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Operator: Good morning, ladies and gentlemen, and welcome to Advanced Drainage Systems Second Quarter of Fiscal Year 2026 Results Conference Call. My name is Kayla, and I will be your operator for today's call. [Operator Instructions] I would now like to turn the presentation over to your host for today's call, Mr. Mike Higgins, Vice President of Corporate Strategy and Investor Relations. Sir, you may begin. Michael Higgins: Good morning, everyone. Thanks for joining us today. Here with me, I have Scott Barbour, our President and CEO; and Scott Cottrill, our CFO. I would also like to remind you that we will discuss forward-looking statements. Actual results may differ materially from those forward-looking statements because of various factors, including those discussed in our press release and the risk factors identified in our Form 10-K filed with the SEC. While we may update forward-looking statements in the future, we disclaim any obligation to do so. You should not place undue reliance on these forward-looking statements, all of which speak only as of today. Lastly, the press release we issued earlier this morning is posted on the Investor Relations section of our website. A copy of the release has also been included in an 8-K submitted to the SEC. We will make a replay of this conference call available via webcast on the company website. I'll now turn the call over to Scott Barbour. D. Barbour: Thank you, Mike, and good morning, everyone. Thank you all for joining us on today's call. ADS executed well this quarter in spite of a challenging market environment, driving growth at strong margins. In the second quarter, we delivered 9% revenue growth and 17% growth in adjusted EBITDA. This performance reflects ADS' strategy to prioritize higher growth, higher-margin products, execute the material conversion strategy and implement self-help initiatives to improve safety and productivity, all of which we executed exceptionally well this quarter. As we continue to deliver above-market growth and industry-leading margins, we remain committed to investing in both organic and inorganic growth to further strengthen our position as a leader in water management. Let me touch on a few highlights from this quarter. Allied Product sales increased 13% with double-digit growth in several key products, including the StormTech retention detention chambers, the Nyloplast catch basins and the water quality products, all of which benefited from new products introduced over the last year. Infiltrator revenue increased 25%, including Orenco or 7% on an organic basis, driven by double-digit growth in both tanks and advanced treatment products launched in the last several years. Pipe revenue increased 1% with double-digit growth in the HP pipe products and construction applications being offset by weakness in the agriculture market. Importantly, pricing remains stable. From an end market perspective, 15% nonresidential sales growth was broad-based geographically across the U.S. Organic growth of 12% was driven by double-digit growth of Allied Products as well as the strong growth in HP pipe products. Inorganic results contributed 3% to the growth in the nonresidential market. The residential end market was more mixed as interest rates continue to weigh on single-family housing starts, existing home sales and land development activity. For the second quarter in a row, we experienced strong Allied Product growth in the multifamily development activity. From a geographic lens, land development activity was better in the Atlantic Coast and South Central U.S., but the DIY channel we service through big box retailers remains challenged. Infiltrator's core residential business significantly outperformed the market and the continued outperformance by both companies gives us confidence that we have the right strategies, product portfolio and go-to-market model to increase participation in the residential segment. Overall, we executed well in a challenging market environment and remain focused on driving profitable growth by executing these strategies, introducing new products and customer programs, pursuing acquisitions and investing capital for long-term growth. We continue to build on the strong foundation of the ADS story. We operate in highly attractive water segments supported by secular tailwinds from changing climate patterns as well as the increasing awareness of the societal value of proper storm water and on-site wastewater management, ultimately driving long-term demand for the company's products. ADS is the only company with solutions that extend throughout the entire storm water or on-site wastewater system on a national scale. Through our best-in-class portfolio of water management products, we deliver solutions that are safer, faster to install and lower cost through savings on labor and equipment. We were excited to announce an agreement to acquire NDS in September, a U.S. supplier of residential storm water and irrigation products that complement the existing ADS product portfolio. This acquisition presents another opportunity for us to grow our Allied Product portfolio with NDS' differentiated offerings alongside our core pipe products, ultimately providing a broader solution set to capture, convey, store and treat storm water. We will continue to execute ADS' strategy to diversify and increase the mix of profitable Allied and Infiltrator products that enhance resiliency, support profitable growth and enable ADS to pursue additional opportunities in water management products across a broader set of applications. The regulatory process remains ongoing, and we look forward to providing an update once available. The market outlook presented at the bottom left of Chart 4 remains unchanged. Overall, the residential and nonresidential end markets remain choppy. The recent outperformance is driven by strong execution by our employees, and I'm very proud of the team for their performance delivered in the challenging quarter. Their disciplined execution and commitment to continuous improvement resulted in our safest first half of the year on record, achieving a total recordable incident rate 1/2 of the industry average. This performance reflects our ongoing focus on safety and operational excellence, which are foundational elements of our sustainable growth strategy. When you stack our strengths, the scale, product portfolio, go-to-market strategy and the ability to invest in our business, people and industry growth, you see ADS as a powerful value proposition. In summary, we continue to execute effectively in a challenging environment. Our self-help operational initiatives continue to bear fruit as demonstrated by the 33.8% adjusted EBITDA margin reported today. We will continue to increase the capacity of existing production facilities and add new capacity in strategic areas to meet customer demand. We are also highly focused on service and delivery experience for our customers, leveraging the new digital tools across the platform. While we navigate the near-term environment, we do so with an eye towards the future. We remain firmly committed to our long-term vision, and we'll continue investing in the capabilities that will position us for future success. Overall, the long-term outlook for our business remains strong, supported by compelling secular tailwinds driving demand for water management solutions across North America. Now I'll turn the call over to Scott Cottrill. Scott Cottrill: Thanks, Scott. On Slide 5, we present our second quarter fiscal 2026 financial performance. Revenue increased 9% to $850 million, primarily due to the factors Scott mentioned. Importantly, we believe our results outpaced the end markets overall, demonstrating the resilience of the ADS business model. From a profitability perspective, we were very pleased with the 17% increase in adjusted EBITDA year-over-year and the resulting 33.8% adjusted EBITDA margin. A couple of things I feel are worth reiterating related to our strong performance during the quarter. First, we experienced strong growth in both our nonres and residential end markets. It is worth noting that the nonresidential end market also accounts for 2/3 of our Allied Product sales. In addition, we continued to see favorable price/cost performance in the quarter. Regarding manufacturing and transportation costs, we incurred incremental transportation costs related to the strong demand during the quarter as well as to reposition product around the network as a result of previously announced realignment actions. Regarding SG&A costs, the year-over-year increase was primarily driven by the acquisition of Orenco as well as higher sales-related costs. Again, it is important to highlight the company's performance and the resulting 33.8% margin in the quarter, demonstrating the resilience of the ADS business model. On Slide 6, we present our free cash flow. We generated $399 million of free cash flow year-to-date compared to $238 million in the prior year, primarily driven by increased profitability as well as better working capital performance and lower cash taxes. Of note, we expect the OBBBA to result in an incremental $30 million to $40 million of free cash flow this fiscal year than we had originally anticipated. Thoughtful capital allocation continues to be a key focus for the management team and our Board, given the strong cash generation of the company. We expect $111 million to spend $111 million on capital expenditures year-to-date and expect to spend approximately $200 million to $225 million for the full year. These investments will focus on innovation and new product development at our world-class engineering and technology center, increasing our recycling capacity, particularly in the Southeast, continued investments in customer service, productivity and automation as well as executing growth initiatives in certain key geographies. We ended the quarter with less than 1 turn of net leverage. or 0.7 turns to be exact, and over $1.4 billion in available liquidity, including $813 million of cash on hand. Our target leverage looking forward is approximately 2 turns. We plan to use a significant portion of the cash on hand for the proposed acquisition of NDS. As a reminder, ADS signed an agreement to purchase NDS in an all-cash transaction valued at $1 billion or $875 million net of tax benefits. This represents a valuation multiple of 10x NDS' adjusted EBITDA for the trailing 12 months ended June 30, 2025, inclusive of expected run rate cost synergies. This is a compelling acquisition given the highly complementary strategic fit, alignment with the ADS water management strategy, growth profile and additional exposure to the residential segment and resilient applications such as residential repair, remodel and the landscape irrigation markets. The company expects the acquisition to be accretive to adjusted earnings per share in the first year. And given ADS' proven integration capabilities, we expect to generate $25 million in expected annual cost synergies by year 3. We expect to achieve additional upside from revenue synergies through cross-selling products and expanding market opportunities in new segments and applications. We look forward to identifying areas where we can enhance our collective capabilities and create new opportunities for customers. Moving on to Slide 7, we present our updated guidance ranges for fiscal 2026. Based on our performance in the first half of the year as well as current trends and backlog, we increased the revenue guidance by 2% at the midpoint to $2.945 billion. In addition, we increased the adjusted EBITDA guidance by 5% at the midpoint to $920 million. The updated guidance derives an adjusted EBITDA margin of approximately 31.2% or 60 basis points higher than fiscal 2025. Despite our second quarter performance, we see demand and market strength to be the largest risk in the second half of the year, especially given the impact of seasonality. We remain cautious about market demand in the current environment and have reflected such in our guidance. We remain focused on executing our long-term strategic plan to drive consistent long-term growth, margin expansion and free cash flow generation. With that, I will open the call for questions. Operator, please open the line. Operator: [Operator Instructions] Our first question comes from the line of Mike Halloran with Baird. Michael Halloran: A couple of questions here. First question, maybe just how you see the end markets playing out in the back half of the year and what's embedded in your guidance. I certainly understand the unchanged end markets on a holistic basis. Does that assume normal sequentials from here? I know the original guidance assumes some deterioration in dynamics. Is that still part of the story? And then maybe just a comment on what inventory looks like in the channel. Scott Cottrill: Yes. So at the midpoint, Mike, when we look at 2H, we've basically implied a little bit of degradation on a year-over-year basis. Again, when you look at our first half performance organically, it was good, up low single digits. And again, really good conversion from the company on all levels, new products, as Scott mentioned, as well as geographies. So again, as I ended my comments in the prepared script, it's demand that we see as kind of the riskiest part of the rest of the fiscal year, and we've reflected such in our guide. So a little conservative on that end based on where Q2 was. But again, we feel that that's prudent right now. Michael Halloran: The inventory piece? D. Barbour: Inventory piece? So we don't -- this is Scott Barbour, Mike. And I don't think we see anything unusual from an inventory standpoint, either in our customers' inventory nor in our inventory. So it's kind of sized correctly for what we call this tepid and uncertain demand picture. There's some friction out there, I call it this government shutdown is not helping. I think that creates a little uncertainty and friction out there. People are still kind of waiting to see ultimately what happens with interest rates. But I feel like we're competing pretty well out there and doing -- winning more than our fair share in that kind of market. And I think that's due to our go-to-market model, our scale, our national footprint, we can participate everywhere and this really broad portfolio of products at Infiltrator, who is definitely in the right geographies with the right product lines and the ADS side. So we're just -- we're trying to be right, as Scott said, a little cautious and conservative around the demand side which, as you all know, our second half of the year is the most uncertain demand environment we have because of weather and some of the focus on the northern climes. Scott Cottrill: The other thing I'd highlight, Mike, is we've also highlighted our realignment activities as we look at the network and we optimize such. So again, really robust S&OP process, realignment activities to make sure that we're focusing on the right growth areas. So I would say the management team is focused in the right areas. Michael Halloran: No, that makes sense. And you can certainly see the strong outperformance in the numbers. Maybe a similar question on the margin line. Just help me with the puts and takes in the back half of the year. I'm assuming there's an element of conservatism and how the margins move to the back half. But maybe walk through mix, how you're thinking about price/cost and just bridge a little bit to the back half of the year from the front half. Scott Cottrill: Yes. I would say price/cost, we'll start with that. That seems to be the topic everybody is the most interested in. But again, no degradation assumed in price/cost. So I think it's important to get that out of the way. The way we've kind of set our 2H guide or implied guide is very much driven by demand and the top line. And then we've kind of used our 30% to 40% incremental decremental margin approach, if you will, to look at what that might mean from an EBITDA perspective. Again, volume generated as we look through price cost, manufacturing, transportation, SG&A, nothing unusual in there or something unexpected that we need to highlight or should highlight, just demand driven. Operator: And your next question comes from the line of Matthew Bouley with Barclays. Matthew Bouley: Really a similar line of question here around that second half guide to start off. Just to maybe clarify one piece of it. Basically, are you actually seeing any signs of slowing as we kind of move into, let's say, October, November? Or is this really just taking that kind of conservative outlook and uncertainty, government shutdown, et cetera, and so forth, like you said, and building that into guide. Just curious if you've actually seen anything that would suggest that kind of bigger slowdown in that second half. D. Barbour: So this is Scott B, Matt. And I would say that we are more conservative as we look into the second half. We feel like we performed very well in the second. If it's there, we're going to get it. But we are worried about what I call this friction in the market. We're not -- it's not overwhelming and evident everywhere. But we do kind of sense that the slowdown, particularly around the infrastructure stuff, the government shutdown, particularly around the infrastructure stuff is not leading to less quote or orders, but it is putting some friction into release for shipment, if you will. And now that's not the hugest part of our business, but we're watching that super closely. And the government has been shutdown for, what, 40-plus days or something like that. And they do drive a piece of the economy. So we are a bit cautious around demand. The part I would add also on this is what we can control around our cost and what we choose to go and do around spending or initiatives, we feel very confident that we got this dialed in. And we'll work hard in the second half to do that. Our concern is that demand is going to be tepid and choppy. And again, this is our most volatile demand period, is this period really November through March. Matthew Bouley: Okay. Perfect. That's perfect, and I appreciate the thoughts there. So then secondly, on residential, so the 9% growth, I guess, presumably, that's mostly organic, but curious if that's true. So I guess across ADS and Infiltrator. You touched on at the top that multifamily was up in Allied and lot development is kind of choppy around the country. I'm really just looking if you can expand a bit. I mean, it stands out in a tough residential backdrop to have that type of growth. So maybe you can kind of go through the individual pieces of your residential business and expand a little bit on kind of what's driving that growth. D. Barbour: Yes. So I'm going to add something then Mike can add something. So Craig Taylor from Infiltrator is here with us today, our Infiltrator President. But new products, the tank products that we tooled and launched in the last 2, 2.5 years, Craig, the advanced treatment products, the work that he and his team are doing with Orenco on profitability, all that stuff kind of read through nicely. The multifamily, where we have very good participation and particularly our Allied Products has done well. Mike, did you want to add something on residential? Michael Higgins: Yes. I was just going to say, Matt, your question around -- there was some contribution from Orenco in the quarter. But also if you take that out, we saw positive growth organically at ADS and Infiltrator in that residential end market for the reasons, Scott just said, right, the new products, the programs that we're working with builders, to drive the conversion in the land development for single-family subdivisions. And then we've seen, as we mentioned in the first quarter, we've seen improvement in multifamily activity in a variety of geographies. And that's coming through. We can see that in the Allied Product sales that go into residential. Operator: And your next question comes from the line of Jeff Hammond with KeyBanc Capital Markets. Jeffrey Hammond: So just to stay on the outgrowth because I think you're worried about demand, but your outgrowth has been quite exceptional. Just kind of the sustainability of the outgrowth into the second half? And then my other second half question is just how we should think about first half, second half margin step down on the seasonality factor, given that it seems like price/cost is moving much better in the right direction versus a year ago. Scott Cottrill: Jeff, Scott C here. So again, as we said before, I'll just reiterate it, it's very much a demand-driven outlook. Based on the choppiness, again, very encouraged by what we saw in Q2. If you look at the first half, however, that 5% of growth, 2% organic, 3% from Orenco. We're not seeing green shoots yet. So there's a lot of reason to be cautious and build such into our outlook. So it's demand driven. When you look at the margin expectation off of that, as I said previously, it's more just looking at our 30% to 40% decremental margin historical kind of performance and putting it there. Price/cost stable, as I mentioned earlier, there's nothing falling off a cliff there for folks to be worried about. And if I look at manufacturing transportation, SG&A, is there any kind of large onetime thing in there or some trend that we need to be concerned about? No. So that's the way I would present it, demand-driven with a 30% to 40% decremental margin approach. Jeffrey Hammond: Okay. And then into the second half, can you just talk about how, I guess, last year, pretty active storm dynamic and lack of this year, if that -- if there's any good or bad comp dynamics around that? Michael Higgins: Yes. I mean I think -- I mean, are you referring to kind of the back half, the last 6 months of the year that we're getting into? Jeffrey Hammond: Yes. Michael Higgins: Yes. Yes. I mean, obviously, the biggest thing is winter and everybody is asking kind of questions around the guide, right? And so there's -- obviously, we have caution when we get into the back half of the year, we get through October, you get into November through March, right? 50% of the country has winter and construction activity shuts down. And last year, you saw, it was a very traditional winter in the northern half of the U.S., and that impacted our business. It doesn't necessarily go away, but guys just can't work as long into the season. And I think we're trying to, again, be appropriately cautious around that dynamic potentially repeating itself. So yes, if the weather is better in the back half and it's warmer in the northern climates longer, there's a chance construction activity continues and the fourth quarter is maybe a little better than expected. But we're sitting here on November 6, right? And so we're still like, call it, 60 days away from kind of what we'll know going into the fourth quarter. Jeffrey Hammond: Yes, I was actually referring to kind of all the hurricane activity that might have been maybe disruptive and then helpful down the road in this year kind of being a lighter year. Michael Higgins: I mean I think when we have our second quarter, again, not having those probably played a little bit of benefit there. But again, it was pretty good weather in the second quarter, so guys could continue to work... Operator: And your next question comes from the line of John Lovallo with UBS. John Lovallo: The first one, maybe just following up on Matt's question on the resi side. I mean, builders have clearly pulled back on starts to rightsize inventory in certain markets, but community count continues to grow pretty nicely. And personally, we're fairly optimistic heading into next year. But the question is, how are you thinking about the resi builder business heading into the spring? And what are you hearing from the folks on the ground? Michael Higgins: I mean I don't think we're hearing a whole lot different than kind of what you described, right, a little bit of caution kind of favoring price over pace. But with that said, there's still a large opportunity for share gain for us in those markets. We have a much smaller market share there than what we would have in nonresidential, for example. And when you look at the performance this year, again, the programs we have with the builders promoting our conversion strategy and the ADS value proposition. When you look geographically, places like Texas, North Carolina seeing strong growth. Florida was very soft in the first quarter, but sales were essentially flat in the second quarter. So that's promising there. In terms of volumes, which -- the volume that we're selling in there. So I think our goal always is outperform the market, and we feel like we have lots of opportunity there still with the conversion strategy, the Allied Products. And then when you think about the Infiltrator and Orenco opportunities that we're promoting in that segment as well. We think we have a lot of tools to go and beat back any underperformance or weaker market performance in the macro. John Lovallo: Got it. And then maybe on Texas specifically, I think the state just passed a $20 billion fund, about $1 billion a year to replace aging pipe, and I think it starts in maybe 2027. I mean I think you guys have historically talked about Texas as like a $390 million, $400 million pipe market. Just curious how you're thinking about this new bill? How significant of an opportunity could it be for you guys? And could it actually accelerate the adoption of plastic in the state? D. Barbour: So John, this is Scott Barbour. We supported that bill. We lobbied for that bill. We're -- as you know, we're quite active in Texas. We think this is a really strong step for that state to increase their kind of economic footprint and activity. It will bring great benefit to their population, their citizens. And we believe this will be a very good opportunity for us across the board, whether it's nonresidential, residential, the rainwater harvesting piece, water conservation and rainwater harvesting was a nice kind of piece of that legislation. And we think this just adds -- I don't know how to dimension it right now. But what I do know is that more money will be spent on water infrastructure and water management in Texas with the result of this bill than before it was passed. So that is a good thing for ADS and Infiltrator for sure. Operator: And your next question comes from the line of Garik Shmois with Loop Capital. Garik Shmois: I wanted to ask on price cost in the back half. So I was wondering if you could speak to what you're seeing on the material cost side of the ledger. And then just on pricing, it's been stable sequentially for a number of quarters here. But just given maybe the more conservative demand outlook, should we expect any change to pricing? Scott Cottrill: Yes, Garik, Scott C here. Like I mentioned earlier, when you look at the implied 2H, it's a demand-driven forecast and outlook. So that's what I would say there. As I mentioned before, price cost, again, largely stable again. So -- and that's both on the material side and the pricing side. So I would say to factor such into your 2H as well. And again, manufacturing transportation, if I look through the other parts of gross profit, and I look at the other drivers that can move that margin around. There's nothing in there or SG&A that is worth highlighting that would be a significant downdraft or trend that folks should be concerned about. Garik Shmois: Okay. And then just on the SG&A piece, it picked up a little bit in the second quarter. It sounds like that level of inflation shouldn't continue or just any way to contextualize SG&A in the second half? D. Barbour: I think on the SG&A, there was the piece that we picked up from Orenco that is a year-over-year change. It's a bit higher SG&A company than the base company. We also executed a lot of costs around the transaction that -- it's not for free to get people in to help you work through a large -- the announcement of a large transaction like NDS. There's some accruals in there on that kind of stuff. So again, those things we can control around SG&A spending, price cost, our conversion, our transportation and logistics, I mean, we feel very solid where we are -- what we've done and where we are headed into the back half of this year. And I say to the team all the time. A lot of these things you see reading through are really things we started a year ago and began working on around our network, cost, equipment, focused on certain new products and things like that. And I think what you see is even though last year was not a great year, we continue to invest in those things, and they've read through in a pretty good fashion. And that's what management is supposed to do, is invest and work for the long-term performance of the company. And I feel like that's what we're doing pretty darn well right now. Operator: And your next question comes from the line of Collin Verron with DB. Collin Verron: I just wanted to follow up on price cost. I think last quarter, you indicated that price cost is expected to be neutral for the year. Can you just talk about what's coming in better than expected in the second quarter that got you that $30 million EBITDA tailwind. Scott Cottrill: Yes. Again, you're referring to the waterfall, the EBITDA bridge on a year-over-year basis. So again, pricing stable. We've been talking about sequentially as well as year-over-year. Resin cost, for sure, this year has been one of those items that's been good and something that we see sequentially flattening out on a procured basis. Again, we have really good line of sight to what's on our balance sheet and what's going to be coming off over the next 2 to 3 months. So something that we constantly put in front of us. But price cost is, again, one of those items that favorable to expectations coming into the year. And I'd say the team is managing it really well on both sides. D. Barbour: As well as mix. I think the things that have exceeded expectations are around the material cost our ability to convert the product across the board, not just pipe, but in Infiltrator and our Allied Products and then the things that we targeted for transportation and logistics, all that have exceeded our expectation as well as the mix and the growth -- organic growth of Infiltrator and the Allied Products over the last 4, 5 months. And again, things we started a year ago kind of bearing down hard on. Collin Verron: That's really helpful color. And I guess you mentioned on the transportation cost side of things that there were some of this inventory shift due to the realignment. I guess, is this expected to be ongoing? It sounds like it is just because your second half guide is mostly volume driven, but I just wanted to confirm that. D. Barbour: Let me take this one. Let me take this one. So as demand might get stronger in one geography versus another or we announced the closure of a plant in the Northwest earlier in the calendar year, we had to move inventory to service our customers around that network. And we're going to do what it takes to do that. And our logistics people are executing extremely well. We have a lot of great programs around safety and the new equipment we've added in there that are we've done, and we will continue to do that. And that's really what's strong that. I'm smiling at Cottrill because he's always busting on us on that. But that's what we're going to do. And I would add, because of our scale in these logistics capabilities, we can do that. We can move this stuff around because of the size, scale and management of that fleet. So that's what you saw through there is just kind of peak a little bit. But fundamentally, the cost per unit are performing as we want. We just had to move some stuff around a little bit more than we anticipated. Operator: And your next question comes from the line of Jeff Reive with RBC Capital Markets. Jeffrey Reive: Appreciate all the color thus far. At WesTech this year, you had an impressive presence showcasing both Infiltrator and Orenco. It's pretty clear how complementary those businesses are. Now that you've owned it for about a year, could you talk about how the integration is progressing, synergy capture and where you see opportunities to drive growth or efficiencies? D. Barbour: I'm going to let Craig Taylor take that. Craig Taylor: Yes. So the acquisition is going extremely well right now. We're starting to bring the products together that you saw at WesTech and expanding that to the Orenco dealers, too. They've seen more of our Infiltrator product, and it's helped them understand what we can contribute to the market for them. And on the synergies, it's on track. It's exceeding our expectations, too, on what we've been doing. The commercial portion takes a little bit longer as that's winding up right now on the synergies, but it's hitting on all other elements that we put together in the Board model and our expectations going forward. D. Barbour: Yes, it's gone very well. Michael Higgins: Yes, I would add that what we've seen so far is earnings growing faster than sales, which is good and the margins have improved as well. So I think we're tracking very well, like Craig said, on the operating efficiencies and the synergies and improving the margin performance of that business. Customers are really happy. D. Barbour: Yes, A lot of activity around that. That's a good question. We appreciate it. I also mentioned the safety performance has been very good out there in Oregon, and we've leaned in very hard and the team there has grabbed it. And that's been super good that we're glad to see. We reviewed a lot of this with our Board yesterday, the synergy plan, which is really doing nicely in that safety performance. So we're really happy. 1 year in, we couldn't be more pleased about where Craig and the team are with that acquisition. Craig Taylor: That's really helpful. And just a follow-up on pricing. I believe your prior guide called for price down low single digits, volumes up low single digits. So just kind of given the up guidance range, have your assumptions for the remainder of the year shifted at all, either price or volume? D. Barbour: Not on pipe. No. I guess that's what you're referring to for pipe. Craig Taylor: Yes. D. Barbour: Actually, kind of honestly, the pipe is like right on what we thought it was going to be. It kind of moves around a little bit by product line. We're really pleased with the superior growth of the HP product line. But overall, from a volume, pricing, mix, cost, the material cost is a bit better than we anticipated as is the conversion cost. But from just a demand and price in the market, it's really almost exactly on the plan that we thought. So I think our team in the field is doing a very nice job with those product lines as well as seizing all opportunities on the Allied Products. Craig's team is doing a great job in the field. We're clearly in the right geographies with the right distribution, the right product lines across the board. And again, this is -- we leaned in over the years of beefing up in certain geographies. We leaned in with capacity. We leaned in with trucking capacity. We leaned in with new products, think of these advanced treatment products Craig has that are doing very well. But across both Infiltrator and ADS, that's kind of working for us right now. So we'll continue to execute on that and invest in people and the necessary processes, systems and equipment we need to get the job done. Operator: And your next question comes from the line of Trey Grooms with Stephens. Trey Grooms: Maybe a little higher level or maybe longer-term focused questions here. Specifically with NDS, we haven't spent a whole lot of time here on that. I know you gave us some color back a few weeks ago with your conference call. And you mentioned the potential for additional upside from cross-sell and maybe some other opportunities. Do you think you could go maybe into a little more detail around where you see potential revenue synergies, where they could exist, specifically with NDS -- and any way for us to think about what those potential revenue synergies could mean for enhanced top line growth opportunities? D. Barbour: All right, Trey, I'll try to tackle this without stepping over any lines. This is Scott Barbour. Highly, highly complementary product line to our very bespoke catch basins that we call Nyloplast. NDS has, by far, the market-leading standard products, smaller in diameter than we do. And when we get plans that show kind of the whole waterworks installation on a nonresidential site, for instance, we see a lot of those products on there. And we think we'll be able to package very effectively those kind of products. We run across a lot of opportunities for channel drains that they have a great product line in channel drains that we don't have today. And we think both our sales force will be able to kind of sell those products. We think in certain parts of the distribution, they're going to be able to sell more of our products, the pipe products. We think that their focus, particularly in turf and irrigation, which is kind of world-class, is going to be a strengthening of what we do, complementing and strengthening what we do at ADS. And on the waterworks side, we think we will complement and strengthen NDS. So those are the kinds of things that we're very excited about. And these products really exist in an installation side by side. So we're just going to get increased visibility on projects and jobs and opportunities that are going on in the market between our 2 sales groups and our relationships just deepen with the addition of NDS. We're super excited about working with that team out there. And that's probably about all I can say. Trey Grooms: Okay. Well, that's pretty exciting. And I guess just another kind of higher level, thinking a little longer term. You guys are putting up some really nice margins. The price/cost equation has kind of been beating to death here, but you're executing well. You've made some headway organically, clearly. And notwithstanding or just kind of setting the NDS equation or acquisition aside here, is there any way or maybe any update on how we could be thinking about longer-term margin profile of the business given kind of some of these improvements you've made here even organically? D. Barbour: Go ahead, Scott C. This is a Scott C question. Scott Cottrill: I'll give you a couple of different ways to think about it. A, we love the DNA of the company, right? The Allied and Infiltrator parts of the business grow at a much faster clip than the pipe side of the business, and they have much larger adjusted gross margins. So we really like that. So we kind of margin and accrete up as we go over time. I would say as well, the new product introduction, the engineering technology center, the way that we deploy capital and capital allocation, really powerful. And you look over the last 5 to 6 years and kind of what we've done there and how that's led to where we are. I think those are all kind of key avenues there. I think you'll see more of our capital deployed in that innovation as well as a bigger mix of what we spend on the CapEx side in the Allied and the Infiltrator side of the house now that we've kind of caught up a little bit on the pipe side. Still some automation, productivity and other investments we need to do there, but a lot of margin accretion opportunity, both on the productivity automation side of the house, new product introduction side of the house, the growth algorithm, if you will, as well as putting this balance sheet to work through accretive acquisitions as we move forward. I see all of those as kind of a trifecta, if you will, of how we not only grow the company but as well as accelerate that margin expansion as we go. So do we think that this ADS is a 20% to 25% EBITDA margin business? We don't. We see a lot of different reasons why we can continue to accrete that as we move forward. Operator: And there are no further questions at this time. Scott Barbour, I turn the call back over to you. D. Barbour: Okay. Thank you very much, and we appreciate everyone being on the call today and the quality of the questions. We kind of anticipated a lot of questions around the second half like that. I'm sure we'll get more of them as we go forward. But a good quarter. Like I said earlier, this is a quarter that we really started on a year ago with all the things that we began to work on, understanding that the demand environment was going to be a little tepid. Those things we can control, we feel good about. We'll continue to work hard on those. And I think as the demand develops, we'll capture our fair share more, but we'll just have to see how it develops over time. So thank you very much, and you all have a good day. Operator: This concludes today's conference call. You may now disconnect.
Operator: Hello, and welcome to the Excelerate Energy Third Quarter 2025 Earnings Conference Call. My name is Alex, and I'll be coordinating today's call. [Operator Instructions] I'll now hand it over to Craig Hicks, Vice President of Investor Relations. Please go ahead. Craig Hicks: Good morning, and thank you for joining Excelerate Energy's third quarter 2025 earnings call. Joining me today are Steven Kobos, President and CEO; Dana Armstrong, Chief Financial Officer; and Oliver Simpson, Chief Commercial Officer. Our third quarter earnings press release and presentation were published yesterday afternoon and are available on our website at ir.excelerateenergy.com. Before we begin, please note that today's discussion will include forward-looking statements, which involve risks and uncertainties that may cause actual results to differ materially. We undertake no obligation to update these statements. We'll also reference certain non-GAAP financial measures. Reconciliations to the most directly comparable GAAP measures can be found at the end of the presentation. With that, it is my pleasure to pass the call over to Steven Kobos. Steven Kobos: Thanks, Craig, and good morning, everyone. We appreciate you joining us to discuss our third quarter 2025 results. But before we turn to the business update, I want to begin by acknowledging the impact of Hurricane Melissa on Jamaica. Our thoughts are with those affected, especially our employees, their families and the communities we serve. We've been in close contact with our teams throughout, and we're grateful for their safety and for the care they've shown to one another and to the communities around them. Also, I want to note for you all that David Liner, our Chief Operating Officer, who's usually with us on these earnings calls, is currently on the ground in Jamaica, helping to coordinate our hurricane response and relief efforts. In the days leading up to landfall, our crisis management team activated contingency plans and conducted drills to ensure personal safety and operational resilience. On October 23, following direction from the harbor master, our FSRU at Old Harbour and our other mobile marina assets safely relocated offshore. Our teams then moved to ensure that all our critical systems and onshore operations were prepared and secured ahead of the storm. When Hurricane Melissa made landfall on the west side of the island, Montego Bay experienced severe conditions, but our infrastructure held and our teams responded quickly. The FSRU returned to port in Old Harbour on October 30th and regasification operations resumed on October 31st. The Clarendon CHP plant also restarted operations that same day. As of November 1st, the Montego Bay terminal was fully operational. Deliveries to small-scale customers have resumed. These deliveries were made possible through coordinated efforts to clear access routes and restore supply chains. I want to take a moment to thank our operations team in Jamaica. Their response was not only fast and effective, but it was also deeply responsible. They did what needed to be done, and they did it with care, discipline and quiet resolve. This isn't just a business when a sovereign and its people count on you for basic needs like reliable energy. That kind of trust carries weight. It's a relationship built on consistency, accountability and respect, and it's one we take seriously. That's why our response goes beyond restoring operations. We've mobilized relief funding, freshwater and essential supplies to support recovery efforts. We remain committed to standing with Jamaica, not just through this recovery, but in the long-term work of strengthening energy infrastructure across the region. We are proud to stand with the impacted communities as they begin to rebuild. I want to reassure our stakeholders that we have comprehensive insurance coverage for adverse weather events like this. With that insurance coverage, combined with our take-or-pay business model, we are confident that there will be limited financial impacts resulting from Hurricane Melissa. Now let's turn to the third quarter. Excelerate delivered another strong quarter, underscoring the strength of our infrastructure platform. I'll begin with a brief overview of our third quarter highlights and the current macro environment. Then I'll provide updates on 2 important developments, those being our recently executed terminal contract in Iraq and the continued growth of our operations in Jamaica. After that, I'll turn the call over to Dana, and she'll walk through the financials in more detail. Excelerate delivered record quarterly EBITDA of $129 million. This underscores the durability and diversification of our business model. With approximately 90% of our future contracted cash flows under take-or-pay agreements, portfolio of weighted average investment-grade counterparties and minimal commodity exposure, we continue to deliver predictable cash flows through market cycles. On the operational front, we've maintained high levels of asset reliability across our portfolio. Our global footprint and disciplined execution are enabling stable returns while advancing strategic growth opportunities that position us for long-term value creation. Let's turn for a moment to the LNG macro environment. The global LNG market is entering a new phase of accelerated growth. After a modest supply expansion over the past 3 years, approximately 200 million tonnes of incremental LNG supply is expected to come online between now and the end of the decade. This growth is expected to drive global LNG supply from approximately 430 million tonnes per annum in '25 to greater than 600 MTPA by 2030. As the ratio of global regas capacity to supply tightens, developing new regas infrastructure will become increasingly important. This imbalance is not theoretical. It's structural. Many emerging markets lack financing, permitting frameworks or time to build large-scale onshore terminals. Even in developed markets, infrastructure timelines often lag commercial opportunities. Excelerate Energy is purpose-built to solve this problem. We offer a range of scalable regasification solutions from FSRUs to converted LNG carriers to integrated downstream infrastructure, these solutions can be deployed rapidly, adapt to local constraints and unlock demand for gas was previously unavailable or uneconomical. More affordable LNG pricing is expected to drive incremental demand for natural gas, particularly in price-sensitive and infrastructure constrained markets. That demand will require more regasification infrastructure, not less. As we look ahead, Excelerate is preparing to meet the demand of the next wave of LNG growth. With our newest vessel, Hull 3407 now committed to the Iraq project, we are advancing plans to convert our existing LNG carrier, the Shenandoah into a floating storage and regasification unit. This conversion will expand our fleet's flexibility and allow us to respond more quickly to emerging opportunities. Engineering work is already underway, and we've initiated procurement of long lead items to compress the construction timeline and accelerate deployment. These steps reflect our continued focus on scalable, capital-efficient infrastructure that can be delivered where and when it's needed most. The recent announcement regarding Iraq is a powerful example of how Excelerate's integrated model creates differentiated value in markets where energy infrastructure is urgently needed. In October, we executed a definitive agreement with a subsidiary of Iraq's Ministry of Electricity to develop the country's first LNG import terminal at the Port of Khor Al Zubair. This agreement builds on extensive engagement with the government of Iraq over the past several years. We've worked closely with key stakeholders to shape a reliable solution that addresses the country's urgent energy needs and supports its long-term infrastructure goals. Iraq continues to face chronic power shortages and unreliable gas supply. These challenges have led to persistent load shedding and heavy reliance on imported gas from neighboring countries. Our integrated solution offers a fast-track path to energy security. Excelerate will deliver a turnkey package that includes an FSRU, fixed terminal assets, LNG supply and operational support. This integrated structure is strategically significant. Unlike a traditional FSRU charter where Excelerate provides regasification capacity alone, an integrated deal allows us to capture a broader portion of the value chain. This approach also creates multiple revenue streams and a more durable commercial framework. Iraq has already made meaningful progress on enabling infrastructure. A 40-kilometer pipeline connecting the jetty to the Tayan Pipeline Network is largely complete. Under the agreement, we will construct and operate the floating LNG import terminal. It's designed to accommodate up to 500 million standard cubic feet per day of regasification capacity. We also plan to repurpose an existing jetty at Khor Al Zubair port that has been deemed structurally suitable for FSRU operations. The project includes a 5-year agreement for regasification services and LNG supply. It's got extension options and a minimum contracted offtake of 250 million standard cubic feet a day. Let's call that equivalent to about 200 million tonnes per annum of LNG. We will deploy 3407, our newest FSRU and deliver the topside equipment and berth modifications required to enable operations of the jetty. So why is Hull 3407 a strategic fit for the project? Well, in addition to its high send out capacity, Hull 3407 offers best-in-class boil-off gas management, delivering strong operational efficiency and reliability. Its advanced design and flexible deployment make it well suited to meet Iraq's large-scale and urgent energy needs. The total project investment is expected to be approximately $450 million, inclusive of the cost of the FSRU. With the definitive agreement now in place, we're advancing project execution while continuing to derisk the opportunity through a take-or-pay contract structure, credit support, political risk insurance and strong support from the U.S. government. Political risk insurance provides added assurance for long-term stability, while U.S. government support reinforces confidence in the project and strengthens its strategic importance in the region. Together, these measures enhance certainty and create a strong foundation for successful execution. Now let's turn back to Jamaica. In the third quarter, the reliability of our Jamaica assets remained exceptional. They exceeded 99.8% across the platform. Integration continues to progress extremely well. We have continued to optimize our LNG and power platform by selling incremental gas volumes to existing customers, progressing commercial agreements with new small-scale customers on the island and throughout the Caribbean and improving the efficiency of our integrated operations. Jamaica also serves as a proof of concept for the scalable solutions we aim to replicate across our global footprint. Now more than ever, we are committed to investing in the critical infrastructure needed to help rebuild and strengthen Jamaica's energy network in the wake of Hurricane Melissa. We will work collaboratively with the government and our customers on the island to enhance the system's durability and ensure long-term reliability. To sum it up, Excelerate Energy is executing with discipline and delivering results. We're solving real infrastructure challenges in real markets, and we're doing it at scale. As we look ahead, we see significant opportunities to extend our platform into new regions and deepen our presence in existing ones. Our ability to deploy reliable LNG regasification infrastructure when and where it's needed most, position us well to meet rising demand and unlock new growth. Thank you for your continued support and confidence in Excelerate Energy. With that, I will turn the call over to Dana. Dana Armstrong: Thanks, Steven, and good morning, everyone. As stated by Steven, we had a great third quarter. We reported adjusted net income of $57 million, which is a sequential increase of $10 million or up 22% as compared to the second quarter of this year. Adjusted EBITDA for the third quarter was $129 million, up $22 million or up 21% versus the prior quarter. Adjusted net income and adjusted EBITDA for the third quarter increased from last quarter, primarily due to a full quarter of Jamaica margin and uplift from our second cargo delivery related to our Atlantic Basin supply, which utilized our new LNG carrier, the Excelerate Shenandoah. In comparison to our guidance range announced in August, we achieved considerable savings in the third quarter related to our Exemplar dry dock, which completed in September with less off-hire days than anticipated, along with lower costs than we had projected. Additionally, our third quarter performance was favorably impacted by lower-than-expected fuel costs for the Shenandoah. Turning to our balance sheet. Our balance sheet remains strong and continues to provide the stability and flexibility needed to execute on our long-term strategy and to navigate dynamic market conditions. For the 3 months ended September 30, our total debt, including finance leases, was $1.3 billion, and we had $463 million of cash and cash equivalents on hand. Additionally, all of the $500 million of capacity under our revolver was available for borrowings. At the end of the third quarter, we had $818 million of net debt and our 12-month trailing net leverage stood at roughly 2x. This strong balance sheet, combined with disciplined capital allocation and robust cash flow, gives us ample liquidity and financial flexibility to fund additional growth projects. Now I'd like to spend a few minutes on our capital allocation priorities. Our priorities have not changed. We remain focused on investing in accretive growth opportunities and delivering consistent shareholder returns through dividends and opportunistic share repurchases while preserving balance sheet strength to enable long-term strategic flexibility. This disciplined approach positions Excelerate to create sustainable long-term value while achieving attractive near-term returns. In line with this framework, on October 30th, our Board of Directors approved a quarterly cash dividend of $0.08 per share or $0.32 per share on an annualized basis. The dividend is payable on December 4th to Class A common stockholders of record as of the close of business on November 19th. Now let's turn to an update on our financial guidance. Based on our results to-date, we are increasing our previously communicated adjusted EBITDA guidance for 2025. For the full year, we now expect adjusted EBITDA to range between $435 million and $450 million. This revised guidance range incorporates the minimal financial impact we expect from Hurricane Melissa. Also, as a reminder, we delivered a seasonal cargo under our Atlantic Basin supply deal in the third quarter. Since the next Atlantic Basin delivery is expected to be in the first quarter of 2026, the fourth quarter of 2025 does not include EBITDA related to the Atlantic Basin. In regard to Hurricane Melissa, as Steven mentioned earlier, thanks to our comprehensive insurance coverage and the swift restoration of operations across our Jamaican assets following the storm, we currently expect only a limited impact on our fourth quarter results. For Excelerate overall, we expect maintenance CapEx to continue to range between $65 million and $75 million. Committed growth CapEx, which is defined as capital allocated and committed to specific infrastructure investments currently in execution, is still expected to range between $95 million and $105 million this year. Before I close, I want to speak briefly to the commercial deals we now have in place that will drive our financial outlook in the coming years. First, I'll start with the Iraq project and the placement of our new build Hull 3407. As Steven said, we are excited to have secured this opportunity. From a return perspective, the project is expected to have an EBITDA build multiple between 4.5x and 5x, which is consistent with the economics we expect for infrastructure projects that are fully integrated with LNG supply. Second, our Petrobangla QatarEnergy LNG supply deal begins in January 2026. This 15-year take-or-pay infrastructure-based contract is back-to-back to mitigate commodity risk and is expected to contribute $15 million of incremental EBITDA in 2026 and 2027 and then step up to $18 million of EBITDA in 2028, and thereafter. Third, our 2026 earnings will benefit from a full year of contribution from the integrated platform in Jamaica. Our assets in Jamaica have continued to exceed our operational expectations and have proven to be a great addition to our portfolio. As we've previously mentioned, we expect to add $80 million to $110 million of incremental EBITDA over the next 5 years, driven by Jamaica and broader Caribbean growth. We'll provide further detail on our 2026 guidance, including guidance around expected 2026 dry docks on our year-end earnings call in February of next year. In closing, Excelerate is well positioned to deliver long-term value for our shareholders. We remain focused on disciplined execution and are committed to investing in growth opportunities that will strengthen our long-term earnings potential while also returning capital to our shareholders. With that, we'll open up the call for Q&A. Operator: [Operator Instructions] Our first question for today comes from Wade Suki of Capital One. Wade Suki: Just the first one on Iraq, if I could. Just curious on the split between, let's call it, vessel and supply margin. Would it be safe to assume sort of like a 65-35 split between the 2? Steven Kobos: Wade, this is Steven. Frankly, I don't think that we are going to be breaking it down at this point. I mean, you should just really look at the integration of it. I think what Dana said, 4.5, 5 turn multiple based upon it. But look, there's some variability there. Minimum take is 250 million scuffs a day weight. I think I said on the call that was 200 million tonnes. Let's call that 2 million tonnes. Let me do the correction there. But it could easily go up to 500 million scuffs part of the year. So implicitly, there's some variability in that component. But at this point, what we want to point to is just that overall build multiple. Wade Suki: Absolutely. No, I appreciate that. Very attractive. I guess maybe just switching gears a little bit to the conversion. It sounds like we've sort of got a definitive move forward, all clear. Can you kind of remind us -- I know you've done some engineering work. I think you might have mentioned on a previous call having spent, I don't know, $30 million or just off the top of my head. Can you sort of remind us how you see that sort of timeline and capital cost to convert that vessel when it goes in the shipyard? Any way to kind of bracket the timeline around CapEx and I guess, dry dock time would be great. Steven Kobos: Wade, and as I mentioned, David is down in Jamaica right now. And in fact, I think you all saw our press release on some of our efforts down there. The Shenandoah, which is we're talking about is alongside in Kingston and is going to start offloading humanitarian supplies at noon, and we envision it's going to take about 12 hours to get that all offloaded. So I just want to give a shout out to the conversion candidate because she's doing good things for Jamaica and the people of Jamaica right now. The 30 million that you spoke to, Wade, I believe that was going to the acquisition cost of the Shenandoah that we spoke about before. That was, of course, kind of all in right after she had been dry docked right before delivery. In terms of what we've spoken to before, I think we've had a decent range saying, we're kind of thinking about 200 million all-in on a conversion. That varies between what you're starting with is the host ship. This will be the lower end of that. You can imply from that, that there will be more extensive CapEx than if the host vessel had been a TFDE vessel without geeking out too much on the shipping stuff. So I think we're consistent with that. Ultimately, I don't want to commit to a particular time frame in the yard on it. We're going to give ourselves plenty of time so that we can execute that in a good way. But I can assure you, we've just put away 3407 in a great home and our effort and our focus is on Shenandoah at this point. But wait, I'll ask your next question, which is what do you think -- what else? What else are you thinking about? We haven't given up on new buildings. We've had a team in Korea talking extensively and workshopping what a new generation could look like for different markets we're thinking about. So I don't want to indicate by virtue of the steps we're taking with Shenandoah that, that is an exclusive path forward. Wade Suki: Understood. And just appreciate your comments and efforts in Jamaica. I hope the rest of the island recovers quickly. Operator: Our next question comes from Chris Robertson of Deutsche Bank. Christopher Robertson: Just wondering if you guys could walk through what you're thinking on remaining spend on the new building asset currently under construction? And then how you're thinking about when work will commence at the jetty in Iraq, kind of your estimate around equipment and construction costs there just outside of the remaining new build CapEx? Steven Kobos: Okay. Chris, this is Steven. I think we're going to divide that question up. I'll let Dana speak first to what's left on delivery on 3407, then I'll let Oliver who was lead for some number of weeks in Baghdad on this project really fired up about it, let him speak to construction. But I'll tell you, we're trying to bring this online as quickly as we can. There is a pressing need for this for the people of Iraq. We need to help solve this load shedding. So the big picture is as soon as possible. But I'll hand it over to Dana. Dana Armstrong: Yes. on the newbuild, Chris, it's actually pretty simple. We've got $200 million left to pay, and that will be paid at delivery. So the total cost of the shipyard was about $340 million with some of our change orders. So $340 million shipyard costs, roughly about another 10% of ancillary costs for owner-furnished equipment and other items that's going to be over time. And then we -- that's just being paid over time. It's pretty small. But the big payment is $200 million when it's delivered next year. Oliver Simpson: Yes. And if I think on the Chris, if I take on the sort of Jetty side, on the in-country side in Iraq, as we mentioned, we're looking to get this up and running by summer '26. So really starting from now through next summer, that's how you'll see that CapEx build out. There are certain long lead items that either we've had in stock that we're able to deploy or that we're in the process of procuring. So we'll see that ramp-up on the overall jetty spend between now and next summer. Christopher Robertson: And just to summarize, the project is expected to cost $450 million, which is inclusive of the $340 million for the Hull 3407, then we should assume around $100 million or so of CapEx related to terminal construction. Dana Armstrong: Roughly, there's some ancillary costs on the new build. So the new build is roughly $370 million all in. And so the rest of that is the estimate for Iraq. Oliver Simpson: Yes. And Chris, just one. Sorry, I was going to just add one point of clarity on that. Just obviously, we're using an existing jetty in Khor Al Zubair. So that's why, I mean, generally, the cost of building a full jetty would be higher, but this is using an existing jetty and putting on the topside equipment and getting it ready for LNG operations. Christopher Robertson: I just wanted to shift focus a bit to your commercial discussions in the Caribbean outside of Jamaica. If you could comment where you're seeing more interest. Are you seeing interest in more small-scale onshore regas and transmission solutions? Are you seeing appetite for floating solutions? Or where are those conversations kind of focused right now? Oliver Simpson: So I'll take that again, Chris. And I think the answer is a little bit of all of the above. But I'd say I'd point to what just happened in Jamaica in the last week. Obviously, there was this -- Melissa was a Category 5 hurricane that came through, and we took off the FSRU was able to leave the birth, go to a safe place and come back. So I think there's certainly a lot of value in the floating solutions in terms of the critical infrastructure they are and how they can respond to these kind of events. So I would certainly expect conversations going forward to look at this as a big plus. But really, it's -- every island is unique, different availability of land onshore, different water depths. So with our technical team, we're looking at a wide range of solutions and really using Jamaica as a hub, which for us is that that's that critical commercial advantage we have, we can then develop different technical solutions for these different markets. And I'm seeing -- we're seeing good interest across the Caribbean to use LNG to displace liquid fuels. And so I think that's progressing well. Operator: Our next question comes from [ Brie ] Brooks of Northland Capital Markets. Robert Brooks: So just with the growth CapEx guide unchanged for this year, is it then right to assume the majority of the spending for the jetty in Iraq is then going to be coming in the first half of '26? Steven Kobos: Yes, Bobby, I think that's a safe bet. Robert Brooks: Got it. And then I want to just say my thoughts are with those affected by Hurricane Melissa and Jamaica, and it's great to hear how much you're helping the country get its feet back underneath itself. But -- and at the same time, it's great to hear how quickly your business operations got back up and running and how insulated your financial contributions from your assets are there. So my question is, is it right to think that all of your other assets have similar insurance coverage that would insulate you from natural disasters like this? Steven Kobos: Bobby, short answer, yes. I want to brag on the ops group, though, a little bit here because you all will remember when we were talking about some of the incremental maintenance CapEx we spent in Jamaica over the summer. And you may recall that involved putting in black start generators. It also included strengthening sea walls. And frankly, we said we're just wanting to take -- do the things that brought these assets up to an Excelerate standard. And thank God, we did because that -- those moves and planning and execution by the Excelerate operations team over the summer made a tremendous difference here. So I'm going to salute them. And just as a reminder that the type of uptime that they achieve around the globe is not an accident. So I'll make that point. I would say, in general, Bobby, most of the insurance programs on the floating assets, it's all quite similar on land-based assets. It's going to depend upon the type of the asset, but there's general commonality across the platform. Robert Brooks: Got it. That's really helpful color and great to hear that the -- you got to be able to execute those pieces to strengthen the operating base before the hurricane came in. And my last question is just, could you remind us, -- the contracts you have across the globe right now, there's none coming up, none expiring over the next couple of years or when's kind of the next one coming up where you could maybe move an asset to a different location? Steven Kobos: Bobby, you're always wanting us to optimize man, and we do too. We have 2 on Evergreen that we're always trying to get our hands on, obviously, Express and Expedient and we're continuing to look at ways to do that. That's going to be a catalyst, obviously. We've managed at this point to have higher contracted rates on most everything that we've been able to redeploy, and we would look for that to be the case if we can get our hands on those. But in general, then you've got Excelsior in Germany in 2028. That's a longer discussion. Excelsior since she's come online is sending maximum gas ashore. I'm proud, by the way, that as far as I know, she's taken all U.S. LNG since she came online in May. And that's a great asset that the German government has spent a lot of money importing the ports to work with Excelsior. We've spent a lot of money on Excelsior. We think it's a great asset. We'll be having further discussions about it down the road, but I'm really proud of that ship and everything she's doing. I understand she's kind of fully booked for next year. So bottom line is that asset is used. It's providing good value, and it remains cheap insurance but that's kind of a look at what's sort of near term out there. Operator: Our next question comes from Michael Scialla of Stephens. Michael Scialla: I'll start off by echoing everybody else's sentiments on commending you on your relief efforts for Jamaica. I wanted to ask, you've talked in the past about scaling the Jamaica model across the Caribbean. It sounds like now you're saying you want to do that across your global footprint. I don't know if I'm reading too much into that. Has anything changed there to have you make that comment at this point? Steven Kobos: Mike, this is Steven. I sure hope, I haven't been saying we only want to scale and grow the Caribbean. I mean this is a global company, and we want to do this all over the world. Michael Scialla: Anything in particular about Jamaica, though, that I guess, that you're seeing that is transferable to other areas of the globe? Steven Kobos: Yes. I mean, Mike, what I love is if you -- when we look back at 2025, we will have come to the market with 2 fully integrated deals. And we love what that does for us. It is -- I mean, you can see on what we're talking about Iraq and the project there, the build multiple that you're going to achieve, what we've always said, the returns that we're looking for are always going to be higher with integrated models. And look, we're built for this. We have the balance sheet for this. We have the credibility for this. We are not simply a capital leasing company. We're never going to be content to do that. We want to make a difference around the world. We want to be that go-to partner for sovereigns around the world. So yes, we haven't been shy. We want to be an integrated energy company in these markets. Now we wanted to go through our infrastructure, but we want to be the whole package. And you don't see a whole -- I mean, no offense, you don't see a lot of folks doing this around the world. So I think -- and it's going to be -- anyway, I'll leave it at that, but we're fired up. I think you can hear it in my voice. Michael Scialla: Definitely can. I wanted to ask on your gas sales are hard to predict. You haven't really guided on them in the past. You had a lot in the third quarter. Can you talk more about those? Did most of those go to Jamaica? Any of those cargoes go anywhere else? And any thoughts on future cargoes? Dana Armstrong: Mike, this is Dana. So yes, that was a great quarter for us from an LNG supply perspective. So we had a couple of things going on there. We had our Atlantic Basin supply that delivered in the third quarter, which had great performance. We also had really good performance in Jamaica and a little bit of volumes above our expectations. And then we had 2 cargoes delivered into the APAC region. So all of that combined to those numbers for the quarter. Operator: Our next question comes from Emma Schwartz of Jefferies. Emma Schwartz: Congrats on the Iraq deal and the strong quarterly results. It really looks strong, what you guys agreed to in Iraq, and that's really tied to the integration. Could you speak a little bit about the repeatability of integrated deals like this? And do you see integrated opportunities for the conversion candidate? Steven Kobos: This is Steven. We absolutely do. I mean that's why I kind of digressed talking about the coming LNG wave. I think the point I'd make to the listeners is we're executing on integration before that wave comes. It is coming. It is going to drive greater affordability on LNG. So I see the TAM that we're serving only increasing, and we continue to prove that we are the sort of company that can execute on it. We're continuing to put the tools in the toolbox that we need to deliver on it. I mean you see with Iraq, everything is coming together, and we've been planning for that for some time to be able to deliver that. So I absolutely believe -- we believe that the TAM is -- it's enormous to begin with. It's increasing. The commodity is going to be ever more affordable. It's going to drive more liquid fuel and other type of switching. And we are after those opportunities around the world, and we're going to continue to do that. Emma Schwartz: That's great to hear. For my second question, I was wondering if you could speak a little bit more about the dry docking this quarter. What drove the lower cost there? And is that kind of performance sustainable going forward? Steven Kobos: Emma, I think it would be unfair to David Liner, our COO, if I put him too much on the spot there. They did deliver a great dry docking. They now part of that was in the Baltic. We're taking it from Finland to Denmark. So logistically, it was fairly close. We were looking at different ways to advance some of the -- or perhaps more of the prep work on board before we went. We're looking at all types of lessons learned there. But for now, we're always trying to optimize dry docking, but I don't want to say that the lessons from one geographic location may transfer seamlessly to other dry docks. Well, frankly, I hope that we will not hope. We will have more insight for you on that at year-end. But I think it's a little far out from the execution and planning process to be able to commit to any particular timeline for those dry docks right now. Operator: At this time, we currently have no further questions. So I'll hand it back to CEO, Steven Kobos, for any further remarks. Steven Kobos: Thank you all for joining us today. Really enjoyed our call. There are obviously a lot of things going on in Jamaica. And I just want to repeat that our thoughts and prayers and well wishes are with the people of Jamaica. But thank you all for joining us. Exciting times for Excelerate, and we look forward to continuing these discussions in the future. Operator: Thank you all for joining today's call. You may now disconnect your lines.
Unknown Executive: [Audio Gap] But before anything else, I just want to remind you, and I've done it previously, and now it's particularly important, the partial carve-out that took place in November last year with the carve-out of the Inmocemento Group. You know that this is very important because until the end of the financial year, the results in the bottom line will not be fully comparable, and I'm sure you've been able to see this. That's the reason why last year and until September 2024, we entered EUR 148.6 million corresponding to the carve-out of the cement and real estate activities. And as we already reported on the first -- in the first quarter, the euro has become stronger against other currencies. And so exchange rate differences have become quite significant. And this also is related to the adjustment we made in certain assets following the equity method in both areas of the environmental department. So this, together with the negative exchange rate differences of the provisions and the adjustments made together with the EUR 148.6 million corresponding to discontinued activities that have disappeared now, but were present last year. All of this explains the fall of the attributable net profit of this financial year. I also want to mention that it is also true that at the level of the P&L in the top line, the strength of the euro has already been noticeable with a certain impact, close to 1% of our earnings in terms of income and EBITDA. Well, having said this, our earnings are basically focused in the even quarters. Well, if you look at the evolution of our exploitation activities starting by the environment unit, what we have seen is that the turnover of environment went up by 11.5%, reaching EUR 3.4 billion. And here, I would have to mention the contribution from new contracts, both in Spain and the United States. This -- I should also add the effect of the acquisitions we carried out in the U.K., although this has been diluted slightly, but Urbaser, heavy recycling should be mentioned. Now in terms of geographies, you know that we have 4 platforms, starting by the Atlantic, which includes the business in Spain, which accounts for 50% of the income, and this business grew by 7%, up to EUR 1.7 billion. And here, we have kept evolving quite normally in our activities, both for collection, street cleaning and also there's been very good performance of other municipal services and the management of industrial waste. This is waste related with the private sector. Now as regards to the U.K. platform, income rose by double digits because of, first of all, the consolidation because of the acquisition of the U.K. Urbaser Group, and this is why we reached over EUR 700 million. And I would also like to mention that the underlying activities at a constant perimeter had a homogeneous evolution except for the landfill activity, which did experience a lower level of activity than in the previous year. Now in Central Europe, we are present in 6 or 7 countries in the region. As you know, in the Eurozone, income increased by 4.9%, reaching EUR 508 million. And we had a higher contribution, particularly in Poland and in the Czech Republic with an increase in the number of contracts, both for collection and treatment. And we did record, and this is a growing trend, year-on-year, showing negative variations, the selling prices of negative raw materials that we manage, particularly in treatment, which in Central Europe is quite significant. Now the fourth platform in environment was the United States and revenues were EUR 342.7 million, plus 24%. So we're growing very significantly. Just remember the acquisition in the Central North area of Florida of a company called Hell Recycling, which is in charge of processing different types of waste related with residential waste, but also collection progressed very well. We do have to mention, although it didn't have much of an effect in the turnover, an acquisition we carried out in July. So there was only a contribution for 2 months. This is a company in Fort Lauderdale devoted to the recovery of waste. And this is the advancement we had in recovery. We started this activity in the U.S. and also waste collection contracts evolved very well. And there's also the Hell Recycling business. And I also want to mention in the Atlantic platform, which also includes Spain, which I mentioned first, it also includes France and Portugal. Here, we reached EUR 111 million in revenues. The lion's share, about 7% is France, and this is the acquisition we carried out last year of the ESG group, which means that now we have our own legal presence in France for waste collection and street cleaning. And the underlying activity was also good. And Portugal, also made progress by 4.4%. So the EBITDA for the environment unit grew to 11% over EUR 500 million. This growth is absolutely very similar to the growth in revenues. So I don't have much to say about the stability of the margins, which persisted. The margin is 15.6% as compared with 15.7% of the previous period. Now if you talk about the water cycle group called Aqualia, here, the turnover increased by 8.7% to EUR 1.5 billion. Here, we had quite a homogeneous growth, both in integrated cycle, we -- in general, although there's been a little bit of everything, but we've increased both in terms of volumes and rates. And this was accompanied by a growth in the technology and network activity, which is essentially linked to the development of ESP, specific ESP for the Water sector. And it is very closely connected to our concession-based business. So it is induced by our activities -- our integrated activities. Now if you look at the different jurisdictions in Spain, we rose by over 11%, our revenues. Here, there was quite a significant increase, and this is a reflection of the activities, the health of the activities in the country. So in Spain, everything was very positive over the period. Now if we look at Central and Eastern Europe, but before that, I just want to remind you that the main stays here are the business that we own in the Czech Republic and Georgia, where we increased by 5.4%, EUR 196 million. In the Czech Republic, rates were revised. This was within the plans linked to our proprietary structure and the fact that we are a fully regulated business. And this has to do with the CapEx that we are -- so rates are reviewed as we review our CapEx. In Georgia, there was a significant increase in consumption. So this increase was more related with the increasing consumption rather than with an increase in rates, both in residential and industrial customers. And this made it possible both in the Czech Republic and Georgia to reach this 5.4%, and it's allowed us to compensate for the effect of the exchange rate, which I mentioned at the beginning because in Georgia, the local currency lost value, lost 5.4% with respect to the euro. In other European countries such as Portugal, Italy, France, here, the increase was 6.6%, EUR 87 million. Just to give you some color, there was a rate review in Sicily, although we still experienced the effect of the lack of water -- of crude water as a result of the drought. This is something that we managed to compensate for with increases in our rates. Now if we look at other markets, leaving Europe behind, if we look at the Americas, here, the turnover also rose by double digit, 12.6%, EUR 156.4 million. There was a consistent growth and quite a substantive growth in the U.S. based on the activities in that country. We reached EUR 67 million. And here, there was an increase in rates, and also there was an increase in consumption, similar to the consumption in Colombia, another important country in the Americas. And in Technologies and Networks, we also carried out the development of some plants in Mexico and Peru. Lastly, the last platform I want to mention within Aqualia, apart from Europe and the Americas is MENA, the Middle East and Africa. Well, it's really Northern Africa, Algeria and Egypt. Here, we did experience a slight fall of 4.8%, EUR 115 million. And this was because of the effect of the rate review in our contract in Algeria in the desalting plants where there were some adjustments introduced according to some rate measures. But this was compensated for because we had higher activity in countries like Saudi Arabia in our counseling and execution business in the -- in 2 clusters we have been awarded in the country. It's really 2 regions in Saudi Arabia. And we also had to compensate for the negative effect of the strengthening of the euro against the riyal. So all in all, the EBITDA followed a very stable pattern. It grew a little bit less than revenues, 5.2% to EUR 319.2 million. I would just mention that the margin, which was 23.8% as compared with 24.6% experienced a small variation because the contribution of Technology and Networks was slightly higher moving towards integrated cycle. So margins were structurally lower. And this, as you know, tends to give rise to small adjustments in the increase of EBIT versus revenues and the operational margin. Right. As far as construction is concerned, in the 9 months, the turnover became positive to over EUR 2 billion. Here, there were no surprises. I wouldn't mention any unexpected occurrence, everything went according to plan. Perhaps I should mention that at present, the infrastructure contracts are the most important ones, both roads and railways. Now in terms of the main markets, in the Spanish market, the turnover rose by 4.9% to EUR 921 million. We also made progress in works both -- well, it's rehabilitation of roads and some other works that we had to cut it out, which were unexpected. We carried out some work for the flash floods in Valencia. Now in other European countries, the increase was similar to that of Spain, about 5%, EUR 645 million. And here, we kept advancing in our important contracts in the Netherlands, then the railways in Romania, where we have a traditional presence. And just as the -- I just want to mention that the motorway exploited by FCC concessions in the country was completed in Wales in the U.K. Which -- since it's been completed, it ceased to contribute. Now in -- then I would like to mention other areas where there were large works that we -- in the United States and Canada, particularly in Toronto. This was a large road in Pennsylvania. And as I said, for Europe, these compensated for the satisfactory completion of the Maya train in Mexico. Finally, in the Middle East and Africa, the MENA area, like in Aqualia, we incorporated Australia into this region. And we did have a reduction in revenues, EUR 119 million. And here, we were not able to compensate for this loss with new works because there was -- we completed the works of the Riyadh metro in Saudi Arabia and also the customer completed the works were conducted in the NEOM tunnel, but both projects were extremely successful. There was some compensation from our project to develop social infrastructure in Cairns in Australia, in the northeast of the country. So the EBITDA, however, went down a little, 0.3%, EUR 121 million. Now the margin EBITDA sales stayed stable, 5.6%. I think that last year, it was 5.7%. But this is just the effect of a combination of the programming of different works. And in construction, I'm sure you've seen this in the report we have sent, the most important thing to mention here has to do with the increase in our portfolio because since December last year to the end of September, we had a growth of 46.8%. Our portfolio is approaching EUR 10 billion, EUR 9.3 billion. Here, we had quite a significant amount of international contracts, which account for 2/3 of total with an increase of 60.8%, over EUR 6 billion. And again, we can talk about the platforms where we are already consolidated. One of the most important projects was the Scarborough project in Canada together with a line of the New York Metro and the enlargement in Canada of another metro line. In Spain, we also had increases in our portfolio. So this increase was of 23.8%. So these were new contracts in Spain. We are specialized in the construction of stadiums, particularly in Valencia and also high-speed lines that are being built by the railway authorities. So it is important to mention that the increase of the -- the improvements are happening across our different departments, but I just wanted to make a specific mention to construction because the increase was particularly high. Now to finalize, I just want to talk about concessions. Here, the turnover reached EUR 81.4 million, growing by 38%. And given its relative size and its good evolution, well, you will have seen that this is the area that made the greatest progress. And here, there are 2 effects to be mentioned. One of them is the development of new business and the other one is the perimeter. But I want to say that traffic and the number of passengers in the infrastructures that we exploit has also made some contributions. So the organic perimeter also evolved healthily. But the business is basically -- our concessions are concentrated basically in Spain, EUR 77.9 million, an increase of 48.4%. Here, I just want to remind you that there's the kick-off of the 8 itinerary, a concession we have in the region of Aragón and a new project, which is for a motorway in Ibiza Island, and this started in June last year. Now internationally speaking, I just want to mention a concession that does make a contribution to our revenues. Another one -- we have another one that follows the equity method, but we have the Coatzacoalcos underwater tunnel, which evolved very well. But then we decided to remove one of the businesses in Portugal. But all in all, internationally, which is just COTUCO, we had an increase of 6.8%. So the EBITDA for concessions is EUR 44.6 million, an increase of 8.3% with respect to the previous year. As you know, and I want to mention it again, the EBITDA advanced less than revenues, but that was because of the development of the concession in Aragón before it starts operating. That's why its gross margin went down quite significantly, but there was no other effects for provisions or any other incident that could explain that difference between the variations of revenues and of EBITDA. Well, that's about all I had to share with you. As you may have seen, the results as compared with previous quarters were quite good with increases in excess of 7%. I might perhaps mention the evolution of the portfolio. You know that we are a group that has over 85% of its activity coming from the waste management business and the water integrated cycle -- integrated water cycle business. But our portfolio makes us -- well, it means that we are very reassured in terms of our future prospects. That's all from me. So if you have any questions, please do not hesitate to ask them. Operator: First question, why are the EBITDA margins going down for Water and Services in the first quarter -- in the third quarter? Unknown Executive: Well, services, I guess you mean environmental services. As I said before, for the environment, 15.6% as compared with 15.7%. I don't think it's a huge reduction. This variation is really very small. We did increase quite -- well, perhaps we increased in waste collection and other services, but the difference is really very, very small, practically negligible. In the case of Water, which is, I think, important to mention, the thing is that Technology and Networks is now more significant. That is where we include 2 types of projects. First of all, the things we do to develop works where we have a contract that we call essentially BOT that is we obtain a partial water cycle to construct a water treatment plant, a desalting plant and that normally is attached to a lower margin. But the area of Technology and Networks has to do with our integrated cycle concessions because we are -- these are works that cannot be postponed. This is just water consumption for drinking water for families. So we need to do this as fast as possible. So -- and 80% of the work we do under Technology and Network falls in this category. And even if the margin for us is very satisfactory, it is a lot lower than the margins of other businesses in concessions that may go from 25% to 40%. So when there's more in Technology and Networks, when there's more work in Technology and Networks, of course, it's logical that there should be a fall in the margins, but that's the only explanation. Operator: Next question, what was the reason for the selling off of an additional share in the Services unit? And how are you going to use the money obtained from the sale? Unknown Executive: Well, as you know, in this transaction, we have an agreement. We have signed the selling agreement. The money has not yet been paid to the group. I would say that the same -- the reason is the same as in 2018 when we sold a share of our Water business. Obviously, it was a minority share. So we retain full control of the activity. But what we did there is circulate the capital used in an efficient way. So we retain the operational control of the business. And this -- and so the know-how still lies with us and with our units. And the idea is basically to optimize the use of the capital invested by the group. This is the same thing we did for Aqualia. And what are we going to use the money for? Well, we'll have to wait, first of all, for the money to be paid to us. And when that happens, we will decide how to put it to the best use. Operator: Next question. What can we expect from the working capital for the end of the year? Unknown Executive: Well, with respect to the working capital, the evolution that we have experienced in the first 9 months has been quite homogeneous with respect to the activity we had until June. And let me look at the figures because I don't remember them off the top of my head. In December, yes, 2024, it was also homogeneous year-on-year. So the expansion we recorded was quite similar. And I would say that what we can expect is that we will have a recovery. We always recover. You know that -- you know it's difficult to quantify things under the working capital heading, but the expansion we had in September is quite similar to the one published in June. And it should go down by the end of the year. But this is only normal. It's part of the ordinary pattern of this chapter. Operator: Next question. What investments can we expect for 2025 and 2026? Unknown Executive: Well, in terms of investments, as any other group, we -- there's a combination of the ones that have been contracted and the ones we aspire to achieve. Last quarter, we achieved EUR 1 billion in payments for investments, and this is quite a significant figure given the size of our activity and our generation of cash flow. Now with the investments we have made until now, I think we -- I think that this year, we could stand at a similar level. Now for 2026, we could also achieve similar levels. I mentioned some investments that will have to be materialized. And you know that we are very selective in our activities. Last year, for example, they were concentrated in environment and water treatment. These are the 2 activities that demand the largest amount of CapEx. And of course, we aspire to grow, but in a very selective way. And in 2023, we'll stand at similar levels in terms of the application of our cash flow, similar to 2025, I mean. Operator: Next question. Will you have growth in construction at the end of 2025? Unknown Executive: Yes, I think we should. From the first half to the 9 months to the third quarter, you've seen that there's been some increase already. But I would just like for you to analyze our portfolio. Of course, we can't -- you can't really apply a simple equation. You can't say that if the portfolio has grown by 45%, revenues will also increase by the same measure. But this cannot be done because some of our new contracts are long-term contracts, railway contracts, but we want to establish a close connection with the customer, with early contractor involvement format where customers become more involved in the design phase. So by their very nature, these are long contracts with great technical complexities, but this also requires a greater collaboration from the customer so that the contract is longer term. And this, of course, makes it easier to manage the complexities of our contract. So what I want to say is that these contracts are going to be longer term. Of course, we could end up at the same variation of 1.2. But for a project based on projects -- for an activity based on projects such as construction, we feel really very comfortable because there's quite a large amount of visibility. There's no further questions. So if there's no further questions, I just want to thank you very much for your time. I guess that you will now have time to review all the documentation we have sent. And as I said, we remain at your entire disposal through the usual channels. Thank you. [Statements in English on this transcript were spoken by an interpreter present on the live call.]
Operator: Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Ellington Financial Third Quarter 2025 Earnings Conference Call. Today's call is being recorded. [Operator Instructions] It is now my pleasure to turn the call over to Alaael-Deen Shilleh. You may begin. Alaael-Deen Shilleh: Thank you. Before we begin, I'd like to remind everyone that this conference call may include forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are not historical in nature and involve risks and uncertainties detailed in our annual and quarterly reports filed with the SEC. Actual results may differ materially from these statements, so they should not be considered to be predictions of future events. The company undertakes no obligation to update these forward-looking statements. Joining me today are Larry Penn, Chief Executive Officer of Ellington Financial; Mark Tecotzky, Co-Chief Investment Officer; and J. Herlihy, Chief Financial Officer. Our third-quarter earnings conference call presentation is available on our website, ellingtonfinancial.com. Today's call will track that presentation, and all statements and references to figures are qualified by the important notice and end notes in the presentation. With that, I'll hand it over to Larry. Laurence Penn: Thanks, Alaael-Deen. Good morning, everyone, and thank you for joining us today. I'll begin on Slide 3 of the presentation. Ellington Financial delivered another quarter of strong performance with strategic execution, highlighted by the continued growth of our adjustable distributable earnings, the continued growth of our investment portfolio, and the continued strengthening of our balance sheet. For the third quarter, we reported GAAP net income of $0.29 per share and ADE of $0.53 per share, which set a new quarterly high for this metric since we started reporting it in 2022, and which once again significantly exceeded our $0.39 per share dividends for the quarter. The increase in ADE over the past several quarters is the direct result of higher net interest income from our loan portfolios, reflecting both the growth of those portfolios and their strong ongoing credit performance, combined with sizable proprietary reverse mortgage securitization gains at Longbridge, where we're now completing roughly reverse prop securitization per quarter. Our quarterly results also benefited from robust gains from securitizations of non-QM loans and closed-end second lien loans. We priced a total of 7 securitizations during the quarter. That's a record for us. And including transactions completed subsequent to quarter end, have now priced a total of 20 securitizations year-to-date. That's more than triple last year's pace. The EFMT securitization franchise has become a tremendous asset for Ellington Financial, allowing us to access liquidity for many of the largest fixed income investors in the world. Finally, in addition to all these drivers, we also had excellent performance in our securities businesses and strong earnings from our affiliate loan originators such as LendSure. Shifting to our balance sheet. Our total portfolio holdings grew by 12% during the quarter as we continue to deploy capital to our highest conviction loan businesses. Portfolio growth was led by non-QM, proprietary reverse mortgage, and commercial mortgage bridge loans and complemented by opportunistic additions of other residential mortgage loans and CLOs as well. Notably, Longbridge delivered a record quarter for proprietary reverse origination volumes. Demand from borrowers for Longbridge's prop products continues to grow. But just as importantly, demand from investors remains strong for the resulting securitization debt tranches. I believe that Ellington Financial, with our Longbridge subsidiary and our securitization franchise, is uniquely positioned to profitably intermediate between prop reverse mortgage borrowers and investment-grade debt investors. Moving to the financing side. We further strengthened our balance sheet by increasing our long-term non-mark-to-market financings in 2 key ways: first, by accelerating our pace of securitizations, and second, by expanding our access to long-term unsecured financing. First, as I mentioned earlier, we priced 7 securitizations during the quarter. Importantly, we are close to pricing our inaugural securitization of residential transition loans, which would reduce reliance on short-term financing in that strategy as well, unlock capital for redeployment, and create high-yielding retained tranches for our portfolio. Securitizations are important because they provide stable non-mark-to-market funding while reducing reliance on repo. This greatly enhances capital efficiency, and I'll elaborate on that later in my concluding remarks. Securitizations also allow us to manufacture high-yielding retained tranches with valuable call options. These retained tranches are generating some of the most attractive returns across our platform, and they contribute strongly to ADE even without repo financing. Second, on the financing side, on the final day of the third quarter, we successfully priced $400 million of 5-year senior unsecured notes rated by Moody's and Fitch and broadly distributed to institutional investors across more than 80 accounts. We utilized more than half the proceeds to reduce repo borrowings with the remainder funding new high-yielding investments. The unsecured notes priced at 7 3/8%, representing a 363 basis point spread over the 5-year treasury at the time. We were pleased with the execution and the strong investor demand and encouraged to see the bonds trading well following issuance. We expect pricing to improve on future transactions as we become a more established unsecured note issuer and as we migrate a greater share of our borrowings to long-term financing, creating a virtuous cycle. With that, I'll turn the call over to JR to walk through our financial results in more detail. JR? JR Herlihy: Thanks, Larry. Good morning, everyone. For the third quarter, we reported GAAP net income of $0.29 per common share on a fully mark-to-market basis and ADE of $0.53 per share. On Slide 5 of the deck, you can see the portfolio income breakdown by strategy, $0.42 per share from credit, $0.04 from Agency, and $0.09 from Longbridge. And on Slide 6, you can see the ADE breakdown by segment, $0.59 per share from the Investment Portfolio segment and $0.16 from the Longbridge segment. In the credit portfolio, net interest income grew sequentially, and we also had net realized and unrealized gains on residential transition loans and other loans in ABS. Partially offsetting higher net interest income were net realized and unrealized losses on non-QM retained tranches, CLOs, forward MSR-related investments, and residential REO. We continue to benefit from solid credit performance in our loan portfolios and from strong earnings at our affiliate loan originators. I'd like to highlight a new slide in the earnings presentation. Please turn to Slide 15. This slide illustrates the strong credit performance of our loan portfolios over time, reflected in the exceptionally low realized credit losses across our residential and commercial loan strategies since each business's inception. Note that the realized credit loss rate is shown on a cumulative inception-to-date basis. If presented on an annualized basis, these percentages would be even lower. This metric captures the quality of our loan underwriting, incorporating both loans that performed as expected and paid off at maturity and loans that require individual workout efforts. On the top right, you'll see just 13 basis points of cumulative realized credit losses on approximately $14.7 billion of residential mortgage loan fundings, spanning non-QM, RTL, home equity, and proprietary reverse mortgages. And on the bottom right, cumulative losses totaled only 47 basis points on more than $2 billion of commercial mortgage bridge loan originations dating back to before COVID. The combination of the strong credit performance and the high yield of these loans has been a key driver of EFC's sustained growth in ADE over time. Moving to Agency. That portfolio also generated strong results in the third quarter with net gains on both our long Agency RMBS and associated interest rate hedges. Lower interest rates and reduced volatility, together with tightening Agency yield spreads created a favorable environment that was broadly supportive of portfolio performance. The Longbridge segment had another excellent quarter with strong contributions from both originations and servicing. Origination profits were driven by higher origination volumes of Prop reverse mortgage loans, higher origination margins for HECM reverse mortgage loans, and net gains related to the prop loan securitization completed during the quarter. Meanwhile, base servicing net income, strong tail securitization executions, and a net gain on the HMBS MSR equivalent, primarily due to tighter HMBS yield spreads, drove the contribution from servicing. These gains were partially offset by a net unrealized loss on the retained tranches of Prop reverse securitizations due to faster prepayment speed assumptions, lower HPA projections, and higher applied discount rates. Turning now to portfolio changes during the quarter. Slide 7 shows an 11% increase in our adjusted long credit portfolio to $3.56 billion quarter-over-quarter. Our portfolios of non-QM loans, commercial mortgage bridge loans, other residential loans, and CLOs all expanded, as did our portfolio of retained non-QM RMBS in that case from the securitizations we executed during the quarter. These increases were partially offset by the impact of loans sold into securitizations, net sales of non-Agency RMBS, and the smaller residential transition loan portfolio, with principal paydowns in that portfolio exceeding new purchases. For our RTL, commercial mortgage bridge, and consumer loan portfolios, we received total principal paydowns of $352 million during the third quarter, which represented 21% of the combined fair value of those portfolios coming into the quarter. as those short-duration portfolios continue to return capital steadily. On Slide 8, you can see that our total long Agency RMBS portfolio decreased by 18% to $221 million due to net sales. Slide 9 illustrates that our Longbridge portfolio increased by a substantial 37% to $750 million, driven by a record quarter of Prop reverse mortgage loan originations, partially offset by the impact of a prop reverse securitization completed during the quarter. Please turn next to Slide 10 for a summary of our borrowings. At September 30, the total weighted average borrowing rate on recourse borrowings decreased by 8 basis points to 5.99% overall, with a notable 17 basis point decline on credit borrowings. Quarter-over-quarter, the net interest margin on our credit portfolio increased by 54 basis points, reflecting both that lower cost of funds as well as higher asset yields, while the NIM on Agency decreased slightly by 2 basis points. At September 30, our recourse debt-to-equity ratio was 1.8:1, up slightly from 1.7:1 as of June 30, while our overall debt-to-equity ratio was down slightly to 8.6:1 from 8.7:1. During the quarter, we improved financing terms on 2 Longbridge-related facilities. On September 30, we priced $400 million of 5-year senior unsecured notes at a fixed coupon of 7.3%, which was a 363 basis point spread to the 5-year U.S. treasury at the time. Consistent with our goal of staying neutral to the path of interest rates, upon pricing, we immediately swapped the fixed coupon to a floating rate, thus locking in that 363 basis point spread. The notes issuance closed in early October and will appear on our balance sheet beginning in the fourth quarter. As of October 31, nearly 20% of our recourse borrowings are unsecured. And of equal importance, the percentage of those borrowings subject to mark-to-market margining declined to 61% from 74% month-over-month. We expect our notes offering to increase our overall cost of funds by approximately 17 basis points. Keep in mind that this figure does not capture the expected accretive benefit of adding more assets at yields above the cost of this debt, as well as the release of capital reserves related to the repo paydown, which Larry will elaborate on later. In keeping with our mark-to-market philosophy, we'll elect the fair value option on these new unsecured notes as we have for our other notes and mark them to market through the income statement. As a result of this election, we expensed all associated deal costs in October rather than amortizing them over the life of the notes. At September 30, combined cash and unencumbered assets were about $1.2 billion, or about 2/3 of our total equity. Book value per share was $13.40, and economic return for the third quarter was 9.2% annualized. With that, I'll pass it over to Mark. Mark Tecotzky: Thanks, JR. This was an important quarter in EFC's evolution. As Larry mentioned, we continue to grow ADE, and we made our company more resilient. To be clear, repo financing markets have been functioning extremely well with both ample liquidity and competitive terms, but EFC's balance sheet is stronger when we diversify our funding sources and rely less on short-term repo. Our debt deal was a significant step in that direction, as were our 7 securitizations, where we replaced repo funding with non-mark-to-market debt. Our resiliency is also a function of the downside protections we put in place, including our credit hedges. While these hedges were a drag on returns this quarter, we continue to maintain them as an important safeguard, especially as some signs of potential cracks in the economy have surfaced. For example, there were 2 recent well-publicized bankruptcies in the corporate credit markets, and job formation has weakened substantially compared with earlier this year. These are the kinds of market risks that should they become more widespread, our credit hedges are designed to protect against. In addition, our focus on higher FICO, lower LTV loans, and our purchase activity further enhances the resilience of our portfolio. We continue to invest in proprietary technologies that enable our affiliate loan originators and other partners to originate and deliver loans more efficiently to us. Those technology investments are paying off through higher purchase volumes as we have greatly expanded the breadth of originators who sell loans to us. We're also optimistic about the potential for technology to both automate and improve many aspects of loan underwriting. These technology initiatives helped facilitate our 12% quarter-over-quarter portfolio growth, which was driven by the growth in our loan strategies and our ability to efficiently securitize our loans. With rates moving slightly lower, this trend should continue, if not accelerate. In addition to increasing our loan purchases, we are also expanding our reach. We have recently begun purchasing 2 particular types of loans that are eligible for purchase by Fannie Mae and Freddie Mac, but which instead have been increasingly purchased by private investors. We expect to launch a securitization of these loans in coming months. This agency-eligible mortgage space is particularly interesting as the current administration appears comfortable with private capital stepping into areas once dominated by the GSEs. This could be a unique moment and a potentially very large opportunity for EFC. Another current focus area for us is buying seasoned mortgage loans portfolio -- seasoned mortgage loan portfolios from banks. With rates lower and spreads tighter, many bank portfolios that used to be significantly underwater are now much less so, and this is enticing many banks to shed what they consider to be noncore assets. Since the start of the month -- since the start of the fourth quarter, we have seen more loan packages come to market from bank sellers. And so far, we have acquired 2 such packages. We think this could become a significant area of growth for us going forward. In general, we are following the same EFC playbook while expanding it. Our approach is to use proprietary sourcing models to buy a broad range of mortgage products, term out the financing through securitizations, and then retain in our portfolio high-yielding tranche investments along with potentially very valuable call options. We started doing this in 2017 with non-QM deals, then added second liens and Prop Reverse. And now we are in the market with an RTL deal and plan to securitize agency-eligible mortgages on the horizon as well. Meanwhile, as we expand the array of products that we're buying and securitizing, we're also providing affiliate loan originators more ways to make money by expanding the product sets that they can offer to their customers. The synergistic relationships helped drive our portfolio growth while also increasing our affiliate loan originators profits, which then further enhances our earnings and our book value per share through the equity stakes we hold in these originators. This playbook is the main driver of the strong ADE growth this year, especially with the significant contributions to ADE we've seen from both our retained tranches and our stakes in originators, including Longbridge, of course. The process of expanding our footprint in the securitization markets has itself become a virtuous cycle. We have built our EFMT securitization brand over the past 8 years, dating back to our first deal in 2017, and each new transaction and loan product further cements our stature in the market and builds our investor base, contributing to better execution levels. Looking ahead, we actually see a richer opportunity set than we did in the first half of the year. Loan volumes have increased with mortgage rates now more than 80 basis points lower than earlier in the year. With an expanding footprint in a larger market, our securitization volumes are up significantly. However, the overall credit backdrop has weakened. HPA has stalled, more consumers are under financial strain, and many corporations aren't just slowing their hiring, but are actively reducing headcount. We will continue to rely on a data-driven, model-based investment approach to pursue high returns while limiting downside risk. Now back to Larry. Laurence Penn: Thanks, Mark. To sum up, this was an excellent quarter for Ellington Financial on a number of fronts. We achieved earnings growth and meaningful portfolio expansion, and we marked a significant inflection point in evolving our financing base, all of which we think position us well for continued earnings strength and dividend coverage in the quarters ahead. I'm pleased to report that this momentum has continued into the fourth quarter with securitization activity remaining robust and origination volumes strong at Longbridge and at our non-QM loan originator affiliates, LendSure and American Heritage Lending. Of course, we've also been hard at work deploying the proceeds from our unsecured note issuance. We've used a chunk of the proceeds to grow the investment portfolio by more than 5% in October alone, and we've used most of the remainder of the proceeds to pay down repo as planned. Our ADE generation power is very strong. So it's good that we have some ADE to spare going into the fourth quarter, as we expect to experience a modest near-term drag on ADE as we deploy the proceeds from our notes issuance. But even after we deploy those proceeds, we expect to realize additional, more subtle benefits from our notes issuance over time, as I'll now explain. The first additional benefit is through increased capital efficiency, which is a byproduct of replacing mark-to-market financing like short-term repo with long-term non-mark-to-market financing. Specifically, and consistent with our disciplined risk management approach, we maintain extra cash and capital reserves against our repo and other mark-to-market facilities to guard against potential market shocks. We can reduce those reserves when we replace repo with long-term unsecured notes, which frees up capital that can be redeployed into higher-yielding assets, thereby further amplifying long-term earnings potential. As an aside, similar benefits apply to our securitization financings. The second additional benefit from our notes offering is a much longer-term benefit. We view our shift toward a greater proportion of long-term unsecured and securitization financing and a lesser proportion of shorter-term repo financing as a fundamental evolution of our capital structure. This shift is fortifying our balance sheet, enhancing risk management, and supporting earnings stability. Including our existing $263 million of unsecured notes, nearly 20% of our recourse borrowings are now unsecured as of October 31, and we intend to increase that proportion over time. And as this evolution progresses, we expect that we'll see upgrades in our credit ratings, which should enable us to issue more unsecured debt at even more attractive economic terms, setting off a virtuous cycle. As a result of these multifaceted dynamics, I believe that our unsecured notes program will enable us to both build a more resilient balance sheet and expand our earnings power. As always, our goal is to deliver durable, high-risk-adjusted returns to shareholders across market cycles. Looking ahead, with conservative leverage, ample liquidity from our recent unsecured notes issuance, and a steady pace of securitizations, we believe that Ellington Financial is well-positioned to continue delivering strong and sustainable dividend coverage. And with that, let's open the floor to Q&A. Operator, please go ahead. Operator: [Operator Instructions] We will go first to Crispin Love with Piper Sandler. Crispin Love: First, just on the loan originator platforms. started -- we've started to see a more conducive mortgage rate environment. Can you just discuss how this has changed valuations in your stakes and then overall operating performance, increased flow to Ellington? And then are there any other areas where you're looking to add capacity in other platforms or new platforms from an originator level? Laurence Penn: Okay. JR, do you want to talk about valuations sort of generally speaking, how we value, and how the recent tailwinds are helping valuations? JR Herlihy: Yes, sure. Thanks, Crispin. So the stakes are third-party valued twice a year, and then the other 2 times we adjust based on interim P&L. And the valuation providers are typically looking at, broadly speaking, 3 data points, kind of trailing earnings, forward earnings, and then multiples relative to the market. And so I think there are a few factors at play. There have been some publicized trades in the market at multiples to book, premiums to book. But at the same time, book value has built up because earnings have been so powerful. And in many of these cases, we're also getting distributions of those earnings. So we get to return cash and then redeploy it. And so I'd say that the strong earnings performance has reflected through higher book value, but it has also led to some more liquidity for these platforms and higher multiples. We have a table in our 10-Q where we go through the multiples of earnings that our valuations reflect, and they're not at the same levels as one particularly notable transaction that happened within the last couple of months. So at a premium to book, reflecting the earnings power of the platform, but not at the premium reflected in that transaction. So if that helps answer the question, I mean, earnings have driven book value, which has driven values, and just interim P&L is reflected in our mark-to-market as we capture the benefit of those earnings. Laurence Penn: Yes. And then in terms of new products, I think, right, Crispin, was that your question is are we looking at adding stakes in any new products? Is that right? Crispin Love: Yes, that's right. JR Herlihy: Yes. So Mark, I'm not aware of any new products. We are looking at potentially adding some additional servicing capacity in a small way. But no, I'm not -- Mark, are you aware of anything? Mark Tecotzky: Yes. I mean the one thing I would say, Crispin, is that you are starting to see adjustable-rate mortgages taking an increasing share of the new origination market. I think for some originators in the agency space, it's as much as 10%. And if I go back to the early days in talk in 2015, 2016, 2017, that product was 100% adjustable rate. It used to be all 7-year ARMs, right? So we are starting to see some demand for adjustable-rate mortgages. And part of that is a consequence of the steeper yield curve where you can offer a little bit lower rate on a 7-year ARM than you can on a fixed rate. So that's a new product. That's one thing that we've been working with some of our affiliates and some other originators with. Crispin Love: And Mark, I found your comments on buying loans from banks interesting. Can you just dig a little bit deeper on that opportunity? Is it primarily commercial real estate loans? Is there any resi in there? And then just what types of banks are you dealing with? Is it more community banks or are there larger ones as well? Mark Tecotzky: So the 2 transactions I referenced in the prepared remarks were both residential mortgage loans. One of them, it turns out was actually adjustable rates. So these were smaller banks. They weren't the big G-SIBs. And you have a lot of banks sitting on portfolios that they desperately want to restructure. It's, I think, more of an issue in -- it's more of a factor in the Agency MBS market, where you have a lot of banks still sitting on big portfolios of Fannie 2s, Fannie 2.5s, which have really been a drag on NIM. And I think it's kind of interesting that most of the M&A activity you've seen involving banks in the last couple of years, after each transaction, you've seen fairly large portfolio restructurings. So if M&A increases, I think it's going to lead to more activity from banks shedding loans they've held in portfolio for a while. And I just think the natural process of lower yields, a steeper yield curve, tighter credit spreads is lifting up the price of some loans on balance sheet to the point where the trade-off of taking a loss and getting to reorient the portfolio is palatable. So I look for more of that to continue should the rate environment stay where we are now. Operator: And we will move next to Bose George with KBW. Bose George: This is actually Frank on for Bose. First question is on credit. You touched on weaker consumer, a little softness in the labor market, and negative HPA. Can you just elaborate on maybe what you're seeing within your portfolio and where you're seeing the best allocation of capital today? Laurence Penn: Sure. So we -- yes, we have the new slide JR talked about, which directly shows the credit performance of what we're doing on the loan side in residential and commercial space. So what I would say is if you look at consumer spending and you really partition it as a function of income levels, the weakness is, by and large, at the bottom half -- the bottom 50% of income levels. And so you see it impacting subprime auto. You see it impacting lower FICO credit cards. You see it impacting portions of the FHA and VA portfolios, which tend to be lower credit quality than what you see from Fannie and Freddie. If you look at higher-end borrowers, that spending has been continuing and their credit performance, and that's really where we're focused, has been very strong. I also just -- I put in into the prepared remarks that comments that you've seen a pickup in the number of companies that are talking about layoffs. And now those layoffs, which some corporations have been talking about, that seems like that could be something that could impact some borrowers that are at higher wage levels. So right now, in terms of credit performance, everything has been performing well, and we made a lot of progress this year, I think, in working out some delinquencies we had in the small balance commercial portfolio. But I just wanted to put that comment in there because it is something that we are -- it's on our radar, and we're thinking about. JR Herlihy: Yes. And Mark, just to follow up on that, on Slide 15, I just want to reemphasize what JR said during the prepared remarks, which is that these are non-annualized. These are cumulative numbers. So our commercial mortgage loan business, bridge loan business, which goes back, gosh, 10 years at least, when you see 47 basis points of cumulative losses, that's over 10 years. So obviously, it would be anything on an annualized basis will be much smaller. On the resi side, again, 13 basis points goes back many, many, many years. So we're really pleased with this performance. As Mark says, we've been laser-focused on FICO, which has really helped us. And of course, in RTL, all our loans have personal guarantees. So we feel very good about where we stand. We did have a couple of loans that we talked about on some relatively recent earnings calls that on the small balance commercial space, one of them has been resolved. One of them is actually now going quite well towards resolving, I would say, later next year, but things are looking good. So we really feel good about where we stand. Bose George: Great. And then -- you guys had a strong ADE over the course of the past year. Do you see any maybe uptick in dividend level? And also, could you quantify the drag you mentioned on ADE in the fourth quarter? Laurence Penn: So in terms of the drag, we -- I think JR mentioned that our sort of overall cost of funds would all other things being equal from where we stand at around now be about 17 basis points, right, JR, higher. So yes, again, I mean, as I said, we really have some good ADE to spare coming in, if you will. We still, I think, believe that we're going to be able to continue to cover the dividend. I don't want to say -- I wouldn't say that we have any plans, certainly not have any plans to lower the dividend. And I think it's just at a level right now, 11 handle the yield. I think it's a good dividend. We just want to keep covering it and covering it as we have been. Operator: And we will move next to Trevor Cranston with Citizens JMP. Trevor Cranston: A follow-up question on your comments on sort of the general credit backdrop and credit performance. Looking at the credit hedge portfolio, it looks like the size of the hedge positions declined somewhat in 3Q. So I was wondering if you could just maybe provide some commentary on how you guys are thinking about the risk of sort of spread widening and how you guys are approaching the credit hedge part of the portfolio right now? Laurence Penn: Yes. The credit -- the drop in the credit hedge was, I would call it, a little more of a blip, if you will, as we were about to -- we literally priced that deal -- at December 31 at quarter end and then basically being a wash in cash we decided that on a short-term basis, we would lower that credit hedge, just right, obviously, our -- the credit hedge is there for a rainy day and for resiliency in a market shock and having basically all that cash coming in obviated the need for as much of a credit hedge. But -- so I do expect that to continue to increase as we deploy that cash, as we've talked about, into new high-yielding investments that are more correlated, obviously, to overall market risks. So I would view that as a little bit of a blip in terms of that big downward move there. Trevor Cranston: And then you talked about working towards deploying the capital from the debt issuance at the end of the quarter. Obviously, you guys have been able to do some issuance on the common equity side through the ATM plan as well. Should we think about the debt issuance sort of decreasing your appetite for common equity in the near term? Or is the sort of amount of issuance there small enough that it doesn't really move the needle enough to change things? Laurence Penn: Yes, we can deploy pretty quickly. I would like to note that our ATM issuance has been accretive. So I think that's really important. We certainly want to keep that up. But yes, exactly. I think that we did have a good quarter for ATM issuance. But we're just -- because of all the flow that we've talked about on the call previously, we are able to deploy capital quite quickly, generally speaking. We have so many different strategies that we can deploy into, and we pick and choose which ones look the best at any moment in time. So I would say that we don't really view them as alternatives, I would say, and additional ATM issuance is not only accretive nowadays, but it also helps our G&A ratios and things like that. So just a lot of good reasons to keep that going. Obviously, we don't want to -- we like to see our stock trading at a premium, and we don't want to do anything rash to potentially change that situation. JR Herlihy: Yes. And just to add on that, I mean, we mentioned that October, the portfolio was up more than 5%. We didn't quantify it exactly, but that's on a $4 billion base. So 5%, that's $200 million right there. We raised $400 million and mentioned we're using more than half to pay down repo. And we had 12% portfolio growth in Q3. So I guess the point is that, underscoring Larry's point that deployment and portfolio ramp has not been an issue for us in recent months. So -- and we did raise accretively in the ATM during the quarter relative -- net relative to where the book value per share settled at $30. Operator: And we'll move next to Timothy DeAgostino with B. Riley Securities. Timothy DeAgostino: On Longbridge and the proprietary reverse mortgage product, you had mentioned that it was like record volume origination. I was wondering, within that market, what does competition look like for you all? Laurence Penn: Yes, there's not much. In the prop space, in particular, there are HECM issuers that -- originators that are -- there are more of those, I guess, you could say. Longbridge overall is #2 in the space. But in terms of volumes, by some metrics, sometimes #1. But in prop, it's really -- there are 2 other competitors. One of them is a public company, one of them isn't. And I think the reason that it's, I think, harder for others to originate that product is that they don't have the kind of the capital base and the outlet for the product the way that we do in a kind of vertically integrated way where we have Ellen Financial to REIT that needs to put money to work. And we have the originator, obviously, that can originate the product for us. So -- and it's -- so it's definitely less competition in that space than in other spaces. And I think we're in a great competitive position. The fact that our securitization is going so well has meant that we've been able to actually offer better terms to borrowers because the securitization outlet has provided us better execution over the past several quarters. So that's translated into better rates for borrowers, which has translated into also higher volumes for us, right? We can offer better terms, so we can get higher volumes. So that's kind of what's been going on there. And hopefully, that will continue. Timothy DeAgostino: Okay. Great. Yes. And then just quickly flipping to the credit portfolio. Quarter-over-quarter, it seems like non-QM was the biggest piece, like had the most investment quarter-over-quarter. I was just wondering like what you're seeing in that market? And why do you like it so much? Laurence Penn: Mark? Mark Tecotzky: So non-QM, it's not a monolith, right? There's loans to investors. There's owner-occupied loans. There's a range of documentation types from full dock to bank statements and a few others. And I guess, we've been at the non-QM market since 2014. That's when we made our initial stake in our first portfolio company, LendSure. So over the past 11 years, we have spent a lot of time and effort building out our credit modeling, our prepayment modeling, our deepening the relationship between our originator affiliates where we own a portion of the company as well as others, I'd call just origination partners where we might not own a stake in them, but we have active dialogue on the underwriting guidelines. We have a team of people that are on the road basically every day, visiting originators, talking to underwriters, talking to appraisers, thinking of what are really best practices in terms of the process for originating loans. So we have really deep sort of native understanding of that market. And it's grown. You have seen Fannie and Freddie not expand their guidelines in some ways, constrict their guidelines. And you have -- I'd say it's 10% to 15% of the home-buying universe that are not served well by the GSEs. And that's really the core of non-QM. And I think a couple of things have happened for non-QM in the past year. So one is that you've seen a broad-based migration up in FICO, which we like. There's still been a lot of discipline on LTV. Most of what we do on a portfolio basis is below 70% LTV in aggregate. And you've seen significant securitization volumes spread this year. So the non-QM securitization market has grown a lot, and it's gotten more liquid and more commoditized, and it's attracted a bigger universe of investment-grade bond buyers. And that -- all those things together have worked in concert to tighten spreads. So the ability to buy loans that are well underwritten to higher FICO borrowers and then securitize them with tighter spreads, materially tighter spreads on the IG bonds than what you were looking at in a lot of '24, and to have more certainty of execution because there's more liquidity in the market has made it an asset class that we have scale to it. And it's leaving our portfolio with very attractive retained investments. And so it's really those 2 things. It's the volume, the scale, the underwriting discipline we brought to it, levered with these tighter investment-grade spreads that has made that sector very attractive to us. Operator: And we will move next to Eric Hagen with BTIG. Eric Hagen: We actually have a follow-up on the Longbridge portfolio. I mean when we think about the total upside potential in Longbridge, does it require more leverage to get to its target returns? And how do you think about the amount of leverage in that portfolio? And what's both objective and sustainable for leverage in that portfolio? Laurence Penn: So thanks. I don't think it requires more leverage. Well, first of all, part of -- most of Longbridge's -- and I'm not talking about the segment now, I'm just talking about the originator, right? Most of Longbridge's equity is in its servicing, right, especially tech and servicing portfolio. And that's just a very high-yielding return on that servicing without any leverage. So much higher yielding than forward servicing. So that's number one. And then in terms of the proper reverse loans, which is what ends up on our balance sheet, on EFC's balance sheet, both pre-securitization and post-securitization. Sure, while we're accumulating for securitization, there's going to be leverage there, right? But again, post-securitization, where we retain just the residual, if you will. It's -- again, doesn't really require -- doesn't require that. Now we do consolidate those. So from a consolidation perspective, right, you might see more leverage that way. But again, this is long-term non-mark-to-market locked in financing. So the way we look at it is we've just got a retained interest that's relatively small that doesn't require any additional leverage. So I don't think we're going to need more leverage there other than, obviously, as the origination volumes increase, you need more warehouse financing. But again, that's sort of more transient, if you will, transitory. Eric Hagen: Yes. Okay. That's really interesting. Going back to non-QM for a second here. I mean, what's your perspective on convexity risk in the space right now? I mean, to your very point, it feels like so much progress has been made among brokers and loan officers. The asset class is higher quality, more transparent, more liquid. At the same time, I mean, we wonder how it would respond to lower rates, even meaningfully lower rates, and your ability to kind of backfill that portfolio if rates were to fall. Eric, so I would say it was interesting. In the last remittance cycle, jumbo speeds increased a lot. You didn't see a similar increase in non-QM. But if you go back to 2020, 2021, we know non-QM loans are capable of very fast prepayment speeds, prepayment speeds in excess of 40 CPR, right? So this rate move has certainly put prepayments and understanding prepayments and valuing that front and center because when you do a securitization, what you're retaining a large portion of the investment is essentially sort of. So we hedge that risk. I also think this drop in rates is adding a lot of value to the call options, too, right? So you retain the ability to get loans at par that were 103 at origination, and then a rate move could be worth 105. So we keep the call options. That -- those thrive in a rate-down market. We have the excess spread piece, which has exposure to faster prepayment speeds. But understanding those prepayments, thoughtfully mitigating some of that prepayment risk through payment penalties, which probably 30% of the market has, that's really one of our core competencies, right? So whether it's understanding the servicing portfolio we took over from Ellington, whether it's understanding IOs or inverse IOs, understanding how borrowers, different types of borrowers respond to prepayment options, I think it's something that we're really good at. We spend a huge amount of time on it. And I think we have a lot of institutional knowledge. So you're exactly right, prepayment speeds are on the radar. I would say what does it do about portfolio size? I mean, typically, when you go through a refi wave, it's not as though the market shrinks. The market just -- borrowers are just exchanging an existing loan for a new loan. So I don't think it proposes -- I don't think it presents any challenges from staying invested. And a lot of times when you go through a refi wave, the market the size of the market actually grows because you have borrowers that if they refi, sometimes they're cashing out and they're replacing an older loan with a slightly bigger new loan. So I think we've been very focused on the prepayment risks of different loans and making sure that's properly hedged out and hedged out along the yield curve. But in terms of volumes, I think it would be a big uptick in volumes. I think it creates a lot of opportunity. JR Herlihy: Yes. And if I could just add one thing. So first of all, I want to point out that, as Mark said, I mean, we model this fanatically, right? So one of the things we do while we're warehousing those loans awaiting securitization, non-QM loans, right? They have negative convexity. Well, we are short -- to some degree, we're short TBAs against those loans as well as other interest rate hedging products, right? So we're short a negatively convex instrument against a negatively convexed instrument that were long. So that helps. And I think that also is something that I think we do rather uniquely in the space. The second thing I would say is that if you turn to Page 14, you can see that on an overall portfolio basis, so 14 of the presentation is our interest rate sensitivity analysis. And I think in the Q, we go out to 100 basis points as well. I mean you can see that when you look at the whole portfolio, even taking into account the fact that you've got prepayment risk on, as Mark said, what are a chunk of IOs that were long in our non-QM retained tranches, right? Even when you take all that into account, it's really very contained the negative convexity in the overall company. So again, on Page 14, you can see do we have some negative convexity? Yes. But you can see modest declines in equity for a 50 basis point drop or 50 basis point increase, but they're really quite modest. So again, this is something that we really model very, very closely based upon 30-plus years of experience. And we will move next to Doug Harter with UBS. It's actually Marissa on for Doug today. Just one for me, more broadly on the reverse mortgage space. How are current market conditions, notably the outlook for moderating HPA and the evolving regulatory environment, how are they impacting your outlook for the ongoing opportunity in the space? Laurence Penn: Sure. Okay. So on the regulatory front, there really is not much going on there in terms of -- there was some talk of actually some improvements, so-called HMBS 2.0, but that seems to be stalled. So there's really not much going on in the regulatory front. Now HPA definitely matters. And we do -- when we do prop reverse securitization, we are retaining the residual, if you will. And so we do have exposure to long-term HPA. I think we mentioned in the prepared remarks, that based upon some HPA stalling, we did adjust downward the mark on those retained pieces in the proper reverse mortgage securitizations. But again, it was quite contained that effect and offset by obviously a lot of other things going in the portfolio. So it's something that we keep a very close eye on. And it does -- it will impact the value of that portfolio. But you have to also have to remember, there's a lot of cushion there, right? The pro reverse mortgages are originated -- in fact, all reverse mortgage, right, originated at initial extremely low LTVs. So you're really not so much exposed to shorter-term HPA as you are to ultra-long-term HPA. I mean in the short term, you're talking about LTVs that are well below 50%, well below. Operator: That was our final question for today. We thank you for participating in the Ellington Financial Third Quarter 2025 Earnings Conference Call. You may disconnect your line at this time, and have a wonderful day.
Operator: Good day, and welcome, everyone, to the RB Global Third Quarter 2025 Earnings Conference Call. Today's conference is being recorded. [Operator Instructions] At this time, I would like to turn the conference over to Sameer Rathod. Please go ahead. Sameer Rathod: Hello, and good afternoon. Thank you for joining us today to discuss our Third Quarter results. Jim Kessler, our Chief Executive Officer; and Eric Guerin, our Chief Financial Officer, are on the call with me today. The following discussion will include forward-looking statements, including projections of future earnings, business and market trends. These statements should be considered in conjunction with the cautionary statements contained in our earnings release and periodic SEC report. On this call, we will also discuss certain non-GAAP financial measures. For the identification of non-GAAP financial measures, the most directly comparable GAAP financial measures and the applicable reconciliation of the 2, see our earnings release and periodic SEC reports. At this time, I would like to turn the call over to our CEO, Jim Kessler. Jim? James Kessler: Thanks, Sameer, and good afternoon to everyone joining the call. To begin, I want to acknowledge the disciplined execution and commitment of our teammates. Their performance underpins our ability to consistently overdeliver on our operational and financial commitments, while advancing our strategic priorities that position us for long-term shareholder value creation. Our disciplined execution was evident again in the quarter, with adjusted EBITDA increasing 16% on a 7% increase in gross transactional value. Starting with the automotive sector, our momentum continued and unit volume increasing by 9% year-over-year. This marks the third consecutive quarter we have outpaced the market, achieving solid year-over-year gains and market share. On the back of this robust performance, we are pleased to announce a significant expansion of our partnership with the U.S. General Services Administration or GSA, where we expect to provide disposition services to approximately 35,000 remarketed vehicles on an annualized run rate basis. We have just started receiving vehicles and expect to reach full run rate in the second quarter of 2026. Over the past 5 years, we have supported GSA with new vehicle marshaling, preparing and delivering vehicles for use, while providing care, custody and control of fleet returns across our national network. Under the new award, our scope extends to remarket and fleet return vehicles through our marketplace, creating a true end-to-end solution. For GSA, this eliminates redundant handoffs and third-party transport from our yards, delivering meaningful cost savings and operational simplicity. This competitive win underscores the strength of our platform and the unmatched value we deliver to our customers and partners. Specifically, we believe there are 3 key reasons we secured this new award: first, the breadth and depth of our marketplace and buyer base, which drives superior liquidity and pricing; second, the scale and proximity of our U.S. physical footprint enable an efficient one-stop service; and lastly, our proven execution and service quality built over 5 years of partnership with GSA. As we advance our strategy for remarketed vehicles, Vehicles that are not salvage, we continue to see a substantial organic growth run rate in our targeted market segment. The dynamics for this space remain favorable and our differentiated approach grounded in operational efficiency, partner alignment and ability to leverage our real estate positions us to capture incremental share. We are confident our strategy will continue to enable us to deepen engagement with existing partners, while expanding into adjacent opportunities that complement our core capabilities. I am proud to share that our teammates continue to over deliver on our commitments, consistently exceeding service level targets even as we scaled volumes in the quarter. This operational discipline translates into tangible P&L benefits for our partners, reinforcing the value proposition of our platform. On time tow and total performance remained exceptional at 99.7% and 99.8%, respectively, for the quarter, underscoring the strength of our process improvements and investments. We have also continued to drive meaningful progress in the sign-to-settle cycle times, which delivers 2 key benefits: first, our partners experienced a lower depreciation as assets move more quickly through the marketplace; second, we are able to process more vehicles per acre of space, by reducing the sign-to-settle cycle time through a combination of branch incentives, IAA loan payoff, total procurement and our virtual inspection platform, we have effectively added approximately 25% incremental capacity in our yards compared to pre-transaction levels. This incremental capacity positions us well to support future volume growth. On the demand side, we saw continued strength this quarter. Our active buyer base expanded, underscoring the resilience of our platform and the team's success in driving deeper engagement. We broadened our reach by adding a new market alliance partner in Central America and further optimize our multichannel auction format to enhance price discovery and support premium price realization. These actions are translated into measurable outcomes, gross returns or salvage values as a percentage of pre-accident cash value, continue to expand supported an approximately 2.5% increase in the U.S. insurance average selling price. Moving to the commercial construction and transportation sector, our growth strategy is playing out. Despite a complex and dynamic macroeconomic environment, we drove 14% year-over-year GTV growth, excluding the impact of the Yellow Corporation bankruptcy last year. We remain committed to investing in growth, while also enhancing operational efficiency. This includes optimizing our territory manager network, deploying targeted productivity initiatives across the organization and thoughtfully execute strategic M&A. I am pleased to announce that we have entered into a definitive agreement to acquire Smith Broughton Auctioneers, and Allied Equipment Sales for approximately $38 million. This strategic tuck-in acquisition strengthens our geographic footprint in Western Australia. This transaction brings on board a highly capable team of sales professionals with deep local relationships and market knowledge. This acquisition enhances our ability to serve customers in key verticals and aligns well with our broader growth strategy in the region. We currently expect this acquisition to close by year's end. At RB Global, we never stop working to become more efficient. And in the third quarter, we realigned the executive leadership team and cascaded out a new operating model to the entire organization. This new transformative operating model is designed to unlock sustainable growth and drive long-term value for our shareholders. Senior leaders are driving a culture of clarity, focus and speed, ensuring every team member is focused on what matters most. Increase in transactional volumes and delivering exceptional customer experiences that drive tangible value for our partners. Under this new model, RB Global's senior leadership teams will provide strategic oversight, efficient scaling and promote best practices with functional support teams at the enterprise level, essentially providing a shared service function. In addition, we will have 2 specialized, high-performing marketplace execution teams that will each set enterprise-wide vision, growth strategy and operational discipline, while empowering brand-specific go-to-market teams to drive execution tailored to their unique marketplaces. Keeping our go-to-market leadership close to customers and the verticals they operate in helps to maximize the speed and efficiency, which buyers and sellers can do business on our platforms, add value for our partners and position the company for a strong future. In addition to looking for strategic acquisitions, our disciplined approach to growth recognizes that strategic pruning is essential to sharpen our focus in simplifying the organization. We chose to divest DDI Technologies in the fourth quarter. The team acquired this asset with the goal of using DDI Technology to reduce operational cycle times. After a comprehensive review, we determined that it will be more efficient to divest DDI to a third party. We are confident that our operating model not only preserves RB Global's legacy, but also sets the stage for the next generation of growth, resilience and shareholder value creation. We expect that our new operating model would generate over $25 million in total run rate savings by the second quarter of 2026. Our vision permeates the organization, and we are committed to over delivering for our customers, partners and investors as we build the future. I will now pass the call to Eric to review the financials and provide an update to the outlook. Eric Guerin: Thanks, Jim. Total GTV increased by 7%. Automotive GTV increased by 6%, driven by a 9% increase in unit volumes, partially offset by a decline in the average price per vehicle sold. Unit volume growth was driven by year-over-year increases in market share across salvage and remarketed vehicles as well as by organic growth from existing partners. U.S. insurance ASP increased approximately 2.5%. However, the average price per lot sold declined in automotive, primarily because of a higher proportion of remarketed vehicles were transacted compared to the prior year. In the third quarter, the macro environment remained favorable for salvage volumes, primarily due to the persistent inflation gap between vehicle repair costs and used vehicle values. This dynamic continues to drive an increase in the total loss ratio with CCC Intelligent Solutions estimating the total loss frequency across all categories rose by nearly 70 basis points to 22.6%, up from 21.9% in the same period last year. TTV in the commercial construction and transportation sector increased by 9%, driven by a higher average price per lot sold, partially offset by a 15% decline in lot volumes. Excluding the impact of the Yellow Corporation bankruptcy, unit volumes would have increased approximately 2% year-over-year. The average price per lot sold increased primarily due to improvements in the asset mix. The favorable mix reflects a decline in lot volumes from the rental and transportation sectors, where assets typically carry lower average selling prices. As Jim noted, excluding the impact of the Yellow Corporation bankruptcy from the prior period, the increase in GTV for the commercial construction and transportation sector would have been approximately 14%. Moving to service revenue. Service revenue increased 8% on higher GTV and a higher service revenue take rate. The service revenue take rate increased approximately 20 basis points year-over-year to 21.7%, driven by a higher average buyer fee rate structure, partially offset by a lower average commission rate and declines in our marketplace services businesses. Moving to adjusted EBITDA. Adjusted EBITDA increased 16% on GTV growth, expansion in our service revenue take rate and a higher inventory return. Our team remains focused on managing our cost structure to maximize profit flow-through in alignment with our broader organizational realignment, we recognized approximately $10 million in restructuring charges during the quarter, primarily related to severance costs. Our commitment to efficiency and disciplined execution was once again evident in the third quarter, as adjusted EBITDA as a percentage of GTV expanded to 8.4%, up from 7.8% in the prior year. This margin improvement reflects the early impact of our transformation initiatives and underscores our ability to drive leverage in the model as we scale. Adjusted earnings per share in the third quarter increased by 31%, driven by a higher operating income, a lower net interest expense and a lower adjusted tax rate. Our adjusted and GAAP tax rates came in lower than previously guided because we were able to capture certain additional tax deductions on our 2024 U.S. federal tax return, which we recently filed and expect to do the same for 2025 and in the future. These additional deductions have been reflected in our full year rate. As we look ahead, we now expect full year 2025 gross transaction value growth to range between 0% and 1%, broadly in line with what we communicated last quarter. We are raising our full year 2025 adjusted EBITDA guidance range to $1.35 billion to $1.38 billion, reflecting continued operational discipline. Please note our guidance does not incorporate any contribution from cat-related GTV, given the unknowable nature of extreme weather events. Recall that cat volumes contributed approximately $169 million in automotive GTV in the fourth quarter of 2024, which will affect the year-over-year growth comparison when we report the fourth quarter. With that, let's open the call for questions. Operator: [Operator Instructions] We'll take our first question from Sabahat Khan at RBC Capital Markets. Sabahat Khan: Just I guess starting off with the last comments there by Eric Guerin, the full year guidance, can you maybe just give us the set up on how you view both segments heading into the tail end of the year? Obviously, good performance here in Q3 relative to what the Street was expecting. But just curious kind of some of the puts and takes that you're seeing into the tail end of this year that led to this nudge up in guidance. Eric Guerin: Yes. So actually, the guidance, we tightened the range on GTV. So we didn't nudge it up. If you recall last quarter, I said 0% to 3%, but guided to the lower end of the range. So with one quarter left, I've just tightened that range to 0% to 1% on GTV. Was that your question you were referring... Sameer Rathod: So it was more on the EBITDA side on just like relative -- the Street expectations, the magnitude of the guide up on EBITDA versus maybe the outperformance, yes. Sorry, just to clarify. Eric Guerin: Yes. Yes, thank you. On the EBITDA side, we had strong performance in Q3, but was in line with what we were expecting. However, we did outperform a little bit with the operating model that we put in place, as I described, we have some savings on a run rate basis, that will be $25 million, but we do have some savings that will occur in the fourth quarter of this year, and I've incorporated some of that savings into the guide that I just described in my prepared remarks. Sameer Rathod: Great. And then just for my follow-up, I guess you can maybe shed some color on this agreement with the GSA. I guess it looks like from your material about 35,000 vehicle addition. Maybe if you can just walk us through what were you doing for them before sort of on the vehicle front on volume? And then should we assume the economics on these remarketed vehicles are similar to what you would collect on 35,000 vehicles if these were added on the salvage side. James Kessler: Yes. I'll start the conversation then pass to Eric to jump in. So I think as I mentioned in my comments, kind of think about we would take care of custody controls. So when they needed a car delivered it would show up to our site, we would get the car ready kind of think basic marshaling type of activities to make sure, it had a title, is ready to go, is clean. What this really adds to us is the disposition service that we were not doing for them. So we're really excited about to have the whole package in this agreement. And from the financial standpoint, I will pass it to Eric. Eric Guerin: Yes. So on the financial side, the model is a little bit different. But what I can say is that the ASPs will be accretive to our ASPs in the salvage space. There are some other services to Jim's comment that we'll be providing that will be revenue generating, but it's a little bit different model than the salvage model. Operator: We'll take our next question from Steve Hansen at Raymond James. Steven Hansen: Another small strategic tuck-in here in Western Australia, which is encouraging. That marks sort of the second acquisition you made in the space here in the recent year or so. What is the -- just maybe if you could just clarify on exactly what you're getting out of this deal, are there some additional white space specifically about that market that's the most appealing. And then more broadly is how do you view the broader landscape in other jurisdictions or even in the same jurisdictions here from a pipeline perspective. James Kessler: First, I'll start. Really excited about what the pipeline opportunity is across the globe here in the U.S. and international. We've been doing business in Canada for a long period of time, but we've been really more on the eastern side of Australia. So for us, this opens up the Western part of Australia, which gets us really excited. So more of a geography type of play as we think about being able to service all of Australia. And the team that we pick up, we're really excited about. They match really well from a culture standpoint of how Ritchie Bros. operates in Australia. So it really gives us the chance to service all of Australia instead of the eastern part of the business. Steven Hansen: That's very helpful. And just to follow up on some of the earlier commentary about volume and market share, particularly on the auto side. How do you feel about that opportunity for market share gains going forward. I think we've all been talking about and looking for evidence around that market share gain pattern, your reported results seems just that. But from a contract standpoint, do you have anything that you're working on and/or that you see visibility on that would help you grow domestic market share further or faster? Or should we just wait and see as a result, sort of trickle through? I mean what can you tell us at this point? James Kessler: Look, I'm going to go back to comments that I've probably said each quarter when the same question has come up. Our focus is really on what we can control. And what we can control is how we perform, and hopefully, you can see from the SLAs that I mentioned in my comments, when you're performing at this high 99% compliance level I believe the industry is noticing it. I believe the industry is appreciating and what we're bringing to the table. So it makes me very optimistic about what our future is, but we're not going to get into any kind of deals that aren't done or things that we can't talk about at this point. But based on our performance, we're really optimistic and we're really excited to compete in the space. Operator: Next, we'll move to Krista Friesen at CIBC. Krista Friesen: Maybe just back on the GTV growth. Pretty solid growth in the CC&T division. I appreciate some of this is likely due to J.M. Wood. But I was just wondering if you can break it down a bit more for us or quantify what was J.M. Wood versus organic? James Kessler: Yes. I'll pass this over to Eric. Eric Guerin: Yes. So on GTV, J.M. Wood actually does go across CC&T and a little bit in automotive. So I can tell you at a high level to our overall growth, it was about a 2% tailwind to our overall GTV. Krista Friesen: Okay. Great. And then maybe just on the geographic split, it looks like Canada and International continue to kind of be the drivers here. Is that changing at all as we get into Q4 here? Or are you hearing any changes from your customers in the U.S.? James Kessler: Yes. I'm not sure of the comment between Canada and International that you're referencing, but we saw growth across all the areas that we've done business in. Operator: [Operator Instructions] We'll go next to Craig Kennison at Baird. Craig Kennison: Eric, could I ask you just to explain the motivation behind narrowing that range in Q4? Obviously, you have one quarter left, but you took the top end down. Any factors that played a role in a slightly more conservative outlook? Eric Guerin: Yes. As we got through the third quarter, again, if you remember on Q2, I had a good indication of what the forecast looked like, but we could have had some additional movement in the back half of the year. And that's why I did keep the range at 0% to 3%, but indicated towards the lower end. And now with pretty much 3 months left in the year now, in fact, 2 months left in the year, I wanted to make sure I could provide a more pointed guide, and that's why I tightened the range to 0% to 1%. James Kessler: Yes. And Craig, just one thing I would add to Eric's comment is just as a reminder, last fourth quarter, we had a significant cat event that flew through to GTV. And I think Eric has shared what that number is. And at this point, we know the likelihood of any cat event happening and to help offset that isn't going to happen, unless something odd happens historically, that hasn't happened before. So kind of just keep that in mind as you think about looking at the numbers as we tighten the range, we are going up against a significant onetime event that happened last year that's not going to happen this year. Craig Kennison: Yes. And then as a follow-up, a bigger picture question on your automotive business. I recognize it's primarily a salvage based business, but we're getting a lot of calls from clients and investors who are more concerned about the adjacent used car space and that ecosystem. There have been some disappointments there and some subprime credit issues as well. Just can you clarify for all of us on the call, to what extent you're even exposed to any of those concerns on, I would say, that non-salvage whole car ecosystem? James Kessler: Yes. Just as a reminder, when we talk about our whole car business, again, think about cars that are whole cars, but are slightly damaged. It's very complementary to the salvage business and the buyer base that we have. And we're not really upstream in cars over a significant dollar amount like $15,000 and above. So we really have no exposure. We're really more into cars that I would call the whole cars, but slightly damaged is the majority of where we play. So think about a car that's less than $5,000 in that range. So we don't have any of the exposure. And anything that we go upstream is sort of like the GSA contract where you're -- there's a normal cycle of cars that come in, you're not dependent on the broader economic environment. Sameer Rathod: And Craig, I'd also add that on our whole car space, we do benefit a little bit from sub-prime because we do have a repossession business. So it's not necessarily a direct negative is what I would say. Operator: We'll go next to Gary Prestopino at Barrington. Gary Prestopino: Yes. Just a couple of questions here. I just want to be clear, this GSA contract is for whole cars, not any damaged cars. Are they really cars that are -- have got heavy mileage, heavy usage on and that it would appeal to your buyer base? James Kessler: Correct. These cars are going to go through a life cycle for and the people using the cars, right, which then at the end of the day would be cars that our buyer base would be very interested in. Gary Prestopino: So would they be more or less buy here, pay here dealers or exported overseas? James Kessler: I think it's a combination. I don't think we're going to get into specific of who's going to buy cars, but it will be a combination. Gary Prestopino: Okay. And then just any comments on the yellow iron sector. We really make too many comments on that on your narrative. Are you still seeing signers holding on to their equipment? James Kessler: Look, I think the way I would say, and I'll pass it over to Sameer or Eric to jump in. I think we're still in an uncertain period of time where with tariffs every time you turn around, something else is being said and something is being stopped and going with steel, everything like that. I would also just say interest rates and what's going to happen as the Fed made their comments that they're not sure about that there's going to be another cut. Any of those things from an uncertain period of time just creates uncertainty and I think our partners are trying to figure it out. And again, what we stay focused on, on this side is I think we're in a great spot when the dam kind of opens up and disposition services need to happen. But again, what we're trying to do is add value to our partners to make sure we're able to help them get value in their P&L and get them the recovery they need when they need it. Operator: And we'll take a follow-up from Steven Hansen at Raymond James. Steven Hansen: I just want to go back to the new operating model, just quickly, if I may. And I think you've articulated $25 million in run rate savings by the second quarter '26. It sounds like the line of sight on that savings is pretty clear, but just maybe any comments around sort of the pace of the rollout and what ultimately -- what milestones you'd be looking for to make sure you hit that $25 million mark and whether there's potential upside? James Kessler: So what I would just say real quick about the operating model just to make sure we're clear. This was not a cost cutting exercise that, that came out of the model. The model was really making sure role clarity focus for the organization. And as the company grows through acquisition, unfortunately, you create certain layers in the company that you might not need as you operate more efficiently and get clarity and focus. So for us, this wasn't just a cost cutting exercise, it was -- we want to be efficient. We want to create clarity. We want to create focus on the organization. And the one thing that was important for me is at some departments, we would have 8 levels of management in the organization and we really got that down to 4 or 5. So we have a good line of sight when we talk about numbers of transition periods who rolls off, when they roll off, all that kind of stuff. But again, this was not about that. And we do -- we would have plans as we think about what do we want to invest in and create a better return, all that kind of stuff, and I'll pass, if Eric wants to add any other color to my comments. Eric Guerin: Yes. I think to Jim's point, we have full line of sight to the $25 million. It started obviously at the top with Jim's leadership team, and we continue to roll the operating model through the full organization. And again, it's not about cost reduction. It's about how do we get closer to the customer and make sure we are meeting our expectations and our partners' expectations. Steven Hansen: Very helpful. And one last one, if I squeeze it in. Just Jim, back on your M&A commentary referencing the global landscape. I think in the past, you've referenced the appeal of some of the specialty narrower auctions and [ again ] has been raised in the past. Are those still avenues that you would like to pursue? Or is it going to be more of the J.M. Woods of the world and the latest one that we've seen here in Western Australia. James Kessler: No. I think there's 2 things that we're very interested in. One is a geography if that helps us fill out where we're currently doing business. But we definitely still like anyone that adds a vertical and expertise that we can take and scale across our network. So I would say they are the 2 things as we think about opportunities that kind of fit the profile of something that we would look at. Operator: And that concludes our Q&A session. I will now turn the conference back over to Jim Kessler for closing remarks. James Kessler: Thank you so much. In closing, I would like to thank the incredible RB Global team worldwide. The disciplined execution, hard work and dedication of our teammates continue to drive our strong performance and fuel the momentum we have in our business. I'm excited about the opportunities we have ahead of us and look forward to continue to over deliver on our commitments, while advancing our strategic priorities that position us for long-term shareholder value creation. Thank you for your continued support and interest in RB Global, and we look forward to talking to you next time. Thank you. Operator: This concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Good afternoon, and welcome to A-Mark Precious Metals Conference Call for the fiscal first quarter ended September 30, 2025. My name is Kelly, and I will be your operator for this afternoon. Before this call, A-Mark issued its results for the fiscal first quarter 2026 in a press release, which is available in the Investor Relations section of the company's website at www.amark.com. You can find the link to the Investor Relations section at the top of the homepage. Joining us for today's call are A-Mark's CEO, Greg Roberts; and CFO, Cary Dickson. Following their remarks, we will open the call to your questions. Then before we conclude the call, I'll provide the necessary cautions regarding the forward-looking statements made by management during this call. I would like to remind everyone that this call is being recorded and will be made available for replay via a link available in the Investor Relations section of A-Mark's website. Now I would like to turn the call over to A-Mark's CEO, Mr. Greg Roberts. Sir, please proceed. Gregory Roberts: Thank you, Kelly, and good afternoon, everyone. Thanks for joining the call today. Today is an exciting day for A-Mark. As you may have seen in our press releases, we announced today the acquisition of Monex Deposit Company and our upcoming rebrand and relisting to gold.com. I'll touch on both before getting into the quarter. Monex is one of the nation's largest direct-to-consumer or DTC precious metals dealers. Since its founding in 1987, Monex has facilitated billions of dollars in transactions and built a full-service platform offering bullion and coin products. The business also includes a sizable secure storage offering, which now exceeds $630 million in assets under custody. I've known and worked with the Carabini family throughout my career, and we're excited to welcome Michael and his team under the A-Mark gold.com umbrella. This acquisition strengthens our DTC presence by leveraging Monex' well-established brand, reputation and loyal customer base. We also expect operational synergies that will enhance and streamline both organizations. Turning to our decision to rebrand and transfer our listing. We began laying the groundwork several years ago when JM Bullion acquired the gold.com domain. Once the GOLD ticker became available on the New York Stock Exchange, the timing was right to make the change. Gold.com embodies who we are as we strengthen our category leadership and help shape the future of precious metals, numismatics and other collectibles. This name change marks the first step in positioning us for continued long-term success, enhancing operational excellence and delivering value to customers, partners and shareholders. Investor interest in gold and silver has grown in recent years. And as we expand into adjacent categories such as wine, sports cards and other collectibles, now is the right time to modernize our corporate identity and how these assets are bought, sold and managed. While gold.com will serve as the corporate brand, our Wholesale Sales & Ancillary Services segment will continue to operate under the A-Mark name and brand. Our direct-to-consumer segments will continue to go to market through the portfolio of trusted brands and channels, including JM Bullion and Stack's Bowers, Collateral Finance, Goldline and will also retain their names. We're excited about this next chapter and look forward to the official exchange transfer on December 2. Now on to our quarter. Our results demonstrate the resiliency of our fully integrated platform and the early benefits of our recent acquisitions. While July and particularly August were marked by subdued demand and historically tight premium spreads, conditions improved meaningfully after Labor Day. For the quarter, we delivered $72.9 million in gross profit. This performance reflects the late quarter shift in consumer demand, combined with strong auction results from our recently acquired Stacks Bowers galleries. In September and October, we experienced a welcome increase in demand and expanded premium spreads. We have benefited from our strong balance sheet and our ability to manage our inventory levels to satisfy this increased demand. The ability to quickly ramp up production at both of our mints has proved to be timely as we have been moving through the second quarter. Although spot prices have come off all-time highs in the last two weeks, we are well positioned to take advantage of a continuation of elevated demand environment. Operationally, our investment in AMGL over the past several quarters has paid off as we integrate our recent acquisitions. This quarter, we successfully consolidated Pinehurst's operations, inventory and shipping with AMGL and have automated those initiatives. We're also continuing to rightsize AMS, and we expect additional savings as we centralize operations and capture further economies of scale. Internationally, our move to Asia with LPM has delivered sizable contributions this quarter. We believe the traction in the business is a strong indicator of what's ahead. Our fully integrated platform positions us to succeed across market environments. With that, I will turn the call over to our CFO, Cary Dickson, for a detailed financial review and to walk through our key operating metrics. Afterwards, I will return with additional comments on our business growth strategy for the coming fiscal year as well as take your questions. Cary? Cary Dickson: Thank you, Greg, and good afternoon to everybody. Our revenues for Q1 fiscal '26 increased 36% to $3.68 billion from $2.72 billion in Q1 of last year. Excluding an increase of $561 million of forward sales, our revenues increased $404 million or 27.6%, which was due to an increase in gold ounces sold and higher average selling prices of gold and silver, partially offset by a decrease in silver ounces sold. Revenues also increased due to the acquisitions of SGI, Pinehurst and AMS in the last two quarters of fiscal '25. Gross profit for Q1 fiscal '26 increased 68% to $72.9 million or 1.98% of revenue from $43.4 million or 1.6% of revenue in Q1 of last year. The increase was primarily due to higher gross profits earned by both the wholesale sale and ancillary services and direct-to-consumer segments, including the acquisitions of SGI, Pinehurst and AMS, which were not included in the same year ago quarter, partially offset by lower trading profits. SG&A expenses for Q1 fiscal '26 increased 125% to $59.8 million from $26.6 million in Q1 of last year. The overall increase is primarily due to increases in compensation expense of $19.5 million, advertising costs of $5.2 million, consulting and professional fees of $4.1 million, facilities expenses of $1.3 million and bank and service credit fees of $1.2 million. SG&A expenses for the three months ended September 30, '25, included expenses incurred by SGI, Pinehurst and AMS, which were not included in the same year ago period as they were not consolidated subsidiaries, and we have not acquired them yet. Depreciation and amortization for Q1 of '26 increased 61% to $7.6 million from $4.7 million in Q1. The increase was primarily due to an increase in amortization expense resulting from the increase in step-up of our intangible assets through the acquisitions that we've been talking about. Interest income for Q1 fiscal '26 decreased 21% to $5.6 million from $7.1 million in Q1 of last year. The decrease is primarily due to a decrease in other finance product income of $1 million and a decrease in interest income earned by our Secured Lending segment of $0.5 million. Interest expense for Q1 fiscal '26 increased 26% to $12.6 million from $10 million in Q1 of last year. The increase in interest expense is primarily due to an increase of $1.3 million related to precious metal leases, an increase of $0.6 million associated with our trading credit facility, an increase of $0.5 million related to product financing arrangements. Earnings from equity method investments of Q1 fiscal '26 decreased 257% to a loss of $0.9 million from earnings of $0.6 million profit in Q1 of last year. The decrease is due to decreased earnings from our equity method investees. Net loss attributable to the company for the first quarter of fiscal '26 totaled $0.9 million or $0.04 per diluted share. This compares to net income attributable to the company of $9 million or $0.37 per diluted share in Q1 of last year. Adjusted net income before provision for income taxes, a non-GAAP financial performance measure, which excludes depreciation, amortization, acquisition costs and contingent consideration fair value adjustments for Q1 '26 totaled $4.9 million, a decrease of 67% compared to $14.8 million in the same year ago quarter. EBITDA, a non-GAAP liquidity measure for Q1 fiscal '26 totaled $14.3 million, a 20% decrease compared to $17.8 million in the same quarter last year. Turning to our balance sheet. As of September 30, we had $89.2 million in cash compared to $77.7 million at the end of fiscal '25. Our nonrestricted inventories totaled $846.1 million as of September 30 compared to $794 million at the end of fiscal '25. That completes my financial summary. Now looking at our key operating metrics for the first fiscal quarter of '26. We sold 439,000 ounces of gold in Q1 fiscal '26, which was up 10% from Q1 of last year and up 27% from the prior quarter. We sold 10.4 million ounces of silver in Q1 fiscal '26, which was down 49% from Q1 of last year and down 34% from the prior quarter. The number of new customers in our DTC segment, which is defined as those who registered, set up a new account or made a purchase for the first time during the period was 69,400 in Q1 fiscal '26, which was up 25% from Q1 of last year and decreased 36% from last quarter. The number of total customers in our direct-to-consumer segment at the end of the first quarter was approximately $4.3 million, a 37% increase from the prior year. This year-over-year increase in total customers is predominantly due to the acquisitions of SGI, Pinehurst and AMS as well as organic growth of our JMB customer base. Finally, the number of secured loans at the end of September totaled 424, a decrease of 5% from June 30, '25, and a decrease of 25% from September 30, '24. Our secured loans receivable balance at the end of September was $103.6 million, a 10% increase from June 30, '25, and a 2% increase from September 30, '24. That concludes my prepared remarks. I'll now turn it back over to Greg for closing remarks. Gregory Roberts: Thank you, Cary. We've seen the momentum that began late in the first quarter carry into our second quarter, and we're cautiously optimistic about the year ahead. With the addition of Monex and our recent acquisitions, we're now better positioned to perform across all market environments and to capitalize on periods of heightened volatility. As we prepare for our transition to gold.com next month, this milestone underscores our vision to build the most trusted and globally recognized precious metals platform. Backed by the strength of our core business, the power of our integrated model and the momentum from our recent acquisitions, we have a solid foundation for sustained growth and profitable -- sustained and profitable growth. We remain confident in our long-term trajectory and our ability to create lasting value for our shareholders. That concludes my remarks. Operator, we can now open the line for questions. Operator: [Operator Instructions] Your first question is coming from Thomas Forte with Maxim Group. Thomas Forte: Yes. So Greg, congrats on all the advancements and the rebrand to gold.com. One question, one follow-up, and then I might get back in the queue. I wanted to ask you, Greg, for your current thoughts on strategic M&A. You've had a lot of transactions over the last 12 to 18 months. What's your current appetite for additional deals? And how should we think about areas of focus, domestic versus international, DTC and I guess, precious metals versus other collectibles. The recent examples have been wine and numismatics. Gregory Roberts: Yes. As always, I think this question, I answer it the same way. We're always looking at opportunities, always looking at pieces that we think fit in the overall goals and where we want to be going forward. We've digested, and we've digested the acquisitions we did earlier in the year. The team has done a great job getting those in a position where we can now start to see the benefits from the acquisitions. On the rare coin side, which generally has some correlation to precious metals prices from a buyer behavior perspective, we accomplished one of the largest auctions that Stack's Bowers has had in history in August and September. So we've seen great strength there. As we look for other opportunities, we're always open and always looking at ways to expand. I think we've done a lot in Asia over the last 24 months, and we're definitely seeing the benefits of those acquisitions pay off today. We have a great partner in Atkinsons in the U.K. Their business has been very strong over the last 24 months, and we would love to help Atkinsons grow in the U.K. As it relates to other geographical areas, there's nothing at the moment that is a must-have, I believe, for us, although we're -- if we see something we like, we'll talk about it. The Monex transaction is something that I've worked on for many quarters now, a company that has been a customer, the counterparty of A-Mark for over 25 years. They have a great model, a great customer base, and most importantly, management, the Carabini family are -- and others there are just great assets that we're bringing into the A-Mark fold. So we want to get that deal closed. We want to continue to look for synergies. As we've grown, as you can see from the numbers, our SG&A has grown, a lot of it having to do with new employees through the acquisitions. Our finance costs are up. A lot of that having to do with headwinds related to the precious metals financing overall macro business as well as we're financing the same amount of ounces at much higher spot prices right now. So I think our appetite is still there, and we'll continue to look for deals that we believe are accretive to the business. Thomas Forte: And then for my follow-up, and then I might get back in the queue. I really appreciate your thoughts on stablecoins and gold demand. So I think there's been a long-time debate or had been a long-time debate on kind of gold versus Bitcoin, and I see this as an example of gold and crypto. So I would appreciate your thoughts on stablecoins and gold demand. Gregory Roberts: I mean the gold demand has been incredible over the last 9 to 12 months, and it's reflected in the performance of the spot prices. And you have throughout the beginning of the year and most of last year, you had strong central bank buying. And I've talked about this before. China has been buying large quantities of gold for at least the last three or four years. And that demand has trickled down to other governments. I think you could look towards India, you could look towards Russia, you could look towards other countries that are kind of on the anti-dollar trade right now. And whether it be redeploying assets from maturing treasuries or just reallocation, you've seen central banks really leading. And to move the spot price of gold as much as it has moved, it's a very large amount of dollars that move that price. I think that throughout July and August, the spot prices continued to rise. And in the U.S., the domestic consumer, as I have talked about before, the domestic consumer was not really motivated by the higher spot prices. In fact, as we talked about last quarter, A-Mark was a terminal point of liquidity for a lot of people selling and taking profits at the spot prices. As I mentioned before and in the press release, we have seen a welcome change in September and October, where it does appear that there has been a lot of publicity. I think Goldman came out with something. Others have said the same that U.S. citizens should have a higher percentage of their investable assets in gold and silver, and we have definitely seen an uptick in September and October, and we have got back to a situation where there's been some tight supply on certain products and our premiums have finally started to grow a little bit. I think at JM Bullion in September and October premiums have probably gone up about 20% since August. And so that has been a shift in kind of what's going on in the gold market. And then finally, I think starting in October, we did see an increased demand for silver as silver got over $50. So I think our customers have taken a little breather the last week as spot prices have come off a little bit. But I think the major shift in what we saw in September and October were as gold and silver made new highs, we saw a shift in demand from our customers. So that was welcome and we hope it continues. Operator: Your next question is coming from Mike Baker with D.A. Davidson. Michael Baker: So you just sort of touched on it, but I was going to ask you, what's changed because in the past and even last year, when we saw really high prices, you didn't see the demand. In fact, as you said, you were providing liquidity. I guess you just sort of -- I was going to ask what has changed this time, but you sort of answered that. So I guess I'll pivot my question. How sustainable is this change? You said your customers have taken a bit of a breather in the last week, and we're not going to look at things on a week-to-week basis. I get that. But how sustainable is the better trends that you've seen in September and October? Is it that everyone sort of emptied out their closet of the gold they have. And so now there's no more selling to you and it's much more buying. Is that sustainable? And if you could, just take the last two months and what's sort of the run rate of the profitability of this business now relative to where you just finished? Gregory Roberts: Yes. I think as it relates to whether or not it's sustainable or not, I mean we've had extreme, extreme volatility and behavior of our customers -- it changes fairly regularly. Like I said, July and August were particularly August were about as slow as I have seen our business, which is, for the most part, reflective in our performance. I think that we had a great rebound in September and made up for a very slow period as well as extreme volatility and some extreme increases in financing costs in July and August. We continue to have a very volatile and erratic market as it relates to gold leases and repo, which are gold and silver leases and repo rates, which are a big component of how we finance our business. Those rates have been very volatile. The market has flipped a bit into backwardation, which is never great for us because we're short the market and we have a very big short book. So, in July and August, we did face some headwinds. As it relates to why the customer base in our DTC segment decided after Labor Day to change their behavior or their attitude, I don't have a single reason for that. I mean I do a lot of research. We do a lot of looking at behavior, look at macroeconomic issues. Certainly, I think the continued back and forth trade war with China was a big issue. I think the government shutdown has likely in its first few weeks, probably woke up a number of our customers to what's going to happen. Now the shutdown has become like just ho hum every day, we're shut down and who knows what's going to happen. And China has temporarily seems to have calmed down a little bit. So I think there are some macro things that have affected us. I think throughout October, there was a lot of focus in mainstream media on precious metals, rare earth metals, gold and silver. And I think the awareness was just higher than we have seen it since probably the Silicon Valley Bank crisis. We didn't -- unlike Silicon Valley Bank, we didn't get the feeling that our customers were fleeing to safety or looking for a place to put cash. It felt for the first time that there was a bit of FOMO related to the record spot prices. And so if that's the case, spot prices are down 8% from where they were a few weeks ago. We'll have to see whether that slows the behavior or whether or not our customers decide to buy the dip. As it relates to run rate, as it relates to how we're looking this quarter, I've gone about as far as I'm going to go saying with October being very strong on the heels of September. And we'll continue to update you on how we see the markets performing and how we're able to take advantage of it. Michael Baker: Fair enough. Thanks for the detail. If I could ask one more. Just about the expenses, we get that expenses are higher because of all the acquisitions that you've made. But at some point, the acquisitions make sense in that they drive higher sales, higher gross profit and you leverage the expenses just that EBITDA is -- goes up. Presumably, that's the outcome at some point. So any idea of when you start to sort of synergize some of these expenses or when that starts to show up a little bit more in the P&L such that EBITDA is increasing in line with the gross profit dollar increase? Gregory Roberts: Yes. I mean I think $73 million of gross profit in the quarter and almost $14 million in EBITDA, I was very satisfied with that for what we were experiencing as it relates to just the amount of ounces we were selling and the other factors I've already talked about. The company is digesting the acquisitions. My strategy is generally we try to buy great businesses with great management and we let them manage their businesses. At the same time, from a corporate standpoint, we are looking for redundancies, and we're looking for places to be more efficient. We don't want to keep spending more money on an apples-to-apples comparison. We want our expenses to go down, and we want our profits to go up. So that's something we're focused on. We are very, very focused last quarter and this quarter on ways that we can integrate ways we can reduce redundancy, ways we can relocate some of the employees and relocate some of the operations that have been run in remote locations to our Vegas facility. As we announced with this rebranding, we are going to be closing our offices in El Segundo, and we're going to be moving -- employees are going to be moving either to the new corporate offices in Orange County that are where Stack's has been located or they -- some employees are moving to Santa Monica where Goldline is located. So we are we do have a process that we're going through. And I think that the goal for us is are we reducing costs on an apples-to-apples basis? Are our costs efficient and moving in the right direction absent the acquisitions? And then total, as we get into quarters-over-quarters, are we able to be more efficient and deal with lower expenses across all the businesses. But at the moment, I thought based on how July and August started, I thought we got a lot out of the quarter. I think that the flipping of the switch for whatever reasons, some of it we've talked about, the customer base in our DTC business has really just they woke up and the business that profits we've been able to generate in that segment have been great in September, October. And we have also worked through a lot of inventory that we've been able to monetize and reposition at the A-Mark trading corporate level. And we're hoping that we see at the wholesale level, a drying up of excess supply and that A-Mark is going to reestablish itself as the go-to when you want to buy something and you need product at a wholesale level, not just when you're looking for liquidity to sell stuff to A-Mark. So these things for the last 60 days have been going in the right direction. So we'll try to continue that. Operator: [Operator Instructions] Your next question is coming from Andrew Scutt with ROTH Capital. Andrew Scutt: Congratulations on the announcements. First one for me, you guys kind of historically have done acquisitions, I guess, I would call them in piecemeal. And you did talk about the long-standing relationship with Monex, but was there any other factors that went in the decision to do this in one full swoop? Gregory Roberts: Yes. Like I said, this is a transaction I've been working on with Michael for a couple of years now, and it took -- the stars have aligned, and we felt this was a deal we wanted to go in 100%. And Michael was enthusiastic about taking some A-Mark's stock and being part of the A-Mark family as well as we were able to structure an earn-out that gave both sides some opportunities as it relates to whether or not the Monex businesses can grow and whether they can continue to perform or if it takes a little bit longer. So I think the structure of the deal and the willingness of both sides to make the move, it just fit for this transaction. It wasn't a transaction, I think, where either side really wanted to start with a 10% or 20% or 40% stake in the company. I think -- I know the business very well. I've been looking and diligencing the business for a long time. The business is very important to moving forward in what we're trying to accomplish. There is some -- it's a different model most of the customers store their metal and hold their metal in storage and are much more frequent traders of gold and silver as opposed to a cash and carry and take possession of the metal. So it's a little different model, but I believe it's got enough uncorrelation to it that in viewing it, particularly the last nine months, it felt that to me that this was a great move for us because I think we have a customer base that's a little bit different motivated, particularly through the slower periods that we've experienced the last six to nine months in our retail business. The Monex business has actually outperformed what I would expect. And I think the customer base is a little bit more of a -- it's a bit more of a high-frequency trading business where customers are actually able to move in and out and go between cash and go to metal that's in storage. I've talked about it before. Storage is a huge component of what we're focused on growing right now. And Monex provided us with $600 million to $700 million of storage right now. That's likely adding 50% to 75% of what we have under management in storage right now. And that's just storage fees and storage are paid day in, day out, and it's a good steady stream of income for us. And I think that the that their customer base was a bit more -- seems to have been a bit more motivated by the higher spot prices. And so it felt at this moment that there's not another model like this out there that we're familiar with. And just very happy with the 50 years they've been in business or 40 years they've been in business, and they have a very, very loyal customer base and a great management team. Andrew Scutt: Great. Well, I appreciate the color. And second one for me, a little bit more high level. So now that you've kind of made all these acquisitions, you have all these DTC brands under your umbrella, does it make sense to kind of combine a few of them and have a one-stop shop and say, here we are at gold.com? Or is there greater value in having multiple storefronts under multiple different brands? Gregory Roberts: Great question. I think about this all the time. And when we're doing acquisitions, one of the key diligence items we look at is what is the crossover from one brand to another as it relates to the customer base. If there is a high level of crossover, the brands may not be as important. If there's very, very low crossover, I view that as value in the brand and value in what the customer knows and what the customer is comfortable with. I think the Monex brand has been around forever. The Monex brand is well known throughout all of the retail precious metals business. So I love the brand. I have been familiar with the brand forever. So I don't see anything changing with that. I do think that our rebranding and our move to gold.com as an umbrella over our brands is important, and it's an important milestone. I do believe there -- having a an umbrella brand that can look for ways where the individual brands can be more familiar with each other or how there might be offerings that we can come up with that will be appealing to all the brands. I think this is an important step in that. I think the new logo we've developed will be launching December 1. We're launching gold.com precious metal products that are branding of the gold.com brand and the products that we have developed to this point are going to be incredible and they're going to bring that the gold.com website that will also be going online in early December. It is going to connect all the brands in one place. And they'll be -- if you want to buy gold, you're going to get to see all the different options that gold.com will offer you, and you'll be able to choose who you want to do business with within our ecosystem. So I'm very excited and very enthusiastic about this move. And I think in some way, what you're asking the question, part of our strategic plan is to use this great domain name that we bought, this great new website we've developed, this new great corporate location and this have the ability to promote one brand that encompasses everything and then introduce people to our distinct and different DTC platforms, I think, is going to be a great opportunity for the company. Operator: You have a follow-up question coming from Thomas Forte with Maxim Group. Thomas Forte: Greg, last one, I promise. So you've done a great job. Gregory Roberts: That's okay. Many as you want, Tom. Thomas Forte: Don't say that. The call go on more half an hour. So you've done a great job upgrading the technology and adding physical space to your logistics effort in Vegas. How should investors think about your logistics capacity given all the recent M&A activity? Gregory Roberts: We built this thing, and it is incredible. The automation that Thor and Brian have accomplished up in Vegas is -- it's better than anything I've ever seen. And we have onboarded a number of new clients there, some corporate clients that are new to us. But the ability for the facility to operate and the capacity that we can now get out of it is, I think we have absolutely the best in the business. I think we shipped in October, I want to say, 60,000 packages plus, which was a very strong month for us. I think we could have shipped 100,000 packages in October, if need be. So we have great capacity. We have onboarded, I know of at least three new customers that are outside of the A-Mark umbrella that are using our services as well as, as I said earlier, we've taken the Pinehurst logistics and inventory from Pinehurst, North Carolina, and we've moved that to Las Vegas. And now all the Pinehurst packages on eBay to their retail customers, to their wholesale customers, all those packages are being shipped out of Vegas. We need to continue to do that with our other brands and utilize the facility. But we are very well positioned if the market continues to perform or even gets better, we will still be able to get our customers' packages out within one or two days. And at the level of 100,000, 110,000 packages a month, to be able to do that. I think the moat around now gold.com, the moat is just very difficult for our competitors to address. I think that we can really promote and really separates us from others, our ability to store and to ship logistics. Operator: At this time, this does conclude our question-and-answer session. I'd now like to turn the call back over to Mr. Roberts for his closing remarks. Gregory Roberts: Okay. Thank you very much. Once again, thank you to all of our shareholders. There have been a lot of change, a lot going on here. We've continued to try to make what we think are great long-term moves as well as short-term adjustments that we need to make. Your continued interest and support is most appreciated. And I'd also like to thank all of our employees for their dedication and commitment to A-Mark's success. We look forward to keeping you apprised of A-Mark and gold.com's further developments, and we look forward to talking to you again in a few months, if not sooner. So thank you very much. Operator: Thank you. Before we conclude today's call, I would like to provide A-Mark's safe harbor statement that includes important cautions regarding forward-looking statements made during this call. During today's call, there were forward-looking statements made regarding future events. Statements that relate to A-Mark's future plans, objectives, expectations, performance, events and the like are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and the Securities Exchange Act of 1934. These include statements regarding expectations with respect to growth, long-term success, operational enhancement, delivery of value, access to and credibility in the public markets, continuing execution on other steps in our strategic planning and anticipated cost savings. Future events, risks and uncertainties individually or in aggregate could cause actual results or circumstances to differ materially from those expressed or implied in these statements. Factors that could cause actual results to differ include the following: a neutral or negative reaction of our customers, partners and public markets to the change of our name, our brand, other corporate identifiers and to our listing venue, our inability to seamlessly execute our rebranding strategy, potential confusion in the markets that we serve concerning our rebranding, difficulties with formulating and effectively executing on additional steps in our strategic plan and our inability to successfully expand into other categories of collectibles or to enhance how these new asset categories are managed or transacted. There are other factors affecting our business generally, which could cause our actual results to differ from those that we anticipate as a result of our rebranding program, including government regulations that might impede growth, particularly in Asia, including with respect to tariff policy, the inability to successfully integrate recently acquired businesses; changes in the current international political climate, which historically has favorably contributed to demand and volatility in the precious metal markets, but has also posed certain risks and uncertainties for the company, particularly in recent periods, increased competition for the company's higher-margin services, which could depress pricing; the failure of the company's business model to respond to changes in the market environment as anticipated; changes in consumer demand and preferences for precious metal products generally; potential negative effects that inflationary pressure may have on our business; the failure of our investee companies to maintain or address the preferences of their customer bases; general risks of doing business in the commodity markets; and the strategic business, economic, financial, political and governmental risks and other risk factors described in the company's public filings with the Securities and Exchange Commission. The company undertakes no obligation to publicly update or revise any forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements. Finally, I would like to remind everyone that a recording of today's call will be available for replay via a link in the Investors section of the company's website. Thank you for joining us today for A-Mark's earnings call. You may now disconnect.
Operator: Good afternoon, and welcome to Global Net Lease, Inc.'s Third Quarter 2025 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the call over to Jordyn Schoenfeld, Assistant Vice President at Global Net Lease. Please go ahead. Jordyn Schoenfeld: Thank you. Good morning, everyone, and thank you for joining us for GNL's Third Quarter 2025 Earnings Call. Joining me today on the call is Michael Weil, GNL's Chief Executive Officer; and Chris Masterson, GNL's Chief Financial Officer. The following information contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Please review the forward-looking and cautionary statements section at the end of our third quarter 2025 earnings release for various factors that could cause actual results to differ materially from forward-looking statements made during our call today. As stated in our SEC filings, GNL disclaims any intent or obligation to update or revise these forward-looking statements, except as required by law. Also, during today's call, we will discuss certain non-GAAP financial measures, which we believe can be useful in evaluating the company's financial performance. Descriptions of those non-GAAP financial measures that we use, such as AFFO and adjusted EBITDA and reconciliations of these measures to our results as reported in accordance with GAAP are detailed in our earnings release and supplemental materials. I'll now turn the call over to our Chief Executive Officer, Michael Weil. Mike? Edward Weil: Thanks, Jordyn. Good morning, and thank you all for joining us today. It has now been approximately 2 years since GNL's internalization, and we're very proud of what we've accomplished thus far and enthusiastic about what lies ahead. Since the internalization, we have set ambitious and transformative strategic goals to streamline our portfolio, reduce leverage and lower our cost of capital. We have consistently exceeded these objectives and are already yielding measurable benefits reflected in the stable operations and improved credit profile and enhanced financial flexibility, culminating in our recent achievement of earning an investment-grade corporate credit rating from Fitch Ratings. The main driver of our strategic agenda has been a prudent disposition program focused on selling noncore assets with proceeds directed toward reducing leverage and improving portfolio quality. The highlight of our successful implementation of this effort was the approximately $1.8 billion sale of our multi-tenant retail portfolio completed in June of 2025, which accelerated our debt reduction initiatives and firmly positioned GNL as a pure-play single-tenant net lease REIT while maintaining our industry-leading proportion of investment-grade tenants. Since the implementation of this disposition program, we have sold approximately $3 billion of dispositions, including the sale of noncore short duration single-tenant assets at a 7.7% cash cap rate, while reducing our net debt by approximately $2 billion since the third quarter of 2024. These results, particularly the 7.7% cash cap rate achieved on our noncore single-tenant asset sales, provides tangible proof of the quality and value of our primarily investment-grade portfolio, while underscoring the meaningful discount in our implied cap rate relative to our pure-play single-tenant portfolio of assets. Building on the progress we've made on our disposition program, which has meaningfully reduced our leverage, we capitalized on an attractive opportunity to further lower our cost of capital by refinancing our revolving credit facility, including new institutional lenders attracted by GNL's strengthened balance sheet. In August of 2025, we completed that refinancing, extending the maturity from October of 2026 to August of 2030, inclusive of 2 additional 6-month extension options. This refinancing delivered an immediate 35 basis point reduction in our interest rate spread, reflecting improved pricing and enhanced liquidity while also reducing near-term debt as there are no significant maturities until 2027. These strategic actions significantly contributed to Fitch Ratings' recent upgrade of GNL's corporate credit rating to investment-grade BBB- from BB+. We believe this milestone is a direct result of the decisive steps we've taken to strengthen our balance sheet, enhance our credit profile, improve portfolio quality and demonstrate our ability to deliver on our strategic objectives. Our ongoing disposition program has generated significant liquidity, giving us incremental flexibility to accretively repurchase shares, which we believe enhances long-term shareholder value. Through October 31, 2025, we have repurchased 12.1 million shares at a weighted average price of $7.59 totaling $91.7 million, capitalizing on the opportunity to buy back shares at an AFFO yield of approximately 12%. We believe buying back shares at this AFFO yield offers a more compelling use of capital than alternatives such as acquisitions, which we have not found attractive in this current environment. We've been disciplined in managing share repurchase alongside debt reduction, ensuring that capital is deployed in a way that we believe maximizes long-term value. Looking ahead, we plan to continue to evaluate additional initiatives, including acquisitions that we expect to strategically enhance shareholder returns while maintaining the financial strength and flexibility that underpins GNL's growth. In addition to our specific achievements, we believe broader market developments are creating additional opportunities to strengthen our financial position. Last week, the Federal Reserve announced a second 25 basis point reduction in the target range for federal fund rates, and we'll monitor the newly constituted Federal Reserve in the spring of 2026 as we anticipate a dovish stance towards the economy, which should further lower our cost of capital. These rate reductions have a direct impact on GNL's bottom line as they lower the floating rate on the U.S. dollar portion of our revolving credit facility, reducing our cost of capital and supporting our ongoing efforts to strengthen the balance sheet. Additionally, dividend income from REIT tends to become increasingly attractive in a rate-cutting environment as they can offer a more attractive return relative to U.S. treasury securities, creating a potential pathway for favorable market performance by the net lease REIT industry. Turning to our portfolio. At the end of the third quarter of 2025, we owned over 850 properties, spanning nearly 43 million rentable square feet. Our portfolio's occupancy stands at 97% with a weighted average remaining lease term of 6.2 years. The portfolio features a stable tenant base and a high quality of earnings with an industry-leading 60% of tenants receiving an investment-grade or implied investment-grade rating. It has an average annual contractual rental increase of 1.4% which excludes the impact of 23.1% of the portfolio with CPI-linked leases that have historically experienced significantly higher rental increases. On the leasing front, during the third quarter of 2025, we leased over 1 million square feet, achieving renewal spreads that were 26% higher than expiring rents, largely driven by lease renewals with GE Aviation and GXO Logistics. New leases that were completed in the third quarter of 2025 have a weighted average lease term of 5 years, while renewals that were completed during this period have a weighted average lease term of 7.3 years. I'd like to highlight the strength and resilience of our office portfolio, which continues to deliver strong performance. In July, we completed a 10-year lease renewal with GE Aviation for a 369,000 square foot high-quality office asset with a strong credit tenant at an implied A3 rating, achieving an attractive 37% renewal spread. In addition, we secured a 20-year lease renewal with the United States General Services Administration at its Lakewood, Colorado location, reinforcing the mission-critical nature of our portfolio that we believe continues to be undervalued by the market. Since the start of 2024, we've executed 10 office lease renewals at an average renewal spread of 6.7%, reflecting both the quality of our tenants and the strategic execution of our asset management team. Our office portfolio continues to perform strongly with 100% rent collection across all tenants, the highest proportion of investment-grade tenancy at 77% and minimal lease rollover. Annual expirations represent 2.5% or less of total square footage through 2029. Our continued efforts and results in limiting exposure to high-risk geography, asset types, tenants and industries is a testament to our intentional diversification strategy and credit underwriting. No single tenant accounts for more than 5% of total straight-line rent and our top 10 tenants collectively contribute only 29% of total straight-line rent with 73% being investment grade. We carefully monitor all tenants in our portfolio and their business operations on a regular basis. I encourage everyone to look at the details of each segment of our portfolio, which can be found in our Q3 2025 investor presentation on our website. With that, I'll turn the call over to Chris to walk through the financial results and balance sheet matters in more detail. Chris? Christopher Masterson: Thanks, Mike. Please note that, as always, a reconciliation of GAAP net income to non-GAAP measures can be found in our earnings release, which is posted on our website. For the third quarter of 2025, we recorded revenue of $121 million and a net loss attributable to common stockholders of $71.1 million. AFFO was $53.2 million or $0.24 per share. Looking at our balance sheet, the gross outstanding debt balance was $3 billion at the end of the third quarter of 2025, a reduction of $2 billion from the end of the third quarter of 2024. Our debt is comprised of $1 billion in senior notes, $664 million on the multicurrency revolving credit facility and $1.4 billion of outstanding gross mortgage debt. As of the end of the third quarter of 2025, 87% of our debt is fixed, reflecting debt tied to fixed rates or debt that is swapped to fixed rates. Our weighted average interest rate stood at 4.2%, down from 4.8% in the third quarter of 2024, and our interest coverage ratio was 2.9x. At the end of the third quarter of 2025, our net debt to adjusted EBITDA ratio was 7.2x based on net debt of $2.9 billion, significantly down from 8x at the end of the third quarter of 2024. While the ratio was slightly higher this quarter due to timing of certain dispositions, our robust disposition pipeline gives us confidence that we will remain within our stated net debt to adjusted EBITDA 2025 guidance range of 6.5x to 7.1x. As of September 30, 2025, we had liquidity of approximately $1.1 billion and $1.2 billion of capacity on our revolving credit facility compared to $253 million and $366 million, respectively, as of the end of the third quarter of 2024. Additionally, we had approximately 220 million shares of common stock outstanding, and approximately 221 million shares outstanding on a weighted average basis for the third quarter of 2025. Through October 31, 2025, we have repurchased 12.1 million shares at a weighted average price of $7.59 per share under our share repurchase program. Turning to our outlook for the remainder of 2025. We are confident in our performance and are raising our AFFO per share guidance for 2025 to a new range of $0.95 to $0.97. We also reaffirm our stated net debt to adjusted EBITDA range of 6.5x to 7.1x. I'll now turn the call back to Mike for some closing remarks. Edward Weil: Thank you, Chris. Achieving an investment-grade rating from Fitch Ratings is a major milestone for GNL and validates the strategic plan we set in motion following the internalization in September 2023. We've executed on our initiatives with discipline, reducing leverage, strengthening our balance sheet, refinancing maturing debt and optimizing our portfolio through targeted dispositions. Specifically, since Q3 2024, total outstanding debt has declined to $3 billion from $5 billion. Liquidity has increased to $1.1 billion from $253 million. Capacity on our revolving credit facility has grown to $1.2 billion from $366 million, and annualized G&A has decreased to $47 million from $50 million. We believe these actions have positioned GNL as a pure-play single-tenant net lease REIT with enhanced financial flexibility built for sustainable growth. Looking forward, we believe these achievements position GNL to capitalize on a variety of market opportunities and continue creating meaningful shareholder value. We believe our strong balance sheet, disciplined capital allocation and proven track record of execution position GNL exceptionally well to deliver consistent performance and execute additional strategic initiatives. As we look to deploy incremental proceeds from dispositions, we continue to evaluate the trade-offs between acquisitions and share repurchases, recognizing the significant value opportunity for shareholders in buying back shares at current levels while remaining flexible to pursue real estate acquisitions in the future. We continue to monitor the real estate market closely, but being a buyer in the current environment isn't particularly compelling to us given higher seller expectations, elevated borrowing costs and cap rates that remain tight, making it difficult to justify many acquisition opportunities as compared to the immediate benefit of continuing with the announced share repurchase program. We plan to continue to execute on our near-term strategic objectives to position GNL to continue delivering consistent results and long-term value for our shareholders. We're available to answer any questions you may have after the call. Operator, please open the line for questions. Operator: [Operator Instructions] Our first question comes from the line of Upal Rana with KeyBanc Capital Markets. Upal Rana: On the quarter. Michael, you mentioned acquisitions don't look attractive to you in today's environment. I'm just trying to understand what needs to happen for you to become an active buyer again? And if so, what would be sort of your funding plans for that? Edward Weil: So we would look to finish our disposition program, which we are, I would say, in the late innings of. And as a part of that strategy, of course, we've continued to actively monitor the acquisition environment. And we just keep seeing cap rate expectations from sellers that don't match up to cost of capital and in many cases, aren't supported by the underlying credit of the tenant. So I think there are a number of things that just the discipline of our acquisition strategy, the reason so much of our portfolio is investment grade is that we're not necessarily looking to see a higher cap rate on an acquisition at the sacrifice of the underlying credit of the tenant or the quality of the real estate. So I think a big part of what we're monitoring is the state of cost of debt, the pricing generated off of the 10-year treasuries, et cetera. And I just don't think we're there right now. I continue to see the acquisition pace in the industry is slower than what we've seen over the last decade. But again, when we think about it in terms of our #1 goal is to continue the completion of the debt reduction program. So we've been identifying or allocating proceeds from dispositions to continue to do that, and we will. We're not finished. But as you've seen over the last couple of quarters, the immediate accretion of stock buyback is so significant that, frankly, for us, it's just a very easy decision. That 12% accretion yield from stock buyback is very impactful. And of course, we want to grow. We want to be active. But first and foremost, we want to drive the greatest possible benefit for shareholders. And we think that's the combination of finishing our debt reduction program and the opportunistic share repurchase program. Upal Rana: Okay. Great. That was helpful. And then with leverage, it ticked up in the quarter, and it looks like it was timing related from your multi-ten sale. But it currently stands at the high end of your guidance range. And so -- and you have some more disposition to close by year-end as well. So just trying to understand how you get to the midpoint of your leverage guidance by year-end. Edward Weil: Upal, you're right that some of it is driven by just timing. And so we're very confident that by completing what is already scheduled in our pipeline activity, some things that we anticipate occurring in the fourth quarter that we haven't had an opportunity to disclose yet that we are going to be comfortably within our range on net debt. And coupled that with the fact that we were able to raise our AFFO per share guidance. I think that we're -- we come to work every day like you would expect us. Sometimes we joke about we just carry rocks uphill every day because there's not a lot of glory here in what we're doing, but it is just consistent dedication and hard work. So we've been able to really execute on the plan, which at the end of the year will show material reduction of net debt to EBITDA. But just as important, we've been able to grow AFFO per share. And I think you realize that's not necessarily easy. And we've used all the levers available to us. Our real estate team has done a really commendable job on dispositions and maximizing value of noncore assets. The fact that our single-tenant portfolio sale of noncore assets, assets with about 5 years or less remaining, we've been able to generate a 7.7% cap rate. It just really indicates the underlying value of the tenants in the portfolio and the real estate. we'll continue to maximize that. We'll use those proceeds as we talked about on the call, to continue to lower net debt to EBITDA. The hard work of Chris and Ori and the team with recasting the credit facility, which had an immediate and impactful savings on cost of debt as well as extending our maturities. These are all things that continue and what we think is important is to show the market that we're hitting on all of the important aspects. We're maximizing value. And frankly, we're starting -- we're just starting to prepare for the next phase of GNL, which is one where we can really maximize value through growth. Upal Rana: Okay. Great. That was helpful. And then just one last one for me would be, based on your revised AFFO per share guidance, 4Q implies $0.19 at the midpoint. And could you walk us through how you get from $0.24 in 3Q to $0.19 in 4Q? I know dispositions will have some kind of impact, but anything else that we should be looking out for our model? Edward Weil: Yes. Chris, do you want to walk Upal through some of that? Christopher Masterson: Sure. What I would say there, really, it comes down to get into the midpoint in the range for the AFFO guidance is the timing of the dispositions. Obviously, in third quarter, we had the plan in place. So we did have some properties that the dispositions closed later in the quarter, and the same thing will happen during the fourth quarter, and we are confident that we will land in the range that we provided. Operator: Our next question comes from Mitch Germain with Citizens Bank. Mitch Germain: Just a little bit of occupancy decline quarter-over-quarter. Anything specific there that you want to reference that might have driven that? Was it opportunistic? Was it part of the asset recycling? Anything specific? Edward Weil: So it is opportunistic in that we had a tenant expiration that we've been very engaged on in the U.K. portfolio. And it's a timing piece for us because we are actively engaged with several tenants on new leasing at that location. It's going to be a nice pickup on straight-line rent. It's going to be a nice pickup on occupancy. And I would suggest that we will finish the year much closer to fully occupied than the 97% that we reported at the end of the quarter. Mitch Germain: Great. That's super helpful. Last one for me. You've mentioned the word growth a couple of times in this call, which obviously is a little bit of a departure first versus kind of the, call it, kind of shrinking of the portfolio and the deleveraging that's been a key theme. I'm curious, though, kind of how you view the playbook without giving guidance, but how you view the strategy and the playbook going into 2026. It seems like you may be a little bit more open to acquisitions. How much will dispositions remain a theme? Maybe just kind of walk me into how we should be thinking about the forward outlook for you guys. Edward Weil: Thanks, Mitch. The way we're thinking about it is really going to be reflected in how we see the stock price perform. If we continue to see a material disconnect between the underlying value of the portfolio and the -- any number of multiple or metrics that you might look at to evaluate the stock price, that's going to determine our course of action. I talk about potential or restarting of growth because it's important. It's something that we want to do. But by no means do we want to acquire real estate for the sake of acquiring real estate to say that we're growing for the sake of growth. We have the impactful opportunity to execute on our stock buyback program, which is easy to see more accretive than acquisitions that I've been seeing in the market. So again, I don't want to give guidance right now, and I appreciate you pointing that out. It is something that we will talk about. But we still feel that we have some work to do on reduction of net debt to EBITDA. By no means are we saying that we're finished there. But we are seeing opportunities. We had an incredible quarter of pickup on renewal spreads, which, of course, helps our EBITDA, which, of course, helps our net debt to EBITDA. So as you know, there are certain -- there are many different ways to lower net debt to EBITDA. Of course, we can continue to lower our balance sheet debt, which we intend to do, but we can also grow EBITDA. So we're fully engaged. I'm not going to say that we will absolutely be finished the disposition program because if we continue to see value in disposition that allows us to execute on different parts, we feel that the job here is to realize value for shareholders, and we're going to continue to do that and drive this price. Operator: [Operator Instructions] Our next question comes from John Kim from BMO Capital Markets. John Kim: This quarter, you had a good renewal leasing spread of 26.4%. Just wondering how achievable this is going forward, especially on your industrial lease expirations? And also, if you could disclose that figure, including new leases, that would be appreciated. Edward Weil: So for Q3, we were 26% on renewal spreads. Over the year-to-date, it's been 18.5%. So I would say 26% is a terrific quarter. Every opportunity that we have to see spreads like that, we're very pleased. But spreads have continued to be strong in the renewal activity. I think it's a good quarter when you're 5% or 6% on renewal spreads. So the fact that we can continue to do that shows the tenants want to be in these buildings, in their real estate that whether it's industrial, retail or office, it's a critical piece of their operating business, and they don't want to give that up even as the lease expires. Our asset management team engages, as we've said many times, typically 2 years out before a lease expiration so that we can begin the conversations, and it's what really helps us drive these types of results. So we're very pleased with where we are year-to-date and exceptionally pleased where we came in this quarter. John Kim: Do you typically get a higher spread on renewals than new leases? I'm just wondering why that renewal is being taken out. Edward Weil: Well, if you think about the kind of the way a renewal works, a tenant has been in a property for 10 or 15 years. And in many net lease structures, there's a 1% or 1.5% annual escalator. Occasionally, you'll get a 2%. So there are many situations where after 5 -- I'm sorry, after 10 or 15 years, they're under market and the renewal includes a catch-up to get them back to where they should be to stay in that property. So it's one of those things. Market dictates spreads on new leases versus renewals and both can add a lot of value to the overall portfolio. John Kim: Okay. Kind of an odd question, but if you look on your balance sheet from last quarter. Edward Weil: From you? John Kim: Yes. Edward Weil: Okay, go ahead. John Kim: You had $524 million of multi-tenant mortgage loans, 5 different tranches. That was as of second quarter, your 10-Q hasn't come out yet. But I was wondering if that was related to your multi-tenant portfolio that you sold and if you still have that on balance sheet today because your debt didn't move that much this quarter. Edward Weil: Chris, do you want to take that? Christopher Masterson: Yes. So yes, what we had from discontinued operations, that would have been related to the mortgage payables that were assumed by RCG as part of the transaction. If you look just strictly at our mortgage payables line on the balance sheet in 2Q, we would not have had any of those assumed mortgages in there. They would have been reclassified out. So it's comparable quarter-over-quarter. John Kim: So you don't have that on balance sheet today? Christopher Masterson: Correct. We do not have that on the balance sheet today. Operator: As there are no further questions, I would now like to hand the conference over to Mike Weil for closing comments. Edward Weil: Great. Well, as always, we appreciate you taking time to listen to the update on Global Net Lease. We're excited about what we've accomplished in the third quarter. But by no means do we feel that this is the place we want to be. We still see great opportunity here, great value, and the team is as committed as it's ever been to executing on the things that are necessary to unlock this value. So thank you for your involvement, and thank you for your feedback. We look forward to catching up with everybody over the next couple of days, and we'll talk soon. Thank you. Operator: Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Craig Mychajluk: Yes. Thank you, and good morning, everyone. We certainly appreciate your time today as well as your interest in Allient. On the call today are Dick Warzala, our Chairman, President and CEO; and Jim Michaud, our Chief Financial Officer. Dick and Jim will review our third quarter 2025 results, provide a strategic and operational update and share our outlook. We will then open the line for your questions. As a reminder, our Q3 earnings release and the accompanying slide presentation are available on our website at allient.com. If you're following along, please turn to Slide 2 for our safe harbor statement. During today's call, we may make forward-looking statements that involve risks and uncertainties. Actual results may differ materially from those indicated. These risks and factors are outlined in our SEC filings and in our Q3 earnings release. We also discuss certain non-GAAP measures, which we believe will be useful in evaluating our performance. You should not consider the presentation of this additional information in isolation or as a substitute for results prepared in accordance with GAAP. We have provided reconciliations of non-GAAP to comparable GAAP measures in the tables accompanying the earnings release as well as the slides. So with that, please turn to Slide 3, and I'll turn it over to Dick to begin. Dick? Richard Warzala: Thank you, Craig, and welcome, everyone. Allient delivered another strong quarter, underscored by double-digit revenue growth, record gross margin and continued deleveraging of our balance sheet. These results reflect the combination of healthy demand across key end markets and the tangible benefits of the efficiency initiatives we have put in place through our Simplify to Accelerate Now program. On the demand side, we saw notable strength in our industrial verticals, particularly power quality solutions for data center applications as well as improving trends in automation. Our defense programs executed well and the medical market delivered steady growth even as mobility solutions remained soft. In addition, our vehicle business improved, led by contributions from commercial automotive and construction. Profitability was another highlight with gross margin reaching a new record and operating leverage driving meaningful year-over-year improvement. Importantly, these gains were not only a result of volume, but also a reflection of mix shift toward higher-value programs and ongoing cost discipline. Cash generation and balance sheet strength remain central to our story. Year-to-date, we have delivered significantly higher operating cash flow and further reduced debt, which has lowered our leverage ratio and enhanced financial flexibility. Jim will walk through some temporary impacts for the quarter, but at a high level, our results so far this year demonstrate our ability to convert top line performance into stronger profitability, robust cash flow and balance sheet progress. Stepping back, Q3 was not just about the numbers. It was about discipline and execution. The results highlight the resilience of our diversified portfolio, the value of our operational transformation and our ongoing alignment with long-term secular growth drivers. Together, these elements reinforce the momentum we are building as we move toward year-end and beyond. With that, let me turn it over to Jim for a more in-depth review of the financials. James Michaud: Thank you, Dick, and good morning, everyone. Please turn to Slide 5. Q3 revenue increased $13.5 million year-over-year, reaching $138.7 million, reflecting strong industrial market demand along with solid performance in our other core end markets. Foreign exchange contributed $2.3 million in tailwinds with the remainder organic. Sequentially, revenue declined less than 1% as the second quarter included $3 million to $4 million of customer pull-ins related to anticipated supply constraints on components with heavy rare earth content. Sales to U.S. customers accounted for 57% of Q3 revenue, with Europe, Canada and Asia Pacific representing the balance. Breaking down performance by market. Industrial market revenue advanced 20%, led by strong demand for power quality solutions in data centers as well as improving industrial automation trends, which more than offset softness in oil and gas. Medical grew 6% with surgical instruments offsetting weaker mobility solutions. Vehicle sales were up 6%, supported by commercial, automotive and construction. Aerospace and defense revenue was up 2% as scheduled defense and space program deliveries continued. We did experience some short-term shipment delays linked to customer validations during our Dothan facility transition, but overall, demand remains intact and positions us well as validations complete. Distribution channel sales were down 6%, though they represent a smaller share of our overall mix. Turning to Slide 6. Here, we show the composition of our revenue over the trailing 12 months, along with the year-over-year change in each market and the key drivers of that change. As you can see, our industrial market is our largest vertical at 48% of total revenue, supported by continued strength in data center applications. While industrial automation is still working through the tail end of destocking, we are seeing healthier order flow, which has helped offset softer demand in oil and gas applications. Aerospace and defense increased to 15% of revenue, reflecting both timing of defense and space program deliveries as well as strong execution on our growth initiatives in this sector. Demand remains solid and our pipeline in defense continues to provide visibility and to sustained growth. Medical accounted for 15% of revenue led by higher demand for surgical instruments. This growth was partially offset by softness in certain pump-related products and mobility solutions. But overall, the medical sector continues to represent a steady contributor. Vehicle represented 17% of revenue compared with 22% in the prior year. The year-over-year decline primarily reflects reduced demand in powersports and select truck applications. That said, within the quarter, we did see strength from commercial automotive helping to partially balance the softness in recreational markets. Overall, this slide reinforces that our revenue base is better aligned with higher-value, margin-accretive opportunities. We are deliberately positioning the company towards markets with strong secular growth drivers while also managing through areas experiencing softness. Turning to Slide 7. Gross profit reached $46.2 million with gross margin expanding to a record 33.3%, up 190 basis points year-over-year and 10 basis points sequentially. This marks our fifth consecutive quarter of margin expansion. Drivers included mix improvement, higher volumes, disciplined lean -- and disciplined lean manufacturing execution. On Slide 8, operating income increased sharply to $12.2 million or 8.8% of revenue, reflecting the continued scalability of our business model. This represents an improvement of 350 basis points year-over-year and 40 basis points sequentially. Operating leverage was a key driver as operating expenses declined to 24.5% of revenue, a 160-basis point improvement versus last year, even as we continue to invest in strategic initiatives. This demonstrates the effectiveness of our cost discipline and the structural benefits we are capturing. Our Simplify to Accelerate Now program continues to play a central role in driving these results. We delivered $10 million in annualized savings in 2024, and we remain on track to achieve an additional $6 million to $7 million in 2025. These savings are being realized through footprint optimization, accelerated product development and lean manufacturing disciplines. Importantly, we are already beginning to see margin tailwinds from the Dothan Fabrication Center of Excellence, with the full benefit expected to phase in during the latter part of 2025. We did record $800,000 in realignment costs during the third quarter to support this transformation, but these actions are positioning us for sustained efficiency and margin improvement moving forward. Slide 9 shows our bottom line performance. Net income more than tripled year-over-year to $6.5 million or $0.39 per diluted share. Adjusted net income was $9.9 million or $0.59 per share. Our effective income tax rate was 22.2% for the third quarter of 2025, and we continue to expect our full year rate to land between 21% and 23%. Adjusted EBITDA increased to $20.3 million or 14.6% of revenue, driven by strong conversion on higher volumes and a more favorable mix. This represents margin expansion of 310 basis points year-over-year and 20 basis points sequentially. Turning to Slide 10. Year-to-date operating cash flow was $43.1 million, up 46% from last year. This reflects both stronger profit generation and disciplined working capital execution. Our free cash flow this past quarter was impacted by approximately $5 million of temporary inventory build largely tied to rare earth magnets and to ensure continuity during the Dothan transition. In addition, we experienced a modest increase in days sales outstanding, which rose to 61 days, reflecting sales mix, and we also had the timing impact of certain insurance premium payments. Despite these temporary factors, our underlying cash generation remains very strong. Year-to-date capital expenditures of $5.1 million reflected continued investment in key customer-driven projects. Given project timing and fourth quarter expectations, we have narrowed our full year CapEx forecast to $6.5 million to $8.5 million from the prior $8 million to $10 million range. Importantly, we are executing well against our 3 financial priorities for 2025. Reducing inventory and strengthening working capital management, we've already improved inventory turns to 3 in Q3, up from 2.7 at year-end despite the temporary build this quarter. Cost discipline, evident in our SG&A leverage and ongoing benefits with Simplify to Accelerate Now. Reducing debt, supported by the strong cash flow we've generated. With that, let's turn to Slide 11 to review the impact on our balance sheet. Debt declined by $12 million sequentially in Q3, bringing total year-to-date debt reduction to nearly $34 million. Net debt now stands at $150.8 million, and our leverage ratio has improved to 2.1x compared with 3 at the end of 2024. This consistent deleveraging, combined with strong liquidity, provides us with substantial flexibility to continue investing in strategic priorities while also strengthening our financial foundation. With that, if you advance to Slide 12, I will now turn the call back over to Dick. Richard Warzala: Thank you, Jim. Orders in Q3 totaled $133.1 million, down slightly from Q2, but up significantly from last year. Our book-to-bill ratio of 0.96 reflects the normal seasonal cadence we typically see, and importantly, it also underscores solid underlying demand, particularly in our industrial and A&D markets despite the cancellation of the M10 Booker tank program by the U.S. Army, which did have a direct impact on Allient. Our backlog ended the quarter at $231 million, with the majority expected to ship within the next 3 to 9 months, consistent with our historical conversion patterns. This backlog mix, together with our active quoting pipeline, gives us confidence in the resiliency of demand. As we look ahead, we recognize that the global industrial environment is gradually improving but remains uneven. Policy and tariff risk, supply normalization and cost volatility continued to influence capital deployment across many verticals. We continue to proactively address tariff-related challenges. Although mitigation efforts are underway, tariffs resulted in a net quarterly impact of approximately $385,000 that we were unable to recover through pricing or other measures. The majority of this impact occurred within our power quality business, and mitigation efforts are already underway. On rare earth supply, even though it appears that we will gain some breathing room given the agreement that was reached with China, our multipronged strategy, which includes broadening suppliers, qualifying alternative materials and managing inventory dynamically in close collaboration with customers will continue to be central to our strategic supply chain security initiatives. At the same time, our focus is primarily on advancing strategic initiatives that enhance long-term value, driving further margin expansion, maintaining working capital discipline and investing in technology for higher-value solutions. The operational and financial momentum we generated in Q3 provides a strong foundation to carry forward into the balance of the year. Finally, it's important to remember that secular growth drivers such as electrification, automation, energy efficiency, digital infrastructure and precision control continue to underpin our strategy. These themes align directly with Allient's capabilities and positions us to deliver sustainable profitable growth through varying market conditions. With that, operator, please open the line for questions. Operator: [Operator Instructions] And the first question comes from Tomo Sano with JPMorgan. Tomohiko Sano: I'd like to ask about the orders and backlog for the first. And the book-to-bill ratio remained healthy at 0.96, as you mentioned. And how would you view the quality and the visibilities of the current backlog? And are there any areas of concerns? Richard Warzala: I would say to you that overall we're -- and I want to clarify one thing. We would have been above 1, but we did take a cancellation in our backlog for the M10 Booker program cancellation. So that's in there. And without that, we would have been above 1. So that's just a little more clarity on that. As far as the quality goes, I think we're very pleased with what we're seeing. The power quality area, data centers is coming strong. We're seeing good activity in the defense area. We're seeing industrial picking up, and we also see Europe has picked up -- started to pick up, let's put it that way. It's not back to where it was, but it has started to pick up in the industrial areas. So across the board, I think we're fairly encouraged with the quality and the margin potential generation from the new orders and the backlog we have. Tomohiko Sano: And a follow-up on the margin side and especially like Simplify to Accelerate Now initiatives. Could you elaborate on the progress and the future potential of the initiatives for 2026? Are there further cost savings or margin opportunities ahead? Richard Warzala: Yes, absolutely. So this year -- I mean I would say to you that some of the actions that were taken in last year and this year, we'll call them -- some of them were pretty low-hanging fruit, and we have validated that the actions that we're taking did result in real cost savings. The major action we've taken this year is to -- in our Dothan facility, which had final assembly integration, test operations, also some machining and so forth, and was co-mingled between many different markets and different types of products. The major effort that we undertook this year was to transfer the production from Dothan into 2 other facilities, one in Reynosa, Mexico and in Tulsa, Oklahoma, which better align with the markets and the products that are being produced. In Dothan what we will retain is we have a strong capability in the machining areas, and so -- this is where you hear us talk about the transition of Dothan into a fabrication center of excellence. That will be underway, and I will say to you that, that will be started in the beginning of the year after the transfer and the transfer is fully expected to be complete by the end of this year and moving out throughout next year. There's plenty of opportunities for us for cost optimization when we look at the components that we have been buying or purchasing and actually evaluating some of the business we have and looking at better strategic sourcing, I think. So again, I would look at that opportunity as we really begin to move that fabrication center forward. That's where we will see some fairly significant cost savings and potential for us to grow our business in other areas as well. We have some good opportunities that we're working with, and they were contingent upon us to continue to expand our high-precision motion applications, and Dothan will give us an opportunity to do that. I also want to stress that while we – we say fabrication because we're talking about additive manufacturing as well as just machining and not just machining operations. So that's why in the past, you would have heard us say machining center of excellence because that's what they do. But we do believe that there's definite value to be added from fabrication. In addition to that, we are setting guidelines and working hard with all of our operations. And Tomo, we had to untangle some of our businesses which -- when I say that, the focus on what were the investments necessary, what's the design cycle time, what's the lead and cycle time for design wins and types of products being produced. And that caused some inefficiencies in the process. So we're doing that. We're much better aligned and we're close to completing these efforts, much better aligned on the vertical markets that we're servicing as well as the production processes, that they're much more consistent within each. Which then allows us to go back and really address areas of -- that we feel that we have some significant improvement opportunities. So that's another area. So that will be unfolding in the next year. So definitely some cost savings, although I don't think we've quantified that exactly yet. In addition to that, I'd say more importantly is the front end. Looking at business opportunities that provide us better margin capabilities or potential, and not getting seduced into some other activities that look -- the value looks high, but the true bottom line value is not as great and cost a lot from a capital investment standpoint. So we're very focused on the front end, making sure that we're working -- we're focused on the right markets that can meet our margin goals and not get diverted based on some what looked like great opportunities, but underlying it is long-term efforts, a lot of capital investment and sometimes not as good a return. So plenty going on. Tomohiko Sano: Congrats on the quarter. Operator: And the next question comes from Greg Palm with Craig-Hallum Capital Group. Greg Palm: Congrats as well from me. I think from a segment level, industrial certainly stood out. I know you called out stronger data center activity. So maybe you can just remind us exactly what you're selling into that market? And is there just -- is there something going on that's causing the step-up in demand there? I think last quarter, you mentioned you're doing a facility expansion. So I just wanted to get a little bit more color on that market specifically. Richard Warzala: Sure. So you're exactly right, Greg, there. What's going on in that area is really the big uptick that we've seen -- or some of the uptick that we've seen is in the data center solutions, and the data center solution is around our power quality equipment. So we are -- and we are expanding our facilities. That's our primary facility for producing that product. And we expect that to come online in early, let's say, second quarter of next year. But we still continue to see or have seen a significant demand uptick, and we don't see it slowing down anytime soon. So that is a big -- one of the big drivers. And that also, fortunately for us, is a margin-accretive product line for us. In industrial, the automation side, we talked in the past about that we had -- a couple of years ago, we had a banner year, but it was based on supply chain -- issues with supply chain. And when demand freed up, we delivered at a very high rate. In fact, we said we had a $46 million headwind going into last year, okay? And then if we could average it 3 years out, we would see demand coming back to a normalized level, and we've actually seen that again this year. So each quarter, we've seen a nice step-up in our run rates and we're getting close –- when I say close, we're not quite there yet, but we're getting close to where we think the normalized run rate should be. And again, fortunately, it's in the higher-end controls area where our margins are accretive as well. The other industrial markets that we're seeing some improvement, as I mentioned, Europe. Europe has been down and down quite significantly. And the impact on us was from some of -- a couple of our businesses was about 25% reduction. And we're not back, but we're starting to see we're chipping back a little bit here, and we've got some runway to go there to get back to where we were and hopefully beyond. But they're starting to see some positive signs, although I do think that will be a slower ramp-up into next year. On defense side, good opportunities, and we're working on many new opportunities certainly in the drone space, applications where we have a significant manufacturing capability that we've had for years that we're unleashing to make sure that we support the opportunities that are coming our way. And we're well positioned, whether it's the lower-cost disposable drone or up to the highest end, highest performing drones of the requirements in the market. So there is a lot of activity going on in that space and we're addressing it as fast as we can and we're pretty encouraged that we're well positioned to take advantage of that. Add on top of that, munitions. I mean, we know some orders from munitions have been released, and it's our turn to see those orders come through. But there's definitely some encouraging signs that the volume will increase there as well. So overall -- and medical was good, too. We would have to say to you the medical instrumentation, surgical side of it has been positive as well. So signs are good. We talked about in the conversation with Tomo a lot of the activities we're doing to improve our cost structure, improve efficiencies. And now with, I think, your question, you're talking about where the growth opportunities are and some of the activities that we're addressing and facing today. Greg Palm: When might we see more of like an uptick or a step-up in the drone space specifically? And then maybe you can just confirm, since you mentioned defense overall as a segment, what was the bookings impact on that M10 program? Richard Warzala: The bookings impact for this year was about $5 million that we had to take a hit on. And the longer-term impact for us was a backlog of shipments averaging around $7 million a year for a number of years forward. So a lot of work we've done on that. There are -- we're reviewing cost right now, and there's certainly cancellations coming. We don't know if there will be another outlet for that, the M10 Booker tank. But right now, the way it seems is that it is going to wind down. They're just completing whatever was on order and canceling the rest. When I say on order, already in production and canceling the rest. But $5 million in this quarter. So as I mentioned, it would have been a positive book-to-bill ratio. As far as the drone, when you see it, I think it's like anything else. You have to go through the design in cycle time, get approved. We already have been in drone applications, and we're just seeing more. But I would tell you that they'll be stepping up throughout the year next year. Greg Palm: Okay. Perfect. And then just switching over to kind of profitability. I mean, I think it's pretty encouraging. You're generating mid-teens EBITDA margins. I mean, back-to-back really good quarters. I'm guessing you're not going to tell us where that can eventually land. But it seems like there's still a pretty big chunk of your business that's operating well below normalized revenue levels or at least revenue levels from a few years ago. So as volumes continue to come back, I'm guessing you start -- or you continue to see additional operating leverage. I mean, is that a fair statement? Richard Warzala: Yes, definitely a fair statement. And I think a real focus on looking at each individual -- look at the foundation we have built, what we call technology units, and how we regroup the companies into business units and getting very specific in setting targets. All have to contribute and all have to improve, and that's the key. And I think bulk of the work in order to have clarity and line of sight on what could be accomplished there is coming into place there now. And I think I feel comfortable that, that's going to drive improvements and continued improvements in all areas, and that's our goal anyways. So definitely some opportunities there. Operator: [Operator Instructions] And the next question comes from Ted Jackson with Northland Securities. Edward Jackson: So I got a few questions for you. Just a few cleanup items and then some bigger ones. But with the –- the whole thing with the tank and the -- which is a disappointment, will you -- will there be anything that you have to write down in future periods because of that? Richard Warzala: No. No, there's full recovery of costs in [ transit ]. We're working through that right now. But no, we will not have to write anything down. Edward Jackson: Okay. Then going over to the positive FX impact. Within your revenue verticals, where was that? James Michaud: Yes, that was in the European -- in the euro-denominated transactions. Edward Jackson: I mean, but was it in any –- it was across any verticals? Was it concentrated into anything in particular, I mean, industrial, for instance? James Michaud: No, no. Richard Warzala: Geographic. Edward Jackson: Okay. And then can you remind -- so I don't know if you had discussed this with the prior call, but the orders that got pulled forward from 3Q into 2Q, what verticals were those in? Richard Warzala: Power quality primarily. HVAC. Edward Jackson: Then in the vehicle market -- I mean, I know you've worked very, very hard at lowering your exposure within the powersports world, and it's -- but I'm kind of curious with regards to that segment, if you could maybe cover kind of the mix of where that revenue comes from these days. You highlighted strength in commercial vehicle and construction. And then -- so I'm kind of curious. Like how much of that business now is exposed within powersports? What's the mix for that to construction? How much is commercial vehicle? And then maybe what -- some color with regards to like construction and commercial vehicle as to sort of what are you -- where are you providing your solutions, in what? Richard Warzala: Okay. So I would say to you first, Ted, we don't and we haven't in the past given you the real specifics on the percentages of each in the market, but I will give you some guidance on it. I mean, we've said to you that commercial automotive would always be something that we would stress to be below 10% of our annual revenues, and it is below 10% of our annual revenues, okay? And why do we want to do that? Well, we do like the core unit volume. It gives us the strategic purchasing power. It gives us the ability to apply what we have in the automotive markets into other related vehicle markets, so getting a cost advantage there. But I would tell you that our vehicle -- our commercial automotive market is performing well. It has definitely -- when we started talking about it 4, 5 years ago that there were real challenges there, that the book of business that we had acquired and some of the challenges in the market itself through supply chain and price increases and so forth, we worked our way through it and it's something that's performing. I would tell you, the net differential has been very, very positive for us. As far as powersports go, we did mention that -- we have mentioned that one of our major customers had a 2 source -- even the day we bought the company was going to have multiple sources, while we were single source for a long time. They had advised us that they were going to be having multiple sources of supply. And therefore, we did lose a portion of that business starting a little over a year ago. So that business is down. The market's been down. And it is below 10% of our business. So before, if you were -- back in 2013, '14 time frame, you would have realized that, that was maybe 22%, 23% of our business. And now it's below 10%. So we think that's healthy. And I would want to make a statement. It's not that we want it to be less. It is. And there's certainly some things that are going to impact it going forward, the tariffs, the USMCA agreements, the content of -- North American content that's in vehicles and so forth. So we've got a very robust solution that -- it's the higher end of the performance range, and we're applying that in other areas. So we like the diversification we're seeing into other markets. But powersports is definitely from where it was in its heyday early on. And when power steering became a part of every vehicle, we were one of the leaders in that and we enjoyed higher margins. But it's definitely a challenge today in getting automotive, like I'll call it, okay? And then the rest of it is made up of the other vehicles, where we talk about large trucks, rail, marine, construction, bus, all of that. So it's a combination of all of those, agricultural. And those are all solid -- and those are all solid. And we are emphasizing that we'd like to see growth in those as well. That's about the best of the color I can give you with that at this point. I hope that helps. Edward Jackson: No, it's great color, Dick. I appreciate it. Because if you look at that section -- that segment, excuse me. I mean, as you said like a little over a year ago, you kind of had -- went to dual source. But the business has really stabilized, just call it, $20 million, $22 million in quarterly revenue. Now that, that business is where it's at –- you see what I'm saying? -- the headwinds of it -- I'm talking about powersports -- are giving away. So I'm kind of wanting to understand the mix of it to see where -- what growth will come now that you –- you know what I mean? -- because powersports market in and of itself is clearly flatlining at this point. And then you have these other verticals as well. So I want to understand it because this segment is actually poised probably to start performing better. I had another question I want to ask you really quick. Give me a second. I lost my train of thought. I'll step out of line because I just completely -- like it went out of my mind. And if I think about it, I'll punch back in. Operator: And that does conclude the question-and-answer session. So I would like to turn the floor to management for any closing comments. Richard Warzala: Well, thank you, everyone, for joining us on today's call and for your interest in Allient. As always, please feel free to reach out to us at any time, and we look forward to talking to you all again after our fourth quarter 2025 results. Have a great day. Operator: Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.
Operator: Ladies and gentlemen, good afternoon, and welcome to BlackRock TCP Capital Corp.'s Third Quarter Earnings Call. Today's conference call is being recorded for replay purposes. [Operator Instructions] Now I would like to turn the call over to Alex Doll, a member of the BlackRock TCP Capital Corp. Investor Relations team. Alex, please proceed. Alex Doll: Thank you, operator. Before we begin, I'll note that this conference call may contain forward-looking statements based on the estimates and assumptions of management at this time of such statements and are not guarantees of future performance. Forward-looking statements involve risks and uncertainties, and actual results could differ materially from those projected. Any forward-looking statements made on this call are made as of today and are subject to change without notice. Additionally, certain information discussed and presented may have been derived from third-party sources and has not been independently verified. Accordingly, we make no representation or warranty with respect to such information. Earlier today, we issued our earnings release for the third quarter ended September 30, 2025, and posted a supplemental earnings presentation to our website at www.tcpcapital.com. To view the slide presentation, which we will refer to on today's call, please click on the Investor Relations link and select Events and Presentations. These documents should be reviewed in conjunction with the company's Form 10-Q, which was filed with the SEC earlier today. Now I will turn the call over to our Chairman, CEO and Co-CIO, Phil Tseng. Philip Tseng: Thank you, Alex, and thanks to all of our investors and analysts for joining us today. I'll begin with an overview of our third quarter performance. Our President, Jason Mehring, will then provide details on our portfolio and investment activity; and Erik Cuellar, our CFO, will review our financial results. I'll then share commentary on the current market environment before we open the call for your questions. We are also joined today by Dan Worrell, our Co-CIO, who will be available to answer your questions. I'll begin with our results for the quarter. We made continued progress in executing on the strategic priorities we outlined at the start of the year, resolving challenged credits, improving the quality of our investment portfolio and positioning TCPC to return to historical performance levels. Third quarter NAV was unchanged from the previous quarter at $8.71. And importantly, nonaccruals improved to 3.5% of the portfolio at fair market value compared to 5.6% at the end of 2024. During the third quarter, we sold one nonaccrual investment above our valuation estimate and placed 2 smaller previously restructured investments back on nonaccrual. I'd also like to share an update on our investment in Renovo, which, as you may recall, is a direct-to-consumer home remodeling business. Renovo was previously removed from nonaccrual status following a comprehensive recapitalization in the second quarter. However, early in the fourth quarter, company-specific performance and liquidity issues led the Renovo Board to determine that the best available path forward was a liquidation process, which started on November 3, 2025. The position in Renovo represented approximately 0.7% of our total investments at fair value as of September 30. We do not expect to recover value on our investment in Renovo, and we expect to fully write down this position in the fourth quarter of 2025. Further, we expect this to impact fourth quarter NAV by approximately $0.15 per share on a pro forma basis. We view this outcome as a result of issues specific to the issuer rather than a reflection of broader sector weakness. We also realized portfolio gains this quarter, the largest of which was NEP Group, a global leader in broadcast and live production services for sports and entertainment. In September, NEP announced a recapitalization that closed in October, strengthening its balance sheet while adding new junior capital below our position. As a result, our investment was upgraded from a second lien to a first lien term loan, improving our recovery prospects and demonstrating our team's success in executing a complex restructuring. Now I'll share an update on capital allocation, starting with our dividend. Our Board declared a third quarter dividend of $0.25 per share payable on December 31 to shareholders of record on December 17. This is consistent with the base dividend level we have paid since the first quarter of the year and reflects recent Fed cut rates and spreads we are seeing in the market. As part of our commitment to supporting our shareholders, we also repurchased more than 25,000 shares of TCPC stock during the third quarter and an additional 170,000 shares after quarter end. Now I'll turn the call over to Jason to discuss our portfolio in more detail as well as our recent investment activity. Jason Mehring: Thanks, Phil, and welcome, everyone. During the third quarter, we selectively deployed capital into opportunities that are directly aligned with our investment strategy, investing primarily in core middle market companies, maintaining a well-diversified portfolio, prioritizing first lien loans and leveraging the extensive resources of BlackRock. As we mentioned last quarter, BlackRock and HPS created a new platform called Private Financing Solutions, or PFS. PFS combines the firm's private credit, GPLP solutions, liquid and private credit CLOs and leveraged finance businesses into a single integrated platform. The integration of the BlackRock and HPS businesses has already been an important catalyst for expanding TCPC's access to deal flow. In the third quarter, we saw a 20% increase in the number of deals we reviewed relative to last quarter and a 40% increase in the number of deals we advanced to the screening stage. In today's market environment, a larger deal funnel is an advantage in identifying high-quality opportunities. Now I'll highlight 2 of our third quarter investments, beginning with KBRA, where we invested $2.4 million as part of a new $1.1 billion first lien term loan financing for the company. KBRA is a major U.S. credit rating agency that provides independent ratings and research across corporate, financial and public markets, and it has been a portfolio company of ours for 3.5 years. The business is owned by a sector-focused sponsor that we have partnered with on multiple deals, and the BlackRock PFS platform led this transaction, which refinanced KBRA's existing debt, funded a shareholder dividend and provided growth capital for M&A. Our investment in KBRA aligns closely with our strategy of investing in companies with substantial barriers to entry that generate recurring revenue, healthy margins and strong free cash flow. We believe these characteristics support our ability to deliver risk-adjusted returns that are attractive to our shareholders. We also made a $5.2 million follow-on investment in Syndigo, a software company that helps brands and retailers manage and share product information across online and in-store channels. This transaction was part of a $930 million first lien term loan led by PFS that facilitated Syndigo's recent acquisition of 1WorldSync, a content management company. This business combination advances Syndigo's goal of using AI to help companies deliver accurate and consistent product content across the entire customer experience. BlackRock has long been a lender to Syndigo, and this transaction demonstrates our continued commitment to the company's growth and success. We view it as an attractive opportunity to support a scaled market leader with resilient recurring revenue and strong free cash flow. Since the start of the year, we've invested $241 million in 18 new and 13 existing portfolio companies with a granular average position size of $7.8 million. This is a significant decrease from an $11.7 million average position size across our portfolio at the end of 2024 and reflects progress in creating a more diversified, lower-risk portfolio. All of our investments in the third quarter were in first lien term loans to companies with strong fundamentals that are positioned for long-term growth. Incumbency has remained an important competitive advantage for TCPC and repeat borrowers represented 51% of our year-to-date originations. At the end of the quarter, our portfolio had a fair market value of $1.7 billion invested across 149 companies in more than 20 industry sectors. 89% of the portfolio was invested in senior secured debt, all of which is in floating rate instruments. Investment income was broadly distributed across our diverse portfolio, with 78% of the portfolio companies each contributing less than 1% of total income. The weighted average annual effective yield of our portfolio was 11.5% in the third quarter compared to 12% in the prior quarter. New investments had a weighted average yield of 10.1%, while those we exited carried an average of 11.7%. Paydowns this quarter were $140 million compared to $48 million in the prior quarter. This higher level of paydowns was mainly due to timing as several repayments we expected to close in the second quarter closed in the third quarter instead. Now I'll turn the call over to Erik, who will walk through our financial results and capital and liquidity position. Erik Cuellar: Thank you, Jason. I will begin with a review of our financial results for the third quarter. As detailed in our earnings press release, adjusted net investment income excludes the amortization of the purchase accounting discount resulting from our merger with BCIC and is calculated in accordance with GAAP. A full reconciliation of adjusted net investment income to GAAP net investment income as well as other non-GAAP financial metrics is included in our earnings press release and 10-Q. Third quarter adjusted net investment income was $0.30 per share and gross investment income was $0.59 per share in the third quarter. This compares to $0.31 and $0.61 per share, respectively, in the second quarter. This quarter's gross investment income included recurring cash interest of $0.46 per share, nonrecurring income of $0.03, recurring discount and fee amortization of $0.02, PIK income of $0.06 and dividend income of $0.02 per share. PIK interest income represented 9.5% of total investment income, down from 11.4% last quarter. Operating expenses for the third quarter were $0.27 per share, including $0.20 per share of interest and other debt expenses. As of September 30, 2025, our cumulative total return did not exceed the total return hurdle. And therefore, no incentive compensation was accrued for the third quarter. As you will recall, our market-leading fee structure is particularly shareholder-friendly, which aligns interest between investors and management. Additionally, we waived a portion of our base management fee again this quarter, in line with our advisers' decision to waive 1/3 of our base management fee for the first 3 quarters of 2025. Net realized losses for the quarter were approximately $97.0 million or $1.14 per share. $72.6 million of this amount was due to the restructuring of our investment in Razor, and the remaining amount was related to our dispositions of Conergy, Iracore and INH Buyer, which resulted in losses of $13.2 million, $4.1 million and $3.9 million, respectively. Importantly, these impacts were already substantially reflected in our net asset value as of June 30, 2025. Net unrealized gains were $94.1 million or $1.11 per share, primarily reflecting the markup of NEP that Phil mentioned earlier, along with the reversal of previously recognized unrealized losses from the restructuring and disposition of the investments I mentioned. The net increase in net assets for the quarter was $24.4 million or $0.29 per share. As of September 30, 9 portfolio companies were on nonaccrual status, representing 3.5% of the portfolio at fair value and 7.0% at cost. This is down from 3.7% and 10.4%, respectively, as of June 30, and 5.6% and 14.4%, respectively, at December 31, 2024. As Phil noted, we continue to work closely with our borrowers, their sponsors and creditors to optimize our recovery value. Now I'll discuss our balance sheet and liquidity positioning. Our balance sheet remains strong. Total liquidity at quarter end was approximately $528 million, including $466.1 million of available leverage and $61 million in cash. Unfunded loan commitments represented 9.0% of our $1.7 billion investment portfolio or approximately $154 million, including $48.3 million in revolver commitments. Net regulatory leverage was 1.2x at quarter end compared to 1.28x at the end of the second quarter and in line with our target range of 0.9 to 1.2x. The decrease was primarily due to repayments during the quarter. Our diverse leverage program includes 3 low-cost credit facilities, 3 unsecured note issuances and an SBA program. The weighted average interest rate on our debt outstanding at quarter end was 5.0%. Looking ahead, we are taking proactive steps to manage our capital structure, including evaluating the best alternatives to refinance our 2026 notes. Given our credit debt ratings, we plan to address the notes through a combination of our credit facilities and a potential private placement. While spreads have widened over the past few weeks, we continue to monitor market conditions closely to determine the most cost-effective path forward. Now I'll turn the call back to Phil for his closing remarks. Philip Tseng: Thank you, Erik. Now I will provide some market commentary. As we mentioned, we have seen an increase in deal flow and our pipeline is growing. While M&A activity has begun to show some signs of life, most borrowers are currently focused on refinancing existing debt at lower rates or extending maturities to execute on continued growth plans. At the same time, the volume of high-quality investment opportunities remains limited. Against this backdrop, we are pleased to see and review more opportunities as part of the PFS platform, and we are intently focused on deploying capital into high-quality deals. In closing, we are encouraged by the progress we've made this year in improving the credit quality and the diversity of our portfolio. Looking to the final quarter of the year, we are focused on continuing to resolve challenged positions in our portfolio and positioning TCPC to deliver strong sustainable returns to our investors. Thank you for your continued support and interest in TCPC. And now I'll turn the call to the operator to open the call for questions. Operator: [Operator Instructions] Our first question is from Robert Dodd at Raymond James. Robert Dodd: First, if we can discuss the -- I think at the beginning, you said there were 2 previous restructurings that were returned to NILCO. And then obviously, Renovo was restructured and is now are going to be written off. Can you give us any color on any themes here? I mean that's 3 restructurings in relatively short order that sort of didn't stick, right? So, is there any commonality between what occurred there? Are any changes that you can make? Obviously, you might not in control of all of the restructuring steps there. But any changes you can make to the restructuring process to kind of -- I mean, maybe the restructuring to be more aggressive the first time? Or just any thoughts there? I mean, 3 in short order is not great. Philip Tseng: Yes. Thanks, Robert. We share your sentiments. We're obviously disappointed that deals that have been restructured do come back on. So, as you know, these are restructurings that get completed with respect to their capital structure. And then it takes time for the business itself to kind of go through its operational restructuring plan and execution. So, I think that's what we're seeing here. Credit issues or operational issues don't resolve themselves quickly, and it does take time and it's not linear. With these specifically, there's no commonality amongst these. I mean there are others, by the way, that have gone through restructurings and have come out continuing to perform and on a positive path. So, we have a number of those cases that we can talk about as well. But I would say there's no common theme amongst these 3 that went back on. Robert Dodd: Then just on the market environment and obviously, the expanded view, I mean, granularity down, like I think you said the new investments like 7.8 million positions. So that's good, right? More diversification in the portfolio. I mean, the comments that like most borrowers are still focused on lowering cost. I mean, I've heard elsewhere, right, like the M&A cycle is starting to pick up. So, I mean, are you still -- it sounds like you're still mainly experiencing refinancing activity rather than new borrower activity. I mean, how do you expect that to evolve over the next, I would say, 12 months, but that's a long time to project anything. Philip Tseng: It is. So, I think your comments about seeing a lot of refinancings, that is certainly how I'd characterize deployment in the past several quarters, largely in the market as well. I think the thoughts around M&A activity picking up, we are seeing that, and we are seeing new platforms, sponsors coming in and bidding on assets and a lot of deals in the pipeline really picking up. So, I would say that's probably a leading indicator of hopefully higher volumes in the next several quarters. But in terms of actual deployments, we're seeing refinancings, incremental add-ons on our existing portfolio as being kind of the predominant source of deployment, probably closer to 50% at this point or last quarter rather. And on -- sorry on portfolio diversification is a good one. We've been -- since this management team really came in at the end of last year, we've really been focused on that portfolio diversification point so that we don't -- this portfolio doesn't fall victim to a lot of the concentration issues that it had previously. So, we've had 31 new investments this year at an average position size of $7 million to $8 million, and that's a stark contrast to how this portfolio was managed previously. Robert Dodd: And then last one, I mean, are you seeing any -- and not just in the portfolio, but more broadly, even in deals that get reviewed, are you seeing any incremental indicators of stress? I mean, obviously, there's been some headlines. You don't have exposure to that in general. But are you seeing any areas of concern either in the portfolio, obviously, but also in like deals that are coming over the desk? Is there an increasing number of like any commonality between -- about why they're being rejected by or anything like that? Philip Tseng: Yes. We're certainly always focused on credit risks in the portfolio and in new deals that we evaluate every week. Some of the common themes are, of course, always focusing around more cyclical names, really trying to understand vulnerabilities to a softer cycle or softer macro environment. And then with respect to software, a lot of folks have been talking about AI, and that's real, really trying to understand -- and by the way, not just software for any other kind of business process, really trying to understand the risks around AI in terms of displacing or if that borrower has a strong competitive solution there on the AI solution themselves. So those are some of the things that we're commonly talking about. But with respect to other specific industry sectors, nothing right now that are atypical risk factors that we wouldn't otherwise be discussing. Sure, we're talking about tariffs still. We're talking about geopolitical risks in those areas, too. Operator: [Operator Instructions] At this time, we have no further questions on the call. So, I will hand back to management for closing comments. Philip Tseng: Thank you, everyone, for dialing in and streaming on the webcast, and I'd like to thank our team for their continued efforts and hard work around the portfolio. Please contact us with any questions, and have a great day. Operator: Thank you. This concludes today's conference call, and you may now disconnect.
Operator: Greetings, and welcome to the LSI Industries Fiscal 2026 First Quarter Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Jim Galeese, Chief Financial Officer. Thank you. You may begin. James Galeese: Welcome, everyone, and thank you for joining today's call. We issued a press release before the market opened this morning, detailing our fiscal '26 first quarter results. In addition to this release, we also posted a conference call presentation in the Investor Relations section of our corporate website. Information contained in this presentation will be referenced throughout today's conference call, included are certain non-GAAP measures for improved transparency of our operating results. A complete reconciliation of GAAP and non-GAAP results is contained in our press release and 10-Q. Please note that management's commentary and responses to questions on today's conference call may include forward-looking statements about our business outlook. Such statements involve risks and opportunities, and actual results could differ materially. I refer you to our safe harbor statement, which appears in this morning's press release, for more details. Today's call will begin with remarks summarizing our fiscal first quarter results. At the conclusion of these prepared remarks, we will open the line for questions. With that, I'll turn the call over to LSI President and Chief Executive Officer, Jim Clark. James Clark: Thank you, Jim, and good morning, everyone. I appreciate you taking the time to join us today. This morning, we're going to be reviewing our first quarter results for fiscal year 2026. As you likely saw in our earnings release, we closed the first quarter with strong performance across the board. Both our Display Solutions and lighting businesses achieved double-digit growth, and I'm very pleased with our continued momentum and encouraged by our robust pipeline of opportunities in both new construction and remodels as we move towards calendar year 2026. LSI has established a solid footing in the vertical markets we serve. We continue to broaden our portfolio of products and services while building stronger awareness of our capabilities across these markets. There's a lot to cover in terms of our Q1 performance, and Jim Galeese will walk through the specifics and the financials in a few minutes. But before we do that, I wanted to shift to 2 topics that have been on the top of my mind over the past year. First, our investor outreach. Over the past several months, LSI has expanded our engagement with the investment community, attending more conferences than usual, including a major industrial conference in Chicago next week and another in California shortly after. These events bring together investors with varying familiarity with LSI. And what stands out to me most is how much that understanding and misunderstanding of LSI has evolved over the last 5 years. Today, even those new to LSI have a much clearer picture of what we do, the customers we serve and the opportunities ahead. In the past, many thought of us as only a lighting company. We'd spend much of our time explaining our broader capabilities, such as refrigeration, print and digital menu boards, in-store kiosks, countertops, checkout stands, beverage centers, bakery cases, and so much more. The conversation is easier today, but I can still sense curiosity about the full scope of what LSI offers and why I believe we're creating an entirely new category of integrated solutions for our customers. Six years ago, LSI made a strategic decision to focus on a select group of vertical markets. We chose those vertical markets based on our existing strengths and on the disruption within those markets that we expected would create long-term growth opportunities. Today, we serve a number of evolving markets, including grocery, convenience stores, refueling, quick-serve restaurants, sports lighting, warehousing, automotive, and a dozen or so others. In each of these markets, our goal is simple: to offer a comprehensive range of products and services that makes LSI a true one-stop partner for our customers. Think of us as the Home Depot or Lowe's of the vertical markets we serve. A customer may reach out to us for lighting, much like a shopper goes into Home Depot for a gallon of paint, but we can provide far more, and that's where the real opportunity lies. Very few competitors can match the breadth and depth of what LSI offers. For example, a grocery customer might contact us about indoor lighting or open-air refrigerated displays. That initial discussion often expands to include other areas such as bakery cases, checkout counters, produce displays, aisle markers, deli counters, beverage centers, et cetera. The same is true in gas stations and convenience stores and quick-serve restaurants, and others. What begins as a single product or solution offer grows into multiple opportunities. Now I realize that most of you on the call today understand this well. But I wanted to take a moment to just reinforce how much potential this model continues to create for us. Our vertical markets are growing, our offerings are expanding. And because of this, I see significant runway ahead of us. The second topic I want to touch on is seasonality and the year-over-year comparisons that arise from time to time. Last year, around this time, the grocery industry was navigating uncertainty surrounding a proposed merger between 2 of the largest U.S. grocery chains. When that merger was ultimately abandoned in Q2, the grocery sector resumed its expansion and renovation activities. That shift, along with other activity and opportunities in our refueling markets, created a surge of demand for LSI in Q2 of last year, particularly in our Display Solutions. It resulted in more than 100% growth in our Display Solutions segment during Q2. About half of that growth was organic, driven largely by over 60% organic growth in the Grocery segment alone. I mentioned this not to provide guidance or caution, but simply to note that Q2 comparisons this year will naturally reflect that extraordinary period of growth last year. And year-over-year results may not match last year's exceptional levels. I'm bringing it up early just in case it comes up later. Lastly, a few words on our integration progress. As I shared last quarter, both EMI and Canada's best store fixtures are exceeding our expectations. From an integration standpoint, I'm very pleased with our progress and with the progress we have underway. Alan Harvill, who leads EMI, and Nelson Westley of JSI, are currently developing a plan to align our entire sales and manufacturing operations across both platforms. That effort will take time, likely the better part of a year, but it will drive significant efficiencies and unlock new opportunities for those businesses and our broader business. Canada's Vest, which joined us just over 6 months ago, delivered one of their strongest quarters in their company's history. The integration has been strong and seamless, and we're thrilled with their performance. As always, the foundation of LSI's success lies in our culture, a culture that's built on accountability, adaptability, and what we call a high say-do ratio. This mindset continues to drive our growth and our execution excellence. And I want to sincerely thank the entire LSI for their commitment and focus. Looking ahead to fiscal and calendar year '26, we remain dedicated to advancing our Fast Forward strategic plan. Internally, this will be a year of focus on our people, developing talent from within, optimizing our processes, and finding new ways to improve our day-to-day operations while continuing to provide superior service to our customers. Again, I just think there's a lot of opportunity in front of us, and I'm thrilled. In closing, I want to thank you for your continued confidence in LSI. We have tremendous opportunities ahead of us. I'm excited about what we'll achieve together. With that, I'll turn the call back over to Jim Galeese for a more detailed look at our financial performance. James Galeese: Good morning, all. Q1 was a solid start to our fiscal '26 year with sales of $157 million, adjusted EBITDA of $15.7 million, and an EBITDA margin rate of 10%. Adjusted earnings per share improved to $0.31 compared to $0.26 in the prior year quarter, an increase of 19%, all achieved while successfully managing a challenging environment of tariffs, material input cost fluctuations, and component availability. Sales of $157 million represents a 14% increase versus Q1 last year, with organic or comparable sales increasing 7% in the quarter, driven by continued growth in lighting and sustained high performance in Display Solutions. Sales also increased modestly sequentially, carrying forward the momentum from our strong fourth quarter of fiscal '25. Next, a few comments on the performance of each of our 2 reportable segments. Lighting first-quarter sales increased 18% versus prior year, following fourth quarter fiscal '25 sales growth of 12%. Several areas are contributing to the double-digit growth rate, starting with our vertical market approach. Our priority verticals are outperforming broader non-resi construction indices, providing a larger market opportunity. Secondly, we believe we are gaining market share as our purpose-built products provide features and functions, which outperform competitive products. This, combined with our domestic production, lead time, and delivery capability provides a competitive advantage. We have converted multiple end customer accounts to LSI in recent months, and we are aware of at least one competitor who has experienced significant delivery issues. Recent lighting order levels suggest year-over-year sales growth will continue in the fiscal second quarter. Our team has been successful in managing the broader supply chain challenges, impacting primarily the Lighting segment. Our strong focus on margin management, along with increased volume generated a 170 basis point improvement in gross margin and 43% increase in adjusted operating income. Moving to Display Solutions. Demand activity remains at a high level, with total sales increasing 11% in the first quarter. Performance was led by the continued recovery in the grocery vertical and sustained program site release activity in refueling C-store. Multiple programs continue in refueling C-store, including a large national program projected to continue through the end of calendar year '26. As mentioned in the press release, proposal and concept work for future programs continues with multiple customers. In October, the largest C-store chain in the U.S. published plans to build hundreds of new stores over the next several years, deploying a larger store footprint and focus on in-store and beverage sales. The secular growth outlook for the refueling C-store vertical remains favorable. Steady demand patterns continued in Q1 for refrigerated and non-refrigerated display cases in the grocery vertical. Grocery customers continue to formulate their go-forward investment plans, but planning guidance remains short-term. We continue to effectively manage demand with the guidance provided. Our focus on designing products for specific applications applies to display solutions in addition to lighting. In the first quarter, we were awarded a multimillion-dollar display case project for a large national grocer based on the quality and functionality of our products, as we were not the low-cost bid on the project. Canada's Best Holdings, acquired in March of this calendar year, delivered an exceptional quarter. We remain excited about the opportunities within the growing Canadian market, where we serve multiple verticals, including our strong, established presence serving banking and financial institution customers. LSI has produced solid cash generation in the last several years, and we expect to deliver solid cash flow again in fiscal '26. Free cash flow for Q1 was slightly negative, however, as improved earnings were offset by an increase in working capital, specifically an increase in accounts receivable. The receivables increase was driven by 2 factors: timing of sales in the quarter; and secondly, an inadvertent delay in project billing for 2 large accounts. The delay was a result of these customers changing their invoicing address, and the change not properly communicated and processed. These are large, long-standing blue-chip customers, and the invoicing has been updated. These receivables will be current in Q2. Lastly, with our current credit facility approaching 1 year before expiration, we amended and extended the existing facility. The amended facility increases our availability to $125 million and extends the term for 5 additional years to September 2030. This further ensures we have the liquidity to support the strategic growth of the business moving forward. Exiting the quarter, we have more than $80 million of available liquidity, while net leverage remains below 1x. I'll now turn the call back to the moderator for the question-and-answer session. Operator: [Operator Instructions] The first question is from Aaron Spychalla from Craig-Hallum Capital Group. Aaron Spychalla: First, on our end, maybe just starting with Lighting. Obviously, a good quarter. It sounds like the outlook is good there. And most of it seems like it's coming from volume. Can you just maybe talk about volume versus price there? And then just how you're thinking about growth and kind of margins in that business as we look towards fiscal 2026? How does that pipeline and kind of book-to-bill look in that business? James Clark: Aaron, Jim Clark here. Thanks for the question. Thanks for joining the call. Yes, I mean, it's almost exclusively volume. Our pricing has been fairly stable here for at least a couple of quarters, a little bit incrementally up. But for the most part, it's been stable. The majority of that increase you're seeing in lighting is definitely volume. We've been -- we benefited from a couple of very large opportunities that we've gotten pieces of over the last 2 quarters, and I think that we're going to see even more in the coming quarters. Jim, I don't know if you want to talk about. James Galeese: Yes, Aaron, Jim G here. Just to add on to what Jim said, yes, we feel very confident about our lighting business where it's positioned. We referenced that we've been successful in several key account conversions that's going to provide a nice stable business moving forward. And our team, I got to give our team credit. They're doing an excellent job managing the whole tariff, and some instability in the supply chain driven by tariffs. We take -- we have a very strong focus on our project quotation process, ensuring we're referencing the most current costs, et cetera. So this effective project quotation process, along with the volume, is what allowed us to achieve this 170 basis point improvement in gross margin. And as I mentioned in my comments that we see this growth carrying forward into Q2. Aaron Spychalla: And then I appreciate the commentary on seasonality and kind of the rapid snapback we saw in grocery last year. But it still sounds like the pipeline is strong there. You're expecting growth for the full fiscal year. Can you maybe just talk a little bit about what you're seeing there? Is it kind of more rational measured spend from your grocery customers? Yes, just some color there would be helpful. James Clark: Yes. So 2 things on that, and I thought we would be kind of proactive on our comments relative to that, just to reset the stage a little bit. Number one, Q2 of last year, we had growth in grocery, obviously, because of the settlement on the merger on the proposed merger, and there was all that pent-up demand. And as you know, when we got that slug of business, we had to really -- we had to staff up. We had to bring materials in quickly. And we made a strategic decision back then to do that and serve the customers based on a number of the quotes they had in front of us, and a number of -- in front of them, and a number of the commitments we had made. And I think it served us well because I do feel as though a lot of that has stabilized now, and our order patterns are getting back to much more normality, a greater deal of normality in terms of customer request and demands for delivery, and that type of thing. Remember that typically, in our Grocery segment, the time between November 1 and we'll say, Valentine's Day is kind of a hands-off. The stores want to focus on stocking up their stores, being ready for Thanksgiving, Christmas, New Year's holiday. And that goes right on through basically Valentine's Day and some a little bit longer. Last year, all of that was ignored because they had deferred a lot of maintenance, and they had across the industry, by the way, it's not just 1 or 2 customers. It was across the whole segment. The next thing I wanted to say about that was we also had a pretty good jump in some of our C-store and petroleum in-display solutions right at that same time last year. I think this year is a more normal rhythm, although we still have growth in it. So I'm very encouraged about the direction we're going. I'm just trying to call out the fact that if you look at Q2 of last year compared to Q2 of this year, we're likely not to have 100% growth, right, 50% of which was organic. James Galeese: And Aaron, I'll just add to that. Our best forward indicator about activities and so forth is our involvement in proposal and concept work with these companies. And I think we mentioned in the press release and our comments both that, that activity remains very healthy. So that's a pretty good barometer as to how we see these markets develop over the next 12, 24 months. Aaron Spychalla: And then maybe just one more, if I could. On operational efficiency and kind of capabilities, Jim C, you kind of touched on staffing up and bringing materials in. I mean, can you just kind of talk about some of the priorities from an operational standpoint here in FY '26, maybe in the coming quarters? James Clark: Yes. Well, I did make a comment in my prepared remarks that -- and I've made this in our last quarter call, too, we're putting a lot of time and effort into our people this year. I mean we always take care of our people. It's a people-first business. We don't make anything that other companies don't make. We just think that we deliver it in a much better and more efficient manner. And that starts with our people. And we are looking for that operational efficiency. We are turning the dial in collection with our people to look for ways that we can be more operationally efficient. And that's part of that story on our way to 12.5% EBITDA, that efficiency has to be there, and we are putting that time and effort in there, and I'm very happy with the progress we continue to make. Operator: The next question is from Alex Rygiel from Texas Capital. Alex Rygiel: Nice quarter. As it relates to Lighting, you mentioned that it could be up in the second quarter. How are you thinking about growth for the balance of the year in Lighting? James Clark: We feel encouraged. We think that there's a lot more -- Jim just mentioned a minute ago, a lot of our business, it has an 18- to 24-month development cycle. And so things that we have been working on for the better part of a year, in some cases, longer, those are really starting to materialize now. And we look at that along with our -- what we'll call our kind of flow business, the business that comes in through our agency network, and that type of thing. And we're very encouraged by what we see in lighting. I want to go -- I don't want to get too far out over my skis, but I anticipate that we'll continue to see growth in lighting through the year. James Galeese: Yes. I'll just add to Jim's comments that we had commented in the prepared remarks that our primary verticals where we focus lighting, they are healthier than the broader nonresidential or commercial market. So number one, that provides opportunity. And then secondly, we are making -- we continue because our products are built for specific applications, not just general applications, continuing to make share inroads with certain key accounts to enable us then to improve and grow our share position. So the combination of both gives us a -- we're -- as Jim said, we're optimistic about the lighting projection for the balance of the fiscal year. James Clark: And I would say I'm enthusiastic on top of it. So we'll see how that plays out, but we feel pretty good. Alex Rygiel: And then as it relates to the C-store outlook, and it included the possibility of rolling out of one large project and into another fairly large program pretty smoothly in 2026. Is this still tracking? Or could you possibly stack the second one? James Clark: Well, we have the capability to stack the second one. And in almost all cases, we're working multiple projects. This is not one project to another. We always have overlap. In some cases, we have 3 or 4 projects simultaneously going on. One may be a smaller project, one is rolling off the end of their large remodel, the new big ones coming in, and then we have 2 or 3 that are infill there. But I'd say from a capacity standpoint, we have at least 20% capacity to take on additional projects. And we have a whole kind of second wrong to the ladder, if you will, that we're able to enable if the projects take off beyond that. We work a first in skeleton second shift right now. So from a utilization standpoint, just staffing up our second shift gives us another 20% on top of the 20% we have right now. So we have the capability to kind of expand. A lot of it's timing. And the way it tends to work out, I don't know how these guys know what each other is doing, but I will tell you that -- and I'm talking about a subset of 20-plus customers, they all kind of know when somebody is making a big program investment. And it's just kind of interesting how they layer in. I'm not concerned about our capacity capability. Alex Rygiel: And then if I can ask one last question. Grocery is down in the second quarter, yet up for the year. Can you talk about your confidence and visibility into achieving this growth for 2026? James Clark: Yes. Well, I mean, I think what we are pointing out in terms of second quarter is just that there's some seasonality that was unique last year. The grocery industry as a whole tends to really monitor what's going on in the stores during November, December, January. Those time frames are very busy for them. They put a lot of inventory on the floor to deal with the rush that comes in. They really don't want a lot of construction going on inside the store during that time. And last year represented kind of an anomaly. That doesn't mean that the business just goes to 0. We still have a lot of kind of stock and flow business that we're doing. And I mean that in the sense that we've got orders and we've got prescheduled installation, and we're doing things at night and all of that. But if you look at it on a comparative basis to last year, I just want to kind of remind everybody that there was a slug of business that came in last year that was pent-up demand. Overall, we think the demand is higher than prior year's levels. And in Q2, we anticipate that if you normalize last year, you would see growth -- continued growth in Q2. You're just not going to see the 100% growth and the 50% organic growth, which grocery made up almost 60% of that organic growth. So I just want to kind of temper everybody. Operator: The next question is from Amit Dayal from H.C. Wainwright. Amit Dayal: Most of my questions have been already discussed, guys. But from a pricing improvement perspective, are we getting close to being capped on that front? And what potentially could be the impact on future margins if that were to play out? James Clark: Amit, you were saying, are we getting -- I missed that one word. Amit Dayal: Are we getting it to the top of our pricing? Or I guess I missed that. Yes. At least for the near term, do you feel like you may be sort of being constrained at this point given sort of inflationary hesitancy in the market from being able to raise prices maybe the way you have been able to over the last 18 months? James Clark: I mean I think that we brought this up before. We're the best partner our customer is going to have because we're not trying to overleverage the inflation or materials pricing going up. We work very hard to be fair and deliver a fair product for a fair price. It's interesting to see the variability in terms of the actual effects that flow through on tariffs and all of that. So the agreements that we have with the majority of our customers is if the material input price goes up, our selling price is going to go up. But if it goes down or if it's holding, we're going to hold that with the customer. So I mean, I think that there's still going to be some price variations going on, driven by input costs. But I mean, I think we're holding a fair price. I think we're going to hold it. I don't think that our customers are going to be pressuring us for lower prices. I think we're competitive, but I think we're delivering a fair price -- fair product a good product, a great product for a fair price right now. James Galeese: Amit, I would just add that, as you know, we're principally a project business, right? And I commented then on our quotation process and so forth, and how, therefore, we can adapt quickly to any changes in things such as material input costs, as Jim mentioned. Looking forward here, tariffs and other things have become more stable. So we do look in the near term for things to be stable along the pricing front. Right now, we don't see a need to make any kind of sizable changes there. However, we remain very alert to any changes that may occur in our cost structure, particularly around material input costs. The team is doing a good job, as I mentioned before. James Clark: Yes. And I think that Aaron had the first question was asking about what's volume and what's price. And you're seeing -- I'd say the majority of what you're seeing in increased sales is volume. where the pricing, we remain alert to it, as Jim was just saying, but we're taking -- we continue to take share and our -- what I was trying to underline a little bit in my prepared comments was the whole theme of us being able to be a one-stop shop and offer more continues to take hold, and that represents volume for us. So we're very happy about it. Amit Dayal: And just the recent sort of reemergence of these headlines around some consumer softness, some of these retail-oriented stocks have pulled back quite substantially. You play into some of these sectors. Any view on sort of how the macro environment for you is looking like? I mean, it seems -- you seem pretty positive about the next few quarters at least. But any sense of whether there is some hesitancy with customers in terms of how they are planning future investments, given some of the recent softness. If you can share any color on that, I think that would be helpful for everyone. James Clark: Yes. Well, as we were just mentioning a minute ago, a lot of our business is project-based business, right? So these projects tend to be well thought out, 18- to 24-month development cycle. And then in some cases, anywhere between 6 and 18 months of a deployment cycle, in some cases, longer. We have not picked up on anything that will disrupt that. But I will tell you that if they are facing headwinds, we are part of the solution. We're not just an expense. We're an investment because when they're investing in their stores, when they're investing in the environment that their customers are engaging in their stores, there is a direct correlation between increased sales and the products and the services we deliver. When a customer makes a decision to invest in the aesthetics of their location, when they make the decision to invest in the feel and the look and feel of their location, those all translate to increased sales for them. So we're part of the solution as opposed to being part of the burden or part of the caustic equation. We see the petroleum market and the C-store market continuing to grow. When you look at entrants like Wawa and Sheetz and Bucks, and Circle K, and all of these folks that are real leaders in that C-store market, we see continued growth. We see continued growth in the big oil locations, Texio, ExxonMobil, these guys that are now competing with these new entrants. They want to make sure they maintain their position and share. Grocery continues to grow. I mean, grocery has had some pent-up demand, like I said, overall, the industry did through those merger discussions. And it was mostly around -- if you were a competitor to any one of those 2 that were thinking emerging, you were like, okay, where am I going to have to compete and where am I going to have to invest? -- with better clarity around that right now, I think that we continue to see growth and investment in that. And in QSR, we're seeing -- maybe that one is a little disrupted. You're seeing spurts, what I'll say is spurts. One guy is up and investing, and another guy is staying holding steady. So maybe within those top 3, as it relates to Display Solutions, we're seeing a little bit more disruption there. But again, nothing that causes us great concern. The other markets, we see a lot of growth in our sports court. Warehousing is actually recovering. I would say that 1.5 years ago, there was kind of more headwinds, and warehousing is picking up activity again. So overall, if I look at a broad swath of our markets, I feel pretty good. Operator: The next question is from George Gianarikas from Canaccord Genuity. George Gianarikas: I just had one question, and any thoughts on the M&A environment? James Clark: George, good to hear you. And yes, I mean, we remain very active. I do think that as we benefited over the last few years of the successful acquisitions we've done. I think every time we're able to talk about an acquisition, in this case, Canada's best had almost a record-setting quarter for them. I think that, that bodes well for us. It talks to the market. It talks to the owners of these businesses. They like to hear that success story. I think that the interest rates have helped clip the wings a little bit of the PE multiples that sometimes are out there. We heard a comment the other day that there's more PE firms in the U.S. right now than there are McDonald's franchises. And why that's important to us is because in many cases, those are competitors of ours when we're looking at different opportunities, different acquisition opportunities. I think we remain well invested. We spend a lot of time doing our own self-origination, meaning creating relationships with businesses that we think would be a synergistic fit with LSI. We try to engage owners maybe before they're even thinking of selling. We try to create those relationships. And it's just investment kind of like planting a seed. So I think our pipeline looks very good right now. I think that we've demonstrated to our shareholders and our employees, and our customers that we're good stewards and we execute well at this. We respect the cultures of the businesses we look to acquire. I feel pretty good about our pipeline, and I'm hopeful that 20 -- our fiscal year 2026 will yield some benefits in terms of the M&A side. James Galeese: And as you know, George, ours is a vertical market-based strategy versus a product strategy approach. So as a result in M&A, we cast a wide net, right? And so through the years, you've seen that us acquiring companies that get us into product segments that we were not in previously. And why is that? Because it fits so well into our vertical market strategy approach. Operator: There are no further questions at this time. I'd like to turn the floor back over to Jim Clark for closing comments. James Clark: I just want to say thank you again for everybody taking the time to remain invested and connected with LSI and what we're doing. I feel very good about fiscal year '26. I think we have a lot of runway in front of us. I really feel like we're -- we continue to gain traction in our whole vertical market thesis. Our customer base, our competitors are -- better understand how we compete and how we work in the market. And I believe all of those things bode well for us. Even I just said -- I mentioned competitors on purpose because they understand that we're competing quite differently, right? It's not just in there competing on one product we have or one element that we're manufacturing. It's more of a true solution set -- and I think that, that drives higher value for our customers and higher value for our shareholders and our company. So I'm very encouraged about what the future holds. And I'm hopeful that here on our next quarter, we'll even have more good news to share. So with that, I'll say thank you, and good day. Operator: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Ladies and gentlemen, welcome to the Addiko Bank Results Q3 2025 Conference Call. My name is Youssef, the Chorus Call operator. [Operator Instructions] This conference is being recorded. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Herbert Juranek, CEO. Please go ahead. Herbert Juranek: Good afternoon, ladies and gentlemen. I would like to welcome you to the presentation of the results of the third quarter 2025 of Addiko Bank AG on behalf of my colleagues, Sara, Ganesh, Edgar and Tadej. Let me show you today's agenda. In the beginning, I will present to you the key highlights of our results. Ganesh will continue with our achievements on the business side. After that, Edgar will give you more details on our financial performance. And Tadej will inform you about the developments in the risk area. Finally, I will do a quick wrap-up before we go on to Q&A. So let's start with a quite positive note. I'm happy to inform you that in Q3, we achieved a record operating performance with an operating result of EUR 31.2 million quarter-to-date due to a strong business performance of our team and due to good cost management. This represents the highest quarterly operating results so far, achieved entirely under the new business model. On a year-to-date basis, the operating result ended up at EUR 82.9 million despite the significantly lower interest rate environment and based on our measures to manage the inflation-driven updrift of our administrative costs. The strong business performance is based on a 17% growth rate in new consumer lending business and on a 9% growth rate in new SME lending business. However, the positive effects from new business were, to a certain extent, neutralized by lower income from variable back book and national bank deposits as well as by repayments of loans driven by aggressive competitor attacks. Nevertheless, we were able to grow our net commission income by 7.8% year-on-year or even at 12.5% if you compare the third quarter with the third quarter last year. Moreover, we managed to expand our active customer base by 5% year-on-year. Altogether, we could keep our net banking income stable, compensating the mentioned negative effects. Let's briefly comment on our risk performance. We were quite successful in reducing our NPE volume further to EUR 140 million at the end of Q3 compared with EUR 145 million at the end of 2024. Our NPE ratio is kept stable at 2.9%, while our coverage ratio continued to improve to 82.2% from 80.8% at the end of June. Our cost of risk on net loans ended up at 0.7% or EUR 25.5 million compared to EUR 25 million last year. Tadej will give you more details on the risk development later. So in summary, we achieved a net profit of EUR 11.3 million in Q3, which results in a year-to-date profit of EUR 35.3 million at the end of the third quarter 2025. Consequently, the return on average tangible equity stands at 5.6% and the earnings per share at EUR 1.83. The funding situation remained quite solid with EUR 5.2 billion deposits and a loan-to-deposit ratio of 69%. Our liquidity coverage ratio is currently very comfortable, above 380% at group level. And finally, our capital position continues to be very strong with a 21.3% total capital ratio, all in CET1, based on Basel IV regulations. Now what else is worthwhile to mention? As presented in our last earnings call, we have laid the operational foundation for our market expansion into Romania in the first half of 2025 and started our fully automated consumer lending business based on a very diligent and prudent risk approach. On that basis, we have started at the end of August with a 360-degree marketing campaign to raise awareness, to build the brand, to position our product and to start generating business. The campaign included TV and out-of-home advertising as well as digital integrated marketing campaigns and was able to create noise and positive reactions in the market. Despite significant parallel marketing efforts by incumbent banks, we view this initiative as a strong starting point for building our brand in a new market and is a solid foundation for continued marketing activities to drive sustained traction. Ganesh will provide further details in his section of the presentation. Now let's come to a different topic. In 2024, Addiko decided to get a listing on the Frankfurt Xetra platform to improve the trading liquidity and to increase the attractivity to a wider range of potential investors. Now after 1.5 years, based on the very limited trading volume in Frankfurt and due to the given changes in the shareholding structure, we concluded to discontinue the Xetra listing in Frankfurt as of 1st of January 2026, as the defined targets were not met. Concerning our ESG program, I would like to inform you that all initiatives are on track and progressing as planned. You will find more information in the appendix of the presentation. Next page, please. Unfortunately, I have to inform you about several unpleasant changes driven by local governments and local regulators with significant impacts to our business revenues. I will explain them country by country. In Croatia, we are confronted with a series of measures with severe impact on our earning capacity. As of 1st of July this year, the Croatian National Bank introduced preventive macro potential measures restricting consumer lending criteria. Amongst other regulations, a debt-to-income ratio of 40% for nonhousing loans was introduced. The effect of this new rule was already visible with an approximately 30% reduction of our new consumer -- Croatian consumer business generation in the third quarter vis-a-vis last year. Now the experience with our respective vintages does not provide the evidence that such a measure was needed. Moreover, we anticipate detrimental consequences for the concerned customers as those affected may be excluded with their loan demand from the banking system and cover it with unregulated providers. Tadej will give you more background later on. Furthermore, the Finance Ministry of Croatia supported a new regulation to restrict and cut banking fees as of 1st of January 2026. This means that we have to offer free account packages, which shall include opening, maintaining and closing the account, Internet and mobile banking, depositing money, issuing and using debit cards, incoming euro transactions and executing payments with debit cards. Additionally, we have to provide a fee-free channel for cash withdrawals for all customers, while for pensioners and vulnerable client groups, both ATM and branch must be free of charge. On top of that, from the 1st of January 2027, 2 cash withdrawals on ATMs of other banks must be offered for free. All of that eats directly into our core business revenues. And one can ask the question, why do banks have to provide such core services for free? In Serbia, starting with the 15th of September, the National Bank of Serbia asked all banks to reduce the interest rate by 300 basis points to maximum 7.5% for citizens with an income of up to RSD 100,000 per month. This reflects almost the average salary in Serbia. In addition, no loan processing or account maintenance fees shall be charged. Unfortunately, this will affect the vast majority of our customers. In the Republika Srpska, the banking agency decided to restrict specific banking fees. As of 9th June 2025, fees for credit party account maintenance, ATM account balance checks and for sending warning letters of delayed payments are not allowed anymore. And finally, in Montenegro, effective 1st of November 2025, a new regulation will introduce a debt-to-income cap of 50%. This will be accompanied by a restriction on maximum interest rates, limiting them to no more than 100% above the average consumer rate in the market, including non-payroll loans and credit cards. Now to summarize. Altogether, the measures depicted on this page would lead to an unmitigated potential impact of just above EUR 10 million on our revenue base. Nevertheless, we are actively working on solutions to mitigate these effects and to create new offers to our customers to enable new growth opportunities. Now with that, I would like to hand over to Ganesh to give you more insights on how we are reacting in this respect and first of all, to inform you on our business development. GaneshKumar Krishnamoorthi: Thank you, Herbert. Good afternoon, everyone. Moving to Page 6, I'm pleased to report strong third quarter performance in our Consumer segment, delivering 17% year-over-year growth in new business with a premium yield of 7.2%. This was achieved despite a persistently low interest rate environment and supported 9% year-over-year growth in the loan book. On the SME side, the new business origination grew 9% year-over-year with a solid yield of 5.1%. However, we continue to face a challenging market with competitors sharply lowering prices to stimulate demand. This has prompted many existing clients to repay loans early, particularly those with higher fixed rates originated last year. As a result, the SME loan book declined 2% year-over-year, mainly due to reductions in large tickets, medium segment loans. I will share more updates on SME turnaround plan on the next page. Overall, our focused loan book grew 5% year-over-year, and this focused book now accounts for 91% of our total loan portfolio, underscoring our strategy to prioritize high return and scalable lending. Please turn to Page 7 for a detailed outlook. Let's take a closer look at our Consumer segment. Year-to-date, we have delivered double-digit growth while maintaining premium pricing, driven by several key factors: number one, strong market demand across our core geographies. Number two, the launch of fully digital end-to-end lending with zero human interventions in 4 of our core markets clearly differentiates us from the competitors. Number three, our point-of-sale lending proposition continues to perform well, achieving 17% year-over-year growth. Number four, we have identified a sweet spot between growth and pricing, enabling us proactively to retain customers and the loan book through disciplined repricing actions. Number five, additionally, we are redesigning our mobile app, introducing new card features with Google Pay and Apple Pay integrations, which has contributed to an 8.5% year-over-year increase in net commission income. As Herbert mentioned, our business model has been affected by new regulatory restrictions. We are already implementing mitigation measures, including downselling, introducing core debt structures and focusing on high-quality customer segments with larger ticket size. Furthermore, we are developing a new specialist program that focuses on non-blending products, aiming at fee-based income growth, and we will share more details once the program is launched. We are confident that these initiatives will not only offset regulatory headwinds, but also strengthen the foundation for sustainable quality growth going forward. Over to SMEs. Our core business model remains unchanged, to be the fastest provider for unsecured low-ticket loans to underserved micro and small enterprises through our digital agents platform. As mentioned earlier, we are facing market challenges due to aggressive pricing, which has led to some loan book contraction. However, we are now seeing a recovery in the market demand. And to reignite growth, we have taken several strategic actions. Number one, our turnaround plan in Serbia, supported by new leadership team, is delivering 20% year-over-year growth in new business. In fact, all countries are recording double-digit growth, except for Slovenia. Number two, we are placing strong emphasis on retaining quality clients and the loan book through better pricing, loan prolongations and superior service delivery. Number three, we also have broadened our product range while maintaining our focus on unsecured loans, we are also expanding to secured investment loans with slightly higher ticket sizes, targeting both existing and new customers. And this has resulted in a 69% year-over-year increase in investment loan volumes. Finally, we have launched a new digital SME tool to process high-ticket loans with a greater speed and simplicity, providing a clear competitive advantage. Overall, we believe these initiatives positions us well to return to a sustainable growth in the SME segment going forward. Lastly, let me touch on our progress with AI adoptions. We are investing in AI technologies to enhance efficiency and customer experience across the organization. Two AI-driven applications are already live, one supporting employees with HR-related inquiries and the other assisting our call center by analyzing customer inquiries, feedback and creating responses. Additionally, we are exploring AI use cases in IT, risk and marketing, further strengthening our operational excellence and data-driven decision-making. To summarize, 2025 is a transitional year, focusing on refining our SME business model and launching new USPs that enhances speed, convenience and value across consumer and SME segments. These investments are essential, not only to drive future growth, but also to strengthen our specialization, stay ahead of the competition, compensate regulatory restrictions and justify high-margin premiums in a low interest rate environment. We are building the foundation for stronger, faster and more profitable growth in the years ahead. Please let me hand over to Edgar. Edgar Flaggl: Thank you, Ganesh, and good afternoon, everybody. Let's turn to Page 9 for an overview of our performance in the first 9 months of 2025. Despite a challenging interest rate environment and cost pressures, we delivered stable results, supported by resilient consumer lending, strong fee income and a robust capital position. Now let's take this one by one. Our net interest income came in at EUR 177.8 million, a slight year-on-year decrease of 2.2%. This marks a modest recovery compared to the 2.4% year-over-year decline, as reported in the first half this year. The decline was mainly due to the lower interest rate environment, which impacted income from our variable back book, so roughly 14% of our book, [ 1-4 ], and on National Bank deposits. As a reminder, the ECB implemented 8 rate cuts since June 2024, totaling a reduction of 2 percentage points, a faster pace than we initially anticipated. This also caused pressure on interest rates we can charge on new loans. Importantly, our Consumer segment performed quite strong with interest income up 7.3%, driven by 9% growth in the consumer portfolio. Overall, the focus portfolio grew 5% year-on-year, slightly ahead of the previous quarter. On the fee side, we delivered solid growth. Net fee and commission income rose 7.8% to EUR 57.8 million, driven by bancassurance, accounts and packages as well as card business, which altogether grew 11.6% year-on-year, with bancassurance as a key contributor. Now looking ahead, new regulations, respectively, law in Croatia, limiting fees on banking products will have an impact on fee generation going forward. Coming back to the end of the third quarter, as a result, net banking income remained stable at EUR 235.6 million despite the challenging environment. Our general administrative expenses in short OpEx increased slightly to EUR 144.5 million, up just 1% year-on-year, and that's mainly due to wage adjustments and operational updates as well as increases. When excluding the 3 million in extraordinary advisory costs related to takeover of [ what we had ] last year, operational costs were only up 3.2% year-over-year. Our cost-income ratio came in at 61.4%, which is a tad higher than last year. The operating result landed at EUR 82.9 million year-to-date, down only 0.8% year-on-year, supported by an exceptionally strong operational third quarter, as Herbert pointed out already. The other result, which includes costs for legal claims as well as for operational banking risks, remained manageable. We have allocated some additional provisions for new legal claims in Slovenia and made a small top-up in Croatia, also to reflect further increased lawyer costs. The main point in Slovenia remains what the higher courts will rule upon regarding the applicable status of limitation and if that will be in line with the dominant legal opinions. As usual, during the fourth quarter, a further deep dive will be conducted in the context of the year-end audit. So there is a possibility for some additions here. When it comes to risk costs, our expected credit loss expenses were EUR 25.5 million, which translates to cost of risk of 0.7% on net loans year-to-date. Tadej will provide more insights in just about a moment. All in all, we delivered a net profit after tax of EUR 35.3 million for the first 9 months. As of today, we do expect the fourth quarter contribution to be less pronounced. So while operating in a challenging rate environment and managing high cost pressures, our focus business remain resilient. And we are seeing solid momentum in our consumer lending and fee-generating activities this year, while also SME lending has started to pick up again in September. Turning to Page 10 and our capital position, which remains a real strength. Our CET1 ratio remained at a very robust 21.3% at the end of the third quarter. For context, that's only slightly down from the 22% at the end of 2024, which was under Basel III rules, while third quarter is calculated under the new Basel IV or call it CRR3 rules. You will notice that our risk-weighted assets increased, and that's mainly driven by changes in risk weighting under Basel IV as well as the new interpretation of EBA guidelines on structural FX, which we already discussed on the back of the half-year results. Looking ahead, we recently received the final SREP for 2026, which includes a small increase in our Pillar 2 requirement, up by 25 basis points to 3.5%, while the Pillar 2 guidance stays unchanged at 3%. So in line with the draft that we disclosed earlier. In summary, our capital position is very strong, giving us a solid foundation for future growth and the flexibility to navigate regulatory changes with confidence. With that, I'll hand over to Tadej for more on risk management. Tadej Krašovec: Thank you, Edgar, and good afternoon, everyone. Let me walk you through the credit risk section for the first 3 quarters of 2025. I'm glad I can report that in the first 9 months, we achieved excellent collection from defaulted clients, surpassing our goals and positively impacting loan loss provisions. At the same time, we managed risk rules dynamically and decisively to keep portfolio quality and NPE inflow under control on the group level. All that led to the NPE decrease, low NPE ratio and the level of loan loss provisions. I will talk about on this on the next page. As we see on the right-hand side of the slide, NPE portfolio decreased by EUR 2.5 million in the last quarter, which brings it to the EUR 4.9 million decrease on a year-to-date basis. NPE volume decreased to EUR 140 million, which is reflected in a stable [ NPE ] ratio of 2.9%. Short-term NPE initiatives are still ongoing, like, for example, further portfolio sale to dynamically drive further NPE portfolio reductions. At this point, I would like to refer to local limitations that central banks are imposing and were before mentioned by Herbert, specifically DTI limitations. Although these regulations will restrict more indebted and therefore, higher risk clients from obtaining larger loans with banks, which will result in an improved consumer portfolio quality; the excluded clients do not have a risk profile that would not be acceptable for Addiko. For context, clients who are no longer eligible due to new regulation limits have on average a default rate twice as high as those that remain eligible. However, the default rates in both groups remains below 2%. Using nearly 10 years of consumer behavioral data, we know that clients who have become noneligible demonstrate a risk profile well aligned with Addiko's business model and profitability objectives. Before going to the next page, let me revisit the topic from the previous calls. This is consumer portfolio in Slovenia. We see that smart risk restrictions implemented in the previous months have already a positive impact on the portfolio quality, which is getting gradually closer to our expectations. Let's move on to Slide 11. Loan loss provisions amounted to EUR 25.5 million in the first 9 months of 2025, resulting in a cost of risk of negative 0.71% on net loans basis. Segment breakdown is as follows: in Consumer, we recognized minus 0.7% cost of risk; in SME, minus 1.3% cost of risk, while nonfocus contributed to loan loss releases with a positive cost of risk of 1.6%. Development in SME segment was impacted by a black swan event, which represent almost 1/5 of loan loss provisions recognized in 2025. We talked about this case already in the previous earnings call. Loan loss provisions also include additional post-model adjustments recognized in the third quarter in the amount of EUR 3 million. The post-model adjustments will be netted out by model changes that will take effect in fourth quarter this year. This amount is in addition to EUR 1.2 million previously booked post-model adjustment to cover sub-portfolios where insufficient data is available for precise calibration. In conclusion, overall, Addiko's risk position remains stable and resilient, further supported by a strong collection performance and active portfolio management, resulting in a reduction of nonperforming exposure and lower loan loss provisions. Thank you for your attention and go back to Herbert. Herbert Juranek: Thank you, Tadej. Let's move on to the wrap-up. At the top of the slide, we present our current 2025 outlook figures. While our guidance is currently under review, due to the potential impact coming from the regulatory front, we have decided to maintain the stated outlook for 2025. We will update our guidance in line with the revised midterm plan and disclose it together with the year-end results for 2025 on the 5th of March 2026. Now we currently operate in a macroeconomic environment marked by global uncertainties, driven by conflicts such as the war initiated by Russia, shifting tariff conditions and persistent supply chain disruptions. Europe and the European Union are very much affected by these developments. However, if we look at the markets where we are operating in, they are performing better than the EU average and are also expected to sustain this outperformance. On that basis, we will concentrate our efforts to further innovate our product offerings and services to our customers in order to initiate sustainable growth in both business segments, Consumers and SMEs. Therefore, we are working on the preparation of our new midterm specialization program, which shall be launched and presented to you in the first quarter of 2026. This program shall enable further optimization of our cost base, expand digitalization capabilities and contain projects to exploit productive and profitable AI-based solutions. Altogether, we are confident to find the path to compensate the negative effects coming from the regulatory front and to prepare Addiko for future growth. Of course, by doing so, we will keep our prudent risk approach as one of our strategic anchors. Together with our dedicated team, we remain committed to delivering our best as we pursue our ambition to become the leading specialist bank for consumers and SMEs in Southeast Europe. On that basis, we will work with full energy to further improve the bank to create value for our clients and for our shareholders. With that, I would like to conclude the presentation. Our next earnings call to present to you the year-end results of 2025 is scheduled for the 5th of March 2026. I would like to thank you for your attention. We are now ready for your questions. Operator, back to you. Operator: [Operator Instructions] Our first question comes from Ben Maher from KBW. Benjamin Maher: I've got a couple. The first one is just on Romania. I was just interested to get your views on why the market is seen as particularly attractive. Is it seen as an underserved Consumer segment? Or is there other reasons that you're targeting a particular market for growth? I understand you're going to give your targets with full-year results, but it would be helpful just to get a sense of how important Romania will be as kind of a share of the business or a share of the loan book in kind of the terminal kind of state. And my second question is on the competitive pressures you note. Is this concentrated in a specific market? Or is this seen across your footprint? And then the third question is just on capital. As you said, it's very solid. I see the dividend still suspend. So I'm just interested for your thoughts on how you plan to monetize the excess capital next year. And then sorry, just a final clarification. Was it a EUR 10 million unmitigated revenue impact from the regulatory changes? I think you said, but perhaps I misheard. Herbert Juranek: Okay. Thank you for your question. Maybe we start one by one with Romania. I will give a brief feedback and maybe also, Ganesh, if you can then add your view on that. We consider Romania as an attractive market, given the digital capabilities given to us and also the stage of development of the market overall and the size of the market. So if you consider our existing markets, we lack scale there because of the size of the given countries. So we see that as an opportunity with our business model. We differentiate ourselves with a solution, which is very, very efficient straight through online. And we differentiate ourselves also with the USP that customers don't need an account with us when we do business. But I also have to admit that we are currently in a starting phase, we have a good engine, but our brand is not known. So that's what we are currently focusing on building up our brand there and getting traction on our business. Maybe, Ganesh, if you want to add something? GaneshKumar Krishnamoorthi: I think you mentioned well there. But additionally, we would like to expand this not just solely on the B2C level, we are also looking at expanding other channels digitally going forward. So we are exploring that options as well. And we will be also enhancing the product features with more refinancing capabilities. So yes, there's more things we are working on, which would help us to position more stronger than what we are today. But I think Herbert covered it with the USP, there's a distinct proposition we have in Romania. Edgar Flaggl: And maybe just to add or conclude on the Romanian questions, if I remember all of them correctly, so you asked about the impact or kind of the contribution in the results. So this year, we are not expecting any noteworthy contribution. It's rather the opposite due to building up the engine and also having some kind of a marketing push, as we disclosed. There is costs. It will take a bit of time for kind of a positive contribution to materialize. But overall, it's rather negligible in the short -- near and short term. Herbert Juranek: Okay. Let's go on to the second question. Edgar Flaggl: So the second one was, and Ben shout, if I misunderstood you, on the competitive pressure that we're seeing if this is like specific markets or across the board. GaneshKumar Krishnamoorthi: Thanks, Ben, for the question. So yes, on the SME level, we are seeing competition really pricing it quite low. They're looking for low margins and higher volumes in the loan book. We have also -- we faced this pressure already in a couple of quarters. We are also adjusting some price going forward and so focusing on growth. You already saw we have recovered well with the growth around 9%. So yes, I mean, we will continue to go forward. So -- but the competition is pricing across the markets, not just a specific market. We are seeing this quite extensively there. On the Consumer side, obviously, the whole Euribor changes is reflecting a much more lower interest rate environment. We see a big pricing pressure and also in Consumer side. And additionally, if you heard Herbert, he also mentioned we have in Serbia, a special situation where we have to drop our price 3% based on the new regulation. So yes, so a lot of pressure across the markets on the pricing side. Herbert Juranek: And the last question was on the capital and on the dividend. So if I understood you correctly, the question was, how is our view there and how do we want to continue here? From -- so according to the current situation, the shareholder situation did not change. So also, our perspective on the dividend is not changing. So there is no change for the time being. So what do we do with the additional capital? Of course, we will use it for further growth. But on the other hand, if the situation with the shareholders would change, we would also return back to the payout. Our dividend policy did not change. So we still are committed to the 50% payout ratio. And as soon as the topic is solved, we would return to that. Edgar Flaggl: And I think, Ben, you had one more question on the EUR 10 million unmitigated potential top line impact, but I didn't get the full question. Benjamin Maher: No. So just checking out the correct number. I want to make sure I didn't mishear -- it was that EUR 10 million unmitigated revenue impact. Edgar Flaggl: Yes, it's just above EUR 10 million. Operator: Next question comes from Mladen Dodig, Erste Bank. Mladen Dodig: Congratulations on the third quarter. If you allow me, I'm happy to see that in Serbia, you have finally managed to capture the decline -- to arrest the decline in the credit portfolio. So congratulations to that, too. As you explained, the moves with the interest rates, very difficult to grasp with also in Serbia. But again, it's a market battle. I already wrote my questions in the Q&A, so I will try to repeat them. IR sensitivity and breakdown of fixed and variable interest rate arrangements, if I'm not mistaken, there is -- that slide is missing in the presentation or not. Edgar Flaggl: Mladen, good to have you on the call. This is Edgar speaking. So you're absolutely right, it's missing because we only publish it on a half yearly basis. But if you would go back to the half-year results, I think it's Page 34, 35 or something, you would actually have it there. And given the structure of our balance sheet, it hasn't changed much. Mladen Dodig: It hasn't changed. Edgar Flaggl: Not much. So 14%, 1-4, is variable in our total loan book. Mladen Dodig: So the colleague already asked about Romania. You said a couple of things about the specialization program. So looking to extend the digital proposition efficiency and AI-based solutions. Any other details, maybe duration or some -- anything else on this? Herbert Juranek: Yes. I mean we will disclose it next year, but -- and we are currently in the process of finalizing our new midterm plan, and the specialization program will be part of that. So it's still under construction, but we aim -- it will have three different layers, the program, and it will be a midterm program. So it will last at least 2 years, potentially a bit more. So intended to bring the bank to the next level. And we will present it then, as said, together with the year-end result in 2026. Mladen Dodig: You already talked about the dividend and the shareholder structure. Could you tell us anything -- I bet you can't, but I need to ask. So is there any kind of event on the horizon that might trigger either the recall of this recommendation or some other action by the regulator? Herbert Juranek: Well, we are not aware about anything which would release or change our perspective on the dividend for the time being. But we are also prepared -- as I said beforehand, if the shareholder situation would change, we would be also ready to take actions on our side and to adjust accordingly. But if there was something already known today, we would, of course, disclose it. Mladen Dodig: And final question regarding Romania. I was recently in Bucharest and wanted to ask you, could it be possible that I heard commercial on Addiko on the radio... Herbert Juranek: Yes, this could be well because we -- as I said beforehand, we started our marketing campaign in August. And we will continue with this marketing campaign, and it also includes radio and TV. Mladen Dodig: Yes. I was driving there, and I heard something on radio because I don't know one word of Romanian, but I think I recognized the Addiko. Herbert Juranek: Good that you recognized it. Mladen Dodig: Yes. So yes, as you said, you are there, but it needs -- it takes time. Sorry for this mess-up with the call. Obviously, I changed recently with my computer. So obviously... Edgar Flaggl: No worries, Mladen. All good. Herbert Juranek: Any other questions? Operator: Ladies and gentlemen, that was the last question from the phone line. I would now like to turn the conference back over to Sara for questions on the webcast. Sara Zezelic: Thank you, operator. We have not received any further questions on the webcast. I'm handing over to Herbert for closing remarks. Herbert Juranek: So in this case, I would thank you very much for your attention. All the best from our side, and we hear each other then in March next year with our year-end results. Thank you very much for attending. Operator: Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines.
Operator: Good morning. My name is Jasmine, and I will be the conference operator today. At this time, I would like to welcome everyone to the Bowman Consulting Third Quarter 2025 Conference Call. [Operator Instructions] Please note that many of the comments made today are considered forward-looking statements under federal securities laws. As described in the company's filing with the SEC, these statements are subject to numerous risks and uncertainties that could cause future results to differ from those expressed, and the company is not obligated to publicly update or revise these forward-looking statements. In addition, on today's call, the company will discuss certain non-GAAP financial information such as adjusted EBITDA, adjusted net income and net servicing billing. You can find this information together with the reconciliations to the most directly comparable GAAP information in the company's earnings press release filed with the SEC on the company's Investor Relations website at investors.bowman.com. Management will deliver prepared remarks, after which they will take questions from research analysts. Replay for the call will be available on the company's Investor Relations website. Mr. Bowman, you may begin your prepared remarks. Gary Bowman: Thank you, Jasmine. Good morning, everyone. Thank you for joining our third quarter earnings call. Bruce Labovitz, our CFO, is here with me this morning. I'm going to start today's call with a welcome to all new Bowman employees who joined us this quarter. After my introductory remarks, I'll turn the call over to Bruce, who will cover our financial performance. I'll then end the call with closing statements before opening it to Q&A. Turn to Slide 3. The third quarter marked an important milestone in our continued evolution. For the first time, we surpassed a $500 million annualized gross revenue pace. This is a meaningful achievement, and the fact that we are ahead of schedule on this milestone, demonstrates both the strength of our business model and the capabilities of our skilled team of professionals. For the third quarter, we delivered 11% year-over-year growth in both gross and net revenue and a 7.6% growth in adjusted EBITDA while maintaining healthy cash flow generation and a solid balance sheet. Our net revenue for the quarter was $112 million and was supported by strong activity in transportation and power and utilities and energy. Together, these end markets grew over 20% during the quarter and account for more than 40% of our top line. Importantly, our backlog grew nearly 18% year-over-year to $448 million. This sustained growth reflects continued demand across our end markets. Our book-to-bill ratio continues to be above 1, a clear indicator of the momentum we are seeing as we head toward the end of 2025 and into 2026. In fact, bookings in the fourth quarter are once again outpacing the prior quarter. We've worked hard over the past year to regain our footing, and I'm proud to report that today we are a larger, more efficient, and more resilient organization than ever before. Our growing base of recurring public sector work and a solid foundation of private demand positions us well for the years ahead. With that, I'm going to turn the call over to Bruce to review the financials in more detail. Bruce? Bruce Labovitz: Great. Thank you, Gary, and good morning, everyone. While the third quarter marked an important milestone for Bowman in terms of reaching the $500 million annualized gross revenue rate, it also represents our achievement of 2 basic commitments we made to our shareholders this time last year, to prioritize GAAP profitability and to improve our conversion of earnings to cash. This year, we've been hypervigilant about delivering on these 2 basic commitments because unlike political, macroeconomic and labor market uncertainties, these are outcomes we control. We're pleased to have delivered on these commitments. For the third quarter and the 9 months ending September 30, we dramatically increased GAAP net income to $6.6 million and $10.9 million, respectively, compared to net income of $700,000 (sic) [ $800,000 ] and a loss of $2.9 million for the same period last year. Concurrently, we more than doubled our cash flow from operations to $26.5 million from $12.4 million, affirming the capital efficiency of our effort. We achieved this improved performance in part through consistent and sequential growth in billed revenue throughout this year with an 11% year-over-year increase in net revenue in the third quarter with no erosion of our net to gross ratio. Organic net revenue, which excludes revenue from acquisitions closed after September 30, 2024, grew 6.6% for the third quarter and now stands at approximately 11% through 9 months. Also contributing to our improved profitability was our ability to achieve the benefits of scale with revenue growth rates that outpace overhead growth rates. To that end, as revenue grew year-over-year, total overhead, we define as COGS and SG&A, was down 290 basis points as a percentage of net revenue for the quarter at 89.5% and down 500 basis points for the 9 months at 89%. This disciplined approach to overhead growth will be a significant contributor to sustained positive GAAP earnings and an industry-leading margin profile. Turning to some non-GAAP metrics. Adjusted EBITDA in the quarter increased by 8% to $18.3 million, representing a 16.3% margin on net revenue with adjusted EPS of $0.61, doubling Q3 2024. Through 9 months, adjusted EBITDA is up nearly 25% to $53 million and a margin of 16.6% on net revenue, a 150 basis point year-over-year expansion with adjusted EPS of $1.26, again, doubling adjusted EPS in the same period last year. Absolute growth in revenue was broad-based with Transportation up 20%, Power, Utilities and Energy up 17% and Building Infrastructure up 8%. Natural Resources & Imaging, to which we allocated all Surdex related manned aerial and high-resolution mapping revenue last year saw a slight decline as we now allocate that revenue in a more deliberate manner across verticals. On an organic basis, Building Infrastructure grew 6%, Transportation grew 10%, Power and Utilities grew 13% and Natural Resources & Imaging grew around 1%. In previous quarterly calls, we've been asked about the relative gross margins of our primary verticals. We've suggested we believe they are relatively equal apart from Transportation, which has a lower contribution margin based on the nature of its primarily cost-plus contracts. To corroborate this assertion, we calculated the gross margin of each vertical for the third quarter, during which gross margin was 53% and concluded that our representation was accurate. During the quarter, gross margins by vertical were 56% for both Building Infrastructure and Power and Utilities, 57% for Natural Resources & Imaging and 46% for Transportation. With Building Infrastructure, gross margin is benefited by more fixed fee contracting. With Natural Resources & Imaging, gross margin is advantaged from a disproportionate use of labor leveraging technology. With Transportation, we enjoy meaningfully longer and larger government contracts that have lower labor multipliers, but generally generate higher utilizations and overhead leverage along with lower turnover costs. We will include this gross margin analysis in our quarterly presentations going forward. We ended the quarter with a record $448 million backlog, up 18% year-over-year, with 38% of that backlog from Building Infrastructure, 30% for Transportation, 23% from Power and Utilities and 9% from Natural Resources & Imaging. This imbalance relative to revenue should indicate continuing diversification of our revenue mix, but it's likely not as dramatic as the percentages in backlog today reflect. Operating cash flow totaled $10.2 million for the quarter and sits at $26.5 million year-to-date, both more than twice last year's levels. While we are pleased with this significant increase in conversion, we're confident there is room for continuing improvement. Our balance sheet remains a strength and provides a solid foundation for growth. We ended the quarter with $16 million in cash and $57 million drawn on our revolver and net debt of approximately $105 million with a net leverage ratio of 1.5x trailing 12 months adjusted EBITDA. After quarter end, we expanded our revolver to $210 million from $140 million, adding PNC Bank to the existing Bank of America and TD Bank syndicate. As a result, we have roughly $150 million in available liquidity for investment in growth initiatives. Our internal innovation incubator, the BIG Fund, continues to produce high-value ideas and opportunities that present the prospect of tangible returns for us long term. We're actively engaged in advancing concepts that accelerate revenue growth through the deployment of proprietary AI-enabled asset control kits, which extend engagement with clients throughout the asset lifecycle. With concepts that expand the application of the proprietary technology tools we acquired in the recent ORCaS acquisition, which drastically reduced the time it takes to perform repetitive feasibility and planning functions, thereby unlocking additional labor utilization. Also concepts that connect all Bowman operating systems and platforms with AI-enabled capabilities, which empower employees to ask Bowman plain English questions, the timely informed answers to which improved business acquisition efforts and streamline proposal generation, estimation and profitable project execution. Lastly, we're working on ideas that modify, extend and evolve the inherent capabilities and uses of our high-end geospatial assets to expand their applications, improve the quality of capture, extend revenue opportunities, shorten delivery times and increase return on investment. All investments in innovation are measured against defined return thresholds, ensuring innovation spending meets the same rigorous financial discipline as acquisitions. To date, we have expended a little bit over $300,000 on advancing these ideas, the cost of which are not added back to adjusted EBITDA and the benefits of which are not yet contemplated in our current projections. And while not a BIG Fund project, we also completed the upgrade of our accounting and enterprise management platform this quarter, an effort that consumed a meaningful amount of time and energy, but will be a solid foundation for our next phase of growth. These costs will likewise not add back to adjusted EBITDA. It wouldn't be an earnings call if I didn't reference tax, so here it goes. Following enactment of OB3, we filed method change notifications with the IRS that allowed us to unwind our uncertain tax position with retroactive audit protection. The change in law and associated adoption by Bowman of the new standards released approximately $52 million of deferred tax assets and other non-current liabilities on our balance sheet and released $3.5 million in P&I accruals, which had previously run through the tax expense. In addition to committing to GAAP profitability and cash flow conversion, we also committed to the reduction of non-cash stock compensation as a percentage of revenue. For the first 9 months of 2025, stock-based compensation totaled $14.2 million or 4.4% of net service billing, down from 7.3% a year earlier. Excluding about $1 million of pre-IPO related issuances, adjusted stock-based compensation was approximately 4.1% of net revenue. As we've discussed in the past, these pre-IPO grant expenses represent the run out of GAAP costs related to awards issued prior to our IPO in 2021 and are not part of normalized long-term incentive costs. We expect total non-cash stock compensation for 2025 and '26 to be roughly $19 million and $20.5 million, respectively, which is consistent with our pledge to reduce equity compensation as a percentage of revenue while balancing its benefits for recruiting, retention and efficient capital allocation. Thank you for your continued confidence in Bowman. With that, I'll turn the call back over to Gary. Gary Bowman: Okay. Thank you, Bruce. As Bruce mentioned, our improved profitability and working capital management once again drove strong cash flow this quarter, with cash conversion now at about 50% year-to-date. Our margins and cash efficiency place us solidly in line with the best performing firms in the E&C space. Now let me take a few minutes to share a summary of our market performance and outlook as we move into 2026. Transportation remains one of our most stable and resilient end markets, delivering double-digit growth year-to-date. Our expanding client base spans a broader range of state and municipal transportation agencies than ever before. We're deeply engaged across state DOT programs and large local agencies throughout the Pacific Northwest, Midwest and East Coast, where our teams are supporting multiyear bridge, roadway and multimodal infrastructure programs. Our long-standing relationship with DOTs continue to be a key competitive advantage, creating recurring opportunities as agencies seek partners with both specialized technical expertise and the capacity to scale across geographies. We currently have strong bridge and roadway pipelines with backlog visibility through 2026. We continue to benefit from recurring construction management and inspection programs with multiple state agencies, including a major multiyear assignment with Illinois. Our ports and harbors practice, which is part of our Transportation segment, continues to gain momentum with coastal and port authorities, extending our reach into critical intermodal and maritime infrastructure projects in regions, including Houston, Philadelphia and the Pacific Northwest. We have a growing active backlog in ports and harbors with anticipated wins continuing through 2026 in existing and new geographies. Overall, we expect transportation to maintain steady, healthy growth. Less than 25% of IIJA funds have been released so far for permitted transportation projects, which we believe, coupled with state programs, ensures multiyear nationwide demand runway. We expect transportation will continue to provide the backbone of stability and recurring revenue across our portfolio. Our Power, Utilities & Energy division continues to be our fastest-growing market, up 38% year-over-year and driven by national investment in electrification, renewables, grid modernization and data infrastructure. The recent acquisitions of Sierra Overhead Analytics, ORCaS and Lazen Power Engineering significantly enhance our strategic positioning within this high-growth market. Sierra and its affiliate ORCaS, expand our capabilities in technology-enabled engineering, adding automation, precision mapping, hydrology and optimization tools that improve project delivery and efficiency across renewable energy, data center, and utility scale infrastructure design. These digital solutions strengthen our ability to provide faster, smarter and more cost-efficient design workflows to clients in the power and energy transition space. The addition of Lazen establishes our platform in high-voltage overhead transmission line design, immediately positioning us to compete in one of the fastest-growing recurring revenue segments of the power industry. Lazen's expertise enhances our credentials with major utilities and transportation operators, transmission operators, while complementing our advanced geospatial and aerial imaging services for power corridor mapping. Together, these acquisitions broaden our reach across the generation to grid continuum, connecting our existing strengths in site design, renewables and data centers with the infrastructure that delivers power across the U.S. Looking forward, Power, Utilities & Energy represent a long-term growth engine for us. We expect continued revenue and margin expansion in 2026 as integration matures, our national footprint expands and our clients increasingly turn to us for end-to-end power infrastructure solutions. Our well-balanced Building Infrastructure business grew by just over 8% year-over-year in gross revenue, reflecting solid execution in public and mixed-use work that continues to balance softer conditions in the residential space. While some private development remains slightly constrained by interest rates, we see clear rebound potential emerging in mid- to late 2026 as financing conditions improve. Our current Building Infrastructure projects continue to generate long-term revenue visibility through 2027, and we remain well positioned to capture renewed private sector growth as market conditions improve. Our Natural Resources & Imaging segment remains a steady performer and margin stabilizer, representing roughly 11% of our net service revenue. We have robust visibility into 2026 in this market, supported by recurring federal programs and strong municipal demand in water, environmental and geospatial services. Automation and recurring federal mapping programs will continue to underpin growth in this segment, and our geospatial and remote sensing services continue to enhance efficiency across our broader business. Operating margins in this market remain among the highest company-wide, and we expect growth to be driven by technology-enabled delivery and long-term public sector funding. Now I'd like to address the current operating environment, which includes the government shutdown. While the shutdown is causing some delays in project progression, invoicing collections within select federally supported programs and federally adjacent projects, our direct exposure to federal contracts remains limited, and we are not experiencing any unusual cancellation activity. Most of our public sector work is performed for state and local governments, which provide a natural buffer to extended interruptions such as the current government shutdown. We continue to monitor this particular situation closely, noting that the longer the shutdown continues, the more likely it is to extend near-term revenue somewhat further into the future. Looking ahead, our focus remains clear. We'll continue to convert backlog into revenue while improving utilization and project delivery efficiency. We will aggressively leverage technology and innovation to enhance margins and scalability, and we'll deploy capital strategically through disciplined M&A and organic growth derived from continued investment in people and systems. We're reaffirming our full year 2025 guidance. We're also initiating 2026 guidance of net revenue between $465 million and $480 million and an adjusted EBITDA margin between 17% and 17.5%. With that, I'll now turn the call back to Jasmine for questions. Operator: [Operator Instructions] Our first question comes from Laura Maher with B. Riley Securities. Laura Maher: So some of the larger specialty contractors have mentioned total solutions packages. Do you see this creating competitive pressure in your data center business? Bruce Labovitz: No, I don't think that that's going to impede on any of the work that we do. I think it's similar to any trends in design build or that don't necessarily compete with other industries. I think it's a big market. And even when firms offer complete solutions, they end up subcontracting a good portion of that to specialized contractors like us anyway. So I don't think that's a real threat. Gary Bowman: I agree with that. Laura Maher: And then one more. On M&A, are there specific service lines or regions where you still see gaps relative to your growth objectives? Gary Bowman: Yes. We're really focused on some of these markets that we've been focused on expanding into for years now, especially transportation, certainly power and energy and data centers and also water-related opportunities as they come along. No specific regions we're focused on. We find the, I'd say, usual suspects appealing Texas, California, the Southeast, but we're not particularly focused on any particular region in the U.S. Bruce Labovitz: It's more service line and skill set focused than it is geographically focused. Operator: Our next question comes from Andy Wittmann with Baird. Andrew J. Wittmann: I guess I'll start with some top line questions here. It looks like the fourth quarter guidance here for '25 is implying a bit of a revenue acceleration to something in the double digits. So I think that's right. Bruce, I was just wondering if you could comment on which end markets you think will pick up the growth rate here as you move into fourth quarter and what gives you confidence in that? Bruce Labovitz: Yes. The pick up is a couple of days' worth of work. It's not -- I don't know that I would necessarily say it's anything extraordinary. We think that across the board, we've got a healthy backlog of work that's making its way through. Sales are strong and a lot of the sales have been strong in what we consider to be shorter-term turn contracts, areas we can earn revenue relatively quickly. So we have a good sense that with what would be a couple of days' worth of improvement in the fourth quarter, we can grow revenue. Andrew J. Wittmann: A couple -- sorry, Bruce, the idea of a couple, you're saying there's more work days in the fourth quarter of [ '20 ]? Bruce Labovitz: No, I'm just saying that we have -- it's -- the amount of revenue that is to be accelerated is the equivalent of just a couple of days' worth of work. So a couple of improved utilization weeks here and there. Andrew J. Wittmann: Got it. That makes sense. Bruce Labovitz: Yes. We don't do the days of the quarter game. Like we -- quarters do have extra days and more holidays, but we really just think of them as quarters. Andrew J. Wittmann: Yes. That's what I thought. That's why when you were talking about days' worth of work, I was trying to make sure that -- basically you're saying get a little bit more utilization out of the people. And what's really great about that, that accrues to the margins even better. So got it. So that makes sense. And then I guess just kind of related to that, in the performance in the third quarter, I thought I'd ask a little bit about margins there, too. And your business mix is changing a lot as you've been diversifying. So I just was wondering -- and maybe I missed a little bit of the comments at the early part of the conference call, but did you comment on the margins? I guess they were down slightly year-over-year. Was that like investments in growth? Was that utilization rates? Was that mix? Every quarter is kind of its own thing, but I wanted to try to understand that a little bit better as it compared to the prior year. Bruce Labovitz: Yes. I think, Andy, every year, as you said, every quarter is a little bit different. We talk about how we time labor sometimes can impact margins. You have to prepare for what's coming next. And so sometimes we'll get a little bit heavy on labor in a quarter in anticipation of stronger growth in the next quarter. We are not downsizing labor at the moment, contrary to employment reports that have come out. We're in the hiring game. And so when labor becomes available, we take it. The margin change, there is a couple of hundred thousand dollars' worth of revenue on this fixed set of labor. So we talk about our bands today is a 16% to 18% margin. We'll fall in there between periods. And so I don't think there's anything to read into a 40 basis point change between last year and this year in margin. Andrew J. Wittmann: And then I guess there's a similar question that just happened since you gave us initial guidance for '26. Your margins are either up a little or up a little bit more to the 17% to 17.5% range. Obviously, this is, I think, a good year to be able to get the margins up there. And I was just wondering kind of what the knobs are to get you there next year. You talked about the overhead leverage. I have to imagine that's a big part of it. But what other things? Is mix in your favor? Maybe, Bruce, why don't you just kind of fill us into what do you think is going to drive the year-over-year margin expansion in '26? Bruce Labovitz: Yes. In large part, I think it is improved overhead leverage, right? We continue to be very focused on growing revenue faster than we grow overhead. And so there's additional margin expansion to be had from that. There's also improved utilization of our labor. As we look at next year and we look at the mix of work, we think we can do it at a slightly higher revenue factor, which is our internal measurement of the efficiency of our labor. And so we gain a little bit of margin, which is somewhat embedded in that total overhead when you think about it, because we kind of combine those -- that together. But it's really a combination of the way we are utilizing geospatial technologies and technologies that exist today to advance the efficiency of the workforce and grow revenue quicker than we're growing overhead. Operator: Our next question comes from Alex Rygiel with Texas Capital. Alexander Rygiel: Very nice quarter there. As it relates to data centers, can you talk a bit about bidding opportunities and how you see that progressing sort of in 2026 versus maybe 2025 and 2024? Are you seeing the sort of bidding opportunities or new project opportunities to be greater than the prior year? Or is the average project or contract size kind of greater than they have been in the past year? Just a little bit of color on that. Gary Bowman: Yes. Alex, it's certainly tailwinds in that market. So there are continuing greater number of opportunities. The facilities are getting larger. Really as the data centers, we've spoken to this is, with AI as opposed to before the lack of being critical to be located proximate to fiber just provides a lot more opportunities for data centers spread out across the country. We're seeing lots of drivers to locate data centers near natural gas to power them. And our acquisition of e3i, as an example, just has expanded our network. So that in itself expands our opportunities. Bruce Labovitz: I think Alex, the other thing that's -- that data centers have become the hot ticket item for landowners. And so to some extent, there's a little bit of a phantom amount of data center work that occurs within our Building Infrastructure portfolio. Because when landowners come to us and say, what are the options -- we want our project to be a data center, right? Because everybody wants their project now to be a data center. There's feasibility work we do within that Building Infrastructure segment related to data centers. But until it becomes a data center, it doesn't really become part of the kind of what we call the data center portfolio of revenue. So there's a little bit of -- because there's an increased availability of opportunity for lands to be data center, there's more activity in it. Alexander Rygiel: And to take that another step, clearly, landowners in the past have seen sort of solar as being a big opportunity. How do you see your solar business right now and sort of as we think about the next 1 to 2 years? Gary Bowman: For the next year, we're seeing it very strong. It's really being driven by the, I guess, a moment in the tax credits next year that's driving a lot of demand to accelerate planning of projects to get a critical mass of the project done before the middle of next year. So we see it very strong in 2026, certainly likely to taper off in 2027, but we're well positioned in that market and the development of solar projects is not going to go away. So we see a very strong 2026, cautious outlook after that. Alexander Rygiel: And then lastly, your M&A activity this year has been, I don't know, a little bit slower than the last few years. Any comment on that and how we can think about M&A activity in 2026? Gary Bowman: We're still committed to M&A. We got a strong pipeline of opportunities. I think we've shifted maybe more focus of our M&A to really focus on strategic opportunities. And certainly, with the new revolver in place and that dry powder really positions us for some strong M&A activity towards the end of this year and certainly into 2027. So we're still fully committed to inorganic growth to supplement our organic growth. Operator: Our next question comes from Aaron Spychalla with Craig-Hallum. Aaron Spychalla: Maybe first on Building Infrastructure. Can you kind of talk about how you're thinking about growth in that segment in 2026? It sounds like there's some crosscurrents between some of the subareas. And just maybe talk about your ability to kind of move labor kind of as projects kind of ebb and flow in that segment. Bruce Labovitz: Well, the -- nice thing about our business is the skill set that we apply to Building Infrastructure is transferable to many of our other markets. So we do move that labor around readily. We're seeing with the interest rate decline, we're seeing projects come off the shelf earlier in the year and was a little more localized geographically. As we come into the end of the year here, we're seeing it more broadly across the geographies that we're located in. So we're probably looking at in 2026, maybe as we allocate labor, I would bet the directionality would be some labor allocated toward the Building Infrastructure as opposed to away from it. Aaron Spychalla: All right. And then maybe on OpEx, just -- there was an earlier question, but kind of a pickup in SG&A this quarter. Is there some kind of allocation of projects and timing there? Is that kind of in advance of growth moving forward or just opportunistic? Maybe just a little bit of color on that. Bruce Labovitz: Yes. One of the reasons we talk -- we try to talk about total overhead as opposed to the SG&A relative to COGS is that our labor and operations, depending on utilization will be allocated a little bit more towards COGS or a little bit more towards SG&A in any given period depending on the proportion of direct and indirect labor. I wouldn't say there's anything consequential that's really driven SG&A higher. It's going to grow as we grow. The question is can we meter it at a lower pace than revenues growing. So I really look at it as the overall all-in is down as a percentage of revenue, and that's really what we're focused on. Aaron Spychalla: And then just maybe one last one. I mean, on labor, how are you feeling about availability there as you grow the business moving forward? Bruce Labovitz: We have a very aggressive talent acquisition group. So it's a labor challenged market. I mean, in a good way, there's a challenge to find staff, but they're out there. And we have a good machine to recruit, onboard them. So it's -- we're well positioned to bring all the labor that we need. Gary Bowman: And actually it's why we are so focused on developing labor leveraging innovation within the organization, not to shrink the labor pool, but to not have to grow it as dramatically as otherwise. Operator: Our next question comes from Jeff Martin with ROTH Capital Partners. Jeff Martin: I wanted to dive into a specific segment of the backlog. If you look at power and utilities, it looks like it's on a trajectory to double from where it was in the middle of 2024. Where are you seeing the strongest backlog growth there? And is this the segment that you're most focused on for M&A? Gary Bowman: We're seeing it certainly in the linear projects, the transmission corridors -- we've included data centers in there now. So our data center activity certainly is growing that. Is it -- I wouldn't say it is the primary focus of M&A, but it is one of a couple of primary power and utilities, energy, certainly transportation if I pick areas that we're really focused on and the opportunities that really -- we find exciting. Jeff Martin: And then just how would you characterize the environment in terms of the timeliness of projects? And by timeliness, I mean, starting on time, no delays, no weather delays, no other factors driving. because I know Transportation is a bit of a wildcard. I mean the large projects that can come on, they can get pushed out a month or 2, they can get pushed out a little longer. If you could just give an update of kind of how that's progressed this year. I know going back several quarters, Transportation kind of caused some disruption for you. So any insight there would be really helpful. Gary Bowman: We did have some projects that got delayed in the starts. They didn't go away, so this business is lumpy. That's why we guide to a year, not a quarter. So there's -- we have seen some delays in starts here recently. But just that's only attributed to project-specific issues, nothing in the macro economy or in the funding of transportation driving that. Jeff Martin: And then how would you characterize the M&A environment from a valuation standpoint? I know when you allude to strategic acquisitions, I assume those being larger than you've done historically. So just curious how you're seeing the competitiveness of those more strategic level acquisitions out in the market today? Gary Bowman: It's competitive. I'll say no more competitive than it has been over the last year or so. But these strategic kind of opportunities, they drive a lot of attention. So it's -- we have to sharpen our pencil. We have to sell ourselves, but it's -- we're winning out on our share of nice strategic opportunities. Operator: Our next question comes from Jean Veliz with D.A. Davidson. Jean Paul Ramirez: Just a quick question on some of the comments you made about hiring. So you guys are -- said you're in hiring mode. And then I just wanted to sort of understand with some project delays and this growth that you're experiencing, how would you characterize sort of the growth cadence in 2026 versus previous year? Should we expect some -- maybe a higher pickup in the first half of next year versus this year, I guess? And how should we think about EBITDA margins given that there could be some increase in SG&A? Or I guess, should I think about differently as you progress through the year, do those efficiencies start to kick in? And when would they kick in? Gary Bowman: I think one thing we're hoping for, for next year, the first half of this year was a relatively chaotic time with a lot of disruption associated with uncertainty around tariffs and other economic issues. And so I think that, that stifled the first half a little bit. So hopefully, ex that factor, we'll see a little bit more balanced growth first quarter, second quarter of next year into third and kind of through the end of the year. So I think our cycles are relatively the same. Hopefully, there'll be maybe a little bit more calm with rates lower and some of the transition issues behind us. Are you there? Jean Paul Ramirez: In terms of the EBITDA margins, yes -- thank you so much for all the comments and color. But I just sort of wanted to understand a little more with the pickup in projects or expected work, I guess, going into the fourth quarter, should we see it kind of come down to second quarter levels in terms of SG&A? Or it should be more in line with what you experienced this quarter? Gary Bowman: I think it will be in between. Jean Paul Ramirez: Makes sense. And just, I guess, into 2026, going back to my first question, should we expect more efficiencies that you talked about have a greater impact in SG&A sort of from the start of 2026? Or will that develop more as you head into the second half of 2026. Any color or comment around that helps. Gary Bowman: Yes. I would expect it to be more beneficial on a relative basis in the second half of the year, but still be beneficial in the first half of the year. Operator: There are currently no questions registered. [Operator Instructions] There are no questions waiting at this time, so I'll pass the conference back over to the team for any closing remarks. Gary Bowman: Thank you, Jasmine, and thank you, everyone, for joining us on this call this morning. We're really looking forward to finishing out the year on a high note and certainly looking forward to a banner 2026. So thanks for all the employees who are listening for all you're doing and for all the investors for the faith you put into us and for the analysts for staying in touch with us. With that, I'm going to wrap it up. Good morning, everyone. Operator: Ladies and gentlemen, that will conclude today's conference call. Thank you for joining.
Operator: Welcome to the Third Quarter 2025 ConocoPhillips Earnings Conference Call. My name is Liz, and I will be your operator for today's call. [Operator Instructions] I will now turn the call over to Guy Baber, Vice President, Investor Relations. Sir, you may begin. Guy Baber: Thank you, Liz, and welcome, everyone, to our third quarter 2025 earnings conference call. On the call today are several members of the ConocoPhillips leadership team, including Ryan Lance, Chairman and CEO; Andy O'Brien, Chief Financial Officer and Executive Vice President of Strategy and Commercial; Nick Olds, Executive Vice President of Lower 48 and Global HSE; and Kirk Johnson, Executive Vice President of Global Operations and Technical Functions. Ryan and Andy will kick off the call with opening remarks today, after which the team will be available for your questions. For Q&A, we will be taking one question per caller. A few quick reminders. First, along with today's release, we published supplemental financial materials and a slide presentation, which you can find on the Investor Relations website. Second, during this call, we will make forward-looking statements based on current expectations. Actual results may differ due to factors noted in today's release and in our periodic SEC filings. We'll make reference to some non-GAAP financial measures today, Reconciliations to the nearest corresponding GAAP measure can be found in today's release and on our website. With that, I'll turn the call over to Ryan. Ryan Lance: Thanks, Guy, and thank you to everyone for joining our third quarter 2025 earnings conference call. We have a lot to cover today, including our third quarter results, improved 2025 outlook, strategic updates and our preliminary 2026 guidance. Now starting with our third quarter results. This was another very strong execution quarter. We again exceeded the top end of our production guidance, demonstrating the power of our diversified portfolio with both capital spending and operating costs declining quarter-on-quarter. On the back of this strong performance, we raised our full year production guidance, and we have reduced our adjusted operating cost guidance for the second time this year. In fact, we have improved all our major guidance drivers since the beginning of 2025. CapEx, operating cost and production, further demonstrating the strength of our team's execution. On return of capital, we raised our base dividend by 8%, consistent with our goal to deliver top quartile dividend growth relative to the S&P 500. This type of dividend growth is sustainable given the strength of our outlook and expectation for our free cash flow breakeven to decline into the low 30s WTI by the end of the decade. Year-to-date, we've returned about 45% of our CFO to shareholders, in line with our full year guidance and our longer-term track record. Turning to our strategic updates. At the Willow project in Alaska, after completing our largest winter construction season and conducting a comprehensive project review, we've increased our project capital estimate to $8.5 billion to $9 billion. This change is primarily attributable to higher-than-expected general inflation and localized North Slope cost escalation. Despite cost pressures, we have maintained the project schedule and made excellent progress on scope execution, narrowing first oil to early 2029. We also continue to advance our global LNG projects, another key driver of our expected free cash flow inflection. We have reduced total LNG project capital by $600 million. Our three equity projects, NFE and NFS in Qatar and Phase 1 at Port Arthur LNG are on track and have been substantially derisked. Capital spending is now about 80% complete with our first startup expected next year at NFE. Looking ahead to 2026, recognizing it's early, the macro remains volatile, and that our portfolio is highly flexible. Our preliminary guidance for both CapEx and OpEx is to be improved significantly, down about $1 billion on a combined basis from this year. And in fact, relative to our pro forma 2024, they are down about $3 billion. Underlying production should be flat to up next year, a reasonable starting point given the current macro environment. Looking beyond just the near term, ConocoPhillips continues to offer a compelling value proposition to the market, one that is differentiated relative to our sector and to the broader S&P 500. We believe we have the highest quality asset base in our peer space. Our global portfolio is deep, durable and diverse with the most advantaged U.S. inventory position in the sector. We are uniquely investing in our portfolio and driving significant efficiencies throughout the organization to deliver improving returns on and off capital and a leading multiyear free cash flow growth profile. Consistent with our guidance last quarter, we continue to expect the four major projects we are progressing along with our recently announced cost reduction and margin enhancement efforts to drive a $7 billion free cash flow inflection by 2029, potentially doubling the consensus expectation for free cash flow this year. That free cash flow inflection is now underway. We expect to realize about $1 billion annually through 2026 through 2028 before an additional $4 billion in 2029 once Willow comes online. That's a growth trajectory that's unmatched in our sector. So bottom line, we're performing well. We are delivering on our plan, and we're well positioned for 2026 and beyond. Now with that, let me turn the call over to Andy to cover our third quarter performance, major project updates and 2026 guidance in more detail. Andrew O'Brien: Thanks, Ryan. Starting with our third quarter performance. As Ryan mentioned, we had another quarter of strong execution across the portfolio. We produced 2,399,000 barrels of oil equivalent per day, once again exceeding the high end of our production guidance. Regarding third quarter financials, we generated $1.61 per share in adjusted earnings and $5.4 billion of CFO. Capital expenditures were $2.9 billion, down quarter-on-quarter as we passed the peak of our major project capital investment cycle. We returned over $2.2 billion to our shareholders including $1.3 billion in buybacks and $1 billion in ordinary dividends. Through the third quarter, we've now returned $7 billion to our shareholders or about 45% of our CFO, consistent with our full year guidance and our long-term track record. We ended the quarter with cash and short-term investments of $6.6 billion plus $1.1 billion in long-term liquid investments. Turning to our outlook for 2025. We've raised our full year production guidance to 2,375,000 barrels of oil equivalent per day, up 15,000 from our prior guidance midpoint. This is even after considering Anadarko's sale of approximately 40,000 barrels a day of oil equivalent, which closed on October 1. We're reducing our operating cost guidance to $10.6 billion down from the prior guidance midpoint of $10.8 billion and our initial guidance at the beginning of the year of $11 billion. We're also making great progress on our asset sales program. with another $0.5 billion on top of what we announced last quarter. That takes us up to over $3 billion of asset sales out of our $5 billion target. Of this amount, $1.6 billion was closed and the cash was received through the third quarter, and we have another $1.5 billion that will have closed in the fourth quarter. That includes the remainder of the Anadarko disposition proceeds as well as additional noncore Lower 48 assets. Turning now to our strategic updates. At Willow, we have updated our total project capital estimate to $8.5 billion to $9 billion. After successfully completing peak winter season, we undertook a detailed bottom-up reforecast of the project and as a result, have increased our cost estimate. The increase is primarily due to higher general labor and equipment inflation and increased inflation on North Slope construction. Scope execution has remained strong. We're nearing 50% project completion. This has allowed us to narrow our estimate of initial production to early 2029. Importantly, we can now level load the pace of our future work. More specifically, 2025 Willow project capital is forecast to be just north of $2 billion. We plan to reduce capital to around $1.7 billion a year from 2026 through 2028. After achieving first oil, ongoing development capital will decline to about $0.5 billion a year for several years. We continue to expect Willow to deliver $4 billion of free cash flow inflection in 2029 consistent with our prior commentary. Turning to our three LNG projects, NFE and NFS in Qatar and Port Arthur LNG Phase 1, we are reducing our total project capital estimate from $4 billion to $3.4 billion. This reduction is due to a $600 million credit from Port Arthur Phase 2. The credit is for shared infrastructure costs previously incurred by Phase 1 equity holders. As a reminder, we only have equity in Phase 1, not Phase 2. With this credit, we're approximately 80% complete with our total project capital for these three LNG projects. Approximately $800 million of project capital remains averaging just north of $250 million of spend annually with a declining trend from 2026 to 2028. All projects remain on track. We continue to expect first LNG from NFE in '26, Port Arthur in '27 and NFS after that. We're also making considerable progress in advancing our commercial LNG strategy which will further strengthen our long-term free cash flow generation capacity. As a reminder, our strategy is to connect low-cost supply North American natural gas to higher value international markets. We are leveraging our decades of LNG experience and our global scale to advance our strategy, which nicely complements our more than 2 Bcf a day or 15 MTPA equivalent of Henry Hub-linked U.S. natural gas production. We have fully placed the first 5 MTPA from Port Arthur Phase 1 with combined regas and sales agreements into Europe and Asia. In terms of offtake, we've recently agreed to take 4 MTPA from Port Arthur Phase 2 and 1 MTPA from Rio Grande LNG, bringing our total offtake portfolio to about 10 MTPA, the lower end of our stated 10 to 15 MTPA ambition. Now turning to our outlook for 2026. We are providing a high-level framework, assuming about a $60 a barrel WTI price environment. First, we continue to expect a significant reduction to our capital spend next year, about $0.5 billion lower than the midpoint of our 2025 guidance. So in round numbers, that's about $12 billion for 2026. The year-on-year decline is driven by a reduction in our major project spend, including Willow and the steady-state activity we achieved on the Lower 48 Marathon Oil assets earlier this year. In addition to lowering our capital spend in 2026, we also expect to lower our operating costs. This is largely due to the $1 billion of cost reduction and margin enhancement efforts we disclosed last quarter. We expect our cost in 2026 to be approximately $10.2 billion, down $400 million from our current year guidance and down $1 billion from our pro forma 2024 operating costs, including Marathon Oil. Turning to our production. We expect to deliver flat to 2% underlying growth in 2026, a reasonable planning assumption considering the ongoing macro volatility. Additional guidance can be found in our earnings material including our oil mix and our equity of full year distributions. Now addressing our multiyear outlook, there are a few important points I'd like to make. First, the free cash flow inflection guidance we previously provided remains unchanged. We expect our four in-progress major projects and our $1 billion cost reduction and margin enhancement efforts to deliver $7 billion of free cash flow inflection by 2029. In terms of the timing of that $7 billion, we expect to realize about $1 billion of improvement each year from 2026 through 2028, amounting to $3 billion of free cash flow improvement by 2028. The remaining $4 billion will come in 2029 once Willow starts up. Bottom line, using 2025 consensus as a baseline, this translates to a double-digit free cash flow growth CAGR through 2028 before another material step-up in 2029, which will approximately double our 2025 free cash flow. So to wrap up, we continue to execute well, operationally, financially and across our strategic initiatives. We are well positioned for a strong finish to the year and a good start to 2026 and we continue to find ways to enhance our differentiated long-term investment thesis. That concludes our prepared remarks. I'll now turn it over to the operator to start the Q&A. Operator: [Operator Instructions] Our first question comes from Neil Mehta from Goldman Sachs. Neil Mehta: I appreciate the time here, and I want to unpack Willow a bit because while there was a lot of good stuff in the -- in terms of execution in the quarter, the Willow update, obviously, was a little disappointing. So I wanted your perspective on the bridging from the $7 billion to $7.5 billion to $8.5 billion to $9billion. Do you feel, Ryan, that we've got a good handle around the project at this point because the history of major capital projects sometimes is there are multiple legs of announcements around overruns. And on the bright side, it seems like while there's cost overrun here, the timing is really intact. So just unpacking Slide 4 would be great. Ryan Lance: Yes. Thank you, Neil. Appreciate the question. And certainly, I appreciate key project for the company. And I know giving some clarity on where we've been, where we're at today and what that future looks like is important to provide that insight and to clarity. So I've asked Kirk to unpack this a little bit using your words, Neil, and spend a little bit of time to make sure you all understand sort of where we're at today and where we're going in the future. So let me ask Kirk to do that and provide a lot more clarity to that. Kirk Johnson: Certainly, as you heard in our prepared remarks here this morning from Ryan and from Andy, we are increasing our guide on total project capital for the Willow project to a range of $8.5 billion to $9 billion. And I'll start by recognizing the strong execution that we've been achieving through our project team. Certainly, as you've heard from me before, we're hitting the key milestones that we premised in our project plan that, of course, we laid out at FID back in 2023. And so in this past quarter, we chose to perform a pretty rigorous bottoms-up comprehensive project review, and we were looking at scope, schedule and, of course, total project costs. And we were doing that in recognition that we knew we were coming in on about 50% completion, expect to see that as we move into this next winter season. And it's common practice for us to take on a pretty rigorous again, bottoms up at this place and projects of this nature and of this size. And coming out of that exercise, we were able to provide two new guides on the project, not just capital but also on schedule. So starting with the first, the new guide on capital is a confirmation really largely of one driver. And that's what we've realized higher inflation post FID in 2023. So addressing that maybe a little bit more detail here. Total inflation is roughly 80% of the increase on our new capital guide. And I'll start with general inflation, which has been modestly higher across a few key categories that we've seen on the projects, general labor materials and then engineering equipment as well. And all of that makes up over half and in fact, about 60% of our total project spend. So seeing that higher inflation is really culminating largely in what you're seeing in this new capital guide. As you can imagine, just a few percent higher. We originally expected just a couple of percent of routine standard inflation across the period of the project, but just a couple of percent higher in inflation rates across the 5-year duration on our project is driving this 15% increase against what was our original expectations at FID expecting lower inflation. And then a bit more unique to this project. We've also incurred some localized escalation, particularly in our Alaska North Slope specific markets. And that's really been driven by the fact that we've incurred more overlap of the peak construction seasons between our project and other projects ongoing in Alaska than we had originally expected. And that's resulting in roughly a 2x increase in the regional activity there in the state. That stressed the local markets, think labor, logistics, such as trucking, marine and then even the availability of camps for our construction work there on the slope. We're often asked about tariffs. We have seen some impacts on tariffs, but albeit it's really been low single-digit percentages as a total of the increase we're seeing on that project. And then the last component on the upward cost pressure is related to a few decisions that we've made to ensure that we're mitigating total project risk and especially schedule risk, just to ensure that we're hitting the milestones that we need especially on the front end of this project. And you've heard from me that we're hitting those. And so those have really paid well for us. We pre-staged equipment on winter seasons to ensure that we can knock out all the scope that we had originally premised. And again, that's giving us the ability and the confidence to be able to guide you a bit more even on schedule. So to summarize, we've moved from about 50% of our contracts being locked up at FID back a couple of years ago to now being well over 90% of our facility contracts being secured. And a bulk of those are tied to market indices that gives us transparency as the market moves and creates a lot of accountability with us and our business partners as we move through a project of this size. And so this summer, again, was the time for us to reconcile the actual inflation that we've been seeing over the last couple of years against the forward-looking expectation. And you're hearing from me, we're, in essence, taking forward the type of inflation that we've been realizing forward into the next couple of years just to ensure that we're being conservative through this process. So looking ahead, again, back to execution. We've wrapped up detailed engineering that compels us to keep moving forward on the process module fabrication. That's a longer duration activity. It moves from this year into early 2027 in which we'll see lift those modules to the slope, spend 2028, getting those into the Willow development area and hooking up and commissioning those first oil in 2029. So again, I'll wrap this up with an acknowledgment that we're just seeing really strong execution across the project, and that's foundational. It's paramount for us in a project of this kind and we're on track with all of our major scopes of work. And again, all of this is culminating and not just to guide on capital, but then our ability to provide an accelerated guide on first oil to the early part of '29. Ryan Lance: I would just wrap it up, Neil, by saying that we're certainly disappointed that the costs are higher, but certainly, we've taken measures across our portfolio to mitigate the increase. And I think you see that in our first -- that's why we thought it was important to give some guide to 2026. But the teams are executing well and the projects really hitting all the milestones as Kirk described. We think it's -- continues to be a world-class project. It will be a huge driver of our free cash flow inflection that's coming over the next 3 to 4 years and towards -- and really complete us towards the end of the decade. And then -- the last thing I'd say is we're going out probably with a bigger exploration program we've had in Alaska in a number of years. And it's that opportunity again to take advantage of this infrastructure that we're building for the long-term growth and development of the company. And if we're right about our macro call and where we think the macro is going, we're going to need this conventional oil to satisfy some of that growing demand around the world that we see. So it fits all of our -- ticks all of our strategic buckets as well. So I know a long kind of explanation to the initial question out of that, but we thought it was important to provide some of that clarity and context around it to give you comfort. We know where we've been, we know where we're at, and we know where we're going. Operator: Our next question comes from Arun Jayaram with JPMorgan. Arun Jayaram: Ryan, I was wondering if you could just -- maybe a quick follow-up on Willow, the F&D on the project goes up by $200 to $250 per BOE based on your updated outlook. I was just wondering if you could comment on how this impacts your project returns and just overall breakevens assuming, call it, mid-$60 Brent type of price. Ryan Lance: Well, yes, thanks, Arun. Certainly, the estimate increase does impact the cost supply of this individual project going forward. It still fits well within our portfolio. It's still very competitive within the portfolio. And again, we think longer term, we think about the future opportunities that are going to come from this infrastructure, which is our history sitting on the North Slope. We've always -- the satellite discoveries that we get benefit from the infrastructure that we built and we fully expect that to be the case going forward with Willow. And then I'd remind you on the back end of this, the margins are still quite attractive because Alaska is 100% oil, sells at a premium to Brent typically on the West Coast of the United States. So that's why even with maybe a little slightly higher F&D as you pointed out, we still feel very comfortable with the margin and it's competitive in the portfolio, and it's going to deliver a project for the company that will add to its future growth and development. Operator: Our next question comes from Betty Jiang from Barclays. Wei Jiang: I want to maybe shift focus to the Lower 48. Just -- we talk a lot about the free cash flow from the major capital projects, but noticing that the Lower 48 CapEx is also trending lower in the second half of '25 versus first half? And if you're staying here, CapEx will be lower year-on-year in '26, while still perhaps growing in that asset. So can you speak to the CapEx trajectory there? And how do you see the free cash flow progressing from the Lower 48? Nicholas Olds: Yes. Because -- Betty, you're exactly right. Maybe I'll take you back a little bit on the capital projection and a little bit of the efficiencies that we're seeing within the Lower 48 portfolio. If you recall back in 2Q, we achieved our level-loaded steady state program within the development strategy with integrating the Marathon assets. And so if you recall, we went from 34 rigs down to 24 rigs, so a pretty significant reduction. And we're still delivering kind of low single-digit growth in that. So obviously, we're taking in stock that lower capital from going first half to second half, and you're going to see that in the capital projections going forward. Another key component of that, Betty, is a lot around the efficiency improvements that we've seen getting into that level-loaded steady-state program, which I can talk more about, but we're seeing a significant improvement on drilling performance as well as our completions, that will continue into 2026. So if you kind of look at where we're currently at, we're probably going to be on a run rate basis for 2026, something similar to 3Q for capital in 2026, and we will continue to have that level-loaded steady-state program, roughly at 24 rigs in 8 frac crews going forward. As far as free cash flow, I'll probably let Andy talk about the total company, but we continue to see expansion with, again, all the efficiency improvements that we're seeing with the productivity that you saw in 3Q, a really good strong quarter. Andrew O'Brien: Yes, Betty, it's Andy. I'll just jump in and sort of add on to what Nick was saying there. So we feel it's important sort of on the free cash flow inflection to talk specifically to the three LNG projects of Willow. But of course, there's a lot more than that going on in our company, and Nick just described what we've got with Lower 48. And the flexibility we have within the Lower 48, without inventory if we wanted to ramp up that cash flow growth. But even beyond that, there's other things that we don't factor into that free cash flow inflection. Commercial, for example, when we talked about the commercial sort of strategy, we've got put off of Phase 2. We've got Rio Grande that we just mentioned today that will come on after Willow. That's going to be sort of the 2030 time frame. So there's a lot more going on in a company than just those four projects. We've got other things going on sort of in Canada, in Alaska and around some other international assets, but we just wanted to keep line of sight on this specific free cash flow inflection and then we obviously have ability to add to that. Operator: Our next question comes from Stephen Richardson from Evercore ISI. Stephen Richardson: Andy, it's a good segue from what you just mentioned about some of the other assets. I was wondering if you could -- it sounds like you've got some good visibility on some of the organic and capital-efficient opportunities in the portfolio. In Alaska, I was wondering if you could talk about some of the regulatory and permit changes and how you're thinking about incremental opportunities either in legacy ops or extending the resource at Willow. And then if I could, if you could maybe talk a little bit about Surmont. You've talked about incremental steam potential, but I understand that there's some other things that you could be doing now that you've got your arms around that asset and to improve it with minimal capital. Ryan Lance: Yes. Thanks, Steve. I'll take that. I think it's -- yes, Andy's answer to the last one, it's -- this update is a lot about Willow and some of the major projects to give the market some clarity as to what we have going on there and some clarity into our free cash flow growth. And it doesn't really address and assume some of the things we have that we're studying inside the portfolio as well, and you mentioned a few of those because I think we do have a strategic question longer term, if I recall on the macro is right, where is the conventional oil going to come from to satisfy the growing demand. And we see that demand growing clearly 1 million barrels a day or so per year for the foreseeable future. And when we look inside the portfolio, it's not only what we're doing in Willow and what we believe are going to be the added sort of pads that we can develop there. And to your point, we're working with the administration to identify some ways to streamline the permitting. I think you saw an early read of that with the new rules that are coming out for development in NPRA, that's just sort of the start. There's more things coming that will give us -- what we think is going to be a lot more clarity to faster permitting approvals coming in Alaska going forward. So watch that space as we move on and hopefully not only make it more profitable and easier and faster but also more durable with changing administrations. And then to your other point, yes, when we look -- that's just Alaska, and I commend the team also managing the base. There's a lot of activity going on, on the base side in Alaska as well. We have flexibility at the Montney asset to ramp up, should the call on crude be required to go do that. You mentioned Surmont. We're right now debottlenecking that plant as we speak. Now that we own 100% of that plant, we were able to make some investments in there that our previous partner were not approving. So we're taking the gross productive capacity of the plant up today. And then looking at future, can we add a few steam generation capacity to accelerate some of the development that we have with the huge resource that we have around Surmont. That's very competitive in a -- all at sub-$40 cost of supply. So when we look at the whole portfolio and you look at the deep inventory, we have in the Lower 48, combined with the other conventional opportunities we have around the world, we're really set up for decades of growth in this business. I like where we're at, and I like the portfolio and what we're doing today and the optionality that it creates for the company over the short, medium and long term. Operator: Our next question comes from Lloyd Byrne with Jefferies. Francis Lloyd Byrne: Ryan or Andy, I was just hoping you could spend a little bit more time on the OpEx. I mean, $400 million improvement and in light of it kind of being the second cut this year, it's just -- what's changing? Maybe remind us of the big factors that have improved and whether you can improve it further? Andrew O'Brien: Yes. Thanks, Lloyd. I can take that one. I think at the highest level, the first thing I would say is that we're executing really well in -- with our cost and capturing the savings. And as you said, that's why we've been able to reduce the guidance for the second time this year. But going into a few specifics, I would remind people that we've already achieved now 75% of the Marathon synergies that we were talking about over the prior quarters, that's in our cost, and we'll have that basically completely into our cost by the time we get sort of to the end of this year on a run rate basis. So we're exceptionally pleased with how smoothly that's gone in delivering on those cost reductions that we've previously talked about. And then as we look to 2026, stepping the cost down again, as you said, that's basically getting the full year benefit of some Marathon synergies that we've -- I just described. But then we expect to capture a meaningful amount of the cost improvements that we announced on our last quarter call. And we're -- that's basically going to drive some pretty meaningful reductions in our costs as we go through next year. It's -- they are the kind of the key things. And when we think about sort of how we reduce costs, we have sort of a mindset that this is continuous improvement. So we absolutely sort of challenge ourselves to sort of look at how we can basically continue to reduce those costs over time. But I think we're very pleased with sort of how we're doing that and sort of how that's showing up in our bottom line. Ryan Lance: And I would add, Lloyd, you know us well. These reductions aren't conflated with capital kinds of things. They're not due to dispositions in the portfolio. We don't have 30 lines of reconciliation because the net doesn't ever show up, and they're not cumulative. These are costs that will show up on our bottom line. And as I've said before, just watch us every quarter, and you'll see them materialize. They'll be real and they'll head straight to the bottom line and to our free cash flow inflection that we've been talking about for the next number of years. Operator: Our next question comes from Scott Hanold from RBC Capital Markets. Scott Hanold: I know it's always challenging to provide forward guidance with some uncertainty on commodity prices. So I appreciate the details on '26. Looking at total production and capital, it does appear similar to consensus numbers, but there does appear to be a variance to oil -- your oil guide relative to consensus. And I was hoping you could help us walk through where we might have sort of missed that? And we do understand there's a lot of complexity given the diversity of assets and other things like Surmont post payout. But I was wondering if you could walk us through some of that. Andrew O'Brien: Scott, this is Andy. I'll get us started with a couple of points here, and then maybe Nick can provide a bit more detail on the Lower 48 for us. So just a couple of things I'd say is that if you look at our third quarter, at the total company, we're at a mix of about 53% oil. And this is the first quarter now where we have the full impact of Surmont that you just referenced. So we now have a higher royalty into Surmont. So the third quarter is a pretty good mark basically as we think about 2026. And we've provided guidance and hopefully you found that helpful, where we've now provided guidance basically for an oil split. And we're basically forecasting '26 to be about that 53% for the total company. That does include sort of the bitumen impact of higher royalties at Surmont. And then specifically to Lower 48, we're guiding about 50% for the Lower 48. And then just one final point I would make before Nick can maybe comment on the Lower 48 is when we provided our '26 guidance of 0% to 2% range, for BOEs, that's also a good range for how we're thinking about oil as well sort of -- so I think we've tried to sort of guide a bit more on this time, we would say, we recognize as you provided for us upfront that there's a lot of moving parts here, but -- across the portfolio. But that 53% for the total company, we think, is a good mark for next year. And maybe Nick can just add a few comments on Lower 48. Nicholas Olds: Thanks, Andy. Yes, if you look at 3Q Lower 48 oil mix, we are around above 50% and you can compare that to 2Q, it was about 50.5%. And that was in line with our expectations and our development plan going forward. As Andy mentioned, we're guiding to oil mix at 50% when you look at 2026 forward. And again, that's simply an output of our plan and an output of our development plans where we're developing in the various basins. Now as a reminder for the group within the Delaware, that is our most significant growth driver within the Lower 48. So it shouldn't be a surprise to this group that oil mix will trend in that direction. It's low cost of supply, higher gas content, but very good strong oil content and good returns. Another key component to think through is we've got two decades plus of drilling inventory at current rig activity levels in the Delaware. It's a peer-leading opportunity set out there. Now one other component that you need to think through is that oil mix can fluctuate depending on the relative contributions from these basins as we drill in different areas. So you might have some higher oil mix and some lower oil mix and variations from quarter-to-quarter. But overall, as Andy mentioned, 50% on Lower 48 oil mix going forward. Operator: Our next question comes from Doug Leggate, from Wolfe Research. Douglas George Blyth Leggate: Guys, I'm going to try very hard to make this one question, but I'm hoping you can maybe help us navigate the moving parts a little bit. My question is on -- it's principally on Willow and the CapEx, what happens after Willow, but it's really about the evolution of your dividend breakeven because I think the Willow news has overshadowed the other big news, which, of course, was your dividend increase. So I guess my -- the way I would try to phrase the question is, how damaging is the increase in Willow's spending to the cash cadence of the cash flow coming back. And I guess my point specifically is you get qualified CapEx deductible and taxes in Alaska is pretty advantaged. So can you walk us through how big a deal this really is and what happens to the dividend breakeven as Willow comes online. Andrew O'Brien: Doug, this is Andy. I can try and step through that. I think you sort of half answered the question for me in terms of sort of how this works on a tax basis. And Ryan touched on this also in the prepared remarks. And the way I would look at it sort of at a total company level, is our breakeven is coming down, and it's coming down pretty substantially. Just right -- if you think about where we are right now, our breakeven this year, so just on CapEx is in the mid-40s, you'd add another $10 million to that for the dividend. Just from what we've described today from what we're doing from '25 to '26, that brings our breakeven down in of itself $2 to $3. So we're on this trajectory of, yes, cash flow inflection is going in one direction, which is great. And then our breakeven is also coming down, which is great. And as Ryan said in his prepared remarks, that's going to continue to happen where we're going to go all the way down to being in the low 30s on a capital breakeven, but the time Willow comes online. So I don't think what we've described today with CapEx in Willow going up. And let's not forget also the LNG CapEx coming down, there's having any really sort of notable impact on our breakevens and our ability to sort of generate cash flow over this time frame and our cash flow inflection remains unchanged. And that's why -- and I think you started the question with the dividend. And hopefully, that isn't getting lost in all of the news that we're describing today. But we have now increased that dividend by 8%, and this is now the fifth year of us having top quartile growth of the dividend and -- versus the S&P 500. And we feel very confident with that breakeven that, that continues. Ryan Lance: Yes. And I would add as well, Doug. Look, it's -- and it's sustainable given the breakeven coming down, as Andy described, the dividend is representing a lower portion of our total cash flow in terms of our distribution back to the shareholders. So how to give the shareholders and stakeholders in the company, a lot of comfort and conviction that we can continue to deliver top quartile S&P 500 dividend growth in the company well into the future given the projects that we're executing, the cost supply of those projects and the free cash flow growth we're going to see coming out of the company. So it's quite sustainable and leaves us room to buy back some of our shares, which we're leaning into quite a bit right now. Operator: Our next question comes from Bob Brackett from Bernstein Research. Bob Brackett: As much as I'd love to ask a few questions on Willow, I'll change the topic a bit, and that is to talk about the 2026 guide at 0% to 2%. And we've seen other large E&Ps and integrators with similar sorts of guides in a backdrop where WTI is sitting below $60. So can you talk about what macro world you envision or which you plan for that we're going to see next year? And how does that inform that capital guide and production guide? Ryan Lance: Yes. Thanks, Bob. I think -- I would like to say we have a lot of flexibility in the company. Production is kind of an output of our plans. We kind of set sort of a constant level loaded scope within the Lower 48. Nick talked a lot about what that means for kind of the production growth we see coming out of that. Our view of the macro is supportive. Again, we kind of set this at a $60 WTI to your point, WTI is trading a little bit below $60 at this moment in time. Our call would be probably seeing some inventory builds. We saw some of this last week. We'll see how it continues onshore in the OECD countries, but we probably see some downside pressure coming through the latter part of the ending part of this year and into maybe the first part of next year. So -- but that's why we have a balance sheet. That's why we have cash on the balance sheet. We want to continue to fund our programs. We came out with a 0% to 2%. We think that sort of makes a lot of sense with the macro that we're seeing today, but it also is informed by the medium and longer term, which we're quite constructive on today. Again, we see about 1 million barrels a day of demand growth not abating itself throughout this decade and well into the next decade. And we think there's going to be a call on crude and even a call on conventional crude depending on what you believe the unconventional supply coming out of the U.S. is going to look like at these kinds of prices or even elevated prices. So we see some modest growth in the unconventionals, continuing maybe flat to slightly -- some slight growth into next year depending on the price. But I think it sets up well to be a bit more reflective as we go into 2026, which is what we've tried to show with our 0% to 2%. But remind everybody, we've got a lot of flexibility in the portfolio, both ways. We can -- we have opportunities to reduce more CapEx. Should we think that's the need, we can use the balance sheet. Should we decide to do that, then obviously, we've got opportunities to ramp up on the other end as well. So we just think we have a lot of flexibility in the company, but I think this is a good place to start based on sort of how we view the near-term macro and where it's been developing. Operator: Our next question comes from Jeoffrey Lambujon from Tudor, Pickering and Holt. Jeoffrey Lambujon: I'll bring it back to Willow, if I could, and I want to say, I appreciate the detail earlier in the call that spoke to the breakdown there on the refreshed expectations. Can you also talk about the confidence level in the updated range? And essentially, what might be locked in from here? It would be great to just get a sense for what flexibility there might be up or down if things change enough over the course of the build-out or if the wider range that you have now capture the most likely scenarios in your view, and it's more a function of where you end up within that range. Kirk Johnson: Again, I would say we're winding back here a little bit. We recognize there was quite a bit of inflation coming out post COVID over the couple of years leading up to our taking FID in late 2023, and we're actually seeing that abate a bit in late 2023, which is why we took a view of just a couple of percent and we felt like, obviously, the monetary actions globally, we're going to knock that back a little bit. And so again, we took that view at the time. And this is just a really good time for us being roughly halfway through the project to reconcile what we've been seeing over the last couple of years. And as you know, it's across labor markets and engineered equipment, we've definitely seen some movement which is much more on the average of 4.5% to 5%. And that's been actual and realized. You can certainly see the data yourself across the last couple of years. Now sitting here today, we're seeing inflation rates abate a bit. We're starting to see inflation again in the 3%, 3.5%. But candidly, we're taking a view that this compounding inflation could -- based on the contracts that we have tied to market indices could continue in that 4% to 5% range. And so we've largely budgeted for that for the next 3-plus years of the project, just to ensure that we're not kind of falling back into prior assumptions in FID. So I would say we've got a lot of confidence in the -- obviously, in the way we're putting this capital guide forward here at this time. And again, able to stand here in this position with that confidence because the team is executing just so well on the project. And we're not seeing schedule slip. We're not seeing other challenges. Certainly, the upward cost pressure. You're not seeing -- we talk about scope discovery. This is really about inflation across the broader market, and we've taken a conservative view for the next couple of years. So -- yes, confidence in how we're pushing this out here today. And again, just pleased with how the project is moving forward here for the next couple of years. Operator: Our next question comes from Paul Cheng from Scotiabank. Paul Cheng: Ryan, I think, as you mentioned earlier that you think that's maybe increasing [indiscernible] on oil, even on the conventional, and when we're looking at over the past 10 years, I think you guys have drastically reduced your dependence on exploration because you have such a great profile in the Lower 48. And as the Shale oil is maturing, how should we look at it? Would you think that you still have such a huge portfolio that you really don't need to increase your exploration effort, and you can just rely on that -- on the Shale oil to continue to replace your resource -- your production? Or that you think the challenge on the longer term is really enough that we need to start maybe increasing the effort given it's a long-cycle business. Ryan Lance: No. Thanks, Paul. I think you bring up -- I guess there's probably an industry-wide macro question around that. Are we investing enough industry-wide on the exploration side and we lost some of that muscle inside the industry for that and large project execution for that matter there. And there's probably a bit to that from the industry side. Speaking specifically to our company, you're right. After kind of the early 2000 time frame when we first got into the Eagle Ford and saw the -- grown our unconventional position inside the company and then really changed the portfolio pretty dramatically over the last number of years to really focus on those low cost of supply opportunities and resources that we now have captured inside the company, it has put a less reliance on exploration. But I remind everybody, we continue to spend $200 million to $300 million a year on exploration to continue to feed some of the legacy assets we have around the company. In years past, that's been in Malaysia, been in Norway. We've moved that around throughout the years, depending on some of the activity level and the opportunity set that we find. And we're doing that again next year because we're focusing most of that exploration probably up in Alaska to support the Willow development and get our -- get the company in a position to be able to feed that infrastructure that we're building out there for decades to come. So it's part of a redirection of exploration. But we've been able to do that within that $200 million to $300 million allocation inside the company. We just spud a well in the Otway Basin of Australia to try to find more gas that we can bring into Australia. So this is not just a one area where we're appraising the discoveries [indiscernible] we had in Norway a year or so ago. So we are spending some of that money. To date, it hasn't captured a higher capital allocation inside the company because we've been able to get everything we wanted to get done for that $200 million to $300 million. But I think you're right, macro-wise, within the industry, you're seeing a lot more of that. We've just been blessed with a -- we're a resource-rich company in a resource-starved world. It looks like going forward. So I think we're uniquely positioned relative to many of our peers in the industry with having to consider significant ramp-ups in that capital allocation. Operator: Our next question comes from Charles Meade from Johnson Rice. Charles Meade: I'd like to ask a big picture question about your global LNG strategy. And you guys make this distinction between resource LNG and commercial LNG. And I'm wondering if you can talk about how those two -- how you think differently about those two pieces of the business, how they complement each other and perhaps how they compete with each other? And maybe wrap into that, one can make the argument that with the amount of resource you guys have in the Lower 48 that make a distinction between resource LNG and commercial LNG is kind of a distinction without a difference. And maybe comment on whether that's a valid argument in your view. Andrew O'Brien: Charles, this is Andy. Yes, it's a great question. And a big question, as you say, in terms of sort of comparing the two and how we think about them. So I'd probably go maybe back all the way to the beginning, we've been in the LNG business really since the 1960s. I think we're involved in basically sort of inventing this business. So we kind of know a thing or two about it. And we traditionally sort of until recent years, had the, what I would call the sort of the resource LNG sort of the [indiscernible] LNG business, where it's been very much about finding a stranded gas asset and -- you find a gas asset, you find people who will buy the LNG, then you build an LNG facility and off you go. That's kind of where this industry was for years. And we are -- we've been a big player in that with our Australia asset and our Qatar assets over the years. And that has served us really well. But as you fast forward sort of to what's happening in the Lower 48. It's a little bit of a different model in the -- and you kind of started to touch on this where you've got so much gas in the Lower 48. But you don't need to treat it like a facility-by-facility approach, where you've got the stranded gas that you're trying to tie to one facility. So it's -- the whole model is different effectively and that you're trying to take this gas in the Lower 48. And our strategy is pretty simple. We're trying to basically take what we think is low-cost supply in North American gas and get ourselves access to international pricing in TTF and JKM and that's exactly what we're positioning ourselves to do. We've made great progress in doing that with -- as I talked about in the prepared remarks, the 5 MTPA of Port Arthur Phase 1 that we've now fully placed. And then we're now moving on to Port Arthur Phase 2 where we took 4 MTPA and another 1 MTPA at Rio Grande. So we're trying to basically get ourselves in a situation where we can basically convert Lower 48 gas into international pricing. And what I would remind everybody is that we're also in a position where this commercial strategy complements our business so well. We produce over 2 Bcf a day in the Lower 48 and 2 Bcf a day in round numbers is about 15 MTPA. So it also works as a natural hedge to our Lower 48 gas exposure. So I don't -- back to your first off, because I don't really see them as the resource LNG competing with what we're doing in the Lower 48. They're kind of different modules, but we've certainly been able to learn from the resource LNG. And that's why we've been able to sort of implement the strategy we are doing basically where we're trying to control the entire value chain. And you only can do that with our global size and scale, and that's how we basically think we capture the economic rent. So -- hopefully, that helps sort of frame up how we think about the difference between the two. But I don't -- it's not like an either/or choice for us. We think that they both serve a really important role and we're happy to be playing in both as you can see with NFE and NFS on the resource side and what we're doing on the commercial side with Port Arthur and the other announcements we've made today. Operator: Our next question comes from James West from Melius Research. James West: I wanted to follow up on the LNG question. Obviously, the strategy is pretty clearly defined here. You had a lot of commercial movement. During the quarter, you're at 10 MTPA now, I think you've said in the past, 10 to 15 is kind of a range. Are we at a point where maybe you pause and digest? Or do you lean in and go up to that 15? Andrew O'Brien: Yes. I'd say very briefly, our strategy remains unchanged. We're executing exactly what we said. We -- the 10 to 15 MTPA is a size that we feel very comfortable about. It gives us the size that we want to be able to optimize our portfolio, be able to divert cargoes as I mentioned in the prior question, be able to control really the value chain. And I don't think anything's really changed there, that the 10 to 15 is kind of what we're looking to fill out right now. Ryan Lance: And I think, James, it's also a function of not getting too much commitments on the front and make sure you can place it on the back end. So we're being deliberate about that. And if we get more opportunity for low liquefaction costs opportunities, we'll add more to the 10 million MTA, but we got to back it up with regas on the other end and have a plan for it. So we're being deliberate now that we've reached that 10 million-ton mark. Operator: Our last question comes from Kevin MacCurdy from Pickering Energy Partners. Kevin MacCurdy: I want to come back to Slide 7 for a moment on the incremental free cash flow. And I know that you've shown this before with the $4 billion of free cash flow from Willow but I think that's quite an eye-catching number. And I was wondering if you could provide anything kind of high level on how you get there in terms of margins, productions, maintenance, CapEx in that first year? And if that -- and also to ask if that's a fairly good number to use heading forward for Willow post-2029? Kirk Johnson: Kevin, this is Kirk. Certainly, as you saw in the waterfall in the details in the supplementals on Willow, you can really take it directly from that. So as we compare against what was a historical and expected spend here this year of just over $2 billion, as mentioned by Andy, in the prepared remarks, we're expecting that here on the Willow Capital spend here this year, and then that moves down, plateaus for the next couple of years. And then on sustaining capital, post first oil, we're expecting to spend roughly $0.5 billion and just continue development drilling for the Willow Project. Obviously, we're starting predrill. We've got some predrill planned in 2027. And then that will extend and that predrill is all baked within our total Willow project spend. But then post first oil, that $0.5 billion. So in essence, what you're seeing is this inflection downward of capital from roughly $2 billion to an average of $0.5 billion first oil and then first oil, you're getting the CFO associated with, again, why we like Alaska. It's 100% oil sales, it's Brent premium. And again, that is the balance then of the $4 billion free cash flow improvement against a reduction of roughly $1.5 billion on CapEx. Ryan Lance: And I'd just remind, Kevin, that you see all the prices that, that's assumed at $70 prices, and we've given a sensitivity to that as well in the materials. Well, let me thank everybody for participating today. Just a few summary comments. We continue to execute well. We're improving our plan, and we're well positioned for a strong 2026 as evidenced by the new guidance we provided today. And I'd say the team continued to find a lot of ways to enhance value in what we think is a differentiated investment thesis. We have an unmatched portfolio quality. We've got a leading Lower 48 inventory depth, combined with attractive longer-cycle investments in the LNG in Alaska that we've described today in quite a bit of detail. And we continue to have a strong track record of returns on and of our capital, and that's all leading to a sector-leading free cash flow growth profile that takes us all the way to the end of this decade. So thank you all for your interest in ConocoPhillips, and we appreciate the questions. Operator: Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Greif Fourth Quarter 2025 Earnings Call. [Operator Instructions] Please be advised that today's conference call is being recorded. I would now like to hand the conference over to your first speaker today, Bill D'Onofrio, Vice President of Investor Relations and Corporate Development. Please go ahead. Bill D’Onofrio: Good morning, everyone, and thank you for joining Greif's Fiscal Fourth Quarter 2025 Earnings Conference Call. Today, our CEO, Ole Rosgaard, will provide a strategy and market update, followed by our CFO, Larry Hilsheimer, with a review of our financial results and 2026 guidance. Please turn to Slide 2. In accordance with Regulation Fair Disclosure, please ask questions regarding topics you consider important because we are prohibited from discussing material nonpublic information with you on an individual basis. During today's call, we will make forward-looking statements involving plans, expectations and beliefs related to future events. Actual results could differ materially from those discussed. Additionally, we will be referencing certain non-GAAP financial measures and the reconciliation to the most directly comparable GAAP metrics that can be found in the appendix of today's presentation. Two important reporting clarifications for this quarter. First, our containerboard business was sold on August 31. As such, that business is presented as discontinued operations for its 1-month contribution to the quarter. Unless otherwise noted, all financial results and commentary discussed today will relate to continuing operations only. Second, due to our fiscal year-end change, Q4 reflects a 2-month reporting period, August and September. For consistency, all prior year comparatives in today's presentation are also shown on a 2-month basis for August and September. I'll now hand the call over to Ole on Slide 3. Ole Rosgaard: Thanks, Bill, and thank you all for listening in today and for your interest in Greif. With the short 2025 fiscal year due to our fiscal year change, the 2 months fourth quarter, the sale of our containerboard business this quarter and the ongoing cost optimization program, we know there's a significant amount of change and noise for this quarter. This shows up in our tax results, which Larry will be discussing in a moment. Thank you for bearing with us. We are excited for the long-term earnings growth and value creation our strategy is unlocking. We closed fiscal '25 as a more focused, more agile and more strategically aligned company than at any time in our history. Our transformation is accelerating and the results are beginning to show. On October 1, we finalized the sale of our land management business, generating $462 million in proceeds. Those funds were used immediately to reduce debt, and our pro forma leverage ratio is now under 1x. We have entered fiscal 2026 with a meaningfully stronger balance sheet with enhanced capital efficiency built for resilience. Together with the divestiture of our containerboard business in the fourth quarter, we have reshaped Greif's portfolio to concentrate our efforts where we have the greatest opportunity to grow EBITDA, expand margins, generate cash, reduce cyclability and deliver durable returns for our shareholders. We are pleased to report our latest Net Promoter Score survey result of 72, an improvement of 3 points from last year and further extending our world-class customer service performance. That improvement is a direct reflection of the trust our customers place in us and our ability to deliver for them. The best companies build stronger relationships when things are difficult and our NPS reflects our conviction that we will capture significant value when demand returns. As Larry will touch on in a moment, our full year '26 guidance despite being low end, reflects continued earnings growth and a free cash flow conversion rate of 50%, demonstrating our progress towards the long-term objectives laid out at Investor Day in December. We are proud of how we ended fiscal 2025 but even more energized by what lies ahead. Our Build to Last Strategy is firmly embedded in our organization. We are shaping and sharpening our portfolio, strengthening our balance sheet and investing for sustainable growth. Please turn to Slide 4. Our commitment to value creation shows in how we manage cost. In fiscal '25, we achieved $50 million in run rate savings from our cost optimization program, more than double our stated full year '25 commitments. To date, we have achieved approximately $15 million in savings related to network design and operating efficiency. This is not limited to strategic footprint actions. It also includes deploying AI solutions to reduce scrap and improve OEE, strategic planning actions to minimize freight and maximize on-time deliveries and structural improvements to our global procurement strategy. The remaining run rate savings are related to SG&A. Our updated business model has enabled much more efficient decision-making. It has also led to difficult but necessary decisions to eliminate areas of redundant cost in the updated model. As of quarter end, we have eliminated approximately 8% of professional roles within the company or 190 positions. These changes have been carefully considered over this past year and were acted on in Q4 in a manner which allowed us to communicate to impacted colleagues our heartfelt appreciation for their contributions to Greif. These actions drove the significant acceleration beyond our previous full year '25 commitments. Due to our progress to date, we are raising our anticipated fiscal '26 cumulative cost saving run rate commitment from $50 million to $60 million to $80 million to $90 million. We will also expand our anticipated full year '27 cumulative run rate commitment from $100 million to $120 million. Our cost optimization program has continued to evolve since the start of the year. What began as a top-down initiative is now being fueled from the ground up. Across the organization, our colleagues are embracing the challenge, identifying new opportunities, driving local action and creating meaningful change. This work is making Greif a more focused and agile organization, better positioned to capture value as demand returns. Importantly, this isn't just about taking cost out. It's about building an agile next-generation Greif. The Greif Business System enables repeatable excellence across more than 250 sites in 40 countries, allowing us to do more with fewer resources. We are removing unnecessary layers to empower local leaders and speed up decision-making and we are embedding a mindset of efficiency, responsiveness and value creation across every function and facility. This isn't a onetime initiative. It's a structural shift in how we operate, compete and grow. Please turn to Slide 5. Significant finding from our cost optimization program, which is now realizable as the divestment of containerboard are the clear and meaningful synergies in operating adhesives and recycled fiber as part of Sustainable Fiber solutions. Therefore, beginning in fiscal '26, those products will be reported within our Fiber segment results. These changes are designed to enhance our go-to-market approach while also benefiting our cost optimization program. This leaves the Integrated Solutions segment as primarily closures. Effective October 1, we are renaming that segment to Innovative Closure Solutions, which is a highly profitable and critical growth focus for us. Please turn to Slide 6. Our Q4 results reinforce our strategic focus on 4 target end markets. In Customized Polymer Solutions, volumes were flat year-over-year. However, small containers continued positive volume momentum driven by the agrochemicals end markets. This is an area where we have been investing to grow both organically and through M&A. Mid-single digit declines in both IBC and large polymer drums, driven by softness in industrial markets in EMEA during the quarter offset the positive growth in small containers. In Durable Metals, volumes declined 6.6%, reflecting softness across industrial end markets. Our team remains focused on managing the business for cash flow and optimizing costs while maintaining a strong position that will capitalize on growth as demand returns. Sustainable Fiber volumes declined 7.7%, reflecting approximately 1.7 million tons of URB economic downtime during September. Converting was also negatively impacted by continued soft fiber demand -- sorry, soft fiber drum demand. Integrated Solutions continues to see volume improvement driven by closures. These products generating 30% plus gross margin continue to win new business through innovation and cross-selling, including on our Greif+ digital platform. In wrapping up my section, I'll close by pointing to a few items, which clearly demonstrate through the noisiness of full year '25, the value creation occurring under our strategy. Our polymers and closure business are growing. Our cost optimization is well ahead of plan and it has expanded to 120 million of anticipated total commitments. Our free cash conversion was nearly 50% in 2025 and expect it to be at 50% in 2026. Our pro forma leverage is below 1x. Greif is a strong, durable company and we are accelerating our value creation. I'll now turn it over to Larry for the financials on Slide 7. Speaker 3. Lawrence Hilsheimer: Thank you, everyone -- thank you, Ole. Hello, everyone. As a reminder, our results are presented excluding the containerboard divestment, except for free cash flow, which compares total operations to the prior year. Additionally, due to our fiscal year change, Q4 reflects a 2-month reporting period, August and September. For consistency, all prior year comparatives in today's presentation are also shown on a 2-month basis. Adjusted EBITDA for the quarter was $99 million, which was 7.4% above the prior year. EBITDA margins also expanded year-over-year by 140 basis points due to better price cost across all segments and the building momentum of our cost optimization. Adjusted free cash flow also improved year-over-year by over 24.3% due to the increase in EBITDA and our team's strong working capital management to close the year. As noted in our presentation, SG&A includes $28 million of operating costs specifically related to the containerboard divestment, which are excluded from EBITDA. Excluding these costs, SG&A was slightly above the prior year quarter due primarily to the 2-month quarter, including certain annual or quarterly costs, which were incurred over a shorter year. Adjusted EPS for the quarter was $0.01 relative to $0.59 in the prior year quarter. Our Q4 tax expense was impacted by nonrecurring items affecting pretax income and the residual nature of continuing operations after removing discontinued operations. Tax expense also includes various taxes either not based on income or not directly correlated to current period income, the impact of which is magnified due to the lower income reported in this 2-month period. Finally, the tax expense was also influenced by the mix of earnings across the jurisdictions in which we do business. Please turn to Slide 8. In Polymers, growth was led by small containers, consistent with our long-term strategic focus on less cyclical, margin-accretive end markets. Sales and gross profit were both up year-over-year with margin tailwinds from mix, pricing and operational discipline. In metals, results reflected volume softness in industrial end markets. Sales and volume declined but we continue to generate healthy cash flow and remain focused on cost reduction and enhancing agility to react as demand recover. In fiber, the decline in sales was tied to volume with URB mill downtime late in the quarter. Despite that, gross profit dollars and margin improved year-over-year due to continued benefits from price cost and tight cost management. Integrated Solutions sales and gross profit dollars declined year-over-year primarily due to lower published OCC prices in our recycled fiber group. Volumes in recycled fiber and closures were both solid and the product mix impact of closures led to higher gross margins year-over-year. Please turn to Slide 9. Given the continued demand environment we are operating in, we believe it is prudent to present low-end guidance to begin fiscal '26. Our low-end scenario assumes flat to low single-digit volume declines in metals and fiber. It also assumes low single-digit volume improvement in polymers and closures from growth in our target end markets. The net impact of these volumes assumption is flat volume-related EBITDA performance to prior year. Transportation and manufacturing costs were also assumed flat, representing cost savings on our cost optimization, offsetting normal inflationary cost increases. The 2 major positive drivers in our bridge are SG&A and price cost, both of which reflect the accelerated progress on our cost optimization program. SG&A of $45 million reflects $39 million of incremental cost optimization, of which $17 million is within the fiscal year '25 run rate and $19 million is within the fiscal '26 run rate, both of which are expected to benefit fiscal '26. The additional $9 million represents lower variable costs, including incentives. Price/cost reflects $12 million of incremental cost optimization. This is primarily in the form of sourcing benefits in polymers and closures, while metals cost base is assumed flat. Price/cost also reflects an $18 million incremental benefit of URB pricing recognized in fiscal '25 and lower expected OCC costs. Lastly, to round out our bridge, a $10 million EBITDA headwind from the lack of land management and a benefit of a $7 million positive FX driven by the weakening of the U.S. dollar. Our free cash flow low end guidance is $315 million, a 50% conversion ratio, demonstrating our progress towards our long-term objectives. We expect to spend approximately $155 million on CapEx this year. Our lower cash interest cost reflects our strong balance sheet and our other cash use includes approximately $40 million of cash restructuring related to the cost optimization as well as pension costs. Working capital assumes a source of $50 million, driven by both low-end volume assumptions and optimization gains. Please turn to Slide 10. With our pro forma leverage below 1.0x and strong cash flow guidance of $315 million, we anticipate minimal cash needs for debt service costs in the year ahead. Similarly, after divesting our most capital-intensive business earlier this year, our maintenance CapEx needs are approximately $25 million lower. Given the strength of our balance sheet and strong and durable free cash flow generation, our capital allocation outlook demonstrates the value creation driven by our business model. As a result of our fiscal year-end change, our scheduled Board of Directors meeting is now 1 month following each quarterly earnings release, still aligned to the previous fiscal calendar. As such, our dividend payments will be considered as usual by the Board on that same cadence with the next meeting occurring on December 9. Further, based on our strong conviction in our own ability to meet our long-term commitments and our belief that our stock currently presents compelling value, we plan to execute as quickly as possible on an approximately $150 million open market repurchase plan, utilizing our available authorization of approximately 2.5 million shares. Additionally, we intend to seek Board approval of a new stock repurchase authorization that will enable continued repurchases as part of our go-forward capital allocation strategy, which we expect to include regular stock repurchases of up to 2% per year of our outstanding equity value. While that leaves ample capacity for growth capital, we're going to be prudent in allocating it while maintaining our strong balance sheet. Where we do deploy growth capital, we will prioritize thoughtful and focused organic investments, which drive high returns on capital. Please turn to Slide 11 for closing from Ole. Ole Rosgaard: Thank you again for your interest in Greif. We acknowledge that the last 11 months have been bumpy given all the change occurring, and that showed up in this quarter in our tax results. As always, my commitment to you is transparency and candor. We are proud of how we finished fiscal 2025, more focused, more efficient and more aligned with our long-term strategy. We're also excited for a cleaner outlook in full year '26 and we'll continue to communicate progress on our strategy with as much clarity as possible. The divestments of containerboard and Land Management have meaningfully reshaped our business. We're now positioned with a sharper portfolio, lower capital intensity and stronger financial flexibility than ever before. Our cost optimization program is ahead of plan and with an expanded $120 million commitment by the end of 2027. We are building a stronger business, one that creates value in any environment and delivers accelerating performance as volumes return. Thank you for your continued support. Operator, please open the lines for questions. Operator: [Operator Instructions] one moment for our first question, which will be coming from Ghansham Panjabi of Baird. Ghansham Panjabi: So I guess, first off, on polymers and your comments about growth in some of the target markets that you've realigned towards. Can you just give us some more color on that, Ole? I mean many of these end markets you referenced ag and flavors, et cetera, are still quite challenged just based on what's happening at the CPG level, et cetera. So what is driving that improvement? Is it share gains? Is it just commercial success? What's going on there? Ole Rosgaard: Yes. Let me first give you some sort of general comments. So our macro environment is, as you know, in a prolonged down cycle and that's amplified by trade and tariff uncertainties. Demand softness remains a major driver for our customers' demand. And for example, weak end markets in construction and manufacturing are hurting volumes. In terms of the ag sector, we decided as part of our Build to Last Strategy to go into the -- or invest in end segments that grows faster than GDP. One of them was the agrochemicals market that is serviced by small containers and jerry cans, and we consolidated that market to become a global leader. And that has really paid off and it's in that market, particularly, we have seen significant growth. But when you look at these factors, our operational excellence, cost discipline, cost-out program and all the actions we just mentioned, that means that, that portfolio has become even more valuable to us in the near term. Ghansham Panjabi: Got it. And then in terms of fiscal year '26 guidance specific to EBITDA, how should we think about the sequencing of that on a year-over-year basis? Is it sort of flat to down in the first half and then an improvement in the back half? What's your baseline assumption at this point? Lawrence Hilsheimer: Ghansham, it's as usual, the first quarter will be the weakest, and let's talk about it roughly 20% of the year. And then the rest of the quarters will be 25% to 30% each, sort of modeled the same way after prior year. Ghansham Panjabi: Got it. And then just one final one, Larry, as it relates to the low end, if you will, guidance characterization, is it just purely volumes that would be determined as it relates to maybe the upper end bandwidth? Is that how we should think about that? Lawrence Hilsheimer: I think volumes would be the big driver for certain. But also, we have found acceleration in our cost optimization program. As Ole mentioned in his prepared remarks, this is really catching fire among our colleagues and we have a program of identifying ideas from the ground up. So we also think there's upside in our cost optimization numbers for the year as well. Operator: And our next question will be coming from Mike Roxland of Truist Securities. Michael Roxland: Congrats on all the progress. Just wanted to follow up on Ghansham's question in terms of the '26 guide. So Larry, if volumes come in weaker because certainly we've heard about weaker volumes from a majority of our companies this earnings season thus far, is cost the leverage that you have available to pull to offset incremental volume weakness to meet your guide for '26? Lawrence Hilsheimer: Yes. I would say 2 things. The bottom line answer to your question is yes. We can always pull back further on shifts and temporary furloughs and those kind of things. However, this is what we said, this low-end guidance. This is pretty pessimistic on the volume assumptions already. So we don't anticipate that being an item, Michael. But yes, we still could pull incremental levels on a variable cost basis if we needed to. Ole Rosgaard: Michael, just remind you that throughout the year, pricing has been under pressure and that's due to oversupply and weak demand. And despite of that, we have increased our margins and performed solidly. And I don't think that will change going into 2026. Michael Roxland: Got it. Very helpful. In terms of the cost optimization programs, you guys raised that for '27 by $20 million. As you've gone through the portfolio, do you -- can you comment on whether there's even more upside to be had or additional cost opportunities that you've come across that maybe you haven't specified right now but you've really scrutinized and you think that even there is an additional amount above and beyond the incremental $20 million? Ole Rosgaard: Obviously, our sites are much further and much higher, but we use the word commitment here. And at the moment, we are very, very comfortable committing to the $120 million we talked about. But obviously, as Larry just alluded to, that number could go up as we go through the year but we want to get a little bit closer before we would be able to increase our commitments. But we are very bullish about that. Lawrence Hilsheimer: Mike, we have a stage-gate process where there's a lot of discipline before we get to something we classify in stage-gate 3 and 4, which is where we're more certain. But yes, we believe there's potential upside. Michael Roxland: Got it. And then final question before turning it over. Last quarter, you mentioned a few times on the call that some of your larger chemicals companies -- or customers, excuse me, were not doing so well. We see that through in earnings. Your IBC volumes declined mid-single digits this quarter. They were down mid-single digits last quarter and have been weak for some time now. Now realizing that chemicals is a cyclical business, have any of those customers indicated to you that they intend to like maybe close capacity permanently or rightsize their businesses? And if so, what does that ultimately mean for your IBC business longer term? Ole Rosgaard: I mean, as I said, the demand softness is out there it's a major driver for our customers and they have adjusted their business. And they are -- a lot of them are relying in terms of chemicals on construction and manufacturing as end markets. I don't think that it will get any worse. That's my personal opinion when I speak to customers and see the numbers. But big question is when will it get better? And we're not sitting here waiting for it to get better. Just as you've seen, we are acting. We are highly focused on organic growth. We're deploying capital for organic growth in the specific segments that we have alluded to. We are taking cost out of our business and our business is generating a lot of cash and we're doing our share buyback of $150 million. So we're helping ourselves. We're controlling what we can control, and we're not in a waiting position. Of course, when volumes return, that will be nice, and we will take that as an extra benefit. Lawrence Hilsheimer: Yes, Michael, I would supplement Ole's comments, if this makes sense, we're hearing less bad comments, less bad than they were. And the other thing that's somewhat encouraging is the trending down of mortgage rates. As most housing industry analysts, investors believe that if you get with a 5-something interest rate pent-up demand in existing homes sales will take off. That's a big driver for the chemical companies and therefore, for us. Ole Rosgaard: We're encouraged by the 2x rate cuts we've seen, but it's not going to change anything overnight. But if we see more rate cuts, it will have a positive effect on demand, we believe. Operator: And our next question will be coming from Matt Roberts of Raymond James. Matthew Roberts: I appreciate all the color. Can you hear me okay? Lawrence Hilsheimer: Yes, yes. Matthew Roberts: Okay. Great. Good to see the cost coming through and all your color on capital allocation. And on capital allocation, so balance sheet is in a great spot. You initiated the open market repurchase for $150 million. So given that low leverage and the now newly discussed long-term repurchasing intentions of, I believe, it was 2% per year. Does that change how much capacity remains for M&A? Or has the hurdle rate for M&A changed versus your view of, I think, what you said stock offering compelling value. And all those things considered, where do you expect leverage to shake out by year-end '26? Ole Rosgaard: Let me just answer the first one and let Larry deal with the leverage one. So on M&A, I mean, first of all, our focus is on growing much faster organically and we are deploying CapEx for that. We have a number of areas we have invested in for organic growth. In terms of M&A, we've said many times, we have a very solid pipeline. We keep working on the pipeline. We don't expect any transformational M&A to happen. We have our focus on what we would call tuck-in M&A to complement what we're doing organically. And our criteria remain the same. We are looking at M&A with EBITDA margins in the 20s, 50% free cash flow conversion and primarily within Polymers and primarily within the closures segments. Lawrence Hilsheimer: Yes. You might want to supplement that, Ole, maybe talk about -- talk to the group about hunters and farmers and also about IonKraft maybe. Ole Rosgaard: Yes. So we have reorganized our entire commercial organization globally and from being -- we've been farmers in the past and taking really good care of our existing customers but we've changed that to become more hunters now. We've changed the incentive program. We've changed the way we operate commercially. And we are targeting around 8% organic growth. That's part of -- that part is securing additional volume, extra share of wallet, but it's also deploying CapEx in terms of new capacity where we see that -- we have also invested in a new -- it started off as a start-up out of a university in Germany. We created a partnership with the start-up, and we are now investing in that and we are deploying a very unique proprietary form of barrier technology that only we have. And we're just ramping that up right now. We have 3 lines on order and we are negotiating further lines. And this is something that's exclusive to us. And we will see that start to come through towards the end of '26 and really ramping up in '27. Lawrence Hilsheimer: Yes. And Matt, purpose that, obviously, the focus that we are really driving a different growth pattern than we have in the past. But relative to our leverage ratio, we're obviously in a really good place. And with the free cash flow generation that we're talking about, I think it's very highly likely, even with our stock repurchase and things we do, very highly likely, we'll remain under 1.5x by the end of next year. It's possible if some things came up that were attractive, we'd be higher than that, but I don't see any scenario where we'd be over 2x at any chance. So really, we'll remain in that range for the foreseeable future. Matthew Roberts: Very helpful. Secondly, on the closures. So isolating that as a stand-alone segment, Ole, I know you did touch on this in the prepared remarks, so I apologize if I missed any of that. But are there operational changes here or more of a symbolic shift as closures have been a growth focus. And now with the -- as lower recycled fiber has been a drag on the margins in Integrated Solutions, how should we think about the margin profile and growth of that segment going forward? Ole Rosgaard: The closure has always been very attractive for us. It's a unique part of our business that comes with very high and attractive margins. There's a lot of growth opportunities out in the market for closures. And for example, with the 3 acquisitions we made in Polymers, most of them were using closures from other companies than our own. So there was a big synergy there we'll be executing on. Closures, we separated that out now in a separate segment really to put extreme focus on this segment. We have a new leader in that business as well. And his focus will be growth, M&A growth but importantly, also organic growth. And we'll deploy CapEx accordingly to that. So hopefully, you will see us in the many quarters to come growing that segment significantly. Operator: And our next question will be coming from George Staphos of Bank of America Securities, Inc. George Staphos: I also -- I just want to give you some credit here. By sell or hold, the company has really done a wonderful job transforming itself over the last 10 years and moving to a more, if you will, common fiscal quarter end, I think, really helps everybody on the street. So we thank you for that, guys. And we know it wasn't an easy undertaking. So thanks so much for that. I guess my first question, can you talk about, Larry and Ole, the growth rates that you saw relative to your guidance entering fiscal '26? I assume your assumptions are consistent with what the exit rates are, but were there any exit rates that were maybe trending below what's embedded in your guidance, recognizing you've got a lot of levers to pull, et cetera, as was talked about earlier on the call. Lawrence Hilsheimer: Yes. I mean when you look across our portfolio within the fiber segment, probably one of the weakest lines that we had is our fiber drums. So fiber drums were down double digits, which was more than we expected them to be down. We expected them to be down less than that, high single digits. So that was a trend that was worse. On the other hand, small polymers did better than we expected. So those were the 2 primary ones that were different than our expectations going into the quarter, George. Our guidance going forward is essentially aligned to what we started to see. So in our low-end guidance, as we said, we've got low single-digit up on polymers and on closures with more in the small polymers than in the large polymers. And then within metals and fiber, we've got low single-digit declines just as a low-end guidance assumption. George Staphos: Understood. Okay. And you're saying drums at this juncture, fiber drums, those have gotten back to kind of your guidance range or even though they started pretty weak. Would that be fair? Lawrence Hilsheimer: No, they're just really off right now. And it's all tied to the whole chemical industry sector. So yes, we're not bullish on any kind of significant growth in that one right now. George Staphos: Okay. I was hoping you could go a little bit further into the SG&A pickup that you're expecting this year. Thank you for the bridge and the discussion on the $45 million. Can you talk about what's in sort of the activity that you took in from fiscal '25 into fiscal '26, What, if anything, is different about what's in for this year on the fiscal '26 actions? And just any other color on the $45 million would be great. Lawrence Hilsheimer: Yes. The predominance of our SG&A takeouts are related to the headcount numbers that Ole gave on the 8% of our overall professional headcount. And the majority of those actions were taken in the fourth quarter. So they play out into the entire year going forward. We also have a lot of things where we've moved more things to low-cost countries. We've also taken in where we had contractors in our IT organization that you think are temporary and then all of a sudden, they're around 8 years. Well, you're better off to hire them as employees and then you're better off to offshore things. Our IT group has also done a fabulous job of rationalizing our IT licenses, which is a significant cost. We've restructured how we're doing our AI activities and going to a model that's basically pay for what you eat instead of a basic core per person license. So there's a whole bunch of elements that go into those cost saves. But those are the predominant ones that are driving the major numbers. George Staphos: Okay. And on that point, Larry and Ole, you talk about changing the incentives and the approach to organic growth in the organization, that sounds exciting. And at the same time, for understandable reasons and to benefit because you're getting savings from it, you're cutting headcount. Are there any areas where you're maybe a little bit more -- maybe word is not the right term but you've got to stretch a little bit further to get everything done on the front end of the business while you're reengineering the back end. Any tension points there? Ole Rosgaard: Not really, George. I mean, we decided not to do the SG&A as like thousand needles. That's why we took the actions in Q4 to get most of that behind us. We -- in terms of the commercial organization, we have by and large, protected that because we're really focusing on organic growth, although we have been rearranging that, as you say, with the incentive program. But we're doing a lot of other things there as well in terms of how we manage performance in sales. And we have -- I mean, Tim Bergwall, who's our Chief Commercial Officer, he's just doing a fantastic job with his team to do that. And it doesn't happen overnight and we still got a long way to go in that area. George Staphos: Okay. My last question, a couple of parts, and I'll turn it over out of courtesy. Sorry, I've gone long here. One, I assume the pricing change in integrated/closures is just the effect of OCC, but can you talk about what the pricing change was actually within closures? Given you've done a lot of other things to simplify the organization, any thought perhaps at some point to simplifying the share structure between the Class A and Class B? And then lastly, with great resources and everything you've done to have the balance sheet where it is, comes great responsibility. Where are your customers telling you they'd like you to most sort of grow inorganically from an end market standpoint so that you get the highest return going forward? Ole Rosgaard: That was a lot of questions. George Staphos: We've been doing this a while. Lawrence Hilsheimer: The first one was... Bill D’Onofrio: The price impacts on the Integrated segment between RFG and Closures. Ole Rosgaard: So first of all, the reason for why we put the recycled fiber group and adhesives into the fiber solutions group was that they're serving that group. It's the same customer, and it's -- the adhesives is going into fiber also amongst customers. And to have that managed by the same leader made sense. And that was part of that -- as part of that, we could take out a leadership level. And that left sort of Integrated as a stand-alone closure business. George Staphos: Ole, what was the price change in closures, really what I'm asking? Lawrence Hilsheimer: Yes. The price change in Closures, George, was basically $12 million of benefit from procurement activities and that was in the polymers and closures. That's the segment. It's not the OCC side of it. And then with respect to share structure, I mean, that's something that we continue to dialogue and look at but nothing on the -- in the near term on anything like that. And then what was the third question? George Staphos: Where are your customers telling you to... Lawrence Hilsheimer: Yes, on nonorganic, basically, I mean, our customers like us to serve them in any of their needs that they have. So us getting broader enclosures where we might be able to serve more of their needs. Clearly, they've enjoyed us getting more into like the small plastics that we didn't use to serve on a global basis. That's been a positive. But there's nothing else that they're out there asking us to get into right now other than the one Ole went over on IonKraft which is just a brand-new technology that is more highly recyclable, very favorable environmentally. And we just had UN approval on the first container with this step in. It's a very unique opportunity for us. Ole Rosgaard: Just to remind that we -- our NPS of 72 is just unheard of in our industry and that gives you an idea of how close we are to our customers. I'll mention an unnamed customer who has been establishing new plants in several countries. And every time they do that and this is a multinational, they come to us and ask if we could provide capacity on that particular location. And we go in and we do a long-term agreement and then we add lines or build a plant to service them. And that's an example of what customers ask us for and how close we are to them. Operator: Our next question will be coming from Gabe Hajde of Wells Fargo. Gabe Hajde: I had a question about the Durable Metals business, which is now going to be your largest. And if memory serves, I don't know, 40% to 45% of that sits in Europe. And not to put you guys on the spot, but looking at a decent list of chemical plant closures across Continental Europe, Eastern Europe, et cetera. I know you're talking about volumes being down, I think, flat to down low single digits. Can you talk about just maybe -- I know by region, historically, you kind of gave us performance in the legacy segments. Things have been changed around a little bit. But I think you mentioned in your prepared remarks, Europe slowed down. And so maybe just by region, sort of what your expectations are in that. Lawrence Hilsheimer: It's interesting -- it's actually been a little bit of astounding to us. So for example, the North American steel business has been down similar levels to EMEA quarter-by-quarter. But on a 2-year stack, EMEA steel was actually up every quarter this year. every single quarter. Ole Rosgaard: They have consistently performed better than North America. And then we have also -- as and when customers reduce capacity, we do the same. I mean, plants where we have been operating at two shifts, we now have gone down to 1 shift as an example. And we do that because we're managing that business for cash basically. So the closures that has happened, they have already been factored into our production capacity. Gabe Hajde: Okay. I guess the second question is kind of revisiting a little bit on the M&A front. Is there a scenario where maybe there are just kind of some tuck-ins along the way? And I think, Larry, you said you don't really envision a situation where you're above 2x levered. And so between now and 2027, I didn't see the $1 billion reiterated. And again, I know it's tough when you're moving assets around. But is that still explicitly sort of the target given sort of what you know about the M&A environment right now? Lawrence Hilsheimer: Yes. I mean, for us, on that, Gabe, I mean, it's still our objective to get there but we're not going to slowly deploy capital to get there. But if you just walk through, we gave low-end guidance. So obviously, our hope is that we do better than our low-end guidance. So if you take the $630 million and you then look at our $120 million commitment, that's a net another $45 million. So you're already up to $675 million. We're hoping you see industrial volume recovery. Obviously, that's a big component. It's been a component of our original stack was $140 million. I mean those things get you up to $815 million. We do some tuck-in acquisitions. We invest in organic CapEx and IonKraft and other opportunities. We still think there's a path to get there. But it's not like, okay, we're going to go chase M&A to get there and risk doing bad deals. We're just not going to do that. Gabe Hajde: But the $140 million are largely intact in terms of going back to the 2022 volumes. Lawrence Hilsheimer: Yes. Operator: And this concludes our Q&A session. I would now like to turn the call back over to Ole Rosgaard for closing remarks. Ole Rosgaard: Thank you. Thank you for joining us today. Our disciplined focus on margin expansion, cash generation and reducing cyclability is delivering meaningful high-quality returns for our shareholders, further validating your investment and confidence in Greif. We really appreciate your time and your partnership. Thank you. Operator: And this concludes today's program. Thank you for participating. You may now disconnect.
Operator: Greetings, and welcome to Joby Aviation's Third Quarter 2025 Conference Call and Webcast. [Operator Instructions] As a reminder, this conference is being recorded. It's now my pleasure to introduce your host, Teresa Thuruthiyil, Head of Investor Relations for Joby Aviation. Teresa, please go ahead. Teresa Thuruthiyil: Thank you. Good afternoon and evening, everyone. Thank you for joining us for Joby Aviation's Third Quarter 2025 Financial Results Conference Call. I'm Teresa Thuruthiyil, Joby's Head of Investor Relations. We will begin the discussion with comments from JoeBen Bevirt, Founder and Chief Executive Officer; and Rodrigo Brumana, Chief Financial Officer. For the Q&A portion of today's call, we'll also be joined by our Executive Chairman, Paul Sciarra; and Blade CEO, Rob Wiesenthal. Please note that our discussion today will include statements regarding future events and financial performance, as well as statements of belief, expectation and intent. These forward-looking statements are based on management's current expectations and involve risks and uncertainties that could cause actual results to differ materially from those expressed or implied. For a more detailed discussion of these risks and uncertainties, please refer to our filings with the SEC and the safe harbor disclaimer contained in today's shareholder letter. The forward-looking statements included in this call are made only as of the date of this call, and the company does not assume any obligation to update or revise them. Also, during the call, we'll refer both to GAAP and non-GAAP financial measures. A reconciliation of non-GAAP to GAAP measures is included in our Q3 2025 shareholder letter, which you can find on our Investor Relations website, along with a replay of this call. And with all of that said, I'll now turn the call over to JoeBen. JoeBen Bevirt: Thank you, Teresa, and thank you, everyone, for joining us today as we discuss our third quarter 2025 results. The past few months have been momentous for our team, as well as demonstrating the remarkable potential of our aircraft by flying in front of hundreds of thousands of people here at home and overseas, we've also moved the ball meaningfully down the field on certification, and we've passed one of the most important milestones in Joby's history to date. As we announced this morning, we have now begun power-on testing of the first of several aircraft we will build for TIA or Type Inspection Authorization. Entering TIA is widely understood as marking the final stage of the certification process and is a very strong indicator of a company's ability to reach Type Certification. This is the moment when our certification strategy, our intended type design and our manufacturing processes all converge into one physical asset. Let's take each of these in turn. First, our certification strategy. It might sound simple, but our certification strategy is the result of more than a decade of working alongside the FAA to develop a certification basis, the means of compliance for our aircraft, certification plans and test plans. These are the documents we've been talking about quarter after quarter in these calls, and they are absolutely required to get to TIA. Second, having a stable design is the result of years of focused engineering and testing using the same design and putting it through thousands of hours of testing on the ground and in the air. If you continue to make changes to your design, you can't enter TIA with a high degree of confidence that you'll complete it expediently. Finally, on manufacturing processes. This aircraft is one of a series that we are producing under Joby's FAA-approved quality management system. Each of the TIA aircraft, including this one, will be built with FAA-conforming components as required by our FAA-approved test plans. Each of the relevant components will be built to FAA DER or Designated Engineering Representative approved designs, and then inspected and signed off by FAA Designated Airworthiness Representative or DAR. This process adds a lot of overhead to the build processes. It's not fast or easy, but it is what's required to start TIA flight testing. Bringing all of these elements together is a huge achievement and I'm incredibly grateful to the team at Joby and at the FAA for the years of hard work that led up to this moment. We continue to plan for this aircraft to take to the skies later this year, flown by Joby pilots, clearing the way for FAA pilots to start for credit testing next year. As I mentioned earlier, having a mature and stable design is central to being able to move with certainty and pace through the certification process. And over the past quarter, we've been able to build on that maturity, demonstrating a remarkable cadence of flight testing and demonstration flights as well as continuing to fly several times a day out of Marina where we've demonstrated climbing, descending, accelerating and decelerating all at max rates. We also flew our first A to B mission, flying down to Monterey and back. A few weeks later, we participated in the California International Air Show, completing a 20-minute flight that saw us take off vertically, fly to Salinas, completed a demonstration that included multiple transitions between forward flight and hover and returned to Marina for a vertical landing. And we did all this while a separate Joby team completed 2 full weeks of regularly scheduled flights in Osaka as part of the World Expo, demonstrating the aircraft to hundreds of thousands of attendees, including the Japanese Prime Minister and the Governor of Osaka. The operational rigor and consistency we've demonstrated in completing these flights is a testament to the remarkable team we've built and the maturity of our aircraft. It is also preparation for our future commercial service. Speaking of which, it was a privilege to fly Ryder Cup fans back and forth from Manhattan to Long Island this quarter via our Blade service. 2.5-hour drives were replaced with 12-minute flights, highlighting the potential of vertical lift to a key audience suppliers. Our Blade team excels at delivering operations at scale, combined with the highest levels of customer service. This operational experience, combined with the maturity of our eVTOL platform puts us in a great position to take on the opportunity presented by the U.S. government's recently announced eIPP program. Through an executive order, the President has directed the Department of Transportation and the FAA to ensure that mature eVTOL aircraft can begin operations in select markets in the U.S. ahead of full FAA certification. We are already in advanced conversations with a wide range of state and local government entities who are submitting applications for the program, and we believe that having a TIA-ready aircraft as well as a wide set of operational experience will put us in a very strong position to deliver the high levels of safety the FAA will require to participate in this precertification program. We see the eIPP program pulling early demand for our aircraft forward. Taken alongside the demand we're also seeing from a range of international early adopters, it's clear we'll need to keep accelerating production if we are to keep up with the incredible demand we're seeing for our product. The level of production we are preparing for has never been seen in the aviation industry, and we're incredibly grateful to be working closely with Toyota as we plan and execute for scale. And we've already produced 15x more FAA conforming parts so far this year in Marina than we did in all of 2024. As well as growing in Marina and adding more than 100 manufacturing roles this past quarter, we've now begun production of propeller blades at our Dayton, Ohio facility. This is a great example of our approach to scaling, where we'll perfect manufacturing processes at home in California before scaling them alongside Toyota. Before I hand it over to Rodrigo to talk about our financials, I wanted to touch on my excitement for the future of Joby. Our core focus is and always has been the development of our core S4 platform. That's the aircraft you see flying every day. We've put a huge amount of work into designing it from the ground up, and we've built it in a vertically integrated way. As I've said many times before, this vertically integrated approach is our superpower. Because now that our platform is mature, we're able to move with incredible pace to adapt it to a wide range of use cases and technologies. Last year, we adopted it to fly with liquid hydrogen, completing a 561-mile flight with water as the only byproduct. I'm confident that hydrogen will play a very significant role in the future of aviation, supporting a wide range of new applications and aircraft types and the experience we've already built in this field puts Joby at the very forefront of innovation. This year, we announced we would work with L3Harris to develop a turbine electric variant for defense use cases. And I'm pleased to say just 3 months after that announcement, we're already ground testing this aircraft with the hybrid system in the loop, and flight testing is set to begin imminently. In fact, just yesterday, we had the FAA on site working with us to grant airworthiness for this vehicle. L3Harris has been a great partner on this journey, and we remain on track to demonstrate the full capabilities of this aircraft in the coming quarters and compete for some of the $9 billion the U.S. Department of War has requested for the acquisition of resilient, autonomous and hybrid aircraft in the FY '26 budget. Joby's approach to vertical integration puts us in a unique position to move from concept to demonstration and from demonstration to deployment at a pace that's almost unheard of in today's aerospace industry. And it demonstrates the value of dual-use technologies, allowing us to get new tools into the hands of America's troops as quickly and cost efficiently as possible against the rapidly evolving national defense landscape. That advantage also counts when it comes to autonomy. While our initial air taxi product will launch with a fully qualified commercial pilot on board, I believe, a future where we are able to take the pilot out of the loop is approaching more rapidly than I expected even 6 months ago. For decades, the principal barrier to commercial autonomy hasn't been technical or regulatory. It's been the way our commercial air traffic control system works. The current system still requires a human being on a radio to speak with another human being to deconflict airspace, file flight plans and confirm departures and arrivals. The current administration has indicated its intent to invest in modernizing this approach, making much needed investment in the infrastructure that controls our skies and laying the foundation for commercial air autonomy to take off much like the adoption of autonomous ground vehicles has. At Joby, we're making sure we're ready for that step when it happens. Over the summer, the team we brought on board from Xwing demonstrated our Superpilot AI technology stack as part of a landmark Department of War exercise over the Pacific Ocean. Using a conventional Cessna 208 aircraft, our team logged more than 7,000 miles of autonomous operations across more than 40 flight hours in and around Hawaii, managed primarily from Andersen Air Force Base in Guam, more than 3,000 miles away. Once again, illustrating our commitment to not just talking about innovation, but demonstrating it. The same technology is set to be supercharged by our recent announcement with NVIDIA. Joby will be the aviation launch partner for NVIDIA's IGX Thor platform, which uses their Blackwell Architecture to help ingest extraordinary amounts of data in real time to support an even more performance and safe autonomy stack for our aircraft. Integrating this level of compute will help us maximize the potential of autonomous flight. We'll be able to deliver autonomous mission management that enables the aircraft to determine, request and follow optimal flight plans while adapting to changes in weather, air traffic control instructions or unexpected events. It will also support onboard compute processes for high rate data from radar, LiDAR and vision sensors as well as supporting sensor fusion, combining data from a range of sensors to deliver reliable and accurate aircraft state estimation and situational awareness in the most challenging environments. It also establishes a foundation to develop features that enhance operational insight, reliability and performance, including predictive system, health monitoring and digital twin modeling. We'll be deploying Superpilot on the aircraft we're developing with L3Harris, allowing us to deliver to the government the same tech stack they've already seen successfully deployed on conventional planes. But this time, on a low altitude VTOL capable aircraft. The testing we complete on this defense-focused vehicle will also feed forward into a commercial AI autonomy stack that we plan to have ready and tested just as soon as the commercial air traffic control system is ready for it. The level of technological and regulatory progress we're seeing today is unprecedented, and it is matched by an incredible commitment to aerial innovation at both the state and federal level. We've positioned Joby to make the most of these opportunities, and I've never been more excited about the company and the technologies we're building. Rodrigo, over to you. Rodrigo Brumana: Thank you, JoeBen, and good evening, everyone. During the third quarter of 2025, we made several important advancements further positioning Joby to create durable long-term value for our shareholders. When we spoke last quarter, I identified three areas of focus: implementing a disciplined capital strategy, scaling methodically and translating our technical and regulatory progress into long-term value. Let's talk about capital strategy first. At Joby, we are shaping a new industry in bringing an entirely new technology to market. This requires substantial efforts across engineering, regulation, partnerships, infrastructure and manufacturing. To achieve this, we are strengthening our balance sheet. At the end of the quarter, we had approximately $978 million in cash and short-term investments. In October, we added net proceeds of approximately $576 million further strengthening our position. This gives us the financial strength to continue to lead the industry and bring new innovations to markets across the globe. Next is the scaling. We are investing now to build capacity for global air taxi demand. We are methodically scaling manufacturing, and we are very fortunate to have Toyota with us on that journey. As JoeBen said, propeller blades are a critical component in the highest part count on our aircraft. We have started to leverage our Ohio facility to begin ramping our production of propeller blades. Ohio has the skilled labor, the supply chain network and the space to scale our production as we grow. Scaling also means preparing our global operations. Following our acquisition of Blade, we are already running a network of high-frequency routes in New York and Europe, connecting major airports like JFK in prime locations like Nice to Monaco and Manhattan to the Hamptons. These routes are the blueprint for electrified air taxi service, proving the model today, so we can transition seamlessly once our aircraft is certified. At the same time, in addition to our successful flight demonstrations in Japan with ANA, we also expanded our global partnership with Uber to include Blade services. This opens up a powerful opportunity over time to connect thousands of daily Uber users with the experience of vertical lift well ahead of Joby's commercial launch. Meanwhile, in Montreal, we formally accepted our first flight simulator developed in conjunction with CAE, a global leader in pilot training systems. This fully immersive simulator is a prerequisite for commercial pilot training and marks an important milestone in preparing Joby for scaled operations. These efforts are building the foundation for our global network, beginning with Dubai next year and expanding to new markets around the world, turning our regulatory commercial and technical progress into long-term value. Now I'll present our Q3 financial results in more detail. We ended the third quarter of 2025 with cash and short-term investments, totaling $978 million. During the quarter, we raised $101 million through our ATM facility and an additional $33 million from warrants that were exercised. As I said earlier, after the quarter ended, we received net proceeds of $576 million through an equity offering, further increasing our cash reserves. Our Q3 use of cash, cash equivalents and short-term investments totaled $147 million, $35 million higher than last quarter. That was primarily due to an extra payroll run in Q3 versus Q2, growth in operating expenses, working capital changes and onetime costs related to our Blade acquisition, which accounted for $6 million. This spending also included about $30 million on property and equipment, up $1 million from last quarter. We remain on track to hit the upper end of our full year 2025 guidance of $500 million to $540 million in use of cash, cash equivalents, in short-term investments, and that includes the impact of our Blade acquisition. On a GAAP basis, we reported a Q3 net loss of $401 million, $77 million increase from Q2, largely driven by $262 million in noncash items, of which $229 million was a noncash charge related to warrants and earn-out revaluation. The remaining noncash items were related to stock-based compensation, depreciation and amortization, all within the normal ranges. The large noncash revaluation charge related to warrants in earn-out shares was due to the increase in our share price, which negatively impacts the calculation and gets updated every single quarter. Revenue for the quarter was $23 million, including $14 million in revenue from Blade from August 29 through September 30, and $9 million from other revenue, which includes the completion of all required deliverables as part of our Agility Prime defense contract as well as other engineering services. We do not expect Agility Prime revenue to continue as the work has been completed. Total operating expenses for the quarter, including about 1 month of late were $204 million, up about $36 million from the prior quarter. The increase was largely driven by the inclusion of Blade operating expenses and acquisition-related costs, coupled with higher staffing and program spend to support key milestones, including progress on the final assembly of our first TIA aircraft. Adjusted EBITDA, a non-GAAP metric that we reconcile to our net income in our shareholder letter was a loss of $133 million in the third quarter. This was just about $1 million higher than the prior quarter, reflecting the revenue booked in Q3, offset by the increase in spending I called out before. Compared to the same period last year, our adjusted EBITDA loss was $12 million higher, driven by the growth in our team to support aircraft design, manufacturing and certification along with early commercialization investments. As we look ahead, our focus remains on disciplined execution, advancing certification, scaling production and preparing for commercial launch. With a robust balance sheet, proven technology, mature program, flying aircraft and world-class partners, we are operating from a position of strength. We look forward to many folks at the Dubai Airshow in 2 weeks where our aircraft has been cleared by both, the General Civil Aviation Authority and the Dubai Civil Aviation Authority to fly full transition every single day. Thank you for your continued support. And operator, please open the call for questions. Operator: [Operator Instructions] Our first question today is coming from Kristine Liwag from Morgan Stanley. Kristine Liwag: I just wanted to follow up on your progress with your international partners. I was wondering with the early adopters, are you planning to provide commercial service with the Joby aircraft prior to getting FAA certification? Or are you waiting for FAA certification to start flying globally? JoeBen Bevirt: Kristine, this is JoeBen. Great to speak to you. We -- I assume you're speaking about Dubai in terms of the international partner, we will -- we're making incredible progress in Dubai. We have aircraft that's there and flying right now. And as Rodrigo mentioned in the prepared remarks, we have permission from the GCAA and the Dubai Civil Aviation Authority to be conducting daily flights at the Dubai Airshow. So that's incredibly exciting. And I think what you're going to expect to see over the course of 2026 is more and more flying there as we deploy more takeoff and landing locations. And we're seeing incredible momentum and amazing support from the local regulators. So in short, the answer to your question is, yes, we continue to expect to be operational in Dubai prior to FAA Type Certification. Kristine Liwag: I see. Great. And for a follow-up, you guys highlighted your progress on autonomous systems with Superpilot, which sounds really interesting. So is this going to be a software that's also going to be added to the Joby aircraft? And because from my understanding, the Joby aircraft initially would be VFR. So are you adding the IFR capabilities with autonomous systems? Or are you also going to add an expansion to IFR before going to full autonomous, like can you please help me understand the bridging there? JoeBen Bevirt: Yes. So thank you so much. This is a huge -- a bunch of -- huge accomplishments on the autonomy front and something that we're really, really excited about. The first, just to reiterate, the Superpilot, the Xwing team took Superpilot-enabled Cessna 208 and flew it 7,000 miles around the Pacific as part of the REFORPAC exercise earlier this year. That demonstrates the operational maturity. We operated that aircraft in a whole bunch of different classes of airspace. And really showcased how robust that autonomy platform is. As it comes -- when it comes to taking that autonomy platform and putting it into the S4 platform, that's going to be something that we will do progressively. It's a very step-by-step approach that we're taking. But we do think that it's going to have really significant benefits when it comes to -- on both the safety side and the operational efficiency side. So we're really excited about that. And we think that, that is built on the foundation of these changes that are -- we're expecting in the air traffic control framework, as I talked about in my prepared remarks. So we're really, really pleased with both the regulatory side of things and the technical side of things, also thrilled to be working closely with NVIDIA and bringing the phenomenal compute capabilities that they've developed to aviation. And yes, thrilled across all the different dimensions on the autonomy progress. Operator: Our next question today is coming from Austin Moeller from Canaccord Genuity. Austin Moeller: As part of the eIPP, are there any avenues for you to generate revenue in any way in that test phase with those aircraft? And as a second part, could you generate revenue from flying aircraft in a JV partnership overseas during this test phase? Paul Sciarra: Austin, this is Paul. So with respect to eIPP, this is kind of what's going on and sort of how we think it's going to play out. So right now, we have a number of different applications that we are close to that are in the process of getting filed with the Department of Transportation. Those are going to get filed basically through the end of the year. In the early part of next year, they will then down select to 5 with those starting, we think, in the middle of next year. Now look, this is a really exciting opportunity for us because it allows us to put aircraft into operation here in the U.S., I think on a far faster time scale at scale, then we might have thought. And it's really one of the things that's driving the focus that JB mentioned in the prepared remarks around scaling production to now meet this kind of faster demand than we were expecting. When we've -- based on what we know now, the application set is pretty broad. A number of them include passenger transport, cargo transport, medevac and certain of them, we think are going to have an opportunity to have a sort of commercial bent. So without having 100% confidence at this point, but we do think there are going to be interesting revenue-generating opportunities that come out of the eIPP program. Regarding your question with respect to JVs, I think the revenue that you may see from those sorts of partnerships would be preorders and/or prepayments for aircraft that were going into those JVs. We announced, obviously, the partnership with ANA in Japan. That is one that could sort of look like that. But I think the real question now is ensuring that we're able to build enough aircraft to meet this broader, faster demand that we saw. So that's why manufacturing is sort of the focus. Austin Moeller: Okay. And just a follow-up. Are you going to be able to fly the conforming aircraft in TIA testing as long as the means of compliance remains at 97%? Or does it not matter for proceeding with flight testing in that space? JoeBen Bevirt: Yes. Thanks, Austin. So just to be really, really clear here, we are so excited about the progress we're making on building these aircraft for TIA testing. This is the culmination of all the work that we've been doing over more than a decade, and it builds on an incredible foundation of work from both Joby and from the FAA. And as I spoke about, this is heavy lifting from FAA DERs, FAA DARs to ensure that as each of these aircraft is getting built that they're getting built in a really meticulous way. So this is a huge moment to be beginning the power-on testing of this aircraft. I will also add that we are building a total of 5 aircraft for TIA testing. And all 5 of those are in the production process as we speak. So the momentum we're seeing on manufacturing and scaling manufacturing is really fantastic. The reason this is so important is these are the aircraft that FAA pilots will get in and fly for credit, and that is the -- those are the final stages of our TC process, like we're doing the heavy lifting. We're doing the work that's required to get us through TC and it's happening right now. So just can't tell you how proud I am in the manufacturing team, how proud I am of the certification team, how grateful I am to the FAA and their lean in, they're working shoulder to shoulder with us. They were here yesterday, giving us airworthiness -- moving through the airworthiness process on the hybrid aircraft, and they're not getting paid, right? So the commitment, the lean in, the passion from these aviation professionals is just really unprecedented, and we can't say how grateful we are to all of them. Operator: [Operator Instructions] Our next question is coming from Andres Sheppard from Cantor Fitzgerald. Andres Sheppard-Slinger: Congratulations on the quarter. JoeBen, I wanted to maybe go back to the first question just around commercialization. So it sounds like we're still targeting commercialization ahead of FAA certification in the Middle East. Are we able to get more clarity on kind of how you see that unfolding or just in terms of timing or number of aircraft. I think in the past, you had mentioned passenger flights potentially by the spring. So just wondering, is that time line for next year? Is that still on track? Or do we perhaps see maybe pushing into the right slightly? JoeBen Bevirt: Thank you, Andres. Great to catch up with you. So the progress we're seeing and the momentum, as I mentioned, in Dubai, was really fantastic, both with the GCAA, with the Dubai Civil Aviation Authority, with the RTA. We've got all the regulators leaned in. Skyports is doing a phenomenal job on moving forward with infrastructure. We have a team there, and we're building out that team, staffing that team, doing the training and putting all the pieces in place, and I'm really excited and grateful for the progress that we're making day in and day out. In terms of -- we expect to be ramping that operation through the course of this next year. I think the real critical bottleneck is going to be -- and the demand you asked about is very, very substantial there. The bottleneck is going to be how fast we can ramp manufacturing, as Paul was talking about, to meet that demand. And this is where I'm so proud of the team and the progress we're making on scaling production and scaling it alongside Toyota, whether that's in Marina, whether that is the progress we're making in Dayton on Blades. And I think this is the real central pillar of the work that we have in front of us is to scale the manufacturing as aggressively as we can, and we're making great progress. Andres Sheppard-Slinger: Got it. Okay. And I guess maybe a follow-up for Rodrigo. Are you able to maybe help us understand like how should we think about Blades revenues for Q4 and for the -- I guess, throughout next year? I mean is $22 million in quarterly revenue and 55% gross margin, is that the norm or what's the best way to think about that for maybe next quarter and throughout next year? Rodrigo Brumana: Andres, thanks for the question, Rodrigo here. Well, we are not providing any guidance specific for next quarter or next year. However, we would like to point you to what has been said publicly and Blade had a number right before the acquisition on August 29. So essentially, we are not deviating from it. Number two, let's just remind you that Q4 is when the low season starts. So Q4 is one of the slowest quarter there, and we are happy to have Rob here just to add a little more context here, Rob? Robert S. Wiesenthal: Andres, it's Rob Wiesenthal, speaking. It's been -- performance has been pretty good this summer as you've probably been reading. But I think what's also important to announce is kind of the expansion opportunities that we've taken advantage of. Shortly before this call, we announced a pilot program for our very first commuter route to the public, serving New York suburbanites, who live in Westchester, Bedford, Rye, Scarsdale, Greenwich with flights that go between Westchester Airport in Manhattan that turns a 1.5-hour drive during rush hour into a 12-minute flight. You can fly with the Commuter Pass for as little as $125. That will be a 5-day a week service. It's actually our very first public commuter route. And that's important because the industry has been very much focused on airport flights, which is clearly an important use case. We've been doing it for over 6 years, but it was really time for us to kind of expand our service offerings to include commuter routes. And once the Joby aircraft is certified, we expect new landing zones to be approved and activated, which will offer even more convenience to people who work in big cities. And we're going to see more of this in the future. We already have pods of communities like in Deal, New Jersey on the Jersey Shore where people fly to work there and back every morning, that's a 2-hour drive that comes a 15-minute flight. So we're very excited about the prospects of expansion under Joby's ownership and things are off to a great start. Operator: Next question today is coming from Savi Syth from Raymond James. Savanthi Syth: Just a follow-up on one of Austin's questions earlier, just around certification and the shutdown as well. Just the flight that you are -- aircraft that you're building and doing ground testing right now, is that the one that would be flying? Do the propellers kind of get added back? And then what exactly can you do with that aircraft in TIA testing while the government just shut down? It sounds like, as you pointed out, FAA is coming in and doing certain things, but I was curious what you can and cannot achieve during this time? Paul Sciarra: Savi, this is Paul. So thus far, we've got an incredible lean-in from the FAA even during the shutdown. That included, as JB mentioned, I think, in the prepared remarks, having their FAA airworthiness folks here on site to do the checkout for the hybrid version of the aircraft. That's actually still ongoing today. And these are folks that are showing up without getting paid. So we're really obviously sort of grateful for their work on this, in this sort of difficult period. When it comes to the progression of the TIA aircraft, look, we're going to be doing the power-on checkout, progressing then to Joby piloted flights and then moving from there to FAA highlighted flight testing for credit on that vehicle. Right now, we don't necessarily anticipate that the FAA flight test pilot portion of that testing is going to be delayed by the shutdown, but this is obviously still a very much evolving process. And we have been very pleased with the lean that we've gotten. But like if this shutdown persists longer and longer, there's certainly some uncertainty on how that's going to play out. But from the Joby standpoint, we just want to make sure that we're ready, ready with the right aircraft, ready with the training for those pilots and then ready to begin the FAA flight testing just as soon as we can. Savanthi Syth: That's very helpful, Paul. And maybe if I can just follow up on that then. I think the rule of thumb is once you start TIA flight testing, it's about 1 year, 1.5 years from there to full certification. Just how much of that happens with kind of the Joby pilot, which versus kind of when do the FAA pilots going to step in and do that part of the testing? Paul Sciarra: So this is Paul, I guess I'll pick that off. Look, the timing of the TIA flight test portion is sort of variable depending on the program. And we've obviously got a plan that we're sort of working with FAA that includes 5 different aircraft that are going to be flown in various levels of parallelization to try to speed that process up as quickly as we can. As JB mentioned, all 5 of those aircraft are in some part of production at this moment. And obviously, the first one of those is sort of in this power-on stage as we get ready for its first flights. With respect to how much time is spent with the Joby pilots versus the FAA pilots. As a general rule, we want to make sure that we are doing the things that we need to do for FAA for credit flight testing internally before we do them with FAA pilots in seat. Much of that work has already been done on other versions of these aircraft. So it's really about making sure that we have those TIA aircraft ready at the right time. And in turn, we line that up with the availability of the FAA flight testing pilots. And that's going to be the sort of synchronization that we have to manage, starting basically now. Operator: Our next question today is coming from Bill Peterson from JPMorgan Chase & Company. Mahima Kakani: This is Mahima on for Bill. I was curious, how should we think about the pace at which you'll move across the Stage 5 certification progress bar once TIA testing starts? And should we really start to see that acceleration beginning next year as soon as you get the FAA pilots on board? JoeBen Bevirt: Thanks, Mahima. So we're really excited to get into TIA, as Paul talked about. The other element and a key piece to be cognizant of is the way we built our reporting on Stage 5 is that we will get points on the board when we submit those test results. So there's a huge amount of work that's happening on the Joby side as we take the approved test plan and we build the part that is going to get tested or the aircraft is going to get tested and then we run the testing on it. And then we write the test report. We submit that and then we get credit on Stage 5. So it may be that a lot of the progress that happens on Stage 5 is when we're very, very close to the finish line. I think the important thing is that in addition to making incredible progress on manufacturing of the 5 TIA aircraft, the team is also making incredible progress on the manufacturing of the test articles, and those test articles are very challenging from a manufacturing standpoint because each one of them is different from a production part. It has intentional changes that are -- that we're putting into those parts that have been specified by the FAA DERs. And so this is really fantastic work by the manufacturing team, and we're making incredible progress on it, which puts us in a great position, both for the TIA flight test, but also in terms of completing all of the component level testing required to complete Stage 5. Mahima Kakani: That's really helpful context. Maybe as a follow-up. You started manufacturing propeller blades in Dayton, but are there any other conforming parts you expect to also transition to Dayton in the near term? And then how quickly could you ramp up that capacity you'll need to support certification efforts? JoeBen Bevirt: Yes. Thank you. So really thrilled with the team in Dayton and the quality of workforce that we've been able to build there and the speed at which we've been able to onboard those folks and have them contributing in a huge way. We were also thrilled with the support that we've received from the state and local government in Dayton. And we see massive opportunities to continue to expand our footprint, both in our existing facility and as we look forward in the Dayton region more generally. In addition, and again, following the model that I spoke about, where we perfect the process here at our pilot facility in California, and then we're able to scale it alongside our partners with Toyota -- our partnership with Toyota, I would love to just highlight how vitally important Toyota is and how strong relationship that we have with Toyota right now. We have never been closer to Toyota. Toyota has never been more leaned in. And we think that they are an unparalleled partner for us as we look to take aviation to a scale that has never been seen before. Operator: [Operator Instructions] Our next question is coming from Edison Yu from Deutsche Bank. Xin Yu: I wanted to ask about the hybrid for defense. How should we think about the design? Is that something you just kind of put an engine on the existing airframe? Do you need to redo the airframe? Is the supply chain going to get more complicated? Just how to think about the process and design for the hybrid? Paul Sciarra: Thanks, Edison. This is Paul. So look, our approach is really in line with the sort of principles of dual use. Where possible, we want to take full advantage of the proven airframe that we have developed and tested over the last 5, 6 years. And we also want to be able to take advantage of the manufacturing lines that we already have ready to produce those components down the line. So I think the right way to think about that aircraft is a sort of variant of the existing vehicle that is then in turn missionized for different customer use cases. What I think is really exciting, though, is that we've been able to move from concept to soon sort of demonstration of that vehicle at a very rapid pace, basically sort of 3 months from when we announced the L3 partnership to the preparations for flight testing that are happening right now. In turn, we think we're going to be able to move from demonstration to flexible deployment with those customers very quickly because we've got a manufacturing line that we do not have to scale up or retool where most of the components are essentially the same manufacturing line that we're using for the broader sort of commercial vehicle. And that speed is something that in our conversations to date, the customers are really looking for. They are not so happy with the sort of traditional procurement process, long spec writing, competitions and then sort of moving to these sort of restrictive contracts. They are instead looking for things that get new technology into the hands of warfighters far more quickly. And we think we've got an opportunity with this platform in conjunction with L3 to deliver exactly that. Operator: Our next question is coming from Chris Pierce from Needham & Company. Christopher Pierce: I was just curious, and if you fast forward a year from now, like what's the best possible outcome for the Blade transaction? Is it just more passenger throughput in New York? Or what Rob talked about? Is it adding routes so you can see kind of customer demand to get through to consider air taxi at a higher rate? Like if you fast forward a year, what would you consider to make a success out of this to get people enthusiastic about air taxi in the business? Robert S. Wiesenthal: It's Rob Wiesenthal. I think if you step back and you look at the thesis of the acquisition, it was to derisk and accelerate the deployment of the Joby aircraft into commercial service. So we're going to continue working on projects where we can achieve profitable growth in new routes, expansion of existing schedules. We recently expanded our JFK schedule to include another note on the East side and also deepened our Newark efforts. And in Europe, we have been focusing there as well on opportunities. So I think the focus on profitable growth to continue getting more data, acquiring more customers, getting more infrastructure access. And I think that's going to be terrific. That's really going to educate us and help us deploy these aircraft once they're certified and to do it in a way and at a speed that I don't think the competition can match. It's a real head start versus the competition in every market Joby wants to enter. Operator: Next question is coming from Amit Dayal from H.C. Wainwright. Amit Dayal: Just with respect to all the comments on the call today, keeping in mind where we are with manufacturing readiness and all of the testing going on. What is the earliest we can take advantage of this eIPP initiative? Is 2027 a reasonable time frame? Or could it be potentially earlier than that where some of these aircraft get into operation? Paul Sciarra: Amit, this is Paul. I'll try to pick that up. I'm not sure I totally heard it, so I'm going to sort of repeat what I understood the question to be. So your question was when do we think we can start first operations under eIPP? And the answer to that is that we now have with the eIPP program once the down select happens early next year, we've got a date certain for the start of those operations, and that's essentially mid next year. That is a really exciting opportunity and one that I think Joby is sort of uniquely positioned to take advantage of. Our understanding under eIPP is that it's going to require aircraft to be at a high level of maturity. Our understanding is that means it has to be in the TIA process. It's also going to require the operational know-how to put those aircraft into service in the real world. We already have a lot of that from the demo flights that we've done, and we get to really supercharge that with Rob's team at Blade that obviously knows a lot about high tempo vertical takeoff and landing operations already. But finally, you also need to make sure that we have the aircraft. So part of the focus now around scaling production is to meet this demand that is now higher next year than I think we were initially anticipating. So our focus with both the expansion of the Marina facility, the continued rollout into Dayton and obviously, doing both of those things in close conjunction with Toyota is to make sure that we really ramp production to meet this opportunity, because from our perspective, an opportunity to get these aircraft operating in the U.S. as quickly as possible, benefits Joby, and it certainly benefits the broader industry, and we think we're in pole position to kind of make that happen. Teresa Thuruthiyil: Terrific. This is Teresa again. Thank you, Amit, and Kevin, and thanks to all the analysts for your questions today. This quarter, we're doing something a little different. We also invited our broader community to submit questions on X and Reddit. We were thrilled with the volume and the thoughtfulness of the engagement. We selected a few representative questions to ask and answer now. First, what actually is coming right back to you, Paul, it says, when do you expect to start the integration of autonomous capabilities into S4? Paul Sciarra: Thanks, Teresa. So as JB mentioned in the prepared remarks, the first instantiation on a Joby developed aircraft of autonomy is very likely to be the hybrid aircraft that I mentioned earlier on in the call. This is one that's obviously focused on defense applications. We think that's a perfect test bed for the stock, one, because it's already been well tested with its customer on conventional aircraft; and two, because there's not the same sort of regulatory rigor around certification for these sorts of platforms. So it's the right place to begin to extend the existing Superpilot capabilities to low altitude VTOL capable to prove that out as soon as we can and in a wide range of mission sets, so that we're ready if and when there is an opportunity to translate that to the commercial side of things to move very, very quickly. So long and short, that's going to be, I think, the first example of how we begin to roll this out on a Joby developed aircraft. Teresa Thuruthiyil: Terrific. Thank you. Another question also coming in from X. How do you see the future product offerings as both Joby and Blade actively scale operations, particularly in Dubai? Rob, would you like to start with on that one? Robert S. Wiesenthal: Sure. Let me take that. Just as we mentioned before, Blade helps to derisk and accelerate the deployment of Joby aircraft into commercial service, and that includes Dubai. So the knowledge we have on the routes, on infrastructure, the flyer base, we are not starting cold, we're not starting from scratch. Anybody else tries to do this, they're starting with zero knowledge. We have flown hundreds of thousands of people over the past decade. And then if you take a look at our European operations, 1/3 of our European flyers are from the Middle East. So it's a brand that's well known there. The Middle East consumer consistently embrace premium brands from the West that provide exceptional experiences that have trust. So I think we're in terrific shape to help get that launch out and in front of the public and have something that people really enjoy and find us extremely reliable. Teresa Thuruthiyil: Terrific. Thank you. Okay. I think we could maybe get one more in. And there's -- this one is a fun one. It asks for how about something fun. Five years into passenger flight, what kind of crazy things can you see Joby involved in that will blow our minds now? JoeBen? JoeBen Bevirt: Thanks, Teresa. So I think the key thing to focus on is that vertical integration is Joby superpower. This is something that we have invested in heavily for many years, and it puts us in an incredible position to be able to develop game-changing aircraft, all built on the foundation of the incredible technology foundation stack that we've built. I'll add two other dimensions. One we've talked about, which is autonomy. Autonomy is going to unleash many new and exciting applications for aviation. And by leading the world in aviation autonomy, we think we're in a really strong position. The final dimension is hydrogen. Hydrogen, as I think many of you have heard me speak about, it has 3x the specific energy of jet fuel. With fuel cells, we're able to convert the chemical energy and hydrogen into propulsion twice as efficiently as a small turbine can convert jet fuel into propulsion. And what that means is that you can build aircraft with game-changing new capabilities. And so as we look to the 5-year horizon, we think the future for Joby and the future for the technology stack that we're building has never been more promising, and I'm so excited to bring these transformations to the world. Teresa Thuruthiyil: Awesome. Thank you, everyone, for joining us today. We greatly appreciate your support. Operator: Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation.
Asli Demirel: Ladies and gentlemen, welcome to Anadolu Efes' Third Quarter 2025 Financial Results Conference Call and Webcast. Our presenters today, our CEO, Mr. Onur Alturk; and our CFO, Mr. Gokce Yanasmayan. [Operator Instructions] Unless explicitly stated otherwise, all financial information disclosed in this presentation are presented in accordance with TAS 29. Just to remind you, this conference call is being recorded, and the link will be available online. Before we start, I would kindly request you to refer to our notes in our presentation regarding forward-looking statements. Now I'm leaving the ground to Mr. Onur Alturk, Anadolu Efes' CEO. Sir? Onur Alturk: Good morning, and good afternoon, everyone, and welcome to Anadolu Efes Third Quarter 2025 Conference Call. Thank you for joining us today. As you may recall, due to the continued uncertainties around our operations in Russia, we have classified these operations as financial investments on our balance sheet at the beginning of the year. And accordingly, they are no longer consolidated in our income statement until there is more clarity. However, we separately disclosed the financial results of these operations in our earnings releases for the last 2 quarters. And starting from quarter 3, we decided to stop providing separate disclosure for Russia. And this is primarily because of the information flow has not been as stable, as consistent as before. We will reassess this approach as the situation evolves. And looking at the third quarter, it was a mixed set of results where the profitability was solid. However, the volume momentum came with its own set of challenges. Even so, our broad market presence and agile execution helped us to preserve overall stability as growth in several markets balance softer demands in others. So we maintained our growth trajectory from the second quarter with consolidated volumes reaching 31 million hectoliters, up by 7% on a pro forma basis compared to the same quarter last year. The volume growth was driven by our Soft Drinks operations particularly supported by robust performance in international operations, while Beer group volume performance was softer, mainly impacted by domestic markets. Strong volumes supported top line growth, but the revenue per hectoliter was pressurized due to the ongoing focus on affordability and increased discount rates. On top of strong top line results through gross profit improvement and strict management of operational expenses, we are able to record an expansion in EBITDA margin. Additionally, we successfully generated positive cash flow amounting at TRY 9.4 billion, which was mainly driven by strong operational profitability. As of September 30, 2025, our consolidated net debt-to-EBITDA ratio stood at level of 1.5x. As we shared before, as part of our Vision 2035, one of the key pillars of our growth strategy was geographical and categorical expansion. In this regard, I'm truly pleased to share two important milestones today we achieved during the quarter. Firstly, we have recently started the distribution of Mercan raki spirits in the final days of October, while the discussions regarding the acquisition of 60% of the company are still ongoing. And secondly, we have signed a licensing agreement with Salyan Food Products, which will enable us to produce, sell, distribute and marketing of Efes and Efes Draft brands in Azerbaijan. Turning to Beer group performance. During the third quarter, our consolidated Beer volumes declined by around 5% year-on-year on a pro forma basis. This was mainly driven by a slowdown in Turkiye, where volumes were down by 8.4%. In our international Beer operations, volumes were down low single digits on average. As expected, Moldova reflected a slowdown following the last year's high base. Georgia was temporarily affected by export-related business. On the positive side, Kazakhstan delivered solid growth, supported by strong portfolio execution. And Ukraine also contributed positively by growing low single digit, thanks to ongoing recovery and the low comparison base. Let me discuss Turkiye in more detail. Beer volumes declined by 8.4% in the third quarter. And as mentioned earlier, this was mainly driven by affordability pressures stemming from persistent inflation and weakening of consumer purchasing power. In the second half of the year, the absence of midyear minimum wage adjustments further deepened the pressure on consumer purchasing power and making its impact increasingly evident in the market. In addition, the price adjustments we implemented in early July had a temporary impact on demand, while the slowdown in tourism also weighed on overall volumes, particularly in on-trade and HoReCa channels. And this quarter marked a period of strengthening our portfolio and ensuring it remains well aligned with the customer expectations and market trends. We launched Jupiler 0.0%, a non-alc beer in Turkish markets, which marks an important step in expanding our product range. Although it's very early and it's very small, we expect these launches to be a new strategic pillar for growth for future. And about our CIS operations, starting with Kazakhstan, we delivered low single-digit volume growth, supported by strong brand activations and robust export performance. Our premium segment continued to perform well, driven by effective brand activations like strategic pricing and new can designs that further enhanced brand visibility in the market. And during the quarter, in line with our KEG focus, draft focus, we also launched successfully the Pegas brand SKU, Khmelnoy Los. In Georgia, volumes declined by low to mid-single digits, in line with expectations, actually, mainly due to the restructuring of our export business, which had no impact on profitability right now. And additionally, introduction of Lowenbrau-Oktoberfest Limited Edition helped us to maintain our market presence and customer engagements. In Moldova, volumes contracted in low single digits as expected, reflecting last year's high base. And moreover, year-on-year volume decline was affected from calendarization impacts. Let's briefly review our Soft Drinks operations, too. In the second quarter of the year, CCI's consolidated volumes increased by 8.9%, driven by positive contribution of all international markets. Turkiye volume declined by 1.7%, mainly impacted by weakening consumer purchasing power and deteriorating weather conditions during September, whereas international volumes demonstrated a remarkable growth, posting a 16.1% increase, mainly supported by Central Asia and Iraq. And in Pakistan, volumes increased by 0.7% year-over-year despite severe floods and ongoing political sensitivities. Kazakhstan and Uzbekistan delivered robust growth with 24.2% and 36.5% growth, respectively. And lastly, Iraq volumes up by 7.8%, marking 10th consecutive quarter of growth. When we move on to our operational results. In the third quarter, we continued our solid volume generation on a consolidation basis, although effective portfolio management and price adjustments made in certain markets helped to ease the impact of discounting and affordability focus and revenue per hectoliter decreased by 3%. With improved gross profitability margin and limited increase in operating expenses, EBITDA increased around 8%. As a result, margin also expanded, which was supported with contribution from international operations in both Beer and Soft Drinks businesses. And our consolidated net income was recorded around TRY 5 billion. Although operational profitability remained solid, higher financial expense and lower monetary gains weighed on earnings in the third quarter. Beer group delivered a year-on-year decline in earnings as a result of higher financial expense and a softer operational profitability amid challenging environment. Following a softer quarter 2 performance, we delivered strong free cash flow generation at the consolidated level, driven by our Soft Drink business. On top of the strong operational profitability, we benefited from improving working capital, lower CapEx spendings and tax expenses compared to same period of last year. In the current environment, as I emphasized in our previous conference calls as well, there is no doubt that strengthening free cash flow remains a top business priority, of course, in Beer group, and Gokce will share more details about this. And consequently, our consolidated net debt-to-EBITDA ratio stood at level of 1.5x as of September 30, 2025. And now Gokce will give details on financial metrics. Gokce, please. Gökçe Yanasmayan: Thank you, Onur. Good morning, good afternoon to everyone. Onur covered, as usual, Anadolu Efes' consolidated results. So I will provide an update on the Beer group's performance for the third quarter. But before I start again, I want to remind once more that disclosed figures in my presentation are on a pro forma basis, meaning that they exclude the financial results of Russian operations as of January 1, 2024, to ensure comparability. So in the third quarter, Beer group sales revenue declined by 6.9% on a pro forma basis to TRY 15.7 billion. Even if volume performance and revenue in local currencies were high, international Beer operations sales revenue was recorded at TRY 5.9 billion with a 4.5% decline. Like previous quarters, the decline in sales revenue was driven by TAS 29 implementation as inflation in Turkiye exceeded the depreciation of Turkish lira against local currencies of international Beer operations. So excluding TAS 29, international Beer operations revenue was up 24% on a pro forma basis, again, reaching TRY 6.7 billion. Turkey Beer operations generated a revenue of TRY 9.6 billion in the third quarter, representing an 8.7% decline despite price adjustments during the quarter, revenue per hectoliter decreased due to lower volumes alongside more controlled yet still elevated discount level in line with the market dynamics we have in the country. Thus, on a pro forma basis, Beer group revenue decreased 5.3% to TRY 41.4 billion in 9 months of 2025. And Beer group gross profit declined 11.1% on a pro forma basis again to TRY 7.8 billion in the third quarter, and that came with a margin contraction of 236 bps, though gross profit margin remains at a remarkably good level of close to 50% still. And the decline in the gross margin stem from softer volume performance and higher COGS per hectoliter, driven by increased material costs across our operations and higher hedge levels in packaging costs, especially in this period of the year for Turkey. So in the next slide, I'm going to present the EBITDA. So with an EBITDA of TRY 3.4 billion, Beer group had a 22% margin in third quarter, indicating only a 57 bps decrease. The decline in the top line performance and gross profit in the group -- Beer group was actually partially limited through disciplined operating expense management this quarter, particularly in Turkey operations. On the international front, CIS region on average continues to deliver above 30% margin performance. However, profitability was moderated in this period due to high base of last year. Consequently, Beer group EBITDA in 9 months was TRY 6.4 billion with a 15.4% margin. Again, in the third quarter, Beer group generated unfortunately, a negative free cash flow of TRY 1.3 billion. Softer profitability that we mentioned, together with a temporary deterioration in working capital and lower monetary gain collectively weighted on cash generation despite an absolute reduction in capital expenditures year-on-year. Next slide, please. So for again, information purpose, I'm going to show you the financial statements without -- excluding the impact of TAS 29. However, I have to again say that Anadolu Efes' financial statements are prepared in accordance with TAS, the standard for financial reporting in hyperinflationary economies and the numbers that you are seeing here are just presented for analysis purposes. And excluding the impact of TAS 29, Beer group revenue was TRY 40.5 billion with a growth of 27%. And again, excluding the impact of TAS 29, Beer group EBITDA would increase by 21% to TRY 8.8 billion and net income was reported as TRY 1.8 billion, excluding the CTA impact coming from the scope change in consolidation of Russian operation. About cash and debt management. So as of September 30, 2025, we had 63% of our cash in hard currency denominated in the Beer group and 61% in the consolidated Anadolu Efes level, which is pretty much in line with our previous practices. And the net debt ratio for the period was 1.7x (sic) [ 1.5x ] for Anadolu Efes and 3.9x for Beer Group. And about the risk management, so the key figures to update them, actually no new news for 2025, we are almost done with the year. As for 2026, we have already started hedging aluminum and 16% of our exposure of next year -- sorry, 14% of our exposure of next year for Turkiye and CIS countries has already been hedged. And for the FX of next year, actually as usual practice, we are going to start hedging towards the end of the year for next year. So that basically ends my part of the presentation, and I hand over to Onur. Thank you. Onur Alturk: Well, Asli, let's check the Q&A. Do we have any questions on this one? Asli Demirel: There are a couple of questions from [indiscernible]. Let me start with the first one. Thank you for your presentation. Could you please provide more color on Azerbaijan? When will you start production sales in the country? What are the potential sales volumes and EBITDA contribution and also CapEx? Let me address this to Onur bey, and then there are a few questions more, then I'll address them to Gokce bey. Onur Alturk: Let's briefly discuss Azerbaijan. Azerbaijan is a promising market actually, and CCI already has a strong footprint in the markets. Population is around 10 million, with per capita beer consumption is around, again, 7 liters. And in quarter 3 '25, a license agreement was signed with Salyan Food Products in Azerbaijan for the production, sales, distribution and marketing of Efes and Efes Draft brands. So we already started production of Efes in Azerbaijan. We see it as a strategic step expanding our regional operational footprint. And of course, we want to strengthen our local presence in the market. No CapEx is used for that because it's a [ toll ] fill, third-party manufacturing. And if we see more potential in the markets, there will be an M&A. So we are evaluating this. And also, let me mention a little bit about Uzbekistan, just like because these are the two potential markets for us. And Uzbekistan is even more promising markets where, again, CCI already has a strong footprint. And the population is around 36 million and adding up 1 million every year. And the per cap beer consumption is around 12 liters. So that's a more favorable tax environment is expected in '26. It used to be 3x compared to the local ones. Now it's 2.5. And at the end of '26, we are expecting to the equalization of local and import tax. So if the gap is fully closed, there will be a huge potential. And imports from Kazakhstan has already started in July. Our legal entity and on-site team has been established in Uzbekistan. And our business development team is closely analyzing the market dynamics and potential opportunities like [ toll ] filling, and we are so close to start [ toll ] filling in Uzbekistan as well. And again, we are chasing M&A opportunities with very small investments in this country as well. But the reward seems to be, I mean, very promising in these two geographies. Asli Demirel: The next question from [indiscernible]. Could you please also provide more color on the working capital more at the Beer group level? And what are the initiatives you undertake to improve it? Gokce bey? Gökçe Yanasmayan: Sure. Sure. I mean, overall, as Onur rightly mentioned in his presentation, one of the key focus for us is the cash flow generation on the Beer group side and to turn our free cash flow generation into positive in the coming year. And a very important component of that is working capital, one of the important components of that. On the group level, we can say that our working capital on average is mid-single digit. However, there are certain countries hitting double-digit numbers, some countries close to 0. So on the average, we end up at mid-single digit. And for those who have double-digit or higher working capital, we have started a clear focus project this year and very clearly working on targets for next year to improve the numbers and at the same time, where we want to focus in every other country that we have these high numbers. Therefore, that's especially critical for Turkiye because this working capital financing requirement is being financed with high interest rates. So all the efforts are focused now, especially in Turkiye to decrease this number and the interest payment of next year. Asli Demirel: Thank you very much. Another question is regarding 2026 about the Beer group outlook for volumes and profitability. It's a bit early to comment on this. So let's postpone this to... Gökçe Yanasmayan: Yes, we are at the beginning of our budgeting cycle now. I mean -- and we are changing the numbers very frequently as the assumptions are changing. So we would prefer to give better color towards the end of the year or next year, beginning of next year. Asli Demirel: Exactly. But there is a question from [indiscernible]. Do you expect cost pressure in Turkey after rising food inflation, which may impact wheat and barley prices due to weather conditions? Or have you hedged this cost? Gökçe Yanasmayan: I can give a very, very general color here, maybe just to help you think about it. Recently, our cost base were acting very in line with the inflation in the country. Therefore, for next year to come, initial expectations, again, I mean, we have to work on them towards the end of the year more precisely. Initial indications show currently a slow decline as inflation will decline in the country. So that gets reflected into COGS per hectoliter as well for the next year. Asli Demirel: Another question from [indiscernible]. Can you give more information about Turkey gross margin and EBITDA margin in the third quarter? Gökçe Yanasmayan: Well, I mean, very roughly, we can say that the numbers are in the gross profit in the range of 50s, let's say, EBITDA margins in the third quarter are 20s, we can say so. And those numbers in gross profit margin level, we have seen more contraction as we have discussed in the presentations, but that has been compensated to a great extent with OpEx management. Therefore, the contraction in EBITDA is less than 100 basis points overall. Asli Demirel: Thank you very much. There seems to be no more questions. Let me remind once again, if there are any questions, we can wait a few seconds. And if there are none, we can close the question [ part ]. Okay. There seems to be no more questions. Thank you, everyone, for joining. Onur Alturk: Thank you.
Operator: Welcome to the Claros Mortgage Trust Third Quarter 2025 Earnings Conference Call. My name is Elisa, and I will be your conference facilitator today. I would now like to hand the call over to Anh Huynh, Vice President of Investor Relations for Claros Mortgage Trust. Please proceed. Anh Huynh: Thank you. I'm joined by Richard Mack, Chief Executive Officer and Chairman of Claros Mortgage Trust; and Mike McGillis, President, Chief Financial Officer and Director of Claros Mortgage Trust. We also have Priyanka Garg, Executive Vice President, who leads Credit Strategies for Mack Real Estate Group. Prior to this call, we distributed CMTG's earnings release and supplement. We encourage you to reference these documents in conjunction with the information presented on today's call. If you have any questions, please contact me. I'd like to remind everyone that today's call may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in our other filings with the SEC. Any forward-looking statements made on this call represent our views only as of today, and we undertake no obligation to update them. We will also be referring to certain non-GAAP financial measures on today's call, such as distributable earnings, which we believe may be important to investors to assess our operating performance. For reconciliation of non-GAAP measures to their nearest GAAP equivalent, please refer to the earnings supplement. I would now like to turn the call over to Richard. Richard Mack: Thank you, Anh, and thank you all for joining us this morning for CMTG's third quarter earnings call. As we approach the end of the year, we are encouraged by the continued signs of stabilization and recovery across the broader real estate market. Liquidity has slowly but steadily returned to the commercial real estate industry, supporting increased transaction volumes and tighter lending spreads. Recent and perhaps expected rate cuts by the Fed have improved the outlook even as investors consider the uncertainty surrounding the slowing economy. Collectively, these market dynamics have created a more constructive backdrop, enabling CMTG to continue executing on its strategic priorities for the year, in particular, resolving watch list loans, enhancing liquidity and delevering the portfolio. At the beginning of the year, we stated that we expected approximately $2 billion in total resolutions. I'm pleased to share that we have already exceeded this target with $2.3 billion in total resolutions, which includes partial repayments. As of November 4, we have significantly improved liquidity by $283 million to $385 million, further delevered the portfolio and resolved a total of 9 watch list loans. As previously reported, we have foreclosed on select cash flowing multifamily assets and have identified additional multifamily assets that are foreclosure candidates. We remain positive on the multifamily sector given the favorable long-term supply-demand dynamics and persistent housing affordability constraints. As we look ahead, we believe that the sharp decline expected in multifamily deliveries over the next few years, coupled with declining base rates should help offset any impact of an economic slowdown. Given our sponsors' experience as an owner, operator and developer and the progress we have made in our REO portfolio to-date, we believe we are well positioned to think creatively about value enhancement and exit strategies. For many of these multifamily assets, in particular, we have identified opportunities to implement operational and capital improvements, some of which can be executed more quickly than others. Since foreclosing, we have received strong unsolicited interest from prospective buyers on certain properties, which we believe is a positive reflection of the underlying demand for these assets. Taking into account our business plans, the strong interest we are seeing in the market and the current capital markets environment, we are actively evaluating opportunities to monetize select multifamily REO assets in the coming quarters. Overall, we feel positive about the progress we've made so far this year. In addition to reporting more than $2 billion of resolutions, we have achieved the following: we resolved 9 watch list loans representing $1.1 billion of UPB, bolstered liquidity by $283 million to $385 million today, reduced total borrowings by $1.4 billion and increased our unencumbered asset pool to $548 million from $456 million. We believe this progress positions us well to achieve our near-term priority of addressing the August 2026 Term Loan B maturity, and we will continue to evaluate our options with respect to this maturity. Before turning the call over to Mike to discuss CMTG's financial results and the portfolio, I want to note that we will not be addressing the New York Mayoral elections in our prepared remarks. That said, we are happy to take questions in the Q&A portion of this call. Now I'd like to turn the call over to Mike. Michael McGillis: Thank you, Richard. For the third quarter of 2025, CMTG reported a GAAP net loss of $0.07 per share and a distributable loss of $0.15 per share. Distributable earnings prior to realized gains and losses were $0.04 per share. Earnings from REO investments contributed $0.01 per share to distributable earnings net of financing costs. CMTG's held-for-investment loan portfolio decreased to $4.3 billion at September 30 compared to $5 billion at June 30. The quarter-over-quarter decrease was primarily the result of 4 loan resolutions that occurred during the quarter and the reclassification of loan to held for sale. One resolution was a regular way repayment of a $168 million construction loan collateralized by a mixed-use property in Northern Virginia. Upon construction completion, the asset has experienced strong leasing momentum across its various components. Construction loans have been a valuable component of CMTG's portfolio and a point of differentiation for our firm, given our sponsors' development and asset management expertise. While our construction exposure has historically performed well, it has also become a smaller component of our portfolio as sponsors have pursued their business plans to refinance such assets upon completion. The other 3 resolutions, all watch list loans were addressed on last quarter's earnings call and consist of the discounted payoff on a $390 million loan collateralized by a New York City multifamily property as well as foreclosures of 2 loans collateralized by multifamily properties in Dallas. Finally, we reclassified a $30 million Boston land loan from held for investment to held for sale as a result of a third-party buyer prevailing at a mortgage foreclosure auction in September. Subsequent to the third quarter, the sale was executed modestly below carrying value and because the loan was unencumbered, generated $28 million of net cash proceeds. This transaction enabled us to enhance liquidity without incurring carry costs or assuming risks associated with taking title to this asset. To recap, we've had $2.3 billion of total resolutions year-to-date, which includes $81 million in partial repayments and 9 watch list loans totaling $1.1 billion of UPB. Turning to portfolio credit. During the third quarter, we did not have any loans migrate to a 4 or 5 risk rating. We had one loan moved to non-accrual, a $170 million 4-rated loan collateralized by a Colorado multifamily property. The underlying asset performance has been tracking below our expectations and has also been impacted by new supply in that market. We are evaluating all available options to pursue our remedies as a lender. Our total CECL reserve on loans at September 30 was $308 million or 6.8% of UPB compared to $333 million or 6.4% of UPB at June 30. Our general CECL reserve increased by $0.6 million to $140 million or 3.9% of UPB of loans subject to our general CECL reserve compared to 3.8% of UPB as of June 30. During the quarter, we determined that a sale of the New York hotel portfolio is no longer optimal amid evolving market conditions impacted by the New York City mayoral election. As a result, we reclassified the hotel portfolio to held for investment as we continue to evaluate the market. The underlying assets continue to perform well and the strong return on equity generated by the portfolio provides an opportunity to optimize value for our shareholders when market conditions become more favorable, particularly in light of the refinancing executed in June. We also made progress during the quarter on further sales from the commercial condominiumization of our mixed-use REO asset. To-date, we've sold 9 of the 12 commercial condo units that were created. As Richard mentioned previously, it's our intention to accelerate the sale of some multifamily REO assets given positive market sentiment. Our focus on loan resolutions has strengthened our balance sheet by significantly reducing leverage and improving liquidity. During the third quarter, outstanding financings decreased by $376 million, which included $52 million of incremental deleveraging, bringing the reduction in financing UPB to $1.2 billion during the first 9 months of 2025 and to $1.4 billion year-to-date through November 4. This activity is reflected in the meaningful decrease in our net debt-to-equity ratio, which was 1.9x at September 30. This compares to 2.2x at June 30 and 2.4x at December 31, 2024. In terms of liquidity, as of November 4, we've increased our liquidity position by $283 million since year-end 2024. To quickly recap, at September 30, CMTG reported $353 million in liquidity, which has subsequently increased to $385 million as of November 4. At September 30, CMTG's total unencumbered assets were $398 million of loan UPB and $104 million of REO carrying value, which has since increased to a combined $548 million as a result of an additional loan becoming unencumbered, partially offset by the aforementioned loan and REO sales. We believe our liquidity position and unencumbered asset pool strengthen our position in addressing the upcoming maturity of CMTG's Term Loan B. We continue to explore various paths to a refinancing or extension, and we anticipate being in a position to provide additional details on a solution in the coming months. Before we open the call to Q&A, I'd like to share some recent news. We entered into an amendment to the terms of our Term Loan B, including the modification and waiver of certain financial covenants through March 31, 2026, including minimum tangible net worth and minimum interest coverage as defined, respectively. Pursuant to the terms of the modification, we're also utilizing a portion of our liquidity to make a principal repayment of $150 million on the Term Loan B. I would now like to open the call up to Q&A. Operator? Operator: [Operator Instructions] The first question comes from Rick Shane with JPMorgan. Richard Shane: Two questions that are related. The first is, what was the impact in the third quarter of reversal of accruals on the loan that was placed on non-accrual so that we can get a sense of what the run rate is. Obviously, there's a recurring impact, but there's also a restatement effectively. Michael McGillis: It was about $4.5 million, the reversal of the accrued interest receivable on that particular loan. Richard Shane: Look, the narrative here has been that NII has been declining. Obviously, with that reversal, with the runoff of the portfolio, with the additional non-accrual, it was down again sequentially fairly sharply. When do you think we will see a trough? Are we there at this point? Or is there still going to be more downward pressure on NII? Michael McGillis: Thanks, Rick. Great question. I think right now, we are really in the process of transitioning the portfolio and trying to aggressively move out of our 4 and 5-rated loans and non-earning and sub-earning assets. Obviously, with the liquidity we have, we can delever financings, which is helpful to earnings, but we really need to continue to make progress on moving out of the 4 and 5-rated loans, get that capital back and get it earning again. It's going to be a little, what I'll call, lumpy over the near term while we work through that. Richard Mack: I would just add one thing, and that is I feel like the market has come through a trough and the environment in which we are operating in is a lot more constructive for everything we're trying to do. Not exactly -- it is not exactly directly answering your question, but I think it's important to state. Richard Shane: No. Look, it's a totally fair observation. I think there are 2 stages to this. One is the identification stage of challenges within the portfolio, and it feels like we have reached that point or are very, very close. Then there is the resolution stage. This is not like a credit card loan where 180 days later, you charge it off. These resolutions can take years as we've seen. I think we're probably in the midst of that right now. Richard Mack: We absolutely are in the midst of it. I will say that we have been in the midst of it for a while, and we are taking aggressive actions to resolve things. We are really not trying to allow problems to faster or we're not allowing problems to faster. Operator: The next question comes from Jade Rahmani with KBW. Jade Rahmani: Can you give an update on the term loan? I know you touched on it, but where would liquidity stand post the $150 million repayment? Over what time frame do you expect to consummate a refinancing? Are you considering any equity-like options in conjunction with this to bolster the company's capital base, give it wherewithal to deal with problems in the portfolio and also improve the corporate financeability. Those things might include preferred equity. Michael McGillis: Thanks, Jade. Boy, that's a big question, but a good question. Let's see, we continue to have very productive discussions on the term loan refinancing. As noted, we had -- before the impact of this recent modification, the balance outstanding is about $712 million. We'll make a paydown of about $150 million in connection with this modification that will bring cash down to the, call it, $230 million, $235 million range. We do expect some additional sort of monetizations of assets over the relatively near term, which will further improve liquidity and what we would envision is a modest incremental paydown in connection with establishing a new facility or extending the existing facility. At this point, we do not anticipate going into the market for preferred equity as part of the solution, but obviously, down -- further down the path that that could be an option, but we think the trajectory of the business in terms of liquidity resolving watch list loans is heading in the right direction at this time. Richard Mack: Jade, I would just like to add that the -- yes, the cost of pref equity is still quite high right now. The opportunities in the market to increase the implicit or explicit leverage depending on how you want to view pref equity in order to originate, I think we just don't see the trade-off right now. We're going to keep our eye on it. If we think that changes, certainly, pref equity is an interesting approach for us to take. Jade Rahmani: Regarding the risk 5 risk 4 loan buckets, which each total about $1 billion, so that's $2 billion in total. Then current REO, can you give some expectations around the risk 5, where does that -- is that going to continue to moderate? Where will that be in 1 to 2 quarters? The risk 4s, do you contemplate any additional adds? Or will those continue to moderate? Will those be improved through modification to risk 3? Then REO, what is the current balance expectation you have, including any monetizations in process and the additional multifamily foreclosures you noted? Priyanka Garg: Yes. Jade, it's Priyanka. Thank you for the question. I'll start with the REO. We are continuing to monetize some of the REO. We have the mixed-use asset that we condominiumized that Mike discussed earlier. There will be some additional realizations out of that. Richard mentioned the realizations on some of our already REO multifamily. In the near term, we do expect the REO portfolio to increase in size. On Page 10 of our earnings up, we show our 5 rated loans, and we show 4 of them being anticipated REO. Those are all in the multifamily asset class. This is a tool in the toolkit, and we always want to try to work with our borrowers. If we can't come to a resolution that we think is in the best interest of our shareholders, we are going to foreclose. We do identify those 4s as anticipated foreclosures and coming on REO. In terms of additional 5s and 4s, we've obviously classified those loans as we see fit today. It's a dynamic environment. don't -- we can't always control borrower decision-making or what happens at the borrower or the market level. Based on what we know today, we think that list is accurate, and we're actively negotiating with borrowers in the 4 category, as you mentioned, to try to come to a reasonable modification, which could result in an upgrade. Also, as we've proven, I think, year-to-date, there's a lot of tools in the toolkit in terms of other ways to monetize the assets to turn over the book, as Mike mentioned earlier. Jade Rahmani: I think the $640 million of risk 5 rated multifamily loans anticipated REO, that would put the REO portfolio to $1.3 billion and reduce the risk 5 from $1 billion to around $335 million. Then the risk 4, I don't believe that there's REO anticipated out of that. Is that correct? Priyanka Garg: Yes. At this moment, that is correct on the 4s. On the 5s, I would just say the REO, it doesn't go on to our balance sheet at the UPB, it's going to go on at the carrying value after the specific CECL reserve. The $640 million is a bit inflated. It's lower than that. Yes, there will be growth in the REO portfolio. Like I said, there are -- there's very clear visibility into our current REO portfolio being partially monetized as well. Jade Rahmani: That would be actually about $1.24 billion, less the $80 million specific reserve? Do you know what the current yield is? Priyanka Garg: On the REO in total? Jade Rahmani: Yes. Is it low single-digit, or? Priyanka Garg: It's a very mixed bag. On the hotels, that is in the low to mid-teens. That is a very good return on equity because of the refinancing that we got done earlier this year as well as just really strong underlying fundamentals. As you can imagine, as we've taken assets REO in the multifamily portfolio, there is a lot of noise in the NOI numbers in terms of just blocking and tackling, like you want to evict the number of non-paying tenants, and that means you're taking a charge-off. We're in this period of transition, so that yield is much lower. Over time, we can -- we see that increasing. I mean it's anywhere between very low single digits to 6% today on an unlevered basis. We'll see if our plan is certainly to improve the yield on some of those. Others, like I said, are ready for monetization now. Operator: The next question comes from John Nickodemus with BTIG. John Nickodemus: Somewhat related to James's last question regarding the anticipated REO multifamily 5-rated loans. Noticed that your largest loan, the California multifamily moved into that bucket of anticipated REO versus where it was in the last quarter. Would just love to hear what changed there and being such a significant size, how that process could play out in terms of taking REO? Priyanka Garg: Thanks, John, for the question. It's Priyanka. Yes, obviously, we're very, very focused on it, given the size, as you said. The reason for the change is really after extensive ongoing discussions with the borrower. It's clear that they are unwilling -- sponsorship is unwilling to support the asset. At this juncture, I think we've proven our ability to evaluate whether we would like to do loan sales, BPOs, short sales, and when we did all of that, we have determined that the best course of action is actually to take ownership of the asset. One, you immediately create value when you go from a loan to a deed if we wanted to flip and sell it, but more importantly, as we have dug in, we've seen a lot of low-hanging fruit here in terms of ability to improve top line, ability to improve expenses. We think this is really a good opportunity for shareholders in terms of creating additional value. In terms of the process, it's in California. It's a non-judicial foreclosure state. It should be a pretty clean process, and we're -- the sponsor is well aware of the plan going forward. John Nickodemus: Then other one for me. I just wanted to ask about repayments, you've had 3 significant repayments in the second half of the year so far. Two of those were on loans that were on the watch list, a couple of 3-rated loans. Just curious if there's any line of sight on any significant repayments before the end of this year or maybe even early next year, whether that's out of the watch list or just out of the rest of the loan book in general? Priyanka Garg: Yes. Thanks, John. Yes, absolutely is the short answer. As both Richard and Mike alluded to, capital markets are healthy. We are seeing borrowers in various stages of refinancing plans, both on 3 and 4-rated loans. We alluded to this last quarter. We don't control those outcomes. I can't even put a number on it, but there is -- that is absolutely a possibility going into the balance of the fourth quarter in addition to the first quarter. Separately, absolutely dual tracking the goal of turning over the book, and we will focus on effectuating transactions even on difficult assets that are less borrower-driven and more lender-driven. That again goes to all the tools in the toolkit. That will be very facts and circumstances based in terms of borrower market asset class, and we have a couple of those in process, and I can see a couple of those getting resolved here in the coming quarters. Operator: There are no additional questions waiting at this time. [Operator Instructions]. There are no additional questions at this time. I'd like to pass the conference back over to Richard Mack for any closing remarks. Richard Mack: Well, I just want to thank everyone for joining and for the questions. I would summarize by saying, we continue to be in a healing capital markets. We're seeing tightening spreads and high demand for assets. This is allowing us to create value in the portfolio by taking over assets when we need to, by accelerating repayments, all to continue to delever the book, reduce our cost of capital and be prepared to refinance our Term Loan B and hopefully get on the other side of that and resume originations and other opportunities. We thank you all again, and we look forward to speaking to many of you soon and to our next quarterly meeting. Thank you all very much. Operator: That will conclude the Claros Mortgage Trust, Inc. Third Quarter 2025 Earnings Conference Call. Thank you for your participation. You may now disconnect your lines.
Operator: Good morning, ladies and gentlemen, and welcome to the Titan International, Inc. Third Quarter 2025 Earnings Conference Call. [Operator Instructions] It is now my pleasure to turn the floor over to Alan Snyder, Vice President, Financial Planning and Investor Relations for Titan. Mr. Snyder, the floor is now yours. Alan Snyder: Thank you, and good morning. I'd like to welcome everyone to Titan's Third Quarter 2025 Earnings Call. On the call with me today are Paul Reitz, Titan's President and CEO; and David Martin, Titan's Senior Vice President and CFO. I will begin with a reminder that the results we are about to review were presented in the earnings release issued this morning, along with our Form 10-Q, which was also filed with the Securities and Exchange Commission this morning. As a reminder, during this call, we will be discussing certain forward-looking information, including the company's plans and projections for the future that involve risks, uncertainties and assumptions that could cause our actual results to differ materially from the forward-looking information. Additional information concerning factors that either individually or in the aggregate could cause actual results to differ materially from these forward-looking statements can be found within the safe harbor statement included in the earnings release attached to the company's Form 8-K filed earlier as well as our latest Form 10-K and Forms 10-Q, all of which have been filed with the SEC. In addition, today's remarks may refer to non-GAAP financial measures, which are intended to supplement, but not be a substitute for the most directly comparable GAAP measures. The earnings release, which accompanies today's call contains financial and other quantitative information to be discussed today as well as a reconciliation of the non-GAAP measures to the most comparable GAAP measures. The Q3 earnings release is available on the company's website. A replay of this presentation, a copy of today's transcript and the company's latest quarterly investor presentation will all be available soon after the call on Titan's website. I would now like to turn the call over to Paul. Paul Reitz: Thanks, Alan, and good morning, everyone. Our Q3 2025 results continue to demonstrate the ability of our business and our team to perform well in a challenging time. Our Ag and EMC segments reported solid sales growth of 8% and 7%, respectively, compared with the prior year. While consumer was off just a little year-over-year, the segment sales rebounded nearly 15% sequentially. As a result, we were able to deliver consolidated revenues in line with guidance, along with adjusted EBITDA near the higher end of our range. Free cash flow was also a highlight in the quarter, allowing us to continue investing in the business while also working to reduce our debt. Stepping back from the quarter for a moment, this has been a year filled with many companies talking about unusual business conditions around the globe. Our end markets, especially Ag, fall into that category. However, there are a number of positives that are taking hold. Maybe they're not fully taking root yet, but they are certainly in place to provide a foundation to help drive more positive market conditions. First, Secretary Bessant, he provided some details after the Trump-Xi meeting, highlighting an agreement with China to resume purchasing soybeans at a minimum of 25 million metric tons annually, which puts the floor level of purchases right around the average level seen since 2009. After strong positive moves in corn and soy leading up to the settlement, the immediate reactions to the meeting have been muted, a little bit surprising, to be honest, but this agreement should be seen as a positive that will add improvement in market conditions as we move into '26. Moving on to everybody's favorite topic, tariffs. This is a complex and layered topic for Titan. I will remind you that Titan has significant U.S. manufacturing assets, and we are very proud to be the only domestic manufacturer in many of our product categories. Along with our U.S. manufacturing assets, we have significant offshore capabilities and third-party sourcing partners, which help us to serve our customers across the globe. Regardless of the exact outcomes of tariffs, we are well positioned to win. We do believe there is a short-term impact this year that was driven by other factors, not just the tariffs. The Fed actions regarding rate cuts are another net positive as higher interest rates have been impacting purchasing decisions, especially as buyers waited on these Fed actions. Lastly, dealer inventories in the Ag segment are decreasing. We've talked throughout this year about seeing some drop in orders that have been positive for us as inventories get too low with some products and customers. I've been talking about inventory levels quite a bit in recent calls, so I'm simply going to say it's good to see that they're getting better. So given that backdrop, one aspect of our business that I want to emphasize is our competitive positioning. We are positioned as a one-stop shop across the spectrum of tire and wheel size ranges needed in our end markets, along with an undercarriage portfolio that reaches the largest earthmoving equipment. Products that Titan is known for, such as our LSWs and R14 tires and the wheels they are mounted on are not easily mass produced. Building these tires and wheels require skilled labor and significant investment in manufacturing assets. Our SKU runs consist of far fewer units than the passenger vehicle tires we all see on the roads. And when you take that into account, including our long-standing relationships with leading equipment OEMs and aftermarket dealers, we are confident our business has a good moat around it. We are also cognizant of the need to keep reinforcing that moat by innovating and creating new products to add value to our customers and our end users. On that line, we've been working hard to expand on our Goodyear product portfolio following the expansion of our licensing agreement, which we announced last quarter. One initial focus area has been outdoor power equipment tires, like those you find on commercial turf applications. And we've been pleased with the market response. And when demand for new equipment begins to pick up, we're optimistic that this will be another growth driver for Titan. At the same time, professional buyers such as landscapers continue to run their equipment. That's driving demand for aftermarket replacement tires. And again, that is helping offset some of the softness we see with the OEMs. So switching gears and really looking at our 3 segments at a higher level, our strategic goal of diversifying our business is proving its merit. Year-to-date, Ag has accounted for 41% of our revenues and EMC consumer accounting for 31% and 28%, respectively. Overall, we think our revenue and gross profit split across the 3 segments is healthy and an important reason we continue to drive profitability and cash flow well above our prior cyclical troughs. Looking at the conditions in each of our segments, starting off with consumer, we see that business benefiting from a couple of primary characteristics relative to our other 2 segments. First, it has historically included a larger aftermarket business. Equipment owners tend to regularly use their machinery in this segment, especially those that are businesses. As a result, demand for replacement tires is less cyclical than OEM-driven demand. Our consumer sector also includes a wider range of customers and use cases from hunters using ATVs to boat and trailer owners to landscaping companies. That type of diversity also helps us weather macro environments like we're seeing now. Moving over to Ag, which really has represented who we are as a company since our founding. This year's global crop has been a good one. That has continued to increase supply, which is working to suppress the price of leading crops, corn and soybeans. American farmers have also borne the brunt of tariff-driven trade wars. And as a result, U.S. farmers are looking at a less profitable 2025. And as we all know, farmer income is the primary driver of equipment sales. Conversely, what we have seen, though, and we've been talking about this for about a year now, Brazilian Ag interest have picked up much of that slack. And again, our diversity as a leading Ag tire manufacturer in Brazil, Titan has been able to offset some of this U.S.-based weakness. U.S. government also continues to make it clear. We have seen a number of these actions over the last couple of weeks that farmers will be financially supported. Government aid is by no means growth capital, but if it allows farmers to enter '26 with their finances in reasonable order, that would obviously be good for OEMs in the sector. Additionally, that aid would provide the sort of capital needed to support demand for aftermarket tires farmers need to keep equipment like tractors and combines operating. Moving over to our EMC segment. That did experience some growth due to some drop-in orders I mentioned in our last call, most notably in small construction tires and wheels in the U.S. In Europe, where our EMC segment is our strongest area, demand has remained somewhat stagnant on the OEM side of the business, but we are seeing really good demand on our aftermarket mining, which continues to be a good source of growth for Titan. So wrapping these comments up, I want to just conclude by mentioning again, our team is working hard. We're doing a good job servicing our customers. We occupy a strong competitive position in the markets we serve and are a trusted partner to our customers and end users. Titan continues to execute. And as David will discuss, we are continuing to perform at levels well above the last cyclical bottom, and we remain well positioned to benefit when our end markets return to growth. With that, I'll turn it over to David. David Martin: Thank you, Paul. Good morning, and thanks for joining us today. I'll be quick to the point today. As Paul noted, our results for the third quarter were solid with adjusted EBITDA coming in at the top of our guidance range with strong free cash flow. There are some important financial metrics to highlight this quarter. Sales grew 4% year-over-year, demonstrating that the market may be reaching the bottom. Gross margins expanded 210 bps to 15.2%. Our operating margin expanded in the third quarter as well. and our adjusted EBITDA grew 45% to $30 million. Strong working capital discipline facilitated operating cash flow of $42 million and pragmatic CapEx management furthered the quarter's free cash flow to $30 million. Our ability to drive solid profitability and cash flow despite the challenging macro backdrop is something we continue to be proud of. It stands as a testament to the quality of our team, our operations and our strategy. The Ag segment revenues were up over 7% from the prior year, driven by higher volumes, especially in Latin America, where we continue to see positive impacts from solid grain demand and what is anticipated to be another record crop yield in the region due to favorable weather and expansion of planted acreage. Additionally, pricing related to increased input costs contributed to this increase. EMC revenues were up 6% from the prior year to $145 million. which is primarily driven by some drop-in orders from light construction customers in the U.S. as well as favorable FX impacts related to the strengthening of the euro year-over-year. In consumer, we saw some of the deferred purchasing from Q2 come back to us in the third quarter as we had anticipated. Segment sales were $132 million, which was a decline of just under 3% from the prior year, mainly due to lower OEM activity. However, up 14% from Q2, which is very nice to see. Looking at margins in the segment in the quarter, all 3 showed expansion versus the prior year. Our Ag gross margins were 13.4% compared to only 9.5% last year. EMC gross margins was 10.4% versus 8.5% last year. And then consumer gross margins were 23% compared to 22.3% the year before. With solid cash flow in the quarter, we reduced our net debt to $373 million from $391 million at the end of last quarter and resulting leverage decreased to 3.7x while we continue to invest in our business. Third quarter income tax expense was $1 million, which was below the range we discussed on our second quarter call. This was primarily due to the effect of tax planning related to deductibility of interest. Looking at Q4, we think that benefit will be somewhat less. And for modeling purposes, I would expect tax expense of $2.5 million roughly for -- as a good number to use. Reiterating my comment from prior quarters, as we see a rebound in market conditions, we expect to get back to normalized tax rate levels as we see our profitability increase. Now moving on to our financial guidance for Q4. Our guidance for the quarter is revenues of $385 million to $410 million and adjusted EBITDA of approximately $10 million. I want to ensure that it's clear. The midpoint of our revenue guidance and our adjusted EBITDA guidance imply growth in both metrics when compared to Q4 last year. Our other operating metrics should also be positive for the quarter. Last year, in the fourth quarter, we had $2.6 million of other income, which was an abnormally high amount for a single quarter. This is the key driver as to why Q4 guidance is only slightly -- showing a relatively small incremental improvement from the prior year result. It also bears repeating that our fourth quarter typically marks our seasonal low point and with macro conditions continuing. I'm especially pleased to see our business performing well. Reiterating our prior comments on cash flow, we will continue to manage working capital with discipline. allowing us to continue reducing our debt and investing in our strategic initiatives, including our continued product innovations. Our financial condition is good, and it's improving. And I'm fully confident that we're putting Titan in a position to accelerate our future performance. We are positioned well. Thank you for your time this morning. And I'd like to turn the call back over to Becky, the operator for our Q&A session. Operator: [Operator Instructions] Our first question comes from Mike Shlisky from D.A. Davidson. Michael Shlisky: Yes. Can you start with some Ag-related questions. What drove the year-over-year upside in Ag? Was it farmers were fixing up their old catchers -- or was the OEM asking for wheels and tires? Paul Reitz: You're talking about the Q3 performance in terms of the Ag growth, right? Michael Shlisky: Yes. Paul Reitz: Yes. Okay. Just want to make sure I addressed your question appropriately. Yes, we saw nice improvements in primarily at customers with -- in aftermarket. Aftermarket has held steady. We had some slight improvements, but in OEMs, but not a significant amount. And then obviously, our Latin American activity is up year-over-year as well. So if you recall, last year in the second half, we were seeing a lot of weakness, a lot of destocking going on. And so this year, you saw a much more steady activity. Michael Shlisky: Got it. Got it. And we just turn to the Ag outlook for 2026. Paul, is the current plan to expect an upturn in Ag in 2026? And if so, just talk a little bit about the timing and kind of how that might play out? Or has it already started here for Titan given we just saw in the third quarter? Paul Reitz: Yes. I mean we do see a return to growth, but describing it more specifically to Titan, layering on to what David just said, we've positioned Titan well and diversified us geographically and also strengthened our aftermarket position. And so where we see Titan continuing to grow will be through the innovations we put into the marketplace along with aftermarket performance. Now we clearly have a strong OEM business, and we are watching that closely to see where we see '26 going. I think the best way to characterize that is we're at a bottom. But as far as the timing for the pickup, I think I'm going to point to the positives that have been laid into place with interest rates coming down with what the actions of Secretary Bessant and President Trump, I don't think that's coincidental that Trump is putting tweets out talking about supporting the soybean farmer and then Secretary Bessant is going on the TV networks and talking about his experience as a soybean farmer. It's not mere coincidence. I think the administration is going to stand behind the fact that we need to support the farming communities and what they do for our overall society. And so I think as we look towards the OEM forecast, I think there they're delaying giving us really good solid information as to what they see throughout the entire year and kind of just saying what they see for the -- to start the year, which is, again, kind of a flat start to the year, waiting for some of these initiatives to kick into gear. And I don't see how any of these initiatives are negative for '26. I think they can be viewed as only positive. And if we're at a bottom and you got some positive factors that are now starting to influence things, I do think we see an uptick in OEMs for '26. But primarily, we're going to hold off on making too many direct comments about where we see '26 for OEMs. Again, stay close to the situation, but we do see opportunities for growth with our product innovations, the Goodyear brand where we can launch them in some new places and then again, with our aftermarket positioning. Michael Shlisky: Great. And a similar question on construction, Paul. Some of the major U.S. players that have reported so far and have talked about '26 are already talking about improvement next year, at least a good number of them are. How might that look for Titan in your EMC business? Paul Reitz: Yes. I think we're in a good position. Clearly, seeing the same things that you just mentioned that there's a lot of support coming from the governments that are going to -- they're going to put some bills into place that will help accelerate some spending. It's good for us around the world. I mean our business is pretty well diversified as far as exposure to Europe, exposure to aftermarket mining and then obviously here in the U.S. as well. But I do agree that we're seeing our early looks into '26 for EMC are that there's a good basis for some growth going into next year. And I think that's something that, if anything, that could accelerate throughout the year. I think it's going to start the year in a good position. But again, some of these factors could have, I believe, a more positive impact than what some of the initial looks are. But again, we'll let that play out. But I agree with the assessment that as we look at the EMC segment, there's a good layer of growth that's coming into next year. Operator: Our next question comes from Derek Soderberg from Cantor Fitzgerald. Derek Soderberg: Paul, you mentioned OEM inventory levels improving. Any insights to the degree to which that was the case maybe over the past quarter? I was just wondering if you could quantify that at all for us, how much it improved on a quarter-over-quarter basis? Paul Reitz: Yes. Yes. I mean it does vary by product, by customer. And 2 ways I would look at it. I think as far as some of the large equipment inventories, we've seen them come down roughly like a month, like 30 days of inventory coming off and getting it to a more normalized level. Used is starting to move a little bit better as well with the incentives that are in place, which is going to help obviously get the new moving. But for us, what we are watching and dealing with in a positive way is just the drop in orders where the inventory gets out of balance. I mean, obviously, there's a lot of forecasting and estimates that go into the positioning of inventory. And we've seen customers each quarter throughout this year have dropped in orders in specific areas where we've had to respond quickly and get the product produced. And again, I think that's an indication that the inventory is hitting the right level, if not too low of a level in certain cases. And so the Titan team, our strength, as we mentioned at the beginning of the year, is to be flexible, not just with our manufacturing assets, but with our labor to make sure we can respond. And it's -- our team has done a great job when these orders get placed that we're able to respond and again, further solidifying that relationship with our customers. So again, I think as we get into the forecast for '26, inventory is at least coming in at a position where it's neutral. And one of the things that Titan has been battling throughout '25, as David mentioned, is just the inventory destocking specifically for us and our segments has had a negative impact. So I think for -- at a minimum for '26, we started a good neutral level. Derek Soderberg: Got it. That's helpful. And then any additional color on what's driving aftermarket mining? Is it precious metals? Are you guys seeing any demand from some trends in rare earths mining, some of that onshoring? Can you provide any color on any end market demand trends you're seeing in that space? Paul Reitz: Yes. Clearly, the operating activities of the mine support the business overall. But I think specifically for Titan, it's our position within the market that's allowing us to grab this growth. We do have the ability to produce customized cast products that are made in our foundry in Europe and can really meet the needs of the market in, again, a highly customized way that's very specific to the applications. And so as we see this growth, it's good across the board as far as operating activity, and that's more of our traditional undercarriage parts that we produce in our plants throughout the world. But where we've really been able to outperform and grab additional growth in aftermarket mining is really our ability through our foundry to customize these cast parts and go attack a niche part of the market that others can't quite get to. So there's a little bit of specific growth to Titan that's outside the general trends you may see overall in the mining segment. Operator: Our next question comes from Steve Ferazani from Sidoti. Steve Ferazani: Appreciate the call. Given the strength in 3Q, and we were really surprised how strong Ag was in 3Q, a little surprised at the top line guide for 4Q. Can you talk about the slightly different elements? Because that number, we know how dramatic the OEM shutdowns were in the year ago. So if inventories are getting a little bit better, if you're guiding for pretty similar shutdowns on that side, and I know you guys have a pretty good picture on that, a little surprised there. And also, I'm guessing aftermarket is less of a benefit in 4Q, just in general than it would be in 3Q? Paul Reitz: Yes. I mean we're seeing the kind of drop, maybe not nearly as much as last year, but we are seeing a drop seasonally going from Q3 to Q4. I believe that OEMs are really just getting themselves prepared for next year, but they're not going to be -- they're not going to turn on production in Q4. So we're not going to be seeing uptick. So we're seeing the normal seasonality, very pragmatic decisions being made about it. And our aftermarket is light in Q4 as we're going to be seeing a really nice seasonal uptick in Q1. So -- and that's actually taking place not just here in the U.S., but it's also in Brazil. So that is the same trends that we're seeing there. It's really across the board. So yes, it doesn't obviously imply the seasonal downturn that we typically see… about it, not getting out over our SKUs. I think we are positioned well to take the orders as we need to. But I believe it'd be much more -- they're being very disciplined, and we will too. Steve Ferazani: So I mean, following Paul's commentary that maybe the start of the year on Ag is pretty similar. I mean you ran through the macro issues, which we can all see. And hopefully, a trade agreement pumps that up and we start seeing crop prices working. Having said all that, you're clearly doing very well in the aftermarket. It looks like you're even potentially gaining some share there. When we think about the start of the year, we're now going to be another year along without the replacement cycle. You've got more aging equipment. You're clearly gaining in those markets. Can we see nice uptick on aftermarket first half of the year year-over-year? Paul Reitz: Yes. I mean I think I was just with our VP of Sales Tuesday, and he's optimistic. So I think the answer is yes, to keep it brief. We -- the diversification of our company, I think, is just a key point. And Dave and I spent a lot of time talking about that to geographically be able to take advantage of the positioning of Brazil over the last year as the purchasing interest of China move that direction. And then as a company with what we've done in the consumer segment to continue to drive innovation into the aftermarket. I mean I think Titan has been very well positioned in the aftermarket. We share with investors how we've changed this company from where it was 10 years ago as far as our aftermarket splits to where we are now. And I think we continue to accelerate in that area. And so we are seeing -- again, the feedback I got just on Tuesday is we're seeing a good start to the preordering for next year. And I do think you start the year off on a positive note with aftermarket. Steve Ferazani: And then also just kind of following along your commentary and the answer to one of your questions. Historically or at least recent history, Ag and EMC have directionally moved similarly, maybe not at quite the same levels. It sounds like you're indicating that maybe at least in the near term, those may be going into a couple of different directions, which is not what we've seen in recent history.? Paul Reitz: Yes and no. I mean I think there's different drivers. I think the Ag -- global markets have been hammered the last couple of years. We've dealt with -- in our particular business, we've dealt with the inventory destocking in Ag. But the way we position Titan with EMC and Ag is that we've increased our aftermarket diversification. We were just over in Italy meeting with our leader of a big part of our EMC business. And there's a lot of confidence for continuing to see that diversification provide benefits to Titan as we move into '26. I do think there is a potential for a bigger uptick in Ag, as we all know, when the foundation of those actions start to take root that you don't necessarily have an EMC where there's this more consistent growth as government spending, infrastructure spending, et cetera, continues to drive that in a positive way. I do think there's this hidden uptick in Ag that's lurking out there somewhere. It's just nobody is exactly pinpointing the timing on it. But strategically, there's similarity. Clearly, having the tire business in Ag gives us more diversification to the aftermarket and more levers to pull there in North and South America and the innovations and the positioning and the relationships we have with dealers, whereas with EMC, we don't have that because they're steel-based products, but we've really diversified our business, as I mentioned earlier, with the customized aftermarket mining products that we can produce and then touching into some other parts of the steel-based aftermarket with EMC as well. So again, I think it's -- a lot of this diversification of Titan is, I think, really providing us good strong benefits that we're seeing in the '25 results that positions us well as we move into '26, whichever direction markets go, which I do believe they're at the bottom with some uptick coming, but we're in a position to capture some of that growth wherever the markets may go. Steve Ferazani: That's really helpful. Appreciate it, Paul. Last one for me was just on the royalty expense line. That number being much higher sequentially and year-over-year would seem to indicate you were selling an awful lot of third-party tires. Is that the right way to be thinking about that? Paul Reitz: Well, certainly, we have the new license agreement, and we had a little bit of true-up to the payments made in Q3 a little bit. But certainly, the mix is certainly favorable towards Goodyear. Operator: Our next question comes from Joe Gomes from NOBLE Capital Partners. Hans Baldau: This is Hans Baldau on for Joe. Could you talk about the potential M&A? Do you know what the valuations are looking like or any areas that you all might target? Paul Reitz: I think what we have done as a company historically is look for opportunities when valuations are lower. We operate in an industry that could be considered a niche industry. And there's been opportunities that have presented themselves kind of on a consistent basis, not on an annual basis. And so we are -- we continue to follow that approach. I know David spends a lot of time and effort managing the balance sheet along with our entire team. And so we look at our ability to be able to participate in any lower valuations and grow via M&A is something that Titan needs to be positioned to, along with investing in innovations, which we've done. Do I think these market conditions potentially give us some opportunity? I hope so. I think historically, it's presented some valuations that maybe do that. Is there anything imminent? It's not really how our industry works. I mean it's sort of -- it's more opportunistic than it is pinpointing this is what we're going to go do because that -- if you pinpoint what you're going to go do strategically, usually, that the valuation gets too high for how Titan historically has done acquisitions. So you wait for the opportunity, work towards it and see if it comes together. And that's been our consistent approach for the years. And I think the acquisition we did last year is a really good illustration of that. Hans Baldau: Okay. I appreciate that. And then could you add some color on the military market? How is your targeting of the military market progressing? Paul Reitz: I mean the targeting has been good. The results are just takes time. So the results could be better. I mean, I'll err my personal frustration since I got a microphone, I might well go ahead and do it. I see what European countries are doing. I just read this week about how Germany is going to -- guess what the German government is going to do. They're going to buy military components from German manufacturers. Guess what Europe is doing. Look at Rheinmetall. They're buying products from European manufacturers. I need somebody explains to me why our U.S. government can't buy from U.S. manufacturers. I think it's a pretty simple formula, and I think Titan should be able to participate in that formula as our U.S. government opens their eyes and realizes that we should be supporting our own companies here in the U.S. like every other country is choosing to do. So if you hear my frustration, there is frustration. I think the opportunities are there. They move slower than they should. We are continuing to go after those opportunities, and we will put ourselves in position to grow our military business. But I don't understand why European countries can make decisions and move much quicker than our U.S. government is. Operator: Our next question comes from Kirk Ludtke from Imperial Capital. Kirk Ludtke: Just a couple of follow-ups. On the Goodyear deal, I think the idea is to use the brand on the Goodyear brand on more of your products. Can you maybe comment on the potential of that initiative and the timing? Paul Reitz: Yes. I think it's something that the timing is we'll see more of it in '26 because we do have to develop the products, get them in the market, test them, et cetera, stating the obvious with that response. I was very excited and enthused that we were able to get the additional product categories with Goodyear. As you're negotiating, you never know if that's going to happen. And so could we have started the product development earlier and assume that we were going to get these maybe, but we didn't. And so I'm very happy with how things turned out with Goodyear. I think the partnership only grows stronger by allowing us to participate in those additional categories. But we do have to do some product development, some testing. I think for me, it's great to see our team enthused that -- what this addition of this brand can do. And really, what it does, Kirk, is our specialty division through the Carlstar acquisition has strong brands. But what we have seen at Titan with the Goodyear brand is it allows you to go into a premium segment with your really high-end innovations. So you're capturing not just share, but you're capturing a stronger foothold on margin. And I think that's where the excitement of the team is. So are we using it to go just relabel our existing brands Goodyear? No, because our brands are strong enough positioned in the market that we don't need to do that. So what we're doing with the Goodyear brand is, again, going into a market segment that maybe we couldn't have got to as easily before. And we've seen that play out in Ag in North and South America. And I think we can do the same thing with the new product categories we have with the Goodyear name as well. So probably more of a longer tail on getting there and less of a big splashy number that says look at all these Goodyear sales we have. But we'll get to the right position over time with a premium product that has good margin. It's a win-win for us and Goodyear. And we've proven over the last 2 decades, that's the case. Kirk Ludtke: Got it. Appreciate it. On the net sales, another strong quarter in Latin America. I think you mentioned that's -- why that's happening. But Asia was down over 20% year-over-year. Can you -- is there anything to -- any kind of takeaways from that? Paul Reitz: Yes. I think it's just timing more than anything. That's going to be your typical sales from our ITM business in the EMC segment. And you'll see shifts in manufacturing to various customers. I think we had a stronger Q2. So I think it's just timing more than anything. Kirk Ludtke: Okay. Got it. And then lastly, did your Brazilian JV close? Rodaros? Paul Reitz: Closed. Yes. We issued a press release last week, actually. So we're really happy about that. Hans Baldau: I missed that. Paul Reitz: We're happy to get that concluded, and we're off and running. Operator: This concludes our question-and-answer session. I would now like to turn the conference back to Mr. Reitz for any closing remarks. Paul Reitz: Well, thanks, everybody. Appreciate your participation in our Q3 call, and we'll talk to you again here soon with an update on the fourth quarter and 2025. Thanks, everybody. Operator: Thank you for attending today's presentation. The conference call has now concluded.
Operator: Good morning, and welcome to Nova's Third Quarter 2025 Financial Results Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Miri Segal, CEO of MS-IR. Please go ahead. Miri Segal-Scharia: Thank you, operator, and good day, everyone. I would like to welcome all of you to Nova's Third Quarter 2025 Financial Results Conference Call. With us on the line today are Gaby Waisman, President and CEO; and Guy Kizner, CFO. Before we begin, I would like to remind our listeners that certain information provided on this call may contain forward-looking statements, and the safe harbor statement outlined in today's earnings release also pertains to this call. If you have not received a copy of the release, please view it in the Investor Relations section of the company's website. Gaby will begin the call with a business update, followed by Guy with an overview of the financials. We will then open the call for the question-and-answer session. I will now turn the call over to Gaby Waisman, Nova's President and CEO. Gaby, please go ahead. Gabriel Waisman: Thank you, Miri, and thank you all for joining us. I will start the call today by summarizing our third quarter performance highlights. Following my commentary, Guy will review the quarterly financial results in detail. Nova achieved record quarterly revenue of $224.6 million in the third quarter, marking a robust 25% year-over-year growth. This performance reflects the continued trust of our customers, driven by demand in advanced nodes and advanced packaging. This quarter, we delivered record revenue from memory devices, fueled by strong demand for advanced DRAM and high-bandwidth memory. We also reached record revenue from advanced logic nodes, predominantly driven by gate-all-around processors. Our materials metrology revenue benefited from adoption of our ELIPSON and METRION platforms, and we also achieved record service revenue, underscoring the resilience and value of our portfolio and business model. According to our fourth quarter guidance, 2025 will be a record year for Nova, reflecting growth of approximately 30% year-over-year at the midpoint. Looking ahead, we anticipate further growth in 2026 with advanced logic, advanced packaging and DRAM continuing to fuel the momentum. Recent announcements of large-scale investments in artificial intelligence are creating a positive outlook for sustained industry growth and wafer fab equipment spending. Manufacturing integrated circuit devices for AI applications introduces unique process control challenges such as complex architectures, tighter tolerances, new packaging technologies and the integration of new materials. Our customers are constantly challenged to reduce ramp-up periods and then maximize yields in high-volume production. Nova's solutions are purpose-built to address these challenges, enabling our customers to deliver the performance and reliability required for next-generation AI devices. With this in mind, in 2026, we expect WFE growth in the mid-single digits with potential upside as AI-driven demand trickles down the value chain to increase utilization rates and wafer starts. Now I'd like to review some of the highlights from the past quarter. First, our record sales in memory this quarter was driven by several key achievements. In materials metrology, we saw record Veraflex sales to memory fabs. We also secured new orders for our PRISM platform supporting HBM manufacturing. In chemical metrology, we anticipate receiving orders for multiple tools from a new memory customer following the successful adoption of the Nova AncoScene front-end platform, which replaces a competing tool. These wins underscore Nova's expanding footprint and the important role our solutions play in enabling advanced memory production. Second, Nova achieved record sales in advanced logic, driven primarily by strong demand for our solutions in gate-all-around manufacturing processes. Notably, our ELIPSON materials metrology platform was selected as a tool of record by a leading global foundry, and we have already delivered several systems for use in high-volume production. ELIPSON leverages state-of-the-art Raman spectroscopy to provide precise nondisruptive material characterization. These capabilities are essential for advanced device nodes. In addition, we recognized revenue from the sales of the METRION platform to a gate-all-around manufacturer, further expanding the adoption of this tool. We expect to see orders from additional customers in the coming months. Third, in advanced packaging, the demand for Nova's optical metrology solutions continues to increase, particularly for critical dimension measurements in the most complex manufacturing environments. Our portfolio for advanced packaging includes Prism, WMC, SemDex, integrated metrology and the Ancolyzer. These solutions address multiple stages in the production process such as post-CMP applications as well as measurements of Through-Silicon Via wafer voltage, total thickness variation and electroplating analysis. This quarter, we introduced our latest optical metrology platform, the Nova WMC, a next-generation modular system designed from the ground up to address the evolving requirements of advanced packaging. The WMC has already been adopted by 3 customers for HBM and power device manufacturing with additional customer evaluations and demonstrations underway. The WMC offers exceptional versatility, supporting a wide range of wafer sizes and forms and multiple metrology technologies. This positions WMC as a cornerstone tool for next-generation packaging, including 2.5D, 3D and hybrid bonding applications. The strong demand for the WMC is a testament to its ability to address industry challenges such as high warpage, nonsymmetric shapes and diverse surface conditions, all with high throughput and nanometer level fidelity. Additionally, our PRISM and integrated metrology platform were adopted by a leading global logic manufacturer for advanced packaging processes and our chemical metrology platform, the Ancolyzer, was shipped to a gate-all-around customer for back-end packaging processes. All of these embody Nova's commitment to deliver comprehensive integrated solutions that enable our customers to meet the stringent requirements of advanced packaging and maintain a competitive edge. Finally, we marked a significant milestone in our operational excellence and capacity expansion with the opening of our new state-of-the-art production facility in Mannheim, Germany. This advanced clean room, which extends our existing site, enables us to triple our production capacity for advanced packaging optical metrology solutions while further improving our manufacturing process and quality. To conclude my prepared remarks, this quarter reflects the strength of Nova's strategy and execution across all fronts from technology leadership to operational scale. As our industry continues to evolve, driven by AI and increasingly complex architectures, Nova is well positioned to support our customers with differentiated, scalable and innovative solutions. Looking ahead, we remain confident in our ability to deliver long-term growth and value. For more details on the financials, let me hand over the call to Guy. Guy Kizner: Thanks, Gaby. Good day, everyone, and thank you for joining our 2025 third quarter conference call. I will begin by reviewing our financial achievements for the third quarter of the year and then provide guidance on the fourth quarter. Total revenues in the third quarter of 2025 reached a record level of $224.6 million, marking the sixth consecutive quarter of record-breaking results. This performance reflects a growth of 2% quarter-over-quarter and 25% year-over-year. Product revenue distribution was approximately 70% from logic and foundry and 30% from memory. Product revenues included 4 customers and 3 territories, which contributed each 10% or more to product revenues. In the third quarter, blended gross margins aligned with our guidance, achieving 57% on a GAAP basis and 59% on a non-GAAP basis, well within our target model range of 57% to 60%. Operating expenses increased to $63.5 million on a GAAP basis and $58.6 million on a non-GAAP basis as we use top line growth to invest in R&D for long-term opportunities and in ongoing strategic evaluations. Operating margin in the third quarter reached 28% on a GAAP basis and 32% on a non-GAAP basis, demonstrating the scalability of our model and the strong value proposition of our process control portfolio. The effective tax rate in the third quarter was approximately 16%. Earnings per share in the third quarter on a GAAP basis were $1.90 per diluted share, and earnings per share on a non-GAAP basis were $2.16 per diluted share. Turning to the balance sheet. During the third quarter, the company generated approximately $67 million in free cash flow, bringing the total positive free cash flow for the first 3 quarters of 2025 to approximately $170 million. In September 2025, the company successfully completed a 0% convertible notes offering of $750 million with a 35% conversion premium and a capped call structure that raised the effective premium to 75%. As a result, total cash, cash equivalents, bank deposits and marketable securities increased to $1.6 billion at the end of the quarter. This strong financial position enable us to continue to invest in R&D and strategic growth initiatives while maintaining the flexibility to pursue M&A opportunities and capitalize on market trends that support our long-term objectives. Next, I'd like to outline our guidance for the fourth quarter of 2025. We currently expect revenue for the quarter to be between $215 million and $225 million. GAAP earnings per diluted share to range from $1.77 to $1.95. Non-GAAP earnings per diluted share to range from $2.02 to $2.20. At the midpoint of our fourth quarter 2025 guidance, we anticipate the following: gross margins of approximately 57% on a GAAP basis and approximately 58% on a non-GAAP basis. Operating expenses on a GAAP basis to increase to approximately $65 million. Operating expenses on a non-GAAP basis to increase to approximately $59 million. Financial income on a non-GAAP basis is expected to increase to approximately $16.8 million in the fourth quarter, reflecting the higher cash balance on hand. Diluted share count for the fourth quarter is expected to be approximately 34 million, incorporating the full quarter effect of the recently issued convertible notes. The increase in share count and higher financial income are expected to largely offset each other, resulting in a minimal impact on the non-GAAP earnings per share. Effective tax rate is expected to be approximately 16%. Before I conclude my remarks, I would like to highlight that based on the midpoint of our fourth quarter guidance, we expect to close 2025 with record high revenues, reflecting exceptional annual growth of approximately 30%. Our non-GAAP profitability outlook for 2025 remain robust with blended gross margins around 59% and operating margins near 33%, positioning us at the high end of our target model and highlighting the strength and scalability of our business. With that, we will be pleased to take your questions. Operator? Operator: [Operator Instructions] The first question comes from Atif Malik with Citi. Atif Malik: Strong execution throughout the year. Gaby, with respect to your mid-single-digit wafer fab equipment outlook for next year, if I recall, this was the same outlook that you were giving in early September and a lot of things have changed in the memory land since then. So can you walk us through the upside case to this WFE? And is Nova still going to outperform the WFE? And we have been hearing that the memory makers are somewhat constrained in their shell capacity. Is that the driver that is limiting the growth to mid-single digit? If you can just walk us through the puts and takes. Gabriel Waisman: Definitely. Thank you for your question. So first of all, I believe that there's been some improvement since the September discussions. But in general, I think that for the Nova side, we do believe that we have the right growth engines and ability to outperform this growth. And we estimate that 2026 will continue the trend and that in general, we believe it will be more of a second half weighted year. Atif Malik: Great. And then, Guy, on the gross margins, a little bit light on the reported quarter and guiding to 58%. Can you walk us through the puts and takes on the gross margin? And are you seeing any impact from the incremental China restrictions to your gross margins? Guy Kizner: So this quarter, we reported gross margin of 59%, and it's aligned with our forecast. Looking ahead for the next quarter, we are guiding 58%, plus/minus 1% point. That range reflects continued discipline in pricing and cost structure and importantly, our ability to deliver strong value to customers. The main fluctuation when they occur in the gross margins is mainly product mix during the quarter. And the right way to look on our performance is on an annual basis, where in 2025, we expect to see 59%, and it's well aligned within our target model of 57% to 60% gross margin. Atif Malik: And the impact from the China restrictions, any incremental impact? Guy Kizner: No. Currently, we don't see a significant impact from China. Operator: The next question comes from Blayne Curtis with Jefferies. Ezra Weener: It's Ezra Weener on for Blayne. Just to start, in the quarter, foundry and logic was down like 6%, memory up a little over 20%. Can you talk about the moving pieces there, especially considering you said leading-edge foundry hit a record? And then how do you see that going into next quarter? Gabriel Waisman: Sure. So first of all, we mentioned that, as you said, that this quarter has seen an increase in the memory sales, and we've reached a record revenue level. This quarter, memory was about 30% of our sales, where DRAM generated the majority of that business. And we see DRAM is recovering nicely, and we have a good exposure in this market. We do expect this trend to continue next year and that memory will be one of the growth drivers for WFE in 2026. Saying that, our long-term model suggests a ratio of 40% memory and 60% logic due to the higher metrology intensity in logic. Specifically to your question about the ingredients of that growth, we see adoption of our portfolio across the product divisions by leading memory customers. We mentioned record VF XPS sales to memory. We have multiple orders for the latest and greatest PRISM stand-alone OCD tool. We have a new win for the WMC for HBM, and we have a new memory customer in chemical metrology. So we do see the fundamentals of the growth in the memory, and we do expect a continued growth next year in that sector. Ezra Weener: Got it. Then in terms of what you're seeing from China, given clearly trailing edge foundry logic is down. Gabriel Waisman: Excuse me, you were cut at the end. Ezra Weener: Yes. So foundry and logic is down in September, but leading edge was up. So that does seem to likely be related to China. Can you talk a little bit about what you're seeing in China? Gabriel Waisman: Sure. So first of all, we expect the nominal volume of our business in China this year to be slightly higher year-over-year compared to last year. We mentioned that the revenue is skewed towards the first half of the year. And on an annual basis, we expect our revenue from China to be nominally higher all in all. But of course, that the share of the overall business from China should be lower than last year. Last year, we had 39% and this year will be lower, probably the range of, let's say, the 30-ish-plus percent mark. We do believe that China has already normalized in terms of the business levels in the second half of this year, and we expect this trend to continue in the first half of 2026. Operator: The next question comes from [ Liam Farr ] with Bank of America. Unknown Analyst: On for Michael. I was just wondering in terms of gate-all-around, what kind of trajectory are you seeing in 4Q and through '26 as well? Gabriel Waisman: So gate-all-around has been driving our business and the third quarter has peaked in that respect. We are exposed to all of the 4 gate-all-around players. And we mentioned before that the aggregated business that we expect for '24 to '26 from that gate-all-around business is about $500 million, and this is well in track. Our business from gate-all-around in 2025 significantly increased, and we expect this to continue next year. And as I mentioned before, we are on track with our original plan both in terms of scope and in terms of time lines. We are very fortunate and we're encouraged to see all the 4 players advancing towards manufacturing. And we believe that this will continue where demand is certainly growing. Unknown Analyst: Just a follow-up. In terms of -- you've mentioned M&A adds upside to your long-term model. Where would you like to expand or do a tuck-in deal, if you could? And what kind of capabilities would you be looking to acquire? Gabriel Waisman: So after the convert that we successfully concluded early in September, we definitely have the right war chest to pursue inorganic growth opportunities. We are looking predominantly on the semiconductor area, process control, but we are definitely open to some additional segments as long as there is a strong semi business in that part. We have a dedicated team in the company that pursues such opportunities, and we are definitely looking forward in making sure that we can execute on our strategic plan in that respect. Operator: The next question comes from Vedvati Shrotre with Evercore ISI. Vedvati Shrotre: My first question was on the WFE outlook that you shared. So you mentioned it's second half weighted for 2026. Can you provide some color whether -- how this splits like foundry logic versus memory? And is that comment of second half weighted for both the end markets? Guy Kizner: Thank you for the question. First of all, I'd like to reiterate the fact that we have the right growth engines and the ability to outperform the growth of WFE next year. We see some upside as well. And in terms of the specifics, I believe that the advanced nodes, in particular, gate-all-around will accelerate further in the second half of next year, driving that weighted assumption. But of course, we are not giving any color beyond that other than saying that we believe that we have both memory and advanced logic driving the business in next year in general and accelerating towards the second half in particular. Vedvati Shrotre: Understand. And my second question was more on the advanced packaging piece. So you have the portfolio sort of increasing with your WFE product lines. And at the same time, you're kind of winning multiple applications across HBM and advanced foundry logic. What's your view on advanced packaging contribution for '25? And like how much of your revenues would be coming from advanced packaging applications this year? And where does that go next year? Gabriel Waisman: Sure. So the current 2025 numbers show a high double-digit revenue growth for the company. We expect to see a higher share of revenue for advanced packaging compared to last year. Last year was about 15%. This year, it will be approximately 20%. The majority of the revenue from advanced packaging is coming from logic devices, whereas the main contributors, by the way, for that business are the dimensional and chemical metrology portfolios, which I alluded to in the script. And we expect 2026 to grow -- to further grow in that business, definitely given the latest AI announcements that we heard of. Vedvati Shrotre: Understood. And if I may squeeze one last one in. On -- like I understand your positioning on DRAM side. And I think foundry logic, your positioning is very clear. Could you give us a sense of what it -- like your positioning in NAND cycle? What would you have to see for like maybe the NAND revenues to start exacting? Gabriel Waisman: So NAND is a bit muted still. I definitely hope that it will be growing probably towards the second half of next year. And we are well positioned in NAND as well. So our business, which is basically capacity driven, requires more investments on the capacity side that, as I mentioned, I hope would start at the second half of next year. Operator: The next question comes from Charles Shi with Needham. Yu Shi: Congrats on the good results. Maybe I'll start with the commentary on next year, mid-single-digit WFE, you outperformed that number second half weighted. But can you provide a little bit color on relative to second half '25, what's your best view on first half '26 in terms of your top line run rate, et cetera, and maybe some of the puts and takes between, let's say, foundry, logic and memory or China, non-China as much as you can at this point? Gabriel Waisman: Sure. Thank you, Charles. So first of all, we don't, as you know, provide guidance beyond the next quarter. So it would be difficult to drive into details. But I would mention that 2026 is driven by both memory growth and investments in advanced logic and advanced packaging. Our position across these segments is strong, and that would drive our growth relatively -- related to that. And we also invest a lot in market share gains in order to accelerate and fuel that momentum. In terms of China, I believe that the business that we see in the second half of the year or the second business that we already have in China is already normalized in terms of business levels. And we expect this trend to continue in the first half of next year. Beyond that, at this moment in China, our visibility is limited and the market is very dynamic, so we need to see how things evolve. Yu Shi: Got it. Maybe I quickly follow up on China. It sounds like first half '25 was pretty strong for you. Second half, it's normalized. China sounds like it's a little bit first half weighted for '25. And if I extrapolate what you said that normalization trend continues into first half '26, it sounds like China is probably a down year next year. Is that the right read? And if that's the case, what do you -- yes, sorry. Gabriel Waisman: Sorry for interrupting you, Charles. Not necessarily. So I mentioned that we have lower visibility for the second half as it's a very dynamic market. But we do hope that nominally, the business in China will remain solid. So it doesn't allude to any changes in the overall levels in China next year. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Gaby Waisman, Nova's President and CEO, for any closing remarks. Gabriel Waisman: Thank you, operator, and thank you all for joining our call today. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good morning, and welcome to the Vivid Seats Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Following management's prepared remarks, we will open the call for Q&A. I would now like to turn the call over to Kate Africk. Kate Africk: Good morning, and welcome to Vivid Seats' Third Quarter 2025 Earnings Conference Call. I am Kate Africk, Head of Investor Relations at Vivid Seats. This morning, we issued our third quarter financial results. The press release as well as supplemental earnings slides are available on the Investor Relations page of our website at investors.vividseats.com. During the course of today's call, we may make forward-looking statements within the meaning of federal securities laws. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially, including the risks and uncertainties described in our earnings press release, our most recent annual report on Form 10-K, our subsequent quarterly reports on Form 10-Q and our other filings with the SEC. On today's call, we will refer to adjusted EBITDA, which is a non-GAAP financial measure that provides useful information for investors. A reconciliation of this non-GAAP financial measure to its corresponding GAAP measure can be found in our earnings press release and supplemental earnings slides. This morning, we also announced a leadership transition that is effective today. Lawrence Fey, who has served as Chief Financial Officer since 2020, will succeed Stan Chia as Chief Executive Officer. Additionally, Ted Pickus, who has served as Chief Accounting Officer since 2022, has been appointed as Interim Chief Financial Officer until a successor is identified. Accordingly, Larry and Ted are joining me today on the call. With Larry's extensive history with Vivid Seats dating back to 2017, the Vivid Seats Board believes he is uniquely qualified to navigate the evolving industry environment and steer the company back to growth. Larry will share more detail on his vision for Vivid Seats next chapter today. And now I would like to turn the call over to Larry. Lawrence Fey: Good morning, everyone, and thank you for joining us today. First, I would like to discuss the leadership transition and express my gratitude to Stan for his leadership and service over the last 7 years. His accomplishments include successfully leading Vivid Seats through a global pandemic, bringing Vivid Seats to the public markets and launching key innovations such as the Vivid Seats Reward program, which provides a foundation on which we will continue to build as we deliver a unique and leading value proposition to our customers. I recognize the responsibility of this role and we'll look to take decisive action to reverse recent trends and build a resilient business well positioned for long-term success. The core pillars of our strategy start with the foundational advantages that have been in place at Vivid Seats for years and build from there. There is much work to be done, but the foundation to return to profitable growth is in place, and our path forward is clear. Vivid Seats has long been known for its leading tech capabilities, unique data and focus on efficiency. In recent years, as paid search has become more competitive and customer acquisition economics have become strained, Vivid Seats has increasingly invested in its app with a focus on building a loyal and recurring customer base. We are now increasing our focus and investment in delivering a leading value proposition to our customers. Alongside our loyalty program with rewards redeemable in the app, late in the third quarter, we launched our lowest price guarantee also in the app. We believe the combination of our lowest price guarantee and our loyalty program represents the most compelling value proposition in the industry, and we are already seeing positive responses from our customers. With our enhanced value proposition, we expect to see a growing number of app users and resulting transactions. Our app users return more often, convert at a higher rate and touch performance marketing channels less. Over time, as our volume increasingly moves into the app, our performance will be increasingly insulated from the heightened competitiveness we have seen in performance marketing channels in recent years. Further, we believe that information transparency will only increase as AI proliferates and impacts the way consumers interact with brands across the Internet. It will take time to build comprehensive awareness of our enhanced app value proposition, but we are confident we will disproportionately benefit as AI reshapes consumer discovery and decision-making as we match consumer demand with the most compelling value in the industry. One of our initial efforts to build awareness of our app value proposition is our recently renewed partnership with ESPN. With ESPN, we have launched a national marketing campaign on Disney streaming, which is reaching more than 127 million global subscribers across over 700 live sports events monthly. We are excited to see how fans respond to our new offering as awareness continues to build. We believe our investments in delivering a leading value proposition will drive order volume but reduce our take rates. Funding these investments in a sustainable manner will require a commitment to operating the most efficient platform in ticketing. We will focus on operating as a lean and agile organization enabled by powerful technology and unique data. We announced the cost reduction program last quarter, and we are now more than doubling our fixed cost reduction target from $25 million to $60 million. We have made substantial progress towards our updated target with savings spanning fixed marketing, G&A and stock-based compensation. Both these savings and our considerable reinvestment in our app value proposition are reflected in our initial 2026 guidance. Continuing with our theme of driving efficiency through clear focus, we executed our corporate simplification agreement, which included the termination of our tax receivable agreement and the collapse of our dual class share structure early in the fourth quarter. The corporate simplification will yield substantial immediate and ongoing savings. As part of the termination, we issued approximately 400,000 Class A shares to the former TRA parties. In return, we will avoid $6 million of cash TRA payments otherwise due in Q1 2026, while capturing up to $180 million of lifetime tax savings, subject to generating sufficient profitability. In addition, by simplifying our structure, we expect to save approximately $1 million per year from reduced financial reporting and compliance costs while also removing tax inefficiencies in our structure. At current levels of profitability, we anticipate our annual cash income taxes to be approximately $3 million. The savings between our cost reduction program and corporate simplification will create a more focused and agile organization, one that can invest strategically for growth while maintaining discipline and profitability. Next, I'll address trends in our third quarter results, which we believe validate our path forward and underpin our initial 2026 outlook, which Ted will provide. While private label remains under pressure, we are encouraged to see stabilization and early signs of momentum across our owned properties. Against the flat sequential industry backdrop, Vivid Seats and Vegas.com delivered sequential GOV growth, while the Vivid Seats app delivered double-digit sequential growth and returned to year-over-year GOV growth. This is a direct result of our ongoing investment in product development and our enhanced value proposition. As we look to the fourth quarter and into 2026, there are no quick fixes, but our priorities are clear. We are committed to improving our financial performance by leveraging Vivid Seats foundational advantages, including leading technology, unique data, best-in-class efficiency and continued investment into a unique and differentiated value proposition. Now I'll turn it to Ted to discuss the quarter and financial outlook in more detail. As we mentioned earlier, Ted, our Chief Accounting Officer, will take on the role of Interim Chief Financial Officer. Ted has been at Vivid Seats leading our accounting function for more than a decade. I have full confidence in Ted, and I'm glad to have him step into the interim CFO role as we manage our leadership transition. Ted Pickus: Thank you, Larry, and hello, everyone. I am honored to be with you today and to assume this role during a transformational time for the business. Turning to our results. In the third quarter, we delivered $618 million of marketplace GOV, $136 million of revenues and $5 million of adjusted EBITDA. These results reflect an intense competitive environment that impacted our private label business, which was also impacted by the loss of a large partner. We generated $618 million of marketplace GOV in Q3, which was down 29% year-over-year. Total marketplace orders were also down 29% with average order size flat. Looking at sequential trends compared to Q2 of this year, overall marketplace GOV was down 10% due to private label headwinds, while owned property GOV increased in a flat sequential industry environment. We generated $136 million of revenues in Q3, down 27% year-over-year. Our Q3 marketplace take rate was 17.0%, down from 17.5% in Q3 2024. We expect near-term take rates in the 16% range. Our third quarter adjusted EBITDA was $5 million, down substantially from the prior year due to lower volume, lower take rates and negative operating leverage. We expect improved operating performance as we enter 2026 with the full benefit of our recent cost reductions. Next, I'll address our 2026 initial outlook. With stabilizing owned property volumes, we expect 2026 marketplace GOV in the range of $2.2 billion to $2.6 billion. At the midpoint, this assumes Marketplace GOV roughly in line with our third quarter run rate. We intend to reinvest cost savings into our enhanced customer value proposition and as such, currently anticipate $30 million to $40 million of 2026 adjusted EBITDA. Our 2026 initial outlook assumes industry volumes are flat year-over-year as the core concert on sales season, which provides supply visibility for the coming year has yet to occur. We ended Q3 with $391 million of debt, $145 million of cash and net debt of $246 million. Against a flat industry environment, we saw working capital continue to consume cash, but at a substantially lower level than seen the first half of the year. I'll now hand it back to Larry for concluding remarks. Lawrence Fey: Thanks, Ted. Despite challenging year-over-year trends, the third quarter offered signs of stabilization, including sequential growth in owned property GOV, year-over-year growth in app GOV and substantial cost reduction progress. From here, diligent execution is crucial, but we believe our investment into our app value proposition provides a clear path to return to growth. With that, operator, let's open it up for questions. Operator: [Operator Instructions] Your first question comes from the line of Cameron Mansson-Perrone with Morgan Stanley. Cameron Mansson-Perrone: Ted, welcome to the call. I guess the first question is really just -- I'd like to hear a little bit more about what gives you confidence in issuing '26 guidance this early given the pressures that have existed in the business recently. I heard you on the stabilization front, but just a little bit more on what gives you kind of that increased visibility relative to the past, I think, would be helpful. And then if you could just kind of try and help contextualize what's reflected in the high and low end of the guide for next year with regard to competitive environment and expectations and any other gating factors around what would determine whether you shake out on the high or low end? Lawrence Fey: Yes. Cameron, yes, I think the you've heard us say in the past that we prefer to give guidance on our Q4 call once the Q4 on sale calendar has run its course as you'll have more industry visibility. And so the important caveat in the guidance we put forward is it presumes a flat year-over-year industry outlook. And I think to your question on what would govern the low end versus the high end, I would start with if the industry under-indexes to flat, that would push you towards the low end. If it over-indexes or grows, that would push you towards the higher end. We certainly saw the Live Nation commentary, which if you interpolate what they said, it feels like they're pointing towards another positive growth year in North America. So hopefully, there is some conservatism built in. We'll learn more over the coming months on exactly where the industry settles out, but try to put a baseline that we think is reasonably skewed to the cautious side of the spectrum on the industry performance. Why do we put guidance out, why do we have confidence? I'd point to a few elements. I think one, we obviously pulled 2025 guidance. So it's been a while since there's been a flag or a stake in the ground for folks to look at. You can see a number of changes playing out in Q3, where we talked about our cost reduction initiatives. We talked about some of our reinvestment in our value proposition and lots of puts and takes. And rather than having there be a vacuum where people are waiting in suspense for 4 months on what the net of all of those are, we wanted to distill it down to a target probably goes without saying if competition or competitive intensity reaches new highs, that will pressure. And if they abate, that will be a release valve relative to the range we put forward. But we've assumed essentially a broad continuation of the competitive intensity we've seen in the second half of 2025. Operator: Next question comes from the line of Dan Kurnos with Benchmark Company. Daniel Kurnos: Larry, I guess, maybe just to double-click on the leadership transition. Obviously, Stan had a lot of digital experience from his history. So I guess maybe why now make this move? If you could just give us some color on the thought process. And obviously, to be clear here, I think you're eminently qualified to lead the company, Larry. I just would be helpful to get sort of some of the thought process on the timing. And then in an agentic world, you talked about discovery with OpenAI. If you're going to push app, which is fine, everyone else is putting their app into OpenAI for discoverability. So I don't know what your thoughts are about that, given some of the puts and takes on demand gen and OpenAI potentially becoming the source of demand gen, but -- just help us think about your willingness to increase visibility via that channel and other ways that you might increase the visibility of the value prop? Lawrence Fey: Yes. Thanks, Dan. I'd start with the thanks to Stan, of course, we're sincere 7 years was a great run. I think it was just reaching a time for a shift and preparing the business for the efficiency push that we're embarking on in the near term. To the second question, I think you touched on a theme that is spot on. Yes, we're pushing on app. And I almost think of the customer universe as 2 buckets, right? There's the new customer acquisition and there's a competitive dynamic around that. And then there's the folks who have already done their research and made informed decisions around which marketplaces they buy from or which marketplaces they consider, and that generally occurs in the app. Where I think there could be a really interesting blurring of those lines or fusion of the 2 as we move forward. If one of the fundamental tenets of AI is increasing information synthesis, increasing information transparency as we increasingly place the best value proposition out into the ether. We then, of course, have an obligation to make sure that value proposition is digestible by these new AI platforms that are looking for all of the best information to synthesize and distill for customers. But you better have something that's compelling, right? If they do their job and put forward the best value proposition, you better be front of the line. And so that's where we're going with the app. I think in the near term, while we wait for the commerce portion of the AI disruption to fully arrive, we're going to continue focusing on retaining our customers in the app ecosystem. And then we think there's opportunity coming on that customer acquisition as the technology format evolves. Operator: Next question comes from the line of Maria Ripps with Canaccord Genuity. Maria Ripps: Larry and Ted, congrats on the transition. Can you maybe share a little bit more color on the competitive backdrop right now? Are you seeing any early signs that maybe some of the competitors in the space are starting to focus more on profitability? Lawrence Fey: Yes. Thanks, Maria. We've talked in the past a bit about ebbs and flows, and it can be a little dangerous to extrapolate short-term behavior and assume it continues indefinitely. But I would say, broadly aligning with, call it, changes in corporate status, we have seen a shift in competitive posture. It was a fairly methodical increase in share that we saw from StubHub over the last couple of years. It come in waves, but it kind of went one direction. And we've actually seen that reverse and roll over in September and October, where they're now down year-over-year on share. And I think that is directly tied to what we perceive as a shift in marketing aggressiveness. The magnitude, obviously, it was enough to reverse that trend, but it wasn't like a reversion to 2022 or 2023 levels. And we, of course, know that they reserve the right to change their mind and posture as we embark into 2026, but a notable change over the last, call it, 6 weeks to 8 weeks. Maria Ripps: Got it. That's very helpful. And then any early thoughts you can share sort of on quality of concert lineup in 2026? Lawrence Fey: Yes. We -- I'd say, continue to be looking to Live Nation for the prospective views on what's coming. I heard pretty positive commentary when I read the release, I think they touched on what clearly looks like positive North American growth, a skew towards larger venues. Thus far in the year, you get into these year-over-year comparisons where timing just varies slightly year-over-year. But we're in the midst of this year, Morgan Wallen just announced that I think will be one of the top tours of the year. We've seen several others. So at this point, I would say, other than week-to-week variance, it looks like the Live Nation commentary is flowing through in what we're seeing. Operator: Next question comes from the line of Ryan Sigdahl with Craig-Hallum. Ryan Sigdahl: In response to the FTC lawsuit, Ticketmaster shutting down TradeDesk for concerts. They're also limiting Ticketmaster accounts even further as it appears as they take more action on pricing. Curious your perspective on this. Does this present an opportunity for Vivid to take share on the POS side. But at the same time, I guess the negative would be how much contraction and negative do you see from a supply standpoint in the secondary ticketing? Lawrence Fey: Yes. Thanks, Ryan. I think you framed it properly in that any disruption to TradeDesk, I think, can only be a tailwind, and we think SkyBox will be waiting with open as with its best-in-class capabilities to support any customers who no longer have the full suite that they need to run their business and can only help our position. And then as you said, counterbalance, if there is additional pressure, I'd start from our fundamental view is that the vast majority of what drives this industry is fundamental financial well-functioning financial market, right, where you have artists and teams who are looking to diversify risk. You have artists and teams who are looking to offload risk well in advance of shows and that there is a healthy, vibrant financial instrument via the secondary market that facilitates and benefits all parties. To the extent folks are violating the rules of the game, we have always said this, we continue to say it, we can, should, will support anything and everything that needs to be done to ensure folks do play by the proper rules as defined by the artists and the primary ticketing platforms. To the extent there are folks that are -- I'm sure there are right, there's got to be a bad actor out there. To the extent those folks' behaviors are forced to modify, I think what will be unknown, right? And we'll find out, as you all find out, does that contract the secondary market? Or does it just change the form where you now have increased fragmentation where new smaller sellers fill in the gap and the overall market opportunity remains the same. So we'll keep a close eye on it. But I do think -- yes, there's a positive tailwind on TradeDesk, a potential headwind, but maybe not on the change to Ticketmaster policies. Ryan Sigdahl: Then just the other hot topic kind of from an industry standpoint, direct issuance. Vivid has a smaller DI type offering with college basketball crown. But curious what you think about the ambitions of some of your peers in the space on this model specifically? And then kind of to your point on rules of the game, I guess, contractually, et cetera, I guess, just your thoughts on direct issuance and the viability of doing that in an accelerated way going forward? And what that potentially means from a secondary marketplace standpoint if that further limits the supply of brokers play? Lawrence Fey: Yes. I think obviously, strategies are subject to change. And so just reacting to the way we have seen the direct issuance opportunity defined to date, maybe they change us. But to date, it's been primarily focused as we understand it, on unsold inventory. And so you can imagine regular season baseball games, less popular theater shows where you have well past the event going on sale substantial available inventory available from the primary. And if that gets piped directly into a secondary marketplace, that would represent incremental supply. I think the threshold question for the robustness of that opportunity would start with, is this a supply or demand-constrained industry? And does the fact that you took an event that already had a decent amount of supply and made more available, will that stimulate incremental demand? Or will it cannibalize the eyeballs that you were already getting on the site and to sell more, you still need to get additional eyeballs and spend the marketing dollars to bring them in. I think our viewpoint has been that generally, this is a demand-constrained exercise, not supply constrained in all but the most rarefied air, right? Like you could see Taylor Swift tickets really selling out, but most events, including World Series, Super Bowl, right? There are tickets available all the way up until the event starts even for the highest profile events. So I'd say we're a bit more muted on our belief of the impact that could have. But we certainly have heard that the ambitions are big, and so we'll keep a close eye. Operator: Next question comes from the line of Ralph Schackart with William Blair. Ralph Schackart: Larry, I just kind of want to circle back on sort of driving more awareness to the app and sort of the efforts there. I know you talked about having ESPN as a partner to do that, which is obviously a great partner to have there. But maybe you could just sort of provide a little bit more color how you drive more direct traffic here and build more awareness? And would you be contemplating potentially like a marketing campaign or other efforts to grow more awareness to go direct to the app? Lawrence Fey: Yes. Ralph, I think we're doing what I would call our brand marketing surge via ESPN. That is going to be concentrated in the near term kind of throughout Q4, which is peak sports season. I think this is an industry where there's been many attempts to do broad-based brand marketing, and it is challenging to prove compelling ROI from that. So I don't think we're going to reverse course and jump head first back into broad brand marketing. I think we're going to continue to focus on thoughtful different slices of, call it, more targeted performance-based metrics. One of the advantages we have foundational strengths we have is we've been one of the leading marketplaces for a long time. And as a result, we sold a lot of tickets to a lot of people, and we have a really robust existing user base, really robust CRM database. And so a lot of our effort has been increasing our personalization, improving the nature of our messaging. And now when we're delivering a message with a fundamentally improved value proposition, I think that leads to more engagement across that existing user base. And then continuing as people -- we acquire them on the web, making them immediately aware of what awaits -- if they trusted us enough to buy on the web, that's wonderful. And I think we have perks that would compel them to come back to the app and making sure that, that hyper addressable audience gets made fully aware of the proposition. Those are the 2 major buckets I think we'll be focusing on in the near term. Operator: Next question comes from the line of Steven McDermott with Bank of America. Steven McDermott: Just 2 quick ones. Firstly, for 2026, what World Cup assumptions are kind of built into that outlook? Lawrence Fey: Yes. We essentially have not assumed a meaningful impact from World Cup. I think that is primarily due to 2 things. One, there's not a lot of precedent that we can rely on, right? The U.S. World Cup in an era with online secondary ticketing has 0 precedent data points. When we look at the last 2 World Cups, they are in markets that we basically don't operate in, in Russia and Qatar. And so trying to strike a cautious tone given a lack of conviction beyond that. The second observation, I think it's fairly well documented, but we've seen FIFA be, let's say, quite aggressive in seeking to monetize, optimize their monetization of the event. I think it's safe to assume there will be incremental volume. We will benefit from it. But between those 2 factors, we've opted to essentially disregard it as we've contemplated our outlook for next year, and it would purely represent upside. Steven McDermott: Got it. Appreciate that color. And then my second question, just -- it sounds like you said StubHub pulled back on marketing spend a bit. Is it fair to say that the Q3 exit rate improved on a year-over-year basis? Lawrence Fey: Yes. I think it would be fair to say that over the course of Q3, we saw a shift in their behavior and a corresponding shift in volumes across marketplaces. Yes, that happened closer to the end of Q3 than the beginning. Operator: Next question comes from the line of Brad Erickson with RBC Capital Markets. Bradley Erickson: I just follow up on that last one, actually, Larry. When you say -- or when you look at kind of what's instructing the stabilization commentary on the owned property business, so you mentioned competitive intensity easing several times. Is that kind of the main driver? Any other drivers you'd call out there, either things in your control or other market forces? Lawrence Fey: Yes. I think the biggest one is -- so yes, the competitive landscape, of course, matters. But I'd say similar, if not equal, if not slightly more important in terms of what we've seen in the immediate term has been this value proposition push. And inherent in what we're trying to achieve, as we get more volume in our app, I think that is a more protected ecosystem, right? You can bid whatever you want for a Google Link. But if someone already has our app, already trust us is already looking at us. they will likely look at us. And if we have a structurally better offer, it doesn't matter who else is buying the top Google Link. And so there's -- you control your own destiny more on app. That's why we're pushing, right, reduce the surface area and exposure to competitive response. That's a long game play, right? You don't make that change and immediately have profound shift of volume from one channel to the other. But we have seen market increases in the volume that's moving into the app. And I think this is one of those like layer cake dynamics where every month that goes where you bring in a new cohort of customers who have done their research, seen the value prop, they're going to be fundamentally stickier. And over time, that will compound and build into something pretty exciting. Bradley Erickson: Got it. And then I appreciate the '26 guide and all you gave the EBITDA numbers. Any color you can give maybe on cash conversion relative to that EBITDA guide? Lawrence Fey: Yes. So I appreciate that question. Yes, I think if we look at our cash obligations moving forward, you have roughly $20 million of net interest expense. We'll have a bit less than $20 million of ex cap software. And then we mentioned in this release that pro forma for the TRA transaction, we'll have about $3 million of cash taxes, primarily from international operations. So you sum those up before you consider working capital, you have a roughly $40 million set of cash obligations. As we've kind of talked about quite a bit the last few quarters, when we're growing, working capital is a source when we're shrinking, it's a use of cash. And so I think at the epicenter of will cash balance grow next year is do you believe that we can sequentially grow GOV. I think it's reasonable to assume that take Q1 as we lap the private label losses that we saw in Q3, continue to lap those. The overall year-over-year GOV numbers will continue to be down. But if the sequential help because the balance sheet kind of remark to market every quarter is stable and growing, you can see working capital reverse course. And so the base case plan is at the midpoint or better of our guidance, we would expect to be cash generative next year. Operator: Next question comes from the line of Ben Black with Deutsche Bank. Unknown Analyst: This is [ Kunal ] for Ben. Quick one on the outlook, and you just talked about the cash flow consequences that we could see. One thing with regard to the assumption that underlie that. So are you assuming that the competitive intensity remains at the September, October levels in 2026? Or are you assuming that maybe things go back to what we had seen earlier in this year, and that is what determines the market share that you expect in '26? And then the second one would be with regard to the traffic that you are getting and the traffic that you have on your app. What is different from other providers that makes your value proposition so unique that people will not go anywhere else to shop? Lawrence Fey: Yes. So let me start with the app value prop because I think that's a really compelling one. I think we've talked about our loyalty program for a number of years. We continue to be on a journey to build awareness of that loyalty program. But those who find and use that program, I think, structurally buy more at a multiple of the typical user. And it -- even before the more recent changes to our value proposition, I think, resulted in kind of a clear best-in-class value prop. And then recently, what we've really pushed is base lower everyday pricing. And then we're continually innovating on what kind of inducements and incentives we can provide as customers move through their journey -- their lifetime journey with us. So we think if you create an experience where someone comes in and realizes that your pricing without paying consideration to any incentives, without paying consideration to loyalty are the best in the industry relative to our largest competitors, you have a good experience, right? You get great customer service, you enjoy the way out of the site. And then subsequent to that, you get thoughtful recommendations, you get incentives and inducements, you sign up for loyalty and that price advantage becomes even more significant. That's a really compelling lifetime experience. Now is that to say that others can't offer various elements of that. I don't think there's anything philosophically that would prevent folks from doing it. I think it's an economic question, right? If you're spending significant amounts bidding for the top keywords on search, can you do that and offer these lower price points? If you have very large partnership obligations, can you do those and offer these inducements and incentives. So we'll see, right? I think our belief is that we can operate the leanest platform, and that uniquely enables us to sustainably deliver a best-in-class value prop and others will need to respond as they see fit. As it relates to the first question on the competitive environment contemplated, it's difficult to be precise on this. we certainly have seen that it's been kind of an up into the right level of intensity over the last 2 years, and we are -- we want to make sure we don't just forget that. We also want to reflect that we have seen a change. And so I would characterize the midpoint as, call it, something in between what we've seen in September and October and what we saw at the worst of it kind of late Q1, early Q2. And so a little bit of reversion from the run rate, but not all the way back to the most extreme point that we saw. Operator: Next question comes from the line of Thomas Forte with Maxim Group. Thomas Forte: So first off, congratulations, Larry and Ted, on the new opportunities and best wishes to Stan for his future endeavors. One question, one follow-up. So Larry, are you seeing any changes in consumer behavior when it comes to the secondary ticket market? For example, when you have a game 7 and a playoff series, are they still willing to pay premium prices for the experience as they have in the past? Lawrence Fey: Yes. Tom, I would say, as a broad aggregate statement, continues to feel like live events are a central piece of what consumers want to spend their money on. We had a tough World Series comp, right? You can't really get better than the Yankees and Dodgers. And so I think World Series volumes and average order size were down relative to that. But when we look at the World Series relative to every year post-COVID other than the Yankees and Dodgers, this was the second best year. And so I think healthy, robust demand, we're seeing that across a lot of high-profile events. I think we alluded to this last quarter. To the extent we have seen softness, it's more been on the lower end of the market. And I think we actually see that manifest in Vegas more than in our core business. The call it, weekday lower AOS shows have been feeling, I think, some of this much talked about consumer softness. Thomas Forte: Excellent. And then I might be a little early in this one. But can you talk about your capital allocation priorities, including reinvesting in the business, international expansion, strategic M&A and buybacks? Lawrence Fey: Yes. I think for now, it's reasonable to assume that we won't be looking to complete acquisitive M&A that would be, call it, adjacencies. I think we've long believed that there could be a compelling consolidation in the space. And so we would be eager participants in that. But TAM expansion, I think we've got to batten the hatches and focus on the core business. Given the performance on both EBITDA and cash flow this year, I think we'll display a lot of prudence on any cash leaving the system, including share repurchases in the near term. I think we think that there's a very compelling value at these prices, but step one is batten the hatches and assure that we have all of the capital we need to continue investing in all the initiatives that we see really compelling ROIs against such as international. And so we'll keep doing the defend the core. And then once we have a little more of a proven track record of stabilization, return to growth, return to cash, we can open up the aperture a bit. Operator: Next question comes from the line of Andrew Marok with Raymond James. Andrew Marok: Maybe on the international part there, I guess, what signals are you seeing in kind of that what you call the core international business that give you the impetus to continue investing there as opposed to maybe rationalizing some incremental cost savings out of that business? Lawrence Fey: Yes. Andrew, I'd start with -- we've been pleasantly surprised at the quickness with which we've been able to bring the international business to be contribution margin positive. So we are there today already. I think we've had -- just to refresh on the context, Viagogo has a very substantial market position in Europe. And as a result, when we have shown up in pockets where we have fully competitive supply, and I would say that has initially been areas where it's either NFL comes to Europe, U.S. artists go on global tours or other events where U.S. sellers have meaningful positions. We immediately have fully competitive supply. When we have competed for traffic and eyeballs on those areas with competitive supply and competitive pricing, we have seen abundant success. The task ahead then is to continue to add pockets across various countries, especially with a focus on local events where we can have that fully competitive supply and pricing. And from what we've seen, the ability to market profitably will follow quickly once you have that supply in place. That's some hand-to-hand knife fighting to get to that point. And so that's the journey we're on from here. Operator: There are no further questions at this time. That concludes today's call. Thank you all for joining. You may now disconnect.