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Operator: Good morning, and welcome to the Limbach Holdings Third Quarter 2025 Earnings Conference Call. [Operator Instructions] I will now turn the conference over to your host, Lisa Fortuna of Financial Profiles. You may proceed. Lisa Fortuna: Good morning, and thank you for joining us today to discuss Limbach Holdings' financial results for the third quarter of 2025. Yesterday, Limbach issued its earnings release and filed its Form 10-Q for the period ended September 30, 2025. Both documents as well as an updated investor presentation are available on the Investor Relations section of the company's website at limbachinc.com. Management may refer to select slides during today's call and encourages investors to review the presentation in its entirety. On today's call are Michael McCann, President and Chief Executive Officer; and Jayme Brooks, Executive Vice President and Chief Financial Officer. We will begin with prepared remarks and then open the call to questions. Before we begin, I would like to remind you that today's comments will include forward-looking statements under federal securities laws. Forward-looking statements are identified by words such as will, be, intend, believe, expect, anticipate, or other comparable words and phrases. Statements that are not historical facts such as those about expected financial performance are also forward-looking statements. Actual results may differ materially from those contemplated by such forward-looking statements. A discussion of the factors that could cause a material difference in the company's results compared to these forward-looking statements is contained in Limbach's SEC filings, including reports on Form 10-K and 10-Q. Please note that on today's call, we will be referring to non-GAAP measures. You can find the reconciliation of these non-GAAP measures to the most directly comparable GAAP measures in our third quarter 2025 earnings release and in our investor presentation, both of which can be found on Limbach's Investor Relations website and have been furnished in the Form 8-K filed with the SEC. With that, I'll now turn the call over to President and CEO, Mike McCann. Michael McCann: Good morning, and welcome, everyone. Thank you for joining us today. At Limbach, we play a critical role as an enterprise provider of building system solutions, ensuring the reliability and continuity of mission-critical infrastructure across our customers' facilities. We're focused on industries with long-term durable demand where facility assets simply cannot fail. We believe our distinct capabilities position us to deliver sustained growth and attractive risk-adjusted returns. As a reminder, our growth strategy is underpinned by three core pillars. The first pillar is scaling our owner-direct relationships or ODR business. Here, we're focused on working in partnership with owners of mission-critical facilities in existing building environments. This work consists mostly of routine maintenance, emergency repairs, small capital projects, and larger retrofit and renovation projects. Some of this work is contractual and some is predictable given the age and complexity of mechanical systems. The second pillar is enhancing profitability and increasing wallet share through the introduction of expanded product and service offerings. We have strong and growing relationships with our owner-direct customers built on daily performance, trust and our vast knowledge of their critical building systems. As a result, there is a win-win opportunity for us to expand our service offerings to these customers by introducing new capabilities to solve a greater breadth of issues for owners. As our capability expand over time, we can deliver more value to both the owner and Limbach. Unlike traditional E&C firms that rely on reactive bidding in response to a project, we're seeing these facilities every day providing solutions. By working directly with owners, we have a better grasp of risk and value. In order to further leverage these relationships, we're formalizing a scalable structure by building a proactive sales team that positions Limbach as a building system solutions provider. The third pillar is strategic M&A aimed at extending the reach of the Limbach brand, strengthening our market presence and expanding our capabilities. Through targeted acquisitions, we seek to diversify our vertical market exposure and broaden our geographic footprint while adding new products and offerings that align well with our ODR value proposition. Over the past couple of months, we received a number of questions from investors who want to better understand our various revenue streams, particularly in the ODR segment. So let me walk through the ODR business and break down the sources of our revenue. There are three quick burning revenue streams, maintenance contracts, work orders, and time and material or T&M work. Maintenance contracts generate predictable recurring revenues that are usually smaller in nature, but which have strong margins. Our maintenance contracts run 1 to 3 years in length prior to renewal and are built around routine service for specific equipment at customer sites. Work orders and T&M work often results from problems identified during scheduled maintenance or for emergency repairs or opportunistic upgrades of system components. In some parts of the market, this is referred to as break-fix work. Any one individual work order may not be predictable, but in a large complex facility, there's generally an estimable amount of this kind of work in any given year. It's usually quick burning and completed an on-demand basis or as directed basis. It can be priced based on labor rates and material markups that are prenegotiated with customers and anticipating -- anticipation of needing to act fast when the work happens or a small fixed price jobs less than $10,000. For example, large industrial customers usually schedule seasonable shutdowns when their facility reduces production and output of repairs and maintenance. This provides us the opportunity to execute a high volume of this type of small work in a short period of time. Because T&M work is performed on what's essentially a cost-plus basis, the risk profile is different than, say, a large fixed price project. Taken together, all these work streams account for approximately 1/3 of the ODR revenue for year-to-date 2025. Irrespective of the specific structure of the revenue, when executing this kind of work, Limbach most often becomes an extension of the facility staff regardless of the contractual relationship. Fixed-price projects greater than $10,000 in our ODR segment can range from quick burning work that is booked and executed in the same month or quarter to projects that typically last less than a year. They're usually performed within existing facilities are typically tied in some way to an existing customer relationship and often a maintenance and service relationship. This means we're operating in an environment where we know the systems, the sites and the customers. This preexisting knowledge reduces uncertainty and enhances our ability to manage outcomes. As a result, the risk profile of these ODR projects is very different than GCR projects. Additionally, the average ODR project size is approximately $245,000 as compared to the average GCR project size of approximately $2.9 million. Both of those are year-to-date 2025 data points. This ODR project work accounts for approximately 2/3 of our ODR revenue. So at a high level, our intentional pivot towards owner-direct relationship has reshaped our revenue mix to become a more diversified and lower risk with more margin consistency. We believe this mix should provide a greater resilience through economic cycles and reflects our focus on stability, predictability, and long-term value creation. On a consolidated basis, ODR revenue as a percentage of total revenue has steadily increased since 2019. We began to shift our strategy. ODR represents [ 76.6% ] of total revenue in the third quarter of 2025 and 74.1% on a year-to-date basis, in line with our targeted goal between 70% to 80% for the year. Going forward, the strategy continues to be focused on ODR growth and a reduction in GCR revenue. Keeping in mind, businesses we acquired at the time of acquisition typically do not have an evolved ODR strategy as Limbach. However, whether we're speaking about an acquired business or a legacy business, this strategy is driving margin expansion and earnings growth over time, while we -- while also, we believe reducing our overall risk profile. Turning to backlog. The strategic shift from GCR to ODR means that a larger percentage of our revenue is now generated from quick burning shorter-term projects that can be booked and completed within the same quarter, and therefore, it's not captured in backlog at quarter end. As a result, backlog alone is no longer as predictable, a leading indicator of future revenue as it was in 2018 or even 2022 with a heavy GCR focus, which is typical for E&C companies. Occasionally, we will book projects with building owners that span multiple quarters. This work is captured in the backlog. However, it's a smaller portion of the overall revenue mix and it can experience quarter-to-quarter fluctuations. So today, looking only at backlog, we'll miss a large percentage of our current revenue streams. Earlier I described our work order and T&M revenue streams and highlighted the industrial shutdown work we engage in. Most of these revenue streams never get captured and included in the quarterly backlog number, and they represent a far larger number than they did several years ago. Instead of the large high-risk multiyear projects that were a core element of our legacy business model, we're now focused on building a diversified business with multiple revenue streams and what we think is durable demand. Selective M&A remains a cornerstone of our growth strategy, enabling us to expand both our geographic footprint and deepen market share within existing regions and to expand our product and service offerings. Over the last couple of years, our focus has been broadening on our footprint in ways that enhance diversity and position us to serve national customers. Our approach has always been conservative, and we've remained disciplined and selective in what we pursue even when the M&A market has gotten overheated. To date, we've acquired six high-quality cash flow generating businesses at fair values and have used risk-mitigating structures where possible. We believe the Limbach brand and our unique business model positions us to engage with great companies that over time, we can reposition to align with our owner-focused vision. After closing, our goal is to improve margins further by implementing our value creation processes. Our main focus in every deal is to expand the quality of gross profit through benchmarking, building a proactive sales team and leveraging operational standards, using the same tools that transformed our business units over the last 6 years and led to much higher margins at lower risk. We believe we can expect better results at acquired companies than what we underwrote at the time of the closing of these transactions. At Pioneer Power, our most recent acquisition, we're actively executing the first phase of our value creation strategy. During diligence, we identified improving Pioneer Power's lower EBITDA and gross margins as a great opportunity for the intermediate term. We are now transitioning Pioneer Power to Limbach's accounting system and operating systems. Once complete, we can start to focus on improving the quality of gross profit and providing access to other parts of the Limbach operating platform. We've got a talented team in the Twin Cities. We want to make sure that we deploy all the tools at our disposal to support them and to allow the business unit to flourish. We evaluate a large volume of acquisition opportunities each year and intentionally walk away from the majority of them. Under my leadership, we will never buy a business just to do a deal. Our track record reflects disciplined underwriting, strategic fit and a focus on asymmetrical returns. There is a meaningful upside to our company if we're right and limited downside if we're wrong. There are times we lose competitors willing to pay higher multiples, and we're perfectly comfortable with that. Next, I'll provide an overview of the environment in our core vertical markets. Healthcare has long been one of our strongest, most strategic end markets across all operating regions. Given the mission-critical nature of the healthcare facilities, customers can defer repairs briefly, but delays in capital spending rarely extend beyond a single quarter. While some customers experienced temporary delays during the summer months in funding both operating and capital expenditures, we're now seeing spending patterns normalize as the year progresses. Our sales teams have engaged with core customers and emphasize the importance of long-term planning. Increasingly, we're hearing that cost certainty is more important to our customers than simply achieving the lowest cost. This can be achieved by implementing proactive programs, which help avoid reactionary spending and minimize risk to business operations caused by building system downtime. On our latest earnings call, we shared that a national healthcare owner engaged us to conduct facility assessments across 20 locations. In Q3, this initiative has already translated into $12 million in capital projects at four sites. We'll serve as a design builder for these MEP infrastructure projects, three of which are outside our current geographic footprint. For those out-of-market projects, we'll lead budgeting, design and procurement and utilize a network of subcontractor partners where necessary. In industrial manufacturing markets, our customers continue to execute seasonal shutdowns and facility upgrades in order to optimize the production of their plants and facilities. During the quarter, both Pioneer Power and Consolidated Mechanical benefit from this type of activity, which is a core element of their local business models. In the data center market, Limbach remains focused on supporting hyperscale operators through existing building projects and specialized services, primarily in the Columbus, Ohio market. In Q3, we provided specialty fabrication services to one of our customers, enabling on-site contractors to concentrate on their core workloads while we offered supplemental support. That arrangement provided Limbach with what we think is the optimal balance of risk return and resource allocation. While our current footprint and risk profile limits the scale of data center work, we see meaningful growth potential through our national sales efforts and future geographic expansion through strategic acquisitions. In the life science and higher education market, some of our higher education clients have adopted a cautious approach to spending during ongoing policy uncertainty in Washington, D.C. While the need for our services remains essential to maintaining mission-critical facilities, many temporary pause capital projects. Encouragingly, these clients have begun communicating anticipated spending needs for the coming year, and we are proactively aligning the resources in preparation for ramp-up. One major client has already requested full-time technician support beginning in January. In the culture and entertainment vertical, we continue to see consistent spending from our key customers. Our recent involvement in capital planning discussions provided valuable insight into some clients' 2026 budgets. Notably, our largest customer in this segment has shared plans for significantly expanding capital and operating budgets next year. They've invited us to review their respective project list and provide input on the work we'd like to pursue, allowing us to proactive plan and allocate resources for 2026. Next, I'll provide an update on sales and marketing initiatives. For the past 3 years, we've made deliberate investments in building our sales team, which has resulted in a higher SG&A relative to many of our E&C peers. Our training efforts are focused on equipping the team to anticipate owner challenges and craft solutions that are difficult to commoditize. We believe this investment will soon begin to yield measured results, both by leveraging SG&A more effectively and by enhancing the quality and consistency of gross profit. As we head into Q4, our priority is to deepen sales training to ensure a strong start to 2026. In many cases, we're not competing against local contractors. Instead, we're working directly for owners in a proactive capacity, helping them anticipate issues and plan their budgets accordingly. A recent example from Florida illustrates this approach well. Over the past 2 years, we've supported a $25 billion annual revenue healthcare customer with emergency repairs and small capital upgrades. During a routine inspection of the main cooling feed, our on-site account manager identified signs of deterioration. We conducted non-destructive testing and the piping was on the verge of failure. In response, we developed a proposal that clearly outlined the ROI and presented it to the facility manager who was then escalated to the CFO and the Chief Medical Officer. In Q3, the project was funded and we were awarded Phase 1 of the repair. This is a prime example of a capital project where we weren't competing for the work. Instead, we earned it by identifying the issue early and presenting a compelling data back justification for the investment. One of our key differentiators is our ability to offer professional services, including MEP engineering, facility assessments, program management and commissioning. These services are particularly attractive to national customers who can leverage our domain experience even in markets where we might not have field execution capabilities. These services, along with program management are a key driver of margin expansion. During the quarter, we had one of our national healthcare customers engage us to analyze a hospital in New Mexico, both from a cost and engineering perspective as they're considering making a substantial investment in the facility. This initial research has the potential to become a design build infrastructure project. We find that customers appreciate our ability to provide an engineered solution that we can also build. While currently, our professional service resources are dedicated to national healthcare owners, in the future, we're looking to expand these capabilities into our data center and industrial manufacturing vertical markets. As we broaden our services portfolio, which includes the expansion of our professional services and solutions-based selling, we see a path to achieving long-term gross margins in the 35% to 40% range, driven by two key dynamics: First, our ability to deepen customer relationships by shifting from reactive transactional sales to proactive consultative solution sales. This approach enables us to build long-term operating and capital programs that are tailored to solving our customers' needs rather than competing solely on price. Second, our ability to bundle offerings creates margin layering opportunities. For example, an infrastructure project may include a rental component, allowing us to mark up both individual elements and the overall project cost. These strategies position us well to deliver sustainable growth at attractive margins. Moving to guidance. We are reaffirming our 2025 guidance of total revenue in the range of $650 million to $680 million and adjusted EBITDA of $80 million to $86 million. Of note, we have made some updates to our underlying assumptions used to model 2025 guidance to better reflect current market conditions, project timing, and operational performance trends. These updates influence our outlook and are incorporated into the public issued guidance ranges for total revenue and adjusted EBITDA. As I mentioned earlier, we are on track for total ODR revenue to be 70% to 80% of total revenue. Total ODR revenue growth is expected to be 40% to 50% with ODR organic revenue growth of 20% to 25% Total organic revenue growth is expected in the range of 7% to 10% from 10% to 15% previously discussed, as we originally anticipated a more positive mix shift towards ODR and GCR. Pioneer Power's revenue performance this quarter exceeded our initial expectations. While Pioneer Power's current margin profile differs from Limbach's consolidated performance, we're actively integrating Pioneer into Limbach's platform, and we have a path to implement operational and commercial enhancements that we expect to expand margins over time. Because of the higher revenue contribution of Pioneer, total gross margin is expected to be 25.5% to 26.5% from 28% to 29%. Additionally, SG&A as a percentage of total revenue is expected to be between 15% to 17% from 18% to 19%, primarily due to the higher revenue contribution. Now I'll turn it over to Jayme to walk through the financials. Jayme Brooks: Our Form 10-Q and earnings press release filed yesterday provide comprehensive details of our financial results, so I will focus on the highlights for the third quarter. All comparisons are third quarter 2025 versus third quarter 2024, unless otherwise noted. We generated total revenue of $184.6 million compared to $133.9 million in 2024. Total revenue growth was 37.8%, while ODR revenue grew 52% to $141.4 million. Of the total ODR revenue growth of 52%, 39.8% was from acquisitions and 12.2% was organic. GCR revenue increased 5.6% to $43.2 million, of which 25.1% was growth from acquisitions, offset by an organic revenue decrease of 19.5%, which is as designed as we continue our mix shift towards ODR. ODR revenue accounted for 76.6% of total revenue for the third quarter, up from 69.4% in Q3 2024. Total gross profit for the quarter increased 23.7% from $36.1 million to $44.7 million, reflecting the ongoing growth of our ODR segment. Total gross margin on a consolidated basis for the quarter was 24.2%, down from 27% in 2024, driven by the lower gross margin profile of Pioneer Power revenue. Our strategy with acquisitions is focused on improving the acquired company's gross margin to align with our broader operating model over time. ODR gross profit comprised approximately 80% of the total gross profit dollars or $35.7 million. ODR gross profit increased $6 million or 20.3%, driven by higher sales volume, partially offset by lower ODR segment margins of 25.2% compared to 31.9% in the year ago period. The decrease in segment margin was primarily attributable to Pioneer Power's lower gross margin profile. GCR gross profit increased $2.5 million or 39.3% due to higher margins of 20.8% compared to 15.8%, driven by our ongoing focus on higher quality projects. SG&A expense for the third quarter was $28.3 million, an increase of approximately 19.3% from $23.7 million. This increase includes SG&A associated with Pioneer Power, Kent Island and Consolidated Mechanical, where Kent Island was part of the company for only 1 month in the third quarter last year and Pioneer and Consolidated Mechanical were not part of the company during the entire of the third quarter last year. As a percentage of revenue, SG&A expense decreased 15.3% as compared to 17.7%, primarily due to the increased revenue in the third quarter of 2025 provided by Pioneer Power. Adjusted EBITDA for the quarter was $21.8 million, up 25.6% from $17.3 million in Q3 '24. Adjusted EBITDA margin was 11.8% compared to 12.9% in Q3 last year. Net income for the quarter increased 17.4% from $7.5 million to $8.8 million, and earnings per diluted share grew 17.7% from $0.62 to $0.73. Adjusted net income grew 16.4% from $10.9 million to $12.7 million and adjusted earnings per diluted share grew 15.4% from $0.91 to $1.05. Turning to cash flow. Our operating cash inflow during the third quarter was $13.3 million compared to $4.9 million during the third quarter last year, primarily due to the timing of accrued expenses, offset by the timing of billings that impacted changes in working capital. Free cash flow, defined as cash flow from operating activities, excluding changes in working capital, minus capital expenditures, excluding our investment in additional rental equipment, was $17.9 million in the third quarter compared to $13 million in Q3 last year, representing a $4.8 million increase. The free cash flow conversion of adjusted EBITDA for the quarter was 82% versus 75.3% last year. For full year 2025, we currently continue to target a free cash flow conversion rate of at least 75% and expect CapEx to have a run rate of approximately $3 million. This amount excludes an additional investment of $3.5 million in rental equipment for 2025, of which $2.1 million occurred in the first 9 months of the year. Turning to our balance sheet. As of September 30, we had $9.8 million in cash and cash equivalents and total debt of $61.9 million, which includes $34.5 million borrowed on our revolving credit facility, of which $10 million is at a hedge rate of an applicable margin plus 3.12%. As a reminder, at the end of June, we expanded our revolving credit facility from $50 million to $100 million. On July 1, we used a combination of cash and an additional drawdown of approximately $40 million to fund the Pioneer Power acquisition. During the quarter, we paid down the revolving credit facility $17.3 million. And as of September 30, our total liquidity, defined as cash and availability on our revolving credit facility is $70.3 million. Additionally, we intend to deploy free cash flow to continue to reduce our borrowings under the revolving credit facility. With this expanded facility and our expected cash generation from the business, we believe our balance sheet remains strong, and we believe we are well-positioned to support our continued growth initiatives and strategic M&A transactions. That concludes our prepared remarks. I'll now ask the operator to begin Q&A. Operator: [Operator Instructions] Our first question comes from the line of Chris Moore with CJS Securities. Christopher Moore: So it looks like $47.3 million of Q3 revenue was acquisition-related, $37 million of that ODR, $10.3 million GCR. Can you give us a sense in terms of how much revenue Pioneer contributed to that $47 million and the split between ODR and GCR within Pioneer? Michael McCann: Yes. The Pioneer Power, they continue to produce, I think, even better than we thought they would produce. So we're thinking by year-end, the contribution for the second half of 2025 is closer to actually $60 million, heavily weighted from an owner direct side as well, too. And I think a lot of that strong contribution is from the Industrial segment as well, too, some shutdown work, strong customers and brand, which is always nice to validate after we've had the acquisition as well, too. I think the other thing, too, even from a margin perspective that we're really looking forward to from a Pioneer perspective is the opportunity. We see a lot of good solid foundation from a Pioneer Power perspective. But at the same time, I think as we've -- right now, we're in the process of transitioning their finance and operating systems, but we already see signs of our ability to not only benchmark their gross profit, but to look for opportunities as well, too. Christopher Moore: Got it. So the $60 million you're talking about for the second half, it looks like the bulk of that is in ODR. Am I looking at that correctly? Michael McCann: Yes. Yes, you are. Christopher Moore: Okay. And so just -- I got it that the gross margins are -- should be coming up there. Why are they -- within their ODR segment, why are they lower at this point in time? Do they do different work for clients? Are they focused on a different vertical? Just any thoughts there? Michael McCann: Yes, it's very interesting. We've seen -- one of the main opportunities we look at with all their acquisitions is increase of margin. So this is the common playbook that we see. And a lot of times, it comes down to they run a really good business. They have relationships. And it's a matter of understanding benchmarking as much as anything now that we've got -- even from an industrial base or even from other contracts that we purchased, we always take a look at it from a margin perspective. A lot of times, that's eye-opening as well, too. I think the other piece of it, too, is how they go to market. They're going to market from a branding reputation perspective. But one of the key elements that we add to is a proactive sales team. And a lot of times, that makes a difference. So at the end of the day, it's a matter of taking great customer relationships and a brand, understanding there's 4 or 5 triggers that allow us to expand margins over time. So even -- and we've looked at it not just from Pioneer Power. Pioneer Power obviously is a bigger contributor. But even from the other acquisitions, it's always the same elements over time. It takes time, but I would say it's still the same playbook, and we see lots of opportunity. Christopher Moore: Got it. Very helpful. Maybe just the last one. Just SG&A as a percentage of revenue, 15.3% versus 18.7% in Q2. The target range is coming down. Is it reasonable to think that SG&A as a percentage of revenue would tick up a bit in '26 versus the 15% to 17% that we're talking about in '25? Michael McCann: Yes. The big piece of that SG&A reduction was due to the different profile from Pioneer of lower gross profit, but also lower of SG&A as well, too. There's some investments that we're going to need to make going into 2026. And that's not only from a Pioneer and other acquisitions, but also from an overall business as well, too. Jayme, anything you want to comment on that? Jayme Brooks: Yes, because part of it to get -- I mean, we have a lower rate this period for the fiscal year. But going into next year, too, as Mike said, looking at specifically around Pioneer that proactive sales force piece of it. So we've not given the guidance yet for the next year. Operator: Our next question comes from the line of Brian Brophy with Stifel. Brian Brophy: I appreciate all the additional disclosure here. When I try to, I guess, back out PPI from ODR, it looks like gross margins kind of on the core business were down a little bit from a year ago. Is that correct? And can you give us, I guess, a sense of the magnitude and what the driver was? Michael McCann: From a margin perspective, I'll let Jayme answer from the financial exact number perspective. But our margins do end up fluctuating from a quarter-to-quarter basis. And I think it just depends on the mix of work that may be within the quarter. And one thing that you pointed out even as we mentioned in the script, is that combination of 1/3, 2/3 essentially goes through the business as well, too, where 1/3 is that quick burning work and 2/3 of the owner direct revenue is fixed price projects that are of average size year-to-date of $245,000. So at the end of the day, nothing different from -- it's more of that dynamic of the quarter-to-quarter mix of whether it's that quick burning or it's fixed-price projects. Jayme Brooks: Yes, I was just going to reiterate that. Yes, definitely in line -- it will fluctuate quarter-to-quarter based on the mix, and it's really the impact of the PPI margin for this quarter. Brian Brophy: Okay. And then can you give us a sense on ODR organic growth in the first half of the year? I guess the 20% to 25% guidance for 2025 seems to imply an acceleration in the fourth quarter. I just want to understand if that is accurate and what's driving that acceleration? Michael McCann: Yes. Year-to-date, we're 14.4% organic ODR, and we've talked about a range of 20% to 25% for a full year. So that does imply some acceleration. A couple of things that we're really looking at even from a Q4 perspective, continuing quick burning work from a revenue perspective, budgets that need to be spent by year-end. A lot of people have delayed that OpEx spend and they're in a position right now where they have to spend those dollars, small projects that are churning. And I think that's also a result of that sales team. The last 3 years, we've invested in the sales team. The recent sales team investment that we hired in Q4 and early Q1, it's been about 9 or 12 months. We've been in position with customers, and that allows us to give visibility kind of looking into Q4 from that perspective. Brian Brophy: Okay. That's very helpful. And then in your opening comments, you mentioned the $12 million of capital projects that were awarded from this facility assessment award that you talked about last quarter. Do you anticipate that potentially driving further awards? Or do you think that's kind of the extent of the opportunity and additional follow-on awards from these facility assessments? Michael McCann: Yes. This is really exciting. So a couple of things that we've learned through our evolution. A lot of times on local relationships, the relationships will start with a maintenance project or really quick turning work. On the national side of things, we really started with healthcare. We're thinking about data centers and industrial as we kind of expand going forward. A lot of times, that work starts with professional services. Facility assessment, engineering, it's a repositioning of that ultimate entry point. And those customers are very much from a cost certainty, quality, consistency type perspective. So we've got a lot of these national relationships that we've started to. And they typically do start with that facility assessment ultimately, and then we come up with a pro forma. So that particular opportunity, those 20 assessments turned into $12 million of projects over four different sites, three of which were outside of a geography, that's in. So I think I look going forward, we're excited about the opportunity for multiple customers from multiple assessments of that being kind of a runway for us to have another avenue of work that comes in. I think another interesting thing as well, too, is it's kind of we're going to be a cross-section of having those local maintenance and service type agreements as quick project agreements as well as kind of -- as well as the national relationships. And the two of those meeting together are also a big opportunity for us as well, too. Brian Brophy: Appreciate the color there. Last one for me. Past 3 years, you've talked about hiring about 40 salespeople a year. Curious how you're thinking about investing in the sales staff this year relative to kind of the prior pace. Michael McCann: Yes. So it's interesting. I think we're definitely looking at -- as we go into every year like we've done in the last 3 years from a sales staff perspective. I think we've made a lot of hires over about 120 hires over that period of time. I think we're continuing to make sure that we're supporting our sales staff. I think that's going to be a big piece of next year from a sales enablement perspective as well, too. What resources can we give them to make them successful? How can we connect dots for them? I think that will be a big focus going into next year as well, too. So it's almost as much sales enablement next year as much as traditional sales staff. We also are looking forward to production as well, too. It takes a long time to get sales staff up and running. But whether it's professional services, whether it's data analysis, whether it's financial analysis that we do for customers, those are the sort of things going into next year that we're really excited to make sure that we're making our sales staff as successful as possible. Operator: Our next question comes from the line of Rob Brown with Lake Street Capital. Robert Brown: Congrats on the progress. Kind of back to the organic growth, how do you think about the longer-term organic growth? It was the guidance tweaked it down a little bit this quarter. But what do you sort of think of as the long-term organic growth and what needs to happen to kind of get there? Michael McCann: Yes. So from an organic growth perspective, and of course, that -- it's what we're doing from a GCR perspective, but also from an owner-direct perspective. So let me touch on GCR real quick. Our goal is to be as selective as possible. So sometimes there will be periods where GCR declines like in this period. And that's a result of being super diligent to quality of work. And we're going to continue to push towards owner direct and be very opportunistic from that perspective. From an owner-direct side of things, we're building a long-term sales team, and we're building a long-term model to have success over multiple quarters and multiple years as well, too. So we haven't given a target out beyond this year. We hope that the insight of the 20% to 25% owner-direct organic will provide some insight to investors. But we're investing for the future. I will say that as well, too. Robert Brown: Okay. And then on kind of the opportunity for margin improvement overall, and I guess at Pioneer, how -- what's sort of the time line of that? And maybe what's -- can you get gross margins back to sort of where they've been? Is that the goal? Michael McCann: Yes. For Pioneer specifically, a lot of the work that we've done is transitioning to the accounting and operating system, which is important to us. It's not always the most exciting, but it's really important because it allows us to have visibility and to get on a common platform. So that first phase -- we talked about that first phase, including structure and gross profit benchmarking can almost take almost up to a year. But that doesn't mean we're not doing things along the way. And I think the first thing that we look at is the gross profit benchmarking. Is there opportunity? Is there a low-hanging fruit? There has been on the other deals. We can't see why this wouldn't be any different. But I think as we look into next year, definitely from an opportunity from that perspective as well, too. I think from an overall business, it's a matter of our ability to sell in a proactive nature. We've been -- we've had great success over the last couple of years of working with OpEx type work, understanding what customers' needs are. And I'm going to point to a specific example that we talked about in the prepared remarks was we had a customer in Florida. And we've been -- for the last 2 or 3 years, we've been really working from an OpEx perspective, taking care of all their problems. That's been high-margin work as well, too. They get to the point, though, where they're thinking, that's a lot of money that we're spending. And they end up in this quick period of pause. And it's our job at that point to say, listen, I know you're spending a lot from an OpEx perspective. You're going to have to spend a lot from an OpEx perspective. But there's a reason that you're having that spend. And that developed ultimately into a capital project where we saw deterioration in the cooling system, and built something to get an important capital project with multiple phases to fix their long-term problem. So that's the type of relationship where we have that OpEx recurring spend. A lot of times that OpEx spend will turn into capital projects. And those capital projects are not projects that we're competing against multiple people. We're working on creating a pro forma, giving them cost certainty. And there's also an opportunity on -- a particular opportunity like that to earn really high margin as well, too. So it's a combination of continued improvement from Pioneer Power, running our playbook as well as this dynamic between OpEx, taking care of reactive relationships as well as developing proactive programs and projects as well, too. That's where we see kind of our key components going into next year. Operator: Our next question comes from the line of Gerry Sweeney with ROTH Capital Partners. Gerard Sweeney: I want to talk about -- it wouldn't be at the conference call if everybody didn't ask about gross margins -- or I'm sorry, about the organic growth. So obviously, there were some questions about hitting your range on organic growth. And you mentioned fourth quarter being relatively strong. For lack of a better term, are you anticipating a budget flush? And I've gone back and looked at a couple of fourth quarters versus 3Q and not every year, but there's been several years when you see a significant uptick in revenue. So I want to get your thoughts on how that's going to occur. Michael McCann: I don't know if I would characterize it as budget flush, but I would characterize it as -- it's a cross-section of two things that go on from our customer relationships, ensuring that they're properly spending their budgets as they exit the year. So there are opportunities where there's a lot of times [Technical Difficulty]. We're also thinking about what they're going to re-up next year as well, too. So it's a dynamic of completing budgets for '25 and even some of the budgets that have been delayed as well as what do I need to do in 2026. So it depends on the vertical. I think from a healthcare perspective, we have lots of conversations with customers from that perspective as well, too. It could be from a higher ed. Industrial manufacturing, those customers have been pretty consistent from a spend perspective as well, too. So it's really the dynamic between the two versus '25 versus '26. But the key nature of our work is being in a mission-critical facility. Then maybe they'll pause it for, but inevitably, they're going to have to spend, and it's our job to make sure that they spend it as well too. And so we're trying to manage that dynamic with them. Gerard Sweeney: Got it. How much visibility do you have in ODR? Like as of today, can you see out to the end of the year? Obviously, there could be some emergency work, et cetera. But what does visibility in ODR really look like? Michael McCann: Yes. We gave some additional information and color of this dynamic between 1/3 of the work being quick burning work and then 2/3 being smaller projects as well, too. And we hope that, that provides some additional color as well, too. The 1/3 work you traditionally know when it comes, there are some avenues of things that needs to happen, but there's relative consistency from that perspective as well, too. The 2/3 is fixed price project work, but it is relatively small in nature as well, too. So if we really look at where the customers are at, we focus on a core group of customers, understanding what their spend profiles as well, too. I think the other thing, too, that's part of the dynamic of the owner direct revenue is our ability that we have sales staff. The sales staff with certain pipelines dynamic with customers as well, too. So it really comes down to the 1/3, 2/3 as well as the dynamic of where the customers are from a budget perspective. As we -- I feel like we move into future years, we're going to continue to increase visibility from that perspective as well, too. Gerard Sweeney: Got it. Switching gears, you talked a little bit about local growth or developing relationships on the local level, which certainly has its benefits, but also looking to develop national relationships. How far along are you on the ladder on the sort of national relationship in terms of sales, building that out? There are different animals, local and national. Michael McCann: It's interesting. We've probably been -- when we first started out, we thought that this would go super quick. And we probably started with 4 or 5 years ago. And you realize like it takes time and you're cracking in different levels from a customer perspective. Big customers, it may not be C-suite or may be a couple of levels down. We've been at it for probably 4 or 5 years now. But this year, I think more than others, we've finally been in a position where they trust us, they've given us that pilot work project. And by the way, this work consists of running a facility program over multiple facilities. It could be project work, engineering work, staff augmentation we've done. So we've put all that hard work in there. And that's allowed us to say, okay, I'm going to give you a bigger piece of the budget. As an example, that $12 million of projects that came out of those facility assessments, we couldn't have got that 2 years ago. They wouldn't have trusted us at that point. A lot of times they're in a position where they've got to spend the dollars, they've gone through the work, and it's not really a matter of competition at that point. So we're starting to see a blueprint with healthcare. And we feel like we can apply that same blueprint to some of our other verticals as well, too, whether it's industrial manufacturing or data center and tech, we feel like there's a blueprint. So we're looking at those as well, too. And hopefully, we're looking at it as not taking as long because we're going to apply the same blueprint. But the key is that's acting as a trusted advisor through a professional service type offering and allowing us to make long-term decisions with them and being in a position when they have that spend that needs to happen. Operator: There are no further questions at this time. I'd like to pass the floor back over to Mike McCann for closing remarks. Michael McCann: In closing, our priorities as we close out 2025 are as following: continuing to drive top line growth, further expanding our customer relationships to turn technical sales into financial sales, ongoing successful integration of Pioneer in building our M&A pipeline. At Limbach, we're building a long-term business model designed to deliver durable demand over time. We're making strategic investments where others may not, and we bring a unique combination of an account focused, engineering expertise and the ability to execute those solutions directly with building owners. These relationships are rooted in a long-term partnership, where through consultative engagement, we're helping our clients develop multiyear capital plans that go beyond traditional backlog. We believe this differentiated business model positions us for sustained growth and risk-adjusted returns. We look forward to meeting and speaking with many of you before the end of the year. On December 2, we're attending the UBS Global Industrials and Transportation Conference in Florida. We hope to see some of you there. Thank you again for your interest in Limbach, and have a great rest of your day. Operator: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Thank you for standing by. My name is Tina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Targa Resources Corporation Third Quarter 2025 Earnings Webcast and Presentation. [Operator Instructions] It is now my pleasure to turn the call over to Tristan Richardson, Investor Relations and Fundamentals. Please go ahead. Tristan Richardson: Thanks, Tina. Good morning, and welcome to the Third Quarter 2025 earnings call for Targa Resources Corp. The third quarter earnings release and a supplement presentation that accompany our call are available on our website at targaresources.com. Additionally, an updated investor presentation has also been posted to our website. Statements made during this call that might include Targa's expectations or predictions should be considered forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. Actual results could differ materially from the those projected in forward-looking statements. For a discussion of factors that could cause actual results to differ, please refer to our latest SEC filings. Our speakers for the call today will be Matt Meloy, Chief Executive Officer; Jen Kneale, President; and Will Byers, Chief Financial Officer. Additionally, members of Targa senior management will be available for Q&A, including Pat McDonie, President, Gathering and Processing; Scott Pryor, President, Logistics and Transportation; Bobby Muraro, Chief Commercial Officer; and Ben Branstetter, Senior Vice President, Downstream. I'll now turn the call over to Matt. Matt Meloy: Thanks, Tristan, and good morning. We had another outstanding quarter with record adjusted EBITDA, driven by record volumes across our footprint. With 3 quarters completed, we now expect our full year 2025 adjusted EBITDA will be around the top end of our previously provided guidance range. . Our Permian volumes grew more than 340 million cubic feet per day and nearly 700 million cubic feet per day compared to this time last year. Our Permian growth is driving additional NGL volumes through our integrated system as NGL volumes increased about 180,000 barrels per day compared to this time last year. Incrementally, the customer success we achieved in 2024 has started to show up in our volumes, some this year, but really adding to our longer-term confidence of continued Permian volume growth. Our customers' success has continued as our commercial team has added to our leading Permian G&P position with acreage dedications from new and existing customers in and around our footprint, further bolstering our long-term growth outlook. To accommodate this continued volume growth from our customers, in September, we announced several new growth projects, including our Speedway NGL transportation expansion, the Yeti gas processing plant in Texas in the Permian Delaware and Buffalo Run, an expansion of our Permian natural gas pipeline system. And today, we announced our next gas processing plant Copperhead in New Mexico in the Permian Delaware. Also, our previously announced Forza natural gas pipeline in the Delaware had a successful open season, and we are moving ahead with that project. We continue to expect meaningful long-term growth in Permian gas and NGL volumes across our footprint. Our conviction is supported by multiple factors, including the bottom-up forecast from our existing producer customers, our continued commercial success and the continued industry trend of rising gas to oil ratios. We have a lot of projects in progress, which means growth capital is elevated in 2025 and 2026, and these attractive investments will drive significant increases in adjusted EBITDA. Our chunkier downstream projects are set to come online in 2027. Both the Speedway NGL line and our larger LPG export expansion have sufficient capacity to handle our growing volumes for many years. Once these projects are online, we expect our downstream capital spending will be significantly lower for years to come, driving a substantial increase in free cash flow. And this expected increase in free cash flow will be durable, meaning even if we are in a stronger growth environment driving elevated spending on the G&P side, our downstream spending should still be modest. So in late 2027, our downstream NGL capital is expected to be significantly lower than today's and our adjusted EBITDA is expected to be much higher than today's. This results in a strong and growing free cash flow profile for years. This is what our team is working towards every day, execute our large capital projects in the near term while continuing to invest in high-return projects, leading to Targa's next transformation. A large investment-grade integrated NGL infrastructure company that provides industry-leading growth and generate significant free cash flow year after year. This is a value proposition we are excited to be a part of. This is our focus. And as we look out over the medium and long term, we expect to be in a unique position to grow adjusted EBITDA, grow common dividends per share, reduce share count generate significant and growing free cash flow and do this all with a strong investment-grade balance sheet. Before I turn the call over to Jen to go over our operations in more detail, I would like to thank the Targa team for their continued commitment to safety and execution and for consistently delivering reliable, high-quality service to our customers. Jennifer Kneale: Thanks, Matt. Let's talk about our operational results in more detail. Starting in the Permian, our natural gas inlet volumes averaged a record 6.6 billion cubic feet per day in the third quarter, representing an increase of 11% versus a year ago and strong sequential growth. In October, our Permian volumes were impacted by some producer shut-ins from low commodity prices and storms, but these volumes are now largely back online which we have taken into account and the updated color that we expect to be around the top end of our guidance range for adjusted EBITDA. The second half ramp that we are forecasting at the beginning of the year has materialized and we see at least 10% growth in our Permian volumes for 2025. And based on the visibility that we have today, we see 2026 as another year of strong low double-digit growth. In the Permian Midland, our Pembrook II plant came online during the third quarter and is running at high utilization. And in Permian Delaware, our Bull Moose II plant commenced operations recently in October. We expect our processing infrastructure currently under construction will be much needed at startup and our projects are on track with previously provided time lines. Largely driven by requests from our customers, we are continuing to build out our intra-basin residue capabilities in the Permian, which will help us manage tightness in natural gas egress from the basin until the next wave of takeaway comes online in 2026. The Bull Run Extension in the Delaware is expected to begin operations in the first quarter of 2027 and Buffalo Run, our Midland residue expansion is expected to be completed in stages and fully complete in early 2028. Our newly announced Forza pipeline, a 36-mile interstate natural gas pipeline to serve growing natural gas production in the Delaware Basin in New Mexico is expected to be in service in mid-2028 subject to receipt of necessary regulatory approvals. As demonstrated over the last number of years, we've taken a deliberate approach to enhance flow assurance and do an excellent job of managing takeaway for our customers, ensuring we have access to a wide portfolio of markets. The Blackcomb and Traverse pipeline where we have a 17.5% equity interest are currently under construction, and Blackcomb remains on track for the third quarter of 2026 and traversed for 2027. Shifting to our Logistics and Transportation segment, Targa's NGL pipeline transportation volumes averaged a record 1.02 million barrels per day. Our fractionation volumes ramped sharply in the third quarter, averaging a record 1.13 million barrels per day following the completion of planned maintenance at a portion of our fractionation facilities during part of the first and second quarters of the year. Our LPG export loadings averaged 12.5 million barrels per month during the third quarter. Given the anticipated growth in our Permian G&P business and corresponding announced [ plant additions ], the outlook for NGL supply growth in our system remains strong, and we have a number of key projects currently underway. In the Permian, our Delaware Express NGL Pipeline expansion remains on track to be complete in the second quarter of 2026. Our next fractionator in Mont Belvieu, Train 11 is expected to be complete in the second quarter of 2026 and Train 12 remains on track for the first quarter of 2027. Our LPG export expansion, which will increase our loading capacity to approximately 19 million barrels per month remains on track for the third quarter of 2027. Speedway, which will transport NGLs from the Permian to Mont Belvieu with an initial capacity of 500,000 barrels per day is expected to begin operations in the third quarter of 2027. Our existing NGL transportation system is running full. And with 5 Permian plants under construction, we will be leveraging third-party transportation ahead of Speedway coming online. This positions us to aggregate significant baseload volumes that we can transition to our NGL transportation system when Speedway begins operations, meaningfully derisking the project. Our existing contracts with our best-in-class customer base that allowed us to fill Grand Prix in 6 years will continue to drive the volume growth that will fill Speedway. We are well positioned operationally for the near, medium and long term and believe that our leading customer service-driven wellhead to water strategy puts us in excellent position to continue to execute for our customers and for our shareholders. Our strategy is unchanged as we execute the same core projects with strong returns along our integrated value chain in the same core areas where we have been building Targa for years. I will now turn the call over to Will to discuss our third quarter results, outlook and capital allocation. Will? William Byers: Thanks, Jen. Targa's reported adjusted EBITDA for the third quarter was $1.275 billion, a 19% increase from a year ago and a 10% increase sequentially. The sequential increase in adjusted EBITDA was attributable primarily to record Permian NGL transportation and fractionation volumes generating higher margin across our G&P and L&T segments. Given the strength of our 2025 performance, we now estimate full year 2025 adjusted EBITDA to be around the top end of our $4.65 billion to $4.85 billion range. At the end of the third quarter, we had $2.3 billion of available liquidity and our pro forma consolidated leverage ratio was approximately 3.6x, comfortably within our long-term leverage ratio target range of 3 to 4x. As we provided in September, we estimate net growth capital spending for 2025 to be approximately $3.3 billion and we continue to estimate 2025 net maintenance capital spending of $250 million. We announced today, we intend to recommend to Targa's directors to increase our annual common dividend to $5 per common share. This incremental $1 per share equates to a 25% increase to the 2025 level. If approved, it would be effective for the first quarter of 2026 and payable in May 2026. We remain active in our opportunistic share repurchase program as part of our all-of-the-above capital allocation strategy. During the third quarter, we repurchased $156 million in common shares, bringing year-to-date repurchases to $642 million, including purchases made subsequent to the end of the third quarter. We are in excellent financial shape with a strong and flexible balance sheet, and we are well positioned to continue to create value for our shareholders. And with that, I will turn the call back to Tristan. Tristan Richardson: Thanks, Will. For Q&A, we ask that you limit to one question and one follow-up and reenter the queue if you have additional questions. Tina? Operator: And our first question comes from the line of Jeremy Tonet with JPMorgan. . Jeremy Tonet: Was just curious with you guys trending towards the top end of the guide here. Just wondering how things have unfolded versus original expectations. Is this more wells coming on to the system? Or is this better productivity per well? Or what factors would you say are driving this upside versus original expectations? Jennifer Kneale: Jeremy, this is Jen. For 2025, when we gave our guidance back in February, our biggest caution was that it was predicated on a big back half volume ramp based on the best available information that we had from our producers at the time. I think those volumes have largely materialized consistent to better than our expectations than we initially forecasted, and that's what's driving record Permian NGL transportation and fractionation volumes and providing us with meaningful tailwinds. And we've also seen a fair bit of volatility across the year, which has provided us with some incremental natural gas and NGL marketing opportunities. We don't typically forecast those when we give guidance. So the fact that we're outperforming a little bit relative to the fact that we really didn't have anything material in our guidance is also a little bit of a tailwind this year. But I'd say the producer is largely performing on track to a little bit better than expectations. We have not seen a material change or shift in activity levels on our systems. And I think that's really supporting the strength of performance that we've seen really across this year. But in particular, you saw a big ramp Q3 relative to Q2. You saw a big ramp Q2 relative to Q1. And then as we look forward to 2026, it just really puts us in a good position ending this year as well. . Jeremy Tonet: Got it. That's helpful. And I appreciate the commentary with regards to 2026 with a low double-digit growth there. Not to get too far ahead of ourselves here, but some of your key producers have put out kind of long-dated looks into what the growth would look like in the Permian. And so just wondering what sense that provides for you as far as kind of more a medium-term look as far as how you think things could unfold for growth. Matt Meloy: Jeremy, this is Matt. I think we have the best-in-class footprint in the Permian across both the Midland and the Delaware with really active, high-quality producers. And so when we look out, not only in 2026, but in 2027 and beyond, we get bottoms-up forecast from our producers. And I think that really underpins the confidence we have about continuing to grow even with kind of a flat to even modestly declining rig count, our producers are giving us -- they're well scheduled, and it gives us a lot of confidence as we get into '26 and looking at our locations and longer-term growth plans, it really kind of underpins our multiyear outlook. . Operator: Our next question comes from the line of Spiro Dounis with Citi. Spiro Dounis: First question, I want to start with operational leverage, and maybe Matt go back to your comments just around that free cash flow inflection that's coming. I guess on my math, I think I've got another 1 to 2 more processing plant announcements before you need another frac. Speedway, of course, has plenty of headroom here, we think. But in terms of the rest of the system, any other expansions to kind of have on our radar, as you keep adding these processing plants? Or does it feel like we're finally heading to that period where you could benefit from some of the white space on the system? . Matt Meloy: Yes. Good question. And that is, as we kind of look out over the next couple of years, we do see that we're calling really a transformation as we get into the back half of '27. Once Speedway comes on once our larger scale LPG export comes on, the downstream spending should be relatively modest. And really, at that point, only include ratable fracs and that led to be dependent upon how our G&P is growing between now and '27 and as we're looking out into '28, '29. So as you're thinking about multiyear model, we've announced Trains 11 and 12. Those are progressing well. We're evaluating Train 13 and when we'll need to announce that and when that one is going to come on. But for the downstream spending, I think on Speedway and our export comes on, it's really going to be ratable fracs through our system. And so when you look out in the back half of '27 with significantly higher EBITDA, even if we're in a strong growth environment rent on the G&P side, just the fact that we have significantly higher EBITDA and lower downstream spending is going to put us in a really good position to have a free cash flow profile for years to come. Spiro Dounis: Great. That's helpful. Second question, maybe just going to intra-basin residue gas, seeing you lean into that part of the market a little bit more. So just wondering, can you walk us through maybe what that opportunity set looks like and how big that could be? And if we should expect the same kind of 5x to 6x return profile that we see across the rest of the business? . Robert Muraro: Spiro, this is Bobby. The way we work on these things is in coordination with our producers on everything. And when you look at what drives that asset -- that infrastructure investment for us, it's coordinated with our producers on where we can add reliability where we can add redundancy to our plants and then where we can make a really good fee and pushing gas through those pipes. At the end of the day, is that basin has grown and you've seen gas takeaway be more problematic from an individual pipe that is under -- that it's getting worked on at some point in time, and it affects a plant, we end up being able to move gas around the basin and put it into other available capacity, which both our producers and the producers we market for, the producers that market their own gas and the ones we market gas for, look for that optionality in the portfolio. And so ultimately, we've been building these little steps for a little while, we just announced the kind of complete picture recently, and it's all been underwritten by volumes that are flowing on our system that both we market and our big customers that market their own gas market. So -- and when I think about what the investment multiple is, it's really a high-quality return relative to everything we do. So it smells a lot like all of our other reports that we put out on ROIC. So I think it fits in really well with just to point capital in spots where we have on volumes and customers that want it and at similar returns to the rest of our business. Operator: Our next question is from the line of Theresa Chen with Barclays. . Theresa Chen: We have experienced a challenging environment for some time at this point, marked by bearish sentiment on liquids prices and broader macro uncertainty, you've delivered strong results and even guided towards the upper end of your annual guidance range, which underscores the solid momentum that you're seeing. But at the same time, your recent project announcements have drawn scrutiny with some questioning why you didn't leverage or even choose to lever third-party NGL infrastructure for longer versus investing now to increase capacity across your own system. Could you explain the rationale behind this decision and provide additional context supporting your strategy? . Jennifer Kneale: Theresa, this is Jen. I think that we really do try to be very much capital efficient across the portfolio. And what we've tried to do is essentially drop breadcrumbs as we've gone through the last couple of years. And as we've added processing additions continue to have commercial success that's been in addition to the foundational millions of acres already dedicated to us that was going to drive a lot of incremental growth on our system, drop breadcrumbs that Grand Prix was selling quickly, and we are trying very much to be capital efficient around it. We've talked about the fact that we've done third-party offload deals. And that's part of what you'll see in 2026, we'll have some more offload fees than we've had before. But part of what we're doing there is not that dissimilar to what we did with Grand Prix, which was we derisked the investment by -- at the time that the project will come online with Speedway, we will have already flowing volumes that we can move on to our pipeline. At the end of the day, we are in the business of providing the best-in-class operational support for our producer customers. And we think we do that really well from the wellhead all the way to the water. And an important part of that is being able to operate our assets, being able to leverage our integrated footprint, being able to provide our producers with flexibility and fungibility and redundancy. And at the end of the day, be able to completely derisk our enterprise and best position Targa to create value for our shareholders. And that's part of what we believe we're doing here. We've got 5 plants that are in progress. That's going to be a lot of incremental NGLs that we will need to move on our system. And what we will do is we will utilize third-party transportation for a period of time that we're comfortable with. And then again, we will baseload our next investment with those already flowing volumes and then we'll have operating leverage to accommodate the growth from there. And we just believe that, that combination puts us in the best position again, to both deliver for our customers and also to deliver for our shareholders. . Theresa Chen: Excellent. And a follow-up question on the intra-basin residue strategy. This clearly has become a key area of investment. Where do you anticipate the next bottlenecks to be within the Permian? . Robert Muraro: This is Bobby. When I think about the bottlenecks in the Permian, it kind of goes to plant specific, which is what that header system is for at times of interruptions on long-haul pipes. But when I think about takeaway on residue in particular, and you may be asking about more than residue, but it's obviously extremely tight right now with where basis has gone every time there's bottle and a long-haul pipe. But we're excited about the end of '26 with 2 pipes coming online and material capacity. But we've been growing fast, and I think those pipes will be not only needed but well utilized when they come online. Operator: Next question comes from the line of Keith Stanley with Wolfe Research. Keith Stanley: So you're pointing to around the top end of the guidance range for the year, which at the exact top end would imply EBITDA is down in Q4 versus Q3? Or are there any headwinds to be aware of? You cite some of the October shut-ins, just how to think about Q4 growth relative to Q3? Jennifer Kneale: Keith, this is Jen. I'd say that I think we tend to be a conservative bunch. So I'll start with that. And I'd say that we feel really good about setting another year of record EBITDA in 2025. I think a little bit of the conservatism is borne out of the fact that we've got 2 months to go in the year. We did see some shut-ins from lower commodity prices in October, which we haven't really seen before, there's continued maintenance on a number of natural gas pipes out of the Permian expected for November. And so a little bit, it's going to be what are the implications of that. Now what's great is we've got a little bit of a natural offset where, to the extent we've got weakness in Waha pricing, we're able to leverage our extensive footprint to benefit on the marketing side. . But it's a little bit of just some conservatism as we go through the next couple of months, which may be choppy. But I think the key point is we are really well positioned. And it's probably likelier that we're above the top end of the range than below the top end of the range. But with that conservatism, just felt comfortable saying that we felt we'd be around the top end. . Keith Stanley: Got it. Other question just on the frac volumes. So Q3 was obviously up, I think it was 17% quarter-over-quarter. Should we think of that as a good run rate from here? Or did you have a lot of unfracked inventory from the maintenance work earlier in the year that boosted Q3. . Unknown Executive: Sure, yes. This is Ben. You're right, we did have a turnaround in the first and second quarters that really impacted us to essentially a frac down in terms of available frac capacity. And with the fracs fully back online in the third quarter and the turnaround going well, we were essentially full. And I'd just say, we're very much looking forward to Train 11 and Train 12 coming online, and those will come on highly utilized. . Operator: Our next question comes from the line of Michael Blum with Wells Fargo. . Michael Blum: Can you discuss the decision to increase the dividend 25% next year versus leaning more heavily into buybacks? I imagine you haven't been too thrilled with the recent stock price performance given the strong underlying performance of the business. So I just wanted to get your thoughts how you're weighing between dividends and buybacks. . Matt Meloy: Yes. Michael, we've kind of talked about doing all of the above approach. And when we just look out at our forecast over multiple years, we have a lot of room to meaningfully increase the dividend. So it is a little bit more heart than science. We talk to our Board and say, what is a good balanced approach to increasing the dividend and also being able to have a strong balance sheet to be opportunistic with share repurchases. You've seen us pretty active so far this year on share repurchases. I think that's going to continue to be the framework going forward as we plan to be opportunistic with our share repurchases. It will bounce around from quarter-to-quarter and year to year, but I think that will be part of our return of capital. So I really think we can do both. I think the dividend growth that we're providing is still something we can look out over multiple years and continue to grow it even from here. And I think that's just supported by our underlying fundamentals in our business of growing EBITDA and free cash flow generation going forward. . Michael Blum: Okay. Makes sense. And then I just wanted to ask on LPG exports. Would you say volumes for this quarter were basically seasonally in line with your expectations? And can you give us an update on end market demand and specifically where you might be seeing areas of strength or weakness across different regions? . D. Pryor: Michael, this is Scott. I would say that typically, throughout the year, at times, the second and third quarter volumes dip a little bit relative to what we see in the fourth quarter and the first quarter of each year. Fundamentally, nothing has changed on the export front. We continue to be highly contracted. The demand is growing really across the globe. There is also some seasonality as it relates to the kind of the product mix relative to propane and butane. But we continue to add contracts and we got some we will get some benefit in the fourth quarter with the small balancing project that is now online that gives us a lot of flexibility and provide some reliability to our export facility. But really, when you look our export project that we've got coming online in the third quarter of 2027, that's related to expected global demand that is going to continue to grow across various regions. We're going to see increased production from our upstream with the number of plants that we've got coming online. Obviously, Grand Prix and Speedway Pipeline, providing products to our fractionation footprint, which is growing. And then the product itself will just be priced to move across our export dock can provide a lot of operating leverage that we will have going forward. So again, the fundamentals have not changed. The demand is continuing to grow and we'll be a broad participant across various regions across the globe. Operator: Your next question comes from the line of Manav Gupta with UBS. Manav Gupta: I wanted to ask you about the Permian sour gas opportunity. You guys were the first mover. You are the biggest processor of Permian sour gas. But as your returns have been very good. Some others are trying to now chase. And I'm just trying to understand the competitive advantage over there. And the growth and opportunity that you see in the that region of Eddy and Lea in terms of Permian sour gas, what are you seeing out there? If you could talk a little bit about that. . Patrick McDonie: Yes. I think what we said on the last call is that we implemented our sour gas strategy many years ago. We saw the need, we saw the economic benefit of few of the benches in the Delaware specifically that had sour gas, mainly H2S and CO2, that again, were economic benches that weren't getting developed because of the lack of sour gas infrastructure. So Again, a long time ago, we started investing in the sour gas treating facilities. We began tying up acreage as sour gas began to get developed. So we were really a front runner in front of a lot of other people and were able to get a lot of acreage tied up. We continue to see the development now of those ventures. So our sour gas production continues to grow. Certainly, other people have stepped in to that realm because they've been, frankly, unable to participate in the growth in those benches without that capability. So I'd say we were a first mover. We're well positioned. We've tied up a lot of acreage, and we're seeing the benefit of that strategy unfold and continue to unfold over coming years. . Matt Meloy: Yes. And I'd just add on to that, too. I mean we have a system that has fungibility and redundancy really unlike any systems around. I mean our Red Hill system can handle sour gas. Our Bull Moose Wildcat complex can handle sour gas, and we have a 30-inch wet gas line between those that can move volumes in between, and we have multiple AGI wells at several different facilities across Targa. So we offer a service to our producer customers that's really unmatched. . Manav Gupta: Just my quick follow-up is on the Forza project. I think you mentioned you had a successful open season. Our understanding is it's a lower CapEx project, so the returns would be very attractive. Could you talk a little bit about this particular project? Jennifer Kneale: I mean Forza is a 36-mile pipeline interstate. So it will allow us to move volumes from New Mexico down into Texas to more liquid markets. I'd say that it's a project that we're excited about, really driven by producer interest. It's in addition to the other projects that we have underway that are really just focused on how can we continue to provide the best services to our customers that allows us to aggregate volumes in different places and then move them to the best markets on behalf of our producers. . So I think returns, as Bobby articulated earlier around our broad residue strategy are very much commensurate with how we invest across the rest of our portfolio. But what we like about this strategy is it's already taking existing volumes plus some of the growth we have from some of our new plants that are in progress and underway and really leverage all of that additional volume to, again, provide more flexibility to our producer customers. And at the end of the day, it's really that best-in-class service that we think is what differentiates us relative to others. Operator: Next question comes from the line of AJ O'Donnell with TPH. Andrew John O'Donnell: I wanted to go back to maybe a follow on to something that Spiro asked earlier in the call, just about lumpier downstream projects and just overall CapEx. Looking at the Speedway project, just curious on -- given your volumes have been trending above estimates and continue to perform pretty well, at what point in time do you think you would anticipate needing to expand the pipe to the full 1 million per day design capacity? And if it was sanctioned, is that something that you would pursue the capacity all at once? Or could it be a phased approach? Matt Meloy: Yes. No, good question. That would be a good CapEx project for us to undertake for sure, a great CapEx project because most of the capital goes into getting that initial capacity to move from 500,000 barrels up to 1 million is really just putting on pump stations. And so as we see volume growth it would be a fraction of the capital compared to the initial capacity. So we'd be able to highly economically just layer on some pump stations to go from 500,000 to 1 million. And I think we'll just do that ratably over time as opposed to announce, we're going to go from 500,000 to 1 million. It's likely we'll stage them in over time as volumes ramp. Jennifer Kneale: Very much like we did with Grand Prix. Matt Meloy: Yes, very much like Grand Prix. Right. Andrew John O'Donnell: Okay. I appreciate that. And then maybe if I could just shift to the Mid-Con. I think we've seen some commentary from producers and one of your peers specifically talk about activity moving to gassier areas of the basin. Just curious what you guys are seeing on your system and how, if at all, that's impacted your thoughts on your central region platform. Patrick McDonie: This is Pat. What I would say is that we have seen some levels of activity that we haven't seen over the last 2 to 3 years. I wouldn't say there's a huge surge in activity. Certainly, some of our key producers are starting to poke around and do a little bit more. Our Arkoma assets, our South Oak assets is what we call them. We're seeing increased activity and opportunity. Do we see it as a huge growth opportunity in the short term? No. Over time, if gas prices get a little stronger, certainly, I think that becomes an opportunity. Obviously, we have plant capacity. So our capital investment and our ability to get returns on that is very favorable. So I would say there is an increase in activity. It's not huge. Hopefully, it grows over the coming years, and we're well situated to take advantage of that. Operator: Your next question comes from the line of John Mackay with Goldman Sachs. . John Mackay: Just 1 quick one for me. Kind of sticking on Permian activity levels and the macro. Earlier this year, kind of had a couple of conversations about how you'd expect the Midland versus the Delaware to ramp. Just curious kind of where that sits now? What you're hearing from your customer sets on either side, and whether or not that view, I guess, before that kind of Midland plans would ramp quickly, Delaware could take some time, whether that's shifted at all? . Matt Meloy: Yes. I mean we've seen, as Jen said, we've seen really good growth across our footprint this year, more or less in line with our expectations. And I think even as we look out into 2016, it's kind of progressing as we had thought. I think what you're seeing now is a little bit and you saw it this quarter, a little bit stronger growth rate in the Delaware. So as we're kind of moving out, I think we're going to see good strong growth in really both sides of the basin, both Midland and the Delaware, but you're seeing a little bit more strength in the Delaware. So I think both of them are going to be needed at startup. We have had the benefit of just with our expansive system on the Midland side, when you bring up a plant at depressures and you end up getting some flush production that fills it up. I think we're starting to see, as we're building out our Delaware, it's starting to look more like that. So I think we're really optimistic on all the plants going in to be highly utilized. John Mackay: Is clear. And I'll actually ask a second one. Just a look across the basin, certain pockets are getting more mature than others. Are you starting to see kind of big swings in GORs kind of from one region to another? And maybe just a broader comment on kind of how you'd expect that to progress from here? . Jennifer Kneale: I wouldn't say that we're seeing broad swings or big swings in GORs across the footprint. I mean, a little bit is producer-by-producer and area-by-area dependent. But I'd say that what we continue to see is a broad theme of increasing GORs, which were certainly a beneficiary of. And we're not really seeing any changes to that, if anything, it's just continuing to strengthen. . Operator: Your next question comes from the line of Jean Ann Salisbury with Bank of America. Jean Ann Salisbury: Just 1 for me. You all mentioned on the last call that processing plant costs had risen. I think you gave a new range of $225 million to $275 million. I think you saw at the time, it was partly for more sour gas and the mix as well as tariffs. But I guess my question is if the cost escalation is causing any change to your margin expectations or if you can pass most of that through. Matt Meloy: Yes. So, no, I think that range that we gave is still pretty good range. I think the sour end, you're probably in the $250 million, maybe a little bit more first our plants and you're probably in the low end of that range if you're putting in a sweet plan, depending on how much treating you want to put in, but it's somewhere around that range. . Capital costs aren't a direct pass back to the producers. There are some fuel and operating costs that do get passed back. But the capital costs, those are borne by Targa, and it just goes into our overall rates that we're charging and how competitive we are for new volumes in the Permian. So still had a lot of commercial success. We're still earning good returns through our integrated systems. So I still see us being highly competitive at those capital costs. Operator: Our next question comes from the line of Jason Gabelman with TD Cowen. Jason Gabelman: I want to about the competitive dynamics in the Permian Basin. You mentioned you secured additional acreage dedications over the past quarter. And I'm wondering, given kind of less producers growing other basins, obviously, other oil basins not growing. How is the competitive landscape for going after that Permian acreage? Is it becoming more competitive there? And are you seeing some of, kind of, the fees that you're able to extract shrinking? Or are you able to leverage some of your competitive advantages to maintain kind of a premium on the fees? . Jennifer Kneale: Jason, this is Jen. I'd say that it's always competitive. It's always been competitive. It's likely to continue to always be competitive. I think that our business model is to execute the difficult elements of the gathering and processing business and do that really, really well and create a lot of fungibility, redundancy, reliability for our producer customers. And I think that, that's part of what separates us. We've talked a little bit about our sour gas strategy and how we've been sort of a big first mover in that over many, many years. So now we've got more than a 2.5 Bcf a day capacity on the sour side, 7 AGI wells, really well positioned to not only service our existing customers, but to the extent that there are any customers that aren't getting the service that they otherwise need, we can sometimes step in and help as well. So I think that from our perspective, it really starts with the assets and the systems that we've built out. And then that wellhead to water, value proposition that we're able to provide, I do think we just do it very well. We've been doing this for a long time. We take it very seriously. We invest on behalf of our producers across cycles. We try to make sure that we are exceptional partners to our producers really work well alongside of them. Again, I think that's part of the flexibility that we offer. And then we've just got some inherent advantages because of the size of our system and the vastness of our system that we're able to step out into areas to the extent it makes sense, more easily sometimes than others or we're able to utilize the fact that we've got more than 40 plants interconnected, many of them interconnected to, again, help our producers where they may need it. So I really think it's what we already have in place and then just a continued strong commercial effort by what I think is the best commercial team in the business to go and continue to identify ways to both work with our existing customers and do more business with them and then, of course, continue to chase new opportunities too. And that's part of what you're seeing. We're not resting on our laurels that we already have millions of acres dedicated to target in the Permian or in other areas. We're continuing to chase new business because we think we can do a really good job of helping our producer customers, and we believe we offer a differentiated service. And so we'll continue to chase that. And again, are having good commercial success that at the end of the day, ends up being additive to that really strong foundation of dedicated contracts that we already have in place. . Jason Gabelman: Great. That's really helpful color. And then my other question, just kind of following on to what Jean An just asked. Impact from tariffs and kind of more broadly, how you feel about that $1.6 billion cost for the Speedway pipe. Is that kind of fully baked? Or do you have perhaps some contingency baked in there? Or is there a potential for tariffs to further increase that cost? Jennifer Kneale: Jason, this is Jen again. I think we feel really good about it. Our engineering team, our supply team did an exceptional job of procuring pipe long before we made the announcement that we were moving forward fully with the project publicly. And so I think that, that means that we are in a really good position to deliver, hopefully, under budget to any of our folks that are listening. But at the end of the day, I feel good about the budget that we put out there. We always do have some contingency in all of the projects that we move forward with. And then I think our team does a really good job of trying to ultimately beat that and not use that contingency. So similar to all of our projects, we just have a really strong team that's working day in and day out to try to outperform relative to the expectations that they've provided us with. And we feel really good about the Speedway project. Operator: Next question comes from the line of Sunil Sibal with Seaport Global Securities. . Sunil Sibal: So I think last year, your team had given a kind of a longer-term steady-state CapEx number of $1.7 billion. I was curious, where does that number stand today with the growth in the portfolio that we're seeing. Jennifer Kneale: Sunil, this is Jen. I think the frameworks that we provided back in February 2024 are very much still helpful. And I think that if you tried to mark-to-market, which, of course, we haven't done publicly, but if you just look at some of the pieces, one, we've seen some costs a little bit higher. We've just been received a couple of questions around tariffs. And so you've got costs that are a little bit higher. We, of course, have a much bigger footprint today than we did when we published that back in February of 2024. But we're not talking about meaningfully higher, you call it modestly higher. And then the other additives are when we came out with that framework, we didn't have residue spending, and we didn't have CCS--CCUS spending included in that. And again, we've got some modest projects underway on both fronts there. So I'd say that it's very much still helpful. I think that particularly when you think about what Matt talked about, which is a much higher EBITDA base now, even if the capital is a little bit higher than what we put out back in February 2024, it just highlights that across environments, we have a very robust, very strong and strengthening free cash flow profile. . Matt Meloy: Yes. And just to add on to that, too, the framework we've put out was a multiyear average. So kind of baked into that $1.7 billion capital number was an average spending for downstream. We're going to be above average here kind of through Speedway coming on. And then once Speedway comes on, we'll be less than that average. So it will be a little bit higher in the short term and in the medium term will be below. And then it really just be dependent on the G&P side of things. . Sunil Sibal: Okay. And then it seems like there has been some growing interest among the data center community to tap on to the Permian gas. I was curious, is that something that has kind of crossed your interest? And if you have any thoughts on that? . Jennifer Kneale: This is Jen, Sunil. I'd just say that we're having a ton of conversations with a lot of people. From our perspective, given our position in the Permian and the amount of natural gas that we aggregate and transport every day, we're well positioned to help supply the increasing demand for natural gas and the tailwinds of incremental demand for power generation, for data centers, alongside the doubling of LNG capacity in the U.S., those are all really good for Targa. And we've got a lot of conversations underway about how we can help customers all the way along the value chain. Operator: Our final question comes from the line of Brandon Bingham with Scotiabank. . Brandon Bingham: Just wanted to maybe go to the NGLs outlook. You announced a plant for 2027 today, not long after announcing the prior one. So is it just possible that maybe some of those illustrative plans outlined in the slides starting in 2028 could be pulled forward into earlier years? Or is maybe they're a way to, instead of a 1 to 2 a year cadence that might shift to 2 to 3 for a little bit? Just trying to figure out some of the potential upside to that, call it, medium, longer-term outlook. . Jennifer Kneale: Brandon, this is Jen. Ultimately, the medium- and longer-term outlook will be supported by activity from our producers, both on all the contracts that we already have in place and then our commercial execution going forward. I think what you saw us talk about last fall was that we were needing to accelerate some plants because of that incremental commercial success that we've had. I think you've heard us talk today about continued commercial success, but ultimately, over the medium and long term, are we continuing to talk about low double-digit growth? Are we talking about high single-digit growth? Ultimately, that's what will drive the gathering and processing spending, both for gathering lines, compression as well as plants and dictate the cadence of plant adds that we need to think about going forward. . Brandon Bingham: 9 Okay. That makes sense. And then just maybe shifting over to the free cash flow inflection, call it, late '27 into '28. And just how we can maybe think about the payout target of 40% to 50% and how that might shape up through that point? And then if maybe we're understanding it's a multiyear outlook and it's an average, just if there might be some catch-up that could happen once that free cash flow inflection hits, if the payout ratio might be a little bit below over the next couple of years in light of the anticipated spending profile? Matt Meloy: Yes. As we outlined 40% to 50% return of capital through a combination of growing dividend and opportunistic share repurchases. You're right, it's over multiple years. So there could be some years we're on the low end or even lower than it. And some years, we're on the high end and above it. I think once we get into that back half of '27 when Speedway and our export projects are completed, we're going to be in a really good position to be deciding what to do with all the free cash flow. I think you'll see continued dividend increases. I think you'll see continued share -- opportunistic share repurchases. And we've kind of talked about it was years ago. We talked about being at the lower end of our leverage ratio range and then giving ourselves a little more flexibility and perhaps lowering our leverage ratio a bit is also something -- our primary focus will be continuing to invest in the business. So organic growth, returning capital to shareholders and reducing leverage. I think we'll be in a good position to do all of those things. Operator: With no further questions in queue. I will now hand the call back to Tristan Richardson for closing remarks. Tristan Richardson: Great. Thanks to everyone for joining the call this morning, and we appreciate your interest in Targa Resources. Operator: Thank you again for joining us today. This does conclude today's conference call. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Third Quarter 2025 Radian Group Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Dan Kobell, EVP Finance. Please go ahead. Dan Kobell: Thank you, and welcome to Radian's Third Quarter 2025 Conference Call. Our press release, which contains Radian's financial results for the quarter, was issued yesterday evening and is posted to the Investors section of our website at radian.com. This press release includes certain non-GAAP measures that may be discussed during today's call, including adjusted pretax operating income, adjusted diluted net operating income per share and adjusted net operating return on equity. A complete description of all of our non-GAAP measures may be found in press release Exhibit F and reconciliations of these measures to the most comparable GAAP measures may be found in press release Exhibit G. These exhibits are on the Investors section of our website. Today, you will hear from Rick Thornberry, Radian's Chief Executive Officer; and Sumita Pandit, President and Chief Financial Officer. Before we begin, I would like to remind you that comments made during this call will include forward-looking statements. These statements are based on current expectations, estimates, projections and assumptions that are subject to risks and uncertainties, which may cause actual results to differ materially. For a discussion of these risks, please review the cautionary statements regarding forward-looking statements included in our earnings release and the risk factors included in our 2024 Form 10-K and subsequent reports filed with the SEC. These are also available on our website. Now I would like to turn the call over to Rick. Richard Thornberry: Good morning, and thank you all for joining us today. I am pleased to report another quarter of strong performance for Radian. Our mortgage insurance business continues to deliver excellent results, fueled by our large, high-quality in-force portfolio with strong persistency and credit performance. The performance of our portfolio reflects the excellent credit characteristics of the new business we are writing, leveraging our proprietary RADAR Rates platform. In addition to the strong performance of our Mortgage Insurance business, we continue to deploy capital with discipline and strategic focus. We have a long track record of consistently maintaining strong holding company liquidity, efficiently distributing capital from Radian Guaranty to Radian Group, and delivering value back to stockholders, including the highest yielding dividend in the industry. Since 2017, we have returned nearly $3 billion of capital to stockholders through dividends and share repurchases, while continuing to explore opportunities for long-term growth that meet our return objectives, including our planned acquisition of Inigo. Sumita will cover the highlights of our financial results, including the impact of our September announcement regarding the divestiture plan for our mortgage conduit, title and real estate services businesses. The process is well underway, and has attracted interest from numerous potential buyers for each of the 3 businesses. We have engaged Citizens JMP to lead the sale of the title and real estate services businesses and Piper Sandler to lead the sale of the mortgage conduit. As we noted in September, we expect to complete the divestiture process by the third quarter of next year. During this time, we have strengthened our capital and liquidity position, grown our high-quality mortgage insurance portfolio, invested in our proprietary data and analytics platforms and leveraged the deep experience of our exceptional team. As part of our ongoing commitment to long-term growth and value creation, we have spent considerable time evaluating different paths to strategically diversify our business. We concluded that the highest value path was to position our company for continued growth as a global multiline specialty insurer. This led to our decision to acquire Inigo. The purchase price of $1.7 billion will be cash funded from available liquidity sources and excess capital with no equity raised. Along with liquidity at holdco, the funding for the deal includes a unique and creative financing structure of $600 million that will be provided by Radian Guaranty to Radian Group through an intercompany note with a 10-year term. We believe the valuation for the deal is attractive at 1.5x projected 2025 tangible equity. This acquisition, along with the divestiture plan I mentioned earlier, provides us with a clear strategic path for the future as we transform from a leading U.S. mortgage insurer to a global multiline specialty insurer. There are several reasons we were attracted to Inigo. The company was founded by highly respected industry veterans with decades of experience in the Lloyd's market who turned their deep industry experience into a successful and scaled business. They have attracted an exceptional team who share the founder's entrepreneurial spirit and a shared commitment to radical simplicity and disciplined underwriting. As we've spent time with the team, we continue to be impressed by the people and the business they have built. We are excited to partner with this group of highly experienced leaders with a strong track record of building and managing successful specialty insurance and reinsurance businesses. This highly talented team will continue to lead Inigo post close. The Inigo team aligns well with our core strengths and the cultural match is strong. This makes them a natural fit that complements Radian's Mortgage Insurance business. And similar to Radian, Inigo is driven by data science. It shapes everything they do, how they make decisions and how they think about risk. We share this data-first mindset as well as an unwavering focus on disciplined underwriting. Our team is working closely with the Inigo team to complete this transaction, which is on track to close in the first quarter of 2026. As we look to the future, we are excited about what we can accomplish together. Radian's transformation from a leading U.S. mortgage insurer into a global multiline specialty insurer is expected to increase our addressable market for continuing operations by a factor of 12, providing flexibility to deploy capital across multiple insurance lines through various business cycles. We believe this combination also offers meaningful capital synergies as we go forward. By allocating our capital across strong and uncorrelated businesses, we can focus on putting our capital to work where we see the greatest opportunity for economic value and profitable growth. We look forward to updating you on the Inigo transaction, our divestiture progress and the execution of our go-forward strategy. Sumita will now cover the details of our financial and capital positions. Sumita Pandit: Thanks, Rick, and good morning to you all. As Rick mentioned in his opening remarks, Radian is committed to long-term growth and value creation, and we have spent considerable time evaluating different strategic paths. Our objective is to build on our foundation and core strengths. With this objective in mind, we determined that the right strategic path was to build Radian into the future as a global multiline specialty insurer by acquiring Inigo. As a result of the strategic change in the third quarter of 2025, we've also announced a divestiture plan for our mortgage conduit, title and real estate service businesses. We've reclassified these businesses as held for sale on our balance sheet and now reflect their results as discontinued operations in our income statement. All prior periods have been revised for these changes and the impact of the accounting changes are presented on Slide 38 of our earnings presentation. Now let's discuss results of our continuing operations, which demonstrate another strong quarter of performance. In the third quarter, we achieved net income from continuing operations of $153 million or $1.11 per diluted share, the same as the second quarter. Net income inclusive of discontinued operations was $141 million in the third quarter. We generated a return on equity of 12.4%, including discontinued operations. The ROE for our continuing operations is 100 basis points higher at 13.4%. We grew book value per share 9% year-over-year to $34.34. This book value per share growth is in addition to our regular stockholder dividends, which were $35 million during the quarter. Turning now to the key drivers of our results, which highlight the consistency, balance and resiliency of our Mortgage Insurance business model. Our total revenues continued to be strong in the third quarter at $303 million. Slides 15 through 17 in our presentation include details on our mortgage insurance in-force portfolio as well as other key factors impacting our net premiums earned. We generated $237 million in net premiums earned in the quarter, which is the highest level in over 3 years. Our large high-quality mortgage insurance in-force portfolio grew to another all-time high of $281 billion. We wrote $15.5 billion of new insurance written in the third quarter of 2025, a 15% increase compared to the same period last year. As shown on Slide 15, our persistency rate remained strong at 84% this quarter. We remain focused on writing NIW that we believe will generate future earnings and economic value while effectively maintaining the portfolio's health, balance and profitability. As of the end of the third quarter, approximately half of our insurance in-force portfolio had a mortgage rate of 5% or lower. Given current mortgage interest rates, these policies are less likely to cancel due to refinancing in the near term, and we, therefore, continue to expect our persistency rate to remain strong. As shown on Slide 17, the in-force premium yield for our mortgage insurance portfolio remained stable as expected at 38 basis points. With strong persistency rates and the current industry pricing environment, we expect the in-force premium yield generally remain stable for the remainder of the year as well. As shown on Slide 18, our investment portfolio of $6 billion consists of well-diversified, highly rated securities and other high-quality assets. For the quarter, we generated net investment income of $63 million. Our provision for losses and related credit trends continue to be positive with strong cure activity and very low claim levels. On Slide 21, we provide trends for our primary default inventory. The number of new defaults in the third quarter was approximately 13,400, a decline of 2% from the same period a year ago. As expected, the number of total defaults increased in the third quarter to approximately 24,000 loans at quarter end, resulting in a portfolio default rate of 2.42%. This increase in total defaults reflects normal seasonal trends and the expected continued seasoning of our large insurance in-force portfolio. As we noted in the past, our new defaults continue to contain significant embedded equity, which has been a key driver of recent favorable credit trends, including higher cure rates and reduced severity for policies that result in claim submission. As shown on Slide 22, our cure trends have been very consistent and positive in recent periods, meaningfully exceeding our initial default to claim expectations. Cure rates in the third quarter exhibited typical seasonal trends in line with similar periods from prior years. We continue to closely monitor the recent news and stress seen in different credit asset classes like credit cards and subprime auto. However, the loans in our portfolio and loans in the broader conventional mortgage segment continue to perform well. Our outlook on the Mortgage Insurance business remains positive, and we will continue to monitor and make any adjustments to pricing as needed. Let's turn to Slide 23. We maintained our initial default to claim rate of 7.5%, which resulted in $53 million of loss provision for new defaults in the third quarter. Positive reserve development on prior period defaults of $35 million partially offset this provision for new defaults. As a result, we recognized a net expense of $18 million in the third quarter compared to $12 million in the second quarter. Now turning to our other expenses where we continue to seek additional operating efficiencies. For the third quarter, our other operating expenses totaled $62 million, down from $69 million in the second quarter. Expenses in the third quarter included $9 million of nonoperating costs related to the Inigo acquisition. Excluding this acquisition-related expense, total operating expense was $54 million, a $16 million decline from the prior quarter as reflected on Exhibit E. We are revising our previous expense run rate guidance for Radian, which was $320 million and included expenses related to discontinued operations. We anticipate operating expenses for continuing operations to be approximately $250 million for the full year 2025. We expect this to represent our annual expense run rate as we move into 2026. Moving to our capital, available liquidity and related strategic actions. Radian Guaranty's financial position remains strong. It paid a $200 million dividend to Radian Group in the third quarter, while maintaining a PMIERs cushion of $1.9 billion. In addition, we expect that Radian Guaranty will pay a $195 million dividend in the fourth quarter, bringing total distributions to Radian Group during 2025 to $795 million. We expect to close the Inigo transaction in the first quarter of 2026, funding the $1.7 billion purchase price with our existing resources. Our available holding company liquidity grew to $995 million as of quarter end. We expect a $195 million dividend to be paid to our holding company in the fourth quarter, as I just noted, and expect $600 million to be paid from Radian Guaranty to Radian Group in the form of a 10-year intercompany note. With these payments, we expect our holding company liquidity to be approximately $1.8 billion at the beginning of 2026. In addition, we expect dividends of at least $600 million from Radian Guaranty to Group during 2026. With these resources, we expect to fund the Inigo acquisition in the first quarter of the year and maintain sufficient liquidity at our holding company after the transaction closes. We also just expanded our credit facility to $500 million. The facility is currently undrawn and is available for general corporate purposes. However, we expect that any draw of the facility will be repaid during 2026. Our leverage ratio declined to 18.7% this quarter, and we expect it to remain below 20% by year-end 2026. We expect Inigo will continue to operate as a stand-alone business, complementing Radian's mortgage insurance business, and we do not expect Inigo to have any funding needs from Radian Group or Radian Guaranty to achieve its 2026 business plan. As Rick mentioned, this is an exciting time for Radian. This acquisition is expected to double our earned premiums in a market that is expected to grow at 8%, and expand the total addressable market by 12x. This will enable Radian to strategically allocate capital across diverse insurance lines and focus on areas with the greatest potential for profitable growth. Lastly, as shown on Slide 7, by combining Radian and Inigo, we expect to deliver mid-teen operating earnings per share accretion and approximately 200 basis points of ROE accretion starting in year 1. I will now turn the call back over to Rick. Richard Thornberry: Thank you, Sumita. Our results in the quarter continue to reflect the balance and resiliency of our company as well as the strength and flexibility of our capital and liquidity positions. They also reflect the resilience of our Mortgage Insurance business model. Over the years, our industry has helped millions of families purchase their home or refinance their mortgage and is well positioned to continue promoting affordable, sustainable homeownership through various economic cycles. We are proud of the important role we play in the housing finance system and in building strong communities. We look forward to updating you on our progress as we transform from a leading U.S. mortgage insurer to a global multiline specialty insurer. And finally, I want to recognize and thank our team for the outstanding work they do every day. And now operator, we would be happy to take questions. Operator: [Operator Instructions] And our first question comes from Bose George with KBW. Bose George: Actually, first, I just wanted to ask, when you talk about the mid-teens accretion for 2026, should we add that 200 basis points to your current run rate ROE, which is a little over 13%. So I guess that would be a little over 15% in terms of the ROE and then your book value going into 2026, it looks like it will be about $35. So does that seem reasonable 15% on that $35? Sumita Pandit: Thanks for the question, Bose. So I think if you look at our ROE this quarter, on an operating basis, our ROE was 13.9%. That excludes the impact of some onetime items related to the Inigo transaction where we paid and will be paying advisory fees. I think from an accretion perspective, I think assuming a 200 basis points increase on top of that would be fair. I mean, I think the 13.9% is comparable to also what we had last year and is a good run rate for us to think about for our stand-alone MI business. Keep in mind also that because we are currently -- we paused our share repurchases. So our denominator is a little bit more bloated as we accrue capital to pay for Inigo. I think the 13.9% ROE is probably a little lower than where we may be once that excess capital gets paid out to purchase Inigo. And so the 200 basis points increase can be added to the 13.9% on operating ROE that we have presented in this quarter. Bose George: Okay. Great. That's very helpful. And then can you walk through the potential capital benefit from using the unearned premiums at Radian as capital at Inigo? Is that something that eventually could be a source of incremental accretion over the 200 basis points that you've discussed? Sumita Pandit: So I think in the future, we will be giving you more details, Bose, on exactly what are those opportunities that we see present to ourselves between the MI business as well as Inigo. I think as we mentioned in our presentation, at this stage, I think what we have discussed is that we do see potential synergies between the MI business and Inigo going forward, including some reinsurance that we could do between the 2 businesses. I think post close of Inigo, we plan to do an Investor Day early next year. And I think we'll be sharing more details about potential reinsurance opportunities that could potentially improve the accretion numbers further. I think the numbers that we have presented to you last month and now again in this earnings presentation assumes base case run rate assumptions and really is an addition of Inigo as it is operated today to Radian's numbers. We've not assumed these additional capital and operating efficiencies that we will discuss further with all of you as we close the transaction next year. Operator: And our next question comes from Doug Harter of UBS. Douglas Harter: As you look at divesting the noncore businesses, is there -- how should we think about capital that could be freed up from those businesses in addition to kind of the cost saves that you've already kind of highlighted in discontinued operations? Sumita Pandit: Yes. So I think as I mentioned, as of now, as of Q3, what we have done is we've reclassified discontinued operations as held for sale. If you look at our balance sheet and the carrying values for these 3 businesses, we carry these businesses at about $170 million or so as of the third quarter. We do not expect to have either like a huge gain or a huge loss versus those levels. I think the held for sale number is based on our best accounting estimate today of the true value of those businesses. I think we have given some indications to you in terms of what could be additional expenses that we incur in selling the businesses. I think Rick mentioned we've hired 2 banks. We've estimated a $7 million expense in selling the businesses today. There could be more or less going forward. But we think that the carrying value of $170 million is our best estimate as of today of the true value of those 3 businesses. Douglas Harter: Great. I appreciate that. And then how are you thinking about the key steps that need to happen in order to kind of return -- start returning buyback -- or return to the buyback program? What are the key steps that we should be looking for in that? Sumita Pandit: Yes. So I think that's a good question. I think maybe just like walking you through our liquidity position and how to think through that math. So if you think about our Q3 ending liquidity, we ended the quarter with $995 million this quarter. We are expecting to pay another $195 million in the fourth quarter as dividends from Guaranty to Group. And our best estimate as of today is an additional $100 million of dividends in Q1 of next year. When you add all of that, that gets you to $1.29 billion liquidity number for holdco. We also will be drawing down on the intercompany note of $600 million at close -- when we close Inigo. For next year, the estimate and guidance that we've given is that we expect at least a $600 million minimum dividend from RGI to Group. So I think the best way to maybe think about our share repurchase and our liquidity overall is that within a few quarters of the Inigo purchase, we will again be in an excess liquidity position in group. As and when that happens, I think we'll revisit our share repurchase strategy. But I think, assuming that it will happen pretty quickly, given that we will be paying at least $600 million of dividends next year, that is a good run rate for you to assume as you think about when next year would we be in that excess capital position in holdco for us to revisit our share repurchase strategy, which, as you know, we have paused right now because we are paying for the full $1.7 billion purchase price through internal resources and are not raising any new equity. Operator: And our next question comes from Mihir Bhatia of Bank of America. Mihir Bhatia: Maybe just one quick one. Just any update on the timing of the divestitures and where you are with that process? I think you had said Q3 2026 earlier? Richard Thornberry: Yes. Mihir, this is Rick. Yes, we're -- I think we're still sticking to the -- to be completed by third quarter of next year. But just to give you an update on the process, as we mentioned, we've hired the 2 banks to kind of facilitate the process. I actually had a tremendous amount of inbound interest expressed across all 3 businesses, and that process is initiating as we speak, both in kind of sharing information with a broad group of potential interested parties. So we expect the process to move quickly over the coming months and look forward to keeping you up to date as we go through this process. As we get into early next year, I think we'll have more of an update. But one of the things that I -- as we watch this process go, the one thing I'm proud of is our teams have stayed laser-focused on running the business and continuing to serve our customers. And I think that positions each of those businesses well for the outcome that we're working towards. So -- but yes, we'll keep you posted as we go quarter-to-quarter. But right now, it's a fully engaged process with the bankers and the teams, and I think working very well. Mihir Bhatia: Got it. And then maybe just staying -- maybe turning to the business itself. I guess one question I was curious on was what would it take for you to move that claim rate below the 7.5% you're at? And the reason I ask is, I mean, I think you have the slide with the claim triangles, the cure triangles, if you will. And as you note on the slide, 90% get cure within a year and like your cure rates are running in the high 90s. So just curious on like what you actually need to see happen to change that claim rate? Sumita Pandit: Yes. I think Mihir, as you're aware, we made a change to that assumption in maybe 2 or 3 quarters back when we were at 8% default to claim rate and now are at 7.5%. I think when we look at that assumption, we do want to make sure that we are making that assumption through the cycle. You're right that when you look at our cure trends and the cure triangles that we show you on Slide 22, we do have almost 97% to 98% of our defaults curing within 12 quarters. But when we think about our through-the-cycle assumption, we think that these are more favorable than where we would expect this to play out in the long run. And therefore, the 7.5% is our best estimate of that through-the-cycle performance. As of now, we feel really good about that assumption given the fact that we just updated this a few quarters back, and we don't expect to make changes to it in the near future. But again, it's a through-the-cycle assumption. And we think it's the right way for us to run the business is prudent and has a view that's through the cycle. Mihir Bhatia: Sure. Maybe just one question on that though. Has something changed post-COVID? I don't know if it's like the policies and people just being more willing to do forbearance than before? Or are these claim rate trends pretty similar to what you were seeing in, let's say, 2018, 2019? I guess what I'm trying to understand is, is -- has something changed in the housing -- the mortgage servicing backdrop, which has enabled these cure rates to be so strong? Richard Thornberry: Yes. Mihir, that's a great question. And Sumita and I can tag team that one because that's something we ask ourselves each quarter, too. Are we seeing something fundamentally different than what has occurred in the past? I think since COVID, obviously, we've had a tremendous amount of home equity growth, which provides borrowers with a variety of different avenues to solve some sort of financial hardship, right? And I think it also helps servicers counsel borrowers how to navigate that hardship. Combined with the fact that we -- through COVID, there's muscle memory in terms of assisting the borrower through that hardship through forbearance programs and other things. So I do think, to your point, pre-COVID, post-COVID, the combination of home value increases and also kind of the muscle memory from some of the forbearance programs has proven to be positive. I would say as we go further away from that home equity kind of accelerated growth rate we saw in '20 and '21, we get the more normalized kind of home appreciation maybe with different regional downturns. That part will normalize. But I do think as an industry, the GSEs, servicers fundamentally have altered processes that are working to kind of get borrowers back on their feet. And from a reserving point of view, we spend time each quarter kind of assessing how we think that will impact the go forward. And what Sumita said is how we think about it, which is we really -- on day 1, we have to take a multiyear view through the cycle. And I would just add to Sumita's comments that today, we also continue to evaluate some of the uncertainty in the marketplace that's playing out currently to kind of influence that through-the-cycle view. So I think definitely seeing positives over the last 4 or 5 years. Some of that is probably sustainable. Some of it will normalize over time, and that's what we're really trying to evaluate. Operator: Thank you. I'm showing no further questions at this time. I'd like to turn it back to Rick Thornberry for closing remarks. Richard Thornberry: Thank you. I appreciate everybody joining us today and for the questions. And as you can tell, we're excited about the path going forward with the acquisition of Inigo in the -- hopefully, in the new year. And we look forward to seeing as many of you and talking to as many of you as we can over the coming weeks. But we appreciate your time and your support. Take care. Enjoy the holidays, if we don't get a chance to see you before then, and we'll talk soon. Take care. Operator: This concludes today's conference call. Thank you for participating, and you may now disconnect.
Operator: Greetings, and welcome to the Wolverine Worldwide Third Quarter Fiscal 2025 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Jared Filippone, Head of Investor Relations. Jared, you may begin. Jared Filippone: Good morning, and welcome to our third quarter fiscal 2025 conference call. On the call today are Chris Hufnagel, President and Chief Executive Officer; and Taryn Miller, Chief Financial Officer. Earlier this morning, we issued a press release announcing our financial results for the third quarter of 2025 and guidance for fiscal year 2025. The press release is available on many news sites and can be viewed on our corporate website at wolverineworldwide.com. This morning's press release and comments made during today's earnings call include non-GAAP financial measures. These non-GAAP financial measures, including references to the ongoing business, were reconciled to the most comparable GAAP financial measures and attached tables within the body of the release or on our Investor Relations page on our website, wolverineworldwide.com. I'd also like to remind you that statements describing the company's expectations, plans, predictions and projections, such as those regarding the company's outlook for fiscal year 2025, growth opportunities and trends expected to affect the company's future performance made during today's conference call are forward-looking statements under U.S. securities laws. As a result, we must caution you that there are a number of factors that could cause actual results to differ materially from those described in the forward-looking statements. These important risk factors are identified in the company's SEC filings and in our press releases. Additionally, during the quarter, we elected to change our accounting policy for certain inventory from LIFO to FIFO. The majority of our distribution warehouse inventory was already accounted for using FIFO, and this change aligns all warehouse inventory under a consistent policy. The financial statements in today's release and the numbers referenced on the call reflect the impact of this accounting change for both the current and prior year periods, which have been retrospectively adjusted. With that, I will now turn the call over to Chris Hufnagel. Christopher Hufnagel: Thanks, Jared. Good morning, everyone, and thanks for joining us on today's call. In the third quarter, we exceeded our expectations on both the top and bottom line. Revenue grew approximately 7%, in line with our long-term target of mid- to high single-digit growth and was again driven by our two largest brands, Merrell and Saucony. Healthy revenue growth, coupled with another quarter of record gross margin and strong execution, delivered adjusted earnings per share of $0.36. Adjusted EPS grew at more than triple the rate of top line growth as we continue to prudently manage the business, balancing needed an important investment into the business while expanding profitability. Our strategy and disciplined execution continues to deliver solid results, and our team remains focused on executing our brand-building model with distinction, centered squarely on building awesome products, telling amazing stories and driving the business. As I reflect on where our portfolio is today and where we need to go tomorrow, it's clear our brands are at three different stages of development. First, Merrell and Saucony are moving at pace, taking market share and generating consistent revenue growth around the world. Our aim here is to continue to thoughtfully manage these brands to sustainably scale them to their fullest potential. We've made real progress in elevating design and innovation within their product pipeline as well as in strengthening their brand positioning through impactful marketing activations. For 2025, these two brands are expected to represent nearly 2/3 of the company's total revenue and record mid-teens year-over-year growth combined. Second, we believe Sweaty Betty has begun to turn the corner, the result of a lot of hard work in developing a new strategy and beginning to execute it over the past 6 months. The brand has delivered on the milestones that we believe are critical at this point in its evolution, which started with margin expansion and has transitioned to sequential improvement of year-over-year revenue trends. And finally, the Wolverine brand and our Work Group have not made the progress we anticipated. While I'm disappointed in our performance here, I believe we have a firm handle on the work that's necessary to get this business back on track. And importantly, we have new leadership in place. As of Monday, following a thorough search process, I'm pleased to announce Justin Cupps as our new Work Group President. Justin is a veteran leader with deep experience across a host of great footwear, apparel and accessory brands. He's a strong addition to our leadership team. And for some context, Work Group revenue represents less than 1/4 of the company's consolidated revenue and is now expected to finish the year down high single digits compared to 2024. In aggregate, I'm encouraged by the progress we've made and continue to make as a company. This year, we've elevated our teams and talent by adding excellent leadership like Justin, as well as new product design, merchandising, marketing and sales talent across our brands. We've improved our processes, including our integrated business planning approach for more efficient demand and inventory management. We successfully completed the integration of Sweaty Betty's tools and processes into the company's ecosystem, advanced the adoption and use of AI across the business and develop plans to further elevate and modernize our e-commerce tools and platform next year. We've developed new muscles to drive impact in the global marketplace with our key city strategy, and we fostered a new culture centered around growth and winning together. In addition to the above, we expect to deliver solid financial results for the year. The midpoint of our guidance reflects revenue growth of approximately 6%, an increase in adjusted earnings per share of approximately 50% compared to 2024. Before I turn the call over to Taryn Miller to provide greater detail on our third quarter results and outlook for the year, I'd like to share some additional insights on our brands and their continued progress. I'll start with Saucony, which grew 27% in the third quarter. Saucony is uniquely positioned as a disruptive challenger brand at the intersection of two of the fastest-growing categories in the market, performance and lifestyle running, and the brand continues to win in these highly competitive arenas. In the third quarter, Saucony grew performance run revenue by strong double digits globally compared to last year and again took market share in the important U.S. run specialty channel, powered in part by the brand's core 4 franchises, the Ride, Guide, Hurricane and Triumph, which target its movemaker consumer. While the brand successfully tapped into this broader market opportunity, it continues to maintain a strong focus on pinnacle innovation for elite runners with its Endorphin franchise. The collection includes the Endorphin Speed for serious training, the Endorphin Pro for race day and the Endorphin Elite super shoe for ultimate performance. In 2026, the brand plan to introduce the all-new Endorphin Azura, a premium non-plated trainer, targeting a larger consumer segment and growing opportunity within the market. In addition to further elevating franchises within the core 4 with innovation incubated within the aforementioned Endorphin series. On the lifestyle side, Saucony drove strong revenue growth globally and took significant market share here in the U.S. as we continue to focus on prudently growing this segment of the business around the world. The brand's deep product archive enables it to authentically capitalize on a variety of different trends. So ProGrid Omni 9 and Ride Millennium, two of the brand's retro tech silhouettes, again drove significant growth in Q3. While classics like the Jazz Original and Shadow 5000 are encouragingly beginning to spark interest for 2026 with influential Tier 0 and Tier 1 retailers. Saucony continues to fuel brand heat with culturally relevant collabs, releasing new drops over the past few months, including 3sixteen, Keith Haring, Jae Tips and Engineered Garments. Saucony collaborated with METAGIRL on a release last quarter as well, which successfully lead in the brand's significant opportunity with women, the beginning of a deeper anticipated partnership with the influential designer going forward. In addition, the brand plans on dropping its first collaboration with prominent creator Westside Gunn in December with an expanded relationship and more drops expected next year. Saucony's brand is strong around the world, and we continue to invest in the brand in the last quarter, in part through our key city strategy. Saucony continued to leverage Tokyo in the Asia Pacific region with the flagship store opened in Harajuku earlier this year and is on track to open a host of new stores more broadly in China with our partner there. We expect that APAC will be the fastest-growing region in the world for the brand this year. In Europe, Saucony took over Central London as the title sponsor of the London 10K in July, as I detailed on our last call, and followed this up with the sponsorship of the Shoreditch 10K in September, bookends to a powerful quarter for the brand in London and more broadly in the EMEA region, which as a whole is on track to deliver strong double-digit revenue growth this year with momentum heading into 2026. Looking ahead, Saucony plans to expand its key city strategy to Paris, sponsoring the Eifel Tower 10K next month and opening our next pioneer store there in 2026. Brand interest continues to ramp up globally and affinity for the brand continues to increase with runners and more specifically, the younger consumer. While we continue to have success here in our home market, I'm equally excited about the global potential of the brand. Saucony's positioning within the fast-growing run lifestyle market is unique and a compelling combination of heritage and authenticity, coupled with best-in-class innovation and developing cultural relevance and the brand is setting the pace. 2025 is proving to be a great year for Saucony, which is on track to deliver all-time record revenue and profit as a brand. Moving to Merrell, which grew revenue 5% in the third quarter, driving increases in most regions and in both the performance and lifestyle sides of this business. Merrell, the category leader in hike, remains focused on modernizing the trail as an authentic outdoor lifestyle brand with more athletic and more versatile product design and innovation. In the third quarter, the brand accelerated its long-running market share gains in its core Hike category in the U.S., having taken share in 11 of the last 12 quarters, a category which encouragingly again improved sequentially to flat year-over-year. The Moab Speed 2, which is becoming a force on the trail and the world's #1 hiker, the Moab 3, both continue to drive growth at U.S. retail. The Agility Peak 5 drove strong growth on the trail running side. Looking ahead to the next spring, Merrell plans to introduce the new Agility Peak 6, combining plush FloatPro foam cushioning with aggressive Vibram Megagrip traction. Merrell's lifestyle business grew strong double digits in the third quarter, driven by a strong ramp-up of its disruptive Wrapt Collection, along with steady growth from the iconic easy on, easy off Jungle Moc at U.S. retail. In 2026, we anticipate the brand's lifestyle product pipeline will take a meaningful step forward. We're introducing trend-right low-profile silhouettes with the Relay, modern iterations on the Jungle Moc, lifestyle materializations of the SpeedARC collection and a consistent flow of energy-enhancing collaborations. While we're further distancing ourselves from the competition hike, we know a significant global opportunity exists in outdoor-inspired footwear, apparel and accessories. In the third quarter, Merrell drove increases in brand interest in affinity, particularly with women, and the brand's key city strategy continues to fuel momentum for the brand around the world as it has done for Saucony. Merrell's urban hike guide (sic) [ Urban Hiking Guide ] activation, which included media events, collabs and influencers drove brand heat in Paris and contributed to another quarter of solid growth in broader EMEA. Turning to Sweaty Betty, which outpaced our expectations in the third quarter with revenue down 4% versus the prior year. The team is aligned around a clear strategy and is executing with a high level of conviction and increased confidence as we reinvigorate Sweaty Betty as one of the original activewear brands focused on empowering women through fitness and beyond. Our efforts started with reestablishing Sweaty Betty's premium brand positioning, which underpins our entire strategy. Bold and distinctive storytelling behind the Wear the Damn Shorts campaign in the second quarter and the Weather Whatever campaign last quarter have continued to reinforce the brand's uniquely Sweaty Betty female-focused positioning. As a result, brand awareness and affinity continued to increase in the quarter with noteworthy gains among younger consumers and more premium buyers. At the same time, gross margins expanded once again as the brand continues strengthen both its product pipeline and positioning in the marketplace. Along with the improved business results, we're also making meaningful progress against the three pillars of our brand's new strategy. First, we are delivering growth within our DTC business in Sweaty Betty's home market with both e-commerce and stores growing in the third quarter. We started to elevate the brand's product line by introducing more newness, enabling a fresher offering with trend-right design and more thoughtful assortments, diversifying the brand's leadership in bottoms and expanding outerwear. This effort has produced some encouraging results with pants and outerwear both up very strong double digits across our DTC business in the quarter. Within our digital channels, we remain focused on enhancing the consumer experience. One example is the new Sweaty Betty app, which we launched last quarter, where consumers are converting at a higher rate and spending more per transaction. In brick-and-mortar, we've taken action over the past few months to further optimize our retail footprint, relocating 3 stores, opening 1 new store and closing a store. The new locations are performing well, and before the year is done, we plan to open 5 more new stores. Second, we're making early progress in expanding distribution in certain key markets. We launched the brand's new partnership in China and opened a pop-up store in Shanghai, opened a second store with our partner in New Zealand and develop plans to open additional stores in Australia and India next year. In the third quarter, the brand's international third-party business was up meaningfully, along with the EMEA wholesale business, albeit both still on a small basis. Third, we're resetting our U.S. operations focused on a full price, more premium online DTC business. We anticipate this transition will take some time and put some pressure on the brand's global growth numbers in the near term, but we believe it's necessary. This pivot is in motion with the business mix already shifting to more full price premium selling. We're making progress in resetting the overall Sweaty Betty business, and we believe the brand product marketing team are strong. We've seen improvement in the year-over-year top line trends and expect this to continue in the brand's critical final quarter of the year. And now finishing with Wolverine, which was down 8% in the quarter with the broader Work Group down 3%. Wolverine's performance remains inconsistent. Our return to running a better brand and business is taking longer than we initially anticipated. This said, we believe we have diagnosed the challenges. And effectively using our proven playbook and return the brand to steady growth in the future. The addition of Justin Cupps to the team is a win for the company, and I anticipate he'll accelerate the needed progress here. We're already well on the way to strengthen Wolverine's product pipeline, enabling more thoughtful segmentation in the marketplace and bolstering trend-right products and premium price point offerings with collections like the Rancher Pro, the USA-built Workshop Wedge and the all-new Infinity System, the brand's pinnacle expression of its performance comfort technology. Wolverine is in the process of amplifying its storytelling as well. The brand has partnered with Country Music star, Jordan Davis this year in a variety of activations, featuring both in-line and dedicated products. I'm excited to announce this morning that Wolverine will be an exclusive presenting partner for Season 2 of the Paramount+ series Landman, with the premiere in just a couple of weeks on November 16. Both of these partnerships align well with the Wolverine brand and extend its reach significantly with consumers. As the product and marketing improvements begin to take root, we plan to focus on recalibrating the marketplace, better balancing inventories and aligning distribution with the brand's category leadership role, more premium positioning and go-forward strategy. More to come on this as we enter the new year. I'd like to hand the call over to Taryn Miller to take you through our third quarter results and outlook for the remainder of 2025 in greater detail. Taryn? Taryn Miller: Thank you, Chris, and welcome, everyone. We delivered another quarter of strong results, exceeding expectations on both revenue and profitability. Our third quarter performance reflects disciplined execution of our strategy and the dedication of our teams. Our focus remains on implementing our brand-building growth model across the portfolio, starting with our two largest brands, Merrell and Saucony. Prioritizing investments in these brands has led to improved performance and market share gains in key categories. We are also seeing encouraging signs of progress in other areas, including another quarter of sequential improvement for Sweaty Betty. While there's still more work to do, particularly in the Work Group, we remain confident in our strategy and the path forward. I'll now take you through the key highlights from our third quarter. Revenue was $470 million, ahead of the $455 million midpoint of our guidance range. The over-delivery was driven by stronger-than-expected performance in the Active Group, along with an approximate $3 million benefit from favorable foreign currency. Revenue increased 7% compared to the prior year. And on a constant currency basis, revenue increased 6% as favorable foreign currency provided a $6 million benefit. Revenue growth in the third quarter was led by global wholesale, which increased 11% compared to the prior year, with international wholesale up mid-teens and U.S. wholesale up mid-single digits. DTC declined 5% compared to the prior year, primarily due to lower promotional activity in the U.S., partially offset by international growth, mainly in EMEA. Active Group revenue in the third quarter grew 11% compared to the prior year, ahead of our guidance of mid-single-digit growth. Saucony revenue increased 27% in the quarter, driven by broad-based growth across channels and markets. The brand saw solid growth in both the performance run and lifestyle categories from continued positive sell-through trends at retail and expanded distribution. Merrell revenue increased 5% in the quarter, driven by low double-digit growth in wholesale. This growth was supported by another quarter of market share gains in the hike category and strong sell-through at key accounts. This was partially offset by the DTC channel as the brand continues to lap elevated promotional activity from the prior year. Merrell has been implementing targeted initiatives to strengthen its DTC foundation, including refining its promotional strategy, elevating marketing to reinforce premium positioning, and enhancing digital capabilities to drive higher quality engagement and conversion. These efforts contributed to an improvement in the mix of full price sales and gross margin expansion in the quarter. Sweaty Betty revenue declined 4% in the quarter, which was better than expected. As Chris mentioned, the brand is now executing on a clear strategy to reset the Sweaty Betty business, which aided in delivering growth in its core EMEA market across both wholesale and DTC. Group revenue declined 3% compared to the prior year and was slightly below the midpoint of our guidance range. Performance in the quarter was largely driven by lower-than-expected sell-through that impacted replenishment orders. Consolidated gross margin for the third quarter was 47.5%, an increase of 240 basis points compared to the prior year and 50 basis points above our expectations. The year-over-year improvement reflects product cost savings, lower promotional activity and a timing benefit from our tariff mitigation efforts, net of incremental tariff costs. Adjusted operating margin was 9.1%, an increase of 150 basis points compared to the prior year and 80 basis points above our expectations. This performance reflects gross margin expansion, continued investment in our brands, talent and key capabilities, as well as the net timing benefit from our tariff mitigation efforts. Top line growth and operating margin expansion led to 29% increase in adjusted diluted earnings per share to $0.36 compared to $0.28 in the prior year and our outlook of $0.28 to $0.32. Net debt at the end of the third quarter was $543 million, down $20 million or 4% compared to the same time last year. Before moving to our outlook, I want to provide an update on the impact of tariffs. This has been a dynamic situation with rate changes and evolving clarity around the timing of when the new tariffs took effect. On our last call, we shared that we expected to offset the majority of the unmitigated impact in 2025, which we estimated to be approximately $20 million. We also noted that the majority of the impact was anticipated to occur in the fourth quarter. We now expect the unmitigated impact in 2025 to be approximately $10 million. The reduction in the estimated impact reflects a timing shift between 2025 and 2026. We took quick and decisive action when trade policy changed in the second quarter of this year. As a result of those actions and the timing shift, we now expect to more than offset the $10 million impact in 2025. On an annualized basis, we estimate the unmitigated impact from tariffs to be approximately $65 million, representing an incremental $55 million impact on 2026. We're encouraged by the progress we've made in navigating these cost headwinds and remain focused on delivering gross margin within our aspirational value creation framework of 45% to 47%. While we are not providing formal guidance for 2026 at this time, based on what we know today, we expect gross margin to be between the lower end and midpoint of our aspirational range next year as we work to offset the tariff-related headwinds over time. Turning to our outlook. Fiscal year 2025 revenue is expected to be in the range of $1.855 billion to $1.87 billion, an increase of approximately 6.4% at the midpoint, and 5.6% on a constant currency basis compared to 2024 ongoing business. The impact of the 53rd week in fiscal 2025 is expected to provide a 60 basis point benefit to revenue growth. At the midpoint of the range, we expect Active Group revenue to grow low double digits on a constant currency basis, fueled by the momentum we built in our two largest brands, Merrell and Saucony. New products are resonating with consumers. Our key city strategy is driving focused international growth, and we're seeing continued success in expanding our lifestyle offering. We expect the Work Group revenue to decline high single digits on a constant currency basis. As Chris shared, we haven't made the progress we expected in Work Group. While we're encouraged by recent steps in product innovation and marketing, the path to stronger, more consistent growth is taking longer than originally anticipated. We're excited to have Justin join the team, and we remain focused on improving execution across the 4 pillars of our strategy. Gross margin is expected to be approximately 47.1% at the midpoint of the range, up 280 basis points compared to the prior year. The majority of the improvement is driven by product cost savings, a healthier mix of full price sales and a timing benefit from our tariff mitigation efforts, net of incremental tariff costs, reflecting the pace of our actions relative to the phasing of the cost increases. Adjusted operating margin is expected to be approximately 8.9% at the midpoint of the guidance range, up 160 basis points from the prior year. The year-over-year improvement reflects strategic reinvestment of a portion of gross margin gains to support our brand-building model, including marketing, talent and key capabilities. Interest and other expenses are projected to be approximately $27 million, down from $39 million in 2024 due to the reduction in net debt. The effective tax rate is projected to be approximately 16%. As a result, adjusted diluted earnings per share is expected to be in the range of $1.29 to $1.34, including a $0.02 foreign currency benefit versus prior year. At the midpoint, this represents constant currency growth of 50% compared to last year. Operating free cash flow is expected in the range of $85 million to $95 million, with approximately $25 million of capital expenditures. Moving to our fourth quarter guidance. Revenue is expected to be in the range of $498 million to $513 million, a year-over-year increase of approximately 2.2% at the midpoint and 0.5% on a constant currency basis. At the midpoint of the range and on a constant currency basis, we anticipate the Active Group revenue to grow high single digits and Work Group revenue to decline by low double digits compared to the prior year. Gross margin in the fourth quarter is expected to be approximately 46.3%, an increase of 270 basis points compared to last year. A portion of the improvement reflects a timing benefit from our tariff mitigation efforts, net of incremental tariff costs. Adjusted operating margin is expected to be approximately 10.5%, an increase of 60 basis points compared to last year. As a result, adjusted diluted earnings per share for the fourth quarter is expected to be in the range of $0.39 to $0.44 compared to $0.40 in the prior year. To summarize, we're encouraged by our third quarter and year-to-date 2025 performance as well as the expected continued momentum in the Active Group, which reflects the strength of our strategy and the discipline of our execution. At the same time, we recognize there's more work to do. We remain focused on driving consistency across the portfolio, sharpening our operational rigor and continuing to invest in areas that will fuel long-term growth. We're staying responsive and resilient as we manage through a dynamic macro backdrop, including evolving consumer environment and tariff-related margin pressures. With that, let me hand the call back to Chris before we open it up for questions. Christopher Hufnagel: Thanks, Taryn. The company has made significant strides in becoming a builder of great global brands over the course of the past 2 years. We're squarely focused on our consumers. We're investing in our brands through enhanced product innovation and elevated marketing. And critically, we're prioritizing responsible brand management in the marketplace, focused on consistent brand experiences, thoughtful distribution decisions, reduced promotional activity, rigorous brand protection and driving sell-through. We believe Wolverine Worldwide is well positioned in the global marketplace and well positioned to navigate the dynamic and uncertain macro environment. We're executing our brand-building playbook with pace and urgency, all focused on making every day better for our consumers, our teams, our communities and our shareholders. With that, thank you to all of you for taking the time to be with us this morning, and we're happy to take your questions. Operator? Operator: [Operator Instructions] It looks like our first question today comes from the line of Peter McGoldrick with Stifel. Peter McGoldrick: I was curious on the Saucony opportunity. Within the 25% constant currency growth, can you help parse the contribution from new distribution and like-for-like growth? Christopher Hufnagel: Yes. Thanks, Peter. We're really pleased with Saucony's performance in the quarter and certainly the performance year-to-date. We describe it really as broad-based categories and channels and regions, which we're encouraged by. I think if we had to put a number on the new distribution contribution for the quarter, about 1/3. Peter McGoldrick: Okay. That's really helpful. And then as we think of the split between lifestyle and performance, I was curious if you can help us think about how that splits within your footwear categories. And then as you plan the business going forward, how should we think of the balance between lifestyle footwear, every day running and then the high-performance running footwear? Christopher Hufnagel: Yes. Great question. I think you're hitting on something that was really important to us as we began to build a new strategy for Saucony several years ago. And thinking about both the elite performance run segment, the more casual everyday lifestyle runner and then certainly the lifestyle piece. And I think that reset of strategy has really helped us gain traction and certainly helped propel Saucony forward. Lifestyle piece is growing faster than the performance piece, but performance is also growing. And we're gaining share in both lifestyle accounts as well as the critical run specialty channel. So I'd say that we are encouraged that growth is coming from both parts. Certainly, our new entry into lifestyle coming off of a smaller base is helping to accentuate those year-over-year gains. Operator: And our next question comes from the line of Mauricio Serna with UBS Financial. Mauricio Serna Vega: Maybe just on Saucony to elaborate. It seems that you've had pretty good success with the expansion in lifestyle. I think you had alluded to 1,300 doors for fall '25. Any thoughts on where do you see that door count going into spring '26? Christopher Hufnagel: Yes. Good question. And certainly, we've been encouraged by the receptivity to the moves we've made in Saucony and certainly by that door expansion. We have opened doors in Saucony lifestyle. We've talked about that. We still believe that we're less than 1/4 of the full door potential. And I would say that we're sort of maniacally looking at sell-throughs. One of the things that we're committed to is responsible brand management. And we want to make sure that where we open new distribution, where we go put ideas, we're really moving towards a pull model versus a push model. And so as we open new doors, we said early on that this would be a test and learn. And I would say that our doors, some doors are overperforming what we anticipated. A lot are performing at what we hoped and anticipated. And frankly, some doors are underperforming. And we need to react to that change where the consumer is, learn from where we have momentum and how do we capitalize on that responsibly. At the same time, where we aren't generating the sell-throughs that we want, we'll look to pivot away from that and diagnose what the issue is. I think the doors where we are underperforming on sell-through rates, we largely attribute to low brand awareness, which is something we're working on simultaneously with the brand as we invest more in marketing dollars. So something we're keenly watching. Every single week, we look at sell-throughs. We're staying very close to our customers and our consumers and making sure that as we drive this growth for the brand, we're doing it responsibly and managing for the long term. Operator: And our next question comes from the line of Laurent Vasilescu with BNP Paribas. Laurent Vasilescu: I just wanted to ask with regards to fourth quarter, the active, high single-digit growth. Can you maybe -- Chris, can you unpack that a little bit more in terms of expectations for Saucony? And then I have a follow-up with regards to -- for 2026. Christopher Hufnagel: Yes. I think for the fourth quarter for the Active Group, we remain and continue to be encouraged by the progress we've made, the momentum that they've generated. Saucony, we anticipate it will be a little better than Merrell in the fourth quarter. At the same time, Saucony's comparisons are a little easier, given that Merrell is comping growth from 2024. So -- but still encouraged. Again, I think if you think about how we've talked about the business, our long-term value creation model, our aspirations, this company does extraordinarily well at mid- to high single-digit revenue growth in the consolidated. And our goal is to get all brands working at that pace and hopefully, certainly some better than that pace. Laurent Vasilescu: Okay. Very helpful, Chris. And then I think in the beginning of the year, it was about 900 doors, then for the second half, it was about 400 doors. You mentioned right before that you're still under 25% penetration rate. What kind of numbers should we think about high level in terms of number of doors for spring 2026? And I'd love to hear more about unpacking what you're seeing in terms of the underperforming doors. I think you mentioned brand awareness, but can you just give us a little bit more color on what you're seeing, what measures you're going to put in place for those underperforming doors? Christopher Hufnagel: Yes. Good question, Laurent. I appreciate that. We do anticipate first half of '26, the door count to be higher than the first half of '25. That's how we're thinking about the business. And then obviously, we continue to manage really week-to-week with these accounts. And in the doors that we have not met our sell-through expectations or our partner sell-through expectations, we are working to diagnose, and what performed better, men's or women's? How are the assortments? How are we merchandise? What was the consumer feedback? And then trying to triangulate that with our own data, our own e-commerce metrics, where our files are, what sort of demographics and ZIP codes do we do better with. And I think these are things that brands are going through a growth curve like this we have to manage, and we have to manage. I mean that is just a reality situation. The good news is that stock, we believe, is going to achieve all-time record revenue and all-time record profit this year and carry that momentum into 2026. So there is work to do. And I would say, as with any business, if you're not swinging and missing a few times, you're probably not thinking about the business critically enough. And I would say where doors that we have underperformed that's a thing that we can learn and then move from. Operator: And our next question comes from the line of Jonathan Komp with Baird. Jonathan Komp: Chris, if I could follow up, could you just maybe more directly talk to some of the sell-throughs you're seeing on more of a near-term basis? And as you think about heading into 2026, can you give a little more comfort or color on the indications you see for the Active Group into 2026 in terms of growth potential there? And then, Taryn, just to follow up, I appreciate the gross margin commentary for 2026. Should we think that you're at a near-term peak for margin here? Or given the timing of some of the tariff impacts, are there areas you can leverage to continue to drive operating margin expansion just at an initial level here as we look forward given the goal to get back to much higher multiyear operating margins? Christopher Hufnagel: I'll answer the first one. And I think the question really is premised on sort of expectations for Merrell and Saucony. And I would say, again, and I tried to outline this in prepared remarks, I would bucket our brands in different stages of evolution. And I would say that Merrell and Saucony, our two biggest brands are moving at pace. And I would say that was where we applied a tremendous amount of effort in the early days of the turnaround to get our biggest brands moving. And I'm encouraged by the rigorous deployment of that playbook, how we've built the product pipeline, how we're working to create demand and then frankly, how the Wolverine Worldwide team is driving the business each day, I'm encouraged by. We've talked about market share gains. Saucony gained share in the run specialty channel, has gained share in lifestyle. I think Merrell has 11 of 12 consecutive quarters of gaining share at a rate that's actually accelerating. Performance and lifestyle for Saucony grew in the quarter. Performance and lifestyle for Merrell grew in the quarter. And I'm encouraged by some of the work that we're doing with that new Merrell team to think about the broader outdoor lifestyle opportunity beyond the trail. So it is not certainly easy days out there. We're -- obviously, with everyone thinking about where the consumer is, how we had in the holiday, how we think about 2026. But I think for the things that we can control with our own team, I think we've got a lot of things going in the right direction. And where we do have some challenges and opportunities to do better, I think we've diagnosed those issues, and we're going to quickly get after them. Taryn Miller: And Jonathan, to your question on gross margins, we are pleased with the performance that we have made to date in terms of expanding our gross margin. And at the full year of our guide, we're at around 47.1% for gross margin on the year. That's up 280 basis points year-on-year. And the primary drivers of that are what we have been talking about for some time of the product cost savings that we've been driving with our supply chain organization as well as more full price sales as we're building that brand-building model across the brands and channels, we're able to get more full price sales. We're able to get the more premium price points. So that's the primary driver. The tariff timing piece that I spoke to in the prepared remarks, for the full year, that's providing 40 bps of -- basis points of improvement year-on-year. So you can see the vast majority of that 280 improvement is really the sustainable part of our business. I think in terms of the tariffs, why is it providing a net benefit this year? Let me explain that one a little bit. While the trade policy continues to evolve, we did start taking actions early in the year to mitigate those headwinds in the second quarter. So for 2025, the benefit of our actions started to materialize in the third quarter. However, we aren't seeing the full impact of the higher tariffs until the fourth quarter. And even then, I would note that a lot of the inventory sold in our U.S. channels reflects product that was imported when the incremental tariffs for most of our sourcing countries were at the 10% rate, not the current 20%. Therefore, as a result of that timing, then you can see that our mitigation actions are ahead of the incremental costs hitting the P&L. And -- but like I said, the majority of that 280 on this year is really the sustainable piece. The timing piece would be that 40 basis point impact from tariffs. Jonathan Komp: Okay. And sorry, just to be more clear, I guess, thinking about operating margin, the 8.9% guide for this year, significant progress, still well below your mid-teens aspiration. So should we think that 2026 might be a step back on operating margin? Or are there other areas you could drive leverage to help manage through the tariff headwinds? Taryn Miller: Yes. It's too early to talk details on 2026. We'll do that in February. We want to -- the reason we gave the gross margin is we were just trying to put some context around how we were looking at the broader tariff impact in '26 and our plans to mitigate. I mean we continue to find opportunity -- look for and find opportunities to expand growth and operating margin. We're obviously going to be doing that now in the face of a larger tariff impact, but our value creation model stays intact. It's just the timing of the tariffs is what we're looking at offsetting. We'll have more to share on '26 in a few months. Operator: All right. Our next question comes from the line of Sam Poser with Williams Trading. Samuel Poser: I'd just like to dig into Saucony a little bit more on the lifestyle side. Can you give us some idea of what's the breakdown between -- like between sell-in and sell-through on the lifestyle product? And then you mentioned, Chris, that you were seeing some changes between men's, women's and kids and so on. Can you give us some color on the sell-through rates on the rates you're seeing between them and how that may be balanced and you know where I'm going on this. Christopher Hufnagel: Yes. I mean I think -- thanks, Sam. I appreciate the question. Like I said in an answer to a previous question, I think I break down our performance in the early days in these lifestyles accounts. In some places, it's well outpacing what our expectations were. In a lot of cases, it's in the range of what we need it to be. And then in some places, it's at a slower rate. And so I think for us, as we try to create a really strong pull model, manage the inventory, manage the brand, manage the marketplace really well, we'll look to responsibly grow in doors where we've overperformed. And then frankly, we'll pull back in doors where we've underperformed. And I think that is incumbent upon companies that want to run good brands. I think historically, we may have tried to force product in and not be responsible and really focus on sell-in and not sell-through. And we're trying to pivot to really obsess about the sell-through. Encouragingly, though, we are pleased with the progress that we've made in fairly short order. We're pleased with the growth rates. And then I'm encouraged by what I see for the product pipeline for '26. And then even as trends emerge and evolve with the consumer, I'm thankful that I've got a century-old archive in Saucony that I can pull from. And some early indications are maybe a move back to some classifications where Saucony has historically been very good. So we remain encouraged by the progress in lifestyle. We're watching it very closely. We talk about it every single week. And it's something that is -- as I think about how we want to responsibly grow Saucony in the long term, responsibly growing that lifestyle business is paramount. Samuel Poser: I really wanted to talk about the genders, the men, women and kids, not the lifestyle. I really wanted to get the breakdown on, is men's performing better -- in overall, men's are better, women's better, kids better and so on? Because I mean, historically, a long time ago, Saucony has been more appealing to women more than almost any other brand out there. And it seems like a lot of -- it may have been sort of the sell-in on men's may have been higher than it may have should have been, and women's may have bigger opportunity and so on. That's what I'm really -- that's where I'm going. Christopher Hufnagel: That's a good question. I wasn't trying to be elusive. I totally forgot that you asked about the gender split down, so I apologize, Sam. Sell-in, like we talked about, men's and women's, I would say women's has performed really good, really well for us, along with kids, kids has done very well for us. So we're seeing a very strong reception to the women's piece and certainly the kids piece. Interestingly enough, the way we do sizing for the lifestyle piece is a lot of unisex. So unisex numbers actually growing very high, which we assume a lot of those are buying smaller sizes for the female consumer. So I'd say we've made really nice progress with her. We just did a collaboration with METAGIRL, which we think will deepen the connection her. She's a very influential creator who we're fortunate to partner with. And I think that product sold out before lunch -- the day of launch. So we are very focused on her, and we think there's a great opportunity with her. Samuel Poser: And on the men's side, I mean, is the men's side living up to the expectation or is the women's side exceeding? That's where I'm going here. Christopher Hufnagel: That's a good question. I think men's, again, in lifestyle in total, we're very pleased with the progress. Pleased with the sell-throughs, pleased with the receptivity, pleased about what we believe that it's doing for the brand. I think we're really happy with the pickup we've seen with her. Operator: And our next question comes from the line of Anna Andreeva with Piper Sandler. Noah Helfstein: This is Noah on for Anna. So I just wanted to touch on Merrell. You had mentioned that the brand was in the early stages of evolving its distribution. Should it follow the same playbook as Saucony with additional new door step-up in specialty into the next year? And then have you quantified what that new door opportunity could look like? And then just a quick follow-up on Saucony. Can you remind us what brand awareness is now versus a few years ago? Christopher Hufnagel: Sure. As it relates to Merrell, the new door expansion isn't as great for Merrell as it is for Saucony. Saucony is a very well-distributed brand. For me, it's more talk about the evolution of that distribution. And what other doors could we possibly target, especially with her. So while I do think there is door count opportunity expansion, it probably won't be at the pace in which we are able to do for Saucony. I think for us, the biggest opportunity in Merrell is moving beyond the trail, making both the trail lighter and faster, more modern at the same time, I think a much broader outdoor lifestyle opportunity for the brand, specifically for her, which is why we're encouraged by the receptivity of some of our new product launches and the ability for us to sell the Moab Speed 2, the SpeedARC and where those products are showing up are really encouraging. And then I think we're equally excited about what we can do next year, especially with the low profile with the Relay and what that can mean from a fashion trend standpoint. And then certainly, cold and wet weather boots, we think, is an opportunity. So I think the door count expansion for Merrell isn't as great as it was for Saucony. At the same time, I think chasing the bigger outdoor lifestyle opportunities is a giant opportunity for Merrell. And then as it relates to awareness, we see awareness slightly up sort of quarter-on-quarter. We measure it twice a year, we do brand health surveys. We see awareness slightly up. But importantly, we see bigger movements in affinity and heat for the brand, which we're really encouraged by. So I think that really is driven by a shift in how we've chosen to invest our marketing dollars. I think we've really consciously tried to make a bigger play in upper funnel advertising and launch meaningful campaigns behind these brands to certainly raise awareness. But then obviously, it's important for us to build strong brand affinity and importantly, brand heat. And I think specifically, the places -- the cohorts that we've seen pickups are with core runners and then encouraging that younger consumer. Operator: And our next question comes from the line of Mitch Kummetz with Seaport Research. Mitchel Kummetz: First one is, I'm just curious, was there any pull forward that occurred in the quarter that might explain some of the upside, the over-delivery in the quarter as well as why the fourth quarter growth rate maybe doesn't look as strong as 3Q? And then I also have a follow-up. Taryn Miller: Yes, Mitch, no, there was -- I wouldn't call out any pull forward or timing shifts in the third quarter relative to the fourth quarter. Mitchel Kummetz: Okay. And then on Saucony, Chris, I think your comment around door count was that first half of '26 will be higher than the first half of '25. You added doors in the back half of '25. So I'm curious if 1H '26 is going to be above 2H '25 in terms of door count? And then also with some of these new doors that you've opened, I would imagine that the assortment going into those new doors wasn't a full assortment. And I'm curious with the doors that you recently added, let's say, for 1H '26, if you think that the doors that you've added in the last 12 months will have more product than what they had the prior year when you added those stores. Hopefully, that question makes sense. Christopher Hufnagel: No, it makes perfect sense. And I think that part of it is part of our test and learn, and how do we optimize the new doors that we've opened. And that part of it is where we put assortments in, how do that assortment resonate, men's, women's, kids, how is it shown? How is it presented? Is there opportunities for adding SKUs to those assortments. And that part of the optimization work. At the same time, it's also making sure that doors where we did underperform, we're quickly moving past those doors and finding new places to grow. It's too early to call a door count second half of '26 versus the second half of '25. Obviously, those plans are still in development. And we're looking at both at a U.S. store count as well as a global door count. So just to reiterate, first half '26 stores will be an increase over first half of '25 doors, and we're still working on the back half of '26 into '27. Mitchel Kummetz: I guess maybe you misunderstood my question. I'm wondering if door count for first half of '26 will be above second half of '25? Christopher Hufnagel: No, sorry, that was the thing was embedded in our remarks. I think first half of '26 will be fewer doors than second half of '25 because we're working to rationalize that door count in places that we've underperformed, move past those doors and go look for new growth opportunities. Operator: And we have a follow-up question from Mauricio Serna. Mauricio Serna Vega: Maybe could you elaborate on the DTC growth that you've seen for the Saucony brand in the quarter? How does that look? And then on SG&A, like it sounds like you're continuing to invest in demand creation and other long-term enablers. How should we think about that growth rate going into '26? Because I think part of the algorithm is to get some leverage to get to that aspirational mid-teens EBIT margin. Christopher Hufnagel: I'll talk about the DTC performance first and then hand it over to Taryn. I think just let me talk about broader DTC in total. The quarter was generally in line with our expectations. And I think in '25, we're really trying to prioritize for our DTC operations a couple of things. First, running a brand-accretive DTC business. How do the stores and e-commerce sites that we run do more than just drive revenue? How do they also help build brand? How are they positive brand experiences for our consumers? How do they deepen emotional connections? At the same time, be a profitable channel for us. We worked hard this year to become less promotional on our e-commerce sites. In '24, we certainly were promotional as we're working through some obsolete inventory and working to turn the organization around. And we made the choice this year to really try to become less promotional across the entire portfolio. And I'm encouraged by the progress we've made. I think in the quarter, we're at 430 basis points in gross margin because we are becoming less promotional. And at the same time, also drive more full price, more premium selling and then importantly, have better and more consistent storytelling across all of our experiences. As it relates to Saucony, Saucony was a bright spot in the quarter, up mid-teens in their e-commerce business, which we are certainly encouraged by. And clearly, brands that have managed the marketplace well, have compelling product, new and fresh innovation, those brands are winning. I'll also say that Sweaty Betty U.K., the U.K. portion of that e-commerce business was positive in the quarter, too, which is really encouraging to see that brand begin to turn the corner for us. So that's how we approach the DTC business. Obviously, everyone is very focused on the few weeks remaining in the year, driving a successful holiday season and a successful conclusion to '25 and then carrying on to '26. Taryn Miller: And to your second question, Mauricio, in terms of our value creation model, the revenue growth combined with our disciplined SG&A management and cost management overall, frankly, are key to our growth algorithm, as you pointed out. And we are -- I'd say how I would describe it is we're working to balance the importance of making sure that we continue to expand margins in this inflationary environment as well as making those key strategic investments that we need to make. And this year, in 2025, as I identified earlier, we have grown gross margins with sustainable solutions. And we are reinvesting a portion of those gains in those key areas we're talking about, about driving that fuel for the growth so that we can get that leverage in the upcoming years. Those investments are in areas like marketing, like Chris has talked about the key cities. We've talked about the ground game, our talent and product development as well as key processes that Chris called out as well in terms of integrated business planning. So we've made a lot of progress as we've been trying to balance that growing margins as well as investing for the future. Too soon, as I said earlier, to talk about 2026, but that core discipline of driving revenue growth and being disciplined with our SG&A remains true. Operator: And that does conclude our Q&A session today as well as today's conference call. Thank you all for joining today, and you may now disconnect. Have a great day, everyone.
Operator: Good day, ladies and gentlemen, and thank you for standing by. Welcome to Ovintiv's 2025 Third Quarter Results Conference Call. As a reminder, today's call is being recorded. [Operator Instructions] Please be advised that this conference call may not be recorded or rebroadcast without the expressed consent of Ovintiv. I would now like to turn the conference call over to Jason Verhaest from Investor Relations. Please go ahead, Mr. Verhaest. Jason Verhaest: Thank you, Pam, and welcome, everyone. This call is being webcast, and the slides are available on our website at ovintiv.com. Please take note of the advisory regarding forward-looking statements at the beginning of our slides and in our disclosure documents filed on EDGAR and SEDAR+. Following the prepared remarks, we will be available to take your questions. Please limit your time to one question and one follow-up. I will now turn the call over to our President and CEO, Brendan McCracken. Brendan McCracken: Thanks, Jason. Good morning, everybody, and thank you for joining us. We're excited to talk to you today about another great quarter and some significant strategic actions we are taking to crystallize our vision to becoming the leading North American independent E&P. First, we've entered into an agreement to acquire NuVista Energy, who have built an incredible asset base in the core of the Alberta Montney oil window. This transaction is priced right and we expect it to create exceptional value for our shareholders. It is immediately accretive on all financial metrics, highlighted by a 10% boost to our go-forward free cash flow per share. It's leverage-neutral at closing, it comes with valuable spare midstream capacity and valuable downstream gas price exposure and it adds significant inventory in the high-return oil window of the Montney. Second, we plan to commence the divestiture process for the sale of our Anadarko assets. Proceeds will be used for accelerated debt reduction, and we now expect to be below our $4 billion debt target by the end of 2026. That will enable us to allocate a higher percentage of our free cash flow to shareholder returns. Third, we have continued to meaningfully add to our Permian well inventory at highly attractive prices by prosecuting our ground game strategy in the Midland Basin. Finally, we continue to deliver exceptional performance across the organization, highlighted by our strong third quarter results and positive full year 2025 guidance revisions. Collectively, these actions streamline and high-grade our portfolio help us to meet or exceed our debt target and uniquely position us with significant inventory duration in the two most valuable oil plays in North America, the Permian and the Montney. Before we get into the transaction details, Corey will give you a quick overview of our third quarter results. Corey Code: Thanks, Brendan. We delivered another strong quarter, once again meeting or beating all of our guidance targets, setting us up for a strong finish to the year. We generated cash flow per share of $3.47 and free cash flow of $351 million, both beating consensus estimates. We also returned approximately $235 million to our owners through share buybacks and our base dividend and reduced net debt by $126 million. Production during the quarter was at the high end of our guidance ranges across all products. The beat was largely driven by the Montney as we continue to see strong efficiency gains from our recently acquired Karr and Wapiti assets. We came in below the midpoint on capital, and we also match or beat our guidance on all per unit cost items. Our third quarter results demonstrate the ongoing resiliency of our business and our constant pursuit of capital efficiency. Despite the more than $10 per barrel drop we've seen in WTI oil prices since the first quarter of 2024, our cash flow per share has remained relatively consistent. We've updated our full year guidance to incorporate our year-to-date results and improved Q4 outlook by increasing our production targets for all products while maintaining our capital guide. As a reminder, we lowered full year capital by $50 million last quarter to reflect our efficiency savings. For full year 2025, we now expect to deliver 10,000 BOE per day more production or $50 million less capital compared to our original plan. In the fourth quarter, we expect our total volumes to average approximately 620,000 BOEs per day including about 206,000 barrels per day of oil and condensate and capital is expected to come in at about $465 million. We've also adjusted our guidance to include an anticipated reduction in our 2025 cash tax bill of about $75 million or about 50% less than we originally expected. This reflects the impact of an internal restructuring and evolving U.S. tax guidelines. We expect these reductions to be durable for the next several years. In short, the team turned out another great quarter, and our 2025 outlook has improved once again. I'll now turn the call back to Brendan. Brendan McCracken: We've been operating in the Montney for more than 20 years and in the Permian for over a decade. Bolstering our position in these 2 basins where we have a competitive advantage means we can continue to deliver durable returns for many years to come. Today's transaction marks a culmination in our strategy in our strategic positioning of the company to create a focused, high-return deep inventory portfolio. In total, since 2023, we've increased our Permian and Montney drilling inventory by more than 3,200 locations at an average of $1.4 million per net 10,000 locations. This inventory like expansion has been unmatched by our peers and leaves us with one of the most valuable inventory positions in the industry. This portfolio, combined with our execution capability, uniquely positions our company to generate superior returns for a long time to come. The NuVista acquisition checks all the boxes. It's accretive across all key financial metrics. The combination enhances our returns, add scale and extends our future inventory runway in a core area. It boosts the quality of our oil inventory and enables us to maintain a strong balance sheet. We identified NuVista through an in-depth technical and commercial analysis of the Montney to identify the highest value undeveloped resource. That analysis highlighted the NuVista assets along with the Paramount assets we acquired earlier this year as being the most attractive and most complementary to our existing Montney position. NuVista sits in the core of the oil-rich Alberta Montney. It's directly adjacent to our existing operations in Karr, Wapiti and Pipestone. It is largely undeveloped and it comes with significant processing capacity for future oil and condensate growth optionality, along with the downstream market access portfolio, that provides valuable natural gas price diversification outside the AECO market. This is one of the highest quality undeveloped acreage positions in North America and the overlap with our existing land makes us the natural owner. While the assets are among the very best in the Montney on a stand-alone basis, the combination with our acreage is an ideal setup to unlock significant value. This transaction will add approximately 930 net 10,000-foot equivalent well locations across 140,000 net acres. Extending our Montney oil inventory to the higher end of our existing 15- to 20-year range. But this transaction does not just add inventory, it makes our overall Montney position better. Folding in NuVista will result in a 10% uplift to our average Montney oil type curve. Importantly, we are acquiring this high-quality inventory at a reasonable cost. For about $1.3 million per well location, which is very attractive compared to recent transaction metrics in the Lower 48. The acquisition provides strong financial accretion and will result in immediate and long-term expansion in our per share metrics like cash flow, free cash flow as well as increased ROCE. It will enhance our scale in the basin increasing our 2026 expected Montney oil and condensate volumes to about 85,000 barrels per day. The acquisition is expected to be leverage-neutral at close, and we will retain ample liquidity and a strong balance sheet. With this transaction, we are creating a stronger business that will be even better positioned for near- and long-term value creation. Let's dive in with some more details about the NuVista assets. The team at NuVista has done a great job building a contiguous position in the core of the Montney oil window, and we're excited to combine it with our existing assets. The acreage pairs incredibly well with their existing land base. As you can see on the map, it could not be a better fit. We acquired acreage is about 70% undeveloped with about 400 horizontal wells producing today. In 2026, we estimate the NuVista assets will deliver average volumes of about 100,000 BOEs per day, including about 25,000 barrels of oil and condensate and 400 million cubic feet a day of natural gas. The transaction also comes with significant AECO price mitigation and diversified market access, which Greg will describe in more detail later in the presentation. I should point out that as a Canadian company, NuVista reports its volumes on a net before royalties basis and uses Canadian dollars as its reporting currency. So the numbers we quote will look different than their reported numbers. I'll now turn over the call to Greg to walk through more of the details. Gregory Givens: Thanks, Brendan. This transaction adds depth and duration to our premium inventory and further expands our leading Montney scale. The 620 premium locations assume spacing of 10 to 14 wells per section, while the 310 upside locations assume up to 16 wells per section in the most prolific areas, plus additional infill opportunities. This is consistent with the development approach taken on our legacy assets, including the Paramount assets acquired earlier this year. Next year, we expect our pro forma 2026 total Montney production to average about 400,000 BOE per day, including 85,000 barrels per day of oil and condensate and 1.75 Bcf per day of natural gas. We anticipate running an average of six rigs and one to two frac crews. We'll have further details to share on our 2026 capital program when we issue our full year guidance in February. We are confident in our ability to unlock significant value from the NuVista assets using our proven development approach to generate superior asset level returns and unmatched capital efficiency. We expect to capture about $100 million in durable annualized free cash flow synergies. About half of the synergies are from lower capital costs. We expect to achieve a savings of $1 million per well consistent with our current Montney well costs from streamlined facility design and faster cycle times. The balance of the synergies come from other non-well capital savings, lower production costs driven by enhanced scale connecting the wells to our Grand Prairie operations control center, where we use automation and in-house AI tools to optimize production and reduce downtime as well as lower overhead. We are highly confident in our ability to realize these synergies given our strong track record of asset integration, which we demonstrated most recently by achieving our synergy target within the first 6 months of owning the Paramount assets. We also see the potential for significant future savings from things like the ability to optimize our development plans, giving more available processing capacity. The ability to extend the lateral length of our wells currently are constrained by lease lines and the opportunity to further optimize our base production, thanks to more integrated infrastructure. The enhanced value of our business is both structural and durable and will support increased direct returns to shareholders and higher return on capital employed. Our confidence in the quality of the new assets is evident in the strong well results from NuVista on this acreage. When we overlay NuVista's average well productivity from 2023 and 2024, the acquired assets have delivered impressive cumulative oil rates. Integrating these assets into our Montney development plan results in a 10% oil and condensate productivity improvement for our previous program type curve. This is illustrated on Slide 13, where the dashed orange line shows our previous repeatable program and the thick orange line represents our new repeatable program with the addition of the NuVista assets. This is a powerful demonstration of the underlying rock quality we're acquiring. The returns in the Montney oil window are competitive with the best plays in North America. This is a result of the high well productivity, the low drilling and completion costs, the favorable royalty structure and the fact that Canadian condensate generally receives very close to WTI pricing. The economics are not dependent on a higher NYMEX or AECO price. Even at very modest AECO prices, these wells would still compete for capital in our portfolio. Our analysis of the pro forma assets show that at the current strip pricing, we expect the NuVista assets to generate a 55% rate of return in 2026. The transaction comes with about 400 million cubic feet per day of natural gas. NuVista's downstream firm transportation agreements and hedging arrangements will lower our exposure to AECO on a pro forma basis. Ovintiv's 2026 AECO exposure will go from about 30% of our Montney gas production free transaction down to about 25% pro forma. NuVista's approach to AECO price mitigation is very similar to ours. They have done a great job of building out a diversified portfolio of firm transportation contracts to markets across North America, for about 250 million cubic feet per day of their natural gas volumes. They've received strong realized pricing as a result. Year-to-date, as of the end of the second quarter, the pre-hedge gas price realization was approximately 180% of AECO. In addition, they have JKM link contracts for 21 million cubic feet per day starting in 2027. They also have a strong financial hedging program with a current mark-to-market value of about $120 million. NuVista's significant processing capacity unlocks future growth optionality for us. They have secured 600 million cubic feet per day of long-term raw inlet processing capacity, which when combined with our existing Montney processing will provide optionality for Ovintiv to grow our oil and condensate volumes by more than 5% for the next 3 to 5 years with no major infrastructure spending requirements. We've had good success collaborating with midstream partners to improve uptime at the facilities we inherited through the Paramount transaction, and we are confident we can continue to add value with future processing optimization efforts across the play. I'll now turn the call back to Brendan. Brendan McCracken: Thanks, Greg. Our work to build inventory depth is not restricted to the Montney. Over the past several years, we've extended our Permian oil inventory runway to nearly 15 years. It's no secret that the price of inventory has gone up dramatically since 2023 when we acquired over 1,000 drilling locations in the Midland Basin for an average cost of about $2 million per well. We were ahead of the pack and as recent transactions in the play value the inventory as much as $7 million per well. While many people think there are no opportunities left to add inventory and make a reasonable rate of return, our team has continued to focus on bolt-on blocking and tackling across our acreage position. Our Permian ground game has yielded impressive results, acquiring low-cost, high-quality inventory in the core of the play. Year-to-date, we've added 170 drilling locations, 90% of which are premium for an average cost of $1.5 million per well. These transactions do not include any producing wells. They are inventory accretive, and they're offsetting our existing acreage and compete for capital immediately. We think there are more opportunities for reasonably priced bolt-ons in the play and we will continue to take a value-driven approach to evaluating future prospects. We are funding the NuVista acquisition with a balanced mix of cash and equity. The sources of cash include cash on hand, borrowings under our credit facilities and proceeds from a term loan. We've chosen to pause our share buyback program for 2 quarters until around the time the transaction closes. This decision, coupled with our balanced financing mix should result in a leverage-neutral transaction at the time of closing. During this time, we've also caused bolt-on spending, and our base dividend is unchanged. Debt reduction remains a key priority for us and we remain committed to reaching our net debt target of $4 billion or about 1x leverage at mid-cycle prices. As such, we have chosen to accelerate our pace of debt reduction and further streamline our portfolio through an asset disposition. We remain committed to preserving our investment-grade credit profile, and we do not expect a negative impact to our investment-grade ratings because of the NuVista transaction. We plan to commence a sales process for our Anadarko assets that we expect to complete by the end of next year. The Anadarko is a highly valuable asset with a low decline rate, strong realized pricing and low LOE. It punches above its weight in free cash flow generation. In the third quarter, it produced roughly 100,000 BOEs per day, including 29,000 barrels a day of oil and condensate. Following the divestiture, we expect to be well below our net debt target enabling us to allocate a greater portion of our free cash to shareholder returns. We continue to believe our equity is undervalued and share buybacks continue to screen as a superior return on investment compared to investing in growth. We will provide more details on what a refreshed shareholder return framework could look like as we get closer to the sale of the assets. In summary, yesterday's announcement reflects years of work to build the portfolio that delivers on our durable return strategy, and we're excited to reach this milestone on behalf of our shareholders. I'd like to recognize the efforts of our team to get us here. The NuVista assets in our ground game additions strengthen and expand our position in the top 2 oil basins in North America. The NuVista transaction is strongly accretive to our financial metrics as well as our premium inventory debt. It significantly boosts free cash flow per share, provides significant oil growth optionality, valuable gas price diversification and maintains our investment-grade rated balance sheet. Our track record of asset integration and operational excellence gives us confidence in our ability to deliver on the targets we've set out today. We have one of the most valuable premium inventory positions in our industry. We have worked diligently to focus and high-grade our asset base while strengthening our balance sheet. We now have the achievement of our debt target firmly in sight, and with that, the inflection to deliver increased returns to our shareholders. Operator, we're now ready to open the line for Q&A. Operator: [Operator Instructions] Your first question comes from Kalei Akamine with Bank of America. Kaleinoheaokealaula Akamine: Congratulations on the deal. I want to ask on the growth outlook for the NuVista asset. So NuVista was prosecuting a linear growth strategy through a decade in, and that was really enabled by their investments in gas processing capacity. And the timing of that, it's pretty imminent. So my question is, how are you thinking about balancing or optimizing those plants versus your capital discipline approach to capital spend? Brendan McCracken: Yes. Kalei, thank you very much. Appreciate the comments and the question. Yes. So we're going to fold this in and run our combined business in the same capital disciplined way that you've seen us do over the last several years. And really what that has us thinking about is a couple of items. One, what's the macro, what's the demand for growth from large E&P companies? And I think today, it's fair and reasonable to say there is not a market demanding more barrels or BTUs be produced. And so that signal calls for a maintenance level investment. And then the other signal we look closely at is can we get better cash flow per share growth from buying our shares back or from adding activity in the field. And again, that signal is telling us it's a better option for our shareholders to buy the shares back to generate that cash flow per share growth. So when we incorporate these NuVista assets, we're going to fold them into that same capital allocation strategy. And so we'll be slowing that rate of growth investment down and running the assets for free cash generation if the environment continues to be the same. Kaleinoheaokealaula Akamine: I appreciate that. For my follow-up question, I want to ask about the 900-plus locations that you're acquiring with NuVista. That includes 300 upside locations. I want to understand the plan to derisk those upside locations and whether that process is kind of already on the way, considering that you're doing some similar work on the Paramount assets that you acquired earlier this year. Brendan McCracken: Yes, Kalei, great question. I'll probably get Greg to comment here, too, because you're exactly right. This acreage sits side-by-side with both our legacy Montney acreage, but also the -- now, I guess, now legacy acreage from the Paramount acquisition. And so the ability to take the learnings on well density across into this new acreage has given us a lot of conviction. But Greg, you can kind of comment on some of the specifics on time line. Gregory Givens: Yes. Thanks, Brendan, and thanks for the question, Kalei. You're spot on. If you look at the map, this acreage just really nicely fits in that hole between our Pipestone acreage and our Paramount acreage we acquired earlier this year. We'll take the same approach. In some areas, that's going to be two zones, up to three zones, 10 to up to 16 wells per section. We're already well on our way at delineating the Pipestone acreage to see how much of that upside we can convert to base. We'll take the exact same approach here on the NuVista acreage. They've already done a pretty good job of that, but we feel like there's some room to go. So it will just really fold right into the work we're already doing. Operator: Your next question comes from Phillip Jungwirth with BMO Capital Markets. Phillip Jungwirth: On the year-end '26 time line for the Anadarko sale, is there anything you're looking to prove up ahead of the sales, such as maybe like 3-mile laterals or more optimized cube? Or do you think most of this work has been done? And then I just want to ask also if there's been any reverse inquiries received to date, recognizing you're starting to process early next year. Brendan McCracken: Yes. Thanks, Phil. Great questions. Lots of interest in the Anadarko asset. As you might imagine, there's been some precedent transactions in that basin. So our interpretation is there's a very strong buyer market in that basin for assets like ours and so I think on time line, nothing to prove up technically in the play. This is a really well understood, low decline basin with lots of certainty in it. And so I think the time line will just be about maximizing proceeds for our shareholders. So that's how we'll be thinking about the time line. Phillip Jungwirth: Okay. Great. And then just depending on the actual proceeds received from the sale, how much below $4 billion of net debt would you view as a floor? I think in the past, you've talked about some interest in going below that. Our model would put net debt at low 5s, call it, by year-end '26. So feel like you could be quite a bit below this $4 billion target. I'm just wondering how -- where would you view the floor as we think about go-forward capital returns? Brendan McCracken: Yes. Great question. Love the forward look there. I think the way we'll talk about that is we've got to get there and make those decisions with the facts of the moment and the macro at the time. But if you took today's lens and you looked at it, that would be a tremendous opportunity for boosting those shareholder returns as we've indicated. Operator: Next question comes from Scott Gruber with Citigroup. Scott Gruber: Curious about Montney maintenance CapEx over the long term. We can do the math on where that probably lands in '26. But curious kind of your ability to push that down over the next 2 to 3 years after you realize the cost savings underpinning the deal and optimizing activity without a common lease line, just some thoughts on being able to squeeze Montney maintenance CapEx down even further and where you think that could land? Brendan McCracken: Yes. Thanks, Scott. I love how you're thinking about it. We highlighted a number of longer-term synergies. We've obviously pointed to the shorter term capital and cash cost synergies, but there are some longer-term synergies here as well putting these two asset bases together, boosts our type curve, ability to drill longer laterals, things like that. But Greg might have a comment on how we'll think about continuing to add efficiencies in the play. Gregory Givens: Yes, thanks for the question. We'll -- in the very short term, we'll work on getting the cost structure on these new assets down to our cost structure, which will be around $525 a foot. But then over time, in all of our plays, we usually are able to continue to see a 2% or 3% reduction year-over-year just due to efficiencies in our program. So we'll continue to drive that down, just organically. And then some of the really, I think, attractive opportunities of -- if you look at the map, I mean, this is just ripe for opportunities to lengthen laterals across lease lines, to share infrastructure. We've already identified some spots where it looks like some of their infrastructure will replace capital spend that we were planning on in the next year or 2. So we feel like we're going to be able to drive down our capital structure here significantly over time. If you think about -- we're not ready to give guidance for next year, but we'll probably have about 1/3 of our activity on this new acreage, 1/3 on the acreage we acquired last year and 1/3 on our legacy. So we'll have opportunities to learn and get better in all three places. So we feel like over time, we're going to continue to just drive down what's already an industry-leading capital efficiency up there. Scott Gruber: I appreciate the color. A quick follow-up on the well productivity delta. It's a decent step above yours and looking for a nice 10% improvement on a blended basis. Is the delta there all rock quality? Are they undertaking a different style of completion? What do you attribute that Delta 2? And if it is rock quality, do you think about pivoting more activity in that direction over time? Brendan McCracken: Yes, Scott, great question. Yes, it's all oil mix. So this is really a fluid window. So where the NuVista acreage sits relative to the basket of Ovintiv acreage, it runs just a little more oily. So net-net, our oil type curve goes up on mix. So that's the driver there. Operator: Your next question comes from Betty Jiang with Barclays. Wei Jiang: Congrats on the acquisition. I want to ask about the processing capacity and on the midstream front, specifically for the Montney. With expanded scale, are there opportunity to optimize how you utilize the different plants, the flows, utilization of different plants and the opportunity to potentially negotiate better contract on the midstream front. Brendan McCracken: Yes, Betty, thank you for your comments and the question. Absolutely on the midstream side, it's one of the deal synergies that's sort of baked into some of the cash cost piece, but also the capital and then in the longer-term unquantified synergy bucket here, too. So there's lots to talk about here. If we focus on the midstream side, Greg just alluded to this earlier, there are several places where we can avoid some capital expenditure that we would have had for minor infrastructure projects that now could come out because these assets come with spare capacity. So that's kind of immediate. One of the big wins we've had on the Paramount integration is around run time. And so we expect an integrated asset here is going to also be able to boost run time through these midstream and processing facilities. And then the final piece is around the ability to grow into these assets over time when the macro calls for that in the future. So a lot of good wins to capture on the midstream infrastructure side here. Wei Jiang: That's great. And then a follow-up on the gas marketing side, just given the larger position, do you see adding scale enabling more opportunities to market gas, whether on the global LNG front or other ways to mitigate your exposure to AECO. Brendan McCracken: Yes. Absolutely, Betty. So our strategy has been to minimize our exposure to AECO and we've been steadily chipping away at that over the last number of years, and in particular, since we acquired the AECO exposed gas from Paramount. And we're going to continue to do that. One of the deal features we love here as it does reduce our AECO exposure in the next several years from about 25% -- sorry, from about 30% down to 25%. So there's a built-in step change from combining these assets together. And we will continue to look for other downstream markets to diversify our AECO away from. And I know our midstream marketing team is hard at work on that today. Operator: Your next question comes from Lloyd Byrne with Jefferies. Francis Lloyd Byrne: Congratulations on the transaction and the -- frankly, the entire portfolio transformation over the last couple of years has been really good. Can you just start with -- maybe the question that started off on potential growth going forward. We kind of think you can grow these assets on a liquids basis, if you want. And is there any infrastructure processing constraints that you have that would block that? Brendan McCracken: Yes. Thanks, Lloyd for the comment and great question. So if you think about what this transaction does, we had already built a real growth option in the Montney oil with the addition of the Paramount acreage because that came with some spare processing and midstream capacity as well. This one boosts that up. So we had previously been talking about kind of that low to mid-single-digit growth potential for oil and condensate compounded over several years. This now boosts us up to be able to do over 5% growth for up to 5 years. And so if you think about what that could mean, it could take our 85,000 barrels a day in the play up well north of 100,000 barrels a day over that period if we chose to make those investments. So again, I'll caution that is not our capital allocation plan today in this macro environment. But in the event of a stronger macro environment, this -- both the inventory depth and the processing facilities are there to be able to facilitate that growth without major infrastructure investment. And you didn't ask it, but I'll pile on a little bit here. Obviously, the addition of our ground game locations in the Permian also give us a lot of confidence in that growth option as well. And that is also a place where there is ample processing capacity available should we choose to exercise that. So really, we've got that growth option unlocked across the future portfolio here. Francis Lloyd Byrne: That's great. Brian, you beat me to my second question. I just wanted to ask you about the ground game in the Permian. And just what is it that allows you to keep adding those locations at an attractive price? And can you -- do you think you can continue that going forward? Brendan McCracken: Yes. Thanks, Lloyd. I appreciate you hearing me back there. This is a great example of how the ingenuity and approach that our team is taking is exposing our shareholders to a unique value-creation options. So really where our comparative advantage comes into play here is if you're a large mineral rights holder in the Permian, the operator of choice for you is Ovintiv. We're going to get you the best royalty stream off of these assets because of our cube development approach and because of our reoccupation strategy and how we conduct our operations in the basin. So that's allowing us to access really high-quality resource at a very attractive entry price for our shareholders, and we look forward to seeing what that can yield in future years as well. Operator: Your next question comes from Doug Leggate with Wolfe Research. Douglas George Blyth Leggate: So obviously, you've set the table for the Anadarko sale. I wonder we're coming into potentially what some would think is a softer oil outlook. Are there any conditions where if you don't get what you hope to achieve in terms of valuation that you would hang on to that asset longer? Or is it a sale regardless of the -- I mean how are you thinking about framing the conditions of sale? Brendan McCracken: Yes. It's the right question, Doug. I think, look, the one thing I'll point out, first of all, is the Anadarko, while it makes a fair amount of oil, it's about 1/3 oil, 1/3 NGLs and a third gas, so it does have good commodity exposure across the three products here. So it's not exposed to one exclusively, which is helpful in really any environment. And then this is a really high-quality asset. It's going to attract, I think, a lot of attention. And then we've given ourselves a reasonable running time here to execute. And so we'll be working through that time period to maximize the proceeds to our shareholders, but certainly cognizant of making sure we do that. . Douglas George Blyth Leggate: And then I wonder if I could be predictable and ask you about the capital return strategy. You're taking a pause on the buyback. We certainly can't understand why your free cash flow yield is as high as it is. But at the same time, we look at the capital structure and I think share buybacks are glacial. They're not working in terms of forcing market recognition of value, and you've got this opportunity to pause and basically test perhaps what happens if you lower your net debt and transfer that value to equity. So I guess my question is, you seem to be messaging the $4 billion floor and then a reset potentially in the share buybacks. Why not just take the debt down and reset your capital structure altogether? Brendan McCracken: Yes. I think, Doug, that's exactly what we'll be doing with the transaction. So I think we continue to be in agreement here about where we're trying to get the business to. And so we think the prudent approach we're taking here with the pause until close allows us to be leverage neutral with where we are pre-deal. And then the transaction on Anadarko would enable us to immediately step change below that debt target, so -- and give us the flexibility from there. So yes, I think we're agreeing with you. Operator: Your next question comes from Greta Drefke with Goldman Sachs. Margaret Drefke: I was just wondering if you could speak a bit on the drivers of the $100 million in annual capital and cost synergies outlined with the NuVista acquisition. Are these similar changes to the changes made while incorporating the Montney acreage from the Paramount acquisition at the start of the year? Or are there different opportunities you would highlight there? Brendan McCracken: Yes. Gret, I'll let Greg chime in on that. Gregory Givens: Yes. Thanks for the question. First off, I just want to complement NuVista. They've done a really nice job with the assets to this point, which is why we were so interested in acquiring them. But our team has developed a really well-defined and refined integration playbook that we'll start. Think of it kind of in two lenses. There's the short term, that first day up to the first 6, 9 months. And then longer term, how we approach things. But just immediately after close, we'll be connecting their rigs up to our drive center where we'll use in-house algorithms and AI to further refine our drilling efficiencies as well as our cost base in learnings on things we've learned here in the U.S. We think that's going to drive several days out of drill times. On the completion side, we're going to utilize our real-time frac optimization center, which will refine pumping schedules, shorten cycle times. Our use of local sand there in the basin which should also generate some really good cost savings shortly after close. And then on the facility side, we see some significant opportunities to reduce cost of both the new facilities we're going to build, but then longer term, as we showed on Slide 15 there, our acreage position in midstream are really well aligned where they're located close to each other. So we should be able to reduce facilities costs going forward and optimize that. So on the capital side, that will make up about half of the efficiencies we're going to see. And we think that's going to happen pretty quick. I mean we're going to measure that in months, not quarters or years. But then just importantly, on the production side, we're going to reduce costs there and get more efficient. We'll do just what we did on the last transaction. We're going to connect the wells to our operations control center in Grand Prairie very quickly and inexpensively. And from there, we'll be able to optimize production using our in-house AI tools and algorithms to optimize production on all the wells with set points on artificial lift, those types of things. But also what we found to be very effective is the automation that we put in place. So we can not only shut in wells remotely, but also bring them back online in minutes. And so while we've really improved the midstream reliability, and we think we'll be able to work with the new midstream providers here to help them as well. When inevitably you do have a downtime or a turnaround, we can bring our wells back online faster than anybody else in the industry up there. And what that does is just really increases our uptime. So you'll see a production benefit there as well as a cost reduction. And then when you look longer term, as I spoke about earlier, we're going to be looking to go to longer laterals. We've got some shared acreage that actually had a shared working interest between Paramount and NuVista historically. We'll be able to make those 100% working interest wells, extend lateral lengths, develop that very efficiently. We'll be able to share up and optimize infrastructure spend. And that will also help base production as well as new wells. So just lots of different ways we're going to be able to achieve this over the coming months and even longer. So really excited team is looking forward to get to work on optimizing this asset. Margaret Drefke: Great. And then just for my second question, I was wondering if you could speak a little bit more about the decision to fund the acquisition through a combination of both equity and cash. Can you speak a little bit about why 50-50 split is the optimal split in your view? Brendan McCracken: Yes. Thanks, Greta. I think the right place to start here is with getting the total consideration right. And so that obviously was the starting point for us. And then the next is to find the right balance on the financing mix. We were very disciplined with how much equity we used in the deal. It's our view that our equity continues to be undervalued. So we wanted to be disciplined with how we use those shares. And then we also wanted to make sure we held leverage neutral, like we've described at close here. And so really, those are kind of the governing features with how we thought about mix, and we think the outcome accretion and across the board, uplifts to the business makes sense with that mix. Operator: Your next question comes from Kevin MacCurdy with Pickering Energy Partners. Kevin MacCurdy: I always appreciate your view on AECO and Canadian gas prices. You made the point with this transaction that it lowers your AECO exposure and you're acquiring some really nice hedges over the next several years. But I wonder if you could update us on your long-term outlook for AECO and the Canadian gas markets and maybe what key projects would make you a little bit more constructive? Brendan McCracken: Yes, Kevin. Obviously, we've been cautious on AECO as the start-up of LNG Canada is helpful and an important milestone for Western Canadian gas producers, but also recognize the basin continues to be highly productive with a lot of growth capacity. And so we've been kind of near-term cautious. I think I would describe it as we look out into 2026, a little more constructive as that LNG Canada ramps up, but still cautious because it's not the end-all and be-all. But if you look forward to the LNG projects that are queuing up towards the end of the decade and into the early part of the 2030s, we think there's a real optimism around Western Canadian pricing. And what the additional egress could mean to the basin. And so built into our Montney business is the gas option, and we are long term excited about the value embedded in that gas option. Kevin MacCurdy: And just for clarification on the Permian inventory additions. Was the $250 million in spending in October, was that just from one transaction? Or was that several small deals that are -- that happen to be closing at the same time? Brendan McCracken: Yes. We bucketed together several deals into that to achieve that. So true ground game fashion there. Operator: Your next question comes from David Deckelbaum with TD Cowen. David Deckelbaum: I wanted to just follow up on some of the allocation conversations and some of the synergies with the NuVista transaction. You guys highlighted obviously the superior well productivity. And I think you talked about kind of splitting your activity evenly between Paramount and NuVista and Ovintiv acreage up in the Montney. I guess is there a future outlook that you would be moving more of the activity to more aggressively accelerate the development? It sounds like you're not constrained from an infrastructure side. On the NuVista acreage so that would sort of increase your free cash per share metrics? Brendan McCracken: Yes. Look, we are going to allocate capital across the Montney to maximize free cash flow, but also bear in mind our reoccupation strategy, which is really a reservoir management strategy to come back and drill cubes beside cubes within 18 to 24 months. And so those will be the two things that largely govern along with processing capacity, but those would be the things that govern our capital allocation across the assets. But like Greg said, it might shift around a little bit, but I think it's pretty stable in that 1/3, 1/3, 1/3 across the three buckets of Montney acreage. David Deckelbaum: Appreciate that. And I know it's a bit early, but I share your view on the valuation for the Anadarko Basin seems like it should be approximately what you paid for NuVista just on PDP alone. So I'm kind of curious, just from a tax perspective, how you think about any tax slippage from transacting there or if you have some offsetting mechanisms? Brendan McCracken: Yes. I'll let Corey cover that. Corey Code: So just on that front, we've got some existing bases on the asset and then obviously, depending on how high the price is, we should be able to cover it with other tax attributes. So we don't forecast much if any tax leakage on the sale. Operator: Next question comes from Chris Baker with Evercore ISI. Christopher Baker: Just a quick one. It sounds like this asset has been identified quite some time ago. I'm just curious in terms of the ultimate timing that we're seeing here. Was that at all influenced by the share sale, obviously, you mentioned in the release? Or just anything around the timing piece given the Anadarko assets there would be helpful. Brendan McCracken: Yes, Chris. Look, you're quite right. So we had identified this as 1 of the 3 assets that made a lot of sense for us as we went through this portfolio transition. And so pleased to be able to get to this point here today. I think the way to think about it is the disclosure from NuVista highlights, they began a competitive process for the asset back in August. And we acquired the shares right at the start of October. So that gives you some sense of the sequencing here. Corey Code: Maybe just clarify that... Brendan McCracken: Sorry, go ahead, Corey. Corey Code: I was just going to say just clarify, you've been one of the... Brendan McCracken: Yes. The Northern Midland Basin, the Paramount and then NuVista with the three, yes. Good point. Christopher Baker: Got it. That's great. And apologies if this was covered earlier, but any sense on what run rate EBITDA looks like for the Mid-Con asset this year? Brendan McCracken: I don't have that number to hand here, Chris, yes. Sorry, I've got -- there's a lot of numbers in front of me right now, but I don't have that one. Sorry, team can follow up with you. Operator: Your next question comes from Geoff Jay with Daniel Energy Partners. Geoff Jay: I just had a couple if I could. First is the soft guide for 2026 pro forma. Is that inclusive of the Anadarko production or exclusive? Brendan McCracken: Yes. Geoff, yes, it's inclusive of the Anadarko production. So we'll update that once we've got clarity on the divestiture timing. Geoff Jay: All right. Great. And then my second is on the -- going back and, I guess, maybe beating a dead horse on Slide 12. But in looking at the future synergies piece, I noticed your AI and production optimization are kind of in two buckets, near term and long term and I am wondering what the long-term, I guess, AI automation piece is and what makes it long term? Brendan McCracken: Yes. I mean we're just at the very front end of applying these technologies into our business. And as you saw, Geoff, when you joined us in the Montney this past summer, we're active in sort of three main areas. We're active in the production operations place. So it's helping us on the uptime and on the artificial lift optimization. It's helping us on the drilling times and costs, and then it's helping us on the completions, both the cost and the productivity of the wells. So -- but we're really early days in trying to figure out what this technology can do for us. And so hard to point to where it's going to go over time, but put us in the optimistic camp here of seeing the potential for this to really transform our business. Operator: At this time, we have completed the question-and-answer session. And I'd like to turn the call back over to Mr. Verhaest. Please go ahead. Jason Verhaest: Thanks, Pam, and thank you, everyone, for joining us today. Our call is now complete. Operator: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines. Have a great day.
Operator: Good day, and welcome to the Aflac Inc. Third Quarter 2025 Earnings Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to David Young, Vice President, Capital Markets. Please go ahead. David Young: Good morning, and welcome. Thank you for joining us for Aflac Incorporated's Third Quarter 2025 Earnings Call. This morning, Dan Amos, Chairman and CEO of Aflac Incorporated, will provide an overview of our results and operations in Japan and the United States. Then Max Broden, Senior Executive Vice President and CFO of Aflac Incorporated, will provide more detail on our financial results for the quarter, current capital and liquidity. These topics are also addressed in the materials we posted with our earnings release, financial supplement and quarterly CFO update on our investors.aflac.com. For Q&A today, we are joined by Virgil Miller, President of Aflac Incorporated and Aflac U.S.; Charles Lake, Chairman and Representative Director, President of Aflac International; Masatoshi Koide, President and Representative Director, Aflac Life Insurance Japan; and Brad Dyslin, Global Chief Investment Officer, President of Aflac Global Investments. Before we begin, some statements in this teleconference are forward-looking within the meaning of federal securities laws. Although we believe these statements are reasonable, we can give no assurance that they will prove to be accurate because they are prospective in nature. Actual results could differ materially from those we discuss today. We encourage you to look at our annual report on Form 10-K for some of the various risk factors that could materially impact our results. As I mentioned earlier, the earnings release with reconciliations of certain non-U.S. GAAP measures and related earnings materials are available on investors.aflac.com. I'll now hand the call over to Dan. Dan? Daniel Amos: Thank you, David, and good morning, everyone. We're glad you joined us. Aflac Incorporated reported net earnings per diluted share of $3.08 and adjusted earnings per diluted share of $2.49 for the third quarter of 2025. We believe that these are strong results for the quarter, leading to a very good first 9 months of the year. Max will expand upon these results in a moment. But before he does, I'd like to make a comment on our operations. Beginning with Aflac Japan, I am very pleased with Aflac Japan's 11.8% year-over-year sales increase, especially the 42% increase in cancer insurance sales. These strong sales were driven largely as expected, by sales of Miraito, our cancer insurance product launched in March. As part of our ongoing strategy, we continue to emphasize and promote the importance of third sector protection to new and younger customers with our innovative first sector product, Tsumitasu. We believe the repricing of this product for new policies effective in September has the potential to benefit its sales. We saw positive sales growth across all distribution channels. Overall, I believe we have the right strategy to meet our customers' financial protection needs through their different life stages. Our ability to maintain strong premium persistency is a testament to Aflac's reputation, our strategy and our customer recognition of the value of our products. By maintaining this level of persistency and adding new premium through sales, we are partly offsetting the impact of reinsurance and policies reaching paid-up status and maintaining strong persistency continues to be vital to the future of Aflac Japan. Being where customers want to buy insurance has always been an important element of our growth strategy in Japan. Our broad network of distribution channels, including agencies, alliance partners and banks continually optimize opportunities to help provide financial protection to Japanese consumers. We will continue to work hard to support each channel as we evolve to meet the customers' changing needs. Turning to Aflac U.S. We generated $390 million in new sales during the third quarter, which was a 2.8% year-over-year increase. More importantly, we maintained strong premium persistency of 79% and increased net earned premiums 2.5%. We continue to focus on driving more profitable growth by exercising a strong underwriting discipline and maintaining strong premium persistency. We believe this will continue to drive net earned premium growth. At the same time, Aflac U.S. has continued its prudent approach to expense management and maintaining a strong pretax margin, as Max will expand upon in a moment. In both Japan and the United States, I believe that consumers need the products and solutions Aflac offers more than ever. When a policyholder transforms into a claimant, Aflac becomes more than an insurance company, we become a partner in health and a supporter of their family in their time of need. As a pioneer and leader in the industry, we are leveraging every opportunity to convey our products can help fill the gap during challenging times, providing not just financial assistance, but also compassion and care. At the same time, we generate strong capital and cash flows on an ongoing basis while maintaining our commitment to prudent liquidity and capital management. We continue to be very pleased with our investments, producing solid net investment income. As an insurance company, our primary responsibility is to fulfill the promises we make to our policyholders while being responsive to the needs of our shareholders. Our financial strength underpins our promise to our policyholders balanced with the financial flexibility and tactical capital deployment. I am very pleased with the company's capital deployment. In the third quarter, Aflac Incorporated deployed a record $1 billion in capital to repurchase 9.3 million shares of our stock and paid dividends of $309 million. This means we delivered $1.3 billion back to the shareholders in the third quarter of 2025. Especially as we celebrate Aflac's 70th anniversary on November 17, we treasure another milestone, 43 consecutive years of dividend increases. We remain committed to extending this record supported by our financial strength. At the same time, we have maintained our position among companies with the highest return on capital and the lowest cost of capital in the industry. 2025 also marked 2 other significant milestones for Aflac, the 30th anniversary of what is now known as the Aflac Cancer and Blood Disorders Center of Children's Healthcare of Atlanta and the 25th anniversary of the Aflac Duck. These are significant milestones that celebrate the privilege of benefiting the lives of millions of people. Today's complex health care environment has produced incredible medical advancements that come with incredible cost. We are reminded that one thing has not changed since our founding in 1955. Families and individuals still seek a partner and solutions to help protect themselves from financial hardship that not even the best health insurance covers. Thanks to our relevant products, financial strength, powerful brand and broad distribution, we believe Aflac's outstanding solutions make us the ideal partner. We also believe in the underlying strengths of our business and our potential for continued growth in Japan and the United States, 2 of the largest life insurance markets in the world. We continue to take action to reinforce our leading position and build on our momentum. I'll now turn the program over to Max to cover more details of the financial results. Max? Max Broden: Thank you, Dan. I will now provide a financial update on Aflac Incorporated's results. For the third quarter of 2025, adjusted earnings per diluted share increased 15.3% year-over-year to $2.49 with no impact from FX in the quarter. In this quarter, remeasurement gains on reserves totaled $580 million, reducing benefits and also increasing the deferred profit liability in the earned premium line by $55 million. The total net impact from the Q3 assumption update increased EPS by $0.76 variable investment income ran in line with our long-term return expectations. In our U.S. business, as part of our strategic technology plan as we optimize efficiencies and migrate to the cloud, we terminated a services contract early, which led us to book a onetime termination fee of $21 million in the quarter. Adjusted book value per share, excluding foreign currency remeasurement increased 6.3%. The adjusted ROE was 19.1% and 22.1%, excluding foreign currency remeasurement, a solid spread to our cost of capital. Overall, we view these results in the quarter as very good. Starting with our Japan segment. Net earned premiums for the quarter declined 4%. Aflac Japan's underlying earned premiums, which excludes the impact of deferred profit liability, paid-up policies and reinsurance declined 1.2%. We believe this metric better provides insight into our long-term premium trends. Japan's total benefit ratio came in at 39.3% for the quarter, down nearly 10 percentage points year-over-year. The third sector benefit ratio was 27.8% for the quarter, down approximately 14 percentage points year-over-year. We estimate the impact from reserve remeasurement gains to be 26.6 percentage points favorable to the benefit ratio in Q3 2025. Long-term experience trends as they relate to treatments of cancer and hospitalization continue to be in place, leading to continued favorable underwriting experience. Persistency remained solid year-over-year and in line with our expectations at 93.3%. With refreshed product introductions, we generally see an uptick in lapse and reissue activity, causing reported lapsation to increase. We did experience this uptick with our recently launched cancer product, but overall lapsation remains within our expectations. Our expense ratio in Japan was 19.8% for the quarter, down 20 basis points year-over-year, driven primarily by an increase in expense capitalization rates resulting from higher sales. For the quarter, adjusted net investment income in yen terms was relatively flat at JPY 98 billion. The pretax margin for Japan in the quarter was 52.2%, up 750 basis points year-over-year, notably driven by the unlock of actuarial assumptions. But even adjusting for that, a very good result. Turning to U.S. results. Net earned premium was up 2.5%. Persistency increased 10 basis points year-over-year to 79%. Our total benefit ratio came in at 45.6%, 200 basis points lower than Q3 2024, driven by the unlock. We estimate that the reserve remeasurement gains impacted the benefit ratio by 480 basis points in the quarter, largely driven by the assumption unlock and claims remaining below our previous long-term expectations. Our expense ratio in the U.S. was 38.9%, up 90 basis points year-over-year. Primarily driven by the onetime early contract termination fee of $21 million that I referred to earlier and the timing of advertising spend. Even though we incurred a onetime fee as part of our overall strategy, we anticipate reduced costs and improved efficiency, which will offset the termination fee over the next few years. Our growth initiatives, group life and disability, network dental and vision and direct-to-consumer had no impact to our total expense ratio in the quarter. This is in line with our expectations as these businesses continue to scale. Adjusted net investment income in the U.S. was up 1.9% for the quarter, primarily driven by higher variable investment income compared to a year ago. Profitability in the U.S. segment was very strong with a pretax margin of 21.7%, a 90 basis points increase compared with a strong quarter a year ago. In Corporate and Other, we recorded pretax adjusted earnings of $69 million. Adjusted net investment income was $66 million higher than last year due to a combination of lower volume of tax credit investments and higher asset balances, which included the impact of the internal reinsurance transaction in Q4 2024. Our tax credit investments impacted the net investment income line for U.S. GAAP purposes negatively by $6 million in the quarter with an associated credit to the tax line. The net impact to our bottom line was a positive $2 million in the quarter. Higher total adjusted revenues were offset by higher total benefits and adjusted expenses of $64 million, driven primarily by internal reinsurance activity, higher costs pertaining to business operations and higher interest expense. We continue to be pleased with the performance of our investment portfolio. During the quarter, we increased our CECL reserves associated with our commercial real estate portfolio by $28 million net of charge-offs, reflecting continued distressed property values. We did not foreclose on any properties in the period. Our portfolio of first lien senior secured middle market loans continues to perform well with increased CECL reserves of $7 million in the quarter, net of charge-offs. For U.S. statutory, we recorded a $7 million valuation allowance on mortgage loans as an unrealized loss during the quarter. On a Japan FSA basis, there were securities impairments of JPY 476 million in Q3, and we booked a net realized loss of JPY 189 million related to transitional real estate loans. This is well within our expectations and has limited impact on regulatory earnings and capital. During the quarter, we also enhanced our liquidity and capital flexibility by $2 billion with the creation of 2 off-balance sheet pre-capitalized trusts that issued securities commonly referred as PCAPs. Unencumbered holding company liquidity stood at $4.5 billion, which was $2.7 billion above our minimum balance. Our leverage was 22% for the quarter, which is within our target range of 20% to 25%. As we hold approximately 64% of our debt in yen, this leverage ratio is impacted by moves in the yen-dollar exchange rate. This is intentional and part of our enterprise hedging program, protecting the economic value of Aflac Japan in U.S. dollar terms. Our capital position remains strong. We ended the quarter with an SMR above 900% and an estimated regulatory ESR with the undertaking specific parameter or USP, above 250% . While not finalized, we estimate our combined RBC to be greater than 600%. These are strong capital ratios, which we actively monitor, stress and manage to withstand credit cycles as well as external shocks. Given the strength of our capital and liquidity, we repurchased $1 billion of our own stock and paid dividends of $309 million in Q3, offering good relative IRR on these capital deployments. We will continue to be flexible and tactical in how we manage the balance sheet and deploy capital in order to drive strong risk-adjusted ROE with a meaningful spread to our cost of capital. For 2025, we now expect that the benefit ratio in Japan will be in the 58% to 60% range. And we continue to expect the expense ratio to be at the lower end of the 20% to 23% range as we pursue various growth and strategic initiatives. As a result, we expect the Aflac Japan's pretax profit margin to be in the 35% to 38% range. In the U.S., we continue to expect the benefit ratio for 2025 to be at the lower end of the 48% to 52% range and the expense ratio to be in the mid- to upper end of the 36% to 39% range as we continue to scale new business lines. At the same time, we expect pretax profit margin for 2025 in the U.S. to be at the upper end of the 17% to 20% range. Thank you. I will now turn the call over to David. David Young: Thank you, Max. Before we begin our Q&A, we ask that you please limit yourself to one initial question and a related follow-up. You may then rejoin the queue to ask additional questions. We'll now take the first question. Operator: [Operator Instructions] Our first question will come from Joel Hurwitz of Dowling & Partners. Joel Hurwitz: I wanted to touch on sales and maybe start with the U.S. It looks like dental and group sales were very good, but your core voluntary product sales were down quite a bit year-over-year. Just can you talk about what you're seeing across your product offerings? Virgil Miller: Yes. Joel, this is Virgil. Let me give you some commentary on that. First, let me start with where you started your question with. Yes, what we're seeing is in the market as the brokers have become more involved with selling supplemental benefits, they are leaning toward group products. So therefore, we are seeing some pressure on our individual products. I will tell you, though, that our focus is to continue to grow our average weekly producers and looking for an increase in recruiting this year. Having said that, along with recruiting comes conversions, we had an 8% increase in converting those recruits into producers for us, and then we saw overall productivity of 16%. We are seeing very strong production though in the investments we made in our buy-to-bills. With our lab business, we achieved a 24% increase during the quarter. We also won the contract with the state of Maine to provide claims administration for their paid family medical leave program. It's really a testament to the type of service we're providing in that market. And also, we stabilized our dental operations, and we are seeing a 40% increase for the first 9 months, which is strong. So our agents have returned back to selling those products. We are entering the broker market with those products, but a continued focus though on growing our Aflac nation, getting our veterans active to really drive, as you pointed out, the individual products. Overall, I would say one more comment, though, I'm pleased for the year. We are at $1 billion for the first 9 months. We are focused on persistency, which means we are still providing some strong underwriting criteria to ensure though that we are making the right decisions for long-term performance. And that's why you see the overall strong performance that we have with profitability, which exceeded our expectations. Joel Hurwitz: Got it. That's helpful. And then maybe shifting just to Japan sales. They were good in the quarter. Can you just provide some more color on how the cancer sales trended in the quarter? And then how demand is for the new Tsumitasu repriced product? Daniel Amos: Yoshizumi, would you mind taking that question? Koichiro Yoshizumi: [Interpreted] My name is Yoshizumi, in-charge of sales and marketing. I am very pleased to say that we're very much satisfied with the results in the third quarter, we did much better than in the second quarter. And it was mainly driven by our cancer insurance, Miraito. And first of all, one of the features that is not available at others is the fact that we have flexible protection design on Miraito. And this whole product can be customized to entire people, including those who already have cancer insurance and who doesn't have any cancer insurance today. And it's appealing also to the younger and middle-aged generation and also to people of all ages. And it also carries plans for children, which is unique to Aflac. And also it carries a premium waiver function. And also, it has the premium-based plans. So this is a very unique cancer insurance to APAC and that -- this product can be provided to the customers because we have the 50 years of history. And at all the distribution channels, it is showing a great result. And shifting to Tsumitasu, we went through a rate revision. And we started to see a solid growth in sales from September. So the 2 main products, Tsumitasu and Miraito, these are driving our sales performance. And we expect this momentum to sustain in the fourth quarter as well. And related to channels, our main channel is associate channels. And Japan Post Group, which is our alliance partner. They are doing -- both of them are doing very well. And we would like to make sure that we continue this momentum and close the year by doing well in the fourth quarter. That's all from me. Daniel Amos: I'd like to also add something to that, this is Dan. I was over in Japan 2 weeks ago specifically to meet on Tsumitasu product and see how it was doing with the banks. I met with 29 regional banks through meetings and then I called on 4 shinkin banks and the Head of the Association of Shinkin Banks. And the tone for the product of Tsumitasu is very -- going very well for us. It's hard to tell exactly what the sales will be. But certainly, it is -- we can see in our numbers that we're writing a younger block of business through Tsumitasu, which allows us to tack on our supplemental or third sector products with it over a period of time. And we thought we might do as high as 40% of our -- of the people would be what I would call in the 30s and 40s in terms of age. It's actually run over 50%. So 40% is to 50%, 25% better. So it's doing very well with us and bringing on a younger block of business that I think will play well in the long term for us. So I do like that. The other thing is, I'm really impressed with our Miraito product and what's going on there. I mean the idea of the percentage increase we've had is spectacular this year, and I credit what's going on with our sales organization there to continue to grow it. So I agree totally with Yoshizumi. Also, I got Virgil to go over 2 times during the quarter and also pump up everyone and try to just talk about what we can do and pat them on the back because Yoshizumi joined us about the worst time you could join, which was during COVID. And so this has really been a good year for him and enjoying it. And so we're enjoying productivity and feel it will carry through the year. Operator: The next question comes from Tom Gallagher of Evercore ISI. Thomas Gallagher: My first question is just a follow-up on the repricing of the policies in September. Did you say that was Miraito? And how did -- what was the difference between -- because I think you launched that in June. And so what was actually repriced in September? Did you lower pricing? Can you just elaborate a bit more? Max Broden: Tom, the repricing related to Tsumitasu. And what we did was as yields have increased throughout the year, we increased the assumed interest rate on the product and moved that up. And that relates both to the underlying rate, but also the discounted advanced premium rate that we moved up from 25 basis points to 1%. And that's a pretty meaningful move that we did. Daniel Amos: But nothing with cancer. Thomas Gallagher: Got you. So cancer is just playing out as you expected? Max Broden: Yes. No repricing on cancer. Thomas Gallagher: Got you. And just for my follow-up, so I guess I'm thinking about your launch of medical in Japan next year. And I'm not asking for specific numbers per se, but I guess it's a broader question. If I think about you now have 2 products selling simultaneously doing pretty well. And wondering, as you add a third, how do we think about your ability to support 3 products at once? Because I think historically, Aflac was really a one product at a time company and now you have 2 going, doing pretty well. How do you think about the launch of a third product? And do you think that can translate into over JPY 80 billion in sales from a ballpark perspective to where we could get to overall premium growth flattening or even maybe beginning to grow? Masatoshi Koide: [Interpreted] This is Koide speaking from Aflac Japan. We have just gone through the marketing and sales transformation this January and the new structure is now applied to the cancer medical asset formation and nursing care. And organization was function-based when it comes to product development and marketing. But we changed the organization to be more cross-functional and the product development and marketing are conducted in parallel across all the 3 brands. The purpose of having this transformation is for us to launch the 3 brands or 3 products concurrently and support them directly. So with this new organization or transformation, we saw a positive result even by launching Miraito and Tsumitasu at the same time. And we're planning to launch a new medical insurance in the end of December, but I am confident that under this new transformation or organization, we will be able to run all the 3 brands in parallel and separately. And now that the sales teams have witnessed the success of the sales of Miraito and Tsumitasu and the team is now looking forward to make a similar success by launching the new medical insurance. That's all from me. Daniel Amos: Comment about what was just covered. And that is, the Miraito will be influenced to some degree when we go to medical. An agent has so much time in a day to sell. And when they're making the call on the count or whatever, they generally -- if they've been pushing cancer insurance for a year or so, then the opportunity to bring a new product like medical always works to the advantage, whereas in the case of Tsumitasu, it's totally different and a different way of approaching consumers that we normally have not been approaching. So I just want to make sure that was picked up that there always is some decline in sales of an older product that's been out there a few years than -- when we go to a brand-new product because that's the whole idea of sales is to have bells and whistles and excite people to go push and sell more. And so that does happen. So I want to be clear on that for you, Tom. I think it was Tom that asked question. Masatoshi Koide: [Interpreted] May I add one more thing? This is speaking. By the way, our alliance partner sells cancer reinsurance only. So this partner will not be impacted by the new launch of medical insurance. And just to mention one thing about the 3 brands new structure, the teams are not working in silos. They are working concurrently and to support other products as well. We expect that with the launch of an attractive new medical insurance, there will be a positive impact to Tsumitasu and other products within our company. Operator: The next question comes from John Barnidge of Piper Sandler. John Barnidge: My questions are focused on the U.S. business. With the success and the growth of the buy-to-build initiatives, have we crossed over the period of investment and are now starting to yield some earnings from those efforts? Virgil Miller: Thanks, John. It's Virgil. Let me say this that we're not at scale. However, though, we are seeing some -- with the growth that we're seeing, I'll be specific on the lab, there are quarters where we have realized being to the good. However, though, we've got to get more scale to make that consistent. So I'm not ready yet to claim that. I would say on the dental, no, we've got to get more growth. So we were able to get stabilized. I am very pleased with what we're seeing operationally. Those challenges have pretty much subsided. And as I mentioned before, the first 9 months, we've got 40% growth, but we're going to need more sales and to really drive earned premium to get to that scale. The trajectory is there, but we're not at a point of arrival. Max, anything you want to add to that? Daniel Amos: I want to add something. I'm very pleased with what's going on. When I look at it last year and look where we are this year, we're running way ahead, and it's nice to see that. And so Virgil is correct. We need more, but it's come a long way, and I am very pleased with what I've seen them accomplish. Max Broden: Well, I would say that you got one of the businesses is running -- have turned to profitability this year and 2 are not. That being said, it will still be some time until we reach target profitability. One thing is just to breakeven, but we want to get these businesses to adequate profitability overall, and that will still take a few years. John Barnidge: And my follow-up question on the U.S. Given the comments about more of the broker distribution going into group products, how do you get larger in that? Can you talk about maybe efforts organically and potentially inorganically? Virgil Miller: I would say 2 things to that, John. The first is that we had to make sure we got the right product set available to them and are making sure that we are giving what we call a unified experience. So the trajectory you're seeing and the positivity we're seeing in our lab products, the brokers are accepting that. We are giving a level of service that is top notch. As I mentioned before, our brand is very strong in that area now, and we're winning cases. What we are now focused on going into 2026 is to now take those products and bundle them with our other VB products. We've used the term halo in the past, but we need to have those products bundled together so that the brokers can make a unified solution out there. And it's not just about making it as an underwriting offer, it is being able to provide the technology and the process to support that. That is our extreme area of focus. And then you go and you add the dental products -- as I mentioned earlier, the dental is growing. It's mainly still driven by our agents. So we are open for business and asking the brokers now to move it in some of their larger cases. When you put that together, we believe that we will continue to grow consistently strong in the group space, and that has been our focus really with those buyer deals. And John, let me make sure -- there was a second part. What was the second part of your question? John Barnidge: Yes. I think you covered the first part from the organic. I was asking is the inorganic opportunity for good scale there. Virgil Miller: Thank you for that, John. I will tell you that as I've taken over now my role as President of the corporation, I've worked behind the scenes with all our leadership teams, primarily Max and I were making sure that we've got a strong corporate development arm. My point on that is that we're going to make sure we've got the right rigor and discipline to be looking out in the market for any opportunity. We're going to be very deliberate, though. So we are preparing to make sure that we have that discipline, that rigor to be looking. But at the same time, though, we have not seen anything become available that has attracted us that can really move our operations. So we're not going to just make a move to make a move, but the discipline that we have, we're making sure that we're ready if and when there is an opportunity. Operator: The next question comes from Ryan Krueger of KBW. Ryan Krueger: I guess I had a follow-up on that last question on inorganic. I think last year at your investor conference, I think your views were you wanted to build out the newer U.S. capabilities and give it a few years to see if it was working before you'd really consider anything larger from an M&A standpoint. It sounds like things are going better than you expected when it comes to the progress in the U.S. So I just wanted to follow up and maybe can kind of circle back to what you had said last year. When it comes to inorganic, are you mostly looking at smaller things that would add capabilities? Or would you actually consider something more meaningful? Virgil Miller: I think first, the point we were making last year is the focus. It's hard to go out and do something and then look at any type of opportunity when huge opportunity is sitting right in front of us with our life and [indiscernible] and disability platform is our first focus to get that to scale. And we are actually exceeding the trajectory that we have put forth. So very pleased with that. And to your point also, but when we had our dental operations not stable, that became our definite focus also. It's just a huge opportunity in both of those markets. Those products continue to be desired out there for consumers. And so therefore, that is our focus. Now having said that, when you mentioned the word small, if there are opportunities that could really enhance our technology, we are very, very aware of what's happening in the world of AI. We've set up a clear framework. We will be active in making sure that we're able to be efficient and effective in how we manage our business and technology is a great part of that. So we're always looking at how we can advance and move our technology. But when it comes to looking at blocks of business or other opportunities out there, our focus will stay here, but we will have the discipline to make sure though that we are always looking at what's going to happen in the market. What got Aflac to the dance that we're at right now, though, is a history of being innovative. We're the pioneers of the supplemental space. We're the pioneers of the cancer insurance. And we will make sure, though, that we're going to be innovators, and we will continue to be innovative going forward. Max Broden: I would just add that I don't think that our views have changed on M&A. We think that right now, we -- the things that we are building out are working for us, and we're making very good progress there. And we have a core business that is doing very, very well. So we are in a position where we don't have to do anything. We obviously have the flexibility and opportunity. But that being said, we also recognize that we operate generally in niche businesses where it's very difficult to either, a, find complementing businesses; and b, sometimes very difficult to integrate them as well, given the -- how sort of niche operated we are, both in terms of distribution administration, et cetera. So recognizing all of that, I would say that I don't think necessarily that our views or opinions have really changed. Ryan Krueger: And then you had a 64% to 66% Japan benefit ratio target over the next few years coming into this year. Following the assumption review in Japan, do you think that's still a good range? I know there's some ongoing benefits from that. Max Broden: So Ryan, if you look at our underlying benefit ratio for the quarter, it came in at 65.9%. So I think that's a reasonably good range going forward. Keep in mind that when we give guidance, we generally do not include any further unlock assumptions in those ranges. So the long-term range of 64% to 69%, we feel pretty good with. Obviously, we get a little bit of a tailwind from the 130 basis points lower net premium ratio. We also get a little bit of a tailwind from mix overall as we grow -- continue to grow contribution of our in-force from the third sector block, predominantly cancer. So when you take all of that together, we said a year ago, that in the range of 64% to 66%, we will start at the high end of that range and trend lower throughout the forecast period. And I think that as we sit here today post the current unlocking and given the experience that we have, that still holds. Operator: The next question comes from Wilma Burdis of Raymond James. Wilma Jackson Burdis: Could you talk a little bit about why the Japan cash earnings have been so high over the last few years and how long this could persist? Max Broden: Thank you, Wilma. The 2 main drivers of the high FSA earnings and therefore, ultimately dividends from Aflac Japan to Aflac Inc. over the last couple of years has really been driven by 2 factors. The first one is actually the weakening yen. And the way the FSA accounting works is that on U.S. dollar assets held on the Japanese balance sheet, you recognize the full impact from FX movements at the maturity of those bonds. And we obviously generally buy a lot of 5-year and 10-year tenors. And that means that you have to go back and look at what the yen was 5 years ago and 10 years ago. In particular, if you look at where the yen was 10 years ago, it was significantly stronger than what you have today. That means that as those bonds mature, you realize a very significant FX gain. As an example, 10 years ago, you roughly had a yen at JPY 1.05 relative to the dollar. If those bonds mature today at 1.50, that is close to a 45% appreciation of that asset that gets recognized at the time of maturity. So this boosts the FSA earnings in the near term. The other impact that you've seen since 2022 is that we have executed a series of reinsurance transactions between Aflac Japan and Aflac Bermuda. When we do that, there's also a release of reserves in the Japan segment, and that is boosting the FSA earnings as well. So I would say that those 2 components have been the main driver of the very high FSA earnings that you have seen. Wilma Jackson Burdis: And just a follow-up. It sounds like that could persist for at least a couple more years. And then along the same lines, can you just talk about the higher share repurchases in the quarter? And if that's something that you expect to see as more of a run rate? Max Broden: So as long as you have a yen that is weakening, you would continue to have a tailwind from maturing U.S. dollar assets. If you have a yen strengthening, you could have the opposite. So I do want to caution you that this goes both ways. The other factor, we do continue to evaluate further reinsurance transactions. And if we were to execute any in the future, that is also likely to create FSA earnings and therefore, higher cash coming through. But if you look at the underlying FSA earnings, that has generally been on a core basis, a little bit over JPY 200 billion per year. And then the way I would think about it is that, that's sort of a core underlying base. And then on top of that, you have the FX gains and any sort of gains coming through as it relates to reinsurance on top of that as well. In terms of buybacks, our philosophy have not changed. It is a function of our capital ratios that we have, the cash levels that we have at the holding company as well as the capital formation that we see going forward. And then obviously, we evaluate all the different kinds of deployment opportunities that we have throughout the company and the enterprise. And where we see good returns, that's where we have the capital allocated to. In the quarter, we obviously saw good levels and attractive IRRs on the capital that we deployed into share repurchase. And that's the reason why you saw that being a little bit higher than what you've seen in previous quarters. Operator: The next question comes from Suneet Kamath of Jefferies. Suneet Kamath: I wanted to come back to John Barnidge's line of questioning on Aflac U.S. And this comment that you made about the brokers pivoting back to, I guess, true group product and you sort of reinvigorating Aflac Nation. Is this a new development? I don't remember you talking about this in the past. And the reason I ask is, fourth quarter is traditionally your big group broker quarter in terms of U.S. sales. And I'm just wondering if it's a new development, should we start thinking about how that could impact fourth quarter of '25 sales? Virgil Miller: Suneet, Virgil here. I would tell you that our pipeline for fourth quarter looks strong. I am confident and optimistic that we were going to finish our sales here within our ranges that we set forth. The pipeline I'm looking at will give us consistent expectations for the quarter. So for fourth quarter, the pipeline was good. No, I wouldn't say anything has changed. What I would say is that with the -- our growth in the large case space and with our life in absence and disability products is actually a positive that we are growing faster than what we had anticipated. And we are also continuing to forge those broker relationships. We're also now looking to bundle, as I mentioned before, those life in absence and disability products alongside our core group VB products. What you're hearing me say though, is that what you're seeing in this in the fab documents, there is a weaker -- average weaker producer number that we have currently today. And with the weaker -- average weaker producer they're currently mostly driving our individual products. And that's why you're seeing an overperformance in our group and really underperformance in our individual. And we have to focus on making sure that we get the Aflac Nation built back up and looking forward to a stronger recruiting year. But again, it's not just about recruiting, we have to convert. I'm pleased with our 8% conversion. And then I'm also pleased with our productivity at 16%. Now I want you to know that, that is a focus of ours, though, is to grow producers because they are the ones that sell more of the individual business. Suneet Kamath: Okay. All right. That makes sense. And then maybe a follow-up on the U.S., Virgil, if I could. So if I look at annual sales, they've been sort of traveling around $1.5 billion and it looks like this year might be pretty close to that as well. And I know you're focused on earned premium growth of 3% to 5%, but obviously, sales is pretty important. And a few years ago, we talked about a $1.8 billion kind of target. Just wondering what needs to happen to get to some level of sales like that? Virgil Miller: Yes. So if you go back to -- I'll start with the buy-to-bills because it started with our lack of performance with the dental product. So if you look at what we had expected, we're really about 2 years behind from where we are today. So while I'm being positive, the fact that we recovered operations, I'm very pleased with the 40% growth we've seen in the first 9 months, but that is really a year or 2 behind. So when we projected those original numbers, we would expect it to have been higher on an annual sales production from dental right now. My goal is to recover that, pick that back up, finish strong this year and then going into 2026, getting closer to those numbers that we had originally predicted years ago. The second part I would tell you is it's the bundling. We mentioned that it's not trying to be best in dental. It is the ability to bundle dental with our VB products. As I look at my numbers in the third quarter, about $0.85 to $1. So every time we sell a $1 of dental, $0.85 worth of VB was sold. That is exactly what we're looking for. So the more dental we will get to sell as we recover that business, you're going to also see it pull up that individual block. And so that is part of the reason why we're lagging behind. And then the last thing I'll say though, it does get back to the number of producing agents. That is what we're addressing right now also. Daniel Amos: Yes. This is Dan. Let me add one other thing. I've always talked about evolution, not revolution. We're making some changes internally that are evolving that are good decisions. I'll give you an example. We write according to these classifications, 5s and 6s, which are high turnover areas, nursing homes, for example, the employment there. It's -- writing that business didn't make any sense because, number one, is there was too much turnover to the point where our claims were low. Another thing that made it, there was no profit because the expenses were too high. So if you go back a few years ago and say, well, what did you make in your forecast? We didn't forecast we were going to stop selling it. And yet now we've stopped selling it because it's not good for anybody. It's not good for the company. It's -- it's not good for the consumer after we see the loss ratio. And so we've moved on. So there are things that we're evolving and doing. And that's what I've seen about cleaning things up and making them more profitable, too, with the buy-to-bills. They've done a good job with that, and we're not where we want to be. Let me be clear on that. But we are moving in the right direction. And I'm talking about a major move. I'm talking about better than I thought they've done. And so I'm very positive about that and what Virgil saying is exactly right. Suneet Kamath: Just a quick follow-up. I'm not sure what you meant by 5s and 6s, but in any event, how big of a headwind is that issue? Daniel Amos: Well, what I mean by 5s and 6s is the classifications. Certain areas like if you're working in a lumber mill, that's the highest rating you can get because accidents occur more. So the higher the number, the higher the probability you're going to have claims or whatever it might be, if it's a high persistency. But the best would be a white collar worker in an air conditioned room working day-to-day and just counting numbers. That's the safest one we can give the best rate to. And a lot of people were not writing or what I'll just call less poor persistency business and less profitable business. Max Broden: Suneet, we have basically gone through a project to basically classify all our different accounts by profitability, and we're tiering them between 1 and 6. And then we have essentially adjusted to some extent, the commission schedules accordingly to make sure that we capture more of the more profitable business and less of the less profitable business. Daniel Amos: He said it better than me. Operator: The next question comes from Jimmy Bhullar of JPMorgan. Jamminder Bhullar: I had a couple of questions on the U.S. business as well. So first, just in terms of claims trends, it seems like your benefits ratio has been going up if we adjust for the actuarial reviews and remeasurement gains and stuff. And I'm not sure to what extent experience -- claims experience and supplemental products has gotten back to normal? Or has it gotten worse than normal because obviously, it was favorable? Or is it just the mix of business and growth in the group insurance products or per group that's driving the uptick? So the question is just on what you're seeing in terms of claims trends in supplemental policies? Max Broden: Jimmy, let me kick it off on the benefit ratio. So there are essentially 3 factors that's been pushing up our underlying benefit ratio to the higher levels now into the 50s. First of all, we went through actively a round of endorsements and benefit enhancements of our underlying policies. This applies to our cancer product. This applies to our accident product. This applies to our hospital product because simply, they were too low, especially coming out of the pandemic. So part of it is that we have pushed that through. Then you also have the cyclical component that because claims were very low, there's also an element of catching up impact that you are seeing now as well coming out of the pandemic, especially as it relates to cancer claims. During the pandemic, there was a significant amount of undetected cancers that post-pandemic as more people go for their regular annual checkups, these are now being detected. So we see, therefore, a little bit of a catching up impact on that line of business. And the last piece to the benefit ratio is mix. So a greater proportion of our in-force are now gradually sitting in higher benefit ratio product categories like life and disability and also dental and vision. And as sales grow of those product categories, they will become a greater proportion of our overall in-force. And therefore, when you look at the total U.S. benefit ratio, that will structurally move up over time. Jamminder Bhullar: Okay. But nothing alarming in terms of claims in supplemental going up beyond what you would have assumed? Max Broden: No, I wouldn't say so. Jamminder Bhullar: And then just on -- and there's been a number of questions on this already. But if you think about the growth potential -- or what do you think about the growth potential of the U.S. business over the long term? Because I realize dental was a weak spot, but it's been recovering. And if I think about your sales the past couple of years, you had, I think, 5% growth in '23. It was a slight decline in '24. This year, you're going to grow, but it seems like it will be low single-digit growth again. But I would have assumed that the business would grow a lot faster than that, just given the sort of underpenetration of supplemental policies, a fairly high medical care inflation. But do you think what you've seen recently is representative of what you'd expect longer term? Or is this a business that over time should be growing faster than what it's been growing at? Virgil Miller: Jimmy, I would say that this is exactly what we expected. It's actually a little bit faster than we expected this year because we had to regain confidence. And what I'm looking at is the number of agents and then, as I mentioned, now get into the broker market that are actually coming to sell it. And so we are getting higher numbers than we anticipated. It's going to be a gradual grind to get really to where we want to get to. I can tell you, though, consistency matters here. So as you mentioned before, that 5% -- and then we had the negative year. And so you're coming on a smaller base. So when I talk about a 40%, what you're really talking about, I don't have the exact numbers in front of me, but you're probably talking about -- I think it's about a $12 million increase for the quarter. So these numbers need to get larger and larger and larger, but I am seeing that happen quarter-over-quarter as more and more are seeing that the operations work. This is something we have to prove out in the market. We've also, though, now started to get cases with the broker, and I expect that to grow. So I expect this trend to continue in the fourth quarter and then see an additional trend increase going into next year. Operator: The next question comes from Jack Matten of BMO Capital Markets. Francis Matten: Just one on your margins in Japan. To what degree are you now like assuming future improvement in cancer and hospitalization trends, I guess, versus maybe your prior assumption and how you've seen recent experience trends? Max Broden: So in our unlocked assumptions, that incorporates our up-to-date experience. It also assumes a little bit of further improvement in that as we have seen a very, very long-term trend of favorable development. So we do incorporate a slight improvement going forward, but I would put it as fairly limited. So I want you to be aware of that it's not -- there's not no improvement whatsoever, but there is a very small improvement incorporated in our future actuarial assumptions for cancer. Francis Matten: Got it. And then a follow-up, just wondering about your perspective around private credit, given it's been in the headlines lately. I guess can you just talk about your outlook for that asset class and what kind of experience Aflac is being in its portfolio? Max Broden: Sure. Thank you for the question, Jack. Private credit is not something that's new to us or to the industry by any means. We're very comfortable with our current strategy as it relates to private credit. To state the obvious, there's 2 risks you need to understand and you need to underwrite. This is a credit asset. You need to have very strong credit management capabilities, and it needs to focus on bottoms-up security level underwriting with a disciplined top-down portfolio management approach. And then the second obvious risk factor is liquidity and making sure you're stressing to make sure that you've got the liquidity you need to meet obligations across the organization. And we obviously do both of those. As it relates to the credit cycle and things we're seeing there, nothing systemic that would suggest we're at the beginnings of a serious credit cycle. Corporate balance sheets remain strong. We've not seen a discernible trend in downgrades or credit deterioration across our portfolio. In our structured private credit space, all of our holdings are performing in line with expectations. I'm very confident that if we do get a turn, our portfolio is going to perform well. Defaults and downgrades generally are isolated in below investment-grade portfolios. We have been very cautious in how we've built that exposure. So we feel very good about our overall private credit and aren't too concerned. We didn't have any exposure to the names that have been in the news lately, and we think our disciplined underwriting is going to allow us to do very well if and when the cycle does turn. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to David Young for any closing remarks. David Young: Thank you, Andrea, and thank you all for joining us here today. If you have any follow-up questions, please reach out to Investor and Rating Agency Relations, and we look forward to speaking to you soon. Have a great day. Operator: The conference has now concluded. Thank you for attending today's presentation, and you may now disconnect. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]
Operator: Good day, and thank you for standing by. Welcome to the Angi Inc. Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note that today's event is being recorded. I would now like to turn the conference over to Andrew Russakoff, Chief Financial Officer. Please go ahead, sir. Andrew Russakoff: Good morning, everyone. Rusty here, CFO of Angi Inc., and welcome to the Angi Inc. Third quarter earnings call. Joining me today is Jeff Kip, CEO of Angi. Angi has also published a shareholder letter, which is currently available on the Investor Relations section of Angi's website. We will not be reading the shareholder letter on this call. I'll soon pass it over to Jeff for a few introductory remarks and then open it to Q&A. Before we get to that, I'd like to remind you that during this presentation, we may make certain statements that are considered forward-looking under the federal securities laws. These forward-looking statements may include statements related to our outlook, strategy and future performance, and are based on our current expectations and on information currently available to us. Actual outcomes and results may differ materially from the future results expressed or implied in these statements due to a number of risks and uncertainties, including those contained in our most recent quarterly report on Form 10-Q, our most recent annual report on Form 10-K, and in the subsequent reports that we filed with the SEC. The information provided on this conference call should be considered in light of such risks. We'll also discuss certain non-GAAP measures, which, as a reminder, include adjusted EBITDA, which we'll refer to today as EBITDA for simplicity during the call. I'll also refer you to our earnings release shareholder letter, our public filings with the SEC, and again, to the Investor Relations section of our website for all comparable GAAP measures and full reconciliations for all material non-GAAP measures. Now I'll pass it off to Jeff. Jeffrey Kip: Thanks, Rusty. Good morning, everybody. We know you're all exceptionally busy and working very hard in this earnings season, and we very much appreciate you taking the time to join us this morning. As you know, our mission at Angi is to deliver more jobs done well to our customers, our commitment to our shareholders to return to growth in 2026 and beyond, and generate more value. In the third quarter, we again posted the key markers for both. The most important metrics we look at to judge our customer experience are: one, our hire rate, the rate at which a homeowners submitting a service request on our platform Angi pro paying for that lead on our platform. A pro win rate, which is the rate at which pro wins the leads they pay for on our platform. Three, our homeowner Net Promoter Score, which we survey on a rolling basis. And four our pro retention. We again delivered improvement across these metrics in the third quarter as we have all year. Our estimated hire rate is up double digits. Our estimated win rate is up nearly 30%. Our Net Promoter Score is up nearly 10 points year-over-year and nearly 30 over the last 2 years. The pro retention continues to improve with overall churn better by 7% in the last 12 months year-over-year and up 26% versus 2 years ago. And we're not done yet. We're continuing to invest to get the better, better in customer experience. We also continue to post the key markers for our return to profitable revenue growth. Proprietary service request growth accelerated in the third quarter to positive 11%, and with proprietary lead growth at 16% and revenue per lead growth at 11%, the blue line to growth in 2027 is clearer and clear to us and hopefully to all of you. Our network channel has gone from nearly 40% of our leads a year ago to less than 10% this year, third quarter over third quarter, making the rate of growth or decline there, and impact on our overall growth. But that will change trajectory as we start to compare next year. Our strong proprietary growth is mathematically the key marker for 2026 growth. We'll likely talk about this a little bit more in response to questions later. We're also generating materially more value for the business with our sales channel in Pro acquisition. We have only about half the sales head count we had a year ago, but we're actually producing more overall lifetime margins, meaning the margin for pro and the lifetime capacity for pro and materially up. So with the step change that we've delivered in our sales effectiveness and our recent launch, and now ramp up of online enroll, we have the key pieces to grow our overall growth capacity in 2026, and we expect returned to nominal active pro growth by the end of the year and the beginning of 2027. So with all these key markers in place, we're accelerating our platform transformation. Today, we operate on 4 platforms, bringing the United States to 1 internationally. U.S. platforms, in particular, have significant tech debt in legacy code, which has materially slowed the speed and efficiency of our product innovation and the business in the U.S. And with the rate of change in the landscape increasing with the rapidly growing presence of AI, we have to move forward and get on to a modern technology stack and get off pieces of software, which are in some cases is 20 years old. We've been progressively already rebuilding key pieces of our architecture over the last couple of years, but we're now leaning in with the target of getting to a single modern global and AI-first platform by 2027. We've been and will be delivering new AI first and AI-enabled software and improving the customer experience with it and our business efficiency as well as we go. So this is going to be a progressive improvement. There's no big bang here. And this effort isn't going to hinder our trajectory. It's all built into our outlook. And if anything, the platform work will allow us to accelerate our efforts in the business as we go forward and hit our milestones. Again, with all of this in place, we are looking forward very optimistically to 2026 and beyond. We're never going to be happy with everything, but we do feel very good about where Angi is, and we have even higher confidence that we're going to deliver against our mission and goals going forward. So with that, I think, operator, we're ready to take questions. Operator: [Operator Instructions] Today's first question comes from Dan Kurnos with The Benchmark Company. Daniel Kurnos: Nice to see progress on the prop lead side. But Jeff, last quarter, you suggested -- you expected mid-single-digit growth in '26. So given that we're seeing much stronger trends in proprietary and obviously, the weaker in network, plus all the migration work you're doing, has anything changed with regards to your 2026 outlook? And then I have a follow-up. Jeffrey Kip: Daniel, let's go past. But we are tracking the same target for 2026 revenue growth, as we discussed on the last call. You referenced the mid-single-digit target and that's about right. We expect modest overall service growth with the strong performance in proprietary being offset by the network comparisons. I think you made the right comment that the proprietary looks a little stronger and the network looks a little weaker, and we probably net out around the same. We are delivering this all through very strong paid proprietary channel execution, and we're going to reinvest in branded advertising next year. We expect to double-ish our TV spend given what we've seen on the strength of our branded traffic and our TV performance this year. If you look at overall brand search metrics, which is something some of the larger companies out there are looking at to gauge their overall campaigns, we were only down in the low to mid-single digits in the third quarter versus the prior year, despite year-to-date cutting our TV spend by 70%, which is not, I think, from relationship you often see, that will bolster our growth. And we think our significantly improved customer experience and the solid ROI there is, I think, attributing to that. I think revenue growth rates will likely vary through the year, likely a little lower in the first half of the year as we compare to higher network service request volume, and evening out over the course of the year. I think it's also just worth mentioning what we said on the last call that we expect a little leverage from revenue to EBITDA growth as we keep our strong fixed cost discipline next year. Daniel Kurnos: That's super helpful. And then just, look, second, there's a lot of moving pieces on EBITDA in Q3 and Q4, including the shift to CapEx along with what you guys called out the resolution of two matters that could result in some slippage into '26. Can you just talk through those pieces and also how we should think about CapEx running in Q4, and next year? Andrew Russakoff: Yes. Sure. Dan, this is Rusty. Yes. So our believe versus the guidance, it was a mix of a couple of different things, partly some contribution margin outperformance, partly less expense from less hiring, and then partly some timing of expenses. You'll notice -- I think you're referencing that our international EBITDA bumped up quarter-over-quarter, mostly due to changes in the product organization that Jeff mentioned in the shareholder letter. So we combined domestic and international into one team, so that we can focus on consolidating onto one unified technology platform, which is an initiative that we have been orchestrating for a while. What this meant in Q3 was that the international folks shifted their work towards building out the new platform, which due to the accounting rules resulted in less expense being allocated to the International segment and more capitalized wages these financial dynamics were in line with what we've anticipated with this. Expectations going forward are that capitalization rates in Q4 should be a little bit higher than in Q3 as we continue to ramp up the platform work, and then we'll continue at a similar run rate through the first half of 2026 before it tapers off as we start to complete some of that platform work in the back half of next year. What that looks like on a full year basis, it will be around $60 million of CapEx this year, around a similar amount next year, but will be front-loaded next year as opposed to backloaded this year. Daniel Kurnos: Got it. And just, Rusty, I just -- could you just clarify what the two matters were? I know it's just timing stuff, but just helpful color on EBITDA, maybe some shift there? Andrew Russakoff: Sure. So we have two vendor-related matters that are from prior years that we had high confidence would resolve much earlier in the year. Both remain under discussion and thus, we're not really at liberty to give more detail on them. There's a chance either or both of them might resolve in Q4, but we're obviously running up against the end of the year. So at this point, that seeming less likely. But we still expect to prevail ultimately, which might be the impact will slide into 2026. Operator: Our next question is from Andrew Watts with JPMorgan. Unknown Analyst: First, could you give us an update on what the response has been from service pros to the ads migration? And second, could you expand on what you saw in the network channel this quarter, and how that impacts your outlook going forward? Jeffrey Kip: Sure. I'll take those. So first of all, the ads migration is more than half done this morning. It consists of 2 30-day rolling migrations. We're doing them over 30 days because we want to match the contract renewal date. It just makes a lot more sense to the business and the customer. We'll be about 3/4 done on November 15 and then start a second 30 day. We've had zero disruptions or problems so far. We've got good feedback from our customers. As you probably recall that ad pros really have no choice as to which tests within a category they received, and no choice beyond their initial allocation, ZIP codes. So it's positive. It will make life better for them, and it will also improve our matching because you'll have pros actually receiving the things they specifically want. So we're getting good feedback. The migration is one of the planks to this all progressive global platform work that we've embarked on. We'll power down the legacy ads platform following the migration, saving money and allowing us to put resources elsewhere. There hasn't been any disruption of any kind of materiality in the P&L. And we really expect that on all of this work, given the way we're working and given our experience. This is our fifth migration. We did 5 in the European business. And so this is kind of a continuation of the work we've been doing for a while now. I would just say that having something like this come off seamlessly is still impressive that the teams that have been working on this thing tirelessly for over a year deserve a real tip of the hat on the effort and the quality work they've done. Eden, [ Yugo ], Dave, Joe and everyone else. Thank you very much and if you're listening, tip of the hat to you guys. Let me go to the network channel. A year ago, just recall, our network channel was almost 40% of our leads. It also had in the range of half the win rate of the rest of our channels. Today, the channel is less than 10% of our leads and the win rates materially increase to be in the same range as the other channels. All of this was planned. We made a conscious decision to implement homeowner choice in January, which means that the affiliate homeowners were previously auto matched to available pros are now choosing each pro. Our data internally has said that homeowners who choose a pro were 60% more likely to hire a Pro. And indeed, we've seen that kind of lift in the affiliate hire rates. So it has been a win for our homeowners and our Pros. We also anticipated as a result that the volume of our leads would come down quite a bit, both because homeowners are going to choose fewer pros than they were automatched to and because there's less revenue for SR to spend on acquiring more SRs. So we expected that. It was in our guidance. We're kind of on track there with a little bump here in the third quarter. We also expected volatility in the ecosystem. When we launched into this, we weren't sure exactly if everything would play out. I think net over the course of the year, we've gotten a bit less volume and a bit more profit than we expected. In the third quarter, we had three of our larger affiliates have bumps down in volume. One of them had to do with quality of SRs in their affiliate network. A second one told us they had operational issues. The volume came down. And in the third one, we just didn't have as much volume available. Now we've gotten back, a chunk in this volume, but not all of it. So we are at a lower run rate. Again, we didn't expect these things, and we also still expect that there will be some bumping up and down as we add network partners and some drop off. So at the end of the day, as we look forward, our current view is that we've kind of come back off our bumps. We're at our new run rate. We're constantly farming and looking for appropriate partners. And we think that, again, we're stable. We could go up. We could bump down. We'll see. It's now less than 10% of our traffic. It's not a strategic channel. We're going to take the right traffic that we can match the right Pros and get jobs done well. But this is not something that we bank on as a source of future growth in particular. We're happy to have it and make it work and keep deploying there. Operator: Next question is from Ms. Sergio Segura with KeyBanc. Sergio Segura: Maybe starting with AI helper. I thought it was interesting that statistic you gave that it converts at a 2.7x higher level than the traditional flow. Now that's the default experience. Just how should we think about modeling the impact? And I guess, is that informing your view of maybe investing even more into marketing for 2026? And then I have a follow-up. Jeffrey Kip: So let me step back. Let's just talk about our approach with AI generally. So first of all, we commented in the letter that we made the move to AI first. And what we're doing is we're looking to implement AI across our customer workflows and our team workflows as well. And we are looking to, as we build new software build an AI data. The AI helper is really sort of one of the first prototypes where we are taking an LLM off the shelf. And our approach is to produce a fine-tuned LLM in each case. So this is the first application. We're fine-tuned LLM means that we have a set of proprietary knowledge, which is structured in a certain way. In this case, it's our conditional set of service request questions by a task, which we can use to feed and change the way the LLM flows and the conversation with the customer. Secondly, we have a bunch of proprietary data on customer behavior through the product. And in terms of the interaction between the homeowner pros that we can also feed. And then as we deploy these products, we get new data. And through all of this, we've created a learning loop, which differentiates our experience from what somebody might get on an LLM with our proprietary knowledge, or proprietary data. So this is our core approach. What we've done with the AI helper is we first deployed it as an open box that effectively said, how can we help you on the side? Or tell us in your own words? And when people enter that, and that's ultimately 1/3 of the customers who post service requests with us. They're more likely to convert. They're more likely to choose a pro, and thus, they're more likely to get a job done well. This started as a deprecation in conversion and the learning loop is sped up and now it looks accretive, and we believe we're seeing some of this in our proprietary growth. I think when you go to the next step, which is, [ gee ] how much work can this be? We don't actually expect that the other 2/3 of traffic will triple in conversion because there's a causation and causality. So you've got to do a split test to actually see what the shift is. But we do believe there's upside in getting more customers through the AI helper. And we do believe that, that's important going forward. We don't have a big win baked into our numbers because we've actually just gotten the next phase in this test into play. And so the core of this is when you look at LLM technology, we think it's a huge opportunity for us because we can take an application like the SR path, which is fundamentally a conversation between Angi and the homeowner. And we can deploy the LLM to have more effective natural language conversations against a larger body of data than our previously somewhat rigid conditional path. And we could end up delivering a better match on our core asset, which is the 100,000 Pros who are ready to get jobs done well for the homeowner. Because at the end of the day, we have always taken this conversation with a homeowner in the conversation with the pro, turned it into a conversation between the two of them because we have the largest supplier for us, and delivered the offline experience that people want. Done this on Google. We've done it on social, and now we're going to do it on LLM. And we're doing it within our product as well. Operator: The next question comes from Stephen Ju with UBS. Stephen Ju: So Jeff, Rusty, I think I'll ask the AI question in a slightly different way. And I guess, Angi's relationship with the broader world, I suppose. So I think we're all looking at shifting traffic patterns because the usage of LLMs has taken up across the globe. So how does this change your traffic acquisition strategy? What's working? What's not working as you think about customer acquisition and service grow acquisition? And narrowing down the scope of the question a little bit. I think as we've gone through the restructuring over the last couple of years, I think you've taken a pretty conscious effort to walk away from the traffic that was lower ROI. I would have thought that in the third quarter, we be bouncing off the bottom, but I think there's sort of a directional quarter-on-quarter decline here that we're noticing in terms of the overall activity. So I'm just wondering if you can kind of walk us through what you're seeing in the third quarter? Jeffrey Kip: So the first question on traffic shifting. There are some indicators out there, the traffic is moving around, statistically getting produced. There's also, what I would call the walking around research of everybody you talk to doing searches in places that sound a lot like LLMs, or actually our LLMs. Look, our view on this is, again, what I said earlier, we think this is a great opportunity. We're in the middle of building our own proprietary app, deploy by the end of the year on one of the major LLMs, and we're in discussions with a couple of the others about deploying our current and then new technology there. So we think it's a great opportunity because we think that our domain knowledge and our proprietary data and the context we have is going to allow us to enter the chat, midstream in the LLM and read the context from the customer and get them more accurately and with more expertise to the pro they want. So we think it's a great opportunity. Obviously, there's a bunch of cards. It's very early in the Texas Hold'em hand. So there's a bunch of cards left to come on to the table. But between our development capabilities, our AI team and the ongoing conversations we're having in the nature of our product, we think that we are very well positioned there. We're also, at the same time, kind of rebuilding our content approach, the structure of content that gets serviced in AI is a bit different, although there's a lot of correlations to the way it gets surfaced in Google SEO, but we're actively looking at what we do and how we do it to make sure we're in play there. And at a minimum, we get the brand impressions. I think then finally, we're actively working with Google on everything they're doing in terms of how they deploy ad space and AI mode and elsewhere. The AI MAX product, which is meant to sort of focus on getting to the right spot against the AI is now over 10% of our spend. So we're literally -- we're literally trying to stay on the cutting edge of everything about where traffic is, where it is going and keep our team and our technology deployed in the right way there. And we see this as opportunity, not as something bad. We see this is actually very good. Your next question was about third quarter trends. And thinking maybe we should have been bouncing off the bottom. I think what we said is we get sequentially some improvement. We were minus 12% in the second quarter on revenue, and we said minus 8% to 11% on the third, and we came in at minus 10.5%. We had these bumps in the affiliate network, which its a nonstrategic channel. Our core strategic channels are growing incredibly healthily. I think all of our proprietary -- SRs are going 11%, our leads are growing 16% and then our revenue per lead is plus 11%. So if affiliate wasn't there, you had the lead growth and the revenue per lead, you have very healthy growth. So I think in some ways, you argue that our core business, the best part of our business is growing very healthily. It is well up off the bottom. I think the network channel is a quirky channel. It's a group of affiliates who we're working with to try and buy homeowners traffic that's going to match into our network and work well. It's not a big canvas. It's not quite a sort of algorithmically approachable as Google is. It's not as big as the social channels are. And so we got a couple of surprises at once. This will continue to be a theme. We do think we're going to offset it with this incredibly strong proprietary execution that you've seen growing every quarter. We do think that our TV is now performing better than it was, so we're ready to lean in. And we also think that our branded social organic is contributing to what we think is an incredibly strong performance in overall Google brand searches. So I think we feel pretty good about all the good parts. We've got a little bit of noise in affiliate. We got a little bit of noise in SEO. And again, nobody can bank on either of these as the key to their business anymore, I think, and they're both less than 10% of our traffic. And look, we're pretty optimistic. We actually feel very good despite a little bump. I take my family skiing every year at Christmas, and we have to connect because we're going to Idaho. And sometimes there's a delay. We've missed the connection, but we always get to Idaho and have a great time skiing and put on the matching pajamas that my wife buys, and have a family picture. So we are feeling pretty good right now. Operator: Next question is from Eric Sheridan with Goldman Sachs. Eric Sheridan: Maybe one, if I can, against all of the investments you're making across the business. We noticed you also increased the authorization around the buyback. How should we be thinking about capital allocation back into the return profile for shareholders on either a linear level, or elements of you being more opportunistic against the stock price in deploying that authorization? Andrew Russakoff: Great. Yes. Thanks, Eric. So since Q2 earnings, you saw we bought back the remaining shares in the authorization that was outstanding. That amounted to 1.3 million shares at about $20 million. So year-to-date, that takes us to $111 million representing just under 15% of the company. And then in mid-September, the board authorized us to repurchase another 3.2 million shares. We haven't yet repurchased any shares out of that authorization, and we'll utilize that as Board deems. That's an appropriate use of capital. Importantly, as we've mentioned previously, there are limits related to the amount of share repurchases in the 2 years following a tax-free spin-off. And so if we repurchase all of the shares under the current authorization, that would take us just under that limit. Operator: And our next question is from Youssef Squali with Truist. Youssef Squali: So maybe, Jeff, just stepping back a little bit, can you just talk about the broader picture, the health of the consumer right now, maybe just given the current macro? Has it changed at all on the margin? Maybe any difference between lower DMA versus higher DMA type of customers? And then on the... Jeffrey Kip: Sorry, can you just tell me what -- I apologize, DMA? Youssef Squali: DMA, just like higher -- I guess, various ZIP codes, like higher-income ZIP codes versus maybe lower income ZIP codes? . Jeffrey Kip: Okay. Thanks. Youssef Squali: And then just on going back to the need to consolidate from 4 platforms into one. Maybe can you double-click on that a little bit? How heavy a lift is it? And how much of the turnaround in the business and the growth starting in Q1 of 2026 is predicated on that move to the single platform. Just trying to see what potentially could go wrong could delay that inflection? Jeffrey Kip: On the overall macro, I think our view is there's a big disruption in April connected to macro events. And that kind of hung a little bit through May. We saw a pickup in June, and we feel like we've been kind of steady since then. Not a runaway homeowner demand like we had in COVID, but not a falling off homeowner demand like we had in the financial crises. So we think it's kind of stable. We can't say we pull anything different in trends on different ZIP codes. There are ZIP codes where we perform better, and ZIP codes where we don't. But we can't say that there's been some kind of step change there. So that's, I think, the macro. I think things look steady as she goes right now. I think secondly, on your platform question, as I said, we don't have any wins from platform integration, particularly built in. And we don't particularly expect disruptions. We're in the middle of our fifth migration of a significant pro network. And for the fifth time, we see it the same, and I think we've seen less post in other migrations. So we think this improves the customer experience, and it's also going to improve the efficiency of our commercial engine. You can already see the improved efficiency in our consolidation, the sales force to sell only the new product which is a result, which has been part of the success of selling significantly more capacity for pro and generating a lot more value. Could we see some lift, yes? There are progressively going to be rollout. You're seeing the first one in this migration. We're going to see some impacts on our homeowner- facing side, which we think will be net improvements over the course of the first half of the year, and we will progressively be delivering platform pieces, which both have the chance to improve conversion and the customer experience, and will allow our team to test, develop and deploy faster and iterate faster. I think we've been very much held back on our ability to move the speed across the product and the customer experience for multiple years here by the legacy technology and tech debt. So I think we are -- the way we look at this is we kind of roll forward our run rate and build in our knowns. And then we go execute, and we're always anticipating what we know versus what we might not know and handicap. And I think right now, we've got a pretty even outlook over the course of next year. And we don't expect -- we're not building in a massive lift from some piece of new technology, and we're not expecting because we haven't -- in now 6 -- we're on our 6 migrations to date. We haven't had a major disruption in any of them. And we've got some -- we have some pros working on this. So our own internal technology pros, not our external construction, specialty construction and home services pros. Operator: The next question is from Matt Condon with Citizens. Matthew Condon: My first one is just -- can you just talk about the sustainability and the acceleration of service requests. I believe the acceleration is partly due to the transition and spend away from the network channel into the proprietary channel. Is there an upper bound on marketing efficiency and your ability to drive growth through that channel? And then my second question is just on competitive intensity. Just what are we seeing... Jeffrey Kip: Can you just hold on -- can you just -- can you back up, I apologize. There's something about the sound where I didn't fully grasp your whole first question. Matthew Condon: Yes. I can repeat. I'm just talking about just the acceleration service requests and if it's sustainable from here? And specifically, just as you transition spend from the network channel into the proprietary channel. Is there an upward balance just on marketing efficiency? Like can you continue to push on spend there to drive that service request volume? And then just the second question is just on competitive intensity and if that's changed here over the past several months? Jeffrey Kip: Okay. So we may get accelerated a bit in the fourth quarter, maybe even in the first quarter. We're not necessarily predicting that on our proprietary growth. But we're actually -- what I said earlier is we're going to have tougher compares as we go into the second, third and fourth on the proprietary. So we're actually thinking that if you have mid-single-digit revenue growth and you have -- we expect maybe modest net SR growth across all the channels next year and a little bit of variability around the mean through the quarters because of different compares. And then we also expect to continue to get revenue or service request growth and we'll see how the mix of leads per service request and revenue per lead comes in, depending on the allocation of leads between our paper lead and our subscriber pros. But we basically think modest service request growth, modest revenue per service request growth. And so we're not actually saying we're going to accelerate through next year. Now what I will say is that the team -- again, sorry about the standout team, the online performance marketing team has had a couple of great years, dramatically improving profit growth in 2023 and really turning it on with volume growth this year. So I'll tip my hat to them, too. But they have a list of initiatives and their product and technology partners have a list of initiatives. By the way, they've been a big part of that acceleration and win as part of the new platform work effectively over the last couple of years. So there's a list of initiatives. There's a level of execution, and we think we can continue to grow. I think the other key point is growing pro capacity which we're going to be back doing next year. If you look at what we've been able to do in terms of growing the lifetime value per Pro acquired, we expect to be able to continue to drive up lifetime value per Pro acquired as we shift from smaller Pro to larger Pro acquisition with our sales because we've gotten much better at prospect segmenting and targeting. We just added more talent to that team. We're pretty excited about it. We think there's a pretty big opportunity in larger Pros. We think we're 3 to 4x the penetration in Pros with 10 or less employees as we are with Pros with 10 or more. And so we have a big opportunity to keep shifting and getting that capacity for Pro up. And I think you roll out online enrollment, that gets you another whole pool of Pro capacity. And the more pros I have, the more revenue that's available if I can buy the SRs. So I think we have our online execution. I mentioned the TV coming in earlier, and then we have the ability to grow our network and have more demand in order to buy into. So yes, I think we can growing -- keep growing. And I think there's new tools available. We have to hit all of the major platform channels and the LLM channels, our real potential new area of opportunity for us that, again, we're working right now on proprietary technology that plays directly into our core strength. So we're very optimistic there, too. So we do think we can continue to grow SRs. We have net modest expectations next year. And in an ideal world, we beat that soundly, but I can't predict that right now. So in terms of the competitive set, we have some strong competitors out there. We continue to think that on a revenue basis, we're probably the size of the next 2 combined, but we don't have exact data. And the largest competitor is probably Google with their direct-to-pro advertising, and they've been probably the most formidable because when you own the highways, you can decide who drives on it, over the last several years for us. We do think our competitors are real. We're watching carefully what they're doing. We want to -- at the end of the day, we want to present the best solution to our homeowners and our Pros, and differentiate ourselves by providing the highest quality of experience. And I think by doing that, we can continue to grow and stay keep our competitive position and be the top choice. Our key assets are, number one, our network and the quality and skill of our network. Number two, our brand, which has been built over 30 years from the ground up by our Founder, Angie Hicks and everybody else. So we've had 30 years of successfully connecting homeowners to Pros for jobs done well. That's not an asset that any of our competitors have. And then finally, I do think we have a commercial machine and a reach between our online marketing expertise and our ability to call and sell Pros that we've got to the scale we have that others don't have. And I think -- we have these advantages. We've got to keep improving our customer experience. We think we're very well positioned with our team. We're going to pivot our technology. And I think we feel very good about where we are and our opportunities going forward. We have any other questions operator? Operator: There are no -- there is one more question that is queued up, if you'd like to take it? Jeffrey Kip: Sure. Let's go. Operator: The last question is from Ygal Arounian with Citi. Unknown Analyst: This is Max on for Ygal. Just one maybe on the 2026 EBITDA. I think the language maybe shifted a little better from similar to modest to that more modest higher end from last quarter. So just curious what's driving that? Is that some of the expected efficiencies from the platform migration, or some of those AI efficiencies from the internal tools you're using that you called out in the letter. Jeffrey Kip: So I don't have our transcript from last quarter in front of me. I think we said mid-single-digit revenue growth and a little bit of margin leverage. I'm not sure if you said a modest, similar or what we said. I think when we look at our margins next year, we're not predicting contribution margin leverage because we're going to invest up in the branded area. We think we get our leverage by holding our fixed cost discipline, which I think if you look at the P&L over the last couple of years. Rusty and the team have done a very nice job with. So we do think we're able to get efficiency by being AI first. We think you put a multiplier on human productivity, whether it's coding, or processing sales scripts or doing customer research. So we think we're going to be able to hold our head count and keep our fixed costs down and realize the leverage at the fixed cost line as a baseline. Operator: And at this time, there are no further questioners in the queue. This does end today's Q&A session and as well as today's conference. Thank you for attending today's presentation, and you may now disconnect your lines. Jeffrey Kip: Thank you very much, everybody. We're very optimistic looking forward. Thanks for coming this morning, and thanks for listening to us. We'll talk to you all soon.
Operator: Ladies and gentlemen, welcome to the Vonovia SE Interim Results for the 9 Months 2025 Analyst and Investor Call. I'm [ Moritz ], the Chorus Call operator [Operator Instructions] The conference is being recorded [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Rene. Please go ahead. Rene Hoffmann: Thank you, [ Moritz ], and welcome, everybody, to our 9 months 2025 earnings call. Speakers today are once again, CEO, Rolf Buch; and CFO, Philip Grosse. They will be happy to lead through today's presentation and then answer your questions. With that, over to you, Rolf. Rolf Buch: Thank you, Rene, and welcome to everybody also from my side. Today, it's earning call #50, so 5-0 for me, but also for the company. And as you are well aware, it is my last one. I want to take this opportunity to remind everybody of what drives Vonovia and what makes this company different. That is why before Philip dives into the 9 months results, I will share a few slides that are more fundamental and general, but very instrumental for understanding how Vonovia approaches the business. But let me start with a brief summary on Page 3 to get us started. 9 months into the year, we are fully on track towards achieving the upper end of the guidance. Total EBITDA is up 6.4%. EBT is up even slightly higher with 6.8% and post minorities EBITDA, the most important figure for you, as I know, is up like EBITDA by 6.4%. As you will see on the guidance page, our growth momentum carries over into next year and will gain full momentum towards '28. We are well on track for our ambitious EBITDA targets. And most importantly, organic rent growth will increase to around 5% by '28. Personally, I think with higher investments and the strong underlying market rental growth, Vonovia may well see rent growth above 5% by then. The market in which we operate continues to normalize and move in the right direction. Organic value growth is happening, and we will probably see a bit more in H2 than what we have seen in H1. The transaction market remains somewhat below the levels we have seen in the ultra-low interest rate period, but it is back to the normal level that we have seen before that period. On Page 4, let me summarize our fundamental beliefs, what our fundamental beliefs are and why I think Vonovia is different. First, a mantra that I keep repeating because it is so fundamental. Our business is built on and followed certain megatrends that provide stability and safeguard Vonovia's long-term earnings and value growth. Imbalance of supply and demand in urban areas, the focus on CO2 reduction and the positive impact of demographic change on our business will not go away for the next 20 to 30 years. Against this backdrop, there are 3 guiding principles that we believe in. First, it is a low-risk business and a low-margin business because the underlying business is regulated and very low risk, the incremental yields are comparatively low. The consequences for us is that cost leadership is crucial, and we achieved this by building scale and rigorously pursuing standardization and industrialization. Second, -- our business is a B2C business. The long-term nature of rental contracts and the relation with our customers makes us a subscription-based business based on real estate. The consequences for us is that we pursue deep vertical and horizontal integration, maximum control over our value chain through in-sourcing and rolling out ancillary services to increase our share of wallets of our tenants. And third, location and portfolio quality matters. Even though it's a subscription-based business, it is still real estate. And there, location matters. There is not the one initial yield for German resi. Supply/demand imbalance is very different in different locations and housing market in urban areas simply have different fundamentals compared to the countryside. And when you are in the right location, you can unlock additional earnings and value growth through investments in the long run. The consequence for us is that we have worked hard through acquisition and disposal to focus our portfolio in the right locations. And second, we have developed the know-how and the capacity to run a large-scale and industrialized investment program. I mentioned the low risk in the underlying business in the markets in which we operate. The beautiful thing about that is obviously that our operating performance does not produce negative surprises. Rents keep going up, tenants pay their rent in full and vacancy only exists in cases where we do modernization work in the apartment. What may be a surprise to some people, even though it should build into -- it is built in the system and actually should not be a surprise is the acceleration of rent growth. We have spent a lot of time and effort in trying to explain the catch-up effect in rent from higher inflation of the past years. It is becoming more and more evident now. As you see on the guidance page later, we are continuing to move upwards to around 5% organic rent growth and above, which will, of course, have very positive implications for both earnings and value growth. Go to Page 6. One of the consequences of running a B2C end consumer business is the need for scale. The size we have reached is impossible to replicate and clearly gives us an advantage on the cost side that cannot be copied by other players who are smaller and in most cases, are a lot smaller. The chart on the bottom shows for Germany how the increase in the portfolio volume led to an expansion of the margins and the reduction of the cost per unit. What is also noteworthy here is that our customer satisfaction increased sustainable from an index 100 at the IPO to 125 today. The cost per unit number is maybe a bit complex and more difficult to compare. So let me make my point about the scale and efficiency very simple and transparent. Let's have a look on Page 7 for gross yields and adjusted net yields. Gross yields are rental income divided by fair value. Gross yields differ within the peer group, which is, of course, no surprise given the very different portfolio locations and quality. If you then look at the adjusted net yields, so EBITDA operations adjusted for maintenance because maintenance spending is clearly not a sign of efficiency, but capitalization policy, we see that the cost leakage with German resi is very different. Vonovia loses 0.4 percentage points between gross and net. And if you look only at the German portfolio, it is just 0.2% versus almost a full percentage point of the peer group. This is the result of our superior scale and efficiency that we have reached since the IPO when our spread was as high as 1.5 percentage points. Of course, at this time, we had a much smaller portfolio. In a business with low initial yield, this gap is huge. It means that we are uniquely positioned to succeed in low-yielding markets, which, of course, have higher growth potential. And it means that we generate more than EUR 400 million additional EBITDA with our platform and our way to do business, then we would have the average peer group leakage. And it means that we are extremely well positioned for a successful second Vonovia strategy. I have mentioned our platform a couple of times, so let me give you a better understanding of what I mean by that. This is Page 8. We have developed a fully integrated one-stop shop that covers the entire value chain in our business from the acquisition and development of new units to the asset and property management to the value-add and facility management to the disposal expertise. We cover the full range of the asset life cycle. And we do it an operating system that is SAP head to toe, which clearly defined interfaces between operating entities and central support functions and the seamless integration between local and central responsibilities. Today, this platform services most of our own portfolio. Owning and operating European's largest residential asset base, including being one of the largest homebuilders, safeguards unparalleled experience and a unique data pool that forms a strong backbone of the platform. Page 9. We are all aware of our activities to increase non-rental EBITDA. The general effort to do that so is not new. We have been ramping up for nonrental EBITDA since the IPO to as much as 20% of total EBITDA by '21. The sudden change in interest rate environment and our focus on liquidity generation over profitability resulted in lower non-rental EBITDAs for good reasons. Going forward, however, there is absolutely no reason why we should not be able to grow outside the rental segment. Of course, the absolute amounts are bigger than in '21, thanks to the successful integration of Deutsche Wohnen. But the underlying strategy of doing more than just collecting rent has been in Vonovia's DNA since the IPO, and there is no reason why this should not be a key element of Vonovia's strategy going forward because it makes all sense of the world. The objective for '28 to reach a level of non-rental EBITDA that we have achieved before Deutsche Wohnen is really not a stretch. Let's go to Page 10 to talk about more about locations. Again, this seems to be misunderstood by the market sometimes. Germany is not the same all across the country. Fundamentals and yields are very different in different locations. The general distinction I would make is that there are urban markets, which tend to come with lower initial yields and there are rural markets, which tend to come with higher initial yield. In both cases, this is obviously a function of the different long-term growth potential of these markets. The strong convictions about the different quality of local markets within Germany prompted a laser focus to make sure that we are in the right location. The large acquisition to grow our portfolios are well known. But what is sometimes forgotten is that we sold more than 100,000 units in what we consider rural and therefore, weaker market. Between the IPO and today, we cut the number of locations in half, and that led to not just better portfolio quality, but also to higher efficiency. And why it is so important to be in the right locations, let's go to Page 11. Most of you will have seen this analysis in previous earnings calls. The appeal of our business, as we see it, is that the annual rent growth may not always be as high as in other sectors, but it is as robust as it can get and allows us to predict our rental growth for many years to come. The gap between the market reality rent levels and our rent level ensures many years of attractive risk-adjusted rent growth. Of course, this does not apply to all markets, but only to the ones where you have a structural supply and demand imbalance. And that's why vacancy is not a concern for us. Doing modernization and charging a higher rent for a better product is not a concern for us and reletting an apartment in line with the regulation at a higher rent is not a concern for us. Affordability to make it short, is not our problem and not the problem for our tenants. As I said earlier, not only the right location matters when it comes to asset management, investments are key to unlocking further earnings and value growth. As consequences, comprehensive investment programs have been a cornerstone of Vonovia's strategy since the IPO. And the peer group comparison clearly shows that we have invested more. I know that the return of these investments cannot be easily extrapolated from the financial results because there is no immediate link between the investment amount of 1 year and the return in the next year as many of these investments take more than 1 year to be completed. That is why we looked at all investments that we have made and fully completed between 2014 and 2024. The aggregate investment amount was EUR 7.4 billion, and the average operating yield we have achieved was 7.1%. So to us, it makes all the sense in the world to continue with these investments and to increase them to EUR 2 billion per year as planned by '28. They make economic sense, and they also make sense from a sustainability point of view. So it's a win-win situation. We talked about locations. We talked about buying and selling to be in the right markets, and we talked about investments to deliver additional growth. Let me put this into context on Page 13. Because of the dynamic in our local markets and because of the comprehensive investment we have been making, we have been able to deliver best-in-class rental growth. As I said earlier, I'm personally convinced that this gap will widen in the future from superior market rent growth and superior investment driven rent growth. And this rent growth, combined with the investment and the portfolio focus has delivered a higher CAGR for value growth based on the development of fair value per square meter since the IPO. The market focus seems to be very much on earning these days, and that is fine. But let's not forget that you have 2 types of returns, earnings and value. I learned this by you 13 years ago where I joined the industry. This is a good segue into the last page of this chapter before I hand over to Philip. When you invest in Vonovia, you do not buy into an initial yield portfolio. That is why I refuse to accept the argument that we are a bond proxy and that it is all about the spread between bond yields and the net initial yield of our portfolio. Rather one should look at the total shareholder return, so earnings and organic value growth and compare that to other equity investments on a risk-adjusted basis, of course. And while it is entirely up to the investors and the market in general, what they make out of it, I consider 13% total return based on the current share price and an attractive from a risk return point of view, and that is why I look forward to remaining a Vonovia shareholder long beyond my tenure here at Vonovia. And with this, over to Philip. Philip Grosse: Thank you, Rolf, and welcome also from my side. I will start with Page 16. I think it actually speaks for itself. So no need to go into too much detail here. But let me allow to make one important point. Our Rental segment is still impacted by the smaller portfolio. Year-on-year, we have 9,000 fewer units, and that, of course, weighs on the top line. Nonetheless, nominal growth in our Rental segment alone, so excluding the non-rental EBITDA contributions overcompensated the increase in the net financial result in the first 9 months, and that is exactly the logic we have been talking about and the consequence of our long-term and very balanced maturity profile. Yes, our interest expenses are going up as expected, but rents are going up more. And combined with the non-rental growth, we will continue to be able to deliver attractive risk-adjusted earnings growth. Let's go through the 4 segments one by one and start with the Rental segment on Page 17. Rental revenue, as you can see, was almost up 3%, only held back by losing some of our top line as explained. Maintenance was a touch higher as expected and operating expenses were very much in line with last year. All in all, we basically managed to preserve the top line growth on the EBITDA level for a year-on-year increase of 2.5%. Organic rent growth remained very robust with 4.2% overall and 2.8% from market rent growth. Like in previous quarters, no need to deep dive on occupancy and collection rates as they both remain exceptionally high and are expected to remain at that superior level for the foreseeable future. On value add, that is Page 18. As you can see, the internal revenues grew by more than 15%, and that is largely a result of our increased investment and our higher in-sourcing ratio. The year-on-year comparison is skewed in so far as that the prior year includes EUR 58 million nonrecurring adjusted EBITDA from the coax network lease agreement we have made with Vodafone. Adjusting for this onetime benefit last year, value-add EBITDA were actually up 11% equally as expected. In spite of this onetime effect, we expect the value-add EBITDA for the full year to be considerably higher than last year, and that's mainly driven by higher investments and value creation in our craftsman organization as well as rising contributions from our energy business. So here, we are well on track towards further expanding the EBITDA contribution from our value-add segment as we have been guiding for. Recurring sales on Page 19, we sold 1,553 units to be precise, in the first 9 months, up 2.4% compared to last year, revenue growth of almost 12% and the higher fair value step-up far exceeded the growth in units and resulted in EUR 300 million for the 9 months 2025. And it's the combination of higher revenue and higher gross profit plus stable selling costs that drove the EBITDA contribution to almost EUR 57 million, which is 45% above the prior year. For recurring sales, we remain, again, very much on track towards further expanding EBITDA contribution. Finally, development on Page 20. We have explained in previous calls the development EBITDA was positively impacted by a larger land sale that closed early this year, hence, the extraordinary and not sustainable gross margin. If we adjust for this land sale, however, the gross margin comes down to 19%, which I consider a very normalized developer margin we are targeting that is yes, as we have been expecting for. Either way, our development business is a valuable contributor to the overall EBITDA. And here too, the increasing EBITDA contribution is very much on track. That much about the segments. On EPRA NTA, that is Page 21. The main point for the NTA really is that to a new law that will bring a reduction in corporate income tax, we saw a shift of roughly EUR 2.3 billion from deferred tax liabilities to IFRS equity. So on a net basis, more or less flat, but the composition somewhat changed. Page 22 for the debt KPIs. There isn't much change from one quarter to the other. And the bottom line on the leverage side remains that we consider it well under control. The yardstick for that is mainly with what the rating agencies expect from us to be safe on our BBB+ rating with a stable outlook. As I said last time, different points in the cycle require a stronger focus on some debt KPIs more than on others, and we are at a point where our main attention is on the ICR. There are 2 ways to look at the ICR. The numerator is the same in both cases, adjusted EBITDA total of the last 12 months, but the denominator is different. One definition, and that is the one used in bond covenants uses net cash interest and the denominator. This can be a bit volatile from time to time, depending on the interest payment dates. The bond covenant threshold is 1.8x. So I hope we can all agree that this is somewhat irrelevant from a risk point of view. To allow for a more normalized measurement of ICR, we are using the net financial result that we also use in getting from adjusted EBITDA to adjusted EBT. The ICR threshold we have set to ourselves internally is, as you know, 3.5x. Let me reiterate. Our focus is to make sure our debt KPIs are in line with the BBB+ rating criteria and a stable outlook. This is now essentially an organic development as we expect values and EBITDA to grow and therefore, to further move the debt KPIs in the right territory or even further. On the guidance, this is on Page 23. We have fine-tuned 2025 guidance and moved to the upper end of the range for both rental income and adjusted EBITDA total. As we usually do in the third quarter, we are also giving an initial guidance for the next year. No need to read all individual line items now, but do allow me to zoom in on the organic rent growth. You may recall the concept of the additional irrevocable rent increase claim that we introduced a few quarters back. We are showing it here again to demonstrate that the rent growth is coming. It is actually already there, apartment by apartment. But because of the Kappungsgrenze, it cannot be implemented just yet. Kappungsgrenze, as a reminder, is the cap that allows you not to increase rents by more than 15% for selling tenants over a 3-year time horizon in tight markets. We explained the underlying concept on Page 30 of the presentation in more detail. Let me say this, for 2026, we have a net increase of another 0.4 percentage points to a total of 3% that is already booked onto the underlying apartments, but can only be implemented once the rental cap has lapsed in subsequent years. I can put it differently, if the 0.4 percentage points net buildup would be harvested already next year, 2026 organic rent growth would be around 4.6%. So you can actually see that the acceleration is coming through as promised. Without any rental cap, by the way, 2026 organic rent growth would be north of 7%. We did the math on how much net buildup and net use of this additional irrevocable rent increase claim we will have on our way to 2028. And based on our probably rather conservative assumptions for future rent indices, we will see a net use that will take the actual organic rent growth to around 5%, also supported by higher investments. So what we are moving towards is a step change in rental growth that surpasses historic rent growth numbers, which should not come as a surprise actually because at the end of the day, this is higher inflation finding its way over time into organic rent growth like we have always said. And referring back to the commentary Rolf made, this higher level of rent growth will have a positive impact on both types of shareholder return, and that is earnings growth and value growth. Final comment on the guidance page. Some of you are asking for more clarity on minorities and taxes. EBT minorities are expected to be around 10% of adjusted EBT. And cash taxes, and that obviously includes taxes for our disposal segments are expected to be inside 10% of the adjusted EBITDA total for 2025 and same applies for 2026. The CEO handover process is underway, and Luka will be joining at the end of this month before he will officially assume his new role as CEO starting in January. We will miss Rolf, but we are equally excited about Luka joining and with that commentary, for the last time, Rolf, back to you. Rolf Buch: And for the last time -- thank you, Philip. Before we go to the Q&A, allow me briefly summarize the relevant point of today's presentation. As we laid out, the way Vonovia approaches the business is different, and it has led to operational outperformance that we expect to continue. This puts the company in an excellent position for the future earnings and value growth. Our market environment and operating business remains rock solid, and we are well on track towards achieving our ambitious targets, both for rental and non-rental growth. We have put the company into a tremendous stable footing, and we have -- and we leave it well positioned for further earnings and value growth. We have built a platform that is second to none and will prove to be the cornerstone in the company's effort to build a second Vonovia. All this will be in great hands with Luka. I wish him and the entire Vonovia team all the best and have no doubt that together, they will write a new and very successful chapter in the history of Vonovia. But more important, I would like to thank you all for your support in the last 12 years. Without the support and the willingness to invest, it would not have been possible to build this Vonovia, this great platform. With this, thank you very much. And back to Rene for the Q&A. Rene Hoffmann: Thank you, Rolf. Thank you, Philip. I hand it back to [ Moritz ] for the Q&A. And just as a reminder, everybody, let's keep it to 2 questions per person, please. [ Moritz ], can you start the Q&A part? Operator: [Operator Instructions] And the first question comes from Charles Bossier from UBS. Charles Boissier: I have 2 questions. The first one is on the change in the organic rent growth guidance for 2028 from 4% plus to now 5%. What exactly has changed, I would say, versus the initial guidance that you had set up, whether in the market or in terms of your ability to capture that rental growth? Philip Grosse: Charles, answer is very, very simple. We've been telling you before above 4%. I think now we have become more precise. If we look at the underlying data, and we have done a very comprehensive analysis, we can see that historic inflation is coming through over time to the extent allowed by the Kappungsgrenze, the rental caps, and you will see also going forward numbers in between 2.5% to 3%, non-investment driven and the other bit is investment driven. That is currently 1.4%, but with us more or less doubling the investments vis-a-vis what we have seen last year, we will see also an acceleration in rental growth, in the investment-driven bit. And here, as a reminder, cash-on-cash is 6% to 7% with the vast majority ending up in the rental EBITDA and a portion of that ending up because of the value creation of our craftsman organization in the value-add EBITDA. Charles Boissier: Okay. Very clear. And on the transaction market, you present quite a positive story of normalization and you're also pointing to H2 valuation accelerating versus H1. Still in Q3, it seems rather slow in terms of transaction activity. Of course, there were some small deals here and there, 850 apartments at long transaction. But what are you seeing in the transaction market that makes you confident that it has normalized and you would be able to sell assets at book values? Rolf Buch: So first of all, even in the bad times where the transaction market was much worse, we sold assets for book value. So it's probably quality of assets, which is relevant. But to be very clear, what you see and what is seen in the public is the big transactions. In reality, there is an underlying transaction market of smaller players. And this I mentioned in my speech is actually back to the level where it has been before the ultra-low investment rate environment. So -- what we see here in the listed sector is just a small part of the big transactions. But the market really is consisting out of a lot of smaller transactions. And there, we see a very stable thing, and we see the demand and we see supply coming to the market. So I can confirm that the market is pretty stable and going in the right direction. And as Philip said, we will expect a higher valuation in H2 than what uplift than we have seen in H1. Operator: Then the next question comes from Valerie Jacob from Bernstein. Valerie Jacob Guezi: I've just got a follow-up question, a clarification on the comment that you made that you expect organic growth in asset values to be higher in H2. I think part of it is mechanically driven by you spending more CapEx. So I was wondering, is this comment is also valid if we exclude the CapEx from your asset value growth? That's my first question. I've got a second question. Philip Grosse: You have that acceleration on both sides on a gross as well as on a net basis. And in H1, you have seen net value growth of 70 basis points, and that number will be exceeded in H2. Valerie Jacob Guezi: Okay. That's clear. My second question is on your ICR. I mean I'm not sure this is helpful that you're changing a definition again. So I was just wondering, going forward, are you still going to publish the definition on the bond definition? Or are you only going to publish your own definition? Philip Grosse: Valerie, I think what we just wanted to make clear is that we internally manage our business in a different way and not by bond covenants. That, by the way, is no different if you look at LTV metrics. Because if you look at the covenants that the LTV is not a concept in the bond covenants. But here, you more look at capital -- more broader capital ratios. The flip side, if you will, on the bond definition is, as I said, there's a bit more volatility. It very much depends point in time where you actually pay interest. Over time, if you don't make the quarter-by-quarter comparison, the 2 are very, very similar to each other. So typically, a difference of 10 basis points. And more specifically, we will disclose both. Operator: And the next question comes from Bart Gysens from Morgan Stanley. Bart Gysens: My first question is also on the ICR actually. You talk about moving that into better territory. But I just wanted to understand how you can do that for the ICR. I mean the average cost of debt is running at 1.9%. You managed to keep that flat. You have to refi about EUR 4 billion to EUR 5 billion a year medium term. Now even if reported EBITDA grows by 7% per annum as you're guiding, that suggests that actually if you finance at the current marginal cost of debt, interest cover will not improve on the contrary. So how do you look at that? And are you considering more alternative solutions like convertible bonds or preferred equity? Philip Grosse: No, Bart, to be very precise, where we are moving in the right direction is in terms of LTV and is in terms of net debt to EBITDA. LTV because I have conviction as we have seen this in the running here that the rental increase, net of the investment required to achieve that rental increase will translate itself into value growth. And if I look at net debt to EBITDA, we have, as you know, a number of initiatives which are running very well to, in particular, increase also the nonrental EBITDA and that will move that metric further down. The ICR is really our intention to keep that somewhat stable at current level. And that is going to be the major focus. And here, yes, we probably need some positive backdrop in market in terms of refinancing costs. Our assumption is that this somewhat remains at current level of 4%. And it's also no secret that I think that convertible product as part of the capital structure is a good addition. You should not overplay it. So it should be a moderate portion of your capital structure in terms of liquidity and the underlying stock, plus in terms of the overall debt burden. But with that having said, I think there is capacity for more. And to be crystal clear, convertible is for us, no ambiguity, 100% debt. And the assumption always is that it will never come to the dilution, but that if the convertible is in the money and at maturity is going to be refinanced by a new convertible [indiscernible] was at a higher stock price and that is essentially, if you do the math, reducing contingent dilution. But again, the focus, and that is what is driving the capital structure going forward is going to be the ICR. Bart Gysens: Great. And then my other question is on recurring sales on Slide 19. So you've sold more or less the same amount of units as a year ago, but at a different price point, right, around 10% higher per unit. Have you started selling a different type or quality or location? Should we read anything into this? Rolf Buch: No, I think the biggest -- there might be a small different mixture, but I think what you should read is that what we have announced, we have sold also this product in the period where liquidity was for us important actually with less focus on price. As we announced in October or November last year, we said now we will come back to normal. And what you see is that the margin is actually coming back what we have expected. So this, of course, comes together with the recovery of the market. So you see here that the market obviously is ready to pay the well-known premium, which was paid before the crisis for individual apartments versus blocks. So the retail and wholesale margin is back to normal, which is also, I think, an additional answer to the question about what -- why the market is coming back. You can see it in this figure. Operator: . And the next question comes from Thomas Neuhold from Kepler Cheuvreux. Thomas Neuhold: My first question would be on the non-rental business. Can you please provide us an update on the new expanded business areas such as stranded assets, occupancy rights and third-party business? Did you manage to strike already some interesting deals there? Rolf Buch: Yes. I think to what we call managed to green assets, which is a former called undeveloped assets, but I think managed to green is a much better and more precise definition. As you know, we have signed the first deal. We are in a round to -- in the final round and actually exclusive negotiation with others with more potential. It took us a little bit longer to get this started than originally we expected. But now I think we are on the full run. So I don't see anything else. This is the same for the occupancy rights. And actually, to be very clear, we manage all these additional activities in total, the 10 where we see -- we are in line with our expectation. We are in line with the guidance which we have given you to '28. So there is no reason to do any -- to be nervous actually or the opposite. Some of them are getting better and especially for the second Vonovia, as you know, we will not talk about potential deals there. But I can tell you that in the last 2 months, which are remaining for me here, there is still a lot of opportunity where we are in discussions. Thomas Neuhold: And my second question is for Philip. Can you please give us an indication what impact the lowered corporate tax rate in Germany will have on your cash tax rate going forward once it's going to be implemented? Philip Grosse: I mean, still some time out. It's starting 2028. So this is now asking for a very long-term guidance. This is, as I said, for now, predominantly impacting deferred tax liabilities, which because of the embedded reduction in corporate tax rate is resulting in that one-off gain of EUR 2.3 billion. In terms of more broader picture, I think let me tell you that much. I mean, by us significantly increasing our investments, our rental and value-add business is not hugely impacted by tax payments because most of the investments we undertake according to German GAAP are actually reducing our taxable income, and that you will see in lower tax rates actually for our rental and value-add business going forward. That, however, is somewhat compensated by higher tax rates because we do more disposal business, and that is for development to sell equally as for our recurring sales business. And yes, here, you may have some small benefits in the long run on the lowering of the tax rate. I think what is, however, even more important, and that is in particular for development to sell in global assets is about structuring and the way how you sell it essentially, which allows you to optimize the tax line. Operator: The next question comes from Andrew McCreath from Green Street. Andrew McCreath: I also have 2. Firstly, on development. Looking at your numbers, 3Q doesn't suggest much acceleration in activity. Could you please just provide some color on the dynamics there? Are you seeing any improvement in sales pace? That would be the first question. And the second would be on construction. For the initial projects in Berlin and Dresden, you've guided to an all-in cost of EUR 3,600 per square meter. What sort of yield on costs are you underwriting for these developments? Philip Grosse: On your first question, Andrew, on the development, as I said, if you look at the profitability, that was really much driven by the sale of a land plot we closed in Q1. And that is essentially also the somewhat overriding story for this year because we have sold essentially all project developments we had in our pipeline in the last 2 years in order to generate cash. And because of the crisis did not start new projects, we first need to have building up a platform on the basis of which we can earn the targeted gross margins of 15% to 20%. You will see a kind of more steady development already next year but only partially because also next year is going to be a mix between first completions and selling of those completions or started projects, which we sell based on POC method. But you will also see the disposal of land plots in the coming year. And I think the kind of ramp-up as we have been budgeting for is really to come through as of 2027 and beyond. Rolf Buch: And for the new construction, I think this is one topic which is not only important for Vonovia, but for the whole German market. I think with the about turbo and with [indiscernible] the most recent new legislation, it will provide us with the possibility to reduce the construction cost by 30%. So this famous EUR 3,500, all including, which is actually comparable to the lateral letting. And we are targeting a initial yield of roughly 5%. And then, of course, these buildings come with in the first years, no maintenance and an increase of rent, which is often very indexed. So that's why the initial yield is low, but then the yield will go up over time. And that's why it's a good investment. And this is either for us on our own balance sheet or if it's for sale, it's for others who are ready to invest 5% yield. Philip Grosse: Let me be very clear and add one thing. What you see in the development EBITDA is only development to sell. And development to sell, as I said, we are targeting gross margins of 15% to 20%, and we are essentially targeting IRRs north of 10%. And that is what you will see in that profitability line. So it's not yield on cost driven how we manage that business. It's IRR driven. Operator: The next question comes from Paul May from Barclays. Paul May: Just a couple of questions from my side. Thanks for the analysis on the return on investment, I think 7.1% you highlight over multiple years. I think as you know, we calculate close to 5% based on reported numbers. I think you said that's not possible to make that calculation. So thank you for providing that color. Just wondered why is that below the 8% to 10% return on investment that you've previously and multiple times guided to? That is the first question. And the second question, I think you highlighted through the presentation how you're better than other listed peers based on your NOI yields. But I think on our numbers, where a lot of your cost comes is through your admin cost line versus others. And if you look at it more on an EBIT yield or EBIT margin basis, you're either lower or similar to peers, and therefore, you obviously your yield much lower. And also, are you penalizing certain peers by including land in their gross asset value and not including, say, housing profits or housing sale profits in the EBITDA or in the NOI? Just wondering if you're sort of overly penalizing certain peers. Rolf Buch: No, I think the last one we are not doing. This is all public information, and I think Rene can guide you through. To be very clear, we are operating a little bit different in a different platform. That's why I added the site of the platform that our way to do central and noncentral is a little different. That's why this is the reason for efficiency. So I think the only way how you can really compare it is to do the net yield and the gross yield, and we can guide you through this, but this is based on public information. The other question was about... Philip Grosse: One was on the yield of the investment program. Paul, we've been, I think, explaining for quite some time that the mix of our various investment programs, and that is the energetic modernization of the building that are the reletting investments when we have tenant churn, that is also our develop to hold business are averaging out with cash-on-cash yields of 6% to 7% and that we, at least historically, are more at the upper end of the range that calculation is demonstrating. What we are benefiting here and that is probably a bit different for Vonovia than for the broader sector is that we are able to compensate for some of the maintenance spend, which, by definition, is a part of broader investments by putting our own craftsman organization into play because here, again, we can earn some extra money. So that yield is actually vast majority ending up in the rental EBITDA, but part also in the value-add EBITDA. And it's only for that very reason that we can achieve these high numbers. Operator: The next question comes from Thomas Rothaeusler from Deutsche Bank. Thomas Rothaeusler: Two questions. The first one is on the value-add business. Operating profit was only flat despite the pickup of investments. Actually, we see the same pattern for rental growth, which even came down if you look at modernization-driven rent adjustments. You basically say that investment returns come with a time lag of more than 1 year. Just wondering by when we should see a meaningful -- more meaningful pickup here. Rolf Buch: I think what you're doing is now you're comparing quarter-by-quarter, right? Thomas Rothaeusler: Actually, year-on-year, if I look at the investments year-on-year and look at the performance of the value-add business and look at the performance from rental growth out of monetization measures. Philip Grosse: What is -- if you look, Thomas, at the profitability line of value-add, what is distorting a year-by-year comparison is a very big onetime benefit we have seen last year by the conclusion of a finance lease agreement with Vodafone, and that resulted in an EBITDA, which is not repeating itself this year of more than EUR 50 million. Now if I look at the composition of the various profitability streams, which are adding up to the value add is really very much the craftsman organization where we have seen a very nice turnaround story. Craftsman organization, a, benefiting from higher investment volumes; b, benefiting from higher in-sourcing ratio that, by the way, is also why you see that change in terms of revenues in favor of internal versus external. And what you can equally see is that we are seeing a nice ramp-up in our energy business, and that is thanks to the investments we undertaken photovoltaic. All the other businesses really flattish with the exception of multimedia, where we have year-on-year a decline, I think, of 60%, and that is because of that onetime impact, which is not repeating itself. Is that sufficiently answering your question? Thomas Rothaeusler: Perfect. On the second point is actually on disposals. I mean you referred to improved investment markets. Should we expect this to allow you to speed up noncore disposals maybe? Rolf Buch: Yes. I think we are now back on the normal level. So we are doing noncore disposals as it is accretive and attractive for the pricing. So we are not pushing so much for volume, but we are pushing a little bit also related to the price. Yes, but it is becoming easier also for the noncore disposal. Operator: The next question comes from Marc Mozzi from Bank of America. Marc Louis Mozzi: My first question is around your number of shares. How should we assume the number of shares you're going to use for the calculation of your dividend and EPS for this year at the end of the year because there are some changes here. And I'm just wondering if you can help us having some clarity on that number. I'm talking about the weighted average, not the total. Philip Grosse: I think there is no change whatsoever. It's always the same if we look at profitability numbers, we take the weighted average of the past 4 quarters. By way of reference, little change. I mean, what you have seen in terms of increase in share count is, a, the scrip dividend, which has seen a take-up of slightly above 30%; and b, I think in total, 12 million shares as a result of the domination and profit loss transfer agreement with Deutsche Wohnen, so people accepting the exchange offer, but that is really marginal. When we look at balance sheet numbers, and that is EPRA NTA, we look at the year-end number in terms of share count, but also no change. And the dividend is always end of period. Marc Louis Mozzi: Fair enough. And the other question is around the dividend. And I would like to understand how we should think about the dividend per share for the year because we know that it's 50% of the EBT. So that's roughly EUR 950 million plus surplus liquidity, which I understand is very subjective. I guess you would like to show some dividend growth, what sort of growth on which basis, how are you going to assess your dividend proposal to the shareholder and to the Board? Philip Grosse: Look, Mark, no change here. I mean, for now, I think our dividend policy is what our dividend policy is. It's 50% of EBT plus liquidity, and that is based on the operating free cash flow. And as usual, we will discuss that at the appropriate time and make a proposal to the shareholder meeting, which I think is in May next year. Marc Louis Mozzi: Are you comfortable with the current market forecast of your dividend for this year? Philip Grosse: [indiscernible] what that is actually. Marc Louis Mozzi: Fair enough. That's exactly what I thought. It's EUR 126 million, EUR 125 million... Rolf Buch: So we should not come even not indirect to dividend guidance. This is not the time we will come with a dividend proposal and not we, but the new management team will come with a dividend proposal if it's appropriate and this is next year. Marc Louis Mozzi: Fair enough. I totally understand. Well, Rolf, I would like to congratulate you for running Vonovia for the past 12 years and all the best for what's next for you. Operator: The next question comes from Simon Stippig from Warburg Research. Simon Stippig: First one is on Page 7, you showed your gross to net yield translation. And you mentioned that here in Germany, it's only 20 basis points. So in Sweden and Austria, I think you're holding only 11% based on units of your portfolio. So could you explain me the reasoning of why holding on to the portfolios in Austria and Sweden? And second one would be -- in regard to your operating free cash flow, Q3 was the lowest compared to previous quarters. I know it's mainly due to net working capital movements that comes obviously from your development to sell pipeline. But could you explain or indicate what we can expect here for the last quarter? And then also more importantly, what you see here for the next year. And by that, I mean items that are not so well explained, not like the minorities, for example, I think you were very clear in previous conference calls. But maybe the capitalization rate, does it stay the same and also your capital commitment to development to sell? And lastly, I, Rolf, stay in good health and best of luck for the next challenge. Rolf Buch: Okay. For example, the first time -- the first question I take, I think Austria in this respect is probably less relevant. It's all about Sweden. And you know in Sweden, this is a warm rent, so it includes the energy. So that's why the gap, which is actually energy is counted here as cost to operate. That's why technically it is higher, and that's why we are coming to 0.4% in total. But this -- then you have to compare the Swedish business with other Swedish players, which, of course, we have done, and we could provide you the same, for example, comparison with Heimstaden and we are more efficient with Heimstaden. That's why I mentioned the 0.2% because in the end, this slide is more relevant if you compare it to the German peers, you would compare it more with 0.2% and not the 0.4%, which is in the -- in the notes. But because you cannot directly extract from our reported figures, the 0.4%, you can report from the figures that we -- I think we showed the 0.4%. But the difference between 0.4% and 0.2% is because of the different nature in the Swedish market where everybody has to cover the cost as a part of cost and not of a pass-through item. Philip Grosse: Then, Simon, on your second question, a bit more specific on the operating free cash flow. I mean, you know that we are not guiding on that. What we have been guiding for is excluding changes in the net working capital, why is it that we have done that? Because there's, by definition, some volatility, in particular, if you look on a quarter-by-quarter comparison because it largely depends on the point in time when we have the cash in, for instance, for bigger global exits in the development to sell business. So please don't get nervous on the quarter-by-quarter comparison, but that's not really the picture to draw. More long term, how I would look at it without guiding, if I were you, is that if you start with the depreciation line, that is impacted by, in particular, our investments in photovoltaic, which I think is around EUR 100 million per annum, depreciation 20 years. And given that we do invest in photovoltaic quite significantly, you will see that line gradually going up, which is positive for the cash flow. I think as in the past, net working capital is very difficult. And as a reminder, there are 2 elements in it. It's development to sell, where my intention is to manage the business in a way that it's at least more or less flattish in terms of the net working capital movements, not on a quarter-by-quarter comparison, but on a rolling 12-month basis. What, however, is also in there is the managed to green business, Rolf was mentioning, and that will require an initial capital buildup. So that kind of portion will be negative and how negative depends on how much we are actually able to acquire. But we will give details on that, and we will also give details on the split of those 2 elements going forward, how it affects the net working capital. And the rest, I think, is straightforward. Capitalized maintenance, I would kind of monitor vis-a-vis inflation because this is what's driving that line item. Dividends and minorities, I think we talked about in length. So you should have all the details, including the additional disclosure we put on our web page. And income taxes, I think the guidance somewhat remains also longer term, and I was making that point previously that I expect that to be slightly inside 10% of total EBITDA. Simon Stippig: Great. Second question was very clear. Maybe I can ask a follow-up on the first one. Is that possible? Philip Grosse: Yes. Simon Stippig: Great. I think it's more profound because you made the case that you want to get to scale and scale brings your cost ratio down. So I just wonder in Austria, you're not building up the portfolio. And then Sweden also, I'm sure things have changed since you acquired BUWOG and also since you expanded into geographies in the North. But is it really that you want to build that up? Or is it more a hold case? Or is it really also the potential that you could sell it and then reallocate the cash towards your own business in Germany or even buying back shares? Rolf Buch: So first of all, and really Austria and Sweden is actually 2 types of story. First of all, the Austrian platform is partly because of language, because of very similar rental systems is partly integrated into or has a higher overlap between the German platform. So -- and then, of course, Austria is also linked to the development business because in Austria, they are running a development to sell business. So you're building a part, you're taking it on your platform for 10 years and then you are selling it with a high margin. So that's why the Austrian part is probably more linked to the development business than to the rental business. For the Swedish business, actually, the same applies. We have bought -- the only 2 listed companies. So we have consolidated the listed market there. We have superior cost in comparison to the other listed -- other Swedish operators are nonlisted by definition because they're not listed left, but we know this data. So it's the same. It's the same opportunity then in Germany, we have in Sweden for the second Vonovia. So I see actually in both in Germany and in Sweden, the chance for playing this platform and making money out of doing just services based on the better cost structure in comparison to people who own assets and want to get rid of the expensive platform where they operate or buy new assets with a very attractive platform. So I see the possibility in both and also you cannot compare Sweden to Germany. You have to compare Sweden to Swedish and you have to compare Germany to Germany. So that's why I think it's 2 different markets. And in those markets, the presentation we have shown you on Page 7 is applicable also -- is applicable. Operator: The next question comes from Pierre-Emmanuel Clouard from Jefferies. Pierre-Emmanuel Clouard: Actually, I have a quick follow-up question on Simon's question about Sweden. Is this something that has been discussed with Board members about potential sale of the Swedish portfolio? Or is it up to the new CEO, especially in light of a rebound of the investment market? Is it an open question? Or is it not a case today and Sweden will be there among Vonovia's portfolio for many, many years. Rolf Buch: So to be very clear, it was discussed in the period of '22 where we talked about disposal. And this was a question where we ended up with alternative structures, which are more attractive at this time. In the moment, it is not part of the discussion which the Management Board is doing with the Supervisory Board, and it's not a discussion inside the Management Board, but also to be clear. So I personally think -- and I think this is not coming to a surprise for you. I personally think that if you are talking about second Vonovia, it is better if you cover more jurisdictions than less. So I think this is important for the second Vonovia strategy, but I'm also here only 2 months left. So I think the new management team under the lead of Luka has also to think about it. But at the moment, there's no indication that there is a thinking, but I should not predict what happens in the future. Pierre-Emmanuel Clouard: Okay. That's clear. And my second question is on the value-add business and Vonovia in general. With the expected increase in minimum wage in Germany, is there any impact to expect on the -- on margins on your value-add business segment from 2027? Rolf Buch: No. Very simple question, no. Pierre-Emmanuel Clouard: Right. Why that? Rolf Buch: Because the business where we operate, so the craftsmen are much above the minimum salary anyway because this is a different general agreement with the unions. So there is no impact. And the people in some parts of the gardeners are close to the minimum salary, but these are pass-through items to the tenants. Operator: The next question comes from Manuel Martin from ODDO BHF. Manuel Martin: The first question, it's a bit kind of accounting question. We saw the effect of the change in legislation on deferred taxes in the P&L and also in the EPRA NTA calculation. When it comes to the EPRA NTA calculation, the EPRA NTA seems to have nevertheless decreased marginally in 3Q versus H1. Is there a special reason behind that? Or is this also kind of effects in the deferred tax? Maybe you can give us a hint there, please? Philip Grosse: This is predominantly driven by the liabilities we had to account for, for the guaranteed dividend in the context of the exchange offer we made to Deutsche Wohnen minority shareholders. Roughly EUR 400 million. Manuel Martin: EUR 400 million. All right. Second question is a bit more broader question on the market. I mean the rental increases in the market and which Vonovia is showing and will show in the future, is this something which is also monitored by government and politicians? And what do you hear from politicians? Might that be an issue in the future? Rolf Buch: No, I think you have to distinguish between sitting tenants and new letting. So for the sitting tenants, it's very simple. I just showed it in the political debate here in Germany. Our increase in sitting tenant between '22 and '24 was 4.8% for sitting tenants without investment. So just having the apartment with no increase. And the increase in salary was more than 10%. So the affordability is going up and not down. So we have no affordability gap. For the new letting, of course, there is an issue because especially if you refer to the gray market. So the market which is outside the mid-price from the partly illegal, of course, where the situation is extreme, where we really have an affordability issue for gray market rents, EUR 20 for Berlin. This is beyond the affordability of normal people. And that's why you have to distinguish this. I think it's getting more and more understood by the politicians, that this is 2 things. But the gray market, even with the mid-price premise, you cannot stop it. So there is only one solution to work on the imbalance of supply and demand to do more products. That's why we have the [indiscernible] where I think this will help. But as you see me in the press, we also now have to work on the rental regulation because the existing rental regulation with mid-price premise with Kappungsgrenze and with the EUR 2 and EUR 3 will not make it happen that there will be more investment in housing. And this means that the situation of high gray rents will be coming worse and not better. And I am positive that one day the politicians will get it. Manuel Martin: Okay. I see. And Rolf, all the best for you in your future positions or plans. Operator: The next question comes from Neil Green from JPMorgan. Neil Green: Just one, please, and it goes back to kind of one of the earlier comments about marginal debt costs. I think you said around 4% was in the guidance. I think your long-term unsecured bonds are trading within that 4% at the moment. And I think it's fair to say then that the secured debt would also probably be within 4% as well. So I'm just wondering whether that 4% assumption you have is kind of conservative or if there's something that I'm perhaps missing, please? Philip Grosse: I think we will see later today the actual proof point where our cost of debt are currently because we are in the market with a bigger bond issuance, 7, 11 and 15 years. Look, I mean, if you do a midterm planning, I think it is overly aggressive if you were to assume a decrease in rates. And the 4% I've been mentioning actually in our internal planning, I'm even putting kind of a safety margin on top of it because you never know whether there is a slight shift up or down vis-a-vis spot rates. I feel comfortable with the assumption of kind of a stable financing environment. As I said before, that obviously is very paramount for us on how aggressively we need to manage the ICR. But again, my baseline is that 4%. Operator: Ladies and gentlemen, this was the last question. I would now like to turn the conference back over to Rene for any closing remarks. Rene Hoffmann: Thank you, [ Moritz ], and especially thanks, everybody, for dialing in and joining this call. As always, if you have any follow-ups, you know where to find me and also my colleagues, feel free to ask. We're looking forward to connecting with you in the days and weeks ahead. And that concludes today's call. As always, stay safe, happy and healthy. Bye now. Rolf Buch: Bye-bye. Operator: Ladies and gentlemen, the conference has now concluded, and you may disconnect. Thank you for joining, and have a pleasant day. Goodbye.
Operator: Hello, everyone, and welcome to Owens Corning's Third Quarter 2025 Earnings Call. My name is Lydia, and I will be your operator today. [Operator Instructions] I'll now hand you over to Amber Wohlfarth, Vice President, Corporate FP&A and Investor Relations, to begin. Please go ahead. Amber Wohlfarth: Good morning. Thank you for taking the time to join us for today's conference call and review of our business results for the third quarter 2025. Joining us today are Brian Chambers, Owens Corning's Chair and Chief Executive Officer; and Todd Fister, our Chief Financial Officer. Following our presentation this morning, we will open this 1-hour call to your questions. In order to accommodate as many call participants as possible, please limit yourself to 1 question only. Earlier this morning, we issued a news release and filed a 10-Q that detailed our financial results for the third quarter 2025. For the purposes of our discussion today, we have prepared presentation slides summarizing our performance and results, and we'll refer to these slides during this call. You can access the earnings press release, Form 10-Q and the presentation slides at our website, owenscorning.com. Refer to the Investors link under the Corporate section of our home page, A transcript and recording of this call and the supporting slides will be available on our website for future reference. Now please reference Slide 2 where we offer a few reminders. First, today's remarks will include forward-looking statements that are subject to risks, uncertainties and other factors that could cause our actual results to differ materially. We undertake no obligation to update these statements beyond what is required under applicable securities laws. Please refer to the cautionary statements and the risk factors identified in our SEC filings for more detail. Second, the presentation slides and today's remarks contain non-GAAP financial measures. Explanations and reconciliations of non-GAAP to GAAP measures may be found in our earnings press release and presentation available on the Investors section of our website, owenscorning.com. Third, financials and metrics for current and historical periods discussed on this call will be for continuing operations, except for capital expenditures and cash flow measures, which include amounts related to glass reinforcement until the closing of the sale of the business. For those of you following along with our slide presentation, we will begin on Slide 4. And now opening remarks from our Chair and CEO, Brian Chambers. Brian? Brian Chambers: Thanks, Amber. Good morning, everyone, and thank you for joining us today. During our call, I'll provide an overview of our third quarter results and our work to continue outperforming the market in the near term while investing to strengthen and grow our company for the future. Todd will then provide more detail on our financial performance and I'll come back to discuss what we're currently seeing in the market and our outlook for the remainder of the year. In the third quarter, we delivered solid results despite challenging market conditions, demonstrating the strength and agility of our team and the power of our operating model. Because of the strategic choices and structural improvements we have made, the new Owens Corning continues to operate with greater efficiency outperforming prior cycles. I'll share more about our financial performance in a moment, but first, I'll begin with safety. In October, we celebrated our annual manufacturing appreciation month, which includes recognizing our teams for their unconditional commitment to safety as they produce the high-quality products our customers rely on. That ongoing commitment was reflected in our third quarter safety performance where our recordable incident rate was 0.56. Financially, in the quarter, we generated $2.7 billion in revenue and $638 million in adjusted EBITDA, delivering an adjusted EBITDA margin of 24%. We also generated strong cash flow and continued to return capital to shareholders through dividends and share repurchases. Through the first 3 quarters of the year, we have returned over $700 million of the $2 billion we committed to returning over this year and next. This performance reflects our disciplined capital allocation and confidence in our ongoing cash-generating capabilities. Our financial results continue to reflect our ability to perform at a high level in challenging market conditions as we see weakening residential trends in the U.S. impacting our volumes in both repair and remodel and new construction product lines. In Roofing, market demand in the quarter was impacted by a uniquely quiet storm season with no named storms making landfall in the U.S. in the third quarter for the first time in a decade. In Insulation, we saw our nonresidential and European markets remain relatively stable but continue to see the impact of slower housing starts in our residential Insulation business. Despite these weakening residential trends, both businesses continue to benefit from the structural improvements made over the past several years. In fact, when we compare today's results to similar market conditions seen over the past 10 years, we have improved margins by over 500 basis points in both our Roofing and Insulation businesses. In our Doors business, volumes continue to be impacted by both slower discretionary spending and repair and remodel and weaker new construction activity, resulting in lower-than-expected earnings. Even with these headwinds, we continue to make good progress on achieving the anticipated cost and operational synergies and are beginning to see the benefits of our unique commercial position working with common customers. While I'm disappointed in the current financial performance, I am pleased with how our team is responding to position the business for long-term success and remain confident in our ability to achieve our margin and cash flow goals for the business. In fact, across all three businesses, we see revenue and margin growth potential driven by our execution and the favorable long-term secular tailwinds in North America and Europe, two of the largest and most attractive building products markets globally. In the U.S., mortgage rates are slowly coming down, improving housing affordability, which we expect to trigger residential market activity as we move through 2026. We also see increasing investments in several nonresidential segments, including data centers, manufacturing and energy. And in Europe, macro indicators continue to improve, which will lead to growth, particularly in the nonresidential sector. Our financial performance to date and into the future, reflects the strength of the company we've built, one that can sustain annual EBITDA margins above 20% even as markets fluctuate. In the near term, we will continue to be disciplined operators focused on our cost, our customer share and our capital allocation. We will leverage our structurally improved cost positions that we have achieved through network optimization and operational efficiencies, while making strategic investments that strengthen our market-leading positions and support our growth. In Roofing, this includes unlocking efficiencies and creating network flexibility through ongoing debottlenecking efforts, the successful start-up of our new laminate shingle line in Medina earlier this year and the future addition of a new plant located in the Southeast, the largest asphalt shingle region in the country. This facility, which will be built in Alabama, will include leading technology and have the capacity to produce approximately 6 million squares of laminate shingles annually, enhancing service across our network. As we continue to invest for growth in Roofing, we're also building loyalty and demand through our industry-leading contractor engagement model. Since the beginning of the year, our contractor network has grown by about 9%, with that growth accelerating throughout the year, reflecting our unparalleled commercial strength and the value we create for our customers. In Insulation, the strategic investments we have made give us more balanced end market exposure across residential and nonresidential applications and we continue to make structural improvements to maintain a winning cost position, such as our new state-of-the-art fiberglass line in Kansas City, which will provide us with the low-cost flexible production line capable of serving both nonresidential and residential customers, depending on market demand. We're also capitalizing on the growing demand in both residential and commercial applications for XPS foam with a new low-cost plant in Arkansas. We recently celebrated the grand opening of this facility which is on track to be fully operational in early 2026. In Doors, we're capturing cost synergies and applying the same commercial and operational playbook that has driven success in Roofing and Insulation. Over one year into the integration, we have line of sight to achieving all of the $125 million in enterprise cost synergies we committed to by the end of year to have ownership. In addition, we have identified an additional $75 million of structural cost savings through operational improvements and plant consolidations, giving us a lower cost position to leverage as volumes increase. We're also starting to see the benefit of our commercial strength as we expand the success of our contractor engagement model in Roofing to shape the PINK Advantage dealer program in our Doors business. Through this program, we can serve more than 4,000 small privately owned dealers across the U.S. while creating downstream demand and product pull-through distribution. We are seeing acceleration in dealer sign-ups and have increased the membership count by more than 35% this year. In addition, we are starting to see the power of our enterprise retail capabilities, creating new opportunities for Doors in home centers by leveraging our highly recognized and valued brand with homeowners and small contractors, as well as our in-store service and merchandising capabilities. By utilizing the unique capabilities of the OC advantage in Doors, we are positioning the business for increased revenue and margin growth. Through our reshaped product and geographic focus, we built a company powered by three market-leading businesses with multiple opportunities to win and grow. In line with our building products focused strategy, we continue to make progress on the divestiture of our glass reinforcements business, targeting completion by the end of the year as we work through closing and regulatory approvals. Before turning it over to Todd, I would like to thank and congratulate my Owens Corning colleagues for their role in our most recent recognition. We have been named to the 100 Best Corporate Citizens list which ranks the largest publicly traded U.S. companies on their environmental, social and governance performance and transparency. Owens Corning ranked third, marking our eighth consecutive year in the top 10 and reflecting our commitment to doing business the right way. Overall, for the quarter, we delivered solid results in a challenging environment, outperforming previous cycles and operating with greater efficiency and resiliency. Our durable margins and strong cash generation reflect the power of our operating playbook and the strength of our market positions. As we navigate near-term market dynamics and seasonal inventory controls, we remain committed to serving our customers, maximizing our performance and investing in the growth of the enterprise, creating multiple paths to deliver long-term value. With that, I'll turn it over to Todd. Todd Fister: Thank you, Brian, and good morning, everyone. As Brian said, our performance in the third quarter demonstrates the impact of our structural improvements in portfolio transformation, delivering more resilient earnings in challenging markets. I'd now like to turn to Slide 5 to discuss the results for continuing operations for the quarter. In the third quarter, we continued to build on a strong first half and execute well despite weaker end markets. While revenue decreased 3% over prior year as a result of lower volumes, we still generated adjusted EBITDA of $638 million and adjusted EBITDA margins of 24%. In the quarter, we had adjusting items of $784 million primarily due to a noncash goodwill impairment charge in our Doors business of $780 million. This impairment is driven by updates to the macro assumptions in our accounting valuation model due to near-term market weakness, not a change in our longer-term view of the earnings potential of the business. Adjusted earnings per diluted share for the third quarter were $3.67. Turning to Slide 6. Free cash flow for the quarter was $752 million compared to $558 million in the same period last year. We benefited from disciplined working capital management as well as lower cash taxes as a result of the tax bill updates earlier this year, which more than offset the impact of higher capital investments. We continue to invest in capital projects at elevated levels in the near term to drive improvement in long-term efficiency and growth. As a result, capital additions for the quarter were $166 million, up $25 million from the same quarter prior year. Our return on capital was 13% for the 12 months ending September 30, 2025. As a reminder, at our Investor Day earlier this year, we gave a long-term target of mid-teens or better return on capital. While currently below mid-teens due to the Doors acquisition, there is no change to our long-term target. At quarter end, the company had debt-to-EBITDA of 2x at the low end of our targeted range of 2 to 3x. During the third quarter, we returned $278 million to shareholders through share repurchases and dividends. We repurchased common stock for $220 million and paid a cash dividend totaling $58 million. Year-to-date through the third quarter, we've returned more than $700 million to shareholders and we are on track to meeting our commitment of returning $2 billion to shareholders between 2025 and 2026. Our capital allocation strategy remains focused on generating strong free cash flow, delivering mid-teens returns on capital, returning cash to shareholders and maintaining an investment-grade balance sheet while we invest in attractive capital projects for growth. Our capital allocation strategy is focused on compounding long-term value for shareholders. Now turning to Slide 7, I'll provide additional details on our segment results. Starting with our Roofing business. Our results in the third quarter continue to demonstrate the power of our contractor engagement strategy and vertically integrated cost position to outperform the market and deliver resilient earnings. Sales in the third quarter were $1.2 billion, up 2% from prior year. In the quarter, revenue growth was driven by positive price realization on our April increase with volumes relatively flat. The U.S. asphalt shingle market on a volume basis was down low double digits compared to the prior year. The big driver of the year-over-year decline was lower storm-related demand. As Brian shared, for the first time in a decade, no named storms in the Atlantic made landfall in the U.S. Our U.S. shingle volume down slightly outperformed the market as we continue to see good demand for our shingles and ongoing contractor pull-through distribution. We had another strong quarter of EBITDA performance as we navigated a declining shingles market. EBITDA was $423 million for the quarter, up slightly from prior year. Positive price more than offset the impact of cost inflation. Overall, for the quarter, we delivered EBITDA margins of 34%, in line with prior year. Now please turn to Slide 8 for a summary of our Insulation business. In the third quarter, Insulation sustained 20-plus percent EBITDA margins in more difficult markets, showing the impact of the structural improvements we have made. We continue to deliver results above historical performance in similar markets, highlighting our ability to create value for customers. Q3 revenues were $941 million, a 7% decrease from Q3 last year. The decline was primarily due to lower demand for residential products in North America and the sale of our building materials business in China. In North America residential, we saw volume decline in line with our expectations for fiberglass due to ongoing weakness in demand for residential new construction. In North America nonresidential, revenue was down slightly versus prior year on the timing of projects in the U.S. and Mexico. And in Europe, we continue to see stable markets. Strong operational performance partially offset the impact of lower demand that resulted in additional production downtime as we remain disciplined in inventory management. Insulation delivered EBITDA margins of 23% in the third quarter, resulting in EBITDA of $212 million, down $36 million from prior year. Moving to Slide 9. I'll provide an overview of the Doors business. Overall, the business is responding well to a challenging market. In the quarter, the business generated revenue of $545 million, down 5% from prior year. The decline in revenue was primarily due to lower volumes as the Doors business continues to navigate challenging market conditions for both new residential construction and discretionary repair and remodel. We are also seeing a decline in EBITDA versus prior year as a result of lost leverage. Price cost was negative in the quarter as pricing was down slightly and inflation, primarily tariffs, continues to impact the business. Despite these market headwinds, the integration is progressing well. We are run rating slightly ahead of our $125 million of enterprise synergies. To date, we have captured about 40% of our synergies in Doors and the other 60% across the remainder of the enterprise. This reflects our ability to scale the OC advantage while applying the same playbook that structurally improve margins and Roofing and Insulation over time. We continue to take actions in support of achieving these savings and driving network optimization, which include the decision we made in the third quarter to close a facility in Texas and another announcement this week to close a facility in Canada. EBITDA for the quarter was $56 million with EBITDA margins of 10%. Overall for the company, there was about $12 million in net impact from tariffs in Q3. Our sourcing and supply chain teams have continued to demonstrate agility and discipline mitigating tariff exposure and preserving margins. We expect net tariff exposure to continue at a similar rate in Q4, with the biggest headwind in the Doors business. As a reminder, last year in Doors, we also saw a $14 million onetime benefit from tariff recovery efforts in Q4 that will not repeat this year. This impact is included in the outlook Brian will share in a moment. Moving on to Slide 10, I will discuss our full year 2025 outlook for key financial items. General corporate EBITDA expenses are expected to be approximately $240 million, at the low end of the range we had previously shared of $240 million to $260 million. We expect our 2025 effective tax rate to be 24% to 26%, anticipate a cash tax benefit of approximately $100 million in the year for the recent tax bill. Capital additions are expected to be approximately $800 million. This level of capital investment reflects the strategic choices we are making to expand capacity and drive improved efficiency. This CapEx continues to include glass reinforcements which is expected to be approximately $80 million in 2025. We expect CapEx to remain elevated in the near term as we work towards completing the high-return capital-efficient projects currently underway. We remain focused on executing our strategy, delivering strong returns and compounding long-term value for our shareholders. Now please turn to Slide 11, and I'll turn the call back to Brian to further discuss our outlook. Brian? Brian Chambers: Thank you, Todd. In the third quarter, our team continued to perform well, responding to slowing demand trends in most of our product lines. For the fourth quarter, we expect residential new construction and remodeling to remain challenged, with softer market conditions and customers carefully managing year-end inventory. For nondiscretionary roofing repair activity, we expect the market to be down significantly on lower second half storm activity and Q4 seasonality. Nonresidential construction activity in North America is expected to decline slightly and market conditions in Europe are anticipated to gradually improve. As Todd shared, we remain disciplined in our inventory management in this environment. As a result, we will realize additional year-over-year production curtailment in the fourth quarter. Given this near-term outlook, we anticipate fourth quarter revenue for continuing operations to be approximately $2.1 billion to $2.2 billion, down mid- to high teens versus prior year. For adjusted EBITDA, we expect to deliver margins of approximately 16% to 18% for the enterprise. Now consistent with prior calls, I'll provide a more detailed business specific outlook for the fourth quarter. Starting with our Roofing business, we anticipate our revenue to be down mid-20% versus prior year. While we typically see a decline in roofing shipments in the fourth quarter due to colder weather, we expect to see a more significant drop this year due to much lower storm activity and a more pronounced reduction in end-of-year inventory levels at distribution versus prior year. Given this environment, we expect a high 20% decline in ARMA market shipments. Based on our strong contractor engagement model, we would expect our volume to decline slightly less than the market overall. We anticipate volume declines for components and nonwovens to be down a similar amount tied to lower demand for shingles. For the quarter, we expect pricing to be up slightly versus prior year, but with ongoing inflation, we anticipate seeing negative price cost for the fourth quarter. We also expect to take additional production curtailment to manage inventory and perform needed maintenance on our production lines, partially offset by productivity. Overall, for Roofing, we expect to generate a mid-20% EBITDA margin in the fourth quarter. Moving on to our Insulation business. We anticipate overall revenue to decline high single digits compared to the prior year, primarily due to a volume decline in North American residential and the sale of our building materials business in China. As a reminder, this business had approximately $130 million of revenue annually. In our North American residential Insulation business, we expect revenue to be down low double digits versus prior year due to lower demand as we work through a step down in housing starts and overall market uncertainty. Additionally, we anticipate targeted price moves to result in slightly lower price year-over-year. For North American nonresidential, we expect revenues to be down slightly versus prior year, in line with the declines Todd shared for the third quarter tied to lower project-related demand in North America. And in Europe, we anticipate revenue to be up versus prior year as we see gradual market recovery and currency tailwinds. Overall, for the Insulation business, we expect ongoing cost inflation resulting in negative price cost in the quarter. Additionally, we anticipate strong operational performance and cost controls to largely offset the incremental production curtailment tied to the volume decline from the market pressure in North American Residential. Given all this, we expect EBITDA margin for the Insulation to be slightly above 20%. Turning to Doors. We expect our business to continue to be challenged by slower discretionary repair and remodel spending and weaker new construction activity. Also in the quarter, similar to our other residential product lines, we expect to see distributors reduce end-of-year inventories. As a result, we expect revenue in Q4 to decline high single digits versus prior year, driven primarily by lower demand. While we anticipate synergies and cost control realization to continue, we expect EBITDA to be impacted by lower volume and the resulting leverage loss from production curtailment. Additionally, we expect price cost to remain negative with relatively flat pricing and ongoing inflation driven primarily by tariffs. Overall, for Doors, we expect fourth quarter EBITDA margin of approximately 10%, similar to Q3. With that review of business outlook, I want to close out with a few enterprise comments. Based on this outlook for the fourth quarter, we expect 2025 revenue for the enterprise to be up modestly versus prior year, inclusive of the full year impact of the Doors business. Despite ongoing market challenges throughout the year, we expect to deliver full year EBITDA margin of approximately 22% to 23%. As we finish the year, we remain focused on executing our strategy with discipline, leveraging our reshaped portfolio, structurally advantaged cost position and the unique capabilities of the OC advantage. These strengths position us well to navigate near-term market pressures, while continuing to invest in the long-term efficiency and growth of our enterprise to achieve the targets shared at Investor Day in May. Moving forward, we remain energized by the opportunities to continue positioning Owens Corning as a best-in-industry performer. We are building a stronger, more resilient company, one that delivers higher earnings and cash flow, creates lasting value for our shareholders and is built to outperform. In closing, I want to recognize the continued dedication and resilience of our global Owens Corning team. Their commitment to safety, operational excellence and customer service is what enables us to perform at such a high level in any market environment. With that, we would like to open the call for questions. Operator: [Operator Instructions] Our first question today comes from Stephen Kim with Evercore ISI. Stephen Kim: I appreciate all the color. Obviously, a tough market out there. I'm going to focus on Roofing and particularly the margins. I think you've guided for margin -- sorry, pricing in 4Q to be up slightly year-over-year. But we have been understanding that there's some growing pricing pressure sequentially in Roofing. And I'm wondering if you could describe where do you feel more pressure? Is it more prevalent among manufacturing peers, distribution, retail or end users? And how does your pricing strategy generally change if the pressure comes from one channel versus another? Brian Chambers: Stephen, thanks for the question. I think pricing has continued to remain positive all year. We've talked about that in terms of our realization. And it's really driven by the value that we're bringing to our contractors and distributors, through our brand, through our innovation, through our commercial strength in the market. So that positioning in the market, that investments we've made to build out all of those capabilities, I think, reflect a strong pricing for our products, and that's retained and been maintained throughout the year. And typically, we see some pricing moves as we close out the year, and we see that more generally in a more normalized roofing market, which clearly we are facing today with limited storm activity, Q4 seasonality, distributors taking a harder look at inventory levels. So in the fourth quarter, particularly, we would normally see some pricing moves to make some pricing moves as distribution adjust their end-of-year inventories. And we've made some of those pricing moves to remain competitive, and those have been very targeted. When we look at pricing actions like that in Roofing or in Insulation or in Doors, we're very targeted. We're very focused regionally. We're very focused on specific product lines. So we've made some of those moves. So I'd say the pricing environment though is fairly typical to what we have seen in past fourth quarter cycles, nothing unusual given any of the distribution changes or any of the consolidation moves out there. So those are what I would call pretty typical seasonal pressures. And we're still, as we said in our guide, maintaining a positive price in the quarter. But we are seeing some continued inflation. So we're going to have a negative price/cost mix when we take into account the ongoing inflation in the quarter. So in terms of the overall pricing strategy, we remain consistent with how we price our products. We want to be competitive in the market, but we also want to be recognized for the value we bring relative to our brand, our innovation, our service, our commercial skills and capabilities, and that's how we'll continue to price our roofing products and all our products as we go forward. Operator: Our next question comes from Anthony Pettinari with Citi. Anthony Pettinari: In Insulation, I think you discussed North America nonres revenue down slightly in 3Q with the timing of projects, I think you cited. And you also discussed 4Q revenue slightly down. And I'm just wondering if you can give us some background on nonres demand? And are these projects -- are they moving from 3Q to 4Q or '25 to '26 or any further detail on the nonres side? Todd Fister: Anthony, thank you for the question. I can give more detail in both Q3 and Q4. We're seeing some project delays in both the U.S. and in Mexico. When we think about the delays, we do view it as shifts from quarter-to-quarter, but potentially also shifts from '25 into '26. We've seen some customers in the space share similar data for the commercial and industrial segment that they're also seeing some project delays. So we don't think this is unique to us. We think it's more a broad phenomenon that we're seeing in the industry. We are seeing a bit of a slowdown in construction activity in Mexico, where we do report that through our North American nonres piece of the business. Some of those delays appear to be related to just overall economic activity in Mexico. This could be delayed a bit longer into next year. But in the U.S., we think it's more related to just normal kind of delays we see in projects that occur from time to time. So not too unusual relative to what we've often seen. Operator: Our next question comes from John Lovallo with UBS. John Lovallo: Maybe just sliding over to the Door segment to round it out here. You took a sizable impairment based on the outlook for the business. However, it does seem like you guys are outperforming your largest peers. So I guess the question is two part. One, do you still think you're gaining share in this business despite the softer market? And then what assumptions within the kind of the fair value analysis changed the most? And should we expect further impairments in the fourth quarter? Todd Fister: Well, John, let me start with some more detail on the impairment itself and then I'll kick it over to Brian to share more on the business and what we're doing from a share standpoint. So as a reminder for everybody, when we finalize goodwill, by definition, there's 0 cushion between the value of the goodwill and the assumptions that we have in the model. And then on an accounting basis, if we have triggering events in a quarter, we have to retest that model and all the assumptions. So we did have a triggering event in Q3, which was the revenue decline that we saw. And when you look at these goodwill models, they're really sensitive to early year dynamics, in particular around market growth rates and then the subsequent impact on our margins. So when we look at the business, we did need to take an impairment in the quarter based on the accounting model. We remain confident that we're going to see margin improvement over time, but the model has put a heavy weight on the near-term results as we discount some of those future year results just as we look at the math of it. So really, from our standpoint, no fundamental change in long term, how we view the business, how we view the earnings potential. It's just we're facing in the near-term market weakness here that is different from what we assumed when we calculated goodwill originally in the models. Brian Chambers: And John, maybe I'll pick it up from that. I think we continue to stay very focused on the actions we can take to position the business for success in both the near term in this environment and then longer term. We've talked about the ongoing focus on cost synergies. We continue to see good realization there and on track to the $125 million in overall enterprise synergies. We announced another $75 million of targeted production efficiencies and we're making very good progress on that. And then I talked last quarter on some green shoots that were emerging around some of the commercial opportunities we saw in the market. And I think we continue to see those come through, and I highlighted some of those in the prepared comments. We continue to see great conversion at the lumber dealer level. And these are dealers that are servicing very local communities with a wide variety of products, but inclusive of the doors, and we're seeing some increased interest in positioning as we bring the broad product offering of Owens Corning to these dealers in Roofing, Insulation and Doors that they can take in the market, build their business and grow their business through our brand and our marketing and merchandising capabilities. So we're seeing some business pick up in that -- in that specific area. And then we continue to see a lot of interest across broad distribution around the full product offering we bring and have been able to differentiate ourselves around our service proposition and quality and the teams have done really, really great work to build a really strong value proposition around service and quality that we think is benefiting in the market today. And then the last one I talked about was around the home center. Again, back to leveraging the OC capabilities, the brand, our merchandising capabilities, we've seen some pickups there and some business opportunities. Unfortunately, a lot of that in the near term is getting overshadowed by the market declines but we do see that accelerating. As we see kind of market volumes pick up as we move into next year, we see some more of those volumes coming through and we think that's going to give us some great incremental operating leverage as we take the business forward. Operator: Our next question comes from Michael Rehaut with JPMorgan. Michael Rehaut: Wanted to zero in on hopefully a couple of areas, if you don't mind. One is, just trying to get a sense and parse out in Roofing and it sounds like a little bit perhaps in Insulation. In terms of the year-over-year revenue expected decline in 4Q, if it's possible to try and break out, how much of that was due to inventory reduction in the channel? And then secondly, in Insulation, maybe if you could just describe what's going on from a pricing standpoint sequentially and if that's something that you would expect to persist into '26 absent any rebound in demand? Brian Chambers: Mike, let me start with roofing and then I'll have Todd kind of come in on the Insulation front. On the Roofing step down in the quarter, it's probably a combination of three factors that are driving the more substantial kind of decline in the quarterly volumes. One is, as we work through the year, I think we've seen the market resetting to more normalized storm volumes. And we saw that in Q2. We expected in Q3, we're going to see some declines relative to some lower storm activity versus prior year. In fact, in Q3, we saw really no major storm activity, as we talked about first time in the decade. So we saw that kind of step down more dramatically. So I think in Q4 now, when you look at the big sequential and both -- and the year-over-year decline, I mean best guess is we probably say maybe it's probably half and half, half tied to a bigger step down in storm activity that's limiting volume and about half in terms of more dramatic inventory corrections versus prior year on lower overall demand. So as I look at the opportunities in the quarter, it's probably been a few years since we've seen this kind of significant step down, Q4 2022 is probably the last time we saw a pretty weak second half storm year in '22 and we saw that step down in volume. So we have seen these kind of big decreases. That was about a 20% decrease in Q4. This one is a little more impactful, though, because of the lower storm activity we feel. So best view is about half and half. The good news is that inventory reduction generally comes back in the first part of next year as distributors start to restock for the new season. But I think we're going to see a pretty cautious buying behavior across all of our distribution customers to close out this year, given the market uncertainty. Todd Fister: Mike, I'll comment on what we're seeing in the Insulation market in Q4 and then sequential pricing in res Insulation. So when we look at the res side of the story in Q4, we are seeing a decline in lagged housing starts in Q4 on a year-over-year basis. We're expecting the market to decline more than the decline in lagged starts. So why is that? Some of that is the mix of single-family versus multifamily. We're seeing a bit weaker mix on the single-family side. But some of that also is just conservative inventory posture as Brian just described on the Roofing side, also in Insulation. We are in free supply now. There's enough capacity to serve our customers' needs. So there's less of a need for folks to build large inventory positions at year-end. So it's hard to put a specific number on the destocking that we expect. We believe more of it is driven by the slowdown in res housing and just overall demand for the market. But we do think destocking is a part of the story. When we look at pricing in Q3, we made surgical pricing moves on the res side, as we talked about on the last call, targeting specific product lines, specific regions, specific areas where we needed to respond to competitive issues. Overall, though, we expect a relatively stable pricing environment into Q4. So while the guide includes a bit of year-over-year pricing down on res, that's really the carryover of that Q3 set of surgical actions that we made into Q4 rather than new actions that we anticipate in the quarter. Operator: Our next question comes from Trevor Allinson with Wolfe Research. Trevor Allinson: I wanted to ask about capacity utilization rates. Can you comment about on where those were in both your U.S. resi Insulation and Roofing businesses in 3Q? And then given anticipated softer market conditions, where are you expecting utilization rates to move into the fourth quarter? Todd Fister: Trevor, I'll start with the res side, and then Brian can talk through the Roofing side. So at the highest level, we still view the industry, if all assets are running in the industry, is capable of supporting 1.4 million to 1.5 million starts. When we look at Q3 and Q4, we are tracking below that 1.4 million to 1.5 million range. As I shared before, we're seeing a weaker mix of single-family versus multifamily. And just again, as a reminder, single-family starts carry about 30% more pounds of insulation per unit than multifamily starts. Now what's happening is we are taking idle. So we took our Nephi plant cold and we talked in the last call about hot idle versus cold idle. We decided to take the Nephi line down completely. We also have maintenance downtime that we're taking in the fourth quarter. That's fairly normal on our assets, but we're able to fit a little more maintenance into the quarter now that we've got time to do it. So both of those for us are reducing the amount of production we've got in the quarter. We suspect that competitors are taking similar opportunities to do maintenance. We know of a couple of lines that also have been curtailed in the industry. So it's really hard today to point to a specific number in terms of capacity utilization. But what I would share is we've done a good job of maintaining relatively stable sequential share from Q2 into Q3. And then we're positioned to maintain pretty stable sequential share now in the fourth quarter. So we're balancing out with that sequential stability in share. We're taking idle to make sure we maintain the right level of inventory in our assets in our businesses. Brian Chambers: Yes, Trevor. And then for Roofing, clearly, with the step-down in demand, capacity utilization rates are going to come down. For us, we're going to take advantage of that in the fourth quarter to do some maintenance on our assets. It's going to be the first quarter in a while -- fourth quarter and while that we can take some more extended downtimes to do that preventative maintenance work. But overall, I'd say in Roofing, we don't track capacity utilization rates the same as Insulation. It's a material conversion business. So the pricing and margin dynamics in the business are generally not tied to capacity utilization rates. They're tied value and price capture over inflation and tied to those material conversion economics of efficiency. So we don't see the same dynamics and trends in terms of the margin of the Roofing business because of the nature of a material conversion side of it. I will say, though, we will see in Q4 as we take down some of the production curtailments that, that does create some higher cost inventory that does generally spill over into the next quarter. So we would expect with some more extended downtimes this year, that's going to have an impact in terms of Q1 margin rates in the business on some higher cost inventory that we're going to have to work through. That's fairly normal in the seasonal business of Roofing. But I think we've not seen kind of this level of downtime in the last several years. So that's going to have a little bit bigger impact as we take that inventory into Q1 and sell it. Operator: Our next question comes from Matthew Bouley with Barclays. Matthew Bouley: So on Insulation, I guess the volume declines have been fairly sharp for 3 quarters at this point, more so in North America residential while still holding the EBITDA margin above 20%. I think back to the Investor Day, you spoke to the Insulation margin range. I believe, it was 20% to 27% on a full year basis on 1.2 million total starts at the low end. So understanding you're not guiding beyond 1 quarter, but do you have a view that in that light, we could be reaching a trough on Insulation margins or is this more just going to be dependent on utilization and pricing? I'm just curious on the ability to hold the line on that low end there. Todd Fister: Overall, there's no change to our guide from Investor Day in terms of where we view Insulation margins on a full year basis in that 20% to 27% range. We are seeing pressure on the margins in Q3 and Q4 as we see a relatively stable pricing environment, but we are still absorbing cost inflation in the business. We're also taking on idle to catch up for a bit of a heavier inventory position as we ended the first half of the year that we're correcting now in the back half as we've seen the market continue to be relatively weak from a volume standpoint. So that starts to get spread out more as we get into next year as we reset inventory levels at year-end. So fundamentally, no change to the guide on the business. in terms of what we expect to see. And we were really happy with the execution in the third quarter as we see the strategy play out of really focusing over time on growth in the non-res and European pieces of the business, that are holding up really well from a volume standpoint, but also a pricing standpoint. And while res pricing, we've had to make some selective moves, we are seeing some product lines and end markets within the non-res and Europe piece where we're seeing positive price in our market. So the long-term strategy is -- continues to pay off for us. In terms of relative stability in the Insulation business, but we are working through this choppier period on the res side. Operator: Our next question comes from Philip Ng with Jefferies. Philip Ng: I appreciate all the great color. Brian, I guess, from an inventory destock, whether it's your system or the channel, how long do you expect this to kind of take to flush out? Is this a 1 quarter event? Or is it going to take a few quarters? And when I look at your Roofing margin guidance for the fourth quarter, you're calling for a mid-20% EBITDA margin, certainly magnified by the destock and the seasonal dynamic. But as inventory and store demand normalizes at these lower levels, the 27% to 35% EBITDA Roofing margins you provided at your Investor Day, is there a good way to think about that as we kind of settle at these levels looking out to 2026? Brian Chambers: Yes. Thanks, Phil. Let me start and then I'll talk about the destock. The margin profile of the routing business, when we set the guide of approximately 30% annual on average in that range, was really contemplating at the 30% level, a more normal seasonal business. And I think we're going to see that. So normally, in the Roofing business, you got to go back a few years but we would see lower margin performance in Q4 and in Q1 coming out of the downtimes and some higher cost inventory. And then Q2, Q3 is where we see an acceleration in margins based on operating leverage and just higher demand. So that seasonality in that cycle where we would call the Q4 at mid-20% would not take us away from our expectation that we can still operate on an annualized basis around that 30% EBITDA margin business. So I think it's just we have not seen the seasonality in the business for several years. And so that cycle and that performance through the year, that moves up in the mid part of the year and then comes back down fourth quarter and then Q1 is more typical, more normal. And given the guide we're setting, we still think we have the ability to achieve that 30% on average annual margin profile for the business. So on the inventory destocking, I think we normally see things in Q4 get destocked and then restocked in Q1. I would say because of probably the cautious buying nature in distribution that we're seeing this quarter, it might take into the second quarter, into the first half to really see everything get restocked. We would normally see a big portion of that come through in Q1 as distributors are getting ready for the season. But I think some of that's going to kind of play out in terms of the beginnings of Q2 storm season, how people are going to buy and set up for the year. But I would expect that distributors will get back to more normalized inventory levels, but that might, depending on the start of the year, take more into the second quarter. Operator: Our next question comes from Michael Dahl with RBC. Michael Dahl: Yes, Brian, I just want to follow up on that, just so we're clear because if I think about what this implies for 4Q, I think this is going to be the lowest Roofing volumes in a decade if your guide is correct. And so I guess the first part of the question is, I didn't get the sense that inventories were necessarily that elevated. So just the -- like as you go into year-end, do you have a more quantitative sense of where channel inventories would be relative to normal? And then to your point in response to Phil, I think the last time we saw this in kind of '22, you did see a similar year-on-year decline in 1Q of '23. We still have a tough comp against 1Q '25 when we flip to next year. So should we still be thinking about a 20%-plus decline in shipments in 1Q? Is that kind of the order of magnitude that you're thinking about at least initially? Brian Chambers: Yes, Mike, in short, yes, I think you're describing it how we're kind of seeing it play out in real time. I think the -- it would be the lowest Roofing volume in about a decade, given the fact that there has been no named storms here in Q3 on top of a pretty light overall storm season. So the combination of those two factors are just leading to some lower storm activity as we finish the year. That on top of just normal Q4 seasonality, I think -- and I think a little bit more cautious on distributor buying behaviors given that. So the last time we saw this in '23, you're exactly right. We saw our Q1 that was also down 22%, 23% in terms of prior year shipments and that could be the set up. We're not guiding to Q1, but that certainly feels like a realistic setup to how 2026 is going to start. Now that you also saw more normalized storm volumes coming through, and we saw the margin progression in the business and the volume progression in the business throughout the year. But I think the next couple of quarters for Roofing volumes are going to be pretty light, relative to the last couple of years, and we'd probably take on that shape of the year. Operator: Our next question comes from Garik Shmois with Loop Capital Markets. Garik Shmois: Just to follow up on that point. On Roofing, historically, the industry has done a good job of pricing to recover cost inflation, just given these volume run rates that you're describing. As we get into the next season, do you anticipate any change in the industry's ability to recover the cost inflation you're seeing right now? Or is there anything changing perhaps competitively or from a capacity standpoint or anything happening in distribution that might give you some pause? Brian Chambers: At this point, I would say no, nothing that would change our view of kind of the historical pricing practices that we've had in the business and the overall ability to recover inflation through price. I go back to roofing shingles are still the most affordable roofing material in the market. It is still architecturally the most widely used product in the market. So there are a number of fundamental demand drivers. It is a nondiscretionary repair and replace product category. So I think we're seeing some adjustments and resetting on more normalized storm volume. But when I look at kind of the fundamental repair remodeling drivers of the business, those are still staying very strong in terms of the need for roofing materials when a roof is damaged. So I think those underlying drivers of nondiscretionary repair business, the ability -- the fact that it's the lowest-cost roofing material in the market, but the fact that it's architecturally the most desired, I still think create demand drivers even though it's stepping down on a year-over-year basis on an absolute basis, that would still allow us to get pricing in the market and the expectation that we'd be able to recover inflation over time. Operator: Our next question comes from Susan Maklari with Goldman Sachs. Susan Maklari: I want to change a bit and talk about capital allocation. Understanding that 1 or 2 quarters doesn't necessarily change the longer-term needs. But can you talk about what you're looking for to determine if you need to make any changes to plans to add capacity across the different segments? And then with that as well, can you just talk about your priorities for capital allocation in this kind of an environment? And anything that has changed relative to the last couple of quarters? Todd Fister: Thanks, I appreciate the question. From a capital allocation standpoint, as we think about the major projects we've got underway, these are multiyear projects that generally are going to add capacity in the out years, in 2027 and beyond. When we look at our markets, we still have a lot of confidence in the long-term tailwinds that support both the new construction and repair and remodel activity in North America and in Europe. So there's no fundamental change long term to our outlook for the business. And we know we're in short-cycle businesses where things could change very quickly on the upside as well around market conditions in really all 3 of our businesses. When we look at those larger projects, there's no change today in our work underway against those, in part because they support growth, but they also support cost efficiency and capital efficiency for us going forward. So these are important projects for us as we think about generating long-term EBITDA growth and cash flow growth for investors. Right now, our priority from a balance sheet standpoint is staying very, very disciplined when it comes to working capital. As you've heard throughout the call today, we're taking idle and curtailment on our existing assets to make sure we keep enough inventory to serve our customers, but we remain appropriately postured for the current market environment in terms of total inventory in the business. As a result of that and focus on accounts payable, we're maintaining good cash flows in a fairly challenging market environment today that's enabling us to continue to invest in these longer-term projects to support earnings and cash flow growth. It's enabling us to continue to make great progress on our target of returning $2 billion to shareholders this year and next year through dividends and repurchases. We are $700 million along that journey already this year. But then at the same time, we're preserving a really strong balance sheet at the low end of our targeted range of 2 to 3x. So really no change in terms of how we're thinking about capital allocation in today's market environment, even with the challenging market conditions that we're seeing, which speaks again to the new Owens Corning and the cash generation power of the business that we've created. Operator: Next in queue we have Sam Reid with Wells Fargo. Richard Reid: One more on Roofing. I was just hoping you could disaggregate some of the inventory comments, but perhaps in the context of the components business, just thinking through that destock, stock up dynamic that you talked to on some of the prior answers, I would just love to know if the components business is going to follow a similar path or whether there could be a divergence between shingles and components? Brian Chambers: Yes. Thanks for the question, Sam. The -- we would expect that the inventory destocking on components would follow a similar path to shingles. Generally, distribution will buy those products in tandem. They'll manage the balance of out-the-door sales of shingles and the level of components and attachment rates and keep those inventory positions in balance. So we would expect a similar step down in terms of volumes in our components business in Q4. And then we also talked about nonwovens. We're vertically integrated, which gives us a great cost and innovation advantage, but we'd expect to see a similar step down there. But in the component side, I think it followed the same path. And then again, when we think about the first part of 2026 and distributors starting to rebuild those inventories, I would also expect the same restocking mindset towards components to match the shingle restocking that we would expect to see in the first part of next year. Operator: Next, we have Rafe Jadrosich from Bank of America. Rafe Jadrosich: Can you just walk us through the downtime that your impact to EBITDA that you're assuming for Roofing, Insulation and Doors in the fourth quarter? And then if the macro sort of stays consistent and soft into next year, is that something that you would expect to persist? Or is any of that related to temporary sort of maintenance downtime? Brian Chambers: I think overall -- maybe I'll give an overarching answer because it's going to vary a little bit by business, but you can see some of the downtime curtailments. I'd say in Insulation, we've been able to manage those really, really well. You look at third quarter downtimes. We've been able to offset by the productivity. And then some of that, you can see in the MD&A. We'd expect to continue similar trends here in Q4 in terms of that. Roofing will be a more significant sequential and year-over-year impact because of the extent of downtimes we're going to start to take in the business. But when we think about the decremental margins in Q4 year-over-year, it is primarily all volume and deleverage that fits inside of that. So the bulk of that volume and then a little bit more incremental. And then in Doors, you'll see that come through some higher manufacturing costs in Q3. We think that continues into Q4 with kind of similar levels. So as we move into next year, I think given the volumes that we're running at today, we might see some more incremental depending on the business in terms of how we set up the year to stay very disciplined around working capital and inventory management and cash flow. But I think the bigger impact will probably be on the year-over-year comps in the businesses where you'll see a higher amount of production downtime going forward versus prior year. That will impact some of the margin performance in all three businesses to start the year. But we'll have to see how the rest of the year plays out if that would continue. But we are going to be very disciplined in terms of managing working capital and inventories as we operate the business going forward. Operator: This concludes our Q&A session. So I'll pass you back over to Brian Chambers for any closing comments. Brian Chambers: Thanks, Lydia. I'd like to thank everyone for making time to join us on today's call and for your ongoing interest in Owens Corning. We look forward to speaking to you again in the fourth quarter call. Thanks, and have a very safe day. Operator: This concludes today's call. Thank you very much for joining. Your line will now be disconnected.
Operator: Hello, and welcome, everyone, to the Intapp Fiscal First Quarter 2026 Earnings Webcast. [Operator Instructions] Please be advised that this conference is being recorded. Now it is my pleasure to turn the call over to the Senior Vice President, Investor Relations, David Trone. The floor is yours. David Trone: Thank you. Welcome to Intapp's Fiscal First Quarter Financial Results. On the call with me today are John Hall, Chairman and CEO of Intapp; and David Morton, Chief Financial Officer. During the course of this conference call, we may make forward-looking statements regarding trends, strategies and the anticipated performance of our business, including guidance provided for our fiscal second quarter and full year 2026. These forward-looking statements are based on management's current views and expectations, entail certain assumptions made as of today's date and are subject to various risks and uncertainties, including those described in our SEC filings and other publicly available documents that are difficult to predict and could cause actual results to differ materially from those expressed or implied by such forward-looking statements. Intapp disclaims any obligation to update or revise any forward-looking statements, except as required by law. Further on today's call, we will also discuss certain non-GAAP metrics that we believe aid in the understanding of our financial results, including non-GAAP gross margin, non-GAAP operating expenses, non-GAAP operating income, non-GAAP diluted net income per share and free cash flow. Our GAAP financial results, along with a reconciliation of GAAP to non-GAAP financial measures can be found in today's earnings release and its supplemental financial tables, which is available on our website and as an exhibit to the Form 8-K furnished with the SEC prior to this call, or a supplemental financial presentation, which is available on our website. With that, I'll hand the conversation over to John. John Hall: Thank you, David. Good afternoon, everyone. Thank you for joining us today as we share the results of our fiscal first quarter. Now starting our fifth year as a public company, I'm pleased to share that once again, we've achieved strong quarterly results, supported by cloud ARR growth, new products, new partnerships, new logos and expanded client accounts around the world. We added new applied AI capabilities to our platform, furthered our strategic partnership with Microsoft and migrated more clients to the cloud. I'll share details on these and other select growth drivers throughout this call. In Q1, our cloud ARR grew to $401 million, up 30% year-over-year. Cloud now represents 80% of our total ARR of $504 million. In the quarter, we earned SaaS revenue of $98 million, up 27% year-over-year and total revenue of $139 million, up 17% year-over-year. Now I'd like to share some highlights from our fiscal first quarter. We continue to execute on our vertical AI roadmap, specifically through applied AI innovation and growing client adoption. For a bit of context, our industry-specific AI solutions do automate rote manual tasks. But more importantly, they deliver actionable insights drawn from a firm's proprietary data, knowledge and relationships, which are unified and enriched with our own industry graph data model and trusted third-party sources. Critically, our solutions do all this while helping firms maintain compliance with the industry's most complex regulations. These advanced, tailored compliant capabilities are what set Intapp apart and why firm leadership continues to invest in our technology, which brings me to my first example. In Q1, we announced a significant new release of Intapp Time, which delivers faster, easier, more accurate timekeeping powered by major new AI features. Built on our secure cloud foundation, the new Intapp Time offers GenAI capabilities that monitor users' workdays to find and capture billable activities, to validate entries against client guidelines, to suggest corrections when needed, and to answer questions about entries and unreleased time via an AI chat experience. The response has been very enthusiastic, reflecting that we're tapping into real need with our thoughtfully designed vertical AI. More than 100 clients and prospects attended our introductory webinar, and we booked over 200 meetings in the 6 weeks following its launch. Brian Donato, CIO at Vorys, who participated in our early adopter program said, the Intapp Time release is very intuitive and won't require us to retrain our lawyers. Our users really like the quick add functionality, the ability to use AI to create narratives and the ability to group activities in the activity stream. Additionally, this quarter, Starwood Capital Group, a leading real estate investment firm with over $120 billion in capital deployed globally and a leader in technology adoption, added Intapp's agentic AI capability to its DealCloud deployment. The agentic capability will give Starwood's investment professionals a 360-degree view of the firm's investments and portfolio, all enabled and orchestrated in a modern AI chat interface. And third, Alpaca Real Estate is showcasing its use of DealCloud as a differentiator to its clients and prospects. At a recent client retreat, the firm shared how its modern tech stack gives them a competitive advantage among real assets investors and highlighted DealCloud as an integral part of their evolution toward AI, powering their workflows, analytics and data. Now let's turn to our expansive partner network. We continue to grow our high-impact partner ecosystem, anchored by Microsoft and a strategic set of 145 curated data technology and services partners. It's one of the most powerful vertical ecosystems in our industry. And its real differentiator is how deeply our partners are integrated into our commercial operations. They're strategic amplifiers of our business, enabling us to pursue larger opportunities, execute faster and scale more efficiently without a proportional increase in internal costs. To name just one example, in Q1, Lexsoft joined our network to help drive growth in our legal vertical in Latin America and other Spanish-speaking markets. And as in previous quarters, Microsoft continues to be a major growth driver for us. Of our 10 largest Q1 wins, more than half were jointly executed with Microsoft. In several of those, Microsoft fronted Azure investment dollars to help accelerate the deals. I'll share more specifics as we turn now our attention to notable wins from the quarter. Our growth was again powered by adding new clients, expanding within existing clients and migrating clients to the cloud. We also continued to make traction in new markets, spanning across our verticals, products and global locations. This quarter, we saw 3 notable trends driving wins in our legal vertical. First, the largest law firms continue to consolidate. In other words, the big firms keep getting bigger. They're taking a bigger share of the growing legal market, and they're going to continue to need an enterprise-class technology partner that can scale with them. To cite an example, one of the 95 Am Law 100 firms we count as a client increased their contract for Intapp Conflicts, Intake, Terms, Time, Walls and Collaboration this quarter to accommodate its growing size. Second, our clients are adding additional Intapp solutions, including AI when they migrate to the cloud. For example, another Am Law 100 client started moving its Intake and Conflict solutions to the cloud while also augmenting its portfolio of Intapp solutions by upgrading to the newly released Intapp Time with GenAI on the Azure marketplace. And an Am Law 200 firm chose to move all of its Intapp solutions to the cloud, starting with Compliance. They purchased Intapp Assist to add GenAI capabilities to its Time, Terms and DealCloud solutions. The firm completed the purchase via the Azure marketplace using their existing MACC agreement. And third, current cloud clients are also growing their Intapp footprint. For example, Bryan Cave Leighton Paisner bought Billstream and added Intapp Assist to its Time contract, expanding their existing product portfolio of Intapp Compliance and Collaboration solutions. One of our Intapp Time GenAI early adopters also added Intapp Terms with Assist to enable comprehensive compliant time recording. These solutions add to the U.K. law firm's existing portfolio of Intapp Compliance solutions. In our accounting and consulting vertical, we saw continued modernization of compliance and timekeeping practices with many adding new products to their existing Intapp investments. I'll share a couple of examples. One of the largest providers of tax, accounting and advisory services purchased Intapp Employee Compliance to complement its existing instances of intake and conflicts. And SEA Limited, a leading consulting firm in forensics analysis and investigations, added the new Intapp Time to its portfolio that includes Billstream, Conflicts and Intake. In our financial services verticals, firms continue to choose our purpose-built solutions for their industry-specific capabilities. Here are some examples. A leading bulge bracket investment bank chose to replace a homegrown system with DealCloud for AI-enabled client coverage and deal execution that are attuned to the complexities of a multinational bank with complex clients. A mid-market PE firm moved from its legacy horizontal CRM to DealCloud with Intapp Assist as part of its AI-first approach to deal origination, deal sourcing and business development. Compass Capital chose DealCloud for AI-driven marketing, deal origination and relationship management capabilities. The firm is replacing disparate legacy systems with a unified solution designed for PE workflows. And a global investor and manager focused on real assets, selected DealCloud for its ability to improve investment process efficiency and manage complex transactions. In conclusion, we're proud of our strong performance in our first quarter, and we're optimistic about our continued growth opportunities. As our Q1 performance has shown, we continue to grow by adding new capabilities to our platform and increasing our global and enterprise go-to-market reach. We see continued opportunity both to add new clients across a broad TAM and to deliver greater value by expanding within our existing client base. We're serving a durable end market with our subscription revenue model, industry-specific cloud platform and applied AI and compliance capabilities. We have a great growth opportunity to drive AI, cloud adoption and modernization across all the industries we serve. As always, I'd like to thank our clients, our partners, our investors, our Board and our global Intapp team for their teamwork and dedication. Thank you all very much. Okay. David, over to you. David Morton: Thank you, John, and thanks to everyone for joining us today. I'm pleased to report a solid start to fiscal 2026 with our first quarter performance. These results underscore the opportunity ahead as we prudently invest and execute against key market tailwinds, digitalization, cloud forward adoption and compliance-driven demand. Our Q1 execution reflects these dynamics and reinforces our confidence in driving sustained profitable growth this fiscal year and beyond. Cloud annual recurring revenue surpassed $400 million in Q1, a 30% year-over-year increase as we expanded enterprise wallet share across our vertical markets. We excelled on both upsell and cross-sell activity this quarter while continuing to transition client spend to the cloud. We're also seeing strong progress in executing our vertical applied AI strategy with absolute growth in AI SKU ACV dollars and attach rates, while maintaining discipline in our operating model, proving that efficiency and leverage are tenable. Let's begin with our fiscal Q1 results. SaaS revenue was $97.5 million, up 27% year-over-year, driven by new client acquisitions, contract expansions and ongoing migrations from on-premise products to the cloud. Cloud positive mix progression continued with SaaS now contributing 70% of total revenue, up more than 5 points year-over-year. License revenue totaled $29.2 million, up 2% year-over-year. The on-premise portion of our business continued to migrate toward cloud offerings, while legal client growth remained steady and in line with firm expansion. Professional services revenue was $12.3 million, down 8% year-over-year. Our partner ecosystem continues to help us prioritize long-term cloud growth by focusing on co-sell execution, client satisfaction and efficient implementation practices. Total revenue was $139 million, up 17% year-over-year, driven primarily by strong demand for our cloud solutions. Turning to our capital allocation. As announced in August, our Board authorized $150 million share repurchase program. During the first quarter, we repurchased $50 million or approximately 1.1 million shares, reflecting our confidence in long-term value of the business while maintaining a strong balance sheet. Our partner ecosystem continues to deepen its role in the go-to-market execution and client delivery. Partners are facilitating complex deals, opening new geographic opportunities, accelerating value realization and promoting platform adoption and retention. Our FY '26 sales kickoff included a dedicated in-person partner track for the first time, a reflection of the expanding network opportunity. Year-over-year, co-sell growth in Q1 was strong, and we feel well positioned for even greater partner-driven contribution in FY '26 and beyond. As we continue to focus on margins and operational efficiency, Q1 non-GAAP gross margin was 77.7%, up from 76.3% a year ago, reflecting continued mix shift in cloud efficiency gains. Non-GAAP operating expenses were $87.1 million compared to $75.6 million in the prior year period, largely reflecting go-to-market spend related to sales kickoff and targeted marketing initiatives as we entered the fiscal year as well as ongoing investments in our product-led growth strategy. Non-GAAP operating income was $20.9 million, up from $15.1 million in Q1 of last year. Non-GAAP diluted EPS was $0.24 compared to $0.21 in the prior year period. Free cash flow was $13.2 million for the quarter, defined as cash flow from operations less capital expenditures. Our cash and cash equivalents balance at the end of the quarter was $273.4 million, reflecting our $50 million share repurchase. Turning to our key metrics. Cloud ARR increased 30% year-over-year, while total ARR grew 21% over the same period. Total remaining performance obligations, or RPO, was $715.2 million, up 30% year-over-year. Our increasingly enterprise-focused go-to-market motion showed continued progress in Q1, yielding at quarter end, 813 clients with ARR of at least $100,000, up from 707 in the previous year. Our $100,000-plus ARR clients now comprise approximately 30% of our total clients of 2,750. Our cloud net revenue retention rate was 121% in the first quarter, demonstrating continued strong retention and strong upsell and cross-sell expansion among existing cloud clients. Now turning to our outlook. For the second quarter of fiscal 2026, we expect SaaS revenue of between $100 million and $101 million, total revenue in the range of $137.6 million and $138.6 million. Non-GAAP operating income is expected to be in the range of $21.4 million to $22.4 million and non-GAAP EPS in the range of $0.25 to $0.27 using a diluted share count weighted for the quarter of approximately 84 million common shares outstanding. For the full year fiscal 2026, we expect SaaS revenue between $412 million and $416 million, total revenue in the range of $569.3 million and $573.3 million, non-GAAP operating income in the range of $97.7 million and $101.7 million and non-GAAP EPS in the range of $1.15 to $1.19 using a diluted share count weighted for the fiscal year 2026 of approximately 85 million common shares outstanding. Thank you. And I'll now turn the call back to the operator. Operator: [Operator Instructions] And our first question comes from the line of Kevin McVeigh with UBS. Kevin McVeigh: Congratulations really on terrific results. John or Dave, I don't know who this is best for, but the net revenue retention, 121%, just really, really amazing. That was up from last quarter. Can you help us maybe understand what drove that a little bit, and maybe we could start there. David Morton: Kevin, it's Dave. Yes, the team has done -- continue to do extremely well. We continue to make continued inroads both not only on the upsell, which is additional seats, but also a true cross-sell motion. And I think going back in time, last year, we introduced our true enterprise model, and we've continued to densify that around a lot of key accounts, and we're continuing to see a lot of success with our cloud offerings with that profile. And so you just continue to see that general nature of how we've been going to market and been articulating and quite frankly, given some really good examples even in today's conversation point. As well as our churn continues to remain low single-digits. So our product adoption and delivery has been very welcomed by our respective clients, and we'll continue to make progress there. Kevin McVeigh: That's helpful. And then obviously, the results continue to be terrific. There's obviously a lot of debate as to how GenAI could potentially impact your clients. As you've kind of started on the journey, have you seen any changes in behavioral around that where they're consuming maybe more, maybe less or shifts in terms of how you're charging just based on any behavioral changes from your client perspective? I mean the numbers don't suggest that at all. If anything, it seems they get better, but just anything to help us kind of answer that question that we've gotten from our clients. John Hall: Thanks, Kevin. This is John. So we're big believers in what this generation of AI is going to bring to this end market. There's an incredible opportunity for these firms who are very knowledge-oriented in the way that they create value, either as investors or as advisors. And so we're putting a huge program behind extending our traditional machine learning generation AI with this GenAI generation technology. And we have a lot of expertise in the business to continue to do that. And you've seen a series of announcements from us over the past 18, 24 months of a sequential expansion of the GenAI generation throughout the platform. And the most recent one we talked about on this call was the time release, which has been very well received. It's interesting to get the feedback from the clients. A lot of them are trying a lot of the different tools. We had an advisory board with our COOs and one of the leaders told me that she had 9 different AI start-up tools that they were trying. So that's kind of where we are in the adoption cycle. From our perspective, we think there's a tremendous opportunity to leverage the position that we have developed over many years as the scaled compliant systems to bring GenAI into the workflows, we call it vertical AI and really differentiate from a lot of the more general horizontal systems that are being offered out there from some of the larger companies, but also in an integrated workflow that differentiates from some of the smaller companies that are working on more of a point solution approach. And that's been very positively received from our advisory boards and our early adopters. I gave some examples of how our adoption is working. And this is historically how we have grown the company. We've had many years working with these firms and the advisory board system that helped build the company as a bootstrap business. And we're doing the same thing with this GenAI generation. So it's a very deliberate strategy to look for the key value propositions that will enable us to roll GenAI out and monetize it. Your question about charging. We have said that we have in our contracts the ability to meter in different ways. We already have revenue that comes both from a per user basis and from a firm size basis. And we are working with some of the early adopters on some other models that we'll hear more about as the fiscal year rolls on. But I think there's a real opportunity to continue to leverage the existing relationships we have. And the firms are pretty excited to pay for it given some of the ROI that we can show. So we're optimistic about how this goes. Operator: Our next question comes from the line of Alexei Gogolev with JPMorgan. Alexei Gogolev: Given the very strong ARR and NRR acceleration, how much of this acceleration is coming from industry-specific changes like the one, John, you mentioned in market consolidation in legal? And how much is coming from macro tailwinds or perhaps that internal enterprise sales build-out and productivity improvement? John Hall: Thank you, Alexei. I think it is a combination of several of those trends. So there's definitely a set of trends in each of the industries that is helping us at the enterprise level. As I mentioned, the law firms have a consolidation trend going on. In the accounting industry, there is a trend where the private equity firms are coming in and investing in the midsized accounting firms and basically rolling them up. So they're becoming more enterprise class pretty quickly. And they have a strong technology need and in particular, a strong compliance need because now you have, for the first time, private equity owners of these professional firms and the compliance issues are very meaningful there. So that's helping us. There are a couple of regulatory things that are happening. I mentioned on an earlier call what's happening in places like Australia with some of the AML regulations. And then the private equity industry is continuing its secular growth. So the firms are getting bigger. They're raising larger funds, and they're taking more share from the public market. So we're very well positioned in several of these macro trends. I think from a technology transformation perspective, we're continuing to follow the digital transformation trend that you all have studied in a lot of the other markets for a long time. It was slower to come to this market. And we're benefiting from the fact that these firms are really committed now to getting to the cloud, particularly after COVID, and you hear us give examples of that accelerating. So we're excited about that for us. And then finally, this AI conversation that we just talked about is definitely causing people to take a new look at their IT portfolio and how are they going to position themselves to make sure they compete in this era when AI is going to play a meaningful role in the operation of the firms. So there are several overall drivers, I think, that are supporting that NRR and ARR growth. Alexei Gogolev: And Dave, considering the strong dynamic for ARR, do you feel like the guidance that you've given is somewhat conservative? It looks like you've raised full year outlook by less than the Q1 beat. Can you maybe elaborate on that? David Morton: Yes. We're always going to show a series of prudence here as we exit not only this year, but then going into next year. So that's one. Two, we're definitely cloud-focused, SaaS-focused. We do have some moving parts going on with both services and with license, but we feel that we provided a very prudent guide that just lets us keep our heads down and execute accordingly. So... Operator: Next question comes from the line of Parker Lane with Stifel. J. Lane: John, clearly showing a lot of progress here in the percentage of business from cloud from an ARR perspective. For those holdouts that you're seeing today with the amount of innovation you're delivering from an AI perspective, what are the common reasons that people are continuing to stick on-premise? And do you think AI is becoming that tipping point that can perhaps accelerate their decision-making to move to cloud more quickly? John Hall: Thanks, Parker. I do think the trend is strong and accelerating because a lot of the traditional impediments that help back this industry have kind of been tackled. There were some regulatory requirements that people needed, but a lot of the capabilities of our partner, Microsoft now to meet the different hosting requirements in each of the jurisdictions have been solved. Lot most of the firms that we serve, certainly the enterprise class firms are operating in more than one regulatory jurisdiction. So that was an important part. I think the Microsoft partnership overall has really helped us in that regard at the larger end of the market. I think now AI has absolutely captured the attention of the firms, but they really are experimenting in a lot of places and looking for an experienced partner that they can trust. And particularly for this market, where we're focused, the compliance questions about how do they make sure that they respect client confidentiality and the incredible importance to each of them, sometimes from a pure regulatory point of view around how do you manage MNPI inside these large firms and make sure that it doesn't get accidentally shared, over shared inside the firm. And then how do you make sure that the firm's intellectual property of history of knowledge and experience, which is really what forms the basis of these firms' ability to compete and differentiate themselves. How do you make sure that, that is something that you can manage and use for the firm's proprietary advantage going forward? These are all key issues for these firms as they look at a lot of these solutions. And we've been very focused on continuing our strong position in compliance and information governance and confidentiality as the key partner to enable them to deploy AI in a trusted way to really get the value of it in a way that's consistent with the obligations that they have from regulations, but also from their professional obligations. And that's playing well. So I think that we have a great opportunity to continue to pull people to the cloud now. The final piece is just the IT budget and prioritization of all the projects that they're doing this year. It's become less and less of an argument against as much as a practical how do we plan for this. And so we're working with each of our clients with our account plans and our teams to make sure that we get in line and make sure we're at the front of the line with the AI story to help them make this move. And you're seeing some examples of that, that we shared with you. J. Lane: Makes sense, John. And Dave, maybe one for you. As you lean more into partners, you alluded to this more moderated pace of professional services revenue growth. Would you expect that trend to continue here in fiscal '26? And given that, would the somewhat of a pressure that we saw in gross margins professional services also come with that? Or do you expect utilization rates to sort of normalize here? David Morton: So on the margin pressure, we expect that to moderate here through the back half of the year. So plenty of planning and activity there. With respect to revenue, we're always playing the trade-offs of building the ecosystem as well as what gets delivered without -- gets delivered internally without losing the aspect of the customer first. And so that's always going to be relatively tricky balance that we're trying to make game-day decisions on and then with respect to the margins that follow. And so I think from a longer-term perspective, you want to model around 10% of revenue to be in our services, but that could deviate a point or 2 here or there as you modulate through the respective quarters. Operator: Next question comes from the line of Koji Ikeda with Bank of America. Koji Ikeda: Maybe the first one on AI and looking at your 2 target verticals, the financial services and professional services, of the 2, which are more open to adopting AI tools today? And for the other one that maybe is less open, what do you think is the catalyst or trigger within this specific vertical to drive more AI adoption? John Hall: Thanks, Koji. The market generally is super excited about the AI opportunity, particularly because so much of what these folks do is in the style of research. And a lot of the first tools that have come out have helped people to look into the outside world and research what's available on the Internet and take a point of view on that. It's very familiar to a lot of the work that a lot of the folks inside these organizations do. So there's a lot of enthusiasm for what it can do to help them. As they try to bring those experiences and integrate them into the overall management workflows of the firm, they're needing to integrate more and more with the proprietary data of the firm, with the governance practices of the firm, with the financial management, operational management requirements of the firm. And I think this is what's pulling us in at the top of the leadership group to say, how can we help them orchestrate the role of AI across the various activities that people are trying inside the firm and do so in a compliant way and in a governed way and take advantage of a lot of the firm's proprietary knowledge in our industry graph data model and other sources inside the firm to help them really get the full value for the institution out of this style of adoption. I think there's different flavors of that in the law firm side, we make this distinction, which is kind of a classic distinction between the practice of law and the business of law. Historically, Intapp has been very much helping the firms as a whole orchestrate their business. And so that's sort of an angle inside that firm. There's an analogous case though, on the financial services side, where firms are really focused on the process of sourcing and origination of business, which is completely analogous to what we're doing in professional services. So I think rather than contrast the 2, I would say it's more about the vertical AI solutions, the category solutions and how are the firms going to think about AI overall as a program of improving productivity in a compliant way for all of the players inside the organization. That's our focus. Koji Ikeda: Got it. No, that's super helpful. And a follow-up here for David. I focus a lot -- we focus a lot on ARR and specifically cloud ARR and great to see the acceleration there. But I can't help look at my model and notice billings and just looking at kind of mid-high teens growth in total billings, but also a lot of volatility in that quarterly billings, the calculated billings metrics. Maybe help us understand some of the puts and takes there? And is there the potential for billings to start to smooth out here in the coming quarters? David Morton: Good question. So yes, we do see it smoothing out in 6 to 9 months, really getting through things such as services, which has a lot of fixed fee, getting through some of these license, which you get half upfront at times with ASC 606. And so as those things transition, so too will the noise. You also have to -- just with respect to Q1 of '26, if you look at the DRs, right, going from the deferred revenue of almost an all-time high or actually an all-time high in Q4 of '25 coming down to Q1 of '26, $259 million down to $239 million. But then if you look at that year-over-year, the $239 million up over the $205 million, I mean, you are seeing pure growth within that number. And so we think it's on the right trajectory. Operator: Next question comes from the line of Terry Tillman with Truist. Dominique Manansala: This is Dominique Manansala on for Terry. So considering fiscal Q2 and Q4 tend to be the stronger ARR quarters with the client fiscal cycles and the renewal base, as your mix shifts more into enterprise with the new enterprise sales group, do you expect that seasonality to intensify or maybe flatten a bit as your deal sizes grow? David Morton: Apologies. I was trying to get my phone off mute. No, we view the same seasonal patterns with both of our -- whether it be mid-market or enterprise. It just lands naturally with our end clients year-end. And so where you see some of the incremental could be budget flush either through the respective calendar year-end and/or through -- halfway through the year when the budgets are allocated. And so that's kind of what we're selling into at more and more of these enterprise accounts. And so we don't see that deviating. We also don't see it intensifying because we have been part and part selling to a lot of these larger enterprise accounts, but now we're just doing it more formally. And so yes, we'll continue to maintain that asymptote. Dominique Manansala: Got it. And then just as a follow-up, now that Intapp has surpassed $500 million in revenues entering this next phase of evolution looking towards the $1 billion revenue narrative, what are the 1 or 2 most important execution levers that kind of move the company towards that next major scale milestone? I guess I'm thinking maybe deeper product attach, [ product ] leverage or maybe continued vertical expansion. John Hall: Yes. So we have a couple of ways to win here. On one hand, we have enough clients today. We talked about this a little bit at our Investor Day that if we just sold through a percentage of what we have on offer today, we could get the company to $1 billion and much more. And alternatively, it's a large underserved TAM, and we're landing new clients each quarter and each year. And if we just did that with the deal sizes that we're showing, we could get to $1 billion that way. So there's actually a very large opportunity for us. This market is very interesting because it's 3% of the global economy and has traditionally been overlooked by the horizontal players. So the vertical strategy across the technology generations has been a key angle for us. And a lot of the capabilities that we've developed like the compliance point transcend each of the technology generations. And now we're doing it with vertical AI. So I think there's a great opportunity for us to grow to that number. I think some of the execution levers include the continued success of our clients and the cross-sell and the upsell, continued landing of new clients based on our strong reputation and continued innovation. It's a huge opportunity. It's historically for us been very client-driven. We're a bootstrap company. We have an advisory board systems. People help us understand what it is that if we build for them, they will pay for. And that relationship goes back 15 to 20 years in some firms. They really do trust us to be the people to bring them to the AI generation. So executing on that, continuing that core capability of innovation directly to this market, I think, will really help us. And then I think just continued talent. As we grow, we've had a great opportunity to bring more and more great talent into the business, people who have seen larger and larger scale, people from the firms themselves who really bring the expertise. It's a unique group that we've assembled that really understands how to bring this next generation of technology to this specialized end market. So those are some of the key points. Operator: Next question comes from the line of Alex Sklar with Raymond James. Alexander Sklar: John, on the international opportunity and some of the commentary around expanding global reach, you've got the partner in Microsoft globally. What's the opportunity you see internationally broadly versus what's been a string of really strong quarters in the U.S.? And maybe for Dave, how much investment do you think is needed either from a product standpoint or go-to-market side given some of the partners you already have in place for that opportunity? John Hall: Thanks, Alex. About 30% to 1/3 of our business has been international historically. That has been a growing footprint around the world. We have a strong business in the U.K., obviously, Australia, New Zealand, where we started, Canada, where we started. But increasingly, good footprint in Continental Europe. The Nordics have done a lot recently. We opened a Singapore office last year. The team there, I just visited them this past quarter, a fantastic group of people that have brought on some incredible clients and a huge opportunity there. I mentioned in our partner ecosystem, we've added more and more partners that help us reach into parts of the world that we haven't set ourselves up yet. The one we talked about here was a group that's helping us expand into the Spanish-speaking countries. We're excited about that. We have another recent partner that's come on board to help us with the Portuguese-speaking countries. So I think there's a lot of opportunity for us to continue to move in that direction, and it's a huge part of the TAM that we've just begun to kind of enter. David Morton: Yes. And then with respect to the incremental investment, Alex, it's been pretty nominal thus far. We don't need to get into things as localization or any arduous local statutories from where a lot of our clients serve. And so it's just a matter of, if anything, just the opportunity cost of us addressing so many respective opportunities within our SAM and TAM. So it's just a matter of pacing and planning. Alexander Sklar: Okay. Great color. And maybe just following up in terms of direct sales hiring. You talked about some of the partner opportunity, but you talked about putting more wood on the fire this year after some of the structural changes last year. Can you just help frame like the magnitude of hiring plans this year versus maybe what you did last year? Where are those sales resources going? And then any color on kind of timing of the hiring plans this year? John Hall: Sure. We are focused on growing the enterprise group that we announced at the beginning of '25, the organization there. That's really showing some traction. I talked about our land of one of the bulge bracket investment banks this quarter, which we were super excited to be able to do as a direct result of that organizational evolution and putting more density of the team against some of these really vast institutions. We are adding some capacity, continuing to do that during fiscal '25, leading -- I'm sorry, during fiscal '26, leading into fiscal '27. So there's still an opportunity for us to continue to grow that footprint. We think that there is a large enterprise class set of firms. And as I mentioned earlier in the call, they themselves are scaling through M&A or through hiring or in a very leveraged way through growth of revenue or assets under management. And there's a real opportunity for us to be the strategic vertical-specific compliant AI generation technology partner for these growing enterprise class firms. So you're just going to hear more and more about what we're doing in that direction. Operator: Next question comes from the line of Steve Enders with Citi. Steven Enders: Okay. Great. I want to ask on the Microsoft partnership, and I appreciate the call out for the large deal contribution. But I guess with Microsoft, maybe how are the deals that are coming through that partnership? How are they different? Like are they creating or anything newer opportunities that you weren't in before? Are they bigger? Are they coming in faster? Just how do we kind of think about how Microsoft maybe changes some of those dynamics versus maybe what you would have seen historically? John Hall: Thanks, Steven. The relationship with Microsoft is an exciting one for us because they've got such an incredible relationship already with these firms in our end market. They have a very strong relationship with IT and a lot of the firms have committed to Azure as, if not the, a core pillar of their cloud strategy. We have a relationship with Microsoft on multiple levels. There's a technology relationship, strong in AI and a lot of the collaboration capabilities that we brought to market over the past couple of years. We have a strong marketing relationship where we work with them and co-present and co-market to all of the clients in the marketplace that really helps us. And then we have a co-selling relationship. There's a lot of components to that. One of them is that all of our offerings are available on the Azure marketplace. So the firms can buy all of Intapp's platform through the Azure marketplace. That has benefits for them under their Microsoft agreement. If they have a minimum Azure contract spend agreement, they can burn that down by buying Intapp's software through their MACC agreement. That helps us take the budget issue off the table in our sales because they're already committed to spending X amount with the firms every year. We also are working with Microsoft on many accounts where they will provide Azure credit upfront to incentivize the firms to move. That's really helped us in several situations. And just co-selling with Microsoft has helped us with wins competitively because people feel like we're really tied at the hip in a lot of these key technology areas that the firms need to integrate. And so that's helped us. And then the field, the Microsoft field gets quota relief when Intapp sells its products. So we have a growing person-to-person relationship across the Intapp field and the Microsoft field when calling on these accounts. To your question, sometimes we are getting leads from those sellers at Microsoft. We're very excited about that. Sometimes we find the opportunity with our direct force, but we can call the Microsoft seller and they will come in and endorse us and co-sell with us. So it works in both directions. But overall, it's become a very collaborative process, and we're very excited about the influence that that's having on the funnel in terms of size and speed and deal size and win rate is great. Steven Enders: Okay. That's great to hear. And maybe to follow up, just in terms of, I guess, margin, I mean, good to see the operating margin beat this quarter, but I guess it doesn't look like it's -- not much is flowing through to the full year guide. Just can you help us think through like factors that are being included in there? Was there some timing dynamics or some things -- some investments may be being pushed out this year? David Morton: We're continuing to invest in respectfully, our product innovation and go-to-market. We had a really good strong F Q4. We articulated that we were going to be a little bit front-end loaded with some specific marketing events. We've had great success in this first quarter. And so we're going to continue to invest in our -- in the motions that we've been demonstrating to the investment community. Operator: Next question comes from the line of Saket Kalia with Barclays. Saket Kalia: David, maybe for you, great to see the growth in cloud net new ARR. Can you just talk about how much the on-prem conversions are maybe contributing to that? And from the conversions that you have seen, what's the typical uplift that you've been getting on those? David Morton: Yes. So we're seeing about a 20% to 30% uplift just through more seats and/or the opportunities to continue to cross-sell. So once we get that moved over and track compliance and all of that other dynamics settle in. And obviously, we're delivering true value for that as well because they are getting inherent different code set that offers a lot more product attributes. So that's one. On the respectful cloud net ARR from this past quarter, it wasn't that material. I think we're going to start seeing more as we continue on through this year. John talked about our time AI that we've been narrating here for the last 2 quarters. So we'll see a little bit of an acceleration there. It is a heavy -- well, I should say it's a subcomponent of some of our respective sales teams to continue to move in that direction. And so we're really enticing the whole market to move in that direction. Saket Kalia: Got it. Actually, that's a great segue into my follow-up for you, John. I mean you're clearly adding more value to your cloud products with new AI capabilities. Intapp Time, of course, was one that we've talked about. What else is on the roadmap? Or what else can you do to help drive that -- sort of that conversion in that on-prem base? John Hall: The progress in the time component of our platform has been awesome. There's a lot of enthusiasm. This is one of the areas, as we've mentioned on the previous calls, most of our on-prem business is in legal because that's where the company started, and that's when we were still doing some on-prem offerings for them. So that's really the focus of this migration program and time is a key part of that. So we're really excited to see the progress in time. This year, we've also kicked off a parallel project for all of the compliance capabilities that exist still on-prem in some parts of the legal market. So we've learned a lot of great stuff about how to get folks there successfully and really what are the AI capabilities that will get them to make the move and what style of ROI and what style of licensing and how do you get the upsell, all those lessons we've kind of developed now and we're bringing that to the compliance group as well. It's an exciting time because there's so much opportunity in AI of various capabilities, generative AI, agentic AI. There's a lot of opportunity to bring real value to some of these core processes in our traditional compliance business, which is really a stronghold of the company and is so in demand for these firms. They need to make sure that the way that they operate stays compliant with the regulatory obligations and their professional obligations and their client obligations. And it's just something we're really well known for. So we've been deliberate about how we sequence this, but that's what's coming next. Operator: And our last question comes from the line of Brian Schwartz with Oppenheimer. Camden Levy: This is Camden Levy sitting in for Brian Schwartz. If you think about the cloud NRR of 121% and the customer expansion motion that you guys are seeing, have you seen the mix shift of the growth algorithm that's coming from product versus seat growth versus pricing change over the last couple of quarters? And from your perspective, in F 1Q, did any 1 or 2 products outperform plan maybe outside of core DealCloud or Intapp Assist that were big drivers of the SaaS beat? David Morton: Yes. Just circling back and I think even intimating on the first question we had, if you think about the NRR, probably the biggest change over the last 3 to 4 quarters with our enterprise motion has definitely been the cross-sell motion. We've always been doing very well on the upsell more seats. But clearly, as we continue to densify our enterprise accounts and provide the full breadth of offerings, we've seen a little bit tick up on the cross-sell there. So I would say that's probably one to note on that. Camden Levy: And then maybe just from a product perspective in F 1Q, did anything dramatically outperform plan or were like larger drivers of the software beat? John Hall: We've had good uptake across the board. The GenAI features in the cloud have been pulling the platform. And as we brought the capabilities out, obviously, it's been a sequence over time. So we have more out there with DealCloud, which was the first one that we launched, but we are very excited about the uptake around Assist for Terms and this new Intapp Time Horizon release with GenAI. So there's a sequence there. So you can see a pattern that's pretty consistent with that. As we get more people up and the references run, we get more and more folks excited about doing it. And you'll continue to see that roll through the platform as we bring out more capabilities. Operator: That concludes the question-and-answer session. I would like to turn the call back over to John Hall for closing remarks. John Hall: Okay. Thank you. Thanks, everyone, for your questions and for the attention. We're excited about how we've done this quarter, and we're really looking forward to continuing this year. There's a lot of good progress happening, as you can see in the results. So we appreciate your time, and we're looking forward to talking to you again next quarter. Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining in. You may now disconnect.
Operator: Thank you for standing by. My name is Rebecca, and I will be your conference operator today. At this time, I would like to welcome everyone to the DigitalOcean Third Quarter 2025 Earnings Conference Call. [Operator Instructions] I would like to turn the call over to Melanie Strate, Head of Investor Relations. Please go ahead. Melanie Strate: Thank you, Rebecca, and good morning. Thank you all for joining us today to review DigitalOcean's Third Quarter 2025 Financial Results. Joining me on the call today are Paddy Srinivasan, our Chief Executive Officer; and Matt Steinfort, our Chief Financial Officer. Before we begin, let me remind you that certain statements made on the call today may be considered forward-looking statements, which reflect management's best judgment based on currently available information. Our actual results may differ materially from those projected in these forward-looking statements, including our financial outlook. I direct your attention to the risk factors contained in our filings with the SEC as well as those referenced in today's press release, that is posted on our website. DigitalOcean expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements made today. Additionally, non-GAAP financial measures will be discussed on this conference call and reconciliations to the most directly comparable GAAP financial measures can be found in today's earnings press release as well as in our investor presentation that outlines the financial discussion on today's call. A webcast of today's call is also available in the IR section of our website. And with that, I will turn the call over to Paddy. Padmanabhan Srinivasan: Thank you, Melanie. Good morning, everyone, and thank you for joining us today as we review our third quarter results. I'm very excited to share our results for the quarter and to give you an update on the progress that we are making against the goals that we articulated earlier this year during our April Investor Day. Our performance this quarter was very strong. We exceeded our Q3 guidance on both revenue and profitability metrics, delivering 16% revenue growth and the highest incremental organic ARR in the company's history, while generating 21% trailing 12-month adjusted free cash flow margins. We continued innovation in our comprehensive agentic cloud to support the needs of scaling AI and digital native enterprise customers, making sure there is no reason our highest spending customers ever need to leave our platform. We augmented our industry-leading product-led growth engine with a focused direct sales motion, driving customers to migrate workloads from the hyperscalers to our platform and building traction with direct AI native customers. This progress is evident in the rapid growth of our largest customers and their increasing willingness to sign committed contracts with us, with customers having more than $1 million in annualized run rate reaching $110 million in ARR, growing 72% year-over-year and with multiple customers signing 8-figure committed contracts after the quarter closed. The demand for our agentic cloud has exceeded our supply. Our performance and the visibility we have into demand gives us the confidence both to increase our 2025 and 2026 revenue and adjusted free cash flow outlook and to also increase our investments in data centers and GPU capacity to further accelerate growth while maintaining attractive margins. I will now dive deeper into all of this, starting with our third-quarter financial results as highlighted on Slide 10 of our earnings deck. Q3 revenue hit $230 million, up 16% year-over-year, marking the highest growth since Q3 2023. We delivered our highest organic incremental ARR in company's history at $44 million. This growth was driven by a balanced performance across our comprehensive agentic cloud platform as Direct AI revenue more than doubled year-over-year for the fifth consecutive quarter, and our general-purpose cloud products saw the highest incremental organic ARR since Q2 of 2022. We delivered this accelerating revenue growth in Q3 while exceeding our profitability guidance and materially strengthening our balance sheet. Adjusted EBITDA and non-GAAP earnings per share were both well above guidance on the back of strong execution, and we delivered a strong 21% trailing 12-month adjusted free cash flow margin as we introduced equipment leasing into our financial toolkit in Q3 to better align the timing of our investments with our revenue. To give us further flexibility to invest in growth, we also repurchased the majority of our 2026 convert in the quarter, strengthening our balance sheet. The primary drivers behind our accelerating top-line growth are threefold: number one, the increasing momentum we are seeing with AI-native customers; next, the material traction we continue to generate with our highest spend digital native enterprise customers; and finally, the continued strength we are seeing in revenue from new customers. Our unified Gradient AI agentic cloud, which is outlined on Slide 7 of our investor presentation, is getting increasing traction with larger, well-funded AI native companies that are in inference mode. These scaling companies increasingly leverage our unified agentic cloud with many of our top customers already leveraging both AI and general-purpose cloud capabilities and with many more having at least starting to test and experiment with AI on our platform. Evidence of this traction is in the growth rates of our highest spending customers. Revenue from these customers who are at $100,000-plus annual run rate grew 41% year-over-year, increasing to 26% of total revenue. Growth is even higher for our largest digital native enterprise customers as the more -- our customers are spending the faster they're growing on DO. The charts on Slide 11 show that our customers with greater than $500,000 and greater than $1 million in annualized run rate grew revenue 55% and 72%, respectively, providing clear evidence that our increasing ability to not just attract but also retain and grow our largest customers, demonstrating that customers can keep scaling on our platform and never have a reason to leave. Let me now dive deeper into this traction using Slide 12 as the backdrop to illustrate just how much progress we have made since the last earnings call. I will start with our AI infrastructure on the bottom right, which is a full-stack inference platform targeting AI native customers that have their own models that they want to tune, optimize and run in inference mode. These customers select our platform for our full set of capabilities, where we combine a powerful lineup of GPUs that are available in both bare metal and droplet configurations, including inference optimized droplets with advanced inference performance optimization like page retention, flash attention, FP8 quantization, speculative decoding, model operations management, reduced time for first token and compelling TCO economics. Our AI infrastructure provides comprehensive hardware plus software infrastructure for AI-native companies that are scaling up real-world inference workloads globally on DO. FAL.ai or Fal, a generative media model platform that provides text-to-image and text-to-video models for major customers such as Canva, Shopify, Perplexity and more is a great example of a customer that is taking advantage of our unified agentic cloud. They leverage a range of our AI infrastructure solutions, including GPU droplets, both to host their media models in production, serving their end customers and to do research and fine-tuning. Fal is more than just an important customer as we have come together in a strategic partnership to accelerate generative AI content creation by making image and audio generation more accessible to start-ups and enterprises. Through this partnership, Fal will host and run hundreds of its models on DigitalOcean's infrastructure, powering applications across creative and enterprise use cases. This means customers can create agents that understand and generate not only text but also images, data and other forms of input, significantly expanding the range of real-world problems our customers can solve. NewsBreak is another example of an AI native customer leveraging our unified agentic cloud. Driving the next generation of digital media, NewsBreak delivers timely and relevant local news and information to 40 million monthly active users. Newsbreak's AI-powered infrastructure makes sophisticated personalization accessible to mainstream users nationwide. They utilize our AI infrastructure to train and deploy complex recommender systems and natural language processing models that are foundational to their products. Our AI infrastructure, high throughput and memory capacity are critical for running inference at scale, which allows them to perform real-time content ranking and ad placement for millions of concurrent users. Gradient AI agentic cloud unifies our integrated AI capabilities with our full-stack general-purpose cloud, which we've been optimizing for over a decade, enabling NewsBreak to preprocess their work on our CPU droplets and run their vector search service in advance of running their AI workloads, optimizing both cost and performance. Network file storage, or NFS, which delivers high throughput performance for both GPU and non-GPU droplets, is an example of a unified agentic cloud capability. Customers can now attach and provision storage in just minutes, accelerating time to value by eliminating idle time. With seamless integration into our Kubernetes engine, NFS makes it easier than ever to scale applications and workloads while maintaining speed, reliability and efficiency across environments. Moving up the stack outlined in Slide 7. The AI platform layer on the middle right is typically leveraged by companies that are users or consumers of AI that are looking to build agentic applications without having to directly manage the infrastructure. As we know, the future of AI is an agent and agentic workflows, which is a natural evolutionary step for all SaaS and other applications. We continue to evolve our AI platform as the foundation for building and deploying these intelligent agents and powering complex enterprise agentic workflows. It now supports serverless inferencing across the most popular models, including OpenAI, Anthropic, Mistral, Llama, DeepSeek and others, including new generative media models from Fal. We have added a powerful knowledge-based service that lets customers bring their own data and improve accuracy, along with built-in Guardrails for safety, visual agent orchestration and enterprise-grade features like observability, git integration and auto-scaling. Together, these capabilities make our Gradient AI agentic cloud platform one of the most intuitive and complete platforms for taking AI agents from prototype to production. These key capabilities help companies develop and operate AI agent fleets and manage their full life cycle of these agents seamlessly from a single platform while leveraging the best-of-breed AI models from various providers. We are particularly excited about a major customer we signed for our AI platform after the Q3 quarter closed. This customer is a global digital systems integrator who signed an 8-figure per year multiyear contract to leverage our agentic cloud to drive AI transformation for its digital native enterprise customer base with a specific focus on identifying the full software engineering life cycle, including planning, backlog and road map management, release planning, release execution and customer support. We'll provide more information on this exciting customer after we formally announce the partnership in the upcoming days. The AI platform layer continues to also gain broader momentum with over 19,000 agents created so far of which more than 7,000 are already in production. One specific customer, Shakazamba, an Italian leader in GDPR compliant, ethical and secure AI solutions across Europe, chose to leverage the Gradient AI agentic cloud over the hyperscalers. By using our platform, they're now able to create and roll out agents to automate customer support, knowledge management and content creation while reducing development time and costs associated with the agent life cycle. This quarter, we also expanded our AI ecosystem with the launch of the DigitalOcean AI Partner program with several of our partners outlined on Slide 13. This is a major step in empowering AI and digital native enterprises that are building and scaling their businesses leveraging AI. These companies don't have time for a fragmented infrastructure. They instead want a unified cloud and an AI platform that lets them seamlessly build and scale intelligent applications using agents. This new partner program brings together AI-native companies, integrators and the venture ecosystem to help these builders reach more customers, accelerate innovation and amplify their global reach. Combined with our AI platform and infrastructure, this ecosystem makes DigitalOcean the go-to destination for these AI-native businesses who want simplicity, scalability and reach without the hyperscale complexity. In Q3, we continued to deliver product innovation in our core cloud stack to support our highest spending customers by meeting their needs as they scale their business on DO. One such example of a digital native enterprise customer scaling rapidly on DO is Bright Data a leading provider of web data sets to global frontier LLM labs for training AI models. Bright Data leverages various components of our agentic cloud to scale high-volume global workloads on our platform. VPN Super, who develops trusted VPN and security solutions is the most downloaded VPN app in the world is another digital native enterprise growing on our platform. VPN Super empowers millions of users across the globe to browse securely and privately regardless of their location. They signed a 7-figure deal to migrate multiple workloads to DigitalOcean, and they selected DO for our ability to handle large traffic spikes, platform reliability and our global scale. These growing customers require general-purpose cloud capabilities that grow with their business, and we delivered a number of these new features during the quarter, as you can see highlighted on Slide 12 of our earnings presentation. For example, we recently introduced Spaces Cold Storage, an enterprise-grade object storage solution designed for customers managing data at massive scale. With support for hundreds of petabytes and billions of objects per bucket, it offers free retrieval, predictable low cost and immediate access to data, eliminating the trade-off between affordability and performance. This cold storage is secure, reliable and resilient, providing our customers with the confidence to store and access mission-critical data sets seamlessly as their needs grow. During the quarter, we also enhanced our managed databases offering with automated storage auto scaling, enabling customers to scale seamlessly as their data needs grow. When capacity thresholds are reached, storage automatically scales in 10-gigabyte increments or higher with 0 downtime and no disruption to workloads. This feature is available across all major database engines, including MongoDB, PostgreSQL, MySQL and is fully customizable, allowing customers to set thresholds starting at 20% utilization. With a simple pay-as-you-go model, auto scaling eliminates the burden of manual intervention, ensuring that applications scale reliably and cost-effectively. The steady stream of new features is resonating with our AI and digital native enterprise customers. Over 35% of our customers with more than $100,000 in ARR have adopted at least one of our new features released over the past year, and those customers having adopted at least one of these new products have seen a several hundred basis points increase in their growth rate after adopting the new product. Our strong performance, our growing momentum through the first 3 quarters and the visibility that we now have into demand gives us the confidence to raise our near-and medium-term growth outlook. We are raising our full-year 2025 guidance on both revenue and margin and we now expect to achieve our 18% to 20% 2027 revenue growth target in 2026, a full year earlier than we had projected. It has also given us the confidence to accelerate our investments to drive growth in 2026 and beyond. When we outlined our 2027 growth objectives this past April, we indicated that we would increase our investment as we saw opportunities to accelerate our growth. We are now seeing more demand than we can support with our existing capacity, which is evident by us having signed multiple 8-figure committed contracts after the quarter ended that will materially increase our RPO in Q4. With this increased conviction, we began to put the foundational elements in place in Q3 to even further accelerate our growth. We started ordering more GPU capacity to meet the growing inference demands we are seeing from our AI native customers. We also secured around 30 megawatts of incremental data center capacity to support growth in 2026 and beyond. We added equipment financing to better align our investments with revenue. We ramped engineering resources to accelerate our unified agentic cloud road map and continued our targeted investment in new sales and marketing initiatives to complement our industry-leading product-led growth engine. These investments will build on the success we have seen to date and will set us up for a strong 2026 and 2027. Our Q4 and 2025 full-year guidance implies a 16% exit 2025 growth rate. And while we won't provide 2026 guidance until our February earnings call, we expect to comfortably deliver 18% to 20% growth in 2026, achieving our 2027 growth target a full year earlier than previously projected. We will deliver this growth while maintaining strong adjusted free cash flow margins in the mid- to high teens. Matt will provide further color on these investments and the projected impact on our growth and profitability in his remarks. As I said in my opening, we delivered a strong performance in Q3, beating our guidance on both revenue and profitability. We are seeing momentum with our unified agentic cloud. And this momentum is evident in the rapid growth of our highest spending customers and demand is exceeding our current capacity. All of this gives us the conviction both to raise our 2025 and 2026 revenue and adjusted free cash flow outlook and to increase our investments to take advantage of the opportunity in front of us. We look forward to sharing more on our progress and our outlook for 2026 over the upcoming months. Thank you, and I'll now turn it over to Matt. Matt Steinfort: Thanks, Paddy. Good morning, everyone, and thanks for joining us today. As Paddy discussed, we are excited about our strong Q3 2025 performance. We are gaining traction with our unified agentic cloud, which is resulting in strong revenue growth from our highest spending customers, and we are seeing more demand and satisfied with our current capacity. This momentum and visibility give us conviction both to increase our 2025 and 2026 revenue and adjusted free cash flow outlook and to put in place the foundations to further accelerate growth in 2026 and beyond. In my comments, I'll walk through our Q3 results in detail, share our fourth quarter and updated full year financial outlook and also provide an update on our 2026 expectations. Starting with the top line. Revenue in the third quarter was $230 million, up 16% year-over-year, the highest revenue growth since Q3 of 2023. This growth was balanced across our unified agentic cloud and was primarily driven by increasing traction with our higher spending AI and digital native enterprise customers with steady contributions from our product-led growth engine. We continue to see strong AI/ML revenue growth in Q3 with AI revenue more than doubling year-over-year, which it has done every quarter since we launched our AI platform. We also delivered the highest incremental organic ARR in company history at $44 million, bringing ARR to $919 million. With rapid product innovation across our unified agentic cloud platform and with the strategic go-to-market investments we made earlier this year proving to be effective, we are having increasing success attracting and growing larger, well-funded AI and digital native enterprise customers. This is evident in the revenue from our customers whose annualized run rate revenue in the quarter was greater than $100,000, which now represents 26% of overall revenue, growing 41% year-over-year, 200 basis points higher than the growth we saw from that cohort in the prior year. Adding to this growth, revenue from general-purpose cloud customers in their first 12 months on our platform continues to be strong, and we have stabilized NDR as net dollar retention remained at 99% in the quarter, up 200 basis points from 97% in the third quarter of 2024. Turning to the P&L. While we accelerated revenue, we also delivered strong performance on all of our key profitability metrics. Gross profit was $137 million, up 17% year-over-year, with a 60% gross margin for the third quarter, 100 basis points higher than the prior year. Adjusted EBITDA was $100 million, a 15% increase year-over-year and an adjusted EBITDA margin of 43%. Non-GAAP diluted net income per share was $0.54, a 4% increase year-over-year. This result was impacted by the $625 million convertible note we issued in August, the repurchase of $1.19 billion of our 2026 notes and the interest expense from the $380 million drawn on the Term Loan A component of our existing credit facility. The net impact on non-GAAP net income per share of these balance sheet activities was a reduction of $0.05 in Q3. And excluding these charges, non-GAAP diluted net income per share would have been $0.59. GAAP diluted net income per share was $1.51, a 358% increase year-over-year. This increase is primarily driven by the onetime reversal of our tax valuation allowance and gain on debt extinguishment, which is slightly offset by the impact of our new debt structure. Q3 adjusted free cash flow was $85 million or 37% of revenue, which is up significantly from the prior year's $19 million or 10% of revenue and on a trailing 12-month basis was 21% of revenue. This increase was driven in part by the equipment financing in Q3. During the quarter, we entered into an equipment financing arrangement with a third-party financial institution for $28 million to better align our investments with the future revenue that they will generate. Absent the leasing of this equipment, our adjusted free cash flow would have been 25% of revenue in Q3. Turning to the balance sheet. We strengthened our balance sheet by repurchasing approximately 80% of our 2026 convertible notes through a combination of the issuance of a new $625 million 2030 convertible note offering, a $380 million drawdown on the Term Loan A component of our existing credit facility and approximately $230 million of cash. Following these actions, our cash and cash equivalents balance remained healthy at $237 million and the combination of cash on hand, remaining Term Loan A capacity and projected cash flow generation is collectively more than the remaining balance of our outstanding 2026 convertible notes. We repurchased $2.9 million of shares in Q3, buying back approximately 101,000 shares, bringing our cumulative share repurchase since IPO to $1.6 billion and 34.9 million shares through September 30, 2025. These Q3 repurchases completed our 2024 buyback program, and we will operate our repurchase program through July 31, 2027, under the new $100 million authorization we announced during the quarter. During the quarter, we repurchased a portion of our 0% coupon 2026 convertible notes in part with an interest-bearing Term Loan A that is initially at SOFR plus 175 basis points or roughly 6.1%. As a result, we now project to have moderate interest expense in the near to medium term, where interest expense was previously immaterial. Given this, we have added a new disclosure metric for unlevered adjusted free cash flow, which we will provide in addition to the current adjusted free cash flow metric, which is a levered adjusted free cash flow. We believe that unlevered adjusted free cash flow is an important metric as it provides a clear view of our cash generation before the impact of financing decisions, and many investors and analysts use this unlevered adjusted free cash flow as the basis for their enterprise value calculation. Our Q3 unlevered adjusted free cash flow was $85 million or 37% of revenue. The strong demand we've seen across our unified agentic cloud and the traction we are seeing with our higher spending AI and digital native enterprises, coupled with the increased visibility we have from having signed multiple 8-figure committed contracts after Q3 close, gives us the confidence to raise our outlook on both revenue and adjusted free cash flow margin for both 2025 and 2026. For the fourth quarter of 2025, we expect revenue to be in the range of $237 million to $238 million, which is approximately 16% year-over-year growth. For the full year 2025, we project revenue of $896 million to $897 million, representing approximately 15% year-over-year growth, an incremental 100 basis points higher than our prior guidance. For the fourth quarter of 2025, we expect our adjusted EBITDA margins to be in the range of 38.5% to 39.5% with an adjusted EBITDA margin of approximately 41% for the full year. For the fourth quarter of 2025, we expect non-GAAP diluted earnings per share to be $0.35 to $0.40 based on approximately 111 million to 112 million in weighted average fully diluted shares outstanding. For the full year 2025, we expect non-GAAP diluted earnings per share to be $2 to $2.05 based on approximately 106 million to 107 million in weighted average fully diluted shares outstanding. The Q4 and full year non-GAAP diluted earnings per share guidance includes the projected impact of a range of about $0.05 to $0.10 reduction in Q4 and about $0.15 to $0.20 reduction for the full year from the net impact of our Q3 refinancing actions. We project a full-year adjusted free cash flow margin of 18% to 19%. Looking further ahead, I would also like to provide a brief update on our 2026 outlook. While we will provide more fulsome details on 2026 expectations during our earnings call in February, we have already begun to put the foundations in place to further accelerate growth. Given our momentum and the increased visibility into demand on the back of several recent customer wins, we have committed investment in additional data centers and GPU capacity that will come online over the course of 2026 that will accelerate growth ahead of our previously communicated timeline. We have signed leases for approximately 30 megawatts of incremental data center capacity across several new data centers that will commence over the course of 2026. These new data centers and our corresponding investments in incremental GPU capacity will enable us to comfortably deliver 18% to 20% growth in 2026, achieving our 2027 revenue growth targets a full year earlier than we had projected. And while our COGS and operating expenses will increase in early 2026 as we ramp into our new data center capacity, we anticipate delivering high 30s to 40% adjusted EBITDA margins while maintaining mid- to high-teens adjusted free cash flow margin. We also remain committed to maintaining a healthy balance sheet, and we anticipate that our net leverage will end 2026 in the mid-3s range, including the impact on net debt from any incremental lease-up. We look forward to sharing more on the traction we are getting with our unified agentic cloud, the growth we are seeing from our highest spending customers, the investments we are making to further accelerate growth and our outlook for 2026 and beyond when we get together again in February. That concludes our prepared remarks, and we will now open the call to Q&A. Operator: [Operator Instructions] Your first question comes from the line of Gabriela Borges with Goldman Sachs. Gabriela Borges: Congratulations on a -- really exciting 2026 preliminary forecast. Paddy and Matt, I want to ask you about the multiple 8-figure committed contracts that you're talking about. Tell us a little bit about this cohort of customers. To what extent does it overlap with some of the AI revenue that you're talking about? I know you've been working with the private equity community as well. You've talked about migration. So maybe just a little bit about the type of customer that's signing the 8-figure contract and the extent to which I know in the past, the AI cohort has been much more flaky in its ability to ramp up and down. And so I'm trying to understand the intersection between those 2 cohorts. Padmanabhan Srinivasan: Yes. Thank you, Gabriela. Great questions. So the 8-figure commitment contracts that we just talked about come in different forms. Primarily, these are AI native companies that are looking to take advantage of our infrastructure as well as the other customer that I was just talking about for our AI platform, looking to build a series of agentic experiences for software engineering, taking advantage of our Gradient AI platform layer. So it's a combination of all of these. And as I was explaining in my prepared remarks, it is increasingly getting difficult to just separate out where AI starts and stops and where core cloud begins because most of the customers that are starting their experience with DigitalOcean from the AI side are increasingly using our various storage artifacts like network file system or the VPC capabilities or a number of the networking capabilities and things like that. So the crossover is becoming more and more between the AI side of our platform and cloud. So that's why we are now starting to see a more unified cloud platform from us, which we are calling as the agentic cloud. So a lot of these commitments and contracts that we are starting to take on now typically start with AI, but also spill over to our AI cloud side as well. So what is exciting for us is that some of these customers start their journey with DO using a fairly small proof-of-concept type of footprint, and now they're starting to scale. And this is also one of the many reasons why we are expanding our data center footprint so that we can keep scaling with these customers. And the other attribute I want to call out here is that these AI workloads are predominantly inferencing, if not all, on the inferencing side. So it is durable, it is predictable. And we also have a great opportunity to keep scaling with these customers as they find real-world traction and scale globally. So that's why it is really important for us to start looking at our capacity as we place bets on some of these real marquee AI native companies that are finding traction with real end customers, both on the consumer side as well as on the enterprise side. Operator: Your next question comes from the line of Radi Sultan with UBS. Radi Sultan: Good to see the platform traction coming in ahead of schedule. I guess for me, just AWS and Azure both had some pretty high-profile outages recently. I'm just curious, like is that having any near-term impact or catalyzing more migrations from the hyperscalers that driving more traction for Partner Network Connect or some of your other multi-cloud offerings? And then just curious how many of those 8-figure deals are migrations from the hyperscalers? Padmanabhan Srinivasan: Yes. Thank you, Radi, for the question. So we've been seeing a steady increase in migration workloads since we made it into an explicit go-to-market motion. And as you know, migrations of sophisticated workloads is always a combination of factors, right? It tell them, oh, we see a disruption from a cloud provider, and they're just going to move a fairly sophisticated global workload -- but it is a combination of factors. Some are driven by dissatisfaction with an incumbent. But mostly, it is driven by something they find attractive in a new cloud provider like DigitalOcean. So as we have started building out our cloud capabilities, especially the ones that I described in Slide 12 of our deck, like more advanced networking, various flavors of our droplet configurations, our storage, like cold storage is a really, really important capability that many of our large customers with sophisticated workloads have been asking us for. The auto-scaling of our DBaaS. I mean these are all very fundamentally building block type of capabilities for attracting more migration workloads, not to mention some of the stuff we did in the last couple of quarters like virtual private cloud and Direct Connect and things like that. So even though a single incident doesn't necessarily precipitate major shifts in workloads, these are all paper cuts and us having these other digital native enterprise-ready capabilities just makes us all the more attractive to incoming migration. And the AI native workloads typically are new workloads that are starting on our platform, but many of the workloads that we are seeing that I talked about during my prepared remarks on the cloud are migrations coming from various other hyperscaler clouds. Operator: Your next question comes from the line of Josh Breyer with Morgan Stanley. Josh Baer: Congrats on the acceleration. I wanted to follow up on the 8-figure contracts signed after quarter close. I guess I'm wondering, do you have capacity to serve some of those in the coming weeks? Or is that all really what the 30 megawatts of new data center capacity is geared toward? And then hoping to get a little sense of like the ramp in that capacity. Basically, any context for the go-live times for these big contracts and like how to think about the shape of 2026? Padmanabhan Srinivasan: Yes. So I'll get started, Matt, and then you can chime in. So from the ramp-up perspective, some of these customers are already doing business with us. And as we think about the capacity, there's some capacity we are bringing online in our existing data centers. And then, of course, a lot of the visibility that we now have with these customers and their inference scale-up is the reason why we have taken up expanded data center capacity. And these data centers will come online progressively through 2026, right? So we do have a build schedule from these providers, and we work very, very closely with them to make sure that we get the warm shell and then we move in and we start racking our servers, and there's a lot of moving parts in terms of bringing this capacity online, but we don't have to wait for this new capacity to start lighting up these workloads. As I said, we do have some capacity in our existing data centers. So it is a combination of these things. And you're absolutely right that this visibility into the inference adoption of our AI native customers is the reason why we are expanding our data center footprint. Matt Steinfort: Yes. And I'll just add that most of the capacity is going to come online in, call it, the first half of next year. In fact, you'll see in our fourth quarter financials, and this is included in the guidance for the adjusted free cash flow we have for 2025 that we're going to be paying some of the NRCs for some of these build-outs in the fourth quarter. And so we expect that the capacity will become online in the months and quarters following that. So it will be an early ramp of the data center capacity, but then clearly, you have incremental time to deploy the GPUs and for the customers to ramp. So we expect the revenue ramp to be relatively smooth over the course of the year, but we'll be bringing on a fair bit of capacity in the first half. Operator: Your next question comes from the line of Kingsley Crane with Canaccord Genuity. William Kingsley Crane: I want to echo my congrats. I'm sure it's gratifying for the team. Look, a larger peer, Neocloud peer has acquired a handful of PaaS capabilities over the past 6 months, including more recently a Python notebook, I think reinforcement learning for agents. What's your take on that? Does it just give credence to your strategy? And how do you see competition evolving as you continue to cater towards customers upmarket? Padmanabhan Srinivasan: Yes, Kingsley, thank you for the question. So we -- our approach when we laid out our strategy in April, we start our strategy with a deep understanding of who our customers are and what it would take for us to serve them well. And of course, that understanding has deepened over the last 6 months as we have started working very, very closely with these customers. In terms of the Python notebook, this has been a capability that we have had for a couple of years now. And some of the storage enhancements that we are seeing in the market is also something that has been long as part of our very rich and deep software stack. So if you take a step back and think about our strategy, our strategy is now from an AI perspective, targeting AI-native companies that are building real businesses and running models in an inferencing mode. And these are real-world applications that require not just GPU and inferencing capabilities, but they need agentic workflow capabilities. They need storage, databases, authentication, authorization. They need orchestration from a Kubernetes perspective. So essentially, they need a unified agentic cloud stack, which is what we provide. So we have been executing on our strategy. And if you look at Slide 7, you'll see the richness of the stack that we have built all the way from infrastructure on both cloud and AI to middleware with Platform as a Service or the agentic development life cycle. And Slide 12 shows how much we have enhanced that since just the last earnings call. So we have been super busy and every orange box you see on Slide 12 has been a result of feedback that we are getting from customers real time. Some of these features have been lit up in just a matter of days. And that is the power of really co-inventing some of these pieces working hand-in-hand with our customers. And I feel building on our strength, which is software differentiation and leveraging the strength of our 12-year-old full-stack general-purpose cloud really puts us in a very favorable position when it comes to being attractive to these scaling AI native companies. Is hardware a part of it? Absolutely. But we think as companies become more and more sophisticated and they start serving real-world enterprise needs, the center of gravity is going to shift from hardware and networking and move more and more towards the software stack as we have seen in every wave that we have encountered over the last 2 or 3 decades. So we feel really good about where we are, and we'll be aggressive in adding new functionality into our platform as we start seeing opportunities for those from our customers and in the market. Operator: Your next question comes from the line of Patrick Walravens with Citizens. Unknown Analyst: Congrats on the quarter. This is Nick on for Pat. Paddy, one for you. You kind of answered this already, but -- are there any other factors that you guys take into account when deciding what to build next? Like you mentioned that it's primarily customer-driven, but are there like competitive positioning? Or how do you balance the idea of what a customer wants with competitive positioning and long-term revenue opportunity, especially in something that could be seen as more experimental? Padmanabhan Srinivasan: Yes. Nick, thank you for the question. So just for the avoidance of doubt, we are competitor aware but customer obsessed. So we -- and that strategy has really worked for us, especially in the fast-evolving AI landscape, where we have been very, very disciplined in not chasing the bright shiny training workloads and trying to be somebody that we are not. But we've been patient, and now we see an opportunity to decisively move to take a full position in the world of inferencing and offer a software platform that combines the raw power of having the best-of-breed flexible AI infrastructure and combine it with where the puck is going, which is there's a whole generation like 20 years of app developed applications that have been developed over the last 20 years will need to be replaced and modernized with agents and agentic workflows. So managing that whole life cycle is starting to already create a tremendous amount of problems for companies to build, operate and manage. So we think there's a phenomenal opportunity for us to be one of the first movers into the world of agent development life cycle, and that is exactly what we are focused on. So while it is important to be aware of what our competition is doing, especially the Neoclouds, I feel very confident that we have unmatched software expertise and depth of our platform, as you can see from Slide 7 and 12. So if we keep doing what we are doing, our strategy is resonating with the AI natives, and these are customers that are doubling and tripling their footprint on a month-by-month basis. So if we can keep pace with them and keep shipping at their speed, I think everything else is going to take care of itself. Operator: Your next question comes from the line of James Fish with Piper Sandler. James Fish: Nice quarter. Just on the 2026 starting point, kudos on bringing that forward, understanding what's driving the confidence and visibility at this point. But how should we think about the parts underneath between core managed service and AI? And do we still expect that AI business to continue to double given you've done it for 5 straight quarters now? Matt Steinfort: Thanks, Fish. We think that if you look at the success that we're having, it's coming from a combination of things. It's coming from our success with our largest customers, regardless of whether they're AI or core cloud, growing very, very rapidly with the $1 million-plus customers growing 72%. We think that continues. And a lot of the migration workloads that we've been working on and some of these longer-term committed contracts are also on the core cloud side. So growth of our biggest customers is kind of the lever #1. Lever number two, as you said, is AI growth. It has been doubling every quarter since we launched it, and we're expecting that to continue. So we're going to get a big chunk of growth from AI. That will become a more material part of our business. It will get into the mid-teens, maybe even high teens as a percent of revenue. And then we're still generating very good incremental revenue from our product-led growth engine. our customers in M1 to M12 are still at very high levels relative to historical. And it's really those 3 levers that give us confidence. And as you said, we have better visibility now than we've ever had. If you said how many 8-figure committed contracts have we ever had in the company, it's -- I don't know how many, it's not that many. It's maybe 1 or 2. And now we've got multiple that we've signed just in the last month or so. So we're very confident in the 18% to 20% revenue for 2026 and are excited to be able to pull that in a whole year. Operator: Your next question comes from the line of Mike Cikos with Needham & Company. Matthew Calitri: This is Matt Calitri on for Mike Cikos over at Needham. Great to see the strength of large deals. I know AI is not included in net dollar retention. But are you thinking about starting to include it as it becomes a larger part of the business and more predictable? And what other puts and takes are you considering as you look to drive NDR back over 100%? Matt Steinfort: Yes, it's a great question. We are looking very hard at how to incorporate the resilient growth of inferencing into our metrics. NDR is one metric, and it captures -- it's used a lot in a SaaS environment. It captures the ongoing growth of a customer. To date, we haven't included it in NDR because a lot of the early traction that we were getting and I think a lot of folks were getting in the industry was more project-based and more experimental. As we're seeing customers like some of the ones that Paddy mentioned like Fal and others, they're bringing scaled workloads to us where they have more predictability in their demand and growth. We believe it's appropriate to start to figure out how to include that. We'll likely revisit this once we get into the beginning of next year, and we have a better sense for the '26 outlook. I mean we're providing more specific guidance. But what I'd say the key takeaway is the AI revenue that we're seeing now, that we're getting committed contracts for is behaving more like the traditional cloud where customers come in with scaled production workloads and then they have more visibility into the growth of that workload over time, hence, a metric like NDR becomes more relevant. And we're confident that in doing that, that would be additive to our communications of the resilience of the growth that we're seeing. Operator: Your next question comes from the line of Mark Zhang with Citigroup. Mark Zhang: Maybe just on NDRs, obviously still at the 99%, but we're seeing good expansion momentum and portfolio momentum. So can you maybe just walk through some of the key puts and takes there? And traditionally, I think expansion activity has been in that metric. So can you maybe speak to some of the behaviors there? And any discernible changes in customer behavior versus last quarter or 12 months ago, whether it's on pace of expansion or how they're expanding? Matt Steinfort: Thanks, Mark. It's a great question. The expansion is definitely the driver of the growth. If you look at the big customers, the customers that spend $100,000 or more in ARR and as we showed, it gets better even as you get bigger spenders. They're driving a lot of our growth. And as you would expect, the NDR is better. The thing that people lose sight of, I think, when they think about the DigitalOcean business is they forget that we have 640,000 plus customers and 450 or so or more 1,000 of those are effectively a paid premium. They're small customers, they spend $10, $15 a month, and many of them stay on for long periods of time. The average age of that cohort is something like 4.5 years. But you also have a lot of customers come and go. They experiment. I mean so the NDR of that paid premium segment of our customers is below 100. And so that weighs down the overall NDR of the company and it masks the fact that with our largest customers, we're actually seeing very, very strong growth driven by increased expansion. And that's another follow-up to the question prior to this, that's another metric that we're thinking about is because we're blending this -- where the real growth engine is for the company, we're blending that NDR with the NDR of a giant cohort, which is fantastic for us because it gives us access to a lot of developers. But it's just by its nature, it's going to have like slightly below 100 NDR. We think that's masking a lot of the underlying performance that we're seeing. Operator: Your next question comes from the line of Wamsi Mohan with Bank of America. Wamsi Mohan: Nice results here. Just given the strong growth trajectory and the confidence, can you just talk about where you think the net of both sort of explicit CapEx plus your equipment leasing, what the sum total of that could be as you look over the next couple of years in dollar terms? And how large could you see that delta growing between adjusted free cash flow and your adjusted unlevered free cash flow margins over the next few years? Matt Steinfort: Wamsi, it's a great question. I think, as we said, we're trying to give preliminary guidance for '26 to give the directional kind of growth rates. And we feel very confident that we can deliver that 18% to 20% revenue growth while still delivering the kind of the mid-to-high teens in adjusted free cash flow. And when I say that number, that's the levered number that I'm referring to. And I think at this point, the market is evolving so fast that it's hard to say what the CapEx would be or what the impact on adjusted free cash flow margin would be even in the second half of next year, much less '27 or beyond. What I can tell you is we -- and you've seen us in terms of our behavior, we didn't chase the training opportunity. We didn't pursue what we viewed as revenue that we weren't sure how durable that was going to be for us, and we didn't know if we had a competitive differentiation there. But what we said is where we see opportunities to deliver durable revenue growth with a differentiated product that has good returns, that we'll make investments to pursue that. And you've seen that with our willingness to take down additional data center capacity and secure new GPUs. So I'd say what you can expect is continued disciplined behavior where we're trying to drive durable revenue growth while maintaining an attractive free cash flow margin. Operator: Your final question comes from the line of Robert Galvin with Stifel. Robert Galvin: I wanted to ask about the transition to leveraging leasing and how the gross margins of data centers and equipment you own and operate compare to gross margins from leased capacity. Matt Steinfort: Great. So just to clarify there, we don't -- we lease all of our data centers. We're a colocation tenant in each of our data centers. We don't own any. So the taking down of additional data center capacity that we've just referred to will behave the same way that it did when we took down the Atlanta data center earlier this year and when we took down the Sydney data center several years ago. And what that does is our costs, if you think about our cost of goods, are variable with revenue over the long term. But in the very short term, they're somewhat lumpy. You take down an incremental data center, you have -- not only do you have incremental upfront costs and NRC that happens before you're generating revenue. But the day you turn on the data center, you start paying for the space and some of the power, then you build it out and kit it out with gear and you fill it up, and it takes some period of time to generate the fully utilized revenue in that facility. So there's always a lump of higher expenses in the beginning when you turn on data center capacity and you grow into it. And you grow into it over a series of even just a couple of quarters and your gross margin gets back to what's more of a steady-state gross margin. So we expect that to happen in the beginning of next year of 2026. But we've factored that in and incorporated that into our guidance for the year in terms of the free cash flow margins that we expect to generate. So it's just normal course for us. It's nothing different than what we had done previously with respect to the data. Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
Operator: Hello, everybody, and welcome to the Mayville Engineering Company Third Quarter 2025 Earnings Conference Call. My name is Elliot, and I'll be coordinating your call today. [Operator Instructions] I would now like to hand over to Stefan Neely, at Vallum Advisors. Please go ahead. Stefan Neely: Thank you, operator. On behalf of our entire team, I'd like to welcome you to our third quarter 2025 results conference call. Leading the call today is MEC's President and CEO, Jag Reddy; and Rachele Lehr, Chief Financial Officer. Today's discussion contains forward-looking statements about future business and financial expectations. Actual results may differ significantly from those projected in today's forward-looking statements due to various risks and uncertainties, including the risks described in our periodic reports filed with the Securities and Exchange Commission. Except as required by law, we undertake no obligation to update our forward-looking statements. Further, this call will contain a discussion of certain non-GAAP financial measures. Reconciliation of these measures to the closest GAAP financial measure is included in our quarterly earnings press release, which is available at mecinc.com. Following our prepared remarks, we will open the line for questions. With that, I would like to turn the call over to Jag. Jagadeesh Reddy: Thank you, Stefan, and good morning, everyone. Our third quarter results reflect the discipline and focus of our team as we navigated persistent demand challenges across our legacy end markets. Despite continued softness from our OEM customers, results were in line with our expectations, and we are reaffirming our full year 2025 financial guidance. We have also made significant progress integrating the Accu-Fab acquisition, which closed at the beginning of the third quarter. Our sales team has already engaged Accu-Fab's customer base and is leveraging MEC's domestic manufacturing footprint to position us as a preferred partner for leading data center and critical power OEMs. These customers are actively seeking reliable domestic supply chains to support accelerating demand from data center and critical power investments. The integration of Accu-Fab into MEC now offers a scalable solution that simply was not available 6 months ago. Our pipeline of qualified opportunities within this market has grown substantially well above initial expectations and continues to expand as we demonstrate our ability to deliver rapidly and at scale. Today, we are bidding on more than $100 million in qualified opportunities, many of which extend across our broader MEC footprint. Unlike our traditional markets, where projects typically take over a year or longer to reach production, data center and critical power programs can move from bid to revenue in as little as 8 to 12 weeks. To support this momentum, we are repositioning capacity and resources. This is a clear demonstration of the flexibility and strength of our vertically integrated operating model. Looking ahead, this opportunity represents a meaningful shift for MEC. Our revenue synergy expectations from Accu-Fab have now increased to between $20 million and $30 million in 2026. We also expect this business to yield gross margins of approximately 10 percentage points above our historical average of 15% to 20%. While our legacy end markets remain in a cyclical trough, the emerging opportunity in the data center and critical power market represents an important inflection point as we seek to diversify our revenue base and strengthen our long-term growth profile. Driven by the underlying market growth, significant capital investments in data center and critical power and our opportunity pipeline, we see a path for this end market to represent 20% to 25% of our total revenues in the coming years. At that level, it has the potential to become one of our largest end markets, representing a meaningful step in our strategic diversification of our business toward faster-growing and higher-margin end markets. Importantly, growth in this end market is expected to be incremental to our legacy market. We fully expect to continue to meet the needs of our long-standing legacy OEM customers as end market demand recovers. Taken together, we believe this positions MEC for greater resilience and profitability through end market cycles. Now turning to a review of our legacy market. Commercial vehicle demand has continued to soften in the third quarter with net sales to this end market declining 24% versus the prior year period. ACT now projects a 28% decline in Class 8 production in 2025 followed by an additional 14% decline in 2026 as tariffs and regulatory uncertainty delayed fleet replacement. In contrast, our Construction & Access market revenues increased 10.1% year-over-year during the quarter. This is supported by the Accu-Fab acquisition and strong nonresidential activity. Organic net sales growth in this market was 6.2% in the quarter. We are expecting to see this level of growth continue through the fourth quarter and into 2026. In the powersports market, net sales grew 6.4% year-over-year, driven by transient aluminum-related demand. Agriculture net sales declined 21.8% amid elevated interest rates and lower farm income. Across all our end markets, customer engagement remains strong. During the third quarter, we secured $30 million in new project awards with the data center and critical power customers. Year-to-date, total award across our legacy markets reached $90 million, nearing our full year target of $100 million as we entered the fourth quarter. Within our legacy end markets, we have continued to expand our share with our commercial vehicle customers as they prepare to launch their next-generation models ahead of upcoming EPA regulatory changes. Many of these products support future growth and are scheduled to begin production in 2026 and 2027. In addition to the future expansion in commercial vehicle revenues, we secured a significant award for a next-generation product in our aluminum extrusion business, along with additional tube components for a major power generation customer. Lastly, the $30 million within the data center and critical power market secured during the third quarter includes $25 million in cross-selling wins. We achieved significant awards with 2 major Accu-Fab customers covering battery backup cabinets and panels, static transfer switch components and busway components. Operationally, our teams have been working diligently to respond to shifting demand within our legacy end markets while positioning to meet demand from the developing data center and critical power project pipeline. We are working closely with legacy customers to manage production schedules and capacity commitments. In select cases, we are adjusting pricing and requesting additional volumes to secure capacity availability for future demand. These actions will help mitigate near-term underutilization, though we anticipate certain legacy market demand to remain a headwind through mid next year even as new data center and critical power programs ramp. During this transitional period, we expect additional margin pressure as we balance the resources needed for accelerating near-term demand. Turning to capital allocation. Third quarter free cash flow was impacted by $3.5 million in nonrecurring items. However, we expect strong cash flow in the fourth quarter and have reaffirmed our full year free cash flow guidance. Consistent with our strategic framework, our top priority remains reducing debt and lowering leverage. In summary, I am encouraged by the progress our team has made by executing our strategy. While legacy markets remain soft, our agile operating model is enabling us to capitalize on high-growth opportunities, all while maintaining financial discipline and operational focus. I am confident that our continued execution will drive improved profitability, enhanced diversification and sustainable value creation for our shareholders. With that, I would like to turn the call over to Rachele. Rachele Lehr: Thank you, Jag, and good morning, everyone. Total sales for the third quarter increased 6.6% on a year-over-year basis to $144.3 million. Excluding the impact of the Accu-Fab acquisition, organic net sales declined by 9.1% compared to the prior year period. Our manufacturing margin rate was 11% for the third quarter of 2025 compared to 12.6% for the prior year period. The decrease in our manufacturing margin rate was due to $1.2 million of nonrecurring restructuring costs and inventory step-up expense associated with the Accu-Fab acquisition and lower customer demand in the legacy commercial vehicle and agricultural end markets. This was partially offset by higher margin net sales contribution from the Accu-Fab acquisition. Excluding the costs, our manufacturing margin rate would have been approximately 12% during the quarter. Other selling, general and administrative expenses were $10.5 million or 7.3% of net sales for the third quarter of 2025 as compared to $7.6 million or 5.6% of net sales for the same prior year period. The increase in these expenses primarily reflects $0.9 million of nonrecurring costs and $1.6 million in incremental SG&A expense, each associated with the Accu-Fab acquisition. Long term, we continue to anticipate SG&A to remain at a normalized range of between 4.5% to 5.5% of net sales as end market demand recovers. Interest expense was $3.4 million for the third quarter of 2025 as compared to $2.7 million in the prior year period. The increase was driven by higher borrowings resulting from the Accu-Fab acquisition, partially offset by a lower interest rate relative to the prior year period. Adjusted EBITDA margin was 9.8% in the current quarter as compared to 12.6% for the same prior year period. The decrease in adjusted EBITDA margin was attributable to lower legacy customer demand, partially offset by the impact of the Accu-Fab acquisition. Turning now to our statement of cash flows and balance sheet. Free cash flow during the third quarter of 2025 was a negative $1.1 million as compared to a positive $15.1 million in the prior year period. As Jag mentioned, free cash flow for the third quarter reflects $3.5 million of nonrecurring costs. As of the end of the third quarter of 2025, our net debt, which includes bank debt, financing agreements, finance lease obligations, net of cash and cash equivalents was $214.9 million, up from $114.1 million at the end of the third quarter of 2024. Our increased debt resulted in a net leverage ratio of 3.5x as of September 30. Now turning to a review of our 2025 financial guidance. We are reaffirming our 2025 financial guidance supported by growth in select legacy end markets and stronger-than-expected demand from the data center and critical power end market. We expect net sales for the full year of 2025 to be between $528 million and $562 million. Adjusted EBITDA of between $49 million to $55 million and free cash flow of between $25 million to $31 million. We expect the fourth quarter to reflect normal seasonality and continued softness in certain legacy markets, most notably commercial vehicle. As a reminder, we have reduced manufacturing days during the fourth quarter due to the holidays. Combined with the ongoing reduction in commercial vehicle production schedules and retaining resources to support the ramp of new data center and critical power programs, we anticipate some margin pressure during the quarter. Despite this, we expect to generate positive free cash flow in the fourth quarter. Consistent with our capital allocation priorities, we plan to use that cash to reduce debt. Looking ahead, we anticipate that softness across certain legacy markets will moderate the pace of debt repayment in 2026. To be clear, we do not expect sustained negative free cash flow. However, as we ramp data center and critical power production, working capital will temporarily increase, and we may make selective capital investments in equipment to support these programs. Together with fixed cost under absorption from subdued commercial vehicle demand through the first half of next year, we now expect to achieve a net leverage ratio of 3x or lower by the end of 2026. Importantly, we view this as a transitional period. As cash generation strengthens, with the recovery in the commercial vehicle market and continued growth in our high-margin, high-velocity markets, we expect to accelerate debt repayment and return to a net leverage profile consistent with our stated long-term target of below 2.5x. With that, operator, that concludes our prepared remarks. Please open the line for questions as we begin our question-and-answer session. Operator: [Operator Instructions] First question comes from Ross Sparenblek with William Blair. Ross Sparenblek: Jag, we started this year and you guys pulled forward your productivity initiatives and realize that's a delicate process, especially when demand cycles are volatile. But how do you feel with the rollout thus far? And do you feel that the organization is well positioned for when demand does begin to turn? Jagadeesh Reddy: Absolutely, Ross. The team has been relentless in driving MBX programs across our plant network throughout the year. Every single plant has had increased number of lean activities throughout the year as we reconfigured our capacity to position data center products into existing footprint. We have done a lot of adjustments to resources, a lot of adjustments to our equipment, a lot of adjustments to how we think about shift schedules. So all of these actions are not only helping us in the short-term to navigate the soft end market demand, but absolutely will position the company for a significant margin expansion, significant productivity once the volumes return, right? So I'm really excited about all the things that we have done this year, though it may not be reflected in our actual financial results. But as we start putting in volumes back into the plant, even with the data center products, right, we should see going into Q1 and beyond a good uptick in our productivity. Ross Sparenblek: Okay. And if I was to put that into a spreadsheet here and just thinking through margins, decrementals were down over 30% in the quarter. What is kind of your time line for closing that gap to keeping a sustained decremental under 20% through cycle looking forward? Jagadeesh Reddy: I would say -- yes, obviously, we're not providing any guidance for 2026. Having said that, I would say by midyear, we should see a decent readout coming out of all the actions that we have taken. Let me address a big elephant in the room. We are taking a conservative approach to our 2026 CV forecast. You could look at our 2 large OEMs, they're public and they know what they have said publicly for 2026 guidance in terms of volumes, and you can look at ACT. ACT is around 205. And if you average what the customers have said, that's probably somewhere in the 245 to 250 range. So the difference is what is going to be, I guess, really make a difference next year for us. We have taken the conservative approach of using the ACT for planning purposes. So if the volume turns about the ACT number next year, that's an upside for us, not only in terms of productivity and margin expansion, but also significant revenue increase next year. Operator: We now turn to Greg Palm with Craig-Hallum. Greg Palm: Can you just give us some sense on what's occurred in the last 4 months since Accu-Fab? I mean it just sounds like overall activity, it's been a lot higher. It's occurred much faster than initially thought. And what types of internal changes or investments do you have to make? Are you making to capitalize on this opportunity within data centers? Jagadeesh Reddy: Really good question, Greg. We have been extremely busy and active in not only bringing our new customers to Accu-Fab, but also a lot of new customers to legacy MEC locations. We have hosted every top customer in data center and critical power segment in many of our plants, and they continue to be impressed with the level of capacity and automation and the skill sets that MEC can bring to this end market. So as we came out of Q3, we continue to build on that pipeline. We said in our prepared remarks, our pipeline exceeds $100 million. This is qualified active pipeline. We have won $30 million out of the $30 million, it's really $25 million is the cross-selling synergies that we're actively putting into existing plants. A lot of the programs are going into our defense plant, which is primarily a CV plant. A lot of programs are going into Mayville that is a primarily agriculture and power sports plant. We're putting products into other locations as well where we see immediate benefit as soon as we ramp these data center products, immediate benefit in terms of volume and productivity in those plants that are lacking in volume today. At the same time, we continue to host new customers in the space. We continue to navigate some of the accelerated product launch time lines. If you recall, our legacy programs take between 12 and 24 months once we win them to start up and see revenue. Data center products are 8 to 12 weeks. Once they make a decision and award that purchase order to us, within 8 to 12 weeks, where we're making product and shipping this product, right? That means we are repositioning resources. We're repositioning capital. We're repositioning machinery. We're moving machines from plant to plant to fully be prepared for this increase in volumes that we're expecting out of the data center end market. Greg Palm: Okay. Appreciate that color. And I guess maybe can you help us understand like what constitutes a pipeline just versus nonqualified opportunities? And I'm curious, if you look at, you have a slide that's talking about actual orders. I'm curious in terms of the customer characterization, how many of those are from new customers? What would these orders have looked like under Accu-Fab as a stand-alone if they were existing customers? And just thinking about the future potential for follow-on orders if some of these are sort of initial orders from new customers. I'm curious just to get your thoughts there, too. Jagadeesh Reddy: Yes, that's a really good question. Accu-Fab Raleigh location, which was primarily the data center and critical power location, they were sold out. So pretty much everything that you're seeing on this slide, the $25 million of cross-selling synergies, most of that, they would not have had capacity to actually produce, right? So that is the exciting part here is that battery backup cabinet, they might have been able to handle $1 million to $2 million at best in that plant, right? Now we're able to completely take over that program. And we expect that program to continue on, even though we have a purchase order for $10 million, we expect that to increase as the year goes along next year. So that's the same case with power distribution units. Extrusion panels and busway components. Busway components are really around aluminum extrusions, which data -- sorry, Accu-Fab did not have any capacity for. We're going to produce these out of our Fond du Lac facility, right? So this is the exciting part about this acquisition is that we're capturing everything Accu-Fab could capture. And then all of this is really icing on the cake because we're able to then now put all of these programs into MEC legacy plants. Also, some of these products here in the pipeline, as an example, products that Accu-Fab has never made. So those products, we are able to manufacture because of either size limitations, capability limitations, machinery limitations that Accu-Fab would not have even bid on in the past. So now MEC is able to bid and win in the future, some of these larger programs and larger physically in size and complexity. Greg Palm: And are you able to sort of tell us like what types of customers are they? How big are they? Like how much data center stuff are they doing themselves? And just to be clear, what we're talking about here, how many is new versus legacy customers to Accu-Fab? Jagadeesh Reddy: I would say that a significant number of maybe 3 quarters of what we have won here or more are legacy Accu-Fab customers. And in the opportunity pipeline, I would say at least 1/3, if not higher, are new logos to Accu-Fab and MEC. So we're not stopping at just capturing incremental share of wallet from existing Accu-Fab customers. We're actually expanding our logo list, if you will, and going after new customers in that space. So as an example, this data center customer on this slide, you're looking at, right, the one customer, that's a $20-plus billion in sales customer. The extrusions, the 2 customers, they're each of them, one is probably a couple of billion in size. The other one is $20-plus billion in revenue. Critical power, the 6 customers, these are multibillion-dollar revenue customers, right? So these are large customers significantly expanding their presence in the data center and critical power space and looking for additional capacity to continue to grow. Greg Palm: Okay. Perfect. Last one for me because you provided some good color by segment for fiscal '26, but there's a lot moving along around in this data center critical power segment. So just given the organic growth, Accu-Fab, synergies, I mean, you're at an annualized $90 million rate in Q3. What is your expectation for revenue in this segment in fiscal '26? Jagadeesh Reddy: In data centers? Greg Palm: Yes. Jagadeesh Reddy: Okay. We don't -- obviously, we're not providing any guidance for '26. And I'm not trying to be flippant about it, Greg. Every single day, a new program is -- every single week, right, a new program is being added to that qualified pipeline. It has been so dynamic. We did not expect to win $30 million of new business in Q3, right? And here we are, right? We already won some more in October, right? We expect to win some more in Q4. So at a -- I would say, if I were to take a rough guess, we expect the data center and critical power end market to be at least 20% of our overall sales in 2026, right? Obviously, the caveat there is what is the CV market is going to do because that's a significantly large end market. If CV stays around 205 number, we expect data center to be a 20% end market for us next year. Operator: We now turn to Mike Shlisky with D.A. Davidson. Michael Shlisky: I want to follow up on a couple of the comments you made so far, Jag, on the CV market for 2026. The ACT Research forecast, the 2 OEMs you mentioned. I want to throw out there that all the end users of trucks that I've heard from, not one has mentioned buying less trucks in 2026. That's mostly vocational. But even on the freight side, a lot of folks just set out 2025 and there was bought 0 trucks. So any one truck next year would be an increase for a lot of those players. I guess I wanted to figure out, have you talked to any of the OEMs? And could you maybe share at a very high level what their actual comments have been directly to you about what to make sure you're ready for in 2026? Jagadeesh Reddy: Good question, Mike. We have been burned by this end market in the last 12 months significantly burned by this end market, right? So if we're being a little gun shy, if we're being a little conservative, right, hopefully, you guys can give us some grace on that. Because if I were to listen to everything the OEM has said to us over the last 9 months, right, we would have been in much worse situation than we ended up in 2025. I know that we called as we saw it coming out of Q2 and many of you, right, picked on us a little bit that we were being too conservative. In the end, MEC was right about this end market. Because we get to see daily, weekly EDIs. We get to see the build rates on a daily, weekly basis and what the OEMs are actually doing, right? So I mean, your numbers that you referenced, what they have publicly commented, all 3 of them, 3 public OEMs, do I trust those numbers? I don't because I don't see that in the current forecast. I don't see that in the current EDI. I don't see that in their build rates. I don't see that in their production rates, right? So look, if I'm wrong about 205 and if the market ends up being 240 or 260, one of those numbers, great. That's an upside for MEC, right? So -- but what this has done for us is to -- over the last 3 months, right, since our last earnings call, we were able to go in and take out cost out of our factories, 6 CV-focused plants that we have. We were able to take costs out. We were able to take shifts out. We were able to take other resources out and redirect resources and capacity to data center end market, right? So as I mentioned, a couple of plants that we're putting data center products in, those are CV plants, right? So this has given the opportunity for MEC to reconfigure our production capacity, reconfigure our resources. And if the volumes come back next year, great, right? That's just an upside for us. So I still feel the call we made at the end of Q2 and the call we're making on ACT number today might be conservative, but it has really helped MEC to look at our cost structure, look at our capacity and reorganize us as a company. Michael Shlisky: Got it. That's great color. I really appreciate that. And perhaps a very similar question on the ag sector as well. Your comments on it being a back half 2026. Just any comments you heard. I guess the EDI isn't suggesting a good start to the year, at least what you've learned so far. Is that true? And again, heard anything from the OEMs directly as to what you should be preparing for and being ready for? Jagadeesh Reddy: Right. At least the good news on the ag side is, if there is any, the OEMs are at least being honest and the OEMs are at least being transparent with us on what they see, and they don't see a recovery in 2026, perhaps maybe a little bit of flattening out in second half. But still, right, we're calling a low single-digit decline in ag next year, and that is consistent with the information that we have received from our ag OEMs. Michael Shlisky: Okay. You've also commented over the last few quarters about sort of getting market share, tariff-related contract pick ups or opportunities across CV and construction ag and elsewhere. [ indiscernible ] on do you think you could outperform the broader end markets next year with some new projects stuff in the pipeline beyond data center that maybe you can discuss that might come to the floor in 2026? Jagadeesh Reddy: Yes. If you look at the slide we have on the deck, right, on the market slide, we have consistently outperformed our end markets, right? Yes, the negative bars are not great to look at. I recognize that. But if you look at the market downturn, any of these end markets, we have outperformed the end markets, right? So that's because we continue to win new programs in CV and ag and construction and military and every other end market. So I expect whatever the end market is going to do next year, we're going to outperform that because we have programs that are starting up in 2026 and 2027 that we're already working on. As I mentioned earlier, these are 12- to 18-month start-ups, right? So we're in the middle of a significant new program start-ups. So 2026 and 2027 will be, again, another outperformance year for MEC in some of these end markets. So '26 will be a transition year as we navigate putting in a lot of the data center work into some of our legacy plants and reconfigure resources, we can't lay off a whole bunch of people in Q4 and then expect them to be there in Q1 when the data center projects ramp-up, right? So there's a bit of a transition here in the next 1 to 2 quarters, but we do expect to outperform all of our end markets next year. Operator: We now turn to Ted Jackson with Northland Securities. Edward Jackson: Most of my questions have been asked, but a couple of smaller ones. And it sounds like this acquisition is going to be a winner, just going to say it. Question-wise, first of all, with regards to the CapEx spend and working capital needs to bring this data center vision to fruition. Can you talk a bit about what are the things that you need to put in place in terms of equipment and capabilities, maybe some kind of rough understanding in terms of what that means for capital spend next year and then the time line for it? I think my first question [ indiscernible ]. Jagadeesh Reddy: Sure. We don't anticipate significant CapEx increase, Ted, next year to accommodate some of these programs. I say that with the existing -- what the existing pipeline is informing us. We might -- on the margin, we might go spend on a handful of machines that will help us produce these products faster or more efficiently. We have 90-plus percent of the assets required to produce these programs internally today. So that is the great news about the synergies with this acquisition is that we have the footprint, we have the manpower, and we have the majority of the assets required. Having said that, even though we're not providing any guidance right now, I think we do have it on one of our slides, CapEx slides. We expect to be in the $15 million to $20 million range for our CapEx next year. So that is a bit of an increase from 2025. And we have -- as we have indicated, we're going to be at the low end of the 2025 range for this year. And right now, we do anticipate a slight increase to that CapEx spend next year. Edward Jackson: Okay. Shifting over to Construction & Access. You had a nice quarter with it. I know you have a fair amount of exposure within access, mainly aerials and stuff, which is a market that looks like it's kind of bottomed out at this point. So my question is, when I look into -- or you look into that business, I mean, is what you're seeing in there like a bottoming out of the access side of things? Or is it more an improvement outside of access? Maybe some color on that and then maybe some kind of perspective in terms of what you're thinking about that with regards to relatively fourth quarter and into '26? Because I listen to a lot of these OEMs, and it sounds like there's been a lessening of pricing pressure, at least within the larger construction equipment market and the inventories are lined up reasonably well with demand. So kind of just maybe some soft color with regards to your outlook there beyond the fiscal year [ indiscernible ]. Jagadeesh Reddy: Yes. In Construction & Access, we're roughly 50-50, 45-55, right? In access, in particular, I think some of the demand is being driven by nonresidential construction and data center construction. Some -- if you listen to the rental companies, I think out of the 3 rental companies, one of them is on a heavy capital spend. I believe that is one of the reasons why we saw a demand increase from our OEM. At the same time, 2 other rental companies, right, they're going through some transition, one trying to come to the U.S. with an IPO. And so other acquisition transition, inventory cleanup. So we have to wait and see what the other 2 rental companies are going to do. But certainly, right, one of the rental companies that is doing well and spending money right now, mostly driven by data center construction. That's what's been helpful. Certainly in our Q3, we will wait and see how that transitions going into next year. Construction, again, hopefully, with interest rate cuts in the coming quarters would help residential and other type of construction for the regular earthmovers, the yellows that you can think of in the near-term. Edward Jackson: Okay. And then my last is just on powersports. You put growth up there, but you caveated that it sounds like there was some onetime revenue that pushed the quarter. If you took that revenue out, how would powersports have performed? I mean it seems to me from listening to a lot of the guys that play around there that not that the business is bottoming, but the big declines and it seem to pass and you're starting to see kind of the RV, the side-by-side, the marine markets all sort of hit their bottoms [ indiscernible ]. So I guess the question is, removing your kind of onetime revenue, how did it perform? And am I correct in feeling that, that business or that market is at least finding it's, you know what I'm saying, it's foundation? Jagadeesh Reddy: Yes. Yes. I would say that, again, listening to the public comments from some of the OEMs and what we're observing is that right now, their production schedules are reasonably aligned with end-user demand. That's what we wanted to see, and I think they're finally there. So we do expect flat to up low single digits in 2026 for powersports end market. As you recall, we also brought on some new customers this year. So that's also helping us outperform the market. So if we take out a onetime transitionary order we got, so if we take that out, we still see flat to slightly up next year. Operator: [Operator Instructions] We now turn to Natalia Bak with Citi. Natalia Bak: Maybe I know that there was a few questions on your data center and critical power vertical, but just maybe a few more follow-ups. You highlighted $20 million to $30 million synergy opportunities for 2026 from Accu-Fab. What are some of the key milestones to realize that? And can you also just frame the run rate EBITDA margin profile for this vertical once these synergies are captured? Jagadeesh Reddy: Sure. What I think that we have on our slide -- let's go back. Yes, when we listed our wins, the $25 million of revenue synergies, Natalya, you can see that the battery backup cabinet starts to ramp -- actually starting to ramp in Q4 and power distribution unit and transfer switches will ramp up starting in first quarter, late January, early February. And then extrusions and busway components. So that is starting to ramp already through first quarter of 2026. So majority of these cross-selling synergies will see an impact starting in Q1 and a full ramp by Q2. Sorry, what was the second part of your question? Margin growth... Natalia Bak: I think it's -- yes. Jagadeesh Reddy: Yes. So all of these are 30-plus percent gross margin programs that we just won. I would say that next year, approximately 20% is what I said will be data center end market. Out of the 20%, approximately 3%, I would say, would be legacy MEC products that are in the data centers, i.e., power generation, et cetera. So those are slightly lower margin. And then the remaining here, obviously, is the higher margin. Natalia Bak: Got it. That's helpful color. And one more question for me. I'm just curious like how are you positioning production capacity between your legacy MEC end markets like commercial vehicle, agriculture versus high-growth data center exposure? I mean there's an expectation for some of your end markets, you're saying for like recovery next year. So just curious how you balance the production capacity. Jagadeesh Reddy: Right. We're having a lot of conversation with our legacy customers. Since we closed, we have started and shared our growth objectives with them and started by requesting additional volumes because when their markets come back up, right, they need capacity today, if we reallocate that capacity to data center customers, they're not going to have access to that capacity. So next steps to that conversation, if volumes don't materialize, will involve commercial pricing. So many of these discussions are just starting and are in early stages, and we'll continue to have those conversations with these customers. Operator: We have no further questions. So I'll now hand back to Jag Reddy for any final remarks. Jagadeesh Reddy: Before we conclude, I want to thank again our employees for their continued strong focus and execution and our shareholders for their ongoing support. While we recognize the near-term challenges in several of our legacy markets, we are confident in the progress we're making to position MEC for durable, high-margin growth in the years ahead. We look forward to sharing our continued progress with you. Thank you for joining us today. Operator: Ladies and gentlemen, today's call has now concluded. We'd like to thank you for your participation. You may now disconnect your lines.
Operator: Hello, and welcome to the Q3 2025 Teva Pharmaceutical Industries Limited Earnings Conference Call. My name is Alex, and I'll be coordinating today's call. [Operator Instructions] I'll now hand over to Chris Stevo, SVP, Investor Relations. Please go ahead. Christopher Stevo: Thank you, Alex. Good morning and good afternoon, everyone. In a moment, I'll hand the call over to my CEO, Richard Francis. But before I do that, it is my duty and my honor to remind you of our forward-looking statements. Today on this call, we'll be making forward-looking statements, and we undertake no obligation to update those statements after today's call. If you have any questions regarding forward-looking statements, please feel free to see our SEC filings under Forms 10-Q and 10-K in the relevant sections. And with that, Richard Francis. Richard Francis: Thanks, Chris, and good morning, good afternoon, everybody. Thank you for joining the call today. On the call today, I will be joined by Dr. Eric Hughes, Head of R&D and Chief Medical Officer; and Eli Kalif, the CFO of Teva Pharmaceuticals. So starting with, as I always do, the pivot to growth strategy. This is a strategy that have guided Teva for the last 3 years, a strategy based on the 4 pillars: deliver on our growth engines, which is all about driving AUSTEDO, UZEDY and AJOVY, our innovative portfolio, stepping up innovation, which Eric will talk to you about, with the great progress we're making across our innovative pipeline, sustained generics powerhouse and the work we've done to stabilize our generics business and then focus the business, and I'll give you an update on where we are with our transformation of Teva, our $700 million cost savings programs as well as an update on TAPI. Now moving on to the actual results. Pleased to say this is our 11th quarter of consecutive growth, up 3% in revenue to $.5 billion, and adjusted EBITDA up 6% and our non-GAAP EPS up 14%. These all compared to Q3 2024. And our free cash flow is just above $0.5 billion. I'm really pleased to say that our net debt to EBITDA is now below 3x for the first time since 2016. Now moving on to the next slide, one of my favorite slides, I have to admit. This is our 11th quarter of consecutive growth after many years of sales decline. And it's worth noting that Q3 '24 was a particularly difficult comparison year where we had growth of 15%. And so to grow 3% over that comp, I think, is a testament to the work we've done on our portfolio and a testament to the teams. Now this puts us on track for our growth targets we set for 2027 to have mid-single-digit growth. So congratulations to the whole team that have made this happen over the last 11 quarters. Now going down a bit more detail, what's behind this $4.5 billion revenue and 3% growth. This growth was spearheaded by our innovative products, and I'm really pleased to say that they are now worth over $800 million for the quarter, and the growth is 33% year-on-year. AUSTEDO grew an impressive 38%, reaching $618 million. UZEDY performed strongly, up 24%, reaching $43 million and AJOVY performed well, up 19% to $168 million. Global generics revenues was up 2% and TAPI was down 4%, reflecting some seasonal volatility. So now I'm going to double-click and go into a bit more detail on all of these areas, starting with AUSTEDO. Now as you know, AUSTEDO was selected earlier this year for CMS for the 2027 price negotiation. And I'm pleased to say that agreement that we've concluded is consistent with our midterm expectations for AUSTEDO that we first laid out back in May 2023. And this means that we can confirm with confidence our 2027 revenue target of $2.5 billion and our peak sales target of over $3 billion. Now let's talk a bit more about AUSTEDO in Q3. It was another strong quarter for AUSTEDO, where the team continues to perform incredibly well. The U.S. reached $601 million in Q3 '25, growing at 38% year-over-year. And this is the first time we have passed $600 million. So congratulations to the team for all their hard work in making this happen, and it really reflects the understanding this team has of the market. We grew TRx 11%, and we continue to see the increasing penetration of AUSTEDO XR. And it's worth reminding everybody again that AUSTEDO XR requires fewer scripts compared to the original AUSTEDO, and that's why it's equally important to look at the milligrams dispensed. And as you can see, these were up 25%. Now as you see on this slide, we've highlighted that with 2026 approaching, we have a good sense of AUSTEDO's 2026 formulary position, and we continue to reflect the balance between preserving value and maintaining access. So based on these strong results in Q3, we can increase our revenue outlook for AUSTEDO to $2.05 billion to $2.15 billion for the year. Now moving on to UZEDY, another exciting member of our innovative family. UZEDY continues to perform well. Momentum remains strong as we continue to address the needs of the mild-to-moderate patients and those beyond who take risperidone. Revenues were up 24% year-over-year, and TRx was up a strong 119%. It is worth noting that revenue growth was partially impacted by a onetime Medicaid gross to net adjustment. Now this does not impact our long-term LAI franchise expectations, and we reiterate our peak sales target of $1.5 billion to $2 billion for the franchise. Now this confidence is rooted in the data. UZEDY's NBRx is significantly above the TRx. As you know, in Q3, we also had an expanded indication for bipolar I disorder. Now to give you more guidance on how to forecast UZEDY going forward, the Q4 implied guidance of $55 million to $65 million provides a cleaner run rate for forecasting going forward due to that gross to net adjustment in Q3. But I want to take a couple of slides just to talk about the excitement we have around our LAI, our long-acting franchise in schizophrenia. And why do we think this $1.5 billion and $2 billion is achievable? Well, it really comes down to the great work that's been done with UZEDY already. The team here has created great traction, as you can see, with 119% TRx growth. We have a great product profile with UZEDY, and we anticipate having a similar strong product profile with olanzapine. But more importantly, the capabilities and the knowledge that has been built here, we have the same people in front of key payers, the same people in front of these key physicians, these key nurse practitioners, health care providers, patient associations, the people who look after the formulary committees. That puts us in a very strong position. And we know and believe there's a significant unmet need in the olanzapine for long-acting treatment. And if you put those 2 together on this slide, we have the ability with UZEDY and our long-acting olanzapine to treat up to 80% of patients who suffer from schizophrenia, whether that's mild to moderate with UZEDY or moderate to severe with long-acting olanzapine. And just to highlight, unfortunately, 4.7 million people suffer from schizophrenia in the U.S. and Europe. So the opportunity for both brands is significant. That's hence the reason why our confidence in the $1.52 billion remains strong. Now moving on to AJOVY. I do love AJOVY. It continues to grow strongly across all regions in what is still a very competitive market. And there's some nice data points here. We are the #1 preventative CGRP injectable in new prescriptions among the top U.S. headache centers, and we are the #1 preventative CGRP injectable in 30 countries across Europe and international. And so we confirm our guidance of $630 million to $640 million. Now staying on innovation. I'm going to touch briefly upon the innovative pipeline, as I know Eric will talk to you about this later, but I'm super excited about this. Why? Because it's near term. These are late-stage assets. Olanzapine, I'll talk to you about the filing of that this year. DARI, the good recruitment that we're seeing to bring that to the market in '27. Duvakitug, starting our Phase III study. Emrusolmin, great recruitment there. But then I look across the right-hand side of the slide, and I see the potential of peak sales, and it's over $11 billion. And I'll remind you, that's just for the indications on this slide. We know that duvakitug and anti-IL-15 will be pursued in multiple indications. So we really have strong growth drivers for the future for Teva. Now moving on to our generics business. Our generics business grew 2% over 2024, and this is fueled by launches as well as the growth of our biosimilar and our OTC business. Now as I reminded you before, we tend to look at this business over a 2-year CAGR just because of the inherent timing of new launches that we have in this business. Now looking at the regions, we had a very strong quarter for the U.S. It grew 7% in Q3, and that was driven by several launches and particularly strong performance of biosimilars as well as some phasing patterns for our generic Revlimid, which I would like to point out, these will not be repeated to the same magnitude in Q4. Europe declined 5%, mainly due to some tough comparisons to the prior year where we had a number of launches and a number of tender wins, which are for 2-year periods. So it's a 1% CAGR for the 2 years. International markets grew at 3% or 12% on a 2-year CAGR. But now I'd like to talk to you a bit about our biosimilars because we're entering an exciting period for our biosimilars portfolio. We have -- now have 10 in-line assets globally and the potential to launch 6 more through 2027. So we're well on track to add another $400 million by 2027 as we forecasted back at the start of the year. And I want to remind you that today, we're growing strongly in biosimilars without substantial launches or revenues in Europe, which is the largest region in the biosimilar market. And our European pipeline will start to convert into launches and revenues and biosimilars will be a more significant driver for Teva overall after 2027. Now moving on to the fourth pillar, focus our business. We made significant progress with the Teva transformation program, and this is something we started at the start of this year. And we made a commitment to realize 2/3 of the $700 million by the end of 2026. And I can tell you we're on track to do that. The reason why I can tell you that is because we're on schedule to hit our 2025 goals, and that sets us up well for the start of next year. But I'll leave Eli to go into a bit more detail later on in this presentation. Now before I hand it over to Eric, I wanted to give you an update on how we're tracking for the 2027 targets, which we are reiterating today. So from a revenue point of view, with the IRA negotiations now finalized, our upcoming launches and the stabilization of our generic business, we estimate that 2025 will end the year with a 3% to 4% growth range, consistent with our '23 to '27 mid-single-digit average growth. On OP, because of the work we've done of driving our innovative portfolio, I remind you, up 33% as well as the progress we made on organizational effectiveness, we are on track to our 30% margin. And this year, we will end around the 27% margin overall. And the net debt-to-EBITDA dropped below 3x, as I mentioned earlier. By the end of this year, we should be around 2.8x, well on track to hit the 2x by 2027. And with that, I will hand over to my colleague, Eric Hughes. Eric Hughes: Thank you, Richard. Now as Richard said, we have a healthy late-stage development programs in our innovative medicines. And we're doubling down on our efforts to execute these studies on time and efficiently. Now beginning with olanzapine LAI, we're on track for our FDA submission later in this quarter. Our DARI program for both adults and pediatric patients is on target for enrollment by the end of this year. Our duvakitug program in partnership with Sanofi has now initiated both our ulcerative colitis and Crohn's disease Phase III studies. Our emrusolmin program has now enrolled the 100 patients that we'll need for our futility analysis by the end of next year, and then enrollment continues to do very well. And finally, our anti-IL-15 program, very exciting program with multiple potential indications in the future, where be reading out our celiac and our vitiligo studies, proof of concepts in the first half of next year. So exciting late-stage programs. But before I go on to those in more specific detail, I do want to have a celebration for the UZEDY team for bipolar I disorder. We had an approval and an expansion of our label, which we're very proud of. This is an innovative approach by the team using the known and well-characterized pharmacology of UZEDY plus the safety database that we have in conjunction with efficacy using a modeling and simulation approach to expand that label for patients suffering from bipolar I disorder. So a great innovative approach, very efficient execution and a great opportunity for patients to get treatment for their bipolar disease. Now on to olanzapine LAI. As we've mentioned, we've actually presented the data, both the safety and efficacy of the full program in Phase III at the 2025 Psych Congress Annual Meeting. It was very well received. Both the safety and efficacy was right where we expected it. And most importantly, we had no cases of PDSS. And that submission is planned for the late half of this quarter. So on track and exciting opportunity for patients in the future. Moving on to our dual action rescue inhaler program for asthma, our ICS/SABA Phase III program. This is the largest study we've run at Teva to date. Right now, we're on track for full enrollment of our adults and our pediatric patients at the end of this year. And remember, the real value here is the fact that in our label, we anticipate to get the pediatrics included, which is 25% of the market. And also, we'll have a dry powder inhaler, which is a simple device to use, simply open, inhale and close. This makes it much more convenient for both adults and particularly the pediatric patients. So a great program right on track. And as I mentioned before, we're very excited to announce that we have now initiated both the ulcerative colitis and Crohn's disease Phase III programs with our partner, Sanofi, for our duvakitug program. This is a very exciting program, very large effort by many people. The ulcerative colitis study is called SUNSCAPE and the Crohn's disease program is called STARSCAPE. And what we're really excited about with this program is the way we've designed Phase III. It includes an open label feeder arm that will enroll patients very rapidly since it's open label and they know they get treatment, but that gets to our safety numbers very rapidly in the maintenance. We have a favorable randomization ratio for the patients to active. We have a rerandomization design, which is really a more feasible or favorable design for multiple doses and is more reflective of clinical practice. And finally, but possibly most important of all, the entire program is based on subcutaneous injections. That's loading dose, induction rate and then maintenance throughout the entire program. So it's a really patient-friendly program, and it's designed to execute quickly. I would add, we were the fastest to transition this MOA from Phase II to Phase III. So it's all about execution now with a great program. So kudos to the team. And on to emrusolmin. I always like to start by saying emrusolmin is enrolling a patient population that is a real unmet medical need. This is multiple system atrophy. And our differentiated molecule is targeting the very beginning of the alpha-synuclein aggregates. We have a very efficient design. Here, you can see it's a 48-week design against placebo. And I mentioned enrollment is going very well, and we've already got the first 100 that will be involved in the futility analysis at the end of next year. So we're right on track, and it's going quickly. We're proud that this has received fast track designation, and we've already got the orphan designation. So more to come. And finally, I just want to touch base on the anti-IL-15 program. This is another great homegrown antibody and program from the Teva laboratories. Right now, we've got it in proof-of-concept studies in celiac disease and importantly, also in vitiligo, which will read out in the first half of next year. But the upside possibility here is multiple different indications. Remember, IL-15 is a key cytokine in the activation and proliferation of NK cells and T cells that's believed to be involved in many different indications that you can see here. So a lot to go with IL-15, but very exciting program, and that also received fast track designation. And with that, I'm going to pass it off to my colleague, Eli Kalif. Eliyahu Kalif: Thank you, Eric, and good morning and good afternoon to everyone. I would like to start today with the following key messages that demonstrate our consistent execution over the last few quarters, including in Q3. First, Q3 results were above solid, driven once again by our fast-growing innovative portfolio. As Richard said earlier, this was our 11th consecutive quarter of revenue growth. Second, we continue to strengthen our balance sheet and specifically reduced our net debt to below $15 billion and expanded our EBITDA, leading to the net debt-to-EBITDA of below 3x for the first time since Q3 2016. Third, we have made significant progress in our transformation programs with approximately half of our planned savings of $70 million for 2025 already achieved by Q3. We are on track to deliver approximately $700 million of net savings by 2027 and achieve our 30% operating margin targets. And lastly, the outcome of the IRA negotiation for AUSTEDO is largely in line with our model expectation and further emphasize our conviction in achieving our revenue target of $2.5 billion in 2027 and more than $3 billion at peak for AUSTEDO. Now moving to Slide 30 to review our Q3 2025 financial results, starting with our GAAP performance. Please note that throughout my remarks, I will refer to revenue growth in local currency terms unless otherwise specified. Similar to the last quarter, I will also refer to certain results from Q3 2024 that exclude any contribution from the Japan business venture, which we divested on March 31, 2025, to help you with the like-to-like comparison of our financial results. Our Q3 revenue were approximately $4.5 billion, growing 5% in U.S. dollars or 3% in local currency. Revenue growth was mainly driven by continued strong momentum in our key innovative products, AUSTEDO, AJOVY, and UZEDY as well as our generics products in the U.S., including biosimilars. This was partially offset by some softness in European generics as well as lower proceeds from the sale of certain product rights compared to Q3 2024. GAAP net income and EPS were $433 million and $0.37, respectively. FX movement during the quarter, including hedging effects positively impacted revenue by $106 million and operating income by $21 million compared to the third quarter of 2024. Now looking at our non-GAAP performance. Our non-GAAP gross margin increased by 120 basis points year-over-year to 55.3%. This increase was slightly higher than our expectation, driven mainly by strong growth in AUSTEDO leading to an ongoing positive shift in our portfolio mix. Gross margin also benefited, although to a lesser extent from a shift in ordering patterns for generics Revlimid in our U.S. generics business, leading to some volume shift from the second quarter to the third quarter as well favorable FX. This strong performance in non-GAAP gross margin largely carried through the non-GAAP operating margin, which increased by approximately 70 basis points year-over-year to 28.9%. This was partially offset by higher planned investment in OpEx and impact from foreign exchange movements. Overall, we ended the quarter with a non-GAAP earnings per share of $0.78, an increase of $0.10 or 14% year-over-year. Total non-GAAP adjustment in the third quarter of 2025 were $478 million. Our free cash flow in Q3 was $515 million compared to $922 million in Q3 2024. This decrease was mainly due to timing of sales and collection as well as higher legal settlement payments, which we have planned for this year and is reflected in our full year free cash flow guidance. Moving to Slide 31. We are making significant progress in our Teva transformation programs through a well-defined and targeted efforts to deliver sustainable margin improvements without compromising our ability to innovate and invest in our long-term growth. These programs are expected to deliver approximately $700 million of net savings between 2025 and 2027, with roughly 2/3 of these savings to be realized between 2025 and 2026. We are well on track to achieve approximately $70 million of initial savings in 2025 with half of it already achieved by end of Q3, demonstrating solid momentum and execution. It's important to remember that the transformation we are driving is not just about reducing the spend. It's part of the journey to transform and modernize Teva into an innovative biopharma company and prioritizing resources towards areas that drive growth and innovation. These transformation efforts, along with the ongoing portfolio shift towards high-growth and high-margin innovative products provide a clear and credible path to achieving our 30% operating margin target by 2027, even as we continue to invest in the business. In relation to these programs, we have recorded approximately $190 million year-to-date in restructuring costs and expected an overall cash outflow of $70 million to $100 million in 2025. Our guidance for 2025 already incorporated the impact of both expected savings and this cash outflow. Now moving to the next slide for an update regarding our strategic intent and the progress and the process to divest TAPI. As we have consistently and transparently shared with you all, we have been in exclusive discussions with a selected buyer for the sale of TAPI. At this time, we have decided not to move forward with those discussions as we were unable to reach an agreement aligned with Teva long-term priorities and interest of our shareholders. While this process did not result in a sale with this initial buyer, recent shift in the geopolitical environment and market conditions reinforce TAPI attractiveness for potential buyers. We continue to view TAPI as a valuable asset, but it's nonstrategic to our pivot to growth priorities. We are now initiating a renewed sale process to explore alternative options and maximize potential value creation. We will provide further updates pending a transaction or other determination. Moving on to our 2025 non-GAAP outlook in Slide 33. Our performance year-to-date reflects consistent execution across our pivot to growth priorities with a solid revenue growth, margin expansion and cash flow generation despite the tough prior year comparables in our generics business. Based on our year-to-date results and with the 2 months left in the year, we are tightening our 2025 outlook range for revenue, operating profit, adjusted EBITDA and EPS. Starting with revenue. Consistent with the direction we shared last quarter, we are tightening the full year guidance range to be between $16.8 billion and $17 billion. Our innovative portfolio continues to perform very well, specifically AUSTEDO, driven by strong demand and our commercial execution. With the strong year-to-date performance, we are increasing our full year outlook for AUSTEDO by $50 million to $100 million to a new range of $2.05 billion to $2.15 billion, reflecting a full year growth of 21% to 27% year-over-year. However, as we discussed last quarter, we expect our global generics revenue for the full year to be flat in local currency compared to 2024. This is mainly due to the tough year comparison deals in the timing of certain launches as well softness in certain markets. Moving to the other elements of our financial outlook. With a strong year-to-date performance, we now expect our non-GAAP gross margin to be at the higher end of our guidance range of 53% to 54%. This implies a slightly lower margin in Q4 compared to Q3, mainly due to generic Revlimid seasonality as the majority of our volume allocation was sold by the end of Q3. We're also increasing the lower end of our non-GAAP outlook range for adjusted EBITDA, operating income and EPS, consistent with our year-to-date results and expected ongoing strength in our innovation portfolio, along with the savings from our transformation programs. While we continue to wait for clarity around potential U.S. tariffs on pharmaceuticals, including the outcome of the ongoing 232 investigation, we are encouraged by the statement so far from the administration regarding possible generics exemptions. Our 2025 guidance continue to already reflect confirmed tariffs that are in place. We continue to expect our operating expenses to be between 27% and 28% of revenue. Our free cash flow guidance range remains the same between $1.6 billion to $1.9 billion. I would like to reiterate that our full year guidance does not include the development milestone related to the Phase III initiation of duvakitug UC and Crohn's indications. That said, to assist you with your modeling, we want to highlight that the expected contribution from this development milestone is dependent on the timing of each of these 2 studies. Based on the current time lines, we expect to earn one development milestone in Q4 2025, with the remainder expected in Q1 2026. For Q4 2025, we expect the first development milestone to contribute $250 million to revenue and approximately $200 million to EBITDA and free cash flow, net of certain transaction-related costs. This first development milestone is expected to contribute approximately $0.14 to the EPS. Now turning to the next slide on capital allocation. Our capital allocation approach remains disciplined and focused on supporting our pivot to growth strategy and strengthening our balance sheet. As I mentioned in the beginning, we are consistently reducing our debt while investing in our go-to-market capabilities and innovation. With the ongoing improvement in our free cash flow, we are on track to reach our net debt-to-EBITDA target of 2x by 2027 and then to sustain around that level thereafter. In addition to our ongoing deleveraging and progress towards an investment-grade ratings, our disciplined execution also position us well thoughtfully evaluate additional ways of returning capital to our shareholders. Finally, before I conclude my review of our third quarter performance, I would like to reaffirm our 2027 financial targets. The outcome of the IRA negotiation for AUSTEDO further emphasize our conviction and provides additional clarity to deliver on these midterm goals. With that, I will now hand it back to Richard for his closing remarks. Richard Francis: Thank you, Eli. Before I conclude, let me remind you of some of the growth drivers that we have here at Teva. As you -- as we expect our innovative portfolio to continue to drive growth beyond 2027, you can see that we have a significant amount of opportunity to do this. Currently anchored on AUSTEDO, which we reiterated our target of reaching more than $2.5 billion in '27 and greater than $3 billion in peak sales based on the conclusion of our IRA negotiations with CMS. Along with the innovative products UZEDY, AJOVY, we will continue to drive our product mix and profitability. But also to build on Eric's remarks, we are preparing for exciting innovative product launches in the next few years, which should set a foundation for growth in years to come. If you move on to my final slide, just some final thoughts. In Q3, in '25, we continue to deliver on our pivot to growth strategy with the 11th consecutive quarter of growth, growing our innovative franchise at 33%. We have a clear path towards our 30% operating margin and our other 2027 targets. We're advancing our innovative pipeline with near-term and long-term catalysts and Teva transformation is well on track to deliver the $700 million in savings we committed to. And with that, I would like to open the floor for the Q&A. Thank you. Christopher Stevo: Thank you, Richard. Alex, if you could -- sorry, Alex, if you could please go ahead with question queue and we ask if you could limit yourself to one question and one brief follow-up, and of course if there's additional time, we're happy to let you back in the queue for more questions. Go ahead, Alex. Thanks. Operator: [Operator Instructions] Our first question for today comes from Dennis Ding of Jefferies. Yuchen Ding: Maybe one on AUSTEDO and IRA. Thanks for the comment and glad to see that you're reiterating the long-term AUSTEDO guidance. I'm curious what additional color you can give in terms of your own internal expectations going into the negotiations and how the negotiated price relates to the current Medicare net price. Richard Francis: Dennis, thanks for the question. Well, as I mentioned on the call, how it met with our expectations, it was in line with what we had forecast when we set the forecast back in May 2023. So we had anticipated that we would be in the list, and we would be negotiating with CMS. And so because of that, that's why we remain very confident about hitting our $2.5 billion revenue. With regard to the latter part of your question about, I think it was net price, we're not going to comment on that, obviously, for competitive reasons. But I'll just reiterate the fact that we believe that we have the ability to hit our $2.5 billion in revenue, one because it's in line with what we forecasted, but I would also like to remind everybody that tardive dyskinesia remains a highly underdiagnosed and undertreated condition. 85% of patients who suffer from this condition are not on therapy. And so we see a great opportunity to help those patients and continue to keep growing AUSTEDO in '26 and beyond, hence, reiterating the $3 billion -- greater than $3 billion peak sales for AUSTEDO. And so I think those are the things I keep in mind as you think about the future for AUSTEDO. Thank you. Operator: Our next question comes from David Amsellem of Piper Sandler. David Amsellem: I had a question on AUSTEDO as well. So your competitor talked on its call about this dosing creep, if you will. In other words, the per milligram pricing structure and higher doses mean more revenue per patient. And what they've said is that health plans are essentially catching on to that and that there is a potential migration over to the competitor product. So I was just wondering if you can give us some color on the pricing structure of AUSTEDO XR and if that's having ramifications in terms of access to AUSTEDO XR. That's number one. And then secondly, how is that going to inform how you're thinking about commercial contracting for '26 and the extent to which you might make more concessions on price just to get into a better access position vis-a-vis your competitor? Richard Francis: Thanks, David. Thanks for the question. I'm not going to talk about what the competitors are saying. I'll focus on what we do here at Teva. And just to highlight, AUSTEDO's growth is much more about treating this underserved market, as I've said in the past, and our ability as a team to constantly execute. And I'll remind everybody, when we started this journey back in 2023, peak sales of AUSTEDO were forecast to be $1.4 billion. And as you see, we're going to exceed $2 billion this year. And that is down to what we've done as a company and the capability we have built. But when it goes to talking about the milligrams per dose, we've been very clear about the benefits of patients taking AUSTEDO XR and how that helps them with compliance and adherence. And this is very much in line with also what was put in our Phase III trial to allow physicians to have the flexibility to get to the patients on the optimal dose. So what we're seeing is just a natural progression from moving from BID to AUSTEDO XR and the physicians having that flexibility to get patients on the right dose. The final part of your question, I think, was about access. And I think I highlighted in my presentation the fact that we're always very thoughtful about how we manage access with value. We've continued to do that with AUSTEDO. We've done that very successfully, by the way, with our other brands in UZEDY and AJOVY. And I think we have a really strong capability for doing that. But I'll go back to what is driving our confidence in AUSTEDO is 2 things. The capability that we have within this team within Teva and the underserved market, 85% of patients who could be on therapy are not on therapy. And those are the 2 things that we focus on. But thank you for the question, David. Operator: Our next question comes from Jason Gerberry of Bank of America. Jason Gerberry: So my question is just on OpEx in 2026. And it looks like the consensus has combined R&D and SG&A kind of at around $4.8 billion, so pretty much flat on a year-on-year basis. Is that consistent with how you see the cost optimizations flowing through the P&L to navigate the Revlimid roll-off? And then my brief follow-up is just, can you comment at all if AUSTEDO XR was included or excluded in IRA? I know that there was a litigation tied to that. And so I'm just wondering if you can offer any clarity there. Richard Francis: So I'll hand the OpEx question -- so thank you, Jason, for the question. I'll hand that to Eli to answer. Eliyahu Kalif: Thanks, Jason, for the question. So the way to think about the development of the OpEx for '26, we always mentioned that from now onwards, as part of the $700 million savings, part of them will go into COGS and -- but the majority will go into the OpEx. And as much as we actually keep growing and able to fuel our profit, you will see us in the range between 27% to 28%. That will not change. But we will actually be able to expand our OP as well our EBITDA. So the way to think about it is that around 2/3 of the $700 million on savings we'll be able to accomplish by end of '26 already, but we will start to see also part of it impacting our COGS. But the main element that will move with the COGS will be actually in '27. But I can tell you that most of the savings we'll be able to accomplish by end of '26 and most of them related with OpEx. And therefore, you should think about the 27% to 28% as a run rate. Richard Francis: Thanks, Eli. And to answer your second question with regard to AUSTEDO XR being included in the IRA negotiations, the answer is yes. Operator: Our next question comes from Chris Schott of JPMorgan. Christopher Schott: Just to shift gears a little bit. Can you talk a little bit about your EU generic dynamics? I know you're facing some tougher comps there this year. But I was wondering if anything has changed in those underlying markets we should be thinking about as we think about kind of the growth going forward? And just a quick follow-up. I know the TAPI process. Just a little bit more color in terms of why restart the process here versus just deciding to keep the asset. Just maybe talk a little bit about just kind of the broader appetite for these API assets in the market right now. Richard Francis: Thanks, Chris. Thanks for the questions. So going to the EU Generics business. If I can take you back to when we started talking about Teva and our generics business back in '23, I can remember explain to everybody, this is a market leader of scale in Europe. And so the ability to grow this business, we should think of it growing around a 2% CAGR rate just because of its scale and size. Now obviously, I was proved wrong in the last 2 years as the business grew higher than that. But that was down to a couple of factors. One is we had more launches over those years as well as we had competitors struggling to supply and because of our manufacturing capability, we could step in. And so those 2 things happen. And I think what you're seeing versus this quarter versus the last year is sort of a similar theme. What we have is more launches that we had in 2023 -- sorry, in Q3 2024. We also had some tender wins, which are 2-year tender periods. And we also had supply issues from competitors. Those were no longer the case. So that's how I think about it. And that's why I go back to think about our generics business over a CAGR -- 2-year CAGR because if you think about a 2-year CAGR, these things smooth out, and that's how we think about it. And as we've had conversations, I always remind people that we think about our generics business going forward in that 2% CAGR period, one, because just of the scale we have. Now that said, one thing I do want to reiterate is our biosimilar business, while getting traction in the U.S., we will start now to launch and we have launched some products and biosimilars in the EU, and that will start to build momentum, more so post 2027, but we have a good pipeline coming through in Europe. And we know that's a mature biosimilar market. And so those are things that are going to start to maybe add to that growth in Europe going forward. But I hope that answers your question. With regard to TAPI, I'll give that question to Eli to talk about why restart it and not keep it. So over to you, Eli. Eliyahu Kalif: Yes. Chris, thanks for the question. So look, we were -- during all the process, we were very transparent, and as we mentioned, we actually decided not to progress with exclusive discussion that we had with a certain buyer. And the reason for that is that we see TAPI as a strategic going forward for Teva in terms of our ability to keep sourcing API when it's actually moving as a stand-alone. You need to remember, it's not just kind of a business that we have on the shelf and you divest it and you move forward, this is strategic for us going forward and our ability to make sure that we are providing additional value on short term and long term to our future progress and growth. It's super important. Turn out that certain elements in terms of the discussion didn't went according to the terms that we view how the deal should move on. And therefore, we made that decision. And also, we need to remember that the market condition now changed. Since we launched this sales process. Recent geopolitical development, as I mentioned, and some trade policies highlight some continued attractiveness for TAPI in terms of the landscape. So therefore, we decided to initiate revised strategic review and review the sales process. And as I mentioned, we'll keep all updated and provide further updates pending the transaction or any other determination around this process. Christopher Stevo: Maybe if I can add, just so Eli is not misunderstood there. When he says it's strategic, what he means is they're one of our largest API suppliers, and we need to ensure that any contract we have has the right terms, not just for the purchaser, but also for Teva going forward, both for our in-line products and our pipeline. Operator: Our next question comes from Ashwani of UBS. Ashwani Verma: Congratulations for the strong update. Maybe just like quickly on the 2026 revenue EBITDA, I wanted to understand like if you can continue to deliver growth on both these metrics just as a part of your long-term goals. We have Revlimid phasing out, but you have pretty meaningful cost savings outlined and also talked favorably about AUSTEDO formulary. And then just as a quick follow-up. So the 3Q AUSTEDO looks pretty strong. Is this primarily like regular way underlying demand? Or is there any type of a onetime benefit in this? Normally, you have like a pretty strong 4Q, but with this reiterated guide, it seems like it's indicating a down quarter in 4Q. Richard Francis: Ash, thanks for your question. So starting on the EBITDA, just to sort of remind you, and I think Eli touched upon this in his remarks, the EBITDA is driven by a couple of things next year. And I think it's important to understand this. One is our innovative portfolio has real momentum. As I said, it was up 33% in Q3. And these are products were all growing. So we continue to see great growth rates in those. And by the way, we've spoken about this in the past. These are very high gross margin products. So that really does help impact the EBITDA. So that's one. And then on the -- one of the slides that Eli and I both showed is on the transformation of Teva and the organizational effectiveness. We are on track to do exactly what we set out to do in '25, and that means that our guide to 2/3 of the $700 million net savings for 2026, we feel highly confident about. So if you just put those 2 things together, that really gives us confidence about our EBITDA. But I would probably take this opportunity to then talk about, well, we have some other things around our generics business where now we've lost generic Revlimid. There are 3 components which help us drive our generics business going forward, and that is our generics, our complex and our OTC. And as we've mentioned in the past, we have the ability to compensate for that generic Revlimid by the end of 2027 because we have those 3 different growth drivers and the scale we have in those 3 different businesses. So I think that answers that part of the question. With regard to the one on AUSTEDO, and I think you talked about the strong Q3 and how does that impact Q4? And was there anything behind that? I think there's just a couple of dynamics in that. Firstly, the fundamentals of AUSTEDO are really strong. It's really important to understand. So as you see with regard to our TRx, our milligrams, our growth rates, I think the team has continued to execute at a high level consistently. And I think we've seen that for quarter on quarter on quarter. Now one of the things I just would mention, and I think I mentioned on the last call, in Q3 2024 and Q2 2024, there was some channel stocking with regard to AUSTEDO XR. So that created a slightly different comparison as well as we had some slight gross to net adjustments in AUSTEDO, which are favorable in Q3 of this year. But if you take those out, it doesn't really change the directory much of AUSTEDO. And so I always think about looking at AUSTEDO over a yearly period, a multi-quarter period because I think we've been consistent in hitting our numbers and hitting our targets, and we're very accurate about that. So that's the way I think about it. So I don't anticipate anything very significant in quarter 4. The one thing that we always manage as well as we can, but it's not completely down to us is the channel. And we've been very disciplined in making sure the channel has the right stock, but obviously, that's something which we don't have complete control over, but we've shown good discipline there. So I hope that answers your questions, Ash, and thanks for the questions. Operator: Our next question comes from Les Sulewski of Truist Securities. Leszek Sulewski: So we saw the FDA propose new guidance around biosimilars to reduce comparative efficacy study and potentially speed up the approval process. So 3 questions on this for you. One, how will this updated guidance impact your long-term biosimilar strategy? And then two, on the opposing side, do you see a scenario of additional competition where we'll ultimately see biosimilar price erosion curves resemble traditional generics? And then third, what further investments do you think are needed to give you a more competitive edge? And I guess, ultimately, do you see a scenario where the U.S. reaches a point where the BLA process and the patient access becomes just as favorable versus the EU? Richard Francis: Okay. Yes, that was a multidimensional question. So thank you for that, Les. I think I'll start it off, but I'll also lead into my colleague, Eric here, who obviously is close to that because of the pipeline we have. So firstly, we're pleased with the FDA and that initiation of removing Phase III studies. I think that's the right thing to do. I think that helps. And that's based on data. We have a substantial amount of data now in the development of these biosimilars across many, many products as an industry, and I think this is the right thing to do. Does it change our strategy? Absolutely not. I think it reinforces the quality of the strategy we set out for biosimilars in 2023. And to remind you what that strategy was, our strategy was to have the largest -- one of the largest portfolios of biosimilars going forward, and we're going to do that through partnerships. We do that through partnerships because it allowed us to have the largest portfolio because it allowed an efficient allocation of capital. We also believe at the time that there was going to be uncertainty around what the future regulation was going to be. And so we didn't want to be initiating and allocating capital to things that may no longer be needed. An example is starting Phase IIIs, which are -- they're no longer needed going forward. So I think we sort of thought about where the puck was going. We made a strategy to where the puck was going, and I'm pleased to say I think we've been proven right on that. But ultimately, our strategy is about having a large portfolio. As I've just highlighted, we have 10 in the market. We have 6 we're going to launch by '27, and then we're going to have more going forward. With regard to price erosion, I think a good analog is to look at Europe. And Europe is a very mature biosimilar market and, one, I know particularly well. And what you see there is good penetration. You see that there is some price erosion, but it hits a steady state at a certain time, which allows a high level of profitability still within this category. What I'd also highlight in that market because you did talk a bit about whether the U.S. will replicate it, is you also see an expansion of these molecules and these biologics used in patient population because they are less expensive, they're used earlier in the treatment of these diseases. So you get an increase in volume and obviously offset some of the decrease in price. So those are just some of the dynamics. And I do believe the U.S. will catch up to that. But when you have a broad portfolio and we're launching more in Europe, we're not necessarily beholden to exactly when that happens because of the scale and the size. But maybe, Eric, you could give a bit more detail on your views on this. Eric Hughes: Yes, I can just give a few points to support what you just said. We work closely with the FDA and have frequent communications with regards to a pretty large biosimilars portfolio. We really anticipated the fact that they were going to be removing Phase III from the requirement for most programs and agree with this decision. The technical assessment really has been proven to be the most important thing when it comes to biosimilars, something we do very well. And this is going to decrease the cost of production and approval of biosimilars. It fits perfectly and facilitates the pivot to growth strategy that we put together in the past and really, it supports a lot of the good decisions we've made over the years about how we will do biosimilars at Teva. So it was a welcome decision. It was something we were looking forward to and really fits perfectly into the plan. Richard Francis: Thanks, Eric. And maybe one thing I'd just like to add on, and I forgot it obviously, removing the Phase III need reduces cost significantly. But I would also like to highlight the cost for developing a biosimilar are still high, a lot higher than any other generic, any other complex generic. So I just think that the capital allocation doesn't disappear and the cost of it doesn't disappear. So hence, the number of people coming into the market will I still think be restricted based on that. And the ultimate is not just can you develop it and manufacture it, do you have an efficient go-to-market capability. And I think what we're starting to show in the U.S. and we'll show in Europe is we do have that. And that front end is very important when maintaining a growth and profitability in your biosimilar portfolio. So thanks for the question, Les. Operator: Our next question comes from Umer Raffat of Evercore ISI. Umer Raffat: You said CMS agreement is in line with your modeling expectations. Is it reasonable to assume that's about 50% or so in the ballpark? And then secondly, to get to your 2027 $2.5 billion in sales, are you assuming volume gains because of this IRA cut versus Ingrezza to get to that number or not? And then finally, obviously, olanzapine, I feel like it's taking a bit longer than we all anticipated. But at this point, is there any possibility that you could get a commissioner voucher to accelerate that? Or should we not be thinking about that? Richard Francis: Umer, thanks for your questions. So with regard to CMS, it was in line with our expectations that we set out in 2023. You threw out a number there, which I'm not going to comment on because I think that was maybe trying to tease me out to give you a number, and I'm not going to do that. I'll just say it's in line, and that's why we remain very confident about our $2.5 billion in '27. And I remind people, greater than $3 billion peak sales. You did touch a bit about do we see volume gains within this. And this is not something we've -- without going into the detail of our forecasting model, we go back to capturing more patients, making patients more adherent and compliant and all of those fundamentals. I think what though you have touched upon is something that we're going to understand a bit more in January as the first wave of drugs that were negotiated and CMS start to come through and play out. And we'll see what are the dynamics that happen there, and we'll use that to adjust our modeling as we go forward. And I hope, you, as others will agree, we're very thoughtful about how we model and how we forecast. And at least over the last few years, I think we've been pretty accurate in what has been quite a dynamic environment. Now with regard to olanzapine, I'll hand that one to Eric to comment on whether we could get a Commissioner's voucher. Eric Hughes: Yes. Thank you for the question, Umer. And to start off with, we're right on track with what we plan for the submission of the olanzapine LAI in this quarter. With regard to your question on the Commissioner voucher, that's one of the things we've been reviewing within Teva. One of the great things about Teva is we have biosimilars, a whole portfolio of generics and innovative medicines. So the potential for where we could see a Commissioner voucher is broad. So we're reviewing that now and looking to see what the most optimal -- optimally timed and valuable program is that we seek one of those out for, but more to come on that in the future. Richard Francis: Thanks, Eric. Operator: Our next question comes from Matt Dellatorre of Goldman Sachs. Matthew Dellatorre: Congrats on the quarter and the AUSTEDO agreement. Maybe first on duvakitug, now that the Phase III IBD studies are up and running, how are you thinking about enrollment time lines and potential data readouts there? And then could you comment on any progress on the indication expansion strategy beyond IBD? For instance, could we see proof-of-concept studies announced over the near term? And then maybe just as my follow-up on capital allocation, could you talk about the key priorities in 2026? And as we think about the free cash flow inflection, what are the key points of focus to achieve that full year '27 guide? Richard Francis: Matt, thanks for the questions. I'll hand the first one straight over to Eric on the Phase III and the potential Phase IIs. Eric Hughes: Yes. So thank you for the question. This is one of the things I'm most excited about the design that we've put together with Sanofi. It's all about execution now. As I said it earlier in my comments, this has been the fastest transition from Phase II to Phase III with regards to this MOA of all the programs out there, which we're very proud of. So it speaks to our executional abilities in this partnership. The design itself is really designed to make sure that we maximize the enrollment with the feeder arm that it will get to our maintenance and increase our safety numbers in the program. It's a very convenient and patient-centric design with regards to subcutaneous treatment and the rerandomization. These are all things that will make it ideally suited for patients. And we're also putting a lot of effort in on how we execute the program with regards to the logistics and our vendors that we use. So it's been a really great collaboration with Sanofi. I think we're building upon a lot of momentum and success that we have going into a Phase III program with a Phase II program that was probably had the highest numbers with regards to its efficacy and it's the data set that we produce, these are all good signals of starting a Phase III program. So when it comes to execution, that's what we're going to focus on right now. And I think that we're set up very well to be in the horse race, if not in the middle of it, but hopefully coming up very close to the beginning of it. So that's very well suited. Now with regards to your question about other indications, it's great to see the excitement around this MOA. I mean one of the things about it is the fact that it could touch so many different pathway cytokine signaling pathways in multiple indications. You can see many different Phase II programs initiating now. We have a plan with Sanofi, and we'll let you know when those studies start. For now, we're going to keep it close to the chest. But that, in addition to the excitement around different combinations in the future is also something we've been thinking about heavily. But right now, to begin this discussion is all about the execution of the study, enrolling the study and making sure that we show the value in ulcerative colitis and Crohn's disease now. Richard Francis: Thank you, Eric. And now on the next 2 questions on capital allocation and free cash flow inflection. I'm going to hand those to Eli. Before I do, I do like the fact that you've highlighted our free cash flow inflection because that is something which we are starting to communicate and people are starting to see with the growth of the company, the growth of the innovative, the decrease of the debt, the growth of the EBITDA that this ultimately changes our free cash flow position. So thanks for highlighting the Matt and seeing that. But I'll hand on to -- hand over to Eli to talk about our capital allocation going forward. Eliyahu Kalif: Yes. Matt, thank you for the question. So first of all, I'll start with the free cash flow. You mentioned about how we should think about that trend that we mentioned beyond '27. There are 3 main dynamics there. First of all, it's the mix, right? If you look on the top line and how we're progressing with the top line and how it's going to flow through and convert both profit into free cash flow with the innovative, I would say, portfolio that we have, and we are keeping on investing in our growth driver. The fact that the $700 million of savings is going to actually enable us to drive more efficient COGS with high gross margin as well, I would say, to optimize our OpEx. Those 2 elements are already in progress. There are another 2 that we need to remember. One, we paid for our debt this quarter. From now until October 26, like 13 months, we don't have any maturities, there's $1.8 billion in October, and there is a $2.8 billion in March, May in '27, early '27. If you think about $4.5 billion, $4.6 billion with our current weighted cost of capital of our outstanding debt of 4.8% you get $200 million to $250 million that we're going to take out from a run rate, both from financial expenses going forward and pure free cash flow impact. And then on top of it, our progress on our working capital, you can actually see ourselves running below 4% going from '27 onwards on our revenue. All these actually enable us to convert high free cash flow. As far as related to next year capital allocation, we're actually looking on more, I would say, ability to be able to compete on certain opportunities related to business development that align strategically to our portfolio and to make sure that we are able to provide value to our shareholders. And as we move forward to make synergetic activities around that piece, we'll keep looking on, of course, reducing our debt. And as we move forward, we might also look on some -- certain other elements related to capital and shareholder returns. And we will, for sure, during '26, and we hope also in our next earnings calls, provide some more colors around that kind of capital returns to shareholders. Richard Francis: Thanks, Eli. Thanks, Matt, thanks for your question. Operator: At this time, we currently have no further questions. So I'll hand it back to Richard Francis for any further remarks. Richard Francis: So thank you, everybody, for participating in the call. We do appreciate your interest in Teva, and we look forward to giving you update on our full year results early next year. Thank you. Operator: Thank you all for joining today's call. You may now disconnect your lines.
Operator: " Curtis Frank: " David Smales: " Omar Javed: " Etienne Ricard: " BMO Capital Markets Equity Research Irene Nattel: " RBC Capital Markets, Research Division John Zamparo: " Scotiabank Global Banking and Markets, Research Division Mark Petrie: " CIBC Capital Markets, Research Division Martin Landry: " Stifel Nicolaus Canada Inc., Research Division Michael Van Aelst: " TD Cowen, Research Division Vishal Shreedhar: " National Bank Financial, Inc., Research Division Operator: Good morning, everyone. Welcome to Maple Leaf Foods Third Quarter 2025 Financial Results Conference Call. As a reminder, this conference call is being webcast and recorded. [Operator Instructions] I would now like to turn the conference call over to Omar Javed, Vice President of Investor Relations at Maple Leaf Foods. Please go ahead, Mr. Javed. Omar Javed: Thank you, and good morning, everyone. Before we begin, I would like to remind you that some statements made on today's call may constitute forward-looking information, and our future results may differ materially from what we discuss. Please refer to our third quarter 2025 MD&A and financial statements and other information on our website for a broader description of operations and risk factors that could affect the company's performance. We've also updated our third quarter investor presentation to our website. As always, the Investor Relations team will be available after the call for any follow-up questions you may have. With that, I'll turn the call over to our President and CEO, Curtis Frank. Curtis Frank: Thank you, Omar, and good morning, everyone. It's great to be with you today to share our third quarter 2025 results. Joining me on today's call is David Smales, our Chief Financial Officer. I'll first speak about the business developments from a strategic and operational standpoint, then Dave will provide a more detailed summary of our financial results, and I'll return with a short summary to close out our call here this morning. This quarter marks a historic moment for Maple Leaf Foods. On October 1, we completed the spin-off of our pork operations into Canada Packers, one of the most significant portfolio transformations in our company's history. Canada Packers is now an independent public company focused on delivering premium, responsibly produced pork to the world. Maple Leaf Foods now operates as a purpose-driven, protein-focused and brand-led consumer packaged goods company with a bold vision to be the most sustainable protein company on earth. We will maintain a strategic relationship with Canada Packers through a 16% ownership stake and an evergreen supply agreement will ensure long-term security of high-quality, sustainably raised pork supply. Before diving into our business commentary, I want to take a moment to acknowledge and to thank the entire Maple Leaf and Canada Packers teams who have executed with focus and resilience during this period of intense business transformation. I'm incredibly proud and grateful for their dedication, passion and living expression of our Maple Leaf values. We also wish the Canada Packers team continued success as they prepare to host their first earnings call as an independent public company a little later this morning at 9:30 a.m. A transaction such as this naturally introduces some additional complexity to our financial reporting for this particular quarter. The third quarter represents the final period in which Maple Leaf Foods will report total company results for our pre-spin-off combined business that are inclusive of the pork operations. Accordingly, David and I will speak to the total company results, which include Canada Packers as well as to the continuing operations of the CPG business, which exclude Canada Packers. Additionally, we have provided pro forma financials for Maple Leaf Foods going back 8 quarters to support comparability and transparency as we transition to our new reporting structure. Now given the increase in financial reporting materials, our goal is to keep the key messages clear, simple and focused on what matters the most. To that effect, 4 headlines serve as our key takeaways from our quarter. First, we delivered another very strong quarter of results for the total company, highlighted by exceptional top line growth and significantly improved profitability year-over-year. Second, our year-to-date total company performance through the end of Q3 was firmly on a run rate to deliver in line with our previously announced full year 2025 adjusted EBITDA guidance of $680 million to $700 million. Third, the composition of these results inside the quarter played out a little differently than we had anticipated given a rapid and sustained increase in raw material markets. This dynamic benefited profitability in our pork operations while driving input cost inflation and short-term margin pressure in our CPG business. And finally, we remain on strategy, and we are tracking well against our priorities for the year. Underscoring the strength of the quarter was total company sales growth of 8% and adjusted EBITDA increasing 22% to $171 million. Our adjusted EBITDA margin improved by 140 basis points to 12.6% as compared to 11.2% last year. Our continuing operations also delivered solid results with 8% sales growth and 110 basis points of adjusted EBITDA margin expansion to 11.1%. We continue to view our 8% revenue growth, more than 2x the CPG market growth rate in Canada and 3x the CPG market growth rate in the U.S. as an exceptional outcome that underscores the resiliency and the durability of our proven growth strategies. This momentum also drove market share gains in prepared meats, plant protein and poultry, led by double-digit growth in our prime poultry sustainable meats brand. That said, while we delivered year-over-year margin expansion from an EBITDA perspective in our continuing operations, we also experienced short-term margin pressure on a sequential basis driven by the rapid and sustained increase in raw material markets that I noted earlier. During the quarter, when compared to Q2, key inputs such as pork trims increased by over 70% in a very short period of time. It is quite normal in these periods of rapid inflation to experience temporary margin compression due to the lag time in flowing through price increases to recover costs. These situations are common in CPG, and we know how to respond effectively. In response, we are taking decisive actions to mitigate these effects and to improve profitability looking forward. But firstly, to address the input cost inflation, we have initiated pass-through price increases in the CPG business. Given the timing of these inflationary impacts and the extended lead times required by retailer policies for all CPG companies during the holiday season, these price increases will fully materialize in the first quarter of 2026. Second, with the spin-off now complete, we are advancing the next phase of our Fuel for Growth initiative. Last week, we announced a second wave of SG&A reductions designed to streamline operations, enhance cost discipline and align resources with our strategic blueprint. These changes are now being implemented across several areas of the business, including manufacturing and will result in a leaner organizational structure and further cost efficiencies in 2026. And third, with the separation of Canada Packers, our previous natural hedge against rapid fluctuations in pork markets is no longer available. As you know, all CPG food companies experienced some degree of quarter-to-quarter margin movement, the driver of which is simply normal lag times in executing pricing action, which can vary at certain times of the year and in certain market segments. Going forward, we believe we will have to modify the tools we use in an effort to reduce that quarter-to-quarter movement as much as possible. Our continued success as a purpose-driven protein-focused and brand-led CPG company will depend on the disciplined execution of our proven growth strategies. These include investing in our portfolio of leading brands such as Maple Leaf, Schneider's, Greenfield and Maple Leaf Prime to grow the core business; leveraging our leadership in sustainable meats, expanding our geographic reach into the U.S. market, plugging what makes Maple Leaf unique into our customer strategies and accelerating the pace of impactful innovation. On the innovation front, this was an especially exciting quarter as we once again demonstrated our capability to shape the next generation of Maple Leaf brands and products. We were very pleased to announce the launch of 2 meaningful new brands, Mighty Protein and Musafir. Mighty Protein positions Maple Leaf to leverage the growing protein moment that is upon us, offering healthy, high-protein fuel on the go. Consumers are seeking lean, nutrient-dense complete protein in convenient formats, and that is exactly what Mighty Protein delivers. It is a poultry-based high-protein meat stick, providing 12 grams of complete protein per serving with only 110 calories. It is gluten-free, sugar-free and made with poultry that is raised without antibiotics or added warmines. Mighty Protein will be available in 3 distinct flavors across major mass retail, online and convenience channels. Musafir, which means Traveler, expands our presence in the frozen food section of the grocery store with South Asian-inspired protein-forward dishes designed for today's busy households. South Asians represent Canada's largest and fastest-growing demographic and millennials and Gen Z are driving escalating demand for global flavors and convenient meal options. Musafir offers a variety of globally inspired flavors in familiar formats and ready-to-eat meals, including vegetarian and poultry-based options such as burgers, nuggets and savory bites, all prepared with traditional ingredients. Together, Mighty Protein and Musafir demonstrate the strength of our innovation engine and the momentum behind our CPG growth strategy. As we said last quarter, we are not only brand builders, we are brand creators. Greenfield and MENA have proven this approach and Mighty Protein and Musafir represent the next step in that journey. These new brands alongside over 50 products that we have launched this year, exemplify our commitment to translating consumer insights, disciplined execution and our unique capabilities into compelling growth platforms for the future. With the historic transaction complete and a strong financial and strategic foundation in place, our focus now turns fully to the future. While our previous consolidated 2025 guidance no longer applies following the completion of the spin-off, our 2025 priorities are clear and remain unchanged. We are focused on delivering strong revenue and adjusted EBITDA growth, generating healthy free cash flow and using it to strengthen the balance sheet. We are not providing updated guidance for the remainder of the year as that would imply quarterly guidance. However, we do plan to update our long-term guidance framework in the months ahead. As a diversified protein CPG company, armed with a bold vision to be the most sustainable protein company on earth and supported by thousands of passionate Maple Leaf people, we have never been better positioned to take on the future. Leading in protein, one of the most attractive segments of the global food market, which continues to grow at approximately 2x the rate of population growth provides us with tremendous strategic opportunity. As we look ahead, we are ready to capitalize on this growing consumer demand for protein. We operate in a large and expanding total addressable market, and our strong portfolio of leading protein brands is our advantage. We've established proven revenue growth platforms. Our margin expansion program is well underway, and we remain differentiated by our bold vision and our clear focus on shareholder value creation. It's an exciting time at Maple Leaf Foods. With that, I will now pass the call over to Dave to walk you through the financials. David Smales: Thank you, Curtis, and good morning, everyone. I'll begin with a brief overview of our total company results before turning to a discussion of continuing operations, cash flow and balance sheet. On a total company basis, sales were $1.36 billion, an increase of 8% compared to last year, while adjusted EBITDA increased by 22% to $171 million and adjusted EBITDA margin improved by 140 basis points to 12.6% compared to 11.2% in the third quarter last year. Our strong top and bottom line performance for the total company was driven by robust profitable growth in both our CPG business and pork operations compared to a year ago. As Curtis noted, the overriding factor in the quarter for total company results sequentially was the benefit to pork operations from strong market conditions, while the CPG business experienced the opposite side of this through higher raw material input costs in Prepared Foods. Turning to continuing operations. Sales were $1 billion, an increase of 8% compared to last year. Prepared Foods sales increased by 5.3%, driven by the impact of inflationary pricing taken earlier in the year, along with improved product mix in the quarter. In poultry, sales were up 15.7% due to improved channel mix with growth in both retail and foodservice volume as well as pricing impacts. Adjusted EBITDA for continuing operations increased by 19% to $112 million in the quarter versus the third quarter of last year, with adjusted EBITDA margin improving 110 basis points to 11.1% compared to 10%. Profitability improved in both Prepared Foods and Poultry, supported by favorable mix, efficiency gains and the benefits from the investments in our London poultry and Bacon Center of Excellence facilities. These gains were partially offset by input cost inflation in Prepared Foods, including a 40% increase in pork belly prices and a 50% increase in average poult trim prices versus the same quarter last year. This resulted in a timing impact on margins in the quarter due to the standard lag required to execute appropriate pricing actions. To address this, we have initiated price increases with benefits expected during the first quarter of 2026. SG&A for continuing operations increased by $4.7 million in the third quarter compared to last year, driven by higher variable compensation costs, partially offset by a higher level of consulting fees incurred in the third quarter last year. Earnings from continuing operations for the quarter were $23.3 million or $0.19 per basic share compared to a loss of $1.8 million or $0.01 per basic share last year. After removing the impact of the noncash fair value changes in derivative contracts, start-up and restructuring costs and items included in other expense that are not representative of ongoing operations, adjusted earnings for continuing operations represented $0.21 per share for the quarter compared to a loss of $0.01 per share in the third quarter of 2024. On a total company basis, capital expenditures totaled $27.8 million for the quarter compared to $25.8 million in the third quarter of last year and $77.7 million year-to-date compared to $65.6 million last year. Total company free cash flow was $46 million in the quarter and $378 million over the last 12 months, reflecting the robust performance of the business and disciplined capital spending and following on from the $385 million generated in full year 2024. This strong free cash flow momentum was reflected on the balance sheet with total company net debt ending the quarter down by $242 million versus a year ago to approximately $1.35 billion and down from a peak level of $1.8 billion during our large capital project investment phase. In line with our stated priorities, our leverage ratio remains well within an investment-grade range with a total company net debt to trailing 12-month adjusted EBITDA ratio of 2x at the end of the quarter compared to 2.1x at the end of the second quarter of 2025 and 3.1x a year ago. Upon closing the spin-off on October 1, Maple Leaf repaid $389 million of debt. We also remain focused on disciplined capital allocation, executing on our NCIB in August to repurchase approximately 250,000 shares. And yesterday, Maple Leaf declared its fourth quarter dividend. When combined with the dividend announced by Canada Packers yesterday, the total exceeds the pre-spin quarterly dividend paid by Maple Leaf Foods and reflects our prior commitment that the first post-spin dividends for Maple Leaf and Canada Packers combined would be at least equal to the dividend level immediately prior to the spin-off. I'll now turn the call back to Curtis. Curtis Frank: Okay. Thank you, Dave. Before we move to questions, I want to take a moment to bring it all together. This was truly a historic quarter for Maple Leaf Foods. We successfully launched Canada Packers as an independent public company and at the same time, delivered another very strong quarter of results. Our combined third quarter performance for the total company, 8% revenue growth and over 20% increase in adjusted EBITDA reflects the continued strength and the resilience of our business. In our continuing operations, we have achieved 8% year-to-date sales growth, a 26% increase in adjusted EBITDA to $358 million year-to-date and a 180 basis point improvement in adjusted EBITDA margin to 12.3% year-to-date. That's an outcome we are all proud of, especially given that our sales growth is materially outpacing the North American CPG market, and our margins continue to show strength relative to our protein industry peers. We're also fully aware that we have work to do to recover the sequential margin pressure we experienced this quarter, and we are taking decisive and proactive actions to restore that momentum. Now stepping back, the big picture is clear. We are on strategy. We are executing against our priorities, and we are building momentum for the future. Lastly, I want to thank the entire Maple Leaf team for their dedication, resilience and hard work, delivering a major spin-off, strong financial results and 2 new brand launches all in 1 quarter is an extraordinary accomplishment, and I couldn't be more proud of what we've accomplished together. With that, operator, please open the line for questions. Operator: [Operator Instructions] Your first question comes from Mark Petrie of CIBC. Mark Petrie: Maybe first, just on the top line strength. We saw some sequential deceleration in prepared meats, but acceleration in poultry. Could you just give some color on that? How much of that is pricing? And then maybe just some detail on sort of the volume and mix components? Curtis Frank: Yes, for sure. Mark, thanks for the question. We were -- as I noted in my comments, especially pleased this quarter with the sustained top line growth that we experienced relative to our CPG peers in North America, relative to our pure protein peers continue to see a very, very solid outcome. At an aggregate level, it was a function predominantly of positive mix benefits and price that recall that we took some level of pricing in Q2, turned out that wasn't adequate. We have to take some steps forward, obviously. And also the volumes were relatively flat, but important to note inside of that, that our branded volumes were quite positive. You noted in Prepared Foods that the prepared meats component has slowed. And there's a couple of important nuances inside of that. Prepared Foods includes our Prepared meats and our Plant Protein business combined now that we've consolidated plant protein. And we actually saw what I would -- what we view as pretty strong growth in the Prepared Meats business on the top line. I grew at almost 6%, which implies double-digit declines in plant protein in line with the category, and that's kind of exactly what happened. So very strong growth on the prepared meat side as well at nearly 6%. In poultry, -- you would have noted in our supporting materials that the revenue growth was in and around 16-ish percent. And that's really a function of the positive benefits of the London poultry investment really starting to shine through in a material way. Operationally, everything is obviously on track. It's been an incredible startup. We're through that phase. And the ability now to get more product into a value-added tray with a brand on it is really showing through in better mix. We did have increasing allocations as poultry demand continues to be strong in the Canadian market and allocations are growing alongside of that. So that drove some positive volume impact. And then we also saw the benefits of our sustainable meats business, our Prime RWA brand, in particular, was quite strong in the quarter. We saw double-digit growth in the sustainable meats component of poultry, which was also positive. And you could view 16% maybe structurally as a little on the high side, but there's no question that poultry continues to be a growth category for us and one that's very positive. So all in all, it was a really great outcome on the top line. Mark Petrie: Yes. Okay. I appreciate that color. And then just to follow up, you obviously highlighted the pressure from the higher input costs. Could you just give some more detail on the price actions you've taken, some context on how you expect Q4 to be impacted versus what you felt in Q3? And then will those be fully implemented for Q1? Or will there also be some spillover effect to Q1? And obviously, this is pending how the cutout trends from here. Curtis Frank: Yes. I mean there's some moving parts inside of that, as you're well aware. But I think the headlines would be, first and foremost, we don't offer quarterly guidance. So we didn't provide an outlook for Q4 specifically. But I do feel as though adding some color is important. In Q3, the headline would be pleased with the progress year-over-year from a margin point of view, added more than 100 basis points of margin. So that was, again, very positive, very constructive and shouldn't get lost in the overall narrative. We did see sequentially, as we noted, I think, with full transparency that there was a sequential headwind mostly due to raw material input costs, and that impacted us on a sequential basis. As we look to Q4, I think the headline would be expecting kind of more of the same would be similar market conditions overall would probably be the best headline I could give you for Q4, a similar market conditions overall. We have taken steps to proactively restore the margin on a sequential basis. That includes but isn't limited to, includes taking price increases effective Q1. Those take effect, Mark, in and around the very first week of February. So think about that as impacting Q1 in most of Q1, I think, would be the headline, and we fully expect to get back right on track after that. Operator: Your next question comes from Martin Landry of Stifel. Martin Landry: I just want to go back to the comments on Q4. You take a lot of effort to highlight the fact that raw materials are rising have risen fast. But I'm not too sure what will be the impact on your margins for Q4. You -- the previous answer was not too clear for me anyways. Just do you expect margins to be under pressure on a year-over-year basis in Q4? Curtis Frank: Martin, as I noted, -- we expect similar conditions in Q4 than Q3, which would imply similar types of margin pressure in the fourth quarter as we experienced in Q3. The remedy for that is advancing our pricing forward. And we're doing that now. We've communicated that to our retail customers and our retail partners now, and that will be in place for February. There's a normal period of time that all CPG companies face over the holiday season that's upcoming where the retailers implement what's essentially a blackout policy to protect and preserve the holiday season. So you won't see price changes for all consumer packaged goods companies, all consumer packaged goods, food companies through that time period. That window reopens on February 1, and we're taking steps to improve our pricing in February. Martin Landry: Okay. It's not easy to read between the lines, but you're saying that you expect similar market conditions. Your gross -- your profit margins expanded on a year-over-year basis in Q3. So is -- when you say similar market conditions, is that what you imply? Curtis Frank: When I say similar market conditions, I'm implying we'll have sustained margin pressures in the fourth quarter like we did in the third quarter. Martin Landry: Okay. Okay. And then just to talk about your new brands that you've launched. I understand these are available right now in Canada. Can you talk a little bit about the distribution you have currently and then how that may expand on a go-forward basis? Curtis Frank: On the 2 new brand launches? Martin Landry: Yes. Curtis Frank: Yes, I can. Actually, Martin, the one thing I would add on the margin side that you might want to consider as a follow-up and our team can help as well is to explore the relative margins that we have in the business even under sustained raw material pressures as compared to our protein peers. And our team would be happy to follow up with you and kind of walk you through our view of that because I think it might be helpful and informative. On the 2 new brand launches, we're really excited about Mighty Protein and Musafir for very different reasons. I kind of dug into that in my opening comments. Both are being incredibly well received in terms of -- they're both being launched into the market in real time right now to start this fourth quarter. So they'll start to show up on grocery stores in the short next couple of weeks. And the distribution support has been very, very strong. They'll be broadly distributed -- we tend to have really great coverage across all of our brands in the Canadian retail market. These are Canadian brand launches, and they will be incredibly well distributed throughout the Canadian market. Mighty Protein actually being a shelf-stable product also gets us access to some alternative channels where we traditionally haven't had as much penetration, things like convenience, could be gyms, convenience locations, areas where shelf-stable products are more prevalent. So it actually expands our distribution reach. And that's another reason why we're so excited about that product, both incredibly on trend, taking full advantage of the protein moment, which we don't view as a fad, we view as foundational to the human diet and 2 brand launches that we're really, really excited about. And we have a history of being able to scale up brands in the Canadian market. Last quarter, we highlighted 2 very important ones, I think, in Mina and in our Greenfield Natural Meat Company offering. And these are just the next 2 brands that we're launching in our large portfolio, and we're probably equally, if not more excited about. Operator: Your next question comes from Michael Van Aelst of TD Cowen. Michael Van Aelst: So I just wanted to follow up one more time on the Q4 pressures, margin pressures. I mean I fully understand the timing delay in passing on higher costs. The one thing I wanted to ask you about, though, is we obviously came into the quarter with much higher pork costs. But we've seen a big drop off -- a big seasonal drop-off in the hog price over the course of November. So can you explain like how early you lock in prices for the quarter, your cost for the quarter, sorry? And if the hog prices and therefore, the pork cutout were to stay at the current levels for the rest of the quarter, would that create a reasonable amount of relief to the pressures that you saw to start the quarter? Curtis Frank: There's a few things that matter inside that question, Mike, first. There is a lag effect in terms of when those cost benefits flow through. So the effects of early -- of late Q3 spill into Q4, the benefits that we'll see in Q4, hopefully, as markets come off, hopefully, we'll experience in the first quarter and so on. There's a combination of risk management programs, the pricing lags that naturally take effect and the time it takes for those meat costs to flow through into the P&L. So that's one component that I think is important. The other thing is the composition of the cutout in technical terms matters. But really what that means is the cuts of meat that carry the increases are really important. And the cuts that go into the prepared meats business, things like trims and bellies have been particularly impacted. So you have to look beyond the cutout to the individual cuts that are affected from an inflationary point of view. and that's important. And then the last thing I would note is it's not just pork inflation that's impacting the business. And I know we've talked about that a lot, particularly given the communication importance of this quarter with the separation of Canada Packers and the moving parts between the two companies. But beyond pork inflation, we're seeing a situation, I think, as you're well aware, where beef inputs are at all-time highs. Turkey in real time is being impacted by the avian influenza implications in the North American markets. Poultry demand is strong and markets continue to be strong. So all competing proteins have relative strength all at the same time. And it's really the combination of those inflationary effects that impacted the third quarter, and I think will continue to impact Q4. And as I said, is normal in CPG, you feel inflation there's a normal amount of lead time to flow increase pricing through against that inflation, and we'll do that in the first quarter. Other than that, I'll resist the temptation, as I always say, to give you quarterly guidance because I think that would be inappropriate at this time. But that just gives you some further context for why we're saying we expect similar market conditions to persist into the fourth quarter. Michael Van Aelst: Okay. Great. That's helpful, Curtis. And then you also touched on or teased us with some comments about how that you plan to modify some tools and use them to minimize the volatility quarter-to-quarter. Can you provide some examples of how you may do that going forward and I guess, why you weren't doing it previously? Curtis Frank: Yes. Well, we have -- great question. Thank you, Mike, an important reminder for me to talk about. We have been doing them previously. So the -- there are 3 things we're doing in response to the inflationary impacts we're feeling. We've talked about the pricing changes, and that's one that's important. Always important in these inflationary environments to manage our costs to the best of our ability. And you would have heard me comment in my remarks earlier that we've taken the next step in our Fuel for Growth playbook around cost reduction, and we're completing another SG&A reorganization actually in real time here in the last week or 2, and it's continuing on. So that's -- number two is managing our costs in an effective way. The third question, which is the one you asked is what steps can we take that we're not taking today. to improve the stability of our margins kind of quarter-to-quarter. I would start by noting, and this is a very important context that all consumer packaged goods companies in food, virtually all of them in food have some level of quarter-to-quarter margin movements embedded in their business. All food CPGs have that. We do too. This just happens to be a quarter where that was clearly evident. There are 3 things, Mike, that we're exploring given the separation. And we did have a bit of a natural hedge between the pork business and the Prepared Foods business. I think it's important to be transparent about that. We knew that was obviously going to be disrupted. That's not necessarily new news, but this quarter just happened to illuminate the significance of that. The 3 things that were studying only to see if there's something we can do different beyond what we're doing today are, number one, our pricing mechanisms. How much is on formula relative to list price, how we manage our deal and future pricing inside of any particular quarter. And I think it's just good hygiene to explore those pricing rhythms and pricing mechanisms. So we're just stepping back in that area. The second is the role of physical hedges, meaning using physical inventory as a natural hedge in the procurement function. And there are implications to storage and things like that, that we're evaluating and studying. And then the third is the efficiency and the efficacy of our derivative hedges, our financial hedges. And of course, in pork, you hedge hogs, not individual cuts of meat. So there isn't always a straight line to perfect efficiency, and we're stepping back to study our effectiveness in that area. It doesn't mean we don't deploy all 3 of these mechanisms today. It does mean that we're taking prudent steps to evaluate whether there are further opportunities to kind of manage the quarter-to-quarter movements in margin. There will always be some. There is in all CPGs. These steps won't be perfect, but we do believe there's potential that they could be helpful. Operator: Your next question comes from Vishal Shreedhar of National Bank. Vishal Shreedhar: With respect to the pricing, it seems like Q3 got -- had margin impact related to commodity inflation. You anticipate Q4 will as well and then part of Q1 will. So it just seems like a very long lag. And I'm wondering if there's something about Christmas that's causing you to not be able to take pricing quicker than you otherwise would have? Or should we anticipate in an inflationary environment, it could be upwards of a 6-month lag? Curtis Frank: That's an excellent question. I appreciate that, and I appreciate you asking and giving me the opportunity to clarify. Normal lead times in consumer packaged goods are about 12 weeks, about, depending on the channel, maybe even 8 to 12 weeks. Christmas, the holiday season is a unique time. And it's a unique time because it has abnormally longer lead times. And all CPGs face those abnormally longer lead times over the holiday season, all CPGs, and we are one of them. And that's because retailers have policies where they don't accept price changes over the holiday season. And the first date they allow after the holidays is February 1, and that's when we're moving forward. So it's an abnormally long period of time. We acknowledge that. And we're simply operating within the normative rules that apply equally to the industry. Vishal Shreedhar: Okay. With respect to the product launches and the 50 new product products that you referenced earlier in the call. Given that this is a new spinout, I'm having difficulty understanding the magnitude of this. Is this a regular year? Is this something strong? And what should we expect from that growth initiative in terms of numerical quantification to help us quantify how meaningful this is? Curtis Frank: On the 2 brand launches, Vishal? Vishal Shreedhar: On the 2 brand launches... Yeah... Just in total of your innovation pipeline and how significant I anticipate that to be as I look forward? Curtis Frank: It's -- we included a couple of slides in our deck, and that might be the materials that you're referencing. The first slide was just demonstrating the fact that we put out more than 50 items into the market this year. And then the next 2, obviously, highlighting the 2 new brand launches. And those are there for a reason. And I would start by saying if you took a little bit longer lead time, and we were backed up to a certain extent given the implications of the pandemic and the fact that not a lot of innovation went out the door in the pandemic in the early parts of the post-pandemic economy, and we're now getting back into, I would say, above-average rhythm of launching products into the market. I mean, keep in mind, Maple Leaf is a company that has 8% revenue growth. And when you compare that to the broader consumer packaged goods market to our peers, it's very, very strong. And our desire and goal and commitment is to keep that level of growth sustainable well into the future. So when you're looking to quantify the impact of these -- this is what great CPG companies do. They launch items, they launch items that have the potential to be impactful. Some of them simply are aid in the sustainment of the current trajectory of growth. Some of them tend to be more incremental where you move outside of core categories and into new adjacent categories. That's why we're excited about the meat snacks opportunity, in particular, because it's an adjacency. But I would think about these more as this is a business that's growing above mid-single-digit levels at or above mid-single-digit levels of growth. We want to sustain that. These are the types of activities that we're taking to sustain that level of growth. This, combined with our leadership position in sustainable meats our U.S. growth platform that we continue to be excited about. The brands we launched last quarter that we highlighted like Mena and Greenfield, the core brands that we have in our portfolio that are #1 and 2 brands in the category, Maple Leaf, Schneider's, Maple Leaf Prime. When you pull all that together, that's the very reason that we're experiencing the outsized growth rates that we are in the market today. And these brand launches are intended for us to continue that level of success. Vishal Shreedhar: Okay. With respect to SG&A, the SG&A initiatives that you have coming in Fuel for Growth, is there an ability for you to give us some sort of magnitude of the benefits I should anticipate in 2026? Is it... Curtis Frank: Yes, we will at some stage. I think that would tie into our 2026 outlook, which is which we understand there's a desire to understand and will come after this particular call. What's important to note is even in the last quarter, Vishal, we did pick up 50 basis points of leverage in our SG&A rate as a percentage of sales. So you're starting to see the benefits of some of the reorganization work that we've done shine through, and there's more work coming, obviously. But that will all be embedded in terms of the 2026 benefits of things like our SG&A work, the procurement work that we've already completed, the work we're doing from a manufacturing point of view, that will have a multiyear benefit. You can expect to see that when we provide more clarity on our 2026 outlook. Vishal Shreedhar: Okay. And sorry, just to jump back to the pricing comment and the pricing coming in, in Q1. So is that pricing that's coming in for Q1 reflects the situation today? If the commodities continue to escalate, at what point is there a cutoff such that Q1, you won't be able to pass on the entirety of the price subsequent to that date, that February date that you mentioned. And this commodity impact may linger into Q2 or Q3. Obviously, we don't have the history to gauge MFI's RemainCo vulnerability to these commodity swings. So I want to be able to triangulate that in future quarters should commodity prices continue to run. Curtis Frank: We're pricing for all the known inflation we have today. That's essentially what the market kind of allows for. It's very difficult to move forward and price for what we don't know. So we'll continue to adjust our pricing as required moving forward if it's required. But at this stage, we're very confident that we've included all the known inflation that we have in the business. Very uncommon that, that would linger Vishal for several quarters, very uncommon. What we don't know is the consumer response to new pricing in the market and the volume impacts that come with that, and that will certainly play itself out over time. Very important to have the #1 and #2 brands in the category and the type of marketing and innovation support that we do have in inflationary environments like this. Vishal Shreedhar: If -- so to ask my question another way, if the inflationary environment continues to the end of the year, your pricing -- your pricing in December reflect -- in February, sorry, will reflect the commodity price today. Is that -- do I characterize that correctly? -- with that? Curtis Frank: Yes. Operator: Your next question comes from Irene Nattel of RBC Capital Markets. Irene Nattel: I want to come back to consumer behavior. And obviously, we're hearing a lot of discussion about yesterday, Pet Value used the term uneven. We're hearing a lot about value-seeking behavior. And in the release, you noted promotional spending was up. It was a factor in both poultry and prepared foods in Q3. So I was just wondering what you're seeing out there and also what the retailers are kind of demanding or asking for in terms of promotional support. Curtis Frank: I would view the headline for the consumer environment as stable but cautious. And the caution is a result of all the things we know about today, ongoing inflation, some of the geopolitical tension that exists in today's world. And as a result, value seeking continues to be a key theme. And that hasn't changed quarter-over-quarter from our perspective and it is certainly a key theme. Where we're excited is where we're positioned in the market to offer value to value-seeking consumers, I think, is really, really positive. Number one, we're a protein-focused company at a time when protein demand is very strong and growing. Our leading brands allow us to have capabilities across all value segments in the grocery store, whether that's our leading premium brands, our RWA brands or some of our regional value brands, which give us an opportunity to compete in different areas of our categories and across different parts of the grocery store. We have a scalable growth platform in the U.S. that we're obviously excited about that gives us some level of growth support and our leadership in sustainability and sustainable meats continues to kind of differentiate us in a really positive way. You combine those things with the innovation that we're putting out and feel really good about our ability to compete and grow inside of what's clearly a difficult and continues to be challenging consumer environment. That will be tested in the first quarter when we take additional inflationary pricing and continue to be really confident that the volume response will be positive. I mean we did already take pricing in the second quarter from an inflationary point of view. So it's not like we didn't see this inflation coming, just the magnitude and the duration exceeded our original forecast, and now we're coming forward with another wave. And the volume response in the last quarter has actually been pretty positive, like the branded volume growth was up this past quarter, and I view that as a success story. Irene Nattel: That's great. And just on the trade promotion piece of it, would you say that it's sort of normal levels, above normal levels right now? Curtis Frank: No, still more promotional, still above kind of "normal levels" Irene, still above. There's still more promotional support required to get the volume and the market share outcomes that we're seeing. And that's, to a certain degree, one of the reasons why you're seeing strong growth, 8% and margins that are pressured somewhat in the short term. You take the combination of the inflation and the consumer environment, those 2 things combined are really what's putting pressure sequentially on the margin. But again, on a relative basis, really happy. On a year-over-year basis, really happy from the top line perspective, really happy, need to own the fact that we've taken a step back sequentially, and we need to get that back on track. Operator: Next question comes from Etienne Ricard of BMO Capital Markets. Etienne Ricard: As it relates to the U.S. business, what sales performance are you seeing in this geography? And how would the pricing power differ between Canada and the U.S. given I believe the U.S. tends to be more sustainable meats. Curtis Frank: Yes. That's a very important point. I'll answer the second part first. We're obviously a much smaller player, both in terms of our brand presence and our absolute size in the United States market. But what gives us pricing power in the U.S. is our meaningful point of difference in sustainable meats. We've got a leadership position in the sustainable meats segment, while small portion of the United States market growing rapidly. We're growing inside of that. So that gives us pricing confidence. And I don't think given the inflationary support, that's very clear that exists today that we'll have any problem in a material way of passing that through in the U.S. market. So that brand leadership gives us that level of support in sustainable meats, which is a competitive difference and continues to be positive. We did see positive growth in our prepared meats business in the U.S. this past quarter, and we expect that to continue. Operator: Your next call comes from John Zamparo of Scotiabank. John Zamparo: I wanted to follow up on trade promotions and specifically the seasonality. But I think in the past, you've said that Q3 is typically the peak. Is that still the case? And I don't suspect you'll quantify a year-over-year change in Q3, but whatever that number was, do you expect it to remain similar in Q4 on a year-over-year basis? Curtis Frank: Yes. I don't think you'll see a material departure Q4 versus Q3 from the promotional intensity and frequency that exists in the business. It tends to shift. Summer tends to be hot dogs and sausages, winter tends to be ham and bacon so -- and the peak season throughout the holiday season. So the category dynamics change, but the -- from a materiality perspective, it's not significantly different between Q4 and Q3, I think, in the new business. John Zamparo: Okay. And I wanted to ask broadly about price elasticity from consumers at the current time. I know there's a lot of uncertainty here. You don't have a crystal ball, but it doesn't seem like you're seeing trade down based on your comments about branded sales and RWA, but I wonder if just the general context of the consumer environment makes you think differently than you otherwise would. And it's early in Q4, but any signs that you've seen any change there? Curtis Frank: Well, we've seen a margin impacted by higher levels of promotional intensity for certain. That's happened for certain. Otherwise, we think we'd be operating at higher levels of margin than we are today, even higher than we are today. So that's played out. And I don't expect that will change materially in the quarter ahead. John Zamparo: Okay. And lastly, on the Buy Canada theme, it's always tough to measure this, but I wonder what you can say about what you thought the impact was in Q3? And is it fair to say we're seeing a more moderate impact in Q4? Curtis Frank: I think so. I mean it's -- like you said, it's very difficult to quantify the impact. We'd like to think there's positive tailwinds in that area. There's lots of pride in all things Canada these days as I think there should be. Very difficult to quantify, and I would suspect it's moderating. I've been in the camp squarely that from day 1, we should expect that, that will be momentum that's maybe a little shorter lived than we would all like. And at some point in time, it would moderate. And I think we're -- what you're seeing here in terms of our growth is less by Canada and more really solid execution of what our proven growth strategies in the market are proving to be resilient, durable, effective and growth strategies that we think will take us well into the future. John Zamparo: Okay. And sorry, just one more. On the long-term guidance framework that's coming near term, I assume you don't want to steal its thunder, but any sense of what investors can expect? Is it likely to focus on a specific margin target? Or are you leaning more towards an overall growth algo? Anything you're willing to share at this point? Curtis Frank: Not much I'm willing to share. I think it's premature. We're in the process right now, and this is normal in our business that we'd normal at this stage. Our 2026 budget gets presented to our Board in the month of December, along with our forward-looking strategic plan for the future. And the outcome of that dialogue discussion and approval and alignment process will ultimately guide our communications around guidance. So I think it's premature today. And -- but you should expect us to be coming forward with that in the short coming months ahead. Operator: [Operator Instructions] Your next question comes from Michael Van Aelst of TD Cowen. Michael Van Aelst: I just want to follow up actually on the top line growth, which has been impressive this year, even if it is slowing a little bit as we kind of cycle tougher comps as well. But the 2 new brands that you're launching, can you talk about the addressable market for these? And if you don't have a specific number, maybe something what you think relative to the MENA and the RWA, for example? Curtis Frank: Well, the Musafir brand, MENA is probably a good proxy, Mike, in terms of the total addressable market, a very fast demographic opportunity in the Canadian market. But what's interesting, and we commented on Gen Z and millennials having a really interest -- having a real and sustained interest in global food flavors and maybe less of a propensity to cook from scratch. And those 2 things combined, the desire for more diversity in flavor offerings, a more diversity in food offerings but in a prepared meal occasion makes the total addressable market for Musafir maybe even larger than the Halal opportunity. So I would say equal to or greater than what we've seen and experienced in MENA Hal without putting a number around it. have to spend some time doing that. I haven't, but I could. On the meat snacks opportunity, this isn't your normal kind of meat stick. Number one, it's not refrigerated, it's shelf stable. Number two, 12 grams of protein at 110 calories is a really awesome nutritional benefit for people who are looking for healthy protein on the go. And that's a large and very rapidly growing total addressable market. What's exciting about meat sticks is the ability to, number one, have success in our core business, which would be the retail environment, but also extend distribution into alternative channels, health food stores, convenience locations, gas and convenience locations, drugstore offerings, which obviously, as you know, are large and growing gyms, workout facilities, the shelf stable reach makes the distribution opportunities much more material, and we're already having success in gaining distribution in those areas. So I'm excited to -- looking forward to report out a little bit more news around the success. Right now, we're just getting the product into the market. And our supply is selling out quickly, which is always a very positive outcome in a product launch. And I'm sure we'll give some positive updates along the way. Michael Van Aelst: Great. That's helpful. And last question. With leverage down at 2x now, what is your -- what's the plan for free cash flow next 12 months? And should we -- and given the weakness in the share price, is it your intention to be active on your NCIB? Curtis Frank: David, maybe you'd cover this one. David Smales: Mike. Similar to Curtis comments around outlook for 2026, obviously, this view of capital allocation and how that aligns with our view of the next 12 months all kind of wrapped up together. What I can say is -- and consistent with what we say in the outlook, we intend to continue to build on the track record of growth in the annual dividend that is a key focus for us. We are evaluating those future capital allocation opportunities with a desire to return capital to shareholders. And we're just working through the strategy for that, timing for that, the quantum of that, but that will all be wrapped up in the guidance we give going forward as well as our view that the share price is undervalued today. I talked about this last quarter. Nothing has changed in our view today post the spin. And so all those factors will be things that we're considering as we lay that out going forward. But I'm not going to talk to specifics today, but it is a very active conversation. Michael Van Aelst: Is there anything preventing you from buying back stock this quarter? David Smales: Obviously, been in a blackout period up until now this quarter. There's nothing in and of itself presenting any obstacles to implementing share buybacks when we're outside of blackout period. We are mindful of the Butterfly structure, and that has some restrictions around it. But as we demonstrated in August, we have some flexibility to operate within that. And that's all part of the algorithm we're working through right now as we decide on the right strategy going forward. Operator: There are no further questions at this time. I will now turn the call back over to Mr. Frank. Please continue. Curtis Frank: Great. Thank you for joining us today. It was obviously a historic quarter with the completion of the spin-off of Canada Packers. There was lots of complexity required in our reporting this quarter, but we tried our best to simplify the key themes for you that are of most importance and appreciate your patience in taking the time to walk through with us today. On the surface, it was a very successful quarter, 8% growth on the top line, a significant improvement in our adjusted EBITDA. And our focus moving forward is obviously on sustaining the growth momentum we have in the business and continuing to create value in a way that's inspiring and enduring, and we're looking forward to speaking with you next quarter. So thank you, and have a great day. Operator: Ladies and gentlemen, that concludes today's conference call. Please thank you for your participation. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by. At this time, I would like to welcome everyone to the OraSure Technologies, Inc. 2025 Third Quarter Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to Jason Plagman, VP of Investor Relations. You may begin. Jason Plagman: Good afternoon, and welcome to OraSure Technologies Third Quarter 2025 Earnings Call. Participating in the call today for OTI are Carrie Eglinton Manner, our President and Chief Executive Officer; and Ken McGrath, our Chief Financial Officer. As a reminder, today's webcast is being recorded, and the recording can be found on our Investor Relations website. Before we begin, you should know that this call may contain certain forward-looking statements, including statements with respect to revenues, expenses, profitability, earnings or loss per share and other financial performance, product development, shipments and markets, business plans, regulatory filings and approvals, expectations and strategies. Actual results could be significantly different. Factors that could affect results are discussed more fully in OTI's SEC filings its annual report on Form 10-K for the year ended December 31, 2024, its quarterly reports on Form 10-Q and its other SEC filings. Although forward-looking statements help to provide more complete information about future prospects, listeners should keep in mind that forward-looking statements are based solely on information available to management as of today. OTI undertakes no obligation to update any forward-looking statements to reflect events or circumstances after this call. With that, I'm pleased to turn the call over to Carrie. Carrie Eglinton Manner: Thanks, Jason, and thank you to everyone for joining us today. Today, I will discuss some highlights from Q3 and our progress on key priorities for 2025 and beyond. Overall, we continue to significantly advance our strategic transformation and execute with discipline as we position OraSure for a return to growth in 2026. We have delivered meaningful progress and continued strengthening our foundation. We're also elevating our core growth by expanding and diversifying our product portfolio and customer relationships plus we're accelerating profitable growth through investments in internal R&D as well as acquisitions and partnerships that leverage our existing capabilities and to offer an attractive risk-adjusted ROI. Looking at our Q3 results, total revenue was $27.1 million, and core revenue was $27.0 million, which included Diagnostics revenue of $14.5 million and Sample Management revenue of $10.3 million. Broadly speaking, our key end markets remain mixed, and we continue to partner with customers that are navigating an environment with elevated levels of uncertainty related to funding for public health programs and research as well as the government shutdown in the U.S. That said, we view 2025 as a transition year, and we're excited about pipeline opportunities in attractive markets that align with our strengths to drive growth in 2026 and beyond. In our International Diagnostics business, we discussed on our last earnings call that we anticipated a slower pace of orders for our HIV test in the second half of the year as our in-country partners work through their existing inventory and national health programs adapt to changes in the funding environment. That trend played out as expected in Q3 and thus far in Q4. For the full year 2025, we now expect that revenue from our International Diagnostics business will be in the low to mid-$30 million range, representing a decline of approximately 20% compared to 2024, which was a record year for International Diagnostics. Staying with our International business, we are pleased to share that OTI signed a definitive agreement to acquire BioMedomics. This tuck-in acquisition expands OTI's Diagnostic portfolio by adding Sickle SCAN, a rapid point-of-need test for sickle cell disease that is sold outside the U.S. The global sickle cell testing market, particularly in high burden regions in developing markets, is underserved and fragmented. We believe Sickle SCAN addresses this need with a high-quality, affordable rapid point-of-care test and there is support from government agencies and global health organizations to increase access to sickle cell testing at the point of need. We see an opportunity to expand the reach and adoption of Sickle SCAN by leveraging OTI's strength including our international sales channels and our existing relationships with national health programs, particularly in Africa and Latin America. Furthermore, many of our international customers and partners have expressed interest in a reliable, low-cost, rapid diagnostic test for sickle cell disease. Transitioning to our U.S. Diagnostics business. Our public health customers are adapting to significant reductions in staffing at HHS, CDC, SAMHSA and other federal agencies that support public health programs, along with budgetary uncertainty and challenges related to the federal government shutdown. We are continuing, however, to see traction with our syndemic approach that leverages our portfolio of rapid tests across multiple conditions. And we are expanding our customer base in nonpublic health markets such as urgent care, hospital emergency rooms and correctional facilities for rapid hepatitis C testing plus online channels specializing in consumer-initiated testing. Overall, for the full year 2025, we expect our U.S. Diagnostics business to generate revenue in the low to mid-$30 million range representing a low single-digit percentage decline compared to 2024. We also wanted to provide an update on Together Take Me Home, a collaboration funded by the federal government that makes HIV self-test available through the mail in order to advance the President's goal of ending the HIV epidemic. We are pleased to share that this highly effective life-saving program was renewed by the Trump administration with strong bipartisan support in Congress. As a result, Together Take Me Home is continuing for program year 4, which runs from October 2025 to the end of September 2026. We expect to recognize approximately $1.8 million of revenue from Together Take Me Home in Q4 and anticipate a similar pace of quarterly revenue in 2026. Switching gears to our Sample Management business. The overall trend continues to be mixed. SMS revenues increased on a quarter-over-quarter basis in Q3, but we anticipate a sequential decline in Q4, which is consistent with the typical seasonal ordering pattern for this business. For the full year, we expect revenue from Sample Management products in the high $30 million range, which would be approximately flat compared to 2024, if you exclude the impact of the decline in orders from a large consumer genetics customer. Looking ahead, we are confident that the Sample Management business is positioned to return to growth in 2026 and beyond. As genomic end segments gradually return to stronger growth driven by clinical adoption of precision medicine. Our confidence is also supported by continued scientific and technological advancements such as the increasing utilization of short-read and long-read genomic sequencing, the decline in unit costs for sequencing and analysis and advancements in areas such as proteomics. We are also seeing early signs of positive trends in some international markets, such as the Middle East, that are planning to invest in population health studies using novel sample collection devices in order to accelerate precision health and life sciences research in the region. We're also pleased to share that the ENDO 100 projects has selected multiple kits from our OMNIgene and Colli-Pee product lines for the collection and stabilization of a variety of sample types, including saliva, urine, stool and vaginal swab. The ENDO 1000 project is a United Kingdom wide initiative aimed at accelerating discovery and advancing data-driven research into the diagnostics and personalized treatment of endometriosis. By collecting biological samples and lifestyle data from participants over 2 years, the study seeks to uncover patterns that can inform more effective individualized care strategies. The inclusion of our sample collection kits in this landmark study underscores their value in enabling high-quality research and positions us for continued growth in the Precision Health and Clinical Research segment. Now I'll transition to our exciting pipeline of innovation, including an update on several products targeting attractive markets. Midyear, we launched a blood collection tube with stabilization chemistry for research use only, or RUO, markets in the burgeoning field of proteomics. We also anticipate near-term milestones for Colli-Pee urine collection, initially for sexually transmitted infection, or STI, indications and future expansion in the liquid biopsy. And our Sherlock Molecular Diagnostics Rapid Test platform whose first assay is expected to serve the large and growing chlamydia and gonorrhea, or CT/NG, segments of STI. As we discussed last quarter, our HEMAcollect PROTEIN product launched in July 2025 in the RUO market, like I just mentioned. Since this launch, we've received positive and insightful feedback from our customers and early adopters that will help inform our road map as we enhance our proteomics product line and build additional momentum in 2026. Additionally, OTI is presenting at the upcoming Human Proteome Organization World Congress to highlight HEMAcollect PROTEIN's proprietary stabilization capabilities and its performance across a range of proteomics technology platforms. Moving to our Colli-Pee device, which is designed for first-void urine collection. We plan to submit clinical trial data to the FDA for STI indications by late 2025 or early 2026. Receipt of approvals for these applications subject to regulatory review, would be in addition to our existing Colli-Pee RUO product and is expected to further strengthen our competitive position in novel urine collection. Our analytical and clinical studies are demonstrating strong performance and flexibility across multiple target analytes. We're in advanced discussions with leading diagnostics platform providers that are interested in enabling self-collected noninvasive testing across large and growing markets, including STIs, HPV and other disease states. Next in product innovation. Regarding our Sherlock over-the-counter Molecular Diagnostics self-test platform and its first assay for CT/NG, we are making good progress in our clinical trial and our plan for submission to the FDA in late 2025 or early 2026. We anticipate gaining momentum for our product launches for innovation, and it's the work we've done in transforming our enterprise that also allows us to invest in creating a pipeline of earlier-stage opportunities in high-value growth markets that fit well with our strengths and our product platforms where we can compete and win. Examples include categories where we already have a presence like in infectious disease and STIs plus in newer ones like liquid biopsy or say antimicrobial resistance, where rapid tests and differentiated chemistries have outsized potential to create and add value. We look forward to sharing more details as new product opportunities progress through our development process. With that, I'll turn the call over to Ken to discuss our financial results and guidance. Kenneth McGrath: Thanks, Carrie. Total revenue in the third quarter was $27.1 million. Core revenue, which excludes COVID-19 products and the molecular services and the risk assessment testing businesses that we exited was $27 million. Diagnostic products generated $14.5 million of revenue in Q3, and Sample Management Solutions revenue was $10.3 million. Excluding the headwind from the consumer genomic -- genetics customer, Sample Management revenue from the rest of our customer base grew on a year-over-year basis in Q3. Our GAAP gross margin in the third quarter was 43.5% and non-GAAP gross margin was 44.2%, which was slightly better than our expectations due to lower scrap expenses. GAAP operating expenses in the third quarter were $27.9 million, which includes $2.8 million of noncash stock compensation expense and $376,000 of expense related to an increase in the estimated fair value of acquisition-related contingent consideration. Depreciation expense was $2.6 million in the quarter. Our GAAP operating loss in Q3 was $16.1 million, and our non-GAAP operating loss was $12.7 million. Looking at our balance sheet. We ended Q3 with 0 debt and total cash and cash equivalents of $216 million. Operating cash flow in the third quarter was negative $10 million, which was consistent with Q2 and our expectations given our investments in the Sherlock platform, the CT/NG clinical trial as its first assay and other innovation projects. We deployed $5 million during the third quarter to repurchase approximately 1.5 million shares of our common stock. Consistent with our capital deployment strategy, we also continue to evaluate organic and inorganic growth opportunities. As Carrie mentioned, we have signed a definitive agreement to acquire BioMedomics as a tuck-in commercial stage acquisition for $4 million upfront and potential contingent consideration upon achievement of revenue milestones. BioMedomics is currently approaching $1 million of annual revenue, and we believe OTI has the potential to grow back to several million dollars of annual revenue over the next few years. BioMedomics is expected to be cash flow breakeven with a path to a very attractive ROI as revenue grows over the next few years. We anticipate minimal incremental operating expense for OTI given that BioMedomics can be plugged into OTI's international commercial organization and leverage our administrative and regulatory capabilities to expand availability and adoption of the Sickle SCAN rapid test. Turning to guidance. We are guiding to fourth quarter revenue of $25 million to $28 million, which includes less than $100,000 of COVID-19 testing revenues. Our guidance also assumes continued disruption in ordering patterns from our SMS customer in the consumer genetics industry. This customer represents approximately $4 million of revenue in Q4 last year. We expect our gross margin percentage in Q4 to be in the low 40% range, which is slightly lower than third quarter due to typical seasonality and a greater mix of international revenue as a percentage of total revenue in Q4. Moving to operating expenses. In Q4, we expect core operating expenses of approximately $20 million, plus $10 million of investments in innovation, which includes $7 million to $8 million of investments related to Sherlock. With that, I'll turn the call back to Carrie to conclude. Carrie Eglinton Manner: Thanks, Ken. We'll plan to exit the transition year of 2025 and head into 2026 with important near-term catalyst for growth as we advance into the next phase of our multiyear strategy. We've done the work in the last 3 years that gives us the confidence and the capabilities we need to achieve our goals. We have delivered cost productivity at the business level and product level, develop our people and infuse new talent in the organization, leveraged our commercial strength to diversify our customer base and implemented enterprise-wide rigor and built a strategic innovation road map, strengthened our cash flow profile while maintaining a strong balance sheet that has allowed us to invest in attractive innovation pipeline opportunities, including internal product development along with M&A. We've also refreshed our Board with the addition of 3 new independent directors over the last 3 years, including last week's announcement, adding Steven K. Boyd as a Director and appointing Jack Kenny as Chair of the Board. Also, we'd like to thank Mara Aspinall, who has decided to step down after over 8 years of service to pursue new opportunities. We're grateful for her many contributions and wish her the very best. Our foundation is strong, but our work is not done. We recognize that in order to capitalize on the many opportunities ahead of us, we must continue to execute on our priorities and deliver more innovation. Our entire team is working with urgency and is aligned in purpose to decentralize diagnostics and connect people to care that is more accessible, convenient, private and personalized to create long-term value for customers and shareholders. We're confident in the path ahead. With that, I'm pleased to turn the call over to the operator for Q&A. Operator? Operator: [Operator Instructions] Our first question comes from Mac Etoch from Stephens Inc. Steven Etoch: I appreciate you taking my questions. just a few for me, and I'll let others ask some. But maybe could you just discuss this bio -- sorry, apologize if I am pronouncing incorrectly, BioMedomics acquisition and what attracted you to that asset just to start, and I'll follow up on that. Carrie Eglinton Manner: Yes. It's a really nice tuck-in that aligns precisely with our portfolio internationally. So rapid diagnostic testing for underserved markets -- the strength we have in Africa, including -- we don't talk as much about Latin America. But for low-cost tests that identify pressing health care challenges whether it's the infectious disease success we've had in HIV or HCV, sickle cell is one of those opportunities where the populations in those underserved regions are often undiagnosed. So we had heard that need. We've been talking with BioMedomics for many years and working with them. And so the opportunity to bring that -- to tap that into our portfolio, leverage the strength of our relationships, our commercial distribution and reach and just put it right into the portfolio made a ton of sense. So a very promising potential for what we think are smart capital deployment. Kenneth McGrath: And Mac, we also -- we think it has a strong return on invested capital. You noticed in the deal structure, we said it's a small upfront with some contingent considerations if they achieve certain milestones, 3 to 5 years out. We believe that structure allows us to really deliver value. We mentioned also that it will be breakeven cash flow. And what that -- as Kerry mentioned, it's leveraging a lot of our capabilities. So we really don't need to add a lot to deliver this and to put it into our channel. And then as we grow the revenue, we'll be able to leverage and be accretive going forward. Steven Etoch: I appreciate the context there. And then secondly, pretty good cost management on your part, both at the gross margin level and in terms of OpEx. Just given where revenues fell, can you just highlight some of the puts and takes around gross margins and then given the in-sourcing was completed in 2Q, are there any lingering costs that might have fallen into the quarter? Kenneth McGrath: Yes, that's a great question. Yes, for gross margins, we did do a little bit better than guided than expected. A lot of that was driven by our lower scrap than expected, which is really a complement to our operations team and their continued automation and operational efficiencies. As far as OpEx, that was in line with our spend. And really, our core business essentially is breakeven and what we -- where we do choose to spend our dollars beyond that are on innovation. And in this case, innovation focused on delivering our Sherlock CT/NG clinical trial submission as well as internal innovation. And then a little bit other benefits of gross margins, there was a little bit of a mix benefit in Q3. And we did mention we guided in Q4 that will be a little bit below Q3. Part of that is the mix, seasonality and the mix change where we expect to see a little bit more international revenue in Q4 as a mix, which will lower the margins a bit. Operator: [Operator Instructions] There are no further questions at this time. I would now like to turn the call back over to Carrie Eglinton Manner for closing remarks. Carrie Eglinton Manner: Thank you, Mac, for your questions and everybody for participating today. We appreciate your continued interest in OTI. And with that, we'll close the call. Thank you. Operator: This concludes today's conference call. Thank you for joining. You may now disconnect.
Christopher Gibson: " Najat Khan: " Ben Taylor: " Christopher Gibson: Hello, everybody, and welcome to Recursion's Third Quarter 2025 (L)earnings Call. My name is Chris Gibson. I'm the Co-Founder and current CEO of Recursion, and I'm so delighted to have you all joining us today. I want to start off by talking about something that I'm really excited about, which is our executive leadership updates. And it's my pleasure to share with all of you that beginning January 1, the amazing Najat Khan is going to take over the role of CEO, President and Director of Recursion. I've been working with Najat for the past 18 months in an incredible partnership to build our platform to deliver on our pipeline and our partnerships. And everything that I have seen has convinced me that she is absolutely the right leader to take Recursion through its next chapter. And I'm so delighted that she has agreed to take on that role. I'm also incredibly excited that I'm going to continue bringing my passionate unapologetic founder energy to Recursion as the Chairman of the Board and as an Executive Adviser. And finally, I want to say a huge thank you to our entire Board and especially to our Chairman, Rob Hershberg. He's been an amazing Chair and an incredible mentor to myself and Najat, and I am delighted that he's going to continue on with us, I hope, for a very long time as our Vice Chairman and Lead Independent Director. These are really exciting changes that I believe are going to position Recursion to affect our mission to lead the Tech-Bio space, and I am so, so thrilled to get to share them with you today. Najat? Najat Khan: Thank you, Chris. It is such an honor to step into the big role to be CEO and President of Recursion. And I want to thank you. I want to thank the Board and just our incredible team for their trust and partnership. And Chris, first for a few minutes, I want to say, look, your vision and the courage with which you have taken this from 0 to what Recursion is today is unparalleled. And you've not just been instrumental in building the company, of course, but also creating a new sector that never existed before, really truly blending the best of technology and science to make medicines and radically improve patient lives. There's so much to do. So I'm really -- I'm deeply grateful, of course, for your leadership, but even more so for your friendship which I'm looking forward to doubling down on as you work together in all of your many roles. When I -- I just want to say a few other words, too. Look, when I joined Recursion 18 months ago, I was drawn to the bold ambition, but an ambition in action. And what an 18 months it's been. Step 1 was the special combination with [ Excientia ] to really truly build that end-to-end tech stack, as we like to call it, engine and also the data generation. We've talked a lot about models, but proprietary high-quality data is critical and a critical moat to what we do. Building out clin tech platform, we're in the clinic. This is going to be a critical part of what we do and also sharpening our portfolio, advancing multiple programs internally with our partners. Chris will share a little bit more of some of the latest updates there from Roche and doing so with a discipline and urgency that I think patients will be proud of. And this is a pivotal chapter for Recursion, one that will require bold focus. The boldness will never go away, but also navigating the complexity that, quite frankly, is drug discovery and development, having seen that for many years and the relentless sense of urgency and good capital stewardship that's going to be critical for us to fully realize our mission. My focus, and I'll listen more and think more over the coming weeks, but really it's going to be translating these platform insights into repeatable clinical proof, whether it's through our wholly owned programs or with partners, scaling the platform that we have, where we have a clear, clear, clear advantage and building a company that delivers sustainable value. The foundation is strong. The vision is clear. The opportunity ahead is extraordinary, and I couldn't be excited. The work will be hard. I am clear-eyed about that. And there will be bumps in the road, but it should be because it's deeply worth it because we're doing something that there's no blueprint for. It hasn't been done before. It's also deeply meaningful for the patients that we serve and for the future that we're building together. So I'm so excited. I couldn't be prouder of the next phase. Looking forward to partnering with Chris and the rest of the broader team, exceptional team, if I say so, to define that next phase and the next chapter for Recursion. Christopher Gibson: Thanks, Najat. And with that out of the way, I think we should get back to work. And one of the things that I'm extremely excited about is that Recursion has a tremendous amount of potential catalysts coming in the next 18 months. From our pipeline to our partnerships to advancements of our platform, we are going to continue to deliver exciting updates, I hope, on a really regular cadence to all of our shareholders, all of our stakeholders and ultimately, advancements and milestones that I think take us on a path towards really affecting patient lives. And we're going to do all of that with a pro forma cash balance of almost $800 million as of a few weeks ago. And what I'm excited about is that gives us runway through the end of 2027 without any additional financing. This means we're in an incredibly robust position from a balance sheet perspective to deliver across all of these catalysts. Now let me talk a little bit about something that was really exciting that we got to share last week, which is how our platform is fueling all of our partners, but in particular, our Roche and Genentech colleagues. We shared last week that we had earned a $30 million milestone payment. This is our second such milestone from Roche and Genentech for the delivery of a whole genome neuro map. And I want to point out that this brings our total cash inflows from partnerships to more than $0.5 billion. And I think that is a milestone that few pre-commercial biotech companies ever achieved and one that I think is a leading indicator of the kind of value that we are going to continue to deliver here at Recursion. So let's talk a little bit about the Roche and Genentech collaboration. This is a collaboration that's a decade-long focus in neuroscience and GI oncology. We've already been able to deliver 4 whole genome phenom maps in our GI oncology space, generating over 100 billion GI oncology relevant cells. And we already have a program that's been optioned out of that particular set of maps and heading toward lead series, and I hope many more in the future as well. But what we announced last week was that in addition to the whole genome arrayed CRISPR knockout map of iPSC-derived neurons that we delivered last year, where we became, we believe, one of, if not the world's largest producers of these iPSC-derived neuronal cells. We have now delivered a second whole genome map this time in the incredibly challenging microglial cells, the immune cell of our brain. And what we are excited about is the number of incredibly novel potential targets that we have identified in both of these pheno map that we believe have real potential not only to lead to novel target options in the future with our colleagues at Roche and Genentech, but I hope really meaningful medicines for patients in the field of neuroscience where all of us agree, there's a lot, a lot of work to do. So I want to talk a little bit more about this work. And I want to remind everybody what do I mean when I talk about a map of biology. We have knocked out nearly every gene in the genome in these microglial cells. And we have leveraged machine learning and AI techniques to turn images of these cells into functional maps of the relationships between every single gene. And these digital maps allow us to move from this empirical sort of one-in-a-time approach into really a search function where today, our colleagues at Roche and Genentech, our team can just type in any gene in the microglial map or the neuronal -- or the iPSC-derived neuronal map, and they can see the relationships across the rest of the genome. This gives us incredible insight, novel pathways, novel targets. And it's extraordinarily significant, I think, for our teams to now be able to do this not just in the neuron, but in the immune cell of the brain. So really, really excited about this. I know our colleagues at Roche and Genentech are too. And to give you a sense of the road that we've taken to get here, this was something that I think many people did not think would be possible. First, our team had to generate more than 100 billion microglial cells. Then we had to figure out how to get more than 100,000 different sgRNAs into these cells, so we could knock out 17,000-plus genes with multiple guides per gene and we were able to do this generating nearly 50 million microglial cell images. And we used our supercomputer, BioHive-2, still, we believe, the fastest supercomputer wholly owned by any biopharma company, at least for a couple of more weeks or months until [ Lilly ] potentially overtakes us to generate this first-of-its-kind microglial map. And from this map, we've already started mining for novel biological insights, and we have the team and the equipment and the expertise to validate those insights to deliver programs to our colleagues at Roche and Genentech. And our hope is that, that will lead to potential new therapeutic approaches. So I'm so proud of the team for all the work they've done. I'm so proud of this particular map because I think it has extraordinary potential in the field of neuroscience. With that, I'm going to turn it over to Najat to talk a little bit about how our platform is fueling our pipeline. Najat Khan: Thank you, Chris. And just the example that you mentioned in terms of microglia is such a phenomenal example of how our platform and the combination of the wet lab and the depth of the wet lab approaches that we have at Recursion with, of course, our dry lab really creates something of unique value. So if you go to the next slide, we shared this slide before. And I just wanted to spend a little bit of time on it today and double-click on a couple of areas. So first of all, this represents the heart of how Recursion operates. You hear a lot about the Recursion OS. And I love to kind of pull the hood and like really show what are the various components that we're focusing on here. Step one, we're applying AI where it matters, where it can truly change either quality, speed or the impact of our decision-making. There are 3 specific modules here. The first is focused on deep biological understanding that's actually connected to patient outcomes. The second, how do we leverage AI to design better molecules that are more drug-like. And then the third is a ClinTech approach on picking the right patients as well as recruitment -- fast recruitment so we can get through our trials faster. All right. Having said that, I wanted to double-click on a couple of areas that we're really focusing on. Next slide. Scientific agents. So we've heard a lot about agentic agents. One of the most exciting parts of the OS is how we are using scientific agents, AI systems that actively participate in the entirety of the scientific process. And these agents are helping us thinking about the data that Chris just mentioned, genomics, transcriptomics, real-world data with partners like Tempus and others public data sets like PubMed, [ JetMa ] and so much the list goes on and on. And we have early proof-of-concept agents that we're leveraging in order to really not just analyze and interpret the data real time, but to actually select the optimal tools, workflows, generate hypothesis and design new experiment. This is going to supercharge our already extraordinary talent. The other reason I'd like to mention this is also around it captures the decision-making trail. That's really important. The way you get these agents to be highly effective is to actually understand the logic behind the recommendations and iterate in real time with our scientists and our clinicians. And that is something that we're doing. And having that inherent data, this platform helps us do it in action, not just theoretically. I often get the question in terms of how do we drive economies of scale. We are a tech bio company. This is going to be one of the very important levers for us as to how do we do more given a lot of the insights that we're generating with what we have today. So just keep an eye on this, but I wanted to double-click on a really important area of progress for us that is truly applied to what we need to do to create programs that are differentiated. The second area, if we go to the -- one more click, I will do it, is really around automated ADMET. Look, we talked a lot before around [ Bolts 2 ] and other programs that really help you understand binding affinity and so forth. But as we all know, in order to actually design programs, a critical element of it is to ensure that they are drug-like. So this is an area that is critical for us. And what we are doing, this is the automated platform that we have in Salt Lake City, combining high-throughput experimental automation with advanced machine learning. It's a fully automated closed-loop system that integrates ADMET property predictions directly into that middle module that we have, which is our AI-enabled precision design. So it does a couple of things. Number one, we are generating proprietary data around ADMET, not just what's been published, but all of the successes and failures that we see as we are generating our own data. Failures are incredibly important to design better models. Second, the comprehensiveness of the ADMET properties over 50 or so is just a starting point, and that's only going to increase is important in order to ensure the algorithms are actually generalizable. And then the third, you've heard about models such as [ Mole GPS ], and there's new models that are coming up all the time. But these data feed directly into the model, which is actually iterating and helping our models to be retrained real time. So both examples of real-time iteration is critical for us to not just have a platform that's useful, but a platform that stays ahead of the curve and learns from both our successes and our mistakes. So with that, I want to walk to the next part, which is how is the platform being leveraged to actually generate programs. And this actually slide came to my mind during the flight post popular demand from analyst questions and investor questions. Here's what you have. I'll just walk you through it. On rows, the 3 design components that I just mentioned, the biology, the chemistry and the clinical development that you saw on the last slide, everything from phenomics, transcriptomes, et cetera. And as I do the build for the columns, these are the various iterations generations of our platform. So just to give you a clear view on which programs using what component of our platform. So it's important to note, as you'll see, the earliest programs built on our first-generation platform, which I will call V0.1, and we've shared that before, the programs that are now in the clinic, tangible proof that we are generating programs and also learning fast, the flywheel with every turn of the crank, we're learning really, really fast as to how to improve on what we're doing well and what we need to do better. So the first one here, MEK1/2, more data coming in December. I'll share a little bit more of our plan there. This is a proof point around how are we leveraging genomics, an unbiased approach to drug discovery in order to really ascertain which compound, which mechanism, which we do not know going in, could actually help attenuate the hallmark of the disease, which is polyps, hundreds to thousands of polyps. More to come on that in a second. Now often, I get the question that if this is part of platform 0.1 is that it? The story never ends there. As you will see with ClinTech, if you go to the third row, we are actually leveraging recruitment solutions as well as patient selection and stratification. So even programs that are in the early part of the platform, we're leveraging some of our recent components in CinTech to add more value creation. The second iteration of our platform, I’ll call this is V1.0, we're beginning to combine genomics and biology as well as chemistry design as well. So examples such as RBM39, CDK7, et cetera, and of course, components of the CinTech platform. And then one more click. These are programs in discovery, which I hope to be able to -- we hope to be able to talk about soon that, as you can see, is incorporating all of the various components of the platform from discovery, biology, novel insights, chemistry and CinTech and not just for our wholly owned programs, but also for our partner programs. So more to come on that. So where are we making progress? You've seen this slide before. I'd like to update it every time that we meet. So first of all, CDK7 combination cohorts have been initiated. I'll speak a little bit more in a moment in terms of some of the analysis and some of the data that we have from the monotherapy dose escalation. PI3K 1047R, the development candidate has been nominated, which was again one of our milestones for this year. And MEK1/2, we'll have a webinar in December in order to share some of the additional data from our 4 milligram cohort. As you also heard from Chris, the $30 million option milestone received for the microglia map. This is in addition to the 6 Phenomaps and also some of the programs that we're generating and great traction across the other programs and partnerships, including Sanofi. I just want to pause and take a moment to say both of our internal and our partner programs are critical, critical to us delivering tangible proof as well as also learning fast to keep evolving our platform. All right. So I'll take a moment to go through CDK7. So just a quick context, we've talked about this before. CDK7, really important master regulator, transcriptional kinase that has generated significant interest in oncology for some time, but has been plagued with historical challenges. And the main -- one of the main reasons for those challenges is the narrow therapeutic window and just the molecular properties that limited tolerability and efficacy. So what are we doing leveraging our platform that's different? Number one, leveraging our platform, we set out to design a molecule that directly addresses one of these core limitations around therapeutic index, which is optimizing permeability and [ eflux ] so that we reduce the GI-related toxin variability that others have seen before. That's number one. Number two, we are also leveraging preclinical data as well as multimodal real-world data, causal AI, all of those components of our platform in order to hone in on patients that might most benefit, how do we steer a product into the right patients, patient stratification. That's another area of differentiation that we're focused on. And of course, from preclinical models, we've seen tumor regression in both ovarian and breast cancer. We also shared some early data last year, early clinical data from last year that showed manageable safety profile as well as some partial response as well. What is our next focus? So in terms of our next focus, next slide. We have completed our Phase 1 dose escalation. So MTD has been achieved in advanced solid tumors. I'll get to that in a second. In addition to that, concurrently, the team is also looking into alternate dosing schedule just to figure out ways to even further optimize the therapeutic index, especially for long-term dosing. The other areas of near-term focus for us, which is already well underway, is a Phase 2 dose expansion in the cohort that we had mentioned, the platinum-resistant ovarian cancer as well as combination, which is going to be key in this space with a couple of combination standard of care that you can see on the slide. Recruitment ongoing across all of these cohorts. The other thing that's important to note is a lot of the trial design is focused on rapid and efficient go/no-go. And we'll share more in terms of the Phase 1 dose escalation data at a medical congress next year. And then in addition to that, we should have some of the ovarian combination data in 2027, safety, PK/PD, maybe early signs of efficacy, more to come in next year as we see the recruitment shaping up in terms of details on when in 2027. So stay tuned. All right. So let's go into the monotherapy dose escalation. So a couple of things to note. As of September 29, which is the cutoff date, we have 29 heavily pretreated patients with advanced solid tumors that have received 617 across 6 dose levels. Just as context, these patients represent a rather challenging population, most with multiple prior lines of therapy and limited standard options. We have now established a 10-milligram once-daily MTD, maximum tolerated dose with a manageable safety profile, we'll talk about in a second and also preliminary antitumor activity that's consistent with what we shared in the 2024 update. The most common dose-limiting toxicities were nausea, which is to be expected and some thrombocytopenia, which are both on-target effects for this target class. If you go into safety. Look, the safety data is consistent with what we saw last year. First of all, we have about 30% of patients that experienced Grade 3 treatment-related adverse events, and the majority were low grade 1 or 2. There were no grade 4 or 5 treatment-related events and only 2 patients, about 7% discontinued due to an AE. One thing I want to note here, and again, this is early, we're learning more, of course, the GI-related toxicities that we have seen, diarrhea, nausea, vomiting were relatively manageable and in line with class expectations. And to just put that in context a little bit more. Okay. To put that in context a little bit more, in terms of diarrhea, we saw about 69%, nausea 41%, vomiting 28%. Of course, looking at some of our peers also in the space, the numbers for diarrhea are about 82%, 77% for nausea and vomiting for 80%. So it's trending in the right direction, but of course, much more work to be done, but trending to be slightly lower than what we have seen in other prior published data. All right. In terms of efficacy, first of all, on the left-hand side, this highlights the PK profile. highly selective inhibitor potent and also flexibility in terms of how we can dose it given the short half-life -- the relatively short half-life of around 5 hours. One thing that's important to note, so going back to the established MTD, which is 10-milligram once daily dose, the exposures exceed, as you can see, the CDK7 IC80 while remaining below CDK2 IC80, supporting the selective inhibition that we wanted to see. In preclinical models -- what does that mean? In preclinical models, 10-milligram equivalent QD showed robust tumor regressions with about 2 to 4 hours to target coverage. And the early PD data that we have indicates that this is about 80% to 90% of transient [ POLR 2A ] engagement, which is one of the key PD markers that we are tracking in this space, again, consistent with that hypothesis. So from all of the data that we've seen so far, 10-milligram QD is pharmacologically active dose. In addition to that, we're also looking into alternate intermittent schedules such as second day on off to further maximize the dose intensity while maintaining tolerability for long-term dosing. On the right-hand side, you're also seeing some of the early clinical translation. Look at 10 milligram is where we see stable dose and also the patient that had the PR. Of course, in this patient cohort, monotherapy is not an area that we were expecting outcomes and which is consistent with what we've seen with other CDK inhibitors, which is why our combination is going to be incredibly important. So stay tuned, more to come on that. And last thing, speaking about the combination, I've shared this -- we've shared this data before, but ovarian cancer is the current area of focus, which is different from where others have gone, which has been much more primarily in breast cancer or a broad basket of solid tumors. pulling together everything that we have seen in cell lines on the left, in terms of ovarian cancer models, the sensitivity to CDK inhibition, combining that with what we have seen in vivo at 10-milligram dose, we saw complete tumor regression by day 27 as well as on the right, leveraging our patient level data from over 30,000 ovarian cancer samples, integrating DNA, RNA and clinical outcomes to really showcase that CDK7 is a likely driver of poor survival and some of the work we've done with our causal and friends and AI works. So -- but again, the proof is always in the pudding. So much more to be done and expect more on the full data set I just mentioned for the monotherapy dose escalation next year at a medical congress as well as combination data in 2027. We'll give you narrow guidance or more specific guidance as we get full flow into our recruitment. All right. And just wanted to heads up on REC-4881, which is our other program that has an important readout coming out next month. So just as context, high unmet need, 50,000 patients diagnosed across U.S., EU5, rare inherited disorder, APC loss of function. And standard of care is quite challenging. Surgery is a standard of care, [ colectomies ], et cetera, and no approved therapies to date. We also have orphan drug designation for this compound. Just a recap of some of the earlier data that we've seen in May that was shared in DDW, 43% median reduction in total poly burden, that is the hallmark standard of care today, off-label use of celecoxib is usually 20% or so or 25%. But again, there is a range from 30% to almost to actually 83% in the small cohort that we had seen in May. We've seen about 6 patients. We expect that to be double or close to double by the end of this year. And what we're looking for, again, as I mentioned before, is to see if these trends will hold and a significant benefit over the 20% that has been seen so far. In terms of what we're seeing from a treatment-related AEs, 19% grade 3, majority is rash and the prophylactic approach has really made it much more manageable and cardiac tox more grade 2 so far. So again, December, we'll share more information in the coming weeks, exactly when in December. We'll have the Phase 1b/2 update. This is going to be an important update, as I mentioned, and then we'll also discuss some of the next steps for the program. If the trends hold, one of the core next steps will be to actually have discussions with regulators on a pivotal study. And I just want to say this is one of those, as I like to call green shoots in terms of leveraging our platform to see color burden reduction, both in vivo and then also starting to see in patients. But again, small data set, more to come. We're looking forward to the data cut in December. With that, I'm going to hand it over to Ben for our financial update. Ben Taylor: Terrific. Thank you, Najat. Another thing that we are very excited about is going into that FAP data as well as the milestones in 2026 in a really strong financial position. So over the course of the year, you've seen us do a number of things. In May, we laid out a strategic plan that allowed us not only to hit on multiple high-value milestones, but also reduce our expense base by 35% from 2024. This was a really important step in us trying to put that discipline in place that Najat was talking about earlier. And then you started to see us hit those milestones. We've brought in almost $40 million from our partnership inflows over the course of this year so far, and we expect more of that to come in the future. So with today, our announcement of having $785 million of cash in the bank as of October 9 is a really strong step in creating that foundation so we can look forward into the future milestones and say, we don't have that financing need to be able to achieve our near-term milestones and really deliver a lot of value to shareholders. And so when we look forward we've looked at how we can bring that financing together in a way that was going to minimize our dilution to all of the shareholders as well as really continue to allow us to focus on the business and move it forward. We are also reaffirming our guidance for 2025 on an expense base of less than $450 million. That's excluding all of the partnership inflows. In 2026, we're also reaffirming less than $390 million over that time period. One note on that 35% expense reduction, that actually equates to over $200 million in expenses coming off of that 2024 base. And we've done that by really focusing in on what is going to be the aspects of the business that deliver the highest value and efficiently bringing that together. We will continue to look at our expense base. We are completed with all of the restructuring that was associated with the transaction, but we will continue to look at our operations and think about how can we do this better? How can we do this more efficiently? How can we get more out of every dollar that we spend and really focus in on the high-value partnerships -- or high-value projects. From a partnership perspective, the $30 million in milestone from microglia that we achieved with Roche and Genentech was not included in the $785 million in cash. Importantly, we do not give guidance on revenue, but I know a lot of the services track it. So we just want to be really clear. First of all, we don't consider the lumpiness in our revenue to be any indication of our business. But what we do know is the timing of our milestones can impact how we recognize some of that revenue. For example, last year, we had a milestone associated with the neuronal map. And so we had a larger piece of revenue that was recognized in that quarter last year, in the third quarter of last year. The Roche microglia milestone is going to be recognized partially in the fourth quarter, and it is important that's partial, not full. And so you would see some of that lumpiness come into our fourth quarter numbers there as well. Really importantly, the nearly $40 million that we've recognized this year from our partnership inflows actually brings us over $500 million in partnership inflows over the course of the company. That shows just what an important piece of nondilutive capital that part of the business and platform has become to the overall company. We are also maintaining our guidance of over $100 million in partnership inflows by year-end 2026 that we laid out in May of this year. So we're making great progress along that and expect to continue to see a lot of that come through in the next year as well. And with that, I will turn it back over to Najat to talk about some of the upcoming milestones. Najat Khan: Great. Thank you so much, Ben. And we wanted to just capture both looking at this year as well as what's coming up next year. For this year, one big thing that as I look at the slide, which is missing is really the successful integration of the 2 companies coming together. It's been an incredible amount of work. And also the financial discipline that we've gone through internally to really extend our runway so that we can see through a lot of these catalysts. So look, on the internal pipeline highlights, CDK7, I just mentioned the monotherapy update and the combo that's initiated. REC-4881, the Phase 2 initial update, potential first POC for our platform, [ MALS-1 ] monotherapy initiation and the PI3KDC nomination. I will also talk a little bit about our platform and then go to our partnership. On the platform front, a ton of work, like 3 words on a slide, integrated design platform, but actually, I should say integrated our end-to-end platform, the amount of migration work, I have seen this across other companies before with the speed with which that was done and the utility, the fact that we had no slowdown in our productivity of our platform speaks to our fantastic engineering data science teams that exist. And then also the work with MIT and NVIDIA on both 2, but much more that's going on in-house, which I would be a pleasure to share next time, especially with our Frontier team, which is our 0 to 1 cutting-edge AI team, really, really proud of the work that they're doing, Valence and Inception Labs. And then ClinTech, this has been a core focus for us in the last several months to really build out the tech stack end-to-end also into clinical development, crucial pillar as we execute on these programs. And on the partnership highlight, Chris and Ben mentioned, of course, the Roche $30 million from microglia, but the real work that we're doubling down on is both of the maps in neuroscience and the additional maps in GI onc and really turning and Chris showed this really beautifully in his slides, turning those into insights with a deep functional validation with our partners to then become programs. That is the core focus for us translating that value. And of course, progress with Sanofi, 4 out of 4 milestones so far in immunology and oncology and much more work ongoing. We're so honored to be able to work with our partners, Roche and Genentech, Sanofi, Merck KGaA and Bayer. We learned so much from each and every one of them. So thank you for the partnership. And then looking ahead, stay tuned for the REC-4881. We'll share more data in terms of our Phase 2 in December. In addition to that, for next year, RBM39, this is our first-in-class compound from the phenomics platform. It's also leveraging, of course, a lot of our clin tech approaches today. We should have some early safety and PK data from our monotherapy trial. And then in addition to that, ENPP1i, PI3K, both in GLP tox right now and pending that data, Phase 1 initiation, the team is all set up, pending what the data looks like. And from a partnership perspective, as I mentioned, deep focus on turning Maps into insights into programs. That's a huge focus for us in addition to some of the programs that we're already working on and additional Maps as well. So lots to do. There's never a dull moment at Recursion. I assure you, loving the pace, and we'll keep you all posted. With that, thank you so much. I'm going to hand it back to Chris for our Q&A. Christopher Gibson: Thanks, Najat. All right. Let's go. We've got Sean from Morgan Stanley. Ben, this one goes to you. Can you review expectations for cash burn through 2026 and how this works with runway expectations through '27 without additional financing? I know you just hit that, but maybe break it down for everybody. And then also, do you plan to use any additional ATM financing? Ben Taylor: Yes, of course. So I think there's a couple of things that we looked at over the course of the quarter. So one, the most important thing for a growth company is delivering on high-value milestones. And so our role as a management team is to make sure that we have the resources to be able to hit those milestones. So we looked at all of the things that we've talked about before. So how do we do the right expense control, how do we prioritize the right programs? And then how do we make sure that we've got the right cash balance in place to be able to reach those milestones and really focus on them. So what we decided to do was fully utilize the ATM over the course of the quarter, the remaining balance on the ATM. So that is now closed. We have not opened up a new ATM. And what that allows us to do is really go in and put in a cash balance that without any additional financing allows us to get to the year-end 2027 and achieve those milestones that Najat was just talking about as well as many others. Just because I know the financing has been a critical question for a lot of shareholders. We really looked at 2 different aspects for that ATM utilization. One was if we look at the biotech financing market, there's a couple of things that we saw very clearly. One, there is increasing volatility. There are fewer open windows. There's a much shorter period of hold that we've seen from a lot of the investor base. And also the discounts have been increasing as well. And so we looked at the ATM as a very attractive cost of capital that would put us in a position to be able to execute on the plan going forward. The other part was just there was so much focus that was becoming a part of the financing and the cash balance. It was actually starting to overshadow some aspects of the story. And so with such important data like FAP and some of the other milestones that are upcoming, we wanted people to really be able to focus in on the fundamentals of those events rather than needing to worry about are those events just going to lead to another financing or other aspects like that. And so we hope that this allows investors to focus. It also gives us a lot of ability to really focus on delivering those milestones over the coming months. Christopher Gibson: Thanks, Ben. So financing overhang has been struck. Alec from B of A, one question on platform utilization. It looks like older programs use parts of Recursion's capabilities in their development with Platform 2.0 assets, leveraging the full stack. Najat, this one is coming to you. How do you see this feeding into the quality or uniqueness of the newer assets? And anything to be read into for the current pipeline like 481, where it only benefited from phenomics in the version 0.1 of the platform. Najat Khan: Yes. No, thank you, Alec. And by the way, you were one of the voices that inspired us to create that slide. So thank you for always sharing your feedback. So look, 4881 phenomics, our platform today, even if we're making it multimodal, still leverages genomics a lot, right? And we are very, very excited in terms of some of the data we've seen to date and more to come later this year. But in terms of -- with every crank, like some of the clinical stage programs that we have come from the earlier stages of the platform in discovery, later stages of our platform. I think that's just the true iterative nature of drug discovery and development. And the improvement of our compounds doesn't just stop in discovery. It's also in development. So you see some of the innovative approaches that we're also taking in development for FAP, CDK7, et cetera. So we look at it more holistically. But look, with every crank, the platform gets better, and that's just what it is for us, and we're learning fast, and we want to execute and iterate as quickly as possible to get them into the clinic as well. Christopher Gibson: Thanks, Najat. I'm going to bring this next one over to you as well. From Gil at Needham, Sean at MS and Manny from Leerink on the partnership side. Is Recursion looking to maintain current biopharma partnerships or expand to new partnerships in the near to midterm? And what are some of the milestones that we should be focused on? Najat Khan: Great question. Our partnerships that we have are deep, highly collaborative and transformational. We are very, very excited about the partnerships that we have. And I mentioned some of the milestones that are critical for us maps to programs, for instance, in our Roche Genentech partnerships. And for Sanofi, we're really making progress on the various programs that we have in immunology and oncology. We are always having discussions in terms of potential new partnerships. We are being incredibly choiceful. So that is an area that we'll always be open to, but areas we can drive incredible value as well as our partner. It has to be a win-win. So the answer is yes, the door is always open, but we also -- we tend to curate a set of partners that we can really show tangible value with. Christopher Gibson: Thanks, Najat. Next one I'm going to take. This is from Guy and Alec. Would be interested to hear your thoughts on the evolving AI drug development landscape, especially with companies like Lilly throwing their hat in the ring and also partnering with NVIDIA. So look, I think this is extraordinarily exciting. This is a sign that when we said a couple of years ago, we look like what the future of biopharma will look like that we were right. companies are starting to embrace massively scaled compute. They're starting to embrace AI. And so this tech bio sector is really, I think, just a harbinger of what the future of biopharma will become. And so this is super exciting to me. I'm so glad that Lilly is making this visionary investment. I'm so glad to see them partnered with NVIDIA. And I look forward to working alongside many companies in the future that come to the space. We want to move the entire field forward ultimately to bring medicines to patients. So really, really excited by that advance. And then final question, I think, fittingly, over to Najat from Dennis at Jefferies. Congrats on the new role, I mean, effective January 1, we've still got a few weeks. Curious what philosophy you're bringing into the seat as CEO and if there are any near or medium-term priorities that are top of mind. Najat Khan: Thank you, Dennis. Look, my priority is going to be the core priority is going to be how do we translate the data, the compute, our amazing people, our platform, to tangible proof points that matter, whether it's our own pipeline, whether it's with our partners, that is the core element that matters the most. As Chris was saying, look, I've been in big pharma before. Now I'm in tech, bio, biotech, AI inspired, whatever term you want to use. At the end of the day, it's about making differentiated programs and then eventually medicines for patients that matter. That is the core focus for me. It starts with that, it ends with that. We have -- this is a tough journey, 90% failure rate. I am aware, clear eyed of how tough it is across industry. And we're doing something in a way that's never been done before. That's going to be my core focus. The second is going to be really investing where we have a unique ability to win. That's our platform, that's our programs. We're going to make data-driven, and you've seen me do that before, go/no-go decision on our programs. That's why when you say all of the programs we're doing concurrent targeted, efficient approaches so that we can get to a rapid go no-go because unlike a lot of other companies, there are multiple other programs that we're bringing from discovery into the clinic. We need to be choiceful in terms of where we go. And then the third is discipline and execution and good capital stewardship. You heard Ben talk through, we are grateful for the capital that we have. And my intent is to use every single dollar for what will truly create value for our shareholders and our patients. So those are some of my areas of focus. I'm sure I'll think more on it over the holidays. And with Chris' counsel, I am so excited to continue partnering with Chris. It's been such a great journey and so much more to come together. Christopher Gibson: Thanks, Najat. It's been an amazing first 12 years, and I'm looking forward to the next 12. Thank you, everybody, for joining us. I hope you have a great day.
Operator: Good day, everyone, and welcome to the Hudson Technologies Third Quarter 2025 Earnings Call. [Operator Instructions] It is now my pleasure to hand the floor over to your host, Jennifer Belodeau. Ma'am, the floor is yours. Jennifer Belodeau: Thank you. Good evening, and welcome to our conference call to discuss Hudson Technologies financial results for the third quarter of 2025. On the call today are Vincent Abbatecola, Hudson's Lead Independent Director; Brian Bertaux, CFO and Interim CEO; and Kate Houghton, Hudson's Senior Vice President of Sales and Marketing. I'll now take a moment to read the safe harbor statement. During the course of this conference call, we will make certain forward-looking statements. All statements that address expectations, opinions or predictions about the future are forward-looking statements. Although they reflect our current expectations and are based on our best view of the industry and of our businesses as we see them today, they are not guarantees of future performance. Please understand that these statements involve a number of risks and assumptions, and since those elements can change and in certain cases, are not within our control, we would ask that you consider and interpret them in that light. We urge you to review Hudson's most recent Form 10-K and other subsequent SEC filings for a discussion of the principal risks and uncertainties that affect our business and our performance and of the factors that could cause our actual results to differ materially. With that, we will now turn the call over to Vincent Abbatecola from our Board of Directors. Please go ahead, Vincent. Vincent Abbatecola: Thank you, Jennifer. Good evening all, and thank you for joining us. Earlier this week, we announced that Brian Coleman has stepped down as Chairman and Chief Executive Officer of Hudson Technologies. Brian had a long and successful tenure with Hudson. And on behalf of the Board, we thank him for his dedication and contributions to our company. He was particularly instrumental during the difficult time after the passing of our founder, Kevin Zugibe. Brian's leadership and financial acumen allowed Hudson to further strengthen its competitive positioning while also transforming our balance sheet. We sincerely wish Brian Coleman every success in the future. Our company is now centered on advancing our growth strategy to focus on both organic and inorganic opportunities to build upon our strong foundation, a strategy which we believe requires alternative CEO skill sets. Our Board is in the final stage of our search to select a Chief Executive Officer candidate who will lead Hudson in the next phase of its growth, and we expect to announce an appointment in the near term. I'll now turn this call over to Brian Bertaux, Hudson's Chief Financial Officer, who has assumed the CEO responsibilities during this interim period. The Board very much thanks Brian for filling that role. Please go ahead, Brian. Brian Bertaux: Thank you, Vincent, and good evening, everybody. I am humbled to serve as Interim CFO for Hudson Technologies during this transition. I effectively served in a similar role at another point in my career, and I'm fortunate we have a great leadership team and passionate employees at Hudson. Together, we will continue to drive the company forward and increasing shareholder value. We are very pleased with our strong third quarter results to close out our 9-month refrigerant selling season. Key third quarter highlights include 20% revenue growth, 32% gross margin and a 59% increase in net income of $12.4 million. Our third quarter revenue growth was driven by both increased sales volume and a higher average sales price of refrigerants. Additionally, we continue to expand our strategic supply chain of aftermarket refrigerants through outreach and awareness campaigns to encourage the return of used refrigerant by contractors to service cooling systems. We will provide a full overview of our annual growth in refrigerant reclamation during our next call when we report full year 2025 results. HFCs were approximately $8 per pound in the third quarter. When we discuss pricing, we generally focus on 410A, which represents about 70% of the total aftermarket demand for HFCs. Also, I'm extremely pleased to note that we were recently awarded the renewal of the contract to support the U.S. Military as prime contractor with the U.S. Defense Logistics Agency, the DLA. We are energized to have won the Indefinite Delivery and Quantity contract, which is valued at $210 million for the first 5-year base period and includes a 5-year renewal option. Hudson has served as prime contractor to the DLA since 2016, and we believe their selection demonstrates the strength of our partnership and our success in reliably providing critical materials to the nation's many military installations and facilities. There was tremendous effort by our team to win this competitive bid, and I, on behalf of the entire company, want to thank them for their strong execution and track record servicing the contract over the last 9 years. We look forward to continue our relationship as a valued partner to the U.S. military in the supply of refrigerants, industrial gases and equipment. Now we want to turn to 2024 HFC market data as recently reported by the EPA. 2024 refrigerant reclamation activity for the industry grew by 19%. Hudson's reclamation grew at about the same rate. HFC inventory levels declined 18% in 2024. We expected a steeper decline in inventory as 2024 HFC production was curtailed 30% from 2023 levels through the AIM Act. So consistent with 2023, the 2024 update indicates the supply in the channel remains plentiful related to demand. Over time, 410A refrigerant market dominance will be taken over by lower GWP new generation refrigerants. As with other refrigerant phaseouts, 410A demand will continue for another 20-plus years as 410A units remain in service through their useful lives. Therefore, our concern remains that an ideal supply and demand balance in the HSC refrigerant landscape may not occur until 2029, which is when the next production curtailment will occur. Now I'll turn the call over to Kate Houghton, Senior Vice President of Sales and Marketing, to provide some additional detail around Hudson's market opportunity. Kate? Kathleen Houghton: Thank you, Brian, and good evening, everyone. We saw increased sales volume in the third quarter as temperatures warmed up across the country and cooling systems were activated in earnest. With systems turned on and in regular use, service appointments typically tick up as operating issues are identified. Our sales activity in the third quarter largely mitigated what had been a late start to our 9-month season. We executed strongly during this year's selling season, ensuring that our customers had the refrigerants they needed when and where they needed them. And we continue to make excellent progress promoting recovery and reclamation activities to the field technicians who are integral in the recovery and return process. Without field technicians recovering refrigerant from a unit, reclamation does not occur, and our continued outreach to influence technician participation is reflected in the positive growth of our reclaim numbers. The fourth quarter is historically our slowest quarter as a large portion of our customers transition from cooling applications to heating. The 2024 EPA data released in September largely aligned with our expectations and visibility of the market. While we believe the time frame to supply-demand imbalance has lengthened slightly, we remain confident that the current phase down of HFC Refrigerants represents a significant long-term growth opportunity for Hudson. Additionally, the EPA has certain proposals currently under review that would potentially make changes to the technology transition rule of the AIM Act. In a recent proposal, the EPA seeks to extend compliance dates for certain equipment transitions for applications in supermarket systems and industrial process refrigeration, amongst others. The proposal includes extending the compliant dates for the move to lower GWP equipment solutions as far out as to 2032. In addition, the EPA recognizes that there may be the possibility of stranding equipment that had been manufactured prior to January 1, 2025 and is allowing for the sell-through of that manufactured equipment to continue beyond December 31, 2025. The proposed rule should not materially impact Hudson and may provide a slight advantage for our business. It's also important to note that while technology transition time frame is under review, the core elements of the AIM Act, including the allowance system and refrigerant management rule, which mandates phasedown of HFCs remain in place. We are closely monitoring all developments and are in direct and frequent contact with the EPA as well as members of Congress. Federal regulations aside, Hudson is well positioned to capitalize on state-by-state initiatives around the use of lower GWP refrigerants and equipment. Several states have already instituted requirements for the use of reclaim refrigerant in their municipal buildings and for higher GWP HFCs and we expect more to follow. We remain committed to increasing our position as a thought leader and vocal promoter of responsible refrigerant management. And in early September, we sponsored a panel discussion as part of Climate Week NYC entitled Reclaiming the Future Together, Power on the Growth of Refrigerant Reclamation. During this event, we brought together a distinguished group of industry experts, including representatives from HARDI, the District of Columbia Sustainable Energy Utility, from Lennox International and from Rocky Mountain Institute to discuss the economic benefits and the environmental importance of refrigerant reclamation. At this event, we discussed the first of its kind DC SEU refrigerant recovery pilot, which focuses on greenhouse gas emission reduction. We remain committed to developing partnerships such as with the DC SEU to reach all corners of the refrigerant recovery market. In addition to events like Climate Week, we remain active working with refrigeration technicians and contractors to encourage the recovery and return of refrigerants during the processing of servicing a cooling system rather than the practice of venting refrigerant. With the increase in 2024 reclamation activity in the industry as tracked by the EPA as well as the consistent growth we've seen in our company's reclamation business, we believe our efforts are driving meaningful progress. Our extensive long-standing customer network, proprietary technology and national footprint position us well as a source for newly manufactured refrigerants as new lower GWP products are introduced and also as a resource for recovery and reclamation activity. We believe our strength in all aspects of refrigerant supply as well as recovery, reclamation and sophisticated field service is a competitive advantage as we look to expand existing customer relationships and win new customers while also ensuring a smooth transition during the ongoing and future refrigerant phase down. Now I'll turn the call back to Brian to review our third quarter financial results. Go ahead, Brian. Brian Bertaux: Thank you, Kate. I'll now review our third quarter 2025 financial results in a little more detail with a comparison to the 2024 quarter. Hudson recorded $74 million in revenue, an increase of 20%. Revenue growth in the quarter was driven by increased sales volume, coupled with an increase in our average sales price. We posted 32% gross margin, reflecting a 630 basis point increase in 2024 with the improvement related to favorable trends in refrigerant market pricing. Gross profit at $23.7 million improved significantly as compared to $15.9 million in the 2024 quarter. We recorded $8.9 million in SG&A expenses compared to $8.1 million last year. The increase is related to staffing additions. With that, operating income essentially doubled to $14 million. We recognized $1.6 million and $2.3 million of favorable other income in the 2025 and 2024 quarters, respectively. The 2025 other income related to a potential earn-out from last year's acquisition of USA Refrigerant that did not materialize. The 2024 other income was primarily related to a favorable legal settlement. Hudson recorded net income of $12.4 million or $0.27 per share compared to net income of $7.8 million or $0.17 per share last year. Our third quarter revenue performance essentially offset what was a late start to this year's selling season. With that, we finished the 9 months of 2025 with nearly the same revenue as 2024. The company strengthened its unlevered balance sheet, ending the quarter with $90 million in cash. Our capital allocation strategy remains focused on organic and strategic growth as well as opportunistic share repurchases. We repurchased $1.3 million of stock in the third quarter, bringing our total purchases to $5.8 million thus far in 2025. We are pleased to have delivered improved third quarter gross margin. However, as many of you know, our fourth quarter is our seasonally slowest quarter as the majority of our aftermarket customers transition from cooling to heating applications. With that in mind, we are maintaining our expectation of slightly above mid-20% gross margin for full year 2025. In closing, we have built our business and long-standing customer base around our capabilities of getting the right refrigerant, to the right place, at the right time. As our industry continues to move through the lower GWP refrigerant phase downs, we are all well positioned to meet demand for current and next-generation refrigerants, leveraging our industry experience, proprietary technology and proven distribution network to ensure reliable customer service and satisfaction. Operator, we'll now open the call to questions. Operator: [Operator Instructions] Your first question is coming from Gerry Sweeney from ROTH Capital. Gerard Sweeney: This one may be for Vincent. I apologize. I think I got Vincent right. And when you said you're in the final stages of looking for a new CEO, and I think you also mentioned alternative skills. Just curious if you could give us a little bit more details on what alternative skill sets may mean? I'm assuming this is at least someone with some more acquisition experience, but I'm also curious if this infers maybe a different sales strategy or different reclaim strategy as well? Eric Prouty: Jerry, this is Eric. I'll take that question. Really, what we're looking for, and I think you're hitting the nail on the head here is probably someone with a larger company background that both has experience with acquisitions, but also a lot of skills around organic growth of companies that have much larger lines than, say, just refrigerant reclamation and recycling that might have some insight into other complementary areas that we might be able to expand into like expanding our services offerings, et cetera. Gerard Sweeney: Got you. That's fair. I appreciate it. And then this maybe for Brian. We always do a series of channel checks and we have some pretty good ones, I believe. And our indications and talks with our contacts alluded to, maybe HFC pricing seeing a bump because of issues with the HFO rollout, availability of gas, canisters, et cetera, and some of the pricing that we saw -- pricing increases that we saw this summer may be transitory. Our checks indicate that HFC prices are down around $6.50 per pound. Just curious as to what your thoughts are for next year with, we have a stockpile, maybe some of those HFO headwinds abate, where potentially pricing could be? Brian Bertaux: I would say your channel checks seem very accurate. And right now, we would expect that perhaps pricing for next year, just say, on the average for the whole year would be consistent with this year on the average for the whole year. But as we all know, that's just -- it's something that we would expect to happen. But in a volatile market, it's uncertain now. Gerard Sweeney: No, that's fair. And we don't have a crystal ball. So I just want to get your thoughts on that. So got it. And I'll jump back in queue. I may have a question or 2 more, but I don't want to get much of your time. Operator: Your next question is coming from Ryan Sigdahl from Craig-Hallum. Ryan Sigdahl: On the EPA data, similar thoughts as you guys kind of implies slightly lower demand, slightly higher supply. You mentioned potentially not being at an imbalance until 2029 or after. Curious how much that changes potentially the strategy from a core organic Hudson standpoint over the next couple of years and also maybe an M&A standpoint and if that had anything to do with kind of the timing for a change at CEO? Vincent Abbatecola: Ryan, I can take a crack at that. I think you're right. I mean we do see the same things in the market that other people see. I think beyond just us guessing where gas prices are, I think we know as a company, we need to reduce our overall exposure to the ups and downs of the gas market. And we're likely to do that through both organic expansions, but also likely through M&A and acquiring complementary lines that aren't necessarily completely tied to refrigerant gas prices. Ryan Sigdahl: Yes. DLA, congrats on the competitive renewal there. Any change from an assumption standpoint? I get kind of the upper bounds, but it had been running at the $30 million to $35 million of revenue. Is that still the right assumption? And then anything different with this contract? And then kind of last part of this would be government shutdown. Any impact there, I guess, in the near term? Brian Bertaux: Yes. So we are very pleased to have won that. I would tell you that over time, you'd expect it to be consistent with where it has been. Yes, the government shutdown is having some near-term volatility. So we've seen a little bit of an impact of that in the fourth quarter. Hopefully, it's just timing. But overall, when we think about the contract, it's consistent with the current contract. Ryan Sigdahl: Last one for me. Any benefit from selling A2Ls, both either from a volume revenue, but even more so kind of in the pricing commentary? Kathleen Houghton: Yes. So this year saw the rollout of both R-32 and R-454B, and we were well positioned there. We had a good supply chain even through the shortages of the crisis, and we had a lot of activity there. We were able to service our core customers, take care of them and also see that follow through with some of our other HFCs. So we were pleased how we navigated that this year, and we're very well set up for going into 2026 relative to A2Ls. Ryan Sigdahl: And maybe just a follow-up on that. Do you expect the A2Ls to be kind of a core part of the go-forward business? Or was it more of a stop gap given supply chain challenges for others? Kathleen Houghton: So certainly, as you look forward, A2L systems will start to become more of an impact for us and more of a larger part of our business. The HFCs, the 410As, the 134, that installation base is very dominant, and we'll continue to be in that space for a long time as those systems need repair and before they phase out. But you'll see that the A2L start to grow in terms of percentage and importance for us as we move forward. And certainly, again, we expect growth in that part of our business next year. Operator: Your next question is coming from Matthew Maus from B. Riley. Matthew Maus: This is Matthew, on for Josh. I guess just first on the 3Q beat, can you break down what drove that beat? Was it more volume or just better pricing or mix? And also, how did the USA refrigerants kind of track in 3Q? Brian Bertaux: It was more volume driven. So it was about 18% volume and a couple of points higher pricing. And USA refrigerants really had the same contribution as it's had throughout the year. So nothing notable with regards to USA refrigerant. But again, what we've really gained from USA refrigerant is having access to that aftermarket supply of refrigerants. So they're growing our base of lower-cost aftermarket refrigerants as compared to buying virgin refrigerants. Matthew Maus: Got it. And just another quick one for me. I guess when looking at the inventory, I thought it was -- you guys hit a normalized level in the past 2 quarters and then there was a sequential build in 3Q. I'm just wondering what the thought process was there or the reasoning? Brian Bertaux: That's just where -- we want to make sure that we're at a point to adequately serve the market next year. So I would say that last year's cash flow was very much significantly impacted by our inventory reduction. Now you're seeing in 2025, really a normalized working capital structure for us, but we're very pleased that we had $25 million of operating cash flow, and that's at a normalized working capital structure. So we're generating very strong cash flow just mostly through operating income. Operator: [Operator Instructions] Your next question is coming from Andrew Steinhardt from Canaccord. Andrew Steinhardt: Brian, Eric, Kate and the rest of the team, this is Andrew, on for Austin. Congrats on the solid quarter here. I'll jump right into my first question. You guys have almost $90 million in cash with no debt on the balance sheet and have made the interest in growing inorganically pretty clear. Would the intent be to acquire a business that can reduce the seasonal impact to revenues? And I guess, what kind of specific capabilities, markets or businesses in general do you think add the most value to the company with its current footprint? Kathleen Houghton: Yes. So that's a great question. We've talked about areas that we investigate M&A on previous calls. Certainly, large interest in service businesses and thinking about being closer aligned to those end user customers, whether that's aligned with our current field services and expansion of that complementary areas, maybe some areas that we haven't been in. But thinking about all of the things that go into HVAC cooling systems and adjacent spaces is where we're spending a lot of time and really looking at what's available and turning over some rocks to go into that. We have looked at other reclaimers, and so there are some other opportunities there potentially, but we really are focusing on that service area for our interest in acquisition. Andrew Steinhardt: Got it. That's helpful. And if I could just ask a follow-up kind of in a different direction here. volumes were pretty solid through the first 9 months of the year. Are there any plans to utilize a portion of the $90 million to add distribution centers based on current demand considering the satisfactory number of reclamation labs? Brian Bertaux: We're not going to speak to that in detail. But again, we are looking to optimize the $90 million strategic initiatives, acquisitions. So perhaps that may be on the list, but we're not going to go into any detail. Operator: That concludes our Q&A session. I'll now hand the conference back to Brian Bertaux for closing remarks. Please go ahead. Brian Bertaux: Thank you. Our company's success is a result of the collective efforts of our 250 employees with contributions from everybody in this building, in our facilities across the country and those out in the field. Our team has consistently proved that they will always vigorously pursue the best in themselves and their departments for the benefit of our customers, our partners and the company. We remain committed to growing our leadership position in the refrigerant and reclamation industry to drive improved financial results and increase shareholder value. On behalf of Kate, myself and the Board of Directors, we say thank you to all of our employees for your continued support and dedication to our business. And as always, we also thank both our long and short-term shareholders and those that recently joined us for their support. We look forward to speaking with you in March to discuss the fourth quarter and our full year 2025 results. Have a good night, everybody. Operator: Everyone, this concludes today's event. You may disconnect at this time, and have a wonderful day. Thank you for your participation.
Operator: Good day, ladies and gentlemen, and welcome to Red Violet's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this call is being recorded. I would now like to introduce your host for today's conference, Camilo Ramirez, Senior Vice President, Finance and Investor Relations. Please go ahead. Camilo Ramirez: Good afternoon, and welcome. Thank you for joining us today to discuss our third quarter 2025 financial results. With me today is Derek Dubner, our Chairman and Chief Executive Officer; and Daniel MacLachlan, our Chief Financial Officer. Our call today will begin with comments from Derek and Dan, followed by a question-and-answer session. I would like to remind you that this call is being webcast live and recorded. A replay of the event will be available following the call on our website. To access the webcast, please visit our Investors page on our website, www.redviolet.com. Before we begin, I would like to advise listeners that certain information discussed by management during this conference call are forward-looking statements covered under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Actual results could differ materially from those stated or implied by our forward-looking statements due to risks and uncertainties associated with the company's business. The company undertakes no obligation to update the information provided on this call. For a discussion of risks and uncertainties associated with Red Violet's business, I encourage you to review the company's filings with the Securities and Exchange Commission, including the most recent annual report on Form 10-K and subsequent 10-Qs. During the call, we may present certain non-GAAP financial information relating to adjusted gross profit, adjusted gross margin, adjusted EBITDA, adjusted EBITDA margin, adjusted net income, adjusted earnings per share and free cash flow. Reconciliations of these non-GAAP financial measures to their most directly comparable U.S. GAAP financial measure are provided in the earnings press release issued earlier today. In addition, certain supplemental metrics that are not necessarily derived from any underlying financial statement amounts may be discussed, and these metrics and their definitions can also be found in the earnings press release issued earlier today. With that, I am pleased to introduce Red Violet's Chairman and Chief Executive Officer, Derek Dubner. Derek Dubner: Good afternoon, and thank you for joining us today to discuss our third quarter financial results. We are pleased to report another record-breaking quarter, delivering new highs across all key financial metrics. This quarter's results reflect the exceptional effort and focus of our team and the continued confidence our customers place in Red Violet's platform and solutions. We continue to see strong uptake and expanding utilization of our products across a diverse set of industries. Our momentum remains broad-based and durable. The business continues to scale efficiently while delivering record financial results. We've built a virtuous cycle. Our innovation created the industry's leading cloud-native platform and solutions, which are driving record growth and financial performance, which, in turn, fuels continued investment, creating powerful competitive advantages. We continue to invest in areas that define our future, platform capabilities, product introductions and advancements, go-to-market expansion and the continued integration of AI across our operations. Now, let's briefly run through the numbers. Revenue for the quarter came in at a record $23.1 million, up 21%. Our adjusted gross profit was a record $19.4 million, resulting in a record adjusted gross margin of 84%. Adjusted EBITDA for the quarter was a record $9 million, resulting in a record margin of 39%. Adjusted net income for the quarter was a record $5.8 million, producing record adjusted earnings of $0.39 per diluted share. During the quarter, we generated a record $7.3 million in free cash flow. Once again, we added over 300 customers to IDI during the quarter, ending the third quarter at over 9,800 customers. Within FOREWARN, we added over 25,000 users and ended the quarter with over 590 realtor associations now contracted to use FOREWARN. The momentum we've observed throughout the year continued. Volumes across the platform were strong and steady throughout the third quarter. We have historically noted when onetime transactional revenue impacts our results. In this quarter, there were no meaningful onetime transactions. Performance reflects consistent core business activity. Our investigative vertical continues to be strong with our steady focus on law enforcement agency and investigative customers. Our emerging markets vertical was strong as well, driven by retail, legal, repossession, government and health care. In government, with recent wins, including a large state toll authority, state Departments of Revenue, Secretary of State offices and more, we are very encouraged by the path set by our Public Sector division. As well, momentum from collections and financial and corporate risk carried over. Given this traction and the fact that our strong performance is yielding robust cash generation, we have the flexibility to keep investing in our highest impact initiatives without compromising profitability. As we continue to advance opportunities across our enterprise pipeline, which is the strongest we've seen to date, investment in go-to-market capabilities is ongoing, expanding teams in various verticals. The bottom line is that we are firing on all cylinders and finally tuned where we sit today. Our Rule of 40 score notched an impressive 60%. Notwithstanding, we are not content. We are using AI to advance multiple initiatives that enhance the intelligence and efficiency of our platform, further distancing ourselves from the competition. Specifically, automation of internal workflows to reduce cycle times and scale productivity, expansion and enrichment of proprietary data assets, strengthening our competitive moat and application of advanced models to detect and interpret risk signals, improving the speed and precision of our insights. Each of these initiatives reinforces our broader strategy to make our solutions smarter, faster and more valuable with every iteration. Moreover, these endeavors will ultimately drive operational efficiency and translate to an even stronger margin profile in the future. While our larger competitors are burdened by legacy systems and bureaucratic decision-making, our strategic investments in modern platform technology allow us to better serve customers today while building structural advantages that will keep us at the forefront for years to come. Finally, we announced a $15 million increase to our share repurchase program. We had approximately $3.9 million remaining from our previous authorization. And given the healthy balance sheet growth, notwithstanding our continued investment in our business, we believe the share repurchase program is an important element of our broader capital allocation strategy. In the third quarter, we purchased 15,437 shares of common stock at an average price of $42.26. And to date, in totality under the program, we have purchased 553,921 shares at a weighted average price of $20. Now I'll turn it over to Dan to discuss the financials. Daniel MacLachlan: Thanks, Derek, and good afternoon, everyone. We are pleased to report another exceptional quarter, extending the strong momentum established in the first half of the year. We achieved new highs across all key financial metrics, underscoring the scalability, efficiency and durability of our business model. Our sales pipeline continues to expand with an increasing number of larger customer wins across our verticals. With this momentum and disciplined execution, we remain confident in our ability to deliver a strong finish to the year. Turning now to our third quarter results. For clarity, all the comparisons I will discuss today will be against the third quarter of 2024, unless noted otherwise. Total revenue was a record $23.1 million, up 21% over the prior year. We generated a record $19.4 million in adjusted gross profit, delivering a record adjusted gross margin of 84%, up 1 percentage point. Adjusted EBITDA came in at a record $9 million, an increase of 35% over the prior year, producing a record adjusted EBITDA margin of 39%, up 4 percentage points. Adjusted net income increased 75% to a record $5.8 million, resulting in record adjusted earnings of $0.39 per diluted share. Turning to the details of our P&L. As mentioned, revenue for the third quarter was $23.1 million, with balanced growth across verticals. Within IDI, we continue to see strong demand for our solutions and healthy customer expansion, adding 304 billable customers sequentially to end the quarter with 9,853 customers. Our investigative vertical continues to perform exceptionally well, reflecting sustained demand from both new and existing law enforcement agencies and investigative customers. Growth was driven by higher transaction volumes, new customer wins and deeper integration of our solutions into customer workflows. Our emerging markets vertical delivered another strong quarter with the retail, legal, repossession, government and health care industries, all contributing meaningful growth. Demand across these industries underscores the versatility of our platform and its ability to address a diverse range of use cases. Collections delivered another quarter of strong performance, marking its second consecutive period of high teens revenue growth. The steady recovery within collections continues to build momentum, and we believe we are well positioned to capture further growth as a trusted leader in this space. Our Financial and Corporate Risk vertical delivered strong growth this quarter, driven by solid performance across our core financial services customers and continued traction within the background screening industry. Over the past year, we have expanded our presence in this space through targeted product innovation and enhanced go-to-market execution, resulting in several significant new customer wins, including a recent contract with one of the largest payroll processors in the country. The return on these investments is increasing, further strengthening our position in the market and driving continued company-wide growth. Lastly, IDI's real estate vertical, which excludes FOREWARN, experienced a slight year-over-year decline as high home prices and interest rates continued to pressure affordability and weigh on housing activity. Turning now to FOREWARN, which continues to strengthen its position as the leading proactive safety tool for real estate professionals. Revenue grew at a solid double-digit percentage rate, driven by ongoing adoption and engagement across realtor associations. During the quarter, we added more than 25,000 users and now have over 590 associations contracted to use FOREWARN. Contractual revenue accounted for 75% of total revenue in the quarter, down 2 percentage points from the prior year. Gross revenue retention remained strong at 96%, improving by 2 percentage points over prior year. Moving back to the P&L. Our cost of revenue, exclusive of depreciation and amortization increased $0.3 million or 9% to $3.6 million. Adjusted gross profit increased 23% to a record $19.4 million, resulting in a record adjusted gross margin of 84%, up 1 percentage point from the prior year. Our sales and marketing expenses increased $0.6 million or 12% to $5.4 million for the quarter, driven primarily by higher personnel-related expenses. General and administrative expenses increased $0.8 million or 13% to $6.8 million, reflecting higher personnel-related costs. Depreciation and amortization increased $0.3 million or 11% to $2.7 million for the quarter. Net income increased $2.5 million or 145% to $4.2 million for the quarter. Adjusted net income increased $2.5 million or 75% to a record $5.8 million, resulting in record adjusted earnings of $0.39 per diluted share. Moving on to the balance sheet. Cash and cash equivalents were $45.4 million at September 30, 2025, compared to $36.5 million at December 31, 2024. Current assets totaled $58 million compared to $46.2 million at year-end, while current liabilities were $6.9 million, down from $10.3 million. We generated a record $10.2 million in cash from operating activities in the third quarter compared to $7.2 million in the same period last year. Free cash flow for the quarter was a record $7.3 million, a 51% increase from $4.8 million a year ago. We purchased 15,437 shares of company stock at an average price of $42.26 per share under our stock repurchase program during the third quarter. On November 3, 2025, the Board authorized a $15 million increase in the company's stock repurchase program. Currently, we have $18.9 million remaining under the repurchase program. In closing, our third quarter results reflect another period of consistent execution and profitable growth. We continue to extend our leadership across markets, deliver record performance and strengthen our foundation for long-term value creation. We remain confident in our ability to close out 2025 as another record year for Red Violet. With that, our operator will now open the line for Q&A. Operator: [Operator Instructions] Our first question comes from the line of Josh Nichols of B. Riley. Josh Nichols: Great to see another record quarter. A lot of good things to unpack with record EBITDA margins, bumping rate up against 40%. You're hiring, the share buyback clearly indicating that you have some really good confidence about the trajectory the business is on. You mentioned 2 big wins, the toll authority and then the large payroll processor. Maybe if you want to just give us a little bit more detail about some of the traction you're seeing in those larger public and enterprise sector customers and how you see that playing out over the coming months and throughout next year? Derek Dubner: Sure. Thanks, Josh. Derek here. Nice to talk to you. As you know, for the last 18 months or so, we've been investing in our public sector division and our background screening solutions. We've brought a number of new products to market and have built in some really differentiated capabilities in the platform to serve those markets. And we've also invested in our teams. We've surrounded a number of thought leaders with some very terrific individuals to go to market and penetrate those markets. And given that those are a little bit of a longer sales cycle, it's nice to see that in the last 6 months or so, we're really starting to see the green shoots. We did win one of the larger state toll authorities against very significant -- a very large competitor, and they clearly saw the differentiation in our products and our solutions in testing. And so we're very excited about that. As I mentioned, we're also winning at a number of Departments of Revenue and Secretaries of State for a number of very interesting use cases across the public sector. And these are wins that we can sort of model and duplicate across the country. So we're very excited about those opportunities. In payroll processing and in the background screening area, as we mentioned, we did enter into a multiyear contract with one of the largest payroll processors. And we're very excited about that opportunity, and we are also testing with others of the same size in both public sector and background screening. So yes, you can hear our confidence. We are very pleased with the results. We are, as I mentioned, firing on all cylinders and extremely excited about 2026, where those larger opportunities are there for us to win. Josh Nichols: And then just diving in on that, I mean, to win this large toll award, pretty significant here. And you made a point that you think this is replicable. Any kind of color that you could give us on like how many of these large toll authorities or payroll processing background screeners are and the opportunity to win those in terms of the addressable market? Daniel MacLachlan: Yes, Josh, this is Dan. Thanks for the question. So look, when we talk about public sector, and Derek gave some color about being able to potentially leverage that win and replicate it across the number of states, right? I mean, at this point, probably every state in the country has some kind of sized whole authority, whether that's more of a jurisdictional local size or across the whole state. So we think that market is substantial. And we've only just tapped the surface, obviously, announcing one of the larger wins, but there's at least 49 other states to kind of figure out and go after, which is great. When we talk about the background screening industry, that is just an enormous industry. We spent the last 18 to 24 months, as Derek talked about, really building out our product suite, our team, our go-to-market strategy and the opportunity pipeline that has developed over the last 12 months -- and the conversion of that pipeline to win in the last 6 months, including one of the largest payroll processors in the country, is just extremely exciting. As you can imagine, you could probably name off a handful of the large payroll processors, right? There's some really big players in the space. And then there's a broad range of what I would kind of consider kind of the medium range. So we're just getting started in both of those. And today, the revenue from those 2 areas has not been a meaningful contributor to our growth. And that's what makes us so excited going into 2026. As these start to develop, as the contracts come to fruition, the volumes take shape, we're extremely excited about what this will allow us to accomplish in 2026 with landing these and additional over the course of the near and medium term. Operator: Our next question comes from the line of Eric Martinuzzi of Lake Street Capital Markets, LLC. Eric Martinuzzi: Mike, congrats on the strong quarter as well. I wanted to dive into FOREWARN. The -- you had a nice expansion there in the number of realtor associations using FOREWARN. I think you've said in the past that there's roughly 1,100 realtor associations nationwide, and we're now at over 590 of them that are FOREWARN customers. Curious to know if you've had any renewals in that installed base? And then what's been sort of the ability to raise ARPU on that installed base? And if you have a plan to add additional features, functionality where that could be a potential on renewal for that installed base. Daniel MacLachlan: Yes, Eric, thanks. This is Dan, and I appreciate the question. Yes. One of the great things that we've seen in FOREWARN since we brought this to market, call it, 5 or 6 years ago is that the uptake within the associations and the continued renewals and usage and increase in usage in the user base has been amazing. And so yes, we've seen a number of renewals over the last 5 years. Most of the contracts are 1- to 2-year agreements. Some are a little bit longer than that. So we've been through a number of renewal cycles with great retention, obviously, across the board. And we do have some escalations within some of those agreements from year-to-year. But we've been really focused on going out and grabbing market share and haven't spent a tremendous amount of time looking at kind of optimizing the price point. We think we've done a good job. We've feel that we're priced very well in the market. But we do have the ability with renewals and continued expansion to increase prices as we move to newer associations and as we come up for renewals. Derek Dubner: And Eric, this is Derek. You're absolutely right that with an installed base of close to 400,000 users, it's an incredible asset. They are the type of users that interact very frequently. We've priced FOREWARN intentionally to be unlimited searches for the safety of the individual professionals so that they search each and every time they're contacted by a prospect to verify identity. And because of that, because of how much the real estate professional really has expressed to us, they love FOREWARN. We have a number of features that we're looking at developing, and we've been interacting with surveys and other means of communication with these realtors to understand what they'd like to see. And that is definitely informing the product road map around FOREWARN's additional features. And of course, then there comes the opportunity to build in some pricing around some excellent features above and beyond. Eric Martinuzzi: Understood. The growth in the IDI side of the house, I know not all customers are created equal, but it was relatively similar number of customers. You added 308 customers in Q2 and 304 customers in Q3. What does the pipeline look like for Q4? Daniel MacLachlan: So yes, the pipeline for what I would say is the next, call it, 2, 3, 4 quarters is extremely strong. And we're very excited about the larger opportunities within that pipeline. And of course, we've made mention on some of those larger opportunities that just fell in and we've contracted here recently in the third quarter and subsequent to the third quarter. So one thing I will say is, and as you know, fourth quarter, we do have what I would consider a seasonal slower quarter in regards to less business days in November and December. 20% or so of our business is still transactional revenue. So we do see a little bit of seasonality just from less business days when you look at the holidays in November and December. So we're very excited about the continued onboarding and that pipeline of customers. But from a sequential basis, the expectation is you wouldn't necessarily see another 300 in incremental or sequential growth in customers. But compared to fourth quarter of last year, we're confident that you'll see some really strong growth within the customer base. Eric Martinuzzi: Got it. You started to touch a little bit there on my gross margin question. And I was looking back a year ago, you were down sequentially on gross margin, and I think it was tied to the transaction volumes. Is that your expectation here in Q4 of '25 versus Q3 of '25? Daniel MacLachlan: You're saying sequentially on the gross margin number, whether the expectation is we would be a little down or consistent? Eric Martinuzzi: Correct. Daniel MacLachlan: Yes. The expectation for us is that we continue to have incredible leverage at that gross margin level. It's a relatively fixed cost of revenue for us. So we would think that Q4 at this point would be in line with what we've seen in Q3, right around that 83% to 84%, call it, 82%, 83%, 84% gross margin level. Eric Martinuzzi: Got it. I said that was my last, but I got to ask you on the buyback. Your average price of the repurchases in Q3 at $42.26. Looking at the stock today at $54.53, is the current share price attractive to the management team and the Board? Derek Dubner: I would say, yes, it is attractive to the management team and the Board. We're very excited about what we've built. We know that we have differentiated assets in our platform and our solutions that clearly have competitive advantages over the competition. And for us, it's just a matter of the continual customer realization of that in the marketplace. So -- and we haven't even talked about the new product road map and all the things that we're working on. So we're extremely excited for '26, '27 and beyond. And make no mistake, our best use of capital is investing in this business because of the enormous opportunities at our foot right in front of us. But to have the buyback as just one more essential tool in the toolbox of the capital allocation strategy we believe that it has served us very well. We've been very opportunistic. And we believe that should we use any of those dollars and buy back our stock that we'll look back 2 years from now, and we'll feel the same. Operator: This concludes the question-and-answer session. I would now like to turn it back to Derek Dubner for closing remarks. Derek Dubner: To close, Red Violet continues to execute exceptionally well operationally, financially and strategically. We are performing with focus and precision against a strategy designed to sustain growth, expand profitability and deepen our competitive edge. With a talented team, a scalable model and clear strategic direction, we remain confident in our ability to continue creating meaningful value for our customers and shareholders. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Operator: Good afternoon, ladies and gentlemen, and welcome to Kemper's Third Quarter 2025 Earnings Conference Call. My name is Constantine, and I will be your conference coordinator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to introduce your host for today's conference call, Michael Marinaccio, Kemper's Vice President of Corporate Development and Investor Relations. Mr. Marinaccio, you may begin. Michael Marinaccio: Good afternoon, everyone, and welcome to Kemper's discussion of our Third Quarter 2025 results. This afternoon, you'll hear from Tom Evans, Kemper's Interim CEO; Brad Camden, Kemper's Executive Vice President and Chief Financial Officer; Matt Hunton, Kemper's Executive Vice President and President of Kemper Auto; and Chris Flint, Kemper's Executive Vice President and President of Kemper Life. We'll make a few opening remarks to provide context around our third quarter results, followed by a Q&A session. During the interactive portion of the call, our presenters will be joined by John Boschelli, Kemper's Executive Vice President and Chief Investment Officer. After the markets closed today, we issued our earnings release, filed our Form 10-Q with the SEC and published our earnings presentation and financial supplement. You can find these documents in the Investors section of our website, kemper.com. Our discussion today may contain forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements include, but are not limited to, the company's outlook on its future results of operation and financial condition. Actual future results and financial condition may differ materially from these statements. For information on additional risks that may impact these forward-looking statements, please refer to our 2024 Form 10-K and our third quarter earnings release. This afternoon's discussion also includes non-GAAP financial measures we believe are meaningful to investors. In our financial supplement, earnings presentation and earnings release, we've defined and reconciled all non-GAAP financial measures to GAAP where required in accordance with SEC rules. You can find each of these documents in the Investors section of our website, kemper.com. All comparative references will be to the corresponding 2024 period unless otherwise stated. I'll now turn the call over to Tom. Carl Evans: Thank you, Michael, and good afternoon, everyone. First, I'd like to begin by introducing myself. I'm Tom Evans, and as many of you know, 3 weeks ago, the Board of Directors asked me to step in as Kemper's Interim CEO. Over the past 33 years, I've had the privilege of serving in a variety of roles at Kemper, most recently as General Counsel. During this time, I gained a deep understanding of our business and just as importantly, our people. I believe strongly in this organization, its purpose, its potential and the exceptional talent of our team. We are united by a commitment to serving markets that are often overlooked by other carriers, and I'm proud to be part of a company that embraces that responsibility with integrity and focus. As you know, our Board has commenced a search to identify our next CEO, and I'm confident they'll find the right person to lead us through the next chapter of our story. We'll provide an update on the search when we have more information to share. Let's begin the substantive portion of this call with a straightforward comment. Our results this quarter were disappointing. Today, we'll address what happened, why it happened and above all, what we're doing about it. Without question, we continue to believe strongly in both our strategy and our opportunities, but it's clear our execution has fallen short at times. Some of the challenges we faced were driven by external conditions, but others were within our control. We know that we need to be better operators to deliver the consistent results that investors expect and that we know we're capable of. To that end, the Board and leadership team have taken significant steps, including recent changes in leadership and a restructuring initiative to improve execution and accountability and ensure that we deliver on our strategic priorities. This isn't about changing our direction. It's about reinforcing the disciplines that drive performance. If we do those things, we can better leverage our scale and our capabilities to improve efficiency, broaden our reach across markets and deliver more stable, sustainable results. With that, I'll now provide some context around the key drivers of our performance, and then Brad and Matt will provide more detail and commentary on each. We'll also get a quick update from Chris, who leads Kemper Life about what's going on in that business. I'd like to start by discussing the broader specialty auto environment, which in 2025 has rapidly evolved. Historically, it's always been a more sensitive fast-moving segment with shifts often appearing there before becoming visible in the broader auto insurance space. And that dynamic certainly held true this year. One of the most notable developments here has been the sharp increase in competition, particularly over the spring and summer. In several of our key markets, we've seen other carriers aggressively pursue market share through pricing tactics. While we're responding to these pressures, we won't abandon our underwriting standards, and we remain committed to disciplined underwriting and driving profitable growth. In addition to competitive pressure, we're seeing elevated severity trends due to medical cost inflation and higher attorney involvement in claims. The impact of bodily injury severity has been especially pronounced in our largest market, California, where the January 1 changes to minimum financial responsibility limits are showing up in our results more significantly than initially anticipated. We had expected adjustments to be needed once real claims experience began to emerge, and we're actively making those adjustments. Matt will provide further detail later. As for the litigation environment, whether you call it social inflation or legal system abuse, the effect is the same, upward pressure on loss costs and overall claims inflation. Ultimately, this leads to increased customer premiums and prolonged claims resolution processes. As I stated earlier, we believe in our strategy, and we remain committed to it. We know what we have to do. We're taking actions to enhance our competitive advantages, improve profitability and achieve consistent PIF growth. We're in a solid financial position and are confident these actions will help us succeed. With that, I'll turn it over to Brad. Bradley Camden: Thank you, Tom, and good afternoon, everyone. Before diving into the presentation, as Tom mentioned, our financial results this quarter fell short of expectations due to a combination of factors, including intensified competition, elevated severity trends in claims and a handful of infrequent items. In response, we're implementing a targeted restructuring initiative taking segmented pricing actions and making operational improvements. Additionally, we made some changes in our senior management team, including new leadership in claims and information technology, which were designed to accelerate and enable these efforts. Our immediate priority is to enhance execution, improve profitability and position the company for growth. Let's now turn to Slide 5 to discuss our financial results in more detail. For the quarter, we reported a net loss of $21 million or $0.34 per diluted share and adjusted consolidated net operating income was $20.4 million or $0.33 per diluted share. These results generated a negative 3% return on equity and year-over-year book value per share growth of 4.8%. Our trailing 12-month operating cash flow remained strong at $585 million, holding near our all-time high. In our P&C segment, the underlying combined ratio increased 6 percentage points sequentially to 99.6%, reflecting elevated California bodily injury claims severity and competitive pricing pressure. Policies in force and earned premium grew 0.6% and 10.7% year-over-year, respectively. Matt will discuss this in detail later. Our Life business delivered solid results this quarter, supported by favorable mortality trends and disciplined expense management. These fundamentals continue to reinforce the segment's reliability and stable contribution to overall earnings and cash flow. Chris will briefly discuss this later in the call. Additionally, our balance sheet is strong with substantial capital and liquidity positions, providing financial flexibility. This strength enables us to support organic growth, invest in strategic initiatives and distribute capital to shareholders. From the beginning of July to the end of October, we repurchased a total of 5.1 million shares at an average price of $52.65 for a total cost of $266 million. This activity includes the $150 million accelerated share repurchase program announced in August, which was successfully completed in mid-October. Moving to Slide 6. Here, we take a look at the key sources of earnings volatility during the quarter. These include a restructuring charge, the write-off of internally developed software and adverse prior year development. I'll provide some additional color on each. During September, we initiated actions to drive operational efficiencies and reduce costs. These initial actions are expected to generate approximately $30 million in annualized run rate savings. We continue to look across the business to identify additional expense savings opportunities focused on enhancing cost discipline and organizational effectiveness. These savings are intended to do two things: first, improve our combined ratio; and second, to support growth in specialty personal auto business and accelerate geographic diversification. As a result of these actions, we recorded a $16.2 million after-tax restructuring charge in the quarter. In Kemper's Preferred business, which is reported below the line in noncore operations, we lost $21 million, primarily due to a $22 million expense related to the write-off of internally developed software. Approximately 90% of this business has now run off. As a result, an expense was recognized this quarter and all remaining software amortization has been completed. And finally, we strengthened our reserves by $51 million pretax or $41 million after tax in our Specialty Auto segment. The vast majority of the adverse development was concentrated in our commercial auto business, primarily from bodily injury and defense costs related to accident years 2023 and prior. As Tom noted and consistent with broader industry trends, we continue to see elevated bodily injury severity. This is caused by several factors, including rising medical care costs, increased use of innovative treatments and higher attorney involvement rates. In response, we've taken proactive steps to address these challenges, including rate and non-rate actions and further enhancements to our claim management processes. Turning to Slide 7. Our balance sheet remains strong and provides financial flexibility. As of quarter end, we maintained over $1 billion in available liquidity and our insurance subsidiaries remain well capitalized. Our debt-to-capital ratio stands at 24.2%, near our long-term target and reflective of our disciplined capital management. Notably, we generated $585 million in operating cash flow over the past 12 months, remaining near an all-time high for the company, underscoring the resilience of our business model and the consistency of our cash flow generation. Moving to Slide 8. Quarterly net investment income totaled $105 million, up $9 million sequentially, driven by improved performance in our alternative investment portfolio. We maintain a high-quality, well-diversified investment portfolio that demonstrates thoughtful asset allocation and prudent risk management. As the portfolio grows and benefits from favorable new money rates, we anticipate net investment income will continue to trend upward over time, contributing meaningfully to overall earnings. In summary, our disciplined approach to capital deployment, strong balance sheet and resilient cash flow generation position us for success. With [ initiatives ] underway to improve profitable growth and operational discipline, we're well equipped to navigate evolving market conditions and deliver value to our stakeholders. I'll now turn it over to Matt to discuss the Specialty P&C segment Matthew Hunton: Thank you, Brad, and good afternoon, everyone. Turning to Slide 9. The Specialty P&C segment produced an underlying combined ratio of 99.9% this quarter. Personal auto combined ratio increased to 102.1%, while commercial remained relatively stable at 91.1%. The increase in our personal auto underlying combined ratio was driven primarily by bodily injury loss trends. We're observing signs of elevation across all geographies, this was particularly evident in California. As you will recall, on January 1 of this year, the industry-wide mandatory increase in state minimum limits went into effect. This change doubled the BI limit from 15,000, 30,000 to 30,000, 60,000, while also increasing physical damage from 5,000 to 15,000. At the time of our initial rate filings for the new limits, our pricing analysis was based on our California loss experience, complemented by our experience with similar limit increases in non-California markets. Our selected pricing factors were on the higher end of the actuarially supported range. With that said, our early read of actual post-change severity has come in higher than forecasted. BI is a long-tail coverage and at 3 months evaluation is only about 35% developed. Also, more severe higher cost claims, which have a greater propensity to reach policy limits tend to be resolved sooner. Therefore, we move quickly to take rate and non-rate actions to ensure pricing meets lifetime targets. We'll continue to closely monitor severity patterns and adjust accordingly. As earlier noted, the specialty auto market tends to experience emerging patterns earlier than the standard market. With specialty auto customers being higher frequency, loss patterns become visible more rapidly. To that end, an increasingly clear driver of liability cost challenge is higher attorney involvement in legal system abuse. We continue to see attorneys attach to claim files much earlier in the process. The combination of growing medical inflation and the greater use of elective procedures is driving a more expensive treatment mix. This dynamic is not unique to our business. It's an industry-wide trend that will require more proactive and disciplined management. With that said, 95% of our book is at state minimum limits, which places an upper bound on further cost escalation. As Brad discussed, in addition to our underwriting and pricing actions, we've launched a restructuring initiative aimed at creating a more competitive cost structure to further diversify our book. These efficiencies are supporting expansion efforts in Florida, Texas and other noncore states, funding market entry work, improving product competitiveness and expanding distribution partnerships in priority regions where we see strong growth potential. Shifting to production. California moved quickly from a hard market to a more normalized market with competition intensifying. We're taking rate and non-rate actions to address liability costs to ensure pricing economics remain sound. These actions are aligned with our goal of driving profitable growth through the cycle. Our pricing actions to date in Florida and Texas have helped stabilize our in-force book. Ongoing expense, efficiency initiatives and enhancements to our product capabilities are targeted at supporting profitable growth in these markets. In commercial auto, underlying margins remained strong and PIP growth was 14%. The competitive market remains stable with regional nuances. Similar to our personal auto business, we continue to be aggressive on rate actions across all coverages with heightened focus on bodily injury. Our competitive advantages position us well to capitalize on these opportunities. And finally, we're focused on execution, rolling out new product features, improving end-to-end claim handling and driving cost efficiencies, all to enhance price competitiveness. By strengthening operational discipline in these areas, we can grow strategically, diversify our footprint beyond core markets and deliver profitable growth. I'll now turn the call over to Chris to cover the Life business. Christopher Flint: Thank you, Matt. Turning to our Life business on Slide 10. The Life segment delivered solid quarterly results with operating earnings of $19 million, driven by favorable claims experience and expense levels tightly aligned with product economics. Despite a modest decline in premium volume, the business remains well positioned to sustain strong returns on capital and robust cash generation. I'll now turn the call back to Tom to cover closing comments. Carl Evans: Thanks, Chris. In closing, I hope we've described not only what happened this quarter and why, but more importantly, the actions we're taking to improve profitability and growth. We're reinforcing the disciplines that drive performance through management changes, a restructuring initiative and a renewed focus on execution. As I said at the top, I have tremendous confidence in this organization, its purpose, its potential and the talent of our people. I want to thank our entire team for their commitment and hard work to make Kemper a stronger organization. As we navigate this environment, we remain certain of our ability to deliver long-term value to all of our stakeholders. Operator, we may now take questions. Operator: Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions]. Your first question comes from the line of Andrew Kligerman from TD Cowen. Andrew Kligerman: Maybe start with the commercial auto segment. I calculate an unfavorable prior year development of 18.7 points. And that follows the second quarter at 8.4 points of unfavorable. And if I -- and correct me if I'm wrong, but if I recall the management commentary on the last call, like it seemed that it had been nipped like they had really captured it. We talked on the call, I think, about the social inflation environment. So what's happened between 2Q and 3Q on the commercial end? And why should we not expect another unfavorable prior year development there? Bradley Camden: Andrew, this is Brad. Thank you for the question. You are correct in comments from prior quarter. We did have adverse development in the second quarter. And obviously, we've also had adverse development here in the third quarter. In the second quarter, we discussed the adverse development being latent large loss activity, not due to frequency, but higher severity. We've experienced the same thing here in the third quarter on large losses, so continued latent development in accident years 2023 and prior. Additionally, we're also seeing BI severity trends from social inflation and continued attorney attachments in accident and nonlarge losses, which is how we describe it as anything below $250,000. So the BI severity trends that Matt discussed in the call previously, not only in PPA is also prevalent in commercial vehicle, and it has been prevalent across the industry to date. With respect to us capturing this and not being a consistent issue, we've adjusted our expectations on what each of those cases are today and what they're going to expect to develop to. And we've also adjusted our IBNR development factors to capture what we think is probable in the future. We're confident in that. But as the environment remains extremely dynamic, there may be further adverse development, but we're confident with what we have today. Andrew Kligerman: Okay. And my follow-up question, shifting back to private passenger auto come in at an underlying combined of 102.1%. And a lot of your competitors we've seen are coming in around 90%. So I guess you've got geographic differences. So I guess the question is, one, what gives you confidence in your data and analytics? Are you up to speed with that? Are you in line with your peers with your data and analytics in terms of capturing this stuff? And I suspect the part B of it is, I suspect you probably need some rate and California has historically been a very tough state. Do you think they'll give the approvals that you need? Matthew Hunton: Andrew, this is Matt. I'll start with just highlighting the nuance difference between us and some of the Main Street competitors that we're up against. I think primarily one is we're predominantly a minimum limit customer base. We have a different frequency profile and loss profile. It sort of the definition of nonstandard. The other is 60-plus percent of our book is in California. And that's really where the driver of the inflection was in the loss from quarter-over-quarter. Frequency came in line within expectations. It was slightly elevated, but within normal sort of seasonal expectations. The driver was heightened severity, and it was really the BIP dynamic, that's really -- it's not new for the industry. This has been a dynamic in the industry for the last decade or so, but it was heightened due to the FR changes in California earlier this year, right? And so this effectively acts as a onetime step-up in cost. And this isn't normal. The last time California had a limit increase was in 1967. And so with California representing the percentage of the portfolio for us that it does, naturally, it's more pronounced in our results relative to peers. And as our California book converted over to the new limits, and as Brad mentioned, with the latent development or the slow development of BI coverage, we observed the elevated paid patterns in the mid part of the third quarter, and we took immediate action. I don't think we have any concern about our analytics or insights. We have a prospective view in terms of where costs are going, and we're trying to be as aggressive as we can in achieving that. Regarding the rate to be filed -- that is currently filed with the CDI, that is with the CDI, we are having proactive conversations with them. Our goal is to get the rate effective as soon as possible, and the dialogues are moving along as we expect them to. Andrew Kligerman: Got it. And maybe just if I could sneak one last one in. There was a lot of discussion in the investment community about Kemper's willingness to be acquired. I know you can't be specific, but what's your thinking right now on that topic? Is that something that Kemper is open to? Carl Evans: Andrew, this is Tom Evans. That's not really something we can comment on. We're a public company. We're for sale every day. Operator: The next question comes from the line of Mitch Rubin from Raymond James. Mitchell Rubin: I wanted to ask about the restructuring. Could you please elaborate on some of the specific areas where you guys are targeting cost savings from, thanks. Bradley Camden: Thanks, Mitch. This is Brad. Really in 3 areas. One is an organizational design. We've restructured some of the reporting lines and as a result, have had some cost savings. So organizational structure. Second bucket is process efficiencies. So think about with some new product launches, we have lower commissions with improved process, we expect to reduce some print postage, some bad debt, other things. So increased overall efficiency in the organization is key and critical. And lastly, our various one-off things that maybe we've made investments in, in the organization that we're looking to change how we do business and how we operate going forward. So in total, as we mentioned, we took a $16.2 million after-tax charge. That's going to save us on a run rate basis, approximately $30 million annually. Mitchell Rubin: And my follow-up on Page 9 of the presentation, I see that policies in force in Florida and Texas came down about 7% year-over-year. Could you provide some color on what you're seeing in the competitive environment there? Matthew Hunton: Yes. This is Matt again. Look, I'll start with overall, we still are bullish on the markets that we operate in. Obviously, California being our largest. We talked a lot about California being a hard market over the past few quarters as it worked its way through the pandemic. That is normalizing. Competition is increasing on the new business side. With that said, our policy retentions are stable there, but some competitors continue to get increasingly aggressive. And as we are making the changes we're making on the pricing and underwriting side to address the liability trends, we think those are the right changes, and we're remaining disciplined as we work through the cycle. In terms of Florida and Texas, those markets are very competitive marketplaces. I think we've talked about that for the last few quarters. We've done quite a few changes in our products from a segmentation pricing perspective that have stabilized our in-force book of business. And as Brad mentioned in the prepared comments, the restructuring and cost efficiencies that we're driving through the business, along with additional product enhancements are focused on those markets, so to accelerate growth in those markets and help us move towards our strategic end state of being a more diversified geographic portfolio. Mitchell Rubin: Great. That's helpful. If I could just ask one more thing. You mentioned some nonrate actions you guys have been taking. Could you give any insight towards that? . Matthew Hunton: Yes, non-rate actions are effectively tightening some underwriting aperture managing agents in terms of capacity with a bit more aggressiveness, adjusting billing features, among other things that help us manage profile and the expected losses associated with the profile. Operator: [Operator Instructions] The next question comes from the line of Brian Meredith from UBS. Brian Meredith: A couple of questions here for you. The first one, I think it's related to some runoff stuff, but I'm just curious, the software write-off in the quarter, what is that exactly related to? And does that have any effect or a part of your, call it, specialty business? Bradley Camden: Brian, this is Brad. The write-off of the internally developed software is solely related to the Kemper Preferred business, which is reported below the line in noncore operations. As a result of our premium forecast and the acceleration of the runoff of that business, we determined that the premium receiving is no longer enough to support those assets. So as a result, we've written them off this quarter. It has no relation to the specialty auto business. It's solely related to Kemper Preferred. I'd also like to highlight that, that business is now 90% runoff and the remaining policy is predominantly in the state of New York, which we are close to working with the regulator to accelerate the runoff of that business. Brian Meredith: Makes sense. And then my next question is, I mean, I guess the Chief Claims Officer and the Chief Information Officer, CIO, are gone. What changes are you making with -- in the claims in the information technology area as a result of the departures? Carl Evans: Well, we publicly -- Brian, this is Tom Evans. We've announced that Andy Ramamoorthy stepped in as Chief Claims Officer. So that response to that part of your question. With regard to the IT space, we currently have an office of the CIO that's comprised of 3 members of our executive team, Andy, who already mentioned, Matt and Brad are the other 2 members. And we are -- I'm sorry, go ahead. Brian Meredith: Yes, I meant more about process right underlying process or changes that maybe the changes within claims or systems processes, not so much the new people coming in. Matthew Hunton: Brian, this is Matt. We -- on the claims side, there are a few sort of process points of evolution that we're working on. And some of this has been work in process for the last few years. But the biggest one is sort of having an end-to-end orientation around how we manage total cost of ownership and value generation. We worked pretty aggressively on the material damage side the last couple of years, and the efforts are paying off in terms of stemming some of the tariff pressures that I think the industry is seeing. We have been working that on the liability side, and we're accelerating some of that work so we could aggressively manage some of the headwinds from a liability trend perspective. That's one example. Another example is we're taking our data science capabilities that we built on the pricing front, and we're accelerating that into claim to help us process more effectively sort of next best action, drive some automation, leveraging AI and other toolkits to really drive efficiency in the engine. And on the technology side, similarly, connecting that more to the business to drive value in a more expeditious and agile way. Carl Evans: Sorry, Brian, I just going to add one more comment is the other thing that we've done is we've repositioned some of the players in our claims team, particularly to respond to some of the more active things we're seeing in the litigation environment to better respond to those issues. Brian Meredith: Makes sense. And then last question, I guess, more from Brad. So I'm assuming there was some kind of current year catch-up in the underlying kind of loss picks in the quarter. What's the run rate underlying loss ratio right now in the third quarter ex kind of current year development? And maybe you could break that down between personal auto and the commercial. Bradley Camden: Great question, Brian. Well, I'll give you the details. Essentially, underlying loss ratio from Q2 to Q3 increased 6 percentage points, 93.6% to 99.6%. When you think about the current year adjustments, no significant current year adjustments. What we're seeing is favorable development on comp and collision and the metals coverages, and we continue to see some adverse development even in the current accident year on BI. So it's a mix development, but no significant changes either in commercial vehicle or PPA. Operator: Your last question is from the line of Andrew Kligerman from TD Cowen. Andrew Kligerman: On the share repurchases, you did a pretty active -- I think it was what, $266 million through October from July 1, and you still have about $300 million left. So maybe some color on your thoughts around share repurchase going forward. Bradley Camden: Thanks, Andrew. You are correct with the numbers, 5.1 million shares, roughly $266 million. From a share repurchase standpoint, we continue to think the stock is attractive. That said, I will point you to our capital deployment strategy, which is first to fund organic growth. Matt talked about what we're doing there as we invest some of the restructuring savings into Florida and Texas. So we want to make sure we have enough for internal organic growth. Secondly, we want to make sure we have enough capital to have financial flexibility. And then third, if there's anything that's additional, we will distribute that to shareholders. So you are correct. There's still a significant amount remaining in the authorization that was granted last quarter, that $500 million, and we'll continue to be tactical with that as we go forward. Andrew Kligerman: And maybe just as a quick follow-on to that. In terms of policy in-force growth, and you've talked about it, Brad, that PIF would be a little lighter, maybe very low single digit in the back half of 2025. Are you thinking just in light of all these pricing changes that you can kind of maintain that? You came in close at 0.6. And then when you get into 2026, do you feel like you could really target that -- what was it like mid-single-digit growth that you were looking for in PIF next year, maybe upper mid? Bradley Camden: Yes. So you got the numbers correct, Andrew. We came in at 0.6% year-over-year, down sequentially. I'll highlight that we talked about this a lot in the past is going from Q3 to Q4, we typically see lower shopping activity as a result, PIF naturally declines just as a result of seasonality in our business. So I would expect PIF to modestly decline maybe 1% or 2%, maybe 3% from Q3 to Q4. Then I'd expect us back to growing in the first quarter as we get into the buying season. And as a reminder, that buying season typically starts mid-February and goes through late April, early May. As far as PIF growth, what we expect in the first half of next year, I think that depends on the competitive environment. As Matt mentioned, our goal is to grow profitably. And so we're going to protect our margins and be thoughtful around growth, particularly in some key states like California. Operator: There are no further questions at this time. I'll hand the call over back to Tom Evans for closing comments. Sir, please go ahead. Carl Evans: Thank you. I want to thank everybody for taking the time to join us today and to provide the thoughtful questions. We appreciate everyone's continued support as we move through this transition and we look forward to speaking with you again next quarter. In the meantime, the team here at Kemper remains focused on execution and continuing to focus on delivering value for our shareholders. Thanks very much. Take care. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you very much for your participation. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by. Welcome to the Qualcomm Fourth Quarter and Fiscal 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded, November 5, 2025. Playback number for today's call is (877) 660-6853. International callers, please dial (201) 612-7415. The playback reservation number is 137-56092. I would now like to turn the call over to Mauricio Lopez-Hodoyan, Vice President of Investor Relations. Mr. Lopez-Hodoyan, please go ahead. Mauricio Lopez-Hodoyan: Thank you, and good afternoon, everyone. Today's call will include prepared remarks by Cristiano Amon and Akash Palkhiwala. In addition, Alex Rogers will join the question-and-answer session. You can access our earnings release and a slide presentation that accompany this call on our Investor Relations website. In addition, this call is being webcast on qualcomm.com, and a replay will be available on our website later today. During the call today, we will use non-GAAP financial measures as defined in Regulation G, and you can find the related reconciliations to GAAP on our website. We will also make forward-looking statements, including projections and estimates of future events, business or industry trends or business or financial results. Actual events or results could differ materially from those projected in our forward-looking statements. Please refer to our SEC filings, including our most recent 10-K, which contain important factors that could cause actual results to differ materially from the forward-looking statements. And now to comments from Qualcomm's President and Chief Executive Officer, Cristiano Amon. Cristiano Amon: Thank you, Mauricio, and good afternoon, everyone. Thanks for joining us today. In fiscal Q4, we delivered another strong quarter with revenues of $11.3 billion and non-GAAP earnings per share of $3, both of which exceeded the high end of our guidance range. QCT revenues of $9.8 billion, up 9% sequentially were driven by strong end customer demand for Snapdragon-powered premium tier Android handsets, continued traction for automotive Snapdragon Digital Chassis and strength in IoT across industrial, Wi-Fi 7 access point, 5G fixed wireless and smart glasses. In addition, all 3 QCT revenue streams exceeded our expectations including record automotive quarterly revenues in excess of $1 billion. Licensing business revenues were $1.4 billion. Fiscal '25 non-GAAP revenues of $44 billion were up 13% year-over-year, with record QCT annual revenues of $38.4 billion, up 16% year-over-year, including automotive and IoT revenue growth of 36% and 22% year-over-year, respectively. We delivered 18% year-over-year growth in total QCT non-Apple revenues above our prior estimates. We remain on track to achieve our fiscal '29 long-term revenue commitment as outlined at our 2024 Investor Day. I will now share some key highlights from the business. At Snapdragon Summit in September, we introduced our Snapdragon 8 Elite Gen 5 mobile platform for next-generation flagship AI smartphones. This platform is equipped with our custom-built third-generation Oryon CPU, the fastest mobile CPU ever, along with an upgraded NPU and GPU. With the Snapdragon 8 Elite Gen 5, we continue to set the pace of innovation in mobile processors. This year marked our 10th Snapdragon Summit with simultaneous events held in Maui and Beijing, validating the strength of our Snapdragon ecosystem. Leading China OEMs, including Xiaomi, Honor, Vivo and OnePlus announced their flagship phones at our event. More than 1,100 partners, analysts, tech influencers and press attended in person, and our keynotes capture over 26 million unique views across both events. Together with our announcement, Snapdragon Summit generated over 547 million social media impressions. In addition, our Snapdragon Insiders community of tech enthusiasts, developers and fans has grown to more than 20 million members worldwide. Our highly differentiated technology continues to drive increased brand visibility. And during the quarter, Qualcomm debuted at 39 on the Interbrand Top 100 Global Brands list for 2025, reflecting the strength of Snapdragon. And for the first time ever, Kantar's BrandZ most valuable Global Brands list included Snapdragon, where we ranked #38. Also at Summit, we unveiled our newest platforms for premium laptops, the Snapdragon X2 Elite and X2 Elite Extreme. Once again, our industry-leading processors continue to outperform competitors, surpassing Intel and AMD in both speed and power efficiency. Our latest NPU sets a new benchmark as the world's fastest AI engine for laptops, also exceeding Intel and AMD in performance. And with the new Oryon Gen 3, we have the world's first 5-gigahertz CPU for the ultra-mobile laptop category with extended battery life. We now expect approximately 150 designs to be commercialized through 2026 and remain optimistic about the continued momentum for Snapdragon-powered AI PCs. As AI transforms human computer interactions, intelligent wearables and specifically smart glasses are evolving into personal AI devices that can connect the user directly to an AI agent or model. This emerging category is growing at a remarkable pace and has reached an inflection point fueled by very strong demand for smart glasses from Meta. This quarter alone, Meta introduced several new Snapdragon-powered styles, including the Ray-Ban Meta second-generation glasses, the Oakley Meta Vanguard performance glasses and the Meta Ray-Ban display and neural band. In addition to Meta, our leadership in this space is reflected by the 30 designs in production or development with our global partners. They include Samsung, which recently launched Galaxy XR, a truly multimodal AI headset and the first device for Google's new AI native operating system, Android XR. We achieved a significant milestone in automotive with the launch of Snapdragon Ride Pilot, our first full system solution for L2+ automated driving. Developed in close collaboration with BMW, it debuted in the automakers' BMW iX3 EV SUV. Powered by our advanced self-driving software stack, Snapdragon Ride Pilot sets a new standard in automated driving, is designed for universal compatibility and seamless integration with automakers, unlocking L2+ driver assistant features like hands-free highway driving and urban navigation for vehicles worldwide. Snapdragon Ride Pilot is currently validated in 60 countries and extends to 100 in 2026. The broad interest from leading automakers globally is exceeding our expectations. At IAA Mobility, Qualcomm and Google announced an expanded partnership, including the integration of Google Gemini models to our suite of Snapdragon Digital Chassis solutions. Together, we will enable automakers to build and deploy personalized AI agents that act as an in-vehicle assistance, bringing multimodal edge-to-cloud AI to next-generation software-defined vehicles. In industrial IoT, we completed our acquisition of Arduino, a premier opensource hardware and software company with an IoT development ecosystem of more than 30 million users worldwide. This builds on our acquisitions of Edge Impulse and Foundries.io and accelerate our plans to provide a comprehensive edge AI development platform for a broad set of applications. With these new assets, we're expanding our portfolio to a wide range of customers and verticals, further cementing our position as the leader of AI for the edge. Additionally, we recently released the Arduino UNO Q single-board computer, powered by the Dragonwing processor. This full stack edge AI platform enables the rapid development of solutions for applications ranging from smart home automation to industrial robotics, drones and more. AI data center growth is moving from training to dedicated inference workloads, and this trend is expected to accelerate in the coming years. The mass adoption and continuous use of AI applications is driving the industry to look for competitive alternatives that prioritize power-efficient performance and cost. We announced our entry into this market and recently unveiled our AI inference optimized AI200 and AI250 SoCs and associated accelerator cards and racks. We are very pleased to have HUMAIN as our first customer for these solutions with a target deployment of 200 megawatts starting in 2026. Looking ahead, we're executing on a multi-generation road map with an annual cadence. I would like to share that we're looking forward to providing an update in the first half of 2026 on our data center plans, including our roadmap performance and differentiated memory and compute technology. We'll also highlight our progress in other areas, including advanced robotics, next-generation ADAS, industrial edge AI and 6G devices and AI-powered RAN. As we execute on our strategy and expand our IP and capabilities, we believe we are one of the best positioned companies to lead the expansion of AI to the edge, edge-to-cloud hybrid AI and develop a power-efficient cloud inferencing solution. I will now turn the call over to Akash. Akash Palkhiwala: Thank you, Cristiano, and good afternoon, everyone. Let me begin with our fourth fiscal quarter results. We are pleased with our strong non-GAAP performance with revenues of $11.3 billion and EPS of $3, both of which were above the high end of our guidance. QTL revenues of $1.4 billion and EBT margin of 72% were above the midpoint of our guidance, driven by slightly higher handset units. QCT delivered revenues of $9.8 billion and EBT of $2.9 billion with year-over-year growth of 13% and 17%, respectively. QCT EBT margin of 29% was at the high end of our guidance. QCT handset revenues of $7 billion increased 14% on a year-over-year basis, reflecting increased demand for premium Android handsets powered by our Snapdragon Elite Gen 5 platform. QCT IoT revenues of $1.8 billion grew 7% year-over-year, driven by strength across industrial and networking products and increased demand for AI smart glasses powered by our Snapdragon platform. In QCT Automotive, we surpassed $1 billion quarterly revenue milestone, delivering 17% year-over-year revenue growth as the adoption of our Snapdragon Digital Chassis platform continues to accelerate. With the recent enactment of the One Big Beautiful tax bill, we now expect our non-GAAP tax rate to remain in the 13% to 14% range going forward, and we anticipate lower cash tax payments relative to prior expectations. This new legislation resulted in a noncash charge of $5.7 billion in the fourth fiscal quarter to reduce the value of our deferred tax assets. This charge is excluded from non-GAAP metrics but impacts our GAAP results. Before turning to guidance, I'd like to take a moment to highlight our strong performance in fiscal '25. We are incredibly pleased with our execution with non-GAAP revenues of $44 billion and EPS of $12.03, representing year-over-year growth of 13% and 18%, respectively. In QCT, we achieved 16% year-over-year revenue growth, driven by double-digit increases across all revenue streams, with IoT up 22% and automotive growing 36%. We also delivered QCT operating margins of 30%, in line with our long-term target as we have previously outlined. Over the past 5 years, our non-Apple QCT revenues grew at a 15% compounded annual growth rate. Similarly, over the last 2 years, our non-Apple QCT revenues grew by 17% and 18%, respectively. Lastly, we generated record free cash flow of $12.8 billion. And consistent with our commitment, we returned nearly 100% to stockholders through repurchases and dividends through the year. Now turning to guidance. In the first fiscal quarter, we expect to deliver record results with revenues in the range of $11.8 billion to $12.6 billion and non-GAAP EPS of $3.30 to $3.50. In QTL, we estimate revenues of $1.4 billion to $1.6 billion and EBT margins of 74% to 78%. In QCT, we expect record revenues of $10.3 billion to $10.9 billion and EBT margins of 30% to 32%. We anticipate record QCT handset revenues with low teens percentage growth sequentially, primarily driven by new flagship Android handset launches powered by Snapdragon. Following our outperformance for QCT IoT revenues in the fourth quarter, we expect a sequential decline consistent with last year, driven by seasonality in consumer products. In QCT Automotive, following a record fourth quarter, we estimate revenues in the first fiscal quarter to remain flat to slightly up on a sequential basis. Lastly, we forecast non-GAAP operating expenses to be approximately $2.45 billion in the quarter. In closing, as we approach 1 year since outlining our growth strategy at Investor Day, I'd like to provide an update on the progress towards our $22 billion fiscal '29 revenue target across automotive and IoT. In automotive, we've established ourselves as the most strategic silicon partner for OEMs globally. The accelerating adoption of our Snapdragon Digital Chassis platform and 36% year-over-year revenue growth in fiscal '25 puts us on track to achieve our $8 billion revenue target. Across IoT, the increasing importance of artificial intelligence, high-performance, low-power computing and connectivity validated by our 22% year-over-year revenue growth in fiscal '25 reinforces our confidence in achieving our $14 billion revenue target. In Industrial, increasing customer engagement and growth in design win pipeline, combined with our recent acquisitions to unlock access to 30 million users, underlines our confidence in strong revenue growth through the end of the decade. In XR, we're exceeding prior expectations on strong demand for AI smart glasses, and we remain the platform of choice for smart glasses and mixed reality devices across leading global OEMs and ecosystems. In PCs, we extended our technology leadership with the recent launch of Snapdragon X2 Elite and X2 Elite Extreme platforms, which deliver multigenerational performance increases across CPU, GPU and AI. Given our strong pipeline of approximately 150 design wins, we're optimistic about the growth potential for Snapdragon-powered AI PCs as we expand our presence across global consumer and enterprise channels. In networking, our continued innovation and leadership in WiFi, 5G, edge processing and AI, combined with our integrated platform approach positions us to drive content growth and adoption globally. As Cristiano outlined, beyond our revenue target, we're also pursuing incremental opportunities across data center and robotics. Finally, I want to thank our employees for exceptional execution and continuing to deliver industry-leading technologies and products. This concludes our prepared remarks. Back to you, Mauricio. Mauricio Lopez-Hodoyan: Thank you, Akash. Operator, we are now ready for questions. Operator: [Operator Instructions] First question, which will come from the line of Joshua Buchalter with TD Cowen. Joshua Buchalter: Congrats on a stellar set of results in a bumpy backdrop. I wanted to start with the data center business. I realize you're going to provide more details in the first half of 2026, and my questions might get punted as a result. But maybe you could spend a few minutes talking about what you see as Qualcomm's right to win in the data center space? And any details you can provide on the specs of the AI200 and 250 beyond what you were able to offer in the press release when the HUMAIN engagement was announced. And then lastly, on this topic, last quarter, you called out, I believe, a hyperscale engagement. I assume that's distinct from the HUMAIN engagement and any details on timing there? Cristiano Amon: Josh, thanks for your question and thank you. Yes. Look, we're very excited. I think this is the next chapter of, I think, the process we have been in Qualcomm to changing the company, diversifying the company, expanding our IP. I think that's one of the reasons I think we made acquisitions such as Alphawave. We think there are 2 areas that we outlined that we can participate into the data center. We were incredibly excited about the size of the opportunity in the next phase, I think, of data center build-out where there's going to be real competition. We go from training to inference. We have been focused in 2 areas. One is we believe we have one very strategic asset in the industry, which is very competitive, power-efficient CPU. That is both for the head node of AI clusters as well as general purpose compute. And then we also have been building what we think is a new architecture dedicated for inference. I think the focus has been increased computer density and simplify the architecture for the data center in terms of increase, I think, performance per watt. I think it's all going to be about generating the most amount of tokens with the least amount of power, and that's our right to play. We're excited about what we're doing that has been in development. It's something that we're actually doing in a very disciplined manner. We spend a lot of time, I think, with our early experimentation with AI100 to develop the software. And then we're now building AI200, AI250, both the SoC, the card, direct solutions. And I think we're pleased with what we're seeing. We will provide more details on that as you outlined early next year. Specific to your questions, I think we were in discussion with a hyperscaler. We're very pleased with the outcome of that conversation, and that's going to be part of our update when we provide details on the road map, the performance, the KPI, we'll be able to show details of the solution as well as our customer engagement. We are in conversation with a lot of companies. It's clear the market wants competition for this. But in a typical Qualcomm way, we're just going to be focused on executing and show the products performing. Like I said, this is an exciting new chapter of our expansion. And alongside robotics, those are kind of new opportunities for us. Joshua Buchalter: I appreciate all the color there and looking forward to the updates. For my follow-up, I wanted to ask about the handset market. So you highlighted your ongoing momentum in the Android space as driving growth in the fourth quarter -- excuse me, calendar fourth quarter in your prepared remarks. There's been a lot of noise, I think, about your lead Android customer potentially looking to use an internal modem more than they have in recent years. Could you maybe just talk about your visibility into your share at that customer? And any sort of share that you would expect to -- how that you would expect that over the next year or so? Cristiano Amon: Look, thanks for the question. I'm actually -- I want to spend a little bit of time on this because I sense that there's potential for a lot of noise when noise is actually not required. I think, first of all, there is one thing that is happening with our Snapdragon and our premium tier, Snapdragon Android, which has been very consistent, and this is going to happen over the past few years. The premium tier is expanding. I think if you look at the overall market, we have this trend that is very healthy, and the premium tier is expanding and is adding more compute. That is the reason why our Android business, even on a market that is relatively flat, which is the handset market. We continue to grow our content, ASPs and earnings because we see premium tier expanding. A lot of the upside we have in the handsets is primarily driven by the Android premium tier. Second part is our relationship with Samsung. We have said for a number of years -- a number of reasons, and this has been true in the past, I think, several years that what used to be a normal relationship at a 50% share, the new baseline is about 75% share. And that is always going to be our financial assumption. When we out-execute, sometimes we get more than 75%, on Galaxy S25, we got 100%. Our assumption for any new Galaxy is always going to be 75%. That's our assumption for Galaxy S26. Operator: The next question comes from the line of Samik Chatterjee with JPMorgan. Samik Chatterjee: Cristiano, you mentioned the -- on the data center side, starting with that, you mentioned the price performance for the inferencing performance that you're trying to deliver. I mean most of the training clusters that we've sort of seen the other incumbents sort of talk about the ranges of installation cost is somewhere in the sort of $30 billion, $40 billion per gigawatt that we're hearing of. Can you just right size us in terms of when you're thinking about the deployment on a gigawatt basis, what kind of cost performance or price performance are you thinking of relative to these inferencing workloads that you can support on the AI 200 or AI 250? And I'm also trying to get to sort of what revenue implications are for HUMAIN when you sort of deploy 200 megawatts with them? And I have a follow-up, please. Cristiano Amon: Okay. I'm going to try to give as much color as I can without getting ahead of the update we're going to provide next year. So first, let's just have a broader discussion about revenue. What we said before that we expect data center products to start leading to a revenue ramp beginning in fiscal '28. I think as a result of the HUMAIN engagement and our progress on the AI accelerator, I think we're pulling this forward into fiscal '27. So you should expect now from what we said before, I think data center revenue is going to start to become material in fiscal '27. So I think that's the extent of what I can provide at this moment. It's about a 1-year pulling. The second thing is we are getting interest. You should assume that companies, they are having to deploy as much compute as they need in the data center for inference, especially now that you see the constraints that you have on power, the constraints that you have on the amount of computer density. I think we have a lot of folks interested. We were not having conversations if we didn't have a solution that is competitive. But we will show the KPIs of the platform, I think, when we have a road map update early next year. Samik Chatterjee: Okay. Okay. Got it. And maybe the second one, similar to Josh's question. I think, Akash, if I'm interpreting the market's reaction to your strong numbers, there seems to be that concern about what March looks like with the change in share at the primary Android customer. Typically, on the handset side, your quarter-over-quarter decline into March has been sort of this high single-digit pace. Is that still a good run rate with sort of the lower level of share? Or would you sort of guide us otherwise? Because I think that's really what the market seems to be sort of concerned about at this point. Akash Palkhiwala: Yes, Samik, thanks for the question. We're not guiding beyond first quarter at this point. But when you look at our strong business momentum exiting fiscal '25, you see the benefit of that showed up in our results also showing up in the December quarter guidance. And so that carries forward into the rest of the fiscal year. The only additional thing I'd note is just a reminder that we expect to close our Alphawave acquisition in the first calendar quarter of '26. But otherwise, I think the business momentum is strong and just a couple of factors that you outlined. Operator: The next question comes from the line of Timothy Arcuri with UBS. Timothy Arcuri: Akash, when you talked about September, you said that the beat was driven mostly by premium Android, but it seemed like it came a little more from your top customer because before you were saying to take like 30% of units out, and that was like $500 million roughly. But it seems like nowhere near that much came out from that customer. So -- I mean, it was kind of barely down year-over-year. So can you just square that? And then also as part of that, can you speak to how much that customer is as kind of a baseline assumption for December? I think we've seen that the model that has their modem and it's not really selling very well. So I would assume that that's a tailwind for you also in calendar Q4. And then I had a second question. Akash Palkhiwala: Sure, Tim. So as we had said earlier, we expected to be in 3 of the 4 models of the phone that was launched. And so that is exactly what happened. And share, of course, is based on what sell -- how sell-through plays out. Specifically on the September quarter question, we already had kind of demand from the customer that was factored into the guidance we gave. So the upside we saw was not from Apple. It was really driven by Android customers and primarily the premium tier with the launch of our new Snapdragon chip. When you look at the sequential trend as well, as I mentioned, the -- we are forecasting approximately low teens sequential revenue growth in the handset revenue stream for QCT and primarily driven by Android as well. So there is some benefit from Apple, but the primary driver for the growth quarter-over-quarter is actually Android premium tier shipments. Timothy Arcuri: Okay. And then is there any update on the negotiation with Huawei for a license? It seems like it's kind of dragging on a little bit. Can you just talk about that? Alexander Rogers: Yes. This is Alex. Thanks for the question. No, we actually don't have an update now. Discussions are still underway, really nothing substantive to say beyond that. Operator: The next question comes from the line of Stacy Rasgon with Bernstein Research. Stacy Rasgon: So you noted the non-Apple QCT revenue was up 18% year-over-year. And even if I take out the auto and the IoT, it's clear that the Android piece was up like pretty strong double digits year-over-year. So am I right in assuming that's all content or primarily content given I don't think units grew that much. And is that the right sort of pace of like further content increase that we ought to be thinking about as we go forward? Akash Palkhiwala: Yes. So Stacy, you're doing -- obviously doing the math right. There are 2 primary drivers on this. One is just the mix shift of units up. And so this is a trend that we've seen over the last several years, and it's -- sometimes it's thought of as a developed market trend, but that's not true. It's across all developing regions as well. The devices that are purchased continue to move up, and so that shows up in the benefit to our revenue stream. The second trend is within premium tier. Content continues to grow as we deliver more and more capable chips, and more capable handsets are being delivered as a result of it. And those are the 2 primary drivers of kind of the long-term trend of our handset business. Stacy Rasgon: Got it. And if I could have a quick follow-up. Just the Snapdragon Android strength in September and December, is that primarily China? And are there any concerns there? I mean, is that just the timing of the launches? Like any thoughts on pull forward or anything like that. Anything we ought to be thinking about there? Akash Palkhiwala: Yes. No, there's no pull forward there. I think what we've seen is all of our -- most of our China customers, actually, all the major customers have already launched devices and the initial reception to the devices have been very positive. We'll see a lot of our global customers launch devices as well later this quarter going into early next year. And so it's just a reflection of kind of normal purchase patterns around the launch of these devices and the great initial consumer reaction to the launches. Operator: The next question is from the line of Chris Caso with Wolfe Research. Christopher Caso: And a question again on AI data center. And I realize you're going to provide some details coming up, but there's some specs out there, so -- which is why we ask. But from what we've seen what was in the press release was perhaps a different architecture than what we've seen others attack the market with DDR memory, PCI Express in that. Should we interpret that as sort of a first approach by Qualcomm with more to come? Or is this rather a different sort of philosophy for attacking the market? You talked about being more efficient on power consumption. Is this sort of a different -- attacking the market differently than what's in the market today? Cristiano Amon: I think the answer to the question is yes. For us, I think we're approaching this thinking about what the future architecture should look like. We had said before, and I think that's -- we have thought about this for the edge as well, which means when we think about dedicated inferencing clusters and the goal is to actually have the highest possible computer density at the lowest possible cost and energy consumption to generate tokens, we thought that maybe an architecture that is beyond the GPU and what you've traditionally been doing with GPU and HBM is what we should be doing. That's we're developing and we have to execute, and that's the focus on the company right now. Christopher Caso: Got it. With -- just back on handsets. And you talked about a mix shift towards the premium tier. To what extent has the growth that you've seen in handsets been driven by Snapdragon ASPs? And obviously, wafer prices are going up as you go to finer geometries. Maybe talk about the impact of higher ASPs on handset growth, both now and going forward and how the industry absorbs those higher ASPs? Akash Palkhiwala: Yes. So I think there's a long-term trend that we've seen. This is a conversation that we have every year, but we continue to see just very strong demand for more capable chips, more capable processing in these premium tier chips. And so the competition between the OEMs drives it, the demand for consumers doing more activity on the phone drives it. And we know the next couple of chips that we are making, and we're already in discussions, advanced discussions with our customers. So we feel pretty confident that there are legs to this trend over the next several years. The second factor that I outlined is important to keep in mind as well is this very significant mix shift towards more premium devices. And that's not about content growth within the tier, but it's more about more capable devices being purchased by consumer. And that is a multiyear trend as well that we're continuing to see going forward. Operator: The next question is from the line of Tal Liani with Bank of America. Tal Liani: If I look at this quarter, you grew handsets by 14% and it looks like next quarter, you're guiding again 600 basis points of above market growth or above market expectations for QCT. When you look at next quarter, what are the components of this outperformance? Do you -- can you go over kind of IoT, autos and handsets? Where do you think you can perform better than you initially thought last quarter, et cetera? Can you give us a little bit of a color on how next quarter is behaving of the QCT breakdown? Akash Palkhiwala: Tal, just to confirm, your question is about the December quarter, first fiscal quarter? Tal Liani: Yes, first fiscal quarter, sorry. The question is about the guidance for next quarter. Yes. Akash Palkhiwala: Yes, perfect. So in -- specifically in automotive, we had a record quarter in September, so $1.1 billion -- approximately $1.1 billion, and we are guiding flat to slightly up in automotive. We do think that we're in this very strong position as additional cars get launched with our capabilities in them, we will continue to grow revenue through the year. IoT is similarly positioned, right? We saw significant upside relative to our guidance within the September quarter, and we are positioned to continue to grow revenue starting first quarter going into the rest of the fiscal year as well. Within handsets, the upside that you're seeing in the December quarter is really the success of our launch of our new chip. We've seen all the major OEMs launch devices with it. As I said earlier, strong consumer reaction, and that is reflected in our financial forecast. On a sequential basis, as I mentioned earlier, we are forecasting a low teens sequential revenue growth in the handset stream in QCT. Tal Liani: And my follow-up is on a -- like historical perspective, when you launch a product into China and it's into the New Year's -- the Chinese New Year, et cetera, is first fiscal quarter the strongest quarter? What happens from a seasonality point of view, what happens for the next few quarters from a historical perspective? Akash Palkhiwala: I mean, as you've seen in the past, we expect our first fiscal and second fiscal quarters to be the stronger quarters in the year. And usually, the June quarter, the third fiscal quarter is a lower quarter. So that's -- seasonality should be consistent with what you've seen before in the handset business. Operator: The next questions come from the line of C.J. Muse with Cantor Fitzgerald. Christopher Muse: I wanted to kind of focus on QCT EBT margins and revenues grew 5% year-on-year, yet margins were down 100-plus bps. And I'm curious, is that a function of mix? Or is that a function of higher manufacturing costs? Or is it simply R&D investments for future revenue growth? Akash Palkhiwala: Yes. I think when you look at the year-over-year trend, I think you should think of we are investing in the data center area, which over the last several years, we've been kind of just focusing OpEx on moving from mature businesses into growth areas. Data center is incremental to the investment profile that we have. Christopher Muse: Okay. It's very helpful. And then I guess just to hone in on your non-Android handset business. Is there an update in terms of how we should model that for calendar '26? Akash Palkhiwala: No change to what we've said on share within Apple versus what we've said in the past. Operator: The next question comes from the line of Ben Rises with Melius Research. Benjamin Reitzes: Just wanted to touch back on the data center event, you said you're going to be updating us in the next calendar year. Previously, you had an Analyst Day where you've put out these long-term targets for FY '29. I would assume that the smallest opportunity was in XR at $2 billion. I would assume if we're going to have an event and go through something like this, this has the opportunity to be something pretty material, bigger than the smallest opportunity outlined at the last Analyst Day, that was $2 billion for XR by '29 and more like another multibillion opportunity. Can you just -- can you guys clarify that? Akash Palkhiwala: Yes, Ben, that's a great observation. I think we're seeing this market take off very fast, especially AI smart glasses. And so we definitely feel like we're significantly ahead of the guidance that we had provided and very significant upside opportunity. I mean if you kind of step back and think about the broader opportunity around personal AI, and you could think of it as the glasses form factor or the watch form factor or hearables form factor, this could be a very, very large market. And so if that plays out as we suspect it might, it will create significant upside opportunity. Benjamin Reitzes: Yes. Sorry, just to clarify, though, my question, I appreciate that is that if you're going to outline the data center opportunity and have a special event, should we assume that it's a multibillion opportunity, something that you would call out that's at least as big, if not bigger, than anything you laid out at your last Analyst Day, which is the smaller opportunities are $2 billion to $4 billion. Cristiano Amon: Ben, now -- thanks for the question. I understand it now. Yes, it's upside on that number and success in this area, I think, presents to us a potential multibillion-dollar revenue opportunity in a couple of years, and that's how we're thinking about it right now. Operator: That concludes today's question-and-answer session. Mr. Amon, do you have anything further to add before adjourning the call? Cristiano Amon: I just want to thank all of our partners, our employees, and we are continuing to change Qualcomm into a very diversified company. We're probably one of the few companies among all the semiconductor companies that can go from 5 watts to 500 watts with very flexible and very broad technology capabilities. I think one thing that we take pride of in every industry that we enter, we have a platform that is a leading technology platform, and we're excited about the future of the company, and we're just going to keep executing on this strategy. Thank you very much for supporting our call. Operator: Ladies and gentlemen, this concludes today's conference call. You may now disconnect.