加载中...
共找到 14,529 条相关资讯
Comprehensive cross-platform coverage of the U.S. market close on Bloomberg Television, Bloomberg Radio, and YouTube with Romaine Bostick, Katie Greifeld, Carol Massar and Tim Stenovec. -------- More on Bloomberg Television and Markets Like this video?
Treasury Secretary Scott Bessent confirmed the names of five finalists to succeed Federal Reserve Chair Jerome Powell, with the president saying he expected to make his decision by year-end. The candidate pool has narrowed to current Fed board members Christopher Waller and Michelle Bowman, former Fed Governor Kevin Warsh, White House National Economic Council Director Kevin Hassett and BlackRock Inc. executive Rick Rieder.
Wall Street's main indexes notched fresh record highs on Monday as excitement around a potential U.S.-China trade deal set the tone for a week packed with high-profile technology earnings and a widely expected interest rate cut.
The inflation data came in better than expected, which was ideal for the headlines that the market will react to with a bullish breakout to new highs in the short term. However, the longer-term trends remain concerning, given the stagnant labor market and the Fed's rate cuts.
Here's what investors should do when the central bank doesn't have official data.
Irakli Gilauri: Good morning and welcome to Q3 earnings call. Thanks, everybody, for joining and finding time. Today, we are going to talk about the 5 different topics. First of all, I'll talk about the key developments and in our -- in Q3. We'll talk about the performance of Q3 and 9 months. Then we will have our portfolio companies, CEOs talking about their respective large portfolio -- large company performance. As you saw, the numbers are staggering. It's really top performance our CEOs are showing, and it will be good to discuss with them outlook as well. Giorgi, our CFO, will talk about the portfolio company valuation and liquidity and dividend outlook. And in the end, I'll do the wrap-up and followed by the Q&A session. So let me start with the highlights. So NAV per share in quarter, it grew nearly 8%, excellent performance, both by Lion Finance Group share price performance. But most importantly, our private large portfolio company showed an excellent operating performance, and they continue to deliver staggering results, 30% -- nearly 30% EBITDA growth in Q3. And it's been a 9 months performance been also 30-plus. So that's kind of one of the [indiscernible] large portfolio companies. [indiscernible] our goal is to be a debt-free at GCAP level. $50 million is really a very small debt for us, but we still want to do debt-free holdco. In terms of the NCC ratio, we improved to 5.4%. That's another kind of a good development. We continue to buy back our shares. 1.4 million shares was bought back in Q3. In total, 15.2 million shares we bought for $221 million looking at the average price, what we have bought, the 15.2 million shares is really a big value creation we created by the buyback. So that's kind of another reason to like or love buybacks. We did -- our healthcare group did the acquisition, bolt-on acquisition, a small one, but we like the pricing and we like the momentum that our management is delivering. They have been delivering excellent performance, operating performance. And I think it's a great platform for us to invest more money to make -- to grow our business even further. And I think that was kind of [indiscernible] what our management has executed. We also entered the MSCI index [indiscernible] index, which played a positive role in the [indiscernible] share price -- of our shares in general, sorry. Let me give you an overlook of the progress of the GEL 700 million capital return program, which we announced in August this year. Nearly half of this program is done, $100 million is the paydown of the debt and out of $50 million, nearly $26 million we already executed in buybacks, and we continue to execute on the remaining $24 million. Now the -- so you see on the next slide, the progress. And you see that after delivering of $50 million buyback, only GEL 300 million will be left to return to the shareholders. So it's kind of -- we are moving in a very lightening progress on this [indiscernible] 1.5 years earlier. It seems like we'll be delivering this capital return program earlier than we anticipated in the beginning. I want to just highlight this, Giorgi, our CFO, put this slide together, and I like this slide because it's kind of reflects on the ownership of GCAP shares. So by holding the 100 GCAP shares -- sorry, ownership of the Bank of Georgia shares through GCAP. So if you hold the 100% GCAP shares, you used to hold 20.4 Bank of Georgia shares. in December 2020 for instance. And that has changed over time. And now it's actually you hold more 21.8 shares, which reflects the -- reflects our buybacks basically. And in reality, we did sell down a little bit Bank of Georgia because of the PFIC's reasons. But at the same time, by buying back GCAP shares, we actually didn't really change much the ownership of the Bank of Georgia's shares through GCAP. So that's kind of reflects that we have -- our shareholders have a good exposure on Bank of Georgia performance. I want to update now on the capital market [indiscernible] has been generating in the local market, and we are more and more relying on the exits or capital raising -- the capital raising on the local market, and we like this fact very much. For instance, GEL 350 million of debt in was raised by our health care group at 3.75% margin. That is kind of the 5-year maturity and the funds [indiscernible] our health care [indiscernible] out what the health care business did. On the other hand, our hospitality business issued very small bond on one of our hotels, which we sold most of the other hotels, but we have one hotel remaining in Gudauri ski resort. And we think it's a good asset, and we think we want to sell it at a good price. So we are not in a rush here, and we decided to raise a $10 million bond. It's a small bond, but it actually reflects well that we can -- even small businesses can access the capital markets locally. So this is an acquisition earlier I talked about the health care business, bolt-on acquisition. We bought -- it's less than 4x EBITDA -- forward-looking EBITDA, this business, and we think that integration and synergies, I mean, I think that the 4x is a safe way to assume that we can achieve the 4x for next year. Now the economy continues to perform extremely well in every sense. One thing which needs to be highlighted is the National Bank reserves, which have been accumulating pretty fast. In the past 3 quarters, GEL 1.5 billion unprecedented interventions and the National Bank [indiscernible] bought the $1.5 billion of reserves. And now it's a record high at $5.4 billion international reserves. So in terms of the GDP growth, we see [indiscernible] higher growth than the IMF does. So let me talk about the NAV development, NAV per share development. So 7.9% increase was mainly driven by Bank of Georgia share price increase and the operating performance of our large portfolio companies. The good thing that we haven't changed anything on the multiple side. So we had a 4.6 percentage point gain on Bank of Georgia and 2.8 percentage point gain on operating performance of all our large companies. So then we had buybacks at 1.2 percentage point positive impact. Emerging and other portfolio companies also contributed positively at nearly 0.5%. Operating performance was minus 0.2% and other was 0.9 percentage points. This mainly reflects the litigation case -- legacy litigation case, what we had in the past, which has been now done and over. In terms of -- on Slide 12, you see NAV growth over the [indiscernible] past 3 years, we have achieved 33%; 5 years, 29% COG and 18% CAGR we have achieved since the GCAP inception. So 18% is needs to be improved for sure, but we are very happy with 3% and 5% NAV COG growth for sure. In terms of the free cash flow, [indiscernible] Slide 13, you see that after the paydown of debt, our pro forma free cash flow increased from $48 million in '24 to $63 million. So -- but the growth is even more attractive per share basis because we were buying back the shares meanwhile. So per share, our free cash flow has increased by 45.6%, [indiscernible] important we are not tiring of talking about the buybacks. And we have bought back 15 million shares plus with $221 million. And now we are at 35.4 million shares, all-time low number of shares. We are really fighting the share count. We like the share count [indiscernible] discount and where we are. Now let [indiscernible] revenue is up -- on Slide 16. Revenue is up 13.5% in Q3. 9 months is 16.2% increase. Q3 EBITDA 29.5% increase and 9 months, 34%. So really, this continues the high growth momentum, and we are happy that our management of portfolio companies are delivering, and I will talk about why they are so good later on. Here, you see the cash flow development, same growth, high growth here. In the 9 months, we have 20.7% free cash flow growth. In Q3, we had 3.7%, which will -- in Q4, we will most likely see a way higher growth in cash flow as we will have more cash coming in pre-Christmas. And you have aggregate cash balances also growing of our portfolio companies stands at GEL 250 million. Now on NCC development, we have as I said, we have 5.4% NCC, which has been decreased nearly 3x over the year. One thing which we need to highlight that our contingency liquidity buffer of $50 million will be decreased due to this litigation case is over. Also, the debt levels in GCAP has decreased and our portfolio companies are a very healthy leverage ratio. So we don't need to have such a huge liquidity buffer of $50 million in Q4 [indiscernible] substantially. NCC ratio development here, you see that's coming down and we were at a record 42.5%, and we are at 5.4% of that. It's a nice development. It's along with our announced strategy of delevering the GCAP. Now let me hand over to the Retail Pharmacy CEO, Tornike, who will talk about the performance of our retail pharmacy business. And then we will have the insurance company CEO, Giorgi [indiscernible], talking about insurance and then Irakli Gilauri, CEO of Healthcare business, who will talk about the developments in health care business. Tornike Nikolaishvili: Hello, everyone. I'm pleased to share a brief business overview and update on the performance of our retail pharmacy business for the third quarter and 9 months of 2025. Let me remind that our business consists of 3 main directions: retail, wholesale business and international operations. Retail business is our core, generating around 75% of our revenue. Wholesale business is our biggest focus for growth. And in international, we are, let's say, in a start-up mode, believing to expand further in the region. We have a unique category structure in retail, having around 50% share of non-medication versus med category. So non-med category can be described by higher margins and no price regulation risks. Based on 2023 figures, we continue to be the largest player in the retail pharmacy market in Georgia with around 36% market share in organized trade. We are operating under 2 well-positioned retail brands, GPC, which targets the high-end segment and Pharmadepot serving the mass market. We also operate 2 franchise brands, the Bodyshop and Alain Afflelou (Optics) and are active in Armenia and in Azerbaijan as well. We expanded our network by 8 new pharmacies added in Q3, including 1 additional in Armenia, most of them in cost-efficient formats that require limited capital. So as of September 2025, we operate 438 pharmacies. So in terms of -- in the next slide, please, in terms of operating performance, our retail revenue grew by 6.1% in 9 months and 7.5% in quarter 3, respectively, supported by same-store growth of 5.3% and 6.6% in 9 months and quarter 3. This was despite the exit from our textile retail business, which slightly affected the headline growth. We are encouraged by this trend as it reflects healthy consumer demand and solid in-store execution. As in Q2, we continued strong growth on the wholesale side. Revenue grew by 33% as we continue to deliver on our strategic focus to grow in wholesale. It was achieved across all wholesale channels, mainly driven by increased product availability. So we also increased the average bill size around -- by around 10% year-over-year and gross profit margins improved to record high 33.4% in quarter 3, driven by a better sales mix and improved supplier terms. So on the next slide, let me share how it's translated in financial performance. So EBITDA grew by 30.6% in 9 months. We reached record high GEL 73.7 million. And in quarter 3 alone, EBITDA grew by 18%. And cash conversion from EBITDA is back on 90% plus threshold for 9 months due to strong quarter 3 performance. From a balance sheet standpoint, we remain cautious and disciplined. Our adjusted net debt to LTM EBITDA continued to improve, reaching 1.3x, which is below our target ceiling of 1.5x. We also distributed GEL 10 million in dividends during the quarter. In addition, we plan to distribute GEL 15 million dividends in quarter 4. Thus, in total, the dividend for the year will be GEL 35 million, reflecting confidence in our cash flow and overall financial health. So on the next and last slide, let me summarize. We have maintained solid revenue momentum, especially with same-store sales growth and strong wholesale results. Profitability has improved, supported by gross profit margin improvement and prudent cost discipline. Leverage remains at a healthy level, giving us flexibility for future investments and shareholder returns. Thank you again for your time. I'm happy to take your questions during Q&A session. Now let me hand over to Giorgi [indiscernible]. Unknown Executive: Thank you, Tornike. Hello, ladies and gentlemen. I will overview the insurance business today. Our insurance business comprises of 2 main business lines that we divide its property and casualty that is run under the brand name of Aldagi and we run another line of business, the main line of business, medical insurance under the meds brand of Imedi L and the medium to upper affluent brand under the name of Ardi. I would like to underline that Q3 was a record high, and I would say the record high during the existence of the insurance business in GCAP, and I will dive you in both business lines separately. So to go to the insurance revenues, our insurance revenue grew by 9% and 9 months over 9 months, the growth was almost 30%. Our pretax profit grew even more by 22% and 9 months over 9 months grew by 23%. Just a quick update on the key operating data. We have a growth of 11% in net premium written, while our P&C business grew by 14%, while the medical grew by 8%. Going forward into the separate slides and separate business lines. There are -- at this point, there are 19 insurance companies operating on the territory of Georgia and ALDAGI, our P&C business line -- business provider is the undisputed leader with 35% of market share with the closest captive company with 23%. So there's quite a big difference between the second player and ALDAGI. We had an amazing growth in insurance revenues of 16% Q-over-Q and almost more than 20% 9 months over 9 months. The main expansion was driven by the retail motor portfolio as retail remains a key strategic focus on our agenda together with the credit life insurance. The good point is that our net profits -- our pretax profit grew even more than the revenues that underlines our healthy portfolios and the disciplined underwriting. The pretax profit grew by 23% and that translates into the record high ROEs of more than 40%. That is a historic high that we never envisaged. Key operating data, net premiums written grew by 14%, as I have already mentioned. And the good point is that the combined ratios were improved by almost 1.1 points, driving it down -- they're dragging it down to 83%. Individual insurance grew by 14%, while the insurance written policies grew by 13%. The renewal rate stays still very high and promising at 75%. The good point to just -- again to underline is the good accomplishment that I would like to underline is the combined ratio that is mainly driven by the improved loss ratios in the corporate motor segment that was announced last year that we will be eliminating loss-making clients and dragging down the combined ratio. So the moves that we put into life are effective, and we are really happy with the management and the actions that they took -- they put into life and our combined ratios are in our target of 85% to them in the medium term. Going to the health insurance, we had also another record high health insurance quarter in terms of the profitability, even though the revenue in Q3 was minor because of elimination of a few big loss-making clients and a few state tenders that we didn't participate in. But going forward, we think that Q4 will be -- will return to double-digit growth. 9 months over 9 months was about 40% growth in health insurance. The actions that we put on in Life was mainly reflects the loss ratio improvement by 1.3%, and we had an 18% record high increase also in single quarter of 18% for the single policy issued. Pretax profit grew at 15%. That translates into record high ROEs of about 38%. Key operating metrics, net premiums written grew by 8%. Combined ratios went down, and that is -- I'm happy that it is because of the eliminating loss-making clients in Q3 and not participating in a few big state tenders, putting down our combined ratio by 1 point. Individual insurers are a bit down because of not participating in the state tenders, while the corporate segment grew by 17%, I mean, direct insurance. The renewal rate still remains very strong at 80%, which is considered very high and very strong in the health insurance. Both brands are doing very well. Ardi has launched our higher affluent brand has launched the new application, the new digital solutions and Imedi L also has launched the new updates for the web that was translated into 73% of the digital bookings putting down -- bringing down the costs and affecting our combined ratio. That is in line with our digitalization of all brands, all 3 brands in total. So going forward and a few words, the medical insurance still also remains the leader on the market. We hold about 32% of the market share that is in line in the appetite of 30% to 35% of targeted market. Going forward, and a few words to remember about Q3. We had an outstanding performance in both P&C and medical insurance, resulting in record high profit and all-time high ROEs of 40% -- more than 40% in P&C and almost 40% in health insurance. We had an exceptional result in motor insurance, especially the corporate motor that underlines again the healthy underwriting and the healthy portfolios in the middle of our operating principle. New brand identity was launched for the -- and transformation was done in both brands of health insurance, Imedi and Ardi and the new digital solutions were also launched in both health insurance lines. We paid almost GEL 2 million in Q3, translating into GEL 15.6 million and more cash to come to GCAP in Q4. The expectations are very good and very promising. We are hoping for even better Q4 and in both P&C and health insurance throughout all 3 insurance companies in revenues and in profits. So that was in short about the health and P&C business, insurance business. And let's wait for the Q4. I do hope that it will be much better. Thank you. And I'll pass the floor to Irakli Gilauri, who will underline our Healthcare business. Irakli Gilauri: Hello, everyone. I will walk you through Healthcare Services business latest results. I'm very pleased to report another strong quarter. We continued our focus on the outpatient direction by attracting new doctors and diversifying our services. We also optimized our revenue mix and improved patient retention. As a result, our outpatient revenue grew by 28% year-over-year in third quarter and share of outpatient revenues grew further by 2.4 percentage points from 40.8% to 43.2%. We launched new services in several hospitals and clinics addressing previously underserved medical needs. This includes the introduction of our arthroscopy sports medicine, gynecology and interventional cardiology in several hospitals. Our initiatives helped us to deliver 20% revenue growth with our EBITDA growing by 46% in Q3 and EBITDA margin surpassing 19% as well. Our last 12 months EBITDA reached GEL 89 million, up from GEL 58 million from September 2024 result, which led to net debt-to-EBITDA decrease from 5x to 3.8x. On the next slide, in our hospitals business, in third quarter 2025, we delivered revenue growth of 19% and EBITDA growth of 44%. Operating cash flows grew by 39% during 9 months of 2025. And we think that Q4 cash conversion will be very decent. Occupancy rates increased by 8.5 percentage points during the same period, while the average length of stay decreased by 0.3 days as a result of our efficiency-focused initiatives. On the next slide, in the polyclinics business, number of admissions increased by 8%, while number of tests performed in our Diagnostics business increased by 15%. This resulted in revenue growth of 26% and EBITDA growth of 55%. In Diagnostics business, we still operate at below 50% capacity and intend to increase our utilization significantly going forward. On the next slide, we signed a binding agreement to acquire Gormed, a regional health care network with 3 clinics and -- in the Central Georgia. The transaction is subject to approval by the competition agency. Gormed covers 3 cities with combined population of circa 300,000 people with 80,000 registered patients. Most notably, we entered Gori, Georgia's fifth largest city. Through this acquisition, we are strengthening our regional network in Southern and Central Georgia, enhancing our patient referrals and optimizing staff utilization across 7 interconnected clinics. In 2 cities, the Gormed was our only competitor pressuring our margins, and the acquisition will enable us to merge the 2 hospitals and extract synergies and increase effectiveness. The acquisition offers 2026 EBITDA multiple of under 4x we expect an improvement of 0.6 percentage points in annualized ROIC on the Healthcare Services business level, demonstrating our continued focus on shareholder value creation. That concludes my part of the presentation, and I will hand over to Giorgi Alpaidze. Giorgi Alpaidze: Thank you, Irakli. Hello, everyone. I will briefly take you through what these excellent results mean for GCAP's balance sheet and our NAV statement. So starting with the overview, we updated the valuations based on the internal valuation mechanisms. This is in line with what our independent third-party valuation company Kroll does every 6 months. So this time, we looked at the DCFs, we looked at how the projections that were set forth at the 6 months period, the results were actually delivered over -- in the third quarter. And overwhelmingly, all our large portfolio companies actually delivered higher EBITDA, higher revenues than what we were projecting at the end of June. This has helped us create value across the board. Briefly in the overall overview, we did have a little bit of sales in the Lion Finance Group shares, but still it continues to be the largest investment that we have on our NAV. It was 47% of our portfolio. Within the private portfolio investments, retail pharmacy was the largest business, followed by health care services and the insurance business. On the next slide, you will see that the multiple development in the third quarter was pretty much in line with the multiples at the end of the second quarter with only small minor increase in insurance, but it was broadly in line. On the next slide, you will see that how these multiples affected the portfolio value development. So overall, the portfolio value increased by GEL 100 million. However, it was a result of many movements. In the Lion Finance Group, you see this decrease, but that was because of the dividends that we received in the quarter, which was actually a combination of the full year dividends of 2024 plus the interim dividends where the ex-dividend date actually fell in September. So we had to record those dividends in the third quarter as well. And also the sales where we sold about 600,000 shares of Lion Finance Group that also resulted in the decrease of the stake. But overall, we recorded gains in the Lion Finance Group. In the private portfolio, the excellent growth meant that the retail pharmacy business contributed about GEL 51 million to our P&L. That includes the value creation within the business, but also the dividends that they paid us. That was followed by Healthcare Services business at GEL 40 million and insurance at GEL 36 million. Now on the next slide, you will see how these value creation is translated into the new portfolio values or the latest portfolio valuations for each business. Within Retail Pharmacy, the EBITDA growth that Tornike spoke about was GEL 42 million P&L impact for GCAP that was driven by EBITDA and additional GEL 4 million from the positive net debt change where the net debt improved, notwithstanding the GEL 10 million dividends that they paid us. So that's how we get to overall about GEL 50 million profit within our third quarter NAV statement from retail pharmacy. In insurance, we also had a 5.1% growth because of the growth in the net income, which you saw on the previous slides across the board in P&C insurance and the medical insurance that was also supported by the net debt change. And overall, this value was created by the net income growth and the strong cash flow performance. In the Healthcare Services business, EBITDA growth delivered GEL 60 million. That was partially offset by the cash conversion as the operating cash conversion in the third quarter was relatively low that we expect to recover, as Irakli mentioned earlier, in the fourth quarter. So we would expect this net debt change to be reversed as we go into the fourth quarter. But overall, the Healthcare business did deliver about GEL 40 million value creation for us. Now this concludes the valuations and briefly into the liquidity. Our liquidity continues to be very strong even as the gross debt balance that we have carried, as you can see on the top of this chart, has been reducing over time. Despite that, our liquidity has increased. We finished the quarter with $77 million worth of liquidity, which for the first time since GCAP's demerger from Bank of Georgia Group, we actually had a positive net cash balance given that our gross debt is only $20 million, we were actually negative net debt or net cash of $27 million. And then now on the next slide, we are now projecting the increase in our dividend inflows from previous GEL 180 million. We now expect GEL 200 million, around circa GEL 200 million. We have so far collected, as you see on the slide, GEL 168 million, but as it was mentioned earlier by the private portfolio companies, we expect to get more dividends from the pharmacy business as well as from the insurance business. And on top, our other portfolio companies, renewable energy and the auto services will be also paying us more dividends, which we think in the fourth quarter will bring the full year to GEL 200 million dividends. What's important here, I would highlight that on a per share basis, given the number of shares that we bought back this year, which is more than 10% so far, this means that we will be having about 31% growth on a per share basis in terms of the dividend inflows per share. That concludes my presentation and over to Irakli for the wrap-up of this excellent set of results. Irakli Gilauri: Thank you, Giorgi. So I will not repeat all the points what we have here. But basically, I think the short summary is that we have excellent performance and team is delivering. Q4 outlook is also looks positive. Economies continues to grow. Our companies continue to deliver. So let's move on the Q&A session. Operator: [Operator Instructions] So as I see, we have first question from Dmitry. Dmitry? Dmitry Vlasov: Congratulations on a really good set of results. I have 4 questions, please. The first one is on the ongoing capital allocation. You did great progress for your GEL 700 million. You paid down a good amount of debt. And now my question is about the priority between buybacks and debt maybe for the next 10 months. What should we expect? What would be the priority for you? Would it be buyback or debt? That's the first. Irakli Gilauri: Thanks, Dmitry. I think that even the fact that the leverage is really low level [indiscernible] our priority is buyback, especially at the current NAV discount level. So that's clearly a buyback at this discount level for sure. Dmitry Vlasov: Got it. And the second question is about Lion Finance Group. I understand that's your key holding and pays you very good dividends. But maybe in the near future, do you plan to trim the stake a little more or you are currently happy at the current position? Irakli Gilauri: We are happy with the current position. The only thing I don't know whether you follow this PFIC development that we had, and we had to trim a little bit off. So basically, that's kind of where we are, but we are happy with LFG holding. It continues to perform well. It's a very well-run bank. We have a very good geography and the economy. So... Dmitry Vlasov: That's clear. Then the next one is on the Healthcare segment regarding the deal, which you've done. Obviously, the multiple is very good. My question is on the EBITDA impact for the 2026. I mean it's a small one, but just to double check whether you expect any near-term pressure on the EBITDA margin maybe in the first quarter or the second quarter of 2026 or you don't expect any of that? Irakli Gilauri: On Healthcare, we don't expect EBITDA margin pressure at all. We are actually expanding EBITDA margin, as you see, and we will continue to expand because we are adding more profitable services. We are making more efficient operations. I mean this is kind of a small acquisition, but it gives you a flavor at what prices we have the appetite to invest, allocate the capital. And basically, I think that will a little bit of helps to grow the business and grow the profitability, generate more cash, and that's what we are for here. Dmitry Vlasov: Understood. That's very clear. And the last one is on Armenia in pharmacy business. If you could give me an update about the current market share and how it developed over the last 12 months. It's quite an attractive market. Irakli Gilauri: I think it's better we have Tornike talking about that, our CEO of Pharmacy business. Tornike? Tornike Nikolaishvili: So thank you for the question. So in Armenia, unfortunately, we don't count the market share because as we do in Georgia, it's transparent how the big companies are reporting their data, but it's not the case for Armenian market. So we don't have -- and the market also is very fragmented in Armenia. The key accounts as they are holding in Georgia around 90% of total market. It's very much fragmented in Armenia. Operator: Now I will read out the question that we have in the question-and-answer panel. So the question comes from Eduardo Lopez. Congrats all Georgia Capital team. Here are some questions. On retail, can you give us more color in relation to strong wholesale growth and evolution of international expansion? And the second question is about the insurance. Could you give us an insight in the breakdown of growth volume and price, especially in P&C insurance? Could you also comment the evolution of reinsurance business and potential unit economics? Irakli Gilauri: I think let's have Tornike and Giorgi answering these questions right. Tornike Nikolaishvili: Thank you. So for wholesale, let me mention that the biggest impact for our wholesale business, such a big growth is the portfolio enhancement, in fact, which means that we have -- partially, we have additional new contracts for exclusive brands and products, which we are selling in wholesale in all channels. And the second part is that we opened for our existing portfolio, which we are selling before, let's say, exclusively in our retail. But now we opened that for big pharma key accounts and also pharma traditional trade as well. So that gave us a results there. Unknown Executive: So I will answer the first question about the pricing. So the first question is about the pricing and mainly our actuaries and underwriters are looking at the portfolio analysis. So mainly last year and in Q3, we had a growth in corporate motor. So we adjusted the prices according to the loss ratios that we look at and we usually monitor the portfolios. So we are always pricing our products at market price and even more so a bit more than the market price because of the brand and because of our high NPS. So whenever there is a yellow flag from our actuaries, of course, we reprice the price, mainly it's in P&C, where we use the actuarial opinion in each line. As far as for the health insurance, of course, it's really in collaboration with the health care providers, health service providers. So -- and they are also adjusted annually or maybe even twice per annum because of the growing demand and utilization. So we see -- in health insurance, we see quite a big utilization because of the AI developed quite well. And this year, we had 2 adjustments because our patients usually ask ChatGPT -- ask AI tools and then they come directly to the doctors and ask for the prescription. So we need -- so utilization is growing, meaning that we need to adjust the prices. So we always have our hands on the pulls to keep the combined ratios at a healthy level. So we put the healthy portfolios in the middle of our working principles. So that's the first part. In terms of the international inward reinsurance, the development is really, really good. As you know, in Q2, our P&C business has been upgraded to the investment rating, and we became the first company in Georgia with the investment grading. Our announced strategy was there is that we will keep up to 10% of the total revenues at this point in the medium term for the inward reinsurance. And the good news is that we had a meeting with our reinsurance rate and they increased our inward reinsurance limit from USD 5 million to USD 15 million, and that's the recent development. So because of the prudent underwriting and the good healthy portfolios also in the inward reinsurance. So what we should expect is that we should expect the growth in inward reinsurance, but we'll take it really cautiously. We are learning the market. We are learning the region, but we really love this business to be presented in the region without any equity and using our treaties -- reinsurance treaties. So the first one is, yes, we will be developing. We will be increasing our portfolios, but cautiously, up to 10% of our total revenues. And the good development is that -- recent development is that our main partner, Hannover Re granted us increased -- tripled our inward reinsurance limit from USD 5 million to USD 15 million that's the recent development. So that is the answer. Operator: So the next question comes from Ben. Ben, you can talk now. Benjamin Maher: Can you hear me? Irakli Gilauri: Yes, yes. Benjamin Maher: I've got a few. The first one is on the capital return program. You -- this is obviously meant to run to the end of 2027, but you're tracking well ahead of that at the moment. So would you expect to announce another program next year possibly? That's my first question. The second question is just on acquisitions. So the acquisition of health care business, that seems to be positive and done at a good price. Should we expect bolt-on acquisitions and buybacks rather than larger M&A until the discount to NAV narrows? And then kind of related to that, what discount to NAV would buybacks no longer make sense for you guys? Just on the existing investments you have, do you expect to monetize any of these in the near term? Or is that more of an end 2026, 2027 event? And then my final question is just on the dividend guidance. So I saw that you upgraded it for this year, but I was just wondering to give us -- if you're able to give us any color for the dividend you expect in 2026 and beyond. Irakli Gilauri: So let me start with the capital return program. Yes, we did say end of 2027. It seems like we are moving faster, and we may do in '26 announce a new one once we finish. But I don't want to make a new deadline. So far, we are working with 2027. And last program, you know that we did 1.5 years earlier, we finished 1.5 years earlier than originally anticipated. So let's see how we go about here. As you saw on the slide, we had a GEL 300 million -- only GEL 300 million will be left after we are done with $50 million buyback program. Now in terms of the healthcare acquisition and the expectations about the investments, basically, we always said that we are running very simple capital allocation strategy. If we can find somebody with cheaper than GCAP, we'll buy it. So before, when we were running at 50%, 60% NAV discount, it was impossible to find anything. So now we did -- and we were only doing the buybacks. Now that it decreased the NAV discount is at 32%, we could have -- we found some things, not a lot, but some things we did find. So we don't expect to find many at 32% discount to NAV. So we may find from time to time some acquisition opportunities, which we will pursue. And it will be a very simple, can we buy this company cheaper than we can buy the [indiscernible]? It's a very simple question we need to answer every time we make an investment. So we found in health care and we bought it. And we don't expect to find a lot at the 32% plus discount to the fair price. [indiscernible] at this discount level. Once we will be trading at a premium, then we probably will be investing more. So that's kind of a very simple approach. Regarding the monetizations, monetizations are not planned or et cetera. They are, in a way, it's periodic. And we see -- if we see the opportunity to sell, we do that. And we -- of course, we look at the GCAP discount levels. More discount closes down on GCAP share price, more difficult will be to sell and so it's easier to sell at a higher discount than a lower discount. So it's basically very simple straightforward capital allocation program we run. It is scientific, but there is some art involved in this as well. As it's not -- mathematically, you cannot really measure everything what is the investment in health care in the region versus the investing in GCAP, it's not dissimilar. So it has to be -- the GCAP investment is way better than the investing in the regions in health care. So basically, there is a lot of science, but we also use art there. In terms of the dividend outlook, so far, we did announce the 2026, what we are expecting, and we will announce '27 outlook towards the end of the Giorgi, our CFO correct me if I'm wrong, when we will be announcing the dividend outlook for '27. Giorgi Alpaidze: So for '26, so we announced '25. So we will be announcing for '26 as we publish our fourth quarter numbers. But at the moment, we do expect that number to grow compared to 2025, Ben. Benjamin Maher: Okay. Can I just ask one more quick question if we have time. Just again related to acquisitions. Given all the hard work you've been doing through buybacks to reduce the share count back down to before the merger level, I assume that going forward, you wouldn't expect to issue further shares to fund an acquisition? Or is that something that you still would look at potentially to try and finance another acquisition? Irakli Gilauri: The buyback is not a hard work, to be honest, it's very simple work. We just don't work much. Actually, we just buy back. Buying something is hard work. You need to do due diligence, negotiation, et cetera. So we would rather do little and do the buybacks, to be honest. Sorry, I did not fully catch the question. Benjamin Maher: No, that's fair enough. I'm just wondering if going forward, would you -- should we expect the share count to increase ever again? Or are you quite keen to keep it... Irakli Gilauri: No, no. We don't like share count to increase. We like share count decreasing. No, I mean, our goal is to become a permanent capital vehicle, which is basically don't issue new capital and reinvest. So if we want to invest something somewhere, we need to sell something. And if we need to -- we can do the bridge, we can attract some bridge loans if we want to invest somewhere. But -- and then have a very clear path of repaying this loan. And so we have a very firm commitment of not increasing the number of shares. Contrary, we want to decrease. So we like the share count decreasing. We have our internal targets, how far down we want to go. It's actually 1 share. But so far, we are a long way to go -- we have a long way to go. Operator: So next question comes from [indiscernible]. Unknown Analyst: Can you hear me? Irakli Gilauri: Yes. Unknown Analyst: Yes. I wrote my questions on chat as well, so I will just read them out. With regard to the Imedi litigation, given that it was stated that there was low perceived risk in the annual report of '24, I just wanted to ask, firstly, if you have an updated view on the other [ BGA ] litigation and what was mentioned in the pharma. And if you think more provisions might be needed there, if you have anything relevant to share? Irakli Gilauri: No. At this stage, basically, we don't anticipate anything -- any provisions. We did have on NCC, the liquidity buffer on Imedi L, and we did have some provision to that Imedi L basically. But that unfortunately, it worked out that way. But at this stage, we don't see any need to provision anything else. Unknown Analyst: Okay. And secondly, I mentioned the returns that you're putting up in the insurance segment is truly phenomenal. I just want to see if you think this is sustainable and how you strategize if so, to keep those returns? How is the market -- the Georgian insurance market looking overall? Is that above market level returns you're earning? Is it not? And yes, just some commentary around how the returns on equity can be so exceptional in your insurance business. Irakli Gilauri: Giorgi, maybe you want... Unknown Executive: Yes. I'll take the question. Yes. Thanks for the question. So to start with the first part, we've been producing the exceptional return on equity for the last 10 years. So we are outperforming the market twice for the last 10 years. So -- and it's not for 1 or last 2 years. For last 10 years, Aldagi has -- our P&C business has produced twice high ROEs than the market, meaning that our main principle and the approach is that we put in the middle, the disciplined underwriting. So we don't jump from one side to another. We follow our strategy that is a disciplined underwriting, meaning that we are very sure and the management is sure that the high ROEs and the profitability and the returns we provide is very sustainable because of the healthy loss ratios that we keep. And our strategy is to keep the loss ratios in the range of 85 -- from 85% to 87% in the medium term for the next 5 years. And we've been doing this for the last 10 years, meaning that even there -- the market is very fragmented. There are 3 main players, but the idea is that we don't dampen the prices. We follow our brand and we follow our underwriting. So meaning that we are not going -- the returns will be sustained for the last -- I mean, for coming years that we are really, really sure. The competition is quite high, but the main players, I mean, are 3. The rest are small. And yes, that's it mainly that allows us to keep the high returns with the exceptional. And we are the only company in Georgia, mainly keeping the big division of the actuaries. So we do not make any decision without the actuarial opinion, and they have the right to raise yellow and red flags and every decision made by the company is made by the recommendation of the actuaries. And we will keep and we will stick to the disciplined underwriting in the coming years. Unknown Analyst: Okay. That's great. I mean the combination of growth and underwriting margin in your insurance business is truly spectacular. So congratulations. What's -- a quick follow-up maybe on that. What's the name of the 3 competitors or the 3 main players? Unknown Executive: Yes, the main group, there are 3 main competitors as us. One -- is one us. The second is the Vienna Insurance Group. We only have one international player at this point present with the Vienna Insurance Group by 2 companies. And the third one is a Captive Insurance company which is owned by one of the banks. 100% -- mainly dependent -- mainly which is dependent on the bank portfolios. Unknown Analyst: All right. And if I may, just a last final one. With regards to the whole PFIC situation, has there been any discussion around alternative solutions here? It just seems to me that Bank of Georgia can be very strongly argued to be your cheapest asset and your cheapest investment based on contribution to NAV. And then it seems this will be preventing monetization in other mature businesses, for example, health care, given that a big return of cash would prevent you to do buybacks or return that to shareholders, and you would again cross the PFIC limit by quite a lot. Just keen to hear if you have any comments and thoughts on this dynamic and if you explored other solutions. Irakli Gilauri: So basically, we are -- to be honest, this -- the Bank of Georgia thing we had to fix it quickly because it nearly doubled from year-end. So basically, it has happened in such a short period of time. We didn't have anything else to fix that problem other than they trim the Bank of Georgia. So in 6 months when the share price nearly doubles, it's very difficult to come up with alternatives. I'd love to come up with alternatives. But at that point of time, we didn't have any alternative. Unknown Analyst: Do you have any other alternatives going forward if -- given Bank of Georgia is still relatively lowly rated, if this would continue? Irakli Gilauri: Basically, we are exploring [indiscernible]. I don't know, U.S.A. that overnight or in a couple of months, 3 months, it's not happening like that. You need time to monetize business in Georgia. Giorgi Alpaidze: So [indiscernible], for example, as we grow our private portfolio as the assets on the private portfolio side grow, that is helping to keep the passive share of assets down when it comes to Bank of Georgia. For example, this acquisition, which is not yet complete, but the bolt-on in the health care business, it adds the asset base. It adds the land, it adds the building value, et cetera. That's positive for PFIC, for example. Unknown Analyst: Yes, of course, of course. I'm just saying it seems like you're so far been selling your cheapest assets based on rating. Giorgi Alpaidze: But at the same time, we've been buying back. That's why we had that one slide, which shows you that even when we are selling, when you look at it on a look-through basis, you still own same amount of -- or more amount of Bank of Georgia shares than what you own 3 years ago or 4 years ago, for example. Unknown Analyst: No, of course. Yes, very clear. Operator: Thank you, [indiscernible], for the interesting questions. We also have one question in our Q&A panel. The question comes from Barry Cohen. And the question is, what does the management think team think is the spread between the discount to NAV tightens enough where use of capital shifts to portfolio investments versus share repurchases? Irakli Gilauri: I think we answered that question basically, it is as NAV discount gets lower, smaller, more investment opportunities come and will come to us. So that's kind of -- will be available for us to make an investment. So it's a process. Operator: Perfect. And the last question that we have is from [indiscernible]. It seems like you took the slides out of the presentation regarding focusing on capital-light businesses versus capital intensive. And you also made a capital-intensive acquisition, albeit a cheap one. Is that is a sign of a change in strategy? Irakli Gilauri: No, no, I don't know whether we took a slide off. It's a very good observation, but this slide should be -- should go back in there. I think that this acquisition was mostly opportunistic and it improves the exitability of the health care business. So basically, I mean, we don't -- we cannot say that we cannot invest -- if we invest that we improve the exit opportunity, why not? So no, we did not -- we are not changing our strategy. We are very much committed to the capital-light. And this acquisition was pretty much the, first of all, very small ticket size. Second, it was a bolt-on to our current business. And thirdly, it is improving the exit opportunity for our capital-heavy business basically. Giorgi Alpaidze: And if I were to add just 2 things, and we didn't take out any slides, Bret, maybe it's in a different presentation. But one thing that's great about this bolt-on is it comes with no leverage. They have no debt, and we're buying this at less than 4x. You can imagine we can leverage this at 3x, and we only put down 1x as an equity. So as directly said, it was a very attractive structure in that sense. I don't know, over to you. Any more questions? Operator: Yes. Thank you. Thanks, Giorgi. No, there are no pending questions currently. If some of you want to -- or have any questions, please do not hesitate to write it in a Q&A panel or raise your hands. Irakli Gilauri: It seems like there are no further questions. Thanks for your time, and stay tuned for Q4 as we continue to deliver on the results -- great results. Thank you.
Operator: Ladies and gentlemen, thank you for joining us, and welcome to the Q3 2025 Revvity Earnings Conference Call. After today's prepared remarks, we will host a question and answer session. I will now hand the conference over to Stephen Barr Willoughby, SVP, Investor Relations. Steve, please go ahead. Stephen Barr Willoughby: Thank you, operator. Good morning, everyone, and welcome to Revvity's third quarter 2025 earnings conference call. On the call with me today are Prahlad R. Singh, our President and Chief Executive Officer, and Maxwell Krakowiak, our Senior Vice President and Chief Financial Officer. I'd like to remind you of the Safe Harbor statements in our press release issued earlier this morning and those in our SEC filings. Statements or comments made on this call may be forward-looking statements, which may include, but may not be limited to, financial projections or other statements of the company's plans, objectives, expectations, or intentions. The company's actual results may differ significantly from those projected or suggested due to a variety of factors which are discussed in detail in our SEC filings. Any forward-looking statements made today represent our views as of today. We disclaim any obligation to update these forward-looking statements in the future, even if our estimates change. So you should not rely on any of today's statements as representing our views as of any date after today. During this call, we'll be referring to certain non-GAAP financial measures. A reconciliation of the measures we plan to use during this call to the most directly comparable GAAP measures is available as an attachment to our earnings press release. I'll now turn it over to our President and Chief Executive Officer, Prahlad R. Singh. Prahlad? Prahlad R. Singh: Thank you, Steve, and good morning, everyone. I'm glad you are able to join us this morning to discuss our third quarter results and our updated outlook for the rest of the year. We continued to perform well during the third quarter and achieved our objectives during what continued to be a dynamic end market environment. We are consistently executing at a high level on those items, which are more fully within our control, such as our margins, cash flow generation, opportunistic capital deployment, and a strong and consistent pipeline of bringing meaningful new innovations to market, which I will touch on more in a bit. While the current demand environment continues to remain stable, I'm increasingly optimistic that some of the larger industry overhangs we and others have been impacted by so far this year appear to be starting to gain clarity, which should continue to improve customer confidence levels and lead to more robust levels of investment into science. Our third quarter results overall were in line with our expectations with 1% organic growth being slightly offset by less favorable FX tailwinds due to the changes in currency throughout the quarter. Our signals software business continued to perform extremely well, growing 20% organically in the quarter, which again included even stronger SaaS performance and conversion. Our reproductive health business also continued to perform exceptionally well and grew in the mid-single digits year over year with newborn screening again growing in the high single digits in the quarter. We anticipate continued strong performance in this business as we bring additional novel products and workflows to the market. A recent example of this is our new neo LSD seven plex kit, which recently received IVDR approval in Europe and is awaiting FDA clearance expected early next year. This expanded assay will complement our existing capabilities to now also include screening for MPS II, otherwise known as Hunter's syndrome. We also remain diligent with our expenses in the quarter and generated 26.1% adjusted operating margins, which were modestly above our expectations. With some additional favorability below the line, we generated adjusted earnings per share of 1.18 which was $0.5 above the midpoint of our guidance. Additionally, we continue to have a strong focus on cash flow generation and our capital deployment priorities. In the third quarter, we generated free cash flow of $120 million and also received the final $38 million brand payment related to a large divestiture from two years ago. This free cash flow continued to represent approximately 90% of our adjusted net income, solidly above our longer-term expectations. Given our strong balance sheet position and disciplined M&A criteria, we again actively redeployed this cash by repurchasing our shares. In the third quarter, we spent $205 million repurchasing approximately 2.3 million shares. This brings our total buyback activity since we've completed the divestiture two and a half years ago to 12.5 million shares or 10% of the total shares we had outstanding at the end of 2023. Given our commitment to disciplined capital deployment, we recently received a new $1 billion share repurchase authorization from our board, which will replace what was left on our existing program. This new share repurchase program will provide us plenty of capacity to continue to meaningfully deploy capital in this area over the next two years. As we look ahead to the fourth quarter and into next year, although end markets have continued to remain relatively stable, I'm increasingly optimistic on our future performance given recent signs that the impact from certain larger industry overhangs are becoming more transparent. However, for the time being, we want to remain prudent in our assumptions until we see sustained improvements in broader industry demand trends. While Max will provide more color on our updated guidance in a moment, at a high level, we are reiterating our 2% to 4% organic growth expectation for this year, while raising our adjusted earnings per share guidance to a new range of $4.9 to $5 to account for our outperformance in the third quarter. As we view our markets today, our best and most prudent assumption for next year is that organic growth continues to remain similar to what it has been over the last several years in the 2% to 3% range. But we see opportunity for improvements once customers consistently return to more historically normal levels of spending. While we have started to see some promising signs with customer activity levels in October, we want to see how the remainder of the year plays out before factoring in potentially more robust levels of growth for next year. Within the 2% to 3% growth scenario, we also remain confident with our 28% adjusted operating margin baseline expectation for next year, given the restructuring activities that are already well underway. I'd now like to take a moment to share some perspective on how we've been executing at a high level, both scientifically and commercially, as a number of the key initiatives we've highlighted publicly over the last year are now beginning to come to fruition. While the following are all great achievements on their own, I'd note our near-term pipeline is even more exciting and potentially impactful for the company overall. First, let me start with AI. While much has been said about how AI is being used or sometimes not used in the corporate world, at Revvity, we are bringing real-world AI-based solutions to market for our customers at a rapid pace. This is not just automated note-taking or digital image creation, but rather true productivity improvements for our customers in addition to new solutions which are changing and advancing how science is being done. In the past year alone, we have commercially launched new AI-focused software offerings such as SignalsOne in our signals business, Transcribe AI in reproductive health, and phenologic AI in a high content screening franchise. We have also entered into a new collaboration with ProFluent Bio to offer novel AI-engineered enzymes with our pinpoint-based editing system. And only a month ago, we announced the introduction of our new living image synergy AI software platform for use with our in vivo imaging instruments. This new offering helps reduce the time needed for scientists to manually review and highlight images of potential interest for further evaluation from several hours to a few minutes, freeing up significant capacity for these scientists to focus more of their time on uncovering even higher-level insights. While these are all great examples of how we are rapidly embedding AI's capabilities into new offerings for our customers, our development pipeline for additional new AI-based products is even more robust. We believe some of the novel solutions we are currently working on, which are not all that far away from coming to market, have the potential to truly change scientific paradigms and how preclinical discovery is done. I know that is a bold statement, but I could not be more excited about how our teams are embracing the power and potential of AI internally. But even more so what we are working on externally for our customers and the advancement of science. I look forward to sharing more on this with you in the coming months. In addition to delivering on our own innovation commitments, we are also making strong progress in bringing our strategic partnerships to fruition. Many of these collaborations have been years in the making and were first highlighted externally at our Investor Day last November. One recent example includes our sequencing partnership with Genomics England and its large generation study announced earlier this year with work beginning in the third quarter. When I visited our new lab in Manchester earlier this month, I learned about a powerful real-life example that's already come out of the study, which was recently featured by the BBC. Baby Freddie was among the first infants screened through the program. Within his first month of life, clinicians were able to identify a genetic condition linked to a rare form of eye cancer because of his participation in the study. Although he showed no symptoms and had no family history, follow-up testing confirmed he had a tumor on his eye. Thanks to the early detection, Freddie received laser and chemotherapy treatment, greatly improving his chances of normal vision as he grows up. While Freddie's story reflects the broader impact of the study, it highlights why our collaboration with Genomics England matters so deeply, enabling transformative discoveries that can change and even save lives before families know there's a problem. A second key partnership was just announced earlier this month in collaboration with Sanofi. In this new relationship, we are developing and seeking global regulatory approvals for a new four plex assay for the early screening of type one diabetes, while at the same time working to expand availability of our existing audio assay within our global clinical lab network. With Sanofi's disease-modifying therapy for delaying the onset of type one diabetes, TZEALD, now approved in many jurisdictions around the world, including The US, and with recent regulatory advancements such as Italy's new requirement to screen all children in the country for the disease. We believe this new assay has the potential to be a meaningful contributor to our diagnostics franchise once it receives regulatory approvals. While these are two recent examples of our strategic partnership efforts coming to fruition, our pipeline of additional projects continue to remain very active, and I expect you will hear more from us on these opportunities quite soon. I also wanted to take a moment to highlight the recent publication of our annual impact report, which showcases how our work is not only advancing science and health care, but is doing so in a sustainable way that keeps the best interests of our employees and communities we serve front and center. Highlights from this year's report include the company having a 6% reduction in our scope one and two emissions in 2024 and how we were able to divert 47% of our waste from landfills last year ahead of our multiyear goal. We achieved a 77% employee satisfaction rate in our recent all employee survey, which was above our target, and were able to expand our STEM scholarship initiatives to two additional universities in China and The UK. These efforts are being recognized as we recently received a triple a rating from the well known ESG rating agency MSCI, which is its highest possible rating and is above most of our peers. I couldn't be more proud of our efforts in this area. Overall, we are making tangible progress on some of our key strategic partnerships and new product launch initiatives with even more significant announcements hopefully coming very soon. We have done a good job navigating the dynamic market environment so far this year and are managing the business appropriately to continue to deliver on our earnings expectations for the year, while setting us up for even stronger financial performance in the future. I am increasingly optimistic that several key market uncertainties are beginning to ease, positioning us to benefit as demand eventually returns to more normalized levels. We are performing well, and the future is extremely bright for Revvity as we help shape how drug discovery and development is done in new ways in the years to come while also driving advancements in specialty clinical diagnostics, which are having a meaningful impact on human health. With that, I will now turn the call over to Max. Maxwell Krakowiak: Thanks, Prahlad, and good morning, everyone. As Prahlad highlighted, our teams performed well in the quarter as was evident in our operating margins coming in slightly above our expectations, delivering another strong quarter of cash flow generation and opportunistic capital deployment. Given this performance, potentially improving signs of customer activity and solid progress on our productivity initiatives, it positions us well to have a strong finish to the year with positive momentum as we head into 2026. While Prahlad highlighted how we are delivering new AI-driven solutions for our customers commercially, I wanted to provide you some perspective on how we are currently leveraging AI capabilities internally. Our use of AI in our operations is already delivering significant value for both our employees and our customers, but also our financial performance. First, earlier this year, we deployed Revvity AI for all of our 11,000 employees. This custom-built, fully secure environment leverages leading large language models to drive both efficiencies and increase commercial opportunities across our business. For example, we have now deployed over 30 custom AI agents, which are being used in areas such as commercial sales, customer care, technical service and repair, software development, HR, and financial operations, and we expect to have over 50 agents in place by the end of the year. By leveraging our platform, our sales reps are now seeing a three to four times improvement in their lead generation conversion rates. In our software businesses, we are already seeing a 5% to 10% reduction in overall development timelines by leveraging our AI capabilities, allowing us to bring new offerings to market even faster than what was previously possible. Within finance, our new custom-built AI agents are having a fairly immediate and material impact on our collections, directly improving our cash flow generation. While these are just a few specific examples of how we are already harnessing the potential of AI in our day-to-day operations, they represent just a small sample of how AI is transforming our business, and I believe we are just scratching the surface on its ultimate impact. As Prahlad mentioned, AI at Revvity is not just a theory or a long-range goal, but has become part of our operating model that we are actively leveraging both internally with our employees and externally in our products on a daily basis. Now turning to the specifics of our third quarter performance. Overall, the company generated revenue of $699 million in the quarter, resulting in 1% organic growth. FX was an approximate 1% tailwind to growth, a modest headwind compared to our assumptions ninety days ago, and we again had no incremental contribution from acquisitions. As it relates to our P&L, we generated 26.1% adjusted operating margins in the quarter, which were down 220 basis points year over year, but modestly above our expectations. Margins were pressured on a year-over-year basis from tariffs, FX, and lower volume leverage, particularly as it pertained to the weakness from our Diagnostics business in China. This was partially offset by a modestly better than expected impact from recently implemented cost containment initiatives. Looking below the line, our adjusted net interest and other expenses were $22 million in the quarter, which was modestly impacted by the increased share repurchase activity year to date, resulting in lower interest earnings on our cash balances. Our adjusted tax rate was 15% in the quarter, and we continue to remain active with our share repurchase program as we average 115.5 million diluted shares in the quarter, which was down over 2 million shares sequentially and was down nearly 8 million shares year over year. This all resulted in our adjusted EPS in the third quarter being $1.18 which was $0.05 above the midpoint of our expectations. Moving beyond the P&L, we generated free cash flow of $120 million in the quarter, resulting in 88% conversion of our adjusted net income. On a year-to-date basis, our $354 million of free cash flow equates to a solid 89% conversion of our adjusted net income. Regarding capital deployment, we continue to remain active with our buyback program as we repurchased another $205 million worth of shares in the third quarter. This brings our repurchase activity through September to nearly $650 million which allowed us to buy back 7 million shares so far this year overall. As it relates to our balance sheet, we finished the quarter with a net debt to adjusted EBITDA leverage ratio of 2.7 times, with 100% of our debt being fixed rate with a weighted average interest rate of 2.6% and weighted average maturity out another six years. As we evaluate capital deployment, we will continue to remain both flexible and disciplined in order to capitalize on the highest return opportunities while ensuring we maintain our investment-grade credit rating. I will now provide some commentary on our third quarter business trends, which are also highlighted in the quarterly slide presentation on our Investor Relations website. The 1% growth in organic revenue in the quarter was comprised of flat performance in our Life Sciences segment and 2% growth in Diagnostics. Geographically, we grew in the low single digits in The Americas, grew in the mid-single digits in Europe, while Asia declined in the mid-single digits with China declining in the low teens. From a segment perspective, our life sciences business generated revenue of $343 million in the quarter. This was up 1% on a reported basis and roughly flat on an organic basis. From a customer perspective, sales to pharma and biotech customers were up low single digits, whereas sales into academic and government customers declined in the low single digits in the quarter. Our life science solutions business declined in the low single digits in the quarter overall, which was in line with our expectations. Our Signal Software business was up 20% year over year organically in the quarter, and as Prahlad mentioned, continues to be a bright spot of the Revvity portfolio. The business also continued to perform exceptionally well with an ARR of over 40%, an APV of 12% and net retention rate of more than 110%, with all metrics solidly above levels from last year. In our Diagnostics segment, we generated $356 million of revenue in the quarter, which was up 3% on a reported basis and 2% on an organic basis. From a business perspective, our immunodiagnostics business declined in the low single digits organically during the quarter, which was in line with our expectations. China immunodiagnostics declined in the mid-20s with the impact from DRG playing out as we had expected. Excluding China, the other 80% of our immunodiagnostics business continued to perform very well and grew in the high single digits with mid-teens growth in The Americas. Our reproductive health business grew mid-single digits organically in the quarter. Newborn screening continued to perform well and grew high single digits globally, which was again driven by fantastic operational and commercial execution and the initial contribution from our work with Genomics England. As it pertains to China specifically overall, we incurred a low teens organic decline in the third quarter driven by our diagnostics business being down over 20% as it continues to face the impact of the DRG related declines in volume. This was partially offset by low single digit growth in our life sciences business in China, where we continue to see solid year over year growth in reagents. Now moving on to guidance. As Prahlad mentioned, we are reiterating our organic revenue growth outlook of 2% to 4% for the full year, with the fourth quarter expected to play out largely as we had previously expected. We continue to expect both our Life Sciences and Diagnostic segments to each grow in the low single digits for the full year, and we now see the tailwind from FX being slightly less than a 1% benefit to our full year revenue. We expect this to result in our full year total revenue to be in the range of $2.83 billion to $2.88 billion overall. Moving down the P&L, we continue to expect our adjusted operating margins to be in the range of 27.1% to 27.3%, unchanged from our prior outlook and assumes the tariff environment as of today. Below the operating line, we now expect our net interest expense in other to be approximately $83 million up slightly from our prior outlook due to lower expected interest income due to recent rate cuts and the impact from our continued share repurchase activity. We now expect a full year adjusted tax rate of approximately 17%, down 100 basis points from our previous assumption and an average diluted share count of a little under 117 million for the full year. This all results in our adjusted earnings per share for the year to now be expected in a range of $4.9 to $5 up $0.05 from our prior outlook. Overall, our third quarter organic growth results were in line with our expectations, and our outlook for the full year remains largely unchanged. As Prahlad highlighted, we are making great progress with a number of our key new product launches and strategic partnership initiatives while taking appropriate cost actions to achieve our goals for next year. We will continue to have a strong focus on our operational and commercial execution as we navigate the dynamic end market while remaining opportunistically disciplined with our capital deployment. This all positions us extremely well heading into next year and in the years to come. With that, operator, we would now like to open up the call for questions. Operator: We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please raise your hand now. If you have dialed into today's call, your first question comes from the line of Patrick Bernard Donnelly with Citi. Your line is open. Please go ahead. Patrick Bernard Donnelly: Hey, guys. Thank you for taking the questions. Prahlad, maybe to start on the 2026 commentary. Appreciate the preliminary thoughts there. Sounds like maybe 2% to 3%. Can you just talk about the moving pieces? Obviously, you have the China diagnostics piece. I think a lot of focus is on that. You know, I think Max hit on that being down, you know, somewhere in the teens there this quarter or maybe even 20%. I guess, how do you think about that piece into '26? Obviously, software has been a big growth driver for you, up 20% in the quarter. You're gonna come up against those comps. Do you mind just, you know, high level talk about those moving pieces into '26? Max, just the confidence on a low single digit 2% to 3% type growth rate to be able to hold that 28% margin and the key levers there. Thank you. Prahlad R. Singh: Sure. Good morning, Patrick. Let's just start with 2026. You know, when our assumption around the 2% to 3% is being prudent, we've started seeing signs of activity, especially around the instrument side. And then if that customer behavior continues to normalize, you know, that is only going to get better, you know, especially around the China piece that you pointed out. Now if you look at the trend starting with 3Q, you know, while China was down mid-twenties, ex-China, you know, it continues to be up in the high single digits. So overall, the diagnostics business is performing very well, whether it's in reproductive health or immunodiagnostics ex-China. On the life sciences side, you pointed out to the software piece. And in instrument side, as Max said in his prepared remarks, we are starting to see signs of increasing activity with customers, especially in September and October. And we expect that to start, you know, starting to result in actual demand coming into 2026. So I feel really good and confident about what we have put out there and only see signs of that going, you know, getting better as customer behavior continues to be more normalized. Max, you wanna talk on the 28%? Yeah. Maxwell Krakowiak: Hey, Patrick. So, look, I think as we think about the margins for next year, you know, as we previously commented, a 28% operating margin baseline for 2026. We're feeling very good about that target. We've got actions already underway that are going to help us achieve that 28% baseline. I think there's even been some of them out there in the publications. You look at some of the Northeast consolidation actions we've already taken. And so again, I think we're feeling very confident as a company in our ability to hit the 28%. I think your subsequent question on, you know, how do you think about organic growth and the impact to the 28%. I would say the 28% baseline is tied to the 2% to 3% organic growth. Should there be, you know, additional tailwinds to that organic growth, we would expect to be able to then start generating, you know, additional operating margin expansion off of that baseline. But that, obviously, that, is dependent on exactly how much further up the organic growth chart we were, we would achieve. Patrick Bernard Donnelly: Okay. Got it. That's helpful. And then maybe just inside the life science business this quarter, can you just talk about the reagents versus instruments piece? What did reagents do in the quarter in particular? And then expectations for that moving forward, what do you hear from the customers there? It would be helpful. Thank you guys so much. Maxwell Krakowiak: Yep. Look. I think as you look at the third quarter results, you know, our life sciences solutions business, you know, was mostly in line with our expectations. I would say there was a little bit of geography between the instrumentation and reagents. Reagents were modestly lower than what we had previously anticipated as the summer months were just a little bit lighter from a run rate perspective. But I would say the overall lab activity, we continue to see sort of continued progress as we had in the first half of the year. I think as you look at the fourth quarter, just out of prudence, I think we are assuming a similar market environment to what we experienced in the third quarter, and we have also baked in some modest impact from the government shutdown, and we'll obviously have to see how that plays out over the quarter here. Vijay Muniyappa Kumar: Hey, guys. Thank you for taking my question. Prahlad, my first question is on your comments around October customer activity levels picking up. You're seeing some signs. Can you elaborate that on is that, like, pharma? Is that academic and government customer base? Is that showing up in reagents or instruments? Any color on the improvement that you're seeing? And was this I'm curious. Was this tied to the Pfizer announcement, or was that just more anecdotal? Prahlad R. Singh: Hey, Vijay. Good morning. You know, when I mentioned the increasing signs of activities with customers, you know, as we are seeing it, it is more on the pharma pharma biotech side and not obviously on the academia and government side, and it's particularly in the pockets of instruments. You know, we I I would say that it's not like broad change in a lot of actual demand coming through, but there is definitely increasing pockets of activity that is happening on the instrument side. And then that's a clear trend that we have started seeing in the pharma biotech. Vijay Muniyappa Kumar: Understood. And then maybe, Max, one for you on your fiscal 2026 comments were helpful. But should that 2% to 3% organic with 28% op margins translate to high singles EPS for '26? And then I know share reports helped you guys, but how are you thinking about FX or below the line, etcetera, for next year? Maxwell Krakowiak: Vijay, yes, to answer your question, it would imply sort of a high single digit EPS growth year over year at the 2% to 3% and the 28% operating margin baseline. I think in terms of below the line, if you think about some of the assumptions, interest and others should be relatively flat year over year. From a tax rate perspective, we have mentioned that our tax planning has sort of created a new sort of 18% baseline from a company, which is significantly improved from where we previously were around 20%. And so I'd probably point you to that sort of starting point for 2026, and we'll see what happens with, you know, any discrete items, for next year. And And then I think from a share count perspective, obviously, we've done a lot of progress this year and returned a lot of capital to the shareholders through our buyback programs. And so I think when you factor in a lower share count for next year, all those below that should point you to a high single digit EPS growth for for 2026 based off those assumptions. Prahlad R. Singh: Yeah. And just to add to that, Vijay, that high single digit EPS growth is, you know, as you before assuming any additional capital deployment. Vijay Muniyappa Kumar: That's helpful, Prahlad. Thank you, guys. Michael Leonidovich Ryskin: Hey, can you hear me now? Yep. Okay. That works better. Thanks, guys. I want to drill into the 4Q quarter ramp specifically. I know you said 3Q kind of came in generally in line with expectations. But if you look at the both organic 3Q to 4Q and on the margins, it's still a pretty steep ramp, probably even steeper than it was before. So I know you talked about genomic signaling coming online in the fourth quarter. There are some other moving pieces. There's some dynamics with the comps. Could you just give us the bridge again and sort of walk us through what gives you confidence in that, especially given, like you said, you've got DRG still going on, reagents came in a little bit softer in 3Q. So just give us confidence in that 3Q to 4Q ramp this year. Maxwell Krakowiak: Yes, sure. So two pieces of that one. You asked about the ramp on organic growth and then the ramp on margins. I'd say first from a margin standpoint, there's been no change to our previous assumption. It's still 30% operating margins. The fourth quarter is always the biggest margin quarter for us as company. It's our highest volume quarter of the year. And so I'd say there was no real changes there, Mike. I mean, if you think about holding, you know, cost relatively flat and the higher volumes, you're gonna get to the, to the 30% margins. I think when you look at it from an organic growth standpoint and the ramp between the third and the fourth quarter, you know, I'd say there's really a couple key pieces of that ramp. One is on the IDX comps as we've talked about assuming the same sort of multiyear stack performance as we've seen through the first March of the year. So that's one dynamic. The second is software, will have a ramp between the third and the fourth quarter. Although we expect to step down in organic growth, we do expect a higher nominal dollar amount for software in the fourth quarter. And the third piece is you do see a little bit of seasonality just in terms of our instrument volumes between the third and the fourth quarter. I'd say those are probably the three biggest pieces, Mike. Michael Leonidovich Ryskin: Okay. And then, following up on the China DRG comments. I mean, if you look at China DX, China Immuno DX, I think, was down mid-teens or low teens in 2Q. It's down 20% or more in the third quarter. So by the time we exit this year, could you give us sort of a snapshot of what's left in the portfolio for China ImmunoDx and what the incremental risk in risk or downside in 2026 is? Just sort of frame, you know, how much further headwind there'll be next year for that. Thanks. Maxwell Krakowiak: Yeah. Mike, look. So I I think, look, the DRG situation has been playing out as we had anticipated. We had, you know, sort of foreshadowed that IDX China would be down sort of mid-twenties here in the third quarter. That's what played out in the third quarter. I think as you look for, the impact into 2026 and even the fourth quarter here, we don't expect much change in DRG. We do expect that once we lap sort of the anniversary in the 2026, We do expect that business to return to more sort of muted levels of growth in the back half of the year. And so I think, again, no real change from our previous communication on the DRG situation in China. Dan Leonard: I I was hoping you could talk a little bit about what type of growth outlook for your software business is embedded into your 2026 framework given, you know, the offsetting factors of difficult comps, but I think you also have a big new product launch coming before year end. Maxwell Krakowiak: Yeah. Absolutely. So look, as as you look at software, to your point, you know, '26 will be coming off, you know, a challenging comp here in in 2025 from an organic standpoint. In 2025, we expect the business to finish in the high teens, 20% growth. So it will be a significant comp. Two things I'd say of that. One, in '26, we probably expect organic growth to be more in the mid-single digits. I would say we expect some contribution from the MPIs, but as you know, software MPIs take a little bit longer to ramp, as they get released and customers really start, you know, learning about the new tools and adopting them, etcetera. So there's some impact in there, but I wouldn't say it's a it's a huge impact for '26. And if things pick up faster, that would be, you know, I would say upside to the to the mid-single digit, organic growth. The second thing I'd say is, you know, organic growth is always not maybe the best metric to look at when you're evaluating a software business. And I think as you look at the performance around ARR, you know, your APV, which again just normalizes for revenue recognition, and then also our net retention rate, you know, those metrics continue to perform, extremely well for us as a business, and we are incredibly excited about the software business in 2026 and beyond. Prahlad R. Singh: Yeah. And just to add to that, Dan, just, you know, as we saw previously last year, we launched signals synergy and signals clinical. And, you know, and it took some time for it to get traction, and now it started really contributing. You know, similarly, as we bring in lab design and, biodesign and logistics NPIs, it takes a few quarters for it to start ramping up, and we start seeing contributions from that, those new NPIs. Dan Leonard: Understood. Thank you. And, Prahlad, can you talk a little bit about your M&A thoughts in light of how big you're going with the share repo? Prahlad R. Singh: Yeah. I mean, again, we continue to be disciplined in our approach around an M&A deployment. You know, we've we've have an active pipeline, Dan, and, you know, and we continue to look for opportunity. We will be in this environment pretty prudent in how we deploy. And, honestly, the best opportunity right now from a return on capital investment is our share buyback. You know, we think that's the most attractive opportunity in front of us, and and we are fully, taking, you know, advantage of that opportunity while keeping a very fertile pipeline and looking for opportunity, for, doing acquisitions. Tycho Peterson: Hey, guys. Thanks. I wanted to probe a little more on reagents. I know you said modestly below expectations. Did the reagents actually decline? I mean, if software was up 20, instruments down mid-single, it would imply reagents were down low single. So is that the right, interpretation? And then how do we think of kind of go forward incremental margins on the reagents business? I know you've previously talked about 70%. You know, I guess, given the pricing backdrop and inflation, just talk a little bit about the margin profile for reagents going forward too. Maxwell Krakowiak: Yes. Absolutely, Tycho. So look, I think as you look at the reagents performance in the third quarter, they were down very slightly year over year. You know, I would say that, again, as I mentioned in the call, the summer months were a little bit lighter. We've taken a prudent approach to our fourth quarter guidance, but we still see, I would say, you know, stronger levels of underlying lab activity when you look at things year over year. So again, I don't think we're saying that there's been, you know, some huge shift here really in in in lab activity. The second thing I'll answer is on the on the margin side of the incrementals. I would also say there's no change in in the power of our incremental margins in our reagents business. Yes. It is a little bit of a tighter pricing environment, but we are still holding in there, from a pricing perspective. And I think, you know, as the lab activity continues to ramp here, are gonna see the the margin benefit as we get upside from those incrementals. Tycho Peterson: Okay. And that's helpful. And then maybe just I know you've had a number of questions on instruments. I'm just curious, you know, budget flush in the year end from pharma, is is that baked in or not? How how are you thinking about that, you know, on the back of these announcements? I know you talked about activity picking up, but how do you think about near term kind of budget flush here? Is that a call option on the fourth quarter? Maxwell Krakowiak: Yeah. Think, look, as you as you look at the budget flush and what sort of assumed in guidance here, you know, you do always have a a modest seasonal step up for instruments between Q3 and Q4. I wouldn't say it was back to all the way of historical levels of budget flush, but you do definitely see, an increase between the third and the fourth quarter. And as Prahlad mentioned, there is we have definitely seen an uptick in the activity level in our instrumentation pipeline. It was a little bit better here in the third quarter, and we do believe that there's some opportunity here for us in the fourth quarter as well. Tycho Peterson: Okay. And then just lastly on the tax rate, 18% baseline for 2026. Is there an opportunity for more and more leverage there? And how sustainable? I mean, I think you're going to be at 15% here in the back half of this year. I know you saw a step down in the back half of last year. So how do we think about maybe additional tax leverage beyond that 18% baseline? Maxwell Krakowiak: Yeah. Look. I'll tell you, look. Our tax team has done a tremendous job, I think, in resetting what we even consider baseline from where we were a couple years ago. Again, it was, you know, 20%, and now we're at sort of an 18% baseline here. Know, I think just from a in terms of a forecasting and guidance approach, you know, we don't really roll in any expected sort of onetime benefits. We kinda take our, you know, baseline and and see how the year progresses, and and that's how I would encourage you to think about '26 as well. Doug Schenkel: Okay. Good morning, everybody, and thank you for taking my questions. Two topics I wanted to ask about. The first is China Diagnostics. So I guess three parts to this one. One, I believe China Diagnostics is down to about 5% of total sales exiting Q3. I want to make sure that's right. Two, it sounds like we should model that down 20% to 25% due to the changes in multiplex reimbursement. So down 20% to 25% year over year, and I think we should do that through Q2. And then third, can we confidently model that returning to growth thereafter? Or is is there any reason to be more cautious than that? Yeah. There have been a few head fakes there in China as we know, and you got folks like Abbott and Danaher who are telling folks to model incremental headwinds in 2026. How how do you see it from there? Maxwell Krakowiak: Yeah. Hey, Doug. Yeah. So couple different questions in there. So I think, look, as you look at the, China as a percent of revenue, you had mentioned 5%. I think it's closer to 6%, which is probably what I would use as as you think about exiting this year. You know, I think, again, we've we've already kinda talked about the fact and and what our expectations are for GRG is to continue to see the headwinds here from, you know, the what we saw in the third quarter continuing until we anniversary in the second quarter. I think we've also talked about how we, you know, have in our LRP the assumption of, you know, closer to low single digit growth for IDX business in China. And so I would continue to have that sort of same thought process as you sort of think about the 2026. You know, I'd also say again on the immunodiagnostics side, you know, the business outside of China continues to perform incredibly well. And I know there's the focus on China right now with DRG, but IDX ex China continue to grow high single digits. The Americas was up mid-teens, And so that business continues to perform incredibly well and one where we're excited to keep performing well in '26 and beyond. Doug Schenkel: Okay. Sounds good. I'll leave it at that. Thank you, guys. Puneet Souda: Yeah. Hi, guys. Thanks for taking my question. So first one on just wanted to clarify on the instrumentation side. Or the improvement that you're seeing in this quarter, is it more of the, you know, China tariffs impacted situation from the last quarter? Or, actually, our customers telling you that, you know, we we're purchasing more this quarter and into the next quarter. Maybe just help us understand sort of what you're hearing versus a sequential improvement because of, tariffs and other concerns between US and China, that happened in February. Prahlad R. Singh: Yeah. Hey. Good morning, Puneet. No. The answer is your the latter part of your comment. You know, what we are seeing is more of a broader activity, and it was not it is not specific to any China tariff related opportunity, and then it is specifically from pharma biotech customers. So what we are really seeing is a broader level of activity and discussions on pharma biotech on the life sciences instrument side. Puneet Souda: Got it. Okay. And then, just on the academic and government side, I know the reagent exposure is there. So just trying to understand if the grants are fewer next year just with the given given the funding five year funding in some of the grants and the early funding that's happening. Maybe just help us understand, you know, how are you thinking about the overall reagent growth into '26? And then just one more question, if I may. Could you remind us how much of your manufacturing for China sales is in China? Localization is emerging as an important theme beyond the VBP and DRG. So if you could elaborate on that. Thank you. Prahlad R. Singh: Yeah. Sure. On the manufacturing side, all of our reproductive health and newborn screening in is in China for China. Over the past decade, we have moved more, all of that. And on the IDX side, Puneet, more than half of it now is local in China for China. And the rest that we are, you know, shipping from Germany are specific and very unique assays where we have a minimal local competition. Maxwell Krakowiak: Yeah. And I think, look, the other thing I'll add to that too is we have the capacity and the availability to move that additional product into China if we need to from a competitive or or local requirement perspective. So I think we remain confident in our ability to to handle anything there from a localization standpoint. I think as you look at the, your your other question, Puneet, on the on the Puneet Souda: Multi year. Maxwell Krakowiak: Yeah. And the reagents and and sort of how we think about, 2026. Look. I I I think from a reagents perspective, again, as we've mentioned, 2% to 3%, we're really anticipating, I would say, you know, a similar ish environment to what we are currently seeing. Obviously, we'll have to see what happens from an NIH and budget perspective. But our 2% to 3% organic growth guidance for next year is not expecting some huge ramp up or change in the underlying market activity. If that were to change to the positive and we continue to see increasing momentum build, that's not necessarily something we factor in the 2% to 3%. Puneet Souda: Got it. Okay. Thank you. Dan Arias: Hey, good morning, guys. Thank you. Max, on the GEL contributions, which I think you've kind of pointed to as being heavily weighted in in 4Q for $10 million or so, how should we model that sequentially in the quarters after that? Is there is there a drop down or do you think there's some level of stability into the front half of 2026? Maxwell Krakowiak: Yes. Hey, Dan. So the $10 million for Gel was actually the initial sort of second half contribution, full second half. So we did start to see the a little bit there in the third quarter as the contract and the lab came online. We do expect a little bit of sequential pickup here in the fourth quarter. I think as you look at sort of 2026, I wouldn't anticipate too much further ramp from what we currently have assumed in there in the fourth quarter, and that'll sort of be a consistent quarterly number as we think about it for 2026. Dan Arias: Okay. And then maybe Prahlad, on your pharma and biotech comments, can you elaborate a little bit on the biotech element and just how much of the incremental enthusiasm that you might be pointing to is due to some of the larger biotech companies versus some of the smaller and emerging players that might be getting a little bit more enthusiastic about what they might do? Thanks. Prahlad R. Singh: Yeah. I think that's a key differentiation. I mean, most of the louder activity we are seeing is on the typical large and mid-sized biotech. While the conversations are ongoing with the smaller ones, then it's not at the same level as you would see with the more mid and large-sized biotechs. Biotechs. Dan Arias: Okay. Thank you. Prahlad R. Singh: Who tend to be more of our traditional customers anyway. Catherine Schulte: Maybe first, just for the 2% to 4% organic for the full year, it creates a pretty wide range for the fourth quarter. So should we be anchoring more towards the lower end of that range? And how should we think about performance by segment for the fourth quarter? Maxwell Krakowiak: Yeah. Hey, Catherine. Thanks for the question. Look. I think as you look at the full year range, the 2% to 4%, I don't think it's an uncommon practice to have sort of that range for the fourth quarter. I think as you kind of look at the midpoint though of what we have for the fourth quarter in terms of our full year guidance, that would sort of point you to a 2% to 3% organic growth for the fourth quarter in order to reach that midpoint for the full year. Catherine Schulte: Okay. Great. And then maybe how did U. S. Academic and government perform in the quarter? And you mentioned baking in a government shutdown impact in guidance. Any way to size kind of how you're thinking about that? Maxwell Krakowiak: Yeah. So first, in in terms of the academic and government performance in The Americas for the for the third quarter, it was down mid-single digits in the third quarter. Again, as we've talked about, most of the instrument activity pickup we're mostly seeing is on the pharma biotech side versus academic and government. So that was a bit of a headwind for us in the period. I I think as you then look at the government shutdown, you know, I was I I think the bigger impact there, right now that we're seeing is more so on the reagent side, which we have baked in some some modest assumptions there for the fourth quarter. I would say, again, it's modest. It's not something that is a huge number to embed into the guidance. Sabu Nambi: Hey, guys. Thank you for taking my question. In your prepared remarks, you talked about how AI is improving your operating efficiency. As your customers implement AI, do you view this as a threat or as an opportunity? Meaning, AI improves their efficiency and reduces their risk, are you seeing any signs that this leads to more or less demand for Revvity products? Prahlad R. Singh: Again, it's a great question, Subbu. I think, you know, if you were to look in the short to midterm, and by that I define over the next three to five years, I think it will result in increased demand on the reagent and instrument side. Because I think, you know, not just traditional pharma biotech companies, but also AI focused companies on life sciences will want to correct and create more and more data in order to sort of, you know, look at what modeling capabilities that you need to have, what AI models that you need to build. But I think over the second half of the decade, I would venture to say that the signals business is very well positioned, on the AI side of drug discovery. You know, we are in every lab, every researcher in pharma big pharma biotech has signals at their fingertips. And if we are able to provide the capability and ability for pharma biotech customers to use the signals infrastructure and incorporate AI capability into that, it becomes a natural tool in the hands of researchers who don't need to be computer specialists to do drug discovery. And that's where we have the opportunity both in the short to midterm with our reagents and instruments portfolio and in mid to long term with our signals business. Sabu Nambi: Thank you for that, Prahlad. And, just as a follow-up, you described some signs of instrument recovery in your prepared remarks. If that continues to take hold, what instruments would you expect to be the first to participate in that recovery? Would you consider providing book to bill data on instruments heading into 2026, as we get to year end? Prahlad R. Singh: Yeah. I I think the the benefit or the, advantage that we have, Subbu, is most of the life sciences instruments that we provide are noncommoditized products. And the initial uptick that we start seeing is especially on the, cellular imaging capabilities that we provide to our customers, you know, looking at, cellular imaging, our high content screening platforms specifically. You know, we've never provided book to bill ratio and, you know, and generally, that's not something that we look at either. Sabu Nambi: Thank you so much, guys. Operator: There are no further questions at this time. I will now turn the call back to Steve for closing remarks. Stephen Barr Willoughby: Thank you, Nicole, and thank you for everybody joining us this morning. We look forward to catching up with more of you over the coming weeks.
Operator: Hello, and welcome to the Daqo New Energy Q3 2025 results conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing *0 on your telephone keypad. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press *1 on your telephone keypad. To withdraw your question, please press *2. Please note this event is being recorded. I would now like to turn the conference over to Jessie Zhao, Investor Relations Director. Please go ahead. Jessie Zhao: Hello, everyone. I'm Jessie Zhao, the Investor Relations Director of Daqo New Energy. Thank you for joining our conference call today. Daqo New Energy just issued its financial results for the third quarter of 2025, which can be found on our website at www.dqsolar.com. Today, attending the conference call, we have our Deputy CEO, Ms. Anita Zhu, our CFO, Ms. Ming Yang, and myself. Our Chairman and CEO, Mr. Xiang Xu, is on a business trip now, so Ms. Anita Zhu will deliver our management remarks on behalf of Mr. Xu. Today's call will begin with an update from Mr. Xu on market conditions and company operations, and then Mr. Yang will discuss the company's financial performance for the quarter. After that, we will open the floor to Q&A from the audience. Operator: Before we begin with the formal remarks, I want to remind you that certain statements on today's call, including expected future operational and financial performance and industrial growth, are forward-looking statements that are made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. These statements involve inherent risks and uncertainties. A number of factors could cause actual results to differ materially from those contained in any forward-looking statement. Further information regarding these and other risks is included in the reports or documents we have filed with or furnished to the Securities and Exchange Commission. These statements only reflect our current and preliminary view as of today and may be subject to change. Our ability to achieve these projections is subject to risks and uncertainties. Operator: All information provided in today's call is as of today, and we undertake no duty to update such information except as required under applicable law. Also, during the call, we will occasionally reference monetary amounts in U.S. dollar terms. Please keep in mind that our functional currency is the Chinese RMB. We offer these translations into U.S. dollars solely for the convenience of the audience. Now, I will turn the call to our Deputy CEO, Ms. Anita Zhu. Ms. Zhu, please go ahead. Anita Zhu: Hello, everyone. This is Anita. I'll now deliver our management remarks on behalf of our CEO, Mr. Zhu. With the recovery of market prices across the solar PV value chain in the third quarter of 2025, we believe the industry is gradually recovering from its cyclical downturn. In particular, the polysilicon sector reached an inflection point during the quarter, with prices rebounding significantly. As a result, we're pleased to report that for the third quarter, Daqo New Energy recorded positive EBITDA of $45.8 million, as well as adjusted net income of $3.7 million. Moreover, our strong balance sheet is further reinforced. As of September 30, 2025, the company had a cash balance of $552 million, short-term investments of $431 million, bank notes receivables balance of $157 million, and total fixed-term bank deposit balance of $1.1 billion. In total, our bank deposit and financial investment assets readily convertible into cash if needed stood at $2.21 billion, representing an increase of $148 million compared to the end of the second quarter. Our solid financial foundation provides us with confidence and strategic flexibility to navigate the ongoing market recovery and capture long-term opportunities. Operationally, the company implemented proactive measures to counteract the continued market oversupply. Maintaining a nameplate capacity utilization rate of 40%, total polysilicon production for the quarter was 30,650 metric tons, slightly above our guidance range of 27,000 to 30,000 metric tons. We also capitalized on favorable pricing conditions to sell not only our current quarter's output but also a significant portion of our existing inventory, leading to a sharp rise of sales volume to 42,406 metric tons from 18,126 metric tons in the previous quarter. The strong increase in sales volume reflects both our customers' confidence in Daqo's product quality and their continued preference for our product in the new pricing environment. As a result, our sales volume far exceeded production, bringing our inventory down to a healthy level. On another positive note, production costs declined significantly during the third quarter, extending our ongoing cost reduction trend. Total production costs declined by 12% to $6.38 per kilogram in Q3 2025, from $7.26 per kilogram in the second quarter of 2025. Total idle facility-related costs, primarily non-cash depreciation expenses, also fell to $1.18 in Q3 from $1.38 in Q2, driven by higher production levels. In particular, our cash costs decreased by 11% from $5.212 per kilogram in Q2 to $4.54 per kilogram in Q3, the lowest in the company's history. Cash costs include approximately $0.16 per kilogram of idle facility maintenance-related costs. In light of the current market conditions, we expect our total polysilicon production volume in the first quarter of 2025 to be approximately 39,500 metric tons to 42,500 metric tons. As a result, we anticipate our full-year 2025 production volume to be in the range of 121,000 to 124,000 metric tons. At the industry level, according to industry statistics, monthly supply of polysilicon in Q3 remained in the range of approximately 100,000 to 130,000 metric tons. On September 24, President Xi Jinping announced China's new 2035 environmental targets at the UN Climate Summit. These targets include increasing the share of non-fossil fuels in total energy consumption to over 30% and expanding the installed capacity of wind and solar power to over six times the 2020 level, aiming to reach an accumulative capacity to 3,600 gigawatts by 2035. The official announcement reinformed China's ambitious strategy to transition toward a new low-carbon energy structure, with solar PV playing a pivotal role in the process. Entering the third quarter, China's anti-involution initiative to restrict low-price competition in the polysilicon sector continued to impact the industry. Market expectations of consolidation and tighter supply have improved overall industry fundamentals. In particular, on August 19, the Ministry of Industry and Information Technology, the Central Ministry of Social Work, the NDRC, the State Council's State-Owned Assets Administration Commission, the General Administration of Market Supervision, and the National Energy Administration jointly held a symposium on the photovoltaic industry. The meeting emphasized the need to strengthen industrial regulation, curb disorderly low-price competition, standardize product quality, and promote industry self-discipline. On September 16, the Standardization Administration of China released a draft of a new mandatory national standard setting energy consumption limits per unit of polysilicon production. Once implemented, polysilicon manufacturers with unit energy consumption higher than 6.4 kilograms must implement corrective improvements within a specified period. Those failing to comply or meet the entry threshold after rectification will be ordered to cease operations. According to China's Silicon Industry Association, China's effective capacity in polysilicon production is expected to climb to 2.4 million metric tons per year, a decrease of 16.4% from the end of 2024 and of 31.4% from total installed production capacity. We expect that implementation of this new energy consumption standard will substantially ease the issue of energy overcapacity. As a result of these more forceful measures, polysilicon prices rose sharply to RMB 45 to RMB 49 per kilogram in July, from RMB 32 to RMB 35 per kilogram in June, and a further climb to RMB 49 to RMB 55 per kilogram at the end of the quarter. The solar PV industry continues to demonstrate strong long-term growth prospects. In the medium term, we believe that the combination of industry self-discipline and government anti-involution regulations will help foster a healthier and more sustainable industry. In the long run, as one of the most cost-effective and sustainable energy sources globally, solar power is expected to remain a key driver of the global energy transition and sustainable development. Looking ahead, Daqo New Energy is well-positioned to capture the long-term growth in the global solar PV market and further strengthen its competitive edge by enhancing its higher efficiency N-type technology and optimizing its cost structure through this digital transformation and AI adoption. As one of the world's lowest-cost producers of the highest-quality N-type product and with a strong balance sheet and no bank loan, we're confident in our ability to capitalize on the market recovery and emerge as an industry leader, well-positioned to seize future growth opportunities. I'll turn the call to our CFO, Mr. Ming Yang, who will discuss the company's financial performance for the quarter. Ming, please go ahead. Ming Yang: Thank you, Anita, and hello, everyone. This is Ming Yang, CFO of Daqo New Energy. We appreciate you joining our earnings conference call today. I will now go over the company's third quarter of 2025 financial performance. Revenues were $244.6 million compared to $75.2 million in the second quarter of 2025 and $198.5 million in the third quarter of 2024. The increase in revenue compared to the second quarter of 2025 was primarily due to an increase in both sales volume and average selling price. Gross profit was $9.7 million compared to gross loss of $81 million in the second quarter of 2025 and gross loss of $60.6 million in the third quarter of 2024. Gross margin was 3.9% compared to negative 108% in the second quarter of 2025 and negative 30% in the third quarter of 2024. The increase in gross margin compared to the second quarter of 2025 was primarily due to the increase in the average selling prices of polysilicon, a decrease in our production costs, as well as write-off of provision for inventory impairment. Selling, general and administrative expenses were $32.3 million compared to $32.1 million in the second quarter of 2025 and $37.7 million in the third quarter of 2024. SG&A expenses during the third quarter included $18.6 million in non-cash share-based compensation costs related to the company's share incentive plan, compared to $18.6 million in the second quarter of 2025. R&D expenses were $0.6 million compared to $0.8 million in the second quarter of 2025 and $0.8 million in the third quarter of 2024. R&D expenses vary from period to period and reflect R&D activities that take place during the quarter. As a result of the foregoing, loss from operations was $20.3 million compared to $115 million in the second quarter of 2025 and $98 million in the third quarter of 2024. Operating margin was negative 8% compared to negative 153% in the second quarter of 2025 and negative 49% in the third quarter of 2024. Net loss attributable to Daqo New Energy shareholders was $14.9 million compared to $76.5 million in the second quarter of 2025 and $60.7 million in the third quarter of 2024. Loss per basic ADS was $0.22 compared to $1.14 in the second quarter of 2025 and $0.92 in the third quarter of 2024. Adjusted net income attributable to Daqo New Energy shareholders, excluding non-cash share-based compensation costs, was $3.7 million compared to adjusted net loss attributable to Daqo New Energy shareholders of $57.9 million in the second quarter of 2025 and $39.4 million in the third quarter of 2024. Adjusted earnings per basic ADS was $0.05 per share compared to adjusted loss per basic ADS of $0.86 in the second quarter of 2025 and $0.59 in the third quarter of 2024. EBITDA was $45.8 million compared to negative $48 million in the second quarter of 2025 and negative $34 million in the third quarter of 2024. EBITDA margin was 18.7% compared to negative 64% in the second quarter of 2025 and negative 17% in the third quarter of 2024. Now, on the company's financial condition. As of September 30, 2025, the company had $551.6 million in cash, cash equivalents, and restricted cash compared to $598.6 million as of June 30, 2025, and $853 million as of September 30, 2024. As of September 30, 2025, short-term investment was $431 million compared to $418.8 million as of June 30, 2025, and $245 million as of September 30, 2024. As of September 30, 2025, bank note receivable balance was $157 million compared to $49 million as of June 30, 2025, and $83 million as of September 30, 2024. No receivable balance to present bank notes with maturity within six months. As of September 30, 2025, the balance of fixed-term deposits within one year was $1.03 billion compared to $960.7 million as of June 30, 2025, and $1.2 billion as of September 30, 2024. Now, on the company's cash flows. For the nine months ended September 30, 2025, net cash used in operating activity was $50 million compared to $376 million in the same period of 2024. For the nine months ended September 30, 2025, net cash used in investing activity was $448.9 million compared to $1.7 billion in the same period of 2024. The net cash used in investing activities in 2025 includes $120.3 million for the purchase of PP&E and $328.6 million in net purchase of short-term investments and fixed-term deposits. For the nine months ended September 2025, net cash used in financing activities was $32,000 compared to $48.5 million in the same period of last year. That concludes our prepared remarks. We will now open the call to Q&A from the audience. Operator, please begin. Operator: We will now begin the question and answer session. To ask a question, you may press *1 on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press *2. At this time, we will pause momentarily to assemble our roster. The first question comes from Phil Shen with ROTH Capital Partners. Please go ahead. Phil Shen: Hi, everyone. Thank you for taking my questions. First one is on the gross margins. It looks like you guys had positive gross margins for the first time in a while, maybe supported by the impairment. I wanted to get a feel for what kind of, could we see positive gross margins in Q3 and/or Q4, and how would you expect that to trend in 2026? Thanks. Ming Yang: Hello, Phil. This is Ming Yang, the CFO. Thanks for your question. We're very pleased to report that we were able to record positive gross margins for the third quarter. A lot of it is driven by the increase in selling prices. It's the quite significant increase that we saw in Q3, as well as a significant reduction in our per unit cost, and also helped by some of the benefits from an earlier write-down of inventory. We do expect that our Q4 gross margin, as of today, should be positive as well. Should be positive, I think, based on our current expectation for trends for both ASP as well as for our costs, continued cost reduction as well. Phil Shen: Great. Thanks, Ming. Maybe Q3 remains negative, Q4 flips positive, and then, through 2026, do you see potential for the year to be positive as well? Ming Yang: As of today, yes. Phil Shen: Okay. Great. Shifting over to some bigger picture questions. Last week, we hosted a couple of webinars, one with Clean Energy Associates and the other one with the CREW Group, the Commodities Research Unit, that acquired ExaWatt, based out of London. In any case, they were talking about a lot of the overhaul efforts and the anti-involution initiatives in China for polysilicon and downstream. They were saying that even after the overhaul in the polysilicon segment, there could still be, instead of maybe 3X overcapacity for poly, now just 2X. It's still substantial overcapacity. How do you guys continue to work to better match capacity with the lower levels of demand? What other actions can you and the industry take? How much capacity might you and the industry acquire over time and then shut down? Thanks. Phil Shen: Thank you, Phil. Regarding the overall capacity, first of all, I think it's correct that even with the exit of some capacity, there would still be a relative oversupply compared to demand. However, I think how it's going to work is that although you still have more supply in terms of the nameplate capacity, they'll try to balance it with demand in terms of the production volume, meaning none of the companies will be operating at full utilization rate until demand climbs up again. I think that's what's going to happen, at least in the short term to the mid term. Phil Shen: Okay. Got it. Thank you. Do you or you guys expect any additional actions from the government or from the industry that maybe we're not all aware of that could also serve as a positive catalyst, in addition to the lower utilization rate? What else can you and the industry and the government do? Thanks. Phil Shen: I think the overall conversation on the consolidation in terms of the SPVI effect, all the investors have seen a lot of news around that. I would say the anti-involution initiatives are still ongoing and conversations. All the companies are taking the initiative to participate and are actively engaging in these conversations so that we would see a healthier and more sustainable industry going forward. I think that's the key focus right now, at least in the near term. I would say aside from the anti-involution in terms of the consolidation, the other one that might be worthy to mention is the draft on the new mandatory national standard rate. I think that would work as another positive catalyst. Phil Shen: While the consolidation conversation is still ongoing, the government is also pushing out the national standard on energy consumption, and that would serve as a hard cutoff point for some of the companies and industries. Phil Shen: Okay. Great. Thank you for the color. Anita, I'll pass it on. Operator: The next question comes from Alan Hon with Jefferies. Please go ahead. Alan Hon: Thanks a lot for taking my question and attending. First question, I would like to follow up on Phil's question on the self-discipline in the industry. I would like to know when do you expect the whole consolidation agreement among the remaining players will be signed? What exactly, in terms of mechanisms, to make sure the players obey the quota or the volumes that are agreed upon by the parties? Is there any performance bond or some kind of mechanisms like that? Alan Hon: Thank you, Alan. Like I just mentioned, the conversation is still ongoing, so we're waiting for more details before we can unveil it to the investors. I would say we're pushing toward meeting an end, or having a consensus in terms of the consolidation. It's difficult for us to say exactly when that's going to turn out or when we can see an agreement signed. From our perspective, the sooner the better, right? We've seen a price recovery in the third quarter already. Suppose we can get a consolidation done soon, we might see further uptick in the prices. There are many parties involved in working out the consolidation, including the government entities and the companies in the industry, so it's taking some time. We are working very diligently and working very hard toward having a consensus. Alan Hon: Thank you. My second question is to follow up on the company-specific matter. I have noticed that actually the ASP achieved by the company is quite high relative to peers. I would like to know what's your expectation on the prices, especially if the consolidation initiative is implemented. Secondly, also look at it from the cost perspective, both the production cost and the cash cost went down. How do you see the trend in 4Q or in the sector as well? Ming Yang: Okay. I'll address the cost transfers, and then Anita will talk about the ASP, especially what our expectation is after the consolidation initiative. We did see a significant reduction in cost for this quarter, and it's actually, I would say, better than what we had originally anticipated. Costs went down about 12% quarter-over-quarter, overall cost, and then especially, cash cost declined by more than 11% quarter-over-quarter. A significant portion of that is actually the reduction in energy usage, particularly around efficiency. We did a lot of efforts in terms of improving our process and for further optimization. I would say that a lot of those efforts actually began to materialize, especially in the third quarter, as well as the usage of silicon powder in terms of per unit reduction. Also, this quarter, we benefited additionally from a decline in silicon metal pricing, and also because of the increase in production. This quarter, production is more than 10% higher than the previous quarter. There's also a per unit reduction in terms of relatively fixed costs, for example, labor and benefits. The combination of these helped us to reduce our costs. We actually expect, currently expect, Q4 costs to continue to decline compared to Q3, I think in the low single-digit range. We should continue to see a low single-digit percentage range. We should continue to see benefit from our cost reduction efforts. In terms of the ASPs, for the fourth quarter, as we're still undergoing the conversations to make the consolidation happen, we think the price change will remain relatively stable at the current level because prices have already picked up in the third quarter. Near the end of the quarter, it's already in the range of RMB 49 to RMB 55 per kilogram, so we think that's going to sustain in the third, fourth quarter. However, after the consolidation is completed, the consolidation will be done in phases. It's more likely going to be capacities exiting in different phases. We should expect prices to tick up after the consolidation happens to rise around RMB 60 per kilogram first and perhaps ticking up further as we see more nameplate capacities exiting the industry, so perhaps in the range of RMB 60 to RMB 80 as we foresee it. Alan Hon: Thank you. That's very clear. I think my last question is on the buyback because the company has announced the share buyback program a couple of months back. We'd like to know the progress of buyback since then and also, combining the consideration of potential CapEx or acquisition spending, we'd like to know what is the pace of buyback, and emphasized by the company. Thanks. Alan Hon: Thank you, Alan. In terms of the share repurchase, after we announced the program, share prices actually increased to the highest, to $31, which was about 35% higher than what was near the end of August. Because we wanted to purchase more shares, we were waiting and monitoring the market closely. Another thing is that we were waiting to see what would be the initial investment for the consolidation. Suppose the initial investment is around RMB 30 billion versus like RMB 10 billion, it means a huge difference to what we have to put in the consolidation. Hence, we're still waiting to see how that's going to unfold before we can confidently start the share repurchase again. Alan Hon: Okay. Assume the consolidation asset will materialize in 4Q, then probably there will be more clarity on the amount that Daqo New Energy has to spend in that platform. Then probably the company will start buyback, probably in 4Q or in 1st Q next year, right? Is it a fair expectation? Alan Hon: Sorry, what's the question? Alan Hon: Assuming the timing, if the consolidation type effort is going to be in 4Q or 1st Q, then PQ will start buyback right after that, which is a couple of months from now. Alan Hon: In terms of the timing of the share repurchase? Alan Hon: Yes. Alan Hon: I think that after we have a more clear picture of what the consolidation looks like, we can start the share repurchase. Alan Hon: Thank you. That's very clear. I'll pass on. Thanks a lot. Alan Hon: Thank you. Thank you, Alan. Operator: The next question comes from Ming Wang with Goldman Sachs. Please go ahead. Ming Wang: Yes. Thanks for taking my question, Anita and Yang. My first question is regarding the production costs. Ming, you just mentioned the lower cash cost is mainly due to our capacity upgrade, therefore, less energy usage now. I was wondering, what's our unit electricity consumption per kilogram of the poly right now? Ming Yang: Okay. It's actually different for our two facilities, but generally, it's in the range of, call it 52 to 55 kilowatt-hour per kilogram currently. Ming Wang: That's clear. My second question is regarding the production. We raised our production plan by 30% plus in 4Q from 3Q's level. The direction is really going against our peers. I was wondering how we fit our production left to current industry-wide production quota narratives, and also what drives our more positive demand outlook into 4Q. I think that's supposed to be a traditional weak demand season. Ming Yang: Thank you, Ming. I would say that we were among the first to start lowering our utilization rate to around 30% initially, right? I would say we have been very aggressive in doing that. However, as prices have recovered in the third quarter, and we do foresee a more optimistic outlook going forward with the consolidation and also the proposal on energy consumption, we do see a direction to curb the vicious competition in the industry, right? We are more confident in the future outlook, and we have weighed our own current plan as well as in terms of the cost. If we increase our production volume now, we can further reduce our production costs. I think that's the logic behind raising our production plan in the fourth quarter. Ming Wang: Can we use the over 50% utilization as the guidance in the production plan in 2026 and going forward? Ming Yang: Yeah, I think that would be a reasonable assumption for 2026. Ming Wang: Sure. That's very clear. That's all my question. I will pass the question to the next investors. Thanks. Alan Hon: Okay. Thank you, Ming. Alan Hon: Thank you. Operator: The next question comes from Gordon Johnson with GLJ Research. Please go ahead. Gordon Johnson: Hey, guys. Thanks for taking the question. Just to, I guess, number one, focusing on your current production cost, $638. I'm looking at what PV Insights is reporting for polysilicon prices in Q4 so far, $653. That would suggest a margin of 2%. When I look at the Guangzhou Futures Exchange, it has polysilicon prices right now, futures at, you know, around $840. When we look at your Q4 gross margin, are we looking at a margin similar to what you reported, in the 2% range or something higher? I have a follow-up. Thanks. Ming Yang: I think for the poly futures market, you have to subtract by a 13% VAT. I think once you subtract that, you get maybe a ballpark, five, five, a high mid to high single-digit kind of gross margin, something like that. Let me just say just kind of a range of gross margins, maybe low to mid single-digit kind of gross margin, I think, based on the current market environment. Gordon Johnson: Okay, that's helpful. You guys mentioned that you sold a lot out of inventory. Is that done, or will you continue that? My last question is, given the new five-year plan that's coming through in China, what is your expectation for solar installations writ large in China in 2026 versus 2025? Thanks again for the questions. Ming Yang: Okay. I think in terms of sales, it is still a little bit early, right? We're at the end of October. There are two more months to go by. I think based on our latest customer orders and order trends, we, at least at this point, do anticipate that the overall sales volume for the quarter should be similar to our expected production volume. I think that's the baseline for our sales. We do also look for opportunities to sell down additional inventory. That's what the current market condition looks like. Gordon Johnson: Okay. On total installs in China for next year versus this year, thanks. Gordon Johnson: For installation, we think it will be relatively stable or low single-digit compared to this year because this year, the forecast is in the range of around, I would say, 220 to 250 gigawatts for additional installations in China. I think for next year, it would be more likely in that range, and perhaps for growth to around, I would say, 270 to 280 gigawatts. Gordon Johnson: Thank you. Ming Yang: Great. Thanks, Gordon. Operator: This concludes our Q&A session. I would like to turn the conference back over to Jessie Zhao for any closing remarks. Jessie Zhao: Thank you, everyone, again for participating in today's conference call. Should you have any further questions, please don't hesitate to contact us. Thank you and have an awesome day. Goodbye. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Welcome to the Carter's Third Quarter Fiscal 2025 Earnings Conference Call. On the call are Douglas Palladini, Chief Executive Officer and President, Richard Westenberger, Chief Financial Officer and Chief Operating Officer, and Sean McHugh, Treasurer. Please note that today's call is being recorded. I'll now turn the call over to Mr. McHugh. Sean McHugh: Thank you, and good morning, everyone. We issued our third quarter 2025 earnings release earlier today. The release and presentation materials for today's call are available on our Investor Relations website at ir.carters.com. Note that statements on today's call about items such as the company's expectations and plans are forward-looking statements. For a discussion of factors that could cause actual results to vary from those contained in the forward-looking statements, please see our most recent SEC filings and the earnings release and presentation materials posted on our website. In these materials, you will also find reconciliations of various non-GAAP financial measurements referenced during this call. After today's prepared remarks, we will take questions as time allows. I will now turn the call over to Doug. Douglas Palladini: Thank you, Sean, and good morning, everyone. Now almost seven months into my role as Carter's CEO, our business transformation has accelerated as core tenets of new strategies take hold. Consumer response to new products and stories is strong and engagement levels are rising as a result, most notably among young Gen Z families with whom we must win. That said, our current results do not represent my ambition for Carter's nor where I believe we can be. There remains meaningful work to be done to eliminate costs, enhance productivity, excise non-value-add complexity, and exhibit consistent growth in revenue and profitability. I'll share some of what we're doing against these objectives shortly. But first, let's get an update on Q3 results from Richard. Richard Westenberger: Thank you, Doug. Good morning, everyone. I'll cover our third quarter performance and then a bit later I'll provide some thoughts on our outlook for the business over the balance of this year and into 2026. My comments this morning will track along with the presentation materials posted to the Investor Relations portion of our website. Beginning on Page two, we have our GAAP basis P&L for the third quarter. On third quarter net sales of $758 million, our reported operating income was $29 million and reported earnings per share were $0.32 compared to reported EPS of $1.62 last year. On Page three, we have our GAAP basis P&L for the first nine months of the year. On year-to-date sales of nearly $2 billion, our reported operating income was $59 million which represented a 3% operating margin. And year-to-date earnings per share were $0.75. Our third quarter and year-to-date results included a number of significant one-time charges, which we've summarized on Page four. These charges have been treated as adjustments to our reported results. In the third quarter, we completed the termination of our legacy Oshkosh B'gosh pension plan and recorded a non-cash after-tax charge of approximately $7 million. This final charge is in line with the amount we previously disclosed on our second quarter earnings call. We also terminated our deferred compensation plan in the third quarter and as a result recorded a one-time incremental tax charge of approximately $800,000. Finally, our third quarter reported results included a charge related to organizational restructuring of approximately $6 million for severance and other employee separation benefits. We expect to record an additional charge of up to $5 million in the fourth quarter related to this organizational restructuring. These charges largely represent cash severance, which we expect to pay to affected employees throughout 2026. We will talk more about our organizational restructuring later in today's call. On a year-to-date basis, we've incurred approximately $13 million in costs, including just under $4 million in the third quarter, relating largely to third-party professional fees in support of improving our product and brand development processes. These costs are a continuation of previously announced initiatives to improve our operating model capabilities. We have been transitioning the work related to these initiatives from external consultants to internal resources and estimate we'll incur additional related charges of less than $2 million in the fourth quarter. Our year-to-date results also included approximately $8 million related to our leadership transition earlier in the year, including approximately $500,000 in the third quarter. With all that said, my comments this morning will speak to our results on an adjusted basis, which excludes these meaningful charges. On Page five, we have our third quarter adjusted P&L. Third quarter net sales were $758 million, comparable to a year ago. Third quarter is historically our second largest of the year, surpassed only by the fourth quarter. I'll cover more detail of our business segment performance in a moment. But at a high level, relative to last year's third quarter, we had net sales growth in our U.S. Retail and International segments and lower sales in U.S. Wholesale. On the nearly $760 million in net sales, our gross margin was 45.1%, a decrease of 180 basis points versus last year. This lower gross margin rate was largely due to higher product costs, including higher tariffs and additional investments in product make to improve the competitiveness and relevancy of our product assortments. The gross impact of tariffs on gross margin was $20 million in the third quarter. On a consolidated basis, we made good progress in raising prices, which were up in the low single digits, but this higher pricing did not fully offset the higher product costs in the quarter. Our U.S. Retail business made particular progress in raising prices. Third quarter AURs in U.S. Retail increased in the mid-single-digit range over last year. Third quarter adjusted SG&A was $308 million, up 8% over last year. The drivers in the quarter were similar to what they've been throughout 2025, namely higher store-based expenses across our North American store portfolio, higher marketing, and higher provisions for variable compensation. The growth rate in spending in the third quarter was less than in the second quarter and we're planning for a lower growth rate in total spending in the fourth quarter and into 2026. Adjusted operating income in Q3 was $39 million compared to $77 million a year ago. Below the line, net interest costs were comparable to last year and our effective tax rate was 21.8%, up 430 basis points versus last year. We planned our full-year effective tax rate at approximately 24% versus 19.6% in 2024 due mostly to the implementation of a global minimum tax in Hong Kong and stock option expirations earlier this year. With all of that on the bottom line, third quarter adjusted earnings per share were $0.74 compared to $1.64 last year. On page six, we have a summary of our third quarter performance by business segment. As mentioned earlier, consolidated net sales were comparable to a year ago. The roughly $15 million in growth between U.S. Retail and international was offset by a similar decline in sales in U.S. Wholesale versus last year. Adjusted operating income declined just under $40 million with U.S. Retail and U.S. Wholesale contributing roughly equally to the decline. Profitability in our international business declined slightly versus a year ago. Now turning to some additional details of our third quarter performance in U.S. Retail on page seven. Our net sales in Retail grew by 3% in the third quarter with a positive 2% total Retail comp, building on the similarly positive comp which we posted in the second quarter. Our objective is to return to consistent growth in comparable sales, so we were pleased with this result. We had comparable sales growth in both channels in the quarter, stores and e-commerce, and anniversaried last year's successful Labor Day period with good performance in this year during this key promotional period. As I noted earlier, consumers accepted higher prices in the quarter. Our mid-single-digit increase in AURs resulted in a low single-digit increase in average transaction values. From a product point of view, Baby continues to be a key driver. It's our largest product category and we posted sales growth here for the fifth consecutive quarter. We also saw good growth in toddler, which represented our strongest performance in this age segment so far this year. Relative to last year, we grew share in both the baby and toddler categories. U.S. Retail also benefited from an improved inventory position versus the first half. We entered the third quarter with less carryover of prior season goods, helping new seasonal product to perform well. In general, consumers continue to respond well to newness and the better part of our assortments. Our inventory investment in the bigger kids size segment also helped us to post sequential trend improvement in this part of our business, and we had a strong back-to-school selling season. We did invest in an incremental marketing in the third quarter. We're seeing good indications that our relevance with consumers is increasing with unaided awareness of the Carter's brand up significantly year over year and a continuation of progress in acquiring new customers driven by the strength of our baby business. Retail profitability was lower in the quarter for many of the reasons already cited: higher product costs, partially offset by improved realized pricing, the investment in marketing, and expense deleverage despite the positive comp in the quarter. Now turning to some additional detail on our third quarter performance in U.S. Wholesale and in our International segment on page eight. In U.S. Wholesale, sales were down versus last year, driven by lower sales in the Simple Joys component of our exclusive brands business. Demand for our Simple Joys brand on Amazon has been down this year. Simple Joys was a successful brand launch back in 2017 and this business grew rapidly as Amazon treated Simple Joys as effectively its private label brand in the young children's apparel space. In recent years, Amazon has changed its approach to how it manages brands. As a result, we've seen more pressure in this part of our business. We're in the process of executing a new strategy in collaboration with Amazon. We envision that our core Carter's, OshKosh, and other brands such as Little Planet and Otter Avenue will grow in prominence in this important channel of distribution and Simple Joys will reduce in significance over time. We will look forward to sharing more about our growth plans with this important customer. Elsewhere in the customer portfolio, sales with department store customers for the flagship Carter's brand were lower than a year ago, continuing the trend we have seen over an extended period. Our department store customers booked us down for fall, so this result was not a surprise to us. Department stores are projected to represent less than 20% of our overall wholesale channel sales for the full year. Profitability in the wholesale segment was impacted by the factors listed here, including higher net product costs, including higher tariffs and expense deleverage. We had a good third quarter in International. Total sales were up 5%. We had lower comps in Canada which we attribute to strong first half sales performance that likely pulled some volume forward into Q2 when the business posted a positive 7.6% comp as well as a lower level of clearance inventory in the third quarter. We continue to see strong performance in Mexico, which achieved a plus 16% comp with strong total sales performance given the contribution of new stores in this market. We saw strong growth in our international partners business in the third quarter. Sales to these customers, which operate in a large number of international markets around the world, were up 10%. And we continue to see particular strength in demand from our partner in Brazil, Rio Shuelo. Overall, international segment profitability was down in the quarter, but achieved a high single-digit operating margin of 8% in the third quarter. On Page nine, we have some balance sheet and cash flow highlights. We ended the quarter with continued good liquidity. Cash on hand was $184 million and we had virtually all of the borrowing capacity under our credit facility available to us. Net inventories at the end of the third quarter were $656 million, up 8% versus last year with units flat year over year. The impact of higher tariffs on ending inventory was meaningful, approximately $34 million. Excluding the impact of higher tariffs, net income increased by 2% versus last year. The quality of our inventory heading into the fourth quarter was high with excess inventory down meaningfully versus a year ago. The decline in cash flow was due to a combination of lower reported earnings and higher inventories, again in part due to the impact of tariffs on our quarter-end inventory balance. We historically generate the majority of our annual cash flow in the fourth quarter and we're planning for strong operating cash flow for the fourth quarter, which is expected to yield positive operating cash flow for the full year. We've paid $47 million in dividends year to date. We had no share repurchases this year compared to about $50 million year to date last year. Maintaining a strong balance sheet has always been an important priority for us, and it's more important than ever given this highly uncertain environment. Our current credit facility matures in spring 2027. We've begun the process to put in place a new credit facility. We are pursuing an asset-based loan or ABL type facility given its favorable pricing and flexibility relative to our current cash flow structure. To date, we have received commitments from our bank group members for a new five-year $750 million credit facility. We're planning to have this new facility in place in the coming weeks. Additionally, we're evaluating opportunities to refinance our existing $500 million in senior notes, which also mature in spring 2027. Conditions in the high yield debt market are favorable right now. Carter's is an experienced issuer in this market and will share more details on our path forward here when appropriate. On Pages ten and eleven, we have our year-to-date adjusted P&L and year-to-date business segment summary, and this information is included for your reference. I'll turn it now back to Doug for some additional thoughts. Douglas Palladini: Thank you, Richard. I'm encouraged by several aspects of our third quarter performance. As we continue to fuel progress and momentum across our brands, I see more reasons than ever to believe we are returning to long-term sustainable and profitable growth. While we are studying our business in 2025, there's still meaningful work to do for Carter's to unlock its full potential in terms of exceeding both consumer and shareholder expectations. We are actively managing Carter's in a highly uncertain world and marketplace, particularly as it relates to tariffs. We look forward to sharing more of our long-range plan in 2026, but closer in, we're focused on what we think is possible over the near term based on what we can control. To manage tariff impact, we've taken two primary actions. First, we're mitigating what we can through our supplier base, where Carter's world-class supply chain team has realized meaningful duty reductions of more than $40 million. Second, we have raised prices where necessary, while striving to maintain Carter's exceptional value proposition. To date, D2C consumers are accepting higher prices while we have continued to grow our business. As Richard mentioned, Q3 is our second straight quarter of positive retail comp growth and AURs are up mid-single digits with average order values up low single digits. Taking price will continue to be a critical component of tariff mitigation moving forward. As we continue down the road of our ongoing transformation, it's imperative that Carter's deliver near-term profitability, which we can achieve most impactfully by reducing our cost base as growth initiatives build returns over time. We are rightsizing our company as well as preparing for our next phase of growth by optimizing our organization, infrastructure, processes, and tools. In doing so, we're taking several difficult but necessary decisions and have identified $45 million in gross savings for 2026. We will also continue to identify additional sources of productivity going forward, and we expect our assortment rationalization initiatives to have a sales and margin benefit over time. It's crucial that Carter's enhance our performance-driven culture in which fewer people have greater ownership and accountability. To accomplish this, we plan to reduce office-based roles by approximately 15% between now and year-end 2025, saving roughly $35 million of the gross $45 million per year beginning in 2026. We believe these actions will streamline processes and decision-making at Carter's. The remaining $10 million in 2026 cost reductions will come through lower SG&A across multiple spending categories. These savings are expected to fuel near-term profitability while focusing Carter's on what really matters. Now moving on to Carter's stores. As we've discussed previously, our physical store fleet must be honed. We are now targeting 150 North America door closures, most of leases expire, up to 100 of which we expect to exit by 2026. Closing these stores does result in short-term revenue loss, but historical perspective suggests there will be offsetting sales transfer benefits by leveraging Carter's digital platforms, existing stores, and nearby wholesale partners. These closures will also allow us to free up SG&A associated with the fleet, one of our largest fixed assets. While we are pausing any further expansion of the current U.S. store model, the roughly 4,000 to 5,000 square foot co-branded format we have been opening for several years now, we are investing in new store type testing, in-store experiences, and real estate strategy development as we see greater fleet productivity as well as differentiated consumer experiences as distinct specialty destinations staffed by experts. A core tenet of our transformation is to put the Carter's consumer at the center of all we do. So we are removing internal complexity to bring our brands closer to market and deliver more of what our fans want. We are eliminating 20% to 30% of product choices in creating a more unified global product assortment across all our brands. We are leveraging a faster, more responsive design and development process that has excised a full three months from our product development calendar. Regular price sell-throughs have improved, demonstrating a sharper point of view in product design that truly resonates with consumers. Underpinning each action is the broader organizational objective of ensuring that our makeup from personnel to infrastructure to systems and processes reflects the agility necessary to both confront challenges and seize opportunities in a dynamic marketplace. A portion of these savings will be reinvested in our brands where we believe Carter's can generate the greatest return on invested capital. In 2026 and beyond, we plan to spend more on demand creation, driving traffic and consumer loyalty beyond promotion and price. We are already investing here. In Q4 'twenty-five, our media spend is up 11% from last year. The results year to date show a strong correlation between marketing investment and increased sales. In 2026, our plan is to increase demand creation spend almost 20% or $16 million. Of course, we will manage this spend carefully to ensure maximum returns. Ongoing investment also applies to Carter's U.S. e-commerce, where the business is back to growing with our Q3 comps up as well as AURs. As we moderate promotional messaging in favor of brand and product storytelling, our brands are resonating more deeply with consumers online, especially young Gen Z families with whom we have seen 17% growth in consumer counts year to date. IT investments fostering growth and productivity, such as digitization of product design and development, leveraging AI models, and cloud migration are being prioritized. We will also focus on foundational simplification by consolidating systems and platforms. And with those comments, I'll turn it back to Richard to talk about our expectations for the balance of this year and into 2026. Richard Westenberger: Thanks, Doug. Returning to our presentation materials on Page 19. We continue to monitor the situation with tariffs and the considerable impact they have begun to have on our business. As we all know now, over the past number of months, significantly higher tariffs have been implemented affecting imports from most every country, including those from which we source the majority of our products. These full reciprocal rates are much higher than those which have been in place historically and higher than what we have modeled and discussed with you all previously. The tariff rates now in effect bring our effective duty rate into the high 30% range versus about 13% historically. On a gross pre-mitigation basis, we've updated our estimate of the annualized incremental impact of the higher tariffs and now estimate that to be in the range of $200 million to $250 million. For 2025, we've estimated the net impact of additional tariffs on operating income to be in the range of $25 million to $35 million. As Doug mentioned, we've been pursuing tariff mitigation strategies across multiple fronts, the most material of which are the planned pricing increases across our assortments. We're also closely watching recent news reporting regarding current trade negotiations involving countries where Carter's production has been most affected by the higher tariffs. The situation remains very fluid and we're tracking the updates in real time. And if there is relief ultimately provided by the Supreme Court on the overall issue itself of higher tariffs, we will obviously seek to recover the significant amounts already paid and additional tariffs to date. Turning to Page 20. As noted in today's press release, we have not reinstated sales and earnings guidance given the ongoing and significant uncertainty regarding tariffs. We're still in the early days of gauging consumers' response to higher prices and seeing how our peers and the competition will deal with the challenge of tariffs. I'll try to be helpful in providing some perspective on how we're thinking about the fourth quarter. Historically, the holiday season has been a strong period in our business as our products are a natural fit for this time of year as families with young children gather and celebrate together. Our teams, particularly in U.S. Retail, are focused on continuing the momentum we've experienced over the last couple of quarters and delivering a strong finish to the year. And we think our product and marketing initiatives supported by a meaningfully improved inventory position versus last year provide good support for a strong finish to the year. In our U.S. Retail business, the combined November and December period has historically represented about 75% of our fourth quarter retail sales volume, so the lion's share of our quarter is still ahead of us. We're planning a low single-digit comp in U.S. Retail in the fourth quarter, which compares to a down 3% comp last year. We're planning continued progress in increasing AURs, although at a rate less than what we achieved in the third quarter, in part due to the more promotional nature of the fourth quarter generally. In last year's fourth quarter, we had particularly strong performance in late October over the Black Friday promotional period and during Christmas week. Our teams have put together a good promotional plan to comp our good performance in the holiday selling period last year, supported by this meaningfully improved year-over-year position in inventory and our increase in paid media. Comparable sales so far in Q4 are off to a good start. Our quarter-to-date U.S. Retail comps are up about 7%. We're planning wholesale sales down in the low single digits in the fourth quarter, largely driven by an expectation for continued lower demand with Simple Joys. We plan sales in the balance of our U.S. Wholesale segment up in the fourth quarter. And we're expecting sales growth in the International segment driven by Canada and Mexico to cap off what has been a good year in this part of our business. We're expecting gross margin rate will be down year over year in the fourth quarter more so than what we had posted in the third quarter in the neighborhood of 43 due to a larger gross impact of tariffs, investment in product make and somewhat less of an offsetting benefit from pricing. As I said previously, our current estimate for the net impact of higher tariffs on fourth quarter earnings is in the range of $25 million to $35 million. Spending is expected to increase at a mid-single-digit rate in the fourth quarter. This would be less than the rate of growth in SG&A in the third quarter. Below the line, we're planning for higher net interest costs and a higher effective tax rate than a year ago. As it relates to 2026, we're still developing our plans for next year. But on a preliminary basis, we're planning growth in both sales and earnings. Sales growth will be planned higher than in a typical year given the price increases we're putting in place in response to tariffs. Gross margin rate will likely be lower due to the net unfavorable impact of tariffs and changes in the mix of customers within the U.S. Wholesale channel. We're expecting a substantial benefit in 2026 from our productivity initiatives, but the entire estimated $45 million in savings will not simply drop to the bottom line. These savings will help offset the significant impact of the higher tariffs, other inflationary pressures across the business and will help fund investments we're planning including marketing as discussed. We'll have more to say about our expectations for the New Year on our next call, which will incorporate the perspectives from the holiday season and our latest read on the outlook for the consumer and broader marketplace. We're tracking a number of risks, including the persistence of inflation throughout the economy and its possible impact on consumer demand across a wide range of purchase categories. We're also watching the overall level of consumer confidence and employment data with both metrics showing some deterioration in recent months. With those remarks, I'll turn it back to Doug. Douglas Palladini: Thank you, Richard. This next step in our journey comes at a pivotal moment for Carter's. While our transformation is still underway, we are seeing clear proof that our strategies are working and gaining momentum and we must feed that inertia where we can yield the highest returns. I am sincerely grateful to all Carter's employees for their ongoing dedication to our business in creating this acceleration. We are also making deliberate tough choices to strengthen our business and our profitability. There is much more to come and we look forward to providing additional detail as we progress into 2026. Now, I'll turn the call back to the operator for Q&A. Operator: Certainly. Our first question will be coming from Paul Lejuez of Citi. Your line is open. Kelly Crago: Hi, guys. This is Kelly on for Paul. Thanks for taking our question. First one on I have two questions, one in the wholesale channel, one on the retail side. First on you with wholesale, I guess could you speak to a little bit more about what's happening with the Simple Joys brand exactly like kind of what's the go forward? I think you mentioned you're going to maybe reduce that brand, so what's going to put come in its place exactly? And then if you could just elaborate on the pricing that you're seeing in the wholesale channel? I think you mentioned pricing AUR is up mid-single digits in 3Q in retail. Just curious where that is on the wholesale side and how that's looking for the spring? And then just one follow-up on retail. Thanks. Richard Westenberger: Sure. Kelly, I'll start out on wholesale. And I know Doug wants to add some comments as well. So Simple Joys is the newest component of the exclusive brands portfolio. It's also the smallest part of that business. So that brand launched back in 2017. It really was kind of a different time period. We had considered for a number of years offering the flagship, the core brands, Carter's, Oshkosh, B'gosh on Amazon had for a number of reasons chosen not to do that back in that era. And so Simple Choice really was a terrific choice for that particular moment in time. We were treated extremely well by Amazon, and really treated as their private label, which led to really rapid growth in the brand. I think we've just entered kind of a new phase with everything that they've had going on as a company and some choices that they've made around how they manage brands. We think probably the better path forward is now to revisit that decision around the core flagship brand. So that's I think that's going to be the path going forward is taking the Carter's brand, the Oshkoshka brand and other brands that we may have in the portfolio. And Amazon continues to be certainly a super important channel of distribution for us. Douglas Palladini: Yes. We're already building the framework necessary to lean into the Amazon model with all of our brands. So I am confident that we will be able to build a much more meaningful lasting business beyond Simple Joys with all the Carter's brands. To touch just briefly on the rest of the wholesale business, what I would share is that we have gone deep with our key accounts to really understand what unlocking future growth is. The back and forth on the right products to make, the right assortments to offer has led to meaningful change in how we operate with our key accounts. And the results that we are seeing through H1 sell in. So we don't have any sell through on higher prices in wholesale yet. That won't impact us until January. But on sell in, we are seeing very positive results that lead us to believe that these higher prices will be accepted I think it's also really important to keep in mind that the value proposition that we offer remains widely intact even with higher prices, right. So the style, the quality, the price that we offer our product at will continue to be a distinct competitive advantage for Carter's moving forward even with the impact of higher pricing due tariff mitigation. Richard Westenberger: Kelly, your question on wholesale pricing in the third quarter roughly comparable, which is kind of in line. We have more degrees of freedom in our own retail channel and that's where the improvement in realized pricing occurred in Q3. Kelly Crago: Got it. Thanks. And then I just wanted to ask about the store closings and I think that you said that you would expect once the 150 stores are closed for that to be accretive to profitability and there's a sales transfer assumption there. Guess could you elaborate on what you're kind of assuming for the sales transfer to there and just any other color you could provide on how you've seen this play out? Thanks. Richard Westenberger: Sure, sure. So as the release indicates it's about 150 stores that's across North America. So it includes some stores in Canada and Mexico. To Doug's comment, the plan is to close majority of those stores at lease expiration. There are a handful that we think may be subject to the kick out clauses and would close before their natural lease expiration, but I think that would be in the minority. On a last twelve months basis, those stores did about $110 million in revenue. I would say they were kind of marginally profitable. And our history over time shows that there's about a 20% transfer rate to nearby stores and to our e-commerce channel. So leveraging the fixed cost and the asset base that's already in place, those tend to be pretty high margin flow through. So we would expect this at the end of the day to be accretive to operating income relative to the small margin that those stores are generating today. Kelly Crago: Thank you. Best of luck. Richard Westenberger: Thank you, Kelly. Operator: And our next question will be coming from Jay Sole of UBS. Your line is open, Jay. Jay Sole: Great. Thank you so much. I'd love to ask about your preliminary 2026 view on sales growth being higher than a typical year given that like you just said you're closing 150 stores. The wholesale business has been on a declining trend. I think Richard you mentioned some of the indicators, macro indicators are looking a little bit weaker over last couple of months. Just tell us what do you exactly do you mean by sales growth higher than the typical year? Can you give us like a general number or a range? And then just the algorithm to get there, how do you expect to do that? Thank you. Richard Westenberger: Yes, I don't know if I'm going be much more specific on it. It's unusual for us to be commenting on the New Year on this call. So that's more typically the February year-end earnings call. So I think I'll stick to that discipline. I will say though the reason I commented on it was that we're expecting more of a benefit from pricing because AURs are going to go up and they're going up meaningfully across the assortment. That's what we need to do with a tariff challenge that represents that gross number of plus $200 million. So more will be driven by pricing in 2026 and less by units. We do still have some unit growth plan. I think an important macro assumption is that this is an industry issue that we think everyone in the industry is going be raising their prices. So we don't believe we're going to be an outlier. I think our teams have done a good job maintaining our competitiveness with the market. We have some really good rigor organizationally and process wise here internally that looks at that common basket of goods to make sure that we're not out of bounds with our primary competitors where she's shopping most typically. So we don't want to have that spread widen out. That tends to be when our business has dropped off a bit. So we're assuming that we're swimming in the same pool with everyone else, but everyone else is raising their prices. But more of the revenue gains next year will be driven by price than units. Jay Sole: Okay. I understand. Richard, that's helpful. Maybe Doug, I can ask you just one question. On the rightsizing organization initiatives, you've talking about meaningful reduction in of course, in office-based roles, a disciplined spending management across the organization. The company historically has always been pretty tight on controlling SG&A. How do you get comfortable that you can drive these savings and be able to offset the cost of tariffs, but not necessarily lose something important in terms of company's operational ability and just the ability to execute and serve the consumer the way that the brand the way you want to and the way the brand wants to? Douglas Palladini: Yes. Thanks, Jay. There's really two things happening there. The first one is the one you called out. We're trying to take cost out of the business and have a meaningful impact on our near-term profitability. That's happening. The part you didn't mention that is equally important to me is to take complexity out of our system. We simply need fewer people having greater ownership and accountability for us to get where we need to be. Clear ownership in the most important processes across the most important growth vectors for our business and then accountability on the results of those opportunities is really how we are going to show up going forward. So yes, cost savings important part, but removing complexity and fewer people with greater ownership and accountability are equally important here. Jay Sole: Got it. Understood. Very helpful. Thank you. Operator: Thank you. And our next question will be coming from Ike Boruchow of Wells Fargo. Your line is open. Ike Boruchow: Hey, everyone. Thanks for the question. A couple for me. First quick clarification. On the Q4, the wholesale down low single, is that with you guys do have an extra week, just to clarify that. So is that with the extra week? And if so, what's the organic number? Richard Westenberger: That's correct. The fifty-third week is worth about $30 million in total. Ike Boruchow: Okay. Is that split pretty evenly between wholesale and retail? Richard Westenberger: Well, we'll take that up for you. I don't know off the top of my head, but we certainly will take that up for you. Ike Boruchow: Okay. The store closure plan, I mean, just for round numbers, are you effectively saying that you expect to end next year in The U.S. With roughly 700 stores and then roughly six fifty stores in the out year? I just know you've been opening a few and you're talking about maybe a few more openings. I'm just trying to make sure I know what the number is going to be going to. Richard Westenberger: Yes. I think that's directionally correct. Ike Boruchow: Okay. Okay. The Simple Joys, I think Kelly had asked about it. Is there any way you could kind of just give us a little bit more detail there? What's the size of it today? It sounds like you're kind of saying you expect to replace it with your core branded business. Is there any more detail you can give us on the sizing? And is that a headwind? I mean, you called it out as a headwind in 3Q and 4Q. Is a that headwind we should be expecting to kind of continue into next year? Just any more detail there? Richard Westenberger: Yes. I don't want to comment too much. It's unusual for us to comment on individual wholesale customer relationships. So and we certainly go to some lengths not to size those. As I said, it is the smallest part of the exclusive brands, which in total represent about half of our wholesale segment sales. So it's it is a bit of drag on revenue. That's we called it out because it was material enough to the segment results and to the company results to do so. It will be a bit of a drag I would think into next year, but I think we're excited about the opportunity of what the core brands could mean on the Amazon platform over time. It's a bigger opportunity. Our own brands are a bigger opportunity than what we're winding down with Simple Joys is how I had answered the question. Ike Boruchow: Got it. Understood. And then just the last one for me. I know Jay tried to talk about the top line and I appreciate Richard, you want to go there. But if we just leave top line aside, could you just help me understand a little bit better? You've laid out the productivity initiatives, which makes sense in our materials, so roughly $45 million. But the tariff headwind on the wraparound is decently more than that. You're also saying you want to invest in demand creation and then you also lose a week and there's some other little things in there. But I guess just where is the confidence coming from that you guys have to call out earnings growth in the next year? Just because it seems like you've got the right strategies in place. It just seems like you still have more pressure coming next year to kind of deal with. So I don't know if there's anything else you could share to help us understand where the confidence comes from? Richard Westenberger: Yes. I would say a couple of things in response, Mike. One, we are seeing some progress and some acceptance from the consumer in raising prices. That needs to be a key element. There needs to be more of that that happens in 2026 to cover the bigger gross tariff exposure. So we are assuming that we have success in raising prices and the consumer broadly accepts that without tremendous pushback. I would say also we are expecting the benefit of the productivity initiatives and we're also assuming good return from the marketing investments as well, the demand creation investments. We've seen some of those proof points start to come through our business. Some of the work we've done over the last number of months have indicated we clearly under indexed the peers relative to the peer set relative to what we spend on marketing. So we've been stepping into that I think with some good returns. And so we're expecting to see more of that. So we think that marketing investment actually is accretive to the top line and bottom line next year. So you put all that together with the productivity savings with the ability to cover most, not all, but a good portion of those gross tariff exposures that leads to positive growth in operating income. And just to follow-up on your question on the fifty-third week, it's worth about $5 million at wholesale. Ike Boruchow: Okay, great. Thank you so much. Richard Westenberger: You're welcome. Operator: And our next question will be coming from Chris Nardone of Bank of America. Your line is open, Chris. Christopher Nardone: Thank you, guys. Good morning. So just a couple of follow-up questions. So going back to the sales growth expectation for next year, is there anything different in your business today versus the prior period of price inflation that's giving you more confidence that you can grow sales both maybe AUR and units? And then can you just give us an update what you're seeing from your competition so far? Are they increasing pricing at a similar level? And how are you planning for the promotional environment into the holidays? Douglas Palladini: Yes. I'll just talk about a few reasons to believe in our current business that gives us faith going forward into 2026, Chris. The first thing I would say is that we are seeing growth in our better and best categories of business. That by nature is higher AUR business for us. The second thing is that our brands are bringing in more new consumers. So our consumer base is growing as our market share returns. And we are seeing a lot of the newness in consumers coming from those younger Gen Z families. And so there's a lot of opportunity there and reasons to believe our business is getting better there as well. I think it's across our brands too. It's not just Carter's. We're seeing growth in Oshkosh. We're seeing growth in Little Planet. We're seeing the launch of our toddler-specific Otter Avenue brand growing as well. And so there are meaningful growth factors across our brands, across ages, across product categories and in those that are best buckets, bringing in new consumers on top of that, we believe that bodes well for what's coming down the road in 2026. Richard? Richard Westenberger: And Chris, on pricing just in general, I would say we are the market leader. So we intend to exhibit market leadership here. And in the past when we've needed to raise prices because there's been some sort of an external shock to the system years ago when cotton doubled in price in a fairly short order, had to raise prices meaningfully, we were able to do so. So I would say the offset could be some loss of unit velocity. That's something that we're continuing to work through. I think our operational inventory teams have been really thoughtful where we think we may lose some unit intensity. We're reflecting that in our inventory commitments. On balance in our retail business where we control more of our destiny, think we've made a bit more of an investment in units to be able to do the business. There's probably a bit more at wholesale that you would expect to perhaps that you lose a bit of unit velocity there. But I think we're being really thoughtful about it. And I think again, is an industry issue. We're in a lot of the same factories as our wholesale customers. We see their product when we go to visit those vendors. So this is not a situation where our cost structure or our supply chain is somehow disadvantaged versus the industry. If anything, I think we have better cost than a lot of our peers in the industry. This is something that everyone is going to have to face. And so our intent is to do so thoughtfully and continue to watch our competitiveness as I mentioned earlier, but those are our plans to raise prices across the assortment. Christopher Nardone: Understood. Thank you. That was very helpful. And just a quick follow-up on margins. So appreciate the intro color for 2026. But as we think about the tariff impact, maybe into the first half of next year relative to the $25 million to $35 million rate for 4Q. Should that actually improve as you kind of ratchet up the mitigation? Or could that actually be more of a pressure point as you really are baking in the new rates into your inventory for first half? And then sorry to also throw this in, but is there anything else on the gross margin we should be thinking about into next year even directionally as it relates to labor, cotton costs, freight costs, anything worth calling out directionally? Richard Westenberger: Well, I would say cotton has been a bit of wind in our sails. It's been remarkably stable and actually down year over year. So we're not particularly concerned about cotton inflation. So I guess I don't want to be too specific on what we think the net impact will be. I think our teams have done a good job mitigating to date here in the second half of the year. It was never our intention to fully cover the cost of tariffs here in the 2025. It was too fluid of a situation. As we approach next year, we've had more time to absorb this. We've had more time to think about reticketing goods, which really hasn't been practical here in the second half twenty-five. It's been more of a response in ratcheting back promotional intensity in the business. So we have more of a pure kind of ticketing and pricing opportunity next year. It is our intent to cover the vast majority of this incremental tariff impact. Now it's a bigger gross impact than we had estimated before. So that is certainly a challenge. So pricing is a more significant element of it. And as Doug said, are other things beyond pricing that we're doing with our supply chain team in terms of working with our vendors, moving production. All of those are benefits in terms of reducing that gross tariff impact as well. So we're not entirely reliant on pricing to be the only weapon that we have here. It is the most significant, it is the most material, but it's certainly by no means the only thing that we're doing to mitigate the impact here. Christopher Nardone: Thank you. Good luck. Richard Westenberger: Thank you, Chris. Operator: And our next question will be coming from Jim Chartier of Monness, Crisp, and Hardt. Your line is open. James Andrew Chartier: Hi. Thanks for taking my questions. Could you just let us know what is the gross impact from tariffs in fourth quarter? Richard Westenberger: Estimated to be about $40 million, Jim. James Andrew Chartier: Okay. And then in terms of October to date, what have you seen with pricing in AUR so far? Richard Westenberger: Pricing continues to be up so far. We've just closed the month of October. It's up kind of in the high single-digit range from memory. James Andrew Chartier: Okay. So the expectation is just that holiday gets more promotional and the AUR gains is about half of what you did in third quarter. Is that right? Richard Westenberger: Yes. I don't know if I'll say half as much. Just the holiday season is more promotional in general. So I expect we'd get some of that AUR gain as we get to the more promotional part of the quarter. James Andrew Chartier: Okay. And then the tax rate, is 24% a good number beyond 2025 as well? Richard Westenberger: Yes. I think that's probably a decent planning assumption. James Andrew Chartier: Okay. Thank you. Best of luck. Richard Westenberger: Thank you, Jim. Operator: And our next question will be coming from Paul Kearney of Barclays. Your line is open, Paul. Paul David Kearney: Hey, thanks for taking my question. I'm just curious on the top line, if you're able to speak to the level of incremental price increases you're expecting for the retail channel for the first half? And I have a follow-up. Richard Westenberger: For the first half of next year, no. I think probably too soon to comment on that, Paul. Paul David Kearney: Okay. My next question is on the SG&A reductions and the cost savings and the reinvestment. I'm curious if there's anything we need to consider in terms of timing of some of these of when the savings flow through, when the reinvestment is expected? And then also, you spoke to improving returns on kind of the media spend. I'm curious if we can just drill down on that. What are you seeing in terms of the media spend thus far? And how is it being spent differently into next year? Thanks. Richard Westenberger: Yes. So on the SG&A savings, would expect that it's January 1 when we're starting to realize the benefit of the run rate savings that we've articulated. So the reduction in force will be largely complete by the end of this year. So we'll start to get the organizational savings as we move into next year. The offset would be some of the demand creation investments that we articulated. That's about a $16 million. That's a full-year number for next year. And Doug will offer some comments as well and just in terms of the proof points we're seeing around marketing and the returns there. But we're going to step our way into it. We're going to continue to measure it rigorously. We're not going to write a check for that full amount the first day. We're going to just make sure it continues to generate the kind of returns that we anticipate. Douglas Palladini: Yes. So in terms of what's going to be different from a demand creation investment perspective, the first thing I would say is that there are two things that we are focusing on, driving traffic to our owned platforms where we see outstanding results for every point we gain in traffic across our fleet on our website there is meaningful top and bottom line results. Second, consumer loyalty and that has a lot to do with the experiences that we have on our sites and in our stores, on our apps with our loyalty program as well as the stories we tell about our brands and our products. Traditionally, over the past many years, Carter's messaging has been very focused on price and promotion. What you are already seeing is a lot more storytelling around product newness, product innovation and what each of our brands has to offer, which drives much more affinity and loyalty with consumers as well. So we will be tracking very closely against increasing traffic and increasing our resins with consumers through loyalty. Paul David Kearney: Thank you. Best of luck. Operator: And our next question will be coming from Janet Kloppenburg of JJK Research Associates. Your line is open. Operator: Thank you very much. And thank you for the detailed repositioning program. I wanted to ask if I got this right, Richard. Your comps are up and that's being driven by price. And is that against high promotional levels last year, which are not happening this year? Richard Westenberger: In general, yes, Janet. So it was the second half of last year that if you recall we made a pretty considerable investment in increasing the promotional intensity of the business, also adding some marketing, but it was a significant reset in pricing a year ago. So we're up against that period this year, which is why we're encouraged by the gains in AUR and the positive comps. Operator: And you spoke about Amazon. What about your other exclusive brand partners? Are they accepting the price increases as you implement them? Richard Westenberger: Yes. Again, I don't know if I'm going to comment specifically on those two customers. I would say we've had very constructive conversations with our wholesale customers and they certainly are facing the same, tariff and cost pressures that we are. So those have been good discussions. It's never easy to raise price in the wholesale channel, but I would say we've got a great level of partnership with all of our wholesale customers. Operator: And can you discuss, how much your clearance where your clearance inventories are year over year? Richard Westenberger: I would say, on balance in an improved position year over year exiting the third quarter. That was an issue a year ago as well with some of the price that we were taking at retail was to clear through some of the in particular spring season goods that had carried over into this early fall time period. We did not have that issue this year. And I would say, inventory balance is much more oriented around current and future seasons than it is past season. So I think inventory quality is very good at the moment. Operator: And for Doug, you just touched on this a minute ago, but do you think some of this response on a high single-digit price increase, healthy response from the consumer is coming from merchandising initiatives and perhaps you could discuss those for us? Douglas Palladini: Yes, I do. As I talked about, we're seeing our better and best categories perform better as a part of the total mix than they have in the past. And much of that is also being fueled by new consumers coming into the store. So we're gaining market share back that has been lost previously and that is coming through these higher AUR products. As Richard talked about, one of the investments we have made is putting make back in our product. That means our design intent is stronger than it has been in many years and we believe that trend will continue well into 2026 and beyond. Operator: Okay. And you're not contemplating any slowdown in the moderate to lower consumer target market that you address? I'm not suggesting you should. I just wondered how you thought about that. Douglas Palladini: We're not we're definitely cognizant of the macro and what's happening in the world. Inflation is real. As Richard mentioned, there are forces that are beyond our control. I can answer for what is within our control and that's what I just told you. Operator: Okay. Thank you and good luck with everything. Richard Westenberger: Thank you. Thank you, Janet. Operator: And I would now like to turn the call back to Doug for closing remarks. Douglas Palladini: Yes. Thank you everybody for joining us today. As you can tell, we are making progress against our core initiatives. We are seeing reasons to believe in our business. There remains a tremendous amount of work for us to do and we look forward to sharing more of that as we move forward. Thank you for being with us today. Operator: And this concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: [Audio Gap] I'd now like to hand the conference over to Mr. Bob Fulker, CEO and Managing Director at Hillgrove Resources. Please go ahead. Robert Fulker: Thank you, Harmony. Good morning, everyone, and thanks for joining the Hillgrove Resources September Quarter 2025 Results Webinar. I'm joined on the call today by Luke Anderson in his first full quarter with Hillgrove. September quarter was a pivotal time for Hillgrove. The mine's output is showing improved stability with higher output, which are demonstrating the potential of the operation has from a productivity perspective. This has started to flow through to our all-in sustaining cost, which has reduced from the high of last quarter. The Nugent ramp-up has commenced, and we filed the first stope at the start of October. There are 3 takeaways for me from today. Firstly, record stope production since underground operations started, has seen the biggest quarter since we started mining and is at our annualized rate of 1.5 million tonnes per annum. In September, the mine delivered 1,075 tonnes of copper produced and the quarter's gross all-in sustaining costs have reduced to be the lowest quarter this year. The all-in sustaining cost unit costs were affected by the low copper sold versus production. Secondly, the Nugent project has been delivered ahead of schedule with stoping underway in October. This is the second mine production center online as promised. And finally, our on-site exploration success has given us the potential of a third mining front to further increase our total tonnes from the Emily Star region. The Emily Star exploration incline design has been released and we'll start development activities there this quarter. Operationally, ore mines for the quarter reached a record of 375,000 tonnes, and we finished the September month with ore on the [ ROM ] for the start of October. The underground load and haul improvements have been maintained into October and the commencement of the Nugent stoping will gradually grow our production over the next 6 months. The consistency of the mine delivery has led to the mill operating for longer periods of time, allowing improved stability within the processing plant. Tonnes processed rose to 366,000 tonnes at an average weighted -- at a weighted average grade of 0.81% copper and 94.5% recovery. This is a steady and reliable performance increase -- increasing copper production by 8% from the previous quarter to 2,808 tonnes. During the quarter, we announced the Nugent acceleration project finished ahead of schedule in August. We have developed the 1020 Southern ore drive and are now developing the Northern ore drive. We have set the primary ventilation up. We have got emergency egress to the pit and subsequent to the quarter, refiled and extracted the first stope. The second stope is ready to the fire as we speak. The Nugent decline will break through to the Kavanagh working area before Christmas as planned. And the Emily Star exploration [ tudy ] is now the Emily Star exploration incline and ready for development. When completed, this will allow for improved diamond drilling performance with a top 4 sublevels of the Emily Star resource. On lease exploration and resource drilling continues. We currently have 2 drill rigs underground. Our plan is to increase to 3 drill rigs when we have the locations available. We are on track to deliver the 60,000 meters of drilling within the 2025 year as previously announced. There have been some exceptional holds during the quarter Emily Star's first hole of 19 meters at 1.9% copper and 0.15g/t gold and 5.7 meters at 2.12% copper and 0.36 grams per tonne gold, both in Emily Star are outstanding. More holes are still being assayed, and we'll release these as soon as we have them. Emily Star is a key exploration focus for what I expect to be the third mining front to underpin a further increase in our copper and operational outputs. I'll leave the majority financial report to Luke, but a couple of highlights from myself. Gross all-in sustaining costs have reduced by 10%. Despite shipment timing, we reduced sold -- which reduced sold copper, our all-in sustaining cost unit rate actually reduced by 5%. Our realized price lifted to [ $14,447 ] per tonne as the lower hedges are filled. And we are increasing exposure to the higher spot price. To close, we're building predictability, we are lowering our operating costs and increasing the number of operating levers. The operational improvements have continued into October. And we are moving through the pinch zone. The Nugent ramp-up and the Emily Star potential, combined with the continued operating discipline are the backbone of our plan to improve profitability and our margins. I'll now hand it over to Luke, who will take you through the financials. Luke Anderson: Thanks, Bob, and good morning, everyone. I will now walk you through the financial performance for the quarter. All amounts are referred to are in Australian dollars unless otherwise stated. The quarter showed an improving operating performance. The headline items were copper produced increased 8% to 2,808 tonnes and an average realized price of [ $14,447 ] per tonne. Gross all-in sustaining costs reduced 10% compared to quarter 2. Year-to-date, all-in costs of USD 4.24 per pound remained in line with our average guidance of USD 4.2 to USD 4.45 per pound. And completion of a AUD 28 million placement at AUD 0.035 per share to institutional and sophisticated investors. Now moving to the detail. All-in unit cost metrics are calculated on copper payable tonnes sold, which was lower than copper tonnes produced due to timing of shipments, which negatively impacted unit cost metrics. C1 costs improved to AUD 4.69 from AUD 5.24 per pound quarter-on-quarter. Most pleasingly, our gross all-in sustaining costs reduced by 10%, and and all-in costs by 7% against the prior quarter, partly reflecting the realization of a number of cost reduction initiatives over the last couple of months. Our all-in costs, excluding urgent, was AUD 7.1 per pound or USD 4.54 per pound. Year-to-date, this number is USD 4.24 per pound. Which is tracking within updated FY '25 guidance of USD 4.2 to USD 4.45 per pound. The average realized price for copper sold during the quarter was [ $14,447 ] per tonne despite delivery into a number of lower-priced hedges. The quarter-on-quarter reduction in copper payable tonnes sold from 2,572 to 2,422 tonnes reflects timing only, with unsold concentrate stocks increasing from 502 tonnes to 1,729 tonnes at quarter end. The copper price continues to strengthen on strong demand. with supply also impacted by the recent mud slide and resulting closure of the Grasberg Mine in Indonesia, which is the second biggest copper mine in the world and represents over 3% of global supply. The company's liquidity, which is made up of mainly cash, receivables and unsold concentrate was AUD 15.6 million at 30 September. Post quarter end, AUD 22.9 million was received from Tranche 1 of the capital raise completed at the end of September. High capital expenditure of AUD 12.2 million for the quarter included AUD 9.6 million on mine development, AUD 1.7 million on exploration and AUD 0.9 million on other capital projects. A total of AUD 18 million has been spent on the new capital development thus far with approximately AUD 3 million remaining to be spent. The company maintains a prudent hedging policy covering roughly 30% of forecast production to protect a proportion of fixed costs against the deterioration in copper price. The currently -- the company currently has 4,450 tonnes of copper hedged at a weighted average price of AUD 1,400 tonne -- sorry AUD 14,413 per tonne for delivery from November '25 to September '26. A number of lower price hedges were delivered into during the quarter. A busy quarterly period culminated in the completion of a AUD 28 million placement at AUD 0.035 per share. This was strongly supported by Australian and overseas institutions and sophisticated investors. Replacement will be undertaken in 2 Tranches: Tranche 1 has raised AUD 22.9 million pre-costs, which was received in early October. Tranche 2 will see an additional AUD 5.1 million pre-cost to be received, subject to shareholder approval and an upcoming EGM to be held on 25 November. Now to summarize. We remain on track to deliver FY '25 copper production guidance of 11,000 to 11,500 tonnes. All-in cost guidance, excluding Nugent acceleration CapEx of USD 4.2 to USD 4.45 per pound remains on track. With Nugent stoping underway and inventory available for shipment, we expect improved sales volume and further improvement in unit cost in quarter 4. Finally, with the recent capital raise, we are now well funded to deliver on Nugent and to accelerate Emily Star. Which is an exciting time as the operations start to ramp up over the next quarter and deliver stronger cash flow generation. I'll now hand back to the moderator for questions. Operator: [Operator Instructions] Your first question comes from Nick [indiscernible] from [indiscernible]. Unknown Analyst: Bob and Luke. Just a few quick ones from me. Obviously, with the transition to multiple mining fronts at Kavanagh, Nugent and Emily Star. Can you talk about how you're managing the trade-off between increasing mining rates and maintaining overall mine life at the operation? Robert Fulker: Thanks, Nick. I'll try to answer if I don't get exactly where you're wanting just let us now and I'll go there. The increase from where we were last year at around about 900,000 tonnes for the 2024 calendar year. This year was to ramp up to about 1.4 million tonne, we ramped up to 1.5 million tonne rate as of last quarter. That actually is a combination of what we've been doing within the Kavanagh and the Spitfire regions, with increased development as well from ore increases. The opening of Nugent allows us to actually spread the mine out to a second mining front. Emily Star in the future that to become 3, but that's into the future. With that second mining front, we aren't intending to ramp straight up to 1.7 million to 1.8 million tonnes. We're intending to ramp up to that rate over the next 6 to 7 months, so that we can keep our production aligned with our development rates. Development between 600 and 650 meters per month gives us a growth of our stoping areas and allow us to rate the decline from the Nugent working area to the Kavanagh working area, so we can get easy access for trucks and loaders and the drill rigs. So over time, we will slowly ramp our production up to that 1.7 million, 1.8 million rate by June next year or thereabouts. Unknown Analyst: And then just on the back of that, obviously, with the ore bodies coming online, are there any implications on the current plant configuration? Robert Fulker: Nick, there is 0 that we need to do in the plant. Even at 1.8 million tonnes, we're only -- around that 50% of the nameplate capacity or what the plants run it before. We are actually running the plant slower than was run in previous incarnations. So we're running at a rate that gives us a higher recovery and gives us higher residence time so we can get that recovery. As we increase our tonnes, we'll continue to optimize that for the most profitable and most copper effective output. Unknown Analyst: And just last one for me. Obviously, there's a buildup in concentrate inventory over the quarter. Could you just give us a sense of how much of that has been shipped so far in October and to what extent you expect that to unwind by the year-end? Luke Anderson: Yes. Thanks, Nick. Look, yes, that really was just was a timing issue. So we built stocks, I think, by about 1,200 tonnes at the end of the quarter, which really was sold in October. So that would have already been sold. And then that will continue through the quarter. And yes, I'd expect that to reduce, but it depends on the timing of the shipments towards the year-end, but you should see that decrease. Operator: [Operator Instructions] There are no further questions at this time. I'll now hand back to Mr. Fulker for closing remarks. Robert Fulker: Thank you, everyone, for listening in today. As we enter the last quarter in our reporting calendar, we are seeing improvements in all our operating metrics and a reduction in our cash spend. We are seeing the realization of these improvements being implemented. So all the things that we've been doing over the last 12 months, we've actually seen coming to provision now. If there are any other questions that people would like to ask as I read the report in full, please don't hesitate to call Luke and myself. And thank you very much, and now see you in next one. Operator: It does conclude our conference for today. Thank you for participating. You may now disconnect.
Antonino Ottaviano: Good morning, and thanks for joining us at Liontown September Quarter Results. My name is Tony Ottaviano. Joining me today is Ryan Hair, our Chief Operating Officer; Graeme Pettit, our Interim CFO; and Grant Donald, our Chief Commercial Officer. So if we can move to Slide 1, please. It's the typical disclaimer and then we move to our highlights slide. I'd like to provide some context today. This quarter was one of execution and we delivered exactly what we said we would. We advanced the underground ramp-up on schedule, maintained a strong and consistent plant performance and strengthened our balance sheet more than $420 million of cash following the August capital raise and also the restructuring of our debt facility with Ford. Importantly, this quarter represents the low point in our planned transition year, and it sets out the improvement story that unfolds from here. The plan is clear and unchanged. We continue to wrap up the underground production towards a 1.5 million tonnes per annum by March 2026, lift recoveries towards our target 70%, and once we process the cleaner underground ore becomes the dominant mill feed and drive costs down progressively each quarter as we fleet the open pit and move to full underground operations at the desired steady state run rate. So the key messages for investors today are: first, execution and delivery. We achieved every operational milestone to plan. During the quarter, we executed the scheduled maintenance, as we highlighted in the previous results. We're executing our OSP strategy to manage our contact tools, achieved a 105% increase in underground production, reaching our 1 million tonne per annum rate by September. We also advanced the open pit towards completion, with the final clean ore bench reached in September and full completion planned for December quarter as stated. These outcomes demonstrate once again the strong delivery against plan and the continued validation of both the ore body and the process flow sheet. Second, our financial strength. Our balance sheet is in excellent shape, providing full flexibility through our transition year. We closed the quarter with $420 million in cash, as I mentioned just earlier, supported by successful $316 million equity raise, and the Ford facility amendment to help us with the debt repayments in the course of the next 12 months. Thirdly, our operational leverage ahead each quarter from here improves the benefit as we get scale and defray our operating costs, but also our all quality improves. With the underground volumes ramping up, open pit completion imminent and recovery uplift underway, production growth, recovery strengthens and cash generation accelerates. The operational leverage is built on visible -- it is visible in the trajectory ahead. Finally, the long-term fundamentals. Lithium demand remains robust, underpinned by strong EV and the accelerating expansion of the battery -- sorry, the stationary batteries. Liontown's high-quality asset, Tier 1 partners and the fortified balance sheet helps us capture the full benefit as the market turns. So in summary, the context of today's results, disciplined execution through the trough, a clear path of improving margins and cash flow, and a business built on sustainable performance. I'll now move to the next slide, please, which is our highlights. The production for the quarter was 87,000 tonnes at a weighted average grade of 5%, and this is in line with us processing the contaminated by the contract ore being the OSP. Contract sales were 77,000 tonnes. Concentrate on hand is 20,000 or nearly 21,000. Our recovery was the 59%, again, as planned, and this will improve as we get the better quality ore. And plant availability, notwithstanding the planned shutdown, of 92%. On the financial side, I've already mentioned the cash imbalance. The revenue was $68 million, but it was impacted by the lower sales due to port congestion in September and the backward looking and we'll talk about this a little bit later in the presentation. Our realized price on a nausea basis plus our unit operating costs were exactly as planned, given that we had lower recoveries due to the OSP stockpiles. If we move to the next slide. I'll now move on to -- and introduce Ryan here, who will go through the slide for us. Ryan Hair: Yes. Thanks, Tony. So safety, our lost time into frequency rate, roughly in line with the previous quarter. The total recordable injury frequency rates up slightly on the last quarter. And as we've noted in the lead end of this slide, we are focused very heavily at the moment on a back to basic safety drive both on physical and mental well-being. Importantly, our leading indicator safety observations are still in line with our previous quarter, which is in line with our plans. And on ESG, renewable power average of 79% for the quarter. And notably, in September, peaked at 83%. And female workforce participation slightly at 23%. If we can move to the next slide. So now talking to operational performance and starting with open pit. So performance remains strong in the open pit and continued to deliver to plan. We mined 292,000 tonnes of ore at 1.3% lithia, which is 77% up on last quarter. The final clean ore zone was reached in September, and completion remains on schedule for the end of the calendar year. Focus this quarter is on completion of the pit in preparation to contractor demobilization as we transition into full underground operation, which we'll now turn to the next slide on underground. So the underground operation, we continue to perform exceptionally well here, and it does remain one of the most important indicators of our progress towards steady-state operation. During the quarter, all mined just over double to 225,000 tonnes, reaching a 1 million tonne per annum run rate in September, which is in line with plan. The pace fill and primary vent systems are now fully commissioned and performing to design, supporting delivery of the plan and improving operational efficiency. The ordering, power reticulation of materials handling infrastructure are working well, providing strong operating reliability across all levels in the mine. We've mobilized a third jumbo and a fourth production drill, which increases development and production capacity and supports continued ramp-up towards 1.5 million tonnes per annum by Q3 FY '26. The orebody continues to perform well against expectations. Volumes and grades are reconciled closely with the mine plan. fragmentation, overbreak and dilution remain well within design parameters. A total of just over 1,800 meters of development was completed for the quarter, up 8% on the prior period. To date, 18 stopes have been mined including 14 in the September quarter with an average stope size circa 15,000 tonnes. Work fronts are expanding across multiple levels, providing flexibility as we scale up production. Our key priorities now are to optimize stope turnover, continuing to increase the rate of development and refine pace fill scheduling to sustain continuous production. In short, the underground is behaving exactly as designed. Infrastructures in place, performance is consistent and the pathway to 1.5 million tonne per hour and beyond is clear and achievable. So now I'll move to the next slide on the process plant. So the plant continued to perform well and most importantly, exactly in line with the plan we outlined earlier this year with lower recoveries in production when seeding OSP material or our contact material during the early underground transition. We said we'd take this approach to manage all feed during the ramp-up phase, and it's exactly what we did. Plant reliability remains strong with 580,000 tonnes processed at 92% availability. Recoveries behaved as expected with a range of 5% Lithia processed during the quarter, averaging 59% with the recovery, reducing a 5% lithium concentrate meeting all customer specifications. This confirms the plan is performing reliably and to expectations. The current recovery is simply a reflection of the range of fleet types processed this quarter. The transition to cleaner underground ore is underway, and as that proportion increases through FY '26, recoveries were lift progressively. Our FY '26 recovery target remains unchanged with around 70% recovery expected by March 2026 as underground ore becomes the dominant feed. At the same time, recovery improvement initiatives continue to advance. The tails regrind Vertimill has been commissioned and optimization work is ongoing across grind size, reagent dosing and water quality to support incremental recovery gains. In short, the plant is running to design recovery curve is following the planned trajectory and the improvement from here is baked into our guidance. And with that, I'll hand over to Graeme. Graeme Pettit: Thank you, Ryan. Next slide, please. All right. Our results for the quarter were consistent with company expectations, reflecting the planned impacts of maintenance and OSP strategy foreshadowed in the previous quarter presentation. Revenue was $68 million, down 29% quarter-on-quarter as a result of lower shipping volumes over due to port congestion and backward-looking pricing mechanisms. Backward-looking pricing for shipments during this quarter resulted in pricing lowers of May and June impacting realized prices for the majority of the quarter. But a closing cash balance of $420 million, but we can look at in more detail on the following slide. Unit operating costs increased 22% from the prior quarter to $1,093 per dry metric tonne sold due to the drawdown of OSP stockpiles. This increase in unit operating costs was anticipated in form part of our full year guidance. What you'll see going forward is that unit costs will trend lower as volumes ramp up and clean underground ore becomes the dominant part fee. All-in sustaining costs increased 10% from last quarter to $1,154 per tonne reflecting the higher unit operating costs. This was partly offset by lower sustaining capital spend. As with unit operating costs expect to see the trend lower through the year. Next slide, please. Our tax position strengthened significantly, finished the quarter at $420 million with 21,000 tonnes of salable concentrate on hand. This excludes $20 million of the Zenith cashback guarantee, which we anticipate to receive in the coming quarters. Cash flow operating activities for the quarter was a negative $44 million and was mainly attributable to a $53 million reduction in cash receipts from customers compared to June's quarter. cash receipts were impacted by lower sales volumes and working capital movements, including an increase in the value of trade receivables and concentrates on hand. Additionally, final pricing adjustments from the prior quarter sales of $8 million further reduced cash receipts. Capital expenditure of $44 million was primarily underground development and the completion of TSF construction. Given the completion of the TSF construction and the completion of open pit mining in the December quarter, you should expect to see capital expenditure reduce in the coming quarters. Finally, on financing cash flows, inflows of $363 million represents the net proceeds of the August capital raise. The closing cash balance was also supported by the deferral of the commencement of principal and interest payments under the Ford facility, which has now been deferred for 12 months. Overall, we have a strong liquidity position and expect to see improved quarterly cash performance that will ramp up the underground and increased production volumes. Next slide, please. right. So our debt profile remains low cost, long dated and highly flexible. This slide is an update of our debt position following the Ford amendment completed in August. The effect of the amendment has pushed the first repayment under this facility out to September 2026. Looking at the maturity profile. Again, it's important to note that while the LG Energy Solution convertible notes are shown in the maturity schedule as a repayment of $414 million. cash repayment can only occur if the facility is not converted into equity before the maturity date of July 2029. Subsequent to the recent equity raise, the conversion price of the LG notes has been amended from $1.80 to $1.62 per share. And in summary, our debt structure provides a very low cost of capital with no near-term maturities, and this allows us to continue to focus on delivering the ramp-up of the underground mine and deliver the full potential of Kathleen Valley. I'll now pass to Tony. Antonino Ottaviano: Thanks, Graeme. So if we move to the next slide, please. We've actually -- when we announced our forward debt restructuring and contract arrangements, we did make some mention around our volume profile going into the future. We've just simply graph this for the market now so that you can see it visually. So there's no new information here, but it just provides a little bit of extra clarity on the contract profile for tonnes. And we are delivering into some of these already. So that's really what this slide is designed to provide. So if we move to the next one, please. Business optimization. Last year, we made $112 million worth of savings, either directly in recurring or some deferred capital. That pursuit becomes relentless. We need to continue with the business optimization because price is still where it is, and we can't lose sight of that fact. And this next exercise, this next phase is going to be a broad engagement and assessment of priorities across everything. So there will be team-led initiatives. There will be a challenge in everything we do, as I said in the slide, that we will challenge the status quo, and we will focus on our purchasing and contracts. So we will -- we've already said this, and we will continue to optimize our cost structure in the current environment. So next one, please. So I'm now back on to Ryan for this last -- next slide. Ryan Hair: Yes. Thanks, Tony. So this slide, which I think we've presented a couple of times now, recaps how FY '26 is unfolding quarter-by-quarter. In quarter 1, we deliberately executed planned maintenance activities and early technical improvements while implementing the OSP feed strategy to manage transitional ore during this ramp-up phase. That strategy delivered exactly as guided, lower production and recoveries were expected, and those outcomes were fully reflected in our prior guidance. Moving into Q2 this quarter. The focus shifts to completing open bit mining and increasing the proportion of clean underground into the plant. Recoveries are already improving month-on-month and as underground volumes continue to ramp up, throughput and grade consistency will lift. We also expect operating costs to trend lower as we shut down the open pit operation and those costs fall away and we get productivities through increasing the scale of the underground operation. By Q4, in the June quarter, we transitioned fully into steady-state operations. The process plant will be operated in design throughput. Recoveries will stabilize at or above 70% and costs were materially lower than in the first half. That's the point where the business begins to demonstrate sustained cash flow and margin that underpins our long-term investment case. So while Q1 represented the planned low point, every subsequent quarter and first year, higher underground production, stronger recoveries, lower costs and greater cash generation, all consistent with the plan we set out at the start of the year. So next slide, please. So recap on our FY '26 guidance. FY '26 remains a transition with the open pit operations, as we've already mentioned, will conclude in December and the underground ramping up. In the first half, we continue to leverage the investment already made in the rod stockpiles processing the remaining OSP material, which we have always said would be temporarily impact recoveries and production and therefore, outline. As we move into Q2, production and recovery performance are expected to improve as the proportion of clean ore in the mill feed increases and the influence of OSP material declines. This uplift will be driven by higher clean oil production from the open pit and the growing contribution from the underground. Sustaining capital remains on plan, focused on underground development, maintenance and equipment replacement to support the ramp-up. Importantly, there is no change to our recovery target of around 70% by Q3 FY '26, and we remain on track for 100% underground production by Q3 FY '26. So in summary, the transition is unfolding exactly as we planned with Q2 marking the start of a steady state improvement across production and recoveries. We now move to the next slide, please, and I'll ask Grant to lead us through that. Grant Donald: Thanks, Tony. I think it's important to highlight that there are 2 fundamental growth factors driving lithium demand. The first is EV sales and the second is factory energy stationary storage. I'll start with EV demand. As you can see here from the chart on the left, EV sales continue apace. Global sales grew 26% year-on-year from January September. Importantly, September results of the first month we've seen more than 2 million EV sales in a single month. This translated so far this year into over 3 million extra EVs sold versus 2024. And as you can see on the chart on the right-hand side, expectations are for that to continue with a very solid CAGR growth rate of 14% according to Bloomberg New Energy Finance. I think importantly, it's also very interesting to see the growth of the rest of the world. that continues to grow at very, very aggressive rates off a small base. But we are probably about a quarter away from Rest of World sales equally in total North American sales. And one of the points highlighted to me by Homburg just yesterday was that EV sales in China now exceed total auto sales in North America. If we go on to the next slide. battery energy storage systems have really come from nowhere and been a strong driver of demand in the last year plus. I think for the last 2 or 3 years, they have exceeded expectations from forecasters. What this slide is demonstrating is that not only is it accounting for 1 unit and every 4 units of growth over the next 5 years. There are also a wide range of views on how fast this market is going. You can see in the chart on the right there from SC Insights that there's a large spread between the investment bank on the left insights in the middle and CATL's prospectus on the right-hand side. I think it's important to note the spread between the high and the low point is over 765 tonnes of lithium carbon equivalent, and that is around half of the total size of volatile market today. Large-scale grid investments are continuing to accelerate, and these are driven by the rise of data centers to support the shift towards as well as making sure that grids remain reliable with a larger share of renewable power penetration. And with that, I'll hand back to Tony. Antonino Ottaviano: Thank you, Grant. So we don't go to our final slide, please. We end where we started. So we continue to deliver on our strategy. I won't repeat things but effectively, we're executing the plan. We're delivering on the underground ramp up. The compete well comfortable conclusion at the end of the year as we planned. And we've strengthened our balance sheet both with the equity raise in August, but also restructuring the Ford debt facility to give us that further strengthening of that balance sheet in the next 12 months as we see the market recovery. So with that, I'll open it up for Q&A. Operator: [Operator Instructions] Our first question comes from Hugo Nicolaci from Goldman Sachs. Hugo Nicolaci: First one for me just on realized pricing. You called out the impact of the pricing lag through the contract in the quarter impacting that realized price. Now that you've recut some of those offtake agreements after September 30, does that mean that we shouldn't expect to catch up on the pricing balance we saw through the September quarter now if you just realize closer to spot spodumene prices? Antonino Ottaviano: Go ahead, Grant. Grant Donald: Thanks, Hugo. I think anytime you've got a large delta from as we saw in May and June, which was the lowest of the year in the 600s versus where we're trading now in the 900s. You have this impact, and it's just a question of when that impact flows through your revenue line. With Q lagging, it just means it's a little bit delayed. So if you go back to last quarter, we actually had the benefit of that where we outperformed index. So we had a 105% realization compared to Fastmarkets spodumene index in the last quarter. Unfortunately, you have to pay the piper and that came through the sales this quarter. So look, I don't think you're going to necessarily completely avoid any of those impacts because those kind of QP impacts are always there in your portfolio of contracts. And I don't think you should necessarily think that we did a onetime switch where we moved Q lag and we skip out the impact of that in the future. So that's not the case. Hugo Nicolaci: And then maybe just on the cost breakdown. Can you just give a bit more color in terms of maybe on a cash basis, the magnitude of spend, let's say, the open pit underground in the quarter? Antonino Ottaviano: Go ahead, Graeme. Graeme Pettit: So during the quarter, they were roughly even Hugo's, so between $10 million and $15 million per month. Operator: Our next question is from Adam Baker from Macquarie. Adam Baker: Port congestion was called out as an issue, which contributed to the delayed shipment during the quarter. Is this something that you're still seeing? And could this resurface during the December quarter? Antonino Ottaviano: Adam, the Geraldton Port has an issue they call surge. And as a result, during the quarter, we had a number of surge events which then built up the number of ships on lean. So we have to weigh our turn in the queue for those ships to come in and be loaded. Now the government is putting money in to resolve this issue in the Jordan port. But I think we potentially will see the back of it in the next quarter, but it's really what nature puts in. Grant Donald: Yes. Adam, just for further context, it's Grant here. It's a bit seasonal. So that last quarter tends to be the seasonal high spot where you see more swell events in surge events in Geraldton. And it did perform quite a lot of queuing and we weren't the only ones impacted. In fact, everyone who ships out of the part that we ship all was impacted. And I'd say that going forward, we shouldn't expect that. But there's always quarter-end chase that's on where everyone is trying to get shipment away before the quarter end, and that would continue. So this one was particularly bad just because of those surge events. Adam Baker: Okay. And just secondly, spodumene concentrate grades 5% for the sales in the September quarter. Just wondering is this a proactive decision that was taken by the team? Or was this just a flow-through as a result of the higher propane Gabbro going through the mill? And I'm just wondering what the time line would be to get that concentrate back to 5.2%. Antonino Ottaviano: Yes. I think your summary is correct, Adam. It is the latter, which is it's a result of the high gabbro percentage, which we showed in the graph. So we expect that to unwind in the next 2, 3 quarters once we get into 100% underground mill feed -- underground ore for the mill. Operator: The next question is from Levi Spry from UBS. Levi Spry: Yes. So maybe just following up on that. So I mean, this quarter, could it be a bit lower than 5%? And just confirming your guidance is at 5.2% in terms of lithium units? Antonino Ottaviano: Yes. So firstly, the latter, our guidance is confirmed at 5.2%. As I said, once we get into more the dominant seed being underground we will see that improve. And sorry, your first part of your question? Levi Spry: Could it go lower in the short term, I guess? What that offset the basis previously? Antonino Ottaviano: Yes. No, we don't anticipate it going lower in the foreseeable future. Our contracts specify a certain amount. So we're conforming to our contracts. Graeme Pettit: So just a little bit more color, sorry. The chart that we included on the process plant, we were endeavoring to then provide a little bit of color on gabbro. We will to try and maximize recovery and still keep within customer specs is great will naturally kind of trend a little bit lower. And what you'll also see on that chart is with the lower gabbro content, grade naturally drips up. So as we stated as the -- both the amount of OSP material, but also the amount of open pit starts to fall away and we get the clear higher-grade material out of the underground naturally gray order to, which is why we are maintaining guidance on both recovery and grade through the course of FY '26 and beyond. Antonino Ottaviano: Yes, and it's a blending exercise so there is an exclusion where it does drop. We will blend it with higher-grade material when we do have those better days. So that's -- it's all about managing it within the contractor specifications. Levi Spry: Yes. Okay. And just on the price piece, just as we're seeing spodumene prices improve here, can you just help us with how we're modeling that now? So I think you -- one of the previous questions was pointing to it. But just in terms of you repricing your resetting your contracts, how do we think about now the read-through on this grade concentrate to the spot price effectively? Grant Donald: Sure, it's Grant here. Look, the pricing reference is all disclosed, right? So now we've got 1 contract on Sports mean index. On contract continues to be on carbonate at least until the end of '26 when that deal expires. And then the other contract is on hydroxide. Operator: The next question is from Glyn Lawcock from Barrenjoey. Glyn Lawcock: Just a couple of quick ones. Firstly, you talked about the cost program under Phase II. Do you have any thoughts on the quantum that could yield or is it too early? Antonino Ottaviano: It is a bit too early. We're just -- we've kicked it off in the last quarter. We're still trying to assemble all the initiatives. So I can't give you a finger just now. Glyn Lawcock: Okay. No worries. Any orders of magnitude you think similar like half of last year? Antonino Ottaviano: It's still too early, Glyn. It will come out. Glyn Lawcock: Fair enough. Okay. And then maybe just -- I know it's very early days in the markets where it is, but it may be starting to show some signs of turn on the back of EFS, et cetera. But the 4 million tonne case, the expanded option, it says in the report you're still doing a little bit of studies towards it. Maybe just an update on where you are on that timing costs associated if you do -- if the market turns enough, you to exercise that option? Antonino Ottaviano: Well, the way it works and the way we're thinking about it is as we get more real-time operational understanding of our plant, we want to make sure that the expansion option is up to date with those learnings. So there's work that's always ongoing as to how do we -- how does that process flow sheet look like as we get more information from the existing operation. So that's one aspect of it. And the second one is, well, I think until we see a sustained improvement in the market, the Board will be live to this option, but it won't be a commitment yet. Operator: We next have a text question from a private investor who asks, what do Canmax look to benefit from the recent capital raise investment? Antonino Ottaviano: I think we've already made some very good money given that everyone who supported us on the raise at $0.73 is now looking at a share price of over $1. So [ Mr. P ], he came to site and was impressed by the operations that we do, and he wanted to invest all of its financial investment. Operator: Another text question from a private investor who asks, is there any clarity regarding the large tenants recently peaked near Sandstone? Antonino Ottaviano: It's an ongoing process. As we look at our long term, as part of that previous question around future expansion, we want to secure access to good water sources -- so we continually look more broadly as to where we can potentially look for the future long-term expansion requirements for water and other infrastructure. So that's part of that process. Operator: Another text question. In your lithium demand forecast chart, which of the best BESS growth scenarios have you assumed? Antonino Ottaviano: Thanks for the question. Look, with any company, I'm always wary of single point expectations or forecasts we look at a range of scenarios. You can imagine that in our forward planning, we're thinking about what would the world look like at the low end and what would the world look like at the top end, and we try and make sure that the decisions we make are robust against either scenario. Operator: Another question from a private investor. Did you have an update on downstream feasibility studies with LG Energy Solution and Sumitomo? Antonino Ottaviano: Yes. We continue to press work with both Sumitomo and LG Energy Solutions on the potential to pull downstream. I think it's no secret that some of our peers are having challenges in that space. The capital involved is significant. And in the current market environment, margins are squeezed. So for us, we continue to do the work to be option ready, but it's not something that we plan to make a decision on in the near term. Operator: Thank you. That's all the questions we have today. Please reach out to the Liontown team if you have any follow-up questions. We thank you all for your time, and have a great day. You may now log out.
Operator: [Audio Gap] I'd now like to hand the conference over to Mr. Bob Fulker, CEO and Managing Director at Hillgrove Resources. Please go ahead. Robert Fulker: Thank you, Harmony. Good morning, everyone, and thanks for joining the Hillgrove Resources September Quarter 2025 Results Webinar. I'm joined on the call today by Luke Anderson in his first full quarter with Hillgrove. September quarter was a pivotal time for Hillgrove. The mine's output is showing improved stability with higher output, which are demonstrating the potential of the operation has from a productivity perspective. This has started to flow through to our all-in sustaining cost, which has reduced from the high of last quarter. The Nugent ramp-up has commenced, and we filed the first stope at the start of October. There are 3 takeaways for me from today. Firstly, record stope production since underground operations started, has seen the biggest quarter since we started mining and is at our annualized rate of 1.5 million tonnes per annum. In September, the mine delivered 1,075 tonnes of copper produced and the quarter's gross all-in sustaining costs have reduced to be the lowest quarter this year. The all-in sustaining cost unit costs were affected by the low copper sold versus production. Secondly, the Nugent project has been delivered ahead of schedule with stoping underway in October. This is the second mine production center online as promised. And finally, our on-site exploration success has given us the potential of a third mining front to further increase our total tonnes from the Emily Star region. The Emily Star exploration incline design has been released and we'll start development activities there this quarter. Operationally, ore mines for the quarter reached a record of 375,000 tonnes, and we finished the September month with ore on the [ ROM ] for the start of October. The underground load and haul improvements have been maintained into October and the commencement of the Nugent stoping will gradually grow our production over the next 6 months. The consistency of the mine delivery has led to the mill operating for longer periods of time, allowing improved stability within the processing plant. Tonnes processed rose to 366,000 tonnes at an average weighted -- at a weighted average grade of 0.81% copper and 94.5% recovery. This is a steady and reliable performance increase -- increasing copper production by 8% from the previous quarter to 2,808 tonnes. During the quarter, we announced the Nugent acceleration project finished ahead of schedule in August. We have developed the 1020 Southern ore drive and are now developing the Northern ore drive. We have set the primary ventilation up. We have got emergency egress to the pit and subsequent to the quarter, refiled and extracted the first stope. The second stope is ready to the fire as we speak. The Nugent decline will break through to the Kavanagh working area before Christmas as planned. And the Emily Star exploration [ tudy ] is now the Emily Star exploration incline and ready for development. When completed, this will allow for improved diamond drilling performance with a top 4 sublevels of the Emily Star resource. On lease exploration and resource drilling continues. We currently have 2 drill rigs underground. Our plan is to increase to 3 drill rigs when we have the locations available. We are on track to deliver the 60,000 meters of drilling within the 2025 year as previously announced. There have been some exceptional holds during the quarter Emily Star's first hole of 19 meters at 1.9% copper and 0.15g/t gold and 5.7 meters at 2.12% copper and 0.36 grams per tonne gold, both in Emily Star are outstanding. More holes are still being assayed, and we'll release these as soon as we have them. Emily Star is a key exploration focus for what I expect to be the third mining front to underpin a further increase in our copper and operational outputs. I'll leave the majority financial report to Luke, but a couple of highlights from myself. Gross all-in sustaining costs have reduced by 10%. Despite shipment timing, we reduced sold -- which reduced sold copper, our all-in sustaining cost unit rate actually reduced by 5%. Our realized price lifted to [ $14,447 ] per tonne as the lower hedges are filled. And we are increasing exposure to the higher spot price. To close, we're building predictability, we are lowering our operating costs and increasing the number of operating levers. The operational improvements have continued into October. And we are moving through the pinch zone. The Nugent ramp-up and the Emily Star potential, combined with the continued operating discipline are the backbone of our plan to improve profitability and our margins. I'll now hand it over to Luke, who will take you through the financials. Luke Anderson: Thanks, Bob, and good morning, everyone. I will now walk you through the financial performance for the quarter. All amounts are referred to are in Australian dollars unless otherwise stated. The quarter showed an improving operating performance. The headline items were copper produced increased 8% to 2,808 tonnes and an average realized price of [ $14,447 ] per tonne. Gross all-in sustaining costs reduced 10% compared to quarter 2. Year-to-date, all-in costs of USD 4.24 per pound remained in line with our average guidance of USD 4.2 to USD 4.45 per pound. And completion of a AUD 28 million placement at AUD 0.035 per share to institutional and sophisticated investors. Now moving to the detail. All-in unit cost metrics are calculated on copper payable tonnes sold, which was lower than copper tonnes produced due to timing of shipments, which negatively impacted unit cost metrics. C1 costs improved to AUD 4.69 from AUD 5.24 per pound quarter-on-quarter. Most pleasingly, our gross all-in sustaining costs reduced by 10%, and and all-in costs by 7% against the prior quarter, partly reflecting the realization of a number of cost reduction initiatives over the last couple of months. Our all-in costs, excluding urgent, was AUD 7.1 per pound or USD 4.54 per pound. Year-to-date, this number is USD 4.24 per pound. Which is tracking within updated FY '25 guidance of USD 4.2 to USD 4.45 per pound. The average realized price for copper sold during the quarter was [ $14,447 ] per tonne despite delivery into a number of lower-priced hedges. The quarter-on-quarter reduction in copper payable tonnes sold from 2,572 to 2,422 tonnes reflects timing only, with unsold concentrate stocks increasing from 502 tonnes to 1,729 tonnes at quarter end. The copper price continues to strengthen on strong demand. with supply also impacted by the recent mud slide and resulting closure of the Grasberg Mine in Indonesia, which is the second biggest copper mine in the world and represents over 3% of global supply. The company's liquidity, which is made up of mainly cash, receivables and unsold concentrate was AUD 15.6 million at 30 September. Post quarter end, AUD 22.9 million was received from Tranche 1 of the capital raise completed at the end of September. High capital expenditure of AUD 12.2 million for the quarter included AUD 9.6 million on mine development, AUD 1.7 million on exploration and AUD 0.9 million on other capital projects. A total of AUD 18 million has been spent on the new capital development thus far with approximately AUD 3 million remaining to be spent. The company maintains a prudent hedging policy covering roughly 30% of forecast production to protect a proportion of fixed costs against the deterioration in copper price. The currently -- the company currently has 4,450 tonnes of copper hedged at a weighted average price of AUD 1,400 tonne -- sorry AUD 14,413 per tonne for delivery from November '25 to September '26. A number of lower price hedges were delivered into during the quarter. A busy quarterly period culminated in the completion of a AUD 28 million placement at AUD 0.035 per share. This was strongly supported by Australian and overseas institutions and sophisticated investors. Replacement will be undertaken in 2 Tranches: Tranche 1 has raised AUD 22.9 million pre-costs, which was received in early October. Tranche 2 will see an additional AUD 5.1 million pre-cost to be received, subject to shareholder approval and an upcoming EGM to be held on 25 November. Now to summarize. We remain on track to deliver FY '25 copper production guidance of 11,000 to 11,500 tonnes. All-in cost guidance, excluding Nugent acceleration CapEx of USD 4.2 to USD 4.45 per pound remains on track. With Nugent stoping underway and inventory available for shipment, we expect improved sales volume and further improvement in unit cost in quarter 4. Finally, with the recent capital raise, we are now well funded to deliver on Nugent and to accelerate Emily Star. Which is an exciting time as the operations start to ramp up over the next quarter and deliver stronger cash flow generation. I'll now hand back to the moderator for questions. Operator: [Operator Instructions] Your first question comes from Nick [indiscernible] from [indiscernible]. Unknown Analyst: Bob and Luke. Just a few quick ones from me. Obviously, with the transition to multiple mining fronts at Kavanagh, Nugent and Emily Star. Can you talk about how you're managing the trade-off between increasing mining rates and maintaining overall mine life at the operation? Robert Fulker: Thanks, Nick. I'll try to answer if I don't get exactly where you're wanting just let us now and I'll go there. The increase from where we were last year at around about 900,000 tonnes for the 2024 calendar year. This year was to ramp up to about 1.4 million tonne, we ramped up to 1.5 million tonne rate as of last quarter. That actually is a combination of what we've been doing within the Kavanagh and the Spitfire regions, with increased development as well from ore increases. The opening of Nugent allows us to actually spread the mine out to a second mining front. Emily Star in the future that to become 3, but that's into the future. With that second mining front, we aren't intending to ramp straight up to 1.7 million to 1.8 million tonnes. We're intending to ramp up to that rate over the next 6 to 7 months, so that we can keep our production aligned with our development rates. Development between 600 and 650 meters per month gives us a growth of our stoping areas and allow us to rate the decline from the Nugent working area to the Kavanagh working area, so we can get easy access for trucks and loaders and the drill rigs. So over time, we will slowly ramp our production up to that 1.7 million, 1.8 million rate by June next year or thereabouts. Unknown Analyst: And then just on the back of that, obviously, with the ore bodies coming online, are there any implications on the current plant configuration? Robert Fulker: Nick, there is 0 that we need to do in the plant. Even at 1.8 million tonnes, we're only -- around that 50% of the nameplate capacity or what the plants run it before. We are actually running the plant slower than was run in previous incarnations. So we're running at a rate that gives us a higher recovery and gives us higher residence time so we can get that recovery. As we increase our tonnes, we'll continue to optimize that for the most profitable and most copper effective output. Unknown Analyst: And just last one for me. Obviously, there's a buildup in concentrate inventory over the quarter. Could you just give us a sense of how much of that has been shipped so far in October and to what extent you expect that to unwind by the year-end? Luke Anderson: Yes. Thanks, Nick. Look, yes, that really was just was a timing issue. So we built stocks, I think, by about 1,200 tonnes at the end of the quarter, which really was sold in October. So that would have already been sold. And then that will continue through the quarter. And yes, I'd expect that to reduce, but it depends on the timing of the shipments towards the year-end, but you should see that decrease. Operator: [Operator Instructions] There are no further questions at this time. I'll now hand back to Mr. Fulker for closing remarks. Robert Fulker: Thank you, everyone, for listening in today. As we enter the last quarter in our reporting calendar, we are seeing improvements in all our operating metrics and a reduction in our cash spend. We are seeing the realization of these improvements being implemented. So all the things that we've been doing over the last 12 months, we've actually seen coming to provision now. If there are any other questions that people would like to ask as I read the report in full, please don't hesitate to call Luke and myself. And thank you very much, and now see you in next one. Operator: It does conclude our conference for today. Thank you for participating. You may now disconnect.
Operator: Hello, and welcome to the BioMarin Pharmaceutical Third Quarter 2025 Conference Call. [Operator Instructions]. I would now like to turn the conference over to Traci McCarty. Please go ahead. Traci McCarty: Thank you, operator. To remind you, this nonconfidential presentation contains forward-looking statements about the business prospects of BioMarin Pharmaceutical Inc., including expectations regarding BioMarin's financial performance, commercial products and potential future products in different areas of therapeutic research and development. Results may differ materially depending on the progress of BioMarin's product programs, actions of regulatory authorities, availability of capital, future actions in the pharmaceutical market and developments by competitors and those factors detailed in BioMarin's filings with the Securities and Exchange Commission, such as 10-Q, 10-K and 8-K reports. In addition, we will use non-GAAP financial metrics as defined in Regulation G during the call today. These non-GAAP measures should not be considered in isolation from, as substitutes for or superior to financial measures prepared in accordance with U.S. GAAP, and you can find the related reconciliations to U.S. GAAP in the earnings release and earnings presentation, both of which are available in the Investor Relations section of our website. Please note that our commentary on today's call will focus on non-GAAP financial measures unless otherwise indicated. Beginning on Slide 3 and introducing BioMarin's management team, joining today's call, Alexander Hardy, President and Chief Executive Officer; Brian Mueller, Chief Financial Officer; Cristin Hubbard, Chief Commercial Officer; and Greg Friberg, Chief R&D Officer. I will now turn the call over to BioMarin's President and CEO, Alexander Hardy. Alexander Hardy: Thank you, Traci. Good afternoon, everyone, and thank you for joining us on today's call. Starting on Slide 5, I am very pleased with the strong results across the business, leading us to raise full year total revenues guidance at the midpoint and reaffirm our VOXZOGO revenue outlook for 2025. In addition to top line performance, BioMarin has delivered expanding profitability and significant growth in operating cash flow, bringing our cash and investments balance to approximately $2 billion at the end of the third quarter. We are focused on finishing the year strong, positioning ourselves to achieve record commercial results for the full year. To date this year, we have delivered 11% increase in top line growth year-over-year. These strong results are driven by the performance of our global enzyme therapies and Skeletal Conditions business units as we deliver for patients around the world. We have built the Enzyme Therapies business unit into a $2 billion-plus franchise over the last 12 months with continued growth anticipated. In the Skeletal Conditions business unit, our first indication with our first product, VOXZOGO, the treatment of achondroplasia is expected to generate more than $900 million in revenues this year, leading us to reaffirm our full year 2025 VOXZOGO outlook and representing 25% growth at the midpoint of our guidance range. As the established standard of care in achondroplasia, VOXZOGO revenue has increased 24% year-to-date compared to 2024. Now in the fourth year of its global launch, VOXZOGO has represented a breakthrough therapy for families seeking treatment for their children with achondroplasia. Building on this innovation, we are excited to bring VOXZOGO's second indication forward for the treatment of children with hypochondroplasia. We have high confidence in the upcoming pivotal data readout for hypochondroplasia expected in the first half of next year based on proof-of-concept data and more than 10,000 patient years of safety and efficacy data in achondroplasia. Building on the rapid and successful global commercialization of VOXZOGO in achondroplasia, now available in 55 countries, we are well positioned to execute a strong global launch in hypochondroplasia, targeting 2027 should the data be supportive. Cristin and Greg will provide more details in a moment. Turning now to our broader strategic objectives. Over the past 18 months, we have undertaken a series of initiatives designed to prepare BioMarin for future growth and expansion. As part of this effort, we have made difficult decisions, including the discontinuation of multiple research programs that did not meet our criteria for advancement. Accordingly, today, we are announcing the decision to pursue options to divest ROCTAVIAN and remove it from our portfolio as we focus on the business units aligned with our strategic priorities. ROCTAVIAN is an innovative gene therapy that holds potential within the treatment landscape for severe hemophilia A. As a result, we are working to find an alternative that will allow for ROCTAVIAN to reach its full potential by ensuring access to those interested in a gene therapy treatment. In the meantime, ROCTAVIAN will be commercially available in the United States, Italy and Germany. Throughout this process, we will support and monitor patients who have received ROCTAVIAN as their well-being is our top priority. As we look to the future, we are pleased that our breakthrough medicines are in high demand and reaching thousands of patients around the world. Our financial performance so far this year reflects strategic investments in the enzyme therapies and Skeletal conditions business units, both of which remain central to our growth strategy, along with increased business development opportunities and our own advancing internal pipeline. Building on this momentum, we look forward to the many data readouts and potential new approvals ahead, along with new business development opportunities as we focus on the next stage of BioMarin's growth. With that, I will now turn it over to Brian. Brian Mueller: Thank you, Alexander. Please refer to today's press release for detailed third quarter 2025 results, including reconciliations of GAAP to non-GAAP financial measures. All 2025 results will be available in our upcoming Form 10-Q, which we expect to file in the coming days. Starting on Slide 7. Strong global demand across our portfolio of innovative medicines drove a year-to-date total revenue increase of 11% compared to the same period in 2024. Revenues from VOXZOGO and PALYNZIQ each increased by more than 20% on a year-to-date basis. As we shared last quarter, we anticipate VOXZOGO revenue in Q4 to reach its highest level of the year due to the timing of contracted orders as well as increasing numbers of patients on therapy, and we expect full year 2025 VOXZOGO revenue of between $900 million and $935 million. We are pleased with 8% year-to-date growth of the Enzyme Therapies business unit led by PALYNZIQ. Due to large orders for NAGLAZYME and VIMIZIM in the second quarter, we note that Enzyme Therapies revenue was lower in Q3 quarter-over-quarter. And compared to Q3 2024, Enzyme Therapy revenue in the quarter was relatively flat, primarily due to a higher volume ALDURAZYME quarter last year. Given the strong top line performance so far this year and our expectations for the fourth quarter, we are raising the lower end of our full year 2025 total revenue guidance to $3.15 billion, with the midpoint of the range representing double-digit year-over-year growth. Now moving to Slide 8. Q3 2025 results include a charge of $221 million for acquired in-process research and development, or IPR&D, on a pretax basis related to the Inozyme Pharma acquisition completed on July 1 of this year. This acquisition-related expense represents an approximate impact of $1.10 on a per share basis. The IPR&D charges significantly increased both GAAP and non-GAAP R&D expenses in the third quarter and along with higher SG&A investments across our skeletal conditions and Enzyme Therapies business units resulted in lower year-over-year operating margin and diluted earnings per share, both on a GAAP and a non-GAAP basis. However, looking past the IPR&D charge, BioMarin's underlying strong revenue performance and operational efficiencies drove increased year-to-date GAAP and non-GAAP diluted earnings per share. Further, we recognized lower tax expense during the third quarter due to the timing impact of the Inozyme IPR&D charge on our quarterly estimated tax rate as well as some tax benefits from the recently enacted tax law. Taking these dynamics into account, alongside our expectations for strong revenue growth and continued operational execution in Q4 2025, we are updating full year 2025 non-GAAP operating margin guidance to between 26% and 27% and non-GAAP diluted earnings per share guidance to between $3.50 and $3.60. BioMarin continues to generate robust operating cash flow, reaching $369 million in the third quarter and $728 million year-to-date, contributing to the company's total cash and investments balance of approximately $2 billion at the end of Q3. We expect this momentum to continue, both solidifying the sustainability of our profitability and cash flows and building incremental capital to invest in future growth through business development. Now moving to Slide 9 and to summarize, we have updated our full year 2025 guidance across total revenues, non-GAAP operating margin and non-GAAP diluted earnings per share, incorporating the impact of the Q3 IPR&D charges. This update reflects a net improvement in our expected financial performance, net of the IPR&D charge of about $0.15 per share for non-GAAP diluted earnings per share. We are executing on our business plan so far this year, and today's guidance updates reflect both our year-to-date performance and our confidence in strong top line and profitability growth in the final quarter of 2025. Finally, we are sharing an update on our previously provided 2027 revenue outlook given the high level of interest. Based on the many unknowns and variables impacting our revenue over the next 2 years, mostly the impact of VOXZOGO potential competition, we recognize that there are a range of outcomes from which a single scenario cannot be predicted with enough certainty at this point in time. We have developed a number of scenarios and we will share that the lower end of our range of estimates is in line with current 2027 top line consensus for FactSet, excluding ROCTAVIAN. And on the higher end of the range of estimates, there are scenarios that reach $4 billion in total 2027 revenues, also excluding ROCTAVIAN. But again, given the many unknowns between now and then, we are not providing a specific estimate or more narrow range. Going forward, we will continue to execute on our strategy and monitor the most impactful variables. However, we do not plan to provide additional estimates of 2027 revenues, and we plan to follow our usual process of providing full year guidance at the beginning of each year with the usual quarterly updates. Thank you for your attention, and I will now turn the call over to Cristin for a commercial update. Cristin? Cristin Hubbard: Thank you, Brian. I want to begin by acknowledging the exceptional work from our teams across the world, whose dedication has delivered strong year-to-date results for BioMarin's commercial portfolio. Now moving to Slide 11. We are pleased that PALYNZIQ'S strong performance resulted in another quarter of more than 20% growth, reflecting more patients reaching efficacy and adhering to therapy. PALYNZIQ'S sustained growth demonstrates the PKU community's continued belief in its unparalleled efficacy profile and the importance of reaching normal Phe levels for effective treatment. We are pursuing approval of PALYNZIQ for adolescents aged 12 to 17 in the United States and Europe in 2026, potentially enabling this younger group of people to have access to therapy during an important period of transition to adulthood. Beyond PALYNZIQ, year-to-date revenue growth across our enzyme therapies portfolio reflects increased new patient starts across all products and strong adherence to therapy, reinforcing the durability and high penetration of these treatments despite quarter-to-quarter order timing dynamics. Now moving to Slide 12. VOXZOGO for the treatment of achondroplasia was available in 55 countries as of the end of the third quarter with new launches across multiple geographies. Global expansion and demand drove year-over-year VOXZOGO revenue growth of 15% in the third quarter and 24% year-to-date with growth in patient numbers quarter-over-quarter. For the remainder of 2025, we expect large contracted OUS orders, deeper penetration across our growing VOXZOGO footprint and quarter-to-quarter new patient starts to result in Q4 being the highest of VOXZOGO revenue for the year. Outside the U.S., with a large majority of children eligible for VOXZOGO located, our global footprint remains a powerful growth engine, and we saw strong uptake across key large markets during the quarter. With approximately 75% of year-to-date VOXZOGO revenue generated outside the U.S., we expect significant opportunity ahead as we open new countries and more deeply penetrate countries that currently have access. Leveraging VOXZOGO's best-in-class evidence package of health benefits beyond height, international treatment guidelines recommending treatment as early as possible and broad age label, we are focused on increasing access to VOXZOGO for more children around the world and keeping them on therapy to realize the greatest health benefits. In the United States, the team has been laser-focused on initiatives to expand VOXZOGO treatment. These efforts drove new patient starts across all age groups during the third quarter with the majority of new starts from children under 2 years of age, and we expect that trend to continue. Due to the geographical dispersion and management across a range of specialties for older children in the U.S., we have implemented initiatives to address slowing uptake in that age group, noting that the initiatives will take time to show results. We have expanded this prescriber base across the country and increased the number of children on therapy across all age groups in Q3 versus Q2. Importantly, the strong adherence rates observed among families with children receiving VOXZOGO remain a key indicator of the product's value proposition. Now moving to Slide 13. We look forward to building on the momentum we have established with the breakthrough treatment of achondroplasia as we pursue the next 5 indications in our skeletal conditions business unit. Achondroplasia represents the first of 6 indications we are pursuing for treatment with VOXZOGO and/or BMN 333, our long-acting CNP. With the pivotal data readout just around the corner in hypochondroplasia, we are preparing for a strong global launch should those data be supportive, and I'll share more about that in a moment. We are also advancing our CANOPY clinical studies with VOXZOGO across 4 additional indications, including Phase II studies in idiopathic short stature, Noonan syndrome, Turner syndrome and SHOX deficiency. These Skeletal Conditions represent a total addressable population or TAPP, of approximately 420,000 patients, acknowledging our focus will be on the most severely impacted subset of these children, representing a modest proportion of the total TAPP. We are expanding our leadership position in skeletal conditions, building on VOXZOGO as the standard of care in achondroplasia with future potential indications, the second in hypochondroplasia and 4 follow-on indications across the CANOPY trials. Our next-generation product, BMN 333, offers the promise of even greater efficacy, not just the convenience of the extended dosing interval, and we look forward to starting our Phase II/III study in the first half of 2026. Now moving to Slide 14. Our experience launching VOXZOGO for the treatment of achondroplasia has given us a strong foundation to scale globally. We've built the infrastructure, the relationships and the expertise to execute effectively as new indications come online, and VOXZOGO for the treatment of hypochondroplasia represents a potential significant breakthrough for patients. Hypochondroplasia is underdiagnosed because children with growth delays often do not receive a full diagnostic workup for various reasons, in part because hypochondroplasia presents with a wide range of symptoms and no single sign confirms the diagnosis. And families often face a complicated referral process and barriers to genetic testing, which slows down the path to diagnosis. These challenges mean many children go undiagnosed for too long, and that is why one of our priorities is improving early diagnosis for hypochondroplasia worldwide. We're driving initiatives like genetic reclassification, clinician education and patient and caregiver awareness, all aimed at driving earlier diagnosis. We're also optimizing diagnostic pathways so that in the future, children can potentially access therapy as early as possible. Importantly, we're seeing robust engagement from health care providers across multiple specialties. That enthusiasm reflects growing recognition of the unmet need in hypochondroplasia. This positions us well for the next phase. Our Phase III program in hypochondroplasia is progressing with data expected in the first half of 2026 and a potential launch in 2027. I'll now turn the call to Greg to provide an R&D update. Greg? Gregory Friberg: Thank you, Cristin. Now moving to Slide 16 and to provide a little more color, hypochondroplasia is a serious condition with a potentially broad impact on the health and daily life of those affected. Children and adults with hypochondroplasia can face significantly higher rates of comorbidities and procedures when compared to the general population, covering areas like respiratory, orthopedic, ear nose and throat and mental health. As a result, they often undergo more surgeries, adding to the overall burden of the condition. Beyond the medical challenges, the condition can affect quality of life in very real ways, making everyday tasks harder and creating social and emotional strain. These insights reinforce why it's important to advance treatment options for hypochondroplasia, a condition for which no approved therapies are broadly available today. Now moving to Slide 17. At ASBMR in September, we presented important spinal morphology data for children under 5 years old with achondroplasia. These children were treated on our Phase II CANOPY study with either vosoritide or placebo. Spinal morphology is one of the factors that contributes to spinal stenosis, a leading cause of morbidity in achondroplasia. Spinal stenosis, particularly in the lumbar region, is a serious and all too common medical complication in achondroplasia, resulting in pain, muscle weakness and reduced mobility in the most severe cases. Since measures of spinal canal reach near final size by age 5, early intervention is essential to prevent complications. Radiographs of the spine in our CANOPY study demonstrated that children who received VOXZOGO experienced improved spinal measurements across all lumbar vertebrae and an overall improved curvature of the spine after just 1 year of treatment. As a reminder, these improvements were seen as compared to placebo rather than simply describing the natural history of growing children. As these anatomic measures are often predictors of complications later in life, we intend to follow these patients in our CANOPY extension study to confirm that they translate to reduced morbidity or need for surgical correction. Importantly, with these results, VOXZOGO is the only approved therapy with data showing a positive impact on spinal morphology, and these findings add to the extensive body of evidence supporting VOXZOGO's health benefits beyond improving growth. Now moving to Slide 18 and BMN 333, we will focus on our next-generation therapy for achondroplasia. Last call, we shared that multiple cohorts from our Phase I study had demonstrated superior pharmacokinetic measures of free CNP as compared to another long-acting CNP agent. We're advancing the program and are targeting initiation of Phase II/III in the first half of 2026. We have a strong conviction that the multifold increases in free CNP AUC that we observed with the BMN 333 can translate into clinical benefit. That confidence comes from 3 pillars: preclinical data showing roughly double the attributable growth versus VOXZOGO at high free CNP exposures, human genetics, where natural CNP pathway overactivation leads to extreme height without unexpected safety issues and clinical dose response data from other long-acting CNP agents suggesting that additional growth may be possible at higher exposures. BMN 333 is the right agent to test this hypothesis. And in our Phase I study, we observed multiple cohorts, which met our modeled PK requirements to deliver superior growth. From a design standpoint, the upcoming study will include a dose-ranging Phase II portion followed by a Phase III comparison against VOXZOGO, assessing safety, growth and resulting functional outcomes. Our goal is clear. BMN 333 is designed to deliver superior efficacy versus VOXZOGO without additional safety signals. We've engineered the molecule to safely achieve these higher free CNP levels and our target product profile reflects that ambition. We've aligned with regulators on this approach, and our strategy is to establish a new standard of care for achondroplasia. BMN 333 represents a major opportunity to build on VOXZOGO's success and further strengthen our leadership in skeletal conditions. Finally, on Slide 19, here's a snapshot of a few highlights expected across the pipeline through the coming quarters. As mentioned, in our skeletal conditions portfolio in the first half of next year, we're excited for the Phase III data readout for VOXZOGO in hypochondroplasia as well as the initiation of our Phase II/III registrational enabling study for BMN 333 in achondroplasia. For enzyme therapies, we look forward to extending PALYNZIQ access to younger populations with a potential approval in 2026 of the PALYNZIQ label extension for adolescents aged 12 to 17. In the first half of 2026, we also expect Phase III data for BMN 401 in children aged 1 to 12, providing a potential first-in-disease medicine for ENPP1 deficiency. Our earlier-stage pipeline is also advancing, and we plan to share a clinical update by the end of the year for BMN 351 for the treatment of exon 51 skip amenable Duchenne's muscular dystrophy. At this next update, we intend to share whether data from our 6 and 9 milligram per kilogram cohorts supports our stated ambition to reach mean muscle dystrophin increases of 10% at steady state. And a reminder, this is without additional adjustment for muscle content. Safely achieving this target defines our go criteria for a potential registrational study. In summary, we have multiple data readouts and regulatory milestones ahead, and we look forward to keeping you updated as we execute on these opportunities to drive growth and deliver value for patients. Thank you for your attention today. We will now open the call to your questions. Operator? Operator: [Operator Instructions]. Your first question comes from Phil Nadeau with TD Cowen. Philip Nadeau: My question is on the 2027 guidance. Can you talk a little bit more about the scenarios you see? And maybe more specifically, why are you rescinding the guidance now? What has changed over the last year since it was initially issued? Brian Mueller: Phil, this is Brian. Thanks for the question. I'll take that one. Since we shared the original $4 billion 2027 outlook last year, we've had a year to assess the various factors that have arisen since then, including the impact of potential VOXZOGO competition. There's other puts and takes. We've got our acquisition of Inozyme and the potential for BMN 401 to launch in the pediatric indication in '27. We've also incorporated today's announcement that we're pursuing options to divest ROCTAVIAN. We've developed a number of scenarios to capture what we believe are different outcomes across these key variables across the entire portfolio. But given the many unknowns and their impact on predicting 2027 revenue, instead of taking an official position on those key assumptions, what we've done is outline the range of our lower case estimates and our higher case estimates. I'll share that in the lower case estimate, that reflects the scenario with 2 competitors successfully launching and taking significant share by 2027. And I'll share in the high case, that reflects the scenario where there's a significant delay in the competition, for example, successful intellectual property events for BioMarin. And again, in between there, there are a number of outcomes, highly uncertain at this time and therefore, narrowing the range or coming up with more specific point-in-time estimates at this time isn't appropriate. Again, I'll just finish by saying, reiterating my comments in the prepared remarks that in that lower case estimate for BioMarin, we are still at consensus for 2027. Philip Nadeau: And maybe just a follow-up. I think when you issued the guidance a year ago, you were -- you suggested that competition was factored into the guidance. Do you now have a different appreciation or a different concern about how much share that competition could take, specifically against VOXZOGO? Brian Mueller: Yes. Thanks, Phil. We did the initial work last year following Investor Day when the competitor data was released and at the time, modeled some competitive impact. There was some ability to absorb that into our original forecast at the time, and we did have some other upsides last year. We have taken a different view. We've observed trends in the marketplace, both what we are experiencing in these markets as well as, again, different potential competitor scenarios. And this is not a single point in time estimate. It is not our forecast. We merely wanted to reflect what the range of outcomes could be from our view. Operator: The next question comes from Salveen Richter with Goldman Sachs. Salveen Richter: Could you speak to why VOXZOGO sales were down quarter-over-quarter? And then also just help us understand here the business development strategy, just given that there seems to be so much of a focus on VOXZOGO and how that plays out, but you're kind of stuck from just given all these various dynamics competitively, when can we start to see that business development lever or levers kind of emerge to really add to your portfolio? Brian Mueller: Salveen, this is Brian. I'll take the first part of the question on Q3, VOXZOGO. And yes, slightly down quarter-over-quarter. Looking back to the remarks that we made back last quarter when we signaled that we were expecting VOXZOGO revenue for the second half of the year to be back weighted to the fourth quarter. We noted a couple of specific larger orders where there were true timing shifts, but also just our market-by-market forecast for Q3 and Q4, what ended up happening in Q3 is that, that was just a bit more exacerbated and the timing shifted a little more. I'll point you to 2 things. One, reaffirming the total VOXZOGO range today for the year of $900 million to $935 million, again, just timing between Q3 and Q4. And then secondly and most importantly, steadily adding patients across all markets and all age groups in Q3, which, again, just -- that's the key indicator of long-term demand, and we're going to continue to experience some of these quarter-to-quarter order timing fluctuations. Alexander Hardy: Salveen, thanks very much for your question. It's Alexander. I'll answer the part of your question around business development. First off, I would say we've got strong underlying business performance in both Enzyme Therapies and in Skeletal Conditions. I mean, 11% year-to-date growth across both business units. But we are also producing significant cash flow. Our balance sheet is very strong, and we have conviction that assets are worth more in our hands than they are right now. So business development is a very important part of our strategy right now. We have a number of deals that we're in pursuit of. We've always been a company focused on early-stage collaborations. But what is different or how our strategy has evolved is we're also looking at Phase III pre-commercial and commercial assets because, again, we think we can add value to all stakeholders with those in our hands. So we have a number of deals in the works and in sight. I mean, obviously, business development is never completely within your control, but it remains a very high priority for us, and we're looking forward to sharing more information when we have that. Operator: The next question comes from Cory Kasimov with Evercore. Cory Kasimov: I guess I have a follow-up on 2 questions that were asked. First of all, Brian, I appreciate the commentary you made on the previously issued '27 guidance. I think the way you framed it is helpful. However, I'm curious if you have any qualitative commentary you could also share on your prior long-term mid-2030s guidance with regard both to the opportunity for VOXZOGO as well as the anticipated CAGR for the Enzyme Therapies business. And then a follow-up for Alexander's capital deployment commentary. Given the pretty big cash balance and good operating cash flow generation you alluded to, have you given much consideration to share buybacks? Or are you really just holding that capital for other uses like BD as you were talking about? Brian Mueller: Thanks, Cory. This is Brian. Appreciate the question. And it's a similar analysis, as I shared with the 27 range of estimates there. We are absolutely planning on continued sustainable growth across the business. I'll share that we are still targeting high single-digit sustainable growth rate for the enzyme therapies over time. VOXZOGO, we do plan to continue to grow the brand by deepening patient penetration across all markets, plus the indication expansion opportunities where we will always have a lead. However, the offsets to that, most notably being potential competition are still very uncertain at this time. So we and the investor community will watch all of these variables very closely, and we'll keep you updated in terms of what we're seeing along the way. But again, we feel it's prudent to avoid taking an official position on a forecast with so many uncertainties. So not quoting a long-term growth rate at this time for that reason. Alexander Hardy: Cory, this is Alexander. I'll answer the second part of your question with regard to capital allocation. It's obviously something we discuss with our Board frequently. It's very, very important, obviously, that we're really effective stewards of the significant capital that we've generated through the success of our business. We actually think that business development is the greatest opportunity for us to drive significant incremental growth rate on the top line, and that's the most highly correlated with stock appreciation. We have this strong financial profile. We have this capability in rare diseases, whether it's in research, development, manufacturing, commercialization. And we're convicted that assets are worth more in our hands than where they are right now. In an environment that we have right now in the U.S. with biotech stocks, there are many rare disease companies that are undercapitalized and underresourced and those assets are worth more in our hands. So we are -- as you can tell, we're very convicted that business development is the best use of our capital. That remains our priority, but it's something that as a Board, we constantly look at. Operator: The next question comes from Joe Schwartz with Leerink Partners. Joseph Schwartz: For the upcoming BMN 333 PK data, what specific exposure levels would give you confidence that you can achieve clinical superiority over VOXZOGO? And as you move into a head-to-head superiority trial against VOXZOGO, what is the minimum annualized growth velocity delta over VOXZOGO that you believe could be required to demonstrate clear clinical superiority, drive patient switching and reestablish standard of care in the face of potential competition? Gregory Friberg: Thanks, Joe. This is Greg. I'll take a stab at both of those. With regard to the exposure levels, the stated level that we were looking for from our Phase I PK study was while we were looking at the free CNP levels. So in the case of VOXZOGO, of course, that's the drug itself. In the case of other molecules, it would be the released active quantity. We were looking for increases of at least 3x on the AUC. And as I mentioned in our prepared remarks, we actually saw 3 different dose levels where we achieved that in that ongoing Phase I study. So in our dose ranging, again, we'll have an opportunity to test a variety of levels that met that criteria. With regard to the change in AGV over VOXZOGO, not ready to comment today on an actual number. Sorry to disappoint you there. I will add, though, that we have looked at this very closely, spoken with both clinicians as well as patients, and we've determined a level of differentiation that we think will be not only clinically meaningful, but also has the potential to pull through to the endpoints that really count, which are not just linear growth, but are all of those measures of health and wellness and function that we think, again, these patients deserve from a next-generation therapy. Operator: The next question comes from Jessica Fye of JPMorgan. Jessica Fye: I had a couple on the guidance and a couple on the pipeline. On the guidance, I don't have FactSet. What is the 2027 FactSet consensus, excluding ROCTAVIAN, just we know what that lower bound is? And then the second one on the guidance, maybe just asking about the other 2 elements of the longer-term targets that I don't think Cory mentioned. Should we still expect 40% non-GAAP operating margin starting in '26 that could expand to the low to mid-40s and the greater than $1.25 billion of CFO starting in 2027? Or were those sort of top line dependent and more in question now? And then the 2 on the pipeline, for 351, my understanding is we'll get 6-month biopsy data for the 6-milligram cohort. What should we expect for the 9-milligram cohort? And second one on the pipeline is for hypochondroplasia, can you remind us of the powering for that trial? And is that fig sufficient in your mind? Or is there some minimum delta on efficacy you want to see to meet your target product profile? Brian Mueller: Thanks, Jess. This is Brian. I'll speak to those first couple. So first, just to clarify that FactSet math for you, we are showing FactSet total revenue consensus for 2027 of $3.725 billion, and that includes $75 million of ROCTAVIAN. So that without ROCTAVIAN consensus would be $3.65 billion in '27. And then with respect to the 40% operating margin target next year, that does remain our target. Just a reminder that we've grown profitability and operating margin significantly over the last 2 years due to our strong underlying execution and the focused cost transformation, we do expect that to continue heading into next year and hold that 40% target. I will say that our operating margin objective is rooted in driving efficiency in the business through cost and process transformation, but without compromising value-creating activities. So in the event, in the lower end scenario over time, if we do face a trade-off, and this is less next year or more beyond, if we face a trade-off between preserving those value-creating activities and hitting the 40% margin, we will prioritize value creation to maximize long-term shareholder value. But right now, cost transformation and the target for next year is on track. We'll be prepared to update that again when we issue '26 guidance early next year. Gregory Friberg: Thanks, Jessica, and this is Greg. Let me take your 2 pipeline questions. With regard to 351, just as a reminder, what you can anticipate is a top line result that will be a combination of all the safety data that we have. That will be the 6-milligram and the 9-milligram per kilogram cohorts as well as the early data that we have, we'll be looking at the 12 milligram per kilogram, which is currently enrolling. What we will be also looking at is biopsy results and dystrophin levels from muscle biopsies in both the 6 and the 9-milligram per kilogram cohort. Our goal, again, is to have a level that predicts it steady state that we would be hitting this 10% level, which is a quite ambitious target. That's not correcting for fat and muscle content. That is a level that has yet to be seen in programs targeting exon 51. With regard to hypochondroplasia, we powered the study to measure for an AGV delta similar to what's been seen with VOXZOGO with achondroplasia, though as a quick reminder, the Dr. Dauber data would suggest that growth in hypochondroplasia may be on the order of 1.8 centimeters per year, a little bit more, which gives us confidence again that this is a well-powered study for hypochondroplasia. Brian Mueller: Sorry, Jess, this is Brian. I'll come back again because I realized you had another part to your question about that '27 cash flow and that greater than $1.25 billion. So I'll use your words there. That was top line dependent. And therefore, in the lower case scenarios would be somewhat proportional to the overall revenue scenario. But I will say, again, we're generating significant operating cash flow today, almost $370 million this quarter, over $700 million year-to-date. We've got a number of working capital optimization initiatives that we're introducing across the enterprise over the next 2 years. As Alexander touched on with respect to our capital allocation strategy and business development, these cash balances and the sustained cash flow that we're building has the opportunity to be -- opportunity to be deployed as growth capital going forward. So it's a top priority for the company. But in short, that $1.25 billion was tied to the $4 billion. Operator: The next question comes from Paul Matteis with Stifel. Julian Pino: This is Julian on for Paul. You talked about how your views have changed on the market as well as in thinking about some of these best case scenarios and some of these more bearish scenarios. Can you talk about the contributions of potential commercial competition versus the risk to some of these competitors entering the market? And how much do you think could be attributed to your overall view on being able to have a positive outcome in litigation? Just curious on what you think about that. And then further, on the DMD program, can you just talk a little bit more about the 10% bar that you're sort of setting for yourselves there? Obviously, I think a lot of investors believe that the bar for regulatory approval is meaningfully lower when thinking about exon skippers that are currently approved. So just thinking about what sort of informs that view and if there's any sort of outside case that you could push a program forward that doesn't meet that bar. Brian Mueller: Thanks for the question. This is Brian. I'll start with just outlining those bookends of the lower case estimates and the higher case estimates again. And then I'll hand it over to Cristin to make a couple of remarks on the specific market trends we're observing. So for the sake of making these assumptions and developing these -- the lower end of these estimate scenarios, again, we took the assumption that 2 competitors come to market and that by the end of '27, they've been successful with their launch and take significant share. And then in the higher case estimates, and there's a range in between outcomes, of course, that includes either less competition or success with our intellectual property defense. And again, neither of those are our official forecast. We are illustrating what the revenue impact of those potential outcomes could be over time. And again, at the lower end, comfortable with consensus today. In the higher end, we can still get back to $4 billion. And again, this is excluding ROCTAVIAN. Cristin, do you want to comment on that? Cristin Hubbard: Yes Brian. And so yes, so looking at the overall trends, I just want to note what Brian, you said earlier and we said in the prepared remarks, and that is that we have continued to add patients on treatment with VOXZOGO quarter-over-quarter, and that is worldwide. Now if we dig a little bit into the U.S. market in particular, we do see that the majority of those new patient adds is for children under 2 years old. And we want to see that, right? This is patients getting on treatment early. The international guidelines also reiterate the importance of this. And what we see is our adherence rates are remaining strong. And importantly, we are expanding the prescriber base primarily or mostly in the pediatric endocrinology specialty. But what we've also seen in the U.S., and this is not unexpected for something it's fourth year into launch, we are seeing a slower rate of growth in the older patients. Now we expected this to some extent. One, many of these patients are geographically dispersed and in different parts of the country and therefore, harder to find. Not to mention, they're being managed by different specialties. But I will say that the team has been very focused on drawing out initiatives that will target these patients, and we expect that those initiatives will take a little bit of time to play out. But it's really important that we note that the U.S. is 25% of our overall revenues. And really looking to the ex U.S., which comprises 75% of the revenues, we do reiterate our guidance of $900 million to $935 million this year alone. And if we look into the future, we continue to see VOXZOGO as a strong growth engine for us. This is a product that, as Brian has said, has been first to market in achondroplasia. We expect the same in hypochondroplasia, and we have a robust life cycle management plan behind it, launching in new indications over time, not to mention our asset BMN 333. So an important growth engine for us, but it's important to note the trends and the dynamics that we're seeing in the markets today. Gregory Friberg: Thanks, Julian. This is Greg. Just if I could tackle the DMD question, if that's okay. Yes, we have set a pretty ambitious bar with the 10% level. Just to back up a little bit, of course, Duchenne's muscular dystrophy, the name of the game is opening a therapeutic window in these patients and delivering meaningful results. We've made some choices with the way we've engineered this molecule. We've chosen to use so-called phosphorothioate chemistry instead of what most exon skippers use, the morpholino approaches. That opens this opportunity, again, to open a large therapeutic window for what we think will be a potentially dramatic effect. There are some challenges associated with that as well, though. Weekly administration is required. And the reality is that steady state because of the very long tissue half-life will be out at a year or more. And so what we've done is we've set an ambitious target. We know that we're looking at biopsies at the 6-month time frame. Now as a quick reminder, if we see something between about 3% and 5% at 6 months, that will translate in our model to 10% at steady state. We chose that number because of the human genetic data that suggests dramatically improved functional outcomes in patients that reach those sorts of levels, similar more to a Becker's muscular dystrophy. And we think in the face of some of the characteristics of this molecule, we think that, that sort of doubling of dystrophin as compared to some of the data that's been produced with other exon 51 skippers would be an undeniable advance in the field. And so while we also will be looking, of course, at functional data, we'll look at the totality of the data, that 10% bar is our true north right now to deliver something meaningful for patients. Operator: The next question comes from Chris Raymond of Raymond James. Christopher Raymond: Just 2 actually for me. And Brian, I heard what you said about '27 not being guidance, just a sort of range of outcomes, but -- so I won't say it's this way. But is it safe to say you're more concerned about TransCon CNP [indiscernible]? And I guess it is -- when you talk about that FactSet number being sort of the low end, is it your assumption that Ascendis gets first cycle approval with just 1 year's worth of data when their PDUFA date comes next month? Or does that even -- does that factor into your thinking? I know it's a little bit removed from 2027, but just kind of are you getting that granular in your thinking? And then maybe an M&A question, Alexander. You guys talk about wanting assets that are under resourced and could be better served by the BioMarin infrastructure or the Inozyme asset, 401, can you maybe talk about how you have leveraged and improved upon Inozyme's efforts in terms of patient identification, outreach, other things that you've done to make that asset better? Brian Mueller: Thanks, Chris. This is Brian. I'll start. I appreciate the question. With respect to the 2 potential competitors, first, I'll say I don't think we're going to comment on them versus each other, one versus another. But I will say, this is, I think, the heart of your question, what we've assumed in those lower case estimates that I referred to in that lower end of the range, we have assumed middle-of-the-road assumptions with respect to that -- those companies communicated time lines for their approval, one of which has a PDUFA next month, as you noted. And then following those action dates and communicated approval and launch time lines by those other companies, we then model what a successful launch for those competitors could look like. And that's where we get to this point of the lower end estimate where VOXZOGO remains a growth product for us over these next 2 years. But I think that's all that we'd have to say at this time. Alexander Hardy: Chris, I'm going to -- I'll take the first part of the question and hand it over to Greg because obviously, 401 is very much in the development stage right now. But overall, what BioMarin is now is we're executing rare disease at scale. I mean we're in 80 countries with an incredible muscle. And we're confident that that's going to magnify the potential impact and ability to reach patients with these genetic conditions all around the world. Our capabilities, the ability to find patients to start them on therapy and then keep them on therapy, these are capabilities we've built over 20 years. So very confident that should this product be approved, we'll be able to leverage that and achieve significant things for 401. But right now, our focus is on the execution of the clinical program, and I'll hand it over to Greg. Gregory Friberg: Thanks, Alexander. Yes, Brian, just as a quick reminder, again, the deal closed on July 1. So we're not quite 4 months into the integration at this point. It's premature to cite, I think, too many examples of the impact that, that scale of our capabilities and resources can have on the totality of the program. It is very early days. But I will reassure you again that we're leveraging all of our capabilities, whether it's interacting with regulators around the world, whether it's looking for additional indications. And that first -- that first sign, I think, that we'll be able to talk about in future calls will be our preparation that's ongoing for an adult indication in this ENPP1 deficiency area. We're very much looking forward to taking this asset that the Inozyme team, quite frankly, did a remarkable job being able to recruit these very difficult to find patients, difficult to reach patients on to a pivotal study. And we're looking forward to turning the card over for the ENERGY-3 study in the first half of next year. Operator: The next question comes from Sean Laaman with Morgan Stanley. Sean Laaman: I just get your latest thoughts on orphan drug exclusivity, kids under 5 and what you think about the potential switching to a competitor as the first one. And the second one, if I'm getting the narrative right, without business development, BioMarin is a capital accumulator. Just to get your thoughts on what you think your balance sheet capacity is and what you see as an efficient balance sheet structure. Cristin Hubbard: Sean, this is Cristin. I'll take the first question. And I think it really comes down to that element of a patient switching. So assuming -- as we're looking at there being a potential for more therapies on the market for the treatment of achondroplasia, we do think that there's a distinct difference between patients that are new to therapy that are naive and the choices that they will make and importantly, those that are already on therapy and seeing great efficacy. So what we hear in both our market research and in our conversations with physicians and families alike, we hear that the majority of patients when they are looking at the opportunity to switch, if they are satisfied with their treatment, they will more likely than not remain on therapy. Now of course, some will choose not to, but that is irrespective of orphan drug exclusivity. That is just a decision that a physician, caregiver and patient are likely to make in that moment. We do think that the adherence rates that we see on VOXZOGO, which remain really high, are a testament to the product's efficacy and safety for that matter and the impact that patients and families are seeing. And so it really does come down to that element of a decision made between the physician and the family at that time as to whether or not a switch is appropriate, where we think that, that's going to be a different decision than for those that are naive to treatment. Brian Mueller: And I'll answer the firepower part of your question there, Sean. This is Brian. We estimate that our total firepower is between $4 billion to $5 billion. We're just reporting $2 billion of cash investments on hand, a significant portion of which is available to invest in future growth. And then with our current and growing EBITDA profile, we do have a chance to leverage our earnings and assuming a reasonable ratio, we believe that in total, we've got $4 billion to $5 billion to deploy as growth capital. Alexander Hardy: Sean, I just want to jump in. Did you -- was your question around orphan drug exclusivity as well? Sean Laaman: Sure. It was. Alexander Hardy: Okay. I apologize about that. Yes, I mean, we've submitted a petition to the FDA concerning the orphan drug exclusivity for VOXZOGO to assert that. The timing of that is we'll find that out at the time of PDUFA. So we feel evicted of the status and the importance of the incentive with regard to innovation in these orphan diseases, and that's very much in process right now. Operator: The next question comes from Akash Tewari with Jefferies. Unknown Analyst: This is [ Zakiya ] on for Akash. So you talked about how the lower end of your 2027 scenarios is basically in line with top line rev for consensus, in part due to the changing competitive environment, which includes Ascendis, which had positive data shortly after your initial guide. And now it sounds like we're kind of revising the case estimate ahead of pending Phase III data from Bridge. So number one, why not just wait until the BridgeBio data comes out first half of next year? I mean, should we assume that the lower end of your '27 case is the most conservative case that has seen superior efficacy versus for Bridge? And then in the most bullish scenario, it sounds like you're either modeling at most $4 billion or lower in rev. Just wanted to confirm that I have that correct. Brian Mueller: Thanks for the question. And yes, I tried to capture the primary takeaway from this exercise, which is that we've modeled a significant level of scenarios across all of our portfolio, across all markets and given the various key assumptions. We did that given the significant level of investor interest on the topic. We appreciate that when we gave the original $4 billion guidance at Investor Day last year, that was before seeing the first competitor data here and have made some updates along the way but really outlining the full range of outcomes and including a lower case that has 2 competitors launching successfully, but yet our revenue still landing at current consensus for '27, we thought would be useful. I am not characterizing that as a worst-case scenario nor am I characterizing the $4 billion as a best case scenario. We just decided to share with you a range of our lower case estimates and our higher case estimates. And on the upside, that would include, I mentioned as an example, intellectual property defense success, but it could also include success across the entire portfolio or competing successfully. Operator: That concludes the Q&A portion of the call. I will now turn it back to BioMarin's President and CEO, Alexander Hardy. Alexander Hardy: Thank you, operator. We are pleased with the third quarter results across the business, leading us to raise full year total revenues guidance at the midpoint and reaffirm our VOXZOGO revenue outlook for 2025. We have delivered expanding profitability and significant growth in operating cash flow, bringing our cash and investments balance to approximately $2 billion as of the end of the third quarter. Our financial performance so far this year reflects strategic investments in the Enzyme Therapies and Skeletal Conditions business units, both of which remain central to our growth strategy. Building on this momentum, we look forward to the many data readouts and potential new approvals ahead, along with new potential business development opportunities as we focus on the next stage of BioMarin's growth. Thank you for joining us today. We look forward to speaking with you all soon. Operator: This concludes today's conference call. Thank you for joining. You may now disconnect.
Operator: Thank you for standing by, and welcome to the Syrah Resources Q3 Quarterly Report Update. [Operator Instructions] I would now like to hand the conference over to Mr. Shaun Verner, Managing Director and CEO. Please go ahead. Shaun Verner: Thank you. Good morning, and thanks to everyone for joining us on the call today. With me is our CFO, Steve Wells; and our EGM of Strategy and Business Development, Viren Hira. So after a very challenging 12 months, it's great to be able to report on a more productive quarter with a positive Balama natural graphite ramp-up of operations following restart, sales, strengthening market conditions for Balama fines and supportive policy and market tailwinds for the Vidalia business. This morning, we'll work through the presentation provided with the quarterly report to update you on the important developments in the quarter, and then we'll be happy to answer any questions at the end. So turning to Slide 3, and I wanted to first remind everyone of our clear and differentiated investment proposition. Syrah is the leading integrated natural graphite and active anode material producer outside China with the hard one investment and capability in place, providing a lead time [indiscernible]. Vertical integration from mine to end customer offers a secure source of high-quality critical mineral supply outside China. Our unique asset base is OpEx cost competitive with China and leading ex China and well placed to generate strong margins over the longer term. Our leading sustainability position, including external assessment provides full auditability and traceability from raw material through to finished products. And finally, in response to expected continued strong growth in our end markets, we have clear expansion opportunities that we can execute in line with the needs of our customers and government stakeholders. Moving on to Slide 4, and let me spend a moment now talking about our most important values of safety and sustainability. As we continue to develop a position as a leading critical minerals producer, we're guided by 3 core objectives: being positive for the communities in which we operate, being sustainable for the environment and providing secure supply for our customers. I'm pleased to say that in the quarter, our performance on key metrics measuring safety and sustainability were very strong. Our people and our local communities are critical to our success and the resolution of community and national issues impacting Balama in Q2 this year continued to progress positively through Q3. The health, safety and security of employees and contractors will always remain Syrah's highest priority. As we strive for zero harm in our operations, I'm pleased to report that our total recordable injury frequency rate remains very low at 1.1 incidents per million hours worked across the group, a result which any operation globally could be proud of. During the quarter, I also had the opportunity to meet with President Chapo of Mozambique and Minister Pale of Mineral Resources and Energy Portfolio, who both reaffirmed the importance of Balama to Mozambique and their support for the operation. And we also note in recent days that Total has removed its force majeure notice for its $20 billion LNG project in Cabo Delgado, demonstrating increased confidence in the new government's ability to manage security and developments following the election. Our safety focus is underpinned by our work on critical risk hazard management and in-field leadership interactions. Syrah's operations are clearly aligned with leading global sustainability standards. Last year, Balama became the first graphite operation globally and the first mining operation in Mozambique to achieve the Initiative for Responsible Mining Assurance or IRMA 50 level of performance for sustainability. This achievement highlights nearly a decade of strengthening our differentiated performance, including a strong safety record, investment in training and developing a highly skilled workforce, ongoing community development and human rights due diligence. Along with our ISO certification and external auditing required under our U.S. government funding arrangements, we continue to prioritize health and safety and environmental management systems, confirming our commitment to operating sustainably and driving continuous improvement in this area. A final point I wanted to reiterate on sustainability is the global warming potential of our integrated natural graphite anode product relative to other suppliers. The independent life cycle assessment, or LCA, completed on Syrah's integrated operations by Minviro from Balama origin to Vidalia customer gate estimated 7.3 kilograms of CO2 equivalent per kilogram of anode material produced, which is around 50% lower than equivalent natural graphite anode material from a benchmark supply route in Heilongjiang province in China and 70% below synthetic graphite benchmarks from China. We believe that these efforts give Syrah a competitive advantage as the most sustainable source of integrated natural graphite anode material available at scale today. On Slide 5 and turning now to a more detailed look at our performance and highlights in the third quarter. As we previously reported, after restarting operations in mid-June, in July, we recommenced shipments from Balama and removed the force majeure declaration that had been in place since December 2024. We ran a 6-week production campaign throughout the quarter and produced 26,000 tonnes of natural graphite. Difficult to make clear comparisons with prior periods given that we were ramping up operations after an extended outage, but comparisons will be more relevant in future quarters. Recovery of 68% was below our target as we restarted and worked through some initial maintenance requirements and utilization of older ore feed stockpiled through the outage. But the team focused heavily on quality and volume to meet the 2 initial break box sales in line with customer expectations. Given the outage period had depleted finished product inventory completely, we essentially sold everything we produced in the quarter with approximately 24,000 tonnes sold. With the breakbulk shipments [indiscernible] to Indonesia and our first ever bulk shipment to the U.S., we were pleased to be able to meet some of the pent-up demand resulting from the production outage in this first campaign. Our weighted average sales price for the quarter was USD 625 per tonne, CIF delivered. Our C1 operating cost during the operating period was USD 585 FOB per tonne and the freight averaged $92 a tonne. Importantly, this provides strong indications of better than historical pricing and a good basis for lower C1 costs as we can increase volumes, indicating positive future cash flow opportunity. At Vidalia, as we previously announced, the business claimed and received a $12 million cash paid Section 45X tax credit for the 2024 calendar year in connection with the operations of the anode material facility. Ongoing tax credits are expected in line with the relevant legislation annually, subject to the phasedown period from the start of the next decade. We continue to work through highly detailed and extensive qualification requirements at Vidalia and are making positive progress, albeit slower than we would like. Our product quality and performance are excellent, and we continue to deal constructively with a highly complex mix of policy, commercial and technical factors. We're focused on achieving sales as early as possible, but expect that material sales volumes will only occur in 2026. But we emphasize that our work here will pay off with our investment and development experience demonstrating the considerable time required for others to follow. Our cash flow from operations of negative USD 3 million includes receipts from sales of natural graphite shipments of $12 million, along with the $12 million tax credit I just mentioned. Excluding the tax credit, our cash outflow from operations reduced markedly from the prior quarter with production and sales ramp-up and inventory availability to facilitate further improvement in the quarters ahead. We're highly focused on getting Balama to operational cash flow breakeven as quickly as possible. Finally, the company had a strong cash balance of $87 million following the equity raising that was completed in Q3, noting that there are restrictions on use under our funding arrangements. I'll now hand over to Steve to provide some further detail on our financials and cash flow movements in the quarter. Stephen Wells: Thanks, Shaun, and good morning, everybody. I'll turn your attention to the waterfall chart on Slide 6, which shows our cash flow through the quarter. As Shaun mentioned, our cash outflow from operations in the quarter was $3 million and reflects revenue, operating costs and the positive benefit of the $12 million Section 45X tax credit, which is an operating cost tax credit and can be received as a direct cash payment rather than a credit against future tax liabilities. While we won't have this benefit every quarter, as we noted in our ASX release at the time, we received this credit. We estimate Section 45X credits to be roughly $7 million to $9 million per annum prior to phase down of the credit in accordance with current legislation. In terms of timing, it is likely that direct payments for further 45X credits will be ordinarily received in the second half of the following calendar year. Other movements to call out in this quarter were the equity raising that was launched at the end of July and completed in August and delivered net proceeds of $44 million. The company also received a $6.5 million disbursement from its loan with the DFC, which net of USD 2.2 million of refinancing repayments led to a $4 million net proceeds from borrowings. While operating cash flow was marginally negative as articulated, we also had a net cash inflow from borrowings so that excluding the net proceeds from the equity raise, the group was cash flow neutral for the quarter. In all, we closed the quarter with a cash balance of USD 87 million, which is made up of $27 million of unrestricted cash and $60 million of restricted cash for lender reserves and for use in each of our operating assets. We also have further liquidity available under the DFC facility, which is part of the ongoing DFC loan restructuring discussions. With that, I'll hand it back to Shaun. Shaun Verner: Thanks, Steve, and I'll spend some time now providing an update and our perspectives on various market developments and the government policy backdrop. On Slide 7, you can see on the left-hand chart that the global EV demand picture remains strong, though volatile month-to-month. Over the first 9 months of the year, global EV sales were up 28% on a year ago with strongest growth in China, positive developments in Europe and the spike in demand in the U.S. in Q3 prior to the expiry of the Section 30D consumer tax credit rebate. Anode production growth in China continues to increase strongly, reflecting not only the EV market, but also the rise of energy storage system requirements for data centers and other stationary storage applications. But of course, on the supply side of the picture, synthetic graphite anode material production overcapacity in China has resulted in intense competition for market share and destructive pricing behavior in the domestic market. Prices for synthetic graphite anode material, especially lower-grade products remain below estimated production costs in many cases. Anode margins are also impacted by higher coke feedstock costs and low capacity utilization, which industry observers estimate to be around 40% on average across the Chinese industry. In natural graphite anode material production, finished anode material producers have driven precursor margins and upstream feedstock margins lower over successive spherical graphite purchasing cycles in China. Although a few of the larger anode material producers remain profitable, many Chinese feedstock and precursor suppliers are not currently operating due to poor margins and low demand driven by domestic market price substitution. In the ex-China market, natural graphite anode material demand remains positive and a significant structural shift is underway driven by policy. China export controls and U.S. government tariffs and the anti-dumping and countervailing duty implementation are seeing a shift to lower Chinese exports evident in the charts on the right-hand side of the slide. And that's being replaced by supply from Indonesia for anode material into the U.S. This is positive for both Balama supplying Indonesia and Vidalia, where increasing demand for ex-China supply for commercial and policy reasons is becoming evident for coming years supply. There are continuing deep market challenges and financial pressures across the global battery and input materials sector arising from the dominance of incumbent Chinese producers in both cell production and feedstock and precursor supply. Policy actions are key to the evolution of both demand and pricing for ex-China supply, and we're seeing positive developments in this area. On Slide 8, encouragingly, government policy settings are delivering material potential support to Syrah's strategy to become the leading ex-China integrated natural graphite and anode material producer. Over the course of 2025, we've seen key U.S. government policy changes, in particular, the anti-dumping and countervailing duties investigation and combined preliminary tariff imposition of at least 105% and various other additive import tariffs and policy instruments, including the definition of prohibited foreign entities impacting future availability of the 45X tax credit to battery and auto manufacturers in the U.S., a credit which is hugely important to their profitability. On the supply side, increasing concern arising from China's further export license controls announced in the last few weeks on graphite anode and processing equipment similar to those imposed on rare earth exports are also driving ex-China purchasing diversification decisions from our customers. The combination of these factors is leveling the playing field for ex-China supply and Syrah's major investment and capability build will allow us to capitalize on both the competitiveness and value of Balama feedstock and our anode material from Vidalia for OEM and lithium-ion battery manufacturers in the U.S. Turning now to Slide 9 and a summary of our key strategic priorities and milestones for the coming 6 to 12 months. In this current final quarter of 2025, we'll drive further campaign production to support increasing natural graphite shipments to ex-China customers with a particular target on further breakbulk shipments into the anode material supply chain. This will generate important revenue for the company as we continue to progress our technical qualification steps with Vidalia customers and drive towards sales there, in line with evolving commercial and policy conditions. At an industry level, we're awaiting the final determinations for the anti-dumping and countervailing duties investigation in the U.S., which are due before the end of the year. However, we understand that this timing may be impacted by the U.S. government shutdown. The preliminary duties are finalized. They will be in place for a minimum of 5 years, providing important stability and a mass leveling of the competitive position for Syrah relative to Chinese imports into the U.S. Geopolitical developments, vulnerabilities caused by a concentrated structure of graphite supply and anticipated demand growth, particularly outside China, led to higher strategic interest and transactions being announced in the graphite and battery sector globally. Taking advantage of these conditions, Syrah has commenced a process advised by Macquarie to review strategic partnering options to enable strengthened position from which to pursue opportunities. At Vidalia, we're making strong progress in technical qualification with high-quality product, but immediate customer purchasing intent remains uncertain given the complex policy and market interactions, and we do not expect commencement of material commercial sales volumes from Vidalia this quarter, but rather from 2026. Concurrent with moving our Vidalia operations to commercial sales volumes, we're also targeting additional customer and financing commitments ahead of a potential expansion investment decision, hopefully in 2026. We're optimistic that there are both improving market and policy fundamentals now and a number of clear positive catalysts ahead that have the potential to deliver significant value to shareholders. Our asset and corporate teams are working very hard to deliver against these objectives safely, and we look forward to communicating further progress. I'm now happy to move to any questions. Operator: [Operator Instructions] Your first question comes from Mark Fichera with Foster Stockbroking. Mark Fichera: Just a question on the partnering process. Just can you give maybe an indication or flavor for what types of companies in terms of industry participants or people or companies potentially outside the industry that could be considered. Shaun Verner: Thanks, Mark. So we've previously talked about potential interest in downstream partnering for expansion of Vidalia. And given the fairly significant policy and market developments that we're seeing at the moment, we're seeing increased interest across the supply chain that's prompted us to, I think, more broadly view what options might be out there. And that's the genesis of the process with Macquarie. We have an open mind around the types of potential partners. But clearly, within the supply chain and across the broader battery and auto supply chain, there is significant interest. And the government policy developments have, I think, prompted broader interest from a wider range of financial investors. So we are keeping an open mind. We're at the early stages of that process. We're not communicating any sort of time line or milestones at this point. But our objectives are clearly to identify high-quality aligned partners and get to a position that will strengthen the balance sheet and derisk our growth options. Operator: [Operator Instructions] Your next question comes from Ben Lyons with Jarden Securities Limited. Ben Lyons: Apologies, I haven't had a chance to go through all of the detailed disclosure yet. However, previously, we've talked about advanced conversations with potential customers for Vidalia getting near to actually signing formal offtake agreements. Just wondering if you can possibly give us an update on any materially advanced conversations that are close to finalization. Shaun Verner: Yes. Thanks, Ben. We haven't made any specific disclosure around that in this quarter. What I would say is that our Phase 3 project remains very high on the list of potential suppliers to a number of key customers. We are progressing with technical qualification with a number of customers outside our offtakes with Tesla and Lucid. The key issues at the moment really revolves around the uncertain policy environment. And I think customers are no doubt looking to understand the outcomes of the anti-dumping and countervailing duties investigation and also considering the potential issues around the 45X prohibited foreign entity material cost ratio requirements for non-Chinese purchasing over the coming years as well. So there are a number of uncertainties, not least of which also the export controls and whether those are implemented more stringently out of China. And I think final decisions on further offtakes from customers are really pending greater visibility on some of those key items. And as I said in the call, we expect the anti-dumping and countervailing duty outcomes, which were expected in December, probably to move into January, but that will be absolutely key to Phase 3 offtakes. Ben Lyons: Okay. I completely understand, supportive policy backdrop, but it would be good to get greater certainty to really get those customers to sign up. Shaun Verner: Thanks, Ben. Operator: Thank you. There are no further questions at this time, and that does conclude our conference for today. Thank you for participating. You may now disconnect.
Operator: Thank you for standing by. My name is Jeannie, and I will be your conference operator today. At this time, I would like to welcome everyone to the Third Quarter 2025 Bed Bath & Beyond, Inc. Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Melissa Smith, General Counsel and Corporate Secretary. You may begin. Melissa Smith: Thank you, operator. Good afternoon, and welcome to Bed Bath & Beyond, Inc.'s Third Quarter 2025 earnings conference call. Joining me on the call today are Executive Chairman and Principal Executive Officer, Marcus Lemonis; and President and Chief Financial Officer, Adrianne Lee. I'm also joined by Alex Thomas, Chief Operating Officer. Today's discussion and our responses to your questions reflect management's views as of today, October 27, 2025, and may include forward-looking statements, including, without limitation, statements regarding our quarterly earnings reporting, forecast of and plans for our growth, revenue improvement, profitability or sustained profitability, business strategy, including plans for enhancing customer and shopping experience, our long-term goal of becoming the Everything Home company, margin consistency, improved conversion, expected conversions of retail locations, planned expense reductions, value and monetization of our intellectual property, future strategic ventures, including in PropTech solutions, improved financial performance, progress of and plans for the platforms we invest in, plans for improved efficiencies and technology-based solutions, including AI-driven strategies, and timing of any of the foregoing. Actual results could differ materially from such statements. Additional information about risks, uncertainties and other important factors that could potentially impact our financial results is included in our Form 10-K for the year ended December 31, 2024, our Form 10-Q for the fiscal period ended September 30, 2025, and in our subsequent filings with the SEC. During this call, we'll discuss certain non-GAAP financial measures. Our filings with the SEC, including our third quarter earnings release, which is available on our Investor Relations website at investors.beyond.com contain important additional disclosures regarding these non-GAAP measures, including reconciliations of these measures to the most comparable GAAP measures. Following management's prepared remarks, we will open the call for questions. A slide presentation with supporting data is available for download on our Investor Relations website. Please review the important forward-looking statements disclosure on Slide 2 of that presentation. With that, let me turn the call over to you, Marcus. Marcus Lemonis: Thanks, Melissa. Geez, I feel like we took the whole time to do the disclosures. But good afternoon, everyone, and thank you for joining us for the third quarter call. As many are aware, consumer confidence in spending patterns, they remain uneven, but we continue to outperform our own expectations by staying disciplined, focused and very customer-centric. During the quarter, we completed our name change back to Bed Bath & Beyond, a brand that continues to hold deep connection and trust with consumers across homes. The third quarter marked another strong step forward for Bed Bath & Beyond, our seventh consecutive quarter of measurable improvement towards achieving profitability. We've stabilized the business and are positioned it for growth. Year-over-year, we delivered a 93% improvement in net loss and an 85% improvement in adjusted EBITDA, a 420 basis point increase in gross margin, driven by disciplined execution, sharper focus and much smarter spending. We know what's working, and we also know what still needs improvement. Ahead, we'll place greater emphasis on data-driven decisions, faster technology and customer-focused solution-based experiences. As we enhance our technology and analytics team, we're combining top internal talent with external experts and auditing every part of the customer journey to ensure personalized solicitation, discovery, checkout and post-purchase experiences to deliver the conversion and retention our financial model requires. During the quarter, we strengthened our foundation. We invested an additional $3 million in GrainChain, our blockchain-based supply chain platform; acquired the Kirkland's home intellectual property for $10 million adding another trusted home brand to our family; and raised approximately $113 million through our ATM. We're using this liquidity to strengthen the balance sheet, expand existing investments and pursue strategic investments or acquisitions in non-retail, home-centric technology, data, products, services and select PropTech solutions, all aim at building out our 'Everything Home' business. Homeowners today need simple, innovative technology to help them maintain their homes, manage products, projects and realize the full potential of their property, including a personalized, frictionless shopping experience. Over time, we see PropTech playing a growing role in how consumers maintain, finance, and optimize their homes and how we help them unlock more value from where they live. Across the business, execution is improving, and the results reflect it. We've also continued to invest in the platform shaping our future. Both tZERO and GrainChain are making steady progress. At tZERO, over the last several months, we've driven the kind of change we expect new leadership, a sharper outlook and as of today, an acknowledgment that pursuing a public market listing could unlock new value. While tZERO has multiple growth paths, our focus is on its ability to unlock value for asset managers and homeowners. Fractional ownership, digital transparency and verified title records can reshape how people access and invest in property, directly supporting our Everything Home mission. GrainChain continues to advance as a blockchain platform modernizing supply chains tied to home-related commerce. It improves transparency and efficiency across materials, logistics and finished goods, strengthening trust across the ecosystem that builds and furnishes the home. Together tZERO and GrainChain connect the digital and physical worlds, enhancing transparency, ownership and value creation. Alongside these efforts, PropTech will help integrate the home itself into this ecosystem, linking ownership, supply chain and consumer experience in a way that's unique to Bed Bath & Beyond. With that, I'll turn the call over to Adrianne to review the results. Adrianne Lee: Thank you, Marcus. We are proud of the progress this quarter. Our focus on execution, efficiency and balance sheet strength continues to deliver results. Net revenue was $257 million for the third quarter, down 17% year-over-year or 13% excluding the impact from our exit from Canada. Average order value improved 3% driven by our continued focus on assortment, removing unproductive SKUs and leaning into better best offerings. This was partially offset by orders. However, I'm pleased orders were nearly flat versus the second quarter, highlighting business stability. Gross margin was 25.3%, up 420 basis points year-over-year, driven by lower fulfillment and returns costs and tighter promotions. Sales and marketing expense improved by 260 basis points to 14% of revenue reflecting a more efficient channel allocation and improved return on spend. Notably, our efficiency has been relatively consistent throughout 2025, which makes it a good place to take additional steps towards improved efficiencies. This month, we launched a new private label credit card and an important retention tool step. Technology and G&A expense declined by $13 million year-over-year as we rightsized our org structure, streamlined vendors, and automated key functions. All in, net loss narrowed by -- to $4.5 million, a 93% improvement year-over-year and adjusted EBITDA loss of $4.9 million improved 85%. We ended the quarter with $202 million in cash equivalents and inventory, plus [$36] million from ATM settlements post quarter end. We believe our improved balance sheet provides stability and flexibility for the future. Operationally versus a year ago, average order value is up. Fulfillment costs and returns are down. Marketing is more efficient with owned channels performing better and fixed costs are down, all early signs that our digital and operational work is paying off. With that, I'll turn it back to Marcus for closing remarks and our view on 2026. Marcus Lemonis: Great. Thanks, Adrianne. While we're encouraged by our progress, the footing we found isn't enough. We're not satisfied. Our sales and marketing expense remains higher than we want, and conversion is key. The shopping experience is improving but still requires more focus on the customer experience, improved cart conversion, suggested card building, increased personalization and site speed are at the top of our list. We're integrating AI-driven strategies to improve both the customer experience and platform efficiency, predicting intent, personalizing recommendations and streamlining operations. Look, the groundwork is being laid for lasting improvement in engagement and conversion. Our goal is to deliver a simple user-centric experience that earns confidence and trust. Over the next several quarters, we intend to broaden our connection with customers by focusing on how they live, how they manage and how they create value around their home, whether through the tools that help them create value, manage products or unlock the value in their homes, Bed Bath & Beyond will not be purely a retail play. Transactions, both online and in-store, are meant to build relationships, and those take time to nurture. Our omnichannel transformation is progressing, and we expect all 250 locations converted by mid-2026. Together with our local franchise model, this creates an asset-light network of local operators using our brand, our infrastructure and assortment to reach more markets efficiently. We've also identified $20 million in additional operating expense efficiencies that we expect to realize over 2026, reinforcing that spend discipline remains a priority, specifically targeting a 2026 goal of 12% around our marketing expense. As we look forward to 2026, our focus is clear. expand the Everything Home ecosystem, connecting retail, services and digital innovation, deepen AI and data integration to drive smarter marketing, better conversion and stronger retention, maintain margin discipline, while driving top line [Technical Difficulty] and continue to deliver consecutive quarters of bottom line improvement on a year-over-year basis. The combination of retail scale, technology innovation and asset management makes Bed Bath & Beyond uniquely positioned in the home category. Through our marketplaces, our brands, technology platforms and emerging PropTech capabilities we're building a connected ecosystem that creates long-term value for our shareholders and most importantly, our customers alike. The majority of the heavy lifting is behind us. Now it's time to accelerate, to be more accountable and to have consistent execution. To our team, thank you for your focus and resilience. To our partners and Board, thank you for your trust and support. And to our shareholders, thank you for your long-standing confidence. We're building something enduring and we're doing it the right way. We'll now open up the call for questions. Operator: [Operator Instructions] Your first question comes from the line of Steven Forbes with Guggenheim Securities. Steven Forbes: Marcus, I was curious if you could maybe expand on a comment you just made around targeting the 12% sales and marketing expense ratio in 2026? As we think about that in conjunction with this return to growth narrative that you had within the press release, maybe you could just expand on the conviction there, right? Like where are the efficiencies coming from as you see it? And is the return to growth narrative also indicative of you seeing stability in the active customer base on the horizon? Marcus Lemonis: Let me break that down, Steven, into 2 sections. From a growth mindset standpoint, we believe that we have found the bottom and that we intentionally landed the plane quarter after quarter after quarter in the '25 calendar year in the same range of revenue to prove out that we can take the individual KPIs that built the financial statement and saw improvements in those. And whether that's margin, sales and marketing, et cetera, we knew we needed to do that on a consistent basis, not a flash in the pan. And we felt like the revenue being all over the place big highs and big lows wouldn't give us that really uncontaminated view of where we needed to be. Through that process, though, it also uncovered a number of inefficiencies in our business. And where we really have not delivered from an expectation standpoint is around conversion. And any time you look at driving revenue and improving conversion, the one toggle that's inside of there aside from site sales and overly -- being overly promotional, is how much money are you spending to bring people to the party. And over the last couple of years, I think when the company bought the intellectual property out of Bed Bath in 2023 made the great misstep or miscalculation of assuming that the data that it acquired was going to translate into e-commerce revenue. And what we learned is that we needed to spend a considerable amount of time and money augmenting and segmenting the data to really understand who those customers were, where they originally came from, what their propensity was to do business with us and how are we going to reattract them to our business and more importantly, convert them into the second sale. If you go back and you look at the financial statement at the end of '23 and quite frankly, most of '24, we were just adding as many people to the file with no real logic behind the lifetime value calculation inside of them. It became buy a PLA ad, sell a couch, lose a couple of hundred bucks and then not really worry about how we're going to retain them. What's really been instrumental in 2025 is we've started to see retention start to pick up. And while we're not disclosing those numbers just yet until we know that they're pure and not contaminated, we have started to see return buyers come back on it, quite frankly, more repetitive basis than we had originally anticipated. When we look at the target of 12% for 2026, we know there's a multitude of factors. And I'll start with us making sure that the data set that we have both from our omnichannel partner, our different brands, legacy data is clean, pure, de-duped and really in a condition that can be monetized. I think the second thing that we learned is that one size doesn't fits all. And in 2024 and even the first part of '25 it was like a ready, aim, fire. We would just send e-mails out to everybody. There was no personalization. And we've started testing a high level of personalization using the overstock platform first, largely because the risk wasn't as severe if we made a mistake. We're seeing site speed increase, conversion increase, but more importantly, we're seeing consumers who are served up a personalized experience start to convert better, start to engage better and start to return at a better rate. I think additionally, as we think about it, we have work to do in our performance marketing. Our performance marketing over the previous 12 months has been good. It's been good enough for '25. It is not good enough for '26 and whether that's continuing to cleanse the site, continuing to work on different strategies, we know that between adding internal talent and partnering with external talent, we think there is a ton of money left on the table. Could be as much as $10 million of inefficient spend still existing in our business today. I look at inefficient spend as a [low] [Technical Difficulty] margin transaction with a low propensity to return. That's what I consider inefficient. It's not, did we have a positive ROAS of some amount. We have a finite amount of capital. We want to make sure that we're chasing that capital, chasing that customer with a high contribution margin. 6%, 7%, 8% contribution margin with a high AOV and a high likelihood to return again. That's ultimately the stack that we think we need to build. So there is a lot of conviction and there's a lot of work to get there at the same time. But I wanted to put that number out there both for external purposes and to lay the gauntlet down that in our side of business, [Technical Difficulty] is the mandate. Steven Forbes: That was super helpful. And then maybe a quick follow-up. Nice to see the gross margin progression in the quarter. I don't think you updated but you haven't, right in the presentation, sort of that medium-term target of 25%. So I just wanted to sort of ask the question, if the third quarter has informed sort of your medium-term or long-term gross margin targets or if this is just a more accelerated recapture pace? Marcus Lemonis: I'm going to look at the margin on a transaction basis first, just to kind of give you my holistic view of how I'm thinking about the overall transaction margin. And I'm going to separate it from the product margin specifically inside of that transaction. We have set a short-term to medium-term goal of a product margin between 24% and 26%. And I will tell you that in some cases, we've been very successful at avoiding tariff price increases and getting caught up in that overly promotional, call it, tariff black hole. We do have to recognize, though, that as we start to add our omnichannel business, particularly on the textile side, bedding and towels, they're going to come with a, call it, in-stock margin of 55% to 57%, giving us the ability to get some margin accretion on the soft side of things, on the textiles. Conversely, on the other side, we believe there are a number of categories where we're not as competitive as we need to be. You look at some of the upholstered furniture and some of the patio business and we could be missing out on some market share. Rather than just pulling the ripcord and going for it, we knew that we needed to augment that or sort of mitigate whatever risk would exist in going after market share for those higher AOV transactions with higher gross dollars by supplementing it with the textile margins at 55%, 60% just define that balance. We believe that we'll be prepared and in-stock in the spring of 2026 with that full assortment in our partners' warehouse in Jackson, Tennessee, giving us the ability to be more competitive, far more competitive and far more margin accretive on that side giving us permission to be more aggressive on the furniture side. That's partially what's giving me the confidence that we will be able to maintain that margin range while growing revenue. We just need that offset to help. And then as part of that, the other piece that we noticed in the overall transaction is our product protection warranties have started to really accelerate. And so as we continue to improve attachment on that, we'll look at that overall transaction profitability. As we start to see the private label credit card integrate the transaction, we'll look at the money we make on that. And so we need these other little attachments to more than just the product, whether that's shipping insurance or whether that's product warranties or whether that's using our credit card or something else, we need that whole blend to come together so that the overall transaction is more profitable in '24 to '26. Operator: Your next question comes from the line of Tom Forte, Maxim Group. Unknown Analyst: This is [ Francesco Marmo ] filling in for Tom. Just one quick question for me. Could you please elaborate on your comments of the expected revenue growth on a year-over-year basis expected for 2026? If you can give us some color around what particular initiative you think is going to drive that? And what kind of shape that growth profile should we expect? Marcus Lemonis: Yes. Thank you. As a reminder, we don't provide guidance on either revenue or bottom line, but we are committing today to have positive revenue growth in 2026. Part of that revenue growth is really much of what I said to Steve a minute ago, which is really understanding how we can balance being an asset-light company and utilizing the supply chain and the store footprint of our omnichannel partner to really bring in overall revenue and overall margin increases. I expect that to be -- I wouldn't call it material, but I expect conservatively for it to be positive. I think additionally, we need to continue to explore new categories. And if you look at what we did at Overstock in 2025, we could potentially end up generating anywhere between $15 million and $20 million in Overstock.com alone that came from categories that did not exist for almost half a decade, and that is in the luxury space, in the jewelry space and in some of those other categories, a little bit of apparel as well. And we never want to use those 3 things as foundation builders for our overall business, but we do want to use those things as value anchoring around the rest of the products that we sell. Overstock will and probably always will be largely driven by rugs number #1, patio #2 and upholstered furniture #3. And we're trying to find the balance of how we can coexist with brands and certain values and not contaminate our Bed Bath & Beyond business. On the Bed Bath & Beyond side, what we expect to happen in '26 is the collaboration of the merchandising organizations between our omnichannel partner and our existing marketplace merchandising team. And it's no crack on anybody one way or the other. But I think that the current merchandising team that we have at bedbathandbeyond.com is really just Overstock people reskinned and rebranded. They knew patio, rug and furniture. What we're finding and seeing on the omnichannel side is that, that group, our subject matter expertise in kitchen, housewares, textiles, decor and a variety of other things that our current group doesn't either possess the relationships with or the know-how. And so as we merge those 2 merchant organizations full stop in 2026, you'll see better category segmentation, whether it's in the bedding, bath, kitchen, furniture, patio categories and a deeper and broader knowledge of how to drive more vendors to the site, how to drive increased penetration to the site, and how to present the product in a way that we think is going to ultimately help conversion. Last thing and maybe the most important thing, if conversion improves, revenue will also improve because it is literally spend a certain amount on a day, get a certain amount of traffic and then get a certain amount of conversion. We need at least -- we're operating in the 1.1 range, 1.2 range. We need to be north of 1.3 in the short term. That doesn't sound like a lot. It's probably $27 million to $35 million of revenue with a good contribution margin in the 6% to 8% range, all falling to the bottom line without any incremental expense. So when we start thinking about revenue growth, we -- it's not really a hope to, it's a have to. Operator: Your next question comes from the line of Jonathan Matuszewski with Jefferies. Jonathan Matuszewski: Marcus, my first one was just on what you're hearing from conversations with your suppliers as it relates to their willingness to pass along price on your marketplace, maybe last quarter relative to maybe the first half and whether you're picking up on any change in behavior on their behalf with the more recent tariff noise. Obviously, AOV is moving in the right direction for you guys. I think some of it is idiosyncratic with initiatives to reduce markdowns. But just wanted to get a sense of maybe what you're seeing maybe on a like-for-like basis on your platform. Marcus Lemonis: Yes. There's a -- as you would imagine, and a lot of credit goes out to the suppliers that feed our company, but there has been a lot of pressure on them for longer than just a quarter in dealing with the tariffs and the -- quite frankly, the lack of predictability around them. And I'd like to tell you that I could have a crystal ball on what's going to happen today, tomorrow, next week and next year, and I do not. And what we've told our team internally is we want to really be thoughtful to ensure that the relationship that vendors have with us is a profitable relationship. And we have to find ways to take other frictions out of our own business to mitigate some of the costs that we believe that they should pass on. Now the question is, how do we pass those on? And what's happened in the last quarter is there's been a perfect blend in my opinion, between understanding where the elasticity curve is, understanding how much the vendor can take on and us accepting the willingness to take it on as well. And we believe that as Bed Bath & Beyond rebuilds its credibility in the marketplace, both in-store and online, vendors need to feel like this is a profitable, risk-free relationship. So as we look forward to 2026, we understand that there could be more pricing pressure that could be presented both to the vendors, then to us, then to the consumer. What we have landed on is that, that's probably going to happen. We're almost operating under the assumption as we built out our '26 forecast that that's probably going to happen. What we need to do and what we are doing now is continuing to eliminate those unprofitable SKUs or vendors who aren't giving us a profitable transaction and doubling down with those vendors who we can generate some profitability with. And then as we accept that pressure, coming back around to them and looking for volume targets and rebates associated with them to make the 365-day margin profile look as healthy as we need it to. But I don't know that vendors could absorb much more today, particularly on the upholstered furniture side. And it seems like every time we turn around, the sourcing of origin is shifting. One week, it's China, the next week, it's India, the next week, it's somewhere else, then it's back to China. So it's been difficult to say the least. I think part of the benefit of being an asset-light retailer is that we don't have a ton of risk in our inventory. And even as we think about our huge investment in the omnichannel business, we're not talking about hundreds of millions of dollars sitting in warehouses. We're talking about $150 to $175 per store and enough safety stock in the warehouse. So for us, it's a perfect blend of sourcing and good margin management. Jonathan Matuszewski: That's helpful. And then a quick follow-up. You mentioned removing costs in your own business to kind of soften the blow for vendors. We've been picking up on more and more AI automation in the customer service function as of late, a number of examples in home furnishings -- how do you think about a potential cost savings opportunity for Bed Bath if you were able to increasingly automate a chunk of your potential chat inquiries? And is that something you're exploring? Marcus Lemonis: Well, everybody should assume that AI is an absolute mandate inside of our company as it is in almost every company. I think we're in a unique position where we have a pretty blank canvas, and we don't have a lot of, I would call it, technical debt from a legacy standpoint. Sure, we need to improve our unified code structure and our base of how we're operating. We probably have some work to do in our PIM. And we think that we're at this really interesting tipping point where when we decide to make new investments into a PIM or into a POS in our omnichannel business, we have a clean slate of paper and not a lot of historical contracts are kind of deadweight dragging us down. I've said this internally and externally. AI will solve really 2 problems for our company. One, it will create staffing efficiency. What does that mean in plain English? We will be able to operate with less people and have greater efficiency. That isn't a maybe or I would like to, that's a, it's going to happen in '26. #2, we believe that AI will create a better customer experience. Again, I'm going to tie it back to conversion. Can we find the customers in a more personalized way, communicate to them what they want, when they want it, how they want it and be able to get better conversion in the moment and retention in the long haul. We are, though, however, for the first time in history, not acting like we're the company that can build everything. And you always hear this buy it, build it mentality. And one of things that I did establish during the quarter is that we created a special committee at the Board of Directors level that sits side-by-side with audit and with compensation with governance, in the tech committee. And the Chairperson of that tech committee is quite frankly, a very, very astute person. And we have started to engage in third parties, having people come in and tell us what we need to do in our business and not assuming that this company has to build everything that it does. So I would expect a big bright future. It will happen fast. And we're happy to be on that road map. Operator: Your next question comes from the line of Bernie McTernan with Needham. Bernard McTernan: Great. Maybe just a follow-up from one of the previous questions. Talking about the personalization tools and how they're working on Overstock right now. What's the time line to think about those coming to Bed Bath? And does that inform maybe the quarterly cadence of revenue expecting next year? Obviously, on a full year basis, expecting it to be positive, but how should we expect it to trend throughout the year, acknowledging doing that provide guidance so we might be overreaching here, but figured that would try. Marcus Lemonis: During the third quarter, unbeknownst to probably anybody we moved on to a new unified tech stack at Overstock. And it was a big risk for us. So we chose to do it there because we knew that there were conversion contaminants that can hurt our business. And to be candid with you, we believe that we probably, through the quarter, because of the swap over from Shopify, which is a great system in itself, but didn't give us all the marketplace tools we were looking for. We feel like that transition along with a slow and delayed Shop Pay and Apple Pay integration into Overstock, probably cost us $7 million of top line in the quarter. I could be probably more specific, $6.2 million, if you look at what we lost, 30,000 orders at an average of $210 for the quarter. We feel very good because since we launched it, the revenue has not only bounced back, but the conversion has started to accelerate. And we're going to take one solid more quarter at a minimum to ensure that as we add Apple Pay, as we add Shop Pay, as we add other features and benefits to that platform that we know that we have built it. Now the way that Overstock unified code structure was built is that we put a top layer on top of it. We layered Versal on top of it, which really gave us the ability to speak to each consumer in a very specific way, meaning that customer X and customer Y may, in some cases, see something totally different. One of the byproducts of that stack was that the site moves faster. But again, until we see a 1.3% or better conversion, until we start to see 10%, 15% quarter-over-quarter growth for Overstock, I don't want to tinker or risk the massive revenue that bedbathandbeyond.com does today. I will tell you, however, that we are learning things. So whether it's the cart checkout process and how do we improve the process there, we aren't waiting to bring over certain portable ideas that don't require a whole new evolution. It would be my hope that by midyear maybe middle of third quarter, we will have modified the code structure at Bed Bath & Beyond, and there are 2 simple reasons. One, we hope to have all the Bed Bath & Beyond version stores open by mid-2026. And we hope to be able to have a consumer experience that ties the POS and a new unified code structure together so that the customer can transact however they want, buy online, pick up in store, buy online, ship from store or be in-store and add something to my order that comes from the dot-com business. We've been spending the last couple of months architecting what we think that could look like. We are bringing on some new talent to be announced shortly and some new vendor partners to be announced shortly that we think tie all of that together. And it won't be tied together with one single company. It will be tied together with multiple subject matter experts that integrate properly into something like that. So time, testing and proof is what we are running this business with, which is why you see 7 quarters of material improvement, and we want that to continue. Operator: Due to time constraints, this concludes today's question-and-answer session. I will now turn the call back over to Marcus for closing remarks. Marcus Lemonis: Great. Thank you so much. As we mentioned earlier, the most important thing for us is to have people be comfortable. As the company prepares for 2026, we expect year-over-year revenue trends to turn positive. We believe this upward trajectory, combined with margin consistency, an additional $20 million in operating expense efficiencies and improved site conversion position the company to achieve its profitability objectives. Thank you, and we'll see you next quarter. Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
Antonino Ottaviano: Good morning, and thanks for joining us at Liontown September Quarter Results. My name is Tony Ottaviano. Joining me today is Ryan Hair, our Chief Operating Officer; Graeme Pettit, our Interim CFO; and Grant Donald, our Chief Commercial Officer. So if we can move to Slide 1, please. It's the typical disclaimer and then we move to our highlights slide. I'd like to provide some context today. This quarter was one of execution and we delivered exactly what we said we would. We advanced the underground ramp-up on schedule, maintained a strong and consistent plant performance and strengthened our balance sheet more than $420 million of cash following the August capital raise and also the restructuring of our debt facility with Ford. Importantly, this quarter represents the low point in our planned transition year, and it sets out the improvement story that unfolds from here. The plan is clear and unchanged. We continue to wrap up the underground production towards a 1.5 million tonnes per annum by March 2026, lift recoveries towards our target 70%, and once we process the cleaner underground ore becomes the dominant mill feed and drive costs down progressively each quarter as we fleet the open pit and move to full underground operations at the desired steady state run rate. So the key messages for investors today are: first, execution and delivery. We achieved every operational milestone to plan. During the quarter, we executed the scheduled maintenance, as we highlighted in the previous results. We're executing our OSP strategy to manage our contact tools, achieved a 105% increase in underground production, reaching our 1 million tonne per annum rate by September. We also advanced the open pit towards completion, with the final clean ore bench reached in September and full completion planned for December quarter as stated. These outcomes demonstrate once again the strong delivery against plan and the continued validation of both the ore body and the process flow sheet. Second, our financial strength. Our balance sheet is in excellent shape, providing full flexibility through our transition year. We closed the quarter with $420 million in cash, as I mentioned just earlier, supported by successful $316 million equity raise, and the Ford facility amendment to help us with the debt repayments in the course of the next 12 months. Thirdly, our operational leverage ahead each quarter from here improves the benefit as we get scale and defray our operating costs, but also our all quality improves. With the underground volumes ramping up, open pit completion imminent and recovery uplift underway, production growth, recovery strengthens and cash generation accelerates. The operational leverage is built on visible -- it is visible in the trajectory ahead. Finally, the long-term fundamentals. Lithium demand remains robust, underpinned by strong EV and the accelerating expansion of the battery -- sorry, the stationary batteries. Liontown's high-quality asset, Tier 1 partners and the fortified balance sheet helps us capture the full benefit as the market turns. So in summary, the context of today's results, disciplined execution through the trough, a clear path of improving margins and cash flow, and a business built on sustainable performance. I'll now move to the next slide, please, which is our highlights. The production for the quarter was 87,000 tonnes at a weighted average grade of 5%, and this is in line with us processing the contaminated by the contract ore being the OSP. Contract sales were 77,000 tonnes. Concentrate on hand is 20,000 or nearly 21,000. Our recovery was the 59%, again, as planned, and this will improve as we get the better quality ore. And plant availability, notwithstanding the planned shutdown, of 92%. On the financial side, I've already mentioned the cash imbalance. The revenue was $68 million, but it was impacted by the lower sales due to port congestion in September and the backward looking and we'll talk about this a little bit later in the presentation. Our realized price on a nausea basis plus our unit operating costs were exactly as planned, given that we had lower recoveries due to the OSP stockpiles. If we move to the next slide. I'll now move on to -- and introduce Ryan here, who will go through the slide for us. Ryan Hair: Yes. Thanks, Tony. So safety, our lost time into frequency rate, roughly in line with the previous quarter. The total recordable injury frequency rates up slightly on the last quarter. And as we've noted in the lead end of this slide, we are focused very heavily at the moment on a back to basic safety drive both on physical and mental well-being. Importantly, our leading indicator safety observations are still in line with our previous quarter, which is in line with our plans. And on ESG, renewable power average of 79% for the quarter. And notably, in September, peaked at 83%. And female workforce participation slightly at 23%. If we can move to the next slide. So now talking to operational performance and starting with open pit. So performance remains strong in the open pit and continued to deliver to plan. We mined 292,000 tonnes of ore at 1.3% lithia, which is 77% up on last quarter. The final clean ore zone was reached in September, and completion remains on schedule for the end of the calendar year. Focus this quarter is on completion of the pit in preparation to contractor demobilization as we transition into full underground operation, which we'll now turn to the next slide on underground. So the underground operation, we continue to perform exceptionally well here, and it does remain one of the most important indicators of our progress towards steady-state operation. During the quarter, all mined just over double to 225,000 tonnes, reaching a 1 million tonne per annum run rate in September, which is in line with plan. The pace fill and primary vent systems are now fully commissioned and performing to design, supporting delivery of the plan and improving operational efficiency. The ordering, power reticulation of materials handling infrastructure are working well, providing strong operating reliability across all levels in the mine. We've mobilized a third jumbo and a fourth production drill, which increases development and production capacity and supports continued ramp-up towards 1.5 million tonnes per annum by Q3 FY '26. The orebody continues to perform well against expectations. Volumes and grades are reconciled closely with the mine plan. fragmentation, overbreak and dilution remain well within design parameters. A total of just over 1,800 meters of development was completed for the quarter, up 8% on the prior period. To date, 18 stopes have been mined including 14 in the September quarter with an average stope size circa 15,000 tonnes. Work fronts are expanding across multiple levels, providing flexibility as we scale up production. Our key priorities now are to optimize stope turnover, continuing to increase the rate of development and refine pace fill scheduling to sustain continuous production. In short, the underground is behaving exactly as designed. Infrastructures in place, performance is consistent and the pathway to 1.5 million tonne per hour and beyond is clear and achievable. So now I'll move to the next slide on the process plant. So the plant continued to perform well and most importantly, exactly in line with the plan we outlined earlier this year with lower recoveries in production when seeding OSP material or our contact material during the early underground transition. We said we'd take this approach to manage all feed during the ramp-up phase, and it's exactly what we did. Plant reliability remains strong with 580,000 tonnes processed at 92% availability. Recoveries behaved as expected with a range of 5% Lithia processed during the quarter, averaging 59% with the recovery, reducing a 5% lithium concentrate meeting all customer specifications. This confirms the plan is performing reliably and to expectations. The current recovery is simply a reflection of the range of fleet types processed this quarter. The transition to cleaner underground ore is underway, and as that proportion increases through FY '26, recoveries were lift progressively. Our FY '26 recovery target remains unchanged with around 70% recovery expected by March 2026 as underground ore becomes the dominant feed. At the same time, recovery improvement initiatives continue to advance. The tails regrind Vertimill has been commissioned and optimization work is ongoing across grind size, reagent dosing and water quality to support incremental recovery gains. In short, the plant is running to design recovery curve is following the planned trajectory and the improvement from here is baked into our guidance. And with that, I'll hand over to Graeme. Graeme Pettit: Thank you, Ryan. Next slide, please. All right. Our results for the quarter were consistent with company expectations, reflecting the planned impacts of maintenance and OSP strategy foreshadowed in the previous quarter presentation. Revenue was $68 million, down 29% quarter-on-quarter as a result of lower shipping volumes over due to port congestion and backward-looking pricing mechanisms. Backward-looking pricing for shipments during this quarter resulted in pricing lowers of May and June impacting realized prices for the majority of the quarter. But a closing cash balance of $420 million, but we can look at in more detail on the following slide. Unit operating costs increased 22% from the prior quarter to $1,093 per dry metric tonne sold due to the drawdown of OSP stockpiles. This increase in unit operating costs was anticipated in form part of our full year guidance. What you'll see going forward is that unit costs will trend lower as volumes ramp up and clean underground ore becomes the dominant part fee. All-in sustaining costs increased 10% from last quarter to $1,154 per tonne reflecting the higher unit operating costs. This was partly offset by lower sustaining capital spend. As with unit operating costs expect to see the trend lower through the year. Next slide, please. Our tax position strengthened significantly, finished the quarter at $420 million with 21,000 tonnes of salable concentrate on hand. This excludes $20 million of the Zenith cashback guarantee, which we anticipate to receive in the coming quarters. Cash flow operating activities for the quarter was a negative $44 million and was mainly attributable to a $53 million reduction in cash receipts from customers compared to June's quarter. cash receipts were impacted by lower sales volumes and working capital movements, including an increase in the value of trade receivables and concentrates on hand. Additionally, final pricing adjustments from the prior quarter sales of $8 million further reduced cash receipts. Capital expenditure of $44 million was primarily underground development and the completion of TSF construction. Given the completion of the TSF construction and the completion of open pit mining in the December quarter, you should expect to see capital expenditure reduce in the coming quarters. Finally, on financing cash flows, inflows of $363 million represents the net proceeds of the August capital raise. The closing cash balance was also supported by the deferral of the commencement of principal and interest payments under the Ford facility, which has now been deferred for 12 months. Overall, we have a strong liquidity position and expect to see improved quarterly cash performance that will ramp up the underground and increased production volumes. Next slide, please. right. So our debt profile remains low cost, long dated and highly flexible. This slide is an update of our debt position following the Ford amendment completed in August. The effect of the amendment has pushed the first repayment under this facility out to September 2026. Looking at the maturity profile. Again, it's important to note that while the LG Energy Solution convertible notes are shown in the maturity schedule as a repayment of $414 million. cash repayment can only occur if the facility is not converted into equity before the maturity date of July 2029. Subsequent to the recent equity raise, the conversion price of the LG notes has been amended from $1.80 to $1.62 per share. And in summary, our debt structure provides a very low cost of capital with no near-term maturities, and this allows us to continue to focus on delivering the ramp-up of the underground mine and deliver the full potential of Kathleen Valley. I'll now pass to Tony. Antonino Ottaviano: Thanks, Graeme. So if we move to the next slide, please. We've actually -- when we announced our forward debt restructuring and contract arrangements, we did make some mention around our volume profile going into the future. We've just simply graph this for the market now so that you can see it visually. So there's no new information here, but it just provides a little bit of extra clarity on the contract profile for tonnes. And we are delivering into some of these already. So that's really what this slide is designed to provide. So if we move to the next one, please. Business optimization. Last year, we made $112 million worth of savings, either directly in recurring or some deferred capital. That pursuit becomes relentless. We need to continue with the business optimization because price is still where it is, and we can't lose sight of that fact. And this next exercise, this next phase is going to be a broad engagement and assessment of priorities across everything. So there will be team-led initiatives. There will be a challenge in everything we do, as I said in the slide, that we will challenge the status quo, and we will focus on our purchasing and contracts. So we will -- we've already said this, and we will continue to optimize our cost structure in the current environment. So next one, please. So I'm now back on to Ryan for this last -- next slide. Ryan Hair: Yes. Thanks, Tony. So this slide, which I think we've presented a couple of times now, recaps how FY '26 is unfolding quarter-by-quarter. In quarter 1, we deliberately executed planned maintenance activities and early technical improvements while implementing the OSP feed strategy to manage transitional ore during this ramp-up phase. That strategy delivered exactly as guided, lower production and recoveries were expected, and those outcomes were fully reflected in our prior guidance. Moving into Q2 this quarter. The focus shifts to completing open bit mining and increasing the proportion of clean underground into the plant. Recoveries are already improving month-on-month and as underground volumes continue to ramp up, throughput and grade consistency will lift. We also expect operating costs to trend lower as we shut down the open pit operation and those costs fall away and we get productivities through increasing the scale of the underground operation. By Q4, in the June quarter, we transitioned fully into steady-state operations. The process plant will be operated in design throughput. Recoveries will stabilize at or above 70% and costs were materially lower than in the first half. That's the point where the business begins to demonstrate sustained cash flow and margin that underpins our long-term investment case. So while Q1 represented the planned low point, every subsequent quarter and first year, higher underground production, stronger recoveries, lower costs and greater cash generation, all consistent with the plan we set out at the start of the year. So next slide, please. So recap on our FY '26 guidance. FY '26 remains a transition with the open pit operations, as we've already mentioned, will conclude in December and the underground ramping up. In the first half, we continue to leverage the investment already made in the rod stockpiles processing the remaining OSP material, which we have always said would be temporarily impact recoveries and production and therefore, outline. As we move into Q2, production and recovery performance are expected to improve as the proportion of clean ore in the mill feed increases and the influence of OSP material declines. This uplift will be driven by higher clean oil production from the open pit and the growing contribution from the underground. Sustaining capital remains on plan, focused on underground development, maintenance and equipment replacement to support the ramp-up. Importantly, there is no change to our recovery target of around 70% by Q3 FY '26, and we remain on track for 100% underground production by Q3 FY '26. So in summary, the transition is unfolding exactly as we planned with Q2 marking the start of a steady state improvement across production and recoveries. We now move to the next slide, please, and I'll ask Grant to lead us through that. Grant Donald: Thanks, Tony. I think it's important to highlight that there are 2 fundamental growth factors driving lithium demand. The first is EV sales and the second is factory energy stationary storage. I'll start with EV demand. As you can see here from the chart on the left, EV sales continue apace. Global sales grew 26% year-on-year from January September. Importantly, September results of the first month we've seen more than 2 million EV sales in a single month. This translated so far this year into over 3 million extra EVs sold versus 2024. And as you can see on the chart on the right-hand side, expectations are for that to continue with a very solid CAGR growth rate of 14% according to Bloomberg New Energy Finance. I think importantly, it's also very interesting to see the growth of the rest of the world. that continues to grow at very, very aggressive rates off a small base. But we are probably about a quarter away from Rest of World sales equally in total North American sales. And one of the points highlighted to me by Homburg just yesterday was that EV sales in China now exceed total auto sales in North America. If we go on to the next slide. battery energy storage systems have really come from nowhere and been a strong driver of demand in the last year plus. I think for the last 2 or 3 years, they have exceeded expectations from forecasters. What this slide is demonstrating is that not only is it accounting for 1 unit and every 4 units of growth over the next 5 years. There are also a wide range of views on how fast this market is going. You can see in the chart on the right there from SC Insights that there's a large spread between the investment bank on the left insights in the middle and CATL's prospectus on the right-hand side. I think it's important to note the spread between the high and the low point is over 765 tonnes of lithium carbon equivalent, and that is around half of the total size of volatile market today. Large-scale grid investments are continuing to accelerate, and these are driven by the rise of data centers to support the shift towards as well as making sure that grids remain reliable with a larger share of renewable power penetration. And with that, I'll hand back to Tony. Antonino Ottaviano: Thank you, Grant. So we don't go to our final slide, please. We end where we started. So we continue to deliver on our strategy. I won't repeat things but effectively, we're executing the plan. We're delivering on the underground ramp up. The compete well comfortable conclusion at the end of the year as we planned. And we've strengthened our balance sheet both with the equity raise in August, but also restructuring the Ford debt facility to give us that further strengthening of that balance sheet in the next 12 months as we see the market recovery. So with that, I'll open it up for Q&A. Operator: [Operator Instructions] Our first question comes from Hugo Nicolaci from Goldman Sachs. Hugo Nicolaci: First one for me just on realized pricing. You called out the impact of the pricing lag through the contract in the quarter impacting that realized price. Now that you've recut some of those offtake agreements after September 30, does that mean that we shouldn't expect to catch up on the pricing balance we saw through the September quarter now if you just realize closer to spot spodumene prices? Antonino Ottaviano: Go ahead, Grant. Grant Donald: Thanks, Hugo. I think anytime you've got a large delta from as we saw in May and June, which was the lowest of the year in the 600s versus where we're trading now in the 900s. You have this impact, and it's just a question of when that impact flows through your revenue line. With Q lagging, it just means it's a little bit delayed. So if you go back to last quarter, we actually had the benefit of that where we outperformed index. So we had a 105% realization compared to Fastmarkets spodumene index in the last quarter. Unfortunately, you have to pay the piper and that came through the sales this quarter. So look, I don't think you're going to necessarily completely avoid any of those impacts because those kind of QP impacts are always there in your portfolio of contracts. And I don't think you should necessarily think that we did a onetime switch where we moved Q lag and we skip out the impact of that in the future. So that's not the case. Hugo Nicolaci: And then maybe just on the cost breakdown. Can you just give a bit more color in terms of maybe on a cash basis, the magnitude of spend, let's say, the open pit underground in the quarter? Antonino Ottaviano: Go ahead, Graeme. Graeme Pettit: So during the quarter, they were roughly even Hugo's, so between $10 million and $15 million per month. Operator: Our next question is from Adam Baker from Macquarie. Adam Baker: Port congestion was called out as an issue, which contributed to the delayed shipment during the quarter. Is this something that you're still seeing? And could this resurface during the December quarter? Antonino Ottaviano: Adam, the Geraldton Port has an issue they call surge. And as a result, during the quarter, we had a number of surge events which then built up the number of ships on lean. So we have to weigh our turn in the queue for those ships to come in and be loaded. Now the government is putting money in to resolve this issue in the Jordan port. But I think we potentially will see the back of it in the next quarter, but it's really what nature puts in. Grant Donald: Yes. Adam, just for further context, it's Grant here. It's a bit seasonal. So that last quarter tends to be the seasonal high spot where you see more swell events in surge events in Geraldton. And it did perform quite a lot of queuing and we weren't the only ones impacted. In fact, everyone who ships out of the part that we ship all was impacted. And I'd say that going forward, we shouldn't expect that. But there's always quarter-end chase that's on where everyone is trying to get shipment away before the quarter end, and that would continue. So this one was particularly bad just because of those surge events. Adam Baker: Okay. And just secondly, spodumene concentrate grades 5% for the sales in the September quarter. Just wondering is this a proactive decision that was taken by the team? Or was this just a flow-through as a result of the higher propane Gabbro going through the mill? And I'm just wondering what the time line would be to get that concentrate back to 5.2%. Antonino Ottaviano: Yes. I think your summary is correct, Adam. It is the latter, which is it's a result of the high gabbro percentage, which we showed in the graph. So we expect that to unwind in the next 2, 3 quarters once we get into 100% underground mill feed -- underground ore for the mill. Operator: The next question is from Levi Spry from UBS. Levi Spry: Yes. So maybe just following up on that. So I mean, this quarter, could it be a bit lower than 5%? And just confirming your guidance is at 5.2% in terms of lithium units? Antonino Ottaviano: Yes. So firstly, the latter, our guidance is confirmed at 5.2%. As I said, once we get into more the dominant seed being underground we will see that improve. And sorry, your first part of your question? Levi Spry: Could it go lower in the short term, I guess? What that offset the basis previously? Antonino Ottaviano: Yes. No, we don't anticipate it going lower in the foreseeable future. Our contracts specify a certain amount. So we're conforming to our contracts. Graeme Pettit: So just a little bit more color, sorry. The chart that we included on the process plant, we were endeavoring to then provide a little bit of color on gabbro. We will to try and maximize recovery and still keep within customer specs is great will naturally kind of trend a little bit lower. And what you'll also see on that chart is with the lower gabbro content, grade naturally drips up. So as we stated as the -- both the amount of OSP material, but also the amount of open pit starts to fall away and we get the clear higher-grade material out of the underground naturally gray order to, which is why we are maintaining guidance on both recovery and grade through the course of FY '26 and beyond. Antonino Ottaviano: Yes, and it's a blending exercise so there is an exclusion where it does drop. We will blend it with higher-grade material when we do have those better days. So that's -- it's all about managing it within the contractor specifications. Levi Spry: Yes. Okay. And just on the price piece, just as we're seeing spodumene prices improve here, can you just help us with how we're modeling that now? So I think you -- one of the previous questions was pointing to it. But just in terms of you repricing your resetting your contracts, how do we think about now the read-through on this grade concentrate to the spot price effectively? Grant Donald: Sure, it's Grant here. Look, the pricing reference is all disclosed, right? So now we've got 1 contract on Sports mean index. On contract continues to be on carbonate at least until the end of '26 when that deal expires. And then the other contract is on hydroxide. Operator: The next question is from Glyn Lawcock from Barrenjoey. Glyn Lawcock: Just a couple of quick ones. Firstly, you talked about the cost program under Phase II. Do you have any thoughts on the quantum that could yield or is it too early? Antonino Ottaviano: It is a bit too early. We're just -- we've kicked it off in the last quarter. We're still trying to assemble all the initiatives. So I can't give you a finger just now. Glyn Lawcock: Okay. No worries. Any orders of magnitude you think similar like half of last year? Antonino Ottaviano: It's still too early, Glyn. It will come out. Glyn Lawcock: Fair enough. Okay. And then maybe just -- I know it's very early days in the markets where it is, but it may be starting to show some signs of turn on the back of EFS, et cetera. But the 4 million tonne case, the expanded option, it says in the report you're still doing a little bit of studies towards it. Maybe just an update on where you are on that timing costs associated if you do -- if the market turns enough, you to exercise that option? Antonino Ottaviano: Well, the way it works and the way we're thinking about it is as we get more real-time operational understanding of our plant, we want to make sure that the expansion option is up to date with those learnings. So there's work that's always ongoing as to how do we -- how does that process flow sheet look like as we get more information from the existing operation. So that's one aspect of it. And the second one is, well, I think until we see a sustained improvement in the market, the Board will be live to this option, but it won't be a commitment yet. Operator: We next have a text question from a private investor who asks, what do Canmax look to benefit from the recent capital raise investment? Antonino Ottaviano: I think we've already made some very good money given that everyone who supported us on the raise at $0.73 is now looking at a share price of over $1. So [ Mr. P ], he came to site and was impressed by the operations that we do, and he wanted to invest all of its financial investment. Operator: Another text question from a private investor who asks, is there any clarity regarding the large tenants recently peaked near Sandstone? Antonino Ottaviano: It's an ongoing process. As we look at our long term, as part of that previous question around future expansion, we want to secure access to good water sources -- so we continually look more broadly as to where we can potentially look for the future long-term expansion requirements for water and other infrastructure. So that's part of that process. Operator: Another text question. In your lithium demand forecast chart, which of the best BESS growth scenarios have you assumed? Antonino Ottaviano: Thanks for the question. Look, with any company, I'm always wary of single point expectations or forecasts we look at a range of scenarios. You can imagine that in our forward planning, we're thinking about what would the world look like at the low end and what would the world look like at the top end, and we try and make sure that the decisions we make are robust against either scenario. Operator: Another question from a private investor. Did you have an update on downstream feasibility studies with LG Energy Solution and Sumitomo? Antonino Ottaviano: Yes. We continue to press work with both Sumitomo and LG Energy Solutions on the potential to pull downstream. I think it's no secret that some of our peers are having challenges in that space. The capital involved is significant. And in the current market environment, margins are squeezed. So for us, we continue to do the work to be option ready, but it's not something that we plan to make a decision on in the near term. Operator: Thank you. That's all the questions we have today. Please reach out to the Liontown team if you have any follow-up questions. We thank you all for your time, and have a great day. You may now log out.
Operator: Welcome to the Rambus Third Quarter Fiscal Year 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the conference over to Desmond Lynch, Chief Financial Officer. You may proceed. Desmond Lynch: Thank you, operator, and welcome to the Rambus Third Quarter 2025 Results Conference Call. I am Desmond Lynch, Chief Financial Officer at Rambus. And on the call with me today is Luc Seraphin, our CEO. The press release for the results that we will be discussing today has been filed with the SEC on Form 8-K. We are webcasting this call along with the slides that we will reference during portions of today's call. A replay of this call can be accessed on our website beginning today at 5:00 p.m. Pacific Time. Our discussion today will contain forward-looking statements, including our expectations regarding projected financial results, financial prospects, market growth, demand for our solutions, other market factors, including reflections of the geopolitical and macroeconomic environment and the effects of ASC 606 on reported revenue amongst other items. These statements are subject to risks and uncertainties that may be discussed during this call and are more fully described in the documents we file with the SEC, including our 8-Ks, 10-Qs and 10-Ks. These forward-looking statements may differ materially from our actual results, and we are under no obligation to update these statements. In an effort to provide greater clarity in the financials, we are using both GAAP and non-GAAP financial presentations in both our press release and on this call. A reconciliation of these non-GAAP financials to the most directly comparable GAAP measures has been included in our press release, in our slide presentation and on our website at rambus.com on the Investor Relations page under Financial Releases. In addition, we will continue to provide operational metrics such as licensing billings to give our investors better insight into our operational performance. The order of our call today will be as follows: Luc will start with an overview of the business. I will discuss our financial results, and then we will end with Q&A. I'll now turn the call over to Luc to provide an overview of the quarter. Luc? Luc Seraphin: Thank you, Des. Good afternoon, everyone, and thank you for joining us. Rambus delivered a very strong third quarter with solid sequential growth and revenue above expectations. Product revenue led the way with a double-digit increase and growth that outpaced the market. This was driven by sustained market leadership in DDR5 products coupled with ramping contributions from our suite of new products. We also delivered another quarter of excellent cash from operations, highlighting the strength of our balanced business model, while we continue to execute on our strategic road map. Leveraging our core expertise in signal and power integrity, our strategic focus on delivering complete solutions for high-performance memory subsystems positions us well amid strong secular trends in data center and AI markets. Turning to our businesses. I'm extremely pleased with the performance of our chip business. In Q3, we delivered another product revenue record at $93 million and marked our sixth consecutive quarter of growth. As a cornerstone of our success, our DDR5 RCD leadership and ongoing market share gains continue to fuel our top line growth. In addition, customer adoption of new products is progressing well, with initial production shipments now in motion. Looking forward, we expect our continued RCD market share leadership and increasing contributions from new products to drive full year product revenue growth of over 40%. Our broad product offering, including chips for all JEDEC standard DDR5 and LPDDR5 modules supports the full spectrum of high-performance computing platforms in servers and client systems. Our full chipset solutions offer customers, not only the ease of one-stop shopping, but also the greater assurance of interoperability, which becomes ever more critical as the complexity of design raises alongside data rates. Through ongoing leadership in RCDs and growing traction across our portfolio of new products, we expect continued momentum and long-term growth. Turning to silicon IP. AI continues to drive design win momentum. The increasing pace and diversity of AI accelerator and networking IC designs is driving demand for our high-speed memory interconnect and security IP. Led by our best-in-class HBM4, GDDR7, and PCIe 7.0 solutions, our IP is critical to enabling the performance and security required by AI training and inference workloads. Focused on providing our customers with differentiated features and performance for the most challenging applications, we see momentum across our portfolio of cutting-edge solutions, and we remain on track for our long-term growth targets. As we look ahead, the rapidly rising adoption of AI is driving continued server growth. Training and inference require massive compute infrastructure to support increasingly complex and diverse workloads. Notably, Agentic AI is emerging as a major catalyst for server demand, particularly for traditional CPU-based systems. This is helping to fuel the ongoing hyperscaler and enterprise refresh cycle, amplifying the growth in server unit shipments. In addition, the amount of memory per server continues to grow. AI workloads demand unprecedented levels of compute performance, driving increasing core counts and the need for more memory bandwidth and capacity. This translates to more DIMMs per server, at higher data rates as well as the need for novel high-performance memory solutions and enabling technologies. MRDIMM is a great example of this as it leverages an innovative architecture to double the capacity and bandwidth versus standard RDIMMs. Scaling the amount of memory per server also creates demand for increasingly sophisticated power management solutions that optimize the efficiency and quality of power delivery. We solve these complex problems for our customers with leading-edge products and are pleased to be on track to intercept compatible, future generation systems with our complete industry standard MRDIMM and RDIMM chipsets. Going beyond servers, the release of each new client platform continues the trend of server class technologies waterfalling into AI PCs as performance targets continue to rise. This drives demand for faster memory and more module chip content. Leveraging our fundamental signal and power integrity building blocks, our client chipsets are progressing well with growing customer traction, and we look forward to meeting this rising market need. The secular growth trend in data center as well as the rising performance requirements across the computing landscape driven by AI are highly favorable to Rambus and align directly with our long-term strategy. Our groundbreaking memory connectivity and power management solutions are foundational to enabling the next generation of AI and HPC platforms by advancing system memory bandwidth and capacity capabilities. Having identified the increasing technical demands of data-intensive applications as opportunities, we have developed a road map that builds on our leadership in signal and power integrity to enable robust high-performance memory subsystems. In closing, Q3 was a very strong quarter with solid financial results. Our continued product leadership in DDR5 and increasing momentum in new products are underpinned by the company's strong alignment with positive secular trends in data center and AI. This gives us great confidence in our ongoing success and our ability to deliver long-term profitable growth. As always, I want to thank our customers, partners and employees for their continued support. And with that, I'll turn the call over to Des to walk us through the financials. Des? Desmond Lynch: Thank you, Luc. I'd like to begin with a summary of our financial results for the third quarter on Slide 3. We are pleased with our strong Q3 financial results as we continue to execute on our strategic initiatives. As Luc mentioned earlier, we continued our market leadership position in DDR5 products and have started to see increasing contributions from our suite of new products. Our diversified portfolio continues to deliver strong results, which led to outstanding cash generation in the quarter of $88 million, which further strengthened our balance sheet. Our consistent ability to generate cash allows us to strategically invest in our product road map to drive our long-term growth. Let me now provide you a summary of our non-GAAP income statement on Slide 5. Revenue for the third quarter was $178.5 million, which was above our expectations. Royalty revenue was $65.1 million, while licensing billings were $66.1 million. The difference between licensing billings and royalty revenue mainly relates to timing as we do not always recognize revenue in the same quarter as we bill our customers. Product revenue was $93.3 million as we delivered another quarter of record product revenue. This represents a 15% sequential increase and a 41% year-over-year growth driven by continued strength in DDR5 products and ramping new product contributions. Contract and other revenue was $20.1 million, consisting predominantly of silicon IP. As a reminder, only a portion of our silicon IP revenue is reflected in contract and other revenue and the remaining portion is reported in royalty revenue as well as in licensing billings. Total operating costs, including cost of goods sold for the quarter were $99.3 million. Operating expenses were $64.6 million as we continue to invest in our growth opportunities in a disciplined manner. Interest and other income for the third quarter was $6 million. Using an assumed flat tax rate of 20% for non-GAAP pretax income, non-GAAP net income for the quarter was $68.2 million. Now let me turn to the balance sheet details on Slide 6. We ended the quarter with cash, cash equivalents and marketable securities totaling $673.3 million, up from Q2, primarily driven by strong cash from operations of $88.4 million. Third quarter capital expenditures were $8.4 million, while depreciation expense was $8 million. We delivered $80 million of free cash flow in the quarter. Let me now review our non-GAAP outlook for the fourth quarter on Slide 7. As a reminder, the forward-looking guidance reflects our current best estimates at this time, and our actual results could differ materially from what I'm about to review. The economic environment remains a dynamic environment, and we continue to actively monitor this situation. In addition to the non-GAAP financial outlook under ASC 606, we also provide information on licensing billings, which is an operational metric that reflects amounts invoiced to our licensing customers during the period adjusted for certain differences. We expect revenue in the fourth quarter to be between $184 million and $190 million. We expect royalty revenue to be between $59 million and $65 million and licensing billings between $60 million and $66 million. We expect Q4 non-GAAP total operating costs, which includes COGS to be between $103 million and $99 million. We expect Q4 capital expenditures to be approximately $10 million. Non-GAAP operating results for the fourth quarter is expected to be between a profit of $81 million and $91 million. For non-GAAP interest and other income and expense, we expect $6 million of interest income. We expect the pro forma tax rate to be 20%, with non-GAAP tax expenses to be between $17.4 million and $19.4 million in Q4. We expect Q4 share count to be 109.5 million diluted shares outstanding. Overall, we anticipate the Q4 non-GAAP earnings per share range between $0.64 and $0.71. Let me finish with a summary on Slide 8. In closing, our team delivered strong third quarter financial results, setting another record for product revenue and continued strong cash generation. Our robust balance sheet continues to allow us to invest in market expansion opportunities. Our product portfolio, including silicon IP and chip solutions is strategically aligned to capitalize on the growing opportunities in data center and AI. Before I open up the call to Q&A, I would like to thank our employees for their continued teamwork and execution. With that, I'll turn the call back to our operator to begin Q&A. Could we have our first question? Operator: The first question comes from Tristan Gerra with Baird. Tristan Gerra: You recently quantified the MRDIMM TAM opportunity. Is it fair to assume you can replicate the market share with MRDIMM that you have currently in DDR5? And also, when do you think you can fully realize the TAM that you quantified for MRDIMM? Is that something that we could envision for '28? Luc Seraphin: Tristan, thank you for your question. We're very pleased with the progress we're making with the MRDIMM development. We do believe that with time in the long run, we can reach similar market share as we have with the DDR market share we currently have on DDR5. The timing of that really depends on the rollout of platforms from our main partners on the CPU side, Intel and AMD. But to the extent that they roll out their platform, I think it's fair to say that we're going to ramp in large volumes towards the very end of '26 and probably '27. So '28 is probably a good time to look at this type of market share. But the other thing I would add regarding MRDIMM is that it's a much more complex system. And because of the system requirements, we will need a tight coupling of the chips on that MRDIMM. So there's an opportunity for us to have more content as the interoperability of all those chips on that MRDIMM is going to become very critical. Tristan Gerra: Great. And then as a quick follow-up regarding the recently announced Ethernet scale-up networking architecture at OCP, does that provide opportunities for Rambus on the licensing side? Luc Seraphin: Thank you, Tristan. Our SIP portfolio is very focused on high-speed memory and high-speed interconnect and security. Certainly, with our networking customers and our memory customers, we are on the leading edge of technology, whether it is on GDDR and HBM on the memory side or PCIe 7.0 on the networking side. What we've seen recently is an acceleration of demand for the latest technology. The transition from PCIe 5.0 to PCIe 7.0 is moving very, very fast, and that's certainly an opportunity for us. Operator: The next question comes from Aaron Rakers with Wells Fargo. Aaron Rakers: I've got a couple as well. I guess, first, kind of sticking on the technology evolution of what we're seeing in some of these processors. There's a lot of news recently around the move towards SOCAMMs and SOCAMM2, in particular, is getting JEDEC standardization. Can you help us maybe think about Rambus' opportunity set in SOCAMM2 modules and when maybe you would expect to see that? And any kind of framing of kind of the dollar content opportunity on those modules? Luc Seraphin: Thank you, Aaron. The first thing I would say is that we are excited to see the emergence of these new architectures that actually play on our strength and focus in signal integrity and power integrity. As you know, the first attempt at SOCAMM didn't work that well. And as a reminder, the attempt was actually to take benefit of the low power and high bandwidth of LPDDR, but to put this on modules. And when you put this on modules, you actually break the signal integrity and the reliability of the system. So we are pleased to see those efforts going into JEDEC because I think the industry is eventually going to resolve those issues. And as a reminder, as we said in our remarks, we currently have solutions for all JEDEC module systems, both for LPDDR and DDR and both for clients and servers. So the fact that it's going through JEDEC is actually a good news for us. There will be opportunity for us, certainly opportunity for the SPD Hub chip. There's going to be some development on voltage regulators. But as we said, power management is also something we're focusing on. So we see this as an opportunity. We don't expect the volumes to be very high. These things actually go into system-on-chip solutions, very tight systems where the volumes are not necessarily very, very high. It's early to say what the content is going to be. But that's certainly an area we're going to play and given that the company focuses on both the signal integrity and power integrity. And the fact that it's moving to JEDEC is good news for us. Aaron Rakers: Yes. Very good. And then maybe as a follow-up to that answer is on the PMIC side, your product chipset business did really well this quarter, growing over 40%. And it looks like that appears to be sustainable as we look forward. How do we think about the opportunity of PMIC? How much does that represent of your product chipset business today? And maybe unpack of how quickly you're seeing that ramp looking forward? Luc Seraphin: Thank you, Aaron. The way we look at these products is we have a whole suite of new products, including the PMICs and the PMIC is actually a suite of products. If you remember the product announcements we've made over the last few years, we have the first generation of PMIC family announced in Q2 of last year. The clock driver announced in Q3. Then we have the second generation of PMIC announced in Q4 as well as Gen 2 RCDs and MRDIMMs. And this year, in Q2, we announced the family of PMICs for the client space. So what you see is we do have a whole suite of products that are not -- that are companion chips. We're pleased with the progress this year. In Q2, these chips represented low single-digit contribution to our product revenue. As we indicated, Q3 was on track with mid-single digit. And in Q4, it's going to be mid- to high single digits. So in aggregate, we're pleased with the momentum. But it's not going to be a step function. We have different stages of qualification and preproduction on different modules on different platforms, current platforms and future platforms. We have products that are in early qualification. We have products that are in preproduction, and we have products that are in full production now. But there's a strong momentum. And as these products percolate through the ecosystem, we do believe that we're going to continue to see growth. Now specifically to PMIC, what we have observed is that we have lots of success with a very high-end PMICs. There's a lot of excitement there. They are the most complex PMICs to make, but they're also the ones that are showing the best performance compared to our competition. So that's exciting for us. These very high-end PMICs are going to be linked to next-generation platforms with AMD and Intel, but we certainly have the early generation of PMICs also rolling out in the market. So difficult to separate PMIC from the rest. As I said, we have many products at many stages of development with our customers. But what we see is very strong momentum to grow that revenue quarter-over-quarter given the progress we're making. Operator: The following comes from Gary Mobley with Loop Capital. Gary Mobley: Let me extend my congratulations to the solid results. And I want to start asking about any sort of supply chain considerations first on your side. Do you see any extension of the order lead times that your customers are seeing as they place an order with you given any sort of constraints that TSMC may have? And then away from you, are you seeing any sort of impact on the market any sort of constraints on high-capacity server DIMMs or the DRAM to support that market, considering most of the memory IDMs are prioritizing HBM at this point? Desmond Lynch: Gary, it's Des here. Thanks for your question. Like others within the industry, we are carefully monitoring the supply situation. With regards to Rambus, I was pleased that we were able to grow our inventory in the third quarter. We grew inventory by about $6 million, which will support our growth in Q4. In addition, I would highlight that we've not seen any notable buildup of customer inventory in the sort of third quarter. Really looking at our own supply chain and manufacturing, in terms of front-end manufacturing, it is important to note that we are not on leading-edge technology nodes. And on the back end, we continue to have strong long-term relationships with our manufacturing partners. And we do see some pockets of tightness, and we continue to work with our partners to improve the lead times there. And looking at Q4, I would expect to see a slight increase in our own internal inventory to support customers' Q1 2026 demand. I would say, overall, we have a robust supply chain, which has enabled our strong product revenue growth, and we'll continue to work with our manufacturing partners to support our growth objectives going forward. Gary Mobley: Got it. That's helpful. In the RCD market specifically, I would assume that you're running about or above 40% market share. Do you see a natural cap there given that this is more or less sort of a 3-supplier market, maybe 2 additional suppliers in sort of the nascent stages of their development. Do you see that as a natural cap? Or do we see maybe 45%, 50% market share on the horizon? Luc Seraphin: Thanks, Gary. What we said last year in 2024 is that on the DDR5 generation, we were in the early 40% market share. We actually disclose market shares once a year because of some fluctuations we have every quarter. But if you look at the current outlook for this year, it looks like we're going to continue to grow share. The market for servers or DIMMs has increased mid- to high single digit. And as Des indicated in his prepared remarks, we grew 40% year-over-year. So we have certainly gained share this year on this market. And we still believe we can continue to gain share. We always have the objective of 40% to 50%. So there's room to gain share. We're also early in the DDR5 cycles. It's been 3 years in, and we expect the DDR5 cycle to last about 7 years. So we do expect to continue to have the possibility of winning share. The other thing is I think that when the products become more complex and the interoperability becomes more complex as well, because we have a complete chipset that's going to help us continue to gain share. Certainly, there's going to be a cap, but we don't see the cap in the near future at this point in time. Operator: The next question comes from Mehdi Hosseini with Susquehanna. Mehdi Hosseini: This is for the team. I think it would be very helpful if you could remind us how to think about different TAM and give us an update. In the past, we have talked about the buffer chip companion, CXL HBM IP. Perhaps with the diversification in the DRAM with the inclusion of MRDIMM, there are some changes there. And in that context, it would be great if you could give us what the TAM will look like, let's say, 2 or 3 years from now? And I have a follow-up. Luc Seraphin: Yes. Thank you, Mehdi. So we'd like to separate the, I would say, the product from the silicon IP. On the product side, we estimate the TAM for the RCD market to be around $800 million. Then you add to this $600 million of companion chips, half of it being power management chips and the other half being the other companion chips. And then -- and you can think about the market growing mid- to high single digits in aggregate. There's additional, I would say, tailwinds in to this with the increase of number of channels and the increase of number of DIMMs per channel. But this will translate into -- not into a step function, but some tailwinds to that TAM. Then in addition to that, we see a TAM of about $600 million for the MRDIMM itself, which adds to this. But the MRDIMM as we discussed earlier, is not going to hit the market before very late in 2026, '27, depending on the rollout of the platform from AMD and Intel primarily. Now if you turn to the Silicon IP business, it's hard to have a TAM number for the Silicon IP business. What I would say is that as part of our portfolio, we are at the center of what matters for AI. Our portfolio is focused on PCIe 7.0 and the future generations on HBM4 and future generations and on GDDR and future generation. So there's a pool for design staff on all of these IP. But it's hard given the type of business model on the licensing side, it's hard to estimate a SAM for this. But what I would say is that we are on track to meet our growth targets for that business of double-digit growth. Mehdi Hosseini: Okay. Great. Just a quick follow-up here. Should I assume that MRDIMM margin is comparable to product? Or would it be more like an IP type of the margin? . Desmond Lynch: Mehdi, it's Des here. In terms of the MRDIMM, this is obviously a chip product that we will be selling here. What I would say is I would keep it within the same sort of margins of our product business. The long-term goal of that business is 68% to 65%, and I would keep the MRDIMM margins within that. We continue to produce strong margin results on the chip side, and we're really pleased with the portfolio that we have. Mehdi Hosseini: Sure. Great. And my second question has to do with just looking beyond the December and seasonality. I'm under impression that when it comes to servers and companionship, maybe there could be better than seasonal trend into early part of the '26. And I want to see how you're looking at those trends. And I'm not asking for a guide, I'm not asking for a specific revenue guide, but just trend -- with better than seasonal trend that I see in the server and AI would also apply to Rambus. Luc Seraphin: Thank you, Mehdi. We do see the market for servers to continue to grow between mid- to high single digit, going into next year. There's some tailwinds, as we said, because of the growth of inference, for example, or Agentic AI, that's going to create tailwinds for standard CPU types of solutions. So we do see a growth between mid- and high single digit for the server market next year. Typically, in Q4, we have our customers being prudent with the inventory before the year-end and that happens every year, but that's included in our guide for Q4 that we just gave. And things are going to be back on track in Q1 of 2026. We keep saying that one of the reasons we don't guide beyond 1 quarter is that things are changing very, very fast, and visibility is not the best. But we do see all the favorable tailwinds for our business going into 2026. Operator: The next question comes from Kevin Cassidy with Rosenblatt Securities. Kevin Cassidy: Congratulations on the great results. Just looking at the market, the DRAM market and maybe Gary touched on it with the lead time stretching out and prices going up. Is there any concern at all of servers de-specing as the price of DRAMs go higher? Or is the need for DRAM and AI applications so strong that there won't be a de-specing? Luc Seraphin: Well, that's a good question for the memory vendors. I would say that historically, we've been kind of agnostic to DRAM pricing. We -- I think what the industry is going to have to go through is to deal with the growth of demand for data centers in general, and to have some arbitrage between the different types of memory. But I don't think that the DRAM pricing is going to have any impact on the demand for our products. Des? Can you hear me? Desmond Lynch: Yes. Kevin, I would just add in the fact that the inventory levels within the channel continue to remain sort of lean. When I look at inventory in Q3 versus Q2, and this is of our chips that our customers are holding. We saw no notable inventory build. And I would really put that down to 2 factors. One, it's been the multiple generations of DDR5 being in the market and really the legacy overhang of overordering of DDR4 inventory from a couple of years ago. So I would say the inventory position just now is lean in terms of our sort of chips. Kevin Cassidy: Right. Okay. Great. And maybe just along that, you mentioned you're 2 years into this DDR5 cycle and maybe it's 3 generations of DDR5 modules. What's the bell curve like of your shipments? And what is that doing to ASPs as you go forward? . Desmond Lynch: Kevin, it's Des. We've been really delighted with how we've been able to execute on the DDR5 cycle. We're in the middle of a fast-paced DDR5 transition, with multiple generations in the market today. I would say that in Q3, the predominance of our shipments was the second generation of DDR5 with growing in early production volumes of the third generation coming into the market. And as I look ahead into sort of Q4, I would still expect the predominance to be the second generation with really growing contributions of the sub generation coming into the market. In terms of pricing, what we've talked about in the past is when we move from one generation to the next generation, we do see a bump up in sort of pricing, which is obviously beneficial for us from there. And we'll continue to sort of see that benefit going into the numbers. We saw the benefit in the gross margin outlook in the third quarter on the product chip side, which increased about 300 basis points, which was really a combination of the product as well as continued manufacturing savings coming into the model. So overall, we're really pleased with how we're executing on the DDR5 generation. And really irrespective of what generation is ramping into the market, through our early investment in continued leadership, we have confidence in our overall market share and leadership position. Operator: The following comes from Nam Kim with Arete Research. Nam Hyung Kim: I want to ask about outlook for CXL. There are a lot of perspective on how this market develops, especially with the CXL 3.1 expected next year. And your competitor like Montage becoming increasingly aggressive on the controller side. At the same time, greater adoption of MRDIMM in the future could address current memory capacity constraint. So can you share your view on how you see CXL market evolving and what the Rambus' strategy is in terms of controllers or other engagement in this space? Luc Seraphin: Thank you, Nam. We have 2 plays or 2 possible plays in CXL. One is on the Silicon IP business. We do have CXL controllers of different generations, and this has been part of this focused portfolio I was talking about where we do have traction. A lot of people developing chips need a CXL interface, and they have the possibility of buying that interface from us. So this has been one of the driver vectors of our growth in Silicon IP business. But what we have observed is that every one of our customers tends to develop a bespoke solution for one, sometimes only 1 or 2 customers. So the chips that use the CXL market is very fragmented. That's how we look at it. And although we did have and we do have a CXL product development, we believe at this point in time that it does not make economic sense to actually roll out that product in the market because what we noticed is that we would have to develop a specific chip for a specific customer, who themselves will have a specific customer as well. So we'd rather play on the SIP side for CXL. So what I would say is that CXL is very exciting in terms of being an interface that is accepted by everyone. But for us, it's not that exciting in terms of products. And we do believe that the usage model that is the most promising is actually memory expansion. And to your question, a very good question. The MRDIMM answers that because it uses the current infrastructure of standard servers. And just by using this MRDIMM type of architectures, we can double the capacity and the bandwidth using that same infrastructure. So that's the option we've taken at this point in time. As the market develops, as we've done in the past, we can pivot, but at this point in time, this is where we are. Operator: The following comes from Kevin Garrigan with Jefferies. Kevin Garrigan: Let me echo my congrats on the results. On the MRDIMM opportunity, you talked about customers starting qualifications. I mean is there anything more that you need to do or can do to kind of help yourselves capture share there? Or is it pretty much all in the customers' hands at this point? Luc Seraphin: It's in customers' hands, our hands and the hands of the people who deploy the platforms like Intel and AMD because they have to be ready with their platforms as well. But I would say, on our hand, what plays in our hand is really the fact that we have a complete chipset for MRDIMM. And that's critically important because when you double the capacity and you double the bandwidth that interoperability is critical to the MRDIMM actually working. And I think that customers are going to be looking at their suppliers like us to really help them not only on the development of the chips but also on the testing of the whole platform, given how compact it's going to be and how fast it's going to have to run at. So this is what I think is going to play in our hands. The fact that we have invested for a long time in signal integrity and power integrity allows us to have a complete chipset and having a complete chipset is going to help us with interoperability testing with our customers. Kevin Garrigan: Yes. Got it. Got it. Okay. That makes sense. And then just as a quick follow-up, going off of a previous question in your silicon IP business. I know you guys are doing well in HBM, but can you just talk about how traction has been with PCIe 7.0 and Secured IP in that business? Luc Seraphin: I'll start and let Des jump in. Typically, we don't split these things, but at a high level, security is about 50% of our business and between controllers, memory controllers or PCI controllers, that's the other 50%. I would say security is widespread in terms of its application. It's really going into lots of applications with lots of customers in very different markets. PCIe and HBM, we tend to work with a large number of customers and much smaller, and we tend to work on the bleeding edge solutions for these. So we mentioned HBM4 and PCIe 7.0. So we typically work with large customers who need to develop the latest and fastest solution mostly for the data center and the AI market. So it's a different dynamic there. Higher -- typically, we have a higher ASP, longer-time development with the bleeding edge solution for memory and PCIe. It's a much broader and faster cycle on the security side. That's the way to look at it. Operator: The final question is a follow-up from Aaron Rakers with Wells Fargo. Aaron Rakers: Thanks for doing the follow-up question. Just kind of thinking back again to the architecture evolution and this AI demand that you're seeing. When you guys look at your RCD business today, how do you assess kind of the number of channels today that you're shipping into on a per socket or per CPU basis, and how that has evolved? And whether or not moving from 8 to 12? And do you see 12 going to 16 channels as we look out into '26? Luc Seraphin: Thank you, Aaron. Certainly, AI workloads need more memory than standard types of applications and more bandwidth. So the very fact that the industry is converging to 12 channels is good. But remember, the -- it's only lately that Intel moved to 12 channels. So it's going to have a, I would say, a modest impact, but positive impact. We do see these memory -- these CPU vendors announcing the 16-channel solution, and that's going to be necessary. There's talk also no plans of going beyond maybe to 20, but the issue is you cannot just add channels after channels. It creates constraints on the packaging designs and the chip designs. So I think there's going to be a limitation there. But that's certainly a tailwind for us. That's going to help, as we said earlier, continue to grow our product business. Aaron Rakers: And on that channel discussion, how does that work with MRDIMMs? Luc Seraphin: So the MRDIMMs is going to intercept given the next generation of platforms on AMD and Intel. These next-generation platforms on AMD and Intel, they announced 16 channel. But MRDIMM is a very dense solution. So the number of DIMMs per channel is going to be the question. But these new platforms for Gen 5 are going to be around 16 per -- 16 channels per CPU, and that's the generation that intercept MRDIMMs. Operator: I will now pass it back over to Luc for closing remarks. Luc Seraphin: Thank you to everyone who have joined us today for your continued interest and time. We look forward to speaking with you again soon. Have a very good day. Thank you. Operator: Thank you. This now concludes today's conference.
Operator: Good day, ladies and gentlemen, and welcome to the Agilysys 2026 Second Quarter Conference Call. As a reminder, today's conference may be recorded. I would now like to turn the conference over to Jessica Hennessy, Vice President of Operations and Investor Relations at Agilysys. You may begin. Jessica Hennessy: Thank you, [ Carmen, ] and good afternoon, everybody. Thank you for joining the Agilysys 2026 Second Quarter Conference Call. We will get started in just a moment with management's comments. But before doing so, let me read the safe harbor language. Some statements made on today's call will be predictive and are intended to be made as forward-looking within the safe harbor protections of the U.S. Private Securities Litigation Reform Act of 1995, including statements regarding our financial guidance. Although the company believes that its forward-looking statements are based on reasonable assumptions, such statements are subject to risks and uncertainties that could cause results to differ materially. Important factors that could cause actual results to vary materially from these forward-looking statements include our ability to achieve the provided guidance levels, maintaining sales momentum, the ability -- the company's ability to convert the backlog into revenue and the risks set forth in the company's reports on Form 10-K and 10-Q and other reports filed with the Securities and Exchange Commission. As a reminder, any references to record financial and business levels during this call refer only to the time period after Agilysys made the transformation to an entirely hospitality-focused software solutions company in fiscal year 2014. With that, I'd now like to turn the call over to Mr. Ramesh Srinivasan, President and CEO of Agilysys. Ramesh, please go ahead. Ramesh Srinivasan: Thank you, Jess. Good evening. Welcome to the fiscal 2026 Second Quarter Earnings Call. Joining Jess and me on the call today at our Alpharetta, Atlanta headquarters is Dave Wood, CFO. As has become customary in these updates, let me cover the details pertaining to sales and selling success first before switching to revenue, profitability, guidance increases and other business updates. We measure sales in annual contract value terms. We continue to exclude from our sales numbers, all aspects of the Marriott PMS project, including those pertaining to services sales. Fiscal 2026 second quarter was our best ever July to September period of sales and the second best of any quarter so far. The first half of this fiscal year was the best first half sales start to a fiscal year in our history. We can slice the sales numbers in various ways, but the long and short of the sales story is our current business momentum is excellent. All the years of diligent reengineering of the core products and the addition of 20-plus add-on software modules to create a comprehensive ecosystem of cloud-native, world-class hospitality-focused software solutions have created considerable competitive advantages for us in a hospitality technology environment that otherwise seems starved of genuine innovation and significant R&D investments. It's becoming easier for prospective customers to see the obvious pace of innovation benefits of working with one provider for as much of the required ecosystem as possible. When customers come up with an enhancement that involves changes to multiple software modules, they can clearly see who the only provider is who is capable of getting the required innovation done across all the pertinent modules in quick time. These advantages have been showing up in our sales numbers during recent quarters. In addition, the tailwinds of AI are helping us improve all areas of the business, especially the modernized software solutions, which are well positioned to take on the engineering of groundbreaking innovations that AI tools are now helping enable and increasing our competitive advantages at an even faster rate. Sales levels during the quarter were good across the various sales verticals, especially gaming casinos and international regions. Looking at sales levels during the first half of fiscal 2026, Q1 plus Q2 compared to the first half of last year, fiscal 2025. Overall global sales were up 17%, 1-7, were up 17%. But more importantly, subscription sales were up 59%. Foodservice management, FSM sales were up more than 2.5x. International sales were up 36%. Gaming casino sales were up 15%, 1-5, were up 15% despite last year being a big record sales year. Point-of-sale POS products, including add-on modules were up 23%. Property management systems, PMS products, including add-on modules, were up 34%. Inventory procurement for food and beverage products more than doubled. I will spare you recounting the entire list, suffice to say that our current business momentum is good, fueled by increasing sales success levels, which are, in turn, driven by growing product ecosystem superiority, which is sustainable and getting more pronounced and visible with every passing quarter. The modernized set of software solutions has now been in the field for anywhere from 1 to 3 years, and we continue to grow the number of reference customers who have good return on software purchase investment stories to tell. Considering that the total addressable market we serve is something like a couple of orders of magnitude bigger than our current size, we still have a long growth path ahead of us. As we continue to solve the challenge of today's Agilysys not being known well enough in large swaths of the hospitality market. International sales levels had another strong quarter during Q2, growing by more than 35% over the prior year. The ecosystem is resonating across global markets and customer needs for a unified solution set is driving more awareness and more global wins. One such win during Q2 was Rudding Park in Harrogate, England. This beautiful family-owned luxury resort, which I had a chance to visit recently located in Northern England, includes multiple golf courses and award-winning spa, upscale dining and event space. They selected as many as 21 Agilysys software solutions, including POS, PMS, service optimization, booking engine, sales and catering, golf and spa. Fiscal 2026 Q2 Foodservice management, FSM sales was twice as high as Q2 last fiscal year. The new modernized and unified POS platform is performing well in the field. And given we no longer need to mix old and new technologies and new implementations, they are becoming increasingly simpler to implement and manage, giving us strong credibility within the FSM vertical to execute on promises made. FSM sales results have not only been great during the first half of this fiscal year, but we are also seeing good momentum for continued good performance through the rest of the fiscal year. We are pleased to see FSM customers renewing and deepening their trust in our POS solutions again. The other sales verticals also generated strong results. Both gaming and hotel resorts and cruise ships, HRC verticals returned strong sales quarters. A few notable multiproduct new customer wins during the quarter within HRC included Naturally Pacific Resort on the Coast of Vancouver Island, Canada, who selected 15, 1-5, who selected 15 Agilysys products including PMS, POS, golf, reserve and spa to manage all their luxury amenity, guest experience options. And Waco Surf Waterpark and Hotel Resort, the largest inland surfing and sports facility located in Waco, Texas, who selected 13, 1-3, selected 13 Agilysys products, including PMS, POS, mobile ordering, membership and the recently introduced Guest App to increase operational efficiencies and provide exceptional guest experiences. During Q2 fiscal 2026, July to September, we added 18, 1-8. We added 18 new customers, excluding Book4Time, and all of them were subscription-based sales agreements. Each of these new customer sales wins included an average of 7 products per deal, which is a new high for us. PMS customers continue to invest in the multiproduct ecosystem with an average of 14, 1-4, with an average of 14 products per deal when PMS was part of the purchase suite. We also added 87 new properties, which did not have any of our products before, but the parent company was already our customer. Of the 114, that's 1-1-4. Of the 114 new properties added during the quarter across new customers, new properties of current parent customers and Book4Time, 108 were either partially or fully subscription-based. In addition, there were 93 instances of selling additional products to properties, which are already running at least one of our other products. These 93 instances involved a total of 241 new products sold at the rate of 2.6 products per new product sales agreement, which is the highest level we have seen so far. Now on to revenue. Fiscal 2026 Q2 revenue was a record $79.3 million, the 15th, 1-5, the 15th consecutive record revenue quarter, 16.1%, 1-6, 16.1% higher than the comparable prior year period. Overall, revenue during the first half of fiscal 2026 Q1 plus Q2 was $156 million, 18.4% that is 1-8, 18.4% higher than revenue during the first half of last fiscal year. Fiscal 2026 Q2 recurring revenue grew 23% year-over-year and 4.8% sequentially quarter-over-quarter to a record $51 million. This recurring revenue year-over-year increase was driven mainly by subscription revenue increase of 33.1%. This is now the seventh consecutive quarter of overall subscription growth of greater than 30, 3-0, greater than 30%. Subscription revenue now constitutes 65.5% of total recurring revenue compared to 60.5%, that is 6-0, 60.5% Q2 last year. Subscription revenue from POS and related add-on modules grew by 18%, that is 1-8, grew by 18% year-over-year and organic subscription revenue from PMS and related add-on modules grew by 55%. Fiscal 2026 Q2 was the best quarter on record with respect to the sum of annual recurring revenue, ARR of all subscription projects implemented during the quarter. The extent of subscription ARR installed during fiscal 2026 Q2 was 79% higher than the comparable period last year. And total subscription ARR installed during the first half of fiscal 2026, Q1 plus Q2 was 50%, 5-0, 50% higher than during the first half of last fiscal year. The increased velocity of project implementation has been a strong contributor to the acceleration of subscription revenue growth during fiscal 2026. Despite the current overwhelming customer preference for cloud SaaS installations, annual maintenance pertaining to perpetual on-premises software licenses was once again a record this quarter, 7.5% higher year-over-year. Our current subscription revenue growth levels are coming for the most part from new incremental projects and are not dependent on cannibalization of annual maintenance installations. Virtually all the modernized software solutions and recent product versions are designed to be cloud native, but can also work equally effectively in on-premises installations if that happens to be the customer preference. The fact that we allow hospitality customers, several of whom need to keep their critical business software applications on-premises for good reasons, the fact we are offering the required flexibility and allowing them to control the timing of their move to the cloud without sacrificing the benefits of ongoing innovation is a competitive advantage for us. Fiscal 2026 Q2 product revenue was $10.1 million, right in line with our expectation of product revenue levels on a quarterly basis for the rest of the year. Product backlog at the end of Q2 improved substantially during the quarter, ending up 49% higher than at the end of Q1 and 74% of previous record levels, thereby giving us better visibility for the rest of the fiscal year than we have had in quite a while. We expect product revenue levels to remain around current levels. Fiscal 2026 Q2 July to September services revenue was a record $18.2 million, that is 1-8, $18.2 million, 12% higher than the comparable prior year quarter. We continue to make good progress in our efforts to find ways to reduce customer implementation delays. Services revenue backlog reduced by 10% between the end of Q1, which was a record and end of Q2. This reduction is welcome as services revenue is now driven increasingly by project implementations with customer paid product development work becoming less of a contributor compared to recent previous quarters. Given the strong sales momentum during the first half of fiscal 2026, our expectations for full fiscal year 2026 have increased. We started the fiscal year with a full year revenue range expectation of $308 million to $312 million and subscription revenue growth of 25%, which was then increased to 27% last quarter. We now expect the full year revenue range to be $315 million to $318 million, that's 3-1-5 to 3-1-8, $315 million to $318 million and full year subscription revenue growth to be 29%. No change in the 20% adjusted EBITDA by revenue expectation. One other highlight is the increasingly positive impact AI is having on our business and competitive positioning. To begin with, virtually all our software licensing is based on number of rooms for PMS and related add-on modules, number of terminal endpoints for POS and number of sites or locations or profit centers within sites for inventory procurement for food and beverage products and certain other add-on modules. Virtually all our license structures are not based on number of users. As customers increase their operational efficiencies using AI tools and reducing user counts, that does not affect our software licensing fees. On the other hand, such customer internal efficiency improvements tend to free up more technology investment room and increase the need for modernized software solutions. Our product ecosystem software solutions have been created through tacit domain knowledge gathered and developed over decades of field work in hospitality, working closely and learning from thousands of customers and tens of thousands of product implementations. The current ecosystem of complex software solutions include in them a vast amount of customer requirement nuances and complications, which cannot be generalized by any automation tool. Product development efficiencies can definitely be greatly improved through the use of UI, through the use of AI and we are seeing with our own teams now. But domain expertise and complex decision-making of what and how to build the complex pieces of each software solution and then stitching them into a complex ecosystem, enabling customers to buy 7, 8, 10, 12 such modules together presents a formidable barrier to both entry and more crucially to reaching a stage of excellence. About 18 months ago, we launched our GetSense.ai umbrella technology brand to group the AI initiatives in the Agilysys ecosystem of products. Since then, we have launched several features that are powered by AI, including a dynamic pricing engine for room upgrades, unique revenue management capabilities based on demand across spa, golf, dining and other activities and invoice automation and inventory procurement for food and beverage products. For AI to function well in a hotel and hospitality context, it requires data. Using the ecosystem we have built over the past several years, we have now created an intelligent guest profile module that captures and surfaces consolidated guest data across all resort touch points, helping us deliver unique AI-enabled features, making personalization at scale possible across the entire guest experience, not just at 1 or 2 touch points, but across the entire guest experience. There are good reasons today why each of our successful sales efforts, which include PMS are adding up to 14, 1-4, 14 products for win. We are currently actively working on delivering several additional AI-driven capabilities in the upcoming product version releases. AI tools working in conjunction with the already modernized solutions are currently helping us increase the competitive advantage gap, apart from increasing product development and other efficiencies across various operational areas, including faster automated product implementations and easier and quicker identification of cybersecurity threats. Overall, we love the tailwinds AI is currently providing us to get better and improve the pace of innovation. We have conviction that AI is making our products and overall business better rapidly. We are realistic and pragmatic about managing it well and are optimistic about AI's potential to increase our current competitive advantage distance. One other quick note before handing the call over to Dave. The Marriott PMS project continues to make good progress and is proceeding according to plan. We are currently in the midst of beta implementations. With that, Dave? Dave Wood: Thank you, Ramesh. Taking a look at our financial results, beginning with the income statement. Second quarter fiscal 2026 revenue was a quarterly record of $79.3 million, a 16.1% increase from total net revenue of $68.3 million in the comparable prior year period. Onetime revenue consisting of products and professional services was up 5.6% over the prior year quarter and in line with our expected 5% to 10% increase in onetime revenue. Recurring revenue was up 23% on the back of good subscription revenue growth. FY '26 year-to-date revenue is currently at $156 million, up 18.4% over the prior year-to-date and currently at a higher level than the assumptions our original full year guidance of $308 million to $312 million was based on. Sales momentum remained robust during Q2, leaving total backlog at record levels despite the strong project implementation and revenue start to the year. Subscription sales exceeded plan for the second consecutive quarter. Subscription bookings were up 41% over the prior fiscal year second quarter and continue to trend ahead of our original subscription guidance. FY '26 year-to-date subscription bookings are up 59% over the prior year. Despite the strength of subscription revenue through the first half of the fiscal year, subscription backlog remains at record levels and 26% higher than the same time last year. With the current product backlog strength and sales momentum, it's safe to say the visibility into our business in fiscal year is significantly better than at this time in the prior fiscal year. Professional services revenue increased 11.8% over the prior year quarter to a record $18.2 million. Professional services revenue remains a good leading indicator for the future subscription revenue growth. In the upcoming fiscal third quarter, we expect professional services revenue to drop slightly sequentially due to less billable hours around the holiday season. Total recurring revenue represented 64.3% of total net revenue for the fiscal second quarter compared to 60.7% of total net revenue in the second quarter of fiscal 2025. Subscription revenue grew 33.1% for the second quarter of fiscal 2026. Subscription sales and backlog were again both at record levels in Q2. Although subscription revenue exceeded our revised guidance of 27%, the backlog continued to grow, rising by 30% over FY '25 exit rates. We continue to be pleased with subscription sales and revenue growth levels. Moving down the income statement. Gross profit was $49 million compared to $43.2 million in the second quarter of fiscal 2025. Gross profit margin was 61.7% compared to 63.3% in the second quarter of fiscal 2025. Gross margin was down slightly due to margins associated with onetime revenue while we continue to ramp up the newly hired professional services team members and continue to see a downward trend in on-premise perpetual license revenue. Combined, the 3 main operating expense line items, product development, sales and marketing and general and administrative expenses, excluding stock-based compensation, were 41.3% of revenue in the fiscal 2026 second quarter compared to 45.6% of revenue in the prior year quarter. Excluding stock-based compensation for the second quarter of fiscal 2026, product development decreased slightly to 18.8% compared to 20.4% of revenue in the prior fiscal year second quarter. General and administrative expenses reduced for the quarter year-over-year from 12.7% to 10.8% of revenue and sales and marketing decreased from 12.5% to 11.7% of revenue. Operating income for the second quarter of $14.1 million, net income of $11.7 million and gain per diluted share of $0.41 were higher than the prior year's second quarter income of $4.1 million, $1.4 million and gain of $0.05. Adjusted net income, normalizing for certain noncash and nonrecurring charges of $11.4 million compares favorably to adjusted net income of $9.5 million in the prior year second quarter and adjusted diluted earnings per share of $0.40 increased compared to the prior year quarter of $0.34. For the 2026 second quarter, adjusted EBITDA was $16.4 million compared to $12.2 million in the year ago quarter. FY '26 adjusted EBITDA continues to pace with our original annual guidance of 20% of revenue. Moving to the balance sheet and cash flow statement. Cash and marketable securities as of September 30, 2025, was $59.3 million compared to $73 million on March 31, 2025. As a reminder, the first half of the year cash balance is typically lower due to timing of working capital events in the first half of the year. In addition to working capital adjustments, we paid down our credit revolver by $24 million in the first half of the fiscal year, leaving us debt-free now. Free cash flow in the quarter was $15 million compared to $5.9 million in the prior year quarter. As we have said in the past, adjusted EBITDA and free cash flow over a full fiscal year after normalizing the impact of CapEx continue to be good proxies for financial health of the business. For our fiscal year 2026, we are raising guidance for subscription revenue growth again from 27% to 29% based on our current backlog and sales momentum. This quarter, we are also raising our top line revenue guidance range from $308 million to $312 million to $315 million to $318 million. As a reminder, we expect professional services revenue to decrease by more than 5% sequentially in Q3 due to less billable days available around the holidays before returning to normal levels in Q4. Adjusted EBITDA of 20% remains the same for the fiscal year 2026 as we continue to evaluate various strategic growth initiatives. In closing, we are extremely pleased how our business has worked out during the first half of fiscal 2026 and how it's shaping up for the remainder of the year. With that, I will now turn the call back over to Ramesh. Ramesh Srinivasan: Thank you, Dave. In summary, we are pleased with the fiscal 2026 Q2 July to September results. Our overall current sales and business momentum, the continuing surge in subscription software sales and the pace of project installations, it is tough not to feel bullish about our business. Compared to the same Q2 July to September quarter 4 years ago, the overall revenue has more than doubled, subscription revenue has tripled and services revenue has grown 170%. That's 1-7-0. We continue to make great progress with our modernized solution ecosystem. Increased use of AI tools is helping us build sustainable and growing competitive advantages. Our barrier to excellence in hospitality-focused technology is increasing. We have done well with retaining top talent over the past several years and continue to add more, including those focused entirely on improvements and advancements using AI. Compared to the same time last year, the number of quota-carrying sales personnel is 16%, 1-6, 16% higher now, and the global professional services team size is 23% bigger. We have recently added senior personnel strength to our global marketing teams. We continue to do extremely well with customer retention and growing revenue across both current and new customers. We continue to be strong believers in sustained, disciplined profitable growth. Major -- more major hospitality corporations are taking greater notice of us, and we are now engaged in meaningful conversations with more of them. We continue to maintain and improve on a clean balance sheet. We operate in a total addressable market that is a couple of orders of magnitude larger than us. And we continue to keep our focus undistracted and passionately on hospitality, an industry that is hungry for more technology innovation help. All that does sound like a good recipe for medium- and long-term defendable, sustained good business growth. With that, [ Carmen, ] can we please open up the call for questions? Operator: [Operator Instructions] All right, while our first question is from Mayank Tandon with Needham. Mayank Tandon: Congrats, Ramesh, Dave and Jess, on the quarter. Ramesh, I wanted to just ask about what's really changed given the record sales momentum. Would you say it's more a function of the market waking up to the adoption of cloud-based solutions that maybe they were slow to embrace? Or is it more a function of Agilysys being now maybe better known in the market with all the product innovation that you've completed. So if you could just maybe speak to -- it could be both, but I'm just curious what would you weigh more towards in terms of what's changing and what's driving the record sales momentum? Ramesh Srinivasan: Mayank, when sales and business momentum improve like this, there's always a number of reasons. But I would say that the main reason why things are truly moving forward for us is because the product ecosystem is getting better. The product ecosystem is cloud native. And we went through a period of 6, 7 years when we had to go -- do the hard yards, reengineering and converting all our products into modernized solutions and also unifying them, integrating them into one ecosystem. That took us a lot of work over 6, 7 years. And now that all that is done, those products are improving at a rapid rate. And there is not much other innovation going on in this industry now. So the competitive advantages are also increasing. In addition to all that, we've also added significant sales and other staff, senior resources like Joe Youssef, who have joined us are opening up a lot of major doors for us. So a lot of factors are working together, mostly driven by our product improvements and the higher level of senior talent who have joined us. Mayank Tandon: Got it. That's helpful color. Then maybe I'll switch over to margins. And this is more of a longer-term question. I'm just curious, as the Marriott rollout does go live over time, do you expect a step back in margins? Do you have investments to make to ensure the go-live is on schedule and goes on plan? Or do you believe that as the rollout starts, it will be margin accretive to your business? Dave Wood: Mayank, yes, for the most part, we think it will be margin accretive to the business, especially if you look over a couple of quarters or maybe an annual basis. There certainly could be a quarter where maybe we have a little bit of investment prior to the rollout. But I think we're talking about a quarter here or there. But certainly, as you look over 2 or 3 quarters combined, we have most of the people on staff and most of the revenue contribution going forward will be subscription revenue, which is at a higher margin. So, Mayank, both this major project and all the other major projects that we are continuing to sign are all going to contribute towards increasing growth and increasing margin. Operator: Our next question comes from the line of Matt VanVliet with Cantor. Matthew VanVliet: I guess I wanted to dig in a little bit on the international strength that you continue to see. I know you've made a lot of investments, both on the go-to-market team in those regions as well as kind of the global marketing organization. But curious if you could give us a little bit more detail in terms of performance in Europe and EMEA versus APAC and then maybe any rest of world contributions there? And do you feel like you're in some of those markets starting to get some of the halo effect of winning this Marriott deal? Or does that maybe come later once it's started to deploy and you've sort of proven the success there? Ramesh Srinivasan: If you ask me, Matt, it's more about product improvements than any particular halo effect from any particular project. Though as we continue to win more of these major customers who are global customers who have massive international presence, that will further add to our improving international performance. This year, so far, EMEA is working at record levels. We've really made good progress, especially in the U.K. and in other countries nearby as well. APAC, we are now working through more big opportunities than we ever have. But all those opportunities still continue to be the bigger ones. We want to get better at more the singles and doubles in APAC, especially. But we are generally pleased so far with how our international presence is picking up. We are involved in more conversations and a lot of it has to do with the product improvements. A lot of it has to do with the need for an integrated ecosystem. And as we continue winning these bigger customers, Matt, like Marriott and hopefully more customers like that, I think that will continue to improve for us. So international, we are very, very bullish on that being a major growth engine for us going forward. Matthew VanVliet: Okay. Helpful. And then it sounded like the investments in capacity around the delivery team are starting to actually kind of work through more backlog than you can book each quarter. Obviously, it's kind of a fine balance. It's great to have the strong bookings, but at a certain point, you need to get it delivered to your customers. So where do we stand in terms of capacity today? Have you primarily made the headcount and process investments to make sure that you can continue to sort of burn through the backlog just as quickly or maybe slightly more quickly than you're able to book? Or should we think about maybe a couple of other sort of bigger rounds of headcount additions over the next few quarters that kind of will create some ups and downs in the margin structure? Ramesh Srinivasan: The capacity improvements that we needed in services, we have completed this calendar year. It was done more before April. So the bulk capacity increases we needed to make in our services team, we did complete them around the April, May time frame. So -- and we'll continue to expand it. Like sales, services teams and our other teams, we'll continue to expand as we are the growing company. But in terms of giving ourselves the capacity to make sure there are no delays in projects, we have completed that. We do continue to face delays here and there because of customer delays, because delays on the customer end, and there is only so much we can help that because these are all big product ecosystem kind of implementations and customers have to be sure that they are ready for it. So to answer your question, Matt, as far as we are concerned, we do have the capacity now in terms of services to take on what we are selling and continue improving on it. So we do have that capacity. That doesn't mean we stop growing, but we don't need to bulk grow anymore. We will steadily continue improving those teams, but that is not an issue. We are doing a good job of catching up with our backlog, but we have to do more to get past the customer delays, which there is only so much we can do to help. Operator: Our next question is from Brian Schwartz with Oppenheimer. Brian Schwartz: Ramesh, following up on the last question on the growth that company is experiencing in the sales and service capacity this year. My question is on where you are on the efficiency curve of this initiative. I know it's early, but are you seeing returns that you thought you would have expected at this point of the initiative? And are you expecting bigger efficiency gains to come in the second half of this fiscal year or more likely next fiscal year? And then I have a follow-up for Dave. Ramesh Srinivasan: Yes. So we are seeing efficiency improvements, Brian, all across the organization, partially due to AI and partially due to other reasons as well. So let me just break up the question into the various pieces. As far as services is concerned, we are seeing continuous efficiency improvements due to multiple reasons. One, the significant increase in personnel strength that we had at the beginning of the calendar year or let's call it, the first half of the calendar year, the training and the personnel getting more familiar with our products and becoming better with it has exponentially increased in the last 3, 4 months. So that is there. In addition to that, the products are also becoming easier to install, Brian. Remember, we went through a massive amount of modernization of the products. Our products have been in the field for 1 to 3 years now, and they are becoming easier and easier to implement. And then you add the fact that you use AI tools to automate a lot of the implementations. A lot of the complex configuration setups of the products can now be automated using AI tools. So all of that is contributing to greater services efficiencies. People are getting better. The products are far easier to implement. There are tools available in technology, AI otherwise to speed up implementation. So all that is improving the efficiency of product implementations. Now sales, even now 75% or so of our sales comes from the top half of our sales team. So improvement in sales productivity, we still have a runway ahead of us. We increased our hotel resorts sales team, our international sales team during the beginning of the year, and they have all built a pipeline, and so those efficiencies are getting better as we go. And product development efficiencies have really become much better, thanks to AI tools and a whole lot of other reasons. So product development efficiency have improved. But it's a continuous game, Brian. There is no end game to this. Efficiencies have improved a lot this year, and I think it will improve massively next year as well. It may not directly show up in P&L because we still need the resources, but we are getting a lot more done with the current resources we have. Brian Schwartz: And the follow-up I have for Dave. I just wanted to ask you about seasonality from the summer period in the quarter. We're seeing these outstanding sales results, just wanted to check with you, did the business experience less seasonality this fiscal 2Q than it did last year? I remember last year, you called it out during fiscal 2Q. Dave Wood: Yes, I mean I really think there's a couple of things going on in that question. And some of it will be kind of reiterate what Ramesh said. When you look at this year compared to last year, there's kind of 3 differences in where we sit. I mean one, we have more sales capacity. We're still in the middle of that kind of ramp of our sales team, but we have a lot more quota-carrying sales reps on the team, which are helping with that. The second is our backlog just remaining at record levels. Like when we think about backlog, we don't think of it in terms of weeks, we think of it in terms of months. So having a backlog and then really touching on what Ramesh said, I mean, just the capacity to deploy that backlog, specifically with our professional services team just makes the year and the visibility a lot better than it was this time last year. Operator: One moment for our next question, and it comes from the line of George Sutton with Craig-Hallum Capital Group. George Sutton: Ramesh, you mentioned that more major hospitality players are looking at you. And I'm curious if that is, that would include there was a trend here in the last couple of years, some of the large players basically working with very thin code-based software vendors that don't really seem like long-term decisions. Are you starting to get the attention of some of those folks who made that kind of a decision? Ramesh Srinivasan: Well, I think, George, you are going to pick up on that more than anyone else. Yes, George, the short answer for that is yes. There are -- we are getting the attention of larger players than, say, at the same time last year or 2 years ago, a lot of the credit has to go to the product and the news is spreading that the product ecosystem is becoming more and more that is the distance between us and the competition is increasing. And also a lot of the credit goes to Joe Youssef and some of the senior sales staff he's hired as well, who are opening up into -- some of the major doors for us, right? They have credibility. Joe and others have worked with these bigger customers for a long time. So those are opening up doors. And now it's a great time to open up doors for us because the products are impressive. And if they see a demo, it really gives them pause. So short answer, George, yes, more conversations these days than we have ever had before, and that is encouraging to us. George Sutton: So Ramesh, you mentioned you have considerable competitive advantages, and I think you did a good job of walking through what some of those are. But at the same time, you mentioned you're still not well known in key circles in some of your markets. And I just wondered how much progress do you think you're making on that latter piece? Is it predominantly going to be through reference customers? Or how do you see that kind of closing that gap? Ramesh Srinivasan: We continue to close that gap, George. It's not going to -- it's not a magic bullet. It is not going to suddenly explode into everybody knows us. Now it is not just a matter of knowing Agilysys, George, it's knowing today's Agilysys. There is still large parts of hospitality who still think of us as the father's or the grandfather's Agilysys. And that is not an easy challenge to get over in -- generally in enterprise software, but we are making good progress, right? We are making significant impressive progress. Marketing has done great work for us across the international regions and domestic regions. There's a lot more thought leadership participation. The trade shows, of course, we continue to increase participating, but we are leading a lot more participation in seminars. We are sponsoring a lot more of the bigger events. So we are doing everything we can. One thing is to market Agilysys, the other thing is to make sure today's Agilysys status is well known. That's not an easy challenge that can just overcome in a matter of days or weeks, but we are making good progress with that, George. It is very encouraging looking at the number of customers, especially the larger ones who are talking to us now. George Sutton: I think the numbers are evidence of that. Congratulations. Operator: Our next question is from Nehal Chokshi with Northland Capital Markets. Nehal Chokshi: Congratulations on a great quarter, second best selling quarter, fantastic. Any customers as part of this ACV being second best selling quarter, represent more than 10% of that ACV? Dave Wood: No, Nehal, no customers over 10%. It was broad-based. I think Ramesh did a good job of pointing out all the different verticals. Certainly, gaming, international, managed food service kind of led the way. So it was really a broad-based quarter, which was nice. Nehal Chokshi: Okay. So kind of using the analogy that Ramesh had utilized in the past, getting attention from Sharks and Dolphins, that was not a part of the strong quarter then? Ramesh Srinivasan: Yes, it was broad-based, Nehal. No, nobody came close to 10%, yes. My knowledge of what is it? Oceanography is quite limited. I would Sharks, Dolphins, all kinds of fish, yes, all kinds of wins this quarter, Nehal, yes. Nehal Chokshi: No, well, we did so, right? All right. Given that the September quarter represented the second best selling quarter, which was the case last quarter, it sounds like it's safe to say that ACV sales were up Q-o-Q, which [ under a ] strong result. Can you give us a sense as to how much it was up Q-o-Q actually? Ramesh Srinivasan: Yes. Normally, Nehal, we don't get into that, but a little bit of extra color since you asked the question. The last 3 quarters are our best 3 sales quarters in our history. And so obviously, the last 4 quarters have been great for us. So it is a good trend. And each of these quarters have been the best for that particular period quarter. So it continues to do well. And the last 3 being our best 3 ever sales quarters is a pretty good indication of our progress. So overall, positive, Nehal, but not going to go into the specifics of that. Nehal Chokshi: Okay. I believe that you guys gave like sort of a midterm organic subscription revenue growth outlook in the past. Could you just reiterate what that is? And any incremental color with that? Dave Wood: Yes. It was a little bit over 25% for the quarter and trending to 25% for the year. I don't know there's a whole bunch of additional color. I mean we're really happy, like we said, with where our backlog sits. We have a lot of subscription backlog. We have a lot of momentum in the sales team selling subscription solutions. The 18 new customers we had this quarter were -- all had subscription. So I think we were a little over 25% for the quarter, and we're trending to about 25% organic for the year. Operator: And we have a question from the line of Stephen Sheldon with William Blair. Stephen Sheldon: First on just the guidance. I think you made it pretty clear that the guidance increase, it sounds like it's mostly due to better broad-based sales activity. But just wanted to ask about did your assumptions on the Marriott rollout, did those change at all materially? And was that any notable portion of the guide increase? I mean I think it was kind of a midpoint. Total revenue was up 2%. I think the subscription revenue was also up 2%. So was that -- did Marriott play into that at all? Dave Wood: Stephen, no, Marriott did not play into it at all. And just as a reminder, our -- the raise of guidance in subscription revenue from 27% to 29% excludes all Marriott subscription revenue. So for the PMS and -- so no, it didn't. The guidance raise was not Marriott related. It was just general sales momentum because as a reminder, too, all the sales numbers that Ramesh talked about exclude Marriott as well. So... Ramesh Srinivasan: It excludes the Marriott PMS project. The other Marriott product -- we are selling products to Marriott is included, but not the PMS project you're referring to. Go ahead, Dave. Dave Wood: Yes. No, it excluded Marriott PMS. Stephen Sheldon: Got it. Okay. That's encouraging. And then just on the POS side, can you talk some more about the factors driving the strength you're seeing in the Managed Food Service vertical? How big that end market is as a mix of your total POS kind of subscription revenue? And do you generally see lower levels of competition in that space, just given more complex need from purchasers? I think in that end market, there would be only a few software providers that a customer would consider. I mean is that kind of a fair thought process on that end market? Just more context on what you're seeing there. Ramesh Srinivasan: Yes, Stephen, let me address the first part of your question first. POS, like we told you before, like 1.5 years or so ago, we went through a tough transformation phase. We had completely reengineered the POS products. There are multiple parts to the POS products. So we had to do them in stages. So a lot of our implementations in the field became a mismatch of old and new technologies that caused a lot of technical challenges for us. So that's what affected POS sales, especially in the Food Service Management, FSM vertical. We have passed that stage for the last year or 1.5 years. All our new implementations are all the modernized solutions and also unified, meaning guest-facing and staff-facing feature sets are now in one system. Therefore, it's a lot easier for us to manage, a lot easier for us to implement, producing good results for the customers, including international customers. So the current new version of POS and all the new installs we've been doing, say, for the last 12 to 18 months are going very well. As you would expect a modernized unified solution to go well. So that, in turn, has helped improve POS sales, especially in the FSM vertical, which is practically for all practical purposes, only POS. So that's the reason. It's again product driven. And also some of the recent sales staff we have added to FSM are doing incredibly good work. They are very influential, and they are doing good work. So that is one part. I wouldn't say the competition is less, Stephen, in FSM. It is more from the smaller vendors. For a long time, FSM has been served more by the smaller technology vendors. You don't see the bigger ones there that much. So yes, there is competition in FSM as well, but our product sets are getting better and our implementations are getting better. We are selling with a lot more conviction and strength there. So overall, I think FSM will continue to do well for us. Stephen Sheldon: Very helpful. And maybe just one more, if I can, on the PMS product attachment. I mean you've been seeing some customers sign up with very large packages with a lot of products attached. I guess can you just remind us which ones you're seeing the highest attach rates on new sales by product? And has anything overly surprised you on the types of add-on products that are being added on to some of these PMS contracts? Ramesh Srinivasan: It's not surprising, Stephen. When we created this ecosystem around POS and PMS, we knew that the attach rates for PMS are going to be higher because there are just more add-on modules there compared to the POS number of add-on modules. So this is not surprising to us. Very often, customers come to us only looking for a core product or a couple of products, but they see the ecosystem working together. And it really is encouraging for them that they don't need to deal with disparate systems. That are difficult to integrate and not just difficult to integrate, the pace of innovation is very slow because a lot of what resorts and hotel properties need now is a unified guest experience. And for that, if you come up with an innovation idea like, let's say, use of a wrist band in a water park, you have to change 4 different systems for it. And if you're dealing with 4 different vendors, it becomes impossible to innovate at a rapid pace. So the pace of innovation is there. So we are not surprised that PMS has high add-on modules attached right now. But we are also participating in some major deals where PMS itself, the core product itself is the primary player and those customers are not yet considering the other products. So we are seeing a couple of them as well. In terms of which products are most golf, spa, sales and catering products like that come to mind. The booking engine is always one of the leading products. But one of the best sellers for us this year is loyalty promotions. Now resorts have the ability to give guests points and help them redeem points at every touch point in a resort. That's a big strength they didn't have before. So it varies from deal to deal, but these are some of the more popular ones. Stephen Sheldon: Very helpful. Appreciate the color, and great results. Operator: Thank you so much. And this concludes our Q&A session for today. And I will pass it back to our CEO, Ramesh Srinivasan, for closing remarks. Ramesh Srinivasan: Thank you. Thank you for your participation and interest in Agilysys. Please enjoy the holiday season. Merry Christmas and happy holidays to all of you. We look forward to talking to you again in about 3 months from now. Thank you. Operator: And thank you again for all who participated in today's conference. You may now disconnect. Everyone, have a great day.
Operator: Welcome to Easterly Government Properties Third Quarter 2025 Earnings Conference Call. At this time, participants are in a listen-only mode. After the speakers' presentation, there will be a question and answer session between the company's research analyst and Easterly's management team. To ask a question during the session, analysts will need to press 11 on their telephone. They will then hear an automated message advising their hand is raised. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Allison Marino, Executive Vice President and Chief Financial Officer. Please go ahead. Allison E. Marino: Good morning. Before the call begins, please note that certain statements made during this conference call may include statements that are not historical facts and are considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Although the company believes that its expectations as reflected in any forward-looking statements are reasonable, it can give no assurance that these expectations will be attained or achieved. Furthermore, actual results may differ materially from those described in the forward-looking statements and will be affected by a variety of risks and factors that are beyond the company's control, including without limitation those contained in the company's most recent Form 10-Ks filed with the SEC and in its other SEC filings. The company assumes no obligation to update publicly any forward-looking statements. Additionally, on this conference call, the company may refer to certain non-GAAP financial measures such as funds from operations, core funds from operations, and cash available for distribution. You can find a tabular reconciliation of these non-GAAP financial measures to the most comparable current GAAP numbers in the company's earnings release and separate supplemental information package on the Investor Relations page of the company's website at ir.easterlyreit.com. I would now like to turn the conference call over to Darrell Crate, President and CEO of Easterly Government Properties. Darrell William Crate: Thanks, Allison, and good morning, everyone. As we report our third quarter results, it comes at a time when the federal government remains partially closed. For most companies, that kind of disruption would be concerning. For Easterly, history offers important perspective. It is important to understand that a shutdown is part of the Kabuki Theater related to budget negotiations. Our investors should be comfortable that the government will not default on our leases because that would be tantamount to defaulting on a US treasury obligation. We are highly confident they will find a way to avoid that as they did with each of the previous 21 shutdowns. As we enter the final stretch of 2025, I am pleased to share that Easterly continues to execute against the growth strategy our leadership team embarked upon last year. A disciplined plan centered on three long-term priorities. One, is growing core FFO by 2% to 3% annually. The second is increasing same-store performance through thoughtful diversification into state and local and high-credit government adjacent tenancy. And third, continued execution on value-creating development opportunities where we can create portfolio-enhancing improvements to weighted average lease terms and building age. This strategy is designed to balance growth and durability and to build a portfolio that performs consistently regardless of the economic or policy backdrop. The third quarter is another example of that approach in action. At the core of our business is a portfolio of essential facilities where government work truly happens. Immigration facilities, courthouses, public health laboratories, law enforcement offices, and secure administrative buildings. These are not speculative assets. They are long-leased, purpose-built, and vital to the functioning of our nation. Our tenants' missions endure across administrations and cycles. That endurance is the foundation of Easterly's ability to deliver consistent compounding growth over time. As demand for secure, modernized government facilities continues to expand with population growth at federal, state, and municipal levels, we remain uniquely positioned to serve that need. Now turning to the specifics of the quarter, we delivered strong operating performance, maintained high portfolio occupancy, strengthened relationships across agencies, and refined our balance sheet with a prudent and disciplined approach to capital deployment. We are pleased to deliver 3% core FFO growth from 2024 to the midpoint of our guidance range for 2025. That was driven by growth from acquisitions, strong renewal execution, and prudent portfolio management. Our portfolio occupancy remains near historical highs at 97% and a weighted average lease term of approximately ten years, underscoring the durability of our tenancy and the strength of our mission-critical focus. Our most recent acquisition of the York Space Systems headquarters in Colorado positions us nicely towards our stated goal of 15% government adjacent exposure and reflects the demand for specialized facilities supporting the US defense and space partners. Our development pipeline remains very active, with major projects progressing nicely. We continue to identify accretive opportunities that meet our standards for credit quality, mission alignment, and durable returns. The acquisition team has built one of the most robust pipelines in our company's history, allowing us to be highly selective with an eye to deploying capital in excess of 100 basis points to our weighted average cost. The team's leadership in sourcing, underwriting, and executing accretive opportunities has been exceptional. The work they are doing today will support growth well into the next decade. We are gently focused on improving our cost of capital. While we believe we will unlock further opportunities in our acquisition and development pipeline, one of the ways we seek to improve our cost of capital, both debt and equity, is leverage optimization. While Easterly's portfolio of long-term high-credit leases is capable of sustaining higher leverage levels than other REIT peers, we recognize that comparability with that broader REIT universe matters. To that effect, we are targeting a medium-term cash leverage goal of six times. This is a decline to our historical cash leverage results, which have been seven to eight times. This shift to a more conventional leverage target enhances investor comparability, and together with improved funding access, sets Easterly on a clear path towards structurally lower capital costs. We believe we can deliver this expectation while also meeting our attractive growth objectives. As Allison will detail, we have already made progress on this front this quarter. As we close the third quarter, I want to recognize the collective effort of everyone at Easterly. We are thankful for the trust and partnership of our tenants, our employees, and our shareholders, and we are confident in our strategy. Encouraged by the progress we have made, and energized by the opportunities ahead. As we enter 2025, our priorities remain very clear. Continue executing on our development and acquisition pipeline, advance our cost of capital and leverage initiatives, and deepen our relationships across the federal, state, and local agencies we serve. Easterly's mission remains simple: to deliver essential real estate that keeps government moving and our nation secure. And with that, I will turn our call over to Allison Marino, our Chief Financial Officer. Allison E. Marino: Thanks, Daryl, and good morning again, everyone. I am pleased to report the financial results for the third quarter. Both on a fully diluted basis, net income per share was $0.03 and core FFO per share grew $0.76, slightly above expectations. Our cash available for distribution was $29.3 million, reflecting steady operational performance. During the quarter, we successfully extended the lease at USCIS Lincoln and executed a long-term renewal at VA Golden. We continue to make progress in the remainder of our 2025 and 2026 renewals. And more broadly, we continue to find the to be an especially constructive partner, and the concerns relating to Doge and our mission-critical portfolio, overblown. Our development pipeline is making exciting progress. In August, we broke ground on the previously announced State Crime Lab in Fort Myers, Florida. And we are on track for our fourth quarter 2026 delivery. As a reminder, our growth in commission-critical state leases not only diversifies our portfolio but also increases our weighted average lease term. While U.S. Government leases are limited to twenty years, state governments can lease for as long as forty years, attractively increasing our WALT to strong credit tenancy. Our largest development project in the company's history, FDA Atlanta, is nearing the finish line, and we expect the government to the premises and the lease to commence in December. Notably, at FDA Atlanta, we received a third progress payment on the lump sum reimbursement during the quarter. The receipt of $102 million meaningfully reduced cash leverage from 7.9 times to 7.6 for the quarter. We expect that cash leverage will further improve upon the project's completion to below 7.5 times. Echoing Daryl's comments, this is an important step in reducing cash leverage and furtherance of our medium-term leverage goals. On the debt capital front, Easterly continues to be a creditworthy borrower. Reflected in our successful recast and upsize of our 2018 senior unsecured term loan from $174.5 million to $200 million, as well as the new accordion feature added to that loan. Further, in October, KBRA reaffirmed our investment-grade rating with a stable outlook. We also continue to work towards receiving additional investment-grade ratings, which we believe will position us to healthily tap the public bond markets. Securing access to debt capital at attractive levels allows us to unlock pipeline value in the medium term. Turning to guidance. We are narrowing our full-year core FFO per share guidance range for 2025 to $2.98 to $3.2 on a fully diluted basis. This range is consistent with our stated goal of 2% to 3% annual core FFO growth, and at its midpoint, reflects strong 3% growth over 2024. For 2026, we are issuing full-year core FFO per share guidance in a range of $3.05 to $3.12. This guidance range implies a growth rate in our stated 2% to 3% range. Supported by the delivery of FDA Atlanta, successes of 2025 renewal execution sustained operational efficiencies, and continued expansion of the portfolio through acquisitions. At the midpoint, this guidance assumes that we will have $50 million to $100 million of gross development-related investment during the year and $50 million in wholly owned acquisitions. We can see ourselves achieving the upper end of this range and executing on $400 million of acquisitions, given our $1.5 billion pipeline and the spread we can create to our cost of capital. We remain focused and disciplined in capital management, tenant retention, and execution across our development pipeline. These fundamentals underpin Easterly's ability to generate stable, growing cash flows, and long-term shareholder value. Thank you for your time this morning. Appreciate your partnership. And look forward to updating you on our progress. With that, I will now turn the call back to Shannon. Operator: Thank you. As a reminder to the analyst, to ask a question, you will need to press 11 on your telephone. Please standby while we compile the Q and A roster. Our first question is from Seth Bergey with Citi. Please proceed with your question. Seth Eugene Bergey: Hey. Thanks for taking my question. I just wanted to ask about the FLACSAF warehouse completion. It looks like the date got pushed out two quarters. Just can you talk a little bit about what's happening there? Allison E. Marino: Yep. So the government continues to work through the design of that courthouse. They are balancing three or four agencies in the building that collaborate on the space design. And we are expecting that they will finalize the lump sum and the TI project in total, in 2026, which would then naturally push the ultimate delivery. But that is not unexpected, and we think the new date is certainly achievable. Seth Eugene Bergey: Great. Thanks. And then just a second one. You know, I think on you know, you kinda target 100 to 150 basis points of spread. On development over your cost of capital But issue we equity kind of below consent at least consensus NAV. You just talk about your overall thoughts on capital allocation, and, you know, have you considered other sources of funding for development? Darrell William Crate: Yeah. I mean, I think broadly, we there's two ways we sort of think about cost of equity. I mean, broadly, there's think about it as FFO cost of equity. Essentially, estimate next year divided by the share price. And and we look at our debt cost in a sort of 5% to 6% range. All of that gets you to a cost of a weighted average cost of capital while we delever and do all those good things. Of, you know, in the high nines. When we also just think about our cost of equity relative to peers, and, you know, real estate risk. You look at you know, our dividend plus growth, or there's a, you know, whole set of other ways you know, to to think about it. But those vector into a cost of equity that's somewhere between 8% and 8.5%. So we believe that we can be developing at a 100 basis points you know, to the upper end to that FFO range. And we're able to do that just because we've learned how to do this very well, specifically with the agencies, you know, that that that we're close to. But we also it it's not lost on us that that we believe that that's adding considerable real value you know, to the to to the overall enterprise and the long-term value of the portfolio. That further said, you know, we have, some strong relationships with, you know, large sovereign wealth fund and, and some other partners. They value this long walled in a significant way. And, add values that are sort of well below all the you know, NAV kinds of conversation. So there, you know, that's also that could end up being a a more attractive way to go, you know, while we're in this interim period. Where the stock price, you know, starts to, you know, become more comparable to office and at least peers. Which would materially reduce our cost of capital and get us you know, sort of, again, get us closer to on an FFO basis. Or FFO cost of equity quite similar to the cost of equity, you know, that we that we look at with the sort of more simple metrics, you know, of of dividend plus growth. Seth Eugene Bergey: Great. Thanks. Operator: Thank you. Our next question comes from the line of Michael Lewis with Truist Securities. Please proceed with your question. Michael Lewis: Great. Thank you. My first question, wanted to ask about the $50 million acquisition guidance for 2026. I think that's a little lower than you've typically done in the past. I'm guessing that's not a reflection of the the opportunity set, the investment opportunity set. Is it more constrained by the cost of capital on what you were just talking about? Or, you know, maybe give us some background on that. Darrell William Crate: Yeah. Mike no. That's great. Great point. I mean, the I I think given our cost of capital and, you know, what we we've heard you know, is, hey, there's, there's might be some challenges with your cost of capital. How are you ever gonna get acquisitions done? You know, we are, we are hoping for some mean reversion. As we continue to deliver consistently on this, you know, 2% to 3%, you know, I said this last year, we're delivering 3% growth. We're gonna you know, we're looking to next year. And again, we're gonna be squarely in that two to 3% range possibly with some upside. So as folks tune into that message and we get away from the dividend cut and the reverse split and those other things that where people wonder if Doge or the headline risk is gonna get in our way. You know, we imagine we're gonna get that kind of mean reversion. That all said, as we as we move forward, the range that we have for next year really only requires us to get $50 million done. So we're trying to send a message which is we are right on track for the growth that people want. While doing something that's well below what we've done before. I mean, even with our cost of capital this year, which we did a very nice job, finding some terrific buildings like York and and others, we were able to deliver know, what's been almost $200 million of acquisitions with a cost of capital that stinks, quite frankly. And, and we, and we can continue to deliver growth So I think we've set a pretty low expectation. We don't want folks think that we're not gonna make the two to 3% growth because cost of capital could get in our way. And and I would say, you know, with $50 million of acquisitions in the strength of the pipeline that is $1.5 billion, if our acquisition team hasn't already identified that $50 million that gets us to the right place, I would be very, very, very, very surprised. So, so it's meant to be a low bar. It's meant, for people to accept the, the guidance that we're putting forward and we're very excited to continue to deliver on that in 2026. Michael Lewis: K. Great. And then, it looks like you sold the property in the third quarter. Is it possible that dispositions could become you know, part of this getting down to your your leverage target? And also related to the leverage target, what does that mean for development starts? You know, obviously, you put money out Now, it impacts your leverage. You don't get the the cash flow until later. So you know, your thoughts on those two pieces, dispositions, and and also what what that means for development? Darrell William Crate: Sure. I I think we probably need a little kick from interest rates in order for dispositions to lead to any leverage reduction. I I think when we when we look forward to, you know, the sort of medium-term six times, Again, we step back and we looked at net lease peers. We look at office. Our job is to run a a portfolio of mission-critical assets, and we're doing that well. But it's also our job as we try to manage that portfolio in this public vehicle that we should be delivering people what they want and looking what they're paying for other other organizations. And and so as we think about as we, you know, as we as we think about what we're executing, we find ourselves in a place where we would like to get our leverage in line with those peers. And in that case, our stock should be, materially higher than it is right now. That said, we think we can continue to bring in acquisitions, move towards that move towards that lower leverage state. And and I think that as we think about development moving forward, we will try to work towards that that lower leverage. We could use some external partners and JVs in order to make that more possible. But it's we really just need to be working with with shareholders or who are supportive of the company. And be delivering on the metrics that they need to feel good about what we're doing. And using our pipeline and all the work that we've done with agencies, to deliver value for shareholders. Michael Lewis: Okay. And then one last one for me. Just to put a bow on your comments about the government shutdown, does that lead to delays with you know, delays in leasing and and just slow things down? And is there any threat to any agencies, you think, from this process? Darrell William Crate: In the first part, it absolutely slows things down a bit. I mean, in that in that that that folks are working less. I don't see that's any diminution value of the portfolio and there will be a click quick catch up. And I'd also say, you know, post this sort of newer environment of working with the government where they are thinking about efficiency, they are working more closely with us and other private partners order to make things work. So while the government shut, we're still doing our good work for the government and moving things along, and we're excited for them to, you know, come back online. I I don't think the shutdown threatens any any particular agency. Maybe some things get recrafted over time in the spirit of efficiency. But the big dials, as you know, are making sure entitlement programs are getting organized. Health care, you're gonna see a lot of movement on that as we as we as we you know, get into this next year. None of which has really very much to do with us. And and as we, you know, focus on mission critical, that means law enforcement. That is that is drugs, that is all the all the things that keep Americans safe. So we find our agencies today more than ever to be enthusiastic about what they're doing moving forward. And for the agencies that we work within the main, you know, they are they are showing up at work, doing their job, and feeling the support of the government and their mission. Michael Lewis: Great. Thank you. Operator: Thank you. Our next question is from Michael Carroll of RBC Capital Markets. Please proceed with your question. Michael Carroll: Yes. Thanks. Daryl, can you provide some some bigger picture trends, I guess, to achieve this 6x cash flow, leverage. I know you kinda mentioned a little bit throughout this call, but is that gonna be through a more, like, joint venture sales to kinda achieve that? Or can you kind of what are some of the levers you can pull to to get to that number? Darrell William Crate: Sure. I think I think working with joint venture partners is probably the least important, but it's it's absolutely an avenue. You know, that that that we can pursue. I think first and foremost, these development projects that we're putting in place are very attractive. We've, you know, the as we see, you know, the, the FDA Atlanta is going to be coming online at the end of the year, and that's certainly gonna to start adding to our EBITDA, and we're going get another lump sum payment. So that's gonna, you know, take us down you know, closer, you know, between seven and seven and a half times. And as we look forward to these other development projects that we're moving we will basically, you know, financially structure them so that we get to a cost to capital that is about a 100 basis points above you know, what we believe the cost of capital to be, by looking into the market and all the that we've articulated. And, and then we will, lever them less when we have return that's in excess you know, of that amount. And we believe and we do have a a very robust pipeline and our team continues to do a terrific job moving those things forward. And I think that, as as we find it, if we set our goal at a 100 basis points above above cost of capital for our projects, or we're gonna find ourselves nicely delevering over the next you know, twenty four to thirty six months. Michael Carroll: Okay. Is that the the time frame of the medium-term goal of of to three years? I think so. Yeah. Yeah. And and again, I I don't I don't view the six as as our our number one priority is to grow two to 3% a year consistently and be known as a grower. You know, that's a that that's in that space. That said, our target is going to be six times. We're not gonna take a a direct line there, but we wanna investors to understand that that's what we're marching towards. It's a very important priority for us. And, and I I know when we sit here in you know, three to four years, we're gonna be a lot closer to six than we are today. And I think that that's gonna be comparable to you know, you're gonna look at net lease peers, and you're gonna look at office peers, and we're gonna compare very favorably, especially when you think about the strength of our tenancy credits and the wall you know, that's that's in the portfolio. And, you know, we're we certainly get that feedback from large possible, joint venture partners today. And we are hopeful that the public markets, especially as large REIT funds and others, you know, as money sort of comes back to real estate rather than being in outflows. We're we're a very we're a terrific anchor for for folks portfolios with with our sort of new you know, mission of making sure the company is growing at those levels. Michael Carroll: And is that trend kinda reflected in your 2026 guidance kind of over equitizing some acquisitions and development expenditures? Darrell William Crate: Yep. I mean, my expectation would be that leverage is gonna be will be lower at the '26 than it is the beginning. I think we, you know, we should have a six handle with something on the end of it. And we're gonna continue to report on our leverage in this way. As I said, it's not gonna be a straight line, but we're gonna absolutely be, you know, driving towards growing the business. You know, hitting that kind of 3% target which is at the upper end of the range. And, making sure we're getting the leverage down so that folks don't consider it a concern for the company. I mean, we've always been of the mindset especially in the private markets that these assets, you know, given the term of the lease and and given the strength of the tendency that they can handle a lot more leverage. But it's, it's also just clear to us in the public markets when you know, when we when the leadership team got together twenty four months ago and we laid out a strategy, it became clear to us that growing 3% a year is a very good target. If we're delivering two, we are right in the ZIP code of where we need to be. We think that growing same store sales and getting that to be better, you know, over the sort of the medium term is also important. So that's why we moved into a place where we have, you know, great skill, which is, you know, state, local, and government adjacency. Those are all those mission critical facilities are just like the facilities that we manage today, and we know how to do that very well. But the great news is once we finally get 30% of our portfolio to have those types of leases with bumps, we start the year with 60 basis points of growth. As opposed to zero, you know, in a flat lease environment waiting for renewals. So you know, I think with with lease renewals plus same store sales, you know, we sort of get ourselves a 100 basis points of growth, you know, as we you know, look forward over the next ten years. And then if we're rewarded and supported by shareholders, know, adding another, you know, two to 3% of growth on top of that eventually. With leverage levels that are attractive seems to be the model in this space that investors are willing to reward. And and we think we can get there and achieve it. You know, we talked to investors for a long time about covering our dividend and you know, the capital markets didn't support it. And we held on to our dividend for a little while. Knowing that our portfolio could grow into it, but our portfolio doesn't reprice fast as, you know, certainly storage or or many other areas of real estate. And we looked at ourselves and said, we're gonna gut it out for a couple years here, and we're gonna cover our dividend, and that's all gonna be good. But that's not what the capital markets want. So it's important for us to do what we do well, which is supporting these mission critical agencies. But, likewise, making sure that the metrics when somebody comes to learn about Easterly Government Properties and what we're doing, that they don't have any allergy to the stats that they're starting with. And I think the more that they take the time to then do the work and the portfolio of the business and what we're trying to do and our years of expertise expertise doing this, that they'll, they'll be pretty pleased for it to be part of their portfolio over the longer term. Michael Carroll: K. Great. I appreciate it, Daryl. Darrell William Crate: Yeah. No. I appreciate the question. Operator: Thank you. Our next question is from Merrill Raw with Camp Compass Point Research and Trading. Please proceed with your question. Merrill Raw: Morning. I wanted to ask a few questions about your and then I had a separate question about mix. Remind us what the total investment was for York, but the cap rate is going in, and and maybe a little bit about York's history of government contracts and renewals, just to get a sense of the, ongoing nature of their their contracts with the federal government. And you know, how this property is essential to their mission as know, as you often described your federal portfolio being. Allison E. Marino: Sure. So the acquisition price on that asset was $29 million, and the cap rate was in the low elevens. That definitely reflects the fundamentals of the overall Denver market and a motivated seller. So that's what I would share in terms of cap rate compared to some of our others. In terms of the building itself, so this functions as their company headquarters. It's kind of a fascinating building. They have a clean room in the First Floor where they construct satellites and other items for their government contracts. So it's it's unique. Right? When you think about the work that goes into fulfilling a government contract, this is very practical, but also very strategic for them. Their partnership with the US government goes back years. They are a very trusted partner in terms of their overall contract base. The work that they do in the aeronautics and defense industry is is very integral to their overall business success, and I think they have been quite successful. Over the years. Darrell William Crate: And, you know, we we try to spend yeah. And, Mara, we spend a bunch of time with you know, management and other folks. The talent base that supports their business in and around, you know, the Colorado area is is profound, deep, and enduring. So the the ability for them to move is difficult. They love the building, and I think we're we're excited about the lease that we have in place. And I think we're even more excited for renewal. When that time comes. Far in the future. Merrill Raw: I would just observe that in your supplement you know, you say that 88% of your lease income is from the federal government, and then then then they're not getting the rest is 12%. And I'm just curious how in trying to meet your 3% goal and your leverage goal, of what you see that mix moving toward. You know, maybe in a longer term than the next six months. But, you know, where are you going with that? Allison E. Marino: Sure. So we have a a goal of 70% GSA or federal exposure 15% state and local, and another 15% in non-adjacent space. So we're definitely on the lookout for sourcing opportunities where we can continue to grow the state and local and adjacent exposure in the portfolio while still being able to acquire high credit mission critical US government properties as well. So I think this year was very demonstrative. Of how we're going to achieve that. So you saw us acquire DC Plaza, and an adjacent building with the Shorks Bay Systems, but you've also we've also acquired DHS Burlington, which is the government asset as well. So it's a good example of how we'll continue to do all of it. But the state and local and adjacent space is certainly an area where we can create more growth because of these escalators that that Daryl's talking about. Merrill Raw: Right. Thank you. Do you see as a result, Dodge, the GSA considering other forms of leases other than their standard contract? Allison E. Marino: I think the GSA is is willing to entertain discussions around a more modern lease structure, ask is a very good example of that. So in our most recent short-term renewal at USFS in Albuquerque, We were successful in embedding lease escalators into that renewal. So for us, I think that's a really good example of where we the GSA is evolving expands, that is an area that we believe that they'll become more competitive. Merrill Raw: That's it for me. Thank you. Allison E. Marino: Thanks, Darrell. Operator: Our next question is from John Kim of BMO Capital Markets. Please proceed with your question. John Kim: Thank you. Daryl, in early last year, you provided a new strategy at your analyst day. You talked about delivering 4% growth in earnings consistently. And with that came some higher leverage, which I think made sense given the high credit nature of of your tenancy. Today, it seems like you're focusing going back to the two three two to 3% growth with lower leverage. What's changed in the last few months and and why the change in strategy? Darrell William Crate: Yeah. So so I think we've never set 4% as the as the the the promise and target, but we're certainly that's our stretch goal. I mean, you know, our job, you know, is to set some expectations and obviously, you know, work on exceeding them. So, you know, that you know, we're we've always stated sort of two to 3% is the right is is a a growth rate, that should give us a cost of capital that's attractive. We hit three this year. You know, as Allison is mentioning, our guidance for next year actually has 4% of growth at the upper end of the range. I think to get there, if we are having 3 to $400 million of acquisitions, which, does not seem implausible to me. We can start getting to those 4% rates. What I just don't wanna do is, is set expectations that are too high, and then we you know, feel like we've tripled the growth rate of the company, but we're still you know, failing in the eyes of our investors. You know, today, you know, at $22, I think that you know, 3% is a very attractive alternative. I mean, our dividend plus growth is in the middle elevens. Which given the, you know, the stability of the company is really strong. So we just don't wanna be able to get out in front of ourselves. That said, as and as you know, I know you well know, if our stock was 28 to thirty two dollars, we grow a lot faster. And if our stock price was anywhere near our net lease peers, we could grow even faster still. The pipeline, you know, I I mean, I didn't say it lightly, and it's no BS, you know, in our in our script. You know, that the pipeline that our acquisitions team with the addition of, of Chris Wong and, Mike Iby, fantastic team. Developing a broad range of of of development and acquisition opportunities, mean, the idea that we can put, you know, a couple $100 million to work, I think, so effectively with a cost of equity that's high is a is a real, shout out to them. And if we had a cost of equity that was you know, more in line with, with what comps would show, I think we can start achieving growth rates, you know, that are even higher. But, so hopefully, that just gives you context. The I I feel better about the company today than I did a year ago. A year ago, I felt better about the company than I did a year before that. And so the team's terrific. The pipeline is outstanding. I think as we march towards getting an investment-grade rating, that will at some point, we will be a terrific healthy issuer of investment-grade debt, which will take our cost of capital down, you know, another you know, 50 to a 100 basis points. And, and I think that we'll be delivering an earnings you know, set of metrics to the market where investors will be pleased for this to be an anchor for their portfolio and an opportunity for compounding IRRs over over over many years. John Kim: So so to summarize, your your line of thinking now is getting lower leverage with more moderate growth will lead to better cost of capital. Darrell William Crate: I I I think that's right, but I I I my growth objective is really, you know, they they really are unchanging, and that I think that we are growing very nicely, but getting to lower leverage seems to be when I look at and again, we spend, you know, 90% of our time focused on, working with the US government, building our portfolio, and doing our job. You know, in in real estate world. But when you look at the comps, you have to wonder, why with our growth rate, why with our dividend, and why with our, you know, the strength of of of tenancy, you know, why is our stock at, you know, $22? It just it just doesn't make sense. And when I look at the at the comps, I think our growth rate is right in line. We're we're certainly at the upper end of office. We're a little 100 basis points below net lease peers. If we were in line with office, our stock would be 28 to $32. We were in line with net lease peers, it would be 36. And and the only thing that I can see is that our leverage level on a on a cash basis continues to be higher than the other folks. And I, you know, I can also imagine, that when we reverse split our stock and cut our dividend, those are generally not signs of of portfolio health, but what became clear is that the capital markets weren't supporting you know, that our portfolio could grow into our dividend. So it was time to husband, you know, resources, where, you know, that obviously, it's a lot easier to manage the growth in the company with a lower dividend. And back back when we cut our dividend, we were saying 2% to 3%. I think, as I said, maybe, you know, I I know into you that you know, getting closer to 3% is a lot easier when you've, when you when you have, you know, retained earnings in the company. And and so we're in a place where where I think we're poised for significant growth and a little support from the capital markets would go an awfully long way to accelerating that growth. John Kim: Okay. And then on your '26 guidance, it came in below consensus you've had some highly accretive acquisitions this year that we thought would boost earnings Can you talk about some of the headwinds in '26? I mean, it looks like you have some dispositions lined up just based on the impairment that you recorded this quarter, and maybe you wanna talk about the the cap rate on some of the asset sales. Darrell William Crate: Yeah. So, I mean, we don't have any decisions, but I'll let 10% growth rate on the company. The stock price wouldn't change. Mean, I think we need to get people I I think we need to build a base of shareholders and we try to be very transparent about what we're building. And I think the cash flow stream that we're creating is one that's you know, very valuable. And the idea of putting high expectations out there that we can exceed is not gonna benefit us. So that said, I think I I think we're we're promising to shareholders something that is way more attractive than the $22 stock price. But, Allison, why don't you just talk about 26 and what we're gonna what we're gonna do? Allison E. Marino: Sure. So at its midpoint, '26 guidance is roughly an 8¢ increase over the midpoint of '25. And if we look at how that sort of 8¢ comes to be, you're right. There is absolutely some growth from 2025 accretive that occurred. But largely, the the largest acquisition we did in 2025 was completed in very early April. So there's only about a quarter of delta, NOI delta from that particular property year over year that's going to increase 2026. So as we look to sort of that 8¢ mark, what I would share with you is that as predominantly FDA Atlanta. FDA Atlanta has been a very accretive opportunity for us to drive earnings growth So that represents a very large portion of that 8¢. We are expecting some same store growth. We typically target about up zero to 100 basis points. That's inclusive of leases renewing as well as the commencement of TI and BSAC rents throughout other already executed leases. And then that is offset by some increases in g and a. If you remember, when Bill retired, we accelerated all of the vesting of his existing awards. So this will be the first year we step into a run rate noncash comp number. John Kim: Okay. So no dispositions as part of that guidance? Allison E. Marino: There aren't there are no dispositions expected for 2026. John Kim: Final question for me is Sorry for asking so many. But No. Appreciate it. You weathered a number of government shutdowns in the past. I I think you said in the prior calls, going back many years, that there was enough to pay for thirty days of of a shut government shutdown I'm wondering if that's still the case. Or do you expect to have an accounts receivable balance if this Oh, no. Yeah. You had a great question. Thank thank thanks thanks for asking. Darrell William Crate: Because just to be super specific, I mean, all of you know, leases are funded for six months plus in the government already. And the point being, that, you know, as you're seeing, the administration and congress are moving money around to meet sets of obligations that are ongoing. In our leases, right at the bottom, it says United States Of America you know, full stop. It's not some subsidiary. It's not an agency. It's the same thing it says on your dollar bill, and it's the same thing as it says on the US treasury. If they don't send us our money, That is a default, and you will see that on the front page of every financial newspaper on the planet Earth. And I think that they're gonna find the money to continue to pay, you know, bonds t bills, and our rent. And it would be very surprising to not. And that's why, you know, I'm I I think government shutdowns are serious business, but I also call it kabuki theater. Because it is a negotiating tool that's partisan right now. And the govern you know, each each party's got a better idea on how to run the government, and fine. But they are gonna pay their bills and the, you know, the country is not gonna stop moving. So we're we're we're very sanguine about about the shutdown and and as we've also seen, we can't wait for the headline risk related to that to go away so that we can, talk about one less thing related to our strong portfolio and, you know, get on our growth path and deliver some fabulous returns to, you know, shareholders over the next five to ten years. John Kim: That's great color. Thank you. Darrell William Crate: Yeah. Anything else? Mean, seriously, we, like, I we'd love just love to hear the criticisms because I think that we your questions because we wanna make sure that and I really appreciate you asking all the questions. Questions, John, because we wanna be very specific with investors about what are any perceived challenges in the model. Because we we are very proud of the portfolio and we're proud of the growth that we're delivering. Operator: Thank you. I would now like to turn the conference back to Darrell Crate, president and CEO of Easterly Government for closing remarks. Darrell William Crate: Great. Well, thanks everybody for joining us on our third quarter conference call. We very much look forward to talking to you as the as the year ends and we begin 2026. We're and I appreciate the robust conversation. We are excited to continue to rebuild the shareholder base and again deliver growth, deliver strong dividends, and deliver an enduring All the best. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Good morning, and thank you for joining Bank of Marin Bancorp's earnings call for the third quarter ended September 30, 2025. I'm Krissy Meyer, Corporate Secretary for Bank of Marin Bancorp. Joining us on the call today are Bank of Marin President and CEO, Tim Myers; and Chief Financial Officer, Dave Bonaccorso. Our earnings news release and supplementary presentation, which were issued this morning can be found in the Investor Relations section of our website at bankofmarin.com, where this call is also being webcast. Closed captioning is available during the live webcast as well as on the webcast replay. Before we get started, I want to note that we will be discussing some non-GAAP financial measures. Please refer to the reconciliation table in our earnings news release for both GAAP and non-GAAP measures. Additionally, the discussion on the call is based on information we know as of Friday, October 24, 2025, and may contain forward-looking statements that involve risks and uncertainties. Actual results may differ materially from those set forth in such statements. For a discussion on these risks and uncertainties, please review the forward-looking statements disclosure in our earnings news release as well as our SEC filings. Following our prepared remarks, Tim, Dave and our Chief Credit Officer, Misako Stewart, will be available to answer your questions. And now I'd like to turn the call over to Tim Myers. Timothy Myers: Thank you, Krissy. Good morning, everyone, and welcome to our quarterly earnings call. We executed well in the third quarter and generated positive trends in a number of key areas, including loan and deposit growth, continued expansion in our net interest margin, effective expense management and improvement in our asset quality. As a result, we saw the acceleration in our level of profitability that we expected with our net income increasing 65% compared to the third quarter of 2024 as we continue to benefit from the actions we've taken to put us in a good position to grow our balance sheet. Our improving financial performance and continued benefits from prudent balance sheet management resulted in increases in both book value and tangible book value per share in the third quarter, while we continue to invest in the company to support future profitable growth. Our banking team, driven largely by recent additions, continues to develop attractive lending opportunities and bring new relationships to the bank, including in areas like the Greater Sacramento region. While we continue to navigate a competitive market environment on both pricing and structure, we've been able to add new clients and maintain our disciplined underwriting and pricing criteria. During the quarter, our total loan originations were $101 million, including $69 million in fundings, the largest since Q2 of 2022. Our originations were a nicely diversified and granular mix across commercial banking categories, industries and property types, and we are seeing a healthy increase in CRE loan demand that meets our standards. This quarter's payoffs included the proactive workout of a $7 million loan that benefits the health of the overall portfolio. Our total deposits increased in the third quarter due to a combination of increased balances from long-time clients as well as continued activity bringing in new relationships. The rate environment remains competitive and clients remain rate sensitive. However, they continue to bank with us for our service levels, accessibility and commitment to our communities. And while our quarterly cost of deposits increased 1 basis point during Q3 due to existing relationship expansion, we've seen improvements in our spot cost of deposits, as Dave will discuss later. Given our solid financial performance and prudent balance sheet management, our capital ratios remain very strong with a total risk-based capital ratio of 16.13% and a TCE ratio of 9.72%. Given our high level of capital during the quarter, we repurchased $1.1 million of shares at prices below tangible book to further build value for our shareholders. With that, I'll turn the call over to Dave Bonaccorso to discuss our financial results in greater detail. Dave Bonaccorso: Thanks, Tim. Good morning, everyone. We had net income of $7.5 million in the third quarter or $0.47 per share. This was significantly higher than the prior quarter, which included the impact of the loss on security sales we had as part of our balance sheet repositioning. Stripping out some of the noise, though, our pretax pre-provision net income increased by 28% on a sequential quarter basis and confirms the enhancements we've made to our core earnings stream. Our net interest income increased from the prior quarter to $28.2 million, primarily due to a higher balance of average earning assets as well as a 17 basis point increase in our asset yield. Although our cost of deposits increased just 1 basis point during the quarter and negatively impacted net interest margin, our spot cost of deposits declined 4 basis points during the quarter to finish at 1.25%. And we've seen a further decline in our spot cost of deposits to 1.24% as of October 23. Though Fed funds rate cuts resume later in the year than many forecasters expected, we have made targeted cuts to deposit rates throughout the year as well as larger cuts in response to the September Fed funds rate cut, which has resulted in a 15 basis point decline in our cost of deposits year-over-year. We are well positioned to continue to reduce deposit costs going forward, in line with the expectation of additional Fed fund rate cuts over the remainder of the year, which will contribute to margin expansion. Our noninterest expense was down slightly from the prior quarter with small reductions in a number of areas. Moving to noninterest income. Setting aside the securities losses, we had a decline of $370,000 during the quarter that is mostly attributable to a BOLI debt benefit paid in Q2. Disciplined credit management remains a hallmark of Bank of Marin as well. Due to the improvement we saw in asset quality in our loan portfolio and the substantial level of reserves we have already built, we did not require any provision for credit losses in the third quarter, and our allowance for credit losses remained strong at 1.43% of total loans. Overall trends in our level of problem assets reflect our proactive and conservative approach to credit management, where we are aggressive to downgrade and cautious to upgrade. Due to the improvement we saw in the performance of some borrowers, we had a number of upgrades during the third quarter that resulted in a reduction in nonaccrual and classified loans. Subsequent to quarter end, an additional $3.6 million in nonaccrual loans paid off in full, including interest and fees. Given the continued strength of our capital ratios, our Board of Directors declared a cash dividend of $0.25 per share on October 23, the 82nd consecutive quarterly dividend paid by the company. With that, I'll turn it back over to you, Tim, to share some final comments. Timothy Myers: Thank you, Dave. In closing, we believe we are very well positioned for continued improvements in our core financial performance in areas, including balance sheet growth, net interest margin, expense management and asset quality. While broadly, there is economic uncertainty, our credit quality continues to improve and our loan demand remains healthy. Our loan pipeline remains strong, and we expect to generate solid loan production in the fourth quarter. While we always tightly manage expenses, we will also continue to take advantage of opportunities to add banking talent and enhance efficiency through technology that we believe will help support the continued profitable growth of our franchise into the future. With the strength of our balance sheet, we believe we are very well positioned to increase our market share at attractive new client relationships and further enhance the value of our franchise in 2025 and beyond. With that, I want to thank everyone on today's call for your interest and your support. Operator: [Operator Instructions] Our first question will come from Matthew Clark with Piper Sandler. Matthew Clark: I'm sure you're getting tired of being asked this question, but what are your latest thoughts on HTM securities loss trade given all your capital? Timothy Myers: Well, there's a lot of moving parts to consider. We continue to evaluate all those moving parts, but no final decision has been made. Matthew Clark: Okay. And then just on expenses going forward, any updated thoughts on the run rate there? And how should we think about seasonality and just the pace of growth you're looking to manage to next year? Dave Bonaccorso: So I think Q4 probably looks quite a bit like Q3. What's historically been the wildcard for Q4. You mentioned seasonality. In Q4 in recent years, we've had adjustments to payroll-related items. And so that's probably the wildcard this year as well, probably to a smaller degree in my estimation. But there are kind of puts and takes on both sides. And overall, you probably come in pretty close to where we were in Q3. Operator: Our next question will come from Jeff Rulis with D.A. Davidson. Jeff Rulis: Dave, you commented on the progress on the deposit costs. And just kind of looking at the Slide 5, you've got your rate sensitivities kind of signaling asset sensitive, but the reality is, it sounds like kind of pointing to further margin expansion. Could you -- and I guess, absent maybe some interest and fees you might collect on the subsequent nonaccrual payoff, just the core margin and expectations ahead? Dave Bonaccorso: Sure. So let me give you a 3-part answer. The first one relates to what you're talking about on Page 5, the traditional ALM sensitivity. So historically, we've been pretty neutral. We typically talk about shades of slightly asset-sensitive or slightly liability sensitive. This quarter, well, every quarter, we do our ALM run mid-quarter. And at that point in time, we probably had more cash than we finished the quarter and that as normal. And so I think that's adding to the asset sensitivity you see in that illustration. But I think some of that has gone away in my estimation. So that's dimension one, is the pure ALM sensitivity. Dimension two is just pure napkin math and when you look at our floating rate liabilities, which is to say, interest-bearing non-maturity deposits, those are roughly $1.7 billion. And then look at our floating rate assets, those are about $525 million between loans, securities and interest-earning cash. So the assets have a 100% beta and if you try to solve for what the beta needs to be. On the liability side, you get to around a 31% beta needed to break even. And our cycle to date non-maturity interest-bearing beta has been 35%, and we model 34% in our ALM run. So I think that speaks to near-term benefits from rate declines, though some of that does drift or fade away over time just because of the way assets reprice over time. And then I guess the third dimension is just go instrument by instrument on the balance sheet. It's just working your way down. Cash, of course, if you believe Fed funds rate expectations, that will probably be a drag down the road, but that's by far the smallest of the components. Securities, we have an AFS portfolio. It's been fully repositioned or almost fully repositioned with a book yield of 4.44%. So there's not much you can do there. The HTM portfolio has a book yield 2.40%. And so we can reinvest cash flows off that portfolio at much higher rates. We expect about $76-or-so million payouts from that HTM portfolio in the next 12 months. So that gives you a sense of what could reprice there. And then on the loan side, year-over-year, we expect our loan yield on a monthly basis to be about 20 basis points higher at September 26 compared to September 25. So that's with a flat balance sheet and payoffs at market rates. We had a 3 basis point increase this quarter, so that tracks with that. And obviously, if we have loan growth on top of that, that would give you some upside to the loan side. And then on the deposit side, we had the small increase this quarter. But of course, the Fed funds cut came in the last 10% or 15% a quarter. So the benefit we got from that wasn't as large as if it was translated over a full quarter. Our spot rate of deposits came down from 6.30% to 9.30%. So that, I think, speaks to the benefits we're going to get from further cuts moving ahead if they play out. So that quick look at instruments suggests that there's quite a bit of benefit to NIM expansion in a falling rate environment. Jeff Rulis: That sounds good. I appreciate it. It sounds fairly positive. Maybe the linked quarter, a lot of still some flow-through from the securities restructure, but kind of core, it seems like it's got some positive. So I appreciate the detail. Maybe if I just hop to credit, that also sounds fairly positive maybe Tim or Misako. Just the upgrades, is that a function of some rate relief early on and some better occupancy, maybe just overall CRE improvement? If you could speak to the -- or maybe it's project specific. I would love to check in on that. Timothy Myers: Yes. I think you talked about the classified upgrades, it was a mix of what yo u just said, Jeff, there was improved leasing activity on multifamily in San Francisco that got us above requisite debt coverage ratio. And then there was another property that had been burned down in one of the fires that finally got construction started. So there's an end in sight or light at the end of the tunnel for a repayment source. But it's all been idiosyncratic. I mean, overall, we are seeing improved leasing activity in San Francisco. Again, the other markets have held up fine, but the upgrades were idiosyncratic. Jeff Rulis: And Tim, as I guess, if you roll forward these appraisals to, I know on the larger credit, you had a recent one maybe last quarter, and that was year-over-year positive. Is that a trend that you continue to see into the third quarter? Timothy Myers: Yes. I mean we haven't done those same kind of appraisals on those same properties, but I do -- we are seeing valuations improve in San Francisco. The magnitude of that over time, it's really hard to say, but we are seeing valuations come up, yes. Jeff Rulis: Okay. And last is just the 30- to 89-day bucket increase. Is that largely procedural? Or is it just again, specific credits? Anything to touch on with that move? Timothy Myers: No, you already nailed it. It's procedural, things that needed to be extended or in the process of that negotiating. And so these are not increasing people not paying us. It's getting lines mature or extended. Operator: Your next question will come from Woody Lay with KBW. Wood Lay: I wanted to follow along on the line of thinking there. And it feels like we're seeing much more positive headlines come out of the Bay Area, and it feels like there's macro momentum at play with AI tailwinds and political impacts. Are you seeing that optimism carry over to your loan demand? Timothy Myers: I think we are. We had a higher proportion of investor CRE this quarter because I do think people are coming back into the market, although that -- the property types are really diverse there. Markets were diverse. Sacramento continues to be a big area of our growth. And so probably $20 million -- north of $20 million of our deals this quarter were CRA related with some affordable housing. So I don't really attribute that to that same kind of trend in San Francisco. But we are seeing increased activity. If you look at our construction team, financing developers, a lot of those projects are in San Francisco or immediately around. And we're seeing a higher degree of interest and activity on their part. That takes some time to translate into outstandings, but I would say that's a fair statement as well. Wood Lay: Got it. And then anything to note on the loan competition side? I feel like we've been hearing a lot about intense pricing competition. Are you seeing that as well? And anything to note on the structural side? Timothy Myers: For high-quality deals, yes, pricing competition is aggressive. We are also seeing a return of the nonrecourse. We do our best not to participate in that and only do when we have enough other things we could do to mitigate those risks. So it's rare for us, but we are seeing a return of that degree of competition, yes. Wood Lay: Got it. And then last for me, it feels like we're seeing tailwinds to the NIM. We're seeing loan growth move a little bit higher, continued expense management. We saw a really nice profitability inflection in the third quarter. Just how do you think about continued positive operating leverage from here? Timothy Myers: So I'll start on the growth aspect of it, and Dave can jump in on any margin comments. But you heard his comments on the NIM expansion built into the balance sheet today. I think that can really help us. We are seeing a continuation of the loan growth. The pipeline was bigger at the start of this quarter than last quarter, and that was a great quarter. And so there's really not a lot controllable in the payoff area, but if we can continue to outrun that and accelerate that further. We've got new hire. We have a new hire in Sacramento that we expect to add -- be additive to this effort. And so there's a lot of traction internally, obviously, externally being generated to keep the growth rate going. Deposits fluctuate and as Dave mentioned, that's really hard to predict all the seasonality of the inflows and outflows but I do think the key trends there, we expect them to continue, and that's obviously first and foremost. You can comment on the margins... Dave Bonaccorso: Nothing else to add on the margin, but just one other thing to mention on expenses. Year-to-date 2025 versus 2024, our expenses are only up 90 basis points. So I think it speaks to the ability to scale without adding a lot to the expense base. Operator: [Operator Instructions] And our next question will come from Andrew Terrell with Stephens. Andrew Terrell: Maybe just start with Dave. Thanks for the color on the spot deposit cost. I think you mentioned October 1.24% total October 23. Do you have the equivalent interest-bearing costs on that Dave? Dave Bonaccorso: Give me a moment, I'll actually give me a very quick moment. It's [ 2.18 ]. That's a total non-maturity interest-bearing [ 2.11 ]. Andrew Terrell: Got you. Okay. Yes. And I guess where I was going to go with that is it looks like I understand that growth seems like later in the quarter, at a higher cost, somewhat impede what all else equal is kind of a good repricing story later in the quarter and early into October. And I guess I just wanted to get a sense for incremental new money as it's coming on the balance sheet. Is it coming on similarly priced overall to your overall deposit franchise right now? Just given you're starting at a low base, I'm trying to get a better sense of whether this 35% interest-bearing beta is kind of a good frame of reference to use given it's on a static balance sheet or once we factor in new money being brought in at potentially higher rates, if that could somewhat impede the beta that we're kind of looking for? Dave Bonaccorso: Well, I think part of the story this quarter was that we had growth from existing accounts that made up a pretty big chunk of it. And so it's new money technically, but it's not new relationships, I'd say. And of course, we encourage our existing customers to bring more to the bank. But in terms of what we're -- what would be new flows, I'd say it's not dissimilar from our overall costs. I mean we're not chasing high-cost money. That's never really been part of what we do. So for that reason, I think the estimate is -- the beta estimate you talked about is still makes sense to me. There's nothing that would make me think otherwise. Timothy Myers: Yes, if you look at the growth in deposits by customer, the largest chunk of growth came from those customers with the longest tenured relationships. So you have to be careful on how you encouraging them to bring over more funds, fairly compensate them. Yes, new money came on at a slightly higher rate, but overall, continue to get a nice inflow of noninterest-bearing to help offset that. Andrew Terrell: Yes, yes. Got you. Yes. Good problem to have, Tim. I wanted to ask about the buyback. It looks like you were somewhat active this quarter. The stocks up a bit, but you've also still got really strong capital as well. Just thinking of the puts and takes on the buyback, should we assume you're still going to be active going forward? Timothy Myers: Well, that always comes with a big caveat of the potential uses of capital, right? So we certainly did that when we were trading below tangible book. We think that always makes sense for our shareholders. But we do continue to, as Matthew asked, explore the potentiality of further balance sheet restructurings, and that's obviously a big use of capital. And so we want to make sure we're being sensitive to those various options. And next few quarters, obviously, we'll see how the market plays out. But our intent is to make the right decision for the broadest swath of shareholders possible. Andrew Terrell: Yes. Okay. And then last for me. I know you mentioned the pipeline coming into the fourth quarter was greater than that going into the third quarter. Are you able to quantify the change in the pipeline? Timothy Myers: No. I appreciate the question, but as you know, we don't give guidance. But we are expecting at this point in time, a quarter similar to what we just experienced. Operator: Your next question will come from David Feaster with Raymond James. David Feaster: I just kind of wanted to follow up on that kind of, I guess, the pipeline to some degree. Just looking at your originations, originations were up really nicely quarter-over-quarter. It seems like an increasing contribution from C&I. Has the complexion of your pipeline changed at all? I'm just kind of curious where you're seeing the most opportunities for growth near term? Timothy Myers: It is really dispersed, David. So I would say the prior quarter had a higher component of C&I. This quarter had a lot of commercial real estate with some unfunded components. So the unused commitments made it look like that was C&I. But honestly, it was pretty CRE oriented this time. It really is coming across the footprint. If you look at the lending groups that are doing the best are primarily centered in the North Bay, Marin, Napa. But a lot of the growth, meaning where those deals are at, a lot of that is out in Sacramento. And so people following relationships. So we're seeing a really nice, again, disbursement of effort of opportunity. We had a really nice component of CRA and affordable housing this time. And so which is somewhat unique compared to prior quarters. So it really has been very diverse. David Feaster: Okay. That's great. And you talked about some new -- you talked about the hire that you made in Sacramento as well as some tweaks to maybe comp programs and calling programs that you referenced in the deck. Could you -- I guess, could you, first off, touch on your hiring appetite? Is there an appetite for additional hires? And what kind of lenders are you looking for? And then could you just maybe give some detail on as to the extent that you can, on the change in the comp program and the calling programs that you guys have made? Timothy Myers: Yes. So we are, as you noted, made another hire in Sacramento following hiring a new regional leader the prior quarter. So we expect activity to pick up considerably in that region. We will look to make opportunistic hires throughout the footprint. We think that makes sense and the people we're hiring have done a really good job for us. And so that has a contagious effect of activity, activity begets more activity. So if you ask about -- I'll kind of reverse the order of the last part of your question, much more active calling. If you look at a couple of years ago when we had really a few years ago, compared to a higher production year, most of that came out of the existing portfolio or a handful of people, 1 or 2 people. Now it is almost entirely new customers, in some cases existing but from a much more active calling activity base. And so David Bloom, Head of Commercial Banking has been very active in managing a sales process, weekly sales calls with everybody, blocking and tackling, and the people we're hiring are used to and capable of operating within that. So I'm not totally sure the comp plan is that dramatically different. It's aimed at incenting sending the right behavior. It certainly doesn't go to the length of some of our former competitors on how they pay people, but it is designed to incent the right behavior. And so we're seeing all that sort of come together. It's been a little while in the making, but we're starting to get a lot of traction. David Feaster: Okay. That's helpful. And then I know -- I mean, payoffs and paydowns have been a headwind across the industry, and I know it's -- just kind of curious what you guys are seeing on that front? How much of that is -- we just -- we touched on the competitive landscape. Then you've got natural asset sales and some of those kinds of things. But just looking at the payoffs and paydowns that you've seen, just kind of curious how much of it is maybe again, losing deals to another bank versus natural asset, just payoffs and paydowns and asset sales and those kinds of things or versus strategic deleveraging? Timothy Myers: Well, I think part and parcel to getting a more active lender program activity is managing relationships as well. So the $24 million in commercial loan payoffs last quarter, only $2 million of that came from third-party refinancing, David. So $4 million was related to assets, almost $10 million was just cash deleveraging. People just paying off debt with cash. We had about a $7 million workout that we pushed out, which was a good thing. And we mentioned that in the release. But again, only $2 million in the quarter came from losing money to another bank. David Feaster: Okay. And just one quick one. I may have missed it, but for that $3.6 million nonaccrual that was paid off after quarter end, do you have the amount of interest recovered from that, that we should expect in the fourth quarter? Timothy Myers: I do not. Dave Bonaccorso: It's a little less than $700,000. I think $670-ish is the number. Operator: Your next question will come from Tim Coffey with Janney Montgomery Scott. Timothy Coffey: Good morning, everybody. Yes, just looking at the deposit growth this quarter and the number of new accounts referenced in the -- opening the quarter referenced in the press release. I'm wondering, do you have a line of sight to deposit balance growth in the fourth quarter that might offset any kind of seasonality? Timothy Myers: No, it's really hard to forecast for us. That roughly 1,000 new accounts a quarter has been pretty consistent all year. But really the large fluctuations are in the end, what will drive what the balances are. And we've already moved some off balance sheet that we thought were maybe more volatile, but it is really hard to predict how some of the customers -- inflows and outflows in some of our larger depositors. The people that are affecting the balances are sort of the usual suspects, so nothing strange or unexpected there, but it's really hard to predict. So that was a long-winded way of saying, I don't know, Tim. Timothy Coffey: Sure. I appreciate that. The flip side of that question then is, I mean, typically, we see kind of seasonal deposit outflows due to tax payments and the like coming up. Do you see -- any sense that the payments this year will be any larger than they've been in previous years? Timothy Myers: We have not gotten any indication of that. And we do a pretty active job of talking to our clients in an effort to forecast, and we don't see any big outflows or abnormally large outflows for any particular reason happening. But again, it is hard to predict, and we inevitably will not talk to the one client that will have a big change in deposit balances. So it is a wait-and-see game, but we are actively managing talking to our customers and trying to, again, forecast any big changes. And right now, we don't see anything dramatic on the horizon. Operator: We have no further questions at this time. I will hand it back to Tim Myers for closing remarks. Timothy Myers: Thank you, everybody. We appreciate it. We're proud of the quarter, and we are happy to share that with you and answer all your questions. Thanks again.