. Shifting to diversifying revenue through CTV growth, advertisers continue to describe the streaming landscape as fragmented and opaque. They often don't know where their ads run, the quality of the content they appear in or even if those ads are viewable and paid attention to by a real human. In some cases, ads are intended for premium full episode TV experiences end up in mobile gaming apps like Solitaire or other non-TV environments. This is a problem we estimate impacts roughly 15% of CTV impressions and waste over $1 billion of media spend each quarter, eroding trust as well as ROI. At the same time, advertisers still rely on manual time-consuming and error-prone workflows to manage Do Not Air brand suitability list leading to misplaced ads and misoptimizations at scale. We've said before that DV has not fully monetized its CTV exposure, and we're now addressing that opportunity head on with 3 streaming TV specific product launches this quarter and with more to come in 2026. On the measurement side, this week, we announced the launch of DV Verified Streaming TV measurement, a market-first capability that provides impression-level transparency across digital video campaigns helping advertisers ensure that ads are delivered in high-quality TV-like environments, not an outstream players on blog pages or in gaming apps, which too often pass as TV inventory in reseller channels in the open market and private marketplaces. We're also extending our Verified Streaming TV capabilities into activation, launching prebid Verified Streaming TV segments across leading programmatic platforms such as The Trade Desk, Teads, StackAdapt, Microsoft Curate and Index Exchange allowing advertisers to target authentic streaming inventory in open market and PMP buys and avoid wasted delivery to rogue environments. Additionally, in activation, we've launched prebid Do Not Air list for streaming TV with an ABS, modernizing what was once a manual spreadsheet based process and to one that automatically enforces brand compliance policies across streaming platforms at scale. And finally, we announced a new deal with entertainment database IMDb, leveraging authoritative metadata and popularity insights licensed from IMDb to enhance show-level transparency and classification for streaming TV. This partnership will help fuel agentic streaming TV contextual solutions that we'll be launching in early 2026. Together, these innovations strengthen both sides of our CTV business, measurement and activation, giving advertisers the visibility, precision and performance they need as streaming becomes the centerpiece of digital media. On measurement, our adoption continues to accelerate. In Q3, our CTV measurement volumes grew 30% year-over-year, reflecting the growing scale of our streaming verification footprint and growing advertiser demand for transparency in CTV. Turning to programmatic. We continue to see healthy volume growth across open web environments on mobile and desktop. Approximately 65% of the open web media transactions we measure today occur on mobile devices underscoring the increasingly app-centric nature of digital advertising. Excluding CTV, programmatically purchased video display impressions grew at double-digit rates in the third quarter and year-to-date in 2025 reflecting sustained advertiser demand for transparent, measurable and brand suitable media. Programmatic display and video impression volumes continue to rise across high-quality content-rich publishers in categories like news, lifestyle, food and hobbies, where advertisers continue to find engaged brand-suitable audiences. On the supply side, growth was also a standout again this quarter, up 27% year-over-year, driven by continued momentum in retail media, which grew 30% year-over-year. DV's tags are now accepted across 149 of the key global retail media networks and sites, including 18 of the top retail media platforms. We also added new platforms and publishers, including AMC, Univision, Comcast, Versant, Rumble, Wiley, Rakuten Viber. As we look ahead, all of these innovations are creating clear catalysts for our largest monetization streams, activation and measurement. Our medium-term North Star is to grow social, streaming TV and AI Verification solutions from under 30% of total revenue today to roughly 50% while continuing to efficiently grow our other key sectors. Achieving this revenue mix will provide a more defensible and scalable platform for growth that more closely mirrors global digital ad spend allocation. In activation, our social products are already turning adoption into revenue. DV Authentic AdVantage and Meta prebid are scaling quickly driven by advertiser demand for transparent, performance-driven tools inside closed platforms. And just a few weeks since the launch, DV Authentic AdVantage has closed nearly $8 million in expected annual contract value, while we expect Meta prebid to generate an annualized run rate of at least $7 million by this year's end. Together, we believe these social activation solutions could represent a $120 million to $160 million annual revenue opportunity over the long term. In streaming TV, we expect our prebid Verified Streaming TV segments and Do Not Air list within ABS to add roughly $10 million in incremental annual activation revenue once fully ramped. Across measurement, we see upside from our AI Verification suite, Verified Streaming TV measurement and content-level transparency from partnerships like IMDb. Together, these products are expected to deliver meaningful incremental revenue as adoption scales. While the digital ad ecosystem continues to evolve, our strategy and product innovations are positioning DV for durable long-term growth. We're deepening relationships with global leaders, including Vodafone, Paramount Pictures, Haleon, Papa John's and Sonos, expanding partnerships across new solutions, markets and media types. We've recently also added new enterprise customers like Tesco, Citigroup U.K., Henkel, Red Bull, Under Armour, Burger King, Subway, Popeyes, Premier Inn and Domino's that continue to strengthen our foundation for growth. Our large customer base is also becoming more diversified. The number of advertisers generating over $200,000 in annual revenue grew by 11% year-over-year to 347, reflecting broader adoption, higher product penetration and increasing long-term value per client. Fueled by our industry-leading scale and innovation, DV continues to differentiate itself from its competitors as the only public independent scaled verification platform emerging as the benchmark for transparency and trust in the AI era. We've built this position through investing $210 million more in GAAP R&D than our closest competitor from 2023 through 2025 to date, creating product differentiation across social and streaming TV, empowering the launch of unique proprietary offerings such as DV Authentic AdVantage, DV Verified Streaming TV, DV Agent ID, DV AI SlopStopper and more. Additionally, through acquisitions like Scibids AI and Rockerbox, we've expanded our value proposition beyond verification into AI-powered optimization and outcomes measurements, core pillars of our Media AdVantage Platform strategy, which brings the full power of our data and technology to advertisers. Together, these form a broad-based scaled solution, unlike any in the market that will further distance us from the competition and provide future avenues of growth. TV is innovating and evolving with AI, enabling us to do so at increasing speed and efficiency, helping to expand margins in parallel. We are developing unique solutions that differentiate and diversify our revenue into the fast-growing sectors of social and CTV and with new AI verification tools we are positioning ourselves for expansive growth as the inevitability of LLM-centric advertising becomes a source of new monetization opportunities. When we kicked off 2025, we shared with you all that this will be a year of transition and evolution. We've leaned into both weathering variable market conditions while introducing more TAM expanding solutions than at any time in our history, catalyzing future growth opportunities and delivering full year growth ahead of our initial plans. As we move into 2026, our priorities remain clear, execution, innovation and sustained value creation for our customers and shareholders. We appreciate your continued support as we drive towards an exciting future for DV. With that, let me turn the call over to Nicola. Nicola Allais: Thank you, Mark, and good morning, everyone. Our third quarter results reflect continued double-digit year-over-year revenue growth, solid profitability and strong cash generation. We delivered approximately $189 million in total revenue in the third quarter, up 11% year-over-year and within our guidance range. Adjusted EBITDA was $66 million, representing a 35% margin and above the high end of our guidance range, driven by cost discipline, operating leverage and AI-driven efficiency gains across the organization. As we outlined last quarter, Q3 revenue was essentially flat on a sequential basis, driven primarily by tougher year-over-year comps as we lapped our strongest quarter of 2024 and further driven by softer retail spend. we expected second half revenue growth to moderate, consistent with our full year outlook for double-digit revenue growth, strong profitability and the scaling of new activation and measurement products focused on social, CTV and AI heading into 2026. Last quarter, we noted that approximately 1/3 of our first half 19% year-over-year revenue growth came from new advertisers with Moat win from last year contributing approximately 1 percentage point. Through the first 9 months of 2025, revenue increased 16% year-over-year with a similar contribution pattern to the first half. Approximately 1/3 of revenue growth came from new advertisers with Moat win from last year contributing approximately 1 percentage point. The majority of our growth continues to come from existing customers expanding their use of DV solutions. In the third quarter, total advertiser revenue grew 10%, driven by increased volumes. Media transactions measured or MTMs increased 12% year-over-year, while measured transaction fees or MTFs decreased 4% year-over-year, reflecting product and geographic mix and excluding the impact of one introductory fixed fee deal. Activation revenue grew 10% year-over-year in the third quarter. ABS, which accounted for 54% of activation revenue grew 12% year-over-year, driven by new logo activations, upsell to existing customers and expanded usage among current users. 73% of our top 500 customers have now activated ABS, up from 68% in Q3 last year, demonstrating the continued adoption of this premium product. Non-ABS activation revenue grew 8%, reflecting solid demand for our social activation solutions, partially offset by softer spend from retail advertisers. Measurement revenue grew 9% year-over-year with momentum in social, partly offset by weaker retail spend. Social measurement grew 9% and accounted for 48% of total measurement revenue, while international revenue grew 2% and accounted for 27% of total measurement revenue. Excluding the suspension of the one CPG customer at the start of the year, social measurement revenue would have grown 22% in Q3 and 21% year-to-date. Revenue from Rockerbox was in line with expectations and is on track to achieve our expected 2025 revenue contribution of approximately $8 million. Finally, supply side revenue grew 27% in the third quarter driven by growth on existing platforms and new platform and publisher partnerships. Moving to expenses. Cost of revenue increased 14%, primarily due to growth in activation revenue, which carries increased partner costs tied to revenue sharing arrangements as well as higher data and hosting costs driven by increased usage. In Q3, we delivered an 82% margin on revenue less cost of sales, and we expect to maintain margins between 80% and 82% in Q4. R&D expenses increased as we continue to invest in AI capabilities, engineering talent and product development, including the integration of Rockerbox and continued improvement of DV Authentic AdVantage. Sales and marketing expenses and G&A included costs related to the Rockerbox acquisition and other strategic initiatives. As noted last quarter, hiring remains disciplined as we realign resources towards growth priorities and continue to optimize for efficiencies. Adjusted EBITDA of approximately $66 million in the third quarter represented a 35% margin, exceeding expectations, driven by cost discipline, operating leverage and AI-driven efficiency gains across the organization. GAAP net income reflected the impact of higher tax expenses, which is largely driven by the tax impact of our lower share price and by higher stock-based compensation costs. Looking ahead to 2026, we're implementing an updated equity incentive plan that is projected to reduce annual stock-based compensation cost by 20%. This quarter, we also introduced an adjusted EPS calculation to provide an additional metric to evaluate the business. We delivered net cash from operations of approximately $51 million in the quarter. Capital expenditures were approximately $12 million in the quarter as compared to approximately $6 million in the same quarter last year as we accelerated investments in new solutions across social, streaming TV and AI. In terms of capital allocation, in the third quarter, we repurchased 3.3 million shares of DV common stock for $50 million. As of November 7, $90 million remain available and authorized for additional repurchases. Through September 30, we deployed $132 million to repurchase 8.4 million shares more than offsetting the anticipated full year 2025 stock-based compensation costs. We also deployed $82 million net of cash to acquire Rockerbox as part of our M&A strategy to diversify our product offering from protection to performance. In addition to investing into the business, we will continue to evaluate M&A opportunities and buybacks, including beyond the current authorization as part of our capital allocation strategy to maximize shareholder value. In the first 9 months of 2025, we delivered net cash from operations of approximately $138 million compared to approximately $122 million in the same period last year. Capital expenditures in the first 9 months of 2025 were approximately $28 million compared to approximately $20 million in the same period last year. In the first 9 months of 2025, cash generated from operations after funding capital expenditures totaled approximately $110 million as compared to adjusted EBITDA of $168 million. We ended the third quarter with approximately $201 million in cash and cash equivalents. Our strong cash generation combined with disciplined capital allocation and share repurchases continues to enhance long-term per share value. Turning to guidance. We're updating our fourth quarter outlook to reflect ongoing retail softness in a key seasonal period. We expect revenue to range between $207 million and $211 million, representing 10% growth at the midpoint. We expect adjusted EBITDA to range between $77 million and $81 million, representing a 38% margin at the midpoint and continued strong operating leverage. While Q4 is our easiest comparison for existing customer growth, it is also our toughest for new customer growth as we lap a period of outsized advertiser, publisher and platform additions. For full year 2025, we expect to deliver approximately 14% year-over-year growth at the midpoint and are raising our adjusted EBITDA margin guidance from approximately 32% to approximately 33%, reflecting margin expansion even as revenue growth normalizes to approximately 10% in the back half of the year. We also expect a full year 2025 margins of approximately 33% to be a base case for full year 2026, supported by continued cost discipline, AI-driven efficiency gains and the inherent operating leverage in our model. For the fourth quarter, we expect stock-based compensation to range between $25 million and $28 million and weighted average diluted shares outstanding to range between 163 million and 165 million shares. Looking beyond 2025, upside from the 10% base case revenue growth we're expecting for the second half of 2025 will be driven by the pace of adoption and scaling of our social activation products, our CTV solutions alongside the ramp of our new AI offerings. As Mark mentioned, our medium-term goal is to grow social, streaming CTV and AI verification solutions from less than 30% of total revenue today to approximately 50% while continuing to expand our other key sectors. This evolution will create a more diversified and resilient growth profile and position DV to capture a larger share of the fast-growing digital advertising ecosystem. In closing, our results show consistent double-digit growth, disciplined operational execution and strong profitability. Our balance sheet remains robust with over $200 million in cash and no long-term debt, supporting innovation, strategic partnerships and share repurchases. DV's business model continues to demonstrate resilience and scalability, and we remain confident in our ability to create long-term value for our shareholders. And with that, we will open the line for questions. Operator, please go ahead. Operator: [Operator Instructions] And our first question comes from the line of Maria Ripps with Canaccord Genuity. Maria Ripps: First, can you maybe help us sort of think through some of the growth drivers for next year? And I know you sort of touched on this a little bit in your prepared remarks, but it would be great to get a little bit more -- sort of get a little bit more detail around some of the drivers there. And then if the business performed similarly to this year, let's say, mid-tens growth hypothetically, how should we think about sort of incremental profitability and the cash flow through next year? And then I have a quick follow-up. Nicola Allais: Yes, Maria, I'll take that question. So as we said in the remarks, we're looking at a base case scenario of a 10% growth, which is basically where the second half of '25 is coming out. We're not providing guidance, but that's a base case based on what we see today, and that's based on the recurring business that we have. As we said at the beginning of this year, entering this year, which we've always noted as a transition year, the upside will come from all the new solutions that we're putting in market for social, for CTV, which we've been discussing and now for AI solutions. And the upside to the base case will depend on the ramp for the adoption for those new products. And we've been very consistent with that story, and we see that flowing into 2026 as well. In terms of margins, we are raising the overall margin for 2025 to 33%. And we're considering that a base case for '26 as well. The upside on that margin number will come from adoption of AI tools and solutions that allow us to be more efficient in the business. I would say our strategy remains to reinvest in the business for new solutions, but AI tools will allow us to be more efficient in how we go after those opportunities. Maria Ripps: That's very helpful. And then you mentioned several streaming TV sort of product launches later this quarter. Could you maybe share a little bit more color around that sort of the expected adoption rate? And any thoughts on that [ monetization ]? Mark Zagorski: Sure. So as Nicola noted, we look at our growth drivers going into next year as being focused really on social, CTV and AI-specific tools. On the social stuff, obviously, we talked a lot about Authentic AdVantage and Meta prebid, and we see triple-digit millions coming out of that over the lifetime of those products. But CTV is something where we've arguably been hammered on for years, which is, hey, this is a fast-growing segment, why aren't you guys driving more revenue from it. We're seeing great volume growth. So this quarter, CTV grew at over 30%, 30% on a volume perspective. But where we haven't been able to really extract the value is kind of on the commensurate CPM or percentage of media. I think we're finally getting to the point with the new products that we've launched that we're going to start to be able to do that. So this V1 of CTV measurement includes what we call Verified Streaming TV. And as we noted in the call, we estimate around 15% of CTV impressions don't end up any place near a real CTV type or streaming quality, high-quality experience. That could be as much of $1 billion a quarter in spend. What we're able to do now is very clearly identify the fact that an impression ends up in a high-quality CTV environment or streaming player environment, not in an app or a blog post or an outstream player someplace and do that both on a prebid and a postbid fashion. So I think, a, we're starting to lean in now to this quality initiative around CTV. And I think Jeff Green said something really interesting on The Trade Desk call last night. He said there will always be more supply than demand when it comes to kind of open markets. And I think that, that is starting to take place in CTV, where with the emergence of Amazon and Netflix, there is lots and lots of CTV supply. So the ability to make sure that you're getting the cleanest, highest quality supply is something that's becoming more and more important to advertisers. And we're providing tools that allow them to do that. The other tool we've launched is automated Do Not Air list, which I think is the first step towards a much finer targeting capability for advertisers to block certain types of content as well as on a program level to exclude those programs from any type of open market or PMP buy. So this is the first step in a much broader suite of CTV products that are going to enable us to actually extract the kind of value out of that segment that we should have and that we can. Operator: Next question comes from the line of Mark Murphy with JPMorgan. Mark Murphy: I'd be interested if you could shed more light on the softness that you have mentioned in retail. And for instance, is it concentrated within a handful of customers? Is it something that is broader based? And then do you sense -- like would you connect the dots between the low-end consumer pressures that are becoming evident in the U.S. economy and what you're seeing? Or is it -- are you seeing it kind of up into the high end as well? Nicola Allais: Yes. So Mark, I'll take the question. The softness is across the vertical. And as you know, retail is a large vertical for us. So it represents a large share of our top 100 spenders. So it's not concentrated on specific accounts. It has been a disruptive year with both tariffs and other factors in the market, and it is impacting the retailers, whether it's -- our base of clients are generally large distributors of retail, so it does impact them. But we are seeing the impact across the entire vertical. Mark Murphy: Okay. And then for Mark, how do you think about trying to project the timing for OpenAI, Perplexity, Anthropic, et cetera, to begin their own advertising at scale? And how aggressively do you think your customers might push them to make sure that DoubleVerify is showing up in those venues? Mark Zagorski: Yes, it's a great question. And interestingly enough, we've seen this story play out before, particularly on connected television. And the most recent example is Netflix, who for years said they're never going to ever have advertising, they're never going to have advertising and then literally out of the blue decided they were going to have advertising. And in that case, within 90 days of that announcement, we had already been engaged with building a product and we're ready to launch that product with them. So we think that the LLMs movement into advertising is going to be one that's going to be pretty quick. It will be -- I think it's going to be broad-based. So it's not going to be one of them will go into it. I think they will all go into it. And from what we've seen in the past is as soon as they engage with advertisers, the first thing advertisers are going to want to know is how am I going to drive ROI from this. And the second thing they're going to want to know is how can I trust anything that's occurring in this engagement. And I think that's where we play a big role, whether it's social platforms like Meta, TikTok, YouTube, where we play a verification role, the open web, CTV, I think the LLMs are going to be the next venue for us to actually provide verification, trust and control for advertisers. The products that we just launched are kind of a first step in giving our advertisers much more transparency of the kind of engagements that are occurring out in the open web with LLMs, and I think starting from that base, we're going to be in an interesting position to actually start to now play a larger role when the advertising rolls out across those platforms. Operator: Next question comes from the line of Raimo Lenschow with Barclays. Raimo Lenschow: Can I stay on the direction that Mark started. Nicola, if you think about the -- you talked about the base case for next year, the 10%, which is kind of what we're seeing this year. Can you speak to like what are the assumptions around economy, et cetera, that we're doing here? It's like stable? Is it worth maybe putting an extra buffer in? Can you speak to that, your thinking there? And then, Mark, one for you. Obviously, your industry looks like it's changing because Moat is gone, now one of your other public competitors might be going. How do you think about the impact to the industry overall? Nicola Allais: Yes. So I'll take the first question. I would say we're not expecting a dramatic change from what we're seeing right now in the macro. But having said that, what we're seeing in the macro this year has been pretty disrupted. We had advertisers that kept spending through uncertainty in the first half. We're now feeling some of the impact on the retail vertical based on what's actually happening in the macro. So the assumption for next year is that it is not materially different than what we're seeing today, and that is a year where we will achieve 14% growth, but it's 10% in the second half, which is what we were expecting all the time. Mark Zagorski: And regarding the kind of the landscape, I think there's a few things to think about. Obviously, less scaled competitors with the departure of Moat in the last 12 months. But also our direct competitor now going private, does create a different marketplace with regard to kind of pricing dynamics. They're a different business now. They're one that's heavily loaded with debt. That's going to have to think how that impacts pricing dynamics for their product in the marketplace. And the competitive field looks different with the fact that you've got a company here in DV that's kicking off a ton of cash that has no debt and has the ability now to continue to invest in product development. Obviously, we've just launched a slew of products to invest in M&A to build out a broader platform and to keep focused on revenue growth and market growth as this is -- the dynamics of the market keep changing. So I do think it puts us in a very advantageous position right now with regard to the ability to invest, the ability to maintain price and the ability to kind of continue to grow our solution set, both organically and inorganically. And so I think we've always said we're in this to win it. We're now $150 million of revenue larger plus than our closest competitor, and I think we can continue to extend that gap over time. Operator: Next question comes from the line of Youssef Squali with Truist Securities. Youssef Squali: So maybe one quick follow-up to this 10% base case growth for 2026. Nicola, is the assumption that [ guidance ] continues to be pretty soft the way it is -- it has been? Or do you expect that to worsen or to maybe improve? And then maybe this could actually be related, maybe not. But Kenvue is a top customer. It's being acquired by Kimberly-Clark. One is Kimberly-Clark [ the current ] customer? Is Kenvue still spending at the same level as before? Just kind of what's going on in that? Nicola Allais: Yes. So I'll take the first part. Again, just to be clear, we're not providing guidance for '26. I think the idea around a base case of 10% is what we're seeing in the second half of 2025. And with all the drivers that I already mentioned around uneven spend and a pretty disruptive macro environment, we're essentially assuming that we can maintain that 10% base case in 2026. It's a base case, off of which we can grow based on how we can sell our new products. Again, we will end up this year at 14% growth in a macro that was very disruptive quarter-on-quarter. So the 10% does not assume a dramatic difference in the macro. Mark Zagorski: And with regard to kind of Kenvue and let's just talk about the broader health care segment in general, in consumer products in general. We had strong growth last quarter in CPG and in health care, both of which grew in double digits year-over-year. And with regard to that specific customer, we continue to see growth. Kimberly-Clark is not a current customer of ours, but we've had strong engagement with them in the past. We have strong relationships at Kenvue. And we are assuming that, that relationship will continue moving forward. So we've been really good in the past about continuing to maintain relationships in light of agency changes and in light of kind of structural changes at companies. So Kenvue is a client that we just won this year. They've continued to grow with us. They're a solid partner. They're expanding their use of our solutions. And we don't see any change in that in the short term. Operator: Next question comes from the line of Laura Martin with Needham & Company. Laura Martin: My first one is on client base. I love all the new products. Do you -- Mark, I think Wall Street is really excited about SMBs coming into the CTV space and sort of expanding the TAM. My question is your client base has historically been very large. Do you see any of these new products as maybe potentially garnering new and maybe lower -- coming down the size, scale of products? And then my second one is on almost every ad tech company we cover, we've asked them this question about traffic. Are they seeing diminution in traffic? And they're all saying, "No, no, no, we're not seeing any demise of traffic even in spite of Google doing answers." And then when you ask them, but is some of that bots, they say, "Oh no, no, we have verification for impressions, and we know which are humans or which are bots." I assumed that was you doing that. But are there new competitors doing that since it sounds like you're just now introducing Gen AI verification solutions. Mark Zagorski: Let me -- thanks for the question, Laura. I'll take the latter half of that first. We've always been able to identify basically we call nonhuman traffic. Right, the idea around what we call either SIBT or GIVT. GIVT is more benign. Those are your usual crawlers, they could be search crawlers, any type of other kind of positive or neutral crawlers. And then SIVT, which we consider kind of fraud or negative engagement activities. So that's always been able to be kind of verified and cleanly kind of identified. And in most cases, it gets blocked or is unpaid for. What we've launched now is a much more greater level of transparency. And I think this is really interesting because there's greater engagement with ads and even with content with LLMs and in some cases, personal agents, right? And those have always been defined as GIVT which is something an advertiser shouldn't pay for, right? It's not a human. But what if that agent or that crawler or that bot is actually doing something positive and is looking to buy a product, is looking to find a coupon. Those are engagements that right now that the universe of the ad tech world has basically said, "All right, don't engage, right? It's -- we're not going to pay for this." But what about the future? What about when an advertiser does want to engage with an agent from one of the LLMs? Who is going to decide and what information do they have on that? That's the kind of granularity that we're starting to provide, which is what is the bot's motive, what is -- where is it coming from. And right now, again, I think advertisers are still in the learn phase, but in the future, it could be something where they do want to engage and do want to render or pay for the ads. So I think it's a level of granularity and that we're able to provide now with this new tool that gives us the basis from which to launch new solutions in the future, in which agents may be talking to agents and bots may be talking to bots and advertisers might want to be part of that engagement. On the first part of your question, the growth of SMBs in the CTV world, I think like we have in the programmatic space with our ability to kind of be part of The Trade Desk buying tool, be part of DV360's buying tool, where we insert our data directly into those. And we know that in those cases, upwards of 15% to 20% of our engagements every month are from non-scaled, non-engaged customers who literally click a box and say, apply DV prebid to my buy. As more buyers come into the CTV universe and they're buying through platforms, we think there's an opportunity in the same manner where they can apply DV, for example, Verified Streaming TV segments to our buy or apply a Do Not Air list to my buy very seamlessly. So I think the entrance of SMBs into the CTV world is an opportunity for us in the same way that we get upside from that through the programmatic buying platforms. We'll be inserting our solutions into the buying platforms for SMBs on CTV as well and more scale is better, more opportunity is better. And I think since we are a CPM-based business for the most part, as more impressions get pushed through CTV, that's a good thing for us. Operator: Next question comes from the line of Matt Condon with Citizens. Matthew Condon: My first one, Mark, just as we sit here today and you've had discussions with advertisers just around Meta prebid and you're thinking about 2026. Just how are those conversations developing? And how are you thinking about that product scaling in 2026? And then similarly, with just DV Authentic AdVantage, it seems like it's off to a very good start. Can you just talk about discussions there and also just scaling throughout 2026? Mark Zagorski: Yes. So on both of those solutions, we've got pretty high hopes for continued growth and scaling. The Meta prebid solution, it's a product that we launched earlier this year, and it's gotten better and better over time. We've expanded the number of block lists that we're able to push through. We've expanded the categories that we're able to refine the filtering around and that's helped catalyze a pretty significant growth rate. I think as we mentioned in the call, we're now approaching a $7 million run rate, and that continues to scale. And we've got some pretty large -- some of our largest CPG customers are already starting to scale against that. So as we look at that rolling into next year, we see pretty significant upside coming from that solution. And as we noted on our Innovation Day, we believe that prebid business can be as large as our postbid business on Meta, which is currently around a $40 million a year business. So we feel good about that. It's beginning to scale well, and our customers are leaning in. On the Authentic AdVantage front, I mean, this is a brand-new solution we just brought to market in September, and it's going gangbusters. Like we love what we've seen from the initial test where we're increasing scale, decreasing CPMs and making brand suitability better, all-in-one package on YouTube. That is our -- we've already booked almost $8 million in ACV for that product in the first few weeks. And we think that can be a real home run for us, very similar to where ABS was. It hits a lot of bases for advertisers. We've had a prescreen business on YouTube for a while, but one of the challenges always was, when I filter out inventory, what's left costs more. We've been now able to address that by saying you can filter out inventory that's not great for you, increase or maintain your brand suitability or brand safety standards while compressing costs, gives advertisers more reach, allows their spend to be more effective. And I think it's really resonating. So we see that scaling up well into 2026 and beyond. And we framed our prebid or Authentic AdVantage products to be triple-digit millions over the life of that solution. And I think we're well on our way there. Operator: Next question comes from the line of Justin Patterson with KeyBanc. Justin Patterson: Great. I was hoping you could expand on international some more. If we go back to the Innovation Day, I know some of your go-to-market changes were designed to just simplify the selling process over there. So I would love to hear about just how that's trending in more detail and what actions you might take to make international more material in 2026? Mark Zagorski: Yes. Thanks, Justin, for the question. I think international has been really a very variable area for us. We had -- 2 years ago, we had very soft international growth. Last year was relatively strong. This year is kind of in the middle. And I think we have put in together a strategy that will enable us to continue to scale there better. We -- what we've looked at are localized sales resources in region, but built on a centralized go-to-market plan. That's allowed us to scale efficiently, which is, as you can see in kind of our margins, we continue to improve, but also build local relationships there. The one thing that we have found is from region to region, the product needs and where folks are leaning in are very different. You've got APAC, which is a very social-driven market, which has lower CPMs. You've got North America, which obviously is a very video- and CTV-driven market with higher CPMs. And you've got Europe, which is somewhere in the middle, depending on the region. So what we've done is really focused on leaning into specific product suites in specific markets that align with the kind of media they're buying there. And ultimately, one of the things that we put out there is our North Star is we want 50% of our revenue coming from social, CTV and new AI-focused solutions. And I think a big part of that is scaling our international business around social and getting those new products to market that make social buys, particularly across video and social video, i.e., YouTube, much more acceptable in markets where things like CPMs are much lower. The way we've done that is look at different pricing models. And one of the things we did talk about our Innovation Day was a percentage of media model, which we've now launched on our social solutions, so on Meta prebid as well as on Authentic AdVantage. And that gives us the ability to sell those solutions in markets where CPMs are lower but still get good reach and good revenue upside opportunity. Operator: Next question comes from the line of Matt Swanson with RBC Capital Markets. Matthew Swanson: Mark, you just mentioned briefly the different pricing models. And obviously, this has been a big year for innovation. There's a lot more product. We've come up also with some kind of bundling strategies. Could you just talk about how you're thinking about go-to-market and just making sure that your sales force is -- maybe it's more of a shift to like value-based selling of -- solving some of these problems that are arising for your customers. But just how you're thinking about pitching the value proposition as you expand what you're offering? Mark Zagorski: Yes. One of the challenges when you launch a lot of products are -- is that you got a lot of products, right? And our customers are really looking for simplification, simplification of their engagement, but also simplification of how they buy media. And this is one of the reasons why some of the AI-based kind of black box solutions are doing so well, whether it's Advantage+ or PMax, et cetera, the ability for an advertiser just to set it and forget it, buy something and drive ROI is really important. And I think we're thinking the same way with our solutions, where things like Authentic AdVantage are products where you can set a brand safety or suitability floor or target, but then let the solution run and drive CPMs down and drive volume up and reach up. So from a market kind of implementation practice, we're kind of following that solution set. From a go-to-market and sales process, the idea here is, a, making bundles more digestible. So rather than have 17 different features that we sell for 17 prices, particularly on the measurement side, to bundle our solutions up and enable an advertiser who's buying across CTV to kind of get everything that we offer on CTV for a fixed price. And to do the same across social and open web, et cetera. So bundling on the measurement side, flexibility on pricing on the programmatic or buy side when it comes to filtering and prebid, these are ways that we're kind of easing the introduction of numerous suite of tools that continues to grow, but has value in different markets for different types of customers. So it's a lot that we're introducing. And I think the way that we're going to -- the way that we are making it digestible is making pricing adaptable to the market and making bundles much more part of how we sell things. Operator: Next question comes from the line of Andrew Marok with Raymond James. Andrew Marok: So we heard your commentary around the EBITDA margin outlined. But maybe within that, how do you think about potential flex in places like product development or tech costs from having to invest in AI solutions like agentic and SlopStopper as that space and the potential AI threat landscape evolves at a rapid pace? And then maybe for Mark, just how you're setting up the teams to respond to AI landscape innovations in as nimble a fashion as possible. Nicola Allais: Yes. So I'll take the first question around investment. So the profile of the companies that we have been able to invest and achieve the growth that we have within a margin range of 33%, right? And what's happened with the opening of the AI tools is that it allows us to reinvest faster into new opportunities because we're able to achieve what we are doing already in the core business more efficiently. So AI tools allow us to classify more effectively and do it in a more cost-efficient basis. And with that in mind, we will be able to essentially invest into the new categories more efficiently. And still, as we said at the beginning of the call, I feel confident that we can achieve as a base case, a 33% margin. So we're able to reinvest in the right categories more efficiently now that AI tools are available to us. Mark Zagorski: And first of all, I want to thank you for being the first analyst to say SlopStopper on this call, which we are hoping someone would ask about. But our philosophy around AI is pretty straightforward. We're AI first, AI always and AI everywhere. And that has to do really with 3 main areas of focus. Our operations, our current solutions and then building out solutions for a new AI-enabled ad tech ecosystem. What Nicola just mentioned was kind of the second part of it, which is how do you make our solutions better, more granular and more efficiently do so. And we talked about how we're doing that with labeling. And if you think about labeling, what that is, is just kind of the contextualization of content, which is the base of everything we do, whether we call something suitable or viewable, et cetera, that has to do with labeling. Through AI, we're doing that faster and more accurately than we ever have before, allowing us to more than quadruple the volume that an individual labeler can handle and increase the speed in which it's done by over 2,000x. I mean, think about that. This is in a process that's taken us less than a year. We've been able to get these kinds of achievements. That will ultimately make a better product, a better core product and allow us to do so at a much more efficient rate. And that's why we've been able to kind of lean into both investment while actually increasing margins. I think that's super important to understand. And then on the third leg, which is building products for an AI universe, I think that's a place where we've just started because most of the AI-enabled universe isn't really ad-driven yet. So what we've done is start looking at the impacts of AI so far in that space, whether it's the volume of crawlers and agents or the AI-generated content that SlopStoppers trying to keep advertisers away from, that is an opportunity for us to continue to grow our position as a transparency and verification leader, the same way we have in all of the other media spaces that we've gone after. So AI is infused in who we are as a business. It's infused in what our efficiency and operational capabilities are in the future. And it's infused in the new products that we're going to be building for in a new environment that we're building for in the future. Operator: Next question comes from the line of Brian Pitz with BMO Capital Markets. Brian Pitz: Mark, maybe a quick one on TikTok. With an increasingly likely TikTok will be allowed in the U.S., if the company needs to launch a separate app, how much headwind could it be to DV going forward? Or will all the products essentially be transferred very easily? With that app staying in the U.S., are you seeing more demand from advertisers for TikTok products? Any color would be great. Mark Zagorski: Yes. So we -- TikTok currently is our third largest social platform after Meta and YouTube, which make up over 80% of our volume and around 50% or so of TikTok volume for us is U.S. So 50% outside of U.S., 50% in U.S. So the impact on the business, although it's growing really fast, is still relatively small on our social footprint. That being said, I think our products are -- would likely be relatively easily transferable to the new solution. They exist via APIs and via blocklists that are relatively transferable from place to place. And if you remember, we actually do this in multiple languages across multiple instances of TikTok. And I think that's kind of flexibility enables us to kind of move this into any new app environment that comes to play. So we're not overly concerned about that. We've been flexible before with TikTok and with all the social platforms. And I think we'll be able to make that transition relatively easily when it comes. Operator: Next question comes from the line of Arjun Bhatia with William Blair. Arjun Bhatia: Perfect. I had 2 quick questions. First, let me just go back to the retail sort of weakness. Nicola, is there any way to just quantify how big of a headwind that was in Q3? And then how you see that kind of factoring into your guidance in Q4 as well, given it's obviously the strong holiday season. And then for Mark, I'm curious just as you think about the Meta ramp, you have 56 advertisers already. When you think about growth there, how much of it is going to come from the existing kind of advertisers scaling their usage and volume versus kind of adding new advertisers? Nicola Allais: Yes. So Arjun, I'll take the first part. So as we said, Q3 results reflect some disruption on the retail spend, right? And it is our largest -- it's one of our largest industry vertical. So it does have an impact on our results. Into Q4, Q4 is a high retail spend season. So guidance does reflect sort of more muted spend from retail going into a season that would otherwise be strong for them. Regarding 2026, I'll go back to what I was saying earlier in the call, which is we feel 2025 was a very disruptive year in terms of macro drivers. We had started the year guiding to 10%. We'll end up achieving a 14% growth. So within a disruptive macro off of a base case of 10%, we were still able to achieve 14%, and going into '26, we're not anticipating macro to necessarily do any worse or any better. And that's what's kind of in the 10% base case. Mark Zagorski: Yes. And Arjun, on the question on Meta, we've mentioned in the last 2 calls that we're pleasantly surprised and scaling ahead of expectations on that product. We know any new product takes time to scale, especially one that's within a walled garden and has specific limitations that need to -- it needs to grow into in advance. And in this case, the 56 customers that we have on that platform, 9 are new to measurement. So they were not using us on the measurement side and came to us to do both measurement and prebid. I think that's a great sign of new customers. But a vast majority of them, the other 47 are upsells and that's where we're going to see the real volume growth. Customers are just starting to scale, just starting to launch that in specific markets. And -- but some of those upsells are some of our biggest CPG customers and some of the biggest spenders on social. So we see volume growth primarily coming from current customers based on upsells. And that's a good thing because that means we're getting the low-hanging fruit, we're getting the folks who are spending who we haven't been able to tap into those social budgets yet. And now we have a solution on their arguably largest social spend platform that we can start to monetize. Operator: Next question comes from the line of Tim Nollen with SSR. Timothy Nollen: I've got -- I'd like to come back to the topic of CTV again, if that's okay. You had a press release several days ago about your work with Roku. You mentioned Netflix on the call. My question really is how penetrated are you across the CTV platforms? How difficult is it to provide coverage across both the open and the walled garden CTV services? And then just kind of stepping out a bit more broadly, what is your view of the role that DV can play in TV measurement in general, given everyone complains about how bad the measurement is or how inconsistent it is or how much is changing? Just what is the role that DV can play across this evolving landscape? Mark Zagorski: Thanks for the question. With regard to kind of penetration, I mean, we are working with all of the top 10 streaming TV platform. So everybody from Netflix to Disney, to Warner Bros., and the rest of the folks, Paramount, et cetera. So with regard to provide basic verification, viewability, impression counting, et cetera, we're there. So we have the relationships, we have the integrations, et cetera. With regard to kind of getting into the measurement business, and the measurement business in the TV or CTV world usually means reach and frequency measurement, I don't think that's a space that we plan on entering. I think for several reasons. The first is, I think it's becoming increasingly less important to advertisers who are looking to drive outcomes, and they look at CTV as just another outcome engine, the same way search or display or social is. So I think being in the measurement of that, I don't think -- being in the measurement of reach and frequency is a place where there's lots of people competing over a piece of pie that I think is going to eventually shrink. But I do think we can play a role on something that's increasingly important, which is evaluating quality, driving greater transparency and enabling better and more granular targeting, and those are areas where we've leaned in, I think our new solutions are the first step in getting further down that path. And those are areas as more and more impressions are being bought, through PMPs or through open marketplaces, as the level of inventory increases, I think the ability to drive greater transparency, to drive greater trust in that engagement is going to be incredibly valuable, and that's a role that DV is playing. And we'll continue to play and expand that role over time. Timothy Nollen: That's great. I meant measurement in a very broad sense, which I think you did address in your answer. Operator: And our last question comes from the line of Omar Dessouky with Bank of America. Omar Dessouky: Earlier this fall, President Trump ordered his health department to look into direct-to-consumer pharmaceutical advertising. And I was wondering if you had any update on whether that's potentially affecting some of your pharmaceutical clients, whether it affects programmatic advertising at all, if you saw any effect in the quarter and if it's contemplated in your fourth quarter guide? Mark Zagorski: It's a great question. We work with a significant number of health care and pharma companies. So everybody from Lilly to Novartis to Pfizer. And to be blunt, we've not seen significant drag or friction on any of their advertising. As a matter of fact, the lean into GLP drugs has been a real catalyst for advertising growth. And in discussions with them, it doesn't seem like there's any indication that, that is going to slow down at all. That being said, any type of regulatory is obviously out of our hands and out of their hands. But as of right now, the indications are spend continues to be strong on health care. It grew double digits for us last quarter, and it's grown double digits for us all throughout the year. And as of now, we look at a forecast in which we don't see significant headwinds against pharma advertising anytime soon. Operator: That concludes the question-and-answer session. I would like to turn the call back over to our CEO, Mark Zagorski. Mark Zagorski: Thank you all for joining us this early morning. We are laser-focused on disciplined execution, continued innovation and delivering sustainable growth and long-term value for our shareholders. We look forward to seeing many of you at the conferences in the coming months. Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining in. You may now disconnect.
Operator: Hello, everyone, and thank you for joining us today for the Duke Energy Third Quarter 2025 Earnings Call. My name is Sammy, and I'll be coordinating your call today. [Operator Instructions] I would now like to hand over to our host, Abby Motsinger, the Vice President of Investor Relations to begin. Please go ahead, Abby. Abby Motsinger: Thank you, Sammy, and good morning, everyone. Welcome to Duke Energy's Third Quarter 2025 Earnings Review and Business Update. Leading our call today is Harry Sideris, President and CEO, along with Brian Savoy, Executive Vice President and CFO. Today's discussion will include the use of non-GAAP financial measures and forward-looking information. Actual results may differ from forward-looking statements due to factors disclosed in today's materials and in Duke Energy's SEC filings. The appendix of today's presentation includes supplemental information, along with the reconciliation of non-GAAP financial measures. With that, let me turn the call over to Harry. Harry Sideris: Thank you, Abby, and good morning, everyone. Today, we announced strong results for the third quarter with adjusted earnings per share per share of $1.81 compared to $1.62 last year, driven by continued growth in our electric utilities. We are well positioned for a solid finish to the year and are narrowing our full year guidance range to $6.25 to $6.35. I'm proud of how our teammates are executing our strategy, delivering value for our customers, communities and shareholders every day while preparing our system to serve the growing energy needs of tomorrow. We approach 2026 with momentum as our company converts large-load economic development prospects into tangible projects with signed electric service agreements, and we are already turning dirt on projects to meet this load growth. We're carrying out an ambitious generation build that will add more than 13 gigawatts of capacity to our system in the next 5 years. With a maturing pipeline and concrete investment plans in place, we're reaffirming our long-term EPS growth rate of 5% to 7% through 2029 and have confidence we will earn the top half of the range beginning in 2028. Moving to Slide 5. As load growth materializes and we invest in modernizing our system, we expect our new 5-year capital plan to be between $95 billion and $105 billion, increasing the largest investment plan in the industry. The step-up is primarily related to investments in new generation that will drive earnings base growth of more than 8.5% through 2030. We will provide additional details on the updated capital and financing plan on our fourth quarter call in February. As the investment needs of our utilities accelerate, I want to underscore that customer value and affordability remain front and center. Our job is to address the needs of all customers from large industrial customers that are competing against the global market to residential customers that are managing their household budgets. This focus starts with cost management, which is a core competency for Duke Energy. We continue to leverage AI and pursue a technology-enabled industry-leading cost structure as we invest in our system. Other tools we are utilizing to keep rates as low as possible include the combination of Duke Energy Carolinas and Duke Energy Progress utilities, which, if approved, would save retail customers more than $1 billion through 2038. Storm cost securitization, which is expected to save customers in the Carolinas up to 18% on their bills compared to traditional recovery mechanisms. Energy tax credits, which collectively result in hundreds of millions of dollars in annual savings. And we're protecting existing customers through tariff structures and contract provisions for new large-load projects. These are just a few of the many solutions we employ to ensure our 10 million customers receive the service they count on at a fair price. We recognize that our work to provide affordable energy for customers is never done, but we are proud that average rate changes have paced below the rate of inflation over the last decade and that our rates are well below the national average. Turning to Slide 6. The majority of our capital plan increase relates to our record generation build, which is hitting a new gear. Last month, we filed our updated Carolinas resource plan in North Carolina, which expands upon the previous filing approved by regulators in 2024 and presents an updated path to continue to meet the needs of our customers reliably and affordably. The plan maintains an all-of-the-above strategy and supports the work already underway to meet near-term growth. Importantly, the updated IRP results in annual customer bill impacts of approximately 2% over the coming decade, below the rate of inflation and significantly lower than the previously approved plan. The road map we laid out isn't just a long-term view. We're actively executing on generation build today. We're on track to add more than 8.5 gigawatts of new dispatchable generation across our service territories over the next 5 years. This includes over 1 gigawatt of upgrades to maximize the value of our existing fleet and 7.5 gigawatts of new natural gas. In the Carolinas, we have secured all major permit approvals, gas supply, long lead equipment and workforce contracts for our Person County combined cycle units and construction has commenced at the site. We also recently filed CPCNs for the Anderson County combined cycle and Smith combustion turbine projects. We expect approvals on both these sites in mid-2026. In Indiana, we appreciate the commission's recent approval of our CPCN for the Cayuga combined cycle gas units, a critical project to meet the state's growing power needs. The order approved 2 settlements reached in the case as well as semiannual CWIP recovery through a rider. This recovery mechanism will support the balance sheet through the construction cycle and reduce overall cost to the customers. All of the work underway today will enable us to continue to serve our customers reliably and affordably into the future. Beyond supplying power, these grid and generation investments deliver significant value to our communities. In September, we partnered with E&Y to estimate the economic impact of our investment plan. The 10-year capital plan we laid out in February will equate to over $370 billion in economic output, including approximately $130 billion in labor income and will contribute more than $200 billion to the GDP for the communities we serve. The investment will also support nearly 170,000 jobs annually. We are privileged to be a critical economic driver of the communities we serve, and we look forward to growing together in the decades to come. In closing, the fundamentals of our business are the strongest they've ever been. We're powering tremendous growth across the Southeast and Midwest with solid plans based on concrete projects that provide a durable runway of investment well into the future. We're meeting our financial and strategic objectives while continuing our focus on operational excellence, and I am confident the tailwinds we see will continue to strengthen. With that, let me turn the call over to Brian. Brian Savoy: Thanks, Harry, and good morning, everyone. As shown on Slide 7, we continue to build on the momentum from the first half of the year with reported and adjusted earnings per share of $1.81 in the third quarter. This represents over 11% growth versus adjusted earnings per share of $1.62 last year, putting us firmly on track to deliver the targeted growth in 2025. Within the segments, Electric Utilities and Infrastructure was up $0.24, driven by higher retail sales volumes and the implementation of new rates across many of our jurisdictions. Weather was above normal in the quarter, but not as favorable as the prior year, and interest expense increased as we execute our growing investment plans. Gas Utilities and Infrastructure results were largely flat to last year, consistent with the seasonality of the LDC business. And finally, the Other segment was down $0.04, primarily due to higher interest expense. As we think about the remainder of the year, recall that we have a demonstrated track record of managing agility in both directions. In the fourth quarter of last year, we implemented an extensive onetime cost savings and agility measures in response to the historic 2024 storm season. In contrast, our strong year-to-date results in 2025, including favorable weather, provide an opportunity to reinvest in the system. With these fourth quarter considerations and year-to-date performance in mind, we are highly confident in achieving our narrowed EPS guidance range of $6.25 to $6.35. Looking ahead to 2026 growth drivers on Slide 8, we expect the constructive regulatory outcomes that are driving 2025 results to continue next year. We are progressing through our multiyear rate plans in North Carolina and Florida, and we'll implement Phase 2 of the Indiana rate case in March. Midwest and Florida grid riders will continue to provide steady growth. We also expect new rates in South Carolina to be effective in the first quarter of 2026. We were pleased to reach constructive settlements last week with the ORS and other intervenors in our DEP rate case. The settlements, which are subject to commission approval are based on a 9.99% ROE and 53% equity ratio and resolve all open items in the case. Our DEC South Carolina rate case continues to progress as well, and we expect final orders in both cases by year-end. I'd also like to highlight that in North Carolina, we provided 30-day notice of our plans to file rate cases for both DEC and DEP later this month. We expect new rates to be effective in early 2027, and we'll provide additional details once the filings are made. As we move through the remainder of the decade, our long-term earnings growth is underpinned by our attractive jurisdictions, which are benefiting from population migration and growing economies. These tailwinds provide an extensive runway of capital development -- deployment opportunities, which drive steady and increasing rate base growth. With solid business environments and efficient recovery mechanisms in place, we are well positioned to deliver 5% to 7% earnings growth through 2029 with confidence to earn in the top half of the range beginning in 2028. Turning to Slide 9. One of our strategic priorities is to solidify our late-stage economic development pipeline and convert prospects into firm projects. We've been working closely with state and local partners to deliver on that commitment. Internally, we've developed new teams dedicated to speed and execution and implemented creative solutions that accelerate the time to power. These efforts are yielding tangible results with approximately 3 gigawatts of signed electric service agreements with data centers this year alone. This includes ESAs signed this quarter with Digital Realty and Edged, who are making multibillion-dollar investments in North Carolina to support AI infrastructure. And we're not just signing data centers. Our economic development activities have yielded over $11 billion of capital commitments from other commercial and industrial customers in 2025. These projects are expected to bring an additional 25,000 jobs to our service territories and support our load growth projections. In a rapidly changing external environment where affordability is paramount, I want to emphasize that our electric service agreements contain terms that protect our existing customer base and ensure new large-load projects pay their fair share. Terms include minimum-take provisions, termination charges and refundable capital advances. As a testament to our work delivering on this wave of economic development, in September, we were recognized with EEI's Outstanding Customer Engagement Award. This award is given directly by corporate customers and highlights our ability to collaborate among broad stakeholder groups on complex projects. And we are just getting started. Active site evaluations are progressing across all of our service territories, and many more projects are moving to advanced stage. As our economic development pipeline has matured over the past year, we are more confident than ever in our ability to capture the once-in-a-generation load growth opportunity in front of us. Turning to the balance sheet on Slide 10. I first want to recognize the work of our regulators and other stakeholders to address cost recovery from last year's historic storm season in record time. With their support, we were able to successfully issue North Carolina storm securitization bonds approximately 1 year after Hurricane Helene, and we expect to issue South Carolina bonds before year-end. Securitization is one of the many tools available to help mitigate rate increases for customers with the North Carolina bonds projected to save customers up to 18% compared to traditional recovery methods. And in Florida, $1.1 billion of storm costs will be fully recovered by February 2026. As a result, bills are expected to decrease by approximately $40 a month beginning in March. Across all 3 jurisdictions, the timely recovery process helps maintain credit quality and reinforces our expectation of achieving 14% or higher FFO to debt by year-end. As discussed on the second quarter call, we are targeting 15% FFO to debt over the long term, which provides 200 basis points of cushion above our Moody's downgrade threshold and 300 basis points above our S&P downgrade threshold. Our balance sheet will continue to improve as we receive proceeds from the Tennessee and Florida transactions, which we expect to close in early 2026. As Harry discussed earlier, we expect our new 5-year capital plan to be between $95 billion and $105 billion. Consistent with previous guidance, we'll target 30% to 50% equity funding for this incremental growth capital. Transaction proceeds will satisfy equity needs in 2026 and remaining common equity issuances to support growth represent a very modest percentage of our market cap and will help maintain credit quality during this period of unprecedented capital deployment. We will provide more detail on our capital and financing plan on our fourth quarter call in February. Moving to Slide 11. We are well positioned to deliver earnings within our narrowed guidance range in 2025 as well as 5% to 7% growth through 2029. As load growth and capital accelerate, we have confidence we will earn in the top half of the range beginning in 2028. Our extensive runway of capital investments, coupled with efficient recovery mechanisms position us to achieve our growth targets, which combined with our attractive dividend yield, provide a compelling risk-adjusted return for shareholders. With that, we'll open the line for your questions. Operator: [Operator Instructions] Our first question comes from Julien Dumoulin-Smith from Jefferies. Julien Dumoulin-Smith: I appreciate it. Nicely done today. Appreciate the extra details versus your traditional cadence. Harry Sideris: Julien, thank you. Julien Dumoulin-Smith: Absolutely. So maybe just to kick off here, considering those details that you guys gave us here, can you speak a little bit to the incremental capital that you guys are looking at? I know it's still a range. But how you -- when you think about layering that in, is that sort of ratable across the period? Or when you think about layering in that last year 2030, does that final year represent a further acceleration even relative to '28 and '29. You know what I mean, like in theory, the move up from $87 billion to -- by $10 billion could be ratable across the forecast period or it could be heavily weighted to that final year in 2030. You haven't quite given us the full details here. But I'm curious as to -- as you think about the cadence of this data center ramp playing itself out, is it really truly weighted towards that last year? Can you speak to that a little bit? Brian Savoy: Yes, I'll take that, Julien. The way I would think about it, as we're signing up these large-load customers, we have more visibility into the infrastructure build we need to make to serve them. And this update in the capital plan has that, plus as we get deeper into the energy modernization strategy, we're investing more. So we knew 2030 was going to be higher than 2025 rolling off. But I would think of it as we're adding capital in every year of the plan, and it's to build to that ramp of these large customers as we get more firm contracts signed and more visibility into the infrastructure needs of those customers. Harry Sideris: And I would add, Julien, it's a very dynamic environment out there. And you saw us raise from $83 billion to $87 billion earlier this year with the Brookfield deal in Florida. And then you're seeing our capital expand here because of what we're seeing in data center growth and economic development as well as our modernization that Brian mentioned. So we'll continue to evaluate and update as we move. Julien Dumoulin-Smith: I know it is truly unusual for you guys to update twice in a given year outside of your typical cadence of 4Q. So I hear you on that one. Can you speak a little bit more to what that incremental potential is by this roughly $10 billion? Like what's comprised within that? Is that principally just transmission and generation for new data centers? Or are there other pieces in there? Brian Savoy: No, Julien, it's more than that, but it does encompass that. So as we sign more energy service agreements, that's a trigger to invest more transmission and potentially generation in this 5-year plan. But we're also evaluating LDC investments that could support the new generation at our Piedmont Natural Gas Company. And those -- all those investments, along with the bullpen of T&D investments that we've got that we haven't pulled onto the field quite yet. We're evaluating all those factors as well as customer affordability as we finalize our final capital plan. That's why we didn't come out with a single point estimate this time because we're still running our models and evaluating rate cases over time and how that might show up. Harry Sideris: Julien, we'll give -- we'll have more details in February like we normally do on financing that plan as well as what the details are of that. Julien Dumoulin-Smith: Right. But needless to say, you've been pretty committed to the balance sheet, you think the FFO to debt, regardless of where this lands, you're going to stick with this updated level pro forma for what you did with debt for earlier this year. Harry Sideris: Absolutely. We are committed to 15% FFO over time, and we're on target to be over 14% this year as committed. Julien Dumoulin-Smith: Yes. Excellent. All righty, I will leave it there. Brian Savoy: Appreciate it, Julien. Harry Sideris: Thank you. Operator: Our next question comes from Carly Davenport from Goldman Sachs. Carly Davenport: I guess maybe just on the Carolinas IRP, you have included an option for nuclear there, including an AP1000 starting in potentially 2037. I guess, just with some of the announcements that we've seen across the broader nuclear space recently, just curious how you might envision Duke playing a role in this build-out, particularly as an operator? Harry Sideris: Yes. Great question, Carly. As you know, we operate 11 low-cost, safe, reliable nuclear reactors today. So nuclear is a big part of our business. It makes sure that our customers get reliable and affordable power every day. We earn over $500 million of tax credits a year that go back to our customers from these nuclear plants. So we feel nuclear is a very important part of the future. With that said, there's a lot of things that we have to determine and figure out before we move forward. We're encouraged to see the government and some of the partnerships with Westinghouse that were recently announced leaning into this and addressing supply chain concerns, which is one of the items that we have on our list. We still need to figure out what we're going to do with cost overrun protection and how we're going to protect our investors and our customers from overruns on those projects as well as how we're going to protect the balance sheet if we move forward with nuclear. So we're working to resolve those, working with government officials as well as some of the tech customers. So we'll continue to work that. If you remember last year, our IRP had only SMRs in it. We were asked by the North Carolina Commission to explore light water reactors as well. So we filed a report this past March to show what it would take or what would be an AP1000-type project. So we've added that into our plans in our model, and we'll continue to evaluate both of those SMRs as well as large water reactors. But again, nothing going forward until we have those other items resolved. Carly Davenport: Very clear. Okay. Great. And then maybe just another on Carolinas resource planning. As you laid out the updated plan, the share of gas stayed pretty consistent with the prior plan. I guess, would you expect that to move higher to the extent that there's expanded natural gas pipeline capacity into the Southeast? And would something like the MVP Boost project potentially be a needle mover there? Harry Sideris: Yes. There's a lot of gas in that plan as well as a lot of batteries in solar. So we continue our all-of-the-above strategy in how we serve our load going forward. We've done a lot of work to secure gas through the early part of 2030, and we continue to work on beyond that. We do expect, as economic development growth continues, we will need more gas and more pipelines and are working with the companies to provide that. So we'll continue to update the process and the progress on that. We feel like dispatchable power is critical to serve these new loads and gas is the source that we're focused on right now. Carly Davenport: Great. Brian Savoy: Thank you. Operator: Our next question comes from Shar Pourreza from Wells Fargo. Alexander Calvert: It's actually Alex on for Shar. So I just wanted to touch on the earnings outlook. So you've indicated you expect to be at the high end of the 5% to 7% starting in '28. Just sort of want to get a sense, is there any potential for that growth to begin ramping sooner? And if you can just remind us what drives the delta between the 5% to 7% EPS growth and that 8%, 8.5% rate base growth you have out there? Brian Savoy: That's great, Alex. And it's the right question as we have these incremental investments, capital plans expanding and customers are getting signed up. I would first say that every year, the plan is within the 5% to 7%. But '28 is an inflection point where we're investing more capital in Florida. We were completing the multiyear rate plan. The transaction with Brookfield will be completed, and we talked about expanding capital in Florida in that period. And we're also seeing -- many of the large-load customers we're signing up today are coming online, their projects will be -- we have more visibility in their construction projects. Their projects would be completed in the second half of '27. So the ramp will begin, but it really hits an inflection point in 2028 and it continues to grow into the early 30s. So that gives us high confidence that we're going to be in the top half of the growth range in 2028. And I want to underscore the growth is strong, and I would think of it as a CAGR in the top half in 2028 off of 2025 base of 6.30%, not just an annual growth. Alexander Calvert: Got it. Okay. That's helpful there. Harry Sideris: And I would add it's -- we feel it's durable too, beyond that. We'll continue -- we see the prospects continuing. So we feel like this is a long-term play for us. Alexander Calvert: Great. Got it. So -- and just on the funding. So you still have a good amount of equity out there. You've done good deals in Tennessee and Florida, which have been accretive. So just other opportunities around asset recycling? Or should we assume equity and equity-like instruments going forward? Harry Sideris: Yes, Alex. Our focus is on digesting those 2 big deals that we announced earlier this year, and then we'll continue to fund like we've mentioned before, 30% to 50% of our plan with equity depending on the projects. We'll update the details of that in February, as we always do. But we're committed to protecting the balance sheet, meeting that 15% FFO that we committed to and being above 14% this year. Operator: Our next question comes from Jeremy Tonet from JPMorgan. Diana Niles: This is Diana Niles on for Jeremy. If I may expand on Alex's first question, I was wondering, to what extent does that high end of 5% to 7% reflects incremental capital? And does any of that incremental capital factor into like the confidence you expressed today to hit the high end of the range starting in 2028? Brian Savoy: Diana, I would -- this is Brian, I'll take that. As I think about the top half of the growth range in beginning of 2028, I would say it fits within any of the $95 billion to $105 billion capital range that we provided. It's not depending upon us being at the high end or it would be lower on the low end. It's contemplated in all those scenarios. Operator: [Operator Instructions] Our next question comes from David Paz from Wolfe Research. David Paz: Just on your large-load commentary, could you remind me what is the advanced pipeline -- sorry, the pipeline look like for large-load? And how much of that would you say is in advanced discussions that could be added to the 3 gigawatts of ESAs you signed this year? Harry Sideris: Yes. Good to hear from you. We have a very large and diverse pipeline of projects. I would say ours is just as big, if not bigger than anybody else's out there. But really, our focus has been on the projects that are from the credible hyperscalers as well as third-party developers that we feel like have the ability to get these projects through fruition. So we're working with them to get through the queue to get through the funnel as we call it, to be able to have these signed ESAs. So we signed in the last 6 months, 3 gigawatts of ESAs, as we mentioned in our presentation, and we continue to work with many others on that. So really focused on nailing down those energy service agreements because that's what we feel is the right focus for us. So we're working through a large pipeline, but really focused on developing those prospects into those final projects. David Paz: Okay. Okay. So you wouldn't -- you don't want to characterize how much are like near-term advanced discussions that could be signed over the next year or so? Harry Sideris: It's a very dynamic environment, David, and we continue to work on it every day, and we have a dedicated team, like Brian mentioned earlier, that is focused on this 24/7 of how we get this into our system and into these signed agreements as fast as possible. David Paz: Got it. Okay. No, I appreciate that. And sorry to kind of go back to the EPS growth commentary. I just want to make sure I understood what you added, I think, at the end of the durability of this growth starting in '28, so the upper half of your 5% to 7% beginning in 2028, and that's durable into the 30s at that same level off of the, I guess, '27. Is that the way to think about it? Harry Sideris: Yes, that's a good assumption. As these economic development projects come into play and we continue to invest in our system, we see that being a durable approach. Operator: Our next question comes from Nicholas Campanella from Barclays. Nicholas Campanella: I got on late, so sorry if I'm repeating a question. I really just had one was just the 30% to 50% of equity funding to fund the capital upside, what would kind of put you in the lower end of that range? And what should we be watching there from the balance sheet side that could enable you to do less equity. Brian Savoy: Yes, Nick. It's a great question. And we provided this range in previous quarters, and it informed how we funded the capital plan in the current 5-year plan. What would determine the lower end would be investments with a higher velocity of recovery. So there's less equity need as you tack into those investments over time versus more investments that have a bit of slower recovery. Maybe it takes a while to get it into the rider mechanism or the like, you -- we might need some balance sheet support. But the last capital update, we were at 40% of the incremental growth capital funded with common equity or equity support. And I would think of it as the faster recovery capital would be in the low end and the slower recovery capital being in the more like 50%. Operator: We currently have no further questions. So I'd like to hand back to Harry for some closing remarks. Harry Sideris: Yes. Just to wrap up, I want to leave you all with 3 items. Number one, we see a lot of momentum into the end of this year and into '26 and beyond. Two, our business is in the strongest position it has ever been. And finally, I am confident we are going to earn in the top half of our 5% to 7% range beginning in '28. But more importantly, our plan is durable well into the future. So again, thanks for joining us today, and thank you for your investment in Duke Energy. I hope everybody has a great day. Operator: That concludes today's call. We thank everyone for joining. You may now disconnect your lines.
Operator: Ladies and gentlemen, welcome to Turkish Airlines' Third Quarter 2025 Earnings Call. [Operator Instructions] Now I will leave the floor to our host. Sir, the floor is yours. Murat Seker: Thank you very much. Good afternoon, everyone, and thank you for joining us. During the third quarter, the airline industry's operating environment was shaped by a number of external and internal factors. Traveler confidence in North America weakened amid unpredictable immigration policies, while the competition across Europe intensified as carriers increased capacity to capture peak season demand. Persistent supply chain constraints in aircraft and engine manufacturing, combined with cross-border tensions continue to affect market conditions. In this context, Turkish Airlines remained agile and disciplined. Our third quarter results reflect our ability to adapt dynamically to rapid evolving market conditions while maintaining a firm focus on our long-term strategy. In the third quarter, we also underlined our commitment to sustainable shareholder returns with the second installment of our dividend payment amounting $110 million. Before moving to the financial results, I would like to highlight the major developments and achievements of the quarter. Most importantly, we took an important step towards preserving our growth trajectory by placing orders for 50 firm and 25 options for Boeing 787 aircraft. Deliveries are scheduled between '29 and '34. Once completed, they will significantly elevate our operational efficiency, flexibility and passenger comfort across our network. Similarly, we completed negotiations with Boeing regarding the purchase of a total of 150 737 MAX aircraft, consisting of 100 firm and 50 option orders. Currently, we are working on the details of the deal with the engine manufacturer, CFM International. These steps reflect our goal of operating in an entirely new generation fleet by 2035 in addition to our annual capacity growth target of 6% for the coming decade. During the last quarter, we launched flights to Seville in Spain and Port Sudan, while resuming operations to Aleppo in Syria and Misrata in Libya, rebuilding our presence in these important regional markets. Turkish Airlines continued to be recognized internationally for its achievements in both service and quality and aircraft financing capabilities. We received the World Class Award from APEX for the fifth consecutive year, along with best-in-class distinctions in both sustainability and food and beverage categories, reflecting our strong commitment to delivering an exceptional passenger experience. Moreover, at the Airline Economics Aviation Awards in London, we were recognized with 3 major titles: European Overall Deal of the Year for an Islamic finance lease in Swiss francs, European Supported Finance Deal of the Year for a Balthazar-guaranteed JOLCO financing and Sustainability Aviation Overall Deal of the Year for our sustainability-linked JOLCO financing. These achievements underscore the depth of our financial expertise and our ability to secure competitive diversified funding from global markets. Following these updates, I would like to briefly touch on the rationale behind our investment in Air Europa. Based in Madrid, Air Europa operates a fleet of 57 aircraft across 55 destinations, carrying more than 12 million passengers annually. As a leading carrier between Europe and Latin America, its strong regional presence and complementary network will further strengthen our role as a bridge connecting continents. This investment also aligns closely with our long-term strategy, enhancing our access to the fast-growing Latin American market and creating new opportunities for both passenger and cargo traffic between Spain and Turkiye. By linking these 2 major global tourism destinations, we will improve connectivity across Europe, Latin America, the Middle East and Asia, offering passengers greater options, new travel itineraries and smoother connections. The collaboration will also foster tourism flows between Turkiye and Spain, supporting both economies and deepening cultural exchange. Importantly, this partnership is structured as a minority investment, ensuring Air Europa maintains its independent identity while benefiting from Turkish Airlines operational expertise and global network. Now let's take a closer look at our results. In the third quarter, Turkish Airlines total passenger capacity rose by around 8% annually. We carried more than 27 million passengers to their destinations, reaching a record number in a single quarter and recorded a load factor of 85.6%. Growth was largely driven by robust demand in Asia and Africa. On the other hand, softer demand in North America, intensifying competition in Europe and the geopolitical situation in Middle East presented the headwinds. During the July-September period, total revenues increased by 5% year-on-year, reaching nearly $7 billion. Passenger revenues rose by 6%, benefiting from strong volume growth. Meanwhile, cargo revenues declined by 7% to around $850 million, mainly reflecting ongoing trade tensions and increased competition from sea freight. Despite the revenue growth, profitability was lower compared to last year, mainly due to sequentially higher jet crack spread, the second half wage adjustment and partly softer yields. As a result, EBITDAR stood at almost $2.1 billion with a margin of 29.6%, while net income realized -- was realized close to $1.4 billion. With the slowdown in cost inflation, our structural improvements will become more visible as we progress in our initiatives to improve flight productivity, accelerate organizational streamlining and advance more centralized back-office functions. On the revenue side, we are taking steps to strengthen our passenger mix with increased premium offerings while supporting ancillary revenue generation through our Miles&Smiles loyalty program, TK Holidays, along with our express cargo subsidiary, Widect. Looking ahead, our forward bookings indicate optimism, supported by buoyant demand across Asia and Africa in addition to swift recovery in the Middle East after the peace deal. As evidenced by our October traffic results, improvement was across the board. Compared to same month last year, our number of passengers was up materially by 19% load factor by 2 percentage points, yields by 1% and RASK by more than 3% despite substantial capacity increase. Cargo volume rose by 16%, 10 percentage points higher on a monthly basis, demonstrating a good start to high season. Together with easing cost pressures and supportive fuel prices, we anticipate an EBITDA growth in the last 3 months of the year. In closing, against the headwinds, our positive traffic trajectory is encouraging us as we approach '26, supported by continuous investment in our business, and capitalizing on new opportunities, we remain strongly confident in the potential of our long-term strategy and return targets. I will now pass the call over to Fatih Bey to elaborate on our results and provide additional insights. Mehmet Korkmaz: Thank you, Murat Bey, and good afternoon, everyone. In the third quarter of the year, we expanded our passenger capacity selectively considering aircraft delivery delays, GTF groundings and regional conflicts. Sequentially, capacity growth increased by 1 percentage point from the previous quarter, standing 43% above pre-pandemic levels, while European peers recovered only 9% during the same period. Despite of the busy summer air traffic, our on-time departure performance increased by almost 10 percentage points compared to the third quarter of last year. In the July-September period, international transfer traffic expanded faster than direct traffic. On short-haul routes, particularly within Europe, direct growth remained relatively subdued due to intensified competition. However, a closer look at figures shows a significant increase in direct traffic from Latin America and Asia to Turkiye, demonstrating the continued appeal of our network's global reach. Similar to the second quarter, over 80% of total sales were made through direct channels, reflecting the success of our new distribution platform, TKCONNECT. This shift not only supports profitability by reducing costs, but also enhances our ability to offer personalized products and promote ancillary services more effectively. Accordingly, these results in cost savings of $48 million in the first 9 months of the year. Details of our traffic results show that the Far East remained one of the strongest regions. Compared to the same period last year, almost 9% capacity increase combined with a more than 11% higher demand led to almost 2 percentage points in rising load factor, well above our budget and encouraging for the upcoming months. Demand in Japan stayed robust, supported by sustained travel appetite and ongoing Osaka expert. Starting from the fourth quarter, we plan to expand capacity to Tokyo Narita by 40%. China also stands out as a key -- another key growth market where we will gradually raise weekly frequencies from 21 to 32. Given the strength of demand, we do not expect any weakness in load factors in near term. Further capacity growth is also planned in Indonesia, Thailand and Vietnam in addition to the launch of scheduled flights to Phnom Penh in December. On the other hand, rising competition in Malaysia and Singapore may put some pressure on unit revenues. Africa delivered another quarter of strong performance. Following a substantial capacity expansion, demand remained highly resilient with particularly remarkable results from our newly launched Libya routes. Benghazi and Misrata performed above expectations and contributed to overall regional momentum. The recent capacity increase in China is also expected to support growing flows towards West Africa, enhancing our network connectivity across the continent. In the North America, the impact of U.S. policy changes continue to weigh on the ethnic travel demand. As peak travel season came to an end, we are now transferring part of the capacity towards Asia to better align with market dynamics. On the other hand, Latin America demand continues to perform well, particularly on rout to Panama and Argentina. In Europe, competition remained intense throughout the quarter as local carriers significantly expanded capacity and pursued aggressive pricing strategies. Capacity additions from low-cost carriers have also negatively impacted AJet unit revenues. Demand from key markets such as Germany, U.K. and Scandinavia was slightly weaker, while increasing transit traffic partially offset the slowdown in local demand. Consequently, we observed a slight slowdown in direct travel from Northern Europe to Turkiye. Demand to and from Middle East began to recover as tensions that had escalated in June started to ease. Following the peace agreement, bookings have accelerated noticeably, pointing to a swift normalization in the region. In the domestic market, yields declined by 7% due to base effect and change in passenger mix. Last year's low economic class availability prompted more passengers to trade up to business class. With this year's higher capacity, economy availability increased, which in turn reduced the business class share. During the July-September period, passenger revenues rose by 6%. Strong performance in ancillary and technical services also contributed positively to our growth. External technical revenues grew by more than 28%, reflecting continued demand for maintenance services as production bottlenecks persist and the utilization of older aircraft remains elevated. We expect this momentum to continue in the coming quarters given the limited availability of new aircraft deliveries. Conversely, cargo revenues followed a different pattern. Trade restrictions and tariff measures weighed on overall cargo flows, which led to a 7% lower revenue in the third quarter. Apart from trade tensions, additional capacity from new vessel deliveries as the order book-to-fleet ratio is at its highest point in more than 15 years and expectations of a reopening of Red Sea continue to pressure yields. In the third quarter, AJet carried more than 7 million passengers. Despite groundings related to GTF engine issues, capacity increased by around 23%. During the period, AJet continued expanding its international network from Ankara, adding capacity to markets such as Egypt, Sweden, Uzbekistan and Kyrgyzstan. New direct services to European cities, including Madrid and Barcelona strengthened Ankara's role as a regional hub, connecting Europe, the Middle East and Central Asia. This expansion remains central to Ajet's strategy of positioning itself as a competitive low-cost carrier with a strong presence beyond Turkiye's borders. By the end of September, active fleet recorded 80 aircraft. With additional deliveries planned for the remainder of the year, annual capacity is expected to rise around by 15%, accompanied by higher load factors. As in previous periods, revenue growth during the third quarter was mainly supported by passenger operations benefiting from capacity increase. Conversely, lower cargo revenues and softer yields in certain regions limited overall profitability. On the cost side, although Brent fuel prices remained favorable, higher crack spread, wages and weaker U.S. dollar negatively affected performance. Consequently, profit from main operations declined by around 21% to around $1.1 billion, while EBITDAR decreased by 12% year-over-year to almost $2.1 billion. In the third quarter, total cost per ASK increased by 2.8% year-over-year, mainly driven by higher personnel expenses following the midyear inflation adjustments. On the fuel side, even though average jet fuel prices were lower than last year, widening crack spread limited the overall benefit compared to the previous quarters. Meanwhile, strict control over advertisement spending and a higher share of direct sales and fewer wet-leased aircraft partially offset the cost pressures. Negatively, airport and air traffic-related unit costs increased by almost 12%, mainly due to revised fee schedules at major European hubs and stronger euro. Aircraft maintenance CASK also remained elevated, reflecting the ongoing GTF engine issue. Free cash flow generation remained healthy during -- in the third quarter, amounting to around $350 million. Accordingly, 12-month community free cash flow reached $1.6 billion. After debt service, liquidity rose by $200 million sequentially to almost $7.9 billion. On the other hand, net debt increased by $700 million compared to previous quarter, mainly due to new aircraft deliveries and the weaker U.S. dollar. Correspondingly, leverage recorded is 1.4x, well below the target range of 2 to 2.5x. As mentioned by Murat Bey earlier, while travel demand remains positive in the fourth quarter, the softness observed in North America during the summer led us to slightly revise down our revenue growth guidance by 1 percentage point to 5% to 6%. Since the beginning of this year, ex-fuel unit cost development followed our expectations. In the final quarter, we anticipate a notable improvement in cost performance driven by base effect. With that, we are on track to reach our unit cost guidance of a mid-single-digit annual increase. Taking these factors into account, we are maintaining our 22% to 24% EBITDA margin expectation for 2025. With this, we conclude our prepared remarks section of our earnings call. Now back to Maria for the investor questions. Operator: [Operator Instructions] Mehmet Korkmaz: Welcome back. Before we start the Q&A question, I would like to just briefly mention about a couple of actions that we took during the summer. Summer was a busy period not only for our operations, but also for our Investor Relations team. As part of our improving IR activities, we conducted a perception study to gather valuable feedback from you, our analysts and investors. In the coming period, we will be gradually implemented the suggestions offered to strengthen our engagement with you. And with this occasion, I would like to thank all of the participants for taking time to share their views. Now let's continue with the Q&A section of our call. Murat Bey, we got quite a few questions from our analysts and investors. Starting with, could you walk us through the main factors that shape the third quarter performance? Murat Seker: Sure. Thank you, Fatih. On the positive side, the first thing comes to mind is the strong demand we have been seeing in the Far East and Africa and then third wise, the domestic market. In the Far East, for example, RPK was up by double-digit 11%. In Africa, it was up by almost 20%. And the third-party revenue share of Turkish Technic, which currently is the third biggest MRO provider in Europe. The revenue from third party went up by 28% in this quarter. These were the positive developments, plus brand continuing to be lower than projected. And the structural tailwinds that Fatih also touched upon a little bit, the improvements on our distribution and sales costs as we started to use more of our direct channels, they were also helpful in the -- to the bottom line. On the negative side, the volatile geopolitical situation and unpredictable immigration policies and cargo yields being down by almost 16% year-over-year, the jet crack spread being up by 8% to 10% level, and the inflation adjustment on salaries, personnel expenses were the 3 big items that provided a negative development for this quarter's performance. Mehmet Korkmaz: Murat Bey, can you provide an update on the current status of the GTF groundings and how they are impacting your operations? We got this question from [indiscernible] and [ Kurt Hofton ]. Murat Seker: Well, I mean we know we have been in a very, very close coordination with Pratt & Whitney, who is trying to solve the problem in this speediest way. Still, we have quite a sizable number of aircraft that are grounded. Of the 100 GTF-powered neo aircraft we have in the fleet, today, 40 of them are parked. And this seems to be continuing around 40. It will go up to 50 come down a little bit, all throughout '26 as well. So there has been a major improvement. But this, of course, is a little related to the fact that we keep getting more GTF-powered neos to the fleet. So we keep using them so that our staff -- the capital utilization and aircraft utilization continues. Mehmet Korkmaz: Murat Bey, could you also provide insights into current passenger booking trends? October results were quite strong. And maybe region-wise, you may elaborate on the details. Murat Seker: Sure. Well, as I just said, Far East, Africa and domestic have done well so far. And looking into the future, this -- in the Far East, for example, we expect to have a 13% and then another like a 13% to 15% capacity growth in the next 2 quarters, including the fourth quarter of this year and the first quarter of next year. Overall, before getting the region-specific details, we are planning to put 10% to 11% ASK growth with a flattish yield in the last quarter of this year in overall our growth. Into the regions, I just mentioned Far East. Then after Far East, we will see a very significant growth in the Middle East. There is, of course, a lot of the base effect here. And then Africa is going to have about 13% to -- 12% to 13% capacity growth in the next 2 quarters. The forward reservations from November for the next 6 months look quite positive. We are expecting a busy winter travel seasons ahead of us, especially from December to April of next year, we see double-digit capacity growth month-over-month, and then we also see mid-single-digit yield growth going forward. Mehmet Korkmaz: The unit revenues in some regions has been weaker in recent months, particularly in North America. Have you made any adjustment in pricing or market share strategy? And do you consider to defer some aircraft deliveries to reduce capacity growth? Murat Seker: As we keep saying in almost every investor call, the diverse network we have is allowing us to channel the capacity between regions easily depending on the demand environment. While relative softness in North Africa -- North America, sorry, we have started to transfer that capacity to Asia at the beginning of the quarter where the demand has been much stronger. Additionally, we expanded the product segmentation in pricing to all international regions after implementing it in Americas and Europe. Also in Asia, we have done some tactical adjustments like increasing the capacity to Bali and exotic destination and getting a larger share of the segment traffic out of Philippines, for example. Mehmet Korkmaz: This is quite a popular question. We have been getting a lot of this from our investors. Some suggest that Turkiye is becoming a more expensive travel destination compared to its peers. Considering the third quarter performance, what is your view? How the demand looks like in the upcoming period? Murat Seker: Well, according to the tourism figures of the first 9 months, which was announced last week, number of visitors to Turkiye went up by 2% to 50 million, which actually aligns closely with the updated annual growth target of 4 million for 2025 from about 62.5 million to 65 million, which was the number announced at the beginning of this year. Moreover, over the last 5 years, tourists to Turkiye increased tremendously. When you compare the amount of tourists we had in 2024, compare that with the number in 2021, it is more than -- it has more than doubled. And just from -- it has even went up higher than its 29 (sic) [ 2019 ] level of about 20%. So when you look at this macro scale, number of tourists coming to Turkiye has been increasing dramatically. However, in particular in '25 -- in '24 to '25 we have been seeing some slowdown in the pace which we think is natural. So it cannot keep continuing 10%, 15% year-over-year. When you look at the third quarter, in particular, still number of tourists coming to Turkiye was up by almost 2%. And then it's -- as I said, it resonates well with our year-end target numbers. For Turkish Airlines, in the third quarter, we carried almost the same number of passengers to Turkiye compared to last year. So we don't see much of a deterioration or shrinkage in this segment. Although there might be some negative effects due to relative strength of Turkish lira, tourism members -- tourism numbers suggest the resiliency of this industry. Also, we have been seeing some change in the composition where the tourist is coming from. Latin America, and Far East has been growing rapidly, which yield higher ticket price and tourism income for the country. For example, we have recorded 7% increase in number of passengers traveling from Far East to Turkiye in the first 9 months of this year, especially after we opened our route to Australia. And in addition to that, to Japan, South Korea and Thailand were sending a significant number of tourists to Turkiye. Mehmet Korkmaz: Thank you, Murat Bey. Can you also share how premium cabin performance compared with the economy during the quarter because most of the peers also mentioned about the strength of the premium class. Murat Seker: Well, the network-wide, we actually have been observing stronger premium segment performance than the main -- the economy cabin. Passenger profile for the premium segment is much less sensitive, both the economic volatility and the low-cost competition. In the third quarter, premium segment revenue yield change was almost 11% -- sorry, 11 percentage points higher than the main cabin. In the second quarter of this year, the difference between premium and economic class was 5%. So in the summer months, the difference in the passenger yield went up by more than twice. As a result, premium resilience to competition has been showing itself. '25 is the record year for our premium class load factors. In terms of aircraft, wide-body performance has been much, much stronger. Demand is being driven by the flows mainly from the Asian countries like Japan, China, Vietnam and Hong Kong. Mehmet Korkmaz: How would you assess cargo performance last quarter? And what is the outlook for the remainder of the year? Murat Seker: Well, the -- by its nature, the third quarter is typically a soft season for air cargo. Nevertheless, Turkish Cargo demonstrated a strong tonnage performance, achieving an increase of more than 10% compared to the previous year. On the other hand, unit revenue performance was significantly negatively affected by tariff-related concerns and effect of these tariffs on trade flows, especially on Asia, North America axis. And to some extent, spillover effects of the conflict in Middle East region. However, the recent trade deal between the U.S. and China, along with the peace talks in Middle East could potentially improve the outlook as we enter the high season for cargo. Internally, though, our new cargo revenue management system, which went online recently, is expected to bring additional 2% to 3% revenue in 2025. We continue to expect close to flat cargo revenues with a high single-digit increase in volumes, which we hope to compensate most of this drop in the yields with higher load factors. Mehmet Korkmaz: Continuing with the cost questions, what are your expectations for fuel unit costs, on what assumptions? Can you also share your hedging ratios? And do you anticipate any changes in this ratio in near term? Murat Seker: Well, although the oil prices trend downward with slight volatility, jet fuel costs tend to stay high, which reduces the benefit attained from the low Brent price. We expect around 10% lower fuel cost year-over-year in '25 with the assumption that year over average is going to be around $68, $69 levels. Our current hedging ratios for '25 is around 50%. And for '26, it is around 23%, respectively, with a breakeven price of approximately [ $64.5 ]. We expect a minimal fuel hedge loss this year, less than $20 million. And we maintain a structured and scenario-based approach designed to remain effective under various market conditions. Mehmet Korkmaz: Murat Bey, could you also share your ex-fuel unit cost expectations for 2025? And are there any efficiency measures to be implemented? Murat Seker: Well, the ex-fuel CASK, as you saw in the presentation on the third quarter, it was quite high. We expect that to come down to mid-single digits lower than 5% -- lower than 4% levels year-over-year in '25. And the reason for this improvement on the top of 9-month results is, first, we see moderation in inflation, which is decreasing the pressure on the inflation adjusted costs. And we have paused hiring, except for capacity growth. This will enhance our operational leverage and generate greater efficiency. And we have been increasing the crew and aircraft utilization through both schedule optimization and improving our on-time performance. Capitalizing corporate-wide functions like -- and scaling down the international organization structure is another component of it. We have put significant KPI monitoring scheme to all of our subsidiaries and the expansion of our direct sales channel, TKCONNECT has been improving our distribution and sales costs. Further, we are implementing quite a few AI projects on customer support and for back-office automation, which is also bringing us some internal efficiencies. We expect these items on the personnel efficiency, on strongly monitored KPIs and on more utilization of the AI tools to bring ongoing efficiency gains for Turkish Airlines. Mehmet Korkmaz: Murat Bey, just to add a couple of things. Hanzade from JPMorgan also asked about why staff costs are increasing ahead of our initial expectations while agreements are fixed and seem to have favorable sport cost inflation this year? Hanzade, be honest, the Turkish lira depreciation was lower than our expectation. At the same time, Turkish lira inflation was higher than expectation. So there is a mix of between 2. So we saw around 2 percentage points of ex-fuel CASK headwind from that impact. And continuing with the guidance question, are there any changes to your guidance for the fourth quarter considering third quarter revenue and forward bookings? Murat Seker: For the whole year, we are keeping our profitability target the same, while lowering the revenue growth guidance by 1 percentage point to 5% to 6% increase. As you might recall, in the earlier calls, we were targeting 6% to 8% revenue growth. This mainly is due to the softer revenue performance of the third quarter. The fourth quarter EBITDAR will be closer to last year with 22% margin. And for the whole year, thus, our EBITDAR margin expectation is going to be again between 22% to 24% levels. Nominally -- and nominally, we should be slightly lower than last year's amount of $5.7 billion EBITDAR. Mehmet Korkmaz: As we approach the year-end, we are getting a frequent question about our 2026 guidance, maybe just in terms of capacity and margins. What are the moving parts? Murat Seker: So we're still working on the budget. There is a lot of mileage we need to take before we share our '26 expectations. But roughly speaking, on the capacity-wise, I can say that we'll keep the growth continuing. This year, in '25, ASK growth expectation was around 8%. And next year, we expect that to be around 9% levels. For TK, it will be around like 7%. AJet is getting a lot of new aircraft. So the growth -- ASK growth, capacity growth for AJet is going to be larger. And thus, we are expecting overall 9% capacity growth. One, of course, big uncertainty here is the fleet. Although we believe all the deferrals that were supposed to be deferred in this year are planned and scheduled from Boeing and Airbus side. So we don't expect any surprise. But if anything, that might be one critical issue that would change our projections. For the profit evolution, we are going to be guiding somewhere between 24% -- 22% to 24% EBITDA margin as in '25, ex-fuel cost pressure should have less negative impact on our bottom line due to the better domestic and global inflation outlook. Still though, as I mentioned, because we have not agreed with the union yet, there is a collective bargaining agreement to be discussed, which is going to be initiated within the next few months. So that could bring some uncertainty. But overall, helped with the inflationary -- lowering of the inflationary pressure, we believe 22% to 24% EBITDAR margin will be attainable. Mehmet Korkmaz: What is the latest projection for the fleet size by the end of 2025? And any guidance for 2026? Murat Seker: So for '25, assuming getting our aircraft deliveries on time for the remaining 2 months, we expect around 35 net entries this year. Overall, we will be getting about 70 aircraft. This is together with TK, AJet and Cargo, and there will be 34 aircraft exiting the fleet. With the updated aircraft delivery table, we increased our '25 year-end fleet expectation to somewhere between 525 to 530 aircrafts. In '26, we are expecting roughly 50 net aircraft additions to the fleet. For TK -- sorry, for TK, it will be about 26 new additions, 20 narrow-body, 6 wide-body. For AJet, about 50, but a big portion of it will be replacing the old aircrafts and then short-term lease aircrafts. And then we'll get a cargo aircraft as well. So overall, there will be roughly 80 entries and 30 exits. Mehmet Korkmaz: In various mediums and public disclosures, you announced a number of significant non-aircraft investments in line with your growth strategy. Is it possible to elaborate on those? Murat Seker: There are significant investment projects we are undertaking, which were postponed during the pandemic. Starting from 2023, mainly, we started to revisit those projects. We needed a new aircraft maintenance hangar, which we initiated in '23. We need an additional second phase of our cargo terminal, and we need a new catering building in Istanbul Airport. These will be the biggest -- these 3 will be the biggest investment, non-aircraft-related investments ahead of us, a new cargo terminal, a new catering building, a new maintenance hangar. And in addition to these 3, after our agreement with Rolls-Royce to maintain A350 engines, we are going to be starting very soon to build an engine overhaul facility in Sabiha Gökçen Airport -- in Istanbul Airport. These 4 will be the major investments. However, they are not the whole list. As we are expanding our flight academy, we are expanding our simulator center with adding new simulators, and we are building data centers for Turkish Airlines' own needs. Mehmet Korkmaz: Third quarter leverage exceeded the guidance. And what were the main reasons? And we will be able to reach year-end targets? And how should we think about the expected leverage and net debt level? Murat Seker: So we were guiding a leverage of somewhere between 1.1 to 1.3x. In the third quarter, we realized 1.4x leverage, which is a net significant deviation, but it still is higher than our expectation. The reasons for this change is we had to lease additional aircraft to compensate the GTF-related groundings, which was about 9 aircraft of a value of about $1 billion. Then as -- the second factor, as the U.S. dollar was devalued against euro, the U.S. dollar equivalent total debt of Turkish Airlines increased because we have a significant amount of euro-denominated aircraft financing. It also led to an increase in the leverage. And third, slightly lower EBITDA due to the relatively softness in the demand that we saw in third quarter was the factors for this slightly higher leverage. For the new guidance to the end of 2025, factoring the above items plus the cash outflow regarding to Air Europa's share buy, we will see that the net debt-to-EBITDA multiple could be somewhere between 1.6 to 1.8x for 2025. Mehmet Korkmaz: Can you also comment on AJet's performance? And when will you -- when will AJet announce their results separately from Turkish Airlines? What is the capacity increase in AJet at year-end? And one last question about this -- IPO plans. Murat Seker: Well, AJet carried 7 million passengers in the first 3 quarters -- in the third quarter and more than 17 million passengers in the first 9 months of this year. So despite of the aircraft groundings due to GTF engine issues, passenger capacity increased by 24% in the third quarter. So the demand has been really strong on AJet side. They also have been investing heavily to improve their on-time performance, which was about 5 percentage points higher than 2024, and it reached 76% level. The annual capacity growth expectation is around 15% and 3.5% points higher load factors. So these all show that [indiscernible] work for AJet is going well. However, their cost base, their fleet is still needs to settle and then needs to improve. We believe we still have some more time to be able to separately report AJet's financials, but we are planning to report their traffic early next year separate than Turkish Airlines. This strong revenue evolution and improvements in the fleet have -- are going to increase -- improve its bottom line. For this year, for 2025, we are anticipating their revenue to be above $1.5 billion. And about the IPO, at the moment, we don't have such a plan. We think AJet is on a good and strong track. Next year, more than 70% of their fleet is going to be new generation aircraft. And then they are increasing their net operation in Europe, CIS region and North Africa. So the network is developing their sales channels and then ancillary revenue capacity is increasing. So -- and we are not in a rush to IPO AJet. Once it's on a seamless -- it's on a strong path of sustainable growth, we might consider such an option, but it's not in our agenda at the moment. Mehmet Korkmaz: Are we interested in any other deal like Air Europa in the foreseeable future? Murat Seker: Well, we did a little bit of an introduction about why we chose Air Europa and why we went through such an investment. So on the big picture, of course, being such a big network carrier, we are always open in similar collaborations throughout the world, being in Europe, in Americas, in Asia, Africa or Middle East. As long as we see a valuable value addition proposition, and it doesn't need to be only through an equity acquisition. It can be through several other channels, too, like the airline JV we had with Thai Airways. So as long as the partnership complements and supports our operation and it creates synergies, we remain open to this kind of opportunities. Mehmet Korkmaz: Murat, we also got another question related to Air Europa. Are there any -- I'm going to answer that, just sake of time. Are there any potential risks related to regulatory or required operator approvals at this stage? Could you also share any insights on lease expense or true EBITDAR performance and net debt level? To be honest, at this moment, due to regulatory application process, we are not able to answer any of those questions. Continuing with the fleet size, you expect a significant expansion. How will we manage the capacity increase? Do you believe the market will grow enough to accommodate your future capacity? Should we consider an erosion in margins due to massive capacity expansion? Murat Seker: Well, currently, our flight network is spanning about 355 destinations across 130 countries. And we believe there is still potential of growth in the market. To put it into some perspective, our network currently is reaching over 90% of the world's population, GDP and trade volume. We see Istanbul as a very strategic location, which is sitting across major global passenger and trade corridors connecting Asia to Europe, Middle East to Africa, Asia to Americas. And each of -- each new route that we open and each new frequency we add exponentially increases our unmatched connectivity. The aviation is currently expected to grow around 4% annually over the next decade. So our guidance of around 6% annual growth is seeming to be reasonable. And we are not going to keep adding new destinations. A very significant portion of this growth is going to come through increasing frequency in the existing markets and getting deeper in our existing network. And by our -- in our 2033 strategy, we have already factored in a low single-digit decline in unit yields by taking the competitive pressure and market dynamics into account. Thus, a growth of 6% ASK growth and EBITDAR margin between 20% to 25% is -- we think is reasonable. Mehmet Korkmaz: You also got a number of questions regarding our Boeing orders. Could you update us on the recent Boeing order and deals? What is the expected delivery schedule? And also, we got additional online questions. For example, Hanzade is asking about, do you see any risks on Boeing orders given continued engine negotiations in case of a decision not to proceed, would you be able to meet your capacity targets? Murat Seker: So the Boeing order, I think the question is referring to the narrow-body side because the wide-body is already placed and the deliveries, as I said, are going to be between '29 to '34, '35. On the narrow-body side, actually, next week or within 2 weeks, there will be another face-to-face meeting. But no matter how the meeting goes, we don't see this as a big threat on Turkish Airlines growth projections because we have proven that when the -- we don't get a direct order from the both OEMs that missing capacity has been successfully fulfilled through operating leases. Last 5 years, in particular, we were -- we had a lot of deferrals in our orders from Boeing and Airbus, yet we could grow the fleet size by more than 150 aircraft between 2020 and 2025. So we don't think it's going to be a big threat. And in any case, even if we place the order today with Boeing, the first delivery of this narrow-body is going to start in 2029 or 2030. So it's still -- we are talking about too far into the future. And there are a lot of options being from the Airbus, being from the leasing companies in the market that can be considered. So keeping these options there, to Hanzade's question, we don't see a threat on our growth projections. But this doesn't mean that we are not going to be continuing to discussions with Boeing. It has been quite a long time together with the wide-body order book. We have started negotiations together on the wide and narrow-body front. It's 150 aircraft, narrow-body aircraft. And once we settle the few remaining issues with CFM, we believe we might also be in a position to announce this deal not too far in the future once the negotiations finalize and meet our demands. Mehmet Korkmaz: Considering recent results and the operating environment, will there be any update on the 2023 strategy? Do your expectations align with the recent results? Murat Seker: When you look at it more broadly, we introduced our strategy by 2023, and we are in 3 years now into the strategy. When you look at the bottom line, we are fully in alignment with our strategic profit targets. But when you break it down, you'll see that because of the delayed deliveries, we are a little below from our strategic targets on the revenue front. And because of the higher inflation than anticipated, there has been pressures on the cost side. But the demand, again, which was not factored in to be this strong, the stronger-than-anticipated demand in '23 and '24 alleviated these negative factors and allowed us to be able to achieve from our -- to achieve the profit targets. So we are not revising our 2033 targets, but we will make an adjustment in the -- hopefully, by the first quarter of 2026, we will make some adjustments on the strategy, mainly because now it is -- seems impossible that we will be able to achieve the fleet and -- as we were targeting in '26 and '27. So those numbers need to be adjusted. But the bottom line, we don't think a big change on the profit and profit margins. Mehmet Korkmaz: Could you also provide information about the contribution of technical segment to operational profitability? Murat Seker: So usually, our main purpose of Turkish Technic is to serve Turkish Airlines maintenance needs. And as in the world, aircrafts are getting older, their maintenance requirements are increasing and to keep the fleet in operation in the busy summer months becomes more and more important. And due to Turkish Technic's strong capabilities in maintaining a very wide range of aircraft, its geographic location, its capacity to maintain aircraft currently in 3 -- in 4 different airports is giving it a lot of opportunities for third parties. As a result of this, in the first 9 months of this year, their total revenue went up by 75% to almost $2 billion. And -- by 2033, we keep investing in our MRO capacity. It will go up from the existing level of around like 65 aircraft being that we can maintain simultaneously. This number is going to go up to about -- it's going to double like 120 aircraft by 2033. Mehmet Korkmaz: Murat, we have 2 more questions, and I can quickly address them if you allow me. First, is there any major operational impact on your North America operations currently due to the airport slowdowns caused by current shutdowns? Before joining the earnings call, I spoke with our flight operation control center, and they said that it is related to the U.S. domestic market. So no, we are not seeing any impact. And also, we got questions about October traffic results. Could it purely something about extending season? To be honest, we don't believe so with -- by transferring capacity from United States towards Asia, that allows us to feed our after new flights in Istanbul. So that also increased our connectivity. And as a result, we expect fourth quarter passenger results to be strong because of that connectivity improvement. And with this question, we conclude our earnings call. Thank you all for your participation, and we look forward to being with you next quarter. Operator: We would like to once again thank you all for the presentation. So ladies and gentlemen, this concludes today's conference call. Thank you for your participation.
Unknown Executive: Good morning, everyone, and welcome to SLC Agricola's Earnings Video Conference for the Third Quarter 2025. My name is Andre Vasconcellos. I am the Planning and Investor Relations Manager. Joining me today are our CEO, Aurelio Pavinato; and our CFO and IRO, Ivo Brum. It's a pleasure to be with you this morning. We would like to inform you that the conference is being recorded and will be available on the company's Investor Relations website where you can also find the presentation. [Operator Instructions] We would like to remind you that the information in this presentation and any statements made during the video conference regarding our business outlook, projections and operational and financial targets are the beliefs and assumptions of the company's management and are based on information currently available. Forward-looking statements are not performance guarantees. They involve risks, uncertainties and assumptions as they refer to future events and depend on circumstances that may or may not occur. Investors should note that general economic conditions, market factors and other operational elements may affect the company's future performance and lead to results that differ materially from those expressed here. Now, I would like to turn the floor over to our CEO, Aurelio Pavinato, to begin the presentation. Pavinato, please proceed. Aurelio Pavinato: Thank you very much, Andre. Good morning. We thank everyone for joining SLC Agricola's 3Q '25 Earnings Video Conference. Please let's advance to Slide 4 to discuss the cotton market. The third quarter of 2025 was marked by stable cotton prices in both the international and Brazilian markets, hovering around $0.68 per pound, reflecting global supply and demand fundamentals. According to USDA data, global cotton consumption for the '25, '26 crop year is estimated at approximately 120 million bales compared with production of 118 million bales, resulting in a global supply-demand deficit of about 1 million bales. On the demand side, the spinning industry has been operating strategically, keeping inventories of raw materials and finished goods below historical averages. This behavior reduces future market liquidity and puts downward pressure on prices. The industry has scaled back amid growing risk aversion, driven by a tougher global backdrop of high interest rates, inflation and geopolitical tension. We believe that stabilizing inflation and the interest rate cuts now underway in the United States and Europe, both which are key textile consuming regions are fundamental steps towards improving business and consumer sentiment globally. Now let's move to Slide 5 to discuss soybeans. Soybean prices, both on the CBOT spot contract and the Paranagua basis showed significant volatility throughout the third quarter of 2025, while in Mexico, prices remained relatively stable. One of the main factors to watch right now is the progress of the U.S. soybean harvest. The country's planted area has fallen roughly 7% from 87 million acres to 81 million acres. And globally, supply is projected to exceed demand by about 2 million tons, one of the smallest surpluses in recent years. Now moving to Slide 6. We'll discuss corn. Corn prices on the CBOT spot contract and in the Brazilian domestic market fluctuated in divergent ways over 3Q '25. In Brazil, corn prices, in spite of some short-term declines, continued to find strong support from increasing domestic demand, fueled by the expansion of the corn ethanol industry. Globally, the corn market is currently balanced with production is now outstripping demand by only 5.7 million tons. Let's go now to Slide 8 to discuss our operational performance in the past crop year '24-'25. Soybean harvest was fully completed, reaching 3,960 kilograms per hectare, 21.4% above the previous year, virtually in line with budget and 9.4% above the national average. Cotton reached an average yield of 1,845 kilograms per hectare below both the plan and the national average, mainly due to drought conditions in Bahia. Second crop corn achieved a historical record yield of 8,243 kilograms per hectare, 9.3% above initial projections and above the national average as well. In Slide 9, we look at unit costs for the '24-'25 crop year, which due to higher productivity showed a significant drop compared to '23-'24. Soybean unit cost fell 27.4% in comparison to the previous crop year. Corn decreased 17.5%, while cotton averaging first and second crops rose 3% due to lower yields and higher use of crop protection inputs. In Slide 10, we will show you our current hedge position for the '24-'25 crop year. We have further advanced in our hedging positions for the '24-'25 crop year for soybeans. Including commitments, we locked in 99.7% of production and for corn, 96.4%. And for cotton -- now I'll turn it over to my colleague, Ivo Brum, to comment on our financial performance. Ivo, please continue. Ivo Brum: Good morning, everyone. Could we please turn to Slide 12, which highlights a few key points in our income statement. Net income for the quarter totaled BRL 2.1 billion, up 28% year-on-year, reflecting higher soybean and corn volumes sold. Year-to-date revenue reached BRL 6.3 billion, up 27%. Both quarterly and in the 9-month totals, we marked record highs. Our adjusted EBITDA in the quarter was BRL 531 million with a margin of 25.5%. Year-to-date adjusted EBITDA reached BRL 2 billion with a margin of 32.3%, consistent with historical performance. Net income for the quarter was a loss of BRL 14.5 million, a decrease of BRL 2.8 million versus the prior quarter. The variation reflected an increase of BRL 343 million and also higher SG&A expenses and other operating items totaling BRL 132.4 million, of which BRL 51 million were non-recurring linked to the sale of Sierentz' spin-off company, a negative financial result of BRL 126.6 million and an increase of BRL 81 million in income tax and social contribution taxes. The main factor behind the loss recognized on the sale of the Sierentz' spin-off was the inclusion in the spin-off of all historical development CapEx related to those areas. Since these amounts had been incurred in prior periods, they were not directly considered in the valuation of the transaction. Over the 9-month period, net income reached BRL 636 million, up 19.3% year-on-year. Cash generation was BRL 567 million in the quarter, while 9-month cash flow was BRL 1.5 billion, reflecting ongoing investments. Free cash flow was positive in the quarter, capturing the typical financial cycle moment between harvest cost payments and the '24-'25 crop and start of the corn and cotton billing. During the quarter, we paid the first installment for the Sierentz acquisition and received proceeds from the sale of the spin-off company to Terrus, resulting in a net outflow of BRL 268 million. For the year-to-date, key investments included BRL 180 million, final payment for the Paysandu farm, BRL 229 million, final acquisition of the minority stake at SLC LandCo, BRL 361 million Fazenda Paladino acquisition, BRL 95 million acquisition of Fazenda Unai, BRL 103 million minority stake in SLC Mit, BRL 268 million, first Sierentz Agro payment, net of Terrus proceeds and BRL 241 million relating to dividend payments for the fiscal year of 2024. On Slide 13, we look at our debt position. Adjusted net debt at the end of 3Q '25 stood at BRL 6.2 billion, up BRL 2.8 billion versus 2024. This increase is mainly due to strategic investments we made. The net debt over adjusted EBITDA ratio closed the period at 2.34x. On Slide 14, we look at the debt profile. Well, there was an evolution compared to 2Q '25 because our long debt share rose from 65% to 69% with an average maturity extending from 980 days to 1,168 days. On November 6, the Board approved a new share repurchase program of 10 million shares to be held in treasury for subsequent sale or cancellation. Now, I'll turn it over again to Pavinato to discuss the '25-'26 crop outlook. Aurelio Pavinato: Well, let's turn to Slide 16 to discuss the outlook for the '25-'26 crop year. Planted area for this season will total 836,000 hectares, up 13.6% over '24-'25. Cotton area will grow 11.1%; soybeans, 14.2% and corn, 29.3%. We can now go to Slide 17 to talk about the planting of soybeans. Early soybean planting, which allows for subsequent cotton and second crop corn cultivation began on September 18. And by November 4, we had planted 62% of the area and the fields have been showing good development. On Slide 18, we look at the productivity and estimated yields for '25-'26. Company's expectations for crop potential are based on historical trends and consider its historical trend and also the maturity of the fields. We now go to Slide 19 to comment on costs per hectare. Total budgeted total cost per hectare stands at BRL 7,082 per hectare, up 9.7% from '24-'25. Final cost adjustments reflect the procurement of inputs now nearly completed. The main factors driving the increase are higher fertilizer volumes for soil nutrient replenishment and also improvements to our crop protection programs. Now moving to Slide 20. We discussed the current hedging position for '24-'25 and '25-'26. We have also made advances in the '25-'26 hedging. We have now 60.2% of soybean output fixed, 27.2% of cotton locked and 18.6% of corn. On Slide 21, we announced our sales forecast of seeds for 2026. Estimated seed sales to third parties, combined with internal use totaled 1,800,000 bags, up 28% year-on-year. Cotton seed sales, including internal consumption are projected at 157,000 bags, an increase of 8.3% in comparison to the previous year. On Slide 27, we revisit the irrigation project disposed on July 9, in which we shared the company's expectations regarding the growth of the irrigated area. In the '24-'25 season, the company had 16,025 hectares of irrigated area. For the current season, an additional 6,303 hectares will be implemented, totaling 19,385 hectares with irrigation. The goal is to reach 53,180 hectares in coming years. Irrigation will help mitigate climate risks, maximize land use through second crop production, increase land value and boost yields and stability in a sustainable way. Now let's turn to Slide 25, in which we'll discuss the business strategy of the deal announced yesterday on a material fact, the association between SLC Agricola and the private equity investment funds managed by BTG Pactual. The objectives are to monetize farmland at market value, maximize operational efficiency through irrigation projects and establish agricultural partnership contracts. The remuneration of the partner is 19% of our agricultural output and the term of the agreement, 18 years. which later can be renewed every 3 years. Finally, we go to Slide 26, in which we'll take a look at the structure of this deal. Special purpose entities will be created with SLC Agricola holding 50.01% and the private equity investment funds FIPs managed by Banco BTG Pactual with 49.99%. SLC Agricola will contribute Fazenda, Piratini and its irrigation infrastructure at market value. The funds will invest BRL 1.33 billion, of which BRL 914 million will be paid upfront at the closing and BRL 119 million upon completion of the Piratini's irrigation project expected for the second half of 2026. Using these proceeds, the SPEs will acquire Fazenda Paladino from SLC Agricola for BRL 723 million, paying BRL 361 million upfront and BRL 361 million in March 2026. Besides that, the SPEs will also purchase irrigation infrastructure at Piratini and Paladino for BRL 86 million and BRL 27 million, respectively. Remaining funds will go towards project implementation at the SPEs. The land-owning SPEs will sign rural partnership agreements with SLC Agricola for grain and fiber cultivation, with sharing of production outcomes. SPE remuneration will be equivalent to around 19% of agricultural output from the partner areas. The initial contract term is 18 years, automatically renewable every 3 years. On the next slide, Slide 27, we look at the irrigation project and farm locations in this deal. Fazenda Piratini is located in Jaborandi and Fazenda Paladino is located in Sao Desiderio, both in the state of Bahia. The 2 farms together have a first crop area of 39,523 hectares, with plans to irrigate 27,934 hectares, adding both will reach 67,457 hectares of planted area with a growth of 71%, an expansion of 71% in our irrigated area. Projects include monitoring of the Urucuia Aquifer, the use of artesian wells and efficient pumping systems to reduce losses and increase efficiency. Thank you very much. And now we'll open our Q&A. Unknown Executive: [Operator Instructions] So, here's our first question from Mr. Lucas Ferreira. He is from JPMorgan. Lucas Ferreira: I have questions about this transaction announced yesterday with the FIPs, with the private equity investment funds. I would like to understand if this transaction is just something for use for leveraging your balance sheet or if it -- if there is room for a larger partnership in the future? It's clear that you want to accelerate your irrigation project. And the second question is really -- well, since this is quite a complex deal, part of the production will be with the FIPs later, with the funds later. Did you consider Piratini based on your annual valuation? And what can you share in relation to the implicit cost of this deal with the sharing of volumes later down the road? Aurelio Pavinato: Thank you very much, Lucas, for this question. Yes, Lucas, let me try to give you more details on the deal. So, we have contributed the Piratini farm at the appraisal value. So this is what we contributed in addition to the irrigation systems we had implemented as late as last year. So now the SPEs will own the land. They will own the infrastructure and also the irrigation system. And SLC Agricola will run the 2 farms. With the funding we have obtained, we are going to acquire the Paladino farm. So when we consolidate both of them, we'll have 50% and the funds will have 50%. So as if we had sold half of each farm, so we'll continue to own 50% of Piratini and 50% of the Paladino farm. This is the rationale, right? Our contribution is the Piratini farm. And the investors' contribution is the money, the money we'll use to buy Paladino that we had acquired from Mitsui just a couple of months ago. So, we are incorporating it in the deal. And the SPEs will be doing additional investments in irrigation. So with this, we can accelerate our irrigation project and also accelerate value creation in the farms. They are now, of course, going to start producing irrigated crops. We're going to have 2 crops a year instead of 1 like today with much more stability. So in our understanding, we will add value without contributing any funding. So, this is the mathematical equation behind this deal. We are unlocking value from our real estate assets. We are using our real estate to unlock value and accelerate irrigation investment, adding value to our agricultural output. And the 19%, this is the rationale in which we have adequate return for both investors and ourselves. Unknown Executive: Now let's continue with Isabella Simonato, Bank of America. Isabella Simonato: Well, I would like to know about the cotton cost performance in the '24-'25 crop year. There was a revision of realized costs. So, could you please shed some light on the drivers behind this performance? And if you could also give us some flavor on the '24-'25 crop that is still to be sold in the '26 fiscal year? I think that this will give us a clear understanding of the picture. Unknown Executive: Can I answer? Isabella, in fact, the cost of the '24-'25 crop year was under the impact of the climate issues in Bahia, and we applied more crop protection inputs. Of course, this raised costs. When we analyze costs, it's important to compare the costs with the budgeted dollar exchange rate at the time. So, part of the inputs were more expensive, but at the same time, we had an offset with revenue. This actually was balance of our hedging. There was no loss of margin. So, we have to factor the exchange rate variation as well. This is what explains the difference in costs. And by the way, Isabella, that's why our realized cost '24-'25 was above budget. And when we look at the budget, we see an increase of 9.7% in comparison to the budget. But in comparison to the realized, it's a much lower increase. So, we are delivering the results in '24 and '25. So the increase in cost is 9.7% for us. But in comparison with the actual this year, it's a much lower difference, 4%, not 9% of increased costs in the comparison between those 2 years. And also, in terms of volume, we want to deliver at least 45% of the volume produced '24-'25 until the end of the year. The harvest was completed in August. We started processing. So the volume carried over in this quarter is not significant. Most of the volume will be recorded in the fourth quarter, in fact. Unknown Executive: Now, our next question from Mr. Henrique, Bradesco BBI. Henrique Brustolin: There are 2 areas I would like to explore. Firstly, on the deal, the first point is how easy it is to replicate this model in the future, creating partnerships to finance expansion and also the installation of irrigation systems? And also with the BRL 836 million for SLC, what changes in the way we consider your capital allocation strategy from now on? The reason I'm asking is because you were incorporating the transactions to deleverage, but this gives you some room in the balance sheet to expand acreage and also to implement irrigation systems. So, should we consider this? Also in relation to cotton this quarter, when we look at the cotton margin, unit margin where there was a 3% increase and the unit cost also changed. How recurring -- is there a recurrent effect on the margin for cotton like this quarter? I know that it was a mix of farms that could be the reason, but how representative it is as a recurring factor from now on? Aurelio Pavinato: Thank you very much, Henrique. Let me talk about the deal and expansion. Well, we were really -- we had a long negotiation. And well, the future is yet to come. Nobody knows what could happen. But the model we created is a first for us. So if it's successful, it will open doors for rolling out the replication of this deal, this deal that we created with the funds. Okay. Ivo, would you like to discuss capital allocation? Ivo Brum: Yes. It's just like you said, Henrique, this created an important opportunity to continue growing if opportunities arise. We won't buy as many assets. We'll focus on leases. There is a working capital and CapEx and also machinery. There are some constraints, but this positions us on a good platform for growth. Now speaking of cotton, we had loss of margin in cotton this quarter resulting from -- well, of course, the mix of farms. In this quarter, specifically, we harvested in Bahia and Bahia, of course, we had an early harvest in August and the margin specifically for Bahia was smaller because we didn't have as big as an output. And so there is an expectation that margins will improve because we'll have now Mato Grosso harvesting. So, we should not consider this margin as the average for the entire harvest this quarter. Unknown Executive: Our next question is from Matheus Enfeldt, UBS. Matheus Enfeldt: Well, my first question is about the soybean productivity and the '25-'26 harvest. We are tracking rainfall on your farms, and it seems that in October, rainfall was a little below expectations and also quite below the historical record, which was last year. So, did your yield consider this? Did you consider the effect of climate for this year? Or is there any reason to be concerned in relation to rainfall? And also the second question on cotton, Pavinato. Could you give us some insight on the potential for Brazil to continue adding cotton acreage? Well, some analysts are saying that cotton acreage will reduce next year. Do you see an opportunity for expanding cotton acreage in Brazil? And also, there was an expectation of conversion of additional areas to cotton in future years. Are you thinking of following up on this plan, increasing cotton, especially considering the price levels we are witnessing today? Aurelio Pavinato: Thank you very much, Matheus. Matheus, in Mato Grosso this year, well, in September, it rained above the historical average. So it was very good rainfall at just the right time. In October, we didn't get much rain in Mato Grosso. So, there are some farms that were some -- under some rain deficit and others not. So when we look at the overall picture in Mato Grosso, it's fine. We have some farms with great potential and some fields not more than 5% to 10% that suffered with the rainfall deficit in October. So in November, the rain cycle resumed as normal. So it will depend on November and December. If it rains as expected, we are looking at very good yields in Mato Grosso. So, this is the summary, right? So the Mato Grosso farms are going well. And in the other farms, Maranhao and Bahia, it's now raining. So, we are expecting that our project will be met. This is a La Nina year, very similar to last year. So, we expect normal rains in coming months in the Northeast with a very good crop. About cotton now. In recent years, Brazil has really secured a strong foothold in this market. Brazil today is responsible for 14% of the world's output. We represent 30% of the exports. Something that 30 years ago -- well, we used to import cotton, and we were completely irrelevant in this market, in cotton market. And in the interval, consumption really didn't change much. So in fact, we were occupying the position of other players. And why? Because Brazil is very competitive. Our yields in Brazil in cotton is the best in the world. So when we think of Brazil, we are really a strong player. So the price levels today are low. They are not really encouraging the expansion of planted areas. So, we are seeing some downward revisions in planted areas, especially among the new entrants. They are now suffering more. Now, those who have stable operations will maintain their planted area. But in the average, we'll see a reduction in the planted area in Brazil, which is convenient, especially considering the slowdown in demand. Well, demand is growing very slowly. It's really inching little by little. We are now going to reach BRL 169 million bales of consumption. So when prices are lower like they are now, this encourages some pickup in demand. So at SLC, we analyze the data really farm by farm to see what crop is more profitable in each farm. But at this price level, we probably won't be stepping up on the gas in terms of new projects. We are going to wait for the price moves to really make our decisions. We want to maximize the use of the assets we have today. Cotton is a long cycle crop with a long financial cycle as well. So with high interest rates, you shouldn't really allocate much capital in CapEx and working capital, which is something cotton is very demanding about. So, you have to think of how much we're going to grow in 1.5 years. So, this is our vision on the expansion of the cotton area. Now the irrigation project in Bahia is aimed at planting first crops, soybeans and cotton in 3/4 of the area for the second crop. So, we're going to expand in Bahia cotton as second crop, which is the cheaper and the more efficient cotton. And that's why we see now the second crop in Mato Grosso for cotton expanding now and also in Bahia, but supported by irrigation. Matheus Enfeldt: Justa quick follow-up, Pavinato, if I may. This idea of waiting a little bit for the cotton expansion, does it also apply to the Sierentz areas that you had been planning to start planting cotton on in 2 or 3 years? Aurelio Pavinato: In fact, we now have 3 farms. We have one farm where we are building a cotton farm in -- [ right besides it ]. So we're going to have -- and the other farm has a great potential for soybean and second crop corn. So we'll calculate -- make the -- crunch the data. And probably in this case, we're going to delay the investment in cotton in the second Maranhao farm. As for the Parana farm, we never thought of planting cotton there, just soybean and corn. This combination of high interest rates and low prices is discouraging. Now if interest rates go down, then maybe it will make sense to plant cotton because to invest paying 15% a year in interest rate is a weighty consideration in any investment. Unknown Executive: Our next question is from Gabriel Barra, Citi. Gabriel Coelho Barra: In fact, I have a question and a follow-up. When we think that the buyback program, the share buyback program you have just approved, I would like to give it more of a framework when we consider the liability of the company. We see that the amortization cycle from now on -- well, we still have a very comfortable position in terms of income. And the net, however, is a little higher than expected. And so I would like to combine this question with the following. So how do you view the buyback program in view of the deleveraging process of the company, especially now that this program has been approved? And the second point on capital allocation in the rolling of debt. Ivo has just talked about interest rates in Brazil and your debt still is correlated with the BRL and CDIs. So are you thinking of having issuance of a paper overseas? We see that the credit markets are a little more stressed out. So, what's your view on your liability management program? And at the risk of sounding repetitive, in relation to the deal, a very interesting point for me is the remuneration of SPE, which is different from the sale leaseback in bags of soybean. So if I understood it correctly, there is also an upside in terms of productivity and yield. So it's a win-win. So my question is, what do you expect in yield by implementing irrigation in both farms? Do you have an estimate? What could we expect in terms of increase of yield after irrigation? Ivo Brum: Well, about the share buyback program, Gabriel, I think that -- I think that what's important in this deal is that we're going to bring the company to a leverage level we feel more comfortable with. Our Board discourage us from going over 2x, and we are now at 2.3x. So it's really our objective in deleveraging. And of course, we could go back to go to using other leases. But in terms of share buyback, since the shares are being traded at a very low price, it doesn't make sense to buy more land. So if we had, for example, an opportunity emerging of buying more land, we know that SLC is the best investment for our shareholders. So, we want to grow leases instead of owned land. So, this is what the share buyback program indicates. About issuance of a paper, well, we've been thinking of taking debt in USD. You'll see at the balance sheet that we have now some debt coming in dollars now related to the Sierentz acquisition. And we, of course, have to adjust this with our hedge accounting policy. And we think of taking short-term loans in dollars because long-term dollar debt is more difficult to manage. But this is what we're considering in terms of exposure to dollar. Okay. What about yield? Pavinato, you go. Aurelio Pavinato: So, what is the rationale when we create a business plan thinking in the long term like this? If you look at our history, we have an EBITDA margin, a net margin, and this is the result of commodity price, production cost, exchange rate and yield. Those are the 4 variables that define this. And a long time, the productivity gains, the yield gains generated value, added value to whom? They add value to the entire chain. Well, Brazil has increased yields more than competitors. So, we are capturing some of this value and applying this to our operations. In 15 years' time, yields will be even more higher than the yields we have today, of course. But as a consequence, production costs will be higher in 15 years' time. Will our EBITDA margins be higher than now? No, we don't believe so. We'll be more competitive in the international markets, but our EBITDA margin will be similar to the one we have today, depending on how efficiently the operations are managed. So the partner will participate in the revenue, but not in the costs. So, maybe this is the bottom line of your question. We're going to transfer a percentage of the EBITDA margin to this part of the SPEs. And in the SPEs, we hold 50%, a 50% stake. So it actually goes back to us. This is the rationale. In fact, agricultural partnerships for us as agriculture operators is the sharing of the proceeds, but in a much more resilient way because we know that there are some years in which we experienced crop failures with low yields. And who suffers? The operator. The landowner will get just as much. But now when we have a real partnership, like in this case, if there is a climate event leading to crop failure, the partner shares the losses too. So considering the long-term plan to grow our lease areas, this agricultural partnership mitigates risks, in fact, because I will never pay in a lease a higher percentage than that even in years when the output is not so good. So in fact, the partner is now going to be exposed to both variables, not only to price. Today, lease -- when we lease based on bags per hectare, the partner is only exposed to price, not on anything else. So, this is what we believe will add value in a very fair way to both partners. Gabriel Coelho Barra: I'm sorry. I think maybe I wasn't clear. It was about upside and downside. With high yields, your partners will also get more. So, I would like to know how much you can generate in terms of additional yield, thanks to irrigation? This was the focus of my question. Aurelio Pavinato: Okay. Let me complement then. Well, today, we have one culture that sometimes has good yield and sometimes 70% to 80% of the potential. And the productivity of this farm is just at 90% of the potential. Now with irrigation, my yield will rise to 110%. So, I'm not going to lose any yield. So in terms of revenue, if today I get 100 in revenue, this will go to 220 with irrigation, 220, 230, this is the potential value generation with irrigation. Unknown Executive: Our next question is from Thiago Duarte, BTG. Thiago Duarte: I have a question about the gains to be obtained with irrigation, but from a different angle. Pavinato, what's the cost associated with the building of infrastructure for irrigating 1 hectare, right, especially considering what this -- the comparison between the irrigated land and the dry farmed area? I would like to know what would be the return considering the market conditions of today? Aurelio Pavinato: Let me answer this question, please, Thiago. Well, including all of the infrastructure that you need, electrical bidding, et cetera, BRL 25,000 per hectare, this is the cost, okay, for you to generate this additional revenue. Actually, I would even think that it's -- I think that the gains will be even higher because it's cotton second crop, right, so with even higher unit revenue. Yes, yes, you're right, in fact, Thiago. If you consider only yield, it's 230. But if you consider cotton, yes, because I have 1 year -- soybean 1 year cotton. In 2 years, 8,000 and 20,000 with cotton. So, 30,000 in a 2-year period. But now the 30,000 will be generated in addition to the higher yield per year. So in the same year, both crops with much higher yields. And in the case of cotton in Bahia cotton with irrigation, well, it's been very good and really surprisingly good. And with lower risk because there won't be any crop failure. You become the rainmaker. Thiago Duarte: Yes. Perfect. This is very clear. Now, my second question. This has been already discussed, right, the project and the budgeted costs for next year, growth of 9.7% or 4% if we consider the effective cost for '24-'25. Could you please explain more about the increased costs? Really trying to break down what is volume and what is cost because I'm under the impression that part of the cost hike is associated with the need for greater soil correction. So is this part of the picture, this one-off effect with the land that you're adding, especially when we consider the costing base for next year? Unknown Executive: Perfect. Thiago, in fact, our budget for '24-'25 was defined, but we had to use more crop protection, especially in cotton in some of the varieties and we ended up spending more than expected. Now in '25-'26, crop protection, again, we have prepared the budget, adding additional products, and we have now a package of crop protection for '25, '26. As for fertilizers, we are applying fertilizer in a more efficient way, and this not only in the newly added land in this scenario where fertilizer prices, for example, phosphorus and potash, we bought more cheaply than last year, and our fertilizer package didn't really see any increase in costs. A very small variation of 2% to 3% in dollar. In BRL, the prices didn't go up. We made good purchases for '25-'26. So we were -- we planned our fertilization program in a more efficient way. So, we really were trying to find out why the costs. It's really our planning that is leading to this increase, especially in the dollar-based accounts, which are the inputs. In BRL line items, we have inflation in services. This is what also drives costs up. So, this is the summary. This is what justifies the increase of costs in the '25-'26 crop year versus '24-'25. We are compensating this with higher yields, actually outstripping the target for this year. And there's an offset also because the prices in BRL, we have some hedging in that are favorable to us. So, we will be able to deliver higher profitability rates. This will also depend on yield. Yield will be the determining factor in the '25-'26 crop year. Thiago Duarte: Okay. But this -- you said that it's actually more volume per hectare than price that is causing the effect, right? And is this volume a one-off thing? Or is it something different? I would like to understand how recurrent this effect is. Unknown Executive: I'll answer. If prices continue low, volume will go down in the following crop year. If prices rebound, maybe it won't go down. So it's correlated with commodity prices and how much we invest. Unknown Executive: Our next question is from Mr. Leonardo Alencar from XP. Leonardo Alencar: Congratulations on the results. And by the way, I would like to go back to the deal, if I may. Pavinato, you said that this is something that was an elaborated deal. It took a long time to prepare. But well, considering that part of the attractiveness of this deal lies on the fact that you had recently acquired some land that required irrigation. But if we think of other occasions that could lead to this unlocking of the land value at the appraisal level, would it make sense for you to think of different sharing schemes because you mentioned that this model -- you could have another lease model where the leasing partner would also share the risks. So, do you think that -- does it make sense to you? And in addition to this, a quick follow-up on SG&A, where there was an increase. You talked about the freight for corn because of Sierentz. Is this a one-off thing? Or will there be more impacts coming in the future? Unknown Executive: Thank you, Leonardo, for your question. I'll start with the answer with the second one. Well, in fact, we've -- well, we've created this deal. It's a structure that work, but rolling out more deals like this will depend on opportunities that emerge. We were able to create this, and we think that expectations were met both on our side and the investor size, and this is not going to be automatically replicated. We need this good fit in terms of the value of the land, the value potential of the operation so that we can really create more similar deals. There's always potential to do more, but something that we have to think about in the long term. Leonardo Alencar: Well, let me just explore that for a moment. If there is another partner on the table, do they share any other strategic value? Or is there demand from other partners that seek this type of deal or this is something that's very new and people prefer the traditional lease deals? Unknown Executive: Well, think of an 8-year agreement. Nobody who is thinking of the short-term and short-term results would engage in something like this. So, this is the profile of the investor looking at deals like this. And that's why there's always a rationale and a strategy behind each deal, and it takes proper analysis and the commitment of long-term investors really to work out. Leonardo Alencar: What about SG&A? Unknown Executive: Well, there is an important difference in the way Sierentz would sell, would trade their commodities. They deliver at corn as well. So, there is a freight cost that could be better, but we need to factor in. There was also a super production of corn. This increased our storage costs and had an impact in our SG&A. And in administration, we had significant expenses related to the Sierentz deal that was also reported under this line. And yesterday, the deal also, we had to use auditors, consultants, attorneys. All of this adds to the expenses, but they are one-off expenses. They are not recurring in any way. Unknown Executive: Now let's continue with Gustavo Troyano, Itau BBA. Gustavo Troyano: Two points I would like to discuss with you. Firstly, we've talked about the SPEs and potential return. But what about the timing of these irrigation investments, specifically? You said that Paladino would be from '28 to 2030. But what is the step-by-step process to get there? Once approved in terms of water intake and electrical feeding, is this CapEx going to be disbursed all at once to understand what the curve looks like? And the second question about capital allocation. Can you tell us a little bit about future opportunities? We have talked about expansion in leases, expansion in irrigation. And I would love to hear from you, especially considering the growth of corn-based ethanol in Brazil, can you ride this wave either through a partnership with an industrial operator? We saw some of these deals taking place in Brazil. And in the relation between lease irrigation and potential of corn-based ethanol, what would you give priority to? Because, of course, there are lots of projects and limited capital. But I would like to know what's in your mind. Unknown Executive: Thank you very much, Gustavo, for this question. The investment in irrigation in this project that we announced yesterday at Piratini, well, we have the water intake facilities and the power is already established. So, we are starting with the investment in 2026. So, cash generation and the creation of the SPEs. In Paladino, we have said '28 to -- from '28 to 2030. We have most of the water needed and all the licenses will probably get obtained very soon, but not -- we don't have yet the electrical feedings. So, that's why we consider that the investment will run as of 2028. And in the SPE cash generation, we will have the funding for those investments in 3 years or in 2 years. It depends on the decisions taken at the specific time. So, we are feeling comfortable with the design for this project and the meeting of the deadlines. About capital allocation, when you have several options to allocate your capital, it's always a good thing. You're not forced to choose just one way, right? And it really depends on the cost of capital. Right now, cost of capital is very expensive. So, we really have to think it over. And as we said before, irrigation, well, we're going to allocate capital because it makes sense. It is strategic because it will increase output, will increase yield. It will add stability and helps mitigate risks for the company. So, there is no doubt in our mind. And as for the other possibilities you've mentioned, well, there are possibilities. So, we're going to decide how to allocate our capital. So, maybe considering the share buyback program, maybe this is the best way to go especially because as the company grows and we start deleveraging below a level of 2x, then we'll be able to invest or make other investments, but buyback is always a good option, especially now that SLC is being traded at 50% of our NAV. But thinking of the long term, am I going to grow? Am I going to add value? Or am I going to buy my shares back? All of this has to be factored in. Unknown Executive: Okay. So, this video earnings conference call on the third quarter 2025 is now closed. Our Investor Relations department will be happy to take any questions. We thank all participants and wish you a great day. Thank you.
Operator: Good morning, and welcome to the OPAL Fuels Third Quarter 2025 Earnings Call and webcast. [Operator Instructions] As a reminder, this event is being recorded. I would now like to turn the call over to Todd Firestone, Vice President of Investor Relations, to begin. Please go ahead. Todd Firestone: Thank you, and good morning, everyone. Welcome to the OPAL Fuels Third Quarter 2025 Earnings Conference Call. With me today are Co-CEOs, Adam Comora and Jonathan Maurer as well as Kazi Hasan, OPAL's Chief Financial Officer. OPAL Fuels released financial and operating results for the third quarter 2025 yesterday afternoon, and those results are available on the Investor Relations section of our website at olfuels.com. The presentation and access to the webcast for this call are also available on our website. After completion of today's call, a replay will be available for 90 days. Before we begin, I'd like to remind you that our remarks, including answers to your questions, contain forward-looking statements, which involve risks, uncertainties and assumptions. These forward-looking statements are not a guarantee of performance, and actual results could differ materially from what is contained in such statements. Several factors that could cause or contribute to such differences are described on Slides 2 and 3 of our presentation. These forward-looking statements reflect our views as of the date of this call, and OPAL Fuels does not undertake any obligation to update forward-looking statements to reflect events or circumstances after the date of this call. Additionally, this call will contain a discussion of certain non-GAAP measures. A definition of non-GAAP measures used and a reconciliation of these measures to the nearest GAAP measure is included in the appendix of the release and presentation. Adam will begin today's call providing an overview of the quarter's results, recent highlights and an update on our strategic and operational priorities. John will give a commercial and business development update, after which Kai will review financial results. We'll then open the call for questions. And now I'll turn the call over to Adam Comora, Co-CEO of OPAL Fuels. Adam Comora: Thank you, Todd. Good morning, everyone, and thank you for participating in OPAL Fuel's Third Quarter 2025 Earnings Call. The third quarter was another quarter of consistent operational progress, in line with our expectations, and we are maintaining our full year guidance. RNG production was 1.3 million MMBtus, representing both sequential growth and an increase of approximately 30% compared to the third quarter of last year. Importantly, due to all the operational improvements we are making, October production was the highest rate in OPAL's history following a record performance in September. These production rates are in line with the levels required to achieve the low end of our full year production guidance we set at the beginning of the year. The trajectory here is clear, and the operating base is performing with greater consistency and reliability. We also continue to advance our growth plans. At the end of the third quarter, we brought the Atlantic project online, and we are very pleased with its initial ramp. This is our first project with our partner, South Jersey Industries. This project brings us to 12 operating RNG facilities with a combined 9.1 million MMBtu of annual design capacity. In addition, we began construction at our CMS RNG project in North Carolina, representing 1.0 million MMBtu of annual design capacity net to OPL. We are continuing to advance a number of attractive new project opportunities within our pipeline and feel confident we have the ability to meet our target of 2.0 million MMBtu of annual design capacity into construction in 2025. On the financial side, we completed our fourth investment tax credit monetization to date and third for this year, bringing our total gross proceeds to $43 million year-to-date. We expect that we will complete a fourth sale by year-end or in early 2026. These ITC sales continue to be an effective tool to offset capital requirements and support our development program and as a reminder, are not included in our adjusted EBITDA calculation. Our third quarter adjusted EBITDA was $19.5 million, lower compared to the same period last year, impacted by a lower RIN price environment. While RIN prices were lower in the third quarter, recent pricing trends have been constructive. Given the increasing production performance, the growth of Fuel Station Services segment and beginning to recognize 45Z production tax credits in the fourth quarter, we remain confident in delivering operating and financial results in line with our full year guidance. As we look towards the future, we remain encouraged our growth will continue in 2026 and beyond. We have a robust opportunity set to continue to build our RNG production platform and see an increasing need for energy infrastructure assets to support CNG and RNG adoption for heavy-duty trucking. CNG and RNG is being recognized as the most cost-effective and operationally sound fuel choice to replace diesel. To capture some of the building momentum we're seeing in the downstream, we continue to invest in our team and the fuel station service segment as it becomes more of a focus in our capital allocation strategy. OPL's vertically integrated model is continuing to show its strength to capitalize on this opportunity, bringing the most value to biogas feedstock hosts and providing fleets with a partner that can deliver a full solution to decarbonize their fleet at a lower cost than diesel. With that, I'll turn it over to John. John? Jonathan Maurer: Thank you, Adam, and good morning, everyone. Our third quarter operational performance reflects continued growth across the platform. As Adam mentioned, we brought the Atlantic project online during the quarter, our first under our joint venture with South Jersey Industries, adding approximately 0.33 million MMBtu of annual design capacity. This brings us to 12 operating RNG facilities with a combined 9.1 million MMBtu of annual design capacity, up from just 2 facilities when we became a public company in 2022. Atlantic's commissioning was delivered consistent with our guidance and is performing well in its first weeks of operation. Landfill gas resource is above expectations, and we expect production to steadily increase over the coming months. RNG production was 1.3 million MMBtu in the quarter, a 30% increase year-over-year, driven by the continued ramp of Sapphire and Pulk as well as improving uptime across the base portfolio. The key here is consistency. The operating fleet is performing in a more repeatable manner along with the growing production. This improvement in performance is a direct result of the investments we are making in our operational team. We expect this trend to continue. Turning to development and construction. We are advancing the next wave of projects. With CMS now in construction, our in-construction landfill RNG portfolio now totals 2.8 million MMBtu of annual design capacity and is progressing in line with our expectations. This in-construction portfolio, combined with our operating facilities will bring us to approximately 12.0 million MMBtu across 16 projects. Burlington and Cottonwood remain on track for 2026 commissioning and Kirby thereafter. We continue to see a pipeline of organic development opportunities with secured gas rights. We evaluate each project within a disciplined capital allocation framework, ensuring alignment with returns, liquidity and balance sheet priorities. We are developing a number of investment opportunities that meet these criteria for 2026 and beyond. On the downstream side, our fuel station services business continues to perform well. While 2025 has had a difficult backdrop for logistics and transportation firms, which has slowed down all truck purchases and investment decisions, including the 15 CNG tractor. We expect to meet the lower end of the 30% to 50% segment EBITDA growth target despite the lower RIN price impact. We currently have 47 operating fueling stations and 41 stations under construction, 16 of which are OPL-owned, bringing total OPL-owned fueling stations in operation and construction to 63. Owning and operating fueling infrastructure allows us to participate directly in long-term contracted per gallon economics that are largely independent of environmental credit pricing and provide recurring cash flow. This is strategically important as it provides access to the most valuable offtake market and allows us to scale our upstream RNG production platform. Additionally, the Fuel Station Services segment provides a return profile largely uncorrelated to environmental credit prices, contributing to a more balanced and durable overall earnings mix. I'll now turn the call over to Kazi to discuss the quarter's financial performance. Kazi? Kazi Hasan: Thank you, John, and good morning to everyone joining today's call. This quarter showed continued operational progress across the platform. We issued our earnings press release, posted an updated investor presentation on our website and expect to file our Form 10-Q shortly. Revenue for the quarter was $83 million and adjusted EBITDA was $19.5 million compared to $84 million and $31.1 million for the same period last year due to lower realized RIN pricing and the expiration of ISCC pathway, partially offset by higher RNG production. Our realized RIN price was $2.15 versus $3.13 last year. We expect that the improvements in production and uptime we experienced through the quarter will continue and translate into improving financial performance of our upstream portfolio. This quarter's results reflect a more normalized G&A environment compared with last quarter, which saw nonrecurring expense items in support of our investments in advocacy and technology for our operating platform. Turning to liquidity and capital deployment. We ended the quarter with $184 million of total liquidity, which includes $29.9 million of cash and short-term investments, $138.4 million of undrawn capacity under our term facility and $15.5 million of revolver availability. Capital expenditure for the quarter was $16.4 million. These capital expenditures relate to new RNG facilities and new OPL-owned fueling stations. Maintenance investments for operating assets are expensed in our income statement. In the quarter, we monetized approximately $17 million of investment tax credits this quarter, and we remain on track to achieve approximately $50 million in gross ITC monetization for the full year. The liquidity position, together with operating cash flow and ITC monetization supports the projects currently under construction. As Adam mentioned, we expect to be within our full year 2025 guidance. For the fourth quarter, higher RIN pricing compared to last quarter, sequential production growth, expected fuel station services performance and contribution from 45Z tax credits support our adjusted EBITDA expectation, although likely towards the lower end of the range. Finally, we are working on refinancing of our preferred equity with NextEra. With our expected access to capital and existing liquidity resources, we will address the term of the existing preferred in the coming months. Stepping back, our financial strategy is clear. We are disciplined in investing capital within the capacity of our operating cash flow, balance sheet strength and capital market access. OPL is generating an increasingly balanced and durable earnings base with flexibility to accelerate growth while returns justify it. With that, I'll turn the call back over to John for closing remarks. Jonathan Maurer: In closing, we remain well positioned for continued disciplined execution of our strategic growth objectives and the expansion of OPAL's vertically integrated platform. And with that, I'll turn the call over to the operator for Q&A. Thank you all for your interest in OPAL Fuels. Operator: [Operator Instructions] Our first question comes from Derrick Whitfield with Texas Capital. Derrick Whitfield: I wanted to start with your RNG production trajectory. As you highlighted in your prepared commentary, the trajectory is continuing to grow and appears to be pacing at about a 0.1 million MMBtu growth level per quarter. I guess, first, is that the right pacing level to think about kind of the growth through year-end based on your October commentary? And then second, could you help me frame how this projects into 2026 based on the projects under construction now? Jonathan Maurer: Yes, Derek, -- that's right. We've seen great sequential growth in our projects. A lot of that comes from the discipline of the team that we put in place over the course of the last year that has updated and revised really the data-driven approach to our project operations, both in terms of the landfill gas collection from a capacity inlet utilization point of view as well as from the efficiency and availability of the projects that are operating with the landfill gas they receive. We've seen good sequential growth in all of these metrics, and that's resulted in same-store sales growth from the projects that we're operating. So yes, I think we'll continue to see that trajectory move forward during the course of the rest of this year and into next year is our expectation. And so maybe, Adam, do you want to add to that? Adam Comora: Yes. Derek, -- just as we're thinking about 2026, we're obviously not providing our full year guidance for 2026 or what all the different KPIs are that we track for it. But we see a strong growth coming in 2026, and it's going to be supported by another year of strong production growth and a couple of other components as well, including a full year of 45Z. And we'll -- I'm sure there's going to be some other questions as we look into 2026. There's probably some seasonality factors that we're going to be highlighting as well and maybe doing a job of explaining to folks across the different business segments. But we see 2026 to be another strong year of production growth for us. Derrick Whitfield: Terrific. And for my follow-up, I'll stay with you Adam and focus on the regulatory environment. In light of the government shutdown and your recent engagement with the administration, what are your time and expectations for a final RVO? And importantly, do you think there's an appetite from the administration to increase the D3 RVO based on the strength of recent RIN generation reports? Adam Comora: Yes. Both very good questions. So I think the final RVO rules, it is being impacted by this government shutdown. And it's difficult to ascertain exactly how long it will take for them to issue the final set rule 2 once they reopen. I do think that they're looking at volumes across the categories. it's really important to note that we believe what RNG does receive bipartisan support. We've seen it in the tax policy. And we have been speaking with a number of folks on the Republican side of things as it pertains to D3 volumes. And you have to remember that a lot of these RNG projects are in red and rural areas. They're municipal-owned facilities, and it's -- and cellulosic corn kernel ethanol is also a growing piece of the D3 category. So we do feel the support is there. And maybe it will take 30 days, maybe it will take 45 days after they reopen. There has been a lot of pressure on the EPA to stick with their time lines, but we remain cautiously optimistic that the administration, just like we've seen across the House and the Senate, will continue to support RNG. Operator: Our next question comes from Matthew Blair with TPH. Matthew Blair: Adam and John, you've highlighted in the past that your landfill RNG assets have very strong free cash flow generation once they're up and running. We don't really see that in the OP financial metrics because of all the growth spending. So could you talk about the balance there? Is there any sort of thought to slowing down the growth, slowing down the CapEx in order to just show a stronger free cash flow and really illuminate that underlying free cash flow generation that you do have? Adam Comora: Yes. We -- this is Adam here, and appreciate that question. And what we're trying to continue to highlight is that the maintenance CapEx that we have on our facilities is included in our operations and our operating cash flow. So when you look at the CapEx on our balance sheet, that is solely on new RNG projects, facilities and also new OPIL-owned fueling stations. So when you look at our cash flow statement and you look at our financial metrics, what comes out of operating cash flow will be the discretionary free cash flow for OPAL Fuels. And hopefully, investors understand that metric, and we're going to continue to try and help illuminate that for the investor community. Matthew Blair: Sounds good. And then you mentioned that 2026, I think you said would include the full year of 45Z. Can you talk about how much 45Z, if any, you received in the third quarter and how much you might get in the fourth quarter? And if you could perhaps illuminate a range of 45Z contribution in 2026. Is this something that helps out your landfill plants in addition to your dairy exposure as well? Adam Comora: Yes. This is Adam again. And so just a couple of things on 45Z. One is we're pleased that we've now registered all of our facilities starting in the fourth quarter for 45Z generation. And we are aware that there have been some transactions in the marketplace where folks have been monetizing their and we continue to finalize documentation and work through the mechanics for it. And there already are existing GE models to generate those 45Z credits. And to an earlier question on the government shutdown, there is also a chance that there will be another 45Z GE model that gets issued once the government reopens. But what we've thought about and what we're including in our thinking on the fourth quarter is just the existing GE models and whether or not that there's going to be any improvements to that. Certainly, we could be taking advantage of that as well. And as we -- and when you think about our sequential ramp into the fourth quarter, Kai highlighted 4 different elements. One is increasing production like we've talked about and are expecting here in the fourth quarter. We've also got that RIN price lift in the fourth quarter. versus what we experienced in the third quarter. There's also some fuel station services seasonality, which we'll get, I'm sure, some future questions on where our LCFS credit sales typically occur after we've aggregated them over a 2-quarter period. So we'll get a lift of that in the fourth quarter as well as just good base underlying growth in fuel station services. And the fourth piece is the 45Z credits that we'll begin recognizing here in the fourth quarter. So when you look at all 4 of those pieces, they're fairly evenly distributed amongst those 4 items. And we'll see a full year of that contribution from 45Z as we move into 2026 and quite frankly, for the next -- through 2029. Operator: Our next question comes from Adam Bubes with Goldman Sachs. Adam Bubes: Just a finer point on the Q4 implied guide. I think at the low end, it's around $34 million. So a sharp sequential ramp as you alluded to. Just could you put a finer point on the D3 RIN price step up? What are you seeing for 4Q? And how much of the 45Z is contributing as well? Adam Comora: Yes. So in the fourth quarter, I think most people are aware that the price has risen to around $2.40 for the D3 RINs. And if you do the math on our production, there are some royalties that you take out of that. But that is I don't think we're going into the quite granularity of each one of those pieces, but that is part of that sequential lift. We're also going to see an improved performance in fuel station services. And there will be some component to 45Z. I think we're -- those are fairly even distributed amongst those factors and then the production lift would be a piece. Adam Bubes: And then for 2026, can you just comment, have you started to lock in D3 RIN volumes in the sort of contracted market? And if so, what are those contracts looking like? Adam Comora: Yes. So not just yet on 2026. I think obligated parties, which is really the chunkier volume of transactions in the RIN market, the obligated parties, we feel like are still hanging back on 2026 until there are some final rules that get issued. And so the 2026 pricing is around where the 2025 is, but we haven't seen a lot of volumes in the marketplace just yet. And I think there was an earlier question as well around the regulatory outlook. And just as we're thinking about RIN pricing as we move forward into 2026 and 2027, the D3 RIN market can get tightened 1 of 2 ways. One is we can see a boost in RVO volumes, which a lot of folks have been advocating, and we feel like there is some support for. And then the other way that D3 RINs can tighten is if RNG producers decide to move volumes out of the RFS and transportation fuel. And that's a possibility as well. So we have not begun selling forward in any serious magnitude in '26, but we expect that market to develop shortly once the rules are finalized. Adam Bubes: And then last one for me. I think based on the data we're looking at natural gas vehicle consumption already uses almost entirely renewable natural gas. So what's sort of your outlook on potential for increasing natural gas vehicle adoption over the next couple of years? And do you see the bottleneck from here as more so the infrastructure or willingness to purchase the vehicles? Adam Comora: Yes. And I know we and others in the industry keep expressing optimism around natural gas deployment to replace diesel. And we're really optimistic that we're starting to see that traction take hold and really excited about some of the fleets that we're talking to on this. And I would highlight for folks as well some of the recent team additions that we've had here at OPAL Fuels, both at the Board level and with the team leadership with the new Chief Revenue Officer on fuel station services. And it has become the clear choice for fleets to decarbonize and reduce their cost of diesel. We had a confluence of factors in the beginning of '25 between a model changeover, equipment pricing on CNG adoption and some macro headwinds, whether it be tariffs and some other things where we felt like a lot of fleets were really interested in it, like did in concept. but we weren't really ready to pull the trigger yet. And we -- the industry has been addressing some of those equipment pricing issues, residual values, leasing programs, that sort of thing. And we really feel good that some fleets are starting to ready to make some of these deployment decisions. And what I would also say, as we look into '26 for OPAL Fuels, we do see a good growth from -- across our business segments. A lot of those deployment decisions, though, there is a lag for when the fuel stations get built and trucks get delivered. So as we look forward into 2026, we really do think that there's going to be some fleet deployment decisions, which then translates into '27. We have other factors that we think will lead to some fuel station service growth in '26. But we've certainly been preparing for what we see is an open-ended growth trajectory for not only RNG, but CNG. And when we talk about natural gas for heavy-duty trucking here, this is something that we think makes a lot of sense across the aisle, where when a lot of folks are focused on energy dominance, disinflationary types of policies, natural gas fits the bill quite well. And you also get some of those other environmental benefits that come along with it in terms of air quality, and that sort of thing. So we think CNG is going to have a very interesting growth trajectory as we work through some of the equipment pricing issues, which have been going down and some of these other kind of issues. And fleets and logistics firms have adjusted to those macros, right? You go through that first quarter or 2 when you're just trying to deal with some of that macro backdrop and then you start operating under it and you start moving forward with some of those parameters. Operator: Our next question comes from Ryan Pfingst with B. Riley. Ryan Pfingst: Curious what you've been seeing or hearing broadly in the voluntary market and if you're weighing any opportunities there today? Adam Comora: So this is Adam again here. One voluntary market that we've been interested in and potentially excited about is marine fuel. And there was a delay on some marine fuel adoption out of that IMO read. And there there will be a play for RNG in that marine fuel market. I feel like it's been pushed out a little bit because of that delayed approach to how they're going to be using renewable methanol as a marine fuel. There are a couple of states that are starting to think about RNG and how they achieve their objectives on decarbonizing their fuel mix. But we have not seen yet where it makes sense to transact and commit some of our RNG into those voluntary markets. We're still of the opinion that there's a little bit of a misunderstanding or misconception around the reg risk of RNG in the transportation fuel market and the renewable fuel standard. And up to this point, it still hasn't quite made sense to us to transact in those voluntary markets until we see some of those other things open up and we get a little bit more to offtake parity for what, again, we consider a little bit of mispriced reg risk or regulatory uncertainty. We kind of feel like that's the case across OPAL Fuels and how people think about RNG. Jonathan Maurer: And just in addition, I'd just add that some of our competitors have reported committing to voluntary markets. Not sure exactly what volumes, but that would have the effect of really opening up a little bit of the dispensing and helping... Adam Comora: Yes. The only thing also I would add there is I also think that's a function of our business model. The fact that we're vertically integrated, and we've got that visibility into the highest offtake market. I don't know if others feel like maybe they're sort of pushed into those markets because they don't have that same vertical integration that we have. But we still continue to believe we're going to make the most money for our shareholders continuing to tap into the most valuable offtake market. Ryan Pfingst: Got it. Yes, makes sense. I appreciate all that detail and good segue to my next question, which is, has competition for RNG project development picked up or have more players entered the market following the one big beautiful bill and the more positive policy environment that you have today? Kazi Hasan: I think that access to capital and limited access to dispensing has really put a little bit of a limit on what competitors are able to do in the market. Yes, you saw a big kind of go-go push, especially leading into the $3 RIN period after the RFS first set rule. And now with the uncertainty from the EPA waiver last year, use of their general waiver. I think that that's caused a little bit of a lid on D3 pricing, limited access to capital. And to your earlier question, I really don't think that the voluntary market is that deep or at least we haven't seen it being that deep. So without access to offtake, I think it's really limiting what other developers are able to do. Sure, you'll still see other projects coming online, but I think sequentially, you'll see it maybe a little bit slower. Adam Comora: Yes. And if you don't mind, I just want to go back because I don't think I answered the second part to an earlier question on the free cash flow generation and slowing down growth and that sort of thing. I just want to stress that we are extraordinarily disciplined here at OPAL Fuels in terms of our capital deployment. And if we're not seeing paybacks of that 4- to 5-year period on new RNG project development, we are not going to develop those projects. We do have a strong advanced development pipeline of projects that meet our investment criteria. And we're going to continue to be disciplined and invest in those projects that we think are going to generate long-term value for our shareholders. And we'll continue to try and do a better job highlighting of discretionary free cash flow and that CapEx on our cash flow statement solely associated to new projects RNG projects or fuel stations or maybe an IT platform or something like that we're investing in. But we've always been disciplined in terms of the projects that meet that investment criteria, and we're going to continue to methodically find those projects that hit our investment criteria. Operator: Our next question comes from Betty Zhang with Scotiabank. Y. Zhang: I wanted to ask about what seems to be a shift to focus more on the downstream fuel distribution. So just wondering if you could elaborate a bit more on how you're thinking about the strategy? What factors are driving that and what that would entail? So is that just building more stations or what else, if you could share a bit more? Kazi Hasan: Sure. Let me take that one. The downstream segment, if Adam mentioned, John mentioned before, even in our prepared remarks, we do see a cash flow stream that's coming uncorrelated with the IFS market and RIN volume or prices. So it allows us to create a business segment that potentially will provide a lot more balanced earnings profile going forward, including cash flow profile. That is what we are looking towards to add value to our shareholders. And so that is the overall objective. And our business model also allows us to deploy capital with a very healthy cushion over our cost of capital in the downstream segment. And our business model, we have worked with the fleet owners and operators and have them to convert the diesel to CNG and RNG. So this is where we are going. We are going to create a balanced portfolio, which allows us to take advantage of both RFS market and the downstream CNG, RNG market. Adam Comora: Yes. And I would just say it's where we see a really attractive opportunity in terms of some open-ended growth. I know we spend a lot of time talking about RNG. But if you think about the diesel market here in the U.S., it's 45 billion gallons and natural gas is $1 billion of it today. And we think this is going to make sense for a lot of fleets. And we think the fuel station service segment will have a life of its own past RNG as -- once we start getting some of these early fleet adopters in there, and we understand the attractiveness of RNG because it not only saves money, but it also allows folks to achieve some sustainability goals. We're going to see more folks on the equipment side of things, economies of scale there, the premium of that tractor going down. And CNG is going to make a lot of economic sense for a lot of folks. If you go back to when the 9- and the 12-liter engine came out, those things were priced much closer to diesel from a tractor perspective. And when that starts happening, it's going to be an interesting market for CNG versus diesel. Jonathan Maurer: I would just add that it's just also more to the point that our vertically integrated business model presents opportunities on the upstream and downstream side where growth in one area supports the other and vice versa. And that's the condition we're seeing today, Petty. Y. Zhang: Great. And then lastly, if I could ask you to discuss your capital position and how you're thinking about funding needs over the medium term? Kazi Hasan: Yes. That's again, I think Adam already touched on it before. Our committed capital are within what we can afford from our operating cash flow and our existing liquidity resources. So if we look at our growth profile and the amount we have committed is -- you can actually look through our operating cash flow and available capital. All the new projects that we are going to be doing, we will be securing new capital in order for us to commit to new capital projects. So in general, we are very prudent of where we are committing our capital. Operator: That concludes today's question-and-answer session. I'd like to turn the call back to Adam amoro for closing remarks. Adam Comora: All right. We thank everybody for your interest in OPAL Fuels and hope you have a great rest of the day. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Good morning, ladies and gentlemen, and welcome to the Chorus Aviation 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 LaPierre. Please go ahead. Matt LaPierre: Thank you, operator. Hello, and thank you for joining us today for our Third Quarter Conference Call and Audio Webcast. With me today from Chorus are Colin Copp, President and Chief Executive Officer; and Gary Osborne, Chief Financial Officer. We will begin today's call with a brief summary of the results, followed by questions from the analyst community. As there may be some forward-looking discussion during this call, I ask that you refer to the caution regarding forward-looking statements and information found in our MD&A. This pertains specifically to the results and operations of Chorus Aviation Inc. for the 3 months ended September 30, 2025 as well as the outlook section and other sections of our MD&A where such statements appear. Finally, some of the following discussion involves non-GAAP financial measures, including references to adjusted net income, adjusted EBT, adjusted EBITDA, leverage ratio and free cash flow. Please refer to our MD&A for further information relating to the use of such non-GAAP measures. I'll now turn the call over to Colin Copp. Colin Copp: Good morning, everyone, and thank you, Matt. I'm happy to report that we continue to execute well on our plans and delivered solid financial results in the third quarter. We recently announced our second SIB this year with the intent of repurchasing up to $50 million of common shares. Year-to-date alone, we've repurchased $35.2 million in share buybacks. And since we started the program in 2022, we have committed $124 million to share buybacks when you include the most recent $50 million SIB offering. Additionally, this past quarter, we completed the redemption of our Series B debentures, which substantially completes our debt repayment plans and balance sheet restructuring. And today, we announced our second dividend payment of $0.08 per share for the quarter. I'm also happy to confirm that we've executed agreements to sell all 9 of The Dash 8-400 aircraft that we've been marketing for net proceeds of approximately CAD 86 million, unlocking meaningful value. The acquisition of Elisen was also completed this quarter, building on our specialized MRO and defense capabilities. Elisen adds industry-leading expertise to our engineering capabilities and will enable us to capture higher value opportunities and further strengthen the Voyageur business. Let me turn to the operating side of the business now. Doug and the Jazz team performed exceptionally well from both an operational and financial perspective this quarter, delivering solid on-time performance for the quarter and generating strong and consistent earnings. On October 23, we were excited to see Air Canada's announcement on the expansion of transborder routes and enhanced domestic service from Billy Bishop Toronto City Airport. Jazz is a proud partner of Air Canada and looks forward to operating the newly expanded routes. On the labor front, Jazz also announced recently that subject to ratification, it has successfully reached a tentative agreement with its union AMFA for the heavy and line maintenance employees. Pilot recruitment at Jazz remains strong with a healthy intake of new pilots and training cohorts from Cygnet. And this past quarter, Jazz has seen operational performance continue to excel across all key metrics, reflective of Jazz's outstanding service delivery and the team's expertise. On the Voyageur front, Cory and the team have been very busy and continue to execute on their long-term growth plans. They've been principally focused on growing their higher-margin business in defense, specialty MRO and parts sales. With the change in geopolitical environment, the UN and World Food Program flying contracts have seen increased cost pressures. And while Voyageur has been transitioning away from these lower-margin contracts, this change has motivated Voyageur to expedite their move to higher-margin opportunities quicker than originally planned. While this had a small impact on revenue, the expedited shift enables us to further improve operating margins and generate greater free cash flow. As well as shift frees up a couple of assets, which we plan to sell, further strengthening the business and Voyageur's revenue is still up year-to-date by approximately $10 million. On the growth side, Voyageur was recently awarded a contract by the Department of National Defense to provide a specialized aviation support to the Aerospace Engineering Test Establishment, AETE, operating out of Ottawa. Under the terms of the contract, Voyageur will establish a dedicated maintenance capability within AETE's hangars and provide a leased aircraft to support pilot proficiency and operational readiness. We're happy to report that the Metrea Dash 8-300 aerial firefighter aircraft was successfully completing its first certification flying in North Bay and the second aircraft is well under production now. The Cygnet team under Lynne's leadership continues to grow nicely and expand its industry footprint. In July, Cygnet announced its partnership with Porter Airlines and CAE to launch a new pilot training program designed to support Porter's pilot recruitment needs. Additionally, Cygnet recently signed a referral program agreement with Air Tindi and Summit Air as part of its free agent program. This partnership connects our Cygnet trained pilots with the real-world careers at these airlines. Cygnet has also recently entered into an agreement with Canadore College to launch an integrated pilot training program beginning in the fall of 2026. The program will provide graduates with both a recognized academic credential and one that is Transport Canada certified. To support the program, Cygnet will establish a permanent training and maintenance base in North Bay, leveraging Voyageur's facilities and maintenance expertise. With the acquisition of Elisen, under the leadership of Taif and Stéphane and with Elisen's unique engineering and certification expertise, Voyageur and Elisen are collaborating closely and looking at new growth opportunities in the defense and specialty engineering areas. Our steady progress and determination over the past 24 months has been on repositioning Chorus and our balance sheet, strengthening the value of our business, improving our profit margins, growing our free cash flow and ultimately driving shareholder returns. With the business realignment substantially complete, we're now focused on steady accretive growth and on driving shareholder returns. We see Chorus as a global leader and trusted Canadian partner with a diversified and expanding portfolio of businesses, leveraging our deep expertise in aviation, aerospace and defense, we are well positioned to build long-term value and generate free cash flows, enabling creation for our shareholders. I want to thank our employees and leadership teams across all our businesses for their dedication and execution and for driving our success. To our investors, thank you for your continued support. We remain focused on delivering long-term value and building a resilient industry-leading business. I'll now pass it over to Gary to take you through the financials. Gary Osborne: Thank you, Colin, and good morning. We are pleased to report our Q3 2025 results that continue to generate positive and strong earnings and free cash flows. For the quarter, we saw adjusted earnings available to common shareholders per share of $0.60, a $0.17 or 40% increase over last year, primarily driven by lower corporate costs, including lower net interest expense. Adjusted EBITDA was $51.6 million compared to $53.6 million last year, a decrease of $2 million, which was primarily due to lower aircraft leasing revenue under the CPA. Free cash flow of $33.2 million, an increase of $0.7 million versus last year, and leverage came in at 1.5 for Q3 2025 in the middle of our targeted range of 1 to 2. As Colin noted, this quarter, we continued to execute on a balanced and sustainable capital allocation strategy. We returned a combined $10 million of capital to shareholders through dividends and share repurchases, invested in strategic M&A through Elisen to support long-term growth and completed the paydown of our remaining Series B debentures for $28.7 million, further reducing future net interest expense. Prior to the quarter end, we also announced a substantial issuer bid for $50 million, which will expire on November 10. Our liquidity remains strong with $217 million available at quarter end, and we expect to realize net proceeds of approximately USD 20 million from the sale of 3 Dash 8-400 aircraft by the end of this year. Sales of the remaining 6 Dash 8-400s are expected to close between March and July 2026 with net proceeds of approximately USD 42 million. In October, we entered into currency forward contracts to hedge exposure on the net proceeds of these 9 aircraft sales at an average of about 1.39. Our U.S. to Canadian rate has been updated in the MD&A outlook section for Q4 2025 to reflect the forecast U.S. to Canadian foreign exchange rate of $1.38 from the previous $1.35 related to aircraft leasing under the CPA revenue and U.S.-denominated debt. The underlying lease amounts denominated in U.S. dollars remain unchanged from our last forecast. Our 2026 forecast rate of $1.35 remains unchanged. As Colin noted, we've seen a year-over-year increase in Voyageur's revenue for the first 9 months of 2025 of approximately $10 million. Included in that increase is an accelerated reduction in contract flying operations at Voyageur with United Nations and World Food Program, which is forecast to be approximately $13 million for this year. This reflects our shift in focus to higher-margin areas of the business. As a result, Voyageur's total revenue is expected to be in the $140 million to $145 million range, which includes about $8 million of intercompany revenue. Intercompany revenue is not included in the revenue figures in the MD&A. Our operating -- on the operating margin side, we are focused on Voyageur's bottom line, and we have seen an increase in operating margins for the first 9 months of this year versus the full year 2024 of about 100 basis points, moving from approximately 7.25% to 8.25%. As part of our focus on improved operating margins, Voyageur plans on selling or parting out 2 aircraft that were tied to the work at the UN and World Food Program. We are now ready to take questions. Operator: [Operator Instructions] Our first question today comes from Konark Gupta, Scotiabank. Unknown Executive: My name is Nathan. I'm filling in for Konark today. Congrats on a great quarter. Just have a few. To start, I wanted to mention -- you mentioned that Voyageur margin year-to-date is 100 bps better than full year 2024. Is that margin before or after depreciation and amortization? Gary Osborne: It's operating expense, so -- operating margin. So it's after depreciation. Unknown Executive: After depreciation. Okay. And then secondly, the follow-up is, how would the pro forma EBITDA margin look like going forward relative to your prior expectations you've shared with us? Gary Osborne: Yes. Voyageur even today is still producing at about 24% margins on its EBITDA. That hasn't changed. We don't really foresee that really changing at all. But our focus is on the bottom line with Voyageur, and that's why you can see in our disclosures, we put out the operating margin because the reality is the UN flying was marginal, and we're moving away from it, but it's a focus on the bottom line, not just cash generation. Unknown Executive: Okay. Okay. That's helpful. You also mentioned that you exited those lower-margin contracts amid some geopolitical uncertainty. Was it your voluntary decision to exit or also customers' willingness to make such changes? Colin Copp: Yes, it was -- it's Colin. Yes, it was our decision to essentially move out of that. We've been doing that in kind of a transition over a period of time and looking at the margins where they sit. But they've worsened quite a bit over the last little while, and we just made a conscious decision to make move quicker than we were originally planning. Unknown Executive: Okay. So it was a bit accelerated? Colin Copp: Yes. It's a bit accelerated, and it was our decision to do so. Unknown Executive: Okay. And just lastly, how do you feel about the rest of Voyageur's book of business considering some of the geopolitical stuff? Gary Osborne: Very good. There's very little in there that has any kind of downside. There's an awful -- that's less other than the -- talked about the UN and so on, but there's an awful lot of upside if you consider the current political environment and the growth and the recent budget announcements and the focus of the government. So I think what we would say on that point is that there's definitely more upside than there is anything at Voyageur for sure. Operator: Our next question today comes from Alexander [indiscernible], CIBC. Unknown Executive: I just wanted to touch on the November 2027 lease expiries, the 6 Dash 8-400s. So I see the minimum covered fleet is 80. So can you expect those to be re-leased? And when they do expire, can you remind me if they're fully unencumbered aircraft upon expiry? Colin Copp: Yes. So if you look at our fleet table, we have 80 is the minimum that Air Canada has in the fleet post the end of next year, and that's where we expect -- we're starting next year and certainly by the end of next year. And the 9 aircraft that are coming out today are planned to come out and they're not included in that 80, so the 9 Q400s. Thereafter, we do have some lease expiries. I think you're noting that we're in the end of 2027 and 2028. We don't have a commitment from Air Canada. But as we've said, the fleet that remains after these 9 aircraft exit are required in order to meet the 80 aircraft minimum. That's the only one. So we feel pretty good about it, but we don't have anything in hand. Unknown Executive: Okay. And sorry, can you just remind me, are they fully unencumbered when they come out of the lease? Gary Osborne: Yes, they are. All the -- so the debt is fully unencumbered at the end of the first lease. Unknown Executive: Okay. Perfect. And I also see that you had 2 fewer CRJ200s under Voyageur, and you also changed your CRJ200 from 15 to 8 in your other covered aircraft. Just do you have any color on that as well? Colin Copp: Yes. So I guess, so I'll start with the CRJs at Jazz. That's the planned reduction as part of the fleet reduction down to 80. So those CRJ200s have been parked or inoperative for a while. So there's really not a lot of news there. It's just the movement. And then on the Voyageur side, they've been -- we've talked about 2 aircraft that have been they're earmarking to sell as a result of the removal of the -- or the reduction in the UN and World Food Program business. So that's really what you're seeing in there. It's just more optimization of the capital stack down at Voyageur. Unknown Executive: Okay. Yes, that makes sense. And last thing. So that sounds like a lot of cash is coming in. Can you maybe disclose some of your capital allocation priorities with all that? Gary Osborne: So on the capital allocation priorities, I mean, we've been buying back stock. I think Colin alluded to it over $120 million committed at least with the $50 million SIB, so -- which is due to expire there early next week. So that's certainly a use of capital. We've also got certainly pay down of debt, which has been part of it. And then we've also -- we're looking at growth, and we continue to look through our M&A pipeline, and Colin can speak a bit about that, but it's in good shape, and we're hoping to continue to grow, but also look at return of capital programs like we've had. Operator: Our next question today comes from Jasroop Bains, TD Cowen. Jasroop Bains: Just one question for me. What opportunities do you see for Voyageur beyond 2025? With the release of the Canadian budget, do you guys see any opportunities within there? Any additional color would be helpful. Colin Copp: Yes. It's Colin. So there's significant opportunities. I think we've been kind of alluding to that as we've been going along here with growth side with Voyageur. I think the Canadian budget and the plans that they have there show that there's going to be a fairly big push within Canada to have Canadian businesses grow in that defense sector. So we're heavily involved in that, looking at that quite aggressively. We're really bullish on the growth opportunities there. And when you look at the amount of spending and the existing competitors in Canada that are in that defense sector, there's very, very few. So Voyageur is extremely well positioned, and we fully anticipate some growth here. I can't tell you when. I'd be speculating, but we fully anticipate growth as we move forward in that area. Operator: Thank you. There are no further questions at this time. I will now turn the call over to Matt LaPierre. Please continue. Matt LaPierre: Thank you, everyone, for joining today's call. Please have a good day. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the DiamondRock Hospitality Company Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to turn the conference over to Briony Quinn. Please go ahead. Briony Quinn: Good morning, everyone, and welcome to DiamondRock's Third Quarter 2025 Earnings Call and Webcast. Joining me today is Jeff Donnelly, our Chief Executive Officer; and Justin Leonard, our President and Chief Operating Officer. Before we begin, let me remind everyone that many of our comments today are not historical facts and are considered to be forward-looking statements under federal securities laws. As described in our filings with the SEC, these statements are subject to numerous risks and uncertainties that could cause future results to differ materially from what we discuss today. In addition, on today's call, we will discuss certain non-GAAP financial information. A reconciliation of this information to the most directly comparable GAAP financial measure can be found in our earnings press release. Turning to our results. Corporate adjusted EBITDA in the third quarter was $79.1 million and adjusted FFO per share was $0.29, each ahead of our expectations. Free cash flow per share for the trailing 12 months, defined as adjusted FFO less CapEx, increased approximately 4% to $0.66 per share. Comparable RevPAR declined 0.3%, exceeding our expectation of a low single-digit decline with each month of the quarter performing slightly better than expected. RevPAR outpaced both our weighted average STR class and our comp sets in the quarter. Occupancy was flat year-over-year and ADR declined 0.4%, both again slightly better than expected. Looking at our revenue segments, business transient led the way this quarter with almost 2% growth, while leisure transient declined 1.5% and group room revenue declined 3.5%. All year long, we had been highlighting the difficult group comparisons our portfolio would face in the third quarter, largely due to last year's Democratic National Convention in Chicago in August as well as fewer city-wide conventions in Boston. Despite this headwind, both of our hotels in Chicago were able to drive RevPAR growth in the quarter. Despite the slight decline in RevPAR, our out-of-room revenues increased 5.1%, resulting in total RevPAR growth of 1.5%. Total RevPAR grew in both our urban and resort portfolios. Food and beverage was once again a bright spot, both on the top and bottom line. F&B revenues increased 4%, with banquets and catering up almost 8%, while outlets were down modestly. Last quarter, we highlighted that our food and beverage margins expanded by 105 basis points. This quarter was even stronger with F&B margins expanding by 180 basis points, aided by our continued efforts in reengineering menus and focused staffing. Other contributors to the increase in out-of-room revenues in the quarter included spa, parking and destination fees, which were each up over 10%. Total hotel operating expenses increased 1.6%, resulting in only a 3 basis point EBITDA margin contraction and hotel adjusted EBITDA growth of 1.4%, which to date is an industry-leading result. Wages and benefits, which represent almost half of our total expenses, increased to just 1.1%. Now to highlight the resorts of our urban hotels and our resorts for the quarter. Our urban portfolio, which accounts for over 60% of our annual EBITDA, achieved RevPAR growth of 0.6% in the quarter. Total RevPAR growth was 150 basis points stronger at 2.1%. As expected, August was our softest month and September was our strongest with 6.1% RevPAR growth, showing gains in both occupancy and rate. The strongest RevPAR growth in the quarter was achieved by our hotels in Salt Lake City, New York, Atlanta and Chicago, which helped to offset some of the renovation disruption at the Palomar in Phoenix. Turning to our resorts. RevPAR declined 2.5%, but total RevPAR increased 0.4% on 4% growth in out-of-room revenues. Excluding our Sedona hotel under renovation and Havana Cabana, where we made the decision to accelerate a capital project during a lower occupancy period, resort RevPAR declined just 0.4% and total RevPAR increased an even stronger 1.7%. We continue to see a bifurcation in resort performance with the higher ADR resorts outperforming those with lower ADRs. We expect that performance variance will continue to benefit our luxury resorts for the foreseeable future. Although the top-line trends of resorts have received elevated focus, we believe it is most important to focus on bottom-line results. Despite a 2.5% decline in RevPAR at our resorts this quarter, EBITDA margins expanded by over 150 basis points with wages and benefits flat and total expenses down 1.5%. Said differently, our resorts made more money in Q3 '25 than they did in Q3 '24 on roughly the same amount of revenue. Before turning to the balance sheet, I'll make a few additional comments on our group segment. Group room revenues across the portfolio declined 3.5% in the quarter, with room nights down 4.5% and rates up over 1%. We faced tough comparisons, particularly in August. However, our hotels were quite successful in converting short-term leads to in-house groups. During the quarter, we booked 38% more groups for the balance of the year than we did the same time last year. Looking to 2026, our group pace is up in the mid to high single digits, and we entered the fourth quarter with almost 60% of our 2026 group revenue on the books, on pace towards the 70% we typically start with each year. Moving on to the balance sheet. Early in the quarter, we successfully refinanced, upsized and extended the maturities under our senior unsecured credit facility, the proceeds of which were used to pay off our last 2 mortgage loans. Our portfolio is now fully unencumbered by secured debt. All of our debt is fully prepayable without fees or penalties and with extension options, our earliest maturity is in 2029. Importantly, we have recast all of our debt to market rates, thus eliminating the overhang of below-market maturities on our FFO per share growth for the next several years. Inclusive of interest rate swaps, 30% of our debt is fixed rate and 70% is floating rate, a notable advantage in this declining interest rate environment. We have paid a quarterly common dividend of $0.08 per share to date this year and expect to declare an additional stub dividend for the fourth quarter. At the midpoint of our updated guidance, our current dividend to FFO per share payout is approximately 30% as compared to just under 50% in 2019 as we continue to utilize a portion of our net operating losses to offset our taxable income. During the third quarter, we utilized our free cash flow to repurchase 1.5 million common shares at an implied cap rate of approximately 9.7%. Year-to-date, we have repurchased 4.8 million common shares for $37 million or $7.72 per share on average. We anticipate ending the year with over $150 million of cash on hand and continue to view the repurchase of our common shares and/or the redemption of our 8.25% Series A preferred shares to be highly attractive uses of capital in this environment. Before turning the call over to Jeff, I'll wrap up my comments with our updated 2025 guidance. We are maintaining the midpoint of our RevPAR and total RevPAR guidance while tightening the ranges. This revision implies a slight decline at the midpoint in the fourth quarter. However, in light of the continued success our team is having controlling expenses, we have raised the midpoint of our adjusted EBITDA guidance by $6 million to $287 million to $295 million and raised the midpoint of our adjusted FFO per share guidance by $0.03 to $1.02 to $1.06. With that, I'll turn the call over to Jeff. Jeffrey Donnelly: Thank you, Briony, and thank you all for joining us this morning. I want to start by congratulating our hotels and our team at DiamondRock for their hard work and ingenuity to deliver another quarter of results that exceeded expectations. In the last month, our portfolio has been awarded several prestigious honors, a handful I'd like to share here. Cavallo Point was recognized with 2 Michelin keys, The Gwen was honored with 1, and Lake Austin Spa Resort was again named the #1 destination spa in the United States by Conde Nast. Well earned, and congratulations to the teams for these rare achievements. While we have unwavering pride for every Diamond Star TripAdvisor rank and top meeting hotel honor and the demanding work that goes into delivering the service to earn those awards, our North Star at DiamondRock remains driving outsized free cash flow per share. To us, it is simple. We are in the business of making money for our investors, and driving outsized free cash flow per share growth has, over time, historically resulted in outsized total shareholder returns. The accolades are not the end game, but they are an aspect of delivering on our promise to shareholders. At DiamondRock, we strongly believe in the alignment of interests. So 100% of our officers' performance-based long-term equity incentive awards are tied to relative total shareholder returns and common equity is a component of every employee's compensation. We believe in being efficient with our shareholders' money. And in that regard, our G&A per owned hotel is nearly 45% below our peer average. It's one of the many ways we work to preserve capital. I'm going to focus my comments today on the strategy behind our differentiated CapEx program, the current transaction environment and how we intend to participate in it, our view on the remainder of 2025. And lastly, I will provide some context around our outlook for 2026. The strategy behind our CapEx program has become a key discussion point with investors and analysts as they lean into what differentiates DiamondRock versus our peers. Between 2018 and 2024, we executed 4 strategic upbrandings, 2 unbrandings and 9 life cycle renovations, yet spent approximately 9% of revenues on CapEx. In the last 3 years, we have spent just 7% of revenue on CapEx, while peers have spent 10.5%, an over 300 basis point spread. In dollar terms, that difference is over $100 million or almost $0.50 per share on our stock. We are often asked how we can target annual CapEx spending at 7% to 9% of revenue when our peers repeatedly choose to spend 10.5% to 11% of revenue and some even up to 14%. First off, with only 5% of our hotels brand managed, we have a competitive advantage of exerting more control over the scope and timing of renovations. As owner, we are in the best position to determine the balance between operating performance, value creation and capital expenditure, not the brand manager. We are making capital decisions that will drive our outperformance and maximize our total shareholder return. They are playing a different game. They're paid off the top line, understandably focused on brand standards, but less concerned with an owner's ROI. So how is it we keep our CapEx spending so efficient? It's important to mention that hotel brands typically mandate room renovations every seven years. We work hard to elongate that cycle and reduce the cost of renovations when undertaken. How do we elongate the cycle? Strong RevPAR index and bottom-line profits evidence your product remains competitive. Performance matters. With it, we can justify a lighter and less frequent renovation. An extra 2 years on our renovation cycle is a 28% reduction in our average annual expenditures. How do we reduce the cost of a renovation? Our hotels on average are newer, so they're more code compliant with fewer surprises behind the walls. Our internal design and construction team plans our renovations at least 2 years in advance to target precise timing to minimize profit disruption. The longer planning window gives us time to fine-tune and negotiate the scope. Supply chain is monitored. We analyze how improvements can increase labor productivity and boost profitability. Every single fixture, surface covering and piece of furniture is reviewed for their cost design and durability. We assess what components can be kept and what can be refined. Our Kimpton Palomar in Phoenix is a prime example. This is the #1 hotel in the downtown market, and we recently completed the hotel's first room renovation since opening in 2016 at a cost of just $21,000 per key, and it looks terrific. In our view, if the asset still looks fresh, competes effectively and is operating efficiently, then we do not need to renovate every 7 years. It's simply not a prudent use of our shareholders' capital to play a role in someone else's design war. To be clear, we are not anti-brand. Branding is a choice. And in the right circumstances, brands deliver exemplary performance. Instead, I would say we are pro flexibility. The way we have chosen to invest in our portfolio preserves capital for investment and has translated to FFO per share and free cash flow per share outperformance. Based on the midpoint of our raised guidance, our 2025 free cash flow per share would be 2% above our 2018 level, while peers averaged 30% below. Now this isn't to say that we don't like a strong ROI project. We do. They can provide a great risk-adjusted return. Take our recently completed The Cliffs at L'Auberge, which is now fully integrated into our adjacent property, L'Auberge de Sedona. In the first full quarter post renovation, The Cliffs realized a 65% ADR increase. As we look more broadly at the market, we are incredibly pleased to see that The Cliffs' RevPAR Index increased to over 130 from a level of 108 last year. Importantly, over that same period, L'Auberge de Sedona maintained its RevPAR index at over 160 within its own luxury comp set. Meaning one hotel is not taking from the other, but together have become one stronger integrated resort. The group sales team at L'Auberge has been busy. The group revenue pace is up approximately 25% in the fourth quarter and up 55% in 2026. Standardizing product quality and combining the hotels has created a stronger group channel than either hotel enjoyed on its own. As a reminder, we spent $25 million on this renovation and remain quite comfortable this ROI project will achieve a 10% yield on cost at stabilization. We are hosting a tour of the integrated L'Auberge ahead of Dallas REIT World, and we look forward to showing those in attendance what a DiamondRock ROI project looks like while experiencing the unparalleled hospitality of L'Auberge. With respect to the transaction environment, we continue to underwrite acquisition opportunities, mostly group-oriented hotels, urban select service hotels and resorts. While we had our eye on a few potential candidates this past quarter, we did not feel the ultimate pricing was defendable after considering realistic CapEx needs versus where our shares are trading. In general, we see upper upscale resorts with asking cap rates in the 7% to 9% range, but inclusive of near-term CapEx needs, the all-in cap rate was closer to 5% to 7%. Similarly, the ask for luxury hotels remains in the 5% to 7% range or about 4% to 6% all in. At that pricing, our strong preference is to reinvest in the luxury and upper upscale hotels DiamondRock already owns through share repurchases. On the disposition side, we continue to have active conversations around the disposition of a handful of our assets, and we expect to remain active in the market in the coming year. We have nothing to share at this time, but we believe we will see elevated capital recycling in the next 12 to 18 months compared to our history. Now to our outlook for 2025, as Briony noted, we are raising the midpoint of our adjusted EBITDA guidance range by 2% and raising the midpoint of our FFO per share guidance by 3%. Our new guidance reflects our better-than-expected results in the third quarter and a slightly moderated expectation for the fourth quarter, predominantly due to the impact of the federal government shutdown. To look forward, it helps to look back at how we got here. We knew about a year ago that our third quarter comp would be difficult, and we aggressively worked to chip away at that deficit. Heading into the third quarter, our group revenue pace was down 9.6% from the prior year, yet we exited the quarter around 600 basis points better. Our operators pushed hard to drive profitable short-term group business. On the transient side, our revenues were essentially flat and in line with our expectations. Making our way to the bottom line this past quarter, I was incredibly pleased with the results our operators and asset managers delivered. Our team is driven to be innovative in their efficiency and productivity efforts, and we were successful in that execution once again. When you look back at our fourth quarter last year, you will note our RevPAR and total RevPAR were up in the mid-5% range, making the fourth quarter our toughest revenue comparison of this year. Our playbook for Q4 remains the same as it was in the third quarter, identifying new strategies to drive revenues and grinding away to realize expense efficiencies. It's our team's tenacity from DiamondRock asset managers to our hotels teams that results in exceeding expectations and driving free cash flow per share. The federal government shutdown has increased uncertainty with respect to short-term group pick up, attrition and on-time transient guest arrivals. In this regard, we have seen our group revenue pace for the fourth quarter take a small step backwards from October to November. As I mentioned earlier, we have slightly moderated our fourth quarter forecast and our 2025 guidance to recognize that the impact of the shutdown is building. Our guidance assumes the shutdown is resolved in short order and travel resumes its normal cadence. Looking ahead to 2026, it is difficult not to be excited about the trajectory of the lodging industry and specifically for DiamondRock. The industry's tailwinds are well known at this point with easier comparisons created by Liberation Day, the country's longest federal government shutdown, the holiday calendar, the United States' 250th anniversary and an improvement in net inbound, outbound international visitation. I'd like to take a few moments to focus specifically on tailwinds unique to DiamondRock. First, our renovations this year are expected to negatively impact our 2025 RevPAR growth by approximately 75 basis points, creating a built-in tailwind to start 2026. We have previously highlighted our expectation that the ROI project at The Cliffs at L'Auberge should drive an incremental 25 to 50 basis point RevPAR tailwind in 2026 on its way to a 10% yield on cost. Second, we have the highest exposure to FIFA World Cup games based upon the importance of games per our recent analyst report. We expect compression around these games to be material and create a compelling rate story for DiamondRock next summer. Third, in 2026, we have a solid base of group and contract business, which typically accounts for 35% of our total demand, with group pace up in the mid to high single digits. We expect to be able to tell you our hotels achieved new highs for group revenue sequentially in 2024, 2025 and 2026. Top line growth does not mean much unless it makes its way to the bottom line as free cash flow. We are among the very few full-service lodging REITs to achieve free cash flow per share growth since 2018, and we expect to widen that disparity versus our peers next year. 2026 is around the corner, but there's still much work left to do in 2025. We look forward to seeing many of you at conferences and tours over the next few months to update you on our progress. Thank you for your time this morning, and we are happy to answer your questions. Operator: [Operator Instructions] Our first question today will be coming from the line of Cooper Clark of Wells Fargo. Cooper Clark: It seems like you continue to make really strong progress on the expense side as cost controls continue to be a major focus for the sector. Could you speak to how much of this is driven by head count reduction? And if we should expect continued momentum on the expense control side into '26? Justin Leonard: Sure, Cooper. It's not necessarily head count reduction per se, although we have made some success on the contract labor side. It's really just been a persistent company-wide focus on finding additional productivity throughout the portfolio and finding ways where we can get our existing employees to be more efficient, which translates to less hours worked. So there's not one silver bullet there. It's, frankly, just a lot of blocking and tackling from the asset management team and from our operators. But simple things like just reducing front desk staffing during a 3-day group event when we have no check-ins and checkouts even though the hotel is full, those little things can cut hours work by a point or 2, and it really go a long way to mitigating year-over-year wage increases. Cooper Clark: Okay. Great. And then I guess as we think about some of the further value creation within the portfolio, how are you thinking about some of the recent or upcoming franchise expirations? And what are some of the options you're considering to maximize value there? Jeffrey Donnelly: This is Jeff. There's a few options. I'll let Justin refer to the Westin Boston. But there's a couple of situations that we have where our Kimpton Shorebreak in Huntington Beach, technically, that contract has expired. We have options to terminate upon sale in Phoenix. And I think in about 2 years, our Courtyard, which in Denver, which is really kind of a lovely building, it's a historical building that it's in, there will be flexibility there as well. So we look at all situations, Cooper, I mean, I think there will be some where there could be upbranding scenarios. There's some where maybe it's just better as an independent or sticking with the flag that we have. So we're really kind of looking at what drives the best return for us over time. But I don't know, Justin, do you want to kind of talk about. Justin Leonard: I mean I think in Boston, specifically where our franchise agreement is up at the end of next year, we're in the middle of running a brand RFP process with most of the major brands. I think we've been very positively impressed with the amount of interest. It's just very difficult for brands to get that kind of distribution in a major Northeast city attached to the convention center. So we're going to continue to evaluate the best option for shareholders going forward and whether that's a significant amount of inducements upfront or trading that in exchange for kind of lower run rate fees over the duration of an extended franchise agreement. Operator: And our next questions come from the line of Michael Bellisario of Baird. Michael Bellisario: Just want to stick with your CapEx theme. Just what projects looking out to next year on the docket, anything that would be disruptive or offset the 75 basis points of tailwind that you expect to recapture from this year's projects? Jeffrey Donnelly: No, nothing that stands out. Frankly, we always have projects going on. And I think pretty consistently, we've had about $2 million to $4 million a year of EBITDA disruption. And I think going forward, looking at 2026, I think it's going to be a very similar number. For example, our Courtyard Midtown East will have some renovation work done in the first quarter, but that's going to be comping against renovation work we did also in the first quarter at the Hilton Garden Inn in New York. So I don't think there's going to be any unique noise or cadence change to renovation impact in 2026. I think it will be a pretty clean year. Michael Bellisario: Okay. Understood. Helpful. And then just on your disposition comments, it sounds like you're going to be highly likely a net seller. So as you sit here today, do you take those proceeds? Do you lean into share repurchases? All else equal, do you build cash? Just kind of help us think about the earnings power and per share impacts looking out 12 to 24 months. Jeffrey Donnelly: Yes. It's a great question. I mean share repurchases are very compelling at this level. I think it's reasonable to assume that some component of it will go there. It's hard for me to forecast in the future what opportunities may be out there. But I think there's -- it's likely that share repurchases will be a beneficiary. I think it's possible that some could go into other assets if we can find situations where we see better growth and better yields because it's potentially a lot of capital that could be recycled down the road. It's hard to predict the timing and magnitude of dispositions. But again, we're always trying to find a way to maximize our earnings growth going forward and make sure that we're not sitting on too much cash for too long. I think that doesn't serve our shareholders well. Michael Bellisario: And then just one follow-up there in terms of disposition candidates. Is it -- do you think of more opportunistic asset sales? Or would it be more older properties, lower RevPAR, ones that are in need of CapEx? And that's all for me. Jeffrey Donnelly: Yes, it's a good question. It's a mix. We've had some unsolicited interest in assets that if it's at a compelling price, we would certainly consider it. And there's others that we're targeting for disposition that we just don't think are a good fit for us going forward. So it's honestly kind of a mix of assets that we're looking at. Operator: And our next question will be coming from the line of Smedes Rose of Citi. Bennett Rose: As you emphasize your ability to drive margin in a relatively flat RevPAR environment is impressive. And I just wanted to ask you, just in general, how are you thinking about just the pace of labor costs for 2026? What's kind of built-in and presumably, you can continue to find efficiencies? But what do you think just wages and benefits could pace at that? Justin Leonard: I think we're probably not going to see the same 1% that we've been able to achieve, I think, on a year-over-year basis as we start to comp some of the efficiency gains we found this year. But we don't -- outside of New York, which rolls in the middle of the year, we don't have any significant union exposure in terms of fixed labor bump up that we're necessarily worried about. And I think we're now kind of turning our focus away from line level labor and more to administrative and sales labor. I think that's become a big focus of every company. It's just as you sort of lean into additional efficiency tools in the forms of AI, how do we make more streamlined processes that may allow us to use a little bit less labor overseeing the assets on an asset level basis. So the hope is that maybe that can mitigate some of that what would otherwise be probably 2.5% to 3% growth and some of the middle of the P&L efficiency can continue to drive less than run rate on the wage side. Bennett Rose: And then, Jeff, you mentioned that you have a solid exposure to FIFA next year. How are you guys, I guess, positioning yourself into that? Are you selling room blocks into FIFA games? Or how are you sort of looking to take advantage of that? Justin Leonard: I think it really depends on the market. I think we're being very cautious with it, candidly, until we see the actual teams that drop for the particular locations. I think we're well aware that if we get Cote d'Ivoire versus Qatar, it's probably not going to be the demand generation that Germany against Argentina might be. So I think it's -- in the short term, we're just -- we are in some of the blocks. We frankly haven't put them in a lot of our pace numbers. If they are, they're in there pretty heavily washed. And I think once we see the team grouping develop, we'll have a better sense of what the real compression is going to be. Operator: Our next question will be coming from the line of Austin Wurschmidt of KeyBanc Capital Markets. Austin Wurschmidt: Just going back to your comment, Jeff, on elevated capital recycling. I guess, can you provide a range for the number of hotels or maybe a dollar amount that you're considering? And then given the comments or the cap rates that you cited, do you think that you can effectuate the capital recycling in a neutral or accretive manner? Or is this something you'd be willing to kind of sacrifice near-term earnings dilution maybe for a better growth profile? Jeffrey Donnelly: That's a good question. I don't have a great answer for you because there are some assets that we have -- and we've talked about them in the past that candidly kind of skew to the smaller side, and there's some that we've talked about in the past that are very large and very chunky. So it's just -- it's difficult to give a number that I think would be beneficial for you. But in the past, we've kind of talked about there's sort of 2 to 3, 2 to 4 assets that we've looked at. But as I mentioned, there is some interest in -- unsolicited interest in some of our what I would describe as core assets as well. And it's just a function of whether or not we can achieve pricing there that would work for us. So I don't have a specific number for you, but we're trying to be opportunistic about execution. As far as recycling, that's our intent is to try and do this in a way that is an accretive manner to shareholders. That would be beneficial to us, particularly when you think about it is, as I mentioned before, like the capital costs that you're effectively selling off versus those that you're taking on with the new asset. So it's fully intended to be accretive to our earnings story as opposed to dilutive in the name of quality. Austin Wurschmidt: That's helpful. And then, I mean, would you expect kind of this recycling to change the profile of the company in any way by either business segment or exposure? Is that the intent? Jeffrey Donnelly: It could be the outcropping of it, but I wouldn't describe it as material -- well, I wouldn't describe it as material. I mean we've talked in the past about Chicago Marriott as being a potential disposition. I mean it's our single largest asset. So to the extent we are successful in some time frame of selling that asset, it would certainly shift our geography and some of our exposures. But again, it sort of hinges on whether or not those come to fruition. So that's why I say it can -- it's hard to say definitively. Austin Wurschmidt: Got it. And then just last one. I mean, within the resort portfolio, I was curious, what percent of the EBITDA would you characterize as kind of high ADR that you said is performing much better? And how wide is the performance variation between kind of those 2 buckets of high ADR versus low ADR assets? That's all for me. Jeffrey Donnelly: Thanks. We've done sort of an analysis where we had looked at properties that had RevPAR that was sort of -- or ADR north of $300 versus below $300. And I think the gap between those 2 was about 500 basis points. So it's been a pretty wide bucket. And I'm just eyeballing this like in the third -- in just our resorts, if that's the bucket that you're looking at. I think if you look like in the third quarter, for example, I think our luxury resorts were about 60% of the resort EBITDA just among all resorts. Operator: The next question we have is coming from the line of Chris Woronka of Deutsche Bank. Chris Woronka: I guess, Jeff, on the resource side, you guys have had, I think, overall, slightly better experience this year than several of your peers. And I know a lot of that credit goes to your operations team and your original site selection. But the question is kind of do you think there's something about the resorts you have collectively, whether it's size or specific market or segmentation that's allowing them to outperform? And secondarily, are you seeing -- have you seen or are you seeing any changes in booking windows or sourcing or pricing or anything like that at those resorts? Jeffrey Donnelly: Yes, I'll take a stab. And if Justin wants to chime in, he can as well. I guess one of the observations I would make is that in a lot of cases, we are sort of the best game in town. Whether you think about sort of Sedona or Destin or Tahoe or Sausalito or what have you, some of these markets that are candidly don't fit the bill of being in Orlando or more sort of top 10, top 20 market. I think it's beneficial to be not only sort of maybe the only game in town or the best game in town, but it's really sort of a unique destination and it's not as competitive, I would say, that's one thing. I don't know. Justin Leonard: I mean I think the other thing that's worth looking at is we talk a lot about differentiation amongst our resorts, but our resort ADR over the course of the year in totality is roughly $400. Like we just don't have a lot of lower-end exposure to the resort space. I think seasonally, like we -- our exposure to sort of the mid-price customer is like August and South Florida. It doesn't mean that those hotels are necessarily mid-priced hotels. It's just there's a moment in time where we kind of cater to a different part of the population. But I think in the aggregate, we kind of have a higher-end resort exposure, which has done better given what we've seen kind of the differentiation in economy. Chris Woronka: Okay. Fair enough. And just as a follow-up, you guys have -- I think it's 3 assets in New York City, and I think 2 of them are doing pretty well year-to-date. I'm not sure if there's a renovation at the third one coming next year. But the question would be, we've obviously seen an election result, and I'm curious as to whether you guys, yes, adding the benefit of seeing what's going to happen, does it make you more or less bullish on New York? And secondarily, do you have any kind of contingency plans in place should there be -- should things get a little less calm in New York? Not saying I expect that, just I'm sure it's something you guys give thought to from a planning perspective. Jeffrey Donnelly: It's a good question. I guess I would say my initial reaction is I'm not sure how much is going to affect things. I understand that there's a lot of -- on both sides, there's always a lot of campaign promises made, but not all of them can be realized either. So yes, we'll see what comes to pass. I mean, hopefully, it brings sort of more energy to New York City going forward. I'm not sure that's really going to change as sort of a financial capital for the world. But -- and a lot of what's being discussed there, I'm not sure how directly it impacts us. But fortunately, we're in a position where we're very nimble. I mean, again, these are all sort of third-party managed franchised hotels. We can be very flexible and pivot well. And I think being all-select service provides some advantages to us as well. Operator: [Operator instructions] And our next question will be coming from the line of Duane Pfennigwerth of Evercore. Duane Pfennigwerth: Just on your group commentary, maybe you could remind us if your target mix has changed at all, if the target for next year is different maybe than it has been in years past? And then the profile of your groups, corporates versus social, average group size, any industries that might stick out from a recovery perspective? Obviously, it's a little bit more complicated at the moment with the shutdown. But clearly, given the change that you kind of came into 3Q with, with your commentary about pacing on 2026, any industries or types of groups that stick out in terms of that recovery that you were seeing? Jeffrey Donnelly: Facetiously, I want to say those that pay the most. But no, I would say like from a mix standpoint, I mean, I don't expect any dramatic changes as we go into next year. I mean, oftentimes, hotels are always well served by having as much group on the books as possible, generally speaking. But I don't expect there will be a dramatic change. I'm trying to think about it as industry groups. I mean we don't have a lot of government, for example. I think we've always kind of estimated that it's about 2% of our overall business and within our group segment. So I don't think that's going to change. And if it does, it probably goes lower. But I'm trying to think other industries, it's pretty broad-based. I mean we're not just social group that we have, but in the corporate side, it's across different industries. We do financial services off-sites in Sedona. We do sort of tech sector off-sites in Sausalito. And certainly, in Boston, we participate in all the citywides that come to that convention center. That's a big chunk of that demand. Yes, it's all sorts of things. Like Western Fort Lauderdale, there's a boat show. So I don't see a lot of those types of businesses or the pieces of business is changing year-to-year at this point, so. Duane Pfennigwerth: Okay. And then maybe just for my follow-up, you gave some industry tailwinds from a comps basis. You gave some portfolio-specific tailwinds. Any -- would you venture a guess in how that adds up to a specific initial look on 2026 RevPAR? Jeffrey Donnelly: No. We're actually just early in the process of doing budgets truthfully. So I appreciate the ask, but I don't want to hazard a guess at this point. Duane Pfennigwerth: All right. We'll try and read between the lines here. Operator: Our question will be coming from the line of Kenneth Billingsley of Compass Point Research. Kenneth Billingsley: So a question is, I know you talked about RevPAR growth doesn't matter if you can't get it to the bottom line. And just looking at this quarter versus last, F&B and other revenues as a percentage of total revenues was up about 120 basis points. Is there an expectation that you can continue to increase revenues from them? And part 2 of that is, are you able to control the expenses? Are the margins better on that, so we'd actually see an increased flow to the bottom line? Jeffrey Donnelly: It's a good question. I think earlier in the year, we really began an initiative to be constantly reworking menus, staying on top of menu pricing just given the volatility of what was going on in food costs. So I think that's one of the reasons why we've continued to benefit this year through better F&B production, whether it's outlets and banquets. I'm not going to say that it goes on forever that you can always be growing your F&B better than your room revenue for years and years and years. But near-term, it's something that we're working on, and it's something that you can adapt very quickly. So I'm optimistic that we'll continue to have some success there. Briony Quinn: In particular, this quarter, the reason why you see the uptick in the percentage of F&B was really just the function of us having a lot more in-house group this quarter as compared to last quarter when it was more citywide based. So there's a lot more group contribution this quarter in our F&B. Kenneth Billingsley: And then also on the other line, kind of what all, parking and maybe some other things -- be careful about what we mentioned. But what are some of the things that are included in other that don't have additional expenses associated with them or increasing expenses? Justin Leonard: I mean I think other for us is predominantly parking. We have a fairly significant spa business at 3 to 4 hotels. And so we saw a nice uptick double digit on our spa revenue and then the other that falls in there are just resort and destination fees. So I think the nice thing about all of those revenue streams is they tend to also be non-commissionable. So the costs associated with them are pretty much fixed. So if we can move parking $5, for instance, or we can move the cost of a spa treatment up $10, most of that does flow to the bottom-line. It doesn't really change the cost model of providing the service. Operator: And our next question will be coming from the line of Chris Darling of Green Street. Chris Darling: Just hoping to get your bigger picture thoughts around the steep NAV discounts at which lodging REITs trade, you and your peers, potential privatizations. Do you think there's an appetite for large-scale portfolio transactions today? And if not, do you think that might change going into next year as some of the tailwinds you mentioned ultimately come to fruition? Jeffrey Donnelly: Yes, it's a good one. I think there is an appetite. I think for a while there earlier this year, it probably had a little bit of a pause. I think it's coming back because I think there's an expectation that RevPAR growth is going to be stronger next year. Interest rates are coming lower. So it feels like probably a better environment where they could sort of strike and get the growth that they need to sort of drive the returns that private equity would need if you were looking for those types of situations. The only thing I would just caution, and I say this to everybody is that ultimately, a lot of that math works where you can drive financing on assets. And for financing, you need cash flow. Effectively, it's very hard for people to kind of underwrite assets in markets where cash flow is not recovered. It's one of the struggles even we have when we look at some of the markets. For example, like on the West Coast, where you can have RevPAR recovering but assets still losing money. That's very hard from a pricing standpoint. And I would say that applies to public companies, too. So it's just something to note, I guess, I would say. Operator: At this time, I'm not showing any more questions in the queue. And I would like to turn the call back to Jeff for closing remarks. Please go ahead. Jeffrey Donnelly: Well, I appreciate everybody joining us today, and I look forward to seeing all of you at Nareit. Thank you. Operator: This does conclude today's conference call. Thank you for your participation. You may now disconnect.
Antonio Alonso-Muñoyerro Hernández: Good morning, everybody, and welcome to TR's 9 Months 2025 Results Presentation. It is going to be conducted as usual by our Executive Chairman, Juan Lladó; and our CEO, Eduardo San Miguel. It's going to last approximately 20, 25 minutes. And afterwards, you will be able to post your questions after our Chairman's final remarks. And now I leave the floor to our Chairman, Juan Lladó. Juan Arburua: Hello, everyone, and thank you, Antonio, and good morning, and thank you for joining us today on our 9 months results presentation for this 2025. As always, Eduardo San Miguel and I will guide you through the most relevant issue that have taken place this first 9 months of the year. First, Eduardo will summarize the main highlights from our very recent Investor Day. And second, I will dive a little bit into our current commercial pipeline. And I will be followed by Eduardo, who will guide you through our financial results. And as always, again, I will wrap up the presentation with some financial remarks and our financial guidance. And now Eduardo, you have the floor. Eduardo San Miguel Gonzalez De Heredia: Thank you, Juan. Good morning, everyone. I know well most of you are aware of the contents we covered in our October Investors Day. But for all those that could not attend the meetings, let me devote now a couple of slides to summarize the key messages. Let's start with Services and Power. Regarding our new business line of engineering services, we are already halfway towards our 2028 target of EUR 500 million of revenues. In fact, we expect this year to have around EUR 230 million in revenues and over EUR 300 million of awards. We are prioritizing our engineering service business line because of 2 reasons. First, because it delivers higher margins and has a lower execution risk. The 30% margin we announced in Abu Dhabi when we launched our SALTA strategy is aligned with our actual results. And second, because through value-added engineering services, we are repositioning Técnicas Reunidas in the market. Clients perceive us as long-term partners that contribute to design together with them their future investments. In the Power business unit, we have significantly raised our ambition. Between 2020 and 2024, annual revenues averaged around EUR 300 million. Now looking ahead for the next 4 years, we are targeting over EUR 1 billion per year. This shift is driven by a combination of secure contracts, backlog and a strong commercial pipeline. There is a huge demand for electrification. Both artificial intelligence and governments seeking for a cleaner energy are pushing this demand. Our expertise, our track record, the geographical footprint and the close relationships we have with the EOMs are solid reasons to believe our EUR 1 billion target of revenues per year shouldn't be a major challenge. If we move to North America, my message is we are making solid progresses in the region. A key milestone achieved has been the signature of a strategic alliance with Zachry. This partnership with a company that highly complements our capabilities will unlock opportunities in the LNG and power segments in the United States. But also, we have signed engineering framework agreements with most of the major U.S. oil and gas players. Through those frame agreements, plus the project co-development we are already involved in and the FEED conversions, we expect our first big projects to come in the U.S. late 2026 or early 2027. When it comes to decarbonization, Técnicas Reunidas is more than ready for the future. Very few projects have been launched this year. But if there is one that deserves a very special attention is the Yanbu Green Hydrogen cluster that will FEED the green corridor of hydrogen between Saudi Arabia and Europe. This project will require the construction of the largest ammonia plant in the world. And the FEED and potential rollover to EPC has been awarded by ACWA to Técnicas Reunidas together with our partner, Sinopec. And finally, through artificial intelligence, digitalization and robotics, we are unlocking a new source of revenues and also improving our competitiveness. Our goal is 1% of cost savings by 2028. I'm confident that this goal will be achieved, thanks to over 150 professionals with extensive engineering, procurement and construction experience that today integrates the digital team. And now Juan will analyze our current pipeline. Juan Arburua: Okay. Let's move into the next slide, the pipeline. This slide has a lot of information, numbers, maps, bars. So let's just see if we can make good sense out of it. The first and important message is that we have a very strong pipeline, EUR 36 billion -- I mean, EUR 86 billion, sorry. And EUR 86 billion is split into EUR 84 billion, which is EPC or EPC related, and that can be clarified, and EUR 2 billion on pure services, okay? That's one tranche of the pipeline. And we have to remember that pipeline are where we're bidding, where we're going to bid, where we have been selected or invited to bid, or even a rollover from FEEDs that will become EPCs or similar to EPCs in the near future. Those are jobs on which we're participating and we're close to the -- with the customer, which is important. And let me start with North America because North America, I do believe is a star. And why you do I believe it's a star because we would not have been in this slide 2 years ago. So the fact that we have 33% of the pipeline in North America, I think, very much reflects TR's strategy, transformation and repositioning, which is very important and reflects focus and a clear mind and a clear strategy. But we need some clarification as well because when we're talking about 33% of EUR 86 billion, don't think that it's pure EPC lump sum. That's not the way we do work, and that's not the way that the North American market works. It's going to be a mix of engineering services or engineering and procurement lump sum with construction management services. So it's going to be a mix that, in any case, would not be a pure lump sum EPC as we have understood or you may understand that we do in other parts of the world, more so in the Middle East. That is very important. That's why I wanted to start by North America. We have opportunities, as Eduardo has said, in all the fields, opportunities in LNG, opportunities in power and opportunities in important jobs related with decarbonization. And now let's move into the Middle East. Middle East is -- this is where we're strong. This is where we have a strong presence. And this is -- and it's a place that we like to be. We like to be because our quality and our presence allow us to be selective and allow us to be selective and focus on the jobs and on the customers with whom we want to work for. And what you have seen on the awards over the last year, we have been successful, very successful with very important customers on the upstream offshore business that we wanted to be. We have been extremely successful, as Eduardo has just reflected, on transition energy, green ammonia plants. And we have recently been very successful, which very much reflects our successful strategy on services. So in the Middle East, the pipeline is strong, is resilient and is growing. So it gives us a level of comfort for the near future. And Europe has been always less important to us. Today, it continues to be important. It's very much important on power. We'll talk about that later on. And obviously, on energy transitions where we have a very important presence. So this slide, I think there is a lot of information, but it is very important. It is where we are today and what is going to be our near future on 2026 and 2027. And let's move to the next slide. It is in the pipeline, but not in the backlog, some of the jobs that have been awarded to us, which are related to services, services that have been contracted on pre-FEEDS and FEEDs, but they have a natural -- and that's what we have agreed with the customers. They have a natural rollover as the project progresses into detailed engineering, procurement services and construction supervision. And that is going to happen. That's very important in North America, but also in other parts of the world and in the Middle East. Our repositioning into services translates and again, it's not in the backlog, that is in the pipeline into natural growth into more than $400 million on services, on jobs that we have -- we are already working. And we'll have to slowly roll over into detailed engineering into real projects. And in power, same story. And in power and very specifically, the best example would be power, although there are other products. It is Power Europe and more specifically, Germany and RWE. We have signed and the last one has been recently announced, 3 contracts with RWE, the main generation -- power generation company in Germany. The contracts are signed and the contract -- that means they have been signed by ourselves and by our partner. The first 2 is Ansaldo and the last one, we'll talk about that later on, is GE. That means that we have a contract signed, early activities have to start. Early engineering has to start as well. Engineering has to do for the balance of plant and the coordination, and pre-engineering has to be done with our partner, Ansaldo, in some of the cases, and GE in the last one. And eventually, when the full contract comes into force, it will become -- we'll have the backlog. Now its pipeline larger than EUR 1.4 billion. So that's better clarified on this slide because we have just announced it last week with the last award. And this last award that I just talked about a little before, it is with GE. We have been selected again by RWE for a hydrogen-ready combined cycle. What does it mean? It means that it will be a combined cycle that initially you could operate on a 50-50 mix of natural gas and hydrogen, and then moving forward, if needed, to 100% hydrogen. The contract has been awarded. Again, we have already started to work with them and with the GE on early activities and early engineering. It's not included in the backlog, and it will be included in the backlog when the contract comes fully into force. So this, again, shows both the good strategy, a successful strategy on the Service and Power that Eduardo has introduced to you a few slides ago. And now, allow me to pass the floor to Eduardo with the financial results. Eduardo San Miguel Gonzalez De Heredia: Okay. We closed the third quarter with EUR 1.8 billion of sales, 29% higher than the second quarter. This massive increase as announced in our Investor Day is due to the acceleration plans we are currently implementing all across our portfolio in the Middle East, plus the growth of our revenues linked to the Power division. EBIT of the period closed at EUR 84 million with an EBIT margin of 4.5%. It is the 12th quarter in a row that EBIT margin keeps growing. Moreover, this third quarter EBIT, EUR 84 million is 78% higher than the EBIT we had a year ago. I'm proud to repeat it, 78% higher than the EBIT we had 1 year ago. We are not blind. We're not blind. Existing market is giving us good opportunities to improve our margins. But I would like to emphasize also this strong performance is the result of 2 key factors: first, an outstanding project execution across our backlog; and second, the implementation of solid risk mitigation policies. Overall, these results reinforce our confidence in the trajectory we've set for Técnicas Reunidas. We are not growing for the sake of growing. We are growing with clear targets and efficiently. And let me repeat today my Investor Day message, the best is yet to come. And eventually, these are our balance sheet figures. Our net cash remains at EUR 427 million, a level that has proven to be more than enough to allow us growing and manage efficiently our business. You are well aware, our policy is to channel as much liquidity as possible to our suppliers and subcontractors. And regarding equity levels, we ended September in a robust position of EUR 698 million. So both equity and cash figures allow us to repay in advance the full SEPI PPL and the ordinary loan next December 1 as announced a month ago. And now let me give the floor back to Juan. Juan Arburua: Okay. My final remarks. Okay. I do believe it has been a short presentation, but a very important presentation. I think our pipeline and obviously, our year-to-date results, it fully reflects the success of our TR strategy, the strategy of transformation and the strategy of repositioning. As Eduardo has said, we're growing, but it's a quality growth. We're not growing for the sake of growing. We're growing with a focus and would target growth, and very important, a quality growth. A quality growth that allows me, allows TR, allows TR's team to present to you a guidance for 2025 with revenues above EUR 6.25 billion. keeping a 4.5% margin, which will result on an EBIT number in the neighborhood of EUR 280 million. And for 2026, which is next year, again, our revenues will be north of EUR 6,500 million with a margin above 5%. And with these numbers, with this presentation, we open the floor now to any questions you may want to post. And thank you very much for listening. Operator: [Operator Instructions] And your first question comes from the line of Kevin Roger from Kepler Cheuvreux. Kevin Roger: I have two, if I may. The first one is related maybe to the phasing of the backlog. You increased implicitly once again the top line guidance, while a month ago, it was already massive, thinking about the midpoint, plus 17%. So can you just give us a bit of more detail on why the top line is once again accelerating for the full year, now seen as EUR 6.25 billion versus EUR 6.1 billion a month ago, just to understand the dynamic here? And the second one is more broadly -- and tell me if I'm wrong, but I have the feeling that in the press release and in the comment that you made today, you are even more optimistic than a month ago with quite some strong quotes in the press release, in the presentation that you provided today. So just also, first, am I wrong saying that you are even more optimistic today than a month ago? And if it's true, what has, in a way, maybe changed? Is it the official award for RWE that is coming? Just to understand also the tones that you have today in my view. Eduardo San Miguel Gonzalez De Heredia: It's Eduardo. Thank you for the questions. Very good questions, both of them. The first one, I don't know if you're asking about the numbers. We had a backlog, it was EUR 3.5 billion. I think we have delivered EUR 1.8 billion. And we have added to that backlog volume. I don't know exactly the number. I think it was around EUR 0.6 billion that has to do with those acceleration plans, extension of times we were talking in the Capital Markets Day or Investor Day here in Madrid. But I think my -- your question is good. Why you are delivering more revenues than expected 1 month later? My answer for you is I have to tell you about my last two travels, one to Abu Dhabi and the other one to Saudi. I went to Saudi 3 weeks ago and to Abu Dhabi 4 weeks ago. And the message in both cases with the clients have been, there are another 2 projects we want to accelerate. And those projects that are already accelerating have to move faster. So we will see. It's a bit difficult for me to predict now the immediate figures because the pressure we are suffering from our clients to accelerate and to finish the project is huge. It's huge. So it wouldn't be crazy to see again the fourth quarter being very similar to the third quarter in terms of revenues. And also, you have to bear in mind that the U.S. dollar is stronger than it was 3 months ago. So it will have an impact both in the revenues and in the cost side, but it will finally increase the volume of revenues as well. So this business is alive. Every week, things are changing. And I have to be very honest to you, I feel huge pressure from my clients to accelerate more than feasible in any case. I mean we are doing the best to achieve very strong targets, very hard targets. So we will see how the figures -- the revenue figure will evolve in the forthcoming 3, 6 months. And regarding the optimism, maybe, Juan, do you want to... Juan Arburua: I think it's true. I've tried on the couple of slides that I presented to transmit optimism and probably more than I have done before. And probably more than I have done before because it's true that we're traveling a lot. As we do, our presence in North America starts to consolidate the conversations, the frame agreements, the invitations to bid, the success of the pre-FEEDs we are ready of finishing and moving into FEEDs. The FEEDs that we are finishing with our customers, they're moving into real projects. They will be moving into real projects, which means detailed engineering, procurement and construction one by one. I'm talking about North America. Power business, our invitations to bid, the size of the market, the strong relationship that we have with our customers, the market that we have to face in front of us, our position in a very important area that sometimes was criticized because some people would say that we had too much risk. Once we are well positioned, I'm talking about the Middle East, our capacity to grow in the Middle East with whom we want to grow, to move and to grow in services and to grow in transition is very important just that we have gotten in transition and power in the Middle East. And again, with whom we want to grow and allow us -- everything is paying off and allow us to be optimistic. We see end of 2025 this year, but we see 2025, 2026 and 2027 with far more optimism than we had. I'm not going to say 2 years ago, definitely 2 years ago, I'm saying that even 3 months ago. Operator: And your next question comes from the line of Juan Cánovas from Alantra. Juan Cánovas: I have two questions. The first one is how do you manage to carry out those project acceleration? How does it affect your costs, if you could give us some detail about that? And then just to make sure, is this contract in Germany with RWE and perhaps also some of the services pipeline expected to be signed into contract and add to the backlog during the fourth quarter of this year? Juan Arburua: Regarding the acceleration of the project, Basically, we can really accelerate this in the procurement phase and in the construction phase. In the procurement phase, we have been doing a lot of work in the last 6 months to be ready for the moment that the client finally decides to go ahead with the acceleration plan and compensate it. So that's the reason why you see such a quick acceleration in such a short timing because we have done a lot of job previously that now it is paying off. If we -- I'll give you an example. If I have fully designed a specific equipment and I put it in the market in 1 day, the job has already been done, but the effect that has this design in the progress of execution of a project is very relevant. very relevant. So we have a lot of job that you couldn't see before, but now it is being reflected in our accounts. So the acceleration cost has to do -- sorry, the acceleration of price has to do with accelerated procurement. So you also have to pay your suppliers to construct the equipment faster. And obviously, they need more resources. They need to procure the raw materials faster. So you need to advance them a lot of money also, but it is the way it works. And when we talk about construction, basically, the idea is what is being done by 1,000 people is double what can be done by 500 people. So what you need is more people, more people. So the idea is we are talking with all our contractors. We are telling them to increase as much as they can the human resourceables -- sorry, the human resources available at the sites. And when they don't have the capacity, we are talking to other contractors that will adapt the needed capacity. So we are splitting the scopes of the original contractors into different new contractors. So it's the way it works. I mean, we have also to multiply the size of people from Técnicas Reunidas supervising the construction. Everything has a significant cost, and that's what the clients are paying. I mean that direct cost for Técnicas Reunidas and for our contractors and suppliers. Regarding Germany and other service projects, are they going to be signed in 4Q 2025? No. No. Finally, no. It will be in the second or third quarter of 2026. Operator: And your next question comes from the line of Robert Jackson from Santander. Robert Jackson: A question related to the North American market. Are you seeing any signs of changes in sentiment regarding investments related to the energy transition projects compared with the last 6 months? I mean you've been talking about acceleration, especially in the Middle East, of your more traditional projects. But is there any significant improvement or are things the same as they've been this year in North America because there's still concerns about the impact of the tariffs on certain investments? I don't know is there -- can you just give us more visibility on the North American market? Joaquin Perez de Ayala: Robert, this is Joaquin. Let me say, in the low-carbon business, what we -- you know that we have always said that the opportunities that we are following have very good fundamentals and have -- are being supported by the strong partners, okay? So the first message would be that the opportunities that we are following are still being ahead, okay? And I would say, even reinforced because in the last weeks, we have seen, I would say, strengthening of the message of the partners that we work with, okay? That will be the main ideas. It is also true that some of the recent developments in the regulations are going to be clarified in the coming weeks, okay? And this is going to give, from our point of view, additional support to the projects that we are following. Robert Jackson: What about the timing of your services activity and your potential opportunities in North America? We expect -- could we expect in first half of next year or more towards the second half of the next year in terms of your pipeline in the U.S.? Joaquin Perez de Ayala: I would say that we will see good developments of our projects by the second half of the year for sure. Eduardo San Miguel Gonzalez De Heredia: And regarding the tariff... Juan Arburua: Let me, again, speak on this. I mean, obviously, this is -- I mean, the tariff business here is one day is one thing and next day is another. So I mean, I cannot do a very intelligent analysis of what's going to happen with the tariffs. But I can give you some feedback of what our customers have said to us. Eduardo and I, we were in the U.S. last -- Houston last week, and we were working on some projects, and we were studying with the customers some projects. Those projects have to be modelized. And they were saying that despite tariffs, which they are uncertain, the jobs are going to go through and models, they're going to be done, very large part of them, outside the U.S. And even with tariffs -- even if they happen with tariffs, it will be more competitive. So the message is with or without tariffs, the jobs will go ahead. That was the feedback that we got with the 3 customers that we sat last week in Houston. Operator: And your next question comes from the line of Mick Pickup from Barclays. Mick Pickup: A couple of questions, if I may. Just on the acceleration of the projects, how do you get paid for that? Is that bonuses if you get these done on new accelerated time frames? You just talk us through that. And secondly, you're talking about growth in the Middle East. Obviously, I've just come back from ADIPEC, and it's the first time in 5 years, I've not seen an E&C contract signed. I can see one bidding in Abu Dhabi and not much in Saudi Arabia. So can you just talk about the growth in the Middle East over the next 12 months, what we should be looking at there, please? Eduardo San Miguel Gonzalez De Heredia: How do they pay us as they used to? I mean, they have put a lot of pressure on us trying to accelerate. We have agreed the compensation, but they are not that generous in terms of schedule of payments. But it is a fact that in every case, we are receiving a kind of down payment. I mean they are advancing some money because the only way to accelerate is to put the money on the table to our suppliers and contractors. But being honest to you, I mean, this is not going to be much sooner. Antonio is suggesting me to tell you that it's going to be a pari-passu. I do not agree with him. I'm afraid we are going to advance some money to our suppliers, and then we will collect the money from our clients. But that's common. I mean the whole business is working in that way. There's nothing extraordinary in those acceleration plans. Regarding Middle East... Mick Pickup: Can I just add? So when the project is late, your client holds your feet to the fire and it costs you money. When you accelerate a project for a client, they don't end up paying you bonuses if you do it early. Eduardo San Miguel Gonzalez De Heredia: Sorry, I couldn't understand the question. Now I understand it. In some cases, what we have negotiated with the clients is that there would be an extraordinary compensation in case we achieve certain milestones in certain moments. But give or take, the overall agreement has more to do with, okay, we need to complete that in this period of time, and this will be the global compensation that has to be add up to the original value of the contract. So there are no significant differences in the way they treat the payments, okay? And the second question, Juan, maybe you want to... Juan Arburua: Yes, Mick, let me talk about the second question. I mean, in the very short term, we have in some countries. In the Middle East, we have presented bids, and we have good expectations. In some other countries, we're getting ready and sitting with the customers to prepare bids within the next 3, 4 months related to the upstream and even offshore business and where we have positioned ourselves quite strongly in some of those countries. In some other countries, again, the power bidding continues and positioning continues. I don't want to say country, but some other countries, what we call the growth in gas treatment out of nonconventional sources, again, is growing and is continually growing and they have big investment plans, and they have to continue growing to provide gas for the development of the country. So I mean, there is not a lot of noise of immediate bidding, but there is a lot of noise of big investments coming up in the very short term on both -- on power upstream and gas. I mean, offshore, I mean, upstream oil and gas. And let me tell you, we're better positioned than we have ever been. Operator: [Operator Instructions] And your next question comes from the line of Filipe Leite from CaixaBank. Filipe Leite: I have just two questions, if I may. The first one on working capital. And if you can give us more visibility regarding the working capital consumption of this third quarter? And how do you see working capital evolving in the next quarter? And last one also on cash flow, in this case, prepayments, and if you can give us the amount of prepayment booked by TR on 9 months?. Eduardo San Miguel Gonzalez De Heredia: Filipe, sorry, there are problems with the line, and we cannot hear you clearly. But we have listened working capital and prepayment. So I can imagine the question. If something happens, Técnicas Reunidas is a huge discipline that has to do -- with everything that has to do with cash, that's what's the definition. As you can imagine, being the CFO of this company for 20 years, the way I try to manage the company is with the highest discipline. Saying so, I know perfectly every euro is relevant for a company. But when you analyze the big picture that the company has grown its revenues compared to a year before around -- well, I told you 80% -- 78%, the total volume of revenues. When you see that our balance sheet, the balance sheet has grown. I mean, the account receivables and accounts payable around 30% compared to the figures we had by the end of year 2024. And it amounts around EUR 3.5 billion, I mean, of account receivables and of accounts payable. When you see how it works in business that milestones from time to time for a specific project are very separate one from the other. So it takes a long time to be invoicing your clients and then collect the money once you have already delivered -- sorry, not delivered. You have already been incurring the cost and from time to time, you have been forced to pay the contractor. I mean, it's a very difficult business, and it's of a massive size. So when we analyze the working capital quarterly -- on a quarter basis, every little movement, I don't know how much reflects our performance. I have to be honest with you. I do really believe that the quality, the way we manage our cash is the best possible. We have a clear philosophy that the money has to be, if possible, in the hands of our suppliers and subcontractors. And obviously, it has an impact in the working capital quarter after quarter. But believe me, if there is anything here is discipline with the cash. That's very clear to me. And you asked something about prepayments. Well, last project awarded to TR was the project in Abu Dhabi 7 months ago. So the inflows coming from prepayments this year have not been that relevant, and a large part has already been consumed. I don't have a figure with me now. But again, you used to ask me about prepayments, but you don't ask me about the withholdings of the clients, the retentions they do and they pay at the end of the project. You don't ask me about the prepayments I do to my subcontractors. You are missing many questions. And probably, we need to make a more complete analysis. But in terms of prepayments from our clients, it's a fact that there has been only one relevant prepayment this year. It happened 6 months ago, and a large part has been passed to our suppliers. Operator: [Operator Instructions] There are no further questions at this time. Please proceed. Juan Arburua: Okay. There are no further questions. So we can finish this presentation. Thank you very much for listening. Thank you very much for posing questions. It clarifies many things to all of us. And we'll be talking again, I guess, with the final year-end results by February. So see you all or talk to you all in February. Thanks again.
Tom Ward: Thank you, Brock. Welcome to Mount Natural Resources third quarter earnings update. Each quarter, it is important to reiterate the company's 4 strategic pillars. These are: number one, maintain financial strength. Our long-term goal is to have debt-to-EBITDA of around 1x leverage. We believe that being around a turn levered leads to financial stability throughout different commodity cycles while also providing the ability to flex upward if unique and transformative opportunities become available on the M&A front. That is what we've done with the IKAV, Sabinal transactions by breaking into 2 new basins. Post the IKAV, Sabinal acquisitions, we've moved up to above 1.3x leverage, a place that we would like to see come down over time in order to continue providing the best opportunities to toggle our acquisition lever and growing the company. We will more than likely wait a few quarters to see where our debt-to-EBITDA levels shake out. The easiest of all paths to leverage reduction is to have our EBITDA move up. We would like to give the market a chance for that to happen before taking actions such as decreasing CapEx to reduce debt or to use some of our CAD to do the same. We also continue to receive inbounds from PE firms who would like to trade their production to participate in our upside. We continue to be interested in this approach if the combination reduces leverage. However, having sellers take equity and open Mach up to 2 additional basins was equally important, especially given the size of the acquisitions compared to the amount of additional debt that we have incurred. Each of these areas now allows us to review more acquisitions in the sub-$150 million range in areas where we have established scale. These smaller acquisitions are where we have the ability to purchase at the highest rate of return. Additionally, we purchased Sabinal in a historically weak crude oil market with the strip in the low 60s, and IKAV has tremendous upside associated with the asset that we do not have to pay for or didn't have to pay for in our acquisition price. Number two, disciplined execution. We continue to only purchase assets that are available at discounts to PDP PV-10. We have accomplished this task 23 times and do not see an end to that requirement. If there does become a time where all assets are trading at a premium, that should be because of higher EBITDA. In that case, we could pivot to keep our production flat to growing through increasing CapEx for drilling from our increased operating cash flow. In fact, we can do that now even at today's current prices post the acquisition of IKAV and Sabinal. We show an example of that capital efficiency by lowering our expected CapEx 8% for 2026 without affecting our production guidance. Our projection for year-end 2026 and year-end '27 show modest growth with our current less than 50% of CapEx spend on our projected operating cash flow. Our company has been built on making acquisitions that provide free cash flow at distressed prices. That is why we continue to have an industry-leading cash return on capital invested. The most obvious example is the IKAV purchase. We not only bought the PDP at a discount, but we have targeted to move aggressively to drill both the Fruitland Coal and the Mancos Shale in our 2026 budget. Number three, disciplined reinvestment rate. We focus on returning cash to our unitholders. Therefore, we target a reinvestment rate of less than 50%. We are unique in being able to keep our production flat with such low reinvestment rate. The reason we can accomplish this is because our decline rate is only 15%. Therefore, it doesn't take a lot of reinvestment to keep our production flat while sending cash back to unitholders. We also have the luxury of choosing whether we drill natural gas or crude oil depending on the price. In May of this year, we ceased drilling our high rate of return Oswego inventory in favor of our drilling program to focus on gas. Our oil inventory is almost entirely HBP, so we can patiently wait for oil markets to recover to reintegrate those projects into our development plans. Our development plan for 2026 is currently targeting dry gas projects in the Deep Anadarko and the San Juan. We make drilling decisions every month by maintaining contracts that can be altered or eliminated quickly with our service providers. We also have the ability to increase or lower our CapEx depending on pricing as we did this year. By making acquisitions that focus on free cash flow and acquiring future locations at no additional cost, we have built a tremendous amount of backlog of both oil and natural gas locations. We now have an inventory on our nearly 3 million acres that will be hard to drill in any reasonable time frame while maintaining our reinvestment rate. We do not plan to alter our plan to reinvest less than 50% of our operating cash flow. Therefore, we might look for a drilling partner in our massive holdings of land in the Deep Anadarko and the Mancos Shale drilling. If we do, this would add revenue from our non-EBITDA producing land assets while continuing to achieve our high level of distributions. Of all the name pillars, they lead to our fourth and most important pillar, delivering industry-leading cash returns on capital invested through distributions to our unitholders. With our announced distribution of $0.27 per unit in the third quarter, we have sent back $5.14 per unit to our unitholders since our public offering in October 2023 and more than $1.2 billion in total since our inception in 2018. This rate of distribution return dwarfs our public company peers. Even with this massive return, we have grown our business to more than $3 billion -- $3.5 billion of enterprise value without selling any material assets while maintaining a cash return on capital invested of more than 30% per year over the past 5 years. We've never had a year where our cash return on capital invested was less than 20% since our company was founded. This one statistic is what we were formed to accomplish. We continue to believe that we are nearing the end of a 2.5-year cyclical downturn in crude oil that will reverse in the next few quarters. When that happens, we'll be harvesting the Sabinal crude production at higher prices. The production decline is less than 10% a year. Therefore, our returns will be enhanced. We continue to believe that any time we buy -- we can buy low decline crude assets in the 60s that will be ultimately rewarded. With regard to natural gas, we are nearing a time when demand will start to accelerate. We've been cautious on pricing since early spring and continue to believe that we are entering winter in a precarious position of full storage and relying on weather conditions to move the market forward. However, starting in 2026, the U.S. will begin to add demand through LNG exports. We see 24 Bcf a day of demand materializing between 2026 and 2030 just from LNG. This is a much larger story than data center growth for the U.S. market. However, data center growth is real and could equate to between 5 and 10 Bcf a day of additional growth if you assume that half of the load will come from natural gas. I realize that some are concerned about associated gas in the Permian as 4.6 Bcf a day of takeaway capacity comes online by Q4 2027. However, we believe there is more -- this is more of a basis issue with the potential of gas being stranded at [ Cat ] or being passed, trying to make its way around to Henry Hub. The Haynesville remains the only direct path to Henry Hub with the Mid-Con coming in close behind. In any event, there's enough demand being generated to not fear the Permian in our opinion. Now it's a great time to have purchased $1.3 billion of low declining oil and natural gas assets that will contribute more and more to our long-term cash available for distribution. The IKAV and Sabinal deals were transformational in terms of scale and diversification. You can see the compounding effect on our business by adding operating cash flow. We anticipate having the opportunity to continue to add these areas and in the Anadarko by purchasing smaller-sized assets that are sub-$150 million in size. However, we cannot make acquisitions with all debt. Therefore, equity holders need to see the larger picture of adding reserves that are accretive to our cash available for distribution, plus increasing our CapEx budget and supercharging our distributions over time. The IKAV, Sabinal acquisitions are a good example. IKAV and Cane took equity for a large part of the purchase price, which made them available for us to pursue. Once completed, they are now accretive to our CAD by 8% in year 1, rising to 28% in year 5. We now have early results from both the Deep Anadarko and the Mancos shale. In the Deep Anadarko, we brought on our first 2 well pads. These wells have a combined 25,000 horizontal section and are currently producing more than 40 million cubic feet of gas a day. At these rates, we anticipate finding more than 20 Bcf per 3-mile lateral with a PV-10 of approximately $15 million per location. We spent $14 million per well so far in our program. We've also participated in 3 deep Anadarko wells with Continental and these wells, we have approximately a 20% working interest. They're in the early stages of flowback, and we anticipate them to be equal to our initial pad. In the Mancos, we brought on 5 wells that were drilled by IKAV over the summer. Two of these are 10,000 feet of lateral length and 3 are 15,000 feet. The 2-mile laterals have come in just above our expectations of 30 million per day for the pad and expected EOR of 18 Bcf per well. Our 3-well 3-mile pad started production in late October. The pad is now producing more than 70 million cubic feet of gas per day. We expect a 3-mile lateral to have an EOR of 24 Bcf of gas and PV-10 of around $14 million. Currently, the combined 5 wells are producing more than 100 million cubic feet of gas per day. The current cost to drill Mancos wells is too high in our opinion. These wells are 7,000 feet of TVD with laterals that drill very easily because of the shale reservoir. The industry is currently spending $16 million to $20 million on each 3-mile well. We have initially prepared AFEs to spend $15 million for each 3-mile lateral. However, I believe we will achieve well cost in the $12 million range next year. IKAV drilled all 5 of the wells that we are producing. IKAV completed the 2 2-mile laterals, and we completed the 3 3-mile laterals. IKAV spent $13.75 million on their 2 drilled and completed locations. We saved approximately $2 million on each 3-mile completion that we inherited. These wells will now average $15 million for the 3-mile locations. I get asked a lot about how we're going to achieve these reductions. We have a firm belief that our -- in general, our industry overstimulates wells and doesn't do a great job of maximizing profits. We can reduce cost by using more aggressive bidding practices, reducing acid, sand sweeps, diverters, location size, amount of rentals, et cetera. Or said another way, just about everything on the location. This adds up. There is a multiplier effect when pumping a job. The larger the frac, the more horsepower is used and more sand and water. All that equates to more cost. The easiest way to gain a rate of return is to spend less. If we are successful in our attempt to lower cost, we can add an additional 30 percentage points per location by moving from $15 million to $20 million -- from $15 million to $12 million in every play, we have been involved in drilling at Mach. We've used this approach. For example, when we started drilling the Oswego, the wells cost twice as much as we were able to spend, and we still have the same outcome on production. I believe we'll also be very effective at lowering costs in the San Juan. During the quarter, we also completed 2 Red Fork sand wells. These wells are coming on at just over 600 barrels a day and 1.5 million cubic feet of gas. We anticipate the IRR to be in the high 30s at today's oil strip. We're in the final completion stage of our next Deep Anadarko location. This location is a 1-well pad. We currently have 2 rigs running in the Deep Anadarko. The production plan through the first half of '26 is to have 1 location coming on this month, a 2-well pad in January 2026, a 2-well pad in March of 2026 and a 3-well pad in June of 2026. The Mancos shale program for 2026 will begin in May of 2026. We anticipate bringing on 7 Mancos locations in the fall. We only target natural gas as our commodity of choice for 2026. We also have targeted areas where there's ample gas takeaway. The Mid-Con is well connected to major interstate systems, including Panhandle Eastern, Mid-Con Express and Mid-Chip. Currently, the Mid-Con produces about 9 Bcf a day of gas with gas takeaway of approximately 12 Bcf a day. Midship and Southern Star announced planned expansions of approximately 400 million cubic feet of gas each. The San Juan also has ample takeaway capacity for the near term. Growth from the Mancos shale development is coming. However, Energy Transfer's Transwestern expansion is also projected to add capacity by 1.5 to 3 Bcf a day to meet demand from the West by year-end 2029. Total surely thought about the ability to add gas when they decided to partner with Continental on their Deep Anadarko inventory. I believe that joint venture is ample proof that the Deep Anadarko inventory is going to provide the necessary help to move natural gas to the hub where LNG demand is exploding. I'll turn the call over to Kevin to discuss financial results. Kevin White: Thanks, Tom. For the quarter, our production of 94,000 BOE per day was 21% oil, 56% natural gas and 23% NGLs. Our average realized prices were $64.79 per barrel of oil, $2.54 per Mcf of gas and $21.78 per barrel of NGLs. Of the $235 million total oil and gas revenues, the relative contribution for oil was 50%, 32% for gas and 18% for NGLs. On the expense side, our lease operating expense was $50 million or $6.52 per BOE. Cash G&A was $21 million. It's an important point this quarter to note that the deal costs associated with IKAV of approximately $13 million are a bit unique. First and foremost, they are nonrecurring. Secondly, due to nuanced GAAP rules, they are required to be expensed whereas in the history of our acquisitions, including Sabinal, the deal costs have been capitalized. Additionally, with the IKAV deal, we engaged an outside adviser, which again is out of the norm for our acquisition history. As a point of reference, the Sabinal deal costs were approximately $4 million and by the way, were capitalized. Excluding the deal costs, recurring cash G&A was around $7.2 million or $0.83 per BOE. As we analyze this quarter's distribution more closely, the free cash flow from our legacy assets performed as we expected. The free cash flow from the acquired assets only contributed for a couple of weeks during the quarter, but also performed as expected. And with a higher outstanding unit count associated with the units issued for the acquisitions, the distributions before the G&A impact would have been approximately $0.35 per unit. The nonrecurring $13 million deal costs reduced the distribution by about $0.08 per unit. It is straightforward to expect higher distributions in the immediate upcoming quarters with the benefit of the acquired assets contributing for the full quarter and the absence of expensed deal costs. We ended the quarter with $54 million in cash and $295 million of availability under the credit facility. Total revenues, including our hedges and midstream activities totaled $273 million, adjusted EBITDA of $134 million and $106 million of operating cash flow and development CapEx of $59 million or 56% for the quarter. Year-to-date, our development costs are approximately 48% of our operating cash flow. We generated $46 million of cash available for distribution, resulting in an approved distribution of $0.27 per unit, which will be paid out December 4 to record holders as of November 20. Brock, I'll turn the call back to you to open the line for questions.[ id="-1" name="Operator" /> [Operator Instructions] Our first question today comes from Neal Dingmann of William Blair. Neal Dingmann: Tom, nice quarter. Tom, my first question is in the Mid-Con operations. Specifically, you highlighted some really nice notable well upside in the play and while things have always been going nice there. It seems like more recently, you're seeing some just commendable upside. Is that attributable to going after some new zones? Or what's driving this upside, particularly in that -- some of this Mid-Con upside? Tom Ward: Thanks, Neal. It's just really just moving deeper into -- moving away from a condensate zone into deep gas. It's always been known in the Anadarko. There's a tremendous gas potential as I think it has been noted also that Continental was drilling in Custer County Deep gas in 2017. We picked up Millennial Energy Partners acreage out there in 2020. And since that time, we've been studying the Deep Anadarko. The issue for natural gas producers as you just haven't had a strip that has been competitive with oil. And so now that we're getting a strip above $4, we can have rates of return north of 50%, which meets our threshold, especially if oil prices are down. So that's the reason we moved into the Deep Anadarko wasn't because of any really new news other than there's been a number of wells that have been drilled over the years in the deep gas area. It's that the efficiencies of drilling 3-mile laterals and having 15,000 feet of TVD with 15,000 feet of lateral isn't for the faint of heart, but there is plenty of gas there. And so that's -- it's really about keeping our costs down to -- and having a decent strip in the natural gas pricing in order to make the rates of return, we think we will. But the asset -- the natural gas has always been known to be there. Neal Dingmann: Tom, that leads me to my second question, just on your gas strategy. In the Mid-Con or other areas, it doesn't seem -- do you all have any -- is there any takeaway constraints? And do you all use any sort of managed choke program because it seems like the rates are flowing really nicely. And so I'm just wondering when it comes to takeaway and chokes, how would you talk about that program? Tom Ward: No, the Mid-Con is a great place to work, especially in Oklahoma. It's probably the second easiest state to drill in. We can have Kansas being the easiest and the ability to have gas waiting on you when you get a well done is there. Plenty of takeaway capacity. I think we estimate 3 Bcf a day of takeaway capacity now. So there's just no issues with getting gas online and flowing without restrained rates. [ id="-1" name="Operator" /> The next question is from Charles Meade of Johnson Rice. Charles Meade: Tom, forgive me, you went through a lot of good detail there, and I may have missed some of it. But I wanted to ask on the Deep Anadarko. I know you just said it's 15,000-foot TVD and then you do another 15,000-foot lateral. What is the D&C cost on those Deep Anadarko locations? That's kind of one. And then two, $20 million a day sounds pretty stout to me, but how did that fit versus your expectations? Tom Ward: Yes. Last thing first, it exactly as we anticipated if you want to have north of 50% rate of return and spend $14 million, which is what we've done. The PV on that is about $15 million each per well, but the rate of return is going to be in the 60s, more than likely depending on what strip is. And that's -- I mean when you look at that, all the wells that we're bringing on, you can see how come that we're able to keep our -- cut CapEx and keep our production flat. Just because of the rates we're getting out of these wells. And right now, the natural gas strip is good. So that's -- when we target the Deep Anadarko, we plan and have spent $14 million. I think that might improve over time just as we drill more wells, we get better at it. It's not the easiest place to drill. You've got very deep wells, very complicated completions just because of the amount of pressure you're using to get a frac established. Charles Meade: Got it. And then I wanted to -- this is a little bit bigger picture. The improvement in your '26 guide where you're spending 18% less on D&C and the volumes are essentially unchanged. My first instinct is to connect that better capital efficiency with what looks like these really good gas rates at both Western Anadarko and the Mancos. But is that really the driver that has enabled you to put forth this better, more capital-efficient '26 program? Or is there something else at work? Tom Ward: No, that's it. [ id="-1" name="Operator" /> The next question is from Derrick Whitfield of Texas Capital. Derrick Whitfield: Starting with your distribution, despite the strength in operations this quarter, it did come in a touch lower than expected due to the nonrecurring factors you noted. If we assume a flattish price environment in the capital plan you've outlined for 2026, is it reasonable to assume your distribution would be flattish year-over-year? Neal Dingmann: Gosh, Eric -- Derek, I think that you just have a little caveat to look at what price deck you're talking about for '26. But I think we're expecting -- I think we would actually just through the course of '26 as these wells come online, kind of expect an increasing distribution over the course of the year. Tom Ward: And Derek, our natural gas volumes next year will be moving up to just over 70%. So if you're bullish natural gas, we should do pretty well. Derrick Whitfield: Yes, that was our thought as well, Tom, if you look at your hedges provided with the gas growth profile. But just wanted to confirm that was -- we were thinking about that right. And then on my follow-up, I wanted to focus on your prepared comments on private equity PDP exchanges for Mach shares. Regarding the kind of PDP exchanges, how large and in what basins are those opportunities in general? And would it be safe to assume that they would be both leverage and yield accretive? Neal Dingmann: Do you want to take? Tom Ward: Yes. So we're having people kind of contact us. I don't know -- I think it's rare -- I'd start with this. I think it's rare to have an IKAV, Sabinal happen very often, especially at once, just you have 2 pretty large groups that we're wanting to swap out. But at today's strip, especially in oil, and it's not out of the question that others they do reach out. But I'm stumbling here just because there is a cash market with all the ABS participants. And so if somebody wants cash today, they can get it. But there is a group that prefer to take maybe because of their timing of a fund need to be moving out and they don't want to take today's prices at cash. Those are the types that will look for us. It's not -- I think you probably wouldn't see that out of the Marcellus or the Haynesville or core Permian, really anywhere where you can get paid more than PDP PV-10. But if you're in other areas, I think that we'll continue to have that. And yes, anything we do would be accretive to our cash flow for distribution and really can't be dilutive on a debt level -- a debt perspective. Sorry, I rambled about all that. If you want to ask me something to clarify, please do. Derrick Whitfield: I think you covered it well, Tom. I mean it's going to be leverage and yield accretive. So certainly, thanks for your comments on that, and I'll turn it back to the operator. [ id="-1" name="Operator" /> The next question is from Michael Scialla of Stephens. Michael Scialla: Tom, I wanted to ask about your comments that the industry tends to overstimulate wells. You mentioned the potential for cutting costs in the Mancos. I want to see if you have taken that approach with the Deep Anadarko as well. And do you have enough production history on either these wells in the Mancos or the deep play to give you the confidence that you're not impacting well productivity by cutting back on the proppant. Tom Ward: The Deep Anadarko, we just use a typical frac that's already been moved down. So the industry might have been at 3,000 pounds per foot of sand in the last couple of years ago that we've moved down and others didn't just us have moved down closer to 2,000 pounds. And I think that's how can you see other operators spending relatively in line with us on where costs are. That hasn't happened yet in the San Juan. And I think chasing estimated ultimate recoveries is sometimes can be -- it can affect negatively the rates of return. And so what we try to do is to find a way to stimulate a well that we don't think will hurt it, but not spend as much money. I think that if you use a 2,000 pound per foot frac job in the Mancos shale, you're going to get that stimulated. To answer your question, we don't know. We haven't seen it. We have IP30s on wells that are a little bit more stimulated than we will next year. But I'm pretty comfortable that in the past, whenever we moved down our stimulations, we haven't seen a decrease in rate of return. Michael Scialla: Sounds good. I want to see if you could talk about your potential inventory in both plays. I know you'd like to watch others sort of delineate your acreage for you. Is there an inventory number you can put on either the Deep Anadarko or the San Juan at this point and maybe look at some potential upside if there's more delineation by you or others there? Tom Ward: Yes. So we just have too much acreage to effectively drill it all. We have 500,000 acres plus in the San Juan. And in the Deep Anadarko, we have more than 120 locations already under lease that we can drill. So that's how I mentioned that at some point, there's just more here to do than a company that's not going to invest 100% or more of your cash flow drilling for growth. That's just not what we do. So it's probably at least -- let's assume that we're successful in expanding the Deep Anadarko by a few more locations. You have Continental to the Southeast of us, Validus is drilling a few wells, and then we're intermixed. It's not out of the question that we would bring in a partner to help us to bring on more gas. And in that case, it would just be highly accretive to us. So again, I don't know if I answered your question, but that's kind of the way we look at it. Michael Scialla: No, that's perfect. I was wondering what the motivation behind bringing in a potential drilling partner was and that really explains it. I think you want to move that value forward without changing your reinvestment decision. So... [ id="-1" name="Operator" /> The next question is from John Freeman of Raymond James. John Freeman: Really impressive to see the 18% reduction in the D&C budget and still be able to maintain production. We did notice that the midstream and the land budget basically doubled from the prior update. Just wondering if you can -- choke up a little hold on. Yes, I think -- sorry... I was just trying to... The midstream and the land budget and just sort of what drove that. Sorry about that. Tom Ward: Yes. And the land budget is mainly in the deep Anadarko. We are buying a few new leases. We trade around some acreage, putting together areas that we didn't have completely HBP through prior acquisitions. But it's -- in the whole scheme of the area, it's fairly small, the increase in land to do that. I think with the -- if you mentioned midstream, we inherited quite a bit of new midstream with the last 2 acquisitions and it's just more maintenance and getting them back up to speed, especially in the IKAV acquisition needed to have a little bit of upgrading. Kevin White: And John, just for a little bit of detail, the land piece of that is about $32 million and midstream about $17 million. John Freeman: That's great. And then just following up on some of the commentary prior commentary on the M&A front. When we sort of look at the basins that you're currently operating in, should we assume kind of the plan going forward from an M&A perspective is to sort of do kind of these bolt-on deals in the existing positions and basins you're in? Or are you all still open to considering expanding into new areas or basins? Tom Ward: The only way we'd expand in any size is through an equity deal with another partner or the seller. I think that in the 23 acquisitions we've made, most of them, 20 of them probably have been in and around $100 million. So that's really the best area for us to compete. We can't -- we don't have the ability to compete against the ABS market and try to make the types of rates of return that we need to make through an acquisition that are accretive to our cash available for distribution. So we just stay away. We stay away from others that are going to be bidding upside. We stay away from those who have the ability to come in with a very low cost of capital and maybe bid it to a way to -- that we can't compete. And so that -- I think we look at a lot of deals, but we'll -- the ones we get tend to be in this $100 million to $150 million range where they're highly accretive to us. And keeping in mind that those can't be done with debt, though, because we've now used our debt card and are up over a turn of leverage, and we want to see that come back down. [ id="-1" name="Operator" /> The next question is from Jeff Grampp of Northland Capital Markets. Jeffrey Grampp: I wanted to expand on the drilling partnership opportunity. Any thoughts on what kind of size you're looking for in terms of a partner? I'm just kind of curious what stage of conversations these may be? And is this something that you guys are pretty definitively moving towards? Are we kind of more of an exploratory stage? Just any additional color there would be helpful. Tom Ward: Yes, Jeff, it's just a thought. I hadn't really moved more from my brain to my mouth to you. So there's nothing really -- there's nothing going on. I just think we have too much. And so as I got prepared to write a spill to describe what we have like, my Lance, we have a lot of -- we have more here than I can ever get to. And so that's -- we haven't talked to anyone. We haven't -- we have a Total Continental deal that's right beside us that I doubt they got that for free. So it seems like we probably have an asset that could be maybe profitable to us. We've done this in the past. You have a lot of buyers that are coming here. The Mid-Con, especially has a great takeaway. And I think that's what the Total deal is showing you is that you can get gas to the hub. And so it seems to me like to be a pretty attractive place to own acreage. Jeffrey Grampp: Agreed. That's helpful. And for my follow-up, we're a couple of months into operating the new properties here. Overall, how is integration going? Anything you've learned or that's been surprising in the couple of months that you guys have been taking over in both the Permian and the San Juan? Tom Ward: No, the good people that work hard. I think learning our desires to cut costs and watch what we spend is something that all people have to get used to. We focus on how much bidding. We focus a lot on details. And so yes, it's all going good. We have a new office in Durango, and that's -- I think is -- we'll find that to be an incredibly good place for us to do business. [ id="-1" name="Operator" /> The next question is from Geoff Jay of Daniel Energy Partners. Geoff Jay: Tom, just -- I guess I would have interpreted your comments earlier on the Mancos as constructive but cautious. And I guess in that light, given the strength of the strip in '26, are you sort of content with your hedging as it sits? I think if I did my math right, it's a little shade over 20% hedged for next year. Would you like to see that higher? Or is that a good level? Tom Ward: Yes, Geoff, whenever you tie in the Mancos hedges or the San Juan hedges, we're in 2026 closer to over 60% hedged on natural gas. So we have gone in heavily hedged into 2026. I think there's risk coming into this. We're back to kind of a weather bet, which I don't like to make. So the -- I think when I say precarious, I do believe it's precarious, but there's no doubt that starting in January, demand is going to start going up. I don't see any way for 2027 not to be bullish. And so that's -- whenever I look at '27 and beyond, you have -- there needs to be a lot more drilling activity than we're seeing today to overcome the demand. So I am bullish. I'm very bullish natural gas. It just is this winter season if we have a warm winter, you could be backed up into late '26 before you see a real recovery in prices. Geoff Jay: Got you. Well, I'm sorry, my math was lousy. But I guess a follow-on to that then. When you guys closed on these deals, can you refresh me like how many rigs in total were running for Mach and sort of what your plan is for next year? What does that sort of sub-$300 million D&C budget contemplate? Tom Ward: Sure. So the -- right now, we have 2 Deep Anadarko wells or rigs that are running will continue to run through 2026. And then we start our Mancos and Fruitland Coal drilling program next spring. We'll drill 7 locations in the Mancos and 2 locations in the Fruitland Coal, and that takes up our total CapEx. That's -- keep in mind that that's subject to change every month. [ id="-1" name="Operator" /> The next question is from Tim Rezvan of KeyBanc Capital Markets. Timothy Rezvan: I was trying to understand the changes in 2026 guidance. You put a release out in mid-September, and then it's been pretty significant changes from there. So we saw CapEx all in down about 10% and production down about 1% to 2%. Is that change reflecting a pivot to 100% gas-focused drilling? I'm just curious, given the -- it's a 10% reduction in 7 weeks is a big amount. So I'm just trying to understand what's changed on the modeling and sort of strategy forecasting side. Kevin White: Sure, Tim. This is Kevin. So good question. And as Tom just said, we look at our drilling schedule monthly, and we do have the ability to pivot quickly. And so the description that you threw out there is largely correct that we -- 2 things happen. We see the returns on our gas drilling as being better. And so much more heavily weighted towards gas. And then secondly, kind of the reduction in CapEx is also reflective of basically lower strip prices than we put out the first guidance for 2026. We've seen forecasting with the lower strip, lower operating cash flow. And again, our company is run pretty simply and straightforward. As you see changes in the strip, we'll generally pivot and change our CapEx numbers. If it goes up, we'll look to add good IRR locations. And if it goes down, we probably throttle back some of our activity. Tom Ward: Yes. Tim, I think of it as that one of our pillars is a 50% reinvestment rate. Production growth, the amount of production growth isn't. So whenever we have higher operating cash flow, we get to use half of that and put it directly to work in CapEx. And just luckily -- well, not luckily because we moved down that decline from 20% to 15%, that makes it much easier for us to effectuate this small single-digit growth by only spending 50% of our operating cash flow. Timothy Rezvan: Okay. That's very helpful context. And then again, I know this is subject to change as we've seen. But in this environment, where you're looking at maybe roughly 2/3 gas SKU in 4Q '25 and you're guiding to 71, we should be modeling, I guess, a steady increase in natural gas and you could be looking at maybe a mid-70s rate as we exit '26. Is that the right way to think about things? Kevin White: I think just over 70% is where we're targeting year-end '26. [ id="-1" name="Operator" /> The next question is from Selman Akyol of Stifel. Timothy O'Toole: This is Tim O'Toole on for Selman. In your prepared comments, you guys talked about the Desert Southwest expansion. It seems like there's just a lot of gas demand kind of coming out of the Southwest and in Arizona, but that project is not coming online until closer to the end of the decade. So just kind of curious how you guys see the San Juan kind of position there kind of short term and maybe longer term as that project comes online. Tom Ward: Thank you, Tim. I think it really just depends on the amount of rigs that run. So the San Juan is seasonal. So you can only really move in and drill effectively through the spring and summer and be completing in the fall and need to move out by November. And so we kind of look at December to May as the 1st of May through April being a time that's more just getting ready for the next year's season to get permits, all the things that have to be done. I say all that just to say it's not as easy to increase production in the San Juan as it is in other places. So it does -- the Mancos Shale obviously produces enough. We just brought on 100 million a day out of a 5-well pad, and it only declines by 60% or so. So it's not a traditional extremely high decline. So it could overwhelm the system if there was a tremendous amount of new drilling. I don't see that happening, but you're exactly right that it is through the end of the decade. And one of the things it is at the end of the decade, end of '29, whenever Energy Transfer plans to expand. Right now, we have another couple of Bcf a day of availability of takeaway. So I don't think we're very close to having an issue. But as the caveat is there's a lot of gas to be brought on. [ id="-1" name="Operator" /> This now concludes our question-and-answer session. Thank you for your participation. You may disconnect your lines, and have a wonderful day.
Operator: Good morning, and welcome to the Calumet Inc. Third Quarter 2025 Results Conference Call. Please note, this event is being recorded. I would now like to turn the conference over to John Kompa, Investor Relations for Calumet. Please go ahead. John Kompa: Thanks, Chloe. Good morning, everyone. Thanks for joining our call today. With me on today's call are Todd Borgmann, CEO; David Lunin, EVP and Chief Financial Officer; Bruce Fleming, EVP, Montana Renewables and Corporate Development; and Scott Obermeier, EVP of Specialties. You may now download the slides that accompany the remarks made on today's conference call, which can be accessed in the IR section of our website at calumet.com. Also, a webcast replay of this call will be available on our site within a few hours. Turning to the presentation. On Slide 2, you can find our cautionary statements. I'd like to remind everyone that during this call, we may provide various forward-looking statements. Please refer to our press release that was issued this morning as well as our latest filings with the Securities and Exchange Commission for a list of factors that may affect our results and cause them to differ from our expectations. As we turn to Slide 3, I'll now pass the call to Todd. Louis Borgmann: Thanks, John, and welcome to Calumet's Third Quarter 2025 Earnings Call. This past quarter was a strong one, both financially and strategically. Calumet generated $92.5 million of adjusted EBITDA with tax attributes, and strategically, we're hitting the key milestones laid out earlier this year. At Montana Renewables, we remain on schedule for our MaxSAF expansion in the first half of 2026, and our SAF marketing plan is pacing well ahead of schedule as the team has roughly 100 million gallons of post-expansion volumes placed through contracts, which are fully complete or in the final review step within our DOE process. Across Calumet, our cost and reliability initiatives are outperforming expectations. Our commercial organization continues to sell growing production into stable high-margin accounts. Let me dig deeper into these themes, starting with costs before turning it over to David for the financials. In the third quarter, Calumet removed another $24 million of operating costs from the system versus the same quarter last year. Quite frankly, operations improved rapidly throughout 2024, so much so that while we expected year-over-year progress to continue, we did expect a little tapering in the second half. Instead, the rate of savings accelerated this past quarter, which is a testament to the ops talent we have throughout the country and their willingness to take this initiative head on. Year-to-date, operating costs are $60 million lower versus last year, and we've mapped out a couple more years worth of ops excellence opportunities to continue moving the ball forward from here. Deeply connected to costs and just as important is reliability, which has advanced as well. Year-to-date production is up nearly 600,000 barrels versus last year, much of which is in our specialties business. On a unit basis, the combination of cost and reliability initiatives have reduced operating costs by $3.37 a barrel throughout the system. Specifically, to our Specialty Products & Solutions segment, the third quarter marked a record production quarter. Despite softness reported across much of the broader specialty chemicals world over the past year, our commercial team again sold over 20,000 barrels a day at margins well above $60 per barrel, while also rebuilding some inventory following the Freeport turnaround. We also saw strong fuel performance on both the margin and volume front. This reinforces the core advantage of Calumet's integrated model. Specialties provide stable, strong and growing baseline earnings, while fuels deliver more variable upside. Today, that excess cash flow is being used to reduce debt. Over time, it will fund further specialties growth. Last, in Specialties, I'd be remiss to not note continued growth in our Performance Brands segment. Year-to-date EBITDA is up versus last year despite divesting the Royal Purple Industrial business earlier in 2025. We've implemented our top-tier commercial excellence program across our brands and leveraged our deep specialties footprint, which is yielding tremendous results. Further, TRUFUEL is on track for another record EBITDA year even in a year that's been void of major Gulf Coast weather events as the brand continues to grow its position as a channel leader and is benefiting from capturing space to over 4,000 new Walmart stores. Let's turn to Slide 4 and dig a little deeper into Montana Renewables. During the quarter, we saw more key regulatory signals towards the industry recovery. Specifically to MRL, we continue to fortify the advantage we have in all margin environments with great logistics costs and product mix. While the future is bright, the industry continued to see weakness in renewable diesel margins. In fact, during the third quarter, realized margins across the industry were actually a bit lower than even the normal index margin formula would suggest as the feedstock physical basis widened out, which means feedstocks were about $0.20 a gallon more expensive than the traditional CBOT marker would suggest across the industry. We've seen this revert back during October, and we're back to the more normal environment where CBOT index margin is the correct industry signal. On an industry level, biomass-based diesel production remains cut back at roughly 60% utilization. 2025 industry production volumes seem to be stabilizing just above 350 million gallons a month, which on an annualized basis is right about -- is right for the currently roughly 4.5 billion gallon implied RVO, which is made up of about 3.5 billion gallons of D4 RVO, plus roughly 1 billion gallons of shortfall in other RIN classes, which are ultimately covered by D4 RINs. Separately, the carryforward of 2024 RINs, which will expire shortly, creates temporary length in the D4 RIN market. Against this backdrop of low industry utilization, we continue to see shutdowns occurring in industry. We look forward to an environment where biomass-based diesel demand increases through a stronger RVO. Further, the regulators appear to be bullish on reallocation of the small refinery extensions, which would add to the RVO. These steps are expected to increase demand to the point where idle facilities would need to restart to meet the mandated demand. These restart decisions mean biodiesel producers need to be convinced they can confidently cover fixed costs. If not, the RIN will need to go higher or feedstock lower than. This is a stark contrast to the past 2 years, where we've seen massive shutdowns, but also many hanging on at the margin and barely covering variable costs with the expectation of an improved future environment. Of course, in the past, we routinely saw stable margins incentivizing the small biodiesel players to run in order to fill the D4 RIN gap, and we're optimistic that when we see the finalized RVO, margins will revert positively as they've done historically before the prior administration's 2023 RVO error. Next, during the quarter, we completed our first $25 million PTC sale, proving this method of monetizing PTCs is viable as expected. We subsequently sold another $15 million in October and continue to see our credits trending towards a more normal tax credit environment after the 45Z credit was extended through the Big Beautiful Bill. Finally, momentum continues to build as we approach the launch of our MaxSAF expansion in the first half of next year. During the third quarter, we completed a test run to confirm our ability to generate 120 million to 150 million annual gallons of SAF. To complete this test, we slowed down the plant for about a week, which cost us a couple of million dollars worth of volume, but the test was successful and confirmed our ability to meet the 120 million to 150 million gallon SAF target and supplied important data that's being used in the final detailed engineering and optimization of our project. In addition to the technical work to derisk the SAF project, the team also is tracking well ahead of plan in placing the expanded volume. As I mentioned earlier, we have approximately 75% of our MaxSAF expansion either contracted or within the final DOE review process as we sit here today, and we're comfortably positioned to have all of the volume placed the next time we talk. Like we mentioned last quarter, our offtake is shaping up to be a diversified slate of direct physical customers, airlines, FBOs and Scope 3 customers of varying sizes, some of which are large multinationals who you might routinely envision when you think of carbon reduction initiatives and some of which are more boutique customers. In many ways, the SAF business highly resembles our Specialty Products business, where the ability to be flexible on logistics, go-to-market in varying ways to suit a wide range of customer needs and sell in all types of sizes make us preferred and differentiated supplier. Unlike a large fuels business, this volume doesn't all just go in a pipe and disappear. It's a concerted sales effort where we work with one airport at a time, one airline at a time or one SAF credit buyer at a time. In the supply chain, we've managed individual railcars and trucks, carefully control quality and blend the product through a deep logistical network, that creates value in this business, and we at Calumet have been doing it for decades. In fact, you may have seen a press release last week where our physical truck rack opens for SAF sales in Montana. What this means is that we can sell physical barrels in truckload volumes and in some cases, to the same regional outlets we've been selling for years. We can deliver the full physical barrel and leave the credits with the customer or pull off the Scope 1 and Scope 3 credits, sell those and generate the same SAF premium and save a lot of money on logistics. Of course, we also continue to sell physical SAF barrels via rail into the West Coast, Midwest and Canada, and we expect it to continue as a large and important piece of our business. We could sell all of our volume to either of these markets. At the end of the day, we're optimizing across them to find the most diversified, stable and highest netback customer base for Montana Renewables. We continue to place the volume with the SAF premium in the $1 to $2 per gallon range we've discussed historically. This SAF premium is one that's received a lot of discussion over time. We've discussed the chart on this slide before, which suggests that global supply and demand is largely balanced in 2025, and that turns to a supply deficit in 2026 as that gap grows each year as European mandates and other global mandates step up. Interestingly, early on, we received questions around this outlook, which really fit into 3 general categories. One, was will Europe really increase their volume mandate. Two, will voluntary demand grow; and three, weren't we underestimating new supply. Let's start from the back. Our view when modeling the supply-demand balance was very conservative on voluntary demand, and therefore, the base model also doesn't add new build supply. We conservatively assume voluntary demand remained unchanged from 2024 throughout the graph. If that's the case, we would expect new supply to come online. In reality, what's occurred is a bit more bullish. We've seen cancellations or delays of global mega projects as a pause and observe international growth and domestic tariffs and rent policy. Also, we've seen voluntary demand growing nicely. I mentioned earlier that we've adjusted our strategy to take advantage of this as we see a real opportunity with truck and railcar quantities that SAF in the voluntary markets across a broad range of airports and FBOs, and we're selling quite a few Scope 3 credits to airlines and large multinationals on a voluntary basis. In fact, Montana Renewables SAF has set up on every major Scope 1 and Scope 3 registry that exists. We believe this readiness, the relationships and the progress on logistics all equate to a meaningful early mover advantage, and we look forward to capturing this immediately upon startup of our MaxSAF 150 project. The last question I mentioned above is European demand. I think we've seen clear signs that volume mandates are, in fact, increasing in Europe. In fact, we've seen European SAF prices increase approximately 60% over the past 6 months, while feedstock prices have remained essentially flat. We've even seen meaningful fines defined for participants that don't need their quotas, which have been said to be up to $2,700 per ton or for us Imperial measurement tinkers, nearly $8 a gallon. Even then, the participant doesn't shed a requirement to purchase the SAF. We believe these developments mean that the SAF premiums we're contracting will continue to be strong, and we look forward to relying on our roots as a customer-focused and service-oriented provider and parlaying that with our first-mover advantage into a rapidly expanding leadership position in sustainable aviation fuel. With that, I'll turn the call over to David to take us deeper into the quarter. David? David Lunin: Thanks, Todd. Before I get into the quarter results, let me address an error in our reported Q1 and Q2 2025 cash flow statements, which we discussed in an 8-K filing this morning. In accounting for a series of transactions during the first quarter, we misclassified debt extinguishment costs and inventory financing flows as cash flow from operating activities rather than cash flow from financing activity. The correction of the error will result in an approximate $80 million increase to cash flows from operations for the first quarter. Total free cash flow, the income statement, balance sheet and adjusted EBITDA all remain unchanged, and we will restate Q1 and Q2 financials alongside our Q3 filing. With that, let's get into the quarter. We reported $92.5 million of adjusted EBITDA during the quarter, which was the strongest quarter in a number of years. We were able to reduce our restricted group debt by over $40 million despite the third quarter being our largest cash interest period of the year. Deleveraging continues to be a strategic priority, which we expect to continue in Q4 given the strong business performance. Further, during the quarter and after the ruling on the small refinery exemptions, we reduced our outstanding balance sheet RIN obligation by over $320 million. As Todd mentioned, we also sold our first $25 million of PTCs at MRL, demonstrating the ability to turn those into cash as the market has opened up and started to normalize following the passage of the One Big Beautiful Bill Act. We look forward to more ratable monetization of our tax credits over the coming periods. Turning to Slide 5. Our Specialty Products & Solutions segment generated $80.2 million of adjusted EBITDA during the quarter. The third quarter of 2025 reflected the strong commercial momentum in our Specialty Products portfolio as well as the benefits of our overall improved reliability and cost discipline. This was the fourth consecutive quarter that our Specialty Products posted sales volume exceeding 20,000 barrels per day, and coupled with strong margins, we continue to demonstrate the resiliency of our specialty business. Despite broad industry chatter over the year that specialty markets have been a little soft, our sales team has demonstrated the continued ability to take advantage of our integrated asset base and diversified markets to continue to place our products at over $60 a barrel. Further, we posted third quarter production volume gains of 8% compared to the prior year. Our production has grown reliably over the past few years as we've improved our operating discipline. We look forward to continuing that trend through the remainder of the year and into next year. Our steady production environment also enabled the capture of stronger crack environment as fuel margins increased significantly year-over-year, which we view as upside in our integrated model as we continually optimize our crude slate and product yields to capture market opportunities. To begin this year, we gained access to a new crude oil supply chain, including the ability to target specific segregated or blended crudes in Cushing and further north in the DJ Basin, at the same time, reducing our pipeline tariff. Year-to-date, this improvement has driven $15.3 million decrease in transportation costs and provides even further ability to dial in our assets and feed to a specific use. We remain focused on driving additional operational improvements in the segment and look to further reduce our cost per barrel in the segment. As we said during our second quarter earnings call, strong operations to not only increase volume and reduce costs, but also supports increased margin as well as it allows our commercial team to place more volume to secure contracted homes rather than relying on spot market sales. Moving to Slide 6 and our Performance Brands segment. We are pleased to post another strong quarter driven by our commercial excellence program and growing recognition of our brands. You'll remember that we sold the Royal Purple Industrial business earlier this year, and despite that EBITDA being fully reflected in the prior year financials and not this quarter, the segment was essentially flat year-over-year. We also continue to benefit from our integration strategy as we gear up to target markets that best unlock the intrinsic value that exists in our ability to vertically integrate where and when it makes sense to do so. Last, as Todd mentioned earlier, the third quarter results reflected strong volumes and margins in our TRUFUEL brand. Not only is TRUFUEL growing on the shelves and with brand awareness, it's also benefiting from favorable procurement initiatives as the team has successfully leveraged its growing volume over the past couple of years. Moving to Slide 7. Our Montana/Renewables segment generated adjusted EBITDA with tax attributes of $17.1 million in the third quarter compared to $14.6 million in the prior year period. Montana Renewables specifically posted slightly negative EBITDA with tax attributes of $3.5 million for our 87% share. As I mentioned earlier, we successfully monetized $25 million of PTCs during the third quarter and continue to monetize PTCs at improving price levels as we continue to expect to trend towards roughly 95% capture on those sales. Earlier, you heard about the SAF test run that was important to derisking our project, and this run meant the units slowed down temporarily during the quarter, resulting in a couple of million dollars of lost margin alongside some wider-than-normal feedstock basis, which increased feed costs temporarily more than RIN offsets, and this has reset to more normal levels here recently. While we've gained a lot of regulatory clarity this year, the industry is now just waiting for the rules to be finalized. With that in hand, we believe the business is set up for a strong recovery in 2026 based on the preliminary RVO targets that were announced by the Trump EPA. Fortunately, the core building blocks of our renewables business, marquee customers, cost-advantaged assets, unmatched feedstock and end market proximity and an improving yield slate remain intact. Combined with our relentless focus on cost reduction, we remain well positioned for the rebound that we expect to inevitably occur once we see the EPA land, the proverbial plane on the RVO. In fact, our operating costs, excluding SG&A, reached $0.40 per gallon and was our eighth straight quarter of improvement, excluding a turnaround in the fourth quarter of 2024. In the interim, we continue to increase our outlets for SAF as demonstrated by our recent announcement of on-site blending and shipping capabilities. Initial distribution is through AEG's fuels network, and they are already proving to be a strong partner. On-site blending capabilities enables MaxSAF sales from the truck rack to local and regional service, further broadens the SAF market outside of major airports. This investment also allows us to strip credits and monetize SAF outside of direct offtakers. On the Montana asphalt side, the third quarter is typically a good one. This quarter, in particular, we saw one of the strongest quarters in recent memory and a $14 million year-over-year gain. Our polymer modified asphalt business continues to be an advantage as well as the niche fuels distribution and with costs dramatically improved, we are pleased to see the impact on the bottom line this quarter. Thank you for your time today. We remain focused on driving meaningful free cash flow generation as we conclude 2025 while steadily marching towards major value-creating opportunities that rest ahead for our shareholders. With that, I'll turn the call back to the operator for any questions. Operator: [Operator Instructions] The first question comes from Alexa Petrick with Goldman Sachs. Alexa Petrick: My first question is just on as we think about the MaxSAF expansion, and I think you've also talked about being on track to do 120 million to 150 million gallons of annualized SAF production in 2Q. What are the gating items? Just as we think about operations on the ground, what are some of the checklist items? Bruce Fleming: Alexa, this is Bruce. Very little, frankly. The unit as we stood it up back in 2022 was known to have some latent capacity. We've got a couple of tactical constraint removal things that we'll do during the scheduled turnaround, a few tens of millions of dollars. We're pretty excited about the leverage that implies on our cost of goods sold, including the capital charge. The reason we've ranged the output is we'll see about catalyst performance in the new configuration. Probably, we're being a little conservative there, but give us some room to grow into that maybe. Alexa Petrick: Then can you talk a little bit about some of these offtake agreements? I think there's also some commentary that you've been in some final conversations as well. Where do those stand? Bruce Fleming: Bruce again, thank you. The way that we've set this up is the same thing we did in 2022 pre-commissioning of the whole business. Last April, I asked our marketing team to go ahead and presell the increase in SAF that will be coming in spring. We're halfway through that 12-month program to get it placed, and we're well above halfway through signing people up. There's a mixture of executed and in-service contracts. There are a couple of material contracts that are effectively complete, but require the DOE to approve them, and so they're with the DOE. Then we've got a pipeline of additional origination that we're pretty excited about. As I said a second ago, as we probably grow into maybe more capability than we've advertised, we've got the customer standing by to pick that up. The market shows every characteristic of being supply short. Again, I can't overemphasize how exciting this is. Operator: The next question comes from Amit Dayal with H.C. Wainwright. Amit Dayal: Congrats on the pretty solid results. For Montana Renewables, I know you touched on it, Todd, a little bit, but the gross margin issue, is it primarily just stemming from the current market conditions? Or is there anything in the sort of production ramp that you are playing with that may be causing near-term pressure? Louis Borgmann: Amit, it's Todd. No, I think nothing outside of what I talked about in the prepared remarks earlier. I'd say there were a couple of things abnormal to the quarter, one to us and one to industry as a whole. The one to us was we talked about something the volume a little bit to run the test that Bruce was talking about, which should give us a lot of confidence around our ability going forward on MaxSAF. That cost a couple of million gallons. Obviously, that's back to full capacity. Then the other one that was more, I'd say, just broader industry is typically, all feed just trade off of an index to CBO. There's always a little bit of lag, and there can be volatility from time-to-time that over time just balances out. What we saw during the quarter was a lot of the physical basis. Feedstock was, we said in the call earlier, about $0.20 a gallon more expensive than our normal index margin thinking would imply. Basically, $0.20 outside of CI parity. Now that's fixed. There'll be times when it's a little bit better than that, right? There's a little bit of volatility, of course, between the grains, and that's something that gives us an advantage to switch, quite frankly, over time. The industry did see that in the quarter. Again, you kind of add that to the downtime in volume, and that really speaks to probably the difference between this quarter and last quarter. Amit Dayal: Just a follow-up sort of on that. What's the primary feedstock you're using for the MRL right now? Bruce Fleming: This is Bruce. To be honest, there's not a primary feedstock. One of our key competitive advantages is short supply chains that can access any of the principal classes of feed. We are very, very dynamic as we reoptimize each month. We think that we're gaining competitive advantage versus some of our peers with longer supply chains and we shift gears very, very quickly. With that said, if you wanted to think broadly, you can think 1/3 vegetable oil, 1/3 corn oil and 1/3 tallow and protein oils. Amit Dayal: Just last one for me. When you sort of look at 2026, it looks like the operating side of the story is running pretty well. Are most of the risks and opportunities based on how the macro plays out for you guys? Louis Borgmann: Yes. I think as a whole, as we step into 2026, we're quite excited for a number of reasons. One, -- and you mentioned it, operationally, we've made some real improvements and expect to not only keep those, but build on those improvements going forward. Then, of course, as we look at the regulatory environment, the overhang that's been in Montana Renewables specifically and all of biofuels, quite frankly, is being removed. The RVO that's plagued us for '24, '25 is going to get finalized here soon and will -- as we've said kind of routinely, expect to lift up industry margins. That's a major deal, right? We've barely been floating above breakeven this year, which we're happy to do in an extremely depressed environment, but as the whole industry returns with better macro environment, we're really going to be able to take advantage of that. Then, of course, third is outside of index margin, just the ability to add SAF is a major ability, right? It's major upside, and it's also major derisking because it'll be less susceptible to just general already index margins going forward because of the SAF premium. Operator: The next question comes from Jason Gabelman with TD Cowen. Jason Gabelman: I don't believe there was much talk about small refinery exemptions in your prepared remarks. Just wondering how that impacts, one, your financials directly? Two, your view on the RIN balances moving forward? Bruce Fleming: Jason, Bruce, I think that's probably a 2-parter, but redirect me if I'm off target. Our 2 small refineries, you could call them micro refineries by industry scale, have always qualified on the merits. We're confident we will continue to do so. Look, when you come to carry forward, we're all waiting for the EPA to process the public comments, which I'm sure they've received 17 terabytes of, but that's a policy question, and we'll all find out together. Am I responsive to your interest? Jason Gabelman: Yes. I guess I'm just wondering more directly, if there's any impact from the exemptions that were granted, if there was any financial impact to you, positive or negative? Bruce Fleming: Well, David covered that as you're aware, the balance sheet has had an inventory accounting style accrual while all of our cases were pending now that they've been resolved generally favorably. We've extinguished 80-plus percent of that and figure, I believe David was $329 million. David Lunin: Jason, so you'll see that we reduced our outstanding RIN obligation related to the granted small refinery exemptions. It was kind of roughly a $320 million reduction in that outstanding obligation as reported on the balance sheet. Jason Gabelman: Then on the comments around kind of feedstocks impacting 3Q MRL results. It sounds like that's been alleviated in the near term here. I'm wondering what do you think caused that feedstock tightness? If we get a ramp-up in renewable diesel capacity as a result of a more bullish 2026 RVO, is there a potential that feedstock prices can tighten again and impact your margins? Or do you see the 3Q impacts as very transitory in nature? Louis Borgmann: Jason, it's Todd. I'll start off and see if Bruce wants to jump in. We think it's a transitory, but it happens, right? There's a general lag on the physical side that happens from time to time. We see the same thing in the crude oil markets when you get an overbuild or shortness just due to kind of a physical near-term [Glatter] shortage in like Cushing, for example. I don't think that it's anything that we should think about changing any sort of long-term view. In fact, if you go back over time, there's never been a lasting difference to CBO outside of CI parity, and we wouldn't expect that to change. This is kind of just normal volatility. We've seen times where it's helpful this quarter, it was negative for the industry, but I don't see anything that would impact that going forward. In fact, we have so much more capacity and availability of feedstocks than even the currently forecasted RVO would suggest that it's hard to imagine a feedstock shortage. Even if there was, you should see that play out through kind of the base COP margin and not some sort of physical basis differential. Operator: [Operator Instructions] The next question comes from Greg Brody with Bank of America. Gregg Brody: I don't normally do this, but congrats. A lot of great developments this quarter. In particular, probably removing the Gregg Brody slide is one of the big ones. Just operationally, you guys really demonstrated a lot of improvement, so congrats to everybody. Maybe you mentioned the deleveraging is still the priority. You're starting to generate cash. Can you talk a little bit about what you think is next to sort of help address the maturities? Just to give us a sense of how you're thinking about it today? Louis Borgmann: Yes, sure. I'll take it and see if David wants to jump in. I think mentioned last quarter, we expect cash flow from the business, particularly in the second half to be strong. That, along with the RPI sale earlier in the year is adequate to knock out the '26 notes. We kind of look past that. As you think about '27 maturity management after that and our ability to delever, it includes cash flows from organic operations. It includes potential strategic activity, like we said, as long as it's accretive to both the debt and equity and doesn't take away anything from our integrated story. That remains an option. Of course, ultimately, it's a partial monetization of Montana Renewables. Not a lot has changed there. We're just working the game plan here as we look forward to an ultimate -- taking that ultimate step on MRL. As we talked about a lot during the call, the next milestone in doing that is demonstrating the success of this MaxSAF expansion and seeing the RVO firmed up and I think with a couple of strong quarters on the heels of those events, we'll be in place to take that final step. Gregg Brody: You're refinancing some of the '27s. -- is that's part of the equation potentially? Louis Borgmann: Yes. Look, I think refinancings are always and just managing the timing are always part of just the general menu. As we sit right here today, we don't have anything active or anything specifically in the plan. Bigger picture, we're looking to execute the longer-term deleveraging strategy, which is a reduction of an additional $600 million to $800 million of debt. We have plenty of opportunities to do that. If there was some sort of opportunity or reason to have refinancing as part of that, then we'd certainly be happy to do that in a step of optimization, but most importantly, we're focused on kind of the organic cash flows, potential strategic activity and monetization of Montana Renewables to permanently reduce that debt. Gregg Brody: One last one for you. You mentioned you've started to be able to monetize the PTCs. What's been the realizations on those in terms of the -- how much of a discount to the actual PTC EBITDA are they -- are you realizing? Louis Borgmann: Yes. You have to go back, the PTCs were kind of new at the beginning of this year and kind of weren't fully clarified until kind of the Big Beautiful Bill. Even today, some of the ultimate kind of final rules are even completed. I think we expect over time to kind of monetize kind of closer to 95%. I think the initial monetizations were probably closer to 90% and then we continue to close the gap as we monetize more and have more term sheets as we look further out. We've seen the market get a lot deeper and a lot more interest as they normalize earlier in the year was still new for people to digest. Gregg Brody: IT seems like the activity picked up in monetization. Should we expect it pretty consistently now every quarter? Or are there some market dynamics we need to think about? David Lunin: No. I think we expect to kind of monetize them more ratably. Todd mentioned in his remarks that we also monetized a portion in October. We're just kind of working through them. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to John Kompa, Investor Relations for Calumet for any closing remarks. John Kompa: Thank you, Chloe. On behalf of Todd and the entire management team, I'd like to thank our shareholders for joining our call today and our continued support. Have a great rest of the day. Thanks. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Greetings and welcome to Huntsman's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ivan Marcuse, Vice President of Investor Relations and Corporate Development. Thank you. You may begin. Ivan Marcuse: Thank you, Donna. Good morning, everyone. Welcome to Huntsman's Third Quarter 2025 Earnings Call. Joining us on the call today are Peter Huntsman, Chairman, CEO and President; and Phil Lister, Executive Vice President and CFO. Yesterday, November 6, 2025, we released our earnings for the third quarter 2025 via press release and posted it to our website, huntsman.com. We also posted a set of slides and detailed commentary discussing the third quarter 2025 on our website. Peter Huntsman will provide some opening comments shortly and we will then move into the question-and-answer session for the remainder of the call. During this call, let me remind you that we may make statements about our projections or expectations for the future. All such statements are future-looking statements and while they reflect our current expectations, they involve risks and uncertainties and are not guarantees of future performance. You should review our filings with the SEC for more information regarding the factors -- the risk factors that could cause actual results to differ materially from the projections or expectations. We do not plan on publicly updating or revising any forward-looking statements during the quarter. We will also refer to non-GAAP financial measures such as adjusted EBITDA, adjusted net income or loss and free cash flow. You can find reconciliations for the most directly comparable GAAP financial measures in our earnings release, which has been posted to our website. I'll now turn the call over to Peter Huntsman. Peter Huntsman: Ivan, thank you very much and thank you for all of those taking the time to join us this morning. Before getting to our Q&A, I'd like to take a few minutes and speak about present market conditions. First of these is the change in our dividend distribution. Every quarter, our Board of Directors deliberates and spends considerable time discussing this matter. We take into consideration a number of factors in determining what should be paid and what should be preserved. Our industry faces 3 challenges that in their duration and magnitude are unprecedented. First, we see the U.S. economy, the effects of several years of decades high inflation and the rising of interest and mortgage rates. This has put enormous pressure on consumer durables and homebuilding. In particular, fewer and smaller homes are being built and consumers are spending less money on large durable items. The second is the lack of consumer confidence and spending in China. While at the same time, the country has built out their manufacturing capacity that is not being absorbed domestically and in many cases, are flooding markets that struggle to absorb their own domestic production and increased imports. The third of these challenges is the deindustrialization of Europe. Between burdensome bureaucracies and regulations, high business and climate-related taxes and uncompetitive energy and raw material costs, Europe is not attracting innovation, growth or investment. In fact, in the second half of 2025, we're likely to see more industrial closures than we have seen in the first half. We believe that the U.S. and China economies will recover to more stable conditions as trade tensions ease, interest rates drop and consumer confidence and spendings returns. Europe will see more of its manufacturing leave unless they change a number of policies very quickly. As industry shuts, it will be relocated to the U.S., Asia or the Middle East. As these capacities relocate, we will see these markets stabilize as the remaining European companies adjust to new supply chains and perhaps a more consolidated industry. Aside from simply waiting for better times, what will Huntsman continue to do? We will continue to calibrate our cost structure to be -- to the market realities that we're seeing. We are on track to completing our previously announced $100 million cost reduction program. This includes the elimination or relocation of over 600 positions and the closure of 7 sites, mostly in Europe. These efforts will continue through 2026 and we are well on track to meet and likely exceed these targeted savings of $100 million. In addition to cost and asset footprint, our priority has been to manage our cash consistent with a prolonged downturn. We delivered $200 million of operating cash this quarter and our year-to-date free cash flow is over $100 million. We moved early and aggressively on working capital this year and I believe we made the right call to do so. We're also looking at more energy-intensive raw materials and exploring ways wherein we can source these supplies from other regions with more competitive costs. Europe will continue to be a vital market for our company. Areas such as aerospace, automotive, adhesives and electronics will not only be profitable but growing markets for Huntsman. However, we need to continue to look at our supply chains and source the most profitable raw materials. An example of this is our recent closure of our maleic facility in Moers, Germany. We will continue to support our maleic customers in Europe but we will do so from the U.S. where we can make maleic cheaper and deliver it at higher margins. We'll continue to look at our urethanes, amines and epoxy supply chains and assess how we can avoid Europe's uncompetitive cost structure. These include working within our own company as well as working with other industry players. We will continue to work with other manufacturers to maximize our capacities and competitiveness on the products we produce and supply globally. This includes exploring opportunities for consolidations, rationalizing capacities and other value-enhancing combinations. I believe that our actions will create further value. Not all of them will happen but we will continue to explore every chance we have. We also need to make sure that we protect our balance sheet for the long term. Our latest dividend levels were set when market conditions were far different than they are today. Our priority was to return cash and value to shareholders. This priority has not changed. It has taken -- but it has taken into consideration current market conditions. These are not times when we ought to be taking on more debt to pay a higher dividend. After careful deliberation, we believe that we have found the right balance to reward our shareholders, preserve our balance sheet and invest in the future. As soon as market conditions warrant, consideration for an increase in our dividend payments will take place. Believe me, we'll be doing this as quickly as possible and I hope this happens sooner rather than later. Lastly, as we look into the fourth quarter, it is simply too early to make forecasts for 2026. Most supply chains are very tight and visibility is short term as it usually is this time of year. I believe in the fourth quarter that we will see typical seasonality, coupled with a higher-than-average destocking. Earlier this year, some companies bought into the idea that Europe was somehow rebounding and demand was picking up. This has clearly not been the case. We may see conditions in the fourth quarter, especially in Europe, where prices drop as companies cut -- push to cut inventories and manage working capital. During the fourth quarter, we will continue to prioritize cash over EBITDA, especially in our Performance Products division. Our objective is to finish this year with inventories that allow us to produce to meet demand. As we end the third consecutive year of challenging markets in all 3 regions of Asia, North America and Europe, I believe that we're taking the tough steps today to assure our future is one where we are able to recover quickly as market conditions allow us to do so. We will continue to explore every means and structure possible aside from simply waiting and doing nothing. With that, operator, we'll open the line up for questions. Operator: [Operator Instructions] Today's first question is coming from Mike Harrison of Seaport Research Partners. Michael Harrison: Just wanted to ask about the cash flow and the inventory reduction actions that you took during Q3. It sounds like your expectation is there's still some further inventory reduction that will happen in Q4 as you continue to focus on cash generation. My question is, though, what do these inventory reduction actions mean for your utilization rates, particularly in Q3, where you're running a little bit slower? And will that continue into Q4? I guess my question is, are you running slower now so that you can run harder potentially in the first and second quarter of next year? Peter Huntsman: We look at that on a -- literally on a product-by-product and division-by-division basis. So if you think where we'll be in the first quarter, we're typically starting to build inventories as you go into the second quarter, which is typically the beginning of your construction, housing seasons. Obviously, that's weather related and it's also demand related as people are looking to relocate into the summer months. And so you see a lot of buying activity pick up at the time. So typically, across the entire company, you will see inventories rise during that first quarter going into the second quarter in preparation of demand. Now if the demand doesn't necessarily build and I think 2025 was a good example of that, we really saw a very muted construction market, particularly in North America versus expectations. And you then see that partway through the second quarter, you've got too much inventory. Some of our products such as your MDI materials, not -- this doesn't apply to every single grade of product we produce but to the more commoditized materials in MDI polymeric and so forth, you can typically reduce that inventory by selling it into other markets, into other applications, even into export markets and so forth. I'm not going to say that's easy and I'm not going to say you can do that fairly quickly but you typically can take care of your inventories through proper management usually within 1 quarter or 2. Other products like your Performance Products, where you're producing amines that are going into catalysts, you're producing maleic anhydride that goes into unsaturated polyester resin, you've built up your inventory early in the year. And sometimes it will take you longer to reduce those inventories, fewer customers, fewer outlets and so forth to get rid of that inventory. And so you typically -- that will happen through the third and in our case with Performance Products through the fourth quarter. Now you've got a decision to make, you asked a very good question that do you reduce your production rates, thereby lowering your inventory so that you can meet production demand as you get into early 2026. I believe that we have an opportunity to see a modest recovery starting in 2026 but I'm not willing to bet our inventories on it. So let's go into 2026 with our inventories, I would say, lower than average, where we can calibrate our production to the actual demand as we see the demand. I think probably by and large, I can't speak for our competitors but probably as an industry after 2025 and the muted market -- the muted recovery that we saw in early 2025, the beginning of the construction season, I think that people will probably be cautious going into 2026. And therefore, I think that's why you're seeing a lot of companies right now focus on the working capital, focus on inventory reduction and perhaps putting their free cash flow and cash generation ahead of EBITDA. In the case of our MDI business, I believe our inventory levels, while not perfect, I believe that they are in the area where we want them. Performance Products, I believe they'll be there by the end of the year. And barring any huge change in demand one way or the other -- and so yes, in the fourth quarter, I think that as we look at Performance Products, in particular, I'm not very encouraged when I look at the EBITDA outlook for the fourth quarter but I do look at it as somewhat of a one-off because we are going to sacrifice some EBITDA to get rid of what I think is the last of that inventory. Sorry, that was a very long-winded answer but a very good question. Operator: Our next question is coming from Patrick Cunningham of Citibank. Patrick Cunningham: Peter, in your opening remarks and over the past couple of years, you talked about the continued collapse of European manufacturing and you've already been quite proactive here with positioning your own footprint. I guess my question is, is there a risk that enough capacity leaves that it no longer becomes attractive for suppliers to support some of these industrial clusters, if there's enough links in the chain broken and perhaps maybe down the road, you need to evaluate your Rotterdam asset as well. So maybe just directionally comment on how you're thinking about the asset footprint for Huntsman specifically and that sort of tail risk to the industry or what's left of it? Peter Huntsman: Yes. And Patrick, what I don't want to do right now is try to predict too much of the future but it is something that we keep a very close eye on. We feel very confident that our first-tier suppliers that are giving us chlorine, giving us CO2, giving us our raw materials and so forth in Rotterdam, in particular, our ability to import in benzene and so forth, we feel that, that is a very good position by what we see today. Now do I have inside information on what's going on? I don't. But we communicate with those first-line customers. You do bring up a very good point, though. What happens if a supplier of a supplier of a supplier, you can take that back 2 or 3 steps and you start looking at the refining infrastructure or you start looking at the pipeline infrastructure, is enough product going in to run the pipeline system. That may be something that is not only out of our control but out of the control of our suppliers and so forth. I don't foresee that happening in the near term. Is it something that could happen 2 or 3 years down the road? I'd be surprised to see it get that bad where you start seeing a collapse of these clusters. I genuinely think that it'd be such an economic calamity that the government would probably step in on some of these things. But I'm just surmising. I try to get into the head of European bureaucrats, not only very nebulous but dangerous. So won't try to do that but I feel that at least for the foreseeable future for us for the coming years and so forth, Rotterdam is going to continue to be a low-cost European site. It's our -- feeds into our second largest MDI market. And I think that we have some work there to get that site more competitive on a global basis. We continue to work with our suppliers, with our partners, with our customers and looking at anything and everything that we can do on that site. But yes, I -- that's -- you bring up a very good point. It's something that we are in continuous discussions with our suppliers. Operator: The next question is coming from John Roberts of Mizuho Securities. John Ezekiel Roberts: Do you think the increased U.S. MDI imports from Europe is a structural change and that's here to stay? Peter Huntsman: I hope not. I can't imagine that it makes any economic sense but I'm just speaking of looking at our economics and is that a good deployment of capital. But John, you bring up a very good point. As we look at the U.S. market of around 1,200 kilotons, you've got roughly 75,000 kilotons coming in from Europe. You've got roughly another 150,000 kilotons that will be coming on this next year. And I would remind you that it's usually not when the kilotons come into the market when you feel the impact of it, it's usually the year before, right? When people are out premarketing, preselling, pre -- cutting the market to try to find a place for all of that inventory as it comes in. And you still have a lot of Asian material that's going to Canada and Latin America that is displacing U.S. exports from the United States producers that are typically exporting to Canada in those markets as well. So I think that it's -- there's going to be moments of opportunism where people maybe have too much inventory, can't move it in Europe and so forth. But fundamentally, the economics of moving from a higher cost region, paying tariffs, taxes, transportation, logistics, working capital tie-ups and so forth into another market. I'm not sure that's a good long-term decision but that's not my decision to make. What is for Huntsman. We don't do that. John Ezekiel Roberts: The Chinese gasoline market is now declining. So is your MTBE JV production in China having to be exported? Or how do you see that as the Chinese gasoline demand continues to decline? Peter Huntsman: So that MTBE is both an export and a domestic market. That's a very competitive site. It's a world-scale site and it's one that we're going to take advantage of both domestic and export opportunities and wherever the best opportunity is, that's where we'll be. Operator: The next question is coming from Aleksey Yefremov of KeyBanc Capital Markets. Aleksey Yefremov: Peter, can you just maybe overall describe the U.S. MDI market? You just made some comments but what about demand side, overall U.S. MDI inventories and how customers are sort of reacting to the tariffs and change in that imports picture? Are your conversations with customers changing at all? Peter Huntsman: No, not a great deal. I think that there may have been a lot of hyperbole and so forth that went into the tariffs that you somehow were going to foresee or see these great changes and so forth. But like I said, the U.S. is a 1,200-ton market. And if you look at the amount of tonnage that is being added on in the next 12 months, kind of 150,000 KTS from 1 producer, predominantly another European producer bringing this last year about 75,000 metric tons. You look at the amount of product that was exported to Latin America and Canada that now is kind of set back into the U.S. And you can kind of see where you kind of take last year's fourth quarter, this year's first quarter was something like 100 kilotons that came in from China. And you more than offset that, right, with new additions and imports coming in from Europe. So I'm not sure that there's really a big net change in production. I'm not going to say that it has no impact. I'm sure it does on those particularly having to pay [ 513% ] antidumping tariffs. But it's -- for us, we've seen this last year year-over-year about a 6% growth in MDI. That's something that we gradually over the last 12 months have gotten back -- largely gotten back market share that, frankly, we lost and we probably took too aggressive of a price stand and trying to keep prices stable or even rising in a market that sorely needs it. So I -- for us, it continues to be a sluggish market. And I think overall, there'll be pockets of it, of growth within MDI U.S. But until housing fundamentally, until housing recovers, I don't think you're going to see the sort of demand that we've seen historically. Aleksey Yefremov: And as a follow-up, you talk about automotive wins in Advanced Materials and also some progress on the power side, aerospace. Do you think AM could qualitatively be decently stronger next year? Peter Huntsman: Well, I'd -- well, on the -- you brought up 3 very good markets here. On the electronics side, I'd remind you, that's about 40% of our earnings. And that's probably the most boring unknown segment in our business. I say boring because it's just 1 year ago or in 2018, the business made up about 20%. Today, it's 40%. So the business for us has doubled over the last 7 years. And so that's -- we've seen phenomenal growth at a time when a lot of businesses have been flat to down during that time period. And I think that over the course of the next decade, electronics and power is going to continue to grow. So that's a very important end of our business. And I'm not sure that if the economy turns around and picks up, that we're going to see big growth in that area as we would in automotive or aerospace. And -- sorry but all 3 of these are kind of different. Aerospace will not be about consumer spending or consumer demand. Aerospace will be largely around Airbus and Boeing's ability to build more planes and to deliver that which they have built. So you look at all the publicity recently on the 777X, a platform that has Huntsman material in it. I had the opportunity to visit the Boeing site, what was it, 3 years ago? And you've got -- you had XXX (sic) [ 777 ] jets 3 years ago that were sitting there waiting for delivery. Now the FAA says those planes probably won't be delivered until 2027. So planes have been built and sitting there for 5 years. And so it's not just a question of planes being built. It's a question of planes being built and delivered. 2 completely different things. So if the aerospace industry can increase build rate and delivery, that will be great. Electronics, that's largely going to be around the ability for infrastructure to be built, infrastructure to be modernized, as you start bringing in more renewables, more wind, solar and so forth, that's going to be power. On the automotive side, that's going to be more consumer-driven. But still, we're seeing there that the automobile producers are rewarding lightweight, that's energy conservation, both for EVs and ICE. And they're also rewarding innovation and new chemistries. And that's a lot of battery materials and potting materials and so forth, strength materials that are going into the EV. So Advanced Materials, in all 3 of those sectors, as you see the build rates improve in aerospace, you see the continuation of the build-out on the power grid, you see consumers demand continue to improve, hopefully, in the automobile area, you ought to see all of those things -- yes, some will be consumer-driven, others will be infrastructure driven and others will just be the ability for manufacturing to get it right. Operator: The next question is coming from Vincent Andrews of Morgan Stanley. Vincent Andrews: Peter, it sounds like in the EU, you're already hearing from customers that they're going to be doing some early shutdowns for the holidays and so forth. Is that correct that you're already pretty well aware of this? Or are you just really projecting it? Peter Huntsman: I think that we're projecting it at this point. I have not heard even anecdotally that we're hearing automobile segment customers or anybody else. We'll see normal seasonality in fourth quarter. I think that where you might see more of it is perhaps on the chemical side, not on our customer side but those of us that have to build inventories before the construction season. Or do you think that if the economy is going to be turning in the second quarter, because a lot of people are saying it would be the case in Germany, we better start building inventory to match that demand that's coming down the pipe. Typically, you don't see that with OEMs in the automotive industry and so forth. They're not building big inventories and so forth for seasonality. So when I talk about companies perhaps building too much inventory and diminishing some of that in the fourth quarter in pricing and so forth, I would say that will apply more to the chemical industry than our downstream customers. Operator: The next question is coming from Josh Spector of UBS. Joshua Spector: I was wondering if you could talk about kind of how you size the dividend cut? What's the framing that you use to set that? And I guess if I throw out some rough numbers, not trying to get to 2026 guidance or anything. But if we say you get back to $400 million in EBITDA similar to '24, 50% conversion of free cash flow, minus $175 million in CapEx, you're at $25 million in free cash flow. You're still not covering the reduced dividend. So I don't know if the assumption is how much cash you feel comfortable burning until things improve or if you have a different view around what earnings will be 3, 6 months, 1 year from now? Philip Lister: Yes, Josh, I think the Board had a long discussion about the amount of the dividend cut, 65% from our perspective, gets us to about $60 million of cash requirements for next year for the dividend. That's down by about $115 million of cash, frees that up. The $60 million, I think we're comfortable with that level when you look at how we've been generating free cash flow. We're $105 million on a year-to-date basis. We're closer to $200 million on an LTM basis. And we've been aggressive on working capital, quite frankly, whether that's on accounts payable, whether that's on inventory and we'll continue to do that as we progress through 2026. There's always opportunities to drive better cash flow. So I think that $60 million is a very reasonable level that our company feels that it can cover as you move forward. Joshua Spector: Okay. I guess as maybe a quick follow-up on the same lines then, though. If EBITDA improves, I guess, like I outlined with that, wouldn't there be an increase in working capital involved in that? Or do you think you can grow earnings and not have to invest in working capital if there's more wood to chop there? Philip Lister: I think there's always opportunities in working capital, whether that's on the receivables side, quite frankly and also some more on the accounts payable side. We've driven our supply chain financing program this year. We've agreed extended terms with suppliers. That's going to flow through into next year as well. But there's always opportunities on working capital and we'll continue to be aggressive as a company. And I think we've demonstrated that through the first 9 months of this year. Operator: The next question is coming from Mike Sison of Wells Fargo. Michael Sison: So for MDI, the fourth quarter polyurethanes, the decline in EBITDA was a little bit more than I thought. But where do you think industry operating rates are going to sort of settle down in the fourth quarter? And then given the cost savings that you're generating for the segment, is there a lower operating rate you can get to, to kind of restore some of the earnings power for this segment? Peter Huntsman: Well, I -- again, there's not a whole lot of information as to where the industry is running. I would say that the industry -- it looks like it's -- the demand versus production is somewhere probably in the low 80s. And I'd say that's probably across all 3 regions, when I say all 3 regions, the U.S., Europe and China. That doesn't mean that everybody is running at 80%. You've got some that are running full out and somehow the notion that the more we sell, the more we make and others that are trying to calibrate more around demand. And others, I mean, it just vary company by company. So I wouldn't want to represent what competitors are doing when I say that the operating rates are in the low 80s. But I believe that's where we are as an industry. You are going to see improvements in polyurethanes by the cost-saving initiatives. There's no doubt about it. But the singularly best thing that can happen to polyethylene is -- polyurethanes is to get prices up and demand needs to return. We simply are not going to cut our way back to normalized margins in this business without a fundamental change in the market. And that could come from an improvement in the demand structure. It can come from consolidation in the market. There's still small uncompetitive facilities, I believe, that operate in this industry that typically would shut down when market conditions get to this point, which may or may not happen. And so as you look at what it's going to take to turn urethanes back to a more normalized basis, it's going to take more than just cost cutting. But that -- right now, that's what we can control and that's where a large percentage of our time and focus is. Michael Sison: Got it. And then as a quick follow-up, a lot of companies have suggested they're not banking or even see much improvement in the environment next year. So it looks like you have a plus [ 80 ] or so in cost savings for 2026. Is there anything else that drives EBITDA upside in '26 versus '25 in an environment where demand could remain soft? Peter Huntsman: Sure. I mean, in our Performance Products, we've got new capacities that we've continued to introduce into the market, on ULTRAPURE cleaning solutions and so forth. We've got more capacity to produce catalysts and amines -- higher-end amines that have come on in this year that will be -- that are -- working right now with customers to be qualified and so forth. We'll see $5 million, $10 million sort of opportunities of improvement there. We have, I think, a very aggressive business turnaround that's taking place, specifically in our home -- our spray foam business, insulation business we'll see benefits from in '26. I would also -- we've also got some wins that we've had this year in contracts in the automotive segments, in Polyurethanes, in Advanced Materials, where we'll see a lot more of the output of those. Those are not cost related. Those are new market applications and so forth. So I would -- and I would just say that in 2026, look, I can't think back in an era when I look back at 2021, all the way through all the up cycles from 1988 all the way through to 2021, the 5 or 6 major up cycles, nobody anticipated or saw the upswing 6, 9, 12 months before it actually happened. What may be the catalyst, what may be the consolidation, what may be the purpose for change. I wouldn't write 2026 off as just being another bland year. There will be opportunities in it. And we might have to be a little more creative than we otherwise would be and looking as to where those opportunities and how they'll be created. Philip Lister: Just one comment might be, incremental savings next year, we've articulated that at $40 million as we progress through the $100 million savings target. Operator: The next question is coming from Jeff Zekauskas of JPMorgan. Jeffrey Zekauskas: In the old days, you used to talk about polymeric MDI and monomeric MDI and MDI that was a little bit more specialized and there being a margin differential between the 2. What's happened to that margin differential between the 2 and why? Peter Huntsman: I think that when we look at the market 10 years ago, 5, 10 years ago, I think it probably was more of a bifurcated categorization. If something was coming out of a system house, if that was being formulated for a customer and so forth. I think that what we see today is more around, Jeff, a spectrum rather than an either/or. And I think that there still is a value-added component to our polyurethanes business. There's still applications that are very exciting in automotive and home construction and insulation, applications that -- where you'll have in the automotive sector, you have some of our most commoditized products. You also have some of our higher-end materials. And so I would just say that they're -- what we're seeing today, perhaps more so than in the past, is it -- it's not an either/or. It's kind of all of the above. And it's a spectrum rather than just a 2-sided belt. Jeffrey Zekauskas: Okay. I guess everybody looks at the data a little differently. But I would have thought that China imported into the United States maybe 250,000 tons of MDI and that's pretty much gone to 0. And so -- and you talked about maybe 75,000 tons coming in from Europe and whatever capacity may come on is later. So shouldn't conditions be ripe for the market to be a little bit tighter at the beginning of 2026? Peter Huntsman: Yes. I would say that if demand were picking up and if those were the factors going into it, Jeff, I definitely would agree with you. The simple fact of the matter is, the people that are bringing on 150,000 tons in 2026, which isn't that far into the future, are out right now marketing that material. They're out with prices and we're seeing posture being taken, efforts to move that extra volume. So as I said earlier, it's not when the volume is produced, it's when you're out 6 to 12 months in advance, trying to move that product. So that there is a home when you finally are able to start up the facility. Yes, the 75,000 tons coming in from Europe right now, I just personally as a -- from -- see as a producer, it doesn't bring anything in from Europe. That's kind of a surprise. I wouldn't have anticipated people doing that but it's happening. And again, I think that we're probably underestimating a little bit how much was exported to Canada and Latin America and how much of that's been picked up by product that otherwise would be coming to the United States. It's just merely going a little bit further north or a little bit further south. So yes, a lot of that is happening. And so I look at where we were kind of in the fourth and first quarter of 100,000 kilotons coming in from China. We're basically down to -- the third quarter was 10 kilotons coming from China. So we're definitely seeing a large drop off but we're also seeing a pickup in other areas. Operator: The next question is coming from Kevin McCarthy of Vertical Research Partners. Kevin McCarthy: Peter, if I look at your Performance Products volumes, they've been running down close to double digits in recent quarters. But I think that, that is distorted by your plant closure in Germany. And so I guess my question would be, can you comment on kind of the underlying market demand as you see it for maleic and for amines? And I guess, related to that, if we take into account the new products that you talked about in Performance Products, do you see an opportunity to stabilize or even grow volumes in that business next year? Peter Huntsman: Yes. I think that we do. Maleic is a very important product for us in the U.S. And you're right, when you talk about the maleic volume, when you look at the net reduction that we saw in sales, maleic -- Moers is about 50% of that reduction that we've seen. So a big chunk of that is Moers and that needs to be factored in. And part of that is also going to be the DGA going into ag. We've seen a little bit weaker ag this year. And we've seen some pretty competitive market conditions in amines all around in industry, in construction and so forth that just isn't growing that much. And so as we look at that going into 2026, again, our maleic anhydride, we're the -- I believe we're the low-cost producer and the largest producer in North America. We've got protective tariffs there of 50% to 60% depending on the whims of a certain President. And so that -- it feels like we've got some good protection there with a very good cost base and a very good manufacturing competitive base. So maleic is going to continue to be a strong market for us in North America and we will be taking excess material to feed our European market. And as we look at that, we'd expect over the next year, that's probably going to be a gradual improvement. Our EAs, ethyleneamines are going to continue to be, I think, flat to positive. And as we look at our -- the rest of our performance amines, that's probably going to be pretty flat. Philip Lister: And just to reiterate, Kevin, if you take Performance Products, you minus [ 10 ] and you take out the Moers closure, you're relatively flat year-on-year. That's the way to think about it. Operator: The next question is coming from Hassan Ahmed of Alembic Global Advisors. Hassan Ahmed: Look, a question around U.S. MDI volumes, specifically for you guys. I mean, of course, 2025 continues to be -- has been and continues to be a pretty sort of weak demand-wise year. But leaving sort of broader macro demand aside, I mean, it certainly was an abnormal year in terms of trade flows out of and into the U.S. for MDI. And you yourself talked about maybe losing some share, being a little more sort of holding on to pricing and the like. Then, of course, back in Q2, you guys talked about how typically sequentially in Q2 there tends to be a 8% to 10% volume uptick in MDI and you guys only saw maybe like 3% or something. I'd like to think maybe that was, one was stuffing the channels. So where I'm going with this question is, let's even assume the macro doesn't change that much in 2026 but trade patterns do normalize, how much of a volume increment in U.S. MDI would you see on the back of that? Peter Huntsman: That's a good question. A lot is going to depend on customer sentiment and pricing and where we can get the best value for our production. I'd remind you that in the third quarter, we were up 6% year-on-year and in North America, in the U.S. markets and up 4% on the rest, when you look at the entire division. So -- and I wouldn't say that, that was just one particular area. I think that, that was very strategic and surgical within areas where we can achieve the most value for our product. And so I think that we're very much going to have the same posture in 2026. I think we want to be smart with our volumes but we will be aggressive in maintaining our volumes and getting prices through as quickly as possible. Beyond that, Hassan, in 2026, I just -- I'll just get in trouble if I try to forecast the particular performance of the division. Hassan Ahmed: That makes sense. That makes sense, Peter. And if I could sort of just talk about near-term U.S. pricing as well. Of course, you mentioned incremental capacity coming online in the U.S. market, which will be later in the year. But from the sounds of it, it seems trade normalizing, somewhat normalizing in the early part of next year, antidumping duties, tariffs and the like, I mean, there is at least potential for some pricing tailwinds in the U.S. in MDI. Is that, correct? Peter Huntsman: Yes. Hassan, I think you're absolutely right. And we're in a little bit of the old joke that when the bear starts to chase us, I just have to outrun you, I don't have to outrun the bear. And so when I look at the polymeric MDI pricing today in the U.S., and again, I'm talking about polymer, this is the bottom end most commoditized. You're seeing about a $200 a ton difference between U.S. and China. And you're seeing another $200 difference between China and Europe. Now that's not on an absolute basis. That's going to be on average basis. But you are seeing some stability, more stability in the U.S. than you're seeing in China and Europe. And so I would just say that, again, I'm not saying I'm happy with where the margins are in the U.S. but pricing in the U.S. is holding up better than the other 2 regions. And when you look at our manufacturing costs, the U.S. and China, about $100 apart a ton from each other, China being lower. So yes, I think there's opportunity. What we need, again, more than anything else is just demand. And I don't think that we'll really start to see that picture until the end of February, early part of March and we start to see the direction, that proverbial construction demand and homebuilding and seasonality, Chinese New Year's will be over by then. And what do we see on a global basis that starts to take place at that time. Operator: The next question is coming from Salvator Tiano of Bank of America. Salvator Tiano: We haven't been hearing much about the spray foam business for the past few quarters. So I want to get kind of an update on how are things going there? Is it a business that's EBITDA positive at this point? And when it comes both to that -- to the spray foam business but also insulation demand, have you seen any change from the -- I guess, in the summer when we replaced part of the IRA bill, I think there was one of the key credits that was canceled there has affected the spray foam demand? Peter Huntsman: Yes. I don't think that we've seen any impact from the credit. We do with our spray foam business. It is a contributor to the business. It is up year-over-year. And we are the U.S. leader and we are -- we do have a share gain that has taken place there. And so as we look at the markets, the markets are down but our business in the third quarter was up 7% from a year ago. And that's a business that you just don't necessarily go out and buy market share. You've got to have the service, you've got to have the quality, you've got to have the reliability, the consistency. And so I think it's a series of factors but we're seeing that business for us continues to gradually improve. And I give the management team there some very high marks. Salvator Tiano: Great. And as a follow-up, I wanted to ask you now, in your prepared remarks, you mentioned about the need for restructuring, consolidation. And you brought up actually -- I think it was the phrase that you would work with your partners and with other industrial partners and manufacturers. So beyond Huntsman just taking on own actions like closing the Moers site, could you actually -- do you see an opportunity or would you pursue consolidation through M&A for some businesses, for example? Peter Huntsman: Oh, I'm not sure about through M&A right now. I'm not sure I'd want to stretch the balance sheet on something like that. But I do see -- I mean, if you look at the cost curve on a number of our products, it does vary quite dramatically in various parts of the world. In some cases, we are a market leader. In other cases, frankly, others are market leader. And we've got to be able to work and look at calibrating our volumes and calibrating our supply chains. And that may mean that we're going to be looking to companies in the past that have been a competitor and see if -- where we can work together to try to get around some of the energy issues that are plaguing us in certain parts of the world. But I would just say that, that's a very broad offense that has been ongoing and continues to be ongoing. And I'm not going to get into particulars on divisions or products and so forth and so on. But there is opportunity and it does need to be followed through. Operator: The next question is coming from David Begleiter of Deutsche Bank. David Begleiter: Peter, you mentioned that Chinese MDI imports into Europe have been pretty steady. Can you discuss the potential for more robust tariffs and/or duties in Europe? I believe there is an EU investigation into MDI imports into the region. So that would be helpful. Peter Huntsman: Yes. I don't foresee the Europeans taking any real material action on that. If it's anything like what they've done over the last couple of years, it's not going to happen in my lifetime. But it'd be great to see them do something but I'm not counting on that happening. David Begleiter: Sorry to hear that but so be it. Peter Huntsman: So am I. David Begleiter: MDI, any change in your view of long-term MDI growth rates as we exit this downturn? Peter Huntsman: Sure. As you know, I think that as we look at the biggest drivers around MDI, it continues to be a product that displaces other materials. When you look at the large volume side of it, it's going to continue to be construction and homebuilding and so forth. That's going to be the principal driver. But by and large, this is going to be a business that is going to grow equal to the rate of GDP plus usually about another 0.5% or about half of GDP in product replacement. So I'd say it's a business I would expect over the cycle to grow at about 1.5x the rate of GDP through -- via economic growth and also product substitution and replacement. Operator: The next question is coming from Arun Viswanathan of RBC Capital Markets. Arun Viswanathan: If we look at the second half EBITDA in '25, it looks like the implied kind of midpoint is around $130 million. Maybe if you annualize that, you get to mid-200s. From there, is there a way you can kind of frame maybe the cost reductions, restocking or kind of downtime impact that you're seeing this year and maybe some other building blocks, if anything? Philip Lister: Yes, Arun. So you're right. If you take the midpoint of our guidance, which is $25 million to $50 million and you take the $94 million and multiply that out. Savings, we've said from our savings program, incremental '26 over '25, about $40 million. And that's a program, as we say, that we're comfortable or confident of achieving those target rates or exceeding them. Inventory hit this year through the first 9 months through getting our inventories down is about $30 million impact on the company. You'll see some more of that impacting the company in the fourth quarter, as Peter has articulated, Performance Products. So theoretically, if you just kept your inventory volumes at the same level next year as this year, then you would obviously get that back year-on-year from a improvement in EBITDA perspective. Against that, we have some -- had some noncash one-offs. We articulated those in Performance Products over the last 2 quarters of about $15 million. Notwithstanding the macro, we've talked about Advanced Materials. There was a question earlier about the improvements that we continue to expect to see in aerospace as well as in power as you move through next year. And then obviously, it's around the macro on construction. Arun Viswanathan: Great. And then just as a follow-up, is there anything else you need to do on the footprint? I mean, as you noted, we've gone through significant weakness here for a little while. So maybe is there any rationalization that you see that's required at this point? Or is it mainly just kind of waiting for demand to kind of get better? Peter Huntsman: Well, I mean, we're in the process right now of completing the 7 site closures that we've recently had and some 600 people that we've either let go or moved to lower cost positions such as in what we have operating in Poland or Costa Rica or Malaysia. So I -- we're always going to be looking as to where we can source our materials. And if that can be done cheaper, more reliably, more profitably through another third party or consolidated to another site, we're going to -- we'll be looking at that continuously. All I'd say is, look, if we ever come into the office in the morning and say our work is done, there's nothing else we can do with the company here, we've -- we failed. So we'll continue to look at those things. Operator: The next question is coming from Matthew Blair of TPH. Matthew Blair: Great. The commentary on aerospace for both Q3 and Q4 is a little bit better than what we were expecting. I think there was a comment that you have adhesive applications for aircraft interiors as a relative bright spot. So my question is, is your content per plane increasing? Or is this just a function of Huntsman capitalizing on overall rising build rates in the industry? Peter Huntsman: No. I think that over time, yes, we will be improving our content per plane. We're looking at kind of the traditional structural materials that go into the plane. And we're more focused today, I would say, on the interior adhesions and the interior structures and so forth. So those are areas of growth for us. But just bear in mind, when it comes to aerospace, our contracts are long term in nature. These are qualifications once you're done, they usually go for 10-plus years. And you've got -- these are the longest continuous contracts that we have anywhere in the company. So if we say build rate is going to be x and somebody else says it's going to be y. If it ends up being better than what we say, we will get the business. It's not -- don't -- I mean, look, if we see more production, if we see more deliveries that are taking place, more applications, we will be the benefactors of that. And so it's a great [ end ] of the business and it's one that we hope to continue to see the build rate improve and increase. And we will continue to increase our content on a per plane basis. Matthew Blair: Sounds good. And then the fourth quarter polyurethanes guidance, does that reflect some benefits from cheaper benzene feedstock costs in the quarter? Or is there a lag that we should be thinking about? Philip Lister: There's a little bit of benefit, Matthew. I think the average for Q3 on benzene in the U.S. was $276 in the third quarter. It's trading today at about $250. So it's a little bit of benefit. In general, there's a lag as we move it through cost of production on into cost of sales but you've got a little bit of a benefit there. Operator: The next question is coming from Laurence Alexander of Jefferies. Laurence Alexander: A couple of structural questions. How are you thinking about the potential impact for North America polyurethane demand from reshoring of appliance production? Have you seen enough announcements for that to be material? And if so, when? And then secondly, when you think about the new 5-year plan in China or at least the first drafts and the focus on shifting the chemical industry downstream, do you see that as a net positive or negative for Huntsman? And then I guess the third one, if I can just ask a third structural question is, given the outlook of probably several more years of volatility and kind of lack of clarity for the Western chemical industry, do you see a return at least on the corporate side of the fashion for conglomerates that we saw in the '60s and '70s, kind of similar turbulent period? Peter Huntsman: Yes, excellent question. I think on the first one on the appliances, we're not seeing anything material and I don't think we'll see anything in '26 of materiality that will be coming in. Traditionally, those have been pretty low volume -- excuse me, low-margin applications. We have the expertise. We have the knowledge. We have the relationships. If there's money to be made there, we'll be there. But I don't see that much business coming. As far as China going down to the downstream business, look, I think there might be some opportunity for us in some of these areas. We're right now working with a lot of the Chinese producers -- well, I shouldn't say a lot, we're working with some Chinese producers as to how we can source material in China rather than exporting it into China as their quality improves and so forth. But just because you make the product, as we keep saying it again and again, just because you make the product and you even make it at a competitive price doesn't mean that the product is qualified. So if somebody jumps into epoxy today, that doesn't mean that they're necessarily going to be getting Boeing's business or Airbus' business in aerospace next year or even in the next 5 years. So there is an issue around qualification. I would say, too, that as you look at what China describes as downstream, in some cases, that means ethylene going to polyethylene and that's a downstream derivative. I wouldn't read too much of it that it's a big rush into specialty chemicals. Specialty chemicals requires as much of the qualifying and the demand from the customer as it does from the manufacturer. So just because you make it, again, it doesn't mean, necessarily mean that there's a home to it. On the conglomerate front, that's something that we've talked about internally quite a bit just to see as we start to think about companies coming together to be able to look at their cost structure, their supply chains and so forth. It's a possibility that, that might see a resurgence for that and -- but it's yet to -- we're yet to come to any conclusions on that. Operator: The next question is coming from Frank Mitsch of Fermium Research. Peter Huntsman: And operator, sorry, we're at the top of the hour. So we'll take this as the last question. And Frank, I wouldn't cut you off even if we were 20 minutes past the top of the hour. So you go right ahead. Frank Mitsch: Peter, I sincerely appreciate that. I have a 4-part question. Peter Huntsman: Great. I'll have an 8-part answer. Frank Mitsch: So listen, I'm looking at the maleic anhydride market in Europe. You shut down Moers, I believe, at the end of the second quarter. So it's been shut down for a while. Prices there are continuing to drift lower. Now one would have thought that you shut down a major facility, prices would stabilize and the market would bounce. What is going on there? Peter Huntsman: What is going on there is, you have a lot of Chinese material that's coming into the market. Chinese -- China about a decade ago said that they were going to be making this new material. It's some sort of a biodegradable plastic that required maleic as one of the raw materials. I think it was a product called PBAT, P-B-A-T. And they were going to produce billions of pounds of this, so people could get shopping bags, by the time they got home, the bag would disintegrate and the air would clean up and we'd all live in a better earth. So that never really materialized surprisingly. But you have an enormous amount of excess capacity in China for maleic. A lot of that is finding a home in Europe. There's also, I would say, would be third party, might even be from sanctioned countries and so forth. They're finding its way through Russia -- excuse me, through Turkey going into the European market. And so yes, Europe has very porous import controls and very high cost structure. So it's a natural home for -- if you want to dump excess material, send it to Europe. I think, again, when I look at the U.S. market where that is our bread and butter, it's our dominant market. I'm not supposed to use the word dominant. I think it's a very good market for us. And so we have -- we've got 50%, 60% tariff protection there. And we're a low-cost producer. We've got great raw material situations with butane and a great technology and a great management team in the U.S. And so we're going to -- we'll take advantage of Europe when the margins are such. But right now, it's -- you're right, it's a terrible market. Frank Mitsch: Much appreciated on that -- on the clarifications there. And just lastly, on your Slide 12, you talked about continuing to evaluate noncore assets. I assume that there's nothing imminent on the docket there. But I wanted to give you an opportunity to provide more color on what may happen there. Peter Huntsman: No, we're -- look, I don't think that there's anything really material that's happening. We continue to evaluate and look at various parts and pieces. And then until we get to a purchase and sale agreement on something, I wouldn't want to comment on it. But right now, we're mostly just looking at things around the edges, I would say. Operator: Ladies and gentlemen, that brings us to the end of today's question-and-answer session. We would like to thank you for your participation and interest in Huntsman. You may disconnect your lines or log off the webcast at this time and enjoy the rest of your day.
Operator: Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to the Kura Sushi USA Fourth Quarter 2025 Earnings Call. [Operator Instructions] Please note that this call is being recorded. On the call today, we have Hajime Jimmy Uba, President and Chief Executive Officer; Jeff Uttz, Chief Financial Officer; and Benjamin, Senior Vice President, Investor Relations and System Development. And now I would like to turn the call over to Mr. Porten. Please go ahead. Benjamin Porten: Thank you, operator. Good afternoon, everyone, and thank you all for joining. By now, everyone should have access to our fiscal fourth quarter 2025 earnings release. It can be found at www.kurasushi.com in the Investor Relations section. A copy of the earnings release has also been included in the 8-K we submitted to the SEC. Before we begin our formal remarks, I need to remind everyone that part of our discussion today will include forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995. These forward-looking statements are not guarantees of future performance, and therefore, you should not put undue reliance on them. These statements are also subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect. We refer all of you to our SEC filings for a more detailed discussion of the risks that could impact our future operating results and financial condition. Also during today's call, we will discuss certain non-GAAP financial measures, which we believe can be useful in evaluating our performance. The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP, and the reconciliations to comparable GAAP measures are available in our earnings release. With that out of the way, I would like to turn the call over to Jimmy. Hajime Uba: Thank you, Ben, and thank you to everyone for joining us today. I'm incredibly proud of what our team achieved during fiscal 2025 as we delivered our strongest class of restaurant openings in recent memory, adding a record of 15 new locations. We also successfully managed our corporate G&A expenses, resulting in an annual adjusted EBITDA growth of over 30%. These accomplishments are particularly significant given the volatile consumer environment and the tariff pressures we navigated throughout the year, which have negatively impacted our top line results and restaurant-level margins. Nevertheless, our team remains resilient, and we continue to believe that our focus on execution has positioned us well for continued growth in fiscal 2026. Total sales for the fiscal fourth quarter was $79.4 million, representing comparable sales growth of 0.2%, led by traffic growth of 0.5% and partially offset by price and mix of negative 0.3%. Cost of goods sold as a percentage of sales was 28.4% as compared to the prior year quarter at 28.5%. I am exceptionally proud of our purchasing team who negotiate tirelessly to mitigate higher ingredient cost so we can continue to provide the best value possible for our guests. Labor as a percentage of sales improved by 30 basis points to 31.1% as compared to the prior year period of 31.4%, meeting the expectations for year-over-year improvement for labor in Q4 that we had shared in the previous earnings call. In spite of ongoing labor inflation, we have been able to offset these cost increases through aggressive operational initiatives and system implementations. I have some exciting news on this front that I will discuss shortly. Turning to real estate. We closed fiscal 2025 with 3 store openings in the fourth quarter, The Woodlands, Texas, Salt Lake City, Utah and Boulder, Colorado. Salt Lake City and Boulder are the first units in their respective markets. And as with every new market we've entered to date, have been a very strong performance. Subsequent to quarter end, we opened 3 units, Arcadia and Modesto in California and Freehold, New Jersey. With another 6 units under construction, the new fiscal year is off to a great start. We expect to open 5 to 6 units in the first half of the fiscal year and open the remaining units in the back half of the year. I'm excited to announce we are in the process of introducing status tiers to our rewards program. We are currently performing exploratory research to determine what kind of incentives resonate most strongly with our guests. This marks the first major update to our rewards program since we introduced the Punchh. We are very excited to take our rewards program to the next level and look forward to keeping you updated on its progress. On system development, we have largely completed the revisions we have been working on for the reservation system. With these updates completed, we expect to begin marketing the reservation system to non-reward members beginning in the fiscal second quarter. As you may have guessed when I mentioned this earlier, I'm extremely pleased to announce that we have secured commercial use certification for our robotic dishwasher and are currently in the process of installing these machines in eligible restaurants. As a reminder, our initial expectation was that the robotic dishwasher opportunity will be largely limited to new openings with only 5 to 10 restaurants eligible for retrofitting, but now we expect to be able to retrofit approximately 50 restaurants of our existing 82. We expect to have the majority of the retrofit rollout during this fiscal year and to see labor improvements of approximately 50 basis points for restaurants that receive the retrofit. Fiscal 2025 was defined by the incredible cross-departmental efforts to do everything that we could to mitigate an unfriendly environment. Our commitment to growing corporate profitability remains unabated as demonstrated by the strides we made in adjusted EBITDA and adjusted net income. We have made great strides in honing our unit expansion strategies and have built a pipeline that allows us to capitalize on the opportunities represented by previously unexplored smaller DMAs. The efforts by the operations team and the implementation of new systems have created lasting efficiency gains. I am very grateful for all of our team members who generate the good news we get to share at each earnings call. I don't see that changing. Jeff, I'll hand it over to you to discuss our financial results and liquidity. Jeff Uttz: Thanks, Jimmy. For the fourth quarter, total sales were $79.4 million as compared to $66 million in the prior year period. Comparable restaurant sales performance compared to the prior year period was positive 0.2% with traffic growth of 0.5% and price and mix of negative 0.3%. Comparable sales in our West Coast market were negative 0.6% and comparable sales in our Southwest market were positive 1.6%. Effective pricing for the quarter was 3.5%. On November 1, we took a 3.5% menu price increase. And after lapping prior year increases, our effective price for the first quarter will be 4.5%. Beginning in the first quarter of fiscal 2027, we will no longer be providing regional breakdowns for comparable sales as regional comps are largely determined by the timing of infills, and we don't believe that they are indicative of overall company trends. Turning now to our costs. Food and beverage costs as a percentage of sales were 28.4% compared to 28.5% in the prior year quarter. During the quarter, we began to see the impact of tariffs in our cost of goods sold of approximately 70 basis points. Labor and related costs as a percentage of sales were 31.1% as compared to 31.4% in the prior year quarter due to operational efficiencies and pricing, partially offset by wage inflation. Occupancy and related expenses as a percentage of sales were 7.1% compared to the prior year quarter's 7%. Depreciation and amortization expense as a percentage of sales was 4.7% as compared to the prior year quarter's 4.6%. Other costs as a percentage of sales were 15% compared to the prior year quarter's 14.4% due to sales deleverage and higher marketing costs. General and administrative expenses as a percentage of sales were 11.7% as compared to 20.3% in the prior year quarter due to the lapping of litigation costs incurred during the prior fiscal year, partially offset by higher compensation-related expenses. On a full year basis, general and administrative expenses as a percentage of sales were 13.3%, representing a 300 basis point improvement over the prior year's 16.4% G&A expenses as a percentage of sales, excluding litigation costs for the fourth quarter were 11.4% as compared to the prior year quarter's 13.2%. G&A expenses as a percentage of sales, excluding litigation costs for the full year were 12.5% as compared to the prior year's 14.1%. And we did not have any impairment charges in the fourth quarter of fiscal '25 as compared to 2.4% in the prior year quarter. Operating income was $1.5 million compared to an operating loss of $5.8 million in the prior year quarter, mainly due to the lower G&A and the impairment expenses just discussed. Income tax expense was $43,000 compared to $19,000 in the prior year quarter. Net income was $2.3 million or $0.18 per share compared to a net loss of $5.2 million or negative $0.46 per share in the prior year quarter. Adjusted net income was $2.5 million or $0.20 per share as compared to adjusted net income of $1 million or $0.09 per share in the prior year quarter. Restaurant-level operating profit as a percentage of sales was 19.8% compared to 20.9% in the prior year quarter. And adjusted EBITDA was $7.4 million as compared to $5.5 million in the prior year quarter. Turning to our cash and investments. At the end of the fiscal fourth quarter, we had $92 million in cash, cash equivalents and investments and no debt. And lastly, I'd like to provide the following guidance for fiscal year 2026. We expect total sales to be between $330 million and $334 million. We expect to open 16 new units, maintaining an annual unit growth rate above 20% with average net capital expenditures per unit continuing to approximate $2.5 million. We expect general and administrative expenses as a percentage of sales to be between 12% and 12.5%. And lastly, we expect full year restaurant-level operating profit margins to be approximately 18%. And with that, I'll turn it back over to Jimmy. Hajime Uba: Thanks, Jeff. This concludes our prepared remarks. We are now happy to answer any questions you have. Operator, please open the line for questions. As a reminder, during the Q&A session, I may answer in Japanese before my response is translated into English. Operator: [Operator Instructions] First question comes from Jeremy Hamblin with Craig-Hallum. Jeremy Hamblin: Congrats on the strong profitability here. I wanted to just dive into what you saw over the course of the last several months. I think you were on the July call, very pleased with how quarter-to-date comp trends were. Maybe things softened a little bit in the August period. But I wanted to see if you could give us kind of a sense of where quarter-to-date trends were. And then you've had a bunch of IP collabs. And just to understand how effective those been? I know you've had kind of shorter periods than you previously had on the collabs, but some color on what you're seeing out there, especially in context that the number of restaurants have seen some softening in September and October. Hajime Uba: Sure. Thank you, Jeremy, for your first question. Please allow me to speak in Japanese. He's going to -- Ben is going to translate. [Foreign Language] Benjamin Porten: [Interpreted] So -- Jeremy, this is Ben. Over the last several months, we've certainly been seeing the same macro pressures that our peers have been reporting, and we're not immune to them either. We're very pleased with the work that the marketing team has done. They've done a phenomenal job. They're really doing everything in their power to drive comps and the quarter would have been much more difficult without all of their efforts. And so the IP collabs that you had mentioned, they certainly -- the quarter would have been worse without them. It's hard to assess the impact on a numerical basis, but they definitely made a difference in the quarter. The upside from the reservation system, the light rice and the 25 plates cumulatively had a little bit of a contribution, but that's what got us to positive comps between all those different factors. All those efforts were largely offset with the macro pressures that you mentioned, but we were pleased to come in with positive comps for the quarter. Hajime Uba: [Foreign Language] Benjamin Porten: [Interpreted] And then in terms of quarter-to-date, we've seen the same operating environment as we've entered our first quarter. Hajime Uba: [Foreign Language] Benjamin Porten: [Interpreted] And while this is -- this is not going to be a usual practice going forward, we just felt given that we're already 2 quarters -- or 2 months into the quarter that it made sense for us to share our comp expectations based off of the results to date and our internal expectations. Unfortunately, our expectation for Q1 is to come in negative mid-single digits. This is not a reflection in terms of worsening performance or a worsening environment, but really just a reflection of the quarter -- the year-over-year comparisons for Q4 and Q1. And the delta is pretty cleanly about 500 basis points between those 2 quarters. Hajime Uba: [Foreign Language] Benjamin Porten: [Interpreted] Just to remind you the numbers that we're lapping, Q4 was lapping a negative 3% comp. And so a relatively easy comparison, whereas Q1, we're lapping a 2% or a positive 2%. And so just given that we came out about flat in Q4 over -- while lapping that negative 3%, our expectation is that same delta, which would get us to that mid-single -- negative mid-single-digit number for our Q1 comp expectation. Hajime Uba: [Foreign Language] Benjamin Porten: [Interpreted] That being said, we remain -- our goal remains to deliver positive comps for the year. We think we can get flat to slightly positive. Q1 remains the most difficult comparison. As we enter Q2 and Q3, we'll be lapping a negative 5% comp and a negative 2% comp. Those will also coincide with the -- with some of our stronger IP collaborations, we'll benefit from the pricing that we took in November, and we'll also hopefully benefit from greater adoption from the reservation -- for the reservation system as we start to market it to non-rewards members. Jeremy Hamblin: Appreciate the color on that. And then just a follow-up here on the unit development and make sure I understood. So 16 new units for the year. I think you said 5 to 6 in the first half of fiscal '26 and 3 quarter-to-date. Do you anticipate opening up any more in Q1? And then just confirming that you're 5 to 6 in the first half of the year and then roughly 10 in the back half of the year? Hajime Uba: [Foreign Language] Benjamin Porten: [Interpreted] Yes. We're expecting to open one more in Q1, and then we would open 1 or 2 in Q2. Hajime Uba: [Foreign Language] Benjamin Porten: [Interpreted] In the prepared remarks, we mentioned that 6 units were under construction, but the majority of them, we've just broken ground. And so while we do have a lot of units under construction, our expectation for the first half of the year is to open 5 or 6 units total. Operator: Next question, Mark Smith with Lake Street Capital Markets. Alex Sturnieks: Yes, Alex turning on the line for Mark Smith today. In the prepared remarks, you highlighted around 50 basis points of labor improvement from the robotic dishwasher rollout and you said you'd be retrofitting about 50 restaurants. How quickly do you expect that to be kind of implemented? And then when will we see the full impact on the P&L? Hajime Uba: [Foreign Language] Benjamin Porten: [Interpreted] So as it relates to the robotic dishwashers, we placed our order to the manufacturer after we got certification. And so they're in the process of developing or just manufacturing them now. It's a proprietary piece of equipment, so we can't get it just off the rack or whatever. And so really, that's the biggest bottleneck for us, just getting them made and then shipped over from Japan to the United States. Our expectation is that the implementation in earnest will really start in Q3. And while we do expect to get the majority of the eligible restaurants retrofitted during fiscal '26, the impact from a labor perspective would be much more pronounced in fiscal '27 than fiscal '26. Our expectations for the benefit from the robotic dishwashers in fiscal '26 are reflected in the RLOPM guidance that we shared earlier. Hajime Uba: [Foreign Language] Benjamin Porten: [Interpreted] That being said, as Jimmy is as impatient as I am, he's going to Japan to knock on the doors of the factory and speak with the President and ask for them to expedite things as much as they can. And so hopefully, we'll be able to get these in a little bit sooner than we're expecting right now. Alex Sturnieks: That's great. Great color there. Last one for me. You mentioned tariffs a little bit impacting you in the quarter. Given the ongoing back and forth for tariffs on Japan and Vietnam, can you give an update on supplier negotiations? What level of cost sharing you're seeing? Have you taken or do you anticipate taking any additional pricing to offset those costs? Jeff Uttz: It's Jeff. So the -- we took 3.5% on November 1, as we mentioned in the prepared remarks. And that was after negotiations we had with the suppliers. And as we also said in the prepared remarks, we saw about a 70 basis point impact in Q4. And going forward, after we took the menu price increase, and these negotiations are still ongoing, but they're much more progressed than they were in the past. But currently, where we stand is that we expect our COGS for fiscal '26 to be at least 30%, around the 30% range. So we thought in interest of transparency that it would just be useful to everybody to just kind of tell you what we thought COGS is going to end up at. So call it about 30%. And that's also why we gave the restaurant-level operating profit margin guidance as well. That was a new piece of guidance for us that we gave this time that we've never given in the past. And just given the volatility of what's going on, we just thought in the interest of transparency that it was just a good thing to help the Street and help everybody out of what we expect going forward. Operator: Next question, Jeff Bernstein with Barclays. Pratik Patel: Great. This is Pratik on for Jeff. A big picture question about '26. What kind of strategic changes do you guys foresee with the brand? Obviously, we've heard all sorts of commentary from restaurants about how the consumer is challenged and people are looking for value. What are you -- what steps are you taking to kind of address that current environment? And more excitingly, what new markets have you the most excited for '26? And I have a follow-up. Hajime Uba: [Foreign Language] Benjamin Porten: [Interpreted] Just keeping in mind that we're in an environment right now where guests are extremely price sensitive and are managing their frequency being that much more thoughtful about where they're spending their restaurant dollars, we were very diligent in our processes as we approach the November pricing. We added a value question to the end of meal survey, which validated our beliefs that our guests continue to believe that we provide really an unbeatable value. We also conducted a consumer insight study. We actually -- we got granular to the point where we're doing separate studies by geography to see the elasticity by market. And so we feel that the pricing that we took really sort of threaded the needle in terms of what was -- what's appropriate. In terms of the efforts that we're making, it's really -- we're not betting the farm on any one big thing. It's really just the diligent small things all coming together from every department. It's really the approach that we've always taken. It's just lots and lots of small incremental improvements, which cumulatively give us that massive value advantage. We didn't want to force a 20% margin in fiscal '26. That -- we really -- we didn't want to basically trade the future potential traffic for 1 year better margins. We really want our guests to continue to see us as providing an unbeatable value. And yes, we didn't want to be shortsighted as it relates to fiscal '26. Hajime Uba: [Foreign Language] Benjamin Porten: [Interpreted] In terms of the things that we're working on, this is a very fundamental thing for any sort of restaurant business, but we're very focused on improving our products, both from a menu development perspective and a sourcing perspective. They've really been doing a phenomenal team. There's a reason we call them out every call. They're just tireless in their efforts, and it's really kind of staggering how consistently they've been able to improve our or proteins in particular. And so we've got a number of Japan-sourced LTOs that we're looking forward to, which we expect will be a big hit from our guests. We know that the IP campaigns are a very big opportunity for us. We're pretty happy with the pipeline that we've built, but we know that there's more opportunity to be run from each campaign. And so we really want to use each one as a learning opportunity and build on that so that we can really, yes, maximize the opportunity that we see there. A couple of other things that we're working on is, as we mentioned in the prepared remarks, we're working on introducing the tiered statuses to our rewards program. And we're also going to begin marketing the reservation system to non-rewards members. And so all those things together would be some of the things that we have on the docket. Pratik Patel: And then my follow-up was for Jeff. It looks like the company ended fiscal '25 at exactly 12.5% of sales when it comes to G&A. And I know you mentioned in your prepared remarks that you expect fiscal '26 to be at 12% to 12.5%. So at the midpoint, you're assuming about 25 basis points of leverage. And I can certainly appreciate what's happening in today's environment. But that's just not as much leverage as we're used to seeing in the past? And I know, Jeff, longer term, I know you want to get the company to that sub-10% level. Just what's changed in fiscal '26? Is there just a deliberate strategy to allow for less leverage? Or is there another round of investment in certain areas? Just anything you can kind of help us unlock what's going on in G&A. Jeff Uttz: Yes. So really look at it on a kind of an average year basis. We got 160 basis points of leverage this year compared to last year. I was expecting under 100 basis points. So we were able to pull some savings from fiscal '26 forward into fiscal '25. So when you look at it on a 2-year basis, even if we did hit that midpoint, that's still almost 100 basis points of leverage per year when you look at it that way. And we can't really parse it out year by year by year. We take the savings when we can get them. And we were fortunate to get the savings earlier on than we thought. So I'm looking at it on a year-by-year basis. And because we expect -- we got much more than we expected, I didn't want to overshoot next year. I'm hoping we can beat that at the beginning of the year. That's our starting guidance, and we'll do our very best to bump that guidance up in one of our future calls. But right now, I think that that's a prudent number between 12% and 12.5%. Operator: Next question, Andrew Charles with TD Cowen. Zachary Ogden: This is Zach Ogden on for Andrew. So it looks like new store productivity did improve from 2024 to 2025. Are you able to quantify what new store AUVs are relative to the system average of roughly $4 million? Or maybe if you could qualitatively speak to what's driving that improvement? And if it's 1 or 2 units driving that strong new store productivity or if you're seeing more of a broad-based improvement? Hajime Uba: [Foreign Language] Benjamin Porten: [Interpreted] So I'd just like to caveat this by starting by mentioning that we don't have an AUV target. We have a cash-on-cash return target. That being said, Zach, you basically got it right. The pressure on the AUVs that we saw that we reported today versus a year ago was largely due to the new entrants to the AUV comp base. But also to your earlier point, the fiscal '25 stores are spectacular. They've been one of the strongest classes in recent memory. It's not limited to 1 or 2 units. And we're very excited to see those go in the AUV comp base, and we expect that number to improve with their entry. Hajime Uba: [Foreign Language] Benjamin Porten: [Interpreted] And on the note of AUV, just as I mentioned before, it's not a target for us, and there are a lot of things that can impact AUVs, just something as simple as store size doesn't necessarily reflect performance. But we did want to internally corroborate that things are as strong as we felt and they are. The sales per square foot for fiscal '24 and '25 are unchanged. And that's, I think, a more meaningful metric of our productivities. Zachary Ogden: Great. And then my follow-up question is, Jeff. The guidance for new store build costs stayed at $2.5 million, which is what it was in fiscal '25. So I mean, that's pretty encouraging considering you've previously talked about a $300,000 to $400,000 impact from tariffs. So is the impact from tariffs not as bad as you thought? Or are there just offsets to it? Jeff Uttz: Let me be very clear, it's the same as it was in '25 and '24. So [ we've been in the same ] for a couple of years, which we're very proud of. That's a net number. The cost to build did go up a little bit because of tariffs, but we're now getting better TI allowances from our landlords. So when you offset the TI allowance against the higher build, it comes out to a net about $2.5 million. So our cash out of pocket remains the same. Operator: Next question, Brian Mullan with Piper Sandler. Allison Arfstrom: This is Allison Arfstrom on for Brian Mullan. Just a quick one on the reservation system. It sounds like it's off to a strong start. At this point, are you able to quantify the impact? And if not, just anything new that you've learned with a few more months underway? Benjamin Porten: Yes. It's hard to tease out the impact of any one initiative, and that's always been the case for us. The rollout of the reservation system coincided with the resuming of our IP collaborations. And so there's just a lot going on. We were really happy to see positive traffic. But as you can see with the numbers, our comps were sort of more or less flat. And so it's the reservation system wasn't a massive traffic driver. It's -- I think it supported the quarter from being weaker, but it wasn't a massive, massive thing. But that also doesn't surprise us given that we haven't -- we really haven't meaningfully advertised it. It's basically just organic discovery from our existing rewards members. And I'm really excited to see what numbers we can see from it once we advertise it to the broader audience. In terms of learnings, we've been able to identify some things that just make it easier to use both for our servers and for the guests. And so this should actually allow us by reducing front-of-house savings, incremental front-of-house savings as we introduce these improvements. Operator: Next question, J.P. Wollam with ROTH Capital Partners. John-Paul Wollam: Maybe just 2 sort of focused around the guidance. But one, if I think about kind of the comp expectations that you guys just mentioned for the upcoming year, can you give us a sense of how much maybe the upgraded reward system and the broader marketing of reservation are baked into that expectation? Is there any risk that those underperforming would harm comp expectations? Or is that really just upside to what you guys have underwritten right now? Hajime Uba: [Foreign Language] Benjamin Porten: [Interpreted] So in terms of the revenue guidance, really all the guidance that we shared, it does not hinge on the IP campaigns or the reservation system. Those would be gravy opportunities for upside, but we know that it's really hard to proactively quantify the impact of new initiatives. And so we don't bake that into our revenue estimates just for the sake of just to be prudent. Hajime Uba: [Foreign Language] Benjamin Porten: [Interpreted] And on the note of guidance, we think maybe you might have raised an eyebrow when you saw our revenue range combined with our commentary that we expect to be able to hit flat or slightly positive comps for the full year. This is really a reflection of the opening cadence. We touched on this a little bit in the prepared remarks, but that is really the bridge there. I'm sorry... Hajime Uba: [Foreign Language] Benjamin Porten: [Interpreted] Right. Right. So it's typically, you're going to use a midyear convention for revenue at 50%, we would recommend 40% or even less, just looking at the cadence of openings. John-Paul Wollam: Great. And then just switching over to kind of the 4-wall guide. Just kind of curious, obviously, the environment hasn't gotten any better since July. But just curious if you could kind of just give us a sense of what's changed since we talked in July when it sounded like maybe there was some optimism about really ramping back towards that 20%. Hajime Uba: [Foreign Language] Benjamin Porten: [Interpreted] With the 20%, you're referring to the RLOPM? John-Paul Wollam: Yes, the restaurant level. Hajime Uba: [Foreign Language] Benjamin Porten: [Interpreted] So JP, to answer your question first, really, the major difference between when we last met in July and the discussion today would be just the expectations for our COGS have changed. As Jeff had mentioned in the prepared remarks, the impact to tariffs in Q4 were 70 basis points. And so on a full year basis, that impact was not very much. We had 18.4%, but looking to this year, we have the full impact all quarters instead of just Q4. We're -- we know that we took price and we'll benefit from that, but you typically only get about half of flow-through. And then as we look to other costs, we've seen meaningfully elevated utility costs and tariffs impacting non-COGS items as well. And so with all those in mind and all those pressures in mind, we felt that 18% was the appropriate number for us to expect for fiscal '26. Hajime Uba: [Foreign Language] Benjamin Porten: [Interpreted] That being said, emphasis for fiscal '26, 20% remains the overall goal, and we hope to get back to that as soon as possible. And also keep in mind that with COGS of 28.6% this year and an expectation of 30% next year, that's 140 basis points. But our restaurant-level operating profit margin guidance is only 40 basis points lower than what we ran this year. So we're... Hajime Uba: [Foreign Language] Benjamin Porten: [Interpreted] We're able to control the rest of the P&L. Operator: Next question, Tania Anderson with William Blair. Tania Anderson: Most of my questions have been answered. But just to follow up, you mentioned that there were some things that you noticed with the reservation system that you could do to improve it. And I was wondering if you can give a little bit more detail on that. And second, on the IP collaboration, I mean, given that you're kind of building out this portfolio and you have a mix of, say, known collaborations and maybe some new or more experimental, new collaborations, maybe experimental ways of doing the collaborations, I think you mentioned last quarter that might have more risk. How much control do you have about the -- over the exact timing and flow of all these collaborations per year like during the year and throughout the year. I'm curious about that. Benjamin Porten: Yes. So in terms of the collaboration timing, this -- we're generally at the mercy of the licensors. They try to -- they typically have their own marketing schedule, which, generally speaking, works in our favor because they want to partner with us when they're advertising something. But in terms of just having control over the timing, that's not really something that we can do. In terms of the reservation system, this is going to get pretty inside baseball. But in terms of guest-facing improvements, I think the most obvious one and the most meaningful one would be for guests to be able to pull their own reservation information. Right now, you get it in a text. If you've made a reservation a week ago, it's -- you're not going to be able to find that text, and that's a pretty big headache, not just for the guests, but for the servers as well. And I know because I was desperately trying to find people's reservation numbers when I was testing out the program, and it's just not fun. And so that's really one of the big things that I meant when I was talking about labor savings for front-of-house. The other is we're changing the way that we -- that servers can see parties, and it doesn't really make a big difference from an operations perspective, but basically, the way we -- the way that it was set up before, we're working it in a way that made it impossible to collect correct data. And this shift will allow us to, for the first time, really get accurate data and then we can make adjustments and decisions based off of that. And so I'm really excited for that. It's not very flashy, but it will make a big, big difference in terms of our planning for what we can do in the reservation system. Operator: Next question, Todd Brooks with Benchmark StoneX. Todd Brooks: Jeff, can we talk about -- I think you said mix was down 30 basis points last quarter. Obviously, the consumer weakened across the course of the quarter. I guess, did mix weaken as well as far as side menu attach or beverage attach? And within that down mid-single-digit comp expectation for Q1, is there a deeper kind of drag on price/mix versus what we saw in fiscal 4Q? Hajime Uba: [Foreign Language] Benjamin Porten: [Foreign Language] Hajime Uba: [Foreign Language] Benjamin Porten: [Interpreted] Todd, just to clarify, are you asking about what we're seeing differently between Q4 and Q1? Or is this just a general question about mix? Todd Brooks: I was just trying to tie it to what people are seeing with the consumer. Did mix slow during the course of Q4 to end up at down 30 basis points, but the consumer maybe tighten their wallets a little bit more and didn't attach the same way as the quarter went on. And what's the price/mix assumption within the down mid-single-digit guidance for the first quarter same-store sales? Hajime Uba: [Foreign Language] Benjamin Porten: [Interpreted] We certainly have seen check management. We -- in Q4, we had a number of initiatives that were intended to drive improvement in mix such as the light rice, the 25th plate, experimentation with the spending thresholds associated with giveaways. But just with this overall environment and the consumer not feeling as strong as they might have 6 months ago, those efforts, the timing is not right in terms of trying to drive mix. And so really, our focus is on traffic. This is how we've approached every economic downturn in the past. We know that people are going to control check. And so what we do want is just to make sure that they come in the door. We're working a lot on menu development. We touched on this a little bit earlier, but we want people to be coming in because we have new great items that they want to try and then come back because they like it so much. And so that's one of the things that we're excited for. We expect to start seeing the results of those efforts starting in Q3. Todd Brooks: Okay. Great. Second question, I don't know if you guys have ever talked about your customer profile. But if you looked at performance across the quarter, did you see any big disparities by income cohort or age cohort or geographically that would be instructive to share with us? Hajime Uba: [Foreign Language] Benjamin Porten: [Interpreted] There have really been no meaningful changes in demographic patterns or behavior that we've seen. And so nothing to call out. Hajime Uba: [Foreign Language] Benjamin Porten: [Interpreted] That being said, we're seeing a lot of reports about a weaker Gen Z consumer, and some of our best-performing restaurants rely on university or college traffic. And so we're keeping a very close eye on those units. Hajime Uba: [Foreign Language] Benjamin Porten: [Interpreted] But we're not seeing anything that would cause concern for us at this point. Todd Brooks: Great. And then, Ben, I'll give you a chance for the commercial here. I know, it will give us a forward look and a tease for the -- some upcoming IP partnerships that you might want to share. I didn't know if -- other than Kirby, if there was anything else you wanted to highlight coming in the next 2 or 3 partnerships? Benjamin Porten: Yes. The next one that we have is Sanrio. We're working with a couple of characters from that Sanrio universe that we've deliberately chosen. I won't spoil it for the marketing team. I'll let them unwrap that present. But I'm really excited about that, not just because I think those characters are probably the strongest properties, we could pick among the Sanrio stable, but also this is going to be a shorter period, a 1-month campaign instead of a 2-month campaign. And so it's another opportunity for us to explore how these differences can affect the response that we see from our guests. Todd Brooks: Okay. And then Kirby following that, was that the cadence of the first 3 that you talked about last quarter? Benjamin Porten: Kirby is actually the next one. And so we entered the year, Demon Slayer. We -- we're in one piece now with Kirby coming up in December, January and then February will be Sanrio. Operator: Thank you. This concludes today's teleconference. You may disconnect your lines at this time, and thank you for your participation. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]